Fennell v. Trinity Portland Cement Co.

In August, 1913, the city of Denison entered into a contract with the Murphy-Moulton Company to pave a portion of Gandy street in that city. Among other provisions, the contract contained the following:

"Said contractor shall furnish a bond, to be approved by the city, in the sum of twenty thousand dollars, guaranteeing that said contractor will faithfully perform the undertakings of this contract, and which bond shall also provide that said contractor shall pay for all labor and materials used in the construction of said work; and that any person so furnishing such labor or materials may have their right of action thereunder as if the same were made payable to such laborers or materialmen direct."

In compliance with the above requirement the Murphy-Moulton Company executed and delivered to the city a bond in the sum of $20,000, conditioned for the faithful performance of the service undertaken, with the appellant Southwestern Surety Insurance Company as its surety. That bond contained, among others, the following stipulation:

"This bond is given to secure the performance of said contract in every particular, including payment of all indebtedness incurred incident thereto for labor and material; and persons employed upon or about said work, or supplying or furnishing material therefor, may have their cause of action therefor as though said bond were payable directly to them."

In May, 1914, the Murphy-Moulton Company entered into a contract with J. H. Fennell, by the terms of which a portion of the concrete work undertaken by it was sublet to Fennell at an agreed price. Between June 10 and November 12 of 1914 Fennell purchased from the appellee 3,000 barrels of cement at an aggregate cost of $5,370, for use in the work on Gandy street, under his contract with Murphy-Moulton Company. All of this cement was used in the street improvement except about 40 barrels, and all of the purchase price was paid except $1,833.08. On January 8, 1915, the balance due from Fennell being unpaid, the appellee gave written notice of its claim to the mayor and commissioners of the city of Denison, and later gave similar notice to the Murphy-Moulton Company and to the appellant surety company. On December 7, 1914, Fennell gave to the appellee an order upon the Murphy-Moulton Company for the sum of $85.92, which was paid and his account credited with that amount. On the same date the appellee took from Fennell two notes covering the balance of his indebtedness, which were secured by a chattel mortgage on some personal property. This was done, according to the findings of the court, without any Intention on the part of the appellee to waive its rights under the bond of the Murphy-Moulton Company. The failure of Fennell to pay those notes at maturity was followed by this suit instituted by the appellee against Fennell, in which are joined the Murphy-Moulton Company and the Southwestern Surety Insurance Company, upon the bond above referred to. In a trial before the court a judgment was rendered in favor of the appellee against Fennell for the full amount of the debt, and against the other defendants for the same amount, less the value of the 40 barrels of cement not used in the street improvement work. The Murphy-Moulton Company and the Southwestern Surety Insurance Company have appealed.

The record shows that in the trial below the following agreement was made by the attorneys:

"The Trinity Portland Cement Company is the same identical corporation as the Southwestern States Portland Cement Company, the name of the company having been changed from Southwestern States Portland Cement Company to Trinity Portland Cement Company by amendment of its charter. That the corporation is one organized under the laws of the state of West Virginia and has a permit to do business in the state of Texas, its principal office and place of business being at Dallas, Dallas county, Texas."

Counsel for appellants insist that this agreement, being all the evidence upon that subject, was insufficient to support a finding that the appellee had complied with the requirements of article 1318 of the Revised Civil Statutes, which prescribes the conditions upon which a foreign corporation may maintain a suit in the court of this state. They say the effect of this agreement is merely to prove that at the date of the trial in the court below the appellee had a permit to do business in this state; that this is no proof that the appellee had such permit at the date of the transaction upon which its cause of action depends. Assuming that the court was not authorized to infer from this agreement that the appellee had the required permit at the time it sold the cement to Fennell in 1914, there is nothing in the averments of the appellee's amended original petition which shows an intrastate transaction. While it is alleged that at the time of the filing of this suit the appellee had its principal office in Dallas county, Tex., there is nothing stated as to its domicile or place of business in 1914, or as to where or under what circumstances the cement was sold to Fennell. The averments of the petition are entirely consistent with an interstate transaction; and in such cases the rule which requires the foreign corporation to plead and prove a permit to do business in Texas has no application. Panhandle Tel. Tel. Co. v. Kellogg S. S. Co.,62 Tex. Civ. App. 402, 132 S.W. 963; Blackwell-Weilandy Book Sta. Co. v. Perry, 174 S.W. 935; Crews Williams v. Gullett Gin Co.,189 S.W. 793.

