The issues between the two parties began in 1993 when Guerrero Brothers entered into a contract with the Public School System to build Tinian High School.
The Guerrero Brothers turned to surety Century Insurance to secure the construction bonds necessary to start the project.
A surety issues bonds to guarantee that a contractor will finish a particular project, and if the contractor defaults on its obligations therein, the bonds require the surety to step in and ensure that construction is satisfactorily completed and that all laborers and suppliers are fully paid.
Guerrero Brothers also secured financing from the Bank of Saipan, which the Commonwealth Development Authority guaranteed.
PSS terminated Guerrero Brother’s contract to build Tinian High School in 1998, and Century Insurance hired another construction company to finish the project.
Several years later, PSS and the Guerrero Brothers entered into a settlement agreement, which among other things, provided that PSS would interplead the remaining contract funds, totaling $867,867.16, into another lawsuit by the Development Authority against Guerrero Brothers.
Money is interplead when a fixed sum is disputed by different parties, but not by the party holding the funds, and the party in possession turns it over to the court’s control for a determination of rightful ownership.
In response to this agreement, Century Insurance filed suit against the Guerrero Brothers and PSS claiming that it was entitled to the remaining contract funds, and that neither the CDA nor the Guerrero Brothers had any claim to the money.
Contrary to the settlement agreement, PSS failed to interplead and instead transferred all of the remaining funds to Century Insurance for the work it performed in completing Tinian High School in exchange for a full release from liability.
Due to various motions filed by the parties, when the case came to trial, the CDA and the Guerrero Brothers were suing PSS claiming that it breached the terms of the settlement agreement.
The jury returned a verdict in favor of the CDA and Guerrero Brothers, but the Superior Court reversed the jury.
It found that pursuant to principles of equitable subrogation, an old and well established legal principle requiring a surety to be fully paid before other claimants may seek compensation from remaining proceeds, that Century Insurance was entitled to the remaining contract funds irrespective of the settlement agreement, and that neither the CDA nor the Guerrero Brothers were harmed by the breach.
The Superior Court found that PSS was not liable to either party.
The Supreme Court held that Century Insurance’s equitable subrogation rights trumped any rights that CDA or the Guerrero Brothers had to the remaining funds as a matter of law, and that neither party presented sufficient evidence to overcome this longstanding legal principle.
As a result, the Supreme Court affirmed the Superior Court’s judgment.
Chief Justice Miguel S. Demapan, Associate Justices Alexandro C. Castro and John A. Manglona signed the high court’s decision.
The full opinion is Century Insurance Company, Limited v. Guerrero Brothers, Inc., et al., 2010 MP 4 and can be found at http://www.justice.gov.mp/.
