173 N.W. 448 | S.D. | 1919
Lead Opinion
Appeal from an order overruling defendant’s demurrer to plaintiff’s complaint. The allegations of the complaint, so far as material to this appeal, are substantially as follows ;
“That we, Offerman Construction Company, a corporation of Omaha, Neb., principal, and National Surety Company of New York, as surety, are held and firmly bound unto the city of Watertown, South Dakota, a municipal corporation in the sum of $ro,ooo * * * for the payment of which well and truly to be made we hereby bind ourselves, etc. The condition of the foregoing obligation is such that, if the a'bove-bounden Offerman Construction Company * * * shall assume the defense of and indemnify and save harmless the city of Watertown * * * from all claims relating to- labor and materials furnished under such contract, * * * and shall also pay for all labor performed and materials used or furnished in the carrying out of said contract: Then-this obligation to be null and void; otherwise to remain in full force and effect and virtue.”
That said bond was accepted by said city, and in reliance thereon plaintiff furnished to the Offerman Construction Company materials (described) to the aggregate sum and value of $1,846.28, which materials were used by said company in the construction of said sewers pursuant to its contract. That the Offerman Construction Company became and was adjudged bankrupt on April 2, 1918, and never paid plaintiff for said material. That on July 8, 1918, plaintiff demanded of defendant surety company payment of the sum due for said materials so used, but that defendant refused and still refuses to pay the same or any part thereof, and denies its liability on said bond ■upon the ground that it is “not liable to labor and materials claimants.”
Two other causes of action similar in every respect are set forth in plaintiff’s complaint. Demurrer to the complaint on the ground that it does not state facts sufficient to constitute a cause of action. Demurrer overruled, and defendant appeals.
In response to the first contention, it is sufficient to observe that, if the contract was clearly intended to be for the use and benefit of laborers and materialmen as well as the city itself- — in other words, if the defendant guaranty company contracted and agreed to become liable for and to pay for labor and material entering into the sewer in case the contractor failed to pay therefor ■ — no question of ultra vires arises.
In Fish & H. v. N. E. H. Co., 27 S. D. 221, 130 N. W. 841, this court held that persons for whose benefit a contract of this kind is made need not be named therein. In Fry v. Ausman, 29 S. D. 30; 135 N. W. 708, 39 L. R. A. (N S.) 150, Ann. Cas. 1914C, 842, it was held that—
“Recovery can only be had in case the contract was ‘made expressly for the benefit of a third person.’ ”
In Chung Kee v. Davidson, 73 Cal. 522, 15 Pac. 100, the court held that—
“It must appear, however, by the direct. terms of the contract, that it was made for the benefit of such parties. It cannot be implied from the fact that the contract would, if carried out between the parties to it, operate incidentally to their benefit.’
The general rule is that — ■
“Where contracts are evidently part of the same transaction, a person who beomes a party to one of such contracts which provides for the other is bound by the terms of both.” 13 C. J. 713, § 821.
That is, the guarantor of a contract binds himself to a performance of the same acts which the principal himself has undertaken to perform. Therefore where a contractor, by the terms of his contract, has expressly agreed to pay all claims for labor and material, the guarantor binds himself to pay for such labor and material equally with the contractor, and laborers and materialmen may adopt such guaranty and enforce it the same as though made directly to them. Jordan v. Kavanaugh, 63 Iowa, 152, 18 N. W. 831. The general rule undoubtedly is that to sustain an action there must be privity of contract between the parties, though in many jurisdictions it is held, even in the absence of statutory provision, that, if one person makes a promise to another upon a
“A contract, made expressly for the benefit of a third person, may be enforced by 'him' at any time before the parties thereto rescind it.”
No -question of rescission is involved in this case. The interpretation of the section is not free from difficulty. It appears to be a legislative recognition and adoption of the rule which seems to be sustained by the weight of authority. But the reasons announced in different jurisdictions are so diverse as to give rise to more or less difficulty in its application'. In some states in which it has been adopted by -decisions, it is held inapplicable to a contract -which is purely conditional and contains no express promise for the benefit of the third party. -Chung Kee v. Davidson, 73 Cal. 522, 15 Pac. 100.
