Court Opinion

ID: 3876217
Source: CourtListenerOpinion
Date Created: 2016-07-06 09:09:08.926356+00
Date Added: 2024-06-11T07:41:45.549524
License: Public Domain

Upon the question of the liability of the surety company, upon its bond, for the claims of materialmen, I hope that I am fair and just enough to forget the fact that my client and I were the victims of the decision of this Court in the case of Mack Mfg.Co. v. Massachusetts Bonding Co., 103 S.C. 55;87 S.E., 439. Notwithstanding this fact, I feel assured that now "far from the madding crowd's ignoble strife," in an atmosphere of clear, indifferent, judicial calm, if I may demonstrate, from the opinion itself in that case, that it was wrongly decided, the suspicion of disappointed partisanship may not affect a conviction of the righteousness of my conclusion.
Two of the main propositions advanced by the appellant, which Mr. Justice Gage in his opinion denominates "postulates," and which he declares "need not be discussed" for the reason that they "are manifestly true," were these:
"1. A stranger to a contract between two other persons cannot recover upon it, unless it appears not only that it confers a benefit upon him, but that it was made for his benefit. 2. A stranger to a contract between two other persons cannot recover upon it, unless it appears not only that it was made for his benefit, but also that there was some obligation *Page 443 
or duty from the promisee to him, which supplies the consideration of the contract."
These "postulates" are set forth in ipsissimis verbis by Mr. Justice Gage, and received the unqualified and unanimous imprimatur of the Court. They therefore need not to be buttressed by authorities, which are readily available, to the extent of every text-writer and perhaps 100 decided cases. The principle is fundamental, and springs from the elementary rule that every executory contract must be supported by a valuable consideration. Ordinarily, there is no privity of contract between the parties to the contract and the stranger; no consideration at all moving between them; but if there should be a duty or an obligation imposed, dehors the contract, upon the promisee in favor of the stranger, that supplies the element of consideration.
In the Mack case, there was not the faintest semblance of a duty or obligation imposed upon the city in favor of the materialmen who furnished material to the contractors. There, doubtless, may have been a moral obligation on the part of the city to pay for what material they received the benefit of, which would have supported an express contract by the city to pay for it, as this Court held in the cases ofFerguson v. Harris, 39 S.C. 323; 17 S.E., 782; 39 Am. St. Rep., 731, and Bank of Spartanburg v. Mahon, 78 S.C. 408;59 S.E., 31, and McMorris v. Herndon, 2 Bailey, 56; 21 Am. Dec., 515; but how the letting of a contract to the contractor, which manifestly was intended to relieve and necessarily had the legal effect of relieving the city from any obligation for material supplied to the contractor, can be held to have created an obligation upon the city to the materialmen is more than I can conceive.
And yet, in the face of this emphatic declaration of the governing principle and of the unquestioned absence of any obligation of the city to the materialmen, the bond company was held liable upon the ground that the contractor had assumed the obligation to pay the materialmen! The argument *Page 444 
was that, as the contractor had agreed to furnish the material, he had impliedly agreed to pay for it; a proposition as to which there could be no question. It establishes an obligation of the contractor to the materialmen; not the necessary element of an obligation of the city to the materialmen.
The opinion in the Mack case declares:
"It is conceded by appellant that if the bond was taken for the benefit of the plaintiff, not incidentally but really, then the plaintiff has the right to sue and to recover upon it."
The appellant did not concede anything of the kind, as the opinion itself shows in the statement of the second "postulate," for the contention, approved by the Court, was that, conceding that the bond was given for the benefit of the materialman, the materialman had no right to recover upon it, "unless it appears not only that it was given for his benefit, but also that there was some obligation or duty from the promisee to him, which supplies the consideration of the contract."
The case at bar is equally clear that the bond was given solely for the benefit of the city, and that, if it could be conceived that it was given for the benefit of the materialmen, such benefit is non-enforceable, for the reason that the consideration that the city was under an obligation to pay the materialmen, essential to recovery by the materialmen upon the bond, is absolutely in the vocative.
