TREASURE STATE INDUSTRIES INC v

Annotate this Case

Download PDF

No. 13525 I N THE SUPREME COURT OF THE STATE OF MONTANA TREASURE STATE INDUSTRIES INC., a corporation, P l a i n t i f f and R e s p o n d e n t , .DEL WELCH, d/b/a DEL WEI,CH CONSTRUCTION C O . , AETNA LIFE AND CASUALTY C O . , a c o r p o r a t i o n e t a l . , Defendants and A p p e l l a n t s . Appeal from: D i s t r i c t Court of t h e Eighth J u d i c i a l D i s t r i c t , H o n o r a b l e P a u l G. H a t f i e l d , J u d g e p r e s i d i n g . C o u n s e l o f Record: For A p p e l l l a n t s : J a r d i n e , S t e p h e n s o n , B l e w e t t & Weaver, G r e a t F a l l s , Montana A l e x a n d e r B l e w e t t I11 a r g u e d , G r e a t F a l l s , Montana F o r Respondent: D z i v i , C o n k l i n , J o h n s o n & Nybo, G r e a t F a l l s , Montana Dennis C. M c C a f f e r t y a r g u e d , G r e a t F a l l s , Montana Submitted: Decided : Filed: May 25, 1977 M r . J u s t i c e Gene B . Daly d e l i v e r e d t h e Opinion of t h e Court. On December 1 9 , 1974, T r e a s u r e S t a t e I n d u s t r i e s , I n c . , f i l e d a complaint a g a i n s t f o u r defendants t o r e c o v e r c e r t a i n monies a l l e g e d l y due f o r supplying m a t e r i a l s f o r use on a p u b l i c works c o n s t r u c t i o n p r o j e c t . (1) The d e f e n d a n t s named were: S l e t t e n C o n s t r u c t i o n Co., t h e g e n e r a l c o n t r a c t o r , who e n t e r e d i n t o t h e p r o j e c t w i t h t h e s t a t e of Montana f o r t h e c o n s t r u c t i o n of a highway and c e r t a i n b r i d g e s i n Mineral County, Montana; (2) S t . P a u l F i r e and Marine I n s u r a n c e Co., S l e t t e n ' s s u r e t y , who i s s u e d a bond f o r t h e b e n e f i t of t h e s t a t e of Montana with S l e t t e n a s principal; (3) Del Welch C o n s t r u c t i o n Co., S l e t t e n ' s s u b c o n t r a c t o r , who was f u r n i s h e d c e r t a i n m a t e r i a l s by T r e a s u r e S t a t e f o r which T r e a s u r e S t a t e i s a t t e m p t i n g t o recover from a l l d e f e n d a n t s ; and (4) Aetna L i f e and Casualty Co. t h e s u r e t y f o r De1,Welch C o n s t r u c t i o n Co., who i s s u e d a bond w i t h S l e t t e n a s o b l i g e e and w i t h Welch a s p r i n c i p a l . The d i s t r i c t c o u r t , Cascade County, g r a n t e d a p a r t i a l summary judgment a g a i n s t Aetna on t h e i s s u e of l i a b i l i t y , and judgment was e n t e r e d f o r damages, which f o r t h e purpose of t h i s a p p e a l o n l y , were agreed upon by T r e a s u r e S t a t e and Aetna. Aetna a p p e a l s from t h i s judgment. The major i s s u e p r e s e n t e d on a p p e a l i s whether T r e a s u r e S t a t e , a t h i r d - p a r t y materialman, i s e n t i t l e d t o a cause of a c t i o n a g a i n s t Aetna on i t s s u r e t y bond, which names S l e t t e n , the general contractor a s the sole obligee. I n t h e Aetna bond t h e r e i s no promise t o pay f o r any m a t e r i a l s , although t h e u n d e r l y i n g s u b c o n t r a c t p r o v i d e s such an o b l i g a t i o n f o r Welch, t h e s u b c o n t r a c t o r . ~ e t n as' o b l i g a t i o n s under t h i s bond a r e n o t s p e c i f i c a l l y c o n d i t i o n e d upon t h e payment of any s u p p l i e d m a t e r i a l s . On t h e c o n t r a r y , t h e o b l i g a t i o n o f Aetna under t h i s bond i s merely c o n d i t i o n e d upon t h e f a i t h f u l performance of t h e s u b c o n t r a c t o r , i n t h e a l t e r n a t i v e , indemnif i c a t i o n of S l e t t e n , t h e o b l i g e e . A s u r e t y bond i s simply a c o n t r a c t and