State Highway Administration v. Transamerica Insurance

Orth, J., delivered the opinion of the Court. This appeal stems from an action at law instituted in the Circuit Court for Allegany County on 29 October 1971 by the State of Maryland against E. C. Womack, Inc. (Womack) and Transamerica Insurance Company (Transamerica). On 26 April 1967 the State entered into a contract with Womack for the construction of approximately four miles of the Cumberland Thru way, Maryland Route 48. Womack furnished a performance bond, sometimes called a contract bond, with Transamerica as surety.

The suit was predicated upon actions of Womack in disposing of waste materials while it was engaged in the construction of the road. Womack had defaulted in its performance of the contract in November 1968 when it went into receivership, and Transamerica, as required by the performance bond, had completed the job. The State’s declaration sought damages resulting from Womack’s negligence in disposing of the waste and from his breach of contract with respect thereto. Transamerica filed a counterclaim against the State for the unpaid contract balance which the State had retained. 1 ⁶⁹³ The case went to trial on 15 July 1975.

The court filed an opinion on 19 November 1975, rendering a verdict in favor of Transamerica and against the State with damages in the amount of $283,873.97 and interest and a verdict in favor of the State against Womack with damages in the amount of $142,818.33 and interest. Judgments absolute were entered on 2 February 1976. The State noted an appeal to the Court of Special Appeals. 2 We granted writ of certiorari before decision by that court. The State presents four questions on appeal.

Verbatim they read: “1. Was the Trial Court in error in its determination that the surety, Transamerica Insurance Company, was released from liability for negligent acts of the principal, E. C. Womack, Inc.? 2. Was the Trial Court in error in its determination that the surety, Transamerica Insurance Company, was released from liability for the breach of contract of the principal, E. C. Womack, Inc.? 3. Was the Trial Court in error in its determination of the amount of compensatory damages, when it eliminated the construction costs of the section of the relocated drainage system from the west side of U. S. Route 220 to the Potomac River? 4.

Was the Trial Court in error in its computation of damages, when it failed to include the internal engineering and design costs incurred by the State of Maryland?” In the opinion accompanying the verdicts, the trial judge, in material part, accurately recounted the circumstances surrounding two wasting operations of Womack, one on a right-of-way of the State and the other on private property. With respect to the State’s right-of-way, Womack requested ⁶⁹⁴ permission to waste excess fill thereon, and its request was granted upon certain conditions. Womack completed this operation in accordance with the permission given and in full compliance with the conditions imposed. This operation demonstrated, the trial judge opined, the right method to be used to dispose of waste material: “There was a compaction of the waste material.

This was accomplished by the use of compacting pieces of equipment, a sheep’s foot roller and. a._. rubber tired compactor. Upon completion of the waste operation, the entire area of the waste pit was covered with at least two inches of top soil and seeded and mulched. This waste area has remained stable.” No problems whatsoever arose from the wasting area on the State’s right-of-way. Clearly, this operation had no adverse effect.

There was no wash out, and the drainage system was not affected. This was not so with respect to the wasting operation on the private property. It differed both in method and result. The trial judge observed that it demonstrated the wrong way to dispose of waste material.

He described what was done: “Chelsie A. Liller owned the land adjoining the right-of-way of the State Highway Administration. Subject to a private agreement with Liller, E. C. Womack, Inc., wasted material on the Liller property, located on the top and side of a hill overlooking State Highway U. S. Route 220 and also a natural ravine which the State intended to use to carry the water run-off from the highway being constructed. Wasting was done by end-dumping from trucks and there was no compaction except that which resulted from the operation of the equipment at the top of the fill. No further precautions were taken to prevent the waste from sliding.

There is also evidence that an artificial ⁶⁹⁵ impoundment formed on the surface at the top of the fill area.” The court expounded on this: “The trucks would end dump at the top of the fill and a bulldozer would push it over the side of the fill. The only compaction that took place resulted from the operation of the trucks and the bulldozer over the fill. No special attention was given to compaction. Also, after this waste operation was completed, no effort was made toward the vegetation of this area.

Prior to July 14, 1968, the night of the washout or landslide, there is evidence of minor slides or a breaking away of the waste material along the slope. There is also evidence of small impoundments of water on the top surface of the fill which became prime causes for the washout or landslide.” The landslide or washout of 14 July 1968 occurred during a heavy rain. “[P]art of the waste material placed [on the Liller property by Womack] washed down the hillside, and onto U. S. Route 220, making the natural ravine useless and causing considerable damage to property owners located at the foot of the hill.” The State cleaned up the debris deposited on Route 220 by the landslide and ultimately* constructed an alternate area-wide drainage system because it alleged the landslide had rendered the natural drainage ravine useless. It sought, in the action instituted, to recover the costs of this work, and based the action with respect to Transamerica on the performance bond, also known as the contract bond. It declared: “The terms of the contract bond make Transamerica responsible as surety for any damage arising out of the negligence of . . .

