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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. It is amazing how selectively courts can read cases and how two very similar factpatterns can result in quite different renderings. I cited this very same argument in Brown v. Bowman, lost. I guess it is panel, panel, panel when one is on appeal. Sad thing is, I had Sykes. Same argument, she went the opposite. Her Rooker-Feldman jurisprudence is now decidedly unintelligible.

  2. November, 2014, I was charged with OWI/Endangering a person. I was not given a Breathalyzer test and the arresting officer did not believe that alcohol was in any way involved. I was self-overmedicated with prescription medications. I was taken to local hospital for blood draw to be sent to State Tox Lab. My attorney gave me a cookie-cutter plea which amounts to an ALCOHOL-related charge. Totally unacceptable!! HOW can I get my TOX report from the state lab???

  3. My mother got temporary guardianship of my children in 2012. my husband and I got divorced 2015 the judge ordered me to have full custody of all my children. Does this mean the temporary guardianship is over? I'm confused because my divorce papers say I have custody and he gets visits and i get to claim the kids every year on my taxes. So just wondered since I have in black and white that I have custody if I can go get my kids from my moms and not go to jail?

  4. Someone off their meds? C'mon John, it is called the politics of Empire. Get with the program, will ya? How can we build one world under secularist ideals without breaking a few eggs? Of course, once it is fully built, is the American public who will feel the deadly grip of the velvet glove. One cannot lay down with dogs without getting fleas. The cup of wrath is nearly full, John Smith, nearly full. Oops, there I go, almost sounding as alarmist as Smith. Guess he and I both need to listen to this again: https://www.youtube.com/watch?v=CRnQ65J02XA

  5. Charles Rice was one of the greatest of the so-called great generation in America. I was privileged to count him among my mentors. He stood firm for Christ and Christ's Church in the Spirit of Thomas More, always quick to be a good servant of the King, but always God's first. I had Rice come speak to 700 in Fort Wayne as Obama took office. Rice was concerned that this rise of aggressive secularism and militant Islam were dual threats to Christendom,er, please forgive, I meant to say "Western Civilization". RIP Charlie. You are safe at home.

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