Opinion ID: 2604080
Heading Depth: 1
Heading Rank: 11

Heading: Performance-Bond Requirement of Payment-Bond Obligation:

Text: The heavily contested and principal substantive issue of this appeal arises from the contention of Hoiness that the performance bond required Allied to pay the subcontractor claims as a stated bond undertaking, and that consequently, if it was negligent or in breach of contract to fail to issue the payment bond, which contendably had duplicative coverage, no damage was caused either to Nielsen or Julien. Consequently, we are faced with the issue whether or not, by interpretation of the performance bond and the terms of the subcontract, the payment obligation under suretyship law existed without the additional execution of a payment bond. The issue had been heavily debated in pretrial argument by the litigants with an attendant decision of the trial court that a payment bond was different from a performance bond. This resolution was then clouded by the decision to reform and essentially create a payment bond by acceptance of Hoiness' Rule 15(b) motion to amend following trial. No specific decision on this contention was made by the court at trial conclusion, although the judgment granted to Julien against Hoiness essentially constitutes a denial of the validity of this claimed defense. This is the money issue of the appeal, in that Hoiness, the insurance broker, seeks to avoid damage liability on the premise that Julien sustained no damages in contractual breach since Allied should have paid in any event. Consequently, Hoiness argues that nonissuance of the payment bond did not adversely affect Julien who retained identical rights without the requested protection from the additional payment-bond coverage. The number of cases that can be found which consider the obligation of the surety in writing a performance bond to be responsible for payment defaults is extensive. [5] This court is not now inclined to base a decision by rule selection, and particularly so because of the unusual absence of any contractual covenants of payment or lien-claim, hold-harmless provision in the subcontract. Consequently, we review the standards and results from the events of occurrence in that subcontractor nonpayment occurred in spring and early summer of 1985, with attendant denial by Allied premised on the absence of bond liability, and Allied did not go into insolvency until March of 1986, nine months later. If for no other reason than the benefit of the chance or opportunity principle, there was a singular business advantage to Julien if the payment-bond obligation had clearly existed in 1985 when the unpaid-supplier issues first arose. Zinnel v. United States Shipping Board Emergency Fleet Corporation, 10 F.2d 47 (2d Cir.1925); Action Ads v. Judes, Wyo., 671 P.2d 309 (1983); Hursh Agency, Inc. v. Wigwam Homes, Inc., Wyo., 664 P.2d 27 (1983). The record in this case reflects that Park County would not release retainages until the unpaid claims against the insolvent subcontractor were paid. Whether or not the county was properly protected by the surety bond issued with the contractor has little significance if by unilateral decision of the owner the contractor cannot receive final construction contract payments without suit. The business and financing justification for Julien to pay to get the retainage and then sue Allied, Nielsen and Hoiness for repayment rather than Park County for collection is self-evident. Consequently, we determine, without regard for the legal conflict derived from cases where subcontractors seek to enforce performance-bond provisions to secure obligation payment, that the failure of Hoiness to provide the agreed bond for which Hoiness was paid caused damage in the amount consequently paid by Julien, and that any dispute between Hoiness and Allied can, if they desire, be further pursued in their continued litigation upon remand. On this record, as an issue not decided by the trial court by express decision, we do not have sufficient facts upon which either a factual decision or a determination as a matter of law can be justified to determine performance-bond obligation for the supplier, and subcontractor claims under these specific circumstances where no specific hold-harmless or payment clause was included in the subcontract. We here recognize the right of subrogation between the issuing agency and the insurance carrier, if, in fact, the carrier has a liability beyond $1,920, but do not determine whether that liability can be established from the four corners of the performance bond and the written subcontract terms. Commercial Union Insurance Company v. Postin, Wyo., 610 P.2d 984 (1980); Criss v. Folger Drilling Company, 195 Kan. 552, 407 P.2d 497 (1965). It is clear that both the beneficiaries and the aspects of the two forms of surety coverage, performance and payment, are different, with an obvious example in the circumstance that a payment-bond obligation can be enforced by the supplier-creditor, but the performance bond cannot: shall promptly and faithfully perform said subcontract (performance bond); shall faithfully perform said contract according to its terms, covenants and conditions and shall promptly pay all persons supplying labor or material to the Principal for use in the prosecution of the work under said contract (payment bond). By this analysis we conclude that Julien did not get what it desired and contractually requested in the surety instrument as a guarantee to not only protect against any lienable obligation of the subcontractor to pay its suppliers and subcontractors, but also to provide first-person obligation protection to such suppliers and subcontractors. Pragmatically, the general contractor was not obligated to litigate interpretative nuances of a performance bond to determine whether that coverage included payment-bond characteristics when the broker's obligation was to furnish the payment bond which would have obviated the need for litigation. We could carry the analysis further by the supposition that Allied was financially responsible, but conjectural analysis contrary to the stated fact does not afford a logical basis for a legal resolution. We hold that Julien was not obligated to litigate a performance bond to determine whether payment-bond characteristics existed, and such an analysis and determination can be further pursued between the insurance agency and the insolvent surety if either or both care to continue that pursuit. A clear payment-bond protection is economically better than a conjectural performance-bond repayment right. In substantive conclusion, this court will recognize a right in the nature of subrogation to the defaulting insurance agency, but not a liability defense. Commercial Union Insurance Company v. Postin, supra, McClintock, J., dissenting; Wyoming Building & Loan Association v. Mills Construction Co., 38 Wyo. 515, 269 P. 45, 60 A.L.R. 418 (1928).