Title: TREASURE STATE INDUSTRIES INC v

State: montana

Issuer: Montana Supreme Court

Document:

No. 13525 I N T H E SUPREME C O U R T O F T H E STATE O F MONTANA TREASURE STATE INDUSTRIES I N C . , a c o r p o r a t i o n , P l a i n t i f f and Respondent, .DEL WELCH, d/b/a D E L WEI,CH CONSTRUCTION CO., A E T N A LIFE AND CASUALTY CO., a c o r p o r a t i o n e t a l . , Defendants and Appellants. Appeal from: D i s t r i c t Court of t h e Eighth J u d i c i a l D i s t r i c t , Honorable Paul G. H a t f i e l d , Judge p r e s i d i n g . Counsel of Record: For Appelllants: J a r d i n e , Stephenson, B l e w e t t & Weaver, Great F a l l s , Montana Alexander B l e w e t t I11 argued, Great F a l l s , Montana For Respondent: Dzivi, Conklin, Johnson & Nybo, Great F a l l s , Montana Dennis C. McCafferty argued, Great F a l l s , Montana Submitted: May 25, 1977 Decided : F i l e d : M r . J u s t i c e Gene B. Daly delivered the Opinion of the Court. O n December 19, 1974, Treasure S t a t e Industries, Inc., f i l e d a complaint against four defendants t o recover c e r t a i n monies allegedly due f o r supplying materials f o r use on a public works construction project. The defendants named were: (1) Sletten Construction Co., the general contractor, who entered into the project with the s t a t e of Montana f o r the construction of a highway and c e r t a i n bridges i n Mineral County, Montana; (2) St. Paul F i r e and Marine Insurance Co., S l e t t e n ' s surety, who issued a bond f o r the benefit of the s t a t e of Montana with Sletten a s principal; (3) Del Welch Construction Co., S l e t t e n ' s subcontractor, who was furnished c e r t a i n materials by Treasure S t a t e f o r which Treasure S t a t e i s attempting t o recover from a l l defendants; and (4) Aetna Life and Casualty Co. the surety f o r De1,Welch Construction Co., who issued a bond with S l e t t e n a s obligee and with Welch a s principal. The d i s t r i c t court, Cascade County, granted a p a r t i a l summary judgment against Aetna on the issue of l i a b i l i t y , and judgment was entered f o r damages, which for the purpose of t h i s appeal only, were agreed upon by Treasure State and Aetna. Aetna appeals from t h i s judgment. The major issue presented on appeal i s whether Treasure State, a third-party materialman, is e n t i t l e d t o a cause of action against Aetna on i t s surety bond, which names S l e t t e n , the general contractor a s the sole obligee. I n the Aetna bond there i s no promise t o pay f o r any materials, although the underlying subcontract provides such an obligation f o r Welch, the subcontractor. ~ e t n a ' s obligations under t h i s bond a r e not specifically conditioned upon the pay- ment of any supplied materials. O n the contrary, the obligation of Aetna under t h i s bond is merely conditioned upon the f a i t h f u l performance of the subcontract o r , i n the a l t e r n a t i v e , indemni- fication of Sletten, the obligee. A surety bond i s simply a contract and should be interpreted i n the same manner a s other contracts. Section 13-702, R.C.M. 1947, i s the Montana s t a t u t e which governs the interpretation of contracts: "Contracts--how t o be interpreted. A contract must be so interpreted a s t o give e f f e c t t o the mutual intention of the p a r t i e s a s it existed a t the time of contracting so f a r a s t h e same i s ascertainable and lawful .I' In interpreting the obligation of Aetna under t h i s surety bond, which incorporated by reference the subcontract between Sletten and Welch, it i s necessary t o construe the surety bond and the underlying contract together. Watson v. ~ ' N e i l l , 14 Mont. 197, 35 P. 1064; Section 13-708, R.C.M. 1947. Neither the language of the bond nor the language of the underlying subcontract specifically mentions Treasure S t a t e i n any way and f o r Treasure S t a t e t o recover from Aetna on t h i s bond, Treasure S t a t e must do so a s a third-party beneficiary pursuant t o section 13-204, R.C.M. 1947, which provides: "When contract f o r benefit of t h i r d person may be enforced. A contract, made expressly f o r the benefit of a t h i r d person, may be enforced by him a t any time before the p a r t i e s thereto rescind it." Unless it was the i n t e n t of Sletten, Welch and Aetna at the time of the execution of the bond t o expressly benefit o r protect Treasure State, it cannot recover from Aetna on the bond. Therefore, it becomes necessary t o examine the mutual determination a s t o the intent of the parties as it existed a t the time of the contracting. Aetnamntends t h i s bond i s a true indemnity bond. According to t h i s view, the insertion i n a bond or contract made part of the bond, of a condition t o pay laborers and materialmen and of a condition t o indemnify the obligee, indica t e s an intent that the former condition was intended for the protection of the obligee and not for the benefit of laborers and materialmen. I n other words, the condition for the indemnification