Womack or for any expense incurred through Womack’s failure to complete the work as specified.” 3 ⁶⁹⁶ Questions (1) and (2) Code (1957,1964 Repl. Vol.) Art. 89B, § 24 (see Acts 1975, ch. 566), concerning competitive bidding for the construction of a State highway, included the requirement that “... the successful bidder shall promptly execute a formal contract to be approved as to its form, terms and conditions by [the State Roads] Commission and shall also execute and deliver to said Commission a good and sufficient bond to be approved by said Commission to the State of Maryland in not less than the amount of the contract price. In no case shall any bond be approved or accepted unless the obligors bind themselves therein to the payment of all just debts for labor and materials incurred by the bidder in the construction and improvement of the road contracted for.” At the time Womack entered into the contract with the State, Code (1957, 1964 Repl. Vol.) Art. 90, § 11 (a) 4 provided that before any contract exceeding $5,000 for the construction of any public work is awarded to any person, he shall furnish the State two bonds which shall become binding upon the award of the contract.

The bonds were “(1) A performance bond executed by a surety company authorized to do business in this State satisfactory to the public body awarding the contract, and in such amount as it shall deem adequate, for the protection of the public body” and “(2) A payment bond executed by a surety company authorized to do business in this State satisfactory to the public body for the protection of all persons supplying labor and materials, ... to the contractor or his subcontractor in the prosecution of the work provided for in the contract for ⁶⁹⁷ the use of each such person. The bond shall be in the amount not less than fifty per centum (50%) of the total amount payable by the terms of the contract.” Womack furnished such a performance bond and a payment bond. It also obtained insurance coverage as shown by a certificate offered into evidence by Transamerica and included in the joint record extract appended to the State’s brief. Liberty Mutual Insurance Company certified that Womack was insured by it under a comprehensive general liability policy in the amount of $1,000,000 for each of bodily injury liability and property damage liability with respect to the construction contract. 5 “The purpose of the [payment] bond, based on the statute, is to protect subcontractors and materialmen on State or other public projects where they have no lien on the work done.” Montgomery County v. Glassman, 245 Md. 192, 201 , 225 A. 2d 448, 453-454 (1967); Hamilton v. Board of Education, 233 Md. 196, 200 , 195 A. 2d 710, 712 (1963).

The purpose of the performance bond, in the words of the statute, is “for the protection of the public body”, in this case the State. Its statutory object is to assure the construction and completion of the work contracted for. That is, the purpose of the performance bond, as its name implies, is to secure to the State the performance of the contract for the construction of the public work. The purpose of the liability insurance policy was to protect Womack itself against loss from its negligent acts.

Unlike the liability policy, which was a contract between two parties, Womack and Liberty Mutual, standing in the relationship of insured and insurer, the performance bond involved three parties, the contractor or principal, Womack, the surety, Transamerica, and the obligee, the State. 6 It is the re ⁶⁹⁸ spective rights and obligations of these three parties under the performance bond which comprise the heart of this case. The performance bond supplied by Womack provided that Womack, as the contractor, and Transamerica, as the surety, were “held and firmly bound unto the State of Maryland in the full and just sum” of $3,715,869.00 to be paid to the State and to which payment Womack and Transamerica bound themselves, their “heirs, executors, administrators and successors, jointly and severally ....” The “Whereas” clauses referred to the contract between Womack and the State to construct the road for the sum of $3,715,869.00 and stated that “[i]t was one of the conditions of the award of the State Roads Commission, acting for and in behalf of the State of Maryland, pursuant to which said Contract was entered into that these presents should be executed.” We set out the condition of the bond verbatim: “NOW THEREFORE, the condition of this obligation is such that if the above bounden Contractor shall in all respects comply with the terms and conditions of this Contract and fully meet and perform his, their or its obligations thereunder, including the Plans, Specifications and Special Provisions there in referred to, and made a part thereof, and such alterations as may be made in said Plans and Specifications as therein provided for, and shall well and truly and in a manner satisfactory to the State Roads Commission, complete the work contracted for, and shall save harmless the State of Maryland, and the State Roads Commission from any expense incurred ⁶⁹⁹ through the failure of said Contractor to complete the work as specified, or from any damages growing out of the negligence of the said Contractor, or his, their or its agents and employees or from any liability for the payment of any wages due or materials furnished in connection with said Contract; and if said Contractor and all Subcontractors to whom any portion of the work provided for in said Contract is sublet and all assignees of said Contractor and of such Subcontractors shall promptly make payment for all labor performed, materials furnished, machinery, utilities, and services rendered whether such are incorporated in the Contract or not, but entering into the work covered by said Contract, whether or not the said material or labor enter into and become component parts of the work contemplated. And also shall save and keep harmless the said State of Maryland against and from all losses to it from any cause whatever, including costs of transportation by water, rail or otherwise, and patent, trademark and copyright infringements, but without limiting the aforegoing, in the manner of constructing said improvement, then this obligation shall be null and void; otherwise it shall remain in full force and virtue.” We summarized the criteria for the interpretation of bonds in Walsh v. Jefferson Association, 216 Md. 131, 137 , 139 A. 2d 847, 850 (1958): “The cardinal rule in the interpretation of bonds, as in the interpretation of all written contracts, is to ascertain the intention of the parties and to give effect to that intention if it can be done consistently with legal principles. Levy v. Glens Falls Indem.

