Union Indemnity Co. v. Acme Blow Pipe & Sheet Metal Works

Decision Date09 April 1928
Docket Number26740
Citation150 Miss. 332,117 So. 251
CourtMississippi Supreme Court

Division A

Suggestion of Error Overruled June 11, 1928.

APPEAL from chancery court of Hinds county, First district, HON. V J. STRICKER, Chancellor.

Suit by the Acme Blow Pipe & Sheet Metal Works against the Union Indemnity Company and another, wherein Stewart C. Irby Company and others were permitted to intervene, and wherein defendant named filed a cross-bill against the board of education of the city of Jackson. From the decree defendant named appeals, and certain interveners cross-appeal. Affirmed.

Decree affirmed.

Geo. Butler, for appellant.

The bond did not inure to the benefit of materialmen and laborers. The bond is not in double the amount of the bid or contract, as required by the city ordinances. It is not conditioned for the prompt, proper and efficient performance of the contract. It is not a performance bond at all. On the contrary, it is conditioned that if the principal, that is the Union Electric Heating and Plumbing Company, Inc., shall well and truly indemnify and save harmless the obligee from pecuniary loss resulting from a breach of any of the terms and conditions of the contract, the obligation is to be void. Again it is expressly stipulated "that in no event shall the surety be liable to other than the obligee," and again, the surety "shall not be obligated to furnish any bond or obligation other than the one executed." The ordinance required a bond in the sum of forty thousand dollars and the bond given was for twenty thousand dollars. The ordinance required a performance bond and the surety refused to execute a performance bond. The statute requires that in addition to the usual bond it shall contain an additional obligation to pay laborers and materialmen and we have a case where the surety expressly refused to become liable to laborers and materialmen and expressly refused to execute the obligation in any form other than the one sued on. There is, therefore, no basis for the claim that the obligation should be enlarged under sec. 1022 Code of 1906. Moreover, section 1022 of the code provides that when a bond is executed for the performance of any public contract it shall inure to the person to whom it is designated by law as security and be subject to judgment in his favor, no matter to whom it is made payable, nor what its amount, nor how it is conditioned, and that the undertakers shall be bound, etc., "if such bond had the effect which a bond payable and conditioned as prescribed by law would have had." This section can have no application to a bond for a public contract given under chapter 217, Laws of 1918, unless the contract is made void by the ordinance or statute under which the contract is let, for the failure to give the bond. In other words, the law does not prescribe any effect which shall follow the execution of a bond. It does not provide that the contract shall be void, if the bond is not given.

It merely provides that the public authority letting the contract shall require or exact the usual bond which the court has construed to mean a performance bond, but it does not make the contract void if the bond is not given. In the event the public authority does not require the bond, the contract is not declared to be null, nor is any other legal effect specified. Hence, the statute can have no application to a public contractor's bond, unless that bond has the effect of a validating and otherwise void contract. In some jurisdictions it is held that the members of the public body are personally liable for failure to require of the contractor a bond in accordance with the statute. See Ann. Cas. 1917B, 1092; Iron Company v. Leflore County, 135 Miss. 156. The contractor in executing the bond in question did all that the public body required of him. The surety company did all the public authorities required of it. The statute imposes neither upon the contractor nor his surety any duty as to the execution of the bond and the failure of the municipal authorities to require a bond conditioned as contemplated by the statute is not chargeable to the contractor or his surety. Here the bond is one of pure indemnity and not of suretyship and performance. Ideal Brick Co. v. Gentry, 191 N.C. 630; Trust Co. v. Construction Co., 191 N.C. 664; 14 R. C. L. 43; 31 C. J. 419. In Union Sewer Pipe Co. v. Olson, 82, Minn. 187, 84 N.W. 756, it was held that the surety was bound only by the terms of the bond and not by the terms of the law relating to public contract and that the surety was not liable for payment for material furnished to the contractor. The weight of authority supports the position of the surety company here. Wallace Equipment Co. v. Graves, 132 Wash. 141; Ideal Brick Co. v. Gentry, 191 N.C. 636; Paige Trust Co. v. Carolina Construction Co., 191 N.C. 664; Mass Bonding Co. v. Hoffman (Ga.), 130. S.E. 375; Hannah v. Lovelace Lumber Co., 159 Ga. 856; Lumber Company v. Banks (Mo.), 117 S.W. 611; Erie to use, etc., v. Diefendorg, 278 Pa. 31; Hardison Co. v. Yearman, 115 Tenn. 639; McCrary v. McDade County (Fla.), 86 So. 612; Fulgham v. State (Fla.), 109 So. 644. Under the principles announced in the authorities cited, supra, we think it clear that the bond in this case did not inure to the benefit of the complainant and interveners; and inasmuch as it is alleged in the plea that the bond did not have the effect in the matter which a bond payable and conditioned as prescribed by law would have had, no help is to be obtained from section 1022, Code of 1906.

