American Sur. Co. of N.Y. v. Smith

• Decision Date: 27 October 1930
• Parties: AMERICAN SURETY CO. OF NEW YORK v. SMITH. AMERICAN SURETY CO. v. DECATUR IRON & STEEL CO.
• Court: Florida Supreme Court

130 So. 440

100 Fla. 1012

AMERICAN SURETY CO. OF NEW YORK v. SMITH.

AMERICAN SURETY CO. v. DECATUR IRON & STEEL CO.

Florida Supreme Court, Division B.

October 27, 1930

Error to Circuit Court, Duval County; George Couper Gibbs, Judge.

Separate actions by R. Nelson Smith, as trustee in bankruptcy for the Jacksonville Marble & Tile Company, against the American Surety Company of New York, and by the Decatur Iron & Steel Company against the American Surety Company. Judgment for plaintiff in the first case, and defendant brings error, and defendant in the second case brings certiorari to circuit court to review an order dismissing an appeal to that court from a judgment of the civil court of record awarding recovery to plaintiff therein.

Judgment affirmed on writ of error, and writ of certiorari quashed.

COUNSEL Doggett, Christie & Doggett and Geo. A. K Sutton, all of Jacksonville, for plaintiff in error.

Lloyd Z. Morgan, Wm. D. Morgan, and Giles J Patterson, all of Jacksonville, for defendant in error.

OPINION

STRUM J.

The first of these cases is here upon writ of error to a judgment of the circuit court awarding to plaintiff below, defendant in error here, a recovery in an action upon on indemnity bond. The second is here upon certiorari to the circuit court for Duval county to review an order dismissing an appeal to that court from a judgment of the civil court of record of Duval county, which judgment awarded a recovery to the plaintiff in the latter court, respondent here, upon the same bond. As both cases present the same substantive question they will be considered together.

Gainesville Development Company, as the owner of certain lands in Alachua county, entered into a contract with J. M. Lawton Company, whereby the latter agreed to construct a building on said lands for said owner.

The contractor, J. M. Lawton Company, as principal, and American Surety Company, as surety, executed an indemnity bond to the owner, Gainesville Development Company, as obligee, the condition of which bond is:

'If the Principal shall faithfully perform the Contract on his part, and satisfy all claims and demands, incurred for the same and shall fully 'indemnity' 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, and shall promptly make payments to all persons supplying labor and material in the prosecution of the work provided for in the contract, and as provided by section 3533 of the Revised General Statutes of Florida (chapter 6867, Acts of 1915) then this obligation shall be null and void; otherwise it shall remain in full force and effect.'

Plaintiffs in the two actions in the lower court supplied material which was used in the prosecution of the work above mentioned; the plaintiffs having dealt, apparently, with the contractor, not with the owner.

Not having received full payment, the materialmen in their own names separately instituted their actions, one in the circuit court and one in the civil court of record, to recover the balances due them, respectively, upon the contractor's indebtedness to them.

The actions were maintained against the surety alone.

The issues presented here for review are: First, whether the bond indemnifies the plaintiffs under the circumstances above stated, the defendant surety contending that the obligation of the bond extends to the indemnification of the obligee only, and not to materialmen dealing with the contractor; second, if the bond indemnifies the plaintiffs, whether or not the latter may maintain the action in their own names.

As the work here in question is not public work, to which alone section 3533, Rev. Gen. St. 1920 (section 5397, Comp. Gen. Laws 1927), applies, the bond is not and cannot be a statutory bond as contemplated by that statute. The reference to section 3533, Rev. Gen. St. 1920, in the condition of the bond, is therefore ineffective, except in so far as it sheds light upon the intention of the parties.

The bond is a good common-law bond, and must be construed and enforced accordingly. The surety is a compensated surety, with reference to whom the rule of strictissimi juris has been greatly minimized. See United States, for Use of Hill v. American Surety Co., 200 U.S. 202, 26 S.Ct. 168, 50 L.Ed. 437; Royal Ind. Co. v. Northern Granite Co., 100 Ohio St. 373, 126 N.E. 405, 12 A. L. R. 378. As this is not a statutory bond, and as the bond contains an express obligation to pay persons supplying labor and material, what is said in McCrary v. Dade County, 80 Fla. 652, 86 So. 612, is not applicable here.

When a contract is designed solely for the benefit of the formal parties thereto, third persons cannot maintain an action thereon, even though such third persons might derive some incidental or consequential benefit from its enforcement. Leon v. Kerrison, 47 Fla. 178, 36 So. 173; Wright v. Terry, 23 Fla. 160, 2 So. 6.

