Atlas Powder Co. v. Nelson & Chase & Gilbert Co. , 124 W. Va. 298 ( 1942 )

From the petition for rehearing and the brief filed therewith, it would appear that the appellant has largely misapprehended the scope and effect of our decision herein. In the petition it is alleged that in disposing of this appeal, this Court fell into "error" in eight particulars. However, the only ground for rehearing which is at all stressed is that relating to our holding that the Atlas Powder Company has no right of action on either the original contract between the owner and the principal contractor, or on the bond executed by the latter. It is argued that we have established a rule which will make it impossible for an owner and a building contractor to make an agreement binding the latter to pay for labor or materials furnished to a subcontractor, or for the contractor to procure and give a valid bond for that purpose.

A simple reading of the opinion and syllabus in this case ought to make it perfectly apparent that we went no further than to hold that the Atlas Powder Company in this particular case has not shown any right of action on the contract or bond involved herein. We most certainly did not say that either the contract or the bond could not have been written so as to give such right of action. It was, of course, clearly possible for The Virginian Western Railway Company, and Nelson and Chase Gilbert Company to make a contract between themselves which would inure to the benefit of the powder company and of any other creditor of the sub-contractor. There would thus have been created the common and familiar status of a third party beneficiary. The railway company or the contractor might have been under contractual obligations to the powder company, and could most certainly have contracted for the other to discharge that liability, thereby making the powder company a "contract beneficiary" with enforceable rights. Or the original contracting parties may have owed the powder company nothing, but still have had a benevolent desire to give or create a gratuitous right in that company, in which case a contract could have been so written as to make the powder company a "donee beneficiary." But the intention to create such donee beneficiary must be made clearly to appear. Ordinarily, such donations, or gratuitous benefits, are not made to strangers.In re United Cigar Stores Co. of America, 70 F.2d 313; Smith v. Anglo-California Trust Co., 205 Cal. 496, 271 P. 898; ByramLumber Supply Co. v. Page, 109 Conn. 256, 146 A. 293; EastCoast Stores v. Cuthbert, 101 Fla. 25, 133 So. 863;Tetelman v. Fulton, 168 Misc. 803, 6 N.Y.S. .2d 530; Casey v.Watts (Tex.), 130 S.W.2d 396; Acierno v. North Shore Bus Co.,173 Misc. 79, 17 N.Y.S.2d 170; Associated Flour Haulers andWarehousemen v. Hoffman, 282 N.Y. 173, 26 N.E.2d 7; Percival v. Luce, 114 F.2d 774.

But a situation may arise under a contract by which a third party is neither a "contract beneficiary" nor a "donee beneficiary," but as a practical fact will be benefited by the performance of the contract between the other parties thereto. Such a party is an "incidental beneficiary," with no right of action on the contract. Phez Co. v. Salem Fruit Union, 113 Or. 398,233 P. 547; Chicago, R.I. P. Railway Co. v. MarylandCasualty Co., 75 F.2d 596; Brown v. Fogarty, 221 Ala. 283,128 So. 376; State v. Padgett, 54 N.D. 211,209 N.W. 388; Higgins v. Monckton, 28 Cal. App. 2d 723, 83 P.2d 516;Hanssel v. P. Tomasetti Contracting Corporation, 8 N.Y.S.2d 873;Watson v. American Creosote Works, Inc., 184 Okla. 13,84 P.2d 431; Price v. Lee (Tex.), 119 S.W.2d 673; Kelly v.Richards, 95 Utah 560, 83 P.2d 731, 129 A.L.R. 164; Cherry v. Aetna Casualty Co.,372 Ill. 534, 25 N.E.2d 11; Crown Fabrics Corporation v.Northern Assurance Co., Ltd., 124 N.J.L. 27, 10 A.2d 750;Borough of Brooklawn v. Brooklawn Housing Corporation,124 N.J.L. 73, 11 A.2d 83; Barratt v. Greenfield, 137 Pa. Super. 310,9 A.2d 188; Ball v. Cecil, 285 Ky. 438, 148 S.W.2d 273;Marshall v. Landau, 308 Mass. 239, 31 N.E.2d 540; HartfordAccident Indemnity Co. v. Hewes, 190 Miss. 225, 199 So. 93,772.

The Atlas Powder Company, in the present case, if a beneficiary at all, is at best, a mere incidental beneficiary, both as to the original contract and as to the bond executed by the general contractor. Consider first the contract. In the bill of complaint, the powder company claimed recovery thereon, and in the petition for appeal, the trial court's denial of such right was assigned as error. But in a brief filed on the original hearing before this Court, this claim is not emphasized or clearly mentioned. From this we might well have concluded that the appellant had abandoned this ground of error or had found no authority to sustain the same. But, whether abandoned or not, we consider the position untenable. The contract in question appears to be in a standard form frequently used in this and other states, yet never before has there come to this Court a claim against a principal contractor based on such a contract, for the recovery of the price of materials furnished to a subcontractor. If such a contract creates such a right, that right would seem to have been but lately discovered.

