Court Opinion

ID: 9557777
Source: CourtListenerOpinion
Date Created: 2023-08-21 16:57:20.379713+00
Date Added: 2024-06-11T09:06:49.916361
License: Public Domain

HOLMAN, J.,
dissenting.
The majority takes a condition of a bond and makes it a promise. The surety made no promise to pay parties other than the owner, Portland General Electric Company (PGE). The words of the contract provide that "* * * if the Contractor shall (a) Pay all persons, firms and corporations who perform labor or furnish equipment, supplies and materials for use in the work,” there will be no obligation of the surety under the bond. (Emphasis added.) Thus, the language from the contract quoted by the majority provides no obligation upon the surety to pay but provides only that if the contractor pays, no obligation can exist under the bond. It is a provision for the benefit of the surety. The words are not words of promise on the part of the surety but are words which specify a condition which, if fulfilled, nullifies the surety’s obligation. They say nothing about to whom the surety owes the obligation.
*562The words which indicate in whose favor the obligation runs are as follows:
"KNOW ALL MEN that we, TARGET DREDGING & PILEDRIVING CO. of P. O. Box 17278, Portland, Oregon 97217, as Principal, hereinafter called the Contractor, and ARGONAUT INSURANCE COMPANY, a corporation organized under the laws of the State of California and duly authorized to transact business within the State of Oregon, as surety, hereinafter called the Surety, are jointly and severally held and firmly bound unto PORTLAND GENERAL ELECTRIC COMPANY, 621 S.W. Alder, Portland, Oregon 97205, its successors and assigns, as obligee, hereinafter called the Owner, in the sum of EIGHT HUNDRED TWENTY THOUSAND SEVEN HUNDRED SEVENTY ONE AND NO/100 ($820,771.00) DOLLARS lawful money of the United States for the payment whereof to the Owner the Contractor binds itself, its successors and assigns, and the Surety binds itself, its successors and assigns firmly by these presents.
"* * * * (Emphasis added.)
We have three cases which hold contrary to the majority opinion: Tait & Co. v. D. Diamond Corp., 228 Or 602, 365 P2d 883 (1961); Pankey v. National Surety Co., 115 Or 648, 239 P 808 (1925); and Parker v. Jeffery, 26 Or 186, 37 P 712 (1894). These decisions were based upon the language of the agreements which shows, as does the language under consideration here, that there was no promise to benefit any party other than the owner. In view of the quoted language from the agreement, I do not understand how the majority comes to the conclusion that the contracting parties intended that the bond should also run in favor of someone else. A contract is a matter of the intention of the parties, and there is no evidence here that this contract was intended to beneift anyone other than PGE. The contract, although drawn in an archaic form, is clear and unambiguous.
In Pankey v. National Surety Co., supra at 651-52, this court said:
*563«* * * [I]t seems clear that plaintiff cannot maintain this action, because there was no promise by the National Surety Company to pay for labor and material used by Nettleton-Bruce-Eschbach Company in the performance of its contract with the railway company, nor was the bond taken by the railway company for the benefit of parties who might furnish such labor or material, but to indemnify and save it harmless from loss or damage by the failure of the Nettleton-Bruce-Eshbach Company to perform its contract. The obligation of the NettletonBruce-Eschbach Company is measured by the terms of its contract, which is an ordinary penal bond by which it acknowledges itself indebted to the railway company in the sum of $25,000, and which it binds itself to pay to the obligee in the bond, and not to any other person. The condition that it Nettleton-Bruce-Eschbach Company should comply with its contract with the railway Company, the obligation should be void, is incorporated in the bond for the benefit of the surety. It simply declares upon what terms it may be exonerated from its liability to the railway. The bond contains no covenant or agreement to pay the plaintiff, or to see him paid, but only a condition, the performance of which will exonerate the Surety Company from liability, and such a condition will not be constured as a promise.”
In Parker v. Jeffery, supra at 191, this court said:
"* * * The condition that if Robertson Brothers should comply with their contract with the city, the obligation should be void, is incorporated in the bond for the benefit of the sureties. It simply declares upon what terms they may be exonerated from their liability to the city. The bond contains no covenant or agreement to pay the plaintiffs, or to see them paid, but only a condition, the performance of which will exonerate them from liability, and such a condition will not be construed as a promise * * *.”
The language quoted above is as true today as it was when written. There is no logical way to make the language of the contract benefit anyone other than PGE.
The purpose of a bond of this kind is to save an owner harmless from the expense of clearing liens *564which might be filed upon the premises being constructed. A bond of this kind is given because those in the position of PGE require it for their protection. The premium on the bond is a cost of doing business and is reflected in the contractor’s bid. Neither the contractor nor the owner is interested in enhancing the premium, and thus the amount of the bids on the property being constructed, by securing coverage for anyone other than the owner. Unless the milk of human kindness runs thicker in the veins of public utilities and contractors than is generally apparent, there is no real basis for believing there was an intention to benefit anyone other than PGE. Prior opinions of this court have construed similar contracts in accordance with the literal terms of such contracts, and we. must assume that the parties entered into this contract in reliance upon those opinions. As demonstrated by the appendix to defendant’s brief, there are other forms which are used when the parties wish to enter into a surety agreement for the benefit of third party workmen and materialmen.1