The formal parties to a contract, however, are not always the only persons who have an enforceable interest in its performance. There is no good reason why a person may not maintain an action upon a contract, though not a formal party to it, when the contracting parties intend that he may do so. Where, therefore, it is manifest from the nature or terms of a contract that the formal parties thereto intended its provisions to be for the benefit of a third party, as well as for the benefit of the formal parties themselves, the benefit to such third party being the direct and primary object of the contract, or amongst such objects, such third party may maintain an action on the contract even though he be a stranger to the consideration. In such a case, if the formal parties choose to treat the beneficiary as a primary party in interest, they recognize him as a privy in fact to the consideration and promise. Hunter v. Wilson, 21 Fla. 250; Punta Gorda Bank v. State Bank, 52 Fla. 399, 42 So. 846; Woodbury v. Tampa Water Works Co., 57 Fla. 249, 49 So. 556, 21 L. R. A. (N. S.) 1034; First National Bank v. Perkins, 81 Fla. 341, 87 So. 144; Hendrick v. Lindsay, 93 U.S. 143, 23 L.Ed. 855; Evans v. Sperry (D. C.) 12 F. (2d) 438; Clark & Co. v. Nelson, 216 Ala. 199, 112 So. 819, 53 A. L. R. 173; Meyerson v. New Idea Hosiery Co., 217 Ala. 153, 115 So. 94, 55 A. L. R. 1231; Austin v. Seligman (C. C.) 18 F. 519.

Although the rule just stated was not recognized in the ancient common law, the doctrines which deny such a right to a third party have now been relaxed almost universally as to simple contracts so as to permit the beneficiary to sue upon a contract made primarily and directly for his benefit.

The contract here sued upon is under seal. As to such contracts there now exists a striking conflict in the authorities, many denying the right when the contract is under seal, for the reason that an action upon such a contract is in covenant, and at common law that action could be maintained only between parties between whom exists privity of contract or estate. 15 C.J. 1193. Even independently of statutory influence, the rule now prevails in many jurisdictions that one for whose direct benefit a contract was made, and who is a primary party in interest, may enforce the same, though the contract be under seal. This view now obtains in perhaps the majority of jurisdictions, in some instances through statutory influence and in some instances without it. See the exhaustive note to Cavanaugh Bros. v. Gaston (255 Mass. 587, 152 N.E. 623), 47 A. L. R. 1.

In this state the doctrine is affected by statute. Section 4201, Comp. Gen. Laws 1927, provides, amongst other things, that 'any civil action at law may be maintained in the name of the real party in interest. * * * By amendment the nominal plaintiff may be stricken out and the case may proceed in the name of the use plaintiff.'

It has heretofore been held that the purpose of this statute is 'to relax the strick rules of the common law, so as to enable those directly interested in, but not parties to, a contract, to maintain an action for its breach; and the statute should be so applied as to accomplish its salutary purpose.' Woodbury v. Tampa Water Works Co., 57 Fla. 249, 49 So. 556, 21 L. R. A. (N. S.) 1034; First National Bank v. Perkins, 81 Fla. 341, 87 So. 912. In the cases last cited it does not clearly appear whether the contract there involved was under seal. In view of the broad language of our statute, however, we regard the language used in those cases as applicable to contracts under seal, and hold that, when it is manifest from the nature or terms of a contract that the formal parties thereto intended to treat a third party as a person primarily entitled to the benefit of its provisions and therefore a party directly, and not merely consequently, interested in its enforcement, such beneficiary may maintain an action in his own name upon the contract, even though the contract be under seal. See Starbird v. Cranston, 24 Colo. 20, 48 P. 652; Hughes v. Oregon R. & Nav. Co., 11 Or. 437, 5 P. 206; Tapscott v. McVey, 82 N. J. Law, 35, 81 A. 348, affirmed 83 N. J. Law, 747, 85 A. 343.

The view just stated harmonizes with the former holding of this court in Realty Holding Co. v. Noggle, 97 Fla. 643 121 So. 883, which was an action at law by a mortgagee against a grantee who had knowingly accepted a deed of conveyance containing a covenant of assumption of the mortgage debt. By a per curiam order, this court, upon authority of Ackley v. Noggle, 97 Fla. 640, 121 So. 882, 883, reversed an order of the circuit court sustaining a demurrer to plaintiff's declaration. See Slottow v. Hull Inv. Co. (Fla.) 129 So. 577, 579. See,...