La Salle Iron Works, Inc. v. Largen

• Decision Date: 12 December 1966
• Docket Number: No. 52226,52226
• Citation: 410 S.W.2d 87
• Parties: LA SALLE IRON WORKS, INC., a Corporation, Appellant, v. L. J. LARGEN, doing business as L. J. Largen Construction Company and Universal Surety Company, a Nebraska Corporation, Respondents.
• Court: Missouri Supreme Court

Page 87

410 S.W.2d 87

LA SALLE IRON WORKS, INC., a Corporation, Appellant, v. L. J. LARGEN, doing business as L. J. Largen Construction Company and Universal Surety Company, a Nebraska Corporation, Respondents.

No. 52226.

Supreme Court of Missouri, En Banc.

Dec. 12, 1966.

Rehearing Denied Jan. 9, 1967.

Sumner, Hanlon & Sumner, John F. Hanlon, Richard A. Schwartz, Clayton, for appellant.

F. Philip Kirwan, Patrick E. Hartigan, Kansas City, Norman Bierman, Stuart M. Haw, Jr., St. Louis, Margolin & Kirwan, Kansas City, Anderson, Gilbert, Wolfort, Allen & Bierman, St. Louis, of counsel, for respondent Universal Surety Co.

EAGER, Judge.

This is a suit by a material supplier against the principal contractor and his surety for the value of material furnished to the contractor in the building of a church school. The case was submitted to the court without a jury on a stipulation of facts. The court rendered judgment against the contractor for $3,046.74, with interest, but in favor of the surety. Plaintiff appealed; the contractor did not. Hence, our problem lies in the issue between plaintiff and the surety. On appeal to the St. Louis Court of Appeals, that court reduced the recovery of plaintiff against the contractor to $2,805, with interest, and affirmed the judgment in favor of the surety. On application for transfer, we determined to review the case because of the holding of nonliability as to the surety.

On July 22, 1960, defendant Largen contracted with Union Lutheran School Association to build the 'Green Park Lutheran School'; we shall refer to the latter as the 'owner' or the 'school.' That contract is not in evidence, an oversight which should not have occurred. In anticipation of that contract, Largen contracted with plaintiff for the furnishing of structural steel and miscellaneous iron to be used in the construction for a price of $2,805; plaintiff fully performed that contract and furnished the material. It is further stipulated that, during the construction, plaintiff and Largen agreed that plaintiff should supply additional material of the reasonable value of $139.74; the stipulation does not state that this material was actually furnished, an apparent inadvertence. On July 28, 1960, Largen as principal and defendant Universal Surety Company, a Nebraska corporation, as surety, executed a 'contract bond' to the Green Park Lutheran School as obligee, in the sum of $271,944 to secure the in the sum of $271,977 to secure the which was made a part of the bond by reference. Since that bond is the source of the only real issue, we quote its controversial paragraph, as follows:

'Now, Therefore, the condition of this obligation is such that, if the Principal shall faithfully perform the contract on his part, and shall fully indemnify and save harmless the Obligee from all cost and damage which the Obligee may suffer by reason of failure so to do and shall fully reimburse and repay the Obligee all outlay and expense which the Obligee may incur in making good any such default, and shall pay all persons who have contracts directly with the Principal for labor or materials, then this obligation shall be null and void, otherwise it shall remain in full force and effect.' Plaintiff demanded payment of Largen who refused or failed to pay, and subsequently the surety also refused to pay; hence this suit.

We relate the contentions of the parties in reverse order, giving first the contentions of defendant surety in support of its supposed nonliability. It says in substance: that this bond was given solely for the benefit of the obligee, the school, and that it gave plaintiff no right of action; that plaintiff was neither a creditor beneficiary nor a donee beneficiary and that it did not maintain the burden of showing that the parties intended to benefit it. Plaintiff asserts that it is one of the persons for whose benefit the bond was executed and that it has a direct right of action; and it questions the distinction frequently made between the liability of sureties on bonds for private and public works.

The trial court expressly based its judgment in favor of the surety on the decision in Uhrich v. Globe Surety Co., 191 Mo.App. 111, 166 S.W. 845; the Court of Appeals, after an extended discussion, adopted the conclusion reached in Uhrich as 'sound.' The case thus comes to us, for a determination as upon an original appeal, from a decision holding that the obligee in the bond was only interested in its own protection, that the provision for the payment of claims for material and labor was incidental, that from all the circumstances there was no purpose or intent on the part of the obligee to require payment of such claims, and that there was no demonstrated interest of the obligee in the claims of such creditors; and, therefore, all such intent being lacking, the surety was not liable.

