*1 IN THE COURT SUPREME 668
RGK,
Guaranty
v.
Co.
Inc.
regarding
definitely
de-
There
no real issue
identified.
was
theoretically by
identity except
plea his
fendant’s
raised
clearly
unequivocally
guilty.
identi-
evidence
state’s
perpetrator of
Defendant offered
fied him as the
the homicide.
contrary. Compare
Grace,
v.
287 N.C.
no evidence to the
State
243,
(1975),
alibi;
was
State
RGK, INC. v. UNITED STATES FIDELITY AND GUARANTY COM INC., PANY, CECIL’S, PROPERTIES, and FAIRWAY Limited Partnership
No. (Filed 1977) 13 June — Principal payment Surety private project 1. 10—§ action on — necessity bond for attachment of A who materialman sues on a contractor’s required complaint, is not forth set attachment or other- wise, the contract between the contractor and the owner in order successfully to resist a motion to dismiss. TERM t. *2 — Principal private Surety project 2. and construction § action 10— — payment sufficiency complaint bond complaint Plaintiff subcontractor’s was sufficient to state a claim against surety prime payment for relief the on the bond contractor’s prime complaint without the attachment of the where contract complaint alleged: prime contractor and the owner contracted apartment complex land; for the construction of an the the owner as on the owner’s prime surety naming payment contractor and the executed a bond obligee claimants, including for the use and benefit of plaintiff by definition, whereby they prime undertook that con- promptly pay tractor would used or all claimants for labor and material reasonably required performance prime plain- for use of the contract; pursuant to two other attached contracts between the tiff, prime contractor, owner, plaintiff performed and the clearing grading upon and work and storm installed sewers the owner’s property; prime contractor owner and have failed and refused work; by plaintiff for such the labor and materials furnished reasonably required were used or for use in the of the the prime contract; prime contractor, reason of this default surety of the specified provisions is indebted in a amount under payment bond; surety prime notified the contractor’s default and made demand it of its under the bond. — Principal Surety payment 3. 10—action on § contractor’s bond effect default of owner payments An prime assertion that the owner defaulted in private project not, contractor of a construction does as a matter of law, bar the of a subcontractor which furnished labor and ma- project surety upon terials to recover from the a bond secur- ing payment by prime contractor of materialmen and laborers. — Principal Surety private 4. § bond materialman 10— third-party beneficiary third-party beneficiary prime Plaintiff materialman was a contractor’s thereon bond and was thus entitled to maintain an action against alleged its own name on the if it a breach of the condition of the bond. — Principal Surety private § 5. construction bond consideration 10— prime contract prime incorporated by Where contract was reference into payment bond, contractor’s construing any ambiguous language must be considered in in the con- dition bond itself. — Principal Surety compensated 6. § construction of con- 1— tract compensated surety interpreted liberally The contract of a is to be promisee strictly in the interest of the and beneficiaries rather than surety. in favor of the concurring Justice Exum in result. Sharp concurring opinion.
Chief Justice concurs in THE IN SUPREME COURT y. Guaranty Appeals review its de- to the Court of certiorari On cision, App. 708, 600. reported in N.C. 230 S.E. 2d McLeU Superior before
The matter was heard in the Court Fidelity J., upon & Guar- land, motion of the States United USF&G, 12(h) (6), anty Company, under Rule hereinafter called for failure action be dismissed that the could be claim which relief to state a judg- granted against Treating as motion USF&G. granted J., 12(c), McLelland, pleadings ment on the under Rule granted delay just motion, there reason for found was ap- permit immediate judgment an final for USF&G so as Appeals peal. reversed. The Court *3 allegations complaint, of the amended sum- The material renumbered, are as marized and follows: Fairway (1) entered into similar contracts with RGK two part of made contracts are attached and and Cecil’s which By contracts, promised complaint. RGK to clear and these grade tract of land and to storm sewers a described install Fairway by Fairway, upon which and Cecil’s had and owned tract (not attached to the entered into a third contract appeal) the record on not set forth in By complex. it apartment the contracts so made anof “labor, equip- defendants, promised RGK furnish the said two grading clearing, supervision” for such and storm ment and promised and and sewer construction work, pay- such specified amounts for the RGK monthly progressed, them as the work to be made ments estimates, payment pursuant and final to be made within promised days completion. RGK further in these contracts after Inc., Cecil’s, Properties and “to turn said work over claims, encumbrances, good condition, free and clear from all corporation person, other than firm or RGK and liens