Allied Bldg. Prods. Corp. v. J. Strober & Sons, LLC

• Decision Date: 05 September 2014
• Citation: 437 N.J.Super. 249,97 A.3d 1169
• Court: New Jersey Superior Court
• Parties: ALLIED BUILDING PRODUCTS CORP., Plaintiff, v. J. STROBER & SONS, LLC, Susan F. Strober, Individually, Steve Strober, Individually, and Arch Insurance Company, Defendants, and Dobco, Inc., Defendant–Appellant, and Colonial Surety Company, Defendant–Respondent.

437 N.J.Super. 249

97 A.3d 1169

ALLIED BUILDING PRODUCTS CORP., Plaintiff,

v.J. STROBER & SONS, LLC, Susan F. Strober, Individually, Steve Strober, Individually, and Arch Insurance Company, Defendants,andDobco, Inc., Defendant–Appellant,

and

Colonial Surety Company, Defendant–Respondent.

Superior Court of New Jersey,

Appellate Division.

Argued Sept. 11, 2013.

Decided Sept. 5, 2014.

Christopher Nucifora, Hackensack, argued the cause for appellant (Kaufman, Dolowich & Voluck, LLP, attorneys; Mr. Nucifora and Antonio J. Casas, Madison, on the briefs).

Greg Trif argued the cause for respondent (McElroy, Deutsch, Mulvaney & Carpenter, LLP, attorneys; Mr. Trif and Adam R. Schwartz, Morristown, of counsel and on the brief).

Before Judges GRALL, NUGENT and ACCURSO.

The opinion of the court was delivered by

ACCURSO, J.A.D.

In this action on a surety bond, Dobco, Inc. (Dobco) appeals from a September 19, 2012 final judgment denying its motion for partial summary judgment against Colonial Surety Company (Colonial), surety for J. Strober & Sons, LLC (Strober), Dobco's subcontractor, and granting Colonial's motion for summary judgment dismissing Dobco's cross-claims ¹ against Colonial. The Law Division dismissed Dobco's claims against Colonial under the bond on the ground that the bond did not name Dobco as the obligee and because Dobco had rejected the bond as not in the form required by its subcontract with Strober. We deem neither of those facts material because we conclude that in entering into its surety contract with Strober, Colonial obligated itself to issue a performance bond to Dobco in the form annexed to the Dobco/Strober subcontract. Accordingly, we reverse.

The facts adduced on the motions establish that Dobco was the general contractor to The William Patterson University (WPU) for a project referred to as the “Science Hall Addition, Renovation, and Greenhouse.” Strober bid for and was awarded a subcontract for the roofing work. Dobco and Strober entered into a standard AIA (“American Institute of Architects”) form of agreement on November 11, 2008. The agreement required Strober to furnish performance and payment bonds in the amount of $890,000, in the forms annexed to the agreement, prior to commencing work.² Strober applied to Colonial, the surety that had furnished Strober's bid bond for the project, for its performance bond.

Colonial is a Pennsylvania company, licensed in New Jersey as a property and casualty insurer. The company specializes in contract surety and fidelity. By it's president's account, Colonial does not “write business” in the way other insurers do. Upon establishing a “partnership account” with Colonial, a contractor is provided a “line of surety” with single and aggregate limits, a power of attorney and Colonial's seal. When the contractor wants to obtain a bid bond for a project, it uses its partnership account code to log into Colonial's website, inputs the project information and prints out the bond and consent of surety. The contractor signs the documents on behalf of Colonial using its power of attorney, applies Colonial's seal and submits the bond and consent of surety with its bid.

If the contractor wins the contract, it updates the online information provided previously and requests issuance of the performance bond. Colonial then has one of its bond administrators make inquiries regarding the bid spreads between the top few bidders, the identity of the architect and the engineer's estimate.³ The package is then submitted to Colonial's underwriter for his approval. Significantly, however, Colonial does not request or review the actual contract prior to issuing a performance bond. Colonial's president testified at deposition that Colonial's “general policy is not to request a copy of the contract.” When asked why, the president responded “General—just don't. Never do.” When asked how Colonial “would ... verify that it is bonding the correct contract, if it never reviews the contract” prior to issuing the performance bond, the president responded “[v]erification, in my opinion, is not necessary. That's why we don't review the contract.” Colonial did not review the Strober subcontract before issuing the performance bond at issue here.

