Dow-Par, Inc. v. Lee Corp., DOW-PA

• Decision Date: 12 December 1994
• Docket Number: DOW-PA,INC,No. 49A04-9310-CV-372,49A04-9310-CV-372
• Citation: 644 N.E.2d 150
• Parties: , Appellant-Plaintiff, v. The LEE CORPORATION, Construction Design of Indiana, Inc., and United States Fidelity and Guaranty Company, Appellees-Defendants.
• Court: Indiana Appellate Court

Page 150

644 N.E.2d 150

DOW-PAR, INC., Appellant-Plaintiff, v. The LEE CORPORATION, Construction Design of Indiana, Inc. and United States Fidelity and Guaranty Company Appellees-Defendants.

No. 49A04-9310-CV-372.

Court of Appeals of Indiana Fourth District.

Dec. 12, 1994.

Rehearing Denied Jan. 24, 1995.

Transfer Denied May 4, 1995.

Dawn E. Wellman, Brand & Allen, Greenfield, for appellant.

Dean T. Barnhard, Barnes & Thornburg, Indianapolis, for appellees.

OPINION

RILEY, Judge.

Plaintiff-Appellant Dow-Par, Inc., appeals from a summary judgment in favor of Defendants-Appellees the Lee Corp., Construction Design of Indiana, Inc., and United States Fidelity and Guaranty Company.

We affirm.

ISSUES ¹

We address the following issues:

1. Does IND.CODE 36-1-12-13.1 (1993) give a lessor of equipment to a subcontractor the right to assert a claim under a statutorily required payment bond?

2. Notwithstanding I.C. 36-1-12-13.1, does a lessor of equipment to a subcontractor have an actionable claim pursuant to the terms of the contractor's payment bond?

FACTS

In May, 1990, the Town of Fishers, Indiana, entered into a contract with the Lee Corporation (Lee) to act as general contractor for the building of the Fishers Town Complex (Fishers Complex). In compliance with I.C. 36-1-12-13.1, Lee secured a Labor and Material Payment Bond (the Bond) from United States Fidelity and Guaranty Company (USF & G) which provides, in part, that Lee and USF & G

hereby jointly and severally agree with the [Town of Fishers] 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.

(R. 158). Claimants are defined as "one having a direct contract with the Principal, or with a sub-contractor of the Principal for ... rental of equipment directly applicable to the contract." Id. Payment to claimants under the Bond is limited by the following provision:

The amount of this bond shall be reduced by and to the extent of any payment or payments made in good faith hereunder, inclusive of the payment by Surety of mechanics' liens which may be filed of record against said improvement, whether or not claim for the amount of such lien be presented under and against this bond.

Id.

In June, 1990, Lee subcontracted with Construction Design of Indiana, Inc. (CDI) to provide earth moving services on the Fishers Complex construction site. The agreement provided that Lee would pay CDI $235,053.00 for the performance of the subcontract.

CDI entered into a series of equipment leases with Dow-Par, Inc. (Dow-Par), an Indiana corporation which buys, sells, and leases construction equipment. None of the rental agreements specified a particular project site at which CDI would operate the leased equipment; however, CDI used the equipment at the Fishers Complex site as well as various other building sites.

During the course of the project, Lee paid $208,480.00 to CDI; however, before the project was completed, CDI became insolvent and could not fulfill its obligations under its subcontract. Lee incurred additional costs of $102,663.78 completing the project, thus, pursuant to the subcontract between Lee and CDI, CDI owes Lee $76,091.64, the difference between the contract price and the actual cost of completion. CDI also failed to pay Dow-Par $77,400 in monthly lease payments, fuel, freight, and interest.

In November of 1990, Dow-Par filed a notice of claim before the Fishers Town Hall Board and later initiated a suit against Lee, CDI, and USF & G seeking the monies owed to it by CDI. Lee and USF & G moved for summary judgment which was granted. ² It is from this judgment that Dow-Par appeals.

DISCUSSION

In our review of an entry of summary judgment, we consider the same issues and conduct the same inquiry as the trial court. O'Donnell v. American Employers Ins. (1993), Ind.App., 622 N.E.2d 570, 572, reh'g denied, trans. denied. Summary judgment is only appropriate where the moving party demonstrates by properly designated evidentiary matter that no genuine issue of material fact exists and that the party is entitled to judgment as a matter of law. See Ind.Trial Rule 56(E). All evidence must be construed favorably to the nonmoving party, and all doubts as to the existence of a material issue must be resolved against the moving party. Oelling v. Rao (1992), Ind., 593 N.E.2d 189, 190; J.A.W. v. Loretta Roberts (1994), Ind.App., 627 N.E.2d 802, 807. We will affirm a trial court's grant of summary judgment if it is sustainable on any theory or basis found in the evidentiary matter designated to the trial court. T.R. 56(C); Stowers v. Norwest Bank Indiana (1993), Ind.App., 624 N.E.2d 485, 488, reh'g denied.

