No. 13525 INTHE 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: DistrictCourt 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 torecover certain monies allegedly due for supplying materials foruse 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 certainbridges inMineral 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 asprincipal; 

### (3) Del Welch Construction Co., Sletten's subcontractor, who was furnished certainmaterials by Treasure State forwhich Treasure State isattempting to recover from alldefendants; and 

### (4) Aetna Life and Casualty Co. the surety for De1,Welch Construction Co., who issued a bond with Slettenas obligee and with Welch asprincipal. The district court, Cascade County, granted a partial summary judgment againstAetna 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 thisjudgment. The major issue presented on appeal iswhether Treasure State, a third-party materialman, is entitled to a cause of action against Aetna on its suretybond, which names Sletten, the general contractor as the sole obligee.In the Aetna bond there isno promise to pay for any materials, although the underlying subcontract provides such

an obligation forWelch, the subcontractor. ~etna' 

### s obligations under thisbond arenot specifically conditioned upon the payment of any supplied materials. On the contrary, the obligation of Aetna under thisbond is merely conditioned upon the faithful performance of the subcontract or, in the alternative, indemnification of Sletten, the obligee. A suretybond issimply a contract and should be interpreted inthe same manner as other contracts. Section 13-702, R.C.M. 1947, istheMontana statute which governs the interpretation of contracts: "Contracts--how to be interpreted. A contract must be so interpreted as togive 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 isnecessary to construe the suretybond and the underlying contract together. Watson v. ~'Neill, 14Mont. 197, 

### 35 P. 1064; Section 13-708, R.C.M. 1947. Neither the language of thebond nor the language of the underlying subcontract specifically mentions Treasure State in any way and forTreasure Stateto recover fromAetna on this bond, Treasure Statemust do so as a third-party beneficiary pursuant to section 13-204, R.C.M. 1947, which provides: "When contract forbenefit of third person may be enforced. A contract, made expressly for the benefit of a third person, may be enforced by him atany 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 fromAetna on the bond. Therefore, itbecomes necessary toexamine the mutual determination as to the intent of the parties as it existed atthe time of the contracting. Aetnamntends thisbond 

### is a true indemnity bond. According to thisview, the insertion ina bond or contract made part of the bond, of a condition to pay laborers and materialmen and of a condition to indemnify the obligee, indicatesan intent that the former condition was intended for the protection of the obligee and not for thebenefit 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 Statecontends this isnot a true indemnity bond and that itwas the intent of allparties that the materialmen - should have a cause of action on theAetna bond inthe event they remained unpaid. 

### It 

### isargued that performance of the subcontract includes payment of the materialmen and therefore, an intent to directlybenefit allmaterialmen 

### is evidenced by the bond. Treasure StatecontendsWeissman & Sons, Inc.,v. St. Paul Insurance Co., 152Mont. 291, 448 P.2d 740, 

### is controlling. We feelWeissman can be distinguished on the facts. InWeissman the suretybond and the contract contained an express provision topay materialmen. The bond inthe instant case contained no such provision. InWeissman the suretybond contained no condition of indemnification of the named obligee. The subcontract inWeissman did not contain a specialprovision whereby the subcontractor agreed to indemnify the contractor. Such a provision 

### ispresent in the instant case. Finally, sinceWeissman did not dealwith a public works contract, there was no statutory provision (section 6-401, R.C.M. 1947) allowing allmaterialmen aright of action on the prime contractor's bond. Therefore, the materialmen were not specificallyprotected inWeissman until the prime contractor required a bond from the surety company specifically conditionedupon thepayment of allmaterialmen. Weissman 

### is clearly distinguishable from the instant case on the facts and thereforewould 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 coextensivewith obligations of the underlying contract. For thisproposition the Court cited Blyth-Fargo Co. v. Free, 46 Utah 233, 148P. 427, a case concerning a suretybond which

was conditioned upon the performance of the underlying contract and upon indemnification of the obligee. InBlyth-Fargo the court found there was no intent on the part of the surety or contractor toprotect orbenefit third-plrty materialmen, even though the underlying contract contained a promise on the part of the contractor to pay allmaterialmen. This Court made specialnote of the fact that, unless a promise of the principal 

### is contained inthe underlying contractwas also specifically mentioned ormade a condition in the suretybond, 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 topay allmaterialmen, there was no condition inAetna's bond which would make this obligation on the part of Welch coextensivewith the obligations of Aetna.The decision inGary Hay & Grain Co., Inc. 

