While, in a general sense, the laws in force at the time the
contract is made enter into its obligation, the parties have no
vested rights in the particular remedies or modes of procedure then
existing.
Water Works Co. v. Oshkosh, 187 U.
S. 437.
There is a broad distinction between laws impairing the
obligation of contracts and those which simply undertake to give a
more efficient remedy to enforce a contract already made.
Bernheimer v. Converse, 206 U. S. 516.
Where, as the state court has held in this case, the requirement
that a preliminary notice that a third party intends to avail of
the benefit of a bond given for performance of a contract is a
condition precedent to an action on the bond, legislation altering
the period within which such notice must be given affects the
remedy, and not the contract itself, and does not amount to an
impairment of the obligation of the bond within the contract clause
of the federal Constitution.
Chapter 413 of the General Laws of Minnesota of 1909, extending
the time within which third parties intending to avail of the
benefit of a bond given for completion of public buildings must
serve notice of intention so to do, effected merely a change in
remedy without substantial modification of the obligation of the
contract, and is not an unconstitutional impairment thereof.
115 Minn. 382 affirmed.
The facts, which involve the constitutionality of a statute of
Minnesota relating to enforcement of claims under building bonds,
are stated in the opinion.
Page 226 U. S. 278
MR. JUSTICE PITNEY delivered the opinion of the Court.
This is an action to recover damages for the breach of a bond
made by the plaintiff in error as surety together with one
Henricksen as principal, given to a certain school district of the
State of Minnesota, conditioned that Henricksen should pay all just
claims for work, materials, etc., furnished for the completion of a
school building for the construction of which he had made a
contract with the district, the bond being given, according to its
own recitals, for the use of the school district and of all persons
doing work or furnishing materials under the contract. The contract
and bond were made in the year 1908. The bond was executed and
delivered pursuant to the provisions of the Minnesota statutes
found in Rev.Laws
Page 226 U. S. 279
Minn. 1905, §§ 4535 to 4539, inclusive, which in effect require
every public corporation of the state, on entering into a contract
for the doing of any public work, to take a bond for its own use
and for the use of all persons furnishing labor or material under
or for the purpose of the contract, and which entitle any person so
furnishing labor or material to maintain an action upon the bond,
under certain conditions.
The defendant in error, during the months of July and August,
1909, performed certain services and furnished certain materials to
Henricksen for use in carrying out his contract, for which a sum
exceeding $1,000 remained due and unpaid, and to recover the amount
so due this action was brought.
By § 4539, above referred to, which was in force at the time the
contract for building the school was made and the bond given, it
was enacted that
"no action shall be maintained on any such bond unless, within
ninety days after performing the last item of work, or furnishing
the last item of skill, tools, machinery, or material, the
plaintiff shall serve upon the principal and his sureties a written
notice specifying the nature and amount of his claim and the date
of furnishing the last item thereof, nor unless the action is begun
within one year after the cause of action accrues."
On April 22, 1909, this section was amended by c. 413, Gen.Laws
1909, so as to require the notice of claim to be given within
ninety days "after the completion of the contract and acceptance of
the building by the proper public authorities," instead of within
ninety days "after performing the last item of work or furnishing
the last item of skill, tools, machinery, or material," and further
amended by requiring the action to be begun within one year "after
the service of such notice," instead of within one year "after the
cause of action accrues."
It will be observed that this change in the law went
Page 226 U. S. 280
into effect before the defendant in error performed the services
and furnished the materials upon which the present action is
based.
Defendant in error did not give notice to plaintiff in error in
time to comply with § 4539, Rev.Laws 1905, but did give such notice
in time to comply with the amended act if that be the applicable
law.
The Supreme Court of the State of Minnesota in the present case
held that the Act of 1909 controlled, although passed after the
bond in question was given, overruling the contention of plaintiff
in error that the statute as so construed impairs the obligation of
the contract contained in the bond, and is therefore contrary to §
10 of Art. I of the federal Constitution. 115 Minn 382.
The only question that need be here considered is whether the
Act of 1909, as thus construed, does impair the obligation of the
contract.
