M. Lasden, Inc. v. Decker Elec. Corp.
| Decision Date | 16 March 1977 |
| Citation | 360 N.E.2d 1068,372 Mass. 179 |
| Parties | M. LASDEN, INC. v. DECKER ELECTRICAL CORPORATION et al. 1 |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Francis G. Ermilio, Worcester, for United States Fedelity and Guaranty Co. of Baltimore, Maryland.
Franklin S. Prizer, Boston (Barry R. Weener, Peabody, with him) for plaintiff.
Before QUIRICO, KAPLAN, WILKINS and LIACOS JJ.
This is an appeal from a judgment of the Superior Court allowing the plaintiff recovery on a surety bond issued by the defendant surety, the appellant here. The sole issue on appeal is whether materials sold by the plaintiff to Decker Electrical Corporation (Decker) with the reasonable and good faith expectation that they would be used in the construction of a project covered by the bond were 'used or reasonably required for use in the performance of the Contract,' as required by the surety bond on which recovery is sought.
On July 2, 1973, Seppala & Aho Construction Co., Inc. (S & A), a general contractor, entered into an agreement to construct what is now known as the Walpole Shopping Mall (mall). In compliance with the terms and conditions of the contract, S & A, as principal, obtained a surety bond from the United States Fidelity and Guaranty Company, protecting claimants who had '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 performance of the contract . . ..'
Decker was awarded the subcontract to do the electrical work on the project. The plaintiff, whose place of business was located in Canton, 2.7 miles from the Walpole construction site, opened a running account with Decker to supply it with electrical supplies for use at the mall job site. The trial judge found that the materials purchased by Decker 'were ordinarily used in the construction of buildings like those at the Mall' and were shipped by the plaintiff to the site 'at a stage (of construction) where such electrical equipment would normally be required.' The judge also found that while Decker's contract with S & A contained specifications for the materials used the plaintiff 'was unaware of the specifications.'
At the time it accepted this job, Decker was subcontractor at other job sitesd as well as at the mall. In addition, it apparently maintained a supply depot in Nashua, New Hampshire. At the inception of the contract, Decker used a system whereby orders from the plaintiff for the mall were designated 'Job No. 1071' and those for the Nashua supply depot as either '7000' or 'SHOP.' While the plaintiff knew of these designations, it was not informed that the system was abandoned in mid-1973 and that thereafter all orders for the mall, as well as other job sites or the Nashua depot, were ordered by Decker under '1071.' 2
In all probability, the controversy in this case would not have arisen but for the fact that Decker was adjudicated bankrupt in December, 1975. As of January 1, 1974, Decker owed the plaintiff a substantial sum for supplies delivered, and the plaintiff had made a demand for payment in April, 1974, on Decker, S & A and the defendant surety. When no further relief was forthcoming, the plaintiff filed suit against the three above named parties. The judge allowed recovery against the surety on the bond on the theory that any materials shipped by the plaintiff to the mall job site with the reasonable expectation that they would be used in the construction of the mall would satisfy the condition of the bond covering materials 'used or reasonably required for use in the performance of the Contract.' 3
It is important to note what issues are not before the court on this appeal. First, the surety has not asserted any argument that the plaintiff is not a proper claimant within the terms of the bond. See Graybar Elec. Co. v. St. Paul Fire & Marine Ins. Co., 195 So.2d 82 (Miss.1967); O'Neal Steel Co. v. Leon C. Miles, Inc., 187 So.2d 19 (Miss.1966). Nor has the surety adequately raised the issue as to whether it can be held liable in the absence of a finding of liability of the principal. 4 Thus, the sole issue is whether the materials shipped by the plaintiff fell within the terms of the bond's coverage.
The surety advocates a strict interpretation of the condition at issue in this case. It would limit the coverage of the bond to the materials either actually used in construction or those materials meeting the contractual specifications purchased by Decker with the reasonable possibility that they would be so used. The plaintiff, on the other hand, focuses on the claimant's intent in furnishing the material and argues that if the materials were sold to Decker in the good faith and reasonable belief that they were to be used in the construction of the mall that is sufficient to allow recovery against the surety whether they were actually used therein or not.
We begin by noting that the bond provision at issue in this case contains language which tracks exactly language contained in G.L. c. 149, § 29A. The purpose of § 29A was to create a statutory exception to the rule of law in this Commonwealth which had been held to preclude recovery under a contract by a third-party beneficiary. Mellen v. Whipple, 1 Gray 317 (1854). See Bernhard, Third Party Beneficiary Rights in Massachusetts, 49 Mass.L.Q. 159 (1964). In creating such an exception, the statute must be seen to incorporate certain policies relative to the protection of materialmen. The bond, being contingent for enforceability on the statute, must be interpreted in accord with those policies. Compare Waite Hardware Co. v. Ardini & Pfau, Inc., 339 Mass. 634, 162 N.E.2d 13 (1959) with Nash v. Commonwealth, 174 Mass. 335, 54 N.E. 865 (1899).
We believe that these policies can be ascertained from our cases concerning the counterpart to § 29A which governs public sector contracts, G.L. c. 149, § 29. We have said that the purpose of that latter statute is to afford security to subcontractors in their dealings in such matters. See, e.g., Lawrence Plate & Window Glass Co. v. Varrasso Bros., 353 Mass. 631, 633, 233 N.E.2d 897 (1968). Since the statutory purpose is remedial in nature, it should be broadly construed to effectuate its self-evident policies. American Air Filter Co. v. Innamorati Bros., 358 Mass. 146, 150, 260 N.E.2d 718 (1970). Warren Bros. Rds. Co. v. Joseph Rugo, Inc., 355 Mass. 382, 245 N.E.2d 243 (1969).
While we have held that § 29 requires actual use of the materials in the construction of the project, Walsh Holyoke Steam Boiler Works, Inc. v. McCue, 289 Mass. 291, 294, 194 N.E. 117 (1935), that decision reflected the specific words in § 29 which allow protection for the materialmen when the materials are 'used or employed' in the construction of the public work involved. Thus, which both § 29 and § 29A have similar policy purposes behind them, the crucial language differs in that § 29A has no such requirement, providing, rather, protection for the supplier as to 'material used or reasonably required for use in the performance of the contract . . ..' While we intimate no opinion here on the continuing vitality of the interpretation of § 29 found in McCue, we note that the particular statutory language utilized in this regard may be determinative of the scope of protection afforded.
The Federal counterpart to § 29, the Miller Act, 40 U.S.C. § 270a (1970), requires a bond 'for the protection of all persons supplying labor and material in the prosecution of the work . . ..' This Federal statute has been almost uniformly interpreted to cover materials supplied with the good faith intent that they were to be incorporated into the covered project but which were not actually so incorporated. See generally Annot., 79 A.L.R.2d 843, 846--849 & n. 13. Furthermore, under State statutes regulating mechanics' liens, many jurisdictions have held that actual use is not required to sustain the lien but that delivery to a building site for that purpose will be sufficient. See generally Annot., 39 A.L.R.2d 394, 399--418. 5 Indeed, we have held recently as to § 29 that a subcontractor's failure to install materials delivered by a supplier...
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