## Facts

- Gunnell Construction Co. sought working capital and entered a financing agreement with Don Hamill under which Hamill would advance funds tied to Gunnell’s construction contracts.
- Gunnell obtained performance bonds from Maryland Casualty Co. for two projects (a college laboratory annex and an elementary school addition).
- When Gunnell applied for a bond, Maryland’s agents reviewed the Hamill–Gunnell arrangement and required a clearer contract addressing how advances would be repaid.
- A revised contract provided that Hamill’s advances were operating capital for contract performance and that repayment (and Hamill’s notes) would be due only after final completion and acceptance, final collection, and payment of all bills and expenses.
- Hamill signed the revised contract after being told it clarified the prior agreement.
- Hamill advanced about $15,000. After completion and owner payment, Gunnell stated it had unpaid bills exceeding available funds.
- Hamill nonetheless demanded repayment and collected on the notes.
- Substantial labor and material bills remained unpaid on both projects; Maryland, as surety, paid the claims to satisfy its bond obligations.
- Maryland sued Gunnell and Hamill to recover the amounts paid; the district court entered judgment against Hamill on a third-party beneficiary theory.

## Issues

1. Whether Maryland, a nonparty to the Hamill–Gunnell financing contract, was an intended third-party beneficiary with enforcement rights.
2. Whether Hamill breached the contract by obtaining repayment before all project bills and expenses were paid.
3. Whether Hamill’s breach caused loss recoverable by Maryland as surety.

## Decision

- The Tenth Circuit affirmed the judgment for Maryland against Hamill.
- Maryland was an intended third-party beneficiary of the revised financing contract because it was drafted at the surety’s insistence and structured to protect the surety from unpaid job claims.
- Hamill breached the repayment condition by demanding and receiving payment despite unpaid labor and material obligations.
- Hamill’s premature collection diverted funds that the contract required to remain available for job expenses, resulting in Maryland’s surety payments and corresponding damages.

## Legal Principles

- A nonparty may enforce a contract as an intended third-party beneficiary when the agreement is made for that nonparty’s direct benefit; a surety can qualify where a financing arrangement is formed at the surety’s request and for its protection.
- A contractual condition postponing repayment until completion and payment of all bills and expenses is enforceable; collecting earlier constitutes breach.
- In contract analysis, legal intent concerns the purpose to use specified means to achieve a result, while motive concerns the reason for desiring that result; motive does not defeat objectively manifested intent to benefit a third party.
- An intended beneficiary may recover damages proximately caused by breach of protective conditions that were designed to prevent the beneficiary’s loss.

## Conclusion

The court held that the surety could enforce the financing contract as an intended third-party beneficiary and recover from the lender who collected repayment contrary to an express condition requiring that all project bills and expenses be paid first, causing the surety’s loss.


Hamill v. Maryland Casualty Co., 209 F.2d 338 (10th Cir. 1954)