This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
The principles discussed in the preceding sections with reference to the necessity of an intention to benefit the third person directly have been applied to actions upon bonds. If a contractor who is erecting a building or other improvement enters into a contract with, or gives bond to, the owner of the realty upon which such improvement is erected to pay all claims of persons furnishing material or labor in the erection of such improvements, many authorities hold that persons who furnish such material and labor may maintain an action on such bond.1 Thus C had agreed with B, a county, for which (the last case on the ground that the special board in question could not create any liability against the fund other than to the contractor because of the limited power given to it by the legislature.) Overruling, Sears v. Wilhe was doing certain work, to look to the other contractors on the same piece of work for all damages due to their delays. A knowing of C's covenant agreed with B to construct certain iron work in a certain time so as not to delay C. A broke this covenant. It was held that C could recover from A for such breach.2 Some courts, however, deny the right of persons who furnish material or labor,3 to maintain an action on a bond given by the builder to the party for whom he is constructing the improvement. Some courts place this last holding on the theory that the contract was primarily for the benefit of the promisee, and not for the benefit of the parties furnishing material and labor. A covenant in a bond to pay for labor and material furnished to the obligor to enable him to perform his contract with the obligee is sufficient to enable third persons furnishing material to maintain an action thereon.4 The same rule applies where the contract between the city and the contractor provides that the city shall make no payment under the contract until all claims for labor and material shall have been adjusted, the city being authorized to apply money due under the contract to the payment of such claims,5 and even where the contractors' bond merely is conditioned that they " shall file with the board of public works receipts of claims from all persons furnishing them with material and labor in the construction of such engine houses."6 In other jurisdictions such covenants are held not to enure to the benefit of the third person.7 Other courts base their decision on the ground that the promisor is not liable unless the promisee has put funds in his hands to pay to the third persons,8 or some other legal liability exists from the promisee to third persons.9
20 Osborne v. Cabell, 77 Va. 462.
21 Crawford v. Edwards, 33 Mich. 354; Comstock v. Smith, 26 Mich. 307.
22 Biddle v. Pugh, 59 N. J. Eq. 480; 45 Atl. 626.
23 Bull v. Titsworth, 29 N. J. Eq. 73.
1 Wells v. Kavanaugh, 70 la. 519; 30 N. W. 871; Baker v. Bryan, 64 la. 561; 21 N. W. S3; Jordan v, Kavanaugh, 63 la. 152; 18 N. W. 851; American Surety Co. v. Cement Co., 9 Kan. App. 8; 57 Pac. 237; Knapp v. Swaney, 56 Mich. 345; 56 Am. Rep. 397; 23 N. W. 162; Sepp v. McCann, 47 Minn. 364; 50 N. W. 246; School District v. Livers. 147 Mo. 580; 49 S. W. 507; Devers v. Howard, 144 Mo. 671; 46 S. W.
625; St. Louis v. Von Phul, 133 Mo. 561; 54 Am. St. Rep. 695; 34 S. W. 343; Board, etc., v. Woods, 77 Mo. 197; Kaufman v. Cooper, 46 Neb. h344; 65 N. W. 796; Lyman v. Lincoln, 38 Neb. 794; 57 N. W. 531; Sample v. Hale, 34 Neb. 220; 51 N. W. 837; State v. Liebes, 19 Wash. 589; 54 Pac. 26. (Distinguishing Breen v. Kelly, 45 Minn. 352; 47 N. W. 1067, and also Clough v. Spokane, 7 Wash. 279; 34 Pac. 934, and State v. Cheetham, 17 Wash. 131; 49 Pac. 227
2 Grant v. Lock Co., 77 Wis. 72; 45 N. W. 951.
3 State v. McCray, 5 Ind. App. 350; 32 N. E. 341; Spradling v. McNess (Ky.), 43 S. W. 765; Jefferson v. Asch, 53 Minn. 446; 39 Am. St. Rep. 618; 25 L. R. A. 257; 55 N. W. 604; Brower, etc., Lumber Co. v. Miller, 28 Or. 565; 52 Am. St. Rep. 807; 43 Pac. 659; Parker v. Jeffrey, 26 Or. 186; 37 Pac. 712; Jones Lumber Co. v. Villegas, 8
Tex. Civ. App. 669; 28 S. W. 558; Santleben v. Cement Co. (Tex. Civ. App.), 25 S. W. 143; Montgomery v. Rief, 15 Utah 495; 50 Pac. 623; Electric Appliance Co. v. Guaranty Co., 110 Wis. 434; 53 L. R. A. 609; 85 N. W. 648.
4 American Surety Co. v. Cement Co., 9 Kan. App. 8; 57 Pac. 237; Devers v. Howard. 144 Mo. 671; 46 S. W. 625; Kaufmann v. Cooper, 46 Neb. 644; 65 N. W. 796.
5 State v. Liebes, 19 Wash. 589; 54 Pac. 26.
6 Lyman v. Lincoln, 38 Neb. 794 ; 57 N. W. 531.