Hub Elec. Co., Inc. v. Gust Const. Co., Inc.

• Decision Date: 13 October 1978
• Docket Number: Nos. 76-2607,76-2608,s. 76-2607
• Citation: 585 F.2d 183
• Parties: HUB ELECTRIC COMPANY, INC., Plaintiff-Appellee-Cross-Appellant, v. GUST CONSTRUCTION COMPANY, INC., and Aetna Casualty and Surety Company, Defendants-Appellants-Cross-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 183

585 F.2d 183

HUB ELECTRIC COMPANY, INC., Plaintiff-Appellee-Cross-Appellant, v. GUST CONSTRUCTION COMPANY, INC., and Aetna Casualty and Surety Company, Defendants-Appellants-Cross-Appellees.

Nos. 76-2607, 76-2608.

United States Court of Appeals, Sixth Circuit.

Argued April 20, 1978.

Decided Oct. 13, 1978.

Alan R. Smith, Linsey, Strain & Worsfold, P. C., Grand Rapids, Mich., for defendants-appellants-cross-appellees.

John J. Hebert, Isackson & Neering, P. C., Bay City, Mich., for plaintiff-appellee-cross-appellant.

Before WEICK, EDWARDS and ENGEL, Circuit Judges.

ENGEL, Circuit Judge.

This matter is before the court upon cross-appeals from a judgment of the district court awarding damages to Hub Electric Company in the amount of the unpaid balance due it for certain stage lighting equipment which Hub furnished in the construction of a public high school in Grayling, Michigan, for the Crawford-AuSable School District. The defendant Gust Construction Company was the prime contractor for the project. Pursuant to the 1963 Michigan Public Works Bonding Act, M.C.L.A. § 129.201 Et seq., M.S.A. § 5.2321(1)-(11), Gust contracted for a payment bond with appellant Aetna Casualty and Surety Company. The relevant details of the transaction are set forth in an opinion of the district court reported at 400 F.Supp. 77 (E.D.Mich.1975) and in an unreported opinion filed in the district court on August 19, 1976.

In the reported opinion, the district court entered a summary judgment in favor of Hub on Count V of its second amended complaint, holding that Hub was a subcontractor on the Grayling High School job and that it was entitled to recover upon the bond, having complied in all respects with the requirements of the 1963 Act, Supra. In the unreported opinion of August 19, 1976, the trial court further ruled that Hub was a third-party beneficiary of the contracts between Gust and Aetna and Gust and the Crawford-AuSable School District, as alleged in Count II of the complaint. Judgment on those counts was entered in a stipulated amount of $22,225. Those opinions also entered summary judgment in favor of the defendants on Counts I and III of Hub's complaint. ¹

While the issues appear to have been submitted to the court in the form of cross motions for summary judgment, it is apparent from the conduct of the parties, both in the district court and on appeal, that the case was, in substance, submitted to the trial court for decision on the merits upon a stipulated record consisting of the several affidavits, counter affidavits and relevant exhibits pertaining to the numerous theories of recovery and of defense. In the interest of clarity, we believe it would have been the better practice for the trial court to have obtained a more precise stipulation from the parties for submission of all issues on the merits, thus avoiding any possibility that the loser would claim that there yet remained unresolved disputes of fact which made the summary judgment procedure inappropriate. Since no such claim, however, has ever been made in the district court or here, we, like the parties, proceed to treat the issues as having been tried to the court on the merits.

In his reported opinion, Judge James Harvey denied recovery under Count I of the complaint, which asserted plaintiff's rights as a materialman. Judge Harvey reasoned that because the plaintiff had failed to comply with the 30-day notice requirement of Section 7(a) of the 1963 Act, M.C.L.A. § 129.207(a), M.S.A. § 5.2321(7)(a), ² its rights as a materialman were defeated. 400 F.Supp. at 78-80. On the other hand, he held that Hub was also a subcontractor under Michigan law, Id. at 80-84, and that the 30-day notice requirement did not apply to subcontractors. See id. at 80, 84. He therefore concluded that Hub was entitled to recover upon the bond under Count V.

We agree with Judge Harvey that the 1963 Act applies to the contract here, ³ to the exclusion of the previously applicable 1905 Mich.Pub. Act No. 187, as amended, M.C.L.A. § 570.101 Et seq., M.S.A. § 26.321 Et seq. The 1963 Act requires the execution of both performance and payment bonds, and at issue here is the payment bond provision of that statute.