Sections 4535-4539, R.L. 1905, originated in c. 354 of the
General Laws of 1895 and c. 307 of the General Laws of 1897. Prior
to this legislation, the Supreme Court of Minnesota had held, in
Breen v. Kelly (1891), 45 Minn. 352, that, although a
municipal corporation, having authority to cause certain public
work to be done and to make contracts for the doing of it, probably
had implied authority to take security for its own protection, it
had no authority to take security for third persons, nor capacity
to act as trustee in a contract made for their benefit, without
express legislative authority, and that such a bond, although
voluntarily given, was void. The same principle was adhered to in
Park Bros. & Co. v. Sykes (1897), 67 Minn 153.
By c. 354 of the Laws of 1895, which first created the statutory
right of action in favor of third persons upon such a bond, no
notice by the third person to the principal or sureties was
required as a condition precedent to his right to sue. He was
merely obliged to bring his
Page 226 U. S. 281
action within one year after the cause of action accrued. Notice
by the plaintiff to the principal and sureties was first required
by c. 307 of the Laws of 1897, the third section of which contained
the same provisions that were afterwards embodied in the Revision
of 1905 as § 4539, above quoted.
The Supreme Court of Minnesota, in the year 1904, in
Grant
v. Berrisford, 94 Minn. 45, 49, construed Gen.Laws 1897, c.
307, § 3, as follows:
"The provision in the general law requiring notice within ninety
days after the last item of labor or materials is done or
performed, before bringing an action on the bond, is not analogous
to a statute of limitations, but it is a condition precedent which
must be performed before the right to bring an action on the bond
accrues. Or, in other words, it is a condition or burden placed
upon the beneficiaries of the bond which they must perform or
remove before they can avail themselves of its benefits. It is as
much so as would be the case if this provision of the general
statute was set out as a proviso in the bond."
The argument for plaintiff in error is to the effect that, since
the right of action by a third party upon such a bond is of
statutory origin, and since the statute in force at the time the
bond in suit was given required a preliminary notice given to the
obligors within a certain time, which notice (under
Grant v.
Berrisford) constituted a condition precedent to the action as
much as if it had been set out as a proviso in the bond, a
subsequent act of legislation dispensing with such notice, or
changing the time within which it was required to be given, impairs
the validity of the contract, within the meaning of § 10 of Art. I
of the Constitution
The argument rests at bottom upon the proposition that, because
it required legislation to render such a bond actionable in behalf
of third parties, the obligation of the bond as a contract is of
statutory origin. But this
Page 226 U. S. 282
is not entirely clear. Treating the bond as voluntarily made,
and aside from the statute, it is, in its essence, a contract
between the obligors (including the Surety Company), on the one
hand, and "all persons doing work or furnishing materials" for the
construction of the school building (including the Decorating
Company as one of those persons), on the other hand. The
circumstance that the obligee in the bond as written was a public
corporation named as trustee for the workman and materialmen
affects the form, and not the substance, of the obligation. The
decision in
Breen v. Kelly denying the third party's right
of action and holding such a bond void as to him was not based upon
any illegality or want of consideration in the contract, nor upon
any incapacity of the obligors to make it; nor, indeed, upon any
incapacity on the part of the real obligees to accept and rely upon
such an undertaking. It proceeded wholly upon the ground of the
legal incapacity of the municipal corporation to act as trustee for
the persons beneficially interested.
But where parties have, in good faith and for a valuable
consideration, entered into an engagement that is not contrary to
good morals, and is invalid only because of some legal impediment,
such as the incapacity of a nominal party or the omission of some
merely formal requirement, there is ground for maintaining that the
legislature may, by subsequent enactment, provide a legal remedy,
and thus give vitality to the obligation that the parties intended
to create. Cooley's Const.Lim. *293, *374; Sutherland on U.S.
Const. 428, 429;
Ewell v. Daggs, 108 U.
S. 143,
108 U. S. 151;
Gross v. United States Mortgage Co., 108 U.
S. 477,
108 U. S.
488.
Nevertheless, granting, for the sake of the argument, the
contention of the plaintiff in error that the contract in suit, so
far as pertains to its obligation, is of statutory origin, it by no
means follows that the provision respecting a preliminary notice to
the obligors, as a condition
Page 226 U. S. 283
precedent to suit thereon, although contained in the law as it
stood at the time the bond was given, cannot be constitutionally
modified by subsequent legislation. The decision must turn, we
think, upon the familiar distinction between a law which enlarges,
abridges, or modifies the obligation of a contract and a law which
merely modifies the remedy by changing the time or the method in
which the remedy shall be pursued, without substantial interference
with the obligation of the contract itself.
As Chief Justice Marshall observed in
Ogden v.
