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.
In a number of jurisdictions, statutes have been passed which provide that public contractors must furnish bond to secure payment to persons who furnish them with labor, materials, and the like. The federal statute on this subject1 may be taken as a fair type of such legislation. Similar statutes are to be found with reference to public buildings in many states.2 Statutes of this sort were enacted with reference to public buildings, on the theory that a mechanic's lien could not be taken upon a public building, and that while such lien might therefore be sufficient protection for laborers or materialmen in private contracts, they should be protected in some other way in case of public contracts. Under this statute, persons who have furnished labor or material in the construction of the work provided for in the contract, may maintain an action upon the bond of the contractor.3 The sureties upon a bond which is executed in compliance with such statute, are liable for materials which are furnished for the performance of the contract.4 This includes claims for quarrying stone,5 and claims for rental of cars, track and equipment,6 and for the expense of loading the plant and for freight therefor.7 Such bond includes the cost of apparatus which is to be used up in the performance of the work,8 but it does not include the cost of machinery which is meant to be used on a number of different contracts, although it may in fact be worn out by use under the contract in question;9 nor does it include the cost of general repairs.10 If the contract provides for excavation, one who furnishes explosives to use in blasting may recover upon such bond.11 If the contractor purchases material in good faith from a wholesale dealer, he is not liable on his bond to one from whom such wholesale dealer had purchased such material, although the person who furnishes such material has not been paid therefor.12 One who furnishes provisions to the contractor's boarding-house, can not enforce such bond,13 at least unless he can show that he is a subcontractor.14 One who has furnished feed for animals employed in the performance of such contract, can not recover on such bond.15 A superintendent of construction furnishes labor, within the meaning of this statute, and may enforce such bond.16 Interest will be allowed upon such bond if allowance is in accordance with the law of the state where the bond is given.17 If, by statute, notice must be given as a condition precedent to an action upon such bond, no action can be maintained without a substantial compliance with such provisions.11 The general rule that a contract of suretyship is to be construed strictly, has no application to bonds which are given in compliance with such statutes.19 Since the statute contemplates complete indemnity to the beneficiaries, the bonds should be construed so as to give effect to such intention.20 The fact that the contractor is unable to perform the contract, and that such contract is performed for him first by a committee of his creditors, and subsequently by a corporation formed for that purpose, and finally by his receiver in bankruptcy, does not relieve the surety.21 One who has advanced money to a public contractor, which is to be used in paying for labor and materials, can not enforce such bond on the theory that he has furnished labor or materials.22
Contra, State, v. Harris, 89 Ind. 363, 46 Am. Rep. 169.
13 People v. Hoag, 54 Colo. 642, 45 L. R. A. (N.S.) 824, 131 Pac. 400.
14 Rowe v. Moon, 115 Wis. 566, 92 N. W. 263.
1 "That hereafter any person or persons entering into a formal contract with the United States for the construction of any public building, or the prosecution and completion of any public work, or for repairs upon any public building or public work, shall be required, before commencing such work, to execute the usual penal bond, with good and sufficient sureties, with the additional obligation that such contractor or contractors shall promptly make payments to all persons supplying him or them with labor and materials in the prosecution of the work provided for in such contract; and any person, company, or corporation who has furnished labor or materials used in the construction or repair* of any public building or public work, and payment for which has not been made, shall have the right to intervene and be made a party to any action instituted by the United States on the bond of the contractor, and to have their rights and claims adjudicated in such action and judgment rendered thereon, subject, however, to the priority of the claim and judgment of the United States. If the full amount of the liability of the surety on said bond is insufficient to pay the full amount of said claims and demands, then, after paying the full amount due the United States, the remainder shall be distributed pro rata among said interveners. If no suit should be brought by the United States within six months from the completion and final settlement of said contract, then the person or persons supplying the contractor with labor and materials shall, upon application therefor, and furnishing affidavit to the department under the direction of which said work has been prosecuted that labor or materials for the prosecution of such work has been supplied by him or them, and payment for which has not been made, be furnished with a certified copy of said contract and bond, upon which he or they shall have a right of action, and shall be, and are hereby authorized to bring suit, and not elsewhere, for his or their use and benefit, against said contractor and his sureties, and to prosecute the same to final judgment and execution. Provided, That where suit is instituted by any of such creditors on the bond of the contractor, it shall not be commenced until after the complete performance and final settlement of said contract, and not later. And provided further, That where suit is so instituted by a creditor or by creditors, only one action shall be brought, and any creditor may file his claim in such action and be made party thereto within one year from the completion of the work under said contract, and not later. If the recovery on the bond should be inadequate to pay the amounts found due to all of said creditors, judgment shall be given to each creditor pro rata of the amount of the recovery. The surety on said bond may pay into court, for distribution among said claimants and creditors, the full amount of the sureties' liability, to wit, the penalty named in the bond, less any amount which said surety may have had to pay to the United States by reason of the execution of said bond, and upon so doing the surety will be relieved from further liability. Provided further, That in all suits instituted under the provisions of this Act. such personal notice of the pendency of such suits, informing them of their right to intervene as the court may order, shall be given to all known creditors, and in addition thereto notice of publication in some newspaper of general circulation, published in the state or town where the contract is being performed, for at least three suc-cessive weeks, the last publication to be at least three months before the time limited therefor." 33 Stats at L., p. 811, c. 778 (Act of February 24, 1905), amending 28 Stats, at L., p. 278, c. 280 (Act of August 13, 1894).