Court Opinion

ID: 3242879
Source: CourtListenerOpinion
Date Created: 2016-07-05 16:15:52.020032+00
Date Added: 2024-06-11T13:40:20.088883
License: Public Domain

On further consideration, a majority of the court has reached the conclusion that the contractor's bond in this case means more than a mere indemnity to the owner as against claims for labor and material.
For ready reference we again set out the condition of the bond, numbering consecutively the conjunctive obligations therein, as follows:
"Now therefore the condition of this obligation is such that (1) if the principal shall faithfully perform the contract on his part, and (2) satisfy all claims and demands incurred for the same, and (3) shall fully indemnify and save harmless the owner from all cost and damage which he may suffer by reason of failure so to do, and (4) shall fully reimburse and repay the owner all outlay and expense which the owner may incur in making good such default, and (5) shall pay all persons who have contracts directly with the principal for labor and material, then this obligation shall be null and void; otherwise it shall remain in full force and effect."
Conditions or obligations Nos. 1, 2, 3, and 4, show careful wording to cover all the duties owed by the contractor to the owner. No. 1 in broad terms calls for faithful performance of the contract; No. 2, for payment of all claims and demands incurred in such performance; No. 3, indemnity to the owner against all damages he may suffer by reason of failure tofaithfully perform or to pay all claims and demands incurred therein; No. 4, reimbursement of owner for outlays, including expenses, incurred by him in making good such default of the contractor.
It is difficult to frame more inclusive provisions protecting the owner, the promisee in the bond, against liens and demands for labor and material. Note this obligation *Page 266 
runs to him, the "owner," three times mentioned in these indemnity provisions. Then follows clause 5 respecting claims for labor and material. The "owner" is not named in this provision. The obligation runs to third persons. Its terms are: "Shall pay all persons" of the class named.
Claims for labor and material furnished a contractor may greatly exceed the amount for which liens may be enforced against the owner's building. In our state, as in many others, the lien usually extends to the unpaid balance due the contractor. If only indemnity to the owner is meant, must we not strike out "all persons" and substitute terms limiting the liability accordingly?
Again this clause covers only those having contracts for labor or material directly with the contractor. Liens may run in favor of those furnishing labor or material to a subcontractor. The surety stands for the contractor only under this feature of the bond. So, if indemnity to the owner is meant, the clause is inadequate for that purpose.
The claims for labor and material covered by the bond are not commensurate with indemnity to the owner. In one case they may exceed the liens chargeable on his property, exceed the indemnity due the owner, and in another the liens may exceed the claims for labor and material furnished directly to the contractor, those covered by the bond, and in such case the indemnity would be inadequate under this clause. Indemnity to the owner against claims for labor and material are fully covered by express provisions to that end; clause 5 is inapt and inadequate to the expression of such purpose. Unless inserted for the benefit of materialmen and laborers, it is meaningless.
In construing bonds for construction of public buildings and improvements, courts have generally held such conditions are intended for the benefit of materialmen and laborers because otherwise they are meaningless. The same reason logically applies to a bond in the form here presented.
We think no particular stress is to be given the fact that the obligation of the bond is expressed in the condition. This is mere matter of form, usual to bonds penal in form, but contractual in obligation. Here the obligations to the owner, as well as to materialman, are all expressed in the condition. If the contractor-principal shall perform these conditions, his obligations are met. If not, the bond stands breached. If he does not "pay all persons" their claims for labor and material furnished under direct contract with the contractor, says this bond, there is a breach thereof. If indemnity to the owner alone is in mind, he may have no claim, although such persons remain unpaid. The laborer or materialman may have failed to perfect his lien, or payment may have been made to the contractor before the fund was tied up by proper notice. We would then have a case wherein the bond is breached by its express terms, with no remedy thereon.
In dealing with contracts calling for the payment of money to a third person, it is generally declared that, in order for such third person to maintain an action thereon, the contract must be made for his benefit. Much confusion of opinion has arisen as to the meaning of "intended for his benefit."
If A and B enter into a contract wherein B, for a valuable consideration, agrees to pay money to C, the benefit to C is in getting his money. The motive of A in having the money paid over to C may have been no interest in C whatsoever, but wholly for A's own relief in paying his debt to C.
Thus, in the ordinary case of a sale of property, the purchaser agreeing to pay off an incumbrance as part of the purchase price, the motive of both vendor and purchaser may be solely for their own protection, the vendor to get his debt paid, and the vendee to free his property from incumbrance. Still, C in such case has an election to accept the promise made to A for his benefit, and sue thereon.
