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Note: In connection with a construction project for the Republic of Haiti, Joint Venturers, Constructora Andrade Gutirerrez, S.A. (Joint Venturer 1) and C&M Constructora, S.A., (Joint Venturer 2) agreed that Joint Venturer 1 would provide bonds as security for performance to Haiti and that Joint Venturer 2 would provide assurances of reimbursement to Joint Venturer 1 in proportion to Joint Venturer 2's participation in the project. In fulfillment of its agreement, Joint Venturer 2 caused American International Insurance Company (Insurer) to issue an undertaking entitled "bond" in favor of Joint Venturer 1 which provided that it was "'an irrevocable and unconditional guarantee. . . for the completion . . . of its obligations to [Joint Venturer 1] pursuant to the stipulations of the contract'" When Joint Venturer 1 demanded payment on the bonds, Insurer refused. Joint Venturer 1 then brought this action against Insurer for payment on the bonds. In a third party complaint, Insurer sought reimbursement from Joint Venturer 2 which filed a counter-claim against Joint Venturer 1, alleging breach of contract.

The District Court for the District of Puerto Rico, Garcia, J., entered judgment in favor of Joint Venturer 1. On appeal, the United States Court of Appeals for the First Circuit, Hansen, Lynch, and Torruella, JJ., affirmed.

The trial court had ruled that the "bond" was an independent undertaking and that Joint Venturer 1, as beneficiary, had complied with its terms and conditions. The trial court stated "that the two conditions precedent to liability on the letter of credit had been met, namely that (1) [Joint Venturer 1] provided written notice to [Insurer] prior to the expiration date of the bond, and (2) the written notification contained the amount to be paid and stated that [Joint Venturer 2] had not performed its contractual obligations." The trial court also entered judgment in favor of the Insurer on its third-party complaint for reimbursement against Joint Venturer 2 noting that "the Agreement of Indemnity clearly and unequivocally required [Joint Venturer 2] to indemnify [Insurer] upon [Insurer's] good faith payment on the bond based on [Insurer's] belief that it was liable on the claim." The trial court then dismissed the counter-claim against Joint Venturer 1 on the basis that the agreement was subject to a binding arbitration clause which ousted jurisdiction for the trial court.

Because in the meantime Insurer had settled the claim against it and voluntarily caused the appeal to be dismissed, the appellate court noted that any arguments regarding the decision of the trial court with respect to the independence of the bond were outside its appellate jurisdiction. The appellate court also noted that "the [trial] court did not address the defenses raised by [Joint Venturer 2] to justify its failure to pay . . . nor did it need to, given its conclusion that the bond was an unconditional guarantee."

[JEB/ba]

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