The California court, interpreting the section of their Code which is identical with our statute, said:
“We cannot say that the contract before us was made expressly for the benefit of the plaintiffs’ assignors. O-n the contrary, we think it was made expressly for the benefit of the parties named therein. The most that can be said is that it is a contract incidentally for the -benefit of those who worked in the mine. * * * It is not necessary that the party for whose benefit the contract has been made should be named in the contract. It must appear, however, by direct terms of the contract, that it was made for the benefit of such parties. It cannot 'be implied from the fact that the contract would, if carried out between the parties to it, operate incidentally to their benefit.”
In the case of Electric Appliance Co., v. U. S. Eidelity & Guaranty Co., no Wis. 434, 85 N. W. 648, 53 D. R. A. 609, the court said:
“We consider the true rule to be that there must not only •be an intent to secure some benefit to the third.party, but there must be a promise legally enforceable.”
In that case the contract guaranteed provided that the plant should be completed and ready for acceptance free and clear of
In the case of Parker v. Jeffery, 26 Or. 186, 37 Pac. 712, a firm contracted with the city of Portland) to furnish material and perform labor necessary for the construction of a sewer. .In the contract the contractors expressly agreed that they “would' pay. all sums of money due at the completion of the work, or hereafter to become due, for material used in and labor performed on or in connection with said work.”
■Defendants executed a guaranty bond conditioned that—
“Whereas, the above-bounden Robertson Bros, have this dav entered into a contract with the city of Portland for the construction of a sewer. * * * Now, if said contractor- shall well and faithfully perform all the covenants and conditions in said contract mentioned, then this obligation to be void; otherwise to be and remain in full force and virtue.”
The court, while recognizing the rule to be the same as "hat adopted by our statute, said:
“We take the rule to be that, to entitle a third person to recover upon a. contract made by others, there must not only be an intent to secure some benefit to such third, person, but the contract must have been made and entered into directly and primarily for his benefit. * * * Applying these rules to the case in hand, it seems clear that plaintiffs cannot maintain this action, because there is no promise by * * * [the guarantors] to pay for labor and material used by Robertson Bros, in the performance of their contract with the city; nor was. the bond taken by the-' city for the benefit of parties who might furnish such labor and material, but to indemnify and save it harmless from loss or damage by the failure of 'Robertson Bros, to perform their contract. * * * The' condition that, if Robertson Bros, should comply with their contract with the city, the obligation should be void, is incorporated in the bond for the benefit of the sureties., It simply declares upon-what terms they may be exonerated from their liability to' -the city. The bond contains no covenant or*119 agreement to pay the plaintiffs, or to see them paid, but only a condition, the performance of which will exonerate them from liability; and such a condition will not be construed as a promise. * * * The condition standing' by itself -wants the very elements of a contract”-— citing Turk v. Ridge, 41 N. Y. 201, and other New York decisions holding that a condition in a contract of guaranty is not a promise to pay.
The court further said:
“The case of Jordan v. Kavanaugh, 63 Iowa, 152, 18 N. W. 851, is, we think, clearly distinguishable from the case at bar in this: That the-contract containing the promise of the principal to pay all just claims of subcontractors is attached to and made a part of the- bond, and the two instruments were considered and read together by the court in determining the undertaking of the obligors * * * to pay such claims.” ■
In the Iowa case the condition of the bond was as follows:
“That, whereas, * * * as principal, has this day entered into a contract with said * * * a copy of which is hereto attached and made a part thereof; now if the said * -* * shall well and truly comply with said contract in the time and manner provided, then this obligation shall be void, otherwise in full force and effect.” This case is in line with Connor v. Olson, 136 Wis. 13, x 15 N. W. 81-1. In the latter case the contractor expressly- agreed to furnish, all labor- and- material, and that the school district should not be liable therefor. The condition in the bond was that—
“If J. J. Olson & Son shall duly perform the contract and fulfill all -the several stipulations therein- provided, ‘and pay for all labor and -material that- enter into the construction of said building/ then the obligation to be void,” otherwise to'remain in full force and effect.
The court construed these provisions as an agreement of the contractor to pay for labor and material, and says:
“Since the bond secured' payment by the contractors of the material used in the construction of the building, it was therefore a contract between the district and- the parties thereto for the benefit of those persons furnishing material to be used in the construction of the building. Under such circumstances the third party need not be ascertained or known at its inception to entitle him to the benefits thereof-. The third party -may adopt it*120 when he becomes informed, and may enforce it at la-W' as if originally made by his express authority.'’
