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ST. PAUL MERCURY INS. CO. v. PHILADELPHIA HOUSING AUTH.

March 19, 2004.

ST. PAUL MERCURY INS. CO.
v.
PHILADELPHIA HOUSING AUTH



The opinion of the court was delivered by: NORMA SHAPIRO, Senior District Judge

MEMORANDUM AND ORDER

In November 1997, Defendant Philadelphia Housing Authority ("PHA") contracted with San Lucas Construction Co. ("San Lucas") to perform general construction work at the Richard Alien Homes housing project ("the Project") owned and managed by PHA. Plaintiff St. Paul Mercury Insurance Company ("St. Paul") provided performance and payment bonds to PHA as surety for San Lucas. On May 31, 2002, St. Paul filed this civil action against PHA, alleging four counts arising from the issuance of its performance bond. By Order dated August 20, 2003, Count II (Breach of Takeover Agreement) was severed from the remaining counts and tried non-jury.*fn1 In accordance with Fed.R.Civ.P. 52(a), the following are findings of fact and conclusions of law with respect to Count II: Page 2

I. Findings of Fact

  Parties, Jurisdiction and Venue

  1. St. Paul is a corporation organized under the laws of Minnesota with its principal place of business in St. Paul, Minnesota. Among other lines of business, St. Paul issues insurance as surety to construction contractors.

  2. PHA is an instrumentality of the Commonwealth of Pennsylvania, organized in 1937 pursuant to the Housing Authorities Law, 35 P.S. §§ 1541, 1550 et seq., with its principal place of business in Philadelphia, Pennsylvania. PHA owns and manages public housing projects in the Philadelphia area.

  The Agreement

  1. In November 1997, PHA contracted with San Lucas Construction Company, Inc. ("San Lucas") to perform general construction work at the Richard Alien Homes. P Exh. 25.

  2. The number assigned to the construction contract ("the Contract") between PHA and San Lucas was No. 9589. Tr. at 91.

  3. On January 24, 2000, PHA terminated San Lucas' right to proceed under the Contract for default, and called upon St. Paul to ensure performance of the Contract. P Exh. 25.

  4. On April 6, 2000, PHA and St. Paul entered into a Takeover Agreement ("the Agreement") (admitted into evidence as P Exh. 25) reciting the terms and conditions by which St. Paul agreed to undertake completion of the work remaining under the Page 3 Contract. P Exh. 25.

  5. The Agreement defined the term "Contract" as contract number 9589 between San Lucas and PHA. P Exh. 25.

  6. The Agreement defined the "Contract Price" and the "Contract Balance" as follows:
Whereas, as of Requisition No. 23, the adjusted contract price, including Change Orders 1 thru 8 through 12/6/99 is $12,068,944.92 (hereinafter called the "Contract Price") and as of the date hereof there remains a balance including retainage still held and unpaid by Owner, in the amount of $2,711,413.84 (hereinafter called the "Contract Balance")
  7. Paragraph 1 of the Agreement provided that the recitals contained in the Agreement were incorporated by reference as if fully set forth therein. P Exh. 25.

  8. Paragraph 2 of the Agreement provided, among other things, that PHA would pay the remaining Contract Balance to St. Paul "as and when due under the Contract" and payments would be made only ". . . to the extent the Contract Balance is due and payable under, and pursuant to the terms and provisions of, the Contract."*fn2 P Exh. 25.

  9. The Contract Balance to be paid by PHA to St. Paul could be increased for extra work performed pursuant to written change Page 4 orders approved and signed by PHA.*fn3

  10. Paragraph 8 of the Agreement provided the Contract Balance could be decreased through a modification, but only if the modification were approved by St. Paul. Paragraph 8 further provided that the surety's approval of modifications decreasing the price could not be unreasonably withheld.*fn4 P Exh. 25.

  11. The Agreement provided that "in the event of a conflict between the terms of this Agreement and the terms of the Contract, this Agreement shall take precedence." P. Exh. 25.

  12. Paragraph 14 of the Agreement provided, "this Agreement shall not be changed, amended or altered in any way except in writing and executed by both the Owner and Surety." P Exh. 25.

  Management Office Renovation

  13. St. Paul hired NDK General Contractors, Inc. ("NDK") to complete the work on the project. Tr. at 15.

  14. One item in the original Contract to be completed by San Lucas was a management office, designated "MO" in the schedule of ...


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