Knight & Jillson Co. v. Castle, 21,366.

Docket NºNo. 21,366.
Citation172 Ind. 97, 87 N.E. 976
Case DateMarch 31, 1909
CourtSupreme Court of Indiana


Appeal from Circuit Court, Shelby County; Will M. Sparks, Judge.

Action by the Knight & Jillson Company against Arthur C. Castle and others. Judgment for defendants, and plaintiff appeals. Transferred from the Appellate Court, under Rev. St. 1908, p. 734, § 1399. Affirmed.

For prior report, see 85 N. E. 1049.

D. L. Wilson, Robert W. Harrison, and D. P. Williams, for appellant. Carson, Thompson & Dowden, for appellees.


Appellant brought this action November 28, 1904, and appeals from a judgment rendered upon its refusal to plead further, after the demurrer of the Federal Union Surety Company, for want of facts, had been sustained to its complaint.

It is averred that the St. Joseph Church Committee of Shelbyville and Castle & Convery, in April, 1903, entered into a written contract, by which the latter agreed to furnish the material and labor for, and to place a steam heating plant in, the church building. The contract contained many provisions that are not pertinent to the questions involved in this suit, prescribing the character of the improvement, the price, time, etc. It also contains a clause as follows: “The parties of the second part agree to pay for all labor and materials used in said work when due, and that all labor done and materials furnished shall be of the best quality of their several kinds, and the parties of the second part agree to deliver said building to said first party freed from all liens or rights thereto.” Thereafter said contractors, as principals, together with the appellee surety company, as sureties, executed a bond in the sum of $1,800 payable to said church, as obligees, and conditioned as follows: “Whereas said principal has entered into a written contract, dated April 24, 1903, with said obligee, for the plumbing, steam heating and electric wiring for St. Joseph Catholic Church; a copy of which contract is hereto annexed. Now, therefore the conditions of this obligation is such, that if the said principal shall faithfully perform said contract on their part, according to the terms, covenants and conditions thereof (except as hereinafter provided) then this obligation shall be void, otherwise to remain in full force and effect. Provided, however, and upon the following further expressed conditions. “First. That the surety shall be notified, in writing, of any act on the part of the said principal or his agents or his employés, which may involve a loss for which the said surety is responsible hereunder, within ten days after the occurrence of said act, with a verified statement of the facts, to be delivered to the surety company at its office in the city of Indianapolis, Indiana.” Other conditions follow, not pertinent to this discussion. Both contract and bond are made a part of the complaint, and it is averred that appellant furnished material to said contractor, used in said building, for which it has not been paid. It also exhibits an itemized account of such materials, and avers a breach of the contract, in that Castle & Convery are now notoriously insolvent, and had violated the terms of their contract, and failed to faithfully perform the same by refusing to pay for said material, which contract said appellee surety company had guaranteed said Castle & Convery should faithfully perform, whereby said surety company had become liable for the amount of said account. The complaint also avers “that prior to and at the time plaintiff sold and delivered the material herein sued for to said contractor, said plaintiff had knowledge of the execution of the bond in suit, and relied upon the same to secure payment for said materials.”