Saunders, 12 Wheat. 213,
25 U. S. 349,
the obligation and the remedy originate at different times:
"The obligation to perform is coeval with the undertaking to
perform; it originates with the contract itself, and operates
anterior to the time of performance. The remedy acts upon a broken
contract, and enforces a preexisting obligation."
The distinction was well expressed by Mr. Justice Harlan,
speaking for this Court, as follows:
"It is well settled that, while, in a general sense, the laws in
force at the time a contract is made enter into its obligation,
parties have no vested right in the particular remedies or modes of
procedure then existing. It is true the legislature may not
withdraw all remedies, and thus in effect destroy the contract; nor
may it impose such new restrictions or conditions as would
materially delay or embarrass enforcement of rights under the
contract, according to the usual course of justice as established
when the contract was made. Neither could be done without impairing
the obligation of the contract. But it is equally well settled that
the legislature may modify or change existing remedies, or
prescribe new modes of procedure, without impairing the obligation
of contracts, provided a substantial or efficacious remedy remains
or is given, by means of which a party can enforce his rights under
the contract."
Oshkosh Water Works Co. v. Oshkosh, 187 U.
S. 437,
187 U. S. 439,
citing many previous cases.
Page 226 U. S. 284
In
Bernheimer v. Converse, 206 U.
S. 516, this Court held that a statute of Minnesota,
enacted for the purpose of giving a more efficient remedy to
enforce the contractual liability of stockholders to creditors by
enabling a receiver to maintain an action for the benefit of
creditors outside of the jurisdiction of the court appointing him
-- a remedy that, by the laws of Minnesota, was not available at
the time the stock liability in question arose -- did not impair
the obligation of the contract. MR. JUSTICE DAY, speaking for the
Court, said (at p.
206 U. S.
530):
"Is there anything in the obligation of this contract which is
impaired by subsequent legislation as to the remedy, enacting new
means of making the liability more effectual? The obligation of
this contract binds the stockholder to pay to the creditors of the
corporation an amount sufficient to pay the debts of the
corporation which its assets will not pay, up to an amount equal to
the stock held by each shareholder. That is his contract, and the
duty which the statute imposes, and that is his obligation. Any
statute which took away the benefit of such contract or obligation
would be void as to the creditor, and any attempt to increase the
obligation beyond that incurred by the stockholder would fall
within the prohibition of the Constitution. But there was nothing
in the laws of Minnesota undertaking to make effectual the
constitutional provision to which we have referred, preventing the
legislature from giving additional remedies to make the obligation
of the stockholder effectual, so long as his original undertaking
was not enlarged. There is a broad distinction between laws
impairing the obligation of contracts and those which simply
undertake to give a more efficient remedy to enforce a contract
already made."
Again, in
Henley v. Myers, 215 U.
S. 373, where defendants became stockholders in a Kansas
corporation at a time when, by the laws of that state, the
stockholders of an insolvent corporation were liable to pay for
the
Page 226 U. S. 285
benefit of creditors an amount equal to the par value of their
stock, and the stock of the corporation was transferable only on
the books of the corporation in such manner as the law prescribed,
and afterwards, and before defendants sold their stock, the
previous statute was amended so as to require the officers of a
corporation, as soon as any transfer of stock was made upon its
books, to at once file a statement thereof with the secretary of
state, and so that no transfer of stock should be legal or binding
until such statement was made, and defendants, before insolvency of
the corporation, transferred their stock upon the books of the
corporation, but did not procure a statement of the transfer to be
filed with the secretary of state, and were therefore held liable
in the state court to an action in favor of the receiver for the
benefit of creditors, this Court held that the act requiring stock
transfers to be noted upon the public records, and providing that
no transfer of stock should otherwise be legal or binding, did not
impair the obligation of the contract under which the defendants
acquired their stock.
In the case now before us, we agree with the Minnesota Supreme
Court in the view that the requirement of a preliminary notice to
the obligors as a condition precedent to an action upon the bond
affects the remedy, and not the substantive agreement, of the
parties. And although the statute as it stood when the bond was
given (R.L. 1905, § 4539) must, under
Grant v. Berrisford,
be treated as if written into the contract, it still imposed a
condition not upon the obligation, but only upon the remedy for
breach of the obligation. Therefore, the subsequent statute (G.L.
1909, c. 413) effected merely a change in the remedy, without
substantial modification of the obligation of the contract.
Judgment affirmed.