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Culligan Corp. v. Transamerica Insurance Co.

July 26, 1978


Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. IP 75-249-C - James E. Noland, Judge.

Sprecher and Wood, Circuit Judges, and Van Pelt, Senior District Judge.*fn*

Author: Van Pelt

VAN PELT, Senior District Judge.

This is an appeal by Transamerica Insurance Company from a summary judgment in the amount of $15,825.00, plus interest, rendered in favor of Culligan Corporation (formerly Culligan Fyrprotexion, Inc.). We affirm.

Culligan entered into a subcontract with Gerodetti Construction Company, Inc. on or about September 4, 1973 for the installation of automatic fire sprinkler equipment in two new shopping centers which were being constructed. These shopping centers were owned by Center Developers Ltd. Center awarded the general contract to Gerodetti and required Gerodetti to furnish a 100% performance and payment bond with an acceptable surety. Gerodetti obtained the Labor and Material Payment Bond from Transamerica on May 15, 1973, the date the contract between Gerodetti and Center was signed.

The subcontract provided for progress payments with the final retainage to be paid within 30 days after completion of the buildings and acceptance by the Owner. The same subcontract, in preprinted form language, stated that the final payment was due

when the Work described in this Subcontract is fully completed and performed in accordance with the Contract Documents and is satisfactory to the Architect.

Gerodetti's contract with Center also provided for progress payments. The final payment to Gerodetti was due 30 days after substantial completion of the work and receipt of final certificates of completion from three named parties including the architect.

Culligan completed its subcontract in November, 1974. Early in November, 1974, another construction company appeared on the construction sites and began tearing out some of Gerodetti's work. Center, by letter dated November 18, 1974, claimed that there were substantial defects in Gerodetti's workmanship and that the project plans and specifications had not been met. Subsequently, Gerodetti was locked out from the project. Center withheld final payment from Gerodetti, and Gerodetti withheld final payment from Culligan. Culligan's written demand for payment was refused by Gerodetti. On April 18, 1975, Culligan then brought this suit against both Gerodetti and Transamerica seeking the retainages. The defendants answered on May 7 and May 12, respectively. A Motion for Summary Judgment solely against Transamerica was filed on June 10, 1975. This motion was not finally disposed of until March 15, 1977. No discovery was had or evidence other than one affidavit was offered in support of the Motion for Summary Judgment. Two affidavits were offered in opposition.

Transamerica contends that the trial court erred in granting summary judgment because (1) there were genuine issues of material fact and (2) Transamerica was discharged as surety because Center breached its contract with Gerodetti.

Transamerica argues that there is a fact question as to whether the work performed by Culligan has been accepted by the architect and owner, as required in the subcontract, and by the parties who must approve Gerodetti's work in order for Gerodetti to obtain final payment from the owner. Since Culligan did not request or obtain summary judgment against Gerodetti, these questions are relevant only if the Labor and Material Payment Bond incorporates the acceptance requirements of the subcontract and general contract as conditions precedent to recovery. The district court found such acceptance was not a condition precedent to recovery, and even if acceptance was required, the facts showed implied acceptance. We believe the district court was correct in reaching this conclusion.

The bond itself sets forth the following conditions for recovery from the surety:

1) the claimant must have a direct contract with Gerodetti for labor, material, or both, used or reasonably required for use in ...

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