As Judge Harvey noted, Hub filed a notice under Section 7(b) within 90 days after it last supplied the lighting equipment, although it had failed to serve the subsection (a) notice within 30 days after it began furnishing the equipment. 400 F.Supp. at 79. The notice which Hub provided, however, complied with all the requirements of the bond, which omitted reference to the initial 30-day notice. Id. ⁴ Nevertheless, Judge Harvey held that the absence of such reference in the bond did not amount to a waiver of the statutory requirement, relying upon what he found to be the general rule as stated in Williamson v. Williams 262 Mich. 401, 404, 247 N.W. 704, 705 (1933). To the argument that the surety could, by contract, waive its statutory notice privilege, Judge Harvey concluded that while there may be some merit to the contention, that argument was foreclosed by People ex rel. Wheeling Corrugating Co. v. W. L. Thon Co., 307 Mich. 273, 11 N.W.2d 886 (1943), which construed the 1905 Act:

"The statute requires notice by materialmen within 60 days of the date of the furnishing of the last of (the) materials. This requirement could not be the subject of waiver by acts of the contractor and plaintiff" (materialman).

400 F.Supp. at 80, Quoting 307 Mich. at 278, 11 N.W.2d at 888.

Most of the argument before this court has concerned whether Hub was a subcontractor or whether it was, as the defendants claim, a materialman to a materialman to a subcontractor to a principal contractor, and hence without any right of recourse against Gust or Aetna on the bond. It suffices for our purposes here to observe that, in our opinion, Judge Harvey correctly applied the appropriate Michigan law to the undisputed facts of this case to hold that Hub was a subcontractor. We are not, however, as confident that this determination alone is dispositive of the issues raised by Count V. The 1963 Act, as far as we can ascertain, speaks solely in terms of "claimant", defined in Section 6 of the Act as "a person having furnished labor, material, or both, used or reasonably required for use in the performance of the contract. 'Labor and material' includes that part of water, gas, power, light, heat, oil, gasoline, telephone service or rental of equipment directly applicable to the contract." M.C.L.A. § 129.206, M.S.A. § 5.2321(6). Unlike the 1905 Act, under which nearly all of the cases relied upon by the parties and the district court were decided, the 1963 Act makes no express distinction between subcontractors and materialmen insofar as the right to recover upon the payment bond is concerned, except to imply that there may be no right without giving the statutory notices unless a claimant has a "direct contractual relationship with the principal contractor". M.C.L.A. § 129.207, M.S.A. § 5.2321(7).

We are, therefore, led to the conclusion that Hub, while meeting the definition of subcontractor under pre-existing Michigan law, is not under the facts here a claimant having a direct contractual relationship with Gust, the principal contractor, within the meaning of Section 7 of the 1963 Act. ⁵ We therefore hold that plaintiff's status as a subcontractor here places it in no more or less favorable position with regard to the duty to provide notice than any other supplier on a public works project. ⁶ It seems a fair construction of the legislative intent that the Michigan legislature saw no benefit to the continuation of the distinction between materialmen and subcontractors when it came to affording the statutory protection of a payment bond. We, therefore, hold that under Michigan's statute, the plaintiff would normally have been required to furnish both notices required in Section 7(a) and (b) as a condition to recover upon the bond. As pointed out by Judge Harvey and the parties, however, the express terms of the bond which was actually executed between Aetna and Gust required only the 90-day notice and we are, therefore, compelled to determine whether Hub's satisfaction of this requirement alone permits recovery or whether, as Judge Harvey held, the 30-day notice of the statute must also be met. In this respect we find unpersuasive the authorities upon which the district court relied.

In Williamson v. Williams, supra, cited by the district court, 400 F.Supp. at 79-80, the surety and the principal contractor sought to escape liability for services furnished in the execution of a public construction contract by claiming that the bond as executed restricted liability to indebtedness arising from the principal contractor. Holding that liability also extended to claims for services furnished by laborers to a remote subcontractor, the court simply held, in accordance with pre-existing law, ⁷ that " 'where a bond is given under the authority of a statute, that which is not expressed but should have been incorporated is included in the bond.' " 262 Mich. at 404, 247 N.W. at 705, Quoting with approval Chambers v. Cline, 60 W.Va. 588, 55 S.E. 999 (1906) (syllabus). However, the Michigan Supreme Court in Williamson, 262 Mich. at 405, 247 N.W. at 705, cited with approval the following instructive quotation from Baumann v. City of West Allis, 187 Wis. 506, 204 N.W. 907, 914 (1925):

It is the contention of appellants that the liability sought to be imposed by the statute does not arise unless the provision required by the statute is actually inserted in the contract. . . . If this be the proper construction of the law, then the statute might just as well not have been passed, because such was the law before. Such a statute will be construed in the light of the conditions and circumstances which gave rise to the law, and to effectuate the purpose which the Legislature sought to accomplish. Having...