Western Cas. and Sur. Co. v. Honeywell, Inc., 51690

• Decision Date: 20 February 1980
• Docket Number: No. 51690,51690
• Citation: 380 So.2d 1385
• Parties: The WESTERN CASUALTY AND SURETY COMPANY v. HONEYWELL, INC.
• Court: Mississippi Supreme Court

Page 1385

380 So.2d 1385

The WESTERN CASUALTY AND SURETY COMPANY v. HONEYWELL, INC.

No. 51690.

Supreme Court of Mississippi.

Feb. 20, 1980.

Rehearing Denied April 2, 1980.

Cox & Dunn, Vardaman S. Dunn, Jackson, for appellant.

Pope & Van Slyke, J. B. Van Slyke, Jr., Hattiesburg, for appellee.

Before SMITH, SUGG and BOWLING, JJ.

SUGG, Justice, for the Court:

This is an appeal from a final decree of the Chancery Court of Forrest County awarding Honeywell, Inc. a judgment for $7,728.00, plus interest against Western Casualty and Surety Company.

The sole question is whether a provision in a payment bond executed in compliance with section 31-5-1 Mississippi Code Annotated (1972), requiring a supplier of a sub-contractor to give notice of his claim within 90 days after furnishing the last material, is against public policy because it requires notice by the supplier before the expiration of the time within which suit may be filed by the supplier under section 31-5-7 Mississippi Code Annotated (1972).

Sections 31-5-1 and 31-5-7 provide:

31-5-1. Any person entering in a formal contract with this state, any county thereof, municipality or any political subdivision whatsoever therein, for the construction of any building or work or the doing of repairs shall be required before commencing same to execute the usual bond with good and sufficient sureties, with the additional obligation that such contractor or contractors shall promptly make payments to all persons supplying labor or material therefor. Any person who has furnished labor or materials used therein and wherefor payment has not been made shall have the right to intervene and be made a party to any action instituted on such bond and to have his rights adjudicated in such action and judgment rendered thereon, subject, however, to the priority of the claim and judgment of the obligee. If the full amount of the liability of the surety thereof is insufficient to pay the full amount of said claims and demands, then, after paying the full amount due the obligee, the remainder shall be distributed pro rata among said intervenors. The bond herein provided for may be made by any surety company authorized to do business in the State of Mississippi.

31-5-7. When suit is instituted by any of such persons on a bond, it shall not be commenced until after the complete performance of said contract and final settlement thereof, and shall be commenced within one year after the performance and final settlement of said contract and not later. If the contractor quits or abandons the contract before its completion, suit may be instituted by any such person on said bond and shall be commenced within one year after such abandonment and not later. But said time for the institution of said action shall not begin to run until the obligee shall have made said final settlement or determined said abandonment and published notice thereof in some newspaper published in said county, or if there be none then in some newspaper having a general circulation therein.

This case was tried on a stipulation of facts which included the following. On February 1, 1974, Coast Accoustical Contractors, Inc., as prime contractor, entered into a contract with the Trustees of the Mississippi Gulf Coast Junior College District of Mississippi, as owner, for the construction of additions and alterations to buildings on the Perkinston Junior College Campus. The prime contractor furnished performance and payment bonds with Western Casualty as required by the owner and by section 31-5-1. The prime contractor entered into a contract with Mississippi Mechanical Contractors, Inc., as subcontractor. Under the terms of this contract the sub-contractor agreed to furnish and install certain items as a part of the construction project including, among others, temperature controls. The sub-contractor furnished a performance and payment bond with Summit Insurance Company of New York, as surety naming the prime contractor as obligee. The bond covered the work to be done by the sub-contractor on the construction project.

On February 4, 1974, the sub-contractor issued a purchase order to Honeywell for the purchase of temperature controls specified for the project for the stated price of $7,728. The temperature controls called for in the purchase order complied with the contract specifications and were installed and remained upon the project at the time suit was brought. The charge of $7,728 was a reasonable charge for the temperature controls.

The construction project was completed on November 1, 1974, and publication of the final settlement and completion of the project required by section 31-5-7 Mississippi Code Annotated (1972) was made on August 4 and 11, 1977.

The prime contractor paid the sub-contractor in full but the sub-contractor failed to pay Honeywell for the items purchased by the sub-contractor from Honeywell.

The sub-contractor's surety went into liquidation in New York. Honeywell learned of the New York liquidation in April, 1976, and was notified it could file a claim but did not file a claim in the New York liquidation. The time for filing claims expired September 28, 1976.

The payment bond executed by Western Casualty contained the following provision:

3. No suit or action shall be commenced hereunder by any claimant:

a) Unless claimant, other than one having a direct contract with the Principal, shall have given written notice to any two of the following: the Principal, the Owner, or the Surety above named, within ninety (90) days after such claimant did or performed the last of the work or labor, or furnished the last of the materials for which said claim is made, stating with substantial accuracy the amount claimed and the name of the party to whom the materials were furnished, or from whom the work or labor was done or performed. Such notice shall be served by mailing the same by registered mail or certified mail, postage prepaid, in an envelope addressed to the Principal, Owner or Surety, at any place where an office is regularly maintained for the transaction of business, or served in any manner in which legal process may be served in the state in which the aforesaid project is located, save that such service need not be made by a public officer.

Honeywell did not have a contract with the prime contractor or with the owner in relation to the construction project but its contract was with the sub-contractor. Honeywell did not give written notice of its claim to the prime contractor (the principal in the bond), the owner, or Western Casualty, the surety within 90 days after it furnished the last material to the sub-contractor. Honeywell gave oral notice to the owner between December 1 and December 8, 1975, that it had a claim and desired to obtain a copy of the performance and payment bond. The bond was furnished and on December 16, 1975, Honeywell gave written notice of its claim to Western Casualty. Honeywell unsuccessfully attempted to collect the amount due from the sub-contractor on several occasions.

Honeywell filed suit against Western Casualty on May 12, 1978, which was within the one year limitation prescribed in section 31-5-7. Western Casualty asserted as an affirmative defense the failure of Honeywell to give written notice within 90 days after it furnished the last of the materials for which claim was made. The position of Western Casualty is that the 90 days notice provision in the payment bond is reasonable, equitable, and not against public policy or contrary to law, and compliance with the notice provisions of the bond was a condition precedent which must be complied with before the liability of Western Casualty, as surety, became fixed. Honeywell states that it is required to give notice earlier under the bond than under the statute (section 31-5-7); therefore, it contends the notice provision in the bond is against public policy because it takes away its right to sue within one year after notice of final settlement by the owner by publication. The chancellor agreed with Honeywell and held the 90 day notice provision in the payment bond was repugnant to public policy as expressed in section 31-5-7.

The 90 day notice provision contained in the payment bond is a mandatory provision in federal construction contracts under the Miller Act, 40 U.S.C. § 270b. The beneficial purposes served by the provision is expressed in United States v. Thompson Construction Corp., 273 F.2d 873 (2nd Cir. 1959) as follows:

A statute which gave rights on the contractor's bond to laborers and...