payment bond

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City of Lonsdale v. NewMech Companies, Inc.
2008 Minn. App. Unpub. LEXIS 31 (Minn. App. 2008)
The City of Lonsdale solicited sealed bids for construction of a wastewater-treatment plant. According to the terms of the bid form, each bidder submitting a bid form:
“Propose[d] and agree[d], if [the] Bid is accepted, to enter into an Agreement with City in the form included in the Bidding Documents to perform all Work as specified or indicated in the Bidding Documents for the prices and within the times indicated in the Bid and in accordance with the other terms and conditions of the Bidding Documents.”

C&I Steel, LLC v. Travelers Casualty & Surety Co.
70 Mass. App. Ct. 653, 2007 Mass. App. LEXIS (App. Ct. Nov. 6, 2007)
The town of Westford awarded Peabody Construction Company, Inc. (“Peabody”) a contract for construction of a middle school. The project required a payment bond which Peabody obtained from Travelers Casualty and Surety Company (“Travelers”) for the full value of the contract. Peabody, as principal, and Travelers, as surety, jointly and severally bound themselves “to [Westford] to pay for labor, materials and equipment furnished for use in the performance of the [c]onstruction [c]ontract.” The bond set forth that the construction contract incorporated the agreement between Westford and Peabody, including all the contract documents and changes thereto.

United States ex rel E & H Steel Corp. v. C. Pyramid Enterprises, Inc
Civil Action No. 06-4209, 2007 U.S. App. LEXIS 27347 (3d Cir. Nov. 27, 2007)
The Court of Appeals for the Third Circuit reviewed a decision of the United States District Court for the District of New Jersey in which the primary question was whether a particular project participant, responsible for supplying structural steel, was a “subcontractor” for purposes of the Miller Act, 40 U.S.C. § 3131, et seq. Reviewing the Supreme Court interpretations and the intent of the Miller Act, the Third Circuit reversed the District Court’s decision and held that the project participant at issue was a “subcontractor” under the Miller Act, because it had a substantial and important relationship with the prime contractor. Accordingly, a fabricator which had contracted to furnish steel to it could sue on the bond.

National American Insurance Company v. United States
No. 2007-5016, 2007 U.S. App. LEXIS 20058 (Fed. Cir. August 23, 2007)
The US Court of Appeals for the Federal Circuit upheld the lower court’s grant of a motion for summary judgment. The Court held that a payment bond surety is equitably subrogated to the rights of the contractor whose debt it discharges, and thus can pursue a claim directly against the government.
The case arose out of a contract between Innovative PBX Services, Inc. (“Contractor”) and the United States Small Business Administration (the “government”) for the replacement of a telephone system at the Department of Veterans Affairs Medical Center. The Contractor subcontracted part of the work to Nortel Communications Systems, Inc. (“Subcontractor”). As required by the Miller Act, the Contractor executed payment and performance bonds in favor of the government with National American Insurance Company (“Surety”) as the surety. After completion of the contract work, the Subcontractor notified the Surety that it was owed approximately $675,000 for labor and materials that the Contractor had failed to pay for. The Subcontractor then instituted a Miller Act claim under the payment bond against the Surety, which the Surety settled. The Surety also notified the government that no addition payments should be made to the Contractor in light of the Miller Act claim and requested that all remaining contract funds be held for the Surety’s benefit. The government, however, did not follow the Surety’s request and made its final contract payment to the Contractor. As a result, the Surety filed a complaint against he government seeking damages of $280,000.

U.S. ex. rel. Straightline Corp. v. American Casualty Corp.
2007 U.S. Dist. LEXIS 50688 (N.D. W. Va 2007)
The United States District Court for the Northern District of West Virginia held that a “pay-if-paid” clause was not a valid defense to a Miller Act claim. Straightline, involved a contract dispute…

Titan Stone, Tile & Masonry v. Hunt Construction Group, Inc.
Civ. No. 05-3362, 2007 U.S. Dist. LEXIS 19489 (D.N.J. March 19, 2007)
The Court decided several motions for summary judgment filed by a prime contractor to claims of a subcontractor. Among the motions decided, the Court addressed the duty of good faith and fair dealing attendant to an obligation to evaluate payment applications, the breadth of a “pay-if-paid” clause, whether a monthly release executed with a payment application barred claims for extra work performed after the pay period in the attendant payment application and whether the plaintiff adequately plead its claim for violation of the New Jersey Trust Fund Act.

MidAmerica Construction Management, Inc. v. MasTec North America, Inc., et al.
2006 U.S. App. Lexis 3022 (10th Cir. 2006)
In MidAmerica Construction Management, Inc. v. MasTec North America, Inc., et al., 2006 U.S. App. Lexis 3022 (10th Cir. 2006), the Court held that a subcontract agreement contained a “pay-if-paid” clause, and that the clause in question was enforceable under both Texas and New Mexico law. As a result, general contractors did not need to pay the subcontractor for the work that the subcontractor performed under the contract, because the general contractors had not been paid by the project owner for that work.

Ed Kimber Heating & Cooling, Inc. v. Travelers Casualty & Surety Co.
No. 3:03cv2111 (SRU), 2006 U.S. Dist. LEXIS 3323 (D. Conn. Jan. 26, 2006)
Trataros Construction, Inc. (“Trataros”), the general contractor on a school addition and renovation project, subcontracted with Ed Kimber Heating & Cooling, Inc. (“Kimber”) for the performance of HVAC and plumbing work. Travelers Casualty & Surety Co. (“Travelers”) issued payment and performance bonds as the surety for Trataros.

Beckwith Machinery Company v. Asset Recovery Group, Inc.
2005 Pa. Super. 429, 2005 Pa. Super. LEXIS 4276 (Pa. Super. Ct. 2005)
In Beckwith Machinery Company v. Asset Recovery Group, Inc., et al., 2005 Pa. Super. 429 (Pa. Super. Ct. 2005), the Court held that invoices for major repairs in the nature of capital improvements to heavy construction equipment were not covered by the terms of a payment bond. The Court reasoned that the repairs referenced in the invoices at issue could not be classified as ordinary maintenance performed for consumption over the course of the project, but rather were services which a contractor would retain the benefit of on the completion of work to be used by him in a like manner on subsequent projects.

Nat’l Union Fire Ins. Co. v. David A. Bramble, Inc.
388 Md. 195, 879 A.2d 101 (Md. July 21, 2005)
In connection with construction of a resort hotel project, general contractor Clark Construction provided a payment bond securing its obligation to pay its subcontractors for all labor, material, and equipment required. The bond was a standard American Institute of Architects document A312 form, used without alteration to the form language, issued jointly by three sureties. In the event claim was made against the bond, it provided that the surety would “Send an answer to the Claimant, with a copy to the Owner, within 45 days after receipt of the claim, stating the amounts that are undisputed and the basis for challenging any amounts that are disputed.”