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Ribeira & Lourenco Concrete Construction v. Jackson Health Care Associates

Decided: March 4, 1992.

RIBEIRA & LOURENCO CONCRETE CONSTRUCTION, PLAINTIFF,
v.
JACKSON HEALTH CARE ASSOCIATES, DEFENDANT AND THIRD-PARTY PLAINTIFF-APPELLANT. JOHN J. MICHAELS DEVELOPERS, INC.; MICHAEL CASTORO; GREEN CAST ENTERPRISES, INC.; CONDOR COMPANY, INC., AND HOWARD LOWY, DEFENDANTS, V. INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, DEFENDANT AND THIRD-PARTY DEFENDANT-RESPONDENT



On appeal from the Superior Court of New Jersey, Law Division, Middlesex County.

Michels, Havey and Conley. The opinion of the court was delivered by Michels, P.J.A.D.

Michels

MICHELS, P.J.A.D.

Defendant and third-party plaintiff Jackson Health Care Associates (Jackson) appeals from a summary judgment of the Law Division entered in favor of defendant and third-party plaintiff Indemnity Insurance Company of North America (North America) that dismissed all of its claims under a labor and material payment bond. The pivotal issue raised by this appeal is whether an obligee under a labor and material payment bond, such as Jackson, has a right of recovery against its surety North America, and, if so, whether the contractual limitation period for bringing suit would bar such recovery.

Many of the facts giving rise to this appeal are set forth in our opinion in Ribeira & Lourenco v. Jackson Health, 231 N.J. Super. 16, 20-21, 554 A.2d 1350 (App.Div.1989), aff'd o.b., 118 N.J. 419, 571 A.2d 1311 (1990), and were relied upon here by both parties. These facts need not be repeated at length here. It is sufficient for purposes of this appeal to emphasize that North America is the surety on both a performance bond and a labor and material payment bond. The performance bond, which was satisfied by North America, named Jackson, as obligee, and named defendant Green Cast Enterprises, Inc. (Green Cast), as principal, and guaranteed that the principal would complete the contract. When the contract was not completed, North America paid Jackson under the performance bond. The labor and material payment bond guaranteed claims for labor and materials used in the performance of a subcontract between defendants John J. Michaels Developers, Inc. (Michaels) and Green Cast. The labor and material payment bond named Green Cast, as principal, and Jackson, as obligee.

Green Cast defaulted on the subcontract and ceased work on the project on February 13, 1985. As a result, on August 11, 1985, plaintiff instituted an action against Jackson, Michaels, Green Cast and defendants Condor Company, Inc. and Howard Lowy to recover the unpaid balance due for labor performed and materials furnished in connection with the construction

project. On September 9, 1986, Jackson filed an answer and third-party complaint, joining North America as a third-party defendant, seeking to recover additional monies from North America under the labor and material payment bond. In the third-party complaint, Jackson sought recovery and indemnity under the labor and material payment bond, claiming that it was entitled to recover under the bond "any and all sums which claimant [plaintiff] recovers against [it]", as well as all sums it "paid or will pay for labor and materials" to claimants and all costs, expenses and attorney's fees. On October 20, 1986, plaintiff amended its complaint to include a direct claim against North America, as surety for Green Cast on the labor and material payment bond. After the trial court denied North America's motion to dismiss the third-party complaint, the trial court severed the trial of Jackson's third-party complaint against North America from the trial of plaintiff's claims.

After completion of discovery, North America moved for summary judgment against plaintiff on the ground that the action against it was barred by the provisions of the bond that limited the time in which to bring suit to one year after the principal had ceased work on the project. The trial court held that the time limitation provisions of the bond were valid and enforceable. Since Green Cast, the principal, ceased work on the project on February 13, 1985, and plaintiff did not commence suit against North America, the surety, until October 20, 1986, more than one year later, the trial court further held that plaintiff was barred from bringing the suit and entered summary judgment in favor of North America. We affirmed the judgment, holding that the one-year limitation period in the labor and material payment bond precluded the action against the surety and that the surety was not equitably estopped from raising the limitation period in the bond as a defense. We also held that the claim against the surety in the amended complaint did not relate back to the date of filing the original complaint. The Supreme Court affirmed o.b. in 118 N.J. 419, 571 A.2d 1311 (1990).

Thereafter, on December 4, 1990, North America moved for summary judgment with respect to the third-party complaint, arguing that the judgment in Ribeira & Lourenco v. Jackson Health, supra, was res judicata as to Jackson's third-party claim against it and barred this action. Additionally, North America argued that its sole obligation under the labor and material payment bond "was to pay claimants who complied with the conditions of the bonds," and that Jackson was not a claimant as that term is defined by the bond. Jackson, in opposing the motion, admitted that "[t]he time is past for [claimants] now to bring suit against [North America]", but argued that its rights, as an obligee under the bond, were "not addressed in the bonds" and, thus, were not affected by the one-year limitation for bringing suit contained in the labor and material payment bond. Judge Longhi in the Law Division granted summary judgment in favor of North America and dismissed all claims by Jackson under the labor and material payment bond. The trial court held that Jackson, as obligee, stood in no better position than the third-party beneficiaries stood and, since the bond contained a limitation for bringing suit within one year, it, as obligee, was bound by that limitation and, therefore, this action against North America was timebarred.

Jackson contends on this appeal that the trial court erred "by extending limitations of suit expressly applicable to defined 'claimants' to the owner/obligee on a labor and material payment bond." Essentially, Jackson argues that the terms of the payment bond, which limit actions to "claimants" do not apply to it as an obligee and that its "right to sue is not derived from, nor solely dependent upon, a claimant's rights or obligations under the bond." We disagree and affirm. We are satisfied from our study of the record and arguments presented that the trial court properly granted summary judgment in favor of North America and that all of the issues raised are clearly without merit. R. 2:11-3(e)(1)(E).

North America issued both a performance bond and a labor and material payment bond, naming Jackson as obligee in each. North America, as surety, was bound under each bond for $800,000. The other surety on the bond, Union Indemnity Co. of New York, was bound for $2,500,000 and has subsequently become insolvent. North America tendered the full payment of its obligation -- $800,000 -- to Jackson under the performance bond. Jackson accepted the payment and released North America. Under the labor and material payment bond, North America, as surety, was bound to Jackson "for the use and benefit of claimants, as hereinbelow defined . . . ." The pertinent provisions of the labor and material payment bond read as follows:

1. A claimant is defined as one having a direct contract with the Principal or with a Subcontractor of the Principal for labor, material, or both, used or reasonably required for use in the performance of the Contract, labor and material being construed to include that part of water, gas, power, light, heat, oil, gasoline, telephone service or rental of equipment directly applicable to the contract.

2. The above named Principal and Surety hereby jointly and severally agree with the Owner that every claimant as herein defined, who has not been paid in full before the expiration of a period of ninety (90) days after the date on which the last of such claimant's work or labor was done or unperformed, or materials were furnished by such claimant, may sue on this bond for the use of such claimant, prosecute the suit to final judgment for such sum or sums as may be justly due claimant, and have execution thereon. The Owner shall not be liable for the payment of any costs or expenses of any such suit.

3. No suit or action shall be commenced hereunder by any claimant:

a. Unless claimant, other than one having a direct contract with the Principal, shall have given written notice to any two of the following: the Principal, the Owner, or the Surety above named, within ninety (90) days after such claimant did or performed the last of the work or labor, ...


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