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Socony-Vacuum Oil Co. v. Continental Casualty Co.

February 7, 1955


Author: Hincks

Before CLARK, Chief Judge, FRANK and HINCKS, Circuit Judges.

HINCKS, C.J.: The Bennett-Stewart Co., Inc. (hereinafter referred to as the prime contractor) was awarded a contract by the United States Government to construct a radar station at St. Albans, Vermont, and gave the "performance bond" and the "payment bond" required by the Miller Act, 40 U.S.C.A. 270a, 270b.*fn1 The prime contractor entered into a subcontract with R. F. Carpenter, Inc. (hereinafter referred to as the subcontractor) for road and parking area construction work around the radar station. Obviously having in mind its liabilities under the Miller Act to the subcontractor's materialmen, the prime contractor required the subcontractor to furnish a surety bond. The subcontractor, accordingly, provided a surety bond whereby it, as principal, and the defendant surety company, as surety, obligated themselves to the prime contractor in the penal sum of $162,000. This bond, which was made a part of the complaint, was conditioned as follows:

"WHEREAS, the above bounden Principal has entered into a certain written contract with the above named Obligee, dated the 8th day of May, 1950, for the construction of Roads, Parking Areas, etc., at St. Albans, Vermont.

"Which contract is hereby referred to and made a part hereof as fully and to the same extent as if copied at length herein.

"NOW THEREFORE, THE CONDITION OF THE ABOVE OBLIGATION IS SUCH, That if the above bounden Principal shall pay all labor and material obligations and shall well and truly keep, do and perform, each and every, all and singular, the matters and things in said contract set forth and specified to be by the said Principal kept, done and performed at the time and in the manner in said contract specified, and shall pay over, make good and reimburse to the above named Obligee, all loss and damage which said Obligee may sustain by reason of failure or default on the part of said Principal, then this obligation shall be void; otherwise to be and remain in full force and effect."

The plaintiff herein was a materialman of the subcontractor which, having failed within the time limitations of the proviso in Section 2 of the Miller Act, 40 U.S.C.A. 270b(a), to perfect its rights against the surety on the prime contractor's payment bond, brought this action in the United States District Court for the District of Vermont to recover for material furnished by it to the subcontractor for use in the performance of the subcontract and hence a part of the material provided in the prosecution of the main contract. The basis of jurisdiction is diversity of citizenship and no jurisdictional problem is presented.

In the court below the defendant moved to dismiss on the ground that the plaintiff had no right in the bond because the bond was for the benefit of the prime contractor only and not third parties, and that the plaintiff by failing to pursue its rights against the prime contractor under the Miller Act had injured the defendant. This motion was granted on the ground that the bond was given only for the benefit of the prime contractor, and not for the protection of the plaintiff as a materialman. From the ensuing judgment this appeal is prosecuted.

The record shows that the defendant Casualty Company was an Illinois corporation, that its principal - the subcontractor - was a Vermont corporation, and that the prime contractor was a Massachusetts corporation, and that the subcontract was one to be performed in Vermont. There is nothing in the record to show that the parties to the bond contemplated or agreed that it was to be interpreted or governed by the law of any particular state. Accordingly, we think the problem presented should be determined by the law of Vermont. Erie R.R. Co. v. Tompkins, 304 U.S. 64.

However, there seems to be neither statute nor judicial precedent in Vermont bearing on the problem. And the problem presented has been variously decided in various jurisdictions. Confronted with this dilemma our task is not to surmise which line of judicial precedent a Vermont court would follow if presented with the case, but rather, by looking to the same sources which a Vermont court would presumably consult and by weighing the comparative reasoning of learned authors and conflicting judicial decisions for their intrinsic soundness, to define the pertinent law which when thus ascertained is presumably the law of Vermont even though as yet unannounced by a Vermont Court. See Moore, Commentary on the United States Judicial Code, pp. 338-340.

Professor Corbin in his work on law of contracts, 4 Corbin on Contracts, Sections 798-804, has this to say:

"* * * the third party has an enforcible right if the surety promises in the bond, either in express words or by reasonable implication, to pay money to him. If there is such a promissory expression as this, there need be no discussion of 'intention to benefit'. 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. It is a much simpler question: Did the surety promise to pay money to the plaintiff?"

See also Corbin, "Contractor's Surety Bonds," 38 Yale Law Journal 1. This doctrine, we think, has the support of the great weight of authority. A long line of cases cited to such doctrine in 77 A.L.R. 53 amplifies the cases which Professor Corbin particularly cites.

It is true that in the bond here sued on the only expressly promissory words are those whereby the surety acknowledges itself bound to the prime contractor, as obligee, in the penal sum of $162,000. But since the bond is stated to be on condition that the principal - here the subcontractor - "shall pay all labor and material obligations," the words of the condition are the full equivalent of words of direct promise.*fn2

We are unable to recognize either the validity or the relevance of the conclusion of the trial judge that the bond was given only for the benefit of the prime contractor and not for the protection of materialmen.Doubtless the prime contractor in requiring a bond of its subcontractor sought protection against his own liability to materialmen of the subcontractor. But this he obtained through a bond requiring the payment of the materialmen. Obviously it was contemplated that performance under the bond would benefit not only the prime contractor who would ...

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