should be i n t e r p r e t e d i n t h e same manner a s o t h e r contracts. S e c t i o n 13-702, R.C.M. 1947, i s t h e Montana s t a t u t e which governs t h e i n t e r p r e t a t i o n of c o n t r a c t s : "Contracts--how t o be i n t e r p r e t e d . A c o n t r a c t must be so i n t e r p r e t e d a s t o g i v e e f f e c t t o t h e mutual i n t e n t i o n of t h e p a r t i e s a s i t e x i s t e d a t t h e time of c o n t r a c t i n g s o f a r a s t h e same i s a s c e r t a i n a b l e and l a w f u l .I' I n i n t e r p r e t i n g t h e o b l i g a t i o n of Aetna under t h i s s u r e t y bond, which i n c o r p o r a t e d by r e f e r e n c e t h e s u b c o n t r a c t between S l e t t e n and Welch, it i s n e c e s s a r y t o c o n s t r u e t h e s u r e t y bond and t h e underlying c o n t r a c t t o g e t h e r . Watson v . ~ ' N e i l l ,14 Mont. 197, 35 P. 1064; S e c t i o n 13-708, R.C.M. 1947. N e i t h e r t h e language of t h e bond n o r t h e language o f t h e underlying s u b c o n t r a c t s p e c i f i c a l l y mentions T r e a s u r e S t a t e i n any way and f o r T r e a s u r e S t a t e t o recover from Aetna on t h i s bond, T r e a s u r e S t a t e must do so a s a t h i r d - p a r t y b e n e f i c i a r y pursuant t o s e c t i o n 13-204, R.C.M. 1947, which p r o v i d e s : "When c o n t r a c t f o r b e n e f i t of t h i r d person may be e n f o r c e d . A c o n t r a c t , made e x p r e s s l y f o r t h e b e n e f i t o f a t h i r d p e r s o n , may be e n f o r c e d by him a t any time b e f o r e t h e p a r t i e s t h e r e t o r e s c i n d it." Unless i t was t h e i n t e n t of S l e t t e n , Welch and Aetna a t t h e time of t h e e x e c u t i o n of t h e bond t o e x p r e s s l y b e n e f i t o r p r o t e c t T r e a s u r e S t a t e , i t cannot recover from Aetna on t h e bond. Therefore, it becomes necessary t o examine t h e mutual determination a s t o t h e i n t e n t of t h e p a r t i e s a s i t e x i s t e d a t t h e time of t h e c o n t r a c t i n g . Aetnamntends t h i s bond i s a t r u e indemnity bond. According t o t h i s view, t h e i n s e r t i o n i n a bond o r c o n t r a c t made p a r t of t h e bond, of a condition t o pay l a b o r e r s and materialmen and of a condition t o indemnify t h e o b l i g e e , i n d i c a t e s an i n t e n t t h a t t h e former condition was intended f o r t h e p r o t e c t i o n of t h e obligee and n o t f o r t h e b e n e f i t of l a b o r e r s and materialmen. I n other words, t h e condition f o r t h e indemnification of t h e owner modif i e s and explains t h e condition f o r t h e payment of l a b o r e r s and materialmen. Treasure S t a t e contends t h i s i s n o t a t r u e indemnity bond and t h a t i t was t h e i n t e n t of a l l p a r t i e s t h a t t h e materialmen should have a cause of a c t i o n on t h e Aetna bond i n t h e event they remained unpaid. It i s argued t h a t performance of t h e subcontract includes payment of t h e materialmen and t h e r e f o r e , an i n t e n t t o d i r e c t l y b e n e f i t a l l materialmen i s evidenced by t h e bond. Treasure S t a t e contends Weissman & Sons, I n c . , v . S t . Paul Insurance Co., 152 Mont. 291, 448 P.2d 740, i s c o n t r o l l i n g . f e e l Weissman can be d i s t i n g u i s h e d on t h e f a c t s . W e I n Weissman t h e s u r e t y bond and t h e c o n t r a c t contained an express provision t o pay materialmen. such provision. The bond i n t h e i n s t a n t case contained no I n Weissman t h e s u r e t y bond contained no condition of indemnification of t h e named obligee. The sub- c o n t r a c t i n Weissman did not contain a s p e c