of the owner modi- f i e s and explains the condition for the payment of laborers and materialmen. Treasure State contends t h i s i s not a true indemnity bond and that it was the intent of a l l parties that the materialmen - should have a cause of action on the Aetna bond i n the event they remained unpaid. It i s argued that performance of the subcontract includes payment of the materialmen and therefore, an intent t o directly benefit a l l materialmen is evidenced by the bond. Treasure State contends Weissman & Sons, Inc.,v. St. Paul Insurance Co., 152 Mont. 291, 448 P.2d 740, i s controlling. W e f e e l Weissman can be distinguished on the facts. In Weissman the surety bond and the contract contained an express provision t o pay materialmen. The bond i n the instant case contained no such provision. I n Weissman the surety bond contained no condition of indemnification of the named obligee. The sub- contract in Weissman did not contain a special provision whereby the subcontractor agreed t o indemnify the contractor. Such a provision i s present in the instant case. Finally, since Weissman did not deal with a public works contract, there was no statutory provision (section 6-401, R.C.M. 1947) allowing a l l materialmen a right of action on the prime contractor's bond. Therefore, the materialmen were not specifically protected i n Weissman u n t i l the prime contractor required a bond from the surety company specifically conditioned upon the payment of a l l materialmen. Weissman is clearly distinguishable from the instant case on the facts and therefore would not control. This Court in Gary Hay & Grain Co., Inc. v. Carlson, 79 Mont. 111, 255 P. 722, made it clear that although the surety bond and the underlying contract must be read together t o ascertain the parties' intentions, the surety's obligations are not coextensive with obligations of the underlying contract. For t h i s proposition the Court cited Blyth-Fargo Co. v. Free, 46 Utah 233, 148 P. 427, a case concerning a surety bond which was conditioned upon the performance of the underlying contract and upon indemnification of the obligee. I n Blyth-Fargo the court found there was no intent on the part of the surety o r contractor t o protect o r benefit third-plrty materialmen, even though the underlying contract contained a promise on the part of the contractor to pay a l l materialmen. This Court made special note of the fact that, unless a promise of the principal i s contained i n the underlying contract was also specifically mentioned o r made a condition in the surety bond, the surety would not have obligations coextensive with and measured by the promises of the principal i n the underlying contract. I n the instant case, even though there exists a promise on the part of Welch in the subcontract t o pay a l l materialmen, there was no condition i n Aetna's bond which would make t h i s obligation on the part of Welch coextensive with the obligations of Aetna. The decision i n Gary Hay & Grain Co., Inc. v, Carlson, supra, was approved by the 9th Circuit Court of Appeals i n National Surety Co. of N e w York v, Ulmen, 68 F.2d 330, 336, i n t h i s lan- guage : "In view of the foregoing decisions of the Supreme Court of Montana, it is our view that, i n that s t a t e , a third person who i s a stranger t o a con- t r a c t or a bond thereunder, cannot recover from the surety even when the contract and bond, as here, contain some reference t o him o r t o the class t o which he belongs, unless there is a specific promise t o pay such third person or such class, contained i n the contract and bond." This decision further supports the rule that the mere f a c t the underlying subcontract of Welch contained a promise t o pay a l l materialmen in no way creates an obligation on the part of Aetna, the surety, unless the bond i t s e l f contains a similar promise t o pay the materialmen. Clearly a t the time Sletten and Welch executed the sub- contract agreement, a l l materialmen were adequately protected by the St. Paul Fire and Marine Insurance Co.'s bond given pursuant t o section 6-401 and section 6-404, R.C.M. 1947. The same protection s t i l l existed for a l l materialmen on August 7, 1972, when Aetna's bond was executed. This raises the question of whether Sletten required Aetna's bond for its own benefit or whether it required t h i s bond for the benefit of the material- men who were already protected by the St. Paul bond. McGrath v. American Surety Company >of N e w York, 307 N.Y. 552, 122 N.E.2d 906, deals with a factual situation similar t o the instant case. I n McGrath, a contractor entered into a public works contract with the United States. The federal statute, T i t l e 40 USCA, $ 5 270a and 270b, known as the Miller Act, was i n existence and required a contractor t o furnish a performance bond guaranteeing the completion of the work and a payment bond guaranteeing the protection of a l l persons supplying labor and material. For a l l intents and purposes, t h i s federal a c t is identical t o section 