605 Liability of Surety to Third Parties

• Jurisdiction: Arizona

A claimant can recover on a bond only if named as an obligee or if the bond expresses an intention that the claimant is an intended beneficiary. Materialmen of materialmen are generally not covered.

A third person not named as a party can recover on a contract only if the contract indicates that the parties to the contract intended that the contract would directly benefit the third party or a class of which the third party is a member. Pioneer Plumbing Supply Co. v. Southwest Sav. & Loan Ass’n, 102 Ariz. 258, 428 P.2d 115 (1967); Irwin v. Murphey, 81 Ariz. 148, 302 P.2d 534 (1956).

In Webb v. Crane Co., supra, a creditor of a subcontractor was permitted to recover on Webb’s performance bond issued in favor of the state where the bond contained a condition guaranteeing that Webb would pay “all laborers, mechanics, subcontractors and materialmen, and all persons who shall supply labor, mechanics or subcontractors, with material.” Id. at 303.

Webb argued that Crane, a supplier to a subcontractor, could not sue on the performance bond because the bond did not give materialmen a right to sue. The court held that since the bond was for the materialmen’s protection, they would have a right to sue on the bond even though the bond did not expressly set forth such right. Webb had posted a payment bond, but the materialmen’s right to sue on that bond had expired.

In American Radiator & Standard Sanitary Corp. v. Forbes, 259 F.2d 147 (9th Cir. 1958), the court held that if the bond expressly excludes claims by third parties, then they cannot sue. Most of the performance bonds issued today either expressly exclude claims by third parties or indicate that the bond is for the sole benefit of the named obligee.

In Ed Stearman & Sons, Inc. v. State ex rel. Union Rock & Materials Co., 1 Ariz. App. 192, 400 P.2d 863 (1965), a claim was made against the contractor on a state highway project by a supplier to a subcontractor. The bond was a combination performance and payment bond, which contained a condition that the contractor shall promptly pay “laborers, mechanics, subcontractors and materialmen and all persons who shall supply such laborers, mechanics or subcontractors with materials, supplies or provisions for carrying out said work.” The contractor argued that the bond did not inure to the benefit of the suppliers of a subcontractor, but was only to guarantee that the contractor fulfill its obligation as provided by its contract with the state. The court rejected the

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