Opinion ID: 1136830
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Heading Rank: 1

Heading: intention to benefit

Text: The majority opinion accurately refers to the law which is pertinent to the intention to benefit rationale before it turns to the promise to pay rationale as set forth in §§ 165 and 166 of the Restatement, supra, upon which it bases its conclusion. The interpretation of a contract is for the court as a matter of law when the language of the contract is plain and unequivocal. Hollabaugh v. Kolbet, Wyo., 604 P.2d 1359 (1980); Shepard v. Top Hat Land & Cattle Co., Wyo., 560 P.2d 730 (1977); Goodman v. Kelly, Wyo., 390 P.2d 244 (1964). In construing the language of a contract of suretyship the same rules apply that control in the construction of other contracts, including those by which the intent of the parties is ascertained. Snow v. Duxstad, 23 Wyo. 82, 147 P. 174 (1915). It has long been a part of this state's jurisprudence that corporations organized to make such bonds or undertakings for profit are not favorites of the law and that their contracts should be construed most strongly in favor of the obligee. United States Fidelity and Guaranty Company v. Parker, 20 Wyo. 29, 121 P. 531 (1912). The bond and the contract referred to in the bond must be read together as one instrument. Dealers Electrical Supply v. United States Fidelity and Guaranty Company, 199 Neb. 269, 258 N.W.2d 131 (1977); Amelco Window Corp. v. Federal Insurance Company, 127 N.J. Super. 342, 317 A.2d 398 (1974). Additionally, it is noted that the bond in this case is more than an indemnity bond since it is conditioned not only on the contractor holding the owner harmless but also on performance and fulfillment of all and every the covenants, conditions, stipulations and agreements in said contract mentioned to be performed and fulfilled. Amelco Window Corp. v. Federal Insurance Company, supra; Lake View Trust & Savings Bank v. Filmore Construction Company, 74 Ill. App.3d 755, 30 Ill.Dec. 678, 393 N.E.2d 714 (1979); Dealers Electrical Supply v. United States Fidelity and Guaranty Company, supra. The intention to benefit rationale is set forth as follows in 13 Couch on Insurance 2d § 47:193: Initially, the test whether a contractor's common-law bond has been made for the benefit of others than the obligee, such as laborers and materialmen, is determined by whether or not the contract and bond, when construed together, show an intent to protect such persons by agreeing to see that they are paid. And in construing contract guaranty bonds, the intention of the parties must control as to whose benefit it inures, which intention must be gathered from the bond, the contract which it guarantees, and the attending circumstances known to the parties at the time the bond was executed. By definition, a labor and materialman cannot bring suit upon a bond unless the bond manifests an intent to confer such a benefit upon him. Conversely, a contractor's indemnity bond will be construed to protect laborers, materialmen, and subcontractors where such was the evident intent of the parties. Under this rationale, then, the controlling and dominant inquiry is whether or not the contract and bond show an intent to protect the laborers and materialmen by seeing that they are paid. Looking at the language of the documents to determine whether or not they show this intent, it is necessary to continually bear in mind that the bond is conditioned on the contractor performing and fulfilling all and every the covenants, conditions, stipulations and agreements in said contract mentioned to be performed and fulfilled. We thus examine the contract to determine if it contains language which indicates an intention by the parties to the contract for the contractor to pay the laborers and materialmen. The contract requires work by the contractor to remove and stockpile topsoil, to excavate and spoil overburden, and to construct roadway embankments. Methods and requirements for doing so are set forth. Work is defined as: The furnishing of all labor, materials, equipment, and other incidentals necessary to the successful and timely completion of the project, and the carrying out of the duties and obligations imposed by the Contract upon the Contractor. (Emphasis supplied.) This definition places labor, materials, equipment and the referred to incidentals into one category under the terms of the contract. The times and conditions for payments to the contractor for the work is set forth as:  103.02 Partial Payment. Partial payment will be made for the previous month's work, based on the volume determination made on the last day of the month, less ten percent (10%) retained.  103.03 Final Payment. Final payment will be made within twenty (20) days of the completion of the work covered by this Contract, if all work is completed by the deadline described herein.        400.18 Payments. The Owner agrees to pay the Contractor monthly at the rates herein provided, upon receipt of bill approved by Owner, with waivers of claims for mechanic's liens by all parties who furnished labor, material, or other services included in said bill, showing work done by Contractor during the preceding month. The Owner shall retain from each bill, ten percent (10%) of the monthly bill, until final approval and acceptance of the work by Owner. At the time of final payment, the Contractor agrees to furnish Owner with waivers of all claims for mechanic's liens, and showing that all amounts for labor, equipment, and subcontractors furnished by the Contractor have been paid in full.  (Emphasis supplied.) Provisions relative to the quality of work are:  400.09 Materials and Workmanship. Unless otherwise specifically provided for in this Contract, all workmanship, equipment and materials furnished by the Contractor to be incorporated in the work are to be of the best grade of their respective kind for the purpose. The Contractor shall pay all royalties and license fees for all work furnished by it, and shall defend all suits or claims for infringement of patent rights and save Owner harmless from all loss or expense on account thereof.        400.11 Guarantee. In addition to the specific guarantees required by the Specifications for the work to be performed under this Contract, the Contractor guarantees all work to be performed and all materials to be furnished under this Contract against defects in workmanship for a period of one (1) year from the date of final acceptance of the completed work by the Owner. The Contractor shall, within a reasonable time after receipt of written notice thereof, repair or replace defective workmanship which may develop before the expiration of said one-year period and shall repair or replace other work which shall have been damaged by such defects or the repairing of same, all at the Contractor's expense and without cost to Owner.  (Emphasis supplied.) The responsibility of the contractor for the furnishing of work was specified:  400.13 Materials Furnished by the Owner. No materials, supplies, equipment, labor, services or any other things required for the performance of the work hereunder are to be furnished by Owner, unless this Contract expressly provides that any materials, supplies, equipment, labor, services or any other things are to be furnished by Owner; Owner shall use reasonable efforts to furnish same when required by the Contractor, but Owner is not liable for any delay in furnishing same. (Emphasis supplied.) The provision pertaining to the filing of liens is set forth in the majority opinion. The provisions for payment of wages and wage incidentals are worded as follows:  400.22 Social Security and Welfare Fund Payments. The Contractor shall pay all taxes and contributions measured by wages, salaries or other remunerations of its employees and the employees of its subcontractors required by the Federal Social Security Act or the laws of the State in which the work is done, and shall pay all welfare fund payments required by any labor unions, and shall be exclusively liable for said taxes, contributions and payments. The Contractor shall indemnify and hold harmless Owner on account of any taxes or contributions measured by the wages, salaries or welfare fund payments or other remunerations as aforesaid of employees of Contractor and the subcontractors assessed against the Owner under the authority of said Act or laws of said State.        400.30 Labor Practices. A. Contractor shall comply with all applicable labor laws, regulations and customary labor practices. Before commencing any work whatsoever under this Contract, and before permitting any of its hourly employees to enter on the work site and/or any property of Owner, Contractor shall give at least four days advance notice to Owner in writing, and only in writing signed by an officer of Contractor, of the name(s) of the labor union(s), if any, who will represent the Contractor's workers in connection with the work to be performed. If Owner determines that such labor arrangements would threaten to interfere, obstruct or interrupt any of Owner's operations, then Owner shall so notify Contractor and, if Owner so elects, may terminate this Contract. (Emphasis supplied.) With reference to this last provision, it is noted that it requires contractor to pay its employees. The bond is for the project at Medicine Bow Mine. The contractor is thus subject to the provisions of § 27-4-101(a), W.S. 1977 which provides in pertinent part: (a) Every person, firm or corporation, engaged in the operation of any railroad, mine, refinery, and work incidental to prospecting for, or the production of, oil and gas, or other factory, mill or workshop, within the state of Wyoming, shall, on or before the first day of each month, pay the employees thereof the wages earned by them during the first half of the preceding month ending with the fifteenth day thereof, and on or before the fifteenth day of each month pay the employees thereof the wages earned by them during the last half of the preceding month   . The contract is replete with expressed intention that the contractor pay the laborers and materialmen. It is one of the covenants, conditions, stipulations and agreements contained therein. And the bond was given to insure the performance thereof. The contractor was to furnish the labor and material of the best grade, pay the wages and incidental wage benefits to his employees, and prevent the filing of any mechanic's liens against the property. The contract went much further than a no lien provision. It required wage payment. The contractor was not to be paid until waivers of claims by the laborers and materialmen were submitted. Of course, the laborer and materialman benefited from these provisions. Even a no lien provision redounds to the benefit of the laborer and materialman since it operates to force payment to them and it lessens the need to resort to the debt collecting procedure involved in lien filing. The parties here intended a benefit to the laborers and materialmen. The very purpose of a payment bond reflects the intention to provide a benefit to the laborers and materialmen.    The primary purpose of the performance bond is to indemnify   [building owner] against breach by   [the contractor] and that of the payment bond is to assure payment to specified third parties [Citations]   . `There is a basic difference between a construction performance bond and a labor and material payment bond. They serve and are intended to serve entirely separate and different purposes.'    (Bracketed material added.) Novak & Co., Inc. v. Travelers Indemnity Company, 85 Misc.2d 957, 381 N.Y.S.2d 646, 649 (1976).    [A] labor and material payment bond is exacted in order that the persons for whose benefit the bond is exacted shall be paid in full, without regard to status of what may be due to the contractor or to his subcontractor under his contract, or what may be due to the public authority from surety under the construction performance bond.   Extruded Louver Corporation v. McNulty, 34 Misc.2d 566, 226 N.Y.S.2d 220, 224 (1962).    The contract was referred to in the bond, and annexed thereto. It has been held in some jurisdictions that where the prime contract requires the contractor to provide a bond conditioned on the payment of laborers and materialmen, but where the bond does not explicitly contain the required condition, laborers and materialmen may nevertheless recover on the bond, particularly when the contract is made a part of the bond by reference.    Dealers Electrical Supply v. United States Fidelity and Guaranty Company, supra, 258 N.W.2d at 135. The intention to benefit rationale does have an element of social interest  an interest to protect the little fellow. By legislation in most states the protection here sought is mandated in contracts with governmental agencies. In this case, the action was against appellee on two separate bonds. The one which is subject of this appeal was furnished the contractor for the Medicine Bow Coal Company project. The other was for a Colorado Highway Department project, and the trial court found for appellant under the Colorado law. The premium paid for the risk covered by this bond was testified to be the same regardless of whether or not the laborers and materialmen were entitled to benefit of it. If default in performance under the contract were made before completion of it, causing the appellee to complete the contract pursuant to the performance portion of the bond, the appellee would have to pay for the necessary labor and materials. Such considerations bear on the intention to benefit rationale and result in the determination that the parties intended for appellant to have a benefit from the documents upon which action will lie.