of growing performance of” such contracts. out principal, USF&G, (2) as as On March payment surety, “labor and material bond” entered into a which, appeal, material to this are: By All These Men Presents: “Know * * * * * Cecil’s, Inc., Principal, *. as and United “That * * * * * * Guaranty Fidelity Company, Surety, States & * * * firmly Fairway Properties, unto held and bound are TERM 1977 Ine. v. Obilgee Owner, [sic], hereinafter for the use and called of claimants as hereinbelow defined in the amount benefit Forty-eight Thousand, Million, of Two Six Hundred Two Ninety ($2,648,- Hundred 290.00**) and No/100 —Dollars payment Principal Surety whereof executors, themselves, heirs, administrators, bind their assigns, jointly severally, firmly by successors and presents. these agreement Principal by written dated
“Whereas, 4, 1974, December entered into a contract with Owner Wellington Apartments, Burlington, Construction of The Carolina, drawings specifica- North accordance with prepared Miller, AIA, tions James D. which contract hereof, reference made a hereinafter re- ferred to as Contract. Obligation “Now, Therefore, of This Condition Principal promptly
is such that if shall make defined, to all claimants as hereinafter for all labor and reasonably required per- material used or for use in the Contract, void; formance of the then this shall be effect, subject, otherwise shall remain in full force and however, following conditions:
“(1) having A claimant is defined as one a direct con- *4 Principal with tract or with a sub-contractor of the Principal reasonably labor, material, for or both used or required contract, in for use labor being material water, and construed to include that of light, gas, power, heat, oil, telephone gasoline, service or equipment directly applicable rental of to the Contract. “(2) Surety hereby Principal The above named and jointly severally agree every and with the Owner that claim- defined, paid ant as herein the who has been in full before expiration period ninety (90) days of a of after the date which the last of such claimant’s work or labor was performed, done or claimant, may or materials were furnished such claimant,
sue on this bond for the of use such prosecute judgment to final suit such sum or sums justly claimant, due and have execution thereon. any The Owner shall not be liable for of costs ” * * * any expenses or such suit. THE COURT IN SUPREME 672 through continuing Beginning and (3) 1 March 1974 pursuant to its May 1975, furnished materials labor RGK per- Fairway and continued and Cecil’s with contracts said furnished contracts, materials so the labor and formance of such by reasonably perform- being use or required “used Fairway Proper- Inc., Cecil’s, between ance complex. apartment of the said construction ties” for the pay refused (4) failed and have Cecil’s them contracts with performance under its said for its RGK plaintiff “for failed and refused and Cecil’s for use in materials furnished labor and/or 4, 1974 Wellington Apartments pursuant the December By Fairway Properties.” Cecil’s, between contract reason and obli- USF&G is indebted of such default gated bond to the of the said under $16,294.60 interest. with amount of plaintiff notified By (5) 6 November letter dated and made the terms of the bond default under of Cecil’s surety un- it for demand der such bond. recovery from the prayer is for the severally,
defendants, jointly $16,294.60 interest upon the a lien and that the said amount be declared and costs property directing property such an order sale such lien. for the satisfaction of originally July
This action was instituted only. August 1975, by order of the On 13 Cecil’s and Judge Bankruptcy United States District Court enjoined persons were of North Carolina all Middle District instituting taking or steps proceedings further from against Fairway bankruptcy proceedings properties, or its suits Chapter having against Fairway pursuant XII been instituted Bankruptcy Act. admitting original complaint filed its answer to admitting making RGK and contracts with *5 labor and materials to described furnish certain demanding proof toas the amount owed tract of land but strict asserting RGK, by a counterclaim Cecil’s to RGK and amount, damage by unspecified for sustained Cecil’s as in an alleged delay by performance of the RGK in its said result TERM contracts and as the of RGK’s thereof in result an To RGK “unworkmanlike manner.” this counterclaim filed its denying delay reply, improper performance such or it. party made USF&G was a the action complaint on 11 amended December 1975. joint filed
Cecil’s and USF&G answer amended complaint, wherein reaffirmed its set Cecil’s defenses forth in original adopted answer The these. answer to complaint the amended admitted the execution of the bond above mentioned further admitted that labor “the alleged ma- and/or plaintiff, original terials furnished complaint, reasonably required were or used use Cecil’s, Inc., of the contract between * * * Properties for the construction of” the above mentioned apartment complex. anything It denied that owing was due and from either or RGK under said bond.
