U. S. Fidelity & Guaranty Co. v. Henderson County

• Decision Date: 14 October 1925
• Docket Number: (No. 502-4042.)
• Citation: 276 S.W. 203
• Parties: U. S. FIDELITY & GUARANTY CO. et al. v. HENDERSON COUNTY et al.<SMALL><SUP>*</SUP></SMALL>
• Court: Texas Supreme Court

276 S.W. 203

U. S. FIDELITY & GUARANTY CO. et al. v. HENDERSON COUNTY et al.^*

(No. 502-4042.)

Commission of Appeals of Texas, Section B.

October 14, 1925.

Error to Court of Civil Appeals of Ninth Supreme Judicial District.

Action by Henderson County against the United States Fidelity & Guaranty Company and another, in which A. W. Perdue and others intervened. Judgment for interveners in part was affirmed in part, reversed in part, and in part reversed and remanded by Court of Civil Appeals (253 S. W. 835), and defendants bring error. Affirmed.

E. A. Landman, of Athens, for plaintiff in error La Rue & Barron Co.

Miller & Miller, of Athens, for plaintiff in error Williams, Burk & Co.

Seay, Seay, Malone & Lipscomb, of Dallas, for other plaintiffs in error.

Phillips, Townsend & Phillips, of Dallas, for defendant in error.

SPEER, J.

Henderson county instituted this suit against Williams, Burk & Co., contractors, and their surety, the United States Fidelity & Guaranty Company, upon a certain road building contract and bond, and a number of persons furnishing labor and material for the improvements constructed intervened. The suit by the county was predicated upon the theory that the contractors had breached their contract and the county had been compelled to take over and finish the work. Before the trial, the contractors and the surety company settled the claim of the county under a compromise agreement, paying to the county $8,000, and a judgment embodying the agreement was duly entered. The case thereafter proceeded to trial with the interveners as plaintiffs. From the judgment rendered by the trial court, the contractors and the surety company appealed and the interveners filed cross-assignments in numerous respects.

The Court of Civil Appeals affirmed in part, reversed in part, and in part reversed and remanded. The cause is before us upon writs granted respectively to the surety company, the contractors, and the interveners. A very full statement of the case is made by the Court of Civil Appeals. 253 S. W. 835.

The writer did not have the benefit of oral arguments in the submission of this case, but the points involved have been so thoroughly briefed by the respective counsel that it is highly improbable any point has been overlooked. We will, of course, confine our discussion to the points assigned as error and are not called upon to discuss all of the questions presented to, and decided by, the Court of Civil Appeals.

At the threshold of the consideration we must determine whether or not the bond sued upon is void as for duress under compulsion of article 5623a, Vernon's Civil Statutes Supp. 1918. It is contended by the surety company that its bond was executed solely under the authority of this statute and the requirement of the county that its terms be complied with. This statute having been held to be void as in contravention of the Constitution (Williams v. Baldwin [Tex. Com. App.] 228 S. W. 554), the insistence is that the bond given in obedience to its requirement is likewise void. The contract between the county and the contractors stipulated:

"The contractor shall file a guaranty of his faithful performance of said contract, a good and sufficient bond in compliance with article 5623a, Senate bill No. 79, c. 143, of the Thirty-Fourth Legislature 1915, which requires that the contracts less than $1,000 a bond for full amount of contract be given, for those over $1,000 and not over $5,000, three-quarters of contract price, and those over $5,000 and not over $100,000, one-half contract price, those over $100,000 one-third contract price be given. Said bond to be furnished by a surety company authorized to do business in the state of Texas or responsible persons acceptable to party of the first part."

There was much evidence tending to show that all parties to the contract and bond considered article 5623a as applicable and that the bond was executed in compliance with its terms. The Court of Civil Appeals, in disposing of this contention, thought it clearly appeared that article 6394f of the statute was meant, since that article alone has relation to public contracts, and therefore disregarded all reference to article 5623a and construed the contract and bond in the light of article 6394f. This last article, which is especially applicable to contracts with the state, its counties, school districts, or other subdivisions thereof, for the construction of public works, provides:

That any person, firm, or corporation entering into such contract shall "before commencing such work to execute the usual penal bond, with good and sufficient sureties, with the additional obligation that such contractor or contractors shall promptly make payments to all persons supplying him or them with labor and materials in the prosecution of the work provided for in such contract."