i a l provision whereby the subcontractor agreed t o indemnify t h e c o n t r a c t o r . provision i s present i n t h e i n s t a n t case. Such a F i n a l l y , s i n c e Weissman did n o t d e a l with a public works c o n t r a c t , t h e r e was no s t a t u t o r y provision ( s e c t i o n 6-401, R.C.M. 1947) allowing a l l materialmen a r i g h t of a c t i o n on t h e prime c o n t r a c t o r ' s bond. Therefore, t h e materialmen were n o t s p e c i f i c a l l y protected i n Weissman u n t i l t h e prime c o n t r a c t o r required a bond from t h e s u r e t y company s p e c i f i c a l l y conditioned upon t h e payment of a l l materialmen. Weissman i s c l e a r l y d i s t i n g u i s h a b l e from t h e i n s t a n t case on t h e f a c t s and t h e r e f o r e would n o t c o n t r o l . This Court i n Gary Hay & Grain Co., Inc. v. Carlson, 79 Mont. 111, 255 P. 722, made i t c l e a r t h a t although t h e s u r e t y bond and t h e underlying c o n t r a c t must be read together t o ascertain the parties' intentions, the surety's obligations a r e n o t coextensive with o b l i g a t i o n s of t h e underlying c o n t r a c t . For t h i s proposition t h e Court c i t e d Blyth-Fargo Co. v. Free, 46 Utah 233, 148 P. 427, a case concerning a s u r e t y bond which was conditioned upon t h e performance of t h e underlying c o n t r a c t and upon indemnification of t h e obligee. I n Blyth-Fargo the c o u r t found t h e r e was no i n t e n t on t h e p a r t of t h e s u r e t y o r c o n t r a c t o r t o p r o t e c t o r b e n e f i t third-plrty materialmen, even though t h e underlying c o n t r a c t contained a promise on t h e p a r t of t h e c o n t r a c t o r t o pay a l l materialmen. This Court made s p e c i a l note of t h e f a c t t h a t , unless a promise of t h e p r i n c i p a l i s contained i n t h e underlying c o n t r a c t was a l s o s p e c i f i c a l l y mentioned o r made a condition i n t h e s u r e t y bond, t h e s u r e t y would not have o b l i g a t i o n s coextensive with and measured by t h e promises of t h e p r i n c i p a l i n t h e underlying c o n t r a c t . I n the i n s t a n t c a s e , even though t h e r e e x i s t s a promise on t h e p a r t of Welch i n t h e subcontract t o pay a l l materialmen, t h e r e was no condition i n Aetna's bond which would make t h i s o b l i g a t i o n on t h e p a r t of Welch coextensive with t h e o b l i g a t i o n s of Aetna. The decision i n Gary Hay & Grain Co., Inc. v, Carlson, supra, was approved by t h e 9 t h C i r c u i t Court of Appeals i n National Surety Co. of N w York v , Ulmen, 68 F.2d 330, 336, i n t h i s lane guage : "In view of t h e foregoing decisions of t h e Supreme Court of Montana, i t i s our view t h a t , i n t h a t s t a t e , a t h i r d person who i s a s t r a n g e r t o a cont r a c t o r a bond thereunder, cannot recover from t h e s u r e t y even when t h e c o n t r a c t and bond, a s h e r e , contain some reference t o him o r t o t h e c l a s s t o which he belongs, unless t h e r e i s a s p e c i f i c promise t o pay such t h i r d person o r such c l a s s , contained i n t h e c o n t r a c t and bond." This decision f u r t h e r supports t h e r u l e t h a t t h e mere f a c t t h e underlying subcontract of Welch contained a promise t o pay a l l materialmen i n no way c r e a t e s an o b l i g a t i o n on t h e p a r t of Aetna, t h e s u r e t y , unless t h e bond i t s e l f contains a s i m i l a r promise t o pay t h e materialmen. C l e a r l y a t t h e time S l e t t e n and Welch executed t h e subc o n t r a c t agreement, a l l materialmen were adequately p r o t e c t e d by t h e S t . Paul F i r e and