Case ID: so2d_556/html/1301-01.html
Source: Caselaw Access Project
Author: {"author": "PLOTKIN, Judge.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

CITY OF NEW ORLEANS, et al. v. ORLEANS TRANSPORTATION SERVICES, INC., et al.
    No. 89-CA-0953.
    Court of Appeal of Louisiana, Fourth Circuit.
    Jan. 30, 1990.
    Rehearing Denied March 6, 1990.
    
      John F. McDonald, III, Gennusa, Brandt & McDonald, Metairie, for plaintiff/appellant.
    Lowe, Stein, Hoffman & Allweiss, Michael R. Allweiss, New Orleans, for defendant/appellee.
    Before LOBRANO, PLOTKIN, and BECKER, JJ.
   PLOTKIN, Judge.

Plaintiffs City of New Orleans and the New Orleans Aviation Board appeal the granting of a motion for partial summary judgment in favor of defendant Safeco Insurance Company of America, the surety on a contract for ground transportation services between the plaintiffs and defendant Orleans Transportation Services, Inc. (OTSI). We reverse and remand.

The plaintiffs and OTSI entered a contract by which OTSI was granted the exclusive right to operate ground transportation services at the New Orleans International Airport, which went into effect on February 1, 1980. The contract provided, in pertinent part, as follows:

ARTICLE VI — TERM
The term of this contract for the concession shall be for a period of five (5) years commencing forty-five (45) days from the date of execution of the contract by the successful bidder.
ARTICLE VII — HOLDING OVER
In the event the concessionaire shall hold over after the expiration of this agreement, such holding over shall not be deemed to operate as a renewal, re-conduction or extension of this agreement but shall only create a tenancy from month to month which may be terminated at any time by the Board.
ARTICLE XX — PERFORMANCE AND PAYMENT BOND
Concessionaire at the time of the execution of the agreement must furnish the Board a valid performance and payment bond in the sum not less than One Million, Thirty Thousand and NO/100 ($1,030,000.00) Dollars. Said bond shall guarantee the faithful and full performance by concessionaire of all the covenants, terms and conditions of this agreement and shall guarantee concessionaire’s payment of all sums due the Board and stand as security for the payment by the concessionaire of any valid claims by the Board against the concessionaire. The surety on said bond must be an institutional Surety qualified to do business in the State of Louisiana. Said surety bond shall be maintained and kept by the concessionaire in full force and effect during the entire term of the Agreement. The Surety Company will be required to execute the Agreement simultaneously with the concessionaire and will comply with all other requirements of the City of New Orleans and the State of Louisiana.

Attached to and made a part of the above referenced contract was a document by which defendant Safeco intervened and bound itself as “surety for faithful performance of all work called for in the said contract by the said contractor (OTSI)” for $250,000. Safeco further bound and obligated itself as “surety for the payment by the said contractor of all payments to be made by the said contractor under the contract” for $250,000. That document also provides as follows:

Safeco declares that it has read and taken full cognizance of the hereinabove written contract between the City of New Orleans and the said Orleans Transportation Service, Inc.

The document was signed by Ernest N. Morial for the City of New Orleans, by Carling Dinkier, III, President, for OTSI, and by Jeffery L. Trentham, Attorney-in-Fact, for Safeco. Also attached to and made a part of the contract was another document labelled “Contract between the City of New Orleans and Orleans Transportation Service Inc., a corporation,” signed by Dinkier for OTSI and by Attorney-in-Fact Gloria Jordan for Safeco.

Under the terms of the contract, OTSI was obligated to pay the City either a specified minimum amount or a percentage of its gross receipts, whichever was greater, each month. The initial term of the contract expired on February 1, 1985, but OTSI was allowed to continue operating the ground transportation service through March of 1987. In August of 1987, the City filed the instant suit, seeking payment of sums owed by OTSI for December of 1984 and for the period from April of 1985 through May of 1987.

Safeco filed a motion for partial summary judgment, seeking a declaration that its bond and suretyship agreement was limited to the five-year initial term of the contract and that it ended January 31, 1985. The trial judge granted the motion, without written reasons, and dismissed plaintiffs’ claims against Safeco for “any monies allegedly owed to the City resulting from services provided by OTSI from and after February 1, 1985” with full prejudice. From that judgment, the City and the Aviation Board appeal.

Motions for summary judgment may properly be granted under La.C.C.P. art. 966 only when “reasonable minds must conclude that” two circumstances are present: (1) there is no genuine issue of material fact and (2) the mover is entitled to judgment as a matter of law. Chaisson v. Domingue, 372 So.2d 1225, 1227 (La.1979); Transworld Drilling v. Texas General Petroleum Co., 524 So.2d 215, 217 (La.App. 4th Cir.1988). In the instant case, the parties seem to agree on all the pertinent facts; therefore, interpretation of the contract, a legal question, is the only matter at issue. Thus, the first requirement for granting a motion for summary judgment is present.

However, the second requirement — that reasonable minds must conclude that the mover is entitled to judgment as a matter of law — -is not present in the instant case. After extensive study of the language of the contract entered between the parties, we find that the trial judge was manifestly erroneous in concluding that Safeco’s obligations under the contract terminated at the end of the initial five-year contract period.