If it should be held that because the appellee alleged that its principal office was at Dallas, Tex., on the date the suit was filed it should be inferred that it was doing business in this state at the time the transaction with Fennell occurred, it is equally as reasonable to infer from the facts agreed to that it was also at that time equipped with a permit to do business in this state. If we must presume that location at that time was but a continuation of what it had previously been, we should, with equal propriety, presume that its equipment was the same.

At its regular session in 1913 the Legislature (Acts 33d Leg. p. 185) enacted a statute which required parties entering into formal contracts with the state and its various municipalities for the prosecution of any public work to execute the usual penal bond, with good and sufficient surety —

"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; and any person, company, or corporation who has furnished labor or materials used in the construction or repair of any public building or public work, and payment for which has not been made, shall have the right to intervene and be made a party to any action instituted by the state or any municipality on the bond of the contractor, and to have their rights and claims adjudicated in such action and judgment rendered thereon, subject, however, to the priority of the claims and judgment of the state or municipality."

The above is a part of section 1 of the act, which will be found as chapter 3 of title 113 of Vernon's Sayles' Statutes (section 6394f). Section 2 of that act provided that if no suit shall be brought by the state within six months from the completion and final settlement of said contract, then the person or persons supplying the contractor with labor and materials shall, upon application therefor and furnishing affidavit that they have supplied labor and materials for the prosecution of the work for which payment has not been made, such persons shall be furnished with a certified copy of the contract and bond upon which they shall have a right to institute and prosecute a suit for their own benefit.

The appellants contend that it devolved upon the appellee, under the terms of this statute, to plead and prove that no suit had been instituted on this bond by the city of Denison within six months after the completion of the work on Gandy street. Conceding that the right of the appellee to maintain a suit on this bond depends solely upon statutory authority, appellants' conclusion is untenable. The state or municipality is not required or expected to bring suit on a bond of this character, except when there has been a breach of some of the conditions in which the state or municipality is interested. But when either does file a suit to enforce its rights other parties are permitted to intervene and set up their rights, however disconnected the latter may be with those in which the state or municipality is concerned. If the state or municipality has no grievance, or elects not to file a suit to enforce its demands within six months after the completion of the work, then any party who has furnished labor or materials has the right to sue in his or their own names, without reference to any action upon the part of the state or municipality. The record shows that this suit was filed more than six months after the work was completed. The affidavit provided for is merely a means of securing an authenticated copy of the contract and bond, to be used as a basis of the suit by private parties. If a suit of this character is prematurely brought, that is a matter of defense which should be raised by plea in abatement. There is no such plea in this record. But the right of the appellee to maintain a suit on this bond is given by the terms of the bond itself, and is not dependent upon the statute. Texas Glass Paint Co. v. Crowdus et al., 108 Tex. 346,193 S.W. 1072.

Appellants also insist that they were released from liability on the bond by the taking of notes from Fennell and extending the time for the payment of his debt. In support of this proposition they invoke the well-established rule applied to contracts evidenced by promissory notes and similar instruments. It is not contended that any injury resulted to the appellant by reason of the taking of those notes or the extension of time given. In the United States Fidelity Guaranty Co. v. United States, 191 U.S. 416, 24 S. Ct. 142, 48 L. Ed. 242, a similar objection was considered at length and overruled by the federal Supreme Court. The subject is so fully discussed in that opinion that it is unnecessary to add more.

Another defense urged is that the appellants were not liable for the material furnished by the appellee for Fennell, a subcontractor; that the extent of their liability under the terms of their bond was limited to labor and materials furnished to the original contractor. The terms of the bond are not to be limited by a construction so narrow. The language used is broad, and is sufficiently comprehensive to include all parties who furnish material that was used in the work which the Murphy-Moulton Company as the original contractor bound itself to perform. The federal statute, which is in all material respects the same as ours, has been construed by the Supreme Court of the United States to include within the protection of the bond those who furnish material to subcontractors. Mankin v. U.S., 215 U.S. 533,30 S. Ct. 174, 54 L. Ed. 315. In adopting the provisions of the federal statute we must assume that our Legislature also adopted the construction which the federal courts had placed upon that statute. It was not essential, in order to fix the liability of the Murphy-Moulton Company and the surety on its bond, that it should have notice that Fennell was purchasing material from the appellee. If by the terms of their bond they agreed to protect such dealers, it was their duty to see that contracts for the payment of material were performed. The judgment of the district court will be affirmed.