No. 13525 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

TREASURE STATE INDUSTRIES 

INC., a corporation, 

Plaintiff and Respondent, 

.DEL WELCH, d/b/a DEL WEI,CH 

CONSTRUCTION CO., AETNA LIFE AND 

CASUALTY CO., a corporation et al., 

Defendants and Appellants. 

Appeal from: District Court of the Eighth Judicial District, 

Honorable Paul G. Hatfield, Judge presiding. 

Counsel of Record: 

For Appelllants: 

Jardine, Stephenson, Blewett & Weaver, Great Falls, 

Montana 

Alexander Blewett I11 argued, Great Falls, Montana 

For Respondent: 

Dzivi, Conklin, Johnson & Nybo, Great Falls, Montana 

Dennis C. McCafferty argued, Great Falls, Montana 

Submitted: May 25, 1977 

Decided : 

Filed: 
Mr. Justice Gene B. Daly delivered the Opinion of the Court. 

On December 19, 1974, Treasure State Industries, Inc., 

filed a complaint against four defendants to recover certain 

monies allegedly due for supplying materials for 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 state of Montana for 

the construction of a highway and certain bridges in Mineral 

County, Montana; 

(2) St. Paul Fire and Marine Insurance Co., Sletten's 

surety, who issued a bond for the benefit of the state of Montana 

with Sletten as principal; 

(3) Del Welch Construction Co., Sletten's subcontractor, 

who was furnished certain materials by Treasure State for which 

Treasure State is attempting to recover from all defendants; and 

(4) Aetna Life and Casualty Co. the surety for De1,Welch 

Construction Co., who issued a bond with Sletten as obligee and 

with Welch as principal. 

The district court, Cascade County, granted a partial summary 

judgment against Aetna on the issue of liability, and judgment 

was entered for damages, which for the purpose of this appeal 

only, were agreed upon by Treasure State and Aetna. Aetna appeals 

from this judgment. 

The major issue presented on appeal is whether Treasure 

State, a third-party materialman, is entitled to a cause of 

action against Aetna on its surety bond, which names Sletten, 

the general contractor as the sole obligee. 
In the Aetna bond there is no promise to pay for any 

materials, although the underlying subcontract provides such 

an obligation for Welch, the subcontractor. ~etna' s obligations 

under this bond are not specifically conditioned upon the payment of any supplied materials. On the contrary, the obligation 

of Aetna under this bond is merely conditioned upon the faithful 

performance of the subcontract or, in the alternative, indemnification of Sletten, the obligee. A surety bond is simply a 

contract and should be interpreted in the same manner as other 

contracts. Section 13-702, R.C.M. 1947, is the Montana statute 

which governs the interpretation of contracts: 

"Contracts--how to be interpreted. A contract 

must be so interpreted as to give effect to the 

mutual intention of the parties as it existed 

at the time of contracting so far as the same is 

ascertainable and lawful .I' 

In interpreting the obligation of Aetna under this surety bond, 

which incorporated by reference the subcontract between Sletten 

and Welch, it is necessary to construe the surety bond and the 

underlying contract together. Watson v. ~'Neill, 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 State in 

any way and for Treasure State to recover from Aetna on this 

bond, Treasure State must do so as a third-party beneficiary 

pursuant to section 13-204, R.C.M. 1947, which provides: 

"When contract for benefit of third person may be 

enforced. 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." 

Unless it was the intent of Sletten, Welch and Aetna at the time 

of the execution of the bond to expressly benefit or protect Treasure 

State, it cannot recover from Aetna on the bond. Therefore, it 
becomes necessary to examine the mutual determination as to the 

intent of the parties as it existed at the time of the contracting. 

Aetnamntends this bond is a true indemnity bond. According 

to this view, the insertion in a bond or contract made part of 

the bond, of a condition to pay laborers and materialmen and of 

a condition to indemnify the obligee, indica t es an intent that 

the former condition was intended for the protection of the obligee 

and not for the benefit of laborers and materialmen. In other 

words, the condition for the indemnification of the owner modifies and explains the condition for the payment of laborers and 

materialmen. 

