U. S. Fidelity & Guaranty Co. v. Henderson County , 1925 Tex. App. LEXIS 1429 ( 1925 )

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 in-terveners as plaintiffs. From the judgment rendered by the trial court, the. contractors and the surety company appealed and the in-terveners 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 ease 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 5623_a, 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 ovefc $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 Tesas 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 639-lf 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 actuaUy executed was as follows:

“Contractors’ Bond. Know all men by these presents: That we, Williams, Burk & Co., of Jacksonville, Cherokee county, arid 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 riioney 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 afore-going 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 opera-’ tion 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 proceecf 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 sho;w 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 yiving any bond [italics ours], such bond, if given, will be held to be void for duress.”

Now, clearly tbe bond in tbe instant case was not required solely by virtue of tbe void statute, and equally clearly tbe contractors and tbe surety company were not entitled to proceed with tbe undertaking in band “without giving sucb bond.” It would be an anomalous situation for tbe court to bold that the bond executed - in this case in accordance with tbe requirements of a valid statute must be held to be absolutely void because forsooth another article thought by the parties to be applicable is itself void upon constitutional grounds. We are not willing to go to this length.

It is next insisted that, since tbe bond actually executed does not stipulate for tbe payment of claims for materials furnished under tbe contract, tbe surety company is not liable for such claims. If tbe parties executed the bond intending to comply with article 6394f, then, of course, tbe terms of that article will become a part of the contract, incorporated into it. Trinity Portland Cement Co. v. Lion Bonding & Surety Co. (Tex. Com. App.) 229 S. W. 483. But we need not base our bolding upon this principle. As will be seen from an inspection of the bond already set out, it is conditioned that the principal, Williams, Burk & Co., “shall in all things well and truly perform all the terms and conditions of the aforegoing contract.” Now, one condition of the contract is:

“The agreement covering the performance of the work. It shall include the plans and specifications and shall be held to cover any or all work, labor, implements, machinery, equipment, and materials that are required to complete the work indicated in a proper and satisfactory manner.”

It is -thus seen that the terms of the contract are made part of the undertaking of the bond, and, when the bond is construed in the light of the contract which it secures, it obligates the makers, not only .for all work, labor, implements, machinery, and equipment, but for all materials as well that are required to complete the work indicated. It is not so much, therefore, a reading of the statute into the bond as it is a matter of plain meaning of the bond when read in connection with the contract which it secures. When thus read, it specifically undertakes to guarantee the payment fot materials required to complete the work.

The contention is pressed that the Oourt of Civil Appeals erred in holding that stock feed to those furnishing teams to do work upon the construction constituted material used in the prosecution of the work. But in this holding there was no error. It is a principle of universal application that statutes such as the one governing bonds like this are tó receive a liberal interpretation. Furthermore, the wording of the contract secured by the bond, to wit, “materials that are required to complete the work indicated,” is broader than the rule contended for by plaintiff in error that the right to recover for materials furnished' is limited to those materials that actually enter into the construction; rather, it is broad enough to cover all materials that are required to complete the work —that is, helpful, needful and the like. A quotation made by the Oourt of Civil Appeals from Brogan v. National Surety Co., 246 U. S. 257, 38 S. Ct. 250, 62 L. Ed. 703, L. R. A. 1918D, 776, so aptly illustrates the rule that we ourselves quote it:

“The Circuit Court of Appeals deemed immaterial tbe special circumstances under which the-supplies were furnished and the findings of fact by the trial court that they were necessary to and wholly consumed in the prosecution of the work provided for in the contract and? bond. In our opinion these facts are not only material, but decisive. They establish the conditions essential to liability on the bond. The bare fact that the supplies were furnished to-the contractor and were consumed by workmen in its employ would have been immaterial. A boarding house might be conducted by the contractor (like some company stores concerning which states have legislated [Keokee Consol. Coke Co. v. Taylor, 234 U. S. 224, 58 L. Ed. 1288, 34 S. Ct. 856]) as an independent enterprise, undertaken solely in order to utilize the opportunity for separate and additional' profit afforded by the congregation of many laborers in the particular locality where the public work is being performed. The laborers might resort to such a boarding house in the exercise of individual choice in the selection of an eating place. Under such circumstances-the furnishing of supplies would clearly be a matter independent of the work provided for in the contract, and would not entitle him who. had furnished the groceries used in the boarding house to recover on the bond. But here,, according to the undisputed facts and the findings of the trial court, the furnishing of board-by the contractor was an integral part of the-work and necessarily involved in it. Like the suppling of coal to operate engines on the-dredges, it was indispensable to the prosecution of the work, and it was used exclusively in-the performance of the work. Groceries furnished to a contractor under such circumstances andi consumed by the laborers are materials supplied and used in the prosecution of the public work. The judgment of the Circuit Oourt of Appeals-is therefore reversed and that of the district court affirmed.”

