Standard Oil Co. of New Jersey v. National Sur. Co.

• Decision Date: 10 June 1930
• Citation: 234 Ky. 764,29 S.W.2d 29
• Parties: STANDARD OIL CO. OF NEW JERSEY v. NATIONAL SURETY CO.
• Court: Kentucky Court of Appeals

29 S.W.2d 29

234 Ky. 764

STANDARD OIL CO. OF NEW JERSEY v. NATIONAL SURETY CO.

Court of Appeals of Kentucky

June 10, 1930

Appeal from Circuit Court, Pike County.

Action by the Standard Oil Company of New Jersey against the National Surety Company. From a judgment dismissing the petition, plaintiff appeals.

Affirmed.

Johnson & Hinton, of Pikeville, for appellant.

Stratton & Stephenson, of Pikeville, for appellee.

WILLIS J.

The Farris Bridge Company had a contract with the state highway commission for the construction of a highway bridge in Floyd county, Ky. It purchased materials from the Standard Oil Company, which were used in performing the contract. Being unable to collect the purchase price of the materials, a judgment therefor against the Farris Bridge Company was procured in the Pike circuit court. The Standard Oil Company then instituted the present action against the National Surety Company to recover its judgment debt. The action was based upon the bond given by the defendant as surety for the Farris Bridge Company. The petition as amended was dismissed on demurrer, and the plaintiff has prosecuted an appeal.

The contract of the Farris Bridge Company with the state highway commission contained these provisions: "That the party of the second part (Farris Bridge Company) for and in consideration of the payment or payments hereinafter specified, hereby agrees under penalty expressed in the bond hereunto attached, to furnish and deliver all materials and do and perform all the work and labor required in the construction of *** (certain bridge work). *** In consideration whereof said party of the first part (Commonwealth of Kentucky), agrees to pay to the said party of the second part for all work done the following unit prices, which prices include payment for equipment, forms tools, labor, material and incidental work necessary to make a complete structure. ***"

The bond given pursuant to the contract, and which was signed by the National Surety Company, contained this condition "The condition of this obligation is such that if the said principal, Farris Bridge Company, of Cumberland Maryland, shall well and truly keep and perform all of the terms and conditions of a certain contract made and entered into on the 3rd day of February, 1926, by and between the Commonwealth of Kentucky, by and through its State Highway Commission, and the said Farris Bridge Company, principal *** on their part to be kept and performed and shall indemnify the said Commonwealth of Kentucky as therein stipulated then this obligation shall have no effect, otherwise it shall remain in full force and effect."

We have in Kentucky two distinct lines of decision in cases of this character. If the bond, when read in connection with the contract, contains a provision obligating the contractor to pay for the material, or to compensate the laborers, it constitutes a provision for the benefit of the laborers and materialmen, upon which they are entitled to maintain an action directly against the surety. Federal Union Surety Co. v. Commonwealth, 139 Ky. 92, 129 S.W. 335; Fidelity & Deposit Co. of Maryland v. Chas. Hegewald Co., 144 Ky. 790, 139 S.W. 975; Citizens' Trust & Guaranty Co. v. Peebles Paving Brick Co., 174 Ky. 439 192 S.W. 508; National Surety Co. v. Daviess County Planing Mill Co., 213 Ky. 670, 281 S.W. 791; Mid-Continent Petroleum Corp. v. Southern Surety Co., 225 Ky. 501, 9 S.W.2d 229. On the other hand, when the bond is one solely to secure performance of the contract and contains no language from which an express covenant for the benefit of third parties may be derived, an action thereon by a stranger to the contract may not be maintained. Dayton Lumber & Mfg. Co. v. New Capital Hotel, 222 Ky. 29, 299 S.W. 1063; Kentucky Rock Asphalt Co. v. Fidelity & Casualty Co. (6 C. C. A.) 37 F.2d 279; Owens v. Georgia Life Ins. Co., 165 Ky. 507, 177 S.W. 294. The problem presented, therefore, is the interpretation of the written instruments to ascertain whether they contain any provision for the benefit of the materialmen, of whom appellant was one. If so, the line of cases first indicated controls, and the action may be maintained; but, if the contract and accompanying bond, fairly construed, do not contain any provision for the benefit of the materialmen, the second line of cases govern, and the demurrer was properly sustained.

It is argued that the distinction in the decisions depends upon the character of the subject-matter of the contract, and, when the contract concerns a public improvement, as here, it will be presumed that the bond was intended for the benefit of laborers and materialmen. It is said that they are unable to assert a lien on public property, and for that reason the bond is provided to supply the rights ordinarily given by lien laws. In amplification of the argument, it is insisted that, when the subject-matter of a contract is a private structure, the lien laws of the state afford ample remedy and it is unnecessary to resort to a bond for their protection. But such distinction is artificial and drawn from the accidental circumstances of the cases. The true basis for the diverging decisions is found in the terms of the instruments involved. The liability of the surety is measured by the terms of his contract, and the right of the third party to sue must be derived from the document signed by the surety. If the bond binds...