NAT. AMERICAN INS. CO. v. Boh Bros. Const. Co.NAT. AMERICAN INS. CO. v. Boh Bros. Const. Co.
Douglas L. Brown and Clifford C. Brady of Armbrecht, Jackson, DeMouy, Crowe, Holmes & Reeves, L.L.C., Mobile, for appellee.
MADDOX, Justice.
The central legal issue presented in this case is whether the Alabama principle that a foreign corporation cannot sue on a contract claim if it has not qualified to do business in this State—commonly referred to as Alabama’s “door-closing statute,”
This case involves a dispute over a portion of more than a half million dollars awarded by the State of Alabama Highway Department because of delay damages incurred by certain subcontractors and suppliers on a highway construction project for improvements to a section of Interstate Highway I-165 in Mobile, Alabama.
Boh Brothers Construction Company (“Boh“) had a contract with the Highway Department to construct a section of I-165 in Mobile. Pursuant to this contract, Boh agreed “to furnish and deliver all the material and to do and perform all the work and labor required to be furnished and delivered” in the performance of the project. Boh entered into a subcontract with Mike Mitchell & Associates, Ltd. (“MMA“). MMA agreed to perform certain treatment and remediation work on the I-165 project. At the time, MMA was a foreign corporation that had not qualified with the Alabama secretary of state to do business in Alabama.
As part of its agreement with MMA, Boh required MMA to obtain a subcontract payment bond and subcontract performance bond. National American Insurance Company (“National American“) issued a subcontract performance bond and a subcontract payment bond in favor of Boh as obligee. MMA was named as principal for the work MMA was to perform on the I-165 project.
MMA proceeded with work on the project and entered into a subcontract with Williams Environmental Services, Inc. (“Williams“), by which Williams was to perform, among other things, the hydrocarbon remediation of the soil. During the course of its work on the
Pursuant to its contractual obligation with Boh, National American, as surety for MMA, admittedly paid the following claims: (1) Aaron Oil Company, Inc., $58,442.52; (2) Oil Recovery Services, Inc., $14,841.12; and (3) Trax, Inc., $12,886.28. Each of these claimants executed assignments to National American of any rights it might have had to proceed against others.
After the work on the project had been halted, MMA, through Boh, asserted a delay claim with the Alabama Highway Department for delay costs and other claims that it alleged arose out of its subcontract with Boh. The delay claim consisted of MMA’s delay costs, delay costs of Williams and other subcontractors, as well as other costs. The claim was presented to the Alabama Highway Department claims committee, and, after exhausting all its administrative appeal processes, Boh accepted the amount of $545,527.44 from the Alabama Highway Department as settlement of the claim. This is the fund that has created the legal dispute involved in this appeal.
MMA, National American’s principal, initially sued in the United States District Court for the Southern District of Alabama alleging breach of contract, relating to claims arising out of its subcontract with Boh. That court entered a summary judgment in favor of Boh on the ground that MMA was a foreign corporation not qualified to do business in Alabama, and, therefore, could not enforce its contract with Boh. Mike Mitchell & Associates, Ltd. v. Boh Bros. Constr. Co. (CV-94-0099, S.D. Ala. June 14, 1994). MMA did not appeal that decision.
Williams, one of MMA’s subcontractors, filed this action in the Circuit Court of Mobile County, against MMA, National American, Boh, and Fidelity & Deposit Company of Maryland (“F & D“), Boh Brothers’ surety, asserting claims for payment for work and labor performed on the project. Boh subsequently entered into a pro tanto settlement agreement with Williams regarding Williams’s claim against Boh.
MMA, although having lost in its action against Boh in the federal court, asserted a cross-claim against Boh, alleging both tort and contract claims arising out of its subcontract with Boh. National American also filed a cross-claim against Boh. MMA’s claim against Boh also included allegations involving the claim for delay damages that is the subject of National American’s cross-claim. Boh moved for a summary judgment on MMA’s cross-claim in this action on the same ground that it had asserted in the federal action; the trial court entered a summary judgment in favor of Boh against MMA, holding that MMA’s contract with Boh was unenforceable because of MMA’s failure to qualify to do business in Alabama, just as the federal court had held.
