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

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Well, maybe it's because they are unelected, and, they have a tendency to strike down laws by elected officials from all over the country. When you have been taught that "Democracy" is something almost sacred, then, you will have a tendency to frown on such imperious conduct. Lawyers get acculturated in law school into thinking that this is the very essence of high minded government, but to people who are more heavily than King George ever did, they may not like it. Thanks for the information.

  2. I pd for a bankruptcy years ago with Mr Stiles and just this week received a garnishment from my pay! He never filed it even though he told me he would! Don't let this guy practice law ever again!!!

  3. Excellent initiative on the part of the AG. Thankfully someone takes action against predators taking advantage of people who have already been through the wringer. Well done!

  4. Conour will never turn these funds over to his defrauded clients. He tearfully told the court, and his daughters dutifully pledged in interviews, that his first priority is to repay every dime of the money he stole from his clients. Judge Young bought it, much to the chagrin of Conour’s victims. Why would Conour need the $2,262 anyway? Taxpayers are now supporting him, paying for his housing, utilities, food, healthcare, and clothing. If Conour puts the money anywhere but in the restitution fund, he’s proved, once again, what a con artist he continues to be and that he has never had any intention of repaying his clients. Judge Young will be proven wrong... again; Conour has no remorse and the Judge is one of the many conned.

  5. Pass Legislation to require guilty defendants to pay for the costs of lab work, etc as part of court costs...

ADVERTISEMENT