We first discuss the Uhrich case. It is a decision of the Kansas City Court of Appeals, rendered in 1914. There the plaintiff sold and furnished materials to a contractor who, with the surety, executed a performance bond. The case was decided upon the sustaining of a demurrer to the petition and a refusal to plead further. The contractor had agreed to erect the building and to pay for all labor and materials; the owner contracted to pay the agreed sum provided that all persons dealing with the contractor should be paid so that they would have no liens, with further provisions for the retention of funds and direct payments if so desired. The bond, in so far as its terms appear, was conditioned "that, if the said contractor shall duly perform said contract and fulfill all the several stipulations therein provided, then this obligation is to be void, but, if otherwise, the same shall remain in full force and virtue. It is hereby expressly agreed that the said L. G. Hill may make payments in any amounts to the contractor, subcontractor, and materialmen and laborers, and such payments shall in no wise limit, affect, or reduce our liability hereunder." The bond does not appear to have contained any condition concerning the payment of claims for material and labor. The plaintiff there had filed a lien and had a suit pending to enforce it. The court recognized, with limitations, that a third person for whose benefit a contract was made could enforce it, although not privy to the consideration; but it emphasized the element of mutual intent of the parties 'as expressed in the instrument' and 'in the light of the circumstances * * * where there is uncertainty or ambiguity * * *.' The court concluded that the payment of debts such as plaintiff's was not intended by the parties as one of the 'direct objects' of the bond, but was only incidental to the idea of 'protecting the property of the owner from liens * * *.' And the court noted the distinction between cases such as that and those cases involving public bonds where no lien may be obtained. The court emphasized the dominant thought of liens, and the omission from the bond of any provision giving materialmen a right of action. We shall return to this case later.

There has been a vast amount of litigation on this subject, and it will be physically impossible to discuss even a substantial proportion of the cases. An exhaustive annotation appears in 77 A.L.R., beginning at page 21. This is supplemented by another annotation at 118 A.L.R. 57. In the later annotation the author states, at page 65: 'As shown in the original annotation, the great weight of authority sustains the right of a person furnishing labor or materials to recover on a private building contractor's bond in which the owner of the property is named obligee, conditioned that the contractor shall pay all claims for labor and materials, or that he shall pay laborers and materialmen. The later cases generally support this rule.' In the original annotation many authorities are discussed; the terms of the bonds discussed in the cases naturally vary, but no doubt can remain concerning the conclusion stated in the later annotation. It is thus also stated that a condition of such a bond for the payment of laborers and materialmen is clearly for the benefit of such persons, and that the authorities holding to the contrary, relying on the obligee's supposed intention, confuse the intent, 'which is the act or result contemplated by the terms of the bond, with the motivating purpose or desire of the owner in requiring the bond.' 77 A.L.R. loc. cit. 213. We note particularly this confusion, as applied to the present case. Again, the same annotator says: 'As well stated by Professor Arthur L. Corbin in 38 Yale L.J. 1, 3, if there is an actual promise by the obligors to pay the third party, either by express words or by reasonable implication, there is no need to speculate for whose benefit the undertaking was made. Of course, the question of intention to benefit cannot be eliminated altogether in considering the rights of third parties, since in many cases the promise for their benefit is not clearly expressed and the meaning of the instrument is doubtful. But, where clearly there exists a promise to pay a third party, any further inquiry into the intention of the parties to benefit him is irrelevant.' 77 A.L.R. loc. cit. 31; and at loc. cit. 51: '* * * the intention, as disclosed by the terms of the bond and contract, is controlling. If the bond is so conditioned that its performance will necessarily and directly benefit laborers and materialmen, it is, in legal contemplation, 'intended' for their benefit; and it makes no difference that the object motivating the parties to the bond was the protection of the obligee. In the second place, there is no valid basis for the requirement that there be a duty or obligation owing by the obligee to the laborer or materialman or some consideration passing from the latter to the former, so as to create privity of consideration.' The statements in those annotations are supported by copious...