Vernon, Wooten, P.A., by Vernon & H. John Vernon III for RGK, Inc., McAdams, James H. Masonry McAdams d/b/a Company. General Electric
Brooks, McLendon, Pierce, Humphrey and Leonard McLendon, Jr., L. P. and M. Daniel McGinn USF&G. LAKE, Justice. question appeal sole on before us is the correctness judgment pleadings defendant,
of the alleged on the in favor basis of which is failure of the to state a granted. Thus, be claim which relief we are not con- plaintiff, permitted proceed cerned here with whether if action, hit trial of this a home run will with can or strike out but only whether, alleged, on the facts he entitled to come and, opinion judgment therefore, In our he is to bat. Appeals should affirmed. Court 1A-1, provides: Procedure,
Rule 8 of the of Civil Rules G.S. pleadings. “General rules “(a) pleading forth Claims which sets relief. —A claim, relief, original claim for whether counter- an
claim, crossclaim, third-party claim, contain shall
“(1) plain A claim suffi- short and statement give ciently parties particular court *6 THE COURT IN SUPREME 674 Guaranty
RGK, Inc. v. Co. occurrences, transactions, or series notice proved occurrences, intended or transactions showing relief, pleader entitled to judgment relief “(2) A demand for alternative or entitled. Relief in the he himself deems may types be demanded. several different ‡ Í $ consistency.— direct; Pleading “(e) to be concise “ pleading simple, (1) shall be con- Each averment of a pleading cise, No technical forms of or and direct. required. motions are
[*] [*] [*] “(f) pleadings. pleadings shall Constmction of —All justice.” construed as to do substantial be so judgment pleadings “A on the ‘is not favored motion for alleged courts; pleadings to state- no cause of action or liberally pleader.’ 51 construed in favor of defense will be Jur., Pleadings, Powell, 420, 445, v. Am. 336.” Powell 271 N.C. § ; Edwards, (1967) 261 2d 691 Edwards v. N.C. S.E. leading question (1964). on this 2d 18 In the case 135 S.E. 12(b) Court, motion to under Rule we that a dismiss said granted (6) a claim which relief can be for failure to state equivalent demurrer under our former the modern Code Duke, v. 2d 161 Procedure. Sutton 277 N.C. S.E. Civil legislature said, (1970). conclude that there We “[W]e requirements to relax the strict of detailed intended somewhat ** * adopt pleading.’ pleading concept and to of ‘notice fact theory pleading’ ‘notice Under the a statement of claim is gives adequate if it sufficient notice of the ‘to en- claim asserted trial, party prepare able the adverse to answer and application judicata, allow for the of res and to doctrine brought.” type pleading also “A com- show the case We said: notice of the gives plies if it rule sufficient events produced claim transactions which party to enable the adverse it, of it and the to understand the nature basis for file a by using provided responsive pleading, rules obtain- and — get discovery ing pretrial additional information he —to Nevertheless, prepare for trial.” com- need to enough give allege “to plaint must substantive elements of 70, 73; Duke, Intra. claim.” 5 Forest L. Rev. Sutton Wake SPRING TERM 1977 RGK, Inc. v.
supra. contends the in this action does not *7 do this. Enterprises, Inc., 490,
In Cantrell v. Woodhill
273 N.C.
(1968),
said,
2d 476
we
“In an action
S.E.
for breach of a
building
just
or construction
contract
as
other
contract —
allege
complaint
case—the
must
the existence of a contract be
specific
plaintiff
defendant,
breached,
tween
the
constituting
breach,
damages
the
resulting
amount of
facts
plaintiff
Wilmington
from such breach.” In
v.
Schutt,
through
285,
(1947), speaking
228 N.C.
“There is
rule which
a
forth
set
complaint
in his
the full
is
contents
the contract which
subject
incorporate
of his
or to
matter
action
the same
complaint
copy
in the
reference to a
thereof attached as
allege
plain
an exhibit. He must
ain
and concise manner
material,
ultimate facts which constitute his cause of
allegations
production
support
action. The
of evidence to
thus made
and should
await
trial.”
Cemetery,
In
v.
Inc.,
535,
Sossamon
212 N.C.
“The decision whether it is in an a action on written to make writ- contract the entire ing part complaint. especially ‘No,’ a The answer is part complaint, where the omitted in the in- from as case, allega- possession stant in the An defendant. containing agreement, tion substance present complaint, will suffice a demurrer.” principle pleading, This well established for- under Code, specifically mer is not present set forth in the Rules Procedure, Chapter implicit pres- 1A, Civil G.S. it is but requirement Rule ent 8 that the claim relief plain forth set in “a short and statement of and that the claim” pleading concise, simple, “each a averment of shall be direct.”
