Title: Vaughn Excavating and Const., Inc. v. P.S. Cook Co.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Vaughn Excavating and Const., Inc. v. P.S. Cook Co.1999 WY 73981 P.2d 485Case Number: 98-114Decided: 05/26/1999Supreme Court of Wyoming

VAUGHN 
EXCAVATING AND CONSTRUCTION, INC., a Colorado corporation, d/b/a

 

VAUGHN) CONCRETE PRODUCTS, INC., Appellant 
(Defendant/Third-Party

Plaintiff),

 

v.

 

P. S. COOK COMPANY, Appellee (Plaintiff), and 
CNA

INSURANCE COMPANY; AMERICAN CASUALTY COMPANY; CNA 
SURETY COMPANIES and CNA-AMERICAN CASUALTY, Appellees (Third-Party 
Defendants).

 

                                

 

Appeal from the District Court of Laramie County The 
Honorable

Nicholas G. Kalokathis, 
Judge

 

     Don W. Riske of Riske 
& Arnold, Cheyenne, Wyoming, Representing 
Appellant.

 

     Daniel E. White of 
Daniel E. White, P. C., Cheyenne, Wyoming, Representing 
Appellees.

 

     Before LEHMAN, 
C.J., and THOMAS, MACY, GOLDEN, and TAYLOR, * JJ.

   * 
Retired November 2, 1998.

 

     TAYLOR, 
Justice, Retired.

    
[¶1]     At issue in this case is whether the 
prime contractor and its surety are liable under a public works bond for interest, penalties and attorney's fees owed 
by the subcontractor to his supplier. The district court granted summary 
judgment to the prime contractor and the surety, finding that the statutory 
obligations on the bond did not include benefits on a contract to which the 
prime contractor was not a party. We affirm.

 

                               
I. ISSUES

 

   [¶2]     Appellant, Vaughn Excavating and 
Construction, Inc. (Vaughn), the supplier, presents a single issue for 
review:

 

Whether a bond claimant is entitled to recover, under 
a public works bond, late payment penalties, interest and costs of collection, 
in addition to the agreed price for the materials supplied

 

Appellees, P. S. Cook 
Company, the prime contractor, and American Casualty Company, its surety, submit 
three issues for review:

 

            1. Does the record show 
the existence of any contract between the supplier and the subcontractor to 
pay attorneys' fees, credit charges 
or interest?

 

            2. If so, can the 
supplier of a subcontractor enforce credit and collection charges in its 
contract with the subcontractor 
against the surety of the general contractor, pursuant to the public works 
bonding statute, even though the 
general contractor a) did not agree to be responsible for those charges; 
b) did not cause or contribute to 
the subcontractor's default which led to the imposition of those 
charges; and c) promptly made 
arrangements to pay the supplier its quoted price for the materials used in 
the project?

 

            3. When figuring 
interest under the public works bonding statute, did the trial court properly 
apply the statutory rate of 7% per 
annum rather than the 2% per month rate which the supplier 
claims?

 

                               
II. FACTS

 

   [¶3]     The prime contractor, P. S. Cook, hired 
Richland Construction as a subcontractor for work on two public works projects. 
Richland Construction defaulted on payment to its supplier, Vaughn. Vaughn 
then asserted a claim against P. S. 
Cook's payment bond for $40,370.18. The claim included a two percent per month 
interest rate on past due accounts and reasonable attorney's fees pursuant to a 
credit application completed by Richland Construction's predecessor corporation. 
A ten percent late payment penalty was also included, pursuant to the quotes given by Vaughn 
to Richland Construction for the project.

 

   [¶4]     P. S. Cook did not deny that it owed the 
costs of the materials supplied by Vaughn nor did it maintain that Vaughn could 
not collect the statutory prejudgment interest on its liquidated claims. 
However, P. S. Cook denied that its obligations under the bond included the 
interest, the late penalties or the attorney's fees demanded by Vaughn. When the 
parties could not agree as to the amounts owed, P. S. Cook filed a declaratory 
judgment action for resolution of the dispute. Vaughn countered with a 
third-party complaint against P. S. Cook's surety, American Casualty 
Company.