Marine Insurance Co.'s bond given pursuant t o s e c t i o n 6-401 and s e c t i o n 6-404, R.C.M. 1947. The same p r o t e c t i o n s t i l l e x i s t e d f o r a l l materialmen on August 7, 1972, when Aetna's bond was executed. This r a i s e s t h e question of whether S l e t t e n required Aetna's bond f o r i t s own b e n e f i t o r whether it required t h i s bond f o r t h e b e n e f i t of t h e m a t e r i a l men who were already protected by t h e S t . Paul bond. McGrath v. American Surety Company >of N w York, 307 N.Y. e 122 N.E.2d 552, 906, d e a l s with a f a c t u a l s i t u a t i o n s i m i l a r t o t h e i n s t a n t case. I n McGrath, a c o n t r a c t o r entered i n t o a p u b l i c works c o n t r a c t with t h e United S t a t e s . The f e d e r a l s t a t u t e , T i t l e 40 USCA, $ 5 270a and 270b, known a s t h e M i l l e r Act, was i n e x i s t e n c e and required a c o n t r a c t o r t o f u r n i s h a performance bond guaranteeing t h e completion of t h e work and a payment bond guaranteeing t h e p r o t e c t i o n of a l l persons supplying labor and m a t e r i a l . For a l l i n t e n t s and purposes, t h i s f e d e r a l a c t i s i d e n t i c a l t o s e c t i o n 6-401, e t . s e q . , R.C.M. 1947. The con- t r a c t o r i n McGrath subcontracted a p o r t i o n of t h e work. The p l a i n t i f f , who provided labor and s e r v i c e s f o r the subcontractor, attempted t o recover on t h e s u b c o n t r a c t o r ' s bond which was cond i t i o n e d upon payment by t h e subcontractor of i t s o b l i g a t i o n s t o l a b o r e r s and materialmen. The c o u r t held t h e p l a i n t i f f had no r i g h t of a c t i o n upon t h e s u b c o n t r a c t o r ' s bond because t h e bond was executed merely f o r t h e b e n e f i t of t h e c o n t r a c t o r , and n o t t h e materialmen. I n McGrath, t h e bond i n question was conditioned upon payment of a l l materialmen. I n t h e i n s t a n t case t h e o b l i g a t i o n of Aetna i s merely conditioned upon indemnifying S l e t t e n o r , i n t h e a l t e r n a t i v e , t h e performance of t h e subcontract. Therefore, t h e i n t e n t of t h e c o n t r a c t o r , t h e subcontractor, and t h e s u r e t y , i n : McGrath, was not a s c l e a r l y expressed a s i n t h e i n s t a n t c a s e where t h e r e i s no promise whatsoever on t h e p a r t of Aetna, t h e s u r e t y , t o pay materialmen. The o b j e c t i n S l e t t e n ' s r e q u i r i n g Welch and Aetna t o execute t h e indemnity bond was only t o prot e c t S l e t t e n a g a i n s t t h e contingency which would a r i s e i f S l e t t e n o r i t s s u r e t y , S t . Paul, s u f f e r e d any damages because of an a c t i o n brought by a l a b o r e r o r materialman pursuant t o s e c t i o n 6-401. There i s no i n t e n t whatsoever expressed i n t h e bond of Aetna t o provide any g r e a t e r r i g h t s f o r materialmen than were already provided by s e c t i o n 6-401, e t seq. I n Spokane ~ e r c h a n t s 'Association v. P a c i f i c Surety Co., 86 Wash. 489, 150 P. 1054, a bond executed with a subcontractor a s t h e p r i n c i p a l and conditioned upon t h e payment of a l l l a b o r e r s and materialmen was found t o be only f o r t h e b e n e f i t of t h e prime concracror who had a p u b l i c works c o n t r a c t w i t h t h e s t a t e of Washington. Washington had s t a t u t e s s i m i l a r t o s e c t i o n 6-401, e t s e q . , R.C.M. 1947, and t h e c o u r t found t h e i n t e n t of t h e s u b c o n t r a c t o ~ sbond was merely t o b e n e f i t t h e prime c o n t r a c t o r s i n c e i t was l i a b l e under i t s s t a t u t o r y bond t o t h e s t a t