ant contends that [1] S.E. 2d 155 Relying upon (1952), Builders which Corp. Casualty we shall because is deficient discuss below, Co., 236 N.C. the defend bond, COURT SUPREME THE IN to and copy attached sues, of which is on which itself, incorporates expressly into complaint, made Fair- between Cecil’s reference, contract the construction forth in the to or set not attached way and this knowledge con- that such matter of common It is a complaint. reference, specifi- usually incorporate, themselves,
tracts, pursuant including blueprints, architect plans, cations promises to build the structure prime contractor that, in order to resist suc- To hold of the owner. upon the land materialman, on a dismiss, who sues cessfully a motion complaint, in his must set forth contractor’s the builder and otherwise, the contract between attachment including plans specifications for the con- owner, all a farce of the apartment complex, would make of an struction *8 plaintiff present the state requirement rules that * * * plain simple, concise, and statement in a “short and claim “give upon face to the complaint, sufficient If the direct.” court and the * * * intended transactions parties notice of the relief,” showing pleader to is entitled proved the to be undertaking allege the correctly of the contractual does not defendant, answer, simple the in his defendant, matter for it is a alleged put plaintiff making the deny and contract the inaccuracy supposed due to thereof, the be proof whether to his incorporated by reference into document provision in the some upon otherwise. sued or the contract contracted [2] This complaint for the construction alleges in substance: Cecil’s of an apartment complex and Fairway on land USF&G, surety, by Fairway; Cecil’s, principal, and as owned as naming Fairway obligee for payment bond as the use executed a including by definition, claimants, plaintiff the and benefit of whereby they promptly pay would all undertook that Cecil’s reasonably required labor and material used claimants for and performance of the between Cecil’s for use in the contract plaintiff, Fairway; pursuant other between the to two contracts full, Fairway, contracts, are attached Cecil’s agreed complaint, plaintiff perform, the the and made of agreed for, clearing Fairway pay the Cecil’s grading upon the by of the said of and installation storm sewers agreed Fairway; performed plaintiff property work; the the owned Fairway have failed and refused to
Cecil’s work; furnished plaintiff by the labor and materials so for such reasonably required plaintiff were used or for use SPRING TERM 1977 Guaranty Co. Fairway performance of the contract Cecil’s and between apartment complex; by of reason by plaintiff, under default USF&G is indebted to the payment $16,294.60 of said amount of interest; plaintiff by notified USF&G the default Cecil’s and made demand of its said as under the said It be diffi- bond. would imagine simpler, plainer, cult to more concise statement respect claim In what it fall USF&G. does giving the court short and to the notice of the defendants by plaintiff proved transactions intended to be or fail to give the substantive elements of its claim? sufficiency
While is to be determined complaint, the face of the note that we the answer filed jointly making by Cecil’s and USF&G admits the Cecil’s grading, and clearing of the contracts with installation,
and storm sewer admits execution USF&G the bond and admits that the labor and materials furnished were used or reasonably required for use in apart- between Cecil’s and for the construction complex. Thus, it plainitff ment is admitted that the is a “claim- and, such, “may ant” as defined in the bond sue this bond claimant, prosecute judgment use such suit to final justly claimant, for such sum or sums due and have execution thereof.” *9 assuming alleged that, everything
USF&G contends in the by complaint proved plaintiff, plain- is true and can be tiff cannot plain- recover from on its bond USF&G because alleged by tiff has not default a Cecil’s its of its Fairway apartment contract with for the construction of the support contention, complex. In of that it relies Builders supra. Corp. Casualty Co., v. We find merit whatever in this contract, performance That not the contention. is of which is by plaintiff on which secured the bond sues.
peals that, [3] It is asserted in the brief of USF&G in the in the course of the construction of the Court apartment of Ap controversy complex, some Fairway arose between and Cecil’s quality Cecil’s, whereupon as to way of work done Fair wrongfully payments off cut to Cecil’s there and Cecil’s suspended project. on is, asserts, work That after THE COURT IN SUPREME
678 brief, Fairway, not contract. Cecil’s broke in its to in be, not referred are However that any way these circumstances appear in the record pleadings, elsewhere in the do Superior judgment Court of the and cannot form a basis dismissing complaint a to state for failure of the action granting granted, or a for which relief can be basis claim motion for plaintiff judgment pleadings. on The has way alleged of supposed have no or admitted these facts. We knowing, us, that from the record before breach If, party how- either thereto has occurred. that, respect true, as a ever, does assertion USF&G’s law, from USF&G bar to recover matter securing payment by of materialmen Cecil’s its be, “No.” think answer must laborers? We [4] It is indisputable that, although Fairway is the named obligee third-party payment bond, plaintiff bene in the is a ficiary an action thereon thereof and thus entitled maintain alleges if own name it breach its supra; Corp. Casualty Co., v. condition of the bond. Builders Plank, 819, 58, Bristol Iron v. 163 Va. 178 S.E. Steel & Works Contracts, 798; (1935) ; Restatement A.L.R. Corbin § 139; Security, 165; Contracts, Restatement §§ § 2d, Bonds, Am. Jur. Contractor’s 4.