Following the construction industry and related legal topics in the United States.

Monday, March 26, 2007

What part of the contract do you not understand?

Surely this must have been a question for the court in Casey Indus., Inc. v. Seaboard Surety Co., 2006 WL 2850652 (E.D. Va. Oct. 2, 2006) -- but in the review of the opinion it looks as if it may have been overlooked. It certainly was not answered. Here was a case where a concrete subcontractor filed an action upon a payment bond issued in favor of the general contractor. The surety raised as a defense the "pay when paid" clause in the concrete subcontract. It was found that the Surety could not rely on the "pay when paid" clause as a defense to the payment bond claim. It is one thing to require that the contract, to include its pre-requisites for payment, be clearly incorporated in the bond to set forth the conditions for payment under a payment bond, but should one have to expressly, separately and distinctly incorporate the "pay when paid" clause into the bond agreement or, for that matter, any other specific conditions precedent, or otherwise, for payment to be entitled to utilize them as a defense to payment under the bond? While one would think this generally not necessary, under this opinion unless the "pay when paid" provision is expressly incorporated into the bond agreement, the surety may not assert the "pay when paid" language in the subcontract as a defense to a claim against the bond. The defense was unavailable as a matter of law. Thus, until this matter is further reviewed, revisited and revised, utmost specificity should be considered.

See also this case's treatment at the Construction Channel. (This entry was published by John Springer of Womble Carlyle's construction and real estate development practice group.)


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