e f o r a l l d e b t s i n c u r r e d by t h e s u b c o n t r a c t o r a s w e l l a s any o t h e r d e b t s i n c u r r e d by i t s e l f . Here, under t h e f a c t s and i n l i g h t of t h e a u t h o r i t i e s h e r e t o i o r e c i t e d , S l e t t e n , Welch and Aetna d i d n o t i n t e n d t o b e n e f i t o r p r o t e c t any t h i r d - p a r t y materialmen by t h e e x e c u t i o n of A e t n a ' s bond, b u t merely meant t o p r o t e c t S l e t t e n , t h e named sole obligee. A l l t h i r d - p a r t y materialmen were a l r e a d y adequately p r o t e c t e d by t h e s t a t u t o r i l y r e q u i r e d bond executed by S t . Paul F i r e and Marine Insurance Co. I n C i t y of B u t t e v. Bennetts, 5 1 Mont. 27, 30, 149 P.92, t h i s Court s t a t e d : " ' S u r e t i e s have t h e r i g h t t o r e l y upon t h e l e t t e r of t h e i r undertakings, and t h e i r l i a b i l i t y cannot be extended by i m p l i c a t i o n . ' I ' The p r o v i s i o n s of A e t n a ' s bond a r e c l e a r and i t s o b l i g a t i o n under t h a t . b o n d i s conditioned upon t h e f a i t h f u l performance of t h e s u b c o n t r a c t o r , i n t h e a l t e r n a t i v e , i n d e m n i f i c a t i o n of S l e t t e n , t h e named o b l i g e e . The bond does n o t c o n t a i n any c o n d i t i o n o r promise concerning payment of materialmen. The s u b c o n t r a c t between Welch and S l e t t e n c o n t a i n s a s i m i l a r provis i o n f o r t h e i n d e m n i f i c a t i o n of S l e t t e n and a l s o c o n t a i n s a promise on t h e p a r t of Welch t o pay a l l materialmen. Although both documents must be construed t o g e t h e r , Aetna intended t o l i m i t i t s o b l i g a t i o n under t h e bond and d i d so. Sletten, the o b l i g e e , agreed w i t h t h i s l i m i t a t i o n and t h e e x p r e s s i n t e n t of t h e p a r t i e s cannot be overturned because T r e a s u r e S t a t e d e s i r e d t o sue Aetna i n l i e u of S t . Paul. I n summary, t h e provisions i n Aetna's bond which provide f o r indemnity of S l e t t e n only evidence an i n t e n t t o p r o t e c t S l e t t e n , n o t Treasure S t a t e . For t h i s reason, Treasure S t a t e has no r i g h t of a c t i o n a g a i n s t Aetna on t h e bond. The f i n a l i s s u e on appeal i s whether t h i s Court should g r a n t summary judgment f o r t h e defendant s u r e t y a g a i n s t p l a i n t i f f although motLon f o r summary judgment was not made by defendant s u r e t y company t o t h e d i s t r i c t c o u r t . Section 93-216, R.C.M. 1947, i n p e r t i n e n t p a r t , s t a t e s : "Powers and d u t i e s of supreme c o u r t on appeals, The supreme c o u r t may a f f i r m , r e v e r s e , o r modify any judgment o r o r d e r appealed from, and may d i r e c t t h e proper judgment o r order t o be e n t e r e d , o r d i r e c t a new t r i a l o r f u r t h e r proceedings t o be had." 6 Pt.2 Moore's Federal P r a c t i c e , 7 56.27[2] g i v e s support t o e n t r y of summary judgment by an a p p e l l a t e c o u r t and s t a t e s t h a t an a p p e l l a t e c o u r t has t h e power t o If* * * order summary judgment f o r a p p e l l a n t , both where he made no motion and a l s o where he made a cross-motion i n the t r i a l c o u r t * * *." There can be no doubt t h a t a s a matter of law Aetna i s e n t i t l e d t o judgment a g a i n s t Treasure S t a t e . granted Treasure S t a t e i s reversed. a g a i n s t Treasure S t a t e i s ordered. W Concur: e Judge, s i t t i n y Chief J u s t Paul G. H a t f i e d. The summary judgment j u d g m ~ tf o r Aetna

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.