If there is an ambiguity, because of the archaic form of the bond, as to what the parties intended, it would be proper to submit proof showing what the parties did intend. Whether the parties intended those *565in the position of plaintiff to be beneficiaries would then be a question of fact. However, even if the contract is treated as being ambiguous, plaintiff is in no position to recover in the face of the literal wording of the bond and in the absence of evidence that the parties intended otherwise. The majority not only construes the wording contrary to its literal meaning but it does so as a matter of law without the necessity of evidence that the words of condition were intended as words of promise. I have no quarrel with the law of third party beneficiary contracts as stated by the majority nor with its application to plaintiff if such was the intent of the parties, but that intent cannot be conjured out of the language of the contract.
The majority contends it was not necessary that the condition, which it construes as a promise, be in the contract unless it was intended as a promise. I would counter by contending that if the parties intended to benefit anyone other than PGE, they would have said so instead of using words of condition. In addition, we know that sureties state everything at least three different ways because courts construe contracts against them if such contracts do not completely cover every possible contingency. We now hold that any duplication arising out of any statements made by sureties will be construed against them.
In an attempt to strengthen its position, the majority also argues that the contract in question is analogous to the form of the statutory bond required by ORS 697.100 which protects persons who deal with collection agencies. It is an inapposite analogy because the statutory bond runs in favor of the state which has no interest in any particular dealing with the collection agency and whose only interest is the protection of the public. The bond must necessarily be for the benefit of the public; it serves no purpose otherwise. PGE, on the other hand, has an interest in seeing that there are no unpaid liens.
*566The majority also relies upon the holding of Hagey v. Mass. Bonding & Ins. Co., 169 Or 132, 159, 126 P2d 836, 127 P2d 346 (1942), which holds that surety contracts made by compensated sureties " ' * * * will be construed as an insurance contract most strongly in favor of the party or parties protected thereby.’ In other words, a compensated surety is taken at his word.” (Emphasis added.) This would be a proper rule of construction for application to the parties intended to be benefited by the contract, but it is no help to us in deciding who the benefited parties were intended to be. If a compensated surety is "taken at its word” in this case, there is no liability. It is only when words are put in its mouth that liability results.
Relied upon by the majority is the text of Professor Corbin’s work on Contracts, wherein it is stated,
"* * * in the case of a penal bond [words of condition] must be construed to be words of promise, inasmuch as the only express words of promise are those in which payment of the penal sum is promised. * * 4 Corbin, Contracts § 800, at 173-74 (1951).
Corbin does not attempt to explain why there should be implied promises in addition to the promise of payment of the penal sum to the named beneficiary (in this case PGE). A reading of the text preceding and following the quoted material makes it apparent that his reason for such a statement is that he believes a better social result would follow if sureties were made responsible to all claimants — not because he believes the parties to such a contract usually intend to so agree.
The majority’s result is appealing because the bonding company can distribute the risk through premiums and because it is a way of assuring the payment of all workmen and materialmen. Whether one wants to twist the words to reach what is considered a good social result depends upon how important one considers the right of the parties to make their own contract. This is the kind of public policy that is *567usually handled by legislatures, and the law has been settled in this state for 95 years without any legislative action.
Bryson, J., joins in this dissenting opinion.

 The American Institute of Architects’ form for a bond, which is intended to benefit laborers and materialmen, reads, in part, as follows:
"KNOW ALL MEN BY THESE PRESENTS: that_as Principal, hereinafter called Principal, and_as Surety, hereinafter called Surety, are held and firmly bound unto _ as Obligee, hereinafter called Owner, for the use and benefit of claimants as hereinbelow defined, in the amount of__” (Emphasis added.)
Claimants are thereafter defined as laborers and materialmen. It is thus demonstrated that those in the trade are capable of entering into a contract for the benefit of third persons if this is their intention.
The majority opinion responds to the use of a bond, such as that illustrated above, as follows:
"Some sureties have discarded the ancient form and inserted language expressly providing that unpaid laborers shall have a direct action against the bond. In our opinion this was not intended to change the surety’s obligation from that stated in the archaic form but to express that same obligation in understandable language.” 282 Or at 556, 580 P2d at 531.
I would only ask: From what evidence is the majority’s opinion formed?