Parliament Ins. Co. v. L. B. Foster Co., No. 1042

CourtCourt of Appeals of Texas. Court of Civil Appeals of Texas
Writing for the CourtNYE
Citation533 S.W.2d 43
PartiesPARLIAMENT INSURANCE COMPANY, Appellant, v. The L. B. FOSTER COMPANY et al., Appellees.
Decision Date31 December 1975
Docket NumberNo. 1042

Page 43

533 S.W.2d 43
PARLIAMENT INSURANCE COMPANY, Appellant,
v.
The L. B. FOSTER COMPANY et al., Appellees.
No. 1042.
Court of Civil Appeals of Texas,
Corpus Christi.
Dec. 31, 1975.
Rehearing Denied Jan. 30, 1976.

Dale French, Dameris & French, Houston, for appellant.

Arthur P. Terrell, Butler, Binion, Rice, Cook & Knapp, Houston, for appellees.

OPINION

NYE, Chief Justice.

This is a suit brought by two materialmen, L. B. Foster Company and Howard Smith Company against Parliament Insurance Company to recover upon a subcontractor's performance-payment bond which was executed in favor of the original contractor. Plaintiff L. B. Foster and plaintiff Howard Smith Company sought recovery for materials sold and delivered to the subcontractor. Trial was before a jury which answered submitted special issues. The jury found favorably toward plaintiffs with the trial court entering judgment that plaintiff Foster recover the sum of $15,304.67 and that plaintiff Smith recover the sum of $14,300.83. The defendant Parliament Insurance Company, who had issued the performance-payment bond, has duly perfected its appeal to this Court.

The facts of this case with several exceptions are undisputed. Certain trial stipulations were entered into by the parties prior to trial. From the record and stipulations, it appears that George C. Cox, Inc. was the prime contractor on two separate projects with a Utility District and with a Water Control Improvement District. Cox had entered into separate contractual agreements with these two governmental entities which are located in Harris County. John Dickson, d/b/a Dickson Drilling Company, was a subcontractor on each of the public work projects of C.N.P. Utility District and W.C.I.D. 109. The subcontractor's job entailed drilling and equipping a water well on each of these projects. As a requirement of its subcontract with Cox, Dickson Drilling Company was required to furnish separate performance and payment bonds, 'guaranteeing payment to all persons supplying labor and materials or furnishing him any equipment in the execution.'

The defendant Parliament Insurance Company as surety executed two Performance-Payment Contractor's Bonds. One in the amount of $47,107.00 and the other in the amount of $55,017.00. In each, Dickson was the principal and George C. Cox, Inc. was the obligee. The record discloses that both plaintiffs had prior business dealings with subcontractor Dickson and had extended him an open line of credit. Prior to the commencement of the subject projects, Dickson had certain amounts then outstanding and due to the plaintiffs.

It was undisputed that sometime between April 14 and June 14, 1972, the plaintiff L.

Page 45

B. Foster Company sold to Dickson Drilling Company certain pipe having the fair market value of $7,107.43 for use on the public work, C.N.P. Utility District; that on or about April 25, 1972, the plaintiff Howard Smith Company sold to Dickson some stainless steel screen and other equipment for use on the said public work in C.N.P. Utility District having a fair market value of $6,223.91; and that on or about July 3, 1972, the plaintiff Foster sold to Dickson other materials and supplies for use on the public work of W.C.I.D. 109 having the fair market value of $8,137.63, plus freight charges in the amount of $59.61; and that later plaintiff Smith sold to Dickson materials and supplies for use on the public work in W.C.I.D. 109 having the fair market value of $8,076.92. It is further undisputed that all of the above supplies referred to were used and utilized in and for C.N.P. Utility District and W.C.I.D. 109, Harris County, Texas, and that prior to being supplied such materials, Dickson agreed to the prices stated above. Plaintiffs allege that they received no payment for the above materials from Dickson Drilling Company.

Dickson Drilling Company was adjudicated a bankrupt in the United States District Court for the Southern District of Texas. Thereafter, plaintiffs L. B. Foster Company and Howard Smith Company brought suit against Parliament Insurance Company for the sums set out above under the payment and performance bonds executed by defendant. The defendant answered asserting in effect two defenses: 1) that these performance-payment contractor's bonds did not inure to the benefit of the materialmen; and 2) that in any event payment was made, but that such payments were applied by the plaintiffs to past debts leaving the amounts due on the present projects unpaid.