La.C.C. art. 2045 provides that “[ijnterpretation of a contract is the determination of the common intent of the parties.” When considering the provisions of a contract, courts must interpreted each “in light of the other provisions so that each is given the meaning suggested by the contract as a whole.” La.C.C. art. 2050.

The contract for ground transportation services provides unequivocally that the concessionaire must furnish the board a valid performance and payment bond, guaranteeing two things: (1) “the faithful and full performance by concessionaire of all the covenants, terms and conditions of this agreement” and (2) “concessionaire’s payment of all sums due the Board.” Additionally, the clause provides that the bond must stand as “security for the payment by the concessionaire of any valid claims by the Board against the concessionaire.” The bond was to be kept “in full force and effect during the entire term of the Agreement” and the surety company was required to execute the agreement simultaneously with the concessionaire.

The only signature lines in the entire contract are located after Safeco’s intervention in the agreement, binding itself as surety for the “faithful performance of all work called for in the ... contract” and for the “payment by the ... contractor of all payments to be made ... under the contract.” The attorney-in-fact of the surety company signed the contract simultaneously with the representatives of the City and OTSI. Safeco thereby became a party to the contract between the City and OTSI.

The “hold-over” clause unequivocally contemplates the possibility of a continuing relationship between the City and OTSI after the expiration of the initial five-year contract. A thorough study of that provision of the contract reveals that the intent of the parties at the time the contract was signed was that the all the provisions of the original agreement would remain in force should OTSI be allowed by the City to “hold over,” except the term would not be expanded for an additional five years. One of the major provisions of the contract was the requirement that the surety company guarantee payment of all sums OTSI owed the City. That provision remained in force during the “hold over” period. Therefore, Safeco, which was a party to the contract, cannot be allowed to eliminate its obligation by arguing that that obligation terminated when the initial term expired. A close reading of the contract indicates that the City’s decision to require the surety company to execute the contract simultaneously with the concessionaire was designed to prevent just such a result. We must interpret the contract according to the obvious intent of the parties at the time the contract was entered. La.C.C. art. 2045.

Since the record evidence in the instant case reveals that Safeco is not entitled to a judgment in its favor as a matter of law, the second requirement for the granting of a motion for summary judgment is not present. Accordingly, we reverse the trial court’s judgment granting the motion for summary judgment and remand to the trial court for further proceedings.

REVERSED AND REMANDED.

ON REHEARING

Appellant Safeco Insurance Co. of New Orleans seeks rehearing of our opinion issued January 30, 1990, reversing the trial court’s granting of its motion for partial summary judgment. After careful reconsideration of our decision, coupled with further research, we have concluded that Safe-co’s arguments have no merit. Although our decision has not changed, we issue this rehearing opinion to clarify our first opinion and address Safeco’s arguments.

First, Safeco challenges our finding that it became a “party” to the contract between the City of New Orleans and Orleans Transportation Services, Inc. (OTSI) when its attorney-in-fact signed the contract simultaneously with representatives of the parties. Safeco claims that it did not become a party to the contract because it gained no interest in the contract by virtue of the signature of its representative. Safeco’s argument is misplaced. Certainly Safeco did not become a “principal” to the contract, but the words “principal” and “party” have different legal meanings. Safeco intervened in the contract between the City and OTSI as surety and, under the Louisiana Civil Code, a surety agreement is an accessory contract to another contract. Therefore, Safeco became an accessory party to the contract when the attorney-in-fact signed the contract simultaneously with representatives of the principals’. Safeco was indeed a party to the contract even though it was not a principal.

Safeco’s second argument is also semantic. It challenges our use of the phrase “initial five-year term,” noting that those specific words are not used anywhere in the contract and implying that those words have some kind of legal significance. The City calls the five-year term specified in the contract the “primary” term. Whatever the word used to describe the term specified in the contract, the fact is that the contract stated that its provisions would be in force for five years. However, the contract also contemplated that it might be héld over after the expiration of the five-year term. We employed the term “initial” to reflect the fact that a continued relationship between the parties after the expiration of the term was contemplated by the contract and to show that the relationship did continue after the term expired. We did not intend for the word “initial” to convey any other legal significance, nor did we intend to imply that the contract used that word. The fact that the provisions of the contract do not include the word “initial” does not change the result.

Safeco’s third and fourth arguments on rehearing are legal. Safeco maintains that the court’s decision imposes an intent not reflected in the contract document and that the case should have been remanded to the trial court for evidence on intent.

We disagree. As stated in our original opinion, La.C.C. art. 2050 mandates that contract provisions be interpreted “in light of other provisions so that each is given the meaning suggested by the whole.” Safe-co’s arguments on rehearing focus solely on the section of the contract labeled “Term” and ignore the other provisions quoted in our original opinion. However, when all the provisions of the contract are read together, it is obvious that the parties intended for the surety agreement to remain in force should there be a “holding over” of the contract. An other interpretation of the contract would invalidate many of the major provisions of the agreement. Since the intent of the contract is clear, there is no need to remand the case to the trial court for evidence on intent.

