Forburger Stone Co. v. Lion Bonding & Surety Co.

Sedgwick, J. 1. A building contractor entered into a contract to construct a building, and gave a bond for the faithful performance of the contract. This defendant was surety on the bond. The plaintiff furnished material to the contractor which was nsed in the construction of the building, and he brought this action against the-surety on the bond to recover the value of the material. The bond required the contractor to perform all of the conditions of his contract, and one of the conditions of his contract was that he should pay for all the materials which he used in the building. Therefore, this contractor’s bond contained an agreement for the bene [203] fit of this plaintiff, and it has been frequently held by this court that, under such circumstances, a party for whose benefit 'the contract was made can maintain an action directly against the party who has contracted for his benefit. Doll v. Crume, 41 Neb. 655, and cases cited, and various other decisions of this court are to this effect. 2. This bond contained the following provision: “That the said surety shall he notified in writing of any act on the part of said principal, which shall involve a loss for which the said surety is responsible hereunder, immediately after the occurrence of such act shall have come to the knowledge of the duly authorized representative or representatives of the obligee herein, who shall have the supervision of the completion of said contract.” It is conceded that no notice was given the surety as provided in the bond, and the serious, and perhaps difficult, question in this case is whether the third person, who is a beneficiary under this contract, can recover without having given the notice specified. In Doll v. Crume, supra, it was held: “That the contract between the city and Davis (the contractor) and his sureties, and the promises and liabilities of the latter thereon, were of a dual nature— a promise to the city that Davis should perform the work in the time and manner he had agreed, and a promise, in effect, to Crume to pay him for the labor he should perform for Davis.” This proposition of law is discussed at length in the opinion. In Knight & Jillson Co. v. Castle, 172 Ind. 97, 27 L. R. A. n. s. 573, it was held that under a similar contract the beneficiary could not recover without having given the notice provided for in the contract. The note in the L. R. A. is exhaustive, in which it is said: “A contractor’s surety bond to a public corporation is dual in its nature, being for the benefit and protection of the obligee against loss or damage from a failure of the contractor to perform his contract, and also for the [204] benefit of laborers and materialmen who do work and furnish materials in the performance of the contract. And when the rights of the latter are'once fixed, no act of the corporation will destroy or impair them”— and cites our case of Doll v. Crume, supra, and other authorities upon this proposition. In Doll v. Crume, supra, the contract was with a public corporation, but the opinion does not consider that fact as material, as would be seen from a reading of the opinion, in which it is said: “Suppose that Davis (the contractor) had borrowed $100 for 90 days from a bank, and given his note therefor, which note had been signed by the plaintiffs in error as sureties. Now if the bank, without the knowledge of the plaintiffs in error, had extended the time of the payment of this note, then such extension would have released the sureties from liability thereon; but in the case supposed, if at the time Davis borrowed the money plaintiffs in error had promised the bank that, in consideration of its lending the money to Davis, they would pay a debt of $10 which he owed to C., then any agreement between Davis and the bank for an extension of the time of payment of the note would not affect C.” That is to say, that the surety on the contractor’s bond has agreed that the contractor will pay the materialman. The contractor, of course, was under obligation to pay the materialman, and the contract, being for the benefit of the materialman, is distinct, according to the authority of this decision, from the contract that the contractor shall perform his work as he agreed to do. There are two contracts— one that the materialman shall be paid, and the other that the contractor shall perform his contract with the owner of the property. The entering into the contract with the contractor by the owner is the consideration for the agreement to pay the materialman for the material. In the L. R. A. note, above referred to, it is said that the decisions are not unanimous, and “a majority incline to hold that such conduct (conduct [205] of the nominal obligee) does not and cannot affect them (the materialmen) after their rights become fixed. ’ ’ The rights of laborers and materialmen to be paid for their labor and material are “fixed” when they have faithfully performed the labor or furnished the material; and, under these decisions, no failure of the contractor thereafter can invalidate the rights so fixed. That the duty to give the specified notice is placed entirely upon the obligee named in the contract, and relates only to his performance of the work he has contracted to do, appears from the words of the contract. The surety is to be notified “of any act on the part of said principal *' * * immediately after the occurrence of such act shall have come to the knowledge of” the representatives of the obligee “who shall have the supervision of the completion of said contract.” This plaintiff did not have any representative in this business, and neither the plaintiff nor any one for him had supervision of the completion of the contract. The plaintiff could not know when some act of the contractor came to the knowledge of the owner of the building. It would be impossible for the plaintiff to give the notice to the surety. Laborers and material-men are in the same position with respect to such contracts. If a laborer who has performed a few days’ work for the contractor would be in danger of losing his wages unless he keeps himself posted as to the doings of the contractor and the owner of the building, and sees that they perform their respective duties, he. would not be protected as perhaps sound public policy would require. As said in Des Moines Bridge & Iron Works v. Marxen & Rokahr, 87 Neb. 684: “It is better that the law with respect to contracts should be certain than that it should in all particulars conform to the views of the courts of some of our sister states. The defendants in the case at bar must have contracted with reference to the law as announced in the, cited cases, [206] and the defendant bonding company must have known that it was assuming an obligation to pay the subcontractors and materialmen as well as the laborers and mechanics engaged in constructing ■ the courthouse referred to. The plaintiff in contracting to furnish material for the courthouse also had a right to rely upon the law repeatedly stated by this court, and should not be deprived of the defendants’ obligation to pay for that material because a like bond could not be enforced in the state of New York. We are not convinced that we should overrule a long line of our decisions, and shall not to do so in the instant case.” That was an action for material furnished a contractor for a public building, and was before the statute making the contractor’s bond responsible for materials (Laws 1913, ch. 170), and yet it is said: “The defendant bonding company must have known that it was assuming an obligation to pay the subcontractors and materialmen as well as the laborers and mechanics engaged in constructing the courthouse referred to.” We think that, under our former decisions, the parties interested must know that the surety on a contractor’s bond, in which it is agreed that the contractor will pay laborers and materialmen, is directly liable for labor and material used by the contractor in the construction of the building under his contract; and we think we ought to adhere to that principle. The judgment of the district court is Affirmed. Aldrich, J., dissents.