To- the same doctrine are: United States v. Lowrance, 252 F. 122, 164 C. C. A. 234; City of Portland v. New England, etc., Co., 96 Or. 48, 189 P. 211; Carter County v. Cliver Hill Const. Co., 143 Tenn. 649, 228 S. W. 720; Bricker v. Rollins & Jerecki, 178 Cal. 347, 173 P. 592.

It is still insisted, as it was in the Court of Civil Appeals, that there was a fatal variance between the pleading and the proof in the matter of the intervention of A. W. Perdue. This intervener’s pleading sought to recover upon a contract between himself and the contractors. It is urged that the proof indisputably showed that Perdue had no contract, but that he was merely an employee of B. B. Johnson, the owner of the teams, who did have a contract for the work. The, question arose in the trial court after the evidence was in upon the surety company’s motion summarily to strike out the intervention. This motion, of course, could only have been granted if the evidence were in such shape as indisputably to show a variance. This cannot be said to be the case. We have examined the testimony far enough to see that there was evidence at least tending to show, not only -that Perdue had for the time being the exclusive possession and control of the teams and work, but likewise to show that he himself made the contract, which was an oral one, with the contractors. This being true, the surety. company was not entitled to the summary action of striking out the intervener’s plea.

Upon the trial, the court instructed the jury:

“You are charged that the contract introduced in evidence, signed by the county and Williams, Burk & Co., and the bond made by the United States Fidelity & Guaranty Company, is such a contract and bond as a cause of action can be maintained upon, and that, if Williams, Burk & Co. failed to complete the road in accordance with such contract or failed to pay off the labor or material in the completion of such road, both Williams, Burk & Co. and the surety company are liable to any party furnishing labor or material for building or constructing such road.”

This charge is criticized because it authorized and instructed the jury to return a verdict in favor of interveners if they really found that Williams, Burk & Co. failed to complete the road and was therefore in effect a peremptory charge for the interveners.' It is true the charge in effect is peremptory on the matter of the liability of the defendants. In view of our construction of the contract and bond, the trial court was eminently justified in giving this instruction, and it does not have the effect to relieve the interveners from the burden of proving their right to recover and the amount of their claims respectively.

What we have just said likewise answers the next contention of plaintiff in error to the effect that it was error to permit interveners to introduce evidence with reference to the controversy between Henderson county and the defendants, and especially the compromise judgment whereby the county recovered $8,000 upon settlement, and for counsel to discuss in the presence of the jury the effect of such settlement upon the question of the defendants’ liability. Since the trial court, as we have held, correctly instructed the jury that defendants were liable for all labor and material required to complete the construction of the road, it is obvious the matters here discussed were wholly immaterial, the nature of which is not of such importance as to require a reversal of the court’s judgment. 'In this respect, the only real issues were the character of service or material furnished and the amount thereof. Furthermore, we overrule the assignment concerning all these matters, because the application for a writ nowhere shows what objections were made by counsel for defendants, so that the precise ruling complained 'of is not before us.

Finally, it is urged there has been such" a novation in the contract as to release the surety company. During the progress of the trial and after the introduction of evidence which was thought to raise the issue, the surety company, with leave of the court, filed a trial amendment, pleading a novation of the contract without its consent, whereby it claimed its release from the bond. At the conclusion of the testimony, the surety company requested a peremptory instruction, which was refused, and the court submitted a special issue as follows:

“Did Henderson county make a separate contract with Williams, Burk & Co., to do work in the corporate limits of the town of Athens, or was such contract to do the work in the town of Athens a continuation of the original N contract so made between . the commissioners’ court and Williams, Burk & Co.? You will answer this' a new contract or a continuation of the old contract as you may find from the evidence.”