These cases hold in effect that, when read in connection with provisions of the contract guaranteed, a condition in a guaranty contract “may” be construed to be a promise; that one of the acts guaranteed may be the payment by the contractor of laborers and materialmen; and that such contract is made expressly for their benefit, as well as for the benefit of other parties named in the contract.
The Offerman. Construction Company has “contracted with the city of Watertown, S. D., to furnish material and labor for and to construct * * * a * * * sanitary sewer * * * known and designated as trunk sewer No. 1, in the contract therefor and plans, specifications, and instructions to 'bidders therefor, hereto attached and specifically made a part of this obligation and referred to herewith; -* * * if the said principal shall well and truly perform all of the terms, conditions and agreements made and entered into by it in said contract * * * and if the said Offerman Construction Co. shall assume the defense of and indemnify and save harmless the city of Watertown, iS. D., its officers and agents, from all claims relating" to labor and materials furnished under said contract * * * and shall hold said city of Watertown, S. D., harmless against all claims for damages whatsoever, arising from injury to persons or property done in the prosecution of the work under said contract; and shall also pay for all labor performed or material used or furnished in the carrying out of said contract;. then this obligation shall be null and void, otherwise to remain in full force and virtue.”
. -These provisions of the bond guarantee that the contractor will do four things: First, construct the sewer according to plans and specifications; second, that the contractors shall assume the defense of and indemnify and save harmless the city of Watertown from all- claims relating to labor and materials furnished under said contract; third; shall hold said city harmless
In Sioux Falls Pressed Brick Co. v. Board of Education, 25 S. D. 36, 125 N. W. 291, this court held in effect that, where a contractor had defaulted in the performance of his contract, payment, for a portion of the work completed, which did not become due the contractor until the final completion of the contract, did not become subject to the liens of laborers or material-men under this statute, and that moneys thus retained by and remaining in the hands of the board of education might be used by them in the completion of the contract. This rule was recently affirmed by this court in the case of Grant County v. McGowan Lumber Co., 172 N. W. 683.
- It follows that the order of the trial court should be affirmed.
Concurrence Opinion
(concurring specially). While I concur in the result reached in the foreg'ong opinion, T arrive at my conclusion through a.somewhat different line of reasoning-.
I am unable to agree with the suggestion that this bond may be treated as one entered into between the construction company and the surety company for the benefit of the materialmen. The only contract before us is one wherein the construction corn-pan}’, as principal, and the surety company, as surety, have contracted with the city; the consideration therefor being- the letting of the contract by the city to the construction company. We have therefore a case of-a bond given by a principal and surety upon which a person not a party thereto claims a right of recovery upon the ground that such bond was entered into for its benefit. Suppose the fourth condition was the sole condition of said bond. Such a bond would be in no sense an indemnity bond- — it would not indemnify the city against anything. W”e must presume that the parties to this bond knew that the city could not become liable to the materialmen. The fourth condition does not indemnify the city, but guarantees the payment of the laborers and materialmen. The validity of contracts of guaranty running- in favor of a third party often rests, as held in Fry v. Ausman, 29 S. D. 30, 135 N. W. 708, 39 H. R. A. (N. S.) 150, Ann. Cas. 19141c, 842, upon the existence of some obligation from the promisee to the beneficiary. It is not, however, necessary that this be an obligation to pay money, or even that it be a legal obligation. A moral obligation from the promisee to the beneficiary or an indirect benefit flowing to the promisee because of
In taking and giving a bond with such a condition, the parties' thereto understand' that the incidental benefit to be derived by the city,, and which prompts the city to require the condition, comes solely through the guaranty in favor of the material-men and laborer. It must therefore be conclusively presumed that this covenant of guaranty is inserted in the bond for the direct benefit of the materialman and the laborer, in order that through the promise of such direct benefit there will come an incidental benefit to the city.
It does. not appear that the contract between the city and the construction company contained any promise by the construction company to pay laborers and materialmen, and' it i$ contended that the condition contained in the bond cannot 'be held to be a promise on the part of the construction company. To my mind, the sole question to be determined is: What was contemplated by the-parties to this bond when it was entered into — what they intended? It seems clear to me that it was contemplated by the parties that this bond, so far as its fourth condition was concerned, should not be a nullity, but that, by inserting such condition, the construction company and its surety intended to', and the city intended they should, guarantee the payment of the material-man and the laborer, thus bringing an- indirect beenfit to the city. That being their intention, we should not look for excuses to relieve the surety company, but should hold it in strict accord