The present appeal challenges a statute of Tennessee on the ground that, as construed and applied, it impairs the obligation of a contract in contravention of article 1, § 10 of the Federal Constitution.
March 12, 1928, National Construction Company made a contract with the state, through its Department of Highways and Public Works, for the construction of a bridge. An act of 1917 required such a contractor to furnish a bond with surety to protect the state and to secure payment to persons furnishing materials, supplies, and labor for the project. The company executed such a bond with the appellee as surety. The appellant agreed with the Construction Company to furnish certain labor and materials for the erection of the bridge. Upon completion of the structure, the appellant claimed a balance of about $59,000. There remained in the possession of the Highway Department some $77,000 which had been retained out of the contract price as directed by the Act of 1917. In the meantime, the act had been amended on April 11, 1929, to provide that instead of withholding the retained percentage pending the presentation of claims by subcontractors, and paying into court so much as might be necessary to answer suits brought on those claims, the Commissioner of Highways might, upon the date of final settlement, release and pay to the principal contractor the amount so retained, against a refunding bond with proper surety, conditioned for the payment of valid claims of sub-contractors. Pursuant to this amendatory act, the Commissioner, without notice to or consent of the appellant, made final settlement with the Construction Company and paid it the retained percentage, taking a refunding bond with the Equitable Casualty & Surety Company as surety. Thereupon, the appellant filed a bill in the Chancery Court of Davidson County against the Construction Company, the appellee as surety on the contractor's bond, the Commissioner, and the Equitable Company as surety on the refunding bond, reciting the facts and praying a decree for the balance due under its contract. The Construction Company answered and cross-claimed for alleged breach of contract, asserting that there was no sum due the appellant. The appellee answered asserting that the payment of the retained percentage and the acceptance of a refunding bond released it as surety from liability to the Department of Highways or to subcontractors. The Commissioner's answer recited his acts in the premises. The appellant replied to the cross-bill. A decree was entered in favor of the Commissioner against the Construction Company and Equitable Company on the refunding bond. Subsequently the Commissioner informed the court that the Equitable Company had become insolvent and it was proposed to substitute a refunding bond of the Construction Company as principal and Consolidated Indemnity & Insurance Company as surety in the penal sum of $40,000, in place of the original refunding bond, and lodge the new bond in court, such action not to release the Construction Company under the original refunding bond but to operate as a release of the receiver and liquidating agent of the Equitable Company. It was ordered that the bond be taken and lodged in court to await the outcome of the litigation.