Bank of Brewton, Inc. v. INTERN. FIDELITY INS. COMPANY

• Decision Date: 15 February 2002
• Parties: BANK OF BREWTON, INC. v. INTERNATIONAL FIDELITY INSURANCE COMPANY. Akers Group International, Inc. v. Bank Of Brewton, Inc., and Jerry Kelly, Sr.
• Court: Alabama Supreme Court

827 So.2d 747

BANK OF BREWTON, INC. v. INTERNATIONAL FIDELITY INSURANCE COMPANY.

Akers Group International, Inc. v. Bank Of Brewton, Inc., and Jerry Kelly, Sr.

1055.

Supreme Court of Alabama.

February 15, 2002.

Edward C. Greene of Frazer, Greene, Upchurch & Baker, L.L.C., Mobile; and John L. Jernigan III of Stokes, Jernigan & Stokes, Brewton, for appellant/cross-appellee Bank of Brewton, Inc.

Thomas L. Selden of Starnes & Atchison, L.L.P., Birmingham, for appellee/cross-appellant International Fidelity Insurance Company.

Thomas Richelo of Richelo, Morrissey, Storrs & Wright, P.C., Atlanta, Georgia; and Robert S. Presto of Caffey, Presto & Associates, P.C., Brewton, for appellee/cross-appellant Akers Group International, Inc.

SEE, Justice.

The Bank of Brewton ("the Bank") hired Akers Group International, Inc. ("Akers"), to renovate the Bank's main office in Brewton, Alabama. On December 12, 1991, the Bank and Akers executed a "Project Management Agreement" and a "Supplement to Project Management Agreement" detailing the renovations to be done and the manner and time of their completion. Akers enlisted International Fidelity Insurance Company ("IFIC") to issue a performance and payment bond on its behalf. The bond detailed what would constitute a default in the performance and how the parties would deal with a default, should one occur. The language in the bond was the standard language used by the American Institute of Architects in performance bonds.

The performance bond, to which Akers, the Bank, and IFIC were parties, stated, in relevant part:

"3) If there is no Owner Default, the Surety's obligation under this Bond shall arise after:

"3.1 The owner [the Bank] has notified the Contractor [Akers] and the Surety [IFIC] at its address described in Paragraph 10 below that the Owner is considering declaring a Contractor Default and has requested and attempted to arrange a conference with the Contractor and the Surety to be held not later than fifteen days after receipt of such notice to discuss methods of performing the Construction Contract. If the Owner, the Contractor and the Surety agree, the Contractor shall be allowed a reasonable time to perform the Construction Contract, but such an agreement shall not waive the Owner's right, if any, subsequently to declare a Contractor Default; and

"3.2 The Owner has declared a Contractor Default and formally terminated the Contractor's right to complete the contract. Such Contractor default shall not be declared earlier than twenty days after the Contractor and the Surety have received notice as provided in Subparagraph 3.1; and "3.3 The Owner has agreed to pay the Balance of the Contract Price to the Surety in accordance with the terms of the Construction Contract or to a contractor selected to perform the Construction Contract in accordance with the terms of the contract with the Owner."

Akers began work on the Bank in January 1992. On June 17, 1992, the Bank president, Jerry M. Kelly, Sr., wrote to Akers and IFIC that the Bank was considering declaring a contractor default because he believed that Akers had failed to comply with certain provisions of the project management agreement. In the letter, Kelley called a meeting of the Bank, Akers, and IFIC, within 15 days, as provided in paragraph 3.1 of the performance bond. The meeting among representatives of the Bank, Akers, and Tatum Bonding & Insurance, Inc. (as a representative of IFIC), took place on June 25, 1992.

The Bank contended that Akers was not complying with the project management agreement because, it said, Akers was not seeking prior approval for the materials and the fixtures it was installing in the Bank. Akers contended that the Bank was delaying the project by failing to make choices regarding the materials called for under the agreement or frequently changing its mind after Akers had acted on the Bank's choices. After the meeting the parties decided that Akers should continue with the construction.

In August 1992, the Bank began withholding payments from Akers. On September 24, 1992, Kelly wrote James Tatum of Tatum Bonding, stating that

"[t]he bank has contended that the contractor is in default for, among other things, failing to get owner approval on contract documents, drawings, furnishings, etc.... The bank is concerned that... the contractor may not be able, from a financial standpoint, to complete the contract. If this occurs, the bonding company will be called on to complete the contract. The bank requests the bonding company's guidance as to releasing the remaining funds due under the contract."

