Annual Survey of Fidelity and Surety Law, 2001-Part II

By May, Ronald A.; Welbaum, R. Earl et al. | Defense Counsel Journal, July 2002 | Go to article overview

Annual Survey of Fidelity and Surety Law, 2001-Part II


May, Ronald A., Welbaum, R. Earl, Marmor, Randall L., Sauer, Roger P., Defense Counsel Journal


This roundup of recent cases covers public and private constructions bonds, fidelity and financial institution bonds, and sureties' remedies

I. PUBLIC CONSTRUCTION BONDS

A. Bonds under Federal Laws

1. Procedural

Ninety-day notice commenced when rented pilings were returned to subcontractor, not when pilings stopped being used.

This Fifth Circuit case represents one more installment in the already lengthy legal history of the Miller Act's requirement that the claimant under a bond give notice within 90 days after furnishing work or materials.

A general contractor had agreed to perform construction work on a Veterans Administration hospital in Biloxi, Mississippi. The construction required two cofferdams, and the subcontractor responsible for them entered into a rental agreement with the claimant in this case to provide the necessary pilings. The question arose as to whether the time started running on the notice requirement when the subcontractor returned the pilings or when they were removed from the site.

The federal district court in Mississippi held that the time started running when the pilings were removed. On appeal, this decision was reversed, and the Fifth Circuit ruled the 90 days commenced when the pilings were returned to the supplier. The action therefore was timely. J.D. Fields & Co. v. Gottfried Corp.1

2. Substantive

Subcontractor could recover from contractor and Miller Act surety for either breach of contract or quantum meruit.

Maris Equipment Co. v. Morganti Inc.2 is a federal district court decision from New York. The project was a $103 million federal detention center in Brooklyn. While most of the court's lengthy opinion is devoted to elements of damage, the significant legal issues involve the basis for the lawsuit itself.

The subcontractor, who eventually prevailed after a four-week trial, was seeking recovery not only under the Miller Act but also under the theory of quantum meruit. Most of the jury's verdict was rendered under the quantum meruit claim. The district court eventually ordered a remittitur and the parties were able to settle the damage claim. A few weeks later, the court issued another opinion awarding prejudgment interest.3

Bid bond held non-responsive to federal agency's solicitation where substituted form inadvertently failed to include bond's penal sum.

Bid bond held non-responsive where bid was by joint venture, but bond was issued in name of corporation as principal although joint venture and corporation were same legal entity.

It's somewhat unusual, but two cases involving bid bonds were decided by the United States Court of Federal Claims within a few days of each other.

In the first case, Interstate Rock Products v. United States,4 the plaintiff wanted to bid on a road job at Bryce Canyon National Park and notified its bonding agent, who had the interesting name of Budd O. Scow, that it needed a bid bond. The bond was procured in the correct amount and included the appropriate penal sum. The original copy of the bond included some illegible parts, however, apparently caused by facsimile transmission, and Scow was requested to issue another bond.

This time the bond was legible, but "inadvertently" the penal sum was left blank. When the bids were opened, the plaintiffs low bid was rejected in favor of a bid half a million dollars higher. After an interminable discussion of 19 pages, the court finally concluded that the inadvertent omission of the penal sum invalidated the bid.

The other bid bond case involved the construction of a contract with the Army Corp of Engineers for modernization of a school in the District of Columbia. The bid bond named as principal James G. Davis Construction Corp. The bid, however, was made in the name of Davis/HRGM, a joint venture. It seems to have been uncontradicted that the two entities were identical. …

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Annual Survey of Fidelity and Surety Law, 2001-Part II
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