Camelot Excavating Co., Inc. v. St. Paul Fire and Marine Ins. Co.
| Decision Date | 03 February 1981 |
| Docket Number | Docket No. 62978,No. 14,14 |
| Citation | 301 N.W.2d 275,410 Mich. 118 |
| Parties | CAMELOT EXCAVATING COMPANY, INC., a Michigan Corporation, Plaintiff-Appellant, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY, a foreign corporation,Defendant-Appellee, v. PRIESTLY CONTRACTING, INC., a Michigan Corporation, Darrel G. Priestly andCharles L. Langs, Jointly and Severally, Third Party Defendants. Calendar410 Mich. 118, 301 N.W.2d 275 |
| Court | Michigan Supreme Court |
Richard A. Lenter, Southfield, Mich., for plaintiff-appellant.
Stephen M. Landau, P. C., Southfield, Mich., for defendant-appellee.
Plaintiff Camelot Excavating Company (hereafter Camelot) brought action against defendant St. Paul Fire and Marine Insurance Company (hereafter St. Paul) to recover payment on a labor and materials bond. Camelot was a subcontractor of third-party defendant Priestly Contracting, Inc. (hereafter Priestly). Priestly was named as principal on the bond. Defendant St. Paul moved for accelerated judgment on the basis of a one-year period of limitations contained in the bond contract. 1 Plaintiff Camelot brought a motion for summary judgment under GCR 1963, 117.2(3). 2 Camelot's motion was granted; St. Paul's motion was denied.
St. Paul appealed to the Court of Appeals. The Court reversed on grounds that the one-year limitations period did apply so as to preclude Camelot's third-party claim under the bond. 89 Mich.App. 219, 280 N.W.2d 491 (1979). We granted leave to appeal. 406 Mich. 1009 (1979).
We must resolve two questions presented by the parties: (1) whether the bond contract negotiated by the principal, Priestly, and surety, St. Paul, to insure claims against labor and material for the benefit of a third party can subject plaintiff Camelot to a limitation period which is shorter than that created by the Legislature; and (2) whether the form of bond used in this state in this case and in other states throughout the United States which makes reference to statutes of limitations within the particular state where it is used is ambiguous.
We hold that neither public policy nor existing authority prohibit private contracting parties from including in a labor and materials payment bond a provision which reasonably limits claimants to a period within which to bring suit that is shorter than the applicable state statute of limitations. We further find that the form of contract used in this case is clear on its face. The contractual exception clause to the one-year limitation provision is relevant only where state statutes prohibit shorter than statutory limits. Thus, this clause does not apply to preclude the one-year provision in this case. The Court of Appeals is therefore affirmed.
On April 8, 1973, defendant Priestly, general plumbing contractor for a private apartment construction project, contracted with defendant St. Paul to obtain a required labor and materials payment bond. The bond provided that St. Paul, as surety, would pay claims made by subcontractors of Priestly, as principal, where the subcontractor had not been paid in full within 90 days of the completion of the subcontractor's work. The bond was primarily intended to protect the owner of the project, Village Homes, Inc., against mechanic's lien claims which might accrue over the course of building construction. Priestly entered into a subcontract with Camelot for certain excavation work. The claims intended to be secured were those of subcontractors such as plaintiff Camelot.
As subcontractor, Camelot completed the excavation work pursuant to its contract with Priestly. The construction proceeded until April, 1974, when defendant Priestly abandoned the project. Priestly gave no notice to Camelot that it was leaving the project. At that time, the balance due for the work Camelot had provided was $18,848.
Camelot brought suit against Priestly and recovered a default judgment for the amount owing. Then, on August 26, 1976, plaintiff separately sued defendant St. Paul on the bond. St. Paul interposed the defense that the contract barred Camelot's suit on the basis of the one-year limitation clause contained in the bond contract.
The learned trial judge held that the qualifying language in regard to prohibition of private limitation periods by the state limitations statute rendered the contract provision ambiguous and therefore rejected the asserted defense against plaintiff's claim. On appeal, the Court of Appeals reversed. It found no ambiguity in that the qualifying provision proscribed a shorter limitation than the statutory period only where prohibited by law. The Court of Appeals determined that Michigan's general statutory limitation provision does not prohibit shorter contractual limitations on suits pertaining to private construction bonds. Consequently, the limitation provision was a valid defense to plaintiff's suit.