We have come to adopt two rules of construction with respect to undertakings of the character of the contract and bond sued on in this case, without, perhaps, noting carefully the distinctions in principle, as well as the distinctions between sureties and guarantors, as applied to the particular cases. One is that, where a contract is made primarily for the benefit of a third person, such agreement inures to the benefit of such person, even though the third person at the time had no knowledge of the agreement. The other is that a contract to pay for labor or materials is a contract for the benefit of laborers and materialmen, and that upon default they may sue. In the general statement these propositions are correct, but they are to be applied with discrimination respecting each particular case. A careful examination of the cases will disclose that some loose statements have crept into some of the opinions of courts; but, as applied to the facts in the particular cases, the ruling is sound. It will be discovered, either that there was an express promise in the bond to pay for labor and materials, as in Ochs v. Carnahan & Co. (Ind. App.) 80 N. E. 163, or the character of the work was such that there was a moral obligation to pay, coupled with language sufficiently explicit to make it effective, or the terms of the contract were such as to make it fairly apparent that it was intended by the parties that it should operate in favor of third persons. The farthest any Indiana case which has come to our attention has apparently gone is Brown v. Markland, 22 Ind. App. 652, 53 N. E. 295; but, when it is considered that the work was of such character that no lien could be taken, and the further and more potent fact that the contract provided, “neither shall there be any legal or lawful claim against the contractor in any manner, from any source whatever for work or material furnished on said work,” and the undertaking was that “the contractor shall duly perform said contract,” it is at once seen that the provisions of the contract were not for the benefit of the school township, and that the clause was based upon the express agreement in the contract, and the moral obligation, that the laborers and materialmen should be paid, and that was a sufficient consideration to support the contract so far as the immediate parties to it were concerned; and it is immaterial whether a consideration moved to the guarantor, or from the third person, and it is not a strained construction to hold in such case that the undertaking that the contractor should comply with his contract was for the benefit of a third person. This is the basis for the rule in King v. Downey, 24 Ind. App. 262, 56 N. E. 680, where there was an express condition in the bond that the contractor should pay for the materials, etc. In that case liability of the guarantor was predicated on the fact that no lien could be acquired. The same thing is true as to United States, etc., v. American Co., 41 Ind. App. 620, 84 N. E. 555. In Hines v. Consolidated Coal Co., 29 Ind. App. 563, 64 N. E. 886, the express terms of the obligation ran to the use and benefit of any person aggrieved by the breach of the bond. American Surety Co., etc., v. Thorn, 9 Kan. App. 8, 57 Pac. 237, and the Iowa and Kansas cases are based upon statutory provisions, though in the American Surety Co. Case, the distinction is properly drawn, and the court holds that, where there is no express promise in the contract for payment for labor, materials, etc., the general provisions of the bond guaranteeing the faithful performance of the contract would not be sufficient to authorize a recovery by third persons. In Fitzgerald v. Clay, 47 Neb. 816, 66 N. W. 828, the provision of the contract was that the contractors “will pay off in full all laborers and materialmen for labor performed and material furnished, so that each and every person connected with this contract may receive his just dues.” The structure was a state building. A case marking the distinction is Greenfield, etc., Co. v. Parker, etc., 159 Ind. 571, 65 N. E. 747, where, there being no express provision for payment for labor or materials either in the contract or bond, it was held that a general undertaking that the contractor should perform the contract did not run to third persons, and this is the true rule, and the real distinction.

The contract under consideration contains the express promise “to pay for all labor and materials used in said work when due,” and the provisions of the bond are that the contractors shall “faithfully perform said contract on their part, according to the terms, covenants, and conditions thereof,” clearly bringing the case within the rule of the adjudicated cases in this state, and in many other states, that such contract and bond, taken together, is a contract primarily for the benefit of third persons, and that on default such third persons may maintain actions for its breach; and the rule will be found to be one inferable from the contract or bond, or both considered together. Cleveland, etc., Co. v. Henry, 170 Ind. 94, 83 N. E. 710;Russell v. Pittsburgh, etc., Co., 157 Ind. 305, 61 N. E. 678, 55 L. R. A. 253, 87 Am. St. Rep. 214;Ferris v. American, etc., Co., 155 Ind. 539, 58 N. E. 701, 52 L. R. A. 305;Ransdal v. Moore, 153 Ind. 393, 53 N. E. 767, 53 L. R. A. 753;National Surety Co. v. Foster, etc., Co. (Ind. App.) 85 N. E. 489;Doll v. Crume, 41 Neb. 655, 59 N. W. 806;Foster v. Leininger, 33 Ind. App. 669, 72 N. E. 164;McCoy v. McCoy, 32 Ind. App. 38, 69 N. E. 193, 102 Am. St. Rep. 223;Hines v. Consolidated, etc., Co., 29 Ind. App. 563, 64 N. E. 886;King v. Downey, 24 Ind. App. 262, 56 N. E. 680;Williams v. Markland, 15 Ind. App. 669, 44 N. E. 562.

Some of the cases put the proposition argumentatively, on the ground that, in that class of cases where liens cannot be acquired, it cannot be inferred as a matter of law that the contract is for the benefit of the obligee, for the reason that it is a matter of indifference to him whether the labor or material obligations are paid or not; others, that the obligation must be regarded as one inuring solely to the benefit of an obligee, and for his protection as...

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