Dean v. Seco Elec. Co.

• Decision Date: 02 March 1988
• Docket Number: No. 87-414,87-414
• Citation: 35 Ohio St.3d 203,519 N.E.2d 837
• Parties: , 29 Wage & Hour Cas. (BNA) 772, 109 Lab.Cas. P 55,894, 114 Lab.Cas. P 56,178, 19 A.L.R.5th 1088 DEAN; Echard et al., Appellees, v. SECO ELECTRIC COMPANY; Fidelity & Deposit Company of Maryland, Appellant.
• Court: Ohio Supreme Court

Page 203

35 Ohio St.3d 203

519 N.E.2d 837, 29 Wage & Hour Cas. (BNA) 772,

109 Lab.Cas. P 55,894, 114 Lab.Cas. P 56,178,

19 A.L.R.5th 1088

DEAN; Echard et al., Appellees, v. SECO ELECTRIC COMPANY; Fidelity & Deposit Company of Maryland, Appellant.

No. 87-414.

Supreme Court of Ohio.

March 2, 1988.

Syllabus by the Court

1. In the absence of an express provision to the contrary, a surety's liability upon a labor and material payment bond is limited to payment for labor and material only and does not extend to liability for the statutory penalty, attorney fees, and costs for violation of the prevailing wage statute.

2. A surety is not liable for a penalty assessed against its principal for the wrongful acts of the principal where there has been no showing that the surety ratified the principal's wrongful acts or that the surety is guilty of actual malice, fraud, or oppression.

The stipulated facts indicate that, on December 20, 1982, Seco Electric Company ("Seco") entered into a contract with Mansfield General Hospital for the construction of an addition to the hospital. The contract required Seco, as the contractor, to make payment to its employees in accordance with the prevailing wages established by the Ohio Department of Industrial Relations. The stipulations additionally provided that Seco was also required to give sufficient bond for the payment of all indebtedness which might accrue to any person on account of any labor performed or material furnished in the performance of the contract. Appellant, Fidelity & Deposit Company of Maryland ("F & D"), as surety, provided Seco with such a labor and material payment bond.

On or about September 1984, the Director of Industrial Relations determined that Seco had failed to pay Tim Dean ¹ and eight other employees all the wages to which they were entitled under the prevailing wage statute. All nine then filed suit against Seco and F & D seeking the underpaid wages and penalties as provided in R.C. 4115.10. ² Default judgments were entered against Seco for the amount of the unpaid wages, attorney fees, costs and a penalty equal to the difference between the fixed rate of wages and the amount paid to the employees, appellees herein. Seco did not pay these judgments. The employees' actions against F & D were then consolidated for trial.

F & D did not dispute that it owed the amount of the "straight time" wages under the labor and material payment bond, but argued that, as a surety, it was not liable for any penalty imposed on Seco. The trial court agreed, finding that, under the terms of the bond, the employees were not entitled to recover the penalty provided for in R.C. 4115.10 from F & D and entered judgment accordingly. The court of appeals reversed and remanded, finding that, because F & D had agreed to be liable for sums "justly due" the claimants, it had agreed to act as a surety for all penalties imposed against Seco.

The cause is now before this court pursuant to the allowance of a motion to certify the record.

Rolland E. Laughbaum, Galion, for appellees.

McNamara & McNamara, Keith McNamara, John J. Petro and Denise Smith Golonka, Columbus, for appellant.

Anthony J. Celebrezze, Jr., Atty. Gen., Columbus, and Douglas R. Folkert, New Philadelphia, urging affirmance for amici curiae, James W. Harris, Director, Ohio Dept. of Industrial Relations, et al.

Zellmer & Gruber, Bingham W. Zellmer and John M. Manos, Cleveland, urging reversal for amicus curiae, American Ins. Ass'n.

MOYER, Chief Justice.

This is a case of first impression requiring us to determine whether a surety, in addition to its duty to pay unpaid wages under its labor and material payment bond, is also liable for the penalty provided in R.C. 4115.10, a sum equal to the unpaid wages as well as reasonable attorney fees and costs. For the reasons stated below, we hold that a surety is not liable for such penalties, attorney fees, and costs, and accordingly reverse the judgment of the court of appeals.

The labor and material payment bond provided to Seco by F & D included the following provisions:

"NOW, THEREFORE, THE CONDITION OF THIS OBLIGATION is such that, if Principal shall promptly make payment to all claimants as hereinafter defined, for all labor and material used or reasonably required for use in the performance of the Contract, then this obligation shall be void; otherwise it shall remain in full force and effect, subject, however, to the following conditions:

"1. A claimant is defined as one having a direct contract with the Principal or with a sub-contractor of the Principal for labor, material, or both, used or reasonably required for use in the performance of the contract, labor and material being construed to include that part of water, gas, power, light, heat, oil, gasoline, telephone service or rental of equipment directly applicable to the Contract.