The surety contract at issue in the instant case was confected prior to the revision of the suretyship laws in 1987. At the time of the contract, La.C.C. art. 3035 defined suretyship as “an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation, if the debtor does not.” In the contract at issue in this case, Safeco made an accessory promise by which it bound itself for OTSI and agreed with the City of New Orleans to satisfy OTSI’s obligations under the contract for ground transportation services, if OTSI did not satisfy its obligations.

In support of its position, Safeco cites former La.C.C. art. 3063, which provided that “prolongation of the term granted to the principal debtor without the consent of the surety, operates as a discharge of the latter” and two ancient cases annotated under that article, Fasnacht v. Winkelman & Heuer, 21 La.Ann. 727 (La.App.Orl.Cir.1869) and Hincks v. Hoffman & Schmedtje, 12 Orl.App. 218 (1915), both of which concern attempts to hold a surety liable on a lease agreement after the expiration of the original terms of the lease. In both cases, the surety was released from liability. Safeco also cites La.C.C. art. 2690, which provides that “the security which may have been given for the payment of the rent shall not extend to the obligations resulting from the lease being thus prolonged.” A review of the Civil Code reveals that that article has been interpreted in only one case (dated 1905), the facts of which do not apply to the controversy here. Of course, all of these legal authorities deal with lease agreements and the contract at issue here is not a lease. However, the agreement is in many respects similar to a lease, so the legal principles described in the authorities, if valid, would apply here.

Nevertheless, we find that the cases and articles cited by Safeco, though superficially applicable, do not control the instant case. A thorough study of the body of suretyship law reveals that the legal authorities cited by Safeco have been modified by subsequent jurisprudential rules, even before the revisions in the black-letter suretyship law went into effect. The jurisprudential changes in this area of the law were described under the heading “Kinds of Suretyship” in the introduction to the revision as follows:

A. Commercial Suretyship.
The original assumption that surety-ship is a gratuitous undertaking entered into as an accommodation for another also gave rise to the rule that the contract is to be strictly construed in favor of the surety and against the creditor, and that any doubt or uncertainty as to the extent or nature of the undertaking is to be resolved in favor of the surety. The same considerations gave rise to the rule that the creditor can not modify or amend the principal obligation in any manner without the surety’s consent. Such a modification completely and un-qualifiedly releases the surety, even in those cases where the surety has suffered no damage as a consequence of the change or when it is patently advantageous to him.
The rise of modern commerce and the creation of corporations whose business it is to write surety contracts for a fee, led the courts to deny the benefit of the rigid and inflexible rules designed to protect the surety in cases where the surety was a “compensated” one, i.e., when the surety collected a fee for his services. The rationale for this was not entirely founded upon the fact that the surety was compensated for his services. Rather, the courts recognized that the rules in question were devised to protect (and perhaps encourage) the surety who was a volunteer acting out of a spirit of liberality and charity, whose promise to the creditor was a boon from one who received no benefit or advantage from the credit extended by the creditor. The rules of interpretation may still be justified in the case of the surety who is truly a volunteer, uninterested in the transaction between the creditor and debtor. Today however, the overwhelming majority of suretyships are given in business transactions by persons having a direct financial interest in them_ The revised articles codify the rules created by the courts for compensated sureties but extend them to all suretyships given in commercial transactions....
The revised articles reflect the view that one who guarantees the commercial undertakings of another, or of an entity created for commercial purposes should not expect to be treated as a mere volunteer acting for the debtor out of a spirit of liberality, nor should a person or entity entering into a contract for its own commercial ends be so regarded. Finally they assume a business corporation or other artificial entity organized for commercial or business purposes should not expect to be treated with liberality at the expense of the other parties to the contract, merely because it is guaranteeing the debts of another.

Safeco is a sophisticated commercial surety company which enters suretyship agreements as a business. Since the contract went into effect in 1980 and the suit was filed in 1987 just months before the revisions went into effect on January 1, 1988, certainly the jurisprudential rules governing commercial sureties developed prior to the revision should apply to this case, not the ancient rules designed to protect gratuitous sureties. Safeco cannot escape its obligations under the contract between OTSI and the City by citing rules which no longer applied at the time the contract was entered.

Contrary to the cases cited by Safeco, the Louisiana Supreme Court held in American Bank & Trust Co. v. Blue Bird Restaurant & Lounge Inc., 290 So.2d 302 (La.1974) that a surety was not entitled to be released from liability simply because the creditor failed to require monthly payments as specified by the contract because the surety instrument “clearly grant[ed] the bank the right to offer extensions.” In that instance, the agreement itself stated that the bank “may, in its judgment, grant extensions.... ” In the instant case, the City’s right to allow OTSI to hold over is clearly evident on the face of the agreement. Therefore, Safeco cannot be released from liability arising from the period after the expiration of the five-year term.

For the above and foregoing reasons, and for the reasons stated in our original opinion, the trial court’s judgment granting of Safeco’s motion for partial summary, judgment is reversed. The case is remanded to the trial court for further action.