Wyoming Machinery Co. v. U.S. Fidelity and Guaranty Co.

• Decision Date: 24 July 1980
• Docket Number: No. 5234,5234
• Citation: 614 P.2d 716
• Parties: WYOMING MACHINERY COMPANY, a corporation, Appellant (Plaintiff), v. UNITED STATES FIDELITY AND GUARANTY COMPANY, a corporation, Appellee(Defendant).
• Court: Wyoming Supreme Court

Page 716

614 P.2d 716

WYOMING MACHINERY COMPANY, a corporation, Appellant (Plaintiff), v. UNITED STATES FIDELITY AND GUARANTY COMPANY, a corporation, Appellee(Defendant).

No. 5234.

Supreme Court of Wyoming.

July 24, 1980.

Donn J. McCall and B. J. Baker, Casper, signed the brief and Baker appeared in oral argument on behalf of appellant.

William S. Bon, Casper, signed the brief and appeared in oral argument on behalf of appellee.

Before RAPER, C. J., and McCLINTOCK, THOMAS, ROSE and ROONEY, JJ.

RAPER, Chief Justice.

The sole question presented in this appeal is whether a contractor's bond written by the appellee, United States Fidelity and Guaranty Company, written to Medicine Bow Coal Company, is available to satisfy a claim made by the appellant, Wyoming Machinery Company, as a third-party beneficiary to the bond, when the principal contractor, H. L. Gracik Construction, Inc. (Gracik), became financially unable to pay for equipment rental, labor, and materials supplied by appellant to Gracik.

The district court in a brief, conclusory letter decision found that the bond and contract in question could not be read to afford protection to appellant. Both the parties had moved for summary judgment. The trial judge entered summary judgment in favor of appellee.

We will affirm.

On January 20, 1975, Gracik entered into a contract to do an overburden stripping project at Medicine Bow Mine in Carbon County. One of the terms of that contract was that the owner of the mine could require Gracik to obtain a performance and payment bond. Pursuant to that provision, an amendment to the contract was entered into, also on January 20, 1975, which provided in pertinent part:

"2. Pursuant to Section 400.19 of the General Conditions of the Contract, Contractor agrees to obtain an appropriate performance and payment bond in the amount of $350,000.00, subject to reimbursement by Owner of the actual cost of bond premium. Said bond shall be obtained within ten (10) days of the date hereof, unless such time is extended by Owner in its sole discretion."

Gracik then obtained a bond through a Denver, Colorado, agent, Evan E. Moody, which bond provided:

"WHEREAS, The said Principal has executed and entered into a certain contract with the said Obligee dated

"January 20, 1975

"Contract scrapper stripping project at Medicine Bow Mine in Carbon County, Wyoming

"in said contract described; which contract is hereto annexed.

"NOW, THEREFORE, THE CONDITION OF THIS OBLIGATION IS SUCH, That if the said Principal shall well and truly perform and fulfill all and every the covenants, conditions, stipulations and agreements in said contract mentioned to be performed and fulfilled, and shall keep the said Obligee harmless and indemnified from and against all and every claim, demand, judgment, lien, cost and fee of every description incurred in suits or otherwise against the said Obligee, growing out of or incurred in, the prosecution of said work according to the terms of the said contract, and shall repay to the said Obligee all sums of money which the said Obligee may pay to other persons on account of work and labor done or materials furnished on or for said contract, and if the said Principal shall pay to the said Obligee all damages or forfeitures which may be sustained by reason of the non-performance or mal-performance on the part of the said Principal of any of the covenants, conditions, stipulations and agreements of said contract, then this obligation shall be void; otherwise the same shall remain in full force and virtue."

The contract, which the bond annexes had the following pertinent provisions:

400.17 Liens. The Contractor may not make, file or maintain or suffer or permit to be filed a mechanic's or other lien or claim of any kind or character whatsoever against any building or other structure to which this Contract relates, the additions, improvements, alterations or repairs made thereon, the ground on which said building or other structure is situated or any other property or property interested owned, held, occupied, or otherwise possessed by Owner, for or on account of any labor, materials, fixtures, tools, machinery, equipment, or any other things furnished, of any other work done or performance given under, arising out of or in any manner connected with this Contract, or any agreement supplemental thereto, and, the Contractor on behalf of its subcontractors, materialmen and all other persons entitled to such a lien or claim, hereby expressly waives and relinquishes any and all rights which Contractor or such persons now have or may hereafter acquire, to file or maintain any mechanic's or other lien or claim of any other kind or character whatsoever against the aforesaid property or property interests; and, the Contractor further agrees that this provision waiving the right of liens shall be an independent covenant, and that Contractor shall inform in writing all persons contracting to do work hereunder of this waiver and shall include a provision to that effect in all contracts made hereunder.