"2. The above named Principal and Surety hereby jointly and severally agree with the Owner that every claimant as herein defined, who has not been paid in full before the expiration of a period of ninety (90) days after the date on which the last of such claimant's work or labor was done or performed, or materials were furnished by such claimant, may sue on this bond for the use of such claimant, prosecute the suit to final judgment for such sum or sums as may be justly due claimant, and have execution thereon. The Owner shall not be liable for the payment of any costs or expenses of any such suit."

It has long been the law in Ohio that a "surety is entitled to stand upon the letter of his undertaking, including his designations of the persons who may become his creditors." Black v. Albery (1914), 89 Ohio St. 240, 246, 106 N.E. 38, 40, citing Stone v. Vance (1833), 6 Ohio 246; Taylor v. Wetmore (1841), 10 Ohio 490; Clinton Bank of Columbus v. Ayres & Neil (1847), 16 Ohio 283, Knox County Bank of Mount Vernon v. Lloyd's Admrs. (1868), 18 Ohio St. 353. "A bond is a contract and, in the absence of some controlling statute, is to be construed according to the fair import of the language used." Cusack v. McGrain (1939), 136 Ohio St. 27, 29, 15 O.O. 532, 533, 23 N.E.2d 633, 635. A surety, then, will generally not be liable beyond the terms of the contract. See Walsh v. Miller (1894), 51 Ohio St. 462, 38 N.E. 381.

An examination of the language of the labor and material bond in the present case indicates that F & D agreed to act as a surety for all debts incurred for labor and materials only. The bond states that F & D's obligation arises only if Seco does not make payment " * * * for all labor and material used or reasonably required for use in the performance of the Contract * * *." Further, a claimant is defined as "one having a direct contract with the Principal * * * for labor, material, or both * * *." Finally, the bond states that a claimant " * * * who has not been paid in full * * * may sue on this bond for the use of such claimant, prosecute the suit to final judgment for such sum or sums as may be justly due claimant * * *."

The court of appeals, in reaching its decision, emphasized the words "sum or sums as may be justly due claimant." The court interpreted these words to include any additional amounts due employees under R.C. 4115.10 for the employer's failure to pay prevailing wages. Such an interpretation disregards the entire language of the bond. By the terms of the bond, F & D was bound only to pay for labor and materials used. The additional amounts sought pursuant to R.C. 4115.10 are not wages and are not labor and materials used or reasonably required for use in the performance of the contract to build the hospital addition. F & D, therefore, cannot be liable for the penalty, attorney fees, or costs imposed by operation of R.C. 4115.10.

R.C. 4115.10 is penal in nature, and it must therefore be strictly construed. Clymer v. Zane (1934), 128 Ohio St. 359, 191 N.E. 123. The statute refers to persons, firms, corporations, or public authorities engaged in the construction of public improvements. It specifically provides that such employers are liable for the statutory penalty, attorney fees, and costs for their failure to pay prevailing wages. Nowhere in the statute is there any reference to the obligations of sureties. In the absence of any statutory obligations, the sureties' duties are governed by contract. As noted above, the labor and material payment bond in this case does not cover claims for the statutory penalty, attorney fees, and costs awarded for violations of the prevailing wage statute.

Our conclusion is supported by the general principle that punitive damages are not recoverable against a surety unless the act of the principal was authorized, participated in, or ratified by the surety. See Vicario v. Jenkins (1958), 108 Ohio App. 49, 9 O.O.2d 111, 155 N.E.2d 488; Cahill v. Fid. & Cas. Co. (1930), 37 Ohio App. 444, 175 N.E. 39; Restatement of the Law, Security (1941), Sections 195 and 198; Annotation, Liability of Surety on Private Bond for Punitive Damages (1980), 2 A.L.R. 4th 1254. Here, F & D was acting in no other capacity than as a surety. It did not authorize, participate in, or ratify the failure of the principal, Seco, to pay prevailing wages. It had no control or influence over Seco. There has been no allegation that F & D is guilty of actual malice, fraud, or oppression. See Suver v. Personal Service Ins. Co. (1984), 11 Ohio St.3d 6, 11 OBR 5, 462 N.E.2d 415. Imposition of the statutory penalty upon sureties such as F & D would thus not serve the purpose of the statute that the General Assembly intended: to...