Treasure State contends this is not a true indemnity bond 

and that it was the intent of all parties that the materialmen - 

should have a cause of action on the Aetna bond in the event they 

remained unpaid. It is argued that performance of the subcontract 

includes payment of the materialmen and therefore, an intent to 

directly benefit all materialmen is evidenced by the bond. 

Treasure State contends Weissman & Sons, Inc.,v. St. Paul 

Insurance Co., 152 Mont. 291, 448 P.2d 740, is controlling. We 

feel Weissman can be distinguished on the facts. In Weissman 

the surety bond and the contract contained an express provision 

to pay materialmen. The bond in the instant case contained no 

such provision. In Weissman the surety bond contained no 

condition of indemnification of the named obligee. The subcontract in Weissman did not contain a special provision whereby 

the subcontractor agreed to indemnify the contractor. Such a 

provision is 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 all materialmen a 
right of action on the prime contractor's bond. Therefore, the 

materialmen were not specifically protected in Weissman until 

the prime contractor required a bond from the surety company 

specifically conditioned upon the payment of all 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 to 

ascertain the parties' intentions, the surety's obligations are 

not coextensive with obligations of the underlying contract. 

For this 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. In Blyth-Fargo the 

court found there was no intent on the part of the surety or 

contractor to protect or benefit third-plrty materialmen, even 

though the underlying contract contained a promise on the part 

of the contractor to pay all materialmen. This Court made 

special note of the fact that, unless a promise of the principal 

is contained in the underlying contract was also specifically 

mentioned or made a condition in the surety bond, the surety 

would not have obligations coextensive with and measured by the 

promises of the principal in the underlying contract. In the 

instant case, even though there exists a promise on the part of 

Welch in the subcontract to pay all materialmen, there was no 

condition in Aetna's bond which would make this obligation on 

the part of Welch coextensive with the obligations of Aetna. 
The decision in Gary Hay & Grain Co., Inc. v, Carlson, supra, 

was approved by the 9th Circuit Court of Appeals in National 

Surety Co. of New York v, Ulmen, 68 F.2d 330, 336, in this language : 

"In view of the foregoing decisions of the Supreme 

Court of Montana, it is our view that, in that 

state, a third person who is a stranger to a contract or a bond thereunder, cannot recover from 

the surety even when the contract and bond, as here, 

contain some reference to him or to the class to 

which he belongs, unless there is a specific promise 

to pay such third person or such class, contained 

in the contract and bond." 

This decision further supports the rule that the mere fact 

the underlying subcontract of Welch contained a promise to 

pay all materialmen in no way creates an obligation on the 

part of Aetna, the surety, unless the bond itself contains a 

similar promise to pay the materialmen. 

Clearly at the time Sletten and Welch executed the subcontract agreement, all materialmen were adequately protected 

by the St. Paul Fire and Marine Insurance Co.'s bond given 

pursuant to section 6-401 and section 6-404, R.C.M. 1947. The 

same protection still existed for all 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 this bond for the benefit of the materialmen who were already protected by the St. Paul bond. 

McGrath v. American Surety Company >of New York, 307 N.Y. 552, 

122 N.E.2d 906, deals with a factual situation similar to the 

instant case. In McGrath, a contractor entered into a public 

works contract with the United States. The federal statute, 

Title 40 USCA, $5 270a and 270b, known as the Miller Act, was in 

existence and required a contractor to furnish a performance 

bond guaranteeing the completion of the work and a payment bond 
guaranteeing the protection of all persons supplying labor 

and material. For all intents and purposes, this federal act 

is identical to section 6-401, et.seq., R.C.M. 1947. The contractor in McGrath subcontracted a portion of the work. The 

plaintiff, who provided labor and services for the subcontractor, 

attempted to recover on the subcontractor's bond which was conditioned upon payment by the subcontractor of its obligations 

to laborers and materialmen. The court held the plaintiff 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 in question was conditioned upon payment of all materialmen. In the instant case the obligation of 

