This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
The City of Santa Fe contracted with a construction company to repair a water tank. The contractor obtained a performance bond from a surety company, which included a two-year time-to-sue provision. The City declared the contractor in default and demanded performance from the surety. After the surety denied the claim, the City filed a lawsuit beyond the two-year period stipulated in the bond but within the six-year statute of limitations applicable to the contract (paras 1-3).
Procedural History
- District Court, Daniel A. Sanchez, J.: Granted summary judgment in favor of the surety, holding that the two-year time-to-sue provision in the bond barred the City’s lawsuit (para 3).
- Court of Appeals, No. 28,944: Affirmed the district court’s decision, relying on precedent that upheld time-to-sue provisions in similar contexts (para 3).
Parties' Submissions
- Plaintiff (City of Santa Fe): Argued that allowing the contractor and surety to unilaterally impose a shorter time-to-sue provision violates public policy under the Little Miller Act, which aims to protect governmental entities. The City also distinguished the case from prior precedent, asserting it had no direct contractual relationship with the surety to negotiate such terms (paras 4, 9-10).
- Defendant (Travelers Casualty & Surety Co.): Contended that the City was bound by the two-year time-to-sue provision because it had the opportunity to review and approve the bond. The surety also argued that freedom of contract principles should apply, as the City was a third-party beneficiary of the bond (paras 4, 11).
Legal Issues
- Whether a time-to-sue provision in a performance bond is enforceable against a governmental entity when the entity did not directly contract for the provision.
- Whether the two-year time-to-sue provision in the performance bond violates public policy under the Little Miller Act (paras 4-5).
Disposition
- The Supreme Court of New Mexico reversed the decisions of the district court and the Court of Appeals, holding that the two-year time-to-sue provision in the performance bond was unenforceable against the City of Santa Fe (para 17).
Reasons
Per Chávez, C.J. (Serna, Maes, Bosson, and Daniels, JJ., concurring):
The Court held that the two-year time-to-sue provision in the performance bond violated public policy under the Little Miller Act. The Act’s purpose is to protect governmental entities and ensure the completion of public contracts. Allowing contractors and sureties to unilaterally impose shorter limitations periods undermines this purpose (paras 5-7).
The Court emphasized that the City was not a direct party to the bond and had no opportunity to negotiate its terms. As a third-party beneficiary, the City could enforce the bond but was not bound by provisions it did not agree to. The Court distinguished this case from prior precedent, where the governmental entity had directly contracted for a shorter time-to-sue provision (paras 9-10).
The Court rejected the surety’s argument that the City’s review and approval of the bond implied consent to the time-to-sue provision. The statutory requirements for bond approval under the Little Miller Act are limited to ensuring the surety’s qualifications and the bond amount, not its specific terms (paras 11-13).
Finally, the Court noted that enforcing the two-year provision would place an undue burden on smaller governmental entities, which may lack the resources to scrutinize every bond provision. The six-year statute of limitations under the contract applied, and the City’s lawsuit was timely (paras 14-16).