 

   [¶5]   After a hearing on the parties' 
cross-motions for summary judgment, the district court determined that 
appellees' liability under Wyo. Stat. § 16-6-112 (1997), the public works bond 
statute, is limited to payment for goods used in the contract and extraordinary 
costs incurred for supplying labor and materials.  Because Vaughn's claim sought only the 
benefits accruing from its contract with Richland Construction, the district 
court granted summary judgment in favor of appellees. This timely appeal 
followed.

 

                        
III. STANDARD OF REVIEW

 

   [¶6]     Summary judgment is appropriate when no 
genuine issue of material fact is present and the prevailing party is entitled 
to judgment as a matter of law. Murphy v. Housel & Housel, 955 P.2d 880, 883 
(Wyo. 1998); Hermreck v. United Parcel Service, Inc., 938 P.2d 863, 866 (Wyo. 
1997); Woodard v. Cook Ford Sales, Inc., 927 P.2d 1168, 1169 (Wyo. 1996). See 
also W.R.C.P. 56(c). The record must be examined from the view most favorable to 
the party opposing the motion, and that party must be given the benefit of all 
favorable inferences which may be fairly drawn from the record. Nowotny v. L 
& B Contract Industries, Inc., 933 P.2d 452, 455 (Wyo. 1997) (quoting Thomas 
by Thomas v. South Cheyenne Water and Sewer Dist., 702 P.2d 1303, 1304 (Wyo. 
1985)). We make an independent examination of the record for genuine issues of 
material fact and review a summary judgment without according deference to the 
decision of the district court on any issues of law. Murphy, 955 P.2d  at 
883.

 

                            IV. 
DISCUSSION

 

   [¶7]     Vaughn's position is relatively 
straightforward. Since Richland Construction contracted to pay certain interest, 
penalties, and costs on materials supplied for a public works project, the 
public works bond should cover those amounts.

 

[A] surety on an official bond undertakes no 
liability for anything which is not within the letter of the surety * * *; the 
surety has consented to be bound only within the express terms of the surety 
contract. * * * However, it is equally true that where a surety bond is given 
pursuant to the requirements of a particular statute, the statutory provisions are 
incorporated into the bond * * *.

 

Washington Intern. Ins. Co. 
v. Superior Court (G. K. Backlund, Inc.), 62 Cal. App. 4th 981, 73 Cal. Rptr. 2d 282, 285 (1998).  There is no 
dispute that the terms of the general contract for the project and the bond 
included liability for payment to Vaughn for its materials and statutory 
interest on that amount. The parties also agree that the express terms of the 
general contract and the bond do not include the interest rate, penalties, and 
attorney's fees demanded by Vaughn. 
Therefore, P. S. Cook and its surety have no obligation to pay interest and 
penalties unless required by statute. SaBell's, Inc. v. City of Golden, 832 P.2d 974, 979 (Colo. App. 1991).

 

  [¶8]       Wyo. Stat. § 16-6-112 provides, in 
relevant part:

 

            (a) Except as provided 
under W.S. 9-2-1016(b) (xviii), any contract entered into with the 
state, any county, city, town, 
school district or other political subdivision of the state for the 
erection, construction, alteration, 
repair or addition to any public building or other public structure or for 
any public work or improvement and 
the contract price exceeds seven thousand five hundred dollars ($7,500.00), shall require any contractor before 
beginning work under the contract to furnish the state or any political subdivision, as appropriate, a 
bond * * *. The bond * * * shall be:

 

            * * 
*

 

         
               
(ii) For the use and benefit of any person performing any work or labor 
or furnishing any material or goods 
of any kind which were used in the execution of the contract, 
conditioned for the performance and 
completion of the contract according to its terms, compliance with all the requirements of law and payment as due 
of all just claims for work or labor performed, material furnished and taxes, excises, 
licenses, assessments, contributions, penalties and interest accrued in the execution of 
the contract[.]

 

Vaughn maintains that the 
terms of its agreement with Richland Construction is a "just claim" for 
"penalties and interest accrued in the execution of the contract" under Wyo. 
Stat. § 16-6-112(a)(ii). P. S. Cook counters that these amounts were not accrued 
in the execution of its contract on the project, but are benefits for Vaughn 
which accrued in the execution of its contract with Richland 
Construction.

