Opinion ID: 1136830
Heading Depth: 1
Heading Rank: 2

Heading: promise to pay

Text: The promise to pay rationale used by the majority of the court in resolving the issue here presented is narrower than the intention to benefit rationale. It is expressed in the Restatement sections cited by the majority. It is more completely explained in 4 Corbin on Contracts § 798, pp. 163-164, as follows: We should now start with the general proposition that two contracting parties have power to create rights in a third party. This has long been a general rule; it is not an `exception.' `Privity' is not necessary: the third party need not be a `promisee' nor need he give consideration. Secondly, it is not necessary to the creation of rights in the third party against the promisor that the promisee should owe any legal, equitable, or moral duty to the third party. This, also, has long been the prevailing rule; but there is a line of cases stating the contrary, though very often keeping the actual decision in harmony with it. And thirdly, the third party has an enforceable right if the surety promises in the bond, either in express words or by reasonable implication, to pay money to him. If there is such a promissory expression as this, there need be no discussion of `intention to benefit.' We need not speculate for whose benefit the contract was made, or wonder whether the promisee was buying the promise for his own selfish interest or for philanthropic purposes. It is a much simpler question: Did the surety promise to pay money to the plaintiff? (Emphasis supplied.) And again at § 800, pp. 177-178: The words used in building contracts and in accompanying surety bonds are now usually such that they are and should be interpreted as a promise by the surety to pay laborers and materialmen in case of default by the contractor. Often the construction contract contains an express promise by the contractor; and the bond is either conditioned expressly on such payment or on full performance by the contractor of all his promises. The third parties are often definitely indicated in that part of the bond specifying the conditions. Words of `condition' are not words of `promise' in form; but in this class of cases it is sound policy to interpret the words liberally in favor of the third parties. In a majority of states, it is already done; and without question the surety's rate of compensation for carrying the risk is sufficiently adjusted to the law. The compensated surety has become an institution that is well suited to carry the risk of the principal contractor's default, whereas individual laborers and materialmen are frequently very ill prepared to carry the risk. The legislatures have recognized this fact, and in the case of public contracts have required surety bonds to protect the third parties. While this has not been done in the case of private construction, and while the courts should not on their own motion put such a provision into a private surety bond, they may well interpret a bond that is expressly conditioned on the payment of laborers and materialmen as being a promise to pay them and made for their benefit. The words reasonably permit it, and social policy approves it. The court need not strain the words of the bond, as has sometimes been done, to hold that the third persons were not intended as beneficiaries thereof, even though the promisee may have been thinking chiefly of himself when he paid for the bond. (Emphasis supplied.) In some instances, this narrower approach would deny recovery wherein the intention to benefit rationale would not. However, in this case, the promise to pay is sufficiently expressed or is indicated by reasonable implication. The contract provisions previously recited and referred to for the purpose of indicating the intention of the parties in this respect, are equally persuasive to reflect the promise to pay. A fair reading of the contract reflects the imposition on the contractor of the duty to pay the cost of labor and materials needed to fulfill the contract. The conclusion has been expressed as follows:    Although there are no prior Nebraska cases precisely on point, there are numerous cases from other jurisdictions holding that a subcontractor or materialman is entitled to recover on a surety's bond where the contract required the contractor to pay for the cost of labor and materials needed to fulfill the contract, and where the bond was conditioned on performance of the contract by the contractor. See, Amelco Window Corp. v. Federal Ins. Co., supra; Engert v. Peerless Ins. Co. [53 Tenn. App. 310, 382 S.W.2d 541] supra; Royal Indemnity Co. v. Alexander Industries, Inc. [8 Storey 548, 58 Del. 548, 211 A.2d 919] supra; Westinghouse Electric Corp. v. Mill & Elevator Co., 254 Iowa 874, 118 N.W.2d 528 (1962); Gibbs v. Trinity Universal Ins. Co., 330 P.2d 1035 (Okl., 1958). The above cases reflect the general rule and are supported by Restatement, Security, § 165, p. 457, which provides: `Where a surety for a contractor on a construction contract agrees in terms with the owner that the contractor will pay for labor and materials, or guarantees to the owner the promise of the contractor to pay for labor and materials, those furnishing labor or materials have a right against the surety as third party beneficiaries of the surety's contract, unless the surety's contract in terms disclaims liability to such persons.' Dealers Electrical Supply v. United States Fidelity and Guaranty Company, supra, 258 N.W.2d at 135.    When, from the contract as a whole, it is clear that the contractor was to pay for material and labor necessary for the construction of the building, and a bond is given to secure the faithful performance of the contract, materialmen and laborers who have not been paid may sue directly upon the bond.    Topeka Steam Boiler Works Co. v. United States Fidelity & Guaranty Co., 136 Kan. 317, 15 P.2d 416, 419 (1932). Appellee should be held to perform under the bond for which it received the agreed upon stipulation by providing the relief sought by appellant. I would reverse that part of the order and summary judgment of the trial court dismissing with prejudice count I of appellant's complaint, and remand the case with instructions to enter a summary judgment in favor of appellant on count I of its complaint.