Court Opinion

ID: 9672232
Source: CourtListenerOpinion
Date Created: 2023-08-24 03:51:18.667486+00
Date Added: 2024-06-11T18:13:47.497172
License: Public Domain

HANSON, J.,
(dissenting). The question presented is whether money loaned by a bank to a subcontractor is within the coverage of a statutorily required public highway performance bond furnished by the main contractor.
In-the absence of statute the use plaintiff Bank would not be in privity and would have no cause of action against either the contractor or his surety. For a cause of action, if any, the Bank must come within the purview of Ch. 135, Session Laws 1941, now SDC 1960 Supp. Ch. 28.16. The title of this act reflects its legislative purpose as "AN ACT Entitled, An Act For the Protection of Persons Furnishing Material and Labor For the Construction, Repair or Improvements of Public Highways." The Act provides that before any contract may be entered into for the construction, repair or improvement of any public highway by the State of South Dakota, the person to whom such contract is awarded shall furnish a performance bond running to the State of South Dakota in an amount not less than the contract price. The condition of the bond must be "for the faithful performance of such contract", SDC 1960 Supp. 28.1601, and every person furnishing labor or material in the prosecution of the work provided in a public highway contract "shall have the right to sue on such bond", SDC 1960 Supp. 28.1602, which remedy is exclusive, SDC 1960 Supp. 28.1604. Cases such as J. F. Anderson Lbr. Co. v. Nat'l. Surety Co., 49 S.D. 235, 207 N.W. 53, decided prior to the passage of the above act are of little or no value in deciding the question of persons covered and protected under our *182present law. In the Anderson case the court recognized that the issues involved therein were "not based upon or connected with any statute whatsoever".
Under our present law a performance bond must be conditioned upon the faithful performance of a public highway contract. The statute was intended to protect the State of South Dakota for the faithful performance of every contract entered into for the construction, repair, or improvement of public highways. In addition it protects and affords a remedy to all persons furnishing labor or materials in the prosecution of such work. There are no other beneficiaries. No one else is given the right to invoke the name of the State of South Dakota in an action on the bond. The remedy is exclusive and cannot be enlarged by contract. As the Oregon court stated in State ex rel. Hagquist v. United States Fidelity & Guaranty Co., 125 Or. 13, 265 P. 775, " * * * the state highway commission is a board existing purely by statute, and possessing only the powers granted by statute, or those necessarily implied from the powers expressly granted. It can contract for the construction of a highway because the statute authorizes it so to do. It can require a bond from a contractor because the law expressly requires it so to do. It can and must require such bond to be so conditioned as to provide that such contractor 'promptly make payments to all persons supplying him or them [with] labor or materials for any prosecution of the work provided for in such contract,' and upon such bond the aggrieved person is authorized to invoke the name of the state in an action to recover for the value of such labor or materials. The state highway commission, being a board of special and limited powers, was not authorized to exact any other or different bond, or, at least, was not authorized to pledge the name and authority of the state as a plaintiff for the enforcement of any other or different bond. So the state has no standing to enforce as plaintiff any obligation beyond that provided by statute, * *
The legislative purpose for the enactment of Chapter 28.16 is clearly expressed in the title and body of the act. It was intended to protect and afford a remedy to laborers and material-men on highway construction projects to the exclusion of all other *183persons. The legislative reason is well founded. Our mechanic's and materialmen lien laws apply only to private construction projects. Such security is not afforded laborers and materialmen on public highway projects. Therefore, performance bonds are now required to equalize the remedies of laborers and material-men on both private and public construction. Chapter 28.16 has no other purpose. Banks and money lenders are outside its purview and protection as they are outside the purview and protection of our mechanic's and materialmen lien laws. In financing a contractor engaged in either private or public construction banks and money lenders may fully secure themselves by mortgages, liens, assignments of contract payments, and other security arrangements. They do not need and in my opinion the legislature never intended them to be beneficiaries of a performance bond required for the protection of laborers and material-men.
In discussing the case of Puget Sound State Bank v. Gallucci, 82 Wash. 445, 144 P. 698, and rejecting its reasoning, the Oregon court in State ex rel. Hagquist v. United States Fidelity & Guaranty Co., 125 Or. 13, 265 P. 775, made the following pertinent observations:
"To go further, we may say that the mere loaning of money to a contractor, even though used by him to pay obligations contracted, is not a debt created in the performance of the work. The parties who loaned the money were in no privity with the parties furnishing the materials or performing the labor. They took no assignment of the borrower's rights under the contract and no obligation from the borrower that it would apply the money upon a particular contract. Had the borrower concluded to build or buy a ship and to pay for it with the money thus loaned, it would have committed no breach of legal duty in so doing. The fact that the corporation used the money to pay for labor or provisions furnished to secure the completion of this contract could not make the lenders privies to the bond. That it was intended that the bond should redound to their benefit *184would open the door to a species of litigation that would render it impossible for a small contractor ever to obtain a bond. We have in this country a few large and wealthy contractors from whom a bond of this character would add little or nothing to the security of laborers or material-men, and whose wealth and standing is such that a surety company would consider the giving of such a bond a small risk. The result would be that the small contractor would be crowded out, and a monopoly or road contracting would inure to wealthy contractors thus adding to the cost of improvements. We are not so far from the state of Washington as to be unable to see that this result actually followed in that state as a consequence of the ruling in the Gallucci Case, to the extent that the Legislature of 1915 passed an act providing substantially that money loaned or advanced a contractor should not be held to be included in such bond. Session Laws of Washington 1915, p. 61. Under the views here enunciated, such legislation is unnecessary so far as the highway commission is concerned."