It is admitted that Walter Clark is indebted to the plaintiff in the sum of $1,230.94, with interest thereon, for materials used in the construction of the Cape Fear Hotel, and that he executed and delivered to Miller & Company a contractor’s bond with the Fidelity and Deposit Company of Maryland as his surety. Among the conditions of the bond is an obligation faithfully to perform the contract, to satisfy all claims and demands incurred, and to “pay all persons who have contracts directly with the principal for labor or materials.” The plaintiff’s contract was made immediately with Clark, the principal, and is embraced in the terms of the bond. The plaintiff, then, is manifestly one of those for whose benefit the bond was executed. A person for whose benefit a promise is made to another, though not a party to the agreement or privy to the consideration, may maintain an action upon the promise, and one who has assumed or contracted for the payment of another’s debt may be sued directly by the creditor. Rector v. Lyda, 180 N. C., 577; Dixon v. Horne, ibid., 585; Crumpler v. Hines, 174 N. C.. 283.
*773Earticularly is this true when it appears by stipulation or reasonable intendment that the rights and interests of the third party were contemplated and provided for in the contract. Withers v. Poe, 167 N. C., 372; Supply Co. v. Lumber Co., 160 N. C., 428. The bond in question is not a mere contract of indemnity as in Peacock v. Williams, 98 N. C., 324, and in Clark v. Bonsal, 157 N. C., 270; for while conditioned that the principal should fully indemnify the owner against costs and damage it contains, as already indicated, the express stipulation that he should pay for labor and materials. So it is obvious that the plaintiff is one of the beneficiaries contemplated and provided for in the bond.
In its answer the defendant alleges that its execution of the bond was procured by the fraudulent representation of Miller & Company and Walter Clark; that under the contract Clark was to receive for constructing the hotel $418,896 in cash, whereas they had entered into a secret agreement by which he was to receive in part payment bonds of the face value of $75,000, and was to pay the lessee $60,000 in cash and second mortgage bonds, and La Salle, the vice-president of Miller & Company, $25,000 in first mortgage bonds. It is contended that this fraudulent representation is ground for avoiding the bond, which is made the basis of the present action.
The record discloses evidence of fraud on the part of Clark and of Miller & Company; and assuming that it may possibly be established, we are concerned with the effect of such fraud on the rights of the parties —the effect turning upon the question whether the transaction constituted fraud in the treaty or fraud in the factum. If in the factum, the contract is void; if in the treaty, it is voidable at least between the immediate parties. If the execution of a contract is procured by fraud in the treaty, the injured party, upon discovering the fraud, may affirm the contract and sue for the damage sustained by reason of the fraud, or he may elect to rescind the contract and to resist recovery either at’ common law or in equity,- or he may seek affirmative relief by a suit in equit-y. The distinction between fraud in the factum and fraud in the treaty is very clearly drawn by Brogden, J., in Parker v. Thomas, 192 N. C., 798; and tested by the rule under which the two are there classified, it is obvious that the defendant’s evidence, if accepted as true, can establish nothing more than fraud in the treaty. How, then, may the plaintiff’s cause of action be affected ?
The fraud complained of is alleged to have been perpetrated both by the obligee and by the defendant’s co-obligor, the obligee being in privity with the co-obligor (C. J., 23) ; and the plaintiff, in seeking to take advantage of the contract between these parties, takes it subject to all legal defenses and inherent equities arising out of the contract. 13 C. J., *774699, see. 799. In reference to the subject, Page says: “If the beneficiary accepts the benefits of the contract, he takes subject to its validity as between the original parties thereto, and subject to the terms and Conditions of the original contract. The liability of the promisor to the beneficiary is measured by the terms of the contract between the promisor and the promisee; and the liability of the promisor cannot exceed the liability imposed upon him by such contract. ... If C. can maintain an action upon A.’s promise, any defense which A. could invoke as against B. can be invoked against O. If A. is induced to enter into the contract by B.’s fraud, A. may set up such fraud in an action by 0., at least, if A. did not contemplate action by O. in reliance upon such contract.” 4 Contracts, sec. 2393. ' Also "Williston: “Another question concerns the admissibility of certain defenses by the promisor. When sued by the third person, the promisor may rely on facts showing that the promisee could not enforce the contract. Is the third person barred because the promisee would be ? It is necessary to observe some distinctions here. The foundation of any right the third person may have, whether he is a sole beneficiary or a creditor of the promisee, is the promisor’s contract. Unless there is a valid contract, no rights can arise in favor of any one. Moreover, the rights of the third person, like the rights of the promisee, must be limited by the terms of the promise. If that is in terms conditional, no one can acquire any rights under it unless the condition happens. Further, if there is a contract valid at law, but subject to some equitable defense — as fraud, mistake, or failure of consideration — the defense may be set up against the third person. If the undertaking is to pay a debt or discharge a duty of the promisee, the rights of the third person can be derived only through the promisee, and whatever defense affects the latter affects the creditor.” 1 Contracts, sec. 394.
The plaintiff contends that the defendant waiv'ed the fraud and ratified the contract by a compromise of the matters in controversy between the defendant and Miller & Company; but the allegations in the defendant’s amended answer and those in the reply of Miller & Company are such as to preclude our holding as a legal inference that this agreement is a waiver of the alleged fraud. Not only does the defendant allege nonperformance by Miller & Company; Miller & Company deny several of the material allegations in the amended answer.
The appellant is entitled to a
New trial.