Article by: Michael F. Higgins
A recent case out of the 8th Circuit highlights that courts are unafraid to strictly enforce the terms of a contract between sophisticated parties. In E&I Global Energy Services v. Liberty Mutual Insurance Company,1 the principal of a completion contractor entered into a completion contract through a company he controlled, E&C. When that entity failed to obtain a bond, the principal performed the contract through