Absent any statute to the contrary, the general rule followed by most courts has been to uphold provisions in private contracts limiting the time to bring suit where the limitation is reasonable, even though the period specified is less than the applicable statute of limitations. The Tom Thomas Organization, Inc. v. Reliance Ins. Co., 396 Mich. 588, 592, 242 N.W.2d 396 (1976). See also Barza v. Metropolitan Life Ins. Co., 281 Mich. 532, 538, 275 N.W. 238 (1937); Turner v. Fidelity & Casualty Co. of New York, 112 Mich. 425, 427, 70 N.W. 898 (1897).
This rule has been held to apply in contracts bonding the performance of building or construction projects. See Burlew v. Fidelity & Casualty Co. of New York, 64 F.2d 976, 977 (CA 6, 1933), cert. den. 290 U.S. 686, 54 S.Ct. 122, 78 L.Ed. 591 (1933); Adams v. Standard Accident Ins. Co., 124 Cal.App. 393, 12 P.2d 464 (1932); Cook v. Heinbaugh, 202 Iowa 1002, 1003-1004, 210 N.W. 129 (1926); Lesher v. United States Fidelity & Guaranty Co., 239 Ill. 502, 511, 88 N.E. 208 (1909); McGarry v. Seiz, 129 Ga. 296, 299, 58 S.E. 856 (1907); Ausplund v. Aetna Indemnity Co., 47 Or. 10, 22, 81 P. 577 (1905), reh. den. 47 Or. 23, 82 P. 12 (1905). See also Anno: Validity of Contractual Time Period, Shorter than Statute of Limitations, for Bringing Action, 6 A.L.R.3d 1197; Anno: Validity of Contractual Limitation of Time for Bringing Action, 121 A.L.R. 758.
The boundaries of what is reasonable under the general rule require that the claimant have sufficient opportunity to investigate and file an action, that the time not be so short as to work a practical abrogation of the right of action, and that the action not be barred before the loss or damage can be ascertained. See Page County v. Fidelity & Deposit Co of Maryland, 205 Iowa 798, 216 N.W. 957 (1927); Cook v. Northern Pacific R. Co., 32 N.D. 340, 155 N.W. 867 (1915); Sheard v. United States Fidelity & Guaranty Co., 58 Wash. 29, 107 P. 1024 (1910), reh. den. 58 Wash. 37, 109 P. 276 (1910).
In the instant case, the bond secured claims for labor and materials brought by subcontractors in plaintiff Camelot's position. However, the primary object of the bond contract was to protect the owner, Village Homes, Inc., against such claims:
"The purpose and only purpose of a labor and materials payment bond is to protect the owner against the claims of those who furnish labor and materials to the contractor because, if he fails to pay these bills, mechanics liens can be filed against the owner and payment enforced even though the owner had no direct dealing with the labor and materialmen." Standard Accident Ins. Co. of Detroit v. Rose, 314 Ky. 233, 238, 234 S.W.2d 728 (1950).
Camelot was not a party to the payment bond. Rather, this contract was negotiated between the principal, general contractor Priestly, and the surety, St. Paul. Upon completing and excavation work in accordance with its labor and materials contract with Priestly, and not being fully paid, Camelot became a third-party creditor beneficiary under the bond. See 1 Restatement Contracts, §§ 133, 139, pp. 151-152, 165. The parties agreed:
Normally, where no shorter contractual period of limitation exists, the Michigan statute of limitations specifies a six-year period for bringing suits on contract. M.C.L. §§ 600.5807(8), 600.5813; M.S.A. §§ 27A.5807(8), 27A.5813. Plaintiff Camelot asserts that it should not be restricted by a contractual limitation as it was not a party nor did it have actual knowledge of its contents. Camelot urges that the general statute of limitations should apply to its right of action.
No authority exists in Michigan which speaks directly to the question whether legal principles prohibit the enforcement against plaintiff subcontractor of a one-year limitations provision in a labor and materials payment bond negotiated between a general contractor and surety for the primary benefit of third party owner. However, other jurisdictions have addressed this specific question and we find their views persuasive. The rule adopted by most of these jurisdictions allows the contractual limitations provision to control any third-party subcontractor's action, even though the subcontractor was not a party to the bond and was not aware of its contents until after the limitation period had run.
In California, the Court of Appeals reached this conclusion in relation to a bond provision identical to the one considered in the instant case. Sanders v. American Casualty Co. of Reading, Pennsylvania, 269 Cal.App.2d 306, 74 Cal.Rptr. 634 (1969). 3 In Sanders, a materials supplier sued on a subcontractor's bond to recover the amount due...
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