State for Use of Farmers State Bank v. Ed Cox and Son
| Decision Date | 06 January 1965 |
| Docket Number | 10099,Nos. 10098,s. 10098 |
| Citation | 132 N.W.2d 282,81 S.D. 165 |
| Parties | STATE of South Dakota for the use of FARMERS STATE BANK, Plaintiff and Cross Appellant, v. ED COX AND SON, and William B. Cox, Defendants, and Tennefos Construction Company and United Pacific Insurance Company, Defendants and Appellants. |
| Court | South Dakota Supreme Court |
Stephens, Riter & Mayer, Pierre, Cupler, Tenneson, Serkland & Lundberg, Fargo, N. D., for defendants and appellants.
Carl W. Miller, Flandreau, Woods, Fuller, Shultz & Smith, Sioux Falls, for plaintiff and cross appellant.
The basic question posed by this litigation is whether money loaned to a contractor and used by him in payment of claims that he has incurred in carrying out the provisions of his contract with the state highway authority is within the coverage of his performance bond.
The trial court held that it was and entered judgment for the use plaintiff against Ed Cox and Son, a partnership, and William B. Cox, the surviving partner, for the full amount of its loan with interest, and against Tennefos Construction Company and the United Pacific Insurance Company, the surety, in a lesser amount, but without interest prior to the entry of judgment. The Coxes, the partnership and the surviving partner, did not contest the action nor do they take any part in these appeals. The other defendants appeal from the judgment entered against them and the use plaintiff cross appeals from the part of the judgment denying it interest before judgment.
The following findings of the trial court delineate the factual background necessary for our consideration of the basic question.
'II
'On or about August 25, 1955, the defendants Tennefos Construction Company and Ed Cox and Son entered into a contract with the Department of Highways, State of South Dakota, acting by and through its state Highway Commission, to furnish all materials, appliances, tools, food and labor of every kind, and to construct various items of work in connection with the construction and improvement of a portion of the State trunk highway in Lyman County, South Dakota, and such defendants, who are therein designated as the contractor, therein further agreed as follows:
'The said Contractor further agrees to pay all just claims for materials, supplies, food, tools, applicances, and labor, and all other just claims incurred by him or any of his sub-contractors in carrying out the provisions of this contract, and further agrees that the contract bond shall be held to cover all such claims.'
'III
'To secure the performance of such contract, the defendants, Tennefos Construction Company and Ed Cox and Son as Principals, and the defendant, United Pacific Insurance Company as Surety, furnished a certain performance bond running to the State of South Dakota in the sum of $408,671.84, whrein such defendants agreed:
"NOW THEREFORE, The condition of the foregoing obligation is such that if the said principal shall well, truly and faithfully comply with and perform all the terms, covenants and conditions of said contract, on his part to be kept and performed according to the terms and tenor or said contract and shall protect the said State of South Dakota against and pay any excess of costs as provided in said contract, and all amounts, damages, costs, judgments which may be recovered against said State or its officers or agents, or which the said State of South Dakota may be called upon to pay to any person or corporation by reason of any damages arising or growing out of the doing of said work or the repair thereof or the manner of doing same, or the neglect of said Principal or his agent or servants, or the improper performance of the said work by the said Principal or his servants or agents or from any other cause growing out of the said contract, and if the above bounden Principal, his heirs, executors, administrators or assigns, shall and will and truly pay or cause to be paid the wages stipulated and agreed to be paid each and every laborer employed by the principal, his agent, or subcontractor and all claims incurred for materials, supplies, food, tools, and appliances, in carrying out the provisions of said contract, then this obligation is null and void, otherwise to remain in full force and virtue.'
'IV
'In March of 1956, the defendant, Ed Cox and Son agreed with the use plaintiff to use funds which might be loaned to such defendant by the use plaintiff for the payment of claims for, and the supplying of materials, supplies, food, tools, appliances and labor and all other just claims incurred by Ed Cox and Son in carrying out the provisions of said contract with the Department of Highways and the use plaintiff agreed to supply funds for such purpose.
