Pittsburgh v. Parkview Construction Co. ( 1942 )

It is clear that the claim of use-plaintiff does not fall within the terms of the labor and materialmen's bond here in question. A careful reading of the bond in its entirety shows that no such intention was within the contemplation of the parties. While this bond is conditioned upon the "payment for all labor performed, services rendered, and materials furnished", yet by other provisions it defines and limits the meaning of these words. The bond specifies that the only persons who shall have a right of action thereunder are those who have "furnished materials or machinery to be used on or incorporated in the work or the prosecution thereof . . . or . . . engaged in the prosecution of the work provided for in said contract . . . who is an agent, servant, or employee of the principal or of any sub-contractor, or of any assignee of said principal or of any sub-contractor, and also anyone so engaged who performs the work of a laborer or of a mechanic regardless of any contractual relationship between the principal, or any sub-contractor, or any assignee of said principal or of said subcontractor, and such laborer or mechanic. . ." Thus, it is readily apparent that the words "services rendered" in the condition of the bond was not intended to cover claims of those who furnished the insurance required by the contract.

As to the performance bond, however, it appears equally clear that the payment of such claims as that of use-plaintiff was intended. This bond provides not only that the contractor "shall faithfully perform the contracts", but also that he shall "satisfy all claims and demands incurred in or for the same, or growing out of the same." The only logical inference is that the parties inserted the former of these provisions for the protection of the City of Pittsburgh, and the latter for the benefit of the creditors of the contractor as donee beneficiaries. Certainly it cannot be reasonably supposed that both provisions were intended for the sole protection of the municipality, for obviously the City of Pittsburgh could not be held liable for such claims and demands, nor could liens therefor be filed against its property. In this connection it, was aptly stated in Williston on Contracts, Vol. Two, Sec. 372, pp. 1084-1085: "It is a common stipulation in a building contract that the contractor will pay all bills for labor and materials. . . . But the trend of authority is to regard the surety as promising the owner to pay such claims in discharge of the contractor's obligation thereon and to permit the laborer or materialman to sue on this promise as a beneficiary [citing Concrete ProductsCo. v. U.S. Fid. Guar. Co., 310 Pa. 158]. . . . If an intent can be found to confer a right on the laborers and materialmen, they come within the definition in the Restatement of Contracts of donee beneficiaries. Where the owner of the building is a municipality, school district, county, or state there can be no inference that the owner desired the promise for his own benefit, since the laws give no liens against the buildings of such owners. In such cases if the stipulation can be regarded as the result of more than the accidental insertion of a provision common in building contracts without reflection as to its necessity, it must be supposed that the object was to benefit creditors of the contractor." Furthermore, it was said by Professor Arthur L. Corbin of Yale Law School, in an article on "Third Parties as Beneficiaries of Contractors' Surety Bonds", on page 667 of "Selected Readings on the Law of Contracts", and cited with approval in Concrete Products Co. v.U.S. Fid. Guar. Co., supra: "We should now start with the general proposition that two contracting parties have power to create rights in a third party. . . . We need not speculate for whose benefit the contract was made, or wonder whether the promisee was buying the promise for his own selfish interest or for philanthropic purposes [page 677]. The words used in building contracts and in accompanying surety bonds are now usually such that they are, and should be, interpreted as a promise by the surety to pay laborers and materialmen in case of default by the contractor. . . . In this class of cases it is sound policy to interpret the words liberally in favor of the third parties."

This Court has definitely decided that where there is a provision in a bond to pay third parties, who can be ascertained, such third parties have a right of action on the bond: Com. v. Great American Indemnity Co., 312 Pa. 183;McClelland v. New Amsterdam Casualty Co., 322 Pa. 429. See also Restatement of the Law of Contracts, sections 133, 135, 139; University of Chicago Law Review, Vol. 3, page 1; 9 Am. Juris. sec. 97, page 63. Where a bond contains the broad expression that "all claims and demands incurred" as does the one in the instant case, or similar phraseology, the great weight of authority holds that insurance premiums are covered thereby. It was said in 129 A.L.R. 1092: "A majority of the cases upon the point and within the scope of this annotation hold that insurance premiums are covered by a contractor's bond conditioned upon the faithful performance of the contract and the payment of all claims or debts incurred in connection with the performance of the contract, where the contractor is required by his agreement to maintain the insurance. McFarlandv. Rogers, 134 Me. 228, 184 A. 391; Merchants Mut. Casualty Co.v. United States Fidelity G. Co., 253 A.D. 151, 2 N.Y. So.2d 370; Building Contractors' Limited Mut. Liability Ins.Co. v. Southern Surety Co., 185 Wis. 83, 200 N.W. 770."

Furthermore, since Greene Co. v. Southern Surety Co., 292 Pa. 304, was overruled by this Court in Com. v. Great AmericanIndemnity Co., supra, I am thoroughly convinced that the Act of June 23, 1931, P. L. 1181, in no way limits the right of third party donee beneficiaries, under the circumstances here presented, to sue upon a performance bond.

Therefore, for these reasons and those set forth in the majority opinion, I agree that the judgment should be reversed and a procedendo awarded.