The parties agree that Strober submitted a bid bond for the project through Colonial's online system and that Colonial followed its usual procedures in issuing the performance bond on February 26, 2009. The bond provides in pertinent part:

That J Strober & Sons, LLC, Ringoes, NJ as Principal, hereinafter called Contractor, and COLONIAL SURETY COMPANY a corporation organized and existing under the laws of the Commonwealth of Pennsylvania, as Surety, hereinafter called Surety, are held and firmly bound unto

William Patterson University, Wayne, NJ 07470

as Obligee, hereinafter called the Owner, in the amount of

Eight Hundred Ninety Thousand Dollars and No Cents Dollars ($890,000),for the payment whereof Contractor and Surety bind themselves, their heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents.

WHEREAS, Principal has by written agreement dated November 11, 2008, entered into a contract with the Owner for Science Hall Addition to William Patterson University[.]

In accordance with drawings and specifications prepared by (here insert full name, title and address) Hellmuth, Obata & Kassabaum, 620 Avenue of the Americas, 6th Floor, New York, N.Y. 10011 which contract is by reference made a part hereof, and is hereinafter referred to as the Contract.

NOW THEREFORE, THE CONDITION OF THIS OBLIGATION is such that if Contractor shall promptly and faithfully perform said Contract, then this obligation shall be null and void; otherwise it shall remain in full force and effect.

While the bond bears the correct date of the Dobco/Strober subcontract, it misidentifies the obligee as WPU, the owner, instead of Dobco, WPU's general contractor and the party to whom Strober promised the bond in the November 11, 2008 written agreement. Strober paid Colonial the full $16,350 premium for the performance bond.

Following Strober's delivery of the bond and accompanying documents to Dobco, Dobco wrote the following memorandum to Strober.

We are in receipt of the performance and payment bond # CSC–216974 dated February 26, 2009.

As identified in the AIA A401 Standard Form of Agreement Between Contractor and Subcontractor dated November 11, 2008, we required the performance and payment bond to be issued on a specific form. The performance and payment bonds we received do not comply with that requirement. Please re-issue the performance and payment bond on those forms. A copy of the forms are attached with this memorandum. Please provide the re-issued performance and payment bond no later than March 16, 2009. Thank you for your cooperation.

The parties dispute whether Dobco returned the performance bond to Strober. Dobco maintains that it retains the bond in its possession. Strober, which is not a party to this appeal, maintains that Dobco returned the bond and that it, in turn, returned the bond to Colonial. Colonial denies that the original bond was ever returned to it.

Upon receipt of Dobco's memorandum, Strober, using Colonial's power of attorney and seal, executed performance and payment bonds on Dobco's forms and telefaxed a copy to Dobco. Colonial contends this second set of bonds is a nullity as its agreement with Strober limited Strober to issuing bid bonds on Colonial's behalf. Upon receiving the second set of bonds, Dobco sent Strober the following memorandum.

We are in receipt of the revised performance and payment bond # CSC–216974 dated February 26, 2009. A copy of which is attached.

The revised performance and payment bond is not acceptable. The performance and payment bond must be revised and issued by Colonial Surety Company with accompanying Surety Disclosure Statement and Certification, General Power of Attorney, and Financial Statement.

Please provide the re-issued performance and payment bond no later than March 18, 2009. A failure to provide this requirement by that day may delay the process of any payments to your company. Thank you for your cooperation.

Strober did not provide revised bonds to Dobco but delivered material to the project site in April and began work in May. In early May, Dobco personnel complained to Strober about its work and noted that Strober had yet to respond to its request that Colonial reissue the bonds. Strober, in turn, asked Colonial to reissue the bonds on Dobco's forms. Colonial, however, had become aware that Strober was experiencing financial difficulties and instead asked for updated financial information from Strober.

Strober continued to prod Colonial for revised bonds and was several times advised by Colonial that “it is in underwriting,” notwithstanding that Colonial had already issued the bond and Strober had already paid for it. The record contains evidence of several exchanges between Strober and Colonial regarding the subcontract's requirement that the bonds be issued on Dobco's form, Colonial's underwriter's discomfort with Dobco's form and his suggestion that Strober approach Dobco with other bond forms, the strength of Strober's finances and whether Colonial was willing to continue to bond the company going forward.

On July 21, Strober advised Dobco that “[w]e will ... be forwarding the bond.” On July 24, Strober wrote to the underwriter at Colonial asking that he “confirm the status of our William Patterson Bond.” Strober wrote that “[w]e received it, paid for it, but had to send the original back to have it on another form as per our GC. Please confirm the status.” Later that same day, Strober sent the following email to Dobco, copying the underwriter at Colonial.

Hossam. I've reached out to our Bond company on several occasions requesting the Wm. Patterson Bond being re-sent on the form you requested. The bond is active but I'm unable to...