The Supreme Court found that although the Public School System promised Guerrero Brothers Incorporated that it would deposit the remaining Tinian High School funds into the court while the legal owner of the money was determined, Guerrero Brothers had no legal right to the money and was not harmed by PSS’s failure to deposit the funds with the court.
The lawsuit originally stemmed from the construction of Tinian High School. PSS hired Guerrero Brothers to build the school, but due to numerous problems, PSS terminated Guerrero Brothers contract and Century Insurance Co., the bonding company, was forced to finish construction. PSS and Guerrero Brothers tried to settle their differences, and eventually the parties entered into a settlement agreement where PSS promised to deposit the remaining funds for the high school construction project so that the ownership of the money could be determined. There was approximately $800,000 of funds remaining.
Instead of depositing the money with the court as it had agreed, PSS transferred all of the remaining construction funds to Century Insurance because Century Insurance was the party who actually finished the construction of the high school. The Supreme Court held that the transfer of the funds to Century Insurance was proper because pursuant to a legal doctrine called “equitable subrogation,” Century Insurance was entitled to the money as a matter of law. Equitable subrogation mandates that when a bonding company completes a construction contract, it gets paid what it is owed first and if the contractor is still owed money, it is only paid if there are still available funds.
The Supreme Court held that while PSS breached the settlement agreement by failing to deposit the remaining contract funds, Guerrero Brothers suffered no harm from the breach because it had no legal claim to the money. While the breach of a settlement agreement often results in damages, in this case Guerrero Brothers could not show that it suffered any harm because all of the remaining proceeds were properly paid to Century Insurance. In an earlier opinion, the Supreme Court held that Guerrero Brother’s creditor, the Commonwealth Development Authority, similarly had no claim to the money because Century Insurance’s claim had first priority. As a result, the Supreme Court refused to enforce the terms of the settlement agreement as requested by Guerrero Brothers.
Additionally, the Supreme Court affirmed the Superior Court’s decision to deny Guerrero Brothers an award of attorney fees. The Supreme Court agreed with the Superior Court that Guerrero Brothers was not the prevailing party at trial, and therefore, it was not entitled to have PSS pay for its lawyers.
The Supreme Court’s full opinion is Century Insurance Company Ltd., vs. Guerrero Brothers Incorporate, et al., 2010 MP 13, and can be found at http://www.justice.gov.mp/.
