Annual Survey of Fidelity and Surety Law, 1994

By May, Ronald A.; Marmor, Russell I. et al. | Defense Counsel Journal, July 1995 | Go to article overview
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Annual Survey of Fidelity and Surety Law, 1994


May, Ronald A., Marmor, Russell I., Welbaum, R. Earl, Crane, David D., Linder, Charles W., Jr., Defense Counsel Journal


I. PUBLIC CONSTRUCTION BONDS

A. Miller Act Bonds

1. Jurisdictional Issues

Contract Disputes Act does not preclude action by subcontractor against U.S. Postal Service under Postal Reorganization act. Miller Act or other claim lies concurrently in federal district court.

For reasons not apparent from the court's opinion, certain subcontractors on a post office job in Victorville, California, sued the U.S. Postal Service in federal court to establish and foreclose equitable liens for the value of their services, but they did not file a Miller Act claim. While the Postal Reorganization Act(1) provides that the Postal Service has the power to sue and be sued, the district court held that the Contract Disputes Act(2) precluded subcontractors from pursuing their claims in district court.

On appeal, the Ninth Circuit reversed and held that the subcontractors may assert a claim against the Postal Service in district court for which they have any independent jurisdictional basis (whether Miller Act or not), regardless of whether the subcontractors also could pursue their claims under the Contract Disputes Act. Wright v. U.S. Postal Service.(3)

2. Substantive Issues

Miller Act preempts state remedies for bad faith and vexatious failure to pay.

In Tacon Mechanical Contractors v. Aetna Casualty and Surety Co.(4) a Texas federal court could barely conceal its exasperation with the attorneys, stating, "With the cajoling of the court, the parties were able to get the paperwork straightened out."

The subcontractor in this case also was exasperated. It sued the Miller Act surety on a variety of state law claims, most of which arose from the Texas regulatory statutes. These included breach of the duty of good faith and fair dealing, vexatious failure to pay and tortious interference with contract. The court concluded that these were preempted by the Miller Act and that there could be no recovery for them.

Guarantor of subcontractor is entitled to claim as a subcontractor.

In an interestingly long opinion, a federal court in Illinois found that an individual who had guaranteed the performance of a subcontract was entitled to sue the surety, with all the rights of the subcontractor itself. CTI Ltd. v. Mellon Stuart Co.(5)

B. State and Local Bonds

1. Procedural Issues

Continuing performance after termination extended notice period so as to commence with last delivery of materials under South Carolina payment bond statute.

A supplier gave notice later than the statutory cutoff set at 90 days as required. The claimant continued to deliver materials after that date, and notice was given later within 90 days of the last of such deliveries. The surety contended that the claimant's notice was defective under the state statute, but the South Carolina Court of Appeals held the notice sufficient. Moore Electric Supply v. Ward.(6)

Statutory notice requirements not applicable to common law bond where surety failed to record bond.

Martin Paving Co. v. United Pacific Insurance Co.(7) deals in depth with the somewhat convoluted history of Florida's payment bond legislation. The surety argued that various amendments to the Florida statute eliminated the common law bond so that notice requirements were applicable to a claim made under the bond it had issued. The court disagreed but held that notice requirements did apply to suits under common law bonds, as well as statutory bonds. While the claimant had failed to furnish the required notices, the surety also had failed to comply with a statute that required that the bond be filed as a public record. Thus the surety's failure excused the claimant from compliance with any of the notice requirements.

Public obligee not barred by one-year statute of limitations as period applies only to payment bond claimants and not performance claimants.

Not unlike those in many states, Maryland's Little Miller Act requires that actions under it must be brought within one year of final acceptance.

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