Court Opinion

ID: 6689906
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:36:46.213871+00
Date Added: 2024-06-11T16:01:04.772920
License: Public Domain

WHITING, J.
(concurring specially). While I concur in the result reached in the foreg'ong opinion, T arrive at my conclusion through a.somewhat different line of reasoning-.
I am unable to agree with the suggestion that this bond may be treated as one entered into between the construction company and the surety company for the benefit of the materialmen. The only contract before us is one wherein the construction corn-pan}’, as principal, and the surety company, as surety, have contracted with the city; the consideration therefor being- the letting of the contract by the city to the construction company. We have therefore a case of-a bond given by a principal and surety upon which a person not a party thereto claims a right of recovery upon the ground that such bond was entered into for its benefit. Suppose the fourth condition was the sole condition of said bond. Such a bond would be in no sense an indemnity bond- — it would not indemnify the city against anything. W”e must presume that the parties to this bond knew that the city could not become liable to the materialmen. The fourth condition does not indemnify the city, but guarantees the payment of the laborers and materialmen. The validity of contracts of guaranty running- in favor of a third party often rests, as held in Fry v. Ausman, 29 S. D. 30, 135 N. W. 708, 39 H. R. A. (N. S.) 150, Ann. Cas. 19141c, 842, upon the existence of some obligation from the promisee to the beneficiary. It is not, however, necessary that this be an obligation to pay money, or even that it be a legal obligation. A moral obligation from the promisee to the beneficiary or an indirect benefit flowing to the promisee because of *123s-uch guaranty may be sufficient to create a privity between such promisee and beneficiary. Because of the fact of the existence of a bond with such a condition, a better class of laborers and materialmen will seek to furnish labor and material for public works. The fact that the payment of laborers and materialmen is insured by this guaranty is to the interest of the city wherein such laborers and materialmen live or do business. Such indirect benefits to the city are ample reasons to justify the city- in: requiring this condition and to create a privity of interest between city and the intended beneficiaries. That such a bond is of public benefit is recognized in this and many states by statutes, such as our chapter 245, Laws 1909, requiring public corporations to take such bonds of parties with whom they contract for public buildings, etc.
In taking and giving a bond with such a condition, the parties' thereto understand' that the incidental benefit to be derived by the city,, and which prompts the city to require the condition, comes solely through the guaranty in favor of the material-men and laborer. It must therefore be conclusively presumed that this covenant of guaranty is inserted in the bond for the direct benefit of the materialman and the laborer, in order that through the promise of such direct benefit there will come an incidental benefit to the city.
It does. not appear that the contract between the city and the construction company contained any promise by the construction company to pay laborers and materialmen, and' it i$ contended that the condition contained in the bond cannot 'be held to be a promise on the part of the construction company. To my mind, the sole question to be determined is: What was contemplated by the-parties to this bond when it was entered into — what they intended? It seems clear to me that it was contemplated by the parties that this bond, so far as its fourth condition was concerned, should not be a nullity, but that, by inserting such condition, the construction company and its surety intended to', and the city intended they should, guarantee the payment of the material-man and the laborer, thus bringing an- indirect beenfit to the city. That being their intention, we should not look for excuses to relieve the surety company, but should hold it in strict accord *124with such evident intention. The rule that sureties are favorites of the law has no application to surety companies. 32 Cyc. 306.