Wednesday, September 23, 2009

Subcontractor's Failure to Comply With Notice Requirements of Payment Bonds Precludes Recovery

In Peri Formwork Systems, Inc. v. Lumbermens Mutual Casualty Company, the Appellate Division, Second Department, ruled that a subcontractor could not recover against payment bonds because the subcontractor failed to comply with the bonds' notice provisions. The court ruled that the notice provisions were conditions precedent to recovery against the bonds. The subcontractor also argued that it should be granted summary judgment and receive payment from certain bonds that were filed to discharge its mechanic's lien and the court also denied that request holding that there were issues of fact as to whether any money was actually owed to the subcontractor and, therefore, recovery against the bonds was premature.

It is a good practice for any contractor working on a bonded project to request copies of any payment and/or performance bonds when the project begins so that if a problem develops you have all of the necessary information in hand to be able to begin the claims process.

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.  He can be reached at (631) 752-7100 or


  1. Is there any case law out there for payment bonds required by the owner for a "hybrid" project (private funds for improvement on public land)? I believe this is in connection with lien law section 5?

    1. There are no cases that I know of and that is for good reason. Mechanic's lien cannot be filed on such a hybrid project. It is the rare project that is "unlienable." The reason is that publicly owned land cannot be encumbered by a mechanic's lien against the property. Since the funding is private, there is also no fund to public lien to. This leaves you with a project that cannot be liened. A bond is not necessary because the lien is defective and must be discharged.

    2. To the extent you solely need a payment bond, case law should not matter. Any surety should be willing to issue a standard payment bond for the project assuming the principal qualifies. Lien Law Section 5 is not applicable because your referenced project is not a public project subject to Section 5.

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