"The Contractor shall save and hold harmless Owner from and against any and all loss and expense due to liens or claims of any kind or character whatsoever that may be filed against Owner's property arising out of or in any manner connected with the performance of this Contract.

"400.18 Payments. The Owner agrees to pay the Contractor monthly at the rates herein provided, upon receipt of bill approved by Owner, with waivers of claims for mechanic's liens by all parties who furnished labor, material, or other services included in said bill, showing work done by Contractor during the preceding month. The Owner shall retain from each bill, ten percent (10%) of the monthly bill, until final approval and acceptance of the work by Owner. At the time of final payment, the Contractor agrees to furnish Owner with waivers of all claims for mechanic's liens, and showing that all amounts for labor, equipment, and subcontractors furnished by the Contractor have been paid in full." (Emphasis supplied.)

The appellant asserts that the district court erred in determining that the surety bond and the contract, when construed collectively, were not intended to provide coverage for the material and rental equipment furnished by the appellant for use in the overburden stripping project. Further, appellant contends that the surety bond and the contract must be construed collectively because the bond annexes the contract. This then leads the appellant to pose the vital questions which are the essence of this case. (1) If the surety bond is conditioned on the performance of the construction contract, may subcontractors, laborers and materialmen rely upon the underlying contract as the basis for filing suit on the surety bond as third-party beneficiaries? (2) May a subcontractor, laborer or materialman recover on a surety bond, which a contractor is obligated to obtain by the terms of his contract, where the bond is conditioned on the performance of the contract by the contractor and the construction contract requires the contractor to pay and satisfy the claims of subcontractors, laborers and materialmen? Finally, appellant asserts that if the courts determine that pertinent provisions of the bond and contract are ambiguous, then summary judgment for the appellee is inappropriate because such ambiguity constitutes a genuine issue of material fact.

In response to these assertions, appellee counters that: (1) contracts should not be construed as having been made for the benefit of third parties unless it clearly appears that it was the intention of the parties to the contract to confer a direct benefit on such third parties; (2) any third-party beneficiaries' rights which might arise in situations such as that at issue in this case must be determined by the application of the ordinary and accepted principles relating to a third-party-beneficiary theory, and such things as agreeing to indemnify the owner, furnishing material and labor, furnishing lien waivers or providing for an appropriate performance and payment bond do not constitute a clear intent to directly benefit a third party; (3) a reasonable construction of the bond and contract discloses that the contractor promised only to complete the project free of liens and to indemnify the owner from loss or claims made by laborers or suppliers, and cannot reasonably be read to express a clear promise to make direct payments to laborers and suppliers; and (4) there is no genuine issue of material fact and the bond and contract are not ambiguous in their language, hence summary judgment for appellee was appropriate.

In construing the language of a contract of suretyship, the same rules apply that control in the construction of other contracts. The true intent and meaning of the contract is to be ascertained or determined according to the rules applicable to contracts generally. Snow v. Duxstad, 1915, 23 Wyo. 82, 120, 147 P. 174. It has long been a part of this State's jurisprudence that corporations organized to make such bonds or undertakings for profit are not favorites of the law and that their contracts should be construed most strongly in favor of the obligee. United States Fidelity & Guaranty Co. v. Parker, 1912, 20 Wyo. 29, 51, 121 P. 531; 32 Cyc. 306-307; 17 Am.Jur.2d, Contractors' Bonds § 3, pp. 193-194.

The bond in this case must be construed in conjunction with and in the light of the contract with which it was executed, since the contract is incorporated into the bond. Dealers Electrical Supply v. United States Fidelity and Guaranty Company, 1977, 199 Neb. 269, 258 N.W.2d 131, 134; 17 Am.Jur.2d, Contractors' Bonds § 4, p. 194. About this there is really no quarrel. The real question is whether, when the bond and contract are construed together, there is an intention that third parties be benefited by its protection. The appellant is, of course, a stranger to this bond and...