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Union Indemnity Company v. Riley et al., trustees, et al.

Supreme Court of Georgia1929-10-04No. No. 6761
169 Ga. 229

Summary

Holding. The trial court properly overruled the demurrer to the first count of the petition because the bond language adequately created an enforceable interest in third parties who supplied labor and materials, thereby supporting the school district's equitable action on the bond for their benefit. The judgment was affirmed.

Union Indemnity Company challenged a trial court's decision to overrule its demurrer to a bond claim brought by trustees of the Port Valley Consolidated School District. The bond in question contained language requiring the principal contractor to pay persons who had furnished labor and materials directly to the contractor. The court determined that this specific language created enforceable rights extending beyond the school district itself to third parties who supplied materials and labor for the construction project.

The court held that the trustees, acting in their official capacity for the school district, could maintain an equitable action on the bond for the benefit of these third-party suppliers. The bond language at issue—requiring payment to all persons with direct contracts with the principal for labor or materials—was sufficiently specific to create an interest in the bond belonging to the class of suppliers and creditors. This interest allowed the school district as promisee to pursue claims on the bond on behalf of those third parties.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

  • Whether a bond clause promising payment to persons with direct contracts for labor or materials creates enforceable rights in those third parties
  • Whether a school district as promisee may bring an equitable action on a bond for the benefit of third-party suppliers and laborers
  • Whether the specific language in the bond was sufficient to overcome a demurrer

Procedural posture

Union Indemnity Company appealed a trial court's order overruling its demurrer to the first count of an amended petition filed by the school district trustees.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion

majority opinion

Atkinson, J.

1. An action upon a bond, instituted by the trustees of the Port Valley Consolidated School District, “suing for themselves as said trustees of said school district, and for the use of” a named class of other persons, is in effect a suit by the Port Valley Consolidated School District in its own interest “and for the use of” the named class of other persons.

2. The bond includes an agreement of the principal and surety to be held and firmly bound unto the trustees of the Port Valley Consolidated School District in a stated amount, conditioned to be void only “if the principal shall faithfully perform the contract on his part and satisfy all claims and demands, incurred for the same, and shall fully indemnify and save harmless the owner from all cost and damage which he may suffer by reason of the failure so to do, and shall fully reimburse and repay the owner all outlay and expense which the owner may incur in making good any such default, and shall pay all persons toho have contracts directly xoith the principal for labor or materials.” Held:

(a) This clause in the bond, except the part which is underscored, contemplates security of the Port Valley Consolidated School District alone, but the latter part is the equivalent of a promise by the obligors to the Port Valley Consolidated School District that the principal “ shall pay all persons who have contracts directly with the principal for labor or materials.”

(b) The underscored clause in the bond enures to the benefit of the class of persons named, and gives them an interest in the bond.

(c) The interest mentioned in subparagraph (b) would authorize an equitable action on the bond by the promisee (the Port Valley Consolidated School District) for the use of third persons who have furnished material and labor to the contractor for construction of the building. Jordan v. Dixie Culvert &c. Co., 146 Ga. 284 (91 S. E. 68); Sheppard v. Bridges, 137 Ga. 615 (74 S. E. 245). This principle was recognized in American Surety Co. v. County of Bibb, 162 Ga. 388 (134 S. E. 100), but was not applied, because the bond under consideration in that case did, not show that the materialman had an- interest thereunder to protect.

(d) The cases of American Surety Co. v. County of Bibb, supra, and American Surety Co. v. Small Quarries Co., 157 Ga. 33 (120 S. E. 617), had reference to the same bond. That bond, while in some respects similar to the bond now under consideration, did not contain that clause in the bond which is italicized as above.

3. Applying the principles stated in the foregoing notes, the first count in the petition as amended was sufficient, and the judge did not err in overruling the demurrer on all the special and general grounds.

4. In view of the ruling stated in the preceding note, it becomes unnecessary to deal with the questions raised as to the sufficiency of the second count, which seeks to reform the instrument upon which the first count was predicated; and no decision will be made upon any question relating to the second count.

Judgment affirmed.

All the Justices concur.

Lee, Congdon & Fulcher, for plaintiff in error.

C.L. Shepard,. P. C. O’Gorman, W. K. Miller, Pierce Brothers, Hull, Barrett & Willingham, Callaway & Howard, and W. S. Northcutt, contra.