Opinion
No. 1-746 / 00-0592.
Filed September 25, 2002.
Appeal from the Iowa District Court for Dallas County, DARRELL GOODHUE, Judge.
Employers Mutual Casualty Company (EMCC) appeals from a district court ruling holding it liable under a performance bond. REVERSED.
Steven E. Ort of Bell, Ort Cornell, P.C., New London, for appellant.
J. Brad Reich of Reich Law Firm, Adel, for appellee.
Benjamin B. Ullem and Richard J. Kirschman of Whitfield Eddy, P.L.C., Des Moines, for amicus curiae The Surety Association of America.
Heard by HUITINK, P.J., and HECHT and EISENHAUER, JJ.
Employers Mutual Casualty Company (EMCC) appeals from a judgment entered against it on a public improvement bond. It contends (1) a performance bond should not be used to pay restitution for overpayment made by the city of Adel and (2) it was discharged in whole or in part from its obligations under the performance bond.
I. Background Facts and Proceedings. In June 1996, Nelson Development Services, Inc. (Nelson) was awarded a contract to construct sanitary sewer improvements in Adel. EMCC issued Performance and Payment Bonds to Nelson for the construction. The Bonds provided for completion of the project and payments to subcontractors if Nelson were to default on the contract. The contract price for construction of the sewers was $492,116.25. After some changes the final price was $568,936.16. Adel accepted the project on July 8, 1997 and authorized final payment. It withheld 5% of the amount as authorized by law.
During the course of construction, progress payments were made to Nelson. Some of the progress payments were paid twice, resulting in overpayments of $81,841.91. Adel discovered the overpayments after acceptance of the project, but before final payment. Before final payment was made to Nelson, claims were filed by unpaid subcontractors. EMCC paid claims to subcontractors totally $110,923.54. EMCC took assignment from the subcontractors to the retained funds.
Adel filed an action against Nelson and EMCC seeking, among other things, restitution from Nelson and reimbursement from EMCC on the bond for overpayments to Nelson. EMCC counterclaimed for the retained funds, and affirmatively answered that the acceptance of the overpayments by Adel were prejudicial to EMCC and it should be discharged of all obligations under the bond. The facts were stipulated and the matter was submitted. The district court found EMCC was liable under the performance bond for the overpayment to Nelson, and EMCC was entitled to the retained funds because of the payments to the subcontractors. It offset the awards and entered judgment against EMCC in favor of Adel for $53,395.10 plus interest and cost. EMCC has appealed.
II. Liability on the Bond. EMCC contends the district court erred in holding it liable under a performance bond for overpayments made by Adel to its contractor. The action is in equity and our review is de novo. Iowa R. App. P. 6.4.
We note the stipulation indicates the contract was completed on June 10, 1997 and Adel is seeking reimbursement for "negligent acts." To the extent Adel argues breach of contract and fraud by Nelson, we hold these issues were not presented and not preserved for our review. Adel characterizes the issue as Nelson negligently accepting payment, and EMCC characterizes the negligence as that of Adel in making the overpayments.
The bond in question was issued pursuant to Iowa Code § 573.2 (1997) which provides:
Contracts for the construction of a public improvement shall, when the contract price equals or exceeds twenty-five thousand dollars, be accompanied by a bond, with surety, conditioned for the faithful performance of the contract, and for the fulfillment of other requirements as provided by law.
It is the condition and quality of the completed projects that is considered in determining whether a contractor has faithfully performed its agreement. Van Buren County v. American Surety Co., 137 Iowa 490, 495-96, 115 N.W. 24, 27 (1908). There is no question here of the faithful performance of the construction of the sewer system. Adel raises no claim that Nelson did not complete the project as specified.
Adel, however, argues the acceptance of overpayments amounts to a breach of the contract. Section 573.2, however, is designed to ensure a contractor will complete a project as envisioned. The surety's liability must be measured by the statute rather than by the form of the bond. State Surety Co. v. Lensing, 249 N.W.2d 608, 611 (Iowa 1977). Our supreme court has held that a bond cannot be extended to other matters. Monona County v. O'Connor, 205 Iowa 1119, 1122, 215 N.W. 803, 805 (1927). The language in section 573.2 providing "other requirements as provided by law" cannot refer to an obligation to make restitution, since restitution is not based on contract. See 66 Am. Jur.2d Restitution and Implied Contracts § § 3-4 (2001). Section 573.2 thus refers to statutory requirements only, not common law or equity remedies. Schisel v. Marvill, 198 Iowa 725, 738, 197 N.W. 662, 662-63 (1924). We conclude the bond was not intended to indemnify Adel for overpayments to Nelson.