Opinion ID: 895153
Heading Depth: 3
Heading Rank: 1

Heading: Commercial Union and Bunch

Text: The court of appeals relied on Commercial Union, 877 S.W.2d at 540, and Bunch, 480 S.W.2d at 45, for the blanket proposition that the McGregor Act is exclusive. However, a close reading of those cases, in conjunction with the history of the McGregor Act, only supports a conclusion that the McGregor Act provides an unpaid laborer or materialman an exclusive remedy against a payment bond. In Commercial Union, a prime contractor agreed to build a school for Judson Independent School District. 877 S.W.2d at 539. Commercial Union Insurance Co. was the surety for Kleck Plumbing, HVAC, a subcontractor that agreed to provide plumbing work on the project. Id. After the prime contractor fully paid Kleck for its services, Commercial Union was notified that Kleck had unpaid obligations to certain suppliers. Id. The suppliers, however, had failed to notify the prime contractor of Kleck's unpaid obligations as the McGregor Act required. Id. at 540. Commercial Union nonetheless paid the suppliers, expecting to recover those expenditures from the prime contractor. Id. at 539. When the prime contractor refused, Commercial Union sued. Id. The court of appeals denied Commercial Union's claim, reasoning that because the suppliers failed to comply with the McGregor Act's notice requirements, the suppliers would not have been entitled to recover from Commercial Union or the prime contractor on the bond. Id. at 540. Thus, Commercial Union should not be allowed to stand in the suppliers' shoes. Id. Recognizing that Commercial Union's suit was not a McGregor Act claim, the court noted that the Act's notice requirements must be strictly complied with if there is to be recovery from a payment bond, and that allowing Commercial Union to assert a claim the suppliers failed to perfect would eviscerate the notice requirements' purpose. Id. Additionally, the court stated that the Act provides the exclusive remedy for laborers and suppliers on a public project. Id. (citing Bunch, 480 S.W.2d at 45). But Commercial Union was not a McGregor Act case and did not discuss whether the unpaid suppliers could have pursued alternate remedies against the prime contractor; accordingly, its application here is off point. In Bunch, Tex-Craft Builders, Inc. contracted with the Housing Authority of the City of Crockett, Texas, to construct a public-housing project. 480 S.W.2d at 43. Continental Casualty Company of Illinois was Tex-Craft's surety on the project. Id. Tex-Craft subcontracted the electrical work to Bunch Electric Company. Id. When Tex-Craft failed to pay Bunch for work performed, Bunch sued Tex-Craft, the Housing Authority, and Continental, jointly and severally, under the McGregor Act. Id. at 43-44. Finding that Bunch failed to properly notify Continental as the Act required, the trial court rendered judgment only against Tex-Craft. Id. Bunch appealed, arguing that it had complied with the notice requirements as to both Tex-Craft and Continental. The court of appeals, in holding that Bunch had failed to follow the requisite procedures for notifying Continental of its claim, noted that the [McGregor Act] provides the procedure and remedy for presenting a claim against the bond.  Id. at 45 (emphasis added). It has been held, the court continued, that the statute is mandatory as well as exclusive; that it must be complied with in all respects or a cause of action under it is not maintainable. Id. (citing Fed. & Deposit Co. v. Big Three Welding Equip. Co., 151 Tex. 278, 249 S.W.2d 183 (1952); Employers' Liab. Assur. Corp. v. Young County Lumber Co., 122 Tex. 647, 64 S.W.2d 339 (1933); Indem. Ins. Co. of N. Am. v. S. Tex. Lumber Co., 29 S.W.2d 1009 (Tex. Comm'n App.1930, judgm't adopted)). While there is some language in Commercial Union and Bunch that might appear to support Scoggins' position, neither case turned on the McGregor Act's exclusivity. The history of the McGregor Act, as well as the case long cited for the Act's exclusivity South Texas Lumber, 29 S.W.2d 1009clarify that the McGregor Act was intended to be a public-work laborer or materialman's exclusive claim only as against the payment bond itself, but not necessarily against contractors on a public-work project. At the time South Texas Lumber was decided, the McGregor Act required that a contractor on a public-work project obtain the usual penal bond, with the additional obligation that such contractor shall promptly make payments to all persons supplying him or them with labor and materials in the prosecution of the work provided for. Act of Mar. 19, 1929, 41st Leg., R. S., ch. 226, § 1, 1929 Tex. Gen. Laws 481, 481. Any laborer or materialman seeking payment for work or supplies had the right to intervene and be made a party to any action instituted by the [governmental entity] on the bond ... subject, however, to the priority of the claims and judgment of the [governmental entity]. Id. However, if the governmental entity failed to bring suit within six months from the completion and final settlement of [the] contract, the governmental entity would lose priority, and any laborer or materialman could prosecute a suit on the bond. Act of Mar. 20, 1913, 33rd Leg., R.S., ch. 99, § 2, 1913 Tex. Gen. Laws 185, 185-86 Any claim by a laborer or materialman against the bond, though, was required to be brought within one year from the completion and final settlement of the public-work project. Id. at § 3, 1913 Tex. Gen. Laws at 186. It was in this statutory context that South Texas Lumber was decided, and the Act's exclusivity was first discussed. 29 S.W.2d 1009. In South Texas Lumber, A.E. Quay contracted with the City of Houston for the construction of certain public improvements. The Indemnity Insurance Company of North America was Quay's surety. South Texas Lumber, 29 S.W.2d at 1009. South Texas Lumber Company furnished material to Quay for the project. When Quay failed to pay for the material, South Texas Lumber sued Quay and Indemnity Insurance on the bond. Id. Although South Texas failed to file suit within the Act's one-year limitations period, the trial court rendered judgment for South Texas Lumber, and the court of appeals affirmed. See Indem. Ins. Co. of N. Am. v. S. Tex. Lumber Co., 19 S.W.2d 913, 915 (Tex.Civ. App.-Galveston 1929), rev'd, 29 S.W.2d 1009 (Tex. Comm'n App.1930, judgm't adopted). In an attempt to avoid the Act's limitations provision, South Texas Lumber argued that the bond itself contained protections in addition to those required by statute; according to South Texas Lumber, it could still assert common-law causes of action against the bond based on those additional protections, which should be governed by a general four-year statute of limitations. Id. The court of appeals agreed, but the Texas Commission of Appeals did not. After examining the statutory scheme, the Commission reasoned that, although the statutorily required bond was for the dual protection of the governmental entity and laborers and materialmen, the governmental entity clearly had the dominant claim against the bond. South Texas Lumber, 29 S.W.2d at 1011. Were a laborer or materialman allowed to assert a non-statutory cause of action against the bond, the statutory priority given governmental bodies could be circumvented. Id. Because such circumvention would be clearly repugnant to the statutory priority scheme, the Commission held that a McGregor Act claim was the exclusive cause of action that could be asserted against the bond. Id. Importantly, nothing in South Texas Lumber suggests that a laborer or materialman should be precluded from asserting alternative claims not based on the bond against the prime contractor itself. Reliance on South Texas Lumber for such a proposition is, therefore, misplaced. [4]