National American’s cross-claim against Boh is the subject of this appeal. In its cross-claim, National American claimed that it was equitably subrogated to funds due from Boh to MMA under MMA’s subcontract with Boh, and argued that it should be permitted to maintain its claim of equitable subrogation, even though its principal, whose obligations it had paid, had not qualified to do business in Alabama. It sought as damages $86,169.92, plus $176,000 paid by it to Williams. National American, filing copies of the release and subrogation agreements executed by the subcontractors and suppliers that it had paid under the terms of its bond, moved for a summary judgment on its cross-claim. Boh responded to the motion by agreeing that there were no material issues of fact to decide and that only a question of
National American filed a motion to alter, amend, or vacate the judgment, raising several new issues. The trial court denied the motion and this appeal ensued.
National American’s argument, summarized, is that Boh made a claim with the Highway Department and recovered $545,527.44; that most of that money was earned by subcontractors and suppliers of MMA, its principal; that MMA had failed to pay its subcontractors and suppliers; and that National American had made payments on its behalf. National American contends that if it had not paid those debts of MMA, then Boh, or its surety, F & D, would have had to make those payments, and that those claimants had a right to assert equitable liens and a constructive trust on any funds received by Boh from the Highway Department in connection with the project. In short, National American contends that it does not stand in the shoes of MMA, but is a subrogee of the subcontractors and suppliers that it paid under the bond that it executed with Boh as the obligee.
Boh’s argument, summarized, is that National American cannot be subrogated to the proceeds Boh received from the Highway Department as delay damages, because, Boh says, “it has been determined by two courts that MMA has no claim against Boh and that its subcontract with Boh is unenforceable“; and that “[s]ince National American seeks to be subrogated to the proceeds of MMA’s subcontract with Boh and MMA’s subcontract with Boh has been determined to be unenforceable, i.e., there are no contract proceeds, then there are no funds to which National American can be subrogated.” The substance of Boh’s argument is based upon Alabama’s door-closing statute. In fact, Boh argues that “[i]f National American is allowed to proceed against Boh under its theory of ‘equitable subrogation,’ the public policy of Alabama’s qualification statutes and Constitution will be circumvented.”
Based on our reading of the briefs, our understanding of the oral arguments in this case, and the applicable law, we agree with National American’s argument. We reverse the judgment of the trial court and remand for further proceedings consistent with this opinion.
Suretyship is a three-party relationship among a principal, its surety, and the obligee to whom the principal and surety are jointly and severally bound for performance. Balboa Insurance Co. v. United States, 775 F.2d 1158, 1160 (Fed.Cir.1985), citing United States v. United States Fidelity & Guaranty Co., 236 U.S. 512, 35 S.Ct. 298, 59 L.Ed. 696 (1915). In Maryland Casualty Co. v. Cunningham, 234 Ala. 80, 83, 173 So. 506, 509 (1937), this Court said:
“[T]he salutary principle still prevails that the contract of suretyship is not that the obligee will see that the principal performs its conditions, but that the surety will see that he performs them (Alabama Fidelity & Casualty Co. v. Alabama Fuel & Iron Co., 190 Ala. 397, 67 So. 318 (1914))....”
In Fidelity & Casualty Co. of New York v. Central Bank of Birmingham, 409 So.2d 788, 790 (Ala.1982), this Court stated that “[t]he surety’s right to equitable subrogation exists whether a surety steps in and physically completes the contract or whether it merely pays the laborers and materialmen under that contract.” In Maryland Casualty Co. v. Dupree, 223 Ala. 420, 423, 136 So. 811, 814 (Ala.1931), the Court held that the surety on a bond issued on a public contract “has an equity akin to the doctrine of subrogation.”