6-401, et.seq., R.C.M. 1947. The con- tractor i n McGrath subcontracted a portion of the work. The p l a i n t i f f , who provided labor and services for the subcontractor, attempted t o recover on the subcontractor's bond which was con- ditioned upon payment by the subcontractor of i t s obligations t o laborers and materialmen. The court held the p l a i n t i f f had no right of action upon the subcontractor's bond because the bond was executed merely for the benefit of the contractor, and not the materialmen. In McGrath, the bond i n question was conditioned upon pay- ment of a l l materialmen. In the instant case the obligation of Aetna is merely conditioned upon indemnifying Sletten or, i n the alternative, the performance of the subcontract. Therefore, the intent of the contractor, the subcontractor, and the surety, i n : McGrath, was not a s clearly expressed a s i n the instant case where there is no promise whatsoever on the part of Aetna, the surety, t o pay materialmen. The object i n Sletten's requiring Welch and Aetna t o execute the indemnity bond was only t o pro- t e c t Sletten against the contingency which would a r i s e i f Sletten or i t s surety, St. Paul, suffered any damages because of an action brought by a laborer or materialman pursuant t o section 6-401. There i s no intent whatsoever expressed i n the bond of Aetna t o provide any greater rights for materialmen than were already provided by section 6-401, e t seq. I n Spokane ~ e r c h a n t s ' Association v. Pacific Surety Co., 86 Wash. 489, 150 P. 1054, a bond executed with a subcontractor as the principal and conditioned upon the payment of a l l laborers and materialmen was found t o be only for the benefit of the prime concracror who had a public works contract with the s t a t e of Washington. Washington had s t a t u t e s similar t o section 6-401, e t seq., R.C.M. 1947, and the court found the i n t e n t of the subcontracto~s bond was merely t o benefit the prime contractor since it was l i a b l e under its statutory bond t o the s t a t e f o r a l l debts incurred by the subcontractor a s well a s any other debts incurred by i t s e l f . Here, under the f a c t s and i n l i g h t of the a u t h o r i t i e s heretoiore c i t e d , Sletten, Welch and Aetna did not intend t o benefit o r protect any third-party materialmen by the execution of Aetna's bond, but merely meant t o protect Sletten, the named sole obligee. A l l third-party materialmen were already adequately protected by the s t a t u t o r i l y required bond executed by S t . Paul F i r e and Marine Insurance Co. I n City of Butte v. Bennetts, 51 Mont. 27, 30, 149 P.92, t h i s Court stated: "'Sureties have the r i g h t t o r e l y upon the l e t t e r of t h e i r undertakings, and t h e i r l i a b i l i t y cannot be extended by implication. ' I ' The provisions of Aetna's bond a r e c l e a r and its obligation under that.bond i s conditioned upon the f a i t h f u l performance of the subcontract o r , i n the a l t e r n a t i v e , indemnification of Sletten, the named obligee. The bond does not contain any condition o r promise concerning payment of materialmen. The subcontract between Welch and Sletten contains a similar provi- sion f o r the indemnification of Sletten and a l s o contains a promise on the p a r t of Welch t o pay a l l materialmen. Although both documents must be construed together, Aetna intended t o l i m i t its obligation under the bond and did so. Sletten, the obligee, agreed with t h i s limitation and the express i n t e n t of the p a r t i e s cannot be overturned because Treasure S t a t e desired to sue Aetna i n l i e u of St. Paul. I n summary, the provisions in Aetna's bond which provide for indemnity of Sletten only evidence an intent to protect Sletten, not Treasure State. For t h i s reason, Treasure State has no right of action against Aetna on the bond. The f i n a l issue on appeal is whether t h i s Court should grant summary judgment for the defendant surety against p l a i n t i f f although motLon for summary judgment was not made by defendant surety com- pany t o the d i s t r i c t court. Section 93-216, R.C.M. 1947, i n pertinent part, states: "Powers and duties of supreme court on appeals, The supreme court may affirm, reverse, o r modify any judgment o r order appealed from, and may direct the proper judgment or order t o be entered, o r direct a new t r i a l or further proceedings t o be had." 6 Pt.2 Moore's Federal Practice, 7 56.27[2] gives support t o entry of summary judgment by an appellate court and s t a t e s that an appellate court has the power t o I f * * * order summary judgment for appellant, both where he made no motion and also where he made a cross-motion in the t r i a l court * * *." There can be no doubt that as a matter of law Aetna is entitled t o judgment against Treasure State. The summary judgment granted Treasure State is reversed. j u d g m ~ t for Aetna against Treasure State i s ordered. W e Concur: Judge, s i t t i n y Chief Just Paul G. Hatfie d.