Euclid-Mississippi v. Western Cas. & Sur. Co.

• Decision Date: 11 May 1964
• Docket Number: EUCLID-MISSISSIPPI,No. 43059,43059
• Citation: 249 Miss. 779,163 So.2d 904
• Parties: , a Division of Trippeer Organizations, Inc. v. WESTERN CASUALTY & SURETY COMPANY.
• Court: Mississippi Supreme Court

Page 904

163 So.2d 904

249 Miss. 779

EUCLID-MISSISSIPPI, a Division of Trippeer Organizations Inc. v. WESTERN CASUALTY & SURETY COMPANY.

No. 43059.

Supreme Court of Mississippi.

May 11, 1964.

Green, Green & Cheney, Jackson, for appellant.

Cox, Dunn & Clark, Jackson, for appellee.

ETHRIDGE, Justice.

This suit is against the surety on a contractor's performance and payment bond. It is a consolidation of two actions by Euclid-Mississippi, A Division of Trippeer Organizations, Inc. (called Euclid), the appellant, against Western Casualty &amp Surety Company (called Western Casualty), on two bonds for highway construction projects in Covington and Forrest Counties, Mississippi. The contractor was R. G. Brown, Jr. & Company, a partnership (called Brown).

The principal question is whether the surety is liable to a conditional vendor for the balance due by the contractor-vendee (or the rental, or depreciation plus cost of repairing after repossession) of expensive, heavy construction equipment used on the public work, but which upon completion would become part of the contractor's permanent capital plant, and would serve other contracts as well. We hold that the surety is not so obligated under the Mississippi bond statute.

A minor issue pertains to the amount of the surety's liability for operating repairs made by Euclid to this equipment prior to repossession. The Chancery Court of Hinds County (First District) held that Western Casualty was not liable to Euclid for the balance of the purchase price of this long lived equipment, but gave it a decree of $962.89 for repairs and parts furnished before repossession. We affirm the trial court.

The pertinent statute provides that the project's bond shall be conditioned 'for the labor, material, equipment and supplies labor, material, equipment and supplies therefor.' Miss.Code 1942, Rec., Sec. 8041.

Brown had contracts with the State Highway Department for certain highway construction, one job being in Forrest and the other in Covington County. Western Casualty executed surety bonds for performance and payment under the provisions of section 8041. Euclid sold to Brown under conditional sale contracts five Euclid scrapers and one tractor. In each instance a part of the agreed purchase price was deferred for payments in monthly installments over a period of 36 months. This was large and expensive equipment. Its combined price was $272,921.90 plus finance charges, reflecting an average cost price to Brown of $54,584.38 per unit before finance charges. The sales were made in 1958 and early 1959. Brown defaulted on his installment payments, went into bankruptcy, and all of the equipment was repossessed in June 1960 by Euclid under the security provisions of the conditional sales contracts. After repossession Euclid overhauled and reconditioned the equipment for resale, and sold three of the five scrapers. It retained ownership and rented out the remaining units to other persons. The evidence reflects that these machines were used in part on the two highway construction projects involved in this litigation, and on other jobs. However, Euclid's evidence is not sufficient to show the extent and percentage of their use on the two projects in question.

The evidence is in conflict on the probable useful life of this heavy equipment. Brown testified that both the tractor and the scrapers had a minimum life-use expectancy of ten years. Calvert, Euclid's service manager, stated the life of a tractor is six to eight years, but Hopkins, a witness for complainant, said a tractor's life is about three years. In denying the claim for the unpaid balance of the purchase price of this heavy equipment or rental or depreciation on the jobs, the chancery court necessarily found that it was not used and consumed substantially on the jobs in question; and that it is long lived, and, under proper repair conditions, could be used by the contractor in future years on many other projects. We think it was manifestly correct in denying any recovery for the tractor and scrapers.

The general rule on this issue and the reasons for it are well stated in 43 Am.Jur., Public Works and Contracts, Sec. 185, in this manner:

'Generally, the bond of a contractor for public improvements conditioned for the payment of materials used in the execution of the contract is designed for the protection of those who furnish materials which either enter into or become a part of the improvement or are naturally consumed in the course of its construction; therefore, it does not ordinarily include tools, machinery, and appliances which, although employed in the work, are of such nature that they may survive performance of the contract in question and can be used upon other contracts, for the contract presupposes that the contractor has and will furnish upon his own account the necessary tools, implements, and appliances with which to perform the work. * * * It is not intended to permit the contractor to begin a job with a run-down outfit and have it rebuilt at the expense of his sureties. Even though literally a statute requiring bonds of contractors for public work may reach the cost of equipment which is purchased by the contractor and used on a given work and, upon the completion of the work, becomes part of his permanent and general equipment and will serve other contracts as well, it is, as a rule, construed not to include claims for such equipment. The reason for the preferement of the materialman whose material has been incorporated in a public building and placed beyond any possibility of recovery or repossession does not apply to the manufacturer or dealer who supplies an appliance which never loses its identity and never becomes an integral part of the public building. The underlying equities require discrimination between labor and materials consumed in the work or in connection therewith and those made use of in furnishing the so-called contractor's plant, and available not only for the particular contract but for other work.'

In other words, the bond for a public improvement is designed for those who furnish materials which either enter into and become a permanent part of the improvement, or are naturally consumed substantially in the course of its construction. Hence it would not include heavy construction machinery which, though employed in the work, survives in substantial part its performance and can be used upon other contracts by the contractor. Annos., 43 A.R.A.(N.S.) 162 (1912), L.R.A.1915F, p. 951 (1915); see also Cohen, Public Construction Contracts and the Law (1961) 207

Even under the federal Miller Act, which is liberally construed, 'permanent equipment purchased by a contractor, no matter how small, is not covered by the bond, since it constitutes a capital expenditure, and its use is not confined to the prosecution of the bonded work.' 40 U.S.C.A. Secs. 270a-270e; Anno., 79 A.L.R.2d 843, 850 (1961). Illinois State Toll Highway Commission ex rel. Patten Tractor & Equipment Co. v. M. J. Boyle & Company, 38 Ill.App.2d 38, 186 N.E.2d 390 (App.Ct., 1962), cited by appellant, is not pertinent, since that bond went 'much further than the statute' required, and the complaint alleged that the machinery would be substantially consumed by its use on the contract.

There is no decision from this state dealing with this specific question, but two indicate approval of the almost universal rule discussed above. Shuptrine v. Jackson Equip. & Serv. Co., 168 Miss. 464, 468, 150 So. 795, 796 (1933), held that the statutory bond under what is now Code 1942, Sec. 8041, rendered the surety liable for rental by a subcontractor of a crane with dragline equipment for use in highway construction. However, this limitation was indicated:

'How far the word 'equipment' renders the bond liable for expensive machinery purchased by the contractor with which to do the work contracted for, and which may be used thereafter for the same purposes under other construction contracts, is not now before us, and we express no opinion thereon, for if the word means anything, it must be held to include rental on such equipment for the time it is used under the contract.'

Linde Air Products Co. v. American Surety Co., 168 Miss. 877, 152 So. 292 (1934), was a suit on a contractor's surety bond for construction of a gas pipeline. Code section 8041 was not involved. The bond provided that it would pay all persons 'who perform labor or furnish equipments, supplies and materials for use in the work under the contract.' The bond went beyond the general statutory provisions Sec. 374. The claims were allowed 'for necessary repairs to the contractor's equipment and for the purchase of new tools and machinery necessary to enable the contractor to do the work contracted for.' The opinion then stated:

'That some of the...