§ principal plaintiff materialman, upon and the separate independent obligation, their their from obligee. any, owner, if thereon to the the named Obviously, surety (USF&G) third- not liable to the beneficiary party (RGK) upon there been its bond unless has (Cecil’s). a breach the condition the bond Corp. Casualty Co., supra. equally Builders It is obvious alleges present case such breach action, condition of the bond in that a defendant also in.this alleges directly plaintiff Cecil’s contracted with the performance by furnishing plaintiff for the by of labor and the of materials in connection with the construction apartment complex property on the promised agreed price Cecil’s for such work, alleges not made. Plaintiff also party too it, was a but its contracts and is liable to *10 appeal. Nothing appearing, that is immaterial to this else liability impose surety (USF&G) sufficient un is der its bond. SPRING TERM 1977 The condition of the bond on which sues is not performance by Fairway, Cecil’s of its contract with but promptly payment claimants, that Cecil’s “shall make to all defined, hereinafter and all labor material used or reason- ably required for use in the of the contract” be- Fairway. twéen acknowledged Cecil’s and It plaintiff’s claim is for such labor and materials and that Cecil’s paid therefor. Cecil’s counterclaim for an unspecified appeal. amount is not material to this As Professor Corbin states in his Contracts, treatise on 800: “Words § ‘promise’ ‘condition’ form; are not words of in but case penal they of a must promise, be construed to be words of only express inasmuch as the promise words are in those penal which promised. sum is The alternative enforcing seems to be penalty construing between and promise words condition enforcing as a and that. The courts adopted have alternative, being the latter penalties longer Thus, collectible.” the bond here in suit ais as principal, USF&G, surety, pay plain- that Cecil’s will tiff for its work if Cecil’s not, does USF&G will. [5, 6] Fairway contract between is, by
terms of the which complaint, in turn is made incorporated Thus, into the bond. are to be con any question sidered in any ambiguous of construction of lan guage in the condition of the 2d, bond itself. 17 Am. Jur. Bonds, 4; Contractor’s Bristol Plank, Steel & Iron § Works v. supra; Contracts, Corbin on p. However, 168. it is well § settled compensated the contract of a surety, such as case, interpreted liberally USF&G this of the tois in the interest promisee strictly beneficiaries rather than in favor surety. Contracts, Corbin on 800, p. 176. There is no § suggestion any whatever in the record before us that there is thing in the contract between Cecil’s and' which tends qualify clear, contradict or direct, unambiguous under taking furnishing laborers and materialmen labor and materials completion use in the which Certainly, and Cecil’s contracted. there is noth ing allegations suggests such qualification. conflict or course, Of the contract between Fai way and Cecil’s must be consulted determine whether work done and materials furnished RGK were done are, furnished for use of that contract *11 COURT IN THE SUPREME Guaranty Co. coverage here but USF&G. therefore, within this.' admits party
USF&G, brief, “If the owner is contends: in its [i.e., between the contract on the has defaulted who surety company not liable since then Cecil’s] performance of gives surety company its bond to secure * * * gen- general contractor, of the owner. not that [T]he agrees pay only the sub- the owner to eral with contractor money from which it obtains contractors/suppliers that “it is this answer to contention owner.” It is a sufficient plainly states that The bond in the bond.” not so nominated and ma- pay “for all labor will claimants and USF&G Cecil’s reasonably required for use terial used or transform this contention would of the contract.” USF&G’s surety making fidelity bond, payment into from a a money apply it re- only properly if liable Cecil’s fails Fairway. a petition to Court for writ from In its this ceives of certiorari, asserts: only going surety company be not
“If liable defaulted, the other but also when when its has defaulted, [Fairway] then the party to the contract surety companies consequences in North are obvious. The premium rates which either have to establish Carolina will vouching they are reflect the fact every general and the owner construc- contractor surety companies simply will refuse to project; or tion since, practical project, payment bonds on a issue matter, investigate sufficiently they able to would not be general and would well as the contractors the owners as agreements from to secure indemnification not able they regularly deal.” do owners with whom Here, simply has not under- This is not the case. apply pay and Cecil’s will what taken that will Cecil’s supply who it so of those receives unequivocally promised that Cecil’s and materials. It has labor investigated financial pay suppliers. will solvency those general contractor, principal, and when satis- solvency, saying, “If he its bond does fied of his issued project, suppliers we will.” and laborers on this construction obligation, surety company does not want to assume If the fidelity applying merely to labor to vouch for his but wants TERM 1977 RGK, Inc. owner, from the then the amount he receives material claims change good faith, ought, simple surety company English plain make it state bond so as to condition of its *12 fidelity underwriting only in the the of its that handling it is ought strike money to to the owner and paid him of undertaking the now there prepared bond form
from its own pay English does the that if the contractor plain stated in strings so, attached to materialmen, surety will with the do undertaking bond states promise. It latter which this the is the qualifies nothing forth the record pleadings set and the undertaking. charged adequate premium for the is not If this the remedy bond, expressly plainly in the and assumed risk plain premium, terms of to not to distort is increase been stated therein has broken. bond after the condition knowledge that, a bond It a matter of common while such property upon to that here sued is beneficial the owner through filing thereon, of advoidance óf claims of liens through enabling prime purpose real is to benefit owner purchase on labor and materials credit. contractor to premium company into the in return enters knowledge that will extended paid it and with full credit to by subcontractors, and laborers ma- contractor ,It upon that is inconceivable terialmen in reliance the bond. copy not have a the contract does available any allegation Fairway Here, without between there Cecil’s. any provision of contract between negates qualifies or the condition of the Cecil’s USF&G, extended to Cecil’s the contem- after liability contract, credit, plated to avoid own writ- seeks its it, solely prepared form there ten a chosen because might something purports contract which he liability suppliers qualify and its adopt that the suffi- decline to test of labor materials. We ciency us. before Foundry Co., 177,
In 198 N.C. 151 S.E. Co. v. Construction (1930), Court, speaking through Adams, in a 93 Justice given prime, to secure the suit a subcontractor a bond private contract, performance of contractor’s such as that between said: together. “The contract and bond must be construed Manufacturing Andrews, 165 v. N.C. 258. In the former Co.
