This was a priority fight between the surety and subs of a general against CRA. The owner had held back $463,000 from the general and wanted to pay that amount into court. Before the owner’s application, CRA issued a third party demand against the owner for payment of $712,000 relating to the general’s payroll source deduction arrears. GCNA and the subs attempted to argue that the owner had a duty to pay them directly, rather than the general, so that the third party demand was irrelevant. The judge held that (i) there was no obligation of the owner to mitigate the losses of GCNA and the unpaid subcontractors, (ii) the prime contract and the bonds created no legal obligation on the part of the owner to pay subcontractors; it merely had a right to do so; (iii) even if there were something in the contract that said this, the contract could not displace the rights of CRA. Accordingly, since the owner had no obligation to pay the funds to the surety or the subcontractors, the funds had to be paid to the general and, pursuant to the third party demand, were to be paid to CRA. Although those funds were subject to the liens and trust claims of the subs, they ranked behind CRA’s claim in priority and the subs and GCNA got nothing.
Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.