City of St. Louis v. G. H. Wright Contracting Co.

• Decision Date: 28 March 1907
• Citation: 202 Mo. 451,101 S.W. 6
• Parties: CITY OF ST. LOUIS v. G. H. WRIGHT CONTRACTING CO. et al.
• Court: Missouri Supreme Court

101 S.W. 6

202 Mo. 451

CITY OF ST. LOUIS v. G. H. WRIGHT CONTRACTING CO. et al.

Supreme Court of Missouri, Division No. 1.

March 28, 1907.

MUNICIPAL CORPORATIONS—PUBLIC IMPROVEMENTS —BONDS—ACTION ON.

A municipal corporation contracted with a paving company for the improvement of certain streets and alleys. A bond, given by the company to insure the performance of the work, conditioned that mechanics and others named could sue thereon in their own name. No work at all was done by the company, and the city relet the contract to another firm at a loss, for the payment of which loss and the original contract price taxes were levied against the property benefited. The city, as trustee for the property owners so taxed, brought suit on the bond for the amount lost by reason of the nonperformance of the contract. Held, that the only theory that the city could recover on would be that the contract was made for the benefit of the property owners, and since the contract limited the right of action on the bond to the specific persons named not including such property owners, and since the contract was for the public benefit, and not for a private benefit, no levy of taxes being permissible if it were a private purpose, the city, as trustee for the property owners, could not maintain the action on the bond.

Appeal from St. Louis Circuit Court; Horatio D. Wood, Judge.

Action by the city of St. Louis against the G. H. Wright Contracting Company and the City Trust, Safe Deposit & Surety Company of Philadelphia. From a judgment for plaintiff, defendants appeal. Reversed.

The city of St. Louis, as trustee of an express trust, instituted this suit in the circuit court of that city against respondents, based upon 12 distinct bonds, each declared upon in a separate count of the petition, and each involving questions identical in principle. We will therefore notice only one count, and what is said regarding that one will apply equally well to the other 11.

The facts of the case are, substantially, as follows: The city of St. Louis, on May 18, 1900, entered into a written contract with defendant G. H. Wright Contracting Company, whereby the latter undertook to grade and pave some streets and alleys in said city, according to certain plans and specifications on file in the office of the board of public improvements, for a price therein stated, and to be paid for by special tax bills, to be issued by the city against the lots adjoining the improvements, as provided for in the city charter. The contract provided that if the contracting party abandoned the work, or otherwise defaulted, the city should have the right to cancel the contract and relet the work. The City Trust, Safe Deposit & Surety Company of Philadelphia executed the bond as security, and bound itself in a fixed penalty, conditioned that the contracting company should faithfully and properly perform the contract according to all the terms thereof, and should, as soon as the work was completed, pay to the proper parties all amounts due for materials and labor used and employed in the performance of the contract.

The language of the bond is as follows: "In the event the said G. H. Wright Contracting Company shall faithfully and properly perform the foregoing contract according to all the terms thereof, and shall, as soon as the work contemplated by contract is completed, pay to the proper parties all amounts due for materials and labor used and employed in the performance thereof; then this obligation to be void, otherwise in full force and effect, and the same may be sued on at the instance of any materialman, laboring man, or mechanic in the name of the city of St. Louis, to the use of such materialman, laboring man, or mechanic for any breach of the condition thereof." The contracting company refused to do any work whatever under the contract, whereupon the city relet the contract to J. E. Perkinson, for the said improvements, at an advanced price of $6,500. Perkinson made the improvements according to the second contract, and the city issued special tax bills against the adjoining lots, and delivered them to him in full payment for said improvements; each tax bill, of course, bore its proportional part of the $6,500, the increased cost of the improvements. The cause was referred to a referee, and he found for the city, and recommended a judgment against appellants for the said $6,500. Upon the incoming of the report appellants filed exceptions thereto, which were overruled, and thereupon they filed their motions for a new trial and in arrest; both of which being overruled by the court, they duly appealed the cause to this court.