682 IN THE SUPREME COURT v. agreed pay purchased,
the contractor
for the materials he
only agreed
and in the latter he not
all
claims
materialmen;
stipulated
he
bond shall be
‘this
having
just claim,
benefit of the
materialmen
laborers
Hood,
By
as well
J. D.
trustee
virtue
[the owner].’
.provisions
subject
these
elaim the
of
to
surety against Hood,
available to the
defenses
promisee
property.”
added.)
owner
(Emphasis
jurisdic-
opinions
is in
This
accord
of courts of other
Indemnity
Indianoplis
See:
tions.
Aetna
Co. v.
Fuel
Mortar &
Co.,
(1912);
178
70,
Ind.
In Getchell & Martin Lumber & v. Peterson Co. Sampson, supra, & the Iowa Court said: see, rights
“So far as we can and interest of the company scrupulously good guarded, were and there is no ground holding surety discharged for of ir- because regularity payments [by in the owner to the contrac- released, if the Even should held be on tor]. this account, owner, it would not follow it also is released as claims subcontractors. bond being given benefit the latter as the for- well as right mer, their by action cannot be affected an act for they which responsible. right are in manner no Their from, under, not derived nor owner building, held independent right, but it they is an of which are to be deprived by their own (Emphasis save act or default.” added.) Asphalt
In Standard Bldg. Co., & Rubber Co. supra, v. Texas the Kansas Court said: rights “Laborers and materialmen have under
statutory obligee. independent bond The bond is required by Legislature for the benefit of laborers and construction, those who furnish material railroad agreement railway company no between'the and the con- guaranty company tractor or between him and the can rights affect of laborers and materialmen to recover TERM 1977 y. given protection. Modifications for their upon the bond provisions, some contract, to observe or failures guaranty might good between defenses as obligee bond, not relieve will in company and the liability upon laborers the bond to guaranty company from added.) (Emphasis materialmen.” between respect basis for distinction there is no In this pay- for the statutory public and a bond construction performing subcontractors, and materialmen laborers ment of by contractor supplying materials used or services in the once it be private performance of a private with the con- the bond in connection determined that given benefit of such claimants project was struction clearly That that of the owner. established as well as for provisions of the bond itself. here Corbin, 798, Contracts, treatise at
Professor § says: p. 169, parties an “In the third have case where [RGK] the direct
enforceable as beneficiaries discharge power promisee [Fairway] bond has surety’s duty release, by them, an whether contractor, breaches extension of time to the agreeing changes princi- duties, his own (Emphasis added.) pal contract.” 2d, Bonds, Jur.
In 17 Am. Contractor’s § said: “The mere fact that laborers and did not materialmen *14 know owner, of the existence of a contractor’s bond to the they benefit, the conditioned for their materials or at the time furnished availing labor, prevent does not them from * * * protection themselves of the of the bond. Further- more, rights since the of laborers materialmen are right obligee bond, independent of the of the the surety generally right against held that their recover a by any on such a bond cannot be act or omission defeated bond, obligee par- not named the authorized or by materialmen, though ticipated in the laborers or even surety or default is such as would release the conduct liability from obligee.” (Emphasis added.) Casualty Corp. Co., supra, upon now to Builders We turn upon per- There the relies. bond sued a which USF&G was THE IN SUPREME COURT payment payment a and a bond. Here bond is bond formance only. complete There the contractor did contract. surety including creditors, failed to do so. The contractor’s materialman, completed the construction and sold building but, applying proceeds payment of after mortgage, nothing prior a was of the left for claims similarly of the and other The con- creditors situated. tract, performance given, of which the was was complaint. made A demurrer by was sustained this Court.
