Northline Excavating, Inc. v. Livingston County
302 Mich. App. 621
Mich. Ct. App.2013Background
- Livingston County contracted with Northline Excavating in 2007 to build a sanitary sewer extension for $251,035; the contract included liquidated damages of $1,000/day for delayed completion.
- Northline furnished a statutory performance bond from Hanover in the penal sum of $251,035 naming the County as obligee and Hanover as surety.
- Northline encountered construction difficulties; the parties held the bond-required conference, the County rejected Northline’s plans, declared contractor default, and terminated Northline’s contract.
- The County sued Northline (breach of contract) and Hanover (under the performance bond); Hanover investigated and ultimately denied liability.
- The trial court limited Hanover’s liability to the penal sum of the bond and later rejected the County’s request to recover liquidated damages in excess of that sum; the County appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Hanover’s liability under the performance bond can exceed the bond penal sum | County: ¶5’s grant to enforce “any remedy available” allows recovery of damages (including liquidated damages) beyond the bond amount | Hanover: bond language and common law limit surety liability to the bond penal sum; no language expands liability | Court: Liability limited to the face amount of the bond; ¶5’s “remedy” permits enforcement of causes of action but does not expand damages beyond the bond |
| Whether ¶6 applies only when surety acts under ¶4.1–4.3 and whether ¶4.4 alters damages exposure | County: Because Hanover elected ¶4.4, ¶6 (which limits damages to bond amount) does not apply, so broader remedies are available | Hanover: ¶6 limits damages when applicable; even if ¶6 is inapplicable under ¶4.4, common law and absence of express expansion keep liability at bond amount | Court: Agreed ¶6 applies only to ¶4.1–4.3, but the bond’s face amount and lack of any express expansion mean Hanover’s liability remains capped at the penal sum |
Key Cases Cited
- Rory v. Continental Ins. Co., 473 Mich. 457 (contract interpretation principles)
- Klapp v. United Ins. Group Agency, Inc., 468 Mich. 459 (give effect to every contract term)
- Terrien v. Zwit, 467 Mich. 56 (cannot read words into contract)
- Kammer Asphalt Paving Co. v. East China Twp. Sch., 443 Mich. 176 (purpose of performance bonds)
- Will H. Hall & Son, Inc. v. Ace Masonry Constr., Inc., 260 Mich. App. 222 (suretyship structure and limits)
- Bandit Indus., Inc. v. Hobbs Int’l, Inc., 463 Mich. 504 (surety liability limited to contract terms)
- Graff v. Epstein, 238 Mich. 227 (historical rule: surety liability cannot exceed bond penal sum)
- Fidelity & Deposit Co. of Md. v. Cody, 278 Mich. 435 (penalty of bond measures surety liability)
- Shambleau v. Hoyt, 265 Mich. 560 (defendants and surety bound to penal sum)
- Vreeland v. Loeckner, 99 Mich. 93 (judgment void as to surety beyond penal sum)
- Spencer v. Perry, 18 Mich. 394 (bonds fix liability limit; parties could have contracted for broader liability)