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Nicholson Construction Co. v. Standard Fire Insurance Co.

decided: April 30, 1985.

NICHOLSON CONSTRUCTION COMPANY, APPELLEE,
v.
THE STANDARD FIRE INSURANCE COMPANY, THE GENERAL REINSURANCE CORPORATION, NORTH AMERICAN REINSURANCE CORPORATION, THE REINSURANCE CORPORATION OF NEW YORK, FIDELITY & DEPOSIT COMPANY OF MARYLAND, EMPLOYERS REINSURANCE CORPORATION, AND AETNA CASUALTY & SURETY COMPANY, APPELLANTS



Appeal from the United States District Court for the Eastern District of Pennsylvania, (D.C. Civil No. 83-3669).

Adams, Weis, and Wisdom,*fn* Circuit Judges.

Author: Weis

Opinion OF THE COURT

WEIS, Circuit Judge.

The district court decided that a subcontractor three levels removed from the prime contractor had standing to sue on a construction payment bond. Viewing the issue against the background of the state bonding law, we conclude that the words "as subcontractor or otherwise" in the payment bond do not extend its coverage beyond the two tiers recognized by the statute. Accordingly, we reverse the summary judgment against the sureties.

Plaintiff filed this suit against the surety companies on a payment bond issued in connection with the construction of a sewage plant for the City of Philadelphia. The district court entered summary judgment for plaintiff, and defendants appeal.

The prime contractor for the project was a joint venture composed of Buckley & Company, Inc. and others, hereafter referred to as Buckley. Buckley subcontracted part of the work to C. Hannah Construction Company, which in turn subcontracted to Geofreeze Corporation. That company then subcontracted for specialized drilling services with plaintiff Nicholson Construction Company. Plaintiff, therefore, was a subcontractor to a sub-subcontractor, or three steps removed from the prime contractor.

Before commencing work on the project, Buckley executed a payment bond in favor of the City of Philadelphia on a form provided by the city with defendants acting as sureties. The bond provided for payment of sums due for material furnished, equipment or machinery used, and labor supplied in the prosecution of the work required by the terms of the prime contract.

The bond also included the following provision, which is the subject of this controversy:

". . . every person . . . who, whether as a sub-contractor or otherwise, has furnished material, rented equipment or machinery, rendered services or supplied or performed labor in the prosecution of the work above mentioned and described, and who has not been paid therefor, may sue in assumpsit on this bond. . . ."

An additional provision stated that any person "who has no contractual relationship, express or implied, with the [prime contractor] shall not have a right of action" on the bond unless written notice was given to the prime contractor within a specified time.

The bond was required by the city in accordance with the Pennsylvania Public Works Contractors' Bond Law of 1967, Pa. Stat. Ann. tit. 8, § 191 et seq. (Purdon Supp. 1984-85). The statute provides that the prime contractor must furnish a performance bond and a payment bond, the latter being for 100 percent of the contract amount. The payment bond "shall be solely for the protection of claimants supplying labor or materials to the prime contractor . . . or to any of his subcontractors." Pa. Stat. Ann. tit. 8, § 193(a)(2).

The Act further provides that a claimant "who has a direct contractual relationship with any subcontractor of the prime contractor . . . but has no contractual relationship, express or implied, with such prime contractor" may bring an action on the bond only after giving notice to the prime contractor within a specified time. Pa. Stat. Ann. tit. 8, § 194(b).

This suit on the bond was filed when Geofreeze was unable to pay Nicholson for the work it had performed. The sureties defended on the basis that Nicholson had no standing under the terms of the bond because its relationship had not been with Buckley or any of its subcontractors. There being no dispute about the material facts and the parties having agreed on the amount in dispute, the matter was submitted on summary ...


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