The submission of this issue was objected to, because under the undisputed evidence it was a question of law for the court to pass upon, but the objections were overruled, and the jury answered that the county made a separate contract with the contractors to do the work in the corporate-limits of the city of Athens, and the court entered judgment accordingly. We are inclined to agree with plaintiff in error that under the undisputed evidence it became a question of law for the court whether or not there had been a novation of the original contract by reason .of the agreement between the parties to construct a road within the corporate limits of the city of Athens. But we are further of the opinion, under the undisputed evidence, the agreement was in no just sense an alteration of tlie original contract, but was only a contract for additional work entirely beyond, and in nowise connected -with, tbe work originally contemplated. None of tbe rights, duties, or obligations of any of tbe parties to tbe original contract was in any way increased,! diminished, or affected whatever.

Tbe fact that tbe additional contract was for similar work upon an extension of tbe same road and upon the same basis and terms of tbe original contract does not affect tbe question. It nevertheless was an independent contract for additional work and in nowise relieved tbe surety company of liability on tbe original undertaking. The authorities seem to be uniform to tbe proposition that, where tbe principal parties to a contract enter into an agreement for additional work pot included in tbe original contract, such agreement is an independent contract and does not.constitute a material alteration of tbe original contract. Thompson v. Kleinman (Tex. Civ. App.) 259 S. W. 593; United States Fidelity, etc., Co. v. American Blower Co., 41 Ind. App. 620, 84 N. E. 555; Fullerton Lumber Co. v. Gates, 89 Mo. App. 201; Hayden v. Cook, 34 Neb. 670, 52 N. W. 165; Fitzpatrick v. McAndrews, 12 Pa. Co. Ct. R. 353.

This disposes of all assignments of error of plaintiff in error United States Fidelity & Guaranty Company, and likewise necessarily disposes of all assignments of error by plaintiff in error Williams, Burk & Co., since their application appears to be identical with that of plaintiff in error United States Fidelity ■ & Guaranty Company.

There remains only to be considered tbe points raised by plaintiffs in error, tbe interveners: First, these plaintiffs in error complain that the Court of Civil Appeals erred in reversing tbe trial court in overruling exceptions to the pleas of intervention with respect to grocery bills claimed by certain of them. The trial court permitted a recovery of such items and the Court of Civil Appeals reversed this part of the judgment, upon the ground that neither the pleadings nor the evidence brought these items within tbe rule of necessity as set forth in Brogan v. National Surety Co., already referred to in this opinion. We approve 'the principles announced in that decision and the application for writ contains no statement from the record to show that the court misapplied them either as to tbe pleadings or tbe evidence.

The remaining assignments by the interveners all relate to tbe action of tbe Court of Civil Appeals in overruling various cross-assignments of error presented by the interveners. On the original hearing, the Court of Civil Appeals sustained these cross-assignments, and only on a rehearing did that court make its order overruling them. No motion for rehearing was made in tbe Court of Civil Appeals by the interveners, and in this state of the record we are without authority to consider tbe matters complained of. It is well settled generally that the Supreme Court will not consider errors not properly assigned in the motion for rehearing in tbe Court of Civil Appeals, and express application of this rule has been made where tbe supposed error was committed, not upon the original hearing, but upon a rehearing in the Court of Civil Appeals. The motion for rehearing to form the basis for a consideration in the Supreme Court must be predicated upon the judgment of the Court of Civil Appeals actually deciding the matters complained of. In Roth v. Murray, 105 Tex. 6, 141 S. W. 515, Mr. Justice Ramsey for the Supreme Court said:

“The first rule for this court (67 S. W. 11) provides, among other things, that ‘a motion, for rehearing must be made in the Court of Civil Appeals and overruled before applying for the writ of error, and, further, that the petition for writ of error shall include ‘specific assignments of error confined to the points of law presented in the motion for rehearing in the Court of Civil Appeals.’ In the light of these provisions it seeins to us that in order to present the ease properly to this court it was not only proper, but required, that relators should have filed their second motion for rehearing. This was, in effect, ruled in the case of Knox v. McElroy [103 Tex. 357] 127 S. W. 798, where it was held thatr where the Court of Civil Appeals had stricken out the statement of facts, and thereupon affirmed the judgment, and thereafter rescinded its order striking out such statement, and decided the case on the merits, with the same result, assignments, to be reviewa,ble, must be raised by motion for rehearing in the Court of Civil Appeals.”

This decision and tbe one cited are conclusive against our authority to consider tbe question presented.

We find no error in tbe judgment of the ■Court of Civil Appeals, and recommend that it be affirmed.

CURETON, C. J.

Tbe judgment recommended in the report of tbe Commission of Appeals is adopted and will be entered as tbe judgment of tbe Supreme Court.