Court Opinion

ID: 3486559
Source: CourtListenerOpinion
Date Created: 2016-07-05 21:13:26.419831+00
Date Added: 2024-06-11T14:03:38.500429
License: Public Domain

My conclusion is opposed to that of the majority of the court. In this state we have adopted the rule that suit may be brought on a contract by one who, although not a party to it, is named in it as beneficiary. We have adopted what has been called the New York rule, the majority rule, rather than the Massachusetts or the English rule on the subject. Anson on Contracts (2nd Amer. ed.), p. 284; Small v. Schaefer, 24 Md. 143. But the rule has not been that all stipulations between two parties for payment of a third are enforceable by that third. Some have been so enforceable, and some have not, according, in each case, as it might or might not be inferred from the particular contract in hand that the contracting parties intended to make the third party the beneficiary of their contract. "It is not every promise made by one to another from the performance of which a benefit may ensue to a third which gives a right of action to such third person, he being neither privy to the contract, nor to the consideration. The contract must be made for his benefit as its object, and he must be the party intended to be benefited."Simson v. Brown, 68 N.Y. 355, 361. And it seems to me that we are slighting this distinction in holding the third party entitled to sue on the bond given the owner in this case, to enforce the stipulation that the surety "shall pay all persons who have contracts directly with the principals for labor and materials." I see nothing in it to support the inference of intention to benefit the *Page 50 
third party, which would, under the principle referred to, bring it on the side of contracts so enforceable. As I see it, we are allowing the third party to come in and sue on the contract merely because the parties to it have agreed that he should be paid, without reference to the intention of the parties as to his benefit or interest.
This clause was a common one in the contracts of general contractors long before it was embodied in the surety bonds given by the contractors, and, as is well known, its sole object and purpose, originally, at least, was to protect owners against mechanics' liens on their property for unpaid bills of subcontractors. And of these stipulations, Williston said, in a discussion in 15 Harvard Law Review, 767, 783:
"In most cases the fulfilment of this promise by the contractor operates to discharge a liability of the owner of the building, whose building would be liable to satisfy the liens given by the law to workmen and materialmen. It cannot, therefore, be inferred that the promisee requires the promise in order to benefit such creditors of the contractor. The natural inference is that his object is to protect himself or his building. When, however, the owner of the building is a municipality, or county, or state, such an inference cannot so readily be justified, for the laws give no liens against the buildings of such owners. In such cases if the stipulation can be regarded as the result of more than the accidental insertion of a provision common in building contracts without reflection as to its necessity, it must be supposed that the object was to benefit creditors of the contractor. This supposition becomes a certainty when the legislature, in view of litigation in the courts in regard to the matter, enacts that all building contracts made by towns or counties shall contain such a stipulation."
There seems to me to be no reason for supposing, in this case, that the stipulation had any object beyond that of protecting the owner and his property. And not only is there an absence of support for an inference that he had any other intention; there are difficulties in the way of that *Page 51 
inference. It is not easy to suppose that owners taking such bonds would intend to admit others to the security of the bonds as beneficiaries, in hostility, perhaps, to the interests of the owners. In Fosmire v. National Surety Company, 229 N.Y. 44, it was held to be contrary to the intention of a bond given to the state, with such a clause, that laborers should have a cause of action on it; and the court (Cardozo, J.), pointed out that if such an intention were inferred, "They may sue for wages as often as there is default, and exhausting the penalty of the bond leave nothing for the state. That danger was pointed out in BuffaloCement Co. v. McNaughton, 90 Hun. 74, where a bond was given to a city by the contractors for a sewer. `Such actions might have been brought before the completion of the sewer, and the penalty named in the bond exhausted, and the city thereby deprived of the protection which the bond was intended to give to it' (BuffaloCement Co. v. McNaughton, supra, at p. 79; Lancaster v.Frescoln, 203 Penn. St. 640, 644). The state did not intend to make employees of its contractors the beneficiaries of a cause of action to be enforced in hostility to its own. There is nothing far-fetched or visionary in the danger that would follow the recognition of such competing claims of right. In this very case, we have the admission of counsel that the state completed the work on the default of the contractors, and did so at increased cost and heavy loss, for which the bond was security. The outcome illustrates the possibilities of a divided right of action."
My conclusion is that the third party has no right of action in this contract, and that the judgment should be reversed. *Page 52