Co., 210 Md. 265, 273 , 123 A. 2d 348 . While the contract of a surety for profit is not to be so strictly construed as one of a surety not for gain, Women’s ⁷⁰⁰ Hospital v. Fid. & Guar. Co., 177 Md. 615, 618 , 11 A. 2d 457 , Lange v. Board of Education, 183 Md. 255, 260 , 37 A. 2d 317 , it is clear that the liability of a surety is not to be extended, by implication, beyond the terms of its contract, Art, etc., Corp. v. Fidelity Con. Corp., 194 Md. 110, 116 , 69 A. 2d 808 , but the nature of the duty of the obligor and the character of the obligee must be regarded as explanatory of their intent.

Strawbridge v. Baltimore & O. R. R. Co., 14 Md. 360 . The meaning of the terms of the bond, including the condition contained therein, are to be ascertained by reference to the language of the [contract covered by the bond] and pertinent statutes;....” See A/C Electric Co. v. Aetna Ins. Co., 251 Md. 410, 416-418 , 247 A. 2d 708, 711-712 (1968); Fid. & Dep. Co. v. Lumber Co., 176 Md. 217, 222 , 4 A. 2d 447, 450 (1939).

Women’s Hospital v. Fid. & Guar. Co., supra, 177 Md. at 618-619 , 11 A. 2d at 459 , gives the criteria in a different form, enumerating “established principles” followed in the construction of bonds. As indicated, a bond is to be construed in connection with the contract whose performance it secures. Lange v. Board of Education, supra, 183 Md. at 261 , 37 A. 2d at 320 .

We said in General Builders v. MacArthur, 228 Md. 320, 326 , 179 A. 2d 868, 871-872 (1962): “The liability of a surety is coextensive with that of the principal, and it is clear that the liability of the surety is measured by the contract of the principal.” Thus, “[w]here the contract incorporates as a part of itself the specifications, and the contract is, by reference, incorporated as a part of the bond, the contract, the specifications and the bond must all be construed together.” Lange v. Board of Education, supra, 183 Md. at 261 , 37 A. 2d at 321 . It is patent, as we have indicated, that the State's action as to Transamerica was predicated upon the performance bond, and in its brief it so declares. A copy of the performance bond is included in the joint record extract. Transamerica notes in its brief that “the State relies on the language of a bond form which was never introduced into ⁷⁰¹ evidence”, and suggested in a footnote: “Generally, an appellate court will not consider evidence which was not offered or introduced in the lower court.” There is no indication that the document itself was excluded upon any objection made.

A copy of the performance bond was attached to and made a part of the State’s declaration, Transamerica’s answer and Transamerica’s counterclaim. The bond’s provisions were discussed by the trial judge in his opinion and considered, construed and applied by him in arriving at the verdicts. The bond was as fully before the court as if it had been formally offered in evidence. The court and the parties so considered it below, and in the circumstances, so shall we on appeal.

