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February 2, 1981

UNITED STATES of America ex rel. E. C. ERNST, INC., and E. C. Ernst, Inc., on its own behalf, Plaintiff,
CURTIS T. BEDWELL & SONS, INC., and United States Fidelity and Guaranty Company, Defendants

The opinion of the court was delivered by: LORD, III

This is a Miller Act case. 40 U.S.C. § 270a et seq. Defendant Bedwell is the general contractor on a construction project. Plaintiff was its electrical subcontractor. In Count I of its complaint, plaintiff seeks $ 249,960.56 in damages which allegedly resulted from Bedwell's refusal to pay for services and materials furnished to Bedwell. In Counts II and III of its complaint, plaintiff seeks to recover in excess of $ 50,000 in damages which allegedly were the natural consequence of Bedwell's material breach of this subcontract. This sum includes loss of profits, the cost of demobilization, unbilled services, and other damages. Bedwell denies that it failed to pay plaintiff what plaintiff was entitled to receive under the contract. Furthermore, Bedwell avers that plaintiff materially breached the subcontract when it, inter alia, (a) failed to pay plaintiff's bills of its suppliers and materialmen, (b) went insolvent, and (c) failed to furnish performance and payment bonds. Bedwell therefore argues that it lawfully terminated the subcontract.

Bedwell has counterclaimed for the damages it suffered as the result of plaintiff's alleged material breach of the subcontract. Bedwell seeks damages in an amount in excess of $ 200,000 for this breach. Plaintiff's defense to Bedwell's counterclaim is that Bedwell's earlier material breach of the contract the breach that comprises the nucleus of its initial complaint excused plaintiff from adhering to its contractual obligations. Plaintiff also asserts that Bedwell prevented it from performing its contractual obligations.

 Each party has filed a motion for summary judgment. The defendants' joint motion for summary judgment against plaintiff as to all counts of plaintiff's complaint raises one issue: did Bedwell properly and lawfully terminate its subcontract with plaintiff? *fn1" For the reasons which follow, I have concluded that there is a material issue of fact as to whether Bedwell was in breach before it terminated the subcontract. I shall therefore deny defendants' motion.

 Plaintiff moves for partial summary judgment with regard to Count I of Bedwell's counterclaim. It contends that Bedwell's damages were strictly limited by the contract. I shall deny plaintiff's motion.

 II. Facts

 On December 19, 1977, Bedwell contracted with the United States Department of the Navy, Naval Facilities Engineering Command, for the construction of a Propeller Facility at the Philadelphia Naval Shipyard. Bedwell then entered into a subcontract with plaintiff for the performance of the electrical work. This subcontract, dated January 3, 1978, provided that Bedwell could request payment and performance bonds from plaintiff. *fn2" Bedwell did not request a bond when the parties executed the subcontract; nor did it request one when plaintiff began performance in February, 1978. However, in the fall of 1978 after the project was substantially underway Bedwell learned that plaintiff's accounts with its suppliers and materialmen were in arrears. Affidavit of Curtis T. Bedwell. Consequently, *fn3" on October 24, 1978, it requested that plaintiff furnish the necessary bonds. The overall subcontract project was more than fifty percent complete at this point. Affidavit of Robert L. Shreves, para 18. On November 22, 1978, plaintiff notified Bedwell that it was unable to obtain the bonds at that time from its bonding company. Bedwell orally repeated its request for bonds in December, 1978. Deposition of Gerald Benson at 22. *fn4" Again plaintiff failed to provide the requested bonds.

 In early December, 1978, plaintiff filed a Petition for Arrangement pursuant to Chapter XI of the Bankruptcy Act, 11 U.S.C. § 701 et seq. By this time, plaintiff's past due supplier and materialmen accounts totalled over $ 130,000. Finally, on December 27, 1978, Bedwell gave plaintiff forty-eight hours written notice of termination. *fn5" It was only at this point that plaintiff ceased construction on the project.

 At the time Bedwell terminated its subcontract with plaintiff, it had paid plaintiff $ 351,661.96 out of the total subcontract cost of $ 853,000. After plaintiff ceased construction on the project, Bedwell retained sixteen other subcontractors to complete the electrical work covered by plaintiff's subcontract. The subcontractors satisfactorily finished the work in November, 1979, charging Bedwell approximately $ 580,000.

 III. Defendants' Joint Motion for Summary Judgment

 A. Preliminary Statement

 B. Discussion

 1. Bedwell's breach of the subcontract

 Plaintiff avers that it "repeatedly made demands upon defendant, Bedwell, for progress payments due and owing as per the terms of (the) contract, which defendant refused to pay, thereby materially breaching the contract." Complaint, para 12. Plaintiff therefore argues that there are genuine issues of material fact as to whether and when Bedwell defaulted under the terms of the subcontract. I conclude that there is a "substantial controversy," see Fed.R.Civ.P. 56(d), as to whether Bedwell breached the subcontract before plaintiff's "breach." This precludes granting summary judgment in Bedwell's favor. If Bedwell "withheld the payment of (a progress payment) unconditionally owed to the plaintiff ... such conduct would constitute a breach of a material provision of the contract between the parties, thereby excusing plaintiff from further performance..." United States ex rel. Micro-King Co. v. Community Science Technology, Inc., 574 F.2d 1292, 1295 n.3 (5th Cir. 1978). See, e.g., Cargill, Inc. v. Atkins Farms, Inc., 422 F. Supp. 239, 244 (W.D.Ark.1976) (citing cases). A ...

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