The trial was before a jury and the case submitted on special issues. The jury found that: 1) no payment was made to Foster by Dickson from the proceeds earned from C.N.P. Utility District and/or W.C.I.D. 109 wherein an officer, employee, or agent of Foster knew of the source of those payments, and 2) no payment was made to Smith by Dickson from the proceeds earned from C.N.P. Utility District and/or W.C.I.D. 109 wherein an officer, employee, or agent of Smith knew the source of those payments. Based on the answered issues, the trial court entered judgment accordingly.

The defendant Parliament Insurance Company brings forward twenty-two points of error. These points, however, can be conveniently grouped into three areas. The defendant's first six points of error complain of the performance-payment contractor's bonds sued on, contending that under the wording of these bonds, said bonds were, as a matter of law, indemnity bonds only and did not inure to the benefit of either plaintiff.

The contract between George C. Cox, Inc. and Dickson Drilling Company obligated Dickson to execute separate performance and payment bonds, each in the sum of one hundred percent (100%) of the total contract price in standard forms for this purpose, guaranteeing faithful performance of the work and the fulfillment of any guarantees required, and further guaranteeing payment to all persons supplying labor and materials or furnishing him any equipment in the execution of the contract.

The subject bonds were furnished by Dickson as principal in each bond and the obligee being George C. Cox, Inc. Both bonds in question were identical except for the date of execution and the project which they were to cover. They were designated 'PERFORMANCE-PAYMENT CONTRACTOR'S BOND'. The questioned provision contained in each bond reads as follows:

'Now, Therefore, the condition of the obligation is such that, if the Principal shall faithfully perform the contract on his part, and shall fully indemnify and save harmless the Obligee from all cost and damage which the Obligee may suffer by reason of failure so to do and shall fully reimburse and repay the Obligee all

Page 46

outlay and expense which the Obligee may incur in making good any such default, And shall pay all persons who have contracts directly with the Principal for labor or materials, then this obligation shall be null and void, otherwise it shall remain in full force and effect.' (Emphasis added.)

The bond now under consideration was to become void upon the doing of the following things by Dickson: first, that he shall faithfully perform the contract on his part; second, that he shall fully indemnify and save harmless the obligee (Cox) from all cost and damage which the obligee may suffer by reason of failure so to do; third, that he shall fully reimburse and repay the obligee all outlay and expense which the obligee may incur in making good any such default; and fourth, that he shall pay all persons who have contracts directly with the principal for labor or materials. If the only purpose in the insertion of the fourth obligation was to protect the obligee, Cox, then under present Texas law the plaintiff cannot recover. See Metropolitan Casualty Ins. Co. v. Texas Sand & Gravel Co., 68 S.W.2d 551 (Tex.Civ.App.--Waco 1934, writ dism'd); Employers Liability Assur. Corporation v. Trane Co., 139 Tex. 388, 163 S.W.2d 398 (1942, opinion adopted). However, if such provisions were incorporated for the benefit of materialmen and laborers, then they (materialmen and laborers) may invoke such provisions for their protection. Wm. Cameron & Co. v. American Surety Co. of New York, 55 S.W.2d 1032 (Tex.Comm'n App.1932, judgment adopted); Mosher Mfg. Co. v. Equitable Surety Co., 229 S.W. 318 (Tex.Comm'n App.1921, judgment adopted). The effect that is to be given to such a clause depends on the intention of the parties. In ascertaining such intent, considerable weight is given to the question of whether or not such clause ('and shall pay all persons who have contracts directly with principal for labor or materials') was or was not necessary for the protection of the obligee in the bond. If the intent of such provision was necessary for the complete protection of the named obligee (in this case Cox, Inc.), then the bond is generally construed as an indemnity bond which would inure for his protection only. In other words, if the provision (number four) is not necessary for the protection of the obligee, then it must have been inserted into the bond for some purpose. The courts then construe such provision as inuring to the benefit of the laborers and materialmen. See Metropolitan Casualty Ins. Co. v. Texas Sand & Gravel Co., supra; Mosher Mfg. Co. v. Equitable Surety Co., supra; American Employers' Ins. Co. v. Roddy, 51 S.W.2d 280 (Tex.Comm'n App.1932, holding approved); Wm. Cameron & Co. v. American Surety Co. of New York, supra; Bill Curphy Co. v. Elliott, 207 F.2d 103 (C.C.A.5th Cir. 1953); American Surety Co. of New York v. Shaw, 69 S.W.2d 47 (Tex.Comm'n App.1934, holding approved).

The question presented for decision is, therefore, whether the language of the defeasance clause of the subject bond (as set out above) is such as would give a direct right of action to the materialmen against the surety (defendant) on the subcontractor's bond, or whether such provision was for the exclusive benefit of Cox, the contractor. The plaintiffs herein contend that the...