Aetna is merely conditioned upon indemnifying Sletten or, in the 

alternative, the performance of the subcontract. Therefore, the 

intent of the contractor, the subcontractor, and the surety, in : 

McGrath, was not as clearly expressed as in the instant case 

where there is no promise whatsoever on the part of Aetna, the 

surety, to pay materialmen. The object in Sletten's requiring 

Welch and Aetna to execute the indemnity bond was only to protect Sletten against the contingency which would arise if 

Sletten or its surety, St. Paul, suffered any damages because 

of an action brought by a laborer or materialman pursuant to 

section 6-401. There is no intent whatsoever expressed in the 

bond of Aetna to provide any greater rights for materialmen than 

were already provided by section 6-401, et seq. 

In Spokane ~erchants' 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 all laborers 

and materialmen was found to be only for the benefit of the prime 
concracror who had a public works contract with the state of 

Washington. Washington had statutes similar to section 6-401, 

et seq., R.C.M. 1947, and the court found the intent of the 

subcontracto~s bond was merely to benefit the prime contractor 

since it was liable under its statutory bond to the state for 

all debts incurred by the subcontractor as well as any other 

debts incurred by itself. 

Here, under the facts and in light of the authorities 

heretoiore cited, Sletten, Welch and Aetna did not intend to 

benefit or protect any third-party materialmen by the execution 

of Aetna's bond, but merely meant to protect Sletten, the named 

sole obligee. All third-party materialmen were already adequately 

protected by the statutorily required bond executed by St. Paul 

Fire and Marine Insurance Co. 

In City of Butte v. Bennetts, 51 Mont. 27, 30, 149 P.92, 

this Court stated: 

"'Sureties have the right to rely upon the letter 

of their undertakings, and their liability cannot 

be extended by implication. 'I' 

The provisions of Aetna's bond are clear and its obligation 

under that.bond is conditioned upon the faithful performance 

of the subcontract or, in the alternative, indemnification of 

Sletten, the named obligee. The bond does not contain any 

condition or promise concerning payment of materialmen. The 

subcontract between Welch and Sletten contains a similar provision for the indemnification of Sletten and also contains a 

promise on the part of Welch to pay all materialmen. Although 

both documents must be construed together, Aetna intended to 

limit its obligation under the bond and did so. Sletten, the 

obligee, agreed with this limitation and the express intent of 

the parties cannot be overturned because Treasure State desired 
to sue Aetna in lieu of St. Paul. 

In summary, the provisions in Aetna's bond which provide 

for indemnity of Sletten only evidence an intent to protect 

Sletten, not Treasure State. For this reason, Treasure State has 

no right of action against Aetna on the bond. 

The final issue on appeal is whether this Court should grant 

summary judgment for the defendant surety against plaintiff although 

motLon for summary judgment was not made by defendant surety company to the district court. 

Section 93-216, R.C.M. 1947, in pertinent part, states: 

"Powers and duties of supreme court on appeals, The 

supreme court may affirm, reverse, or modify any 

judgment or order appealed from, and may direct the 

proper judgment or order to be entered, or direct a 

new trial or further proceedings to be had." 

6 Pt.2 Moore's Federal Practice, 7 56.27[2] gives support 

to entry of summary judgment by an appellate court and states 

that an appellate court has the power to If* * * order summary 

judgment for appellant, both where he made no motion and also 

where he made a cross-motion in the trial court * * *." 

There can be no doubt that as a matter of law Aetna is 

entitled to judgment against Treasure State. The summary judgment 

granted Treasure State is reversed. judgm~t for Aetna 

against Treasure State is ordered. 

We Concur: 

Judge, sittiny Chief Just 

Paul G. Hatfie d.