But aside from this conclusive proof of the inability of the materialman to maintain an action upon the bond for the reason stated, the first "postulate," referred to in the opinion of Mr. Justice Gage, has not been complied with; that is to say, it does not appear that the bond was executed for the benefit of the materialmen.
It must be borne in mind that the contest is not one between the original and only actual parties to a written contract, the city and the bond company; it is a contest between one of these contracting parties, the bond company and *Page 445 
strangers to the contract, the materialmen. They seek to come under the protection of a contract entered into between two distinct contracting parties, upon the theory that the contract was entered into for their benefit, as well as for that of the other signatory to the contract, under the familiar and acknowledged rule that entitled one for whose benefit a contract is entered into between two others to maintain an action upon such contract.
Manifestly, then, the burden is upon the materialmen to show that the contract was entered into plainly for their benefit; not simply that they would be benefited by the performance of the contract, but that valuable rights were actually created by the contract for their benefit, as against one or the other of the contracting parties.
In the first place, the contract evidenced by the bond, and signed by the contractor and the bond company, upon its face provides an indemnity to the city. The city is the obligee of the bond, and it was executed in compliance with a provision in the contract between the city and the contractor, as follows:
"In order to insure the faithful performance of each and every condition, stipulation and requirement made by this contract and to indemnify and save harmless the party of the first part from any and all damages, either directly or indirectly, arising out of any failure to perform the same, the party of the second part is to execute and deliver herewith a bond in the penalty of $50,000.00, conditioned for the faithful performance of such conditions, stipulations, and requirements, with surety or sureties satisfactory to the party of the first part."
The condition of the bond, executed in accordance with the contract and contemporaneous therewith, is "that if said bound principal, Powell Paving  Contracting Company, shall in all things well and truly perform all of the terms and conditions of the foregoing contract, to be by them performed and within the time therein mentioned, *Page 446 
and shall pay all claims for labor performed in and about the construction of said work, and shall have paid and discharged all liabilities for injuries, etc., then this obligation to be void, otherwise to be and remain in full force and virtue."
The materialmen are not mentioned in the proposal, in the specifications, in the contract, or in the bond; they are excluded in the bond, which provides for the faithful performance of the contract and for the payment of "all lawful claims for labor performed * * * and all liabilities for injuries * * * in and about the said construction"; a strong indication to my mind that the first part of the condition of the bond referred solely to the obligations of the contractor to the city, and the latter an agreed extension of the surety's obligation, limited to the claims for labor and for damages for personal injuries.
The only even debatable ground for the contention that the bond was intended for the benefit of the materialmen is the provisions in the several synchronous and connected documents, binding the contractor to furnish all labor, tools, machinery, and material, upon the implication that he thereby undertook to pay for them, and that that created an obligation on the part of the bond company to see that such claims were paid. As a matter of course, when the contractor bought material which he had agreed to furnish, there arose an express or implied obligation on his part to pay for it; but how his agreement to furnish, which was a matter between him and the city, includes another matter, as between him and the materialman, to pay for it, is more than I can understand. Test it in this way: Suppose the contractor had actually furnished the material and laid it in place, could the city claim a breach of his contract because he had not paid for it? I think not. He could reasonably reply that he had done all that he had engaged to do, and the payment was a matter between him and the man who sold the material. We find in each one of the documents, which have been properly *Page 447 
held to be interrelated, nothing more than an agreement as between the contractor and the city to furnish these articles.
In the proposal, the contractor offers to "furnish all necessary machinery, equipment, tools, labor, and other means of construction and to furnish all materials specified." Does that mean that he engages, so as to make it an obligation of the bond company, to pay for traction engines, steam rollers, concrete mixers, wagons, dump carts, horses, mules, shovels, spades, and picks? If not, why discriminate and hold that he engages to pay for material?
In the specifications, the contractor engages to "furnish all the material and labor."
In the contract, "to furnish all labor, tools, machinery, and materials."
In the bond, to faithfully comply with the contract and to the present, unless the contract contains a provision, not pay the cost of labor and damage suits. Why include labor in the engagement covered by the bond, if it could be held already covered by his contract; and, if not, why should material be held to be covered?
