Court Opinion

ID: 9579907
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:59:47.972562+00
Date Added: 2024-06-11T13:35:53.200111
License: Public Domain

Justice Exum,
concurring in result:
I concur in the result reached by the majority. Insofar as the majority opinion intimates any conclusions as to the ultimate rights and liabilities of the parties under the bond, however, I am unwilling to join in the opinion. Such intimations at this stage of the proceedings are, I believe, premature. Since *687we have held that plaintiffs have stated a claim upon which relief may be granted despite failure to attach the prime contract to the complaint, we may not yet consider the potential effect of the provisions or specifications of that contract upon the liability of the surety, USF&G, to the materialmen plaintiffs.
This bond was executed by Cecil’s as principal and USF&G as surety, with Fairway as named obligee, “for the use and benefit of claimants.” The latter language assuredly removes from doubt the right of plaintiffs, as claimants under the bond, to sue the surety: they are, by the above quoted language, made express third party beneficiaries. The majority correctly recognizes this. The language gives them a cause of action procedurally independent of any right of the obligee, insofar as the obligee need not be made a party to the suit, to allow recovery by the third party beneficiary. To that extent, .1 believe the majority is correct in the observation that “[t]he obligation of the principal and the surety to the plaintiff materialmen, upon their bond, is separate and independent from their obligation, if any, thereon to the owner, the named obligee.” The language does not, however, of itself deprive the surety in this action of defenses which would be available to it in an action by the obligee on the bond. Therefore the rights of the third party beneficiary plaintiffs to recover are not necessarily substantively independent of the rights of the obligee under the bond.
There has been some indication in these proceedings that the owner has defaulted in payments to the contractor which payments may have been intended as a condition precedent to the obligation of the principal, Cecil’s, to the owner to pay subcontractors and materialmen. We simply cannot make any prediction about the effect of such a breach upon the rights of materialmen to recover from defendant surety until we see the prime contract as well as the documents already in the record.
Whether a default by the obligee, Fairway, under the prime contract, which would serve as a good defense in an action by Fairway against the surety, may also be a good defense in an action by the subcontractor beneficiaries of the bond, depends upon the nature of the surety’s obligation under the bond. If the obligation to pay claimants not paid by the general contractor is unconditional, then the rights of those claimants is substantively independent of the rights of the obligee-owner, and *688an action by the claimants may not be defeated by proof of the obligee’s default under the prime contract. On the other hand, where the owner has failed to perform a condition precedent to the liability of the surety, there is a good defense to a suit by claimants.
“If the contract between the promisee [here Fairway, the named obligee] and the promisor is a bilateral contract, the promise made for the benefit of a third party beneficiary may be unconditional or it may be conditional on performance of the return promise or tender thereof. If unconditional, a breach of duty by the promisee will not affect the right of the beneficiary against the promisor. If conditional and dependent, on the other hand, a failure by the promisee to perform his part may terminate the duty of performance by the promisor. . . . [T]he beneficiary’s right is subject to conditions of the contract, whether they be express, implied, or constructive. If the breach of the promisee ‘goes to the essence’ and amounts to non-fulfillment of a condition precedent, the beneficiary’s right is gone.” 4 Corbin on Contracts, § 819, p. 277.
A surety bond is a third party beneficiary contract, and should be construed according to the usual rules pertaining to such contracts. See cases cited in Annotation, 77 A.L.R. 21, supplemented in 118 A.L.R. 57. The principles relied upon in the above quoted passage from Corbin apply equally to surety-ship contracts as to others. A. Stearns, The Law of Suretyship, § 7.18, p. 225 (J. Elder Rev. 1951) notes that if the obligee “fails to perform a condition precedent to the principal’s liability, the surety will not be required to perform.”
The prime contract — not the subcontracts — is referred to in the bond as “The Contract” and is expressly incorporated by reference into the bond. It is, therefore, a part of the entire contract of suretyship between Cecil’s, USF&G and Fairway. Many courts have recognized the possibility that the apparently straightforward effect of the condition of a bond may be limited by the provisions of the prime contract, where that contract is made part of the bond. See, e.g., United States Fidelity & Guaranty Co. v. Housing Authority, 206 Md. 379, 111 A. 2d 658 (1955) and Lange v. Board of Education of Cecil County, 183 Md. 255, 37 A. 2d 317 (1944), where bond, contract and specifications were all examined to determine the existence of *689such limitations. The rule is: “The right of laborers and ma-terialmen to recover on a building contractor’s bond depends upon the terms of the bond construed in . the light of the contract in connection with which it is executed.” Annotation, 77 A.L.R. 21, 55 and cases cited therein, supplemented at 118 A.L.R. 57, 62. This rule is not empty verbiage. Courts construing performance bonds often express the rule in different terms, but with the same effect: “The right of laborers and material-men to recover on a building contractor’s bond depends upon the terms of the bond construed in the light of the contract, performance of which is secured by the bond.” See Annotation, supra. In both cases, the contract referred to in the rule of construction is that executed contemporaneously with the bond, i.e., the prime contract.
The majority opinion states that the prime contract “is not the contract, performance of which is secured by the bond on which plaintiff sues.” (Emphasis added.) This statement may not be entirely misleading, since performance of the subcontracts is to some extent apparently guaranteed by the surety. But I believe the majority has prepared fertile grounds for misunderstanding by using in this context the same language, italicized above, which is so often included in the expressions of the general rule of construction by courts construing performance bonds. In any case, whatever the light that may be shed by the subcontracts upon the surety’s obligation here, the contract generally held necessary to be construed with the bond is the prime contract.
Certainly the surety may undertake to stand as absolute guarantor of the contractor’s payment to materialmen regardless of conditions expressed in the prime contract. Or it may undertake to guarantee simply whatever performance is required of the contractor by the owner in the prime contract conditioned upon the owner’s return performance. The language of the condition of the bond appears to impose an unconditional obligation. The ultimate nature of the obligation, however, should not be determined by us without even a glance at the prime contract.
This is for the reason that “[t]he intention of the parties to a contractor’s bond is the controlling factor in determining the rights of laborers and materialmen to recover on the bond. . . . [Tjhis intention is to be determined by the terms of the bond construed in the light of the contract in connection *690with which it is executed.” 17 Am. Jur. 2d, Contractors’ Bonds § 17.
A decision as to the validity of USF&G’s contentions that this contract of suretyship is conditioned upon the owner’s performance is unnecessary to our holding in this case, which is simply that the plaintiffs’ complaint is sufficient to state a claim upon which relief may be granted. The majority seems to have gone further. Assuming the contentions of USF&G regarding Fairway’s breach to be true, the majority concludes that such contentions do not, as a matter of law, bar plaintiffs’ recovery. I believe this conclusion is premature. Since we do not have before us the entire contract of suretyship, lacking the prime contract incorporated by reference in the bond, we should not draw any conclusions at all as to the validity of USF&G’s contentions that the owner’s default is a defense in this case. The majority’s statement, being unnecessary to our decision, is obiter dictum and is not binding upon the trial court upon remand. Although the conclusion of the majority may ultimately be seen to be correct, it goes too far at this time. Our decision should have been limited strictly to whether this complaint was sufficient to state a claim without the attachment of the prime contract. Under our law such attachment is unnecessary. To say more at this time seems unwarranted and unwise.
Chief Justice Sharp concurs in this opinion.