Opinion ID: 1861792
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Heading Rank: 2

Heading: statute of limitations on the claim against robins

Text: The City asserts that the performance, bid, and labor and material payment bonds were under seal and were incorporated into the construction contract by reference, and therefore, that the ten-year statute of limitations for contracts under seal was applicable. Ala.Code 1975, § 6-2-33. The City relied on this Court's decision in Meighan v. Watts Const. Co., 475 So.2d 829 (Ala. 1985), to support its argument. We conclude that Meighan is distinguishable from the instant case, and we affirm. In Meighan, the City of Gadsden obtained a deed of easement, which was under seal, from a property owner. The instrument also provided: It is further expressly understood by and between the said parties that the City of Gadsden shall be responsible for restoring said premises ... as near as practicable to their original condition immediately following each such use of the land. Meighan, 475 So.2d at 830. Thereafter, the City entered into a contract with a general contractor for the installation of a sewer pipeline on the easement. The contractor also executed a performance bond and a labor and material payment bond, both of which were under seal and incorporated the contract by reference. [3] The contract between the city and the contractor also required the contractor to restore the property owner's land to its original condition. About eight years after the work was completed, the property owner discovered a crack in her foundation, which had been caused by a crushed pipe beneath her driveway where the contractor had been working. The property owner sued the contractor to recover for the damage. The contractor contended that the six-year statute of limitations applicable to simple contract actions barred the claim against him. See § 6-2-34. The owner claimed that the applicable statute of limitations was ten years, because her deed of easement to the city was under seal. See § 6-2-33. The contractor responded by arguing that the deed of easement to the city and the sealed bonds were separate from his contract with the city to perform work on the sewer line; therefore, he argued, he was not bound by the deed of easement. This Court held that the contract was not separate from the deed of easement. Moreover, this Court stated: Under the documents in evidence and the actions upon the part of Watts in performing the work designated in those documents, it is clear that the duties and responsibilities were delegated to and assumed by Watts. It is also clear that Watts undertook to fulfill those obligations, duties, and responsibilities for the benefit of Mrs. Meighan and others similarly situated. It is also clear that Watts, not the City, enjoyed the benefits granted under the deed of easement giving rights of access to Mrs. Meighan's property for the purpose of carrying out what the assigned contract called for: construction and restoration. Meighan, 475 So.2d at 835. Therefore, the ten-year statute of limitations for contracts under seal was applied. In the instant case, the City would have us believe that Meighan held that when a sealed bond and an unsealed construction contract incorporate each other by reference, the entire agreement is deemed to be under seal and, therefore, that the applicable statute of limitations is ten years. Meighan does not stand for that proposition. Although the opinion in Meighan quoted the incorporation by reference language from the bonds, that was not the reason that the Court concluded that the applicable statute of limitations was ten years. Rather, the Court reasoned that although the deed of easement was actually conveyed to the city, the city had assigned the instrument to the contractor, who undertook the duties and obligations of the city to restore the property to its original condition. As the third-party beneficiary of the assigned contract between the city and the contractor, the owner had standing to sue the contractor. Because the original deed of easement was under seal, the assigned contract was deemed to be under seal; therefore, the Court held that the contractor was subject to the ten-year statute of limitations. Meighan, supra. Unlike Meighan, in the instant case there has been no assignment of a sealed contract. Because the assignment was the basis of the holding in Meighan, that case is distinguishable from the instant case. Having concluded that Meighan does not answer the question posed to this Court, we must determine whether the construction contract between the City of Birmingham and Robins is deemed to be under seal by virtue of the fact that there were three sealed bonds and an unsealed construction contract that incorporated each other by reference. [4] After a careful consideration of the purpose for having contracts under seal, as well as the parties' intent and the applicable public policy concerns, we conclude that the construction contract was not deemed to be under seal. Before simple contracts were recognized, a promise or a gratuitous release made in writing, signed, and containing the maker's seal, constituted a binding agreement upon delivery. Williston on Contracts, § 5 at 17 (3d ed. 1957). A seal was not only a means of identification in addition to the signature, but signified the authenticity of the contract, see C.J.S. Contracts, § 63 at 738 (1963), and attested to the execution of the instrument, Black's Law Dictionary 1210 (5th ed. 1979). In fact, [p]rior to the time the law required consideration to support a contract, the seal was used conclusively to establish the authenticity and binding effect of the instrument to which it was attached. Williston on Contracts, § 5 at 17 note 5 (citations omitted). Most modern contracts are not under seal, except as required by statute or ordinance. A bond is an example of a contract that is typically required to be under seal. In fact, [a]t common law the distinguishing characteristic of a bond [was] the presence of a seal which served to import greater solemnity than was accorded to the ordinary written contract. Williston on Contracts, § 220A at 800. In this case, because this was a public works contract, Robins