Kelley sent IFIC a copy of the letter he had sent to Tatum. IFIC wrote the Bank seeking clarification of the Bank's allegations. IFIC pointed out that, although the Bank seemed to allege in its letter that a contractor default had occurred, the Bank had not filed a notice of default as required under the performance bond. IFIC asked the Bank to clarify immediately the status of the project. On October 14, 1992, the Bank wrote IFIC asking, "What constitutes a contract default? How is contractor default notice given to the surety?" On October 29, 1992, the Bank again wrote to IFIC noting that Akers and the Bank had met on June 25, 1992, to discuss the construction project, that the parties decided at that time that Akers should continue with the project, that since the June 25 meeting numerous change orders had been submitted and numerous letters had been exchanged between the parties, and that the Bank had responded to all correspondence. The October 29, 1992, letter to IFIC continued:

"The bank still believes that they are not being provided with the quality of work and material and the furnishings specified in the construction documents. The purpose of this letter is to notify you, the bonding company, of the contractor's default referred to herein.... [D]emand has been made on the contractor and a deadline of ten (10) days was given within which to provide the items requested. Please be advised that should the contractor refuse the owner's request or fail to provide the construction requested within the time deadline, then the Bank of Brewton shall call on [IFIC] to assume the completion of the renovation construction project referred to above."

The Bank's actions, however, belied its words, because on November 11, 1992, the Bank allowed the project architect to certify that the work under the contract was substantially complete as of November 10, 1992.

After numerous other letters were exchanged, IFIC sent the Bank a letter dated April 30, 1993, stating that IFIC had not received a formal termination notification from the Bank, and that, therefore, the surety had no obligation with respect to the dispute between the Bank and Akers. The Bank then sent IFIC a letter dated May 20, 1993, that did not address whether the Bank had formally terminated the contract with Akers, but did advise IFIC that the Bank intended to file an action against IFIC after the Bank and Akers had resolved their dispute.

During this exchange of letters between the Bank and IFIC, Akers, on November 25, 1992, sued the Bank in the United States District Court for the Southern District of Alabama, alleging breach of contract. That case was voluntarily dismissed without prejudice so that Akers and two of its subcontractors could file complaints in the Circuit Court of Hinds County, Mississippi (where Akers's offices are located and where the project management agreement was executed), which they did on February 17, 1993, alleging breach of contract, damages for additional work preformed over and above the requirements of the contract, intentional wrong, insult and abuse necessitating punitive damages, defamation by libel and slander, intentional tortious interference with contractual or business relations, and conversion. The Bank answered in the Mississippi case and moved for a summary judgment; the trial court denied the summary-judgment motion on July 31, 1996.

Then, on November 15, 1996, nearly four years after Akers had filed its action in Mississippi, the Bank sued Akers, G.A. West & Co., Inc. (an Alabama company that was one of Akers's subcontractors), and IFIC in the Escambia Circuit Court, seeking damages for breach of contract. Akers and the subcontractor answered and counterclaimed, asserting the same claims they had raised in their Mississippi action and reserving their right to proceed in the Mississippi case. Akers also asserted a conversion claim against Jerry Kelly, Sr., president of the Bank. On May 3, 2000, IFIC moved for a summary judgment, arguing that there was no genuine issue of material fact as to IFIC's liability as surety under the performance and payment bond, and stating that IFIC was entitled to a judgment as a matter of law.

On August 2, 2000, the Bank moved for a summary judgment in the Escambia Circuit Court case on Akers's counterclaims under Mississippi law seeking punitive damages and attorney fees and alleging libel, slander, and conversion. Kelly also moved for a summary judgment on the single claim brought against him for conversion. Although the pretrial-motion hearing was scheduled for September 7, 2000, the materials in support of the Bank's and Kelly's motions for a summary judgment were not served by mail until August 29, 2000, and did not reach Akers's attorneys until Friday, September 1, 2000.

The Escambia Circuit Court granted IFIC's motion for a summary judgment on September 27, 2000, and, on November 18, 2000, certified that judgment as a final appealable judgment pursuant to Rule 54(b), Ala. R. Civ. P. Also on September 27, 2000, the trial court entered a partial summary judgment in favor of the Bank as to Akers's punitive-damages and attorney-fee claim, the libel and slander claims, and the conversion claim, and entered a summary judgment in favor of Kelly on Akers's claim of conversion. The Bank appealed the summary judgment for IFIC and Akers...