The court erred in holding that the plea in bar contained in defendant's answer was insufficient in point of law, and in overruling said plea and holding appellant liable on the bond. Section 6 of chapter 217, Laws of 1918, provides that when suit is instituted under the act, notice of the pendency of the suit shall be made by publication, etc., and also provides "in all suits instituted under the provisions of this act the parties interested shall be summoned as provided by section 3064, Code of 1906. In U. S. F. & G. Co. v. Mobley, 143 Miss. 512, 108 So. 501, the court held that no final judgment could be entered until the publication was made. The notice that was published in this case simply states the name of the parties, the character of the suit and that the notice is published in compliance with chapters 128 and 217 of the Laws of 1918. By it no one is summoned into court and there is not in this record, or elsewhere, any summons for all persons having claims against the bond. The statute provides that only one suit is to be instituted. It contemplates that all claims against the surety shall be litigated in one suit and at one time. It provides for notice of the pendency of the suit and expressly requires that all "parties interested" shall be summoned as provided by section 3064, Code of 1906. This section provides that the defendant shall be summoned as in other actions to appeal and defend the suit and in case any necessary party defendant shall be a nonresident of or absent from the state, or cannot be found, he may be made a party by publication as in cases of nonresidents or absent defendants in chancery. This section must be construed in connection with section 3063, Code of 1906, which provides that "all persons having an interest in the controversy shall be made a party to the suit," and provides that if any necessary or proper party is omitted he may be brought in by an amendment on his own application, or that of any other party. Our contention is that a plaintiff bringing a suit under chapter 217, Laws of 1918, is required to make all known persons having claims against the bond parties defendant to the suit and if he does not know of all persons having such claims, then he must make "all unknown parties having an interest in the controversy" parties defendant to the suit, and that the defendants, both known and unknown, must be served with process as contemplated and provided in secs. 3920, 3992, and 3924, Code of 1906.

If appellant is liable to complainant and interveners then it has a right of action over against the city and the demurrer to its cross-bill was wrongfully sustained. The contract provided for a retained percentage. The contractor was entitled to draw eighty-five per cent of the value of the labor and materials furnished on the ground and upon the completion of the contract was entitled to increase his payments to ninety per cent of the contract price, and ten days thereafter entitled to draw the balance due. The bond in this case expressly stipulated that in the event of default on the part of the contractor, it should be subrogated to all the rights of the contract "including all securities . . . and all deferred payments, retained percentages and credits due to the principal at the time of such default, or to become due thereafter upon the terms and conditions of the contract." In the court below it was seemingly urged that the contract did not provide for a retainage or a final payment, but the matter of payment was left entirely with the discretion of the municipal authorities or the architect. The contract is not susceptible to this construction. In this respect it is almost identical with the contract in Y. M. C. A. v. U. S. F. & G. Co., 90 Kan. 332, 133 P. 894, L. R. A. 1915C, 170. The court there, says:

"The contract of suretyship expressly provides that the surety shall not be liable, unless upon written notice to the surety its consent be obtained before making final payment, and in case of default there is a provision subrogating the surety to all the rights of the principal arising out of the contract for the erection of the building,...

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