The principal contention of the appellant, however, upon the original hearing here and upon the petition for rehearing, has been to the effect that it is entitled to recover on the bond executed by the principal contractor. But this bond was plainly given pursuant to Code, 38-2-22, 23 and 24. It is in the amount required by the statute; it contains verbatim all the recitals and conditions of the form of bond suggested by the statute; it is recorded as in the manner required by the statute; it must, therefore, be given the effect, and only the effect, prescribed in the statute for such a bond. Section 22 reads as follows:

"Any owner may limit his liability upon a contract such as is mentioned in section one of this article, to the sum agreed therein to be paid therefor, by recording his contract with such general contractor, in the office of the clerk of the county court of the county wherein such building or other structure is situate, prior to the beginning of the building, erection and construction thereof, and by requiring to be given by his general contractor, and by recording with such general contract, a valid and solvent bond, in a penalty equal to the contract price, with solvent surety, conditioned that in the event any laborer, materialman or other person, having perfected his lien as allowed by this article, be deprived by the recordation of the owner's contract from receiving from such owner the amount of his lien, then such bond and the surety thereon shall be responsible to such lienor for the amount of such lien account, or for any balance thereof not collected by such lienor from such owner and from such property."

We see no possible theory upon which it can be said that there is any beneficiary of the bond thus provided for except (1) the owner, and (2) laborers and materialmen and other persons who have perfected liens for their claims. There are no benefits provided for any non-lien claimant against the owner, the contractor, the subcontractor or anyone else. And the appellant here is a non-lien claimant. The practical operation of this statute is that the giving of such a bond limits the liability of the landowner under the mechanics' lien law to the amount stated in his contract, and to cast on the bondsmen the burden of all liens in excess of that amount. The giving of the bond, therefore, to this degree, operates as a benefit to the owner, but it also operates to deprive the holders of liens in excess of the contract price of their otherwise valid claims against the owner's property, and to give such lienors in lieu of the rights thus taken away a right of action on the bond. By its very terms, the statute purports to protect nobody whatsoever except materialmen and laborers who have reduced their claims to liens. The very conditions of the bond, as expressly set out in the section above quoted, limit the liability thereon to these parties. If this section were the whole of the statute, we think there would not even be any question raised by the appellant.

But section 24 purports to provide a form of bond to be used in such cases. It reads:

"The bond referred to in section twenty-two of this article shall be sufficient if in form and effect as follows: * * * now, therefore, if the said . . . shall well and truly perform his said contract, and shall pay off, satisfy and discharge all claims of subcontractors, laborers, materialmen and all persons furnishing material or doing work upon said building and shall save the said . . . and his property harmless from any and all liability, over and above the contract price thereof, between the said owner and the said contractor, for all of such labor and materials, and shall fully pay off and discharge and secure the release of any and all mechanics' liens which may be placed upon said property by any such subcontractor, laborer or materialman, then this obligation shall be null and void. Otherwise it shall remain in full effect. * * *." (Italics supplied)

It might appear that the conditions of the bond suggested (but not in any sense required) by this section include more than is made requisite in the bond provided for in section 22. The bond required in section 22 does not make the bondsmen liable to "satisfy and discharge all claims of subcontractors, laborers, materialmen and all persons furnishing material or doing work upon said building." The appellant, therefore, contends that the form of bond suggested (but not required) by section 24 is broader than the bond actually required by section 22, and bases its claim on the words italicized in the quotation of section 24. We consider this question foreclosed by our decision in Fireproof Products Co. v. Logan et al.,113 W. Va. 703, 169 S.E. 400, in which, upon a precisely similar claim made on a precisely similar bond, given under this statute, we held that no recovery could be had on the bond.

In the case of Bluefield Supply Co. v. Smith ConstructionCo., 115 W. Va. 537, 177 S.E. 296, the identical bond here involved was considered and appraised, and, whether that decision is binding here or not, upon reconsideration of the statute, we have arrived at the same conclusions therein announced.

Moreover, we are constrained to reach the same conclusion from a wholly different approach. Sections 22 to 24, above considered, first came into our statutory law by Chapter 6, Acts of 1917. That act is entitled: "An act to amend and re-enact chapter seventy-five (75) of the code of West Virginia of one thousand nine hundred and thirteen, entitled 'lien for purchase money, and lien of mechanics, laborers, and others.' " By its title, the act, therefore, was confined exclusively to the liens mentioned therein. Any provision in the act which might be construed as relating to claims other than liens would be wholly outside the title, and, therefore, unconstitutional. It follows thus that all conditions in the suggested form of bond must be construed as relating to liens or be held nullities. If we construe the condition to "pay off, satisfy and discharge all claims of subcontractors, laborers, materialmen and all persons furnishing material or doing work upon said building," as relating only to the claims intended by section 22 to be protected by the bond, it will be constitutional, and will be thoroughly consistent with that section. If we construe it as covering non-lien claims for labor and material in general, it is outside the title of the act by which the law came into existence, and, therefore, unconstitutional. In either case, it can give rise to no cause of action in the appellant.

Nor can this bond be treated in the aspect of a common law bond, nor as both a common law and a statutory bond. Such a combination could have been executed and been valid. But there is nothing written in this bond, beyond what the statute requires, on which the plaintiff could have based an action. The variations from the statutory form are either immaterial or do not concern the appellant.

In conclusion, let it be repeated and emphasized that we have not said that a binding contract or a binding contractor's bond cannot be so written as to enable those furnishing labor and materials to subcontractors to recover thereon. Unquestionably, such a contract or bond could be so drafted, executed and enforced. We have simply said that this particular furnisher of material in this particular case has not shown that it is entitled to recover on this particular contract or this particular bond.

Judge Fox authorizes me to state that he concurs in this note.