An innumerable array of decided cases support the proposition that the materialman cannot recover under a bond like simply that the contractor will furnish the necessary material, but that he will see that it is paid for. It is only reasonable that a bond, given for the protection of the city primarily, does not contemplate an undertaking to save the city harmless from obligations which have not been assumed by it, and on account of which no lien can be established.
As is said in Southern Surety Co. v. U.S. Cast Iron Pipe Foundry Co. (C.C.A.), 13 F.2d 833:
"Manifestly, the city could suffer no pecuniary loss due to the failure of the contractor to pay for materials, because there was no obligation on the part of the city to pay for such materials." *Page 448 
The Mack case is not controlling upon this issue for the reason that the contract provided explicitly that the contractors were at their "own cost and expense to do all the work, furnishing all material, equipment and labor," and the bond provided for the payment of materialmen.
The only case cited by counsel for the respondent upon the subject, outside of the Mack case, is Royal IndemnityCo. v. Northern Ohio Granite  Stone Co.,100 Ohio St., 373; 126 N.E., 405; 12 A.L.R., 378. In that case the contract provided, as it did in the Mack case, that the contractor should furnish the material at his own expense, and however tenuous I consider the hold upon the bond company for the claims of materialmen by reason of such a provision, the case is direct authority for the proposition above announced.
The Court says:
"If Wieland by his contract had merely engaged to `furnish' or to `provide' materials and labor in conformity to his contract, it could reasonably be claimed that payment to the materialmen was not comprehended within such terms."
"Where the contract and bond for municipal work merely provided that the contractor should furnish and deliver all material, perform all work and labor, etc., the guarantor on the bond was not liable to a materialman." Staples HildebrandCo. v. Metal Co., 62 Ind., 592; 112 N.E., 832.
"Under a bond for faithful performance of a contract for construction of a sewer, in which the contractor undertakes `to furnish all labor, materials and tools necessary to execute the entire work.' the sureties are not liable to third parties for material used in performing the contract." Cityof Sterling v. Wolf, 163 Ill., 467; 45 N.E., 218.
In Greenfield v. Parker, 159 Ind., 571; 65 N.E., 747, the syllabus is:
"One who contracted with a township to build a school house for it gave a bond conditioned that he would provide *Page 449 
the labor and material at his own cost, and that the township should not be answerable therefor. Held, that the sureties on the bond were not liable to persons who had furnished the contractor materials."
The Court said:
"There is no agreement in either the contract or the bond to pay appellant, or any other person, for material furnished or used in the construction of said schoolhouse. Under the rule above stated it is clear that, unless the sureties agreed to be bound for debts due persons for furnishing material, there is no legal reason why they should be held liable in this action. * * * The agreement on the part of the contractor to provide the material and labor and construct said school house at his own cost, and that the school township should not be answerable or accountable therefor, is not the equivalent of a promise to pay the debts contracted for such purpose."
"Where a contractor agrees with the owner to furnish all the material for a building, and gives a bond therefor, a materialman who sells the contractor such material cannot sue on the bond for the balance due therefor." Jones LumberCo. v. Villegas, 8 Tex. Civ. App. 669; 28 S.W. 558.
An exceedingly well-considered and interesting case, decided by the Supreme Court of Utah, is that of Montgomeryv. Rief, 15 Utah, 495; 50 P., 623. The facts of the case were practically the same as in the case at bar. In denying the right of the materialmen to have recourse to the bond the Court said:
"As will be observed upon examination, neither in the contract nor bond is the name of the plaintiff or of his assignor mentioned. Nor is there any express covenant which expressly requires the contractor to pay materialmen and laborers for their material and labor before turning over the building to the trustees, and discharging his bondsmen."