The record in that case shows bond there sued upon Bond,” was entitled “Owner’s Protective whereas present Pay- bond in the case is entitled “Labor and Material ment Bond.” The record in that case shows bond was performance pay- conditioned faithful of the contract and persons furnishing ment of or labor and materia's use saving about the construction and the of the owner harmless damage by from all cost reason contractor’s default or provided, so to persons failure do. That bond further “All who have furnished labor material in or use about improvement bond, shall have direct of action under the subject priority.” (Emphasis added.) Speaking owner’s through Barnhill, Justice Justice, later Chief this Court there said: surety
“To entitle a materialman to recover from the allege prove he must a debt by due by the contractor for material furnished him use in with the owner. liability “The solely upon does not rest grows the terms of It dependent its bond. out of and is principal. terms contract executed If there been no default then there surety. can be enforceable debt “The light of the bond read is to be given the contract it is to secure. en- The extent of the gagement entered into is to be measured agreement. the fore, principal’s terms of the necessity, Of there- surety’s liability determine the persons to third *15 given on bond its for their benefit and to secure the faith- building a to contract as relates ful of TERM 1977 y. to- be construed them, and the bond must the contract * * * gether. plead plaintiff the contract between does not “The Harris owner] contractor] [the Benfield [the complaint material terms forth in it set its nor does allegation complaint It true the contains thereof. is ‘reciting’ facts executed bond certain the defendant its that supposed Benfield respect to a contract between complaint must make But will not suffice. The Harris. Benfield, appear virtue it Harris, that of to of the contract now indebted it and terms necessary certainly pleaded, extent to enable must to the that, alleged, upon to determine the facts such the court liable for does exist so to render defendant indebtedness allegations to the payment thereof. are essential These plaintiff cause of action seeks enforce.
“Only plaintiff re- part of the bond itself on part complaint. The lies is reference made a part material This contract builder’s contract is a thereof. perform- part not attached either as such or as a ance bond.
“Furthermore, plaintiffs [*] [*] right $ recover subject priority. priority? Is it such to the owner’s What is that plaintiff’s action? The can nature as Court foreclose only contracts. Hence answer a consideration both plead part it is essential that both contracts as a throughout.) (Emphasis its cause action.” added Corporation case, Builders In the record this Court complaint attached, itself, that the and made a shows provided expressly and the the claim bond sued “subject creditors, plaintiff, such as the would be to the own- Thus, complaint priority.” face showed er’s right subject from the to a recover was precedent, namely, that all of the owner had condition claims enough leaving penal paid, been sum of the bond part. plaintiff alleged precedent or in was the not in whole This condition complaint performed. Therefore, to have been alleged in that case had not to recover from complaint the defendant and the demurrer was properly case, in that on its sustained. Since *16 IN THE SUPREME COURT
RGK, v. Inc. Co. face, rights priority the over owner’s had those of the showed rights pursuing bond, on the and those could not determined without the be contract between owner allegation rights prime contractor, proof and the and of those necessary established would be to contract estab- right lish to recover That on bond. any present not the in the situation case. Here the owner fully (Fairway) discharged by had under the would bond be payment by USF&G the claims laborers materialmen. course, Corporation as the
Of Court in Builders said Cas- ualty Company, supra, “The of the bond is to be read light given in the of the contract to secure.” What contract given given present was the secure It to secure ? was contract between Cecil’s but to secure the contracts between suppliers his procure of labor and materials so to enable Cecil’s to course,
labor and materials credit. Of as the Court stated, “If principal there there has been no default there against surety.” can be no enforceable debt Here there was (Cecil’s) upon default of the bond the contract given clearly alleged which the bond was secure. This is upon, and the bond sued and the contract secured legal thereby, sufficiently alleged, effect, are as to their in the complaint. complaint fully requirements meets of Rule 8 in setting forth the claim for in “a relief short and
plain sufficiently give particular statement the claim parties transactions, court occurrences, notice or series of proved transactions or occurrences intended to be showing pleader was, that is entitled to relief.” It there- fore, error dismiss the action the deci- Appeals sion of the Court of
Affirmed. Exum, concurring
Justice in result: I concur majority. result reached Insofar as majority opinion intimates conclusions as to the ulti- rights mate parties liabilities under the how- ever, unwilling join I opinion. am Such at intimations stage proceedings are, believe, premature. I Since TERM 1977 .c* [00] <1 (cid:127) y. Guaranty plaintiffs claim have stated a we have held may granted con- despite attach the relief failure to yet potential complaint, we consider tract specifications effect of the *17 plain- liability surety, USF&G, to the materialmen the of the tiffs. by principal bond was executed Cecil’s as This surety, obligee, named “for the use as language assuredly The latter removes
