Sw. Portland Cement Co. v. Williams

• Decision Date: 28 October 1926
• Docket Number: No. 3051.,3051.
• Citation: 32 N.M. 68,251 P. 380
• Parties: SOUTHWESTERN PORTLAND CEMENT CO.v.WILLIAMS et al.
• Court: New Mexico Supreme Court

32 N.M. 68

251 P. 380

SOUTHWESTERN PORTLAND CEMENT CO.

v.WILLIAMS et al.

No. 3051.

Supreme Court of New Mexico.

Oct. 28, 1926.

Syllabus by the Court.

A bond to the state, conditioned for the performance by a highway contractor of the obligations of his contract, one of which obligations is to pay for materials used, may be sued on by a materialman, though the same bond indemnifies the state, and though no statute authorizes exacting such a contract or bond.

The liability of a professional paid surety is not construed strictissimi juris.

Additional Syllabus by Editorial Staff.

Under Laws 1917, c. 38, § 9, requiring successful bidder to furnish satisfactory bond, state highway commission may require road contractor to furnish bond indemnifying state, and also containing provisions to protect materialmen and laborers.

Appeal from District Court, Santa Fé County; Holloman, Judge.

Action by the Southwestern Portland Cement Company against H. E. Williams and another. From a judgment for plaintiff, defendant Southern Surety Company appeals. Affirmed and remanded, with directions.

The liability of a professional paid surety is not construed strictissimi juris.

Francis C. Wilson, of Santa F‘21e, for appellant.

E. R. Wright, of Santa F‘21e, for appellee.

WATSON, J.

[1] This appeal is from a judgment for the Southwestern Portland Cement Company, which had furnished materials to the contractor, used in the construction of a public highway known as federal aid project No. 82, against Southern Surety Company, surety on the contractor's bond, and against the contractor himself; the latter not appealing. In the specifications for the work appeared the following:

“The action of the engineer, by which the contractor is to be bound and concluded according to the terms of the contract, shall be evidenced by the final estimate, all prior estimates, upon which 85 per centum payments may have been made, being merely partial estimates and subject to corrections in such final estimate. The engineer, when satisfied that the contractor shall have completed the work in accordance with the terms of his contract, shall certify the final estimate for payment. No money under this contract, or any part thereof, shall become due and payable, if the engineer so elects, until the contractor shall satisfy him that he has fully settled and paid for all materials used for all work and labor done in connection therewith, and the engineer, if he so elects, may pay any or all labor and material bills, wholly or in part, and deduct the amount paid from any monthly or final estimates. It is an essential part of this contract and bond furnished in connection therewith that the contractor is obligated to pay in full all just claims for labor, material, and supplies furnished for the construction and completion of this contract.”

The contract provided that the specifications “are made a part of this contract and accepted as such.” The bond, after reciting the execution of the contract, was conditioned thus:

“Now, therefore, the conditions of the foregoing obligation are such that, if the said principals shall well and truly perform all obligations under said contract, a copy of which is hereto attached and made a part of this obligation, and shall indemnify and save harmless the said state of New Mexico against any damage or loss for which said state may become liable by the default of said principals, or by reason of any negligence or carelessness on the part of said principals, their agents, servants, or employees, or on account of any act or omission of said principals, their agents, or servants, in the performance of this contract, then these presents shall become void; otherwise, they shall remain in full force and effect.”

It seems plain that one of the obligations assumed by the contractor was to pay all just claims for labor, material and supplies, and that the bond was conditioned upon his doing so. Some point is made that there is no express “promise” to make such payments, either in the contract or in the bond. It is true that the matter is not expressed in that language. The purpose of a contract is to define the rights and obligations of the parties. It cannot be material whether the draftsman or the parties choose the form of expression, “the party of the second part promises” to do so and so, or the expression that he “is obligated” to do so and so. The signing of the contract admitted the obligation. The clause in question is not a mere recital of an obligation existing outside the contract. It created the obligation. The bond follows the form of expression used in the contract. It is to remain in full force and effect until the “obligations” of the contract shall have been well and truly performed. One of those “obligations” is to pay all just claims for labor, material, and supplies. That obligation of the contract and condition of the bond has not been performed. So, under the terms of the bond, the surety's liability has not been discharged.