Seddon & Holland and Fidelio C. Sharp, for appellants. Charles W. Bates and Benj. H. Charles, for respondent.

WOODSON, J. (after stating the facts).

1. The questions involved in this case are whether or not the city of St. Louis, under the contracts and bonds mentioned, is a trustee of an express trust for the use and benefit of the property owners of the adjoining lots to the streets and alleys proposed to be improved by the city, by authority of, and in pursuance of, said contracts and bonds, and sue for and recover the damages they sustained, for their use and benefit, caused by breaches thereof. Exhaustive research by court and counsel has failed to discover where these exact questions have ever been presented to any court in this state or elsewhere. The questions seem to be of first impression in this country, and will, on that account, have to be approached and disposed of upon principle, and not from precedent. The general rule that third parties cannot maintain an action for damages resulting from a breach of contract by one of the parties thereto is well grounded in the jurisprudence of this state. Roddy v. Missouri Pacific Ry., 104 Mo. 244, 245, 15 S. W. 1112, 12 L. R. A. 746, 24 Am. St. Rep. 333, and cases cited. The reason for this rule is apparent. There is no privity of contract nor contractual relations existing between the obligee of the contract and the third parties. As such obligee, he is a stranger to the others, and owes them no duty; and, in the absence of duty, there can be no obligation. National Bank v. Ward, 100 U. S. 195, 200-207, 25 L. Ed. 621. As stated by this court, speaking through Judge McFarland, in the case of Roddy v. Railway, supra: "To hold that such actions could be maintained would not only lead to endless complications in following out cause and effect, but would restrict and embarrass the right to make contracts by burdening them with obligations and liabilities to others, which parties would not voluntarily assume." The above rule, like most other principles of law, has its well-founded limitations and exceptions; and one of those exceptions is that a contract between two parties, based upon a valid consideration, may be enforced by third parties when entered into for their benefit, and that is true, though such parties are not named in the contract nor privy to the consideration. It is sufficient in order to create the necessary privity that the obligee owe to the parties to be benefited some obligation or duty, legal or equitable, which would give them a just claim. City of St. Louis v. Von Phul, 133 Mo. 565, 34 S. W. 843, 54 Am. St. Rep. 695; Ellis v. Harrison, 104 Mo. 276, 16 S. W. 198.

2. The city to maintain this suit proceeds upon the theory that the contract entered into between it and the appellants, whereby they obligate themselves to pave the streets and alleys mentioned, was based upon a valid consideration, and was made by it for the benefit of the adjoining property owners; that is to say, in contemplation of law, street improvements are beneficial to the adjoining lots which inure to the owners by virtue of their ownership. In other words, the city, not only acts for itself in the matter of street improvements, but also as the legally constituted agent of the property owners, and, in that respect, the contract partakes of a dual nature—first, for the benefit of the public at large; and, second, for the benefit of the property owners. There is a broad distinction between the principle involved where a contract is entered into between two parties for their own use and benefit, and where they make a similar contract for the benefit of a third party. A breach of the first would create no cause of action in favor of a third party, even though he was thereby deprived of large benefits which would have flown to him had the contract been performed; while in the latter case the breach would create a cause of action in his favor, even though the benefits he would have received from its performance might have been insignificant as compared to those he was deprived of by the breach of the former. This proposition is fully supported by the authorities cited in paragraph 1 of this opinion. From what has thus been stated, it can be seen that the character and value of the benefits and their loss or reception have no weight whatever in determining the question as to whether or not the contract was made for the benefit of third parties, who in this case are the property owners. So the primary question involved in all of this class of cases, where the third parties are not named or designated, is one of intention. And as this contract is in writing that intention must be gathered from the writings. In order to do that, we have the right to consider the character of the parties to the contract, and the facts and circumstances surrounding them at the time of its execution. With that rule of construction in mind, we find a municipality, with only statutory powers, exercising governmental functions, as a subdivision of the state, entering into a contract to improve its streets and highways. If we ask ourselves the question, for whose benefit was the contract made? the answer naturally comes back, for the use and benefit of the public, because the improvement of the street, which belongs to...