Union Indem. Co. v. State

• Decision Date: 10 November 1927
• Docket Number: 3 Div. 805
• Citation: 217 Ala. 35,114 So. 415
• Parties: UNION INDEMNITY CO. v. STATE, for Use of McQUEEN SMITH FARMING CO.
• Court: Alabama Supreme Court

114 So. 415

217 Ala. 35

UNION INDEMNITY CO. v. STATE, for Use of McQUEEN SMITH FARMING CO.

3 Div. 805

Supreme Court of Alabama

November 10, 1927

Appeal from Circuit Court, Montgomery County; Walter B. Jones Judge.

Action for breach of surety bond by the state of Alabama, for the use of the McQueen Smith Farming Company, against the Union Indemnity Company. From a judgment for plaintiff, defendant appeals. Affirmed.

Weil Stakely & Cater, of Montgomery, for appellant.

Hill Hill, Whiting, Thomas & Rives, of Montgomery, for appellee.

BOULDIN J.

McQueen Smith Farming Company, suing in the name of the state, brings this action against the Union Indemnity Company, as surety on the bond of the Riley & Bailey Construction Company contractor, doing construction work under contract with the state highway commission. The claim is for labor and material furnished by plaintiff to the contractor for use in the construction of the Reese's ferry bridge over the Alabama river.

The statute requires that the contractor's bond "shall be in an amount equal to the contract price and conditioned to do and perform the work in accordance with the contract or agreement." Code, § 1328.

The bond given and sued upon was for the amount of the contract price, with condition that "such contractor shall faithfully and promptly perform said contract and all the conditions and requirements thereof," and with the following added provision:

"The said principal and sureties further agree as part of this obligation to pay all such damages of any kind to person or property that may result from a failure in any respect to perform and complete said contract, and guarantee the payment of such sums due for labor, materials and supplies used in the performance of this contract as set forth under special provisions."

By the "special provision," made part of the contract and bond by reference, the contractor agreed to pay all bills for labor, material, and supplies as they became due, to submit to the state highway department satisfactory evidence of such payment before final settlement, to give notice by publication of the day for final settlement, and "that all claims for nonpayment of labor, supplies, or materials employed or used in carrying out this contract must be presented to the state highway engineer on or before the date of final settlement. Any claims not filed on or before the date of final settlement are barred." Claims so filed were to be transmitted to the bonding company, and full performance not approved until they were paid or adjusted. A resolution had theretofore been adopted by the state highway commission requiring bond for the protection of laborers and materialmen.

The principal question presented on appeal goes to the validity or binding effect upon the surety of the additional guaranty written into the bond in favor of laborers and materialmen.

Appellant's view is that the statutory bond payable to the state in amount of the contract price is for the protection of the state only; that enlarging the condition to let in laborers and materialmen divides, depletes, and may destroy the security provided by law to save the state harmless; that such added provision is ultra vires, against public policy, and must be read out of it as surplusage and unlawful. The question is new in this state. The decisions of other states, carefully collected and reviewed in briefs of counsel, are not in harmony.

Among the cases giving support to appellant's position are the following: Commonwealth v. Empire State Surety Co., 50 Pa.Super.Ct. 404; Fosmire v. National Security Co., 229 N.Y. 44, 127 N.E. 472; Schisel v. Marvill, 198 Iowa, 725, 197 N.W. 662; Miller v. Bonner, 163 La. 332, 111 So. 776.

The state highway department, consisting of a state highway commission, is charged with the general duty to designate, construct, standardize, repair, and maintain roads and bridges in this state. The state highway commission determines all questions relating to the "general policy" of the highway department, the conduct of its work, and the performance of its duties (Code, § 1303); has "general supervision" over construction and maintenance of all public roads and bridges where state funds are used (Code, § 1316); has power to adopt "all reasonable and necessary rules and regulations" for the construction of roads and bridges (Code, § 1319); such rules and regulations as may be deemed necessary (Code, § 1343). All contracts shall be made in the name of the state, approved by the state highway engineer, the state highway department, the president of the state highway commission, and the Governor (Code, § 1330). Besides the bond required of contractors, the interests of the state are safeguarded by limiting payments in the progress of the work to estimates based upon the materials placed and labor expended, not exceeding 85 per cent. of the contract price, reserving 15 per cent. until the work is completed and approved. Code, § 1329.

Manifestly, the state highway commission is a state agency with plenary powers in the construction and maintenance of a system of highways, for which purpose large funds are raised by bond issues and otherwise to be expended under the orders, rules and regulations of the commission with the approval of the chief executive of the state.

The mandatory requirement of bond and of limited payment in advance of completion are safeguards written in the statute. They do not negative the power to provide others such as may be deemed proper in the protection of all parties connected with this state enterprise. The statute does not prescribe forms of contracts.

The statutory condition to "perform the work in accordance with the contract" is very general, does not stand alone, but writes the contract into the bond. To the contract, with accompanying documents incorporated therein, all parties look for the detailed obligations undertaken by the contractor and his surety. Any provision defining these obligations, which may be incorporated into the contract, and by reference into the bond, may manifestly be incorporated into the bond directly.

The inclusive terms of our statutes conferring powers on the state highway department, a state agency engaged in a large business enterprise of public character, carry the implied power to do all things incidental and appropriate to the accomplishment of the work in hand in a businesslike and orderly manner. Does this include the authority to write into the contract and thereby into the statutory bond guaranties for the payment of bills for labor and materials? It is suggested by appellant that a separate bond might be required to this end, but that the security of the statutory bond inures to the state alone, and all other provisions are void. We do not see that the statute contemplates more than one bond for the performance of the contract, nor a bond in excess of the penalty named in the statute. We confine our decision to the question of authority to stipulate for the payment of bills for labor and materials as part of the obligation of the contract, and of the statutory bond for its performance.

As related to the general powers conferred on the state highway commission, we note section 1338 of the Code looking to compliance with the terms of the Federal Highway Act, and the co-operative construction of federal...