MMK attorneys Jerry Melchiode and Ben Pri-Tal win an appeal in the First Circuit on the extent of liability of a surety on a subcontractor performance bond. On a public works project, the general contractor alleged a default but never terminated the subcontractor. The subcontractor completed the project, and the general contractor sued the subcontractor and surety for delayed performance and liquidated damages. The trial court granted summary judgment for the surety finding that a subcontractor must be “declared in default” to trigger the liability of the surety on the bond. Simply alleging grounds for default under the contract was not sufficient when the general contractor allowed the subcontractor to continue performance. The default contemplated by the bond was tantamount to a termination for cause. The trial court also found that liquidated damages and attorney fees were not recoverable against the surety and dismissed all claims for bad faith penalties. The First Circuit affirmed. Without much guidance from state jurisprudence, the court of appeal relied heavily on Judge John Minor Wisdom’s decision in L & A Contracting Co. V. S. Concrete Servs., Inc., 17 F.3d 106, 110 (5th Cir. 1994) from the U.S. Fifth Circuit Court of Appeal.
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