ILNews

Surety not obligated to pay bond to subcontractor

Back to TopCommentsE-mailPrintBookmark and Share

A company that was subcontracted by another subcontractor for work on a plant construction project won’t be paid from a payment bond the subcontractor obtained because of a pay-if-paid clause in subcontractors’ contract.

The 7th Circuit Court of Appeals had to figure out if the District Court was correct in finding that the language contained in the contract subcontractor Industrial Power Systems entered into with BMD Contractors contained a pay-if-paid clause instead of a pay-when-paid clause. Industrial Power was hired by Walbridge Aldinger, the general contractor on a plant manufacturing project. Industrial Power in turn hired BMD. Industrial Power also executed a payment bond with Fidelity and Deposit Company of Maryland, making Fidelity a surety for Industrial Power’s payment obligations to BMD.

The manufacturer eventually went bankrupt and was unable to pay Walbridge, which in turn was unable to pay Industrial Power, leaving it unable to pay BMD. BMD and Ferguson Enterprises, which provided supplies to BMD, tried to recover the rest of what they were owed from the bond. Fidelity refused payment and BMD filed suit.

The 7th Circuit affirmed in BMD Contractors Inc. v. Fidelity and Deposit Company of Maryland, No. 11-1345, finding the contract between Industrial Power and BMD expressly provides that Industrial Power’s receipt of payment is a condition precedent to its obligation to pay BMD. This issue raised in the instant case hasn’t expressly been ruled on by Indiana’s Supreme Court.

Judge Diane Sykes pointed out that Indiana surety law is quite clear on two points: sureties are generally liable only where the principal itself is liable; and concurrently executed bonds and the contracts they secure are construed together.

“These surety-law principles firmly support Fidelity’s position that it cannot be liable under the payment bond if Industrial Power is not liable under the subcontract. Although there are no Indiana cases applying these general principles in this particular context, courts in other jurisdictions have done so,” she wrote.

The trend of recent caselaw supports the basic principle of Indiana law that a surety may assert all the defenses of its principal. Fidelity, no less than Industrial Power, may rely on the pay-if-paid clause in the Industrial Power/BMD subcontract to defend against this suit on the payment bond, Sykes wrote.

 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. The practitioners and judges who hail E-filing as the Saviour of the West need to contain their respective excitements. E-filing is federal court requires the practitioner to cram his motion practice into pigeonholes created by IT people. Compound motions or those seeking alternative relief are effectively barred, unless the practitioner wants to receive a tart note from some functionary admonishing about the "problem". E-filing is just another method by which courts and judges transfer their burden to practitioners, who are the really the only powerless components of the system. Of COURSE it is easier for the court to require all of its imput to conform to certain formats, but this imposition does NOT improve the quality of the practice of law and does NOT improve the ability of the practitioner to advocate for his client or to fashion pleadings that exactly conform to his client's best interests. And we should be very wary of the disingenuous pablum about the costs. The courts will find a way to stick it to the practitioner. Lake County is a VERY good example of this rapaciousness. Any one who does not believe this is invited to review the various special fees that system imposes upon practitioners- as practitioners- and upon each case ON TOP of the court costs normal in every case manually filed. Jurisprudence according to Aldous Huxley.

  2. Any attorneys who practice in federal court should be able to say the same as I can ... efiling is great. I have been doing it in fed court since it started way back. Pacer has its drawbacks, but the ability to hit an e-docket and pull up anything and everything onscreen is a huge plus for a litigator, eps the sole practitioner, who lacks a filing clerk and the paralegal support of large firms. Were I an Indiana attorney I would welcome this great step forward.

  3. Can we get full disclosure on lobbyist's payments to legislatures such as Mr Buck? AS long as there are idiots that are disrespectful of neighbors and intent on shooting fireworks every night, some kind of regulations are needed.

  4. I am the mother of the child in this case. My silence on the matter was due to the fact that I filed, both in Illinois and Indiana, child support cases. I even filed supporting documentation with the Indiana family law court. Not sure whether this information was provided to the court of appeals or not. Wish the case was done before moving to Indiana, because no matter what, there is NO WAY the state of Illinois would have allowed an appeal on a child support case!

  5. "No one is safe when the Legislature is in session."

ADVERTISEMENT