In the beginning A is the sole promisee. C is not a party thereto, and may look entirely to his existing security and remedies. So here, while the owner is the promisee named in the bond, the obligors promise him to pay all persons furnishing labor and material to the contractor. Such promise is supported by the consideration moving from the owner. Under our law and the prevailing law elsewhere, the person to whom the money is to be paid may maintain an action therefor. Fite v. Pearson,215 Ala. 521, 111 So. 15; Farrell v. Anderson-Dulin-Varnell Co., 211 Ala. 238, 100 So. 205; Liles v. Cox, 215 Ala. 327,110 So. 716; Copeland v. Beard, 217 Ala. 216, 115 So. 389.
It appears the bond before us is in the standard form adopted by the American Institute of Architects and approved by National Associations of contractors. Blake Architecture 
Building (2d Ed.) p. 317.
As matter of common knowledge, the architect is a leading factor in the building industry, the maker of plans and specifications, the go-between of the owner and the contractor. He usually prescribes the form of contract, and the amount and condition of the bond, upon which bids are invited. We may assume that his primary concern in this regard is the protection of his client, the owner, This protection is best effected by such contract and guaranty bond as assures the construction of the building as agreed; such as not only indemnifies the owner, but tends to save him from harassing litigation, and to *Page 267 
prevent delays to the annoyance of both owner and architect.
That the form of bond is prescribed by representatives of the building industry can, of course, in no way affect or modify the terms of the bond, or their legal effect; but in ascertaining the intent we think the general policy of promoting the industry and its orderly conduct by putting a bond behind the obligations of the contractor to all those concerned, the owner, the laborer, and materialman, may well be considered.
Reduced to last analysis, the inquiry is this: Is the promise here merely to indemnify the owner, or to indemnify him and also to pay parties furnishing labor and material to the contractor?
We are not impressed with that line of judicial decision which assumes that the owner, the promisee, has no concern for those whose labor and material enter into his building, other than mere protection of himself by way of indemnity. He may provide for them a remedy on the bond, to prevent their proceeding against him under the lien laws. He may want the bond to protect them as an assurance that labor and material will be procured and the work done without delay and confusion. He may require it simply as a just protection to those whose labor and material enter into his building. As heretofore suggested, his motive is not important, but has a promise been required that they shall be paid, rather than a promise to protect the owner, if not paid?
We recognize the high authority of decisions relating to kindred bonds, some probably not distinguishable from this, which led to the conclusion expressed in our original opinion. Since then a well-considered case from the Supreme Court of Connecticut, Byram Lumber  Supply Co. v. Page, has been published, 109 Conn. 256, 146 A. 293. The illuminating article of Mr. Corbin on the subject, Yale Law Journal, November, 1928, p. 1, has been studied.
Other cases dealing with the same form of bond care: Hartford Accident  Indemnity Co. v. W.  J. Knox Net  Twine Co.,150 Md. 40, 132 A. 261; Mansfield Lumber Co. v. National Surety Co., 176 Ark. 1035, 5 S.W.(2d) 294; Pittsburgh Plate Glass Co. v. Fidelity  Deposit Co., 193 N.C. 769, 138 S.E. 143; American Surety Co. v. De Wald, 30 Ga. App. 606, 118 S.E. 703.
True, as suggested, the Maryland and Arkansas decisions might have been placed on grounds stated in public building cases; but it is sufficient to say they were not so considered. The decisions are placed upon principles we have sought to state in this opinion.
It thus appears the decided weight of authority, recent authority, dealing with bonds of the form before us, support the view that the stipulation in favor of parties furnishing labor and material is for their benefit, and they may sue thereon. Perhaps the strongest argument against such view is that the penalty of the bond may thus be exhausted to the loss of the owner, the obligee, for whose primary protection the bond is given. His right to protection as the primary beneficiary, if such a situation should arise, is not here presented. A sufficient answer is that in the first instance the parties have presumably fixed an amount deemed sufficient to cover all the obligations named in the bond.
The obligation to pay "all persons" furnishing labor and material under direct contract with the principal is an express stipulation of the bond. We think, on principle and authority, it should be given effect according to its terms.
Application for rehearing granted; judgment of reversal set aside, and cause affirmed.
SAYRE, THOMAS, and BROWN, JJ., concur in the foregoing opinion.
ANDERSON, C. J., and GARDNER and FOSTER, JJ., dissent.