It being plain that there has been a default in the contract, for which there is a liability on the part of the surety, it remains to determine whether the default is in respect to a duty owing to the appellee, and whether the liability of the surety therefor is to the appellee.

It was the rule at common law that suits might be had only by those who were parties to the contract, or by their successors in interest. Appellant does not, however, contend that such is the modern rule. It admits that in certain cases a third party, not named in the contract, and from whom the consideration did not move, but for whose direct and substantial benefit the contract was made, may sue to enforce the same, or for a breach thereof. It urges, however, that this case does not come within the modern rule.

The first and, as we conceive, the most important question, is the intent of the parties. Was the stipulation of the specifications, incorporated by reference in the contract, and thereafter in the bond, intended for the direct and substantial benefit of laborers and materialmen? This question involves the construction of the contract, which, of course, is to be interpreted in the light of the legal relations in which the parties stood to each other, under the circumstances in which they dealt.

It is first to be observed that no then existing statute required the state highway commission, by bond, or otherwise, to obtain for, or afford to, laborers and materialmen any protection for, or aid in, collecting their claims against the contractor. Laws 1923, c. 136, “relating to bonds of contractors upon public works,” was subsequently passed, and is not involved here. It is also to be observed, as one of the circumstances surrounding the transaction, that the lien laws do not apply to public property, and that, unless the state highway commission, by sufficient contract provision, secured payment of the claims of laborers and materialmen, they could look only to the contractor himself, having no recourse against the state or its property.

It is apparent, therefore, that it was entirely immaterial to the state, considered as a party contracting in a business, rather than a political, capacity, whether the contractor paid for the labor and material. The mere fact that he furnished them, and by means of them was able to construct the highway, gave to the state every advantage it sought or required so far as concerned its own property and funds. In that respect it lost nothing if the contractor failed to pay; it gained nothing if he did pay. Regardless of this lack of pecuniary interest, the state, acting through the highway commission, was at pains to stipulate as “an essential part of this contract” that the contractor should pay all such claims. It requires no argument to demonstrate that the appellee, and others similarly situated-prospective laborers and furnishers of material and supplies-would have a direct and substantial interest in such a provision. A provision so emphatically made must have been for the benefit of some one. If it could not directly benefit the state, and must directly benefit laborers and materialmen and no one else, the conclusion seems irresistible that it was incorporated in the contract for their benefit.

The event justifies the foregoing argument. The bond is still in effect, because there has been no performance of the condition of its becoming void. The obligee, the state, has suffered no damage by reason of the default which keeps the bond alive. It has no right of action. Under the terms of the bond, appellant is held and firmly bound to the state in a large sum, yet the state has no claim against it. If appellee, and others similarly situated, may not recover, there can be no recovery. It discredits the good sense of the parties to suppose that they contracted for such an eventuality.

It is true that the contract contemplated another form of protection to laborers and materialmen. No money was to be due or payable under the contract, if the engineer should so elect, until satisfied by the contractor that all labor and materials had been paid for; and the engineer might, if he so elected, pay all such bills and deduct them from any monthly or final estimate. It is perhaps true that if the engineer had seen fit to make himself a collection agency, this provision alone would have afforded adequate protection to laborers and materialmen. But it does not, in our opinion, weaken, but rather serves to strengthen, the view that the provision was primarily intended for the benefit and protection of appellee and those similarly situated. The state highway commission did not agree, in favor of the surety, to make such payments and deductions. It merely reserved the right to do so, generally, or in a particular instance; the main reliance being on the bond.

We think, therefore, that, considering the contract in the light of circumstances of law and fact, a clear...