Surety for a surety

Hisaw & Associates General Contractors (“HIGAC”) defaulted on contracts, requiring Liberty Mutual to pay on a surety bond.  Liberty Mutual v. Hisaw & Associates, No. 11-11012 (Feb. 20, 2013, unpublished).  After it paid, Liberty Mutual sought recovery from HIGAC’s principals; the question for appeal was whether certain transactions involving them violated a covenant about a minimum asset requirement.  The Fifth Circuit affirmed the district court’s conclusion that several payments to third parties by HAGC were not “received by” the principals under the contract, and that loan repayments by HAGC to its principals were not “as a result of . . . loans [to the principals].”  The Court then reversed in favor of the principals on whether a salary payment was a “distribution.”  The Court noted that Liberty Mutual could use more precise contract language, and faulted a senior Liberty Mutual counsel for changing testimony on a relevant issue during a deposition.