benefit claimants.” right bond, plaintiffs, the under the from doubt to as claimants are, language, surety: they by quoted made the the above sue recog- correctly express party majority The third beneficiaries. language gives pro- The them of action nizes this. a cause cedurally obligee any right obligee, the independent of of the insofar as recovery party suit,
need be to not made a to the allow by party beneficiary. extent, the third the To that .1 believe majority obligation is correct in the observation “[t]he surety plaintiff materialmen, upon the and the to the obligation, separate if independent their from their any, owner, obligee.” language thereon to the the named not, however, does of itself action deprive the by of obligee the defenses which would be available to it in an action rights party on the bond. Therefore the of the third beneficiary plaintiffs necessarily to recover substan- are rights tively obligee independent of the of the under the bond. proceedings
There has been some indication in these payments the owner payments defaulted in contractor which may precedent have been intended of to condition obligation pay any principal, the to owner the the simply subcontractors and materialmen. cannot make We prediction rights about the effect of such a breach materialmen to recover from defendant until we see the prime already contract as well as the documents in the record. by obligee, Fairway, Whether a default under good contract, by which would serve as a defense in an action Fairway against may good surety, also be a defense in an by bond, depends action subcontractor of the beneficiaries surety’s obligation upon the nature of the under the If bond. paid general claimants not contrac- rights unconditional, tor is then the those claimants is sub- rights stantively independent obligee-owner, of IN THE SUPREME COURT may by proof action be defeated an claimants obligee’s hand, default under the contract. On the other perform precedent where the owner has failed to a condition liability surety, good there is a defense a suit claimants. promisee Fairway, “If the contract between the [here obligee] promisor contract,
named is a bilateral of promise party made for the third benefit bene- may ficiary be unconditional or it be conditional on promise If return or tender thereof. unconditional, duty by promisee a breach of will not beneficiary against promisor. affect dependent, hand, If conditional and on the other a failure promisee part may perform terminate the duty performance by promisor. . . . benefici- [T]he ary’s right subject contract, to conditions of the whether they express, implied, or constructive. If the breach of *18 ‘goes promisee to the essence’ and amounts to non- precedent, beneficiary’s of a fulfillment condition right gone.” Contracts, 819, p. 4 Corbin on 277. § party beneficiary A contract, bond is a third according pertaining should be construed such to the usual rules Annotation, 21, contracts. See cited cases 77 A.L.R. supplemented in principles 118 The A.L.R. 57. relied quoted passage apply equally surety- the above from Corbin ship Stearns, Suretyship, contracts as to others. A. The Law of 7.18, (J. p. 1951) obligee 225 Elder Rev. notes that if the § perform precedent principal’s “fails to a condition lia- bility, required perform.” will not be prime
The
contract —not the subcontracts —is referred to in
by
incorporated
the bond
“The
expressly
Contract” and is
is, therefore,
part
reference into the bond. It
the entire
suretyship
Fairway.
contract of
Many
straightforward
between
recognized
possibility
apparently
courts have
that the
may
effect of the condition of a bond
be lim-
by
prime contract,
ited
where that contract
See, e.g.,
Fidelity
is made
the bond.
United States
&
Housing Authority,
379,
111
206 Md.
A. 2d
Lange
(1955)
County,
658
v. Board
Education
Cecil
255,
183
(1944),
bond,
Md.
A decision to the of USF&G’s contentions as per- suretyship upon the this contract of is conditioned owner’s holding unnecessary case, is to our formance is simply plaintiffs’ complaint state a that is sufficient to granted. majority upon claim which relief The seems be regard- Assuming gone further. of USF&G have contentions ing Fairway’s true, majority to be concludes that breach law, plaintiffs’ not, do a matter of bar re- such contentions covery. premature. we I conclusion do not believe this Since lacking suretyship, have before us the entire contract incorporated by reference in the we should validity not draw conclusions at all as to the of USF&G’s that default a defense in this case. contentions owner’s majority’s statement, being unnecessary decision, is The to our binding upon court re- obiter dictum and is trial ultimately Although majority may mand. conclusion of goes correct, too far at seen be this time. Our decision be strictly complaint limited should have been sufficient whether this was to state a claim without the attachment of the unnecessary. say contract. Under our law such attachment To time unwarranted and more at this seems unwise. Sharp opinion.
Chief Justice in this concurs . McADAMS, JAMES H. McADAMS MASONRY v UNITED d/b/a COMPANY, CECIL’S, INC., & STATES FIDELITY GUARANTY Partnership PROPERTIES, Limited FAIRWAY No. (Filed 1977) 13 June Appeals decision, certiorari On Court of to review its reported App. 750, reversing in 31 2d N.C. 230 S.E. judgment J., McLelland, April entered at the 23 1976 Ses- dismissing sion of Fidelity Guaranty the action United States Alamance, ground Company on the that the & failed could state a claim defendant which relief granted. Superior further Court ordered motion of defendant for dismissal as to it be said treated as