### v, Carlson, supra,

was approved by the 9th Circuit Court of Appeals inNational Surety Co. of New York v, Ulmen, 68 F.2d 330, 336, inthis language: "In view of the foregoing decisions of the Supreme Court of Montana, it 

### is our view that, in that state, a thirdperson who isa stranger toa contract or a bond thereunder, cannot recover from the surety even when the contract and bond, ashere, contain some reference tohim or to the class to which he belongs, unless there 

### is a specificpromise topay such third person or such class, contained inthe contract and bond." This decision further supports the rule that the mere fact the underlying subcontract of Welch contained a promise to pay allmaterialmen inno way creates an obligation on the part of Aetna, the surety, unless the bond itself contains 

### a similarpromise topay thematerialmen. Clearly atthe time Slettenand Welch executed the subcontract agreement, allmaterialmen 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 

### stillexisted for allmaterialmen on August 7, 1972, when Aetna's bond was executed. This raises the question of whether Slettenrequired Aetna's bond for 

### its own benefit

orwhether it required thisbond for thebenefit of the materialmen who were already protected by the St. Paul bond. McGrath v. American Surety Company>ofNew York, 307 N.Y. 552, 122N.E.2d 906, deals with a factual situation similar to the instant case. InMcGrath, a contractor entered intoa public works contract with the United States. The federal statute, Title40 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 bondguaranteeing the protection of allpersons supplying labor and material. For allintents and purposes, this federal act 

### is identical to section 6-401, et.seq., R.C.M. 1947. The contractor inMcGrath subcontracted a portion of thework. The plaintiff, who provided labor and services for the subcontractor, attempted torecover 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 actionupon the subcontractor's bond because the bond

was executed merely for the benefit of the contractor, and not the materialmen. InMcGrath, the bond inquestionwas conditioned upon payment of allmaterialmen. In the instant case the obligation of Aetna 

### ismerely conditioned upon indemnifying Slettenor, in the alternative, theperformance of the subcontract. Therefore, the intent of the contractor, the subcontractor, and the surety, in : McGrath, was not as clearly expressed as inthe instant case where there 

### isno promise whatsoever on the part of Aetna, the surety, topay materialmen. The object in Sletten's requiring Welch and Aetna toexecute the indemnity bond was only toprotect Sletten against the contingencywhich would arise if Slettenor 

### its surety, St. Paul, suffered any damages because of an actionbrought by a laborer or materialman pursuant to section 6-401. There 

### isno intentwhatsoever expressed inthe bond of Aetna toprovide 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 alllaborers and materialmen was found tobe only for thebenefit of the primeconcracror who had a public works contract with the stateof 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 tobenefit the prime contractor since itwas liableunder 

### its statutorybond to the state for alldebts incurred by the subcontractor aswell 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 orprotect any third-party materialmen by the execution of Aetna's bond, but merely meant toprotect Sletten, thenamed sole obligee. Allthird-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, 51Mont. 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 faithfulperformance of the subcontract or, in the alternative, indemnification of Sletten, the named obligee. The bond does not contain any condition orpromise 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 topay allmaterialmen. 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 limitationand the express intent of the parties cannot be overturned because Treasure Statedesiredto sue Aetna in lieuof St. Paul. In summary, the provisions inAetna's bond which provide for indemnity of Slettenonly evidence an intent to protect Sletten, not Treasure State. For this reason, Treasure Statehas

no right of action againstAetna on the bond. The final issue on appeal 

### iswhether this Court should grant summary judgment for the defendant surety against plaintiff although motLon for summary judgment was not made by defendant surety company tothe district court. Section 93-216, R.C.M. 1947, inpertinent part, states: "Powers and duties of supreme court on appeals, The supreme court may affirm, reverse, ormodify any judgment ororder appealed from, and may direct the proper judgment or order tobe entered, or direct a new trialor furtherproceedings tobe had." 

### 6 Pt.2 Moore's Federal Practice, 

### 7 56.27[2] gives support to entry of summaryjudgment 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 trialcourt

# *

# **." There can be no doubt that as a matter of law Aetna 

### is entitled tojudgment against Treasure State. The summary judgment granted Treasure State 

### isreversed. judgm~t for Aetna against Treasure State 

### is ordered.

We Concur:

Judge, sittinyChief Just Paul G. Hatfie d.