To continue reading

Request your trial
8 practice notes
  • Valley Intern. Properties, Inc. v. Los Campeones, Inc., No. 1300
    • United States
    • Court of Appeals of Texas. Court of Civil Appeals of Texas
    • June 15, 1978
    ...trial court. Petroleum Anchor Equipment, Inc. v. Tyra, 419 S.W.2d 829 (Tex.Sup.1967); Parliament Insurance Company v. L.B. Foster Co., 533 S.W.2d 43, 50 (Tex.Civ.App. Corpus Christi 1975, writ ref'd n. r. e.). Furthermore, even if V.I.P. had properly plead and preserved this contention, we ......
  • Augusta Court Co-Owners' Ass'n v. Levin, Roth & Kasner, CO-OWNERS
    • United States
    • Court of Appeals of Texas
    • June 4, 1998
    ...(Tex.Civ.App.--Eastland 1978, no writ) (surety's determined by bond and construction contract). Parliament Ins. Co. v. L.B. Foster Co., 533 S.W.2d 43, 49 (Tex.Civ.App.--Corpus Christi 1975, writ ref'd n.r.e.) (surety's liability to be determined by bond and construction contract "that [was]......
  • In re Bay State York Co., Inc., Bankruptcy No. 91-10187-JNG
    • United States
    • United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts
    • May 29, 1992
    ...394, 398-399 183 S.E. 572 (1936); Griffith v. Stucker, 91 Kan. 47, 52-53 136 P. 937 (1913); Parliament Insurance Co. v. L.B. Foster Co., 533 S.W.2d 43, 50 (Tex.Ct.Civ. Id. See generally 74 Am.Jur.2d Suretyship § 135 (1974) (". . . a creditor's right to proceed against the surety exists inde......
  • Larson v. Granite re, Inc., No. 07-1186.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • July 7, 2008
    ...Iowa Concrete Breaking Corp. v. Jewat Trucking, Inc., 444 N.W.2d 865, 868 (Minn. Ct.App.1989); Parliament Ins. Co. v. L.B. Foster Co., 533 S.W.2d 43, 50-51 (Tex.Civ. App.1975). Thus, the pre-bond nature of the claims does not, in and of itself, disqualify 532 F.3d 731 them from being recove......
  • Request a trial to view additional results
8 cases
  • Valley Intern. Properties, Inc. v. Los Campeones, Inc., No. 1300
    • United States
    • Court of Appeals of Texas. Court of Civil Appeals of Texas
    • June 15, 1978
    ...trial court. Petroleum Anchor Equipment, Inc. v. Tyra, 419 S.W.2d 829 (Tex.Sup.1967); Parliament Insurance Company v. L.B. Foster Co., 533 S.W.2d 43, 50 (Tex.Civ.App. Corpus Christi 1975, writ ref'd n. r. e.). Furthermore, even if V.I.P. had properly plead and preserved this contention, we ......
  • Augusta Court Co-Owners' Ass'n v. Levin, Roth & Kasner, CO-OWNERS
    • United States
    • Court of Appeals of Texas
    • June 4, 1998
    ...(Tex.Civ.App.--Eastland 1978, no writ) (surety's determined by bond and construction contract). Parliament Ins. Co. v. L.B. Foster Co., 533 S.W.2d 43, 49 (Tex.Civ.App.--Corpus Christi 1975, writ ref'd n.r.e.) (surety's liability to be determined by bond and construction contract "that [was]......
  • In re Bay State York Co., Inc., Bankruptcy No. 91-10187-JNG
    • United States
    • United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts
    • May 29, 1992
    ...394, 398-399 183 S.E. 572 (1936); Griffith v. Stucker, 91 Kan. 47, 52-53 136 P. 937 (1913); Parliament Insurance Co. v. L.B. Foster Co., 533 S.W.2d 43, 50 (Tex.Ct.Civ. Id. See generally 74 Am.Jur.2d Suretyship § 135 (1974) (". . . a creditor's right to proceed against the surety exists inde......
  • Larson v. Granite re, Inc., No. 07-1186.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • July 7, 2008
    ...Iowa Concrete Breaking Corp. v. Jewat Trucking, Inc., 444 N.W.2d 865, 868 (Minn. Ct.App.1989); Parliament Ins. Co. v. L.B. Foster Co., 533 S.W.2d 43, 50-51 (Tex.Civ. App.1975). Thus, the pre-bond nature of the claims does not, in and of itself, disqualify 532 F.3d 731 them from being recove......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT