In a suit for labor and materials supplied by the plaintiff against a subcontractor and its surety, the plaintiff was not entitled to recovery against the surety where the performance and payment bond had been written pursuant to G. L. c. 149, Section 44H, in order to secure to the general contractor the subcontractor's performance and to indemnify the general contractor in the event it became obligated to pay any of the subcontractor's subcontractors; the supplier was not a third-party beneficiary of the bond. [801-805]
CIVIL ACTION commenced in the Superior Court on March 4, 1977.
The case was heard by Sullivan, J., a District Court judge sitting under statutory authority.
Thomas T. Brady for the defendants.
Girard R. Visconti for the plaintiff.
GREANEY, J. Continental Bronze Company, Inc. (Continental), supplied labor and materials to Salvo & Armstrong Steel Company, Inc. (Salvo), in connection with the latter's subcontract to provide and install metalwork in a publicly funded project constructed for the New Bedford Housing Authority (Authority). Salvo failed to
pay Continental, thereby precipitating this suit for labor and materials by Continental against Salvo and its surety, the American Insurance Company (American). It appears that Continental, prior to commencing suit, lost its rights against the project's general contractor, F. L. Collins & Sons, Inc. (Collins), and Collins' surety, Travelers Insurance Company, on the bond posted in conformance with G. L. c. 149, Section 29. Those rights had been lost as a result of Continental's tardiness in complying with the notice provisions set forth in the third paragraph of Section 29. [Note 2] Pleadings and submissions (bids, contracts, the bond and affidavits) evolved into cross motions for summary judgment. Mass.R.Civ.P. 56(a)(b), 365 Mass. 824 (1975). The judge denied the defendants' motions, allowed the plaintiff's, and permitted Continental a recovery of $7,390 against Salvo and American. In so doing the judge found that American's bond was written for Salvo to benefit Collins, but that Continental could reach the bond as a third-party beneficiary thereof. Despite the bond's adherence to the provisions of G. L. c. 149, Section 44H, he concluded that certain language in the bond was ambiguous and ruled that the ambiguity should be resolved in favor of permitting Continental a recovery on the bond. Although the appeal must be dismissed for lack of entry of a judgment (Mass.R.Civ.P. 58[a], as amended, 371 Mass. 908 , Levy v. Bendetson, 6 Mass. App. Ct. 558 , 561 ), because the issues have been fully briefed we express our views that the recovery permitted Continental against Salvo was correct, [Note 3] but that the recovery permitted against American was erroneous. This
will pave the way for the entry of a judgment consistent with this opinion.
1. The process of bidding and bonding on this public project followed the pattern established for such procedures in G. L. c. 149, Section 29, [Note 4] and in Sections 44A through 44L. Collins, the general contractor, obtained the bond required by Section 29 of c. 149 in favor of the authority to secure the payment by Collins' subcontractors for labor performed or furnished and materials used or employed in the projects. Because of the exposure of Collins and its surety under Section 29 of c. 149 to parties who contracted with the various subcontractors, Collins requested (as expressly authorized by Section 44H) that its principal subcontractors, including Salvo, be bonded. Salvo's bond, written by American, contained the promises set forth in the margin [Note 5] in language which tracked virtually word for word the requirements for this type of bond spelled out in the third paragraph of G. L. c. 149, Section 44H.
American asserts correctly that it has written a statutory performance and payment bond pursuant to G. L. c. 149, Section 44H, designed solely to benefit Collins. The bond's promises are twofold: (1) to secure to Collins the performance of Salvo's metalwork subcontract; and (2) to indemnify Collins in the event Collins became obligated under G. L. c. 149, Section 29, to pay any of Salvo's subcontractors.
These promises must be construed in view of the third paragraph of G. L. c. 149, Section 44H, inserted by St. 1960, c. 771, Section 6, which defines the scope and contents of a subcontractor's bond and which expressly states that "[a] performance and payment bond furnished by the subcontractor at the request of a general contractor . . . shall be for the benefit of the general contractor . . . [emphasis supplied]." This language and the insertion of the present third paragraph in to Section 44H four years after the insertion of Section 44H itself (by St. 1956, c. 679, Section 1) and three years after the rewriting of c. 149, Section 29 (by St. 1957, c. 682, Section 1), which broadened the range of remedies available to parties dealing with subcontractors against the general contractor and its surety, [Note 6] lead to the conclusion that a bond written in strict conformity with the terms of Section 44H is for the benefit of the general contractor alone. See generally Claycraft Co. v. John Bowen Co., 287 Mass. 255 , 257 (1934); Waite Hardware Co. v. Ardini & Pfau, Inc., 339 Mass. 634 , 637-638 (1959); James D. Shea Co. v. Perini Corp., 2 Mass. App. Ct. 912 (1975), which limit the range of obligees and beneficiaries of payment and performance bonds to those parties enumerated either in the bond or in the statute. See also Scaduto v. Orlando, 340 F.2d 293, 300 (2d Cir.), cert. denied, 380 U.S. 978 (1965) (applying Massachusetts law). This conclusion is also buttressed by a comparison of the language in Section 44H tying the benefits of a bond written thereunder to the general contractor with the language in Section 29A of c. 149, [Note 7] as amended by St. 1972, c. 399,
which permits a third party such as Continental in a private construction contract to claim the benefits of a subcontractor's bond where the terms of the bond so permit. The absence of anything comparable to Section 29A with reference to the interrelationship of Section 29 and Section 44H bonds further suggests that the Legislature did not intend direct suits by sub-subcontractors on subcontractor's bonds. See and compare Powers Regulator Co. v. United States Fid. and Guar. Co., 7 Mass. App. Ct. 913 (1979) (where on a private project, a subcontractor's bond, containing language unnecessary to the general contractor's protection was held under G. L. c. 149, Section 29A, to have promised payment to a person supplying labor and materials in the prosecution of the work provided for in the contract), with Mosaic Tile Co. v. Rusco Prod. of Massachusetts, Inc., 350 Mass. 433 , 437 (1966) (where a supplier of materials to a subcontractor was denied recovery against the subcontractor's bond because the benefit to claimants under Section 29 "covers only bonds given by the general contractor and does not affect a payment security bond from a subcontractor to the general contractor"). The Mosaic Tile case is particularly instructive because the claim made and rejected in that case under Section 29 is similar to the claim made by Continental under Section 44H in this action. In view of the foregoing discussion and the predominant legislative facts, we cannot accept Continental's argument that the bond which secured to Collins the performance of Salvo's subcontract was meant to give Continental the right to sue American if it was not paid. The purpose of that promise in this Section 44H bond is aimed at performance and was to protect Collins in the event Salvo should default on the metalwork by requiring American to reimburse Collins for costs incurred to hire another subcontractor to
complete Salvo's work. Similarly, the indemnification promise in the bond was exclusively for Collins' benefit and secured payment in the event of the imposition of liability on Collins under Section 29 of c. 149. Continental cannot claim to have been shortchanged because of the express remedy afforded it by the first and third paragraphs of G. L. c. 149, Section 29, against Collins and its surety, a remedy which has been construed to provide broad protection to those in Continental's position. See M. Lasden, Inc. v. Decker Elec. Corp., 372 Mass. 179 , 183 (1977), and cases cited. The decision in Royal Indem. Co. v. Alexander Indus., Inc., 211 A.2d 919 (Del. 1965), relied upon by the plaintiff as justifying recovery is inapposite. That case was decided on general suretyship principles inapplicable here because of our particular statutory framework. Other cases brought to our attention by Continental are also not persuasive because they do not involve statutes similar to ours, or because they also base their analysis on general suretyship principles that in effect permit parties in Continental's position to recover on a general contractor's bond but not on a subsidiary bond from the subcontractor to the general contractor. See generally Graybar Elec. Co. v. Continental Cas. Co., 50 N.J. Super. 289 (1958); Maine Bonding & Cas. Co. v. Foundation Constructors, 105 N.H. 470 (1964); Acoustics, Inc. v. Hanover Ins. Co., 118 N.J. Super. 361 (1971); Amelco Window Corp. v. Federal Ins. Co., 127 N.J. Super. 342 (1974). Furthermore, Continental's reliance on Sections 165 & 166 of the Restatement of Security (1941) is misplaced. Our statutory double bond system does not precisely fit either of the situations described in those sections. By analogy, however, the bond under G. L. c. 149, Section 29, explicitly creates third-party beneficiary rights while the bond under G. L. c. 149, Section 44H, explicitly excludes them "because there is no indicated purpose to benefit [a third party]." Restatement of Security, supra Section 166, Comment a.
