Academic journal article Defense Counsel Journal

Annual Survey of Fidelity and Surety Law, 1994

Academic journal article Defense Counsel Journal

Annual Survey of Fidelity and Surety Law, 1994

Article excerpt

I. PUBLIC CONSTRUCTION BONDS

A. Miller Act Bonds

1. Procedural Issues

Ordinary contract issues not otherwise preempted by the Miller Act are to be resolved by applying state law, including formation of contract and allowance and amount of prejudgment interest.

In a decision that can serve as a primer of Miller Act applications, the U.S. District Court for the District of Delaware applied good common sense in sorting out contract disputes in a Miller Act case. United States for Use of Endicott Enterprises v. Star Brite.(1)

The plaintiff subcontracted to perform the mechanical work on a federal project to renovate airplane hangers in Dover, Delaware. When it was not paid, the plaintiff sought both principal and interest. Both were contested but were resolved by applying Delaware law because the Miller Act does not explicitly address the parameters of contract disputes and does not address prejudgment interest. It rightly deemed state law to be incorporated into the act as the applicable federal law.

Apparently applying Delaware rules on a conflict of laws, the court also held that when evaluating issues involving application of the act, it would look to the law of the state where the contract was performed. Thus the resolution of all issues is consistent--state law supplies the route to effectuating a Miller Act remedy.

2. Substantive Issues

Miller Act does not impose duty on bank or bank officer to conduct personal investigation of individual sureties before issuing certificate of sufficiency attesting financial condition of personal surety--maybe.

In the uncommon facts of Beall Plumbing Heating v. First National Bank,(2) two individuals acted as sureties on an Army Corps of Engineers project to construct a child development and religious education center. The sureties, as required, provided a list of their assets with the required certificate of sufficiency from "a bank officer, bank, judge or clerk of a court of record, a U.S. attorney, commissioner or postmaster" attesting that the sureties were responsible and qualified and that to the best of the certificater's knowledge the facts stated by the sureties were true. The defendant bank and its officer provided the certificate, and a subcontractor who was unable to recover because of the insolvency of principal and surety sued them, alleging negligence, negligent misrepresentation and fraud in connection with the issuance of the certificate because they failed to ascertain the true financial condition of the sureties.

While your editor reads that there was evidence that the defendants did some review as to the certificate's thoroughness, the court decided as a matter of law that no duty was owed by the bank or the bank's officers to investigate the financial condition of the sureties personally. The court examined a number of cases on the point and came down with the conclusion that the requirement is so loose as to be of no value. Thus, it agreed with other courts by finding that it takes very little to satisfy the requirement. It took so little that summary judgment was granted for the bank and its officer.

B. State and Local Bonds

Surety on public project not liable to subcontractor's employee under Wisconsin law for penal aspects of prevailing wage statute, as its provisions are applicable only to wage earner's direct employer.

Employees of a subcontractor who were not paid the prevailing wage sued the prime contractor and its surety for the wage deficiency, double damages and attorney's fees. The plaintiff prevailed in the trial court on all three contentions, but only for the deficiency on appeal.

The Wisconsin Supreme Court in Strong v. C.I.R. Inc.,(3) found that both policy and general rules work to insulate a non-offending person from a penalty, such as double damages and attorney's fees. In reasoning consistent with insulating a surety from a penalty, the court did not extend liability beyond the direct offending employer, the subcontractor. …

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