## Facts

- A prime contractor, Bennett-Stewart Co., Inc., contracted with the United States to build a radar station in St. Albans, Vermont, and furnished Miller Act performance and payment bonds.
- Bennett-Stewart subcontracted road and parking-area work to R. F. Carpenter, Inc.
- To protect against liability for unpaid labor and materials on the subcontract, Bennett-Stewart required Carpenter to provide a surety bond.
- Carpenter (principal) and Continental Casualty Co. (surety) issued a bond to Bennett-Stewart (obligee) conditioned on Carpenter’s performance and on Carpenter’s duty to “pay all labor and material obligations.”
- Socony-Vacuum Oil Co., Inc. supplied materials used in the subcontract work but was not paid in full.
- Socony-Vacuum did not timely pursue a statutory payment-bond claim under the Miller Act and instead sued Continental on the subcontractor’s bond.
- The district court dismissed, ruling the bond protected only the prime contractor and created no enforceable rights for material suppliers.

## Issues

1. Whether a material supplier may enforce a subcontractor’s surety bond as a third-party beneficiary when the bond is payable to the prime contractor but is conditioned on the subcontractor’s duty to “pay all labor and material obligations.”
2. Whether the “pay all labor and material obligations” clause is an independent payment undertaking benefiting laborers and materialmen, or merely a description of the prime contractor’s potential losses.
3. Whether the existence of Miller Act remedies limits enforcement of a separate private bond benefiting material suppliers.

## Decision

- The Second Circuit reversed the dismissal and remanded.
- The court held that the bond’s condition requiring the subcontractor to “pay all labor and material obligations” extended protection to laborers and materialmen.
- Socony-Vacuum, as an unpaid material supplier within the intended protected class, could maintain an action directly against the surety on the bond.
- The court rejected the view that only the named obligee could sue where the bond’s terms evidenced an intent to benefit third parties.

## Legal Principles

- A third party may sue to enforce a contract, including a surety bond, when the contract’s terms show it was made for that party’s benefit.
- Bond language requiring the principal to “pay all labor and material obligations” can create a direct, enforceable payment obligation benefiting laborers and material suppliers, even when the bond is payable to the prime contractor.
- The presence of a statutory payment-bond remedy for federal projects does not bar additional contract-based protections created by a separate bond.
- Ambiguities in surety bond language may be construed against the surety where the text reasonably supports coverage for the class the bond appears intended to protect.

## Conclusion

The court held that a subcontractor’s bond conditioned on payment of “all labor and material obligations” may be enforced by unpaid material suppliers as third-party beneficiaries, notwithstanding that the bond names only the prime contractor as obligee and regardless of missed Miller Act deadlines.


Socony-Vacuum Oil Co. v. Cont'l Cas. Co., 219 F.2d 645 (2d Cir. 1955)