Opinion
No. C6-00-1724.
Filed April 10, 2001.
Appeal from the District Court, Beltrami County, File No. C4-00-66.
Robert J. Huber, Scott R. Goings, Leonard, Street Deinard, P.A., (for respondent)
Jeffrey C. Paulson, David D. Hammargren, Hammargren, Meyer Paulson, P.A., (for appellant First Community Insurance Co.)
Considered and decided by Lansing, Presiding Judge, Anderson, Judge, and Halbrooks, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
First Community Insurance Company issued a public-contractor payment bond as surety for Stamson and Blair, Inc. (Stamson), the general contractors on a Minnesota Department of Transportation (MnDOT) construction project. The district court granted Bemidji Blacktop, the paving subcontractor, summary judgment on its claim on the bond. First Community appeals, contending that Bemidji Blacktop's notice of claim was untimely as a matter of law and thus the claim is unenforceable. Because we conclude that the language of a superseded statute quoted in the contract between MnDOT and Stamson does not alter the statutory time limit for notice of claim under Minn. Stat. § 574.31, subd. 2 (1998), we reverse.
FACTS
Bemidji Blacktop and First Community submitted this case to the district court on stipulated facts. In July 1998, Stamson was the successful bidder on MnDOT's public-work project to construct a salt and sand storage building in Bemidji. Because the contract involves "public work" for a public body, the public contractors' performance and payment bond act requires that Stamson obtain a payment bond to ensure payment of persons furnishing labor and materials to perform the contract. Minn. Stat. §§ 574.26-.32 (1998). Under the contract between MnDOT and Stamson, Stamson agreed to file a payment and performance bond in the amount of the contract price. The contract's supplementary general conditions require the bond to "be in accordance with the Minnesota statutory requirements[.]"
The supplementary general conditions also state that "Minnesota Statute 574.31 provides a limit of time to bring an action on any such bond. For the benefit of all parties this section is quoted." The section quoted is identified as " 574.31 LIMIT OF TIME TO BRING ACTION." But the language quoted is a superseded version of Minn. Stat. § 574.31 that requires claimants to provide notice of a bond claim "90 days after the completion of the Contract and acceptance thereof by the proper public authorities." Minn. Stat. § 574.31 (1992).
The quoted language was removed from section 574.31 in 1994 when the legislature conformed the public bond notice provisions to the mechanic's lien notice provisions. 1994 Minn. Laws ch. 419, § 11. The statute in effect in 1998, when the contract and bond were executed, required persons furnishing labor and materials to serve written notice of a claim against a payment bond "within 120 days after completion, delivery or provision * * * of its last item of labor of materials." Minn. Stat. § 574.31, subd. 2(a) (1998).
Stamson subcontracted the project's bituminous paving work to Bemidji Blacktop. Bemidji Blacktop completed its paving work on October 31, 1998, after sending Stamson an invoice for $32,790 on October 30. Stamson completed the salt and sand storage building project and MnDOT accepted the project on June 22, 1999, paying Stamson for its work.
Stamson did not pay Bemidji Blacktop. By certified mail, return receipt requested, Bemidji Blacktop mailed a notice of claim to Stamson, First Community, and the Minnesota Department of Commerce on June 4, 1999, more than 120 days after Bemidji Blacktop had completed its work on October 31, 1998. Under the predecessor statute, however, Bemidji Blacktop's claim would have been timely because it preceded MnDOT's project acceptance.
After First Community denied Bemidji Blacktop's claim, Bemidji Blacktop sued Stamson and First Community. First Community asserted as a defense that Bemidji Blacktop failed to comply with the time limitation in Minn. Stat. § 574.31, and cross-claimed Stamson for indemnification. Stamson defaulted on the complaint and the cross-claim.
The district court granted Bemidji Blacktop's summary judgment motion and denied First Community's motion. The court entered judgment for Bemidji Blacktop against First Community and default judgment for First Community and Bemidji Blacktop against Stamson. First Community appeals from summary judgment, claiming that the district court erred in finding that Bemidji Blacktop's claim was timely.
DECISION
When a surety issues a bond that is required by statute, the bond must be construed in light of the statute. Nelson Roofing Contracting, Inc. v. C. W. Moore Co., 310 Minn. 140, 143, 245 N.W.2d 866, 868 (1976) (quoting Combs v. Jackson, 69 Minn. 336, 337, 72 N.W. 565, 566 (1897)). Compliance with statutory notice provisions is a condition precedent to enforcing a claim against a surety under a bond. Minn. Stat. § 574.31; Grazzini Bros. Co. v. Builders Clinic, Inc., 280 Minn. 540, 544, 160 N.W.2d 259, 261 (1968). But express terms of a bond that are inconsistent with the statutory provisions prevail if the terms are consistent with the statutory purpose. Nelson Roofing, 245 N.W.2d at 868. Thus express language in a bond enlarging the time within which an action may be brought will prevail over a more limited time frame provided by statute. Id.
