Wilmington Housing Authority v. Fidelity And Deposit Company of Maryland

• Decision Date: 29 April 1946
• Docket Number: 2
• Citation: 47 A.2d 524,43 Del. 381
• Court: Supreme Court of Delaware
• Parties: WILMINGTON HOUSING AUTHORITY, a Body Corporate and Politic created under the Housing Authority Law of the State of Delaware, for the use of Joseph R. Simeone, Plaintiff Below, Plaintiff in Error, v. FIDELITY AND DEPOSIT COMPANY OF MARYLAND, a Corporation of the State of Maryland, Defendant Below, Defendant in Error

47 A.2d 524

43 Del. 381

WILMINGTON HOUSING AUTHORITY, a Body Corporate and Politic created under the Housing Authority Law of the State of Delaware, for the use of Joseph R. Simeone, Plaintiff Below, Plaintiff in Error, v. FIDELITY AND DEPOSIT COMPANY OF MARYLAND, a Corporation of the State of Maryland, Defendant Below, Defendant in Error

No. 2

Supreme Court of Delaware

April 29, 1946

Killoran and Van Brunt for plaintiff in error.

Morris Cohen for defendant in error.

HARRINGTON Ch. RICHARDS, C. J., SPEAKMAN, TERRY and CAREY, J. J. sitting.

OPINION

CAREY, J.

We are in accord with the conclusions of the Court below concerning the first two grounds of demurrer for the reasons given by that Court. It is unnecessary to repeat those reasons in full. As to the first ground, while the allegations could perhaps have been drawn with greater precision, the narr is sufficient. As to the second ground, a comparison of the language of the bond and that of the statute readily demonstrates that the bond is broader than the statute and includes claims for labor and materials supplied to a sub-contractor. If the defendant had intended to limit its liability to the statutory requirement, it should have used proper language to do so. If any construction of this language were necessary, there would be no legal reason for construing it strictly in favor of this paid surety. See Royal Indemnity Co. v. Northern Granite & Stone Co., 100 Ohio St. 373, 126 N.E. 405, 12 A. L. R. 382.

The thirdground of demurrer involves the much-discussed third party beneficiary rule. The plaintiff contends that the Delaware Courts have never fully adopted the English rule which forbids recovery by persons other than parties to a contract; that, at most, the rulings in this State are not uniform; and that reason and justice demand the repudiation of the English doctrine even at the expense of overruling our former decisions, if that be necessary. It is suggested that some of the Delaware cases which might seem to support the English doctrine are concerned merely with the matter of procedural rather than substantive law.

The defendant concedes that the Delaware cases do not follow the English rule as to simple contracts but it argues strongly that we are committed to that rule in cases of sealed instruments, inasmuch as in this State the seal retains its common-law sanctity. It further suggests that these parties undoubtedly contracted with reference to the existing Delaware law as disclosed by the reported cases and that this Court should not depart from its previous rule, since that would amount to the imposition of an unexpected burden upon the defendant. It argues that the change is a matter for legislative consideration.

We do not deem it necessary to determine whether the so-called English rule is concerned solely with procedural rather than substantive questions. There is indeed some respectable authority supporting this contention of the plaintiff. Powers v. New England Fire Ins. Co., 69 Vt. 494, 38A. 148; Maryland Casualty Co. v. Portland Const. Co., (2 Cir.) 71 F.2d 658; Board of Education v. Aetna Indemnity Co., 159 Ill.App. 319; Blue Star Navigation Co. v. Emmons Coal M. Co., 276 Pa. 352, 120 A. 459. On the contrary, the leading English case of Tweedle v. Atkinson, 1 B. & S. 393, 121 Eng. Rep. 762, treats the subject as a rule of substantive law. See 2 Williston on Contracts, Revised Edition, Sec. 366 and Sec. 401.

If the rule goes no further than to require a party to a sealed instrument to be the nominal plaintiff, that procedural requirement is met by the manner in which this suit has been brought, to-wit, "Wilmington Housing Authority for the use of Joseph R. Simeone." Viewed from this angle, Wilmington Housing Authority is the plaintiff and the fact that it is suing for the use of some one else, who will actually get the proceeds of any ultimate recovery, would be of no moment.

It appears, however, that this Court, in Merchants' Union Trust Co. v. New Philadelphia Graphite Co., 10 Del. Ch. 481, 92 A. 1084, treated the rule as a substantive one and it is therefore necessary that we review it as such. The case was an appeal from the Court of Chancery which is not concerned with matters of common-law procedure.

