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Surety not obligated to pay bond to subcontractor

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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.

 

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  1. First comment on this thread is a fitting final comment on this thread, as that the MCBA never answered Duncan's fine question, and now even Eric Holder agrees that the MCBA was in material error as to the facts: "I don't get it" from Duncan December 1, 2014 5:10 PM "The Grand Jury met for 25 days and heard 70 hours of testimony according to this article and they made a decision that no crime occurred. On what basis does the MCBA conclude that their decision was "unjust"? What special knowledge or evidence does the MCBA have that the Grand Jury hearing this matter was unaware of? The system that we as lawyers are sworn to uphold made a decision that there was insufficient proof that officer committed a crime. How can any of us say we know better what was right than the jury that actually heard all of the the evidence in this case."

  2. wow is this a bunch of bs! i know the facts!

  3. MCBA .... time for a new release about your entire membership (or is it just the alter ego) being "saddened and disappointed" in the failure to lynch a police officer protecting himself in the line of duty. But this time against Eric Holder and the Federal Bureau of Investigation: "WASHINGTON — Justice Department lawyers will recommend that no civil rights charges be brought against the police officer who fatally shot an unarmed teenager in Ferguson, Mo., after an F.B.I. investigation found no evidence to support charges, law enforcement officials said Wednesday." http://www.nytimes.com/2015/01/22/us/justice-department-ferguson-civil-rights-darren-wilson.html?ref=us&_r=0

  4. Dr wail asfour lives 3 hours from the hospital,where if he gets an emergency at least he needs three hours,while even if he is on call he should be in a location where it gives him max 10 minutes to be beside the patient,they get paid double on their on call days ,where look how they handle it,so if the death of the patient occurs on weekend and these doctors still repeat same pattern such issue should be raised,they should be closer to the patient.on other hand if all the death occured on the absence of the Dr and the nurses handle it,the nurses should get trained how to function appearntly they not that good,if the Dr lives 3 hours far from the hospital on his call days he should sleep in the hospital

  5. It's a capital offense...one for you Latin scholars..

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