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 C had agreed with B, a county, for which he 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. This result is justified by some courts on the theory that the contract was primarily for the benefit of the promisee and not for the benefit of the parties who furnished material or labor.4 In some jurisdictions the right to enforce bonds is denied, on the ground of want of privity.5 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.6 A became surety for Y on his bond to B, which provided: "The condition of this obligation is such that if the principal shall faithfully perform the contract on his part, and satisfy all claims and demands incurred for the same, and fully indemnify and save harmless the owner from all cost and damage which he may suffer by reason of failure so to do, and shall fully reimburse and repay the owner all outlay and expense which the owner may incur in making good any such default, then this obligation shall be null and void; otherwise it shall remain in full force and effect." By other provisions of the building contract to secure the performance of which such bond was given, B agreed to provide all materials. It was held that X, who had a claim against B for materials which were used by B in the performance of such contract, could bring an action upon such bond against B and A to recover for the value of the materials thus furnished, on the theory that "if the contract be to pay a debt due to a third person presumably, it is for his benefit, unless it appears that the contract was not so intended."7 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,8 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."9 In other jurisdictions such covenants are held not to enure to the benefit of the third person.10 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,11 or some other legal liability exists from the promisee to third persons.12
17Pruden v. Williams, 26 N. J. Eq. 210; Green v. Stone, 54 N. J. Eq. 387, 55 Am. St. Rep. 577, 34 Atl. 1099 reversing (N. J. Eq.) 32 Atl. 706].
18 Mickle v. Maxfield, 42 Mich. 304, 3 N. W. 961.
19Ward v. De Oca, 120 Cal. 102, 52 Pac. 130; Trotter v. Hughes, 12 N. Y. 74, 62 Am. Dec. 137; Crowell v. Hospital of St. Barnabas, 27 N. J. Eq. 650. In accordance with this view are the obiters in Biddle v. Pugh, 59 N. J. Eq. 480, 45 Atl. 626.
20 Osborne v. Cabell. 77 Va. 462.
21Comstock v. Smith, 26 Mich. 307; Crawford v. Edwards, 33 Mich. 354.
22 Biddle v. Pugh, 59 N. J. Eq. 480, 45 Atl. 626.
23 Bull v. Titsworth, 29 N. J. Eq. 73.
1 Iowa. Jordan v. Kavanaugh, 63 Ia. 152, 18 N. W. 851; Baker v. Bryan, 64 Ia. 561, 21 N. W. 83; Wells v. Kavanaugh, 70 Ia. 519, 30 N. W. 871.
Kansas. American Surety Co. v. Cement Co., 9 Kan. App. 8, 57 Pac. 237.
Kentucky. Citizens' Trust & Guaranty Co. v. Peebles Paving Brick Co., 174 Ky. 439, 192 S. W. 608.
Michigan. Knapp v. Swaney. 56 Mich. 345, 55 Am. Rep. 397, 23 N. W. 162.
Minnesota. Sepp v. McCann, 47 Minn. 364, 50 N. W. 246.
Missouri. Board, etc., v. Woods, 77 Mo. 197; St. Louis v. Von Phul, 139
Mo. 561, 54 Am. St. Rep. 695, 34 S. W. 843; Devers v. Howard, 144 Mo. 671. 46 S. W. 625; School District v. Livers, 147 Mo. 680, 49 S. W. 507.
Nebraska. Sample v. Hale, 34 Neb. 220. 51 N. W. 837; Lyman v. Lincoln, 38 Neb. 794, 67 N. W. 531; Kaufman v. Cooper, 46 Neb. 644, 65 N. W. 796; Forburger Stone Co. v. Lion Bonding & Surety Co., - Neb. - , 170 N. W. 897.
Washington. State v. Liebes. 19 Wash. 689, 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 (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. Williams, 9 Wash. 482, 37 Pac. 665, minority opinion; 39 Pac. 280, minority opinion; rehearing denied. 38 Pac. 1351.
Wisconsin. Concrete Steel Co. v. Illinois Surety Co., 163 Wis. 41. 157 N. W. 543.
2 Grant v. Lock Co., 77 Wis. 72. 45 N. W. 951.
3 Colorado. International Trust Co. v. Keefe Manufacturing & Investment Co., 40 Colo. 440, 18 L. R. A. (N.S.) 455,
Indiana. State v. McCrav, 5 Ind. App. 350, 32 N. E. 341.
Kentucky. Spradling v. McNess (Ky.), 43 S. W. 765.
Minnesota. Jefferson v. Asch, 53 Minn. 446, 39 Am. St. Rep. 618, 25 L. R. A. 257, 55 N. W. 604.
Ohio. Cleveland Metal Roofing & Ceiling Co. v. Gaspard, 89 O. S. 185, L. R. A. 1915A, 768, 106 N. E. 9.
Oregon. Parker v. Jeffrey, 26 Or. 186, 37 Pac. 712; Brower, etc., Lumber Co. v. Miller. 28 Or. 565. 52 Am. St Rep. 807, 43 Pac. 659.
Pennsylvania. First M. E. Church v. Isenberg. 246 Pa. St. 221, 92 Atl. 141.
Texas. Santleben v. Cement Co., (Tex. Civ. App.). 25 S. W. 143; Joneu Lumber Co. v. Villegas. 8 Tex. Civ. App. 669, 28 S. W. 558.
Utah. Montgomery v. Rief, 15 Utah 495. 50 Pac. 623.
Washington. Armour v. Western Const. Co., 36 Wash. 529. 78 Pac. 1106.
Wisconsin. Electric Appliance Co. v. Guaranty Co., 110 Wis. 434. 53 L. R. A. 609. 85 N. W. 648.
4 Cleveland Metal Roofing & Ceiling Co. v. Gaspard, 89 O. S. 186, L. R. A
1915A, 768, 106 N. E. 9; Armour v. Western Const. Co.. 36 Wash. 529, 78 Pac. 1106. It is said that the "manifest purpose bf the bond was protection" to the promisee, that is, to the property owner. First M. E. Church v. Isenberg. 246 Pa. St. 221, 92 Atl. 141.
5 Armour v. Western Const. Co., 36 Wash. 529, 78 Pac. 1106.
6 American Surety Co. v. Cement Co., 9 Kan. App. 8, 57 Pac. 237; Citizens.
Trust & Guaranty Co. v. Peebles Paving Brick Co., 174 Ky. 439, 192 S. W. 508; Devers v. Howard, 144 Mo. 671, 4G S. W. 625; Kaufmann v. Cooper, 46 Neb. 644, 65 N. W. 796.
7 Concrete Steel Co. v. Illinois Surety Co., 163 Wis. 41, 157 N. W. 543.
8 State v. Liebee, 19 Wash. 589, 54 Pac. 26.
9 Lyman v. Lincoln, 3S Neb. 794, 67 N. W. 531.
The principle which has been applied to bonds given under special statute,13 has been applied to bonds which are not controlled by statute, and it has been held that such a bond is a dual contract, being in part for the benefit of the property owner, and in part being an agreement for the benefit of the laborers and materialmen to provide for their payment.14 A provision in a contractor's bond, to the effect that the contractor is to "pay for all the material" used on the building, is treated as being for the benefit of the materialmen.15 If A has given a bond to a railroad for the payment of provisions supplied to a contractor, who is working for the railroad, C, who furnishes such provisions, can not enforce such bond.16