Whether a person who furnishes labor or materials to a subcontractor on a public works project is within the scope of the payment bond furnished by the general contractor to the principal depends upon the terms of the applicable statute and the terms of the bond. 17 Am.Jur.2d Contractor's Bond Section 19 (1990). Thus, initially, we examine whether Dow-Par, a lessor of equipment to a subcontractor, is protected under I.C. 36-1-12-13.1 which governs payment bonds secured on public works projects.

I.C. 36-1-12-13.1 is part of a public works statutory scheme which provides for the payment of those who work on public works projects. Carpenters Pension Fund v. Seaboard (1992), Ind.App., 601 N.E.2d 352, 357, reh'g denied, trans. denied, (1993), Ind., 615 N.E.2d 892; See Concrete Steel v. Metropolitan Casualty Ins. (1930), 95 Ind.App. 649, 653, 173 N.E. 651, 652. The scheme secures payment for subcontractors, laborers, materialmen, and service providers in relation to or in connection with public works construction where mechanics liens are unavailable because they cannot be acquired or enforced upon or against property held for public uses. Carpenters Pension Fund, 601 N.E.2d at 357 (citing MacDonald v. Calumet Supply Co. (1939), 215 Ind. 536, 543, 19 N.E.2d 567, 570, reh'g denied, 215 Ind. 536, 21 N.E.2d 400); Townsend v. Cleveland Fire-Proofing (1897), 18 Ind.App. 568, 571, 47 N.E. 707, 708.

Although the payment bonds required by section 13.1 are said to replace mechanics liens in the public work projects situation, "a mechanic's lien provides relief to laborers which is in direct conflict with the rights of a landowner, while the public work statutes provides a remedy against a surety which has been compensated for assuming that risk." Carpenters Pension Fund, 601 N.E.2d at 356. Thus, where the mechanics liens statute serves the dual function of narrowing a claimant's rights in order to protect the landowner while providing a remedy for unpaid laborers, the primary purpose of the statutory payment bond is to protect suppliers of labor or materials, not the general contractor or the public body or principal that owns the property. 17 Am.Jur.2d Contractor's Bond Section 54 (1990); Carpenters Pension Fund, 601 N.E.2d at 356 (The payment bond statute establishes the rights of those claimants who would be left without the ability to recover for the materials, labors, or services if general contractors or public entities were unable to make payment.). This difference in purpose has led us to interpret a claimant's rights under I.C. 36-1-12-13.1 quite differently than a similar claimant's rights under the mechanic's lien statute. See Middle West Roads Co. v. Gradmont Haullage (1937), 103 Ind.App. 297, 301, 7 N.E.2d 528, 530 ("The underlying equity of a mechanic's lien relates to a direct addition to the substance of the thing to which the lien attaches, while the general purpose of the statutory bond ... is to protect all persons who supply labor or materials which 'go into' the construction of the highway, regardless of whether it becomes a physical part of the highway or not.... Therefore, [mechanic's lien] cases are not applicable."); Garco Indus. Equip. v. Mallory (1985), Ind.App., 485 N.E.2d 652, 654, reh'g denied, trans. denied ("[T]he contract of a surety for hire is viewed as analogous to an insurance contract, and is construed most strictly against the surety and in favor of the person to be protected." (citations and footnote omitted)).

Traditionally, payment bond statutes have been "liberally construed to carry out the spirit of the legislation on this subject." Lane v. State (1896), 14 Ind.App. 573, 578, 43 N.E. 244, 245; Fry v. P. Bannon Sewer Pipe (1913), 179 Ind. 309, 316, 101 N.E. 10, 13 (Within a surety's undertaking as required by statute, a liberal interpretation is indulged in favor of the materialman and laborer.). Thus, these statute are liberally construed regarding the classes of laborers, materialmen, and suppliers covered. See 17 Am.Jur.2d Contractor's Bond Section 55 (1990). However, the obligation of a surety "shall not be extended beyond their undertaking under the statute." Fry, 179 Ind. at 316, 101 N.E. at 12 (Where the statute requires a bond to run to those furnishing labor or material to a contractor, the bond does not include subcontractors.).

Looking to statutory language, we find that I.C. 36-1-12-13.1 extends its protection to "subcontractors, laborers, material suppliers, and those performing services." ³ Material includes "supplies, goods, machinery, and equipment," I.C. 36-1-2-9.5, and a subcontractor is "a person who is a party to a contract with the contractor and furnishes and performs labor on the public work project" and includes "material men who supply contractors or subcontractors." I.C. 36-1-12-1.4. Thus, a person who supplies equipment to a subcontractor is protected by the statute. However, we have no indication in the statute that the term "supplier" should include...