Miller-Stauch Const. Co. v. Williams-Bungart Elec., Inc.
Decision Date | 20 January 1998 |
Docket Number | Nos. WD,WILLIAMS-BUNGART,MILLER-STAUCH,s. WD |
Citation | 959 S.W.2d 490 |
Parties | CONSTRUCTION COMPANY, Plaintiff/Respondent/Cross-Appellant, v.ELECTRIC, INC., Defendant, and International Fidelity Insurance Company, Defendant/Appellant/Cross-Respondent. 52572, WD 52622 and WD 52661. |
Court | Missouri Court of Appeals |
G. William Quatman, Kansas City, for Respondent/Cross-Appellant.
Robert M. Pitkin, Kansas City, for Appellant/Cross-Respondent.
Before HOWARD, P.J., and BRECKENRIDGE and HANNA, JJ.
A surety appeals from a judgment in an action involving a performance bond issued by the surety for a construction project. The International Fidelity Insurance Co. ("IFIC") contends that the trial court erred by holding that the general contractor had the right to offset funds retained under a bonded subcontract against losses sustained on an unbonded purchase order. The surety also contends that the trial court made various errors in its award of attorney's fees to counsel for the general contractor, and that the trial court erred by awarding the general contractor an additional 10% in overhead relating to bonded labor under the subcontract.
Judgment reversed; cause remanded with directions.
Miller-Stauch Construction Co., Inc. ("Miller-Stauch"), who was the general contractor on a construction project to build the new Prairie Elementary School in Prairie Village, Kansas, received a bid from the Williams-Bungart Electric Co. ("Williams-Bungart") to provide all the labor and materials necessary to complete the electrical work on the project. The bid provided that Miller-Stauch would pay for any subcontractor's bond. Based upon prior dealings between the two companies, Duane Dean, vice-president of Miller-Stauch, asked Mark Bungart of Williams-Bungart to split its bid into two parts: one for all of the materials under a written purchase order and the other for labor only under a written subcontract. The purpose of this arrangement was for Miller-Stauch to save money by purchasing a subcontractor's bond on the labor agreement only.
IFIC issued a performance bond and a payment bond covering the labor subcontract agreement. Because the electrical work had been split into two contracts, one bonded and one unbonded, IFIC's agent, Surety Bond Underwriters, drafted a rider to the bonds which stated that "[t]he surety bond will not pertain to any claims relating to supplies, materials and equipment as identified on the Proposal/contract." Miller-Stauch signed the rider and IFIC issued its performance bond and payment bonds, in the sum of $202,526.00 each, to Miller-Stauch as obligee and Williams-Bungart as principal, for the labor portion of the work. IFIC's performance bond and payment bond incorporated the labor subcontract by reference. The labor subcontract contained the following provision:
The Contractor may withhold from Subcontractor any monies due or to become due under this or any other contract for any other project to offset the damages incurred or possibly incurred as a result of the breach. In case of a breach, the Subcontractor and its surety company shall be liable to the Contractor for any and all additional costs, expenses, attorney's fees, and other damages, both liquidated and unliquidated, which directly or indirectly result from the Subcontractor's breach or threatened breach, including interest thereon at the highest lawful rate from the date on which such sums become due until paid in full.
In early February of 1993, before the project was completed, Williams-Bungart experienced financial difficulties and advised Miller-Stauch that it would be unable to fulfill its obligations under the labor subcontract and the purchase order. In a letter dated February 15, 1993, Miller-Stauch informed IFIC that Williams-Bungart had defaulted on the project, and that Williams-Bungart had offered a replacement subcontractor, SKC Electric, Inc. ("SKCE"), who was satisfactory to Miller-Stauch. The letter further stated that Miller-Stauch and IFIC then accepted an $80,979.00 bid submitted by SKC Electric, Inc. ("SKCE") to complete the labor subcontract for electrical work on the project.
At the time Williams-Bungart ceased working on the project, Miller-Stauch held $76,881.19 in unpaid funds for uncompleted work on the labor subcontract. Accordingly, based upon SKCE's bid of $80,979.00, there was an anticipated shortfall of $4,097.81 for completion of the labor subcontract. IFIC paid Miller-Stauch this amount on July 22, 1993. The actual cost for SKCE to complete the labor subcontract was calculated by the parties to be $117,926.19, which resulted in an additional $36,947.19 which IFIC paid to Miller-Stauch on October 12, 1994.