During the Seventeenth Century, the English Courts apparently allowed a third party beneficiary to recover. Dutton v. Poole, 2 Lev. 210, 1 Ventr. 318. In spite of that fact, the case of Tweedle v. Atkinson, supra, definitely held that such a beneficiary could not recover on the ground that no action can be maintained by the person from whom no consideration moves. The English Courts have consistently refused to overthrow this ruling, although in many instances they have permitted the action by basing it upon the theory of a trust. See Anson on Contracts (American Edition), Ch. V111 and 81 A. L. R. 1271.

The great majority of American Courts permits a recovery by the third party beneficiary, whether he be a donee beneficiary or creditor beneficiary. 2 Williston on Contracts, (Revised Edition) Ch. XIV; 81 A. L. R. 1271. In some states, the present rule permitting recovery is the result of statute, Kusin v. Miller, La. App., 199 So. 457; Guardian Depositors Corp. v. Brown, 290 Mich. 433, 287 N.W. 798; in others, the Courts have always permitted it both as to simple and sealed instruments. Williams v. Markland, 15 Ind.App. 669, 44 N.E. 562; French v. Farmer, 178 Cal. 218, 172 P. 1102. In still others, such as New Jersey, the right as applied to sealed instruments is a result of statute, although the Courts had originally recognized it on unsealed instruments. People's Bank & Trust Co. v. Weidinger, 73 N. J. L. 433, 64 A. 179. In some states where the rule originally was similar to the English rule, the American principle has recently been adopted through judicial action by an outright reversal of former decisions. An outstanding example is the State of Pennsylvania. In Commonwealth v. Great American Indemnity Co., 312 Pa. 183, 167 A. 793, the Supreme Court of that State overruled the former decision of Greene County v. Southern Surety Co., 292 Pa. 304, 141 A. 27, although the principle of the latter case had been followed for many years. Pennsylvania Supply Co. v. National Casualty Co., 152 Pa. Super. 217, 31 A.2d 453. In deciding the Great American case, the Court pointed out that forty-four out of forty-eight states of the Union were opposed to the English doctrine, the four exceptions being Pennsylvania, Massachusetts, Connecticut and Michigan. Apparently the Court considered that Delaware permitted recovery in such cases. In any event, in that case, the Supreme Court deliberately and definitely accepted the reasoning of Prof. Corbin, in 38 Yale Law Journal 1, by adopting the principles set forth in the Restatement of the Law of Contracts, Sec. 133, etc. Likewise by judicial action, Connecticut now follows the rule of the Restatement. Byram Lumber & Supply Co. v. Page, 109 Conn. 256, 146 A. 293. Michigan has adopted the modern American rule by statute. Loc. cit., supra. Aside from Delaware, therefore, it appears that Massachusetts is probably the only State which observes the English rule. Even there, the Court recognizes a number of exceptions. Johnson-Foster Co. v. D'Amore Construction Co., 314 Mass. 416, 50 N.E. 2d 89, 148 A. L. R. 353; also see 81 A. L. R. 1273. Those exceptions have been characterized as showing "the length to which the Court is sometimes compelled to go in order to avoid the more glaring failures of justice resulting from the general rule which it had adopted."

Probably no rule of contract law has produced more litigation than the question with which we are now dealing. Probably no principle of the English common law has been the subject of more criticism in this country by both Judges and textwriters. That doctrine was usually based upon the arguments of consideration and privity. " The rule that consideration must move from the plaintiff or from the promisee, so far as it exists, is purely technical, and in a developed system of contract law there seems no good reason why A should not be able for a consideration received from B to make an effective promise to C." Bryant, Griffith & Brunson v. General Newspapers, Inc., 36 Del. (6 W. W. Harr.) 468, 178 A. 645, 647. Consideration as abasis is effectively disposed of in La Mourea v. Rhude, 209 Minn. 53, 295 N.W. 304, 306, in the following words: " Consideration for a promise is demanded by the law solely as a test of actionability. It is determinative of the presence of enforceable obligation but ordinarily not of its quantity or the identity of obligee. For the latter two, we usually look not to source of consideration but exclusively to the terms of the contract. * * * So it is no objection to an action on the contract by a donee or creditor beneficiary that he did not furnish any of the consideration."

Lack of privity as a basis for the rule is also discussed in the La Mourea case and held not to be a justifiable ground. Some Courts have evaded the necessity of privity by implying a trust or agency; others have indicated that a moral obligation of the promisee to the third party is sufficient to create a privity; still others have said that the law operating on the act of the parties creates the duty establishes the privity, and implies the promise and obligation, on which the action is founded. 12 Am. Jur. 830. In recent years, however, it has been said that the doctrine permitting a recovery by the beneficiary has prevailed in the United States on the strength of its reasonableness and necessity, rather than upon any preconceived theory of law. The reason for the doctrine is that it is just and practical to permit the person for whose benefit the...