'V
'Pursuant to such agreement, the use plaintiff thereafter loaned the defendant, Ed Cox and Son, prior to any dissolution thereof, and the surviving partner William B. Cox in the course of his winding up the affairs of the partnership and performing its contracts, sums remaining unpaid in excess of $108,492.42 through October 19, 1956.
'VI
'After crediting payments on the entire amounts loaned to the defendant Ed Cox and Son and William B. Cox, both prior and subsequent to March, 1956, a balance in excess of $149,113.19 has remained unpaid since February 4, 1957.
'VII
'During the period from April, 1956, through October, 1956, the defendant, Ed Cox and Son and the surviving partner, William B. Cox were engaged only in the performance of the contract described in Finding II hereof.
'VIII
'To the extent of$108,492.42 such unpaid loans were in fact used in the performance of such contract by payment of claims for and the supplying of materials, food, tools, appliances and labor and all other just claims incurred by Ed Cox and Son in carrying out the provisions of such contract.
'IX
'To the extent of $108,492.42 use plaintiff's claim was incurred by the defendant Ed Cox and Son and the surviving partner William B. Cox in winding up the affairs of the partnership, in carrying out the provisions of such contract.
'XIII
'There is due and owing to use plaintiff from the defendants Tennefos Construction Company and United Pacific Insurance Company the sum of $108,492.42 without interest prior to the Entry of Judgment.'
These conclusions of law are also pertinent to this feature of the case:
'I
'The provisions of said contract for the payment of all just claims incurred by the contractor in carrying out the provisions of the contract and that the contract bond shall be held to cover all such claims and the provisions of the bond for the performance of all the terms, covenants and conditions of said contract, include the claim of the use plaintiff for money loaned to Ed Cox and Son and William B. Cox and used in carrying out the provisions of the contract.
'III
'The indebtedness incurred by Ed Cox and Son and William B. Cox the surviving partner to the use plaintiff to the extent of $108,492.42 constitutes a just claim incurred by such contractor in carrying out the provisions of said contract with the Department of Highways.
'V
'The defendants, Tennefos Construction Company and United Pacific Insurance Company are justifly indebted to use plaintiff in the sum of $108,492.42 without interest prior to the Entry of Judgment.
'VI
'Plaintiff is entitled to judgment against the respective defendants accordingly.'
The primary contention of the defendants is that the coverage of the bond involved is limited by the statute pursuant to which it was furnished and does not include the claim here asserted. Their position is that it is limited to the claims of laborers and materialmen. The only statute we have requiring a bond in connection with highway construction contracts came into our law as Chapter 135, Laws of 1941. It now appears as SDC 1960 Supp. Ch. 28.16. The title of this enactment reads: 'An Act for the Protection of Persons Furnishing Material and Labor For the Construction, Repair or Improvements of Public Highways.' These features are mentioned in the body of the law. The sufficiency of the title has not been made an issue.
Section 1 of the Act, now SDC 1960 Supp. 28.1601, reads as follows:
'Before any contract is entered into for the construction, repair or improvement of any public highway by the state of South Dakota, or any public corporation within the state of South Dakota, the person to whom such contract is awarded shall furnish a performance bond running to the state of South Dakota in an amount not less than the contract price of the faithful performance of such contract, in the form and conditioned as required by the statutes of the state of South Dakota.'
While this says that the bond shall be 'in the form and conditioned as required by the statutes of the State' no one has pointed out to us any statute, other than the above, prescribing either the form of such bonds or how they shall be conditioned. Nor has our independent search uncovered any Ch. 300 of the Laws of 1939, now included in SDC 1960 Supp. Ch. 65.07, which prescribes the form and conditions of the bond when contracts are entered into for public improvements specifically exempts from its effectiveness contracts of the State Highway Commission.
The legislature's failure to implement the Act in this regard leaves it incomplete concerning the specific conditions that the bond must contain. The only bond provision prescribed by the Act is for the faithful performance of the contract, and since the form of the contract by SDC 28.0214 is left to the approval of the Highway Commission, that agency determines the conditions of the bond. In the sense that it is required by statute it is a statutory bond, but its specific coverage is not spelled out by statute but rather by the contract. Consequently, we do not feel that the liability on a bond furnished pursuant to this statute is limited to laborers and materialmen. In our view its coverage is determined...
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