was required to furnish a performance bond and a labor and material payment bond to the City. See Ala.Code 1975, § 39-1-1. Robins posted three sealed bonds in its contract with the City. The bonds were signed and sealed by a representative of Robins, as the principal on the bond, and by a representative of the bonding company, as surety on the bond. In accordance with § 39-1-1, Robins posted a performance bond, which contained the following language with regard to the contract: ... for the CONSTRUCTION OF THE TERMINAL BUILDING (CONTRACT A) BIRMINGHAM MUNICIPAL AIPORT, BIRMINGHAM, ALA.... a copy of which said contract is incorporated herein by reference and is made a part as if fully copied herein. The labor and material bond and the bid bond contained similar language. Likewise, the construction contract used comparable language to incorporate the bonds into the contract. The City claims that because the bonds are under seal, the incorporation language in both the bonds and the construction contract causes the entire agreement to be under seal. We disagree. To begin our analysis, we must determine whether the parties intended for the construction contract to be under seal. With the exception of the language in the bonds incorporating them into the contract, we find nothing that could lead us to conclude that the parties intended for this contract to be under seal. First, contracts are typically not under seal unless a seal is expressly required either by law or by one of the contracting parties. In this case, the owner did not require the construction contract to be under seal, and no state law required it. In addition, if the parties did intend for the contract to be under seal, they could have sealed the contract in the same manner by which the bonds were sealed. Furthermore, given the purpose for posting a sealed bond, it is probable that the parties intended only the bonds to be under seal. A performance bond and a labor and material bond are required to insure that parties supplying material, labor, and so forth, for construction are paid by the general contractor, or, if he fails to pay, by his surety. A bond is necessary in public works contracts because materialman's liens are not permitted on public projects. See Sumlin v. Hagan Storm Fence Co., 409 So.2d 818 (Ala. 1982); Headley v. Housing Authority of Prattville, 347 So.2d 532 (Ala.Civ.App.1977). A bond is basically an insurance contract executed by the principal and his surety, but for the benefit of a third party (the subcontractors and suppliers). The City was not a party to the bond instrument, yet, because the bonds were required by law, and because they were incorporated into the construction contract, the City depended on the bond's validity. Historically, the seal on the bond provided assurance that the bond was a valid and enforceable agreement between the principal and his surety; thus, the City and the subcontractors could be more confident in relying on the bond. However, although extra assurance was necessary with the bond, it was unnecessary in the construction contract, because the City was a party to that contract. For these reasons, bonds are typically sealed, but simple contracts are not. Aside from the intent of the parties, there are at least two public policy reasons justifying our conclusion that the contract is not deemed to be under seal by virtue of the fact that the bonds are under seal. First, if we held that the incorporation by reference of a sealed bond into an unsealed construction contract deemed the entire agreement sealed, then we, in effect, would be denying the parties the freedom to negotiate their contract. In other words, every contract requiring a sealed bond would automatically be deemed to be under seal, regardless of the parties' intent. The effect of such a holding would be to increase the statute of limitations on every contract requiring sealed bonds from six to ten years. The length of potential liability is a substantive issue with a potentially profound effect on the parties, especially in terms of their evaluation of their cost based on their risk. If there is no law requiring the construction contract to be sealed, then the parties should be able to decide for themselves whether to place the contract under seal. Finding nothing to evidence an intent on the part of the legislature to require that all contracts containing sealed bonds be under seal, we decline to impose such a requirement. Furthermore, the legislature has provided a six-year statute of limitations on a simple contract action. This Court cannot change the statute of limitations. There is also a second public policy concern, which is illustrated by the facts in this case. Assume that we were to conclude that the applicable statute of limitations is ten years for all contracts incorporating sealed bonds. The City filed its lawsuit against Robins more than six years after the building was certified complete and more than six years after Robins's warranty expired. Although the City sued Robins, the lawsuit involved work performed by Cochrane, the subcontractor. However, neither the City nor Robins could sue Cochrane, because the lawsuit was filed more than six years after the contract was completed and the warranties had expired. A claim against Robins, on the other hand, would not be barred. Potentially, Robins could bear full responsibility for Cochrane's actions, without the possibility of recourse against Cochrane. [5] It is unlikely that that result was contemplated by either the City or Robins at the time they entered into the contract. Furthermore, we do not believe that the legislature intended such a result. Based on the foregoing, we must conclude that the construction contract between the City and Robins is not deemed to be under seal by virtue of the fact that the sealed bonds and the unsealed construction contract incorporate each other by reference. This lawsuit was filed on March 9, 1983, more than six years after the building was certified as complete, and more than six years after Robins's warranty expired. For the foregoing reasons, we must affirm the summary judgment in favor of Robins because the statute of limitations period had expired before this lawsuit was filed.