2. There remains for brief discussion whether the recent decision in Choate, Hall & Stewart v. SCA Servs. Inc., 378 Mass. 535 (1979), enhances Continental's position. That case swept aside many cobwebs that had been spun around our third party beneficiary rules and allowed third parties found to be intended creditor beneficiaries of a contract to seek its enforcement. [Note 8] Choate, Hall & Stewart does not apply here because the terms of the promised performance in American's bond are restricted by G. L. c. 149, Section 44H, to benefit the general contractor, a circumstance which excludes claimants such as Continental at the threshold from intended beneficiary status. See 4 Corbin, Contracts Section 800 at 173-177 (1951); 2 Williston, Contracts Sections 402 & 403 (3d ed. 1959). See also Choate, Hall & Stewart v. SCA Servs. Inc., supra at 545 n.17. Thus, the Choate, Hall & Stewart decision was not meant to be a vehicle to disrupt the symmetry of the relevant provisions of c. 149 or to create new levels of risk not contemplated by Section 44H or bargained for by the parties.
The defendants may move in the Superior Court for the entry of a judgment which (a) finds Salvo indebted to Continental in the amount of $7,390 and (b) finds for American in Continental's claim on its bond with Salvo.
[Note 1] American Insurance Company.
[Note 2] Continental gave written notice to Collins of a possible claim against the general contractor and its surety well beyond the sixty-five day period specified for the notice by the statute.
[Note 3] The defendant Salvo failed to allege any specific facts which established the existence of a genuine, triable issue on the question of its indebtedness to Continental for the balance owed for the work performed and materials supplied by the latter on its subcontract.
[Note 4] General Laws c. 149, Section 29, is made applicable to projects built by housing authorities by virtue of G. L. c. 121B, Section 13.
[Note 5] "NOW, THE CONDITION OF THIS OBLIGATION is such that if the subcontractor shall faithfully perform the subcontract and shall indemnify and hold harmless the general contractor and the surety or sureties under the labor and materials or payment bond furnished by such general contractor to the awarding authority against (1) any and all loss and expense arising out of any and all claims in connection with the performance of said subcontract which would be required to be paid under the labor and materials or payment bond furnished by the general contractor to the awarding authority and (2) attorney's fees in the event the subcontractor, after notice, fails to assume the defense of and defend such claims, then this obligation shall be null and void; otherwise it shall remain in full force and virtue."
[Note 6] Statute 1964, c. 609, Sections and 5, made amendments to G. L. c. 149, Section 29, which are not relevant in this case, and St. 1972, c. 774, Section 5, changed the procedure and time period for those contracting with the subcontractor to make claims.
[Note 7] "Whenever any surety bond shall be given in connection with any written contract for the erection, alteration, repair or removal of any private building or structure upon privately owned land, containing a condition for the payment of all labor and material used or reasonably required for use in the performance of the contract, any person who furnishes such labor or materials shall be entitled to sue for his own use and benefit upon such bond in accordance with its provisions and need not prove that he relied upon the bond [in] furnishing labor or material."
[Note 8] The difference between intended and incidental beneficiaries is defined in Restatement (Second) of Contracts Section 133 (Tent. Draft No. 3, 1967).