After referring to the familiar doctrine upon which one claims under a contract between others, the Court said: *Page 450 
"To entitle a third party, who may be benefited by the performance of a contract, to sue, there must have been an intention on the part of the contracting parties to secure some direct benefit to him, or there must be some privity and some obligation or duty from the promisor [promisee?] to the third party which will enable him to enforce the contract, or some equitable claim to the benefit resulting from the promise or the performance of the contract, and there must be some legal right on the part of the third party to adopt and claim the benefit of the promise or contract. * * * Testing the case * * * by these principles, it becomes manifest that the doctrine, as to third parties, does not apply, and that the respondent cannot maintain this action. The promisors * * * [sureties] made no promise to pay for material and labor used by * * * [the contractor] * * * in the performance of his contract, and owed no duties to third parties. Nor did the * * * [obligee of the bond], as promisee, owe any legal duty to persons who might furnish material or labor to * * * [the contractor] * * * for the construction of the building, having had no contractual relation with and obtained nothing from them. Nor does it appear that any relation existed between the * * * [owner] and * * * [the contractor] * * * which could inure to the benefit of materialmen and laborers, and render the sureties liable. It is true, the contract provides that * * * [the contractor] * * * shall furnish all the material and labor necessary to complete the building, but it nowhere contains a covenant that he shall pay for all such material and labor before the building shall be turned over by him and accepted by the trustees. * * * From an examination of all the provisions of the contract, it is manifest that those relied upon were intended merely as a protection to the * * * [owners] * * * and that the bond was neither made nor intended for the benefit of materialmen *Page 451 
and laborers. How, then, can it be maintained that the respondent has a right to sue the sureties?"
I do not think the contract contained even an incidental benefit to the materialmen, much less an express provision for their benefit. The test is whether or not the obligation of the contractor, in his contract with the city, was met by furnishing the material, regardless of whether he afterwards failed to pay for it or not. As to this, I do not see how there can be but one answer. Here the contractor has furnished everything that he was required to furnish, and has so completely complied with his contract that there is a fund of more than $20,000 to his credit in the hands of the city. If the fund had not been tied up by this suit, and the contractor had demanded it, could the city have refused payment upon the ground that the material had not been paid for? I do not think so, for that was not covered by the contract and was a matter solely between the contractor and his creditors.
Furthermore, if the contractor's obligation to furnish the material embodied also the obligation as between him and the city to pay for it, so as to give the materialmen practically a vested interest in the contract, the city would have been under obligation to protect the materialmen; and if it settled with the contractor, leaving the materialmen unpaid, it would have been liable to the materialmen, a conclusion which strongly suggests the reductio ad absurdum, in view of the clear meaning of the contract that the contractor's obligation would have been met by furnishing the material.
An even stronger case against the materialmen's right of action is Parker v. Jeffery, 26 Or., 186; 37 P., 712.
In German Alliance Insurance Co. v. Home Water SupplyCo., 226 U.S. 220; 30 S.Ct., 693; 34 L.Ed., 898, the Court said:
"Before a stranger can avail himself of the exceptional privilege of suing for a breach of an agreement, to which he is not a party, he must at least show that it was intended for his direct benefit." *Page 452 
"The sureties on a contractor's bond cannot be held liable to persons having claims for material or labor, unless there is an express agreement in the contract or a condition in the bond requiring the contractor to pay such claims."Snider v. Greer-Wilkinson Lumber Co., 51 Ind. App. 348;96 N.E. 960.
"It is essential that the stipulation and conditions in a contractor's bond should be sufficiently precise and definite in terms to lay upon the obligees an obligation to pay or cause to be paid the debts due the beneficiaries in order to afford the latter in any event a cause of action. In order for a third party to recover upon an agreement between others to which he is not privy, the contract must be made expressly for his benefit. It must not only be intended to secure some benefit to him, but it must be a promise legally enforceable." Wilson v. Nelson, 54 Okla. 457; 153 P., 1179. materialmen? Certainly not upon the city, for the contractor, does the engagement of the contractor to furnish the material impose an enforceable obligation in favor of the materialmen? Certainly not upon the city, for the contractor's obligation is met when he furnishes the material; certainly not upon the contractor, for his obligation to the seller of the material was created by the sale and an express or implied promise to pay for it. The clause in the contract, upon which the third party relies to establish the essential element that it was made for his benefit, must create of itself an obligation upon one or the other of the contracting parties. It seems to me that it does not create any manner of obligation upon either. The implied obligation of the contractor to pay for what material he buys cannot inject into an engagement simply to furnish material an additional agreement that the contractor will pay for it and the city will undertake to see that that is done.
