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agreement. Petitioners argue that the liability arose because of
F&D’s performance under the performance bond and the indemnity
agreement. We agree with petitioners.
An analysis of National’s contractual obligations under the
various agreements is helpful in our consideration of the nature
of the $2,500,000 claimed by National. National and the District
entered into the construction contract, which also required
National to obtain a performance bond. National breached its
obligation to properly complete the construction contract. It
was not that failure to perform, however, that gave rise to
National’s $2,500,000 obligation to F&D. National’s failure to
perform its construction obligation to the District gave rise to
a separate set of contractual obligations between National and
F&D. F&D became obligated to perform under its performance bond
with National, which, in turn, caused National to become
obligated to indemnify F&D. As acknowledged by respondent, the
consideration in the bond and the indemnity contract was F&D’s
promise to complete the project, in exchange for National’s
promise to pay a fee and to indemnify for the costs F&D incurred
in its performance under the indemnity agreement. National’s
inability to meet its obligations to the District was the
condition precedent to F&D’s performance.
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Last modified: May 25, 2011