 

   [¶9]     The question is whether the statute 
demonstrates a legislative intent to hold the prime contractor and its surety 
liable for the contractual penalties imbedded in the agreement between Vaughn 
and Richland Construction. Vaughn urges us to follow precedent allowing such 
claims under the federal counterpart to our statute, the Miller Act, 40 U.S.C. § 270a et seq. Our 
previous construction of the Wyoming statute, however, has departed from the 
interpretation given the Miller Act by the federal courts. Under our Wyoming 
statute, we do not require privity of contract as do the federal courts, thus 
allowing a broader range of potential claimants. D & L Bldg., Inc. v. State 
for Use and Benefit of Maltby Tank & Barge, Inc., 747 P.2d 517, 519 (Wyo. 
1987). Therefore, the scope of liability under the Wyoming public works bond 
statute is necessarily considered in light of the expanded availability of its 
protections.

 

   [¶10]  "`It is the duty of the courts when 
construing legislation to attempt to effectuate the purposes and intent of the 
legislature.'"  Matter of Estate of 
Zelikovitz, 923 P.2d 740, 744 (Wyo. 1996) (quoting State ex rel. Albany County 
Weed and Pest Dist. v. Board of County Com'rs of Albany County, 592 P.2d 1154, 
1158 (Wyo. 1979)). The purpose of the 
public works bonding statute is "to provide for payment of the labor and 
material, furnished in connection with contracts entered into pursuant to such 
statutes * * *." Franzen v. Southern Surety Co., 35 Wyo. 15, 27, 246 P. 30, 33 
(1926). As early as 1926, we recognized that there are limits to the liability 
of a surety under a public works bond. Franzen, 246 P.  at 34; see also Colorado 
Builders' Supply Co. v. National Fire Ins. Co., 423 P.2d 79, 81 (Wyo. 1967). 
Thus, while we have expanded the protection of the bonding statute to include 
those not in privity with the contractor, we have also limited the liability for 
payment under the statute to those things which were "clearly contemplated when 
the bond was executed." Franzen, 246 P. 
at 38.

 

   [¶11]  The payment for penalties, interest and 
attorney's fees in excess of the contract between P. S. Cook and the public 
agency were not those things which were "clearly contemplated when the bond was 
executed." Id. As noted by the district 
court, the statute repeatedly refers to the contract which governs the public 
project, not the contracts of the individual subcontractors.  Neither P. S. Cook nor its surety were 
parties to the agreement between Richland Construction and Vaughn and neither 
had control over the terms of that agreement. The excess amount demanded by 
Vaughn may be essential terms of the contract between Vaughn and Richland Construction, but are merely 
incidental to the contract protected by the public works 
bond.

 

   [¶12]  "`The bond is to secure the performance 
of the contract, and not the performance of any duties outside the contract, 
though incidentally connected with it.'" Franzen, 246 P.  at 35 (quoting People 
v. Southern Sur. Co., 76 Colo. 141, 230 P. 397, 398 (1924)). When request for 
payment was made to P. S. Cook, the only barrier to immediate payment was 
Vaughn's insistence on an amount including the added interest, penalties and 
costs. Thus, this case does not involve any damage to Vaughn caused by P. S. 
Cook's failure to pay. Similarly, Vaughn incurred no obligation for interest or 
penalties in the performance of supplying goods for the general contract. See 
Sunderland v. Vertex Associates, Inc., 199 Ga. App. 278, 404 S.E.2d 574, 577 
(1991) (sub-subcontractor entitled to 
pursue recovery for amount for which he obligated himself while performing under 
the contract).  Instead, Vaughn is 
seeking amounts by which it will benefit pursuant to its agreement with Richland 
Construction. This is not the purpose of the bonding statute. The purpose is to 
fully compensate Vaughn for its contribution to the public project; a purpose 
clearly fulfilled when Vaughn was paid its quoted price for the goods and 
materials furnished plus statutory interest. As to the penalties at issue in 
this case, Vaughn must look to Richland Construction to enforce the terms of 
their contract.

 

                             
V. CONCLUSION

 

   [¶13]  The purpose of the public works bonding 
statute is to protect all who supply labor and materials to a public works 
project to the extent of their contribution. However, the statute does not 
impose liability for terms of a contract between the subcontractor and the 
supplier which accrue only to the benefit of the supplier and not the project. 
Affirmed.