The Court in the case last cited, continuing, says:
"Does the agreement to furnish all necessary tools, labor, and material found in the first clause of the contract give *Page 453 
a cause of action to plaintiffs? In the case of Puget SoundBrick Co. v. School District, 12 Wn., 118; 40 P., 608, the contract provided that the contractor should furnish the materials. The bond given to secure the performance of the contract was conditioned that the contractor should faithfully, timely and truly do and perform the said work, and comply with said contract, plans, and specifications. The Court, construing the contract and bond, said: `It is true that it is therein provided that he shall furnish the materials, and it would be fair to presume that that meant that he should furnish them at his own expense, but it could not be inferred from the fact that he was required to do this and he thereby bound himself to pay the persons from whom the materials should be obtained.'"
In Green Bay Lumber Company v. Independent SchoolDistrict, 121 Iowa, 663; 97 N.W., 72, the Court said:
"The sole question on this appeal is whether the bond executed by the contractor to the school district was also intended for the benefit of subcontractors furnishing labor and materials. If not so intended, the sureties are not liable, and the demurrer was properly sustained. It will be observed that the contract merely required * * * [the contractor] * * * to provide materials and perform the labor, but contains no stipulation in relation to the payment therefor by him. A condition for compliance therewith imposed on the bondsman no liability to the subcontractors."
In Sterling v. Wolf, 163 Ill., 467; 45 N.E., 218, the syllabus is as follows:
"In an agreement for the construction of a sewer, the contractor undertook to `furnish all labor, materials, and tools necessary to execute the entire work,' and gave a bond with sureties for the faithful performance of his contract. Held, that the sureties were not bound to pay third parties for materials used in performing the contract." *Page 454 
The Court said:
"This decision is based upon the ground that the contract between the city and * * * [the contractor] * * * does not bind him to pay third parties for material used in performing the contract, and, therefore, his failure to do so constituted no breach of the obligation of his sureties. * * * It is not claimed that the contract, in express terms, bound [the contractor] to pay for the materials. He agreed to `furnish all labor, materials, and tools necessary to execute the entire work'; but it is not pretended that, under that agreement, appellees can be compelled to pay for such labor, material, and tools."
In a number of cases, notably United States Co. v. Gleason,135 Wis. 539; 116 N.W., 238; 17 L.R.A. (N.S.) 906; and Builder's Lumber  Supply Co. v. Chicago Co.,167 Wis. 167; 166 N.W., 320, it is held that, where the contract between the city and the contractor contains an obligation on the part of the contractor to pay the claims of materialmen, the bond guaranteeing the performance of the contract inures to the benefit of the materialmen, which marks the distinction between those cases and the case at bar.
See an extended note on the subject in 27 L.R.A. (N.S.), at page 591; also 13 C.J., 707, citing an innumerable array of authorities.
I think, therefore, that the materialmen in this case have no claim whatever against the surety company, and that consequently the claims of the banks, under their assignments, have preference in the distribution of the fund in hand.
As to the matter of interest upon the accounts proved, which amounts to something like $4,500.00, I do not think in any event that the surety company should be charged with that, in view of the fact that the money has been tied up under an injunction procured by the plaintiff.
It will be observed that the plaintiff's cause of action is based not upon the liability of the surety company upon the *Page 455 
bond, but upon the plaintiff's claim to be subrogated to the rights of the surety company in the fund in Court, and if allowed priority the plaintiff should be limited to the amount in hand.
I have not considered the points urged in the opinion of Mr. Justice Stabler that the surety company is concluded by the "definition" contained in the specifications. I have considered the liability of the surety company from what I consider the legitimate sources of that liability, and not from a definition which cannot supersede the formal documents.