See Thompson v. Phosphate Works, 178 Md. 305, 325-326 , 13 A. 2d 328, 337-338 (1940); Wathen v. Pearce, 175 Md. 651, 662 , 3 A. 2d 486, 491 (1939); Dean v. Eastern Shore Trust Co., 159 Md. 213, 220-221 , 150 A. 797, 800-801 (1930). We deal initially with the State’s position that Transamerica should have been held liable under the performance bond because Womack breached its contract with the State “when the off-right of way activities destroyed the drainage system and forced a complete re-design” because it may be summarily disposed of. 7 The invoking of the surety’s liability under the performance bond by breach of the construction contract does not plainly appear by the record to have been tried and decided by the court below. There is nothing in the joint record extract or appendix to show that the breach of contract point was presented at the trial. The opinion of the trial judge gives no ⁷⁰² indication that the point was tried; it deals only with the matter of negligence in the consideration of the liability of Transamerica under the performance bond.

The requirements of Maryland Rule 828 b 1 that “[tjhe printed extract shall contain such parts of the record as may be reasonably necessary for the determination of the question presented by the appeal ... ,” are mandatory. Riggs Nat’l Bank v. Welsh, 254 Md. 207, 218-219 , 255 A. 2d 289 , 290 (1969); State Roads Comm. v. Sharper, 231 Md. 411, 413 , 190 A. 2d 647, 649 (1963). The point is not properly before us, and we do not consider it. Maryland Rule 885; Basiliko v. Royal Nat’l Bank, 263 Md. 545, 549 , 284 A. 2d 227, 229 (1971).

The record before us has an additional serious deficiency. The construction contract, which the State claims Womack breached in the wasting operations, is not included in the joint record extract appended to the State’s brief, and does not appear in the appendix submitted by Transamerica, is not with the record transmitted to us, and according to Transamerica, was never even offered in evidence below. 8 We must measure the liability of Transamerica by the contract of Womack, and this we cannot do when the contract is not before us. In General Builders v. MacArthur, supra, we were faced with a similar situation. We noted that the construction contract and the appended plans and specifications were not included in the record extract, “as they probably should have been,” but found enough in the record extract and appendix to show the contract had in fact been breached.

Id., 228 Md. at 326 , 179 A. 2d at 872 . Here, there is not enough in the record extract and appendix to show what provisions, if any, were in the contract pertaining to wasting operations. Even on an assumption that the contract upon which the cause of action under the second count of the declaration was based was before the court below, and that the court released Transamerica from liability for the breach thereof by Womack, we would be unable to review the propriety of the ruling. The State simply failed to place the contract before us, and the failure, ⁷⁰³ in the circumstances, would, in any event, be fatal to any consideration by us of the second question.

We turn to the first question, which asks if the trial court was wrong in determining that Transamerica was not liable for the negligent acts of Womack. The trial court found that Womack was negligent with respect to the waste deposited on the Liller property, that its negligence was the proximate cause of the injuries suffered by the State resulting in the damages incurred, and that there was no negligence on the part of the State thereto contributing. 9 These findings are not contested on appeal, and, in any event, there was evidence adduced which was legally sufficient to support them. Maryland Rule 886. The trial court next considered whether Transamerica was responsible to the State under the terms of the performance bond for the negligence of Womack, and concluded that it was not.

The court said: “The negligence provision of the construction bond is applicable only when the negligence of the contractor occurred while it was performing or failing to perform the requirements of the construction contract. The purpose of the bond is to assure the State Highway Administration that the construction contract will be fully performed without further liability to the State than that provided for in the construction contract. In other words the purpose of the bond was to secure a proper compliance with the terms and provisions of the construction contract. The wasting operation on the Liller property was not required under the provisions of the construction contract.

The State was without authority to direct the placement of the waste nor could it police the activities of the contractor on the Liller property or any other private property (Liller, Supra). The State had no interest in the waste operation so long as it ⁷⁰⁴ occurred on other than State property. The manner of wasting and the location of the waste site were solely within the jurisdiction of the contractor. Since this bond was executed in conjunction with a construction contract it would afford protection to the State only with regard to the activity referred to in the construction contract and would not apply to damage to property other than that under construction and within the limits of State property.” The trial court noted that the State accepted the completed highway without reservation prior to the filing of the instant suit.

There was legally sufficient evidence to support this view. It was its opinion, therefore, “that Transamerica has fulfilled its obligation under the terms of the contract bond.” The court lastly referred to a comprehensive liability insurance policy carried by Womack as required by the contract and noted that it was filed with and accepted by the State Roads Commission. The court observed that the State “must now look to Liberty Mutual for satisfaction of the damages it incurred as a result of the negligence of the contractor”, and, it is apparent that the court considered the insurance policy as going to the intent of the parties with respect to the performance bond. The argument of the State gives