The bond actually executed was as follows:

"Contractors' Bond. Know all men by these presents: That we, Williams, Burk & Co., of Jacksonville, Cherokee county, and state of Texas, principal, and United States Fidelity & Guaranty Company of Baltimore, Md., as surety, are held and firmly bound unto the county of Henderson, state of Texas, in the penal sum of forty-three thousand two hundred twelve and 32/100 dollars ($43,212.32) lawful money of the United States, to be paid to said county or to its certain attorneys or assigns, for which sums of money, well and truly to be paid, we bind ourselves, our heirs, successors, executors, and administrators, jointly and severally, firmly by these presents.

"Sealed with our seals and dated this eighth day of January, A. D. 1920.

"The condition of this obligation is such that if the said bounden principal, Williams, Burk & Co., shall in all things well and truly perform all the terms and conditions of the aforegoing contract, to be by them/him performed, and within the time therein mentioned, and shall pay all lawful claims for labor performed in and about the construction of said road bridge, and shall have paid and discharged all liabilities for injuries which have been incurred in and about the said construction, under the operation of the statutes of the state, then this obligation is to be void; otherwise to be and remain in full force and virtue."

It cannot be denied that a bond executed solely by authority of a void statute to secure a right which the maker would otherwise have without such execution is void as for duress; but the bond in the present case cannot be avoided upon this ground. Before the bond could be thus avoided, it would have to appear that it was executed solely upon the compulsion of the void statute and that the rights secured thereby rightfully belonged to the maker without such compliance; in other words, that the sole consideration for executing the bond was the void statute.

In the view we take of the matter, it is immaterial whether the parties mistakenly thought article 5623a was applicable to the situation or not. It is clear that, by reason of the express requirements of article 6394f, there was ample valid authority requiring the contractor to execute a bond conditioned for the payment of labor and materials, so that there existed imperative authority for the execution of the bond in controversy entirely aside from the requirements of article 5623a. In truth, under the terms of article 6394f, the contractors could not lawfully proceed with their work until they had executed a bond in compliance with its terms. It cannot be said, therefore, that the bond depends in anywise upon the validity of article 5623a, for in truth it does not. Moreover, it is not necessary for us to hold that article 6394f will be read into the contract whether the parties intended to execute thereunder or not, since we are of the opinion the terms of the bond actually executed are sufficient to make the surety company liable for all the demands upon which it has been held. The authorities cited by this plaintiff in error are not at all decisive in its favor, but are all explicable and in keeping with the principle we have just announced. In Shaughnessy v. American Surety Co., 138 Cal. 543, 69 P. 250, 71 P. 701, where an instrument executed under a void statute was held to be void, the court, in declining to uphold the bond as a common-law obligation, was particular to say:

"It is not the case where a valid statute requires a bond and the bond given is defective. It is a case where the statute requiring the bond is itself unconstitutional because of this exaction."

Here, as we have shown, this is a case where a valid statute requires the bond. So, in City of Cleveland v. Clements Bros., 67 Ohio St. 197, 65 N. E. 885, 59 L. R. A. 775, 93 Am. St. Rep. 670, cited by plaintiff in error, the court held void certain stipulations or agreements inserted in a contract where "the obligatory and binding force of such stipulations and agreements so inserted depends upon the validity of the statute requiring their insertion," and where such statute is itself unconstitutional. Here, of course, the validity of plaintiff in error's bond does not depend at all upon the validity of article 5623a, but is otherwise supported, and even required, by a valid statute. Again, in Southern Surety Co. v. Nalle & Co. (Tex Com. App.) 242 S. W. 197, cited by plaintiff in error, it is said:

"There is nothing in the record showing or tending to show that the owners in taking this bond were constrained to do so solely by virtue of said statutes or that any of its terms or conditions were demanded by the owners solely by reason thereof. * * * Where a bond is wrongfully demanded under color of official authority or as a condition to some act, privilege, or benefit to which the maker is entitled without giving any bond [italics ours], such bond, if given, will be held to be void for duress."

Now, clearly the bond in the instant case was not required solely by virtue of the void statute, and equally clearly...