At the time that Williams-Bungart ceased working on the project, it also failed to fulfill its obligations under the purchase order for materials. At the time of Williams-Bungart default, the purchase order had a remaining balance of $150,309.08, and the cost to complete the purchase order was $200,523.37, leaving a shortfall of $50,214.29. Miller-Stauch set off its $76,881.18 in unpaid funds under the labor subcontract against the loss under the purchase order. This set-off left $26,666.90 of the unpaid labor subcontract funds to be applied to the cost of completing the labor subcontract, a cost which the parties calculated to be $117,926.19, and the trial court later determined to be $118,745.16. However, IFIC made no further payments under the performance bond beyond the $4,097.81 on July 22, 1993 and the $36,947.19 on October 12, 1994.
On October 1, 1993, SKCE sued Miller-Stauch to recover $126,716.14 for the project, of which $90,293.54 was for labor and the rest was for materials. Miller-Stauch defended itself against the SKCE claim, which Miller-Stauch ultimately paid to settle the litigation.
On October 22, 1993, Miller-Stauch sued IFIC for breach of contract, claiming that IFIC failed to perform its bond obligations. The trial court concluded that Miller-Stauch would be allowed to use $50,214.29 of the $76,881.19 retained under the bonded subcontract to set off against losses under the unbonded material purchase order. That left $26,666.90 of the funds retained under the bonded subcontract to be actually applied to completing the bonded subcontract. Subtracting this amount (plus the $41,045.00 actually paid by IFIC) from the $118,745.16 which the trial court determined to be the cost of completing the bonded subcontract, the trial court concluded that IFIC owed Miller-Stauch $51,033.26 in completion costs under the bond. After adding $25,000.00 in attorney's fees and over $15,000.00 in interest, the trial court awarded Miller-Stauch a judgment of $91,253.68 on its breach of contract claim against IFIC. In addition, the trial court awarded $4,186.39 in overhead costs for a total judgment of $95,440.07. In tabular form, the award breaks down as follows:
Miller"Stauch's Net Loss as of 8/24/93 Cost to Complete Material Purchase Order ($200,523.37) Apply Balance under Purchase Order $150,309.08 Net Shortfall under Purchase Order ($ 50,214.29) Set-off balance under the Subcontract $ 76,881.19 Leaves remaining Subcontract funds $ 26,666.90 Cost to Complete Bonded Subcontract ($118,745.16) Net Shortfall under the Subcontract $ 92,078.26 Less IFIC payment (7/22/93) $ 4,097.81 Subtotal ($ 87,980.45) Less IFIC payment (10/12/94) $ 36,947.19 Subtotal ($ 51,033.26) Plus interest from date of demand (8/24/93) to $ 8,979.66 IFIC second payment (10/24/94) at 9% on balance of $87,980.45 Subtotal ($ 60,012.92) Plus interest from date of IFIC payment (10/12/94) $ 6,586.00 to date of judgment (12/31/95) at 9% on balance of $60,012.92 Subtotal ($ 66,598.92) Plus attorney's fees and expenses $ 25,000.00 Subtotal ($ 91,598.92) Deduct Miller"Stauch calculation error $ 345.24 Subtotal ($ 91,253.68) Plus overhead costs per amended judgment $ 4,186.39 Total ($ 95,440.07)
In addition, the trial court awarded Miller-Stauch collateral litigation fees and expenses in the amount of $5,960.60.
IFIC's first two points on appeal concern the trial court's holding that Miller-Stauch would be allowed to offset $50,214.29 of the balance due on the labor subcontract against the loss on the purchase order. IFIC argues that this case is not controlled by United States v. Munsey Trust Co., 332 U.S. 234, 108 Ct.Cl. 765, 67 S.Ct. 1599, 91 L.Ed. 2022 (1947) on the issue of the right of set-off, and that the trial court's decision was erroneous because it ignored the rider's provision that any surety bond would not pertain to claims relating to supplies, materials, and equipment.
In part, this case turns on the distinction between two types of contractors' bonds: the performance bond and the payment bond. Most often, contractor's bonds are issued on...
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