Under the facts of this case, two suretyships are important. First, Boh tendered to the Highway Department statutory payment, as required by
In view of the fact that the highway project experienced delays that were not shown to be the fault of MMA or its subcontractors or suppliers, and in view of the fact that the Highway Department awarded $545,527.44 to Boh and that Boh normally would have been required to pass that award down through its subcontract with MMA to those subcontractors and suppliers who suffered delay damage, Boh, in equity and good conscience, should not be permitted to use MMA’s failure to qualify to do business in Alabama to prevent recovery by one who has paid claimants pursuant to the terms of the suretyship. Furthermore, National American has obtained assignments of any rights that those who were paid might have had to proceed against others.
There is another reason why we believe the trial court erred in applying Alabama’s door-closing statute in this case—the Interstate Commerce Clause of the Federal Constitution prohibits the application of that door-closing statute in this case. In Cornwall & Stevens Southeast, Inc. v. Stewart, 887 F.Supp. 1490 (M.D.Ala.1995), a Georgia corporation and its parent corporation, a Tennessee corporation, sued their former employee to enforce a covenant not to compete that appeared in an employment contract. The employee moved for a partial summary judgment. The Court held that, although the two corporations were not registered to do business in Alabama, the corporations were engaged in interstate commerce and, therefore, the Commerce Clause prevented the application of Alabama’s door-closing provisions. In Cornwall & Stevens, the plaintiffs contended that they were exempt from the registration requirement by virtue of the fact that they were engaged in interstate commerce, arguing that the Federal Constitution, specifically
Based on the foregoing, the judgment is reversed and the case is remanded for proceedings consistent with this opinion.
REVERSED AND REMANDED.
HOOPER, C.J., and SHORES, HOUSTON, and SEE, JJ., concur.
COOK, J., concurs in the result.
KENNEDY, J., dissents.
COOK, Justice (concurring in the result).
I concur in the Court’s holding that the summary judgment was improper. I write specially, however, to point out, in Part I of this special writing, the rationale on which I base my concurrence and to note specifically in Part II my disagreement with that portion of the opinion addressing the constitutionality of
I.
The trial court entered a summary judgment in favor of Boh Brothers Construction Company (“Boh“), thereby denying National American Insurance Company (“National American“)—the surety under a contract with Mike Mitchell & Associates, Ltd. (“MMA“)—the right to be reimbursed for payments National American made under the surety contract to creditors of MMA upon MMA’s default. It held that National American was not entitled to subrogation—because MMA had not qualified to do business in Alabama, as required by
The trial court, however, appears to have overlooked
“A surety [National American] who has paid his principal’s debt, [MMA’s debt] is entitled to a transfer of the original and collateral security which the creditor holds; he has all the rights to realize thereon and to reimburse himself to the same extent as the creditor might have done before the surety paid him, whether paid before or after judgment; and he shall be substituted for the creditor [MMA’s subcontractors, materialmen, or suppliers] and subrogated to all his rights and remedies; in effect, he shall be a purchaser of the debt and all its incidents.”
(Emphasis added.)
Section 8-3-2 is part of Chapter Three, “Suretyship,” §§ 8-3-1 to -42; Chapter Three, in turn, constitutes a portion of Title Eight, “Commercial Law and Consumer Protection.” Section 8-3-2 expressly authorizes National American to be subrogated to the claims of MMA’s creditors, namely, (1) Williams Environmental Services, Inc.; (2) Aaron Oil Company; (3) Oil Recovery Services; and (4) Trax, Inc.; these were “subcontractors, materialmen, or suppliers,” whose claims against MMA in the amount of $262,169.92, National American paid. The Court’s opinion correctly points out that MMA’s creditors could have pursued their claims against Boh or Boh’s surety, Fidelity & Deposit Company of Maryland (“F & D“). Thus, National American, having authority, pursuant to
Nothing in Chapter Three of Title Eight suggests that the rights of a surety are in any manner restricted or limited by the provisions of
II.
Because the Court holds as it does, it is clearly unnecessary to reach the question whether