Relying on Nelson Roofing, Bemidji Blacktop contends that the superseded statutory language quoted in the supplementary general conditions of the contract between MnDOT and Stamson expands the time limits for bringing a claim and the expanded limits are incorporated into the bond and prevail over the statutory time limits. First Community disputes that the quoted language changes the time limits in the underlying contract and further disputes that the quoted language is incorporated into the bond as an express condition.
Determining when a statute of limitations begins to run is a legal question, which this court reviews de novo. Herrmann v. McMenomy Severson, 590 N.W.2d 641, 643 (Minn. 1999). Contract construction and effect are also questions of law that are reviewed de novo. Trondson v. Janikula, 458 N.W.2d 679, 681 (Minn. 1990).
Minnesota law in effect when First Community issued the bond provided that "no action shall be maintained on [a] payment bond unless, within 120 days after completion, delivery, or provision by the person [making the claim] of its last item of labor and materials, for the public work, the person serves written notice of claim under the payment bond * * * ." Minn. Stat. § 574.31, subd. 2 (1998). The bond does not specifically recite the statutory language but generally states that unless Stamson, as principal, pays all "just claims for work done," the bond "shall remain in full force and effect pursuant to Minnesota Statutes, Chapter 574." Absent any contrary indication, parties are presumed to intend laws in existence at the time of contracting to be part of the contract. Indianhead Truck Line, Inc. v. Hvidsten Transp., Inc., 268 Minn. 176, 184, 128 N.W.2d 334, 341 (1964); Career Resources, Inc. v. Pearson Candy Co., 435 N.W.2d 114, 116 (Minn.App. 1989). Bemidji Blacktop does not argue that the bond language itself provides a time limit for notice that is more expansive than the statute, but argues instead that the bond's time limits are altered by the incorporation of terms in the contract between MnDOT and Stamson.
Minnesota courts have not specifically addressed the issue of whether a payment bond incorporates an underlying contract. Courts in other jurisdictions have held that a bond incorporates an underlying contract by reference because the purpose of the bond is to ensure payment of the underlying contract. See, e.g., United States ex rel Army Athletic Ass'n v. Reliance Ins. Co., 799 F.2d 1382, 1386 (9th Cir. 1986) ("[C]ourts construe a bond and its underlying contract together."); Home Indemn. Co. v. F.H. Donovan Painting Co., 325 F.2d 870, 874 (8th Cir. 1963) (labeling as "fundamental," the rule that a contract referred to in a bond is to be regarded as a part of the surety's undertaking); see also 11 Lee R. Russ, Couch on Insurance § 163.35 (3d ed. 1995) (setting forth as a general rule that a bond and any other instruments it refers to are to be construed together so that a surety can better understand the nature and extent of its obligation).
Even accepting Bemidji Blacktop's incorporation argument, to come within the holding of Nelson Roofing, Bemidji Blacktop must demonstrate first that the language of the superseded statute defines the time limits for claims under the contract and, second, that this incorporated provision becomes an express condition of the bond. We are not persuaded that Bemidji Blacktop has cleared either legal hurdle.
First, no evidence suggests that MnDOT and Stamson intended to supplant the statutory notice provision in effect at the time they executed the contract. Although the language quotes the superseded statute verbatim, the format in which the language is presented suggests only that MnDOT has carelessly and mistakenly quoted a version of section 574.31 that was repealed four years earlier. A separate provision in the same supplementary general conditions requires the bond to be in accordance with the Minnesota statutory requirements. Thus the contract appears to be, at best, ambiguous on which version of the statute applies. Even if we resolved the ambiguity in favor of Bemidji Blacktop, it must still demonstrate that the superseded statutory language is incorporated as an express provision of the bond and thus overrides the statute.
An "express" provision is a provision that is clearly and unmistakably communicated or directly stated. See Black's Law Dictionary 601 (7th ed. 1999). The only express provision in the bond relating to chapter 574 is a statement that until payment, the bond will remain in full force and effect "pursuant to Minnesota Statutes, Chapter 574." Reading the bond with the underlying contract as an integrated obligation does not produce an express undertaking by the surety to expand the time to provide notice of a claim. Again, at best, the language results in an ambiguity. The language falls far short of the Nelson Roofing standard of what is necessary to prevail over the statutory time limit — express language in a bond enlarging the time within which an action may be brought.
Nelson Roofing created a logical extension of caselaw that required a claimant on a public contractor's bond to comply with the clear and unambiguous time limits set forth in the statute. See, e.g., Shandorf v. Standard Sur. Cas. Co., 198 Minn. 96, 268 N.W. 843 (1936). The Nelson Roofing court recognized that the statute sets an irreducible time limit for claims, but that contract concepts underlying bond law support the enforcement of a surety's express expansion of time limits when it is consistent with the statute's purposes of protecting persons who perform labor or furnish material for a public work. Nelson Roofing, 245 N.W.2d at 866, 868. First Community's bond does not expressly provide for an expansion of the notice provisions and neither does an integrated reading of the bond and the underlying contract because principles of contract interpretation fail to provide a basis for an exception from the general application of the statutory time limits.