Appeal from the Municipal Court of Chicago; the Hon. GEORGE
SPITZ, Judge, presiding. Affirmed.
MR. JUSTICE BURMAN DELIVERED THE OPINION OF THE COURT.
In this action Neenah Foundry Company, materialman, plaintiff, sued defendants, Golden Valley Homes, Inc., owner, Chesterfield Sewer & Water, Inc., contractor, and National Surety Corporation, surety on contractor's bond, to recover $3,985 for materials alleged to have been furnished by plaintiff to the contractor and used in the construction of a sewer. Defendants, Chesterfield Sewer & Water, Inc., and Golden Valley Homes, Inc., were dismissed as parties defendant to plaintiff's action prior to trial. The cause proceeded to trial without a jury and judgment was entered for plaintiff against defendant, National Surety Corporation for $3,985, plus interest and costs from which judgment this appeal is taken. *fn1
The record shows that defendants, owner and contractor, entered into a contract on July 29, 1959, whereby the latter would furnish material and labor for the construction of a sewer and water system in Apple Orchard Subdivision. The contract provided under par 27:
"[t]he contractor shall furnish owner with a surety performance bond for the work contracted for and for the payment of claims for labor performed and materials furnished in the amount of Two Hundred Twenty-five Thousand Eight Hundred Twenty and 35/100 ($225,820.35) Dollars. The surety on such bond shall be a duly authorized surety company satisfactory to the owner."
Thereafter, the defendant surety company executed a bond with the contractor as principal and the owner as obligee. The contract bond contains among other things this condition: "Now, therefore, the condition of the above obligation is such, That if the above bounden Principal shall well and truly keep, do and perform, each and every, all and singular, the matter 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 defendant, Surety Company first contends that since the bond does not name plaintiff, materialman, as an obligee or beneficiary and contains no promise for the benefit of third parties, that plaintiff acquired no rights under the bond and thus the trial judge was in error when he entered judgment in favor of plaintiff.
The defendant Surety argues that the bond executed by it was only for performance of the contractor and not a payment bond. It is conceded by the Surety that their company executed its bond in connection with the contract entered into between the contractor and owner. The question for us is whether third parties who delivered materials to the contractor were protected within the meaning and benefit of the bond.
The general rule which governs the right of third parties not mentioned in a contractor's surety bond to sue upon such bond is a well settled one. The problems arise as particular fact situations are tested against the rather unyielding statement of the rule itself. In Carson Pirie Scott & Co. v. Parrett, 346 Ill. 252, 178 N.E. 498 the Illinois Supreme Court stated the rule as follows:
The rule is settled in this state that if a contract be entered into for a direct benefit of a third person not a party thereto, such third party may sue for breach thereof. The test is whether the benefit to the third party is direct to him or is but an incidental benefit to him arising from the contract. If direct he may sue on the contract; if incidental he has no right of recovery thereon. This rule has been announced without variation in numerous cases decided by this court. (Citing authorities.)
In order to determine whether the plaintiff derived a direct or incidental benefit from the surety agreement it is necessary to examine the terms of the construction contract which was specifically made a part of the surety agreement; the bond reading: ". . . which contract is hereby referred to and made a part hereof as fully and to the same extent as if copied at length herein."
The contract agreement provides in part that the contractor agrees to furnish all material and labor for the construction of a sewer and water system in the Apple Orchard Subdivision and provides under par 19:
If evidence is produced before final settlement of all balances that the contractor has failed to pay the laborers employed on this work, or failed to pay for the material used therein, the owner, through its officials, may withhold such balances until the contractor shall have satisfied them that all such claims have been paid.
The contractor further agrees that he will furnish the owner with satisfactory evidence that all persons who have done work or furnished material under this agreement and are entitled to a lien therefor under the laws of the State of Illinois have been fully paid or are no longer entitled to such lien.
This case arises out of the failure of the contractor to pay for materials furnished to him by plaintiff. Under these facts, the contractor could not produce a waiver of lien from the plaintiff and by the very words of clause 20 the Surety would be liable for claims arising out of this failure of its insured to complete the terms of the contract. But the appellant would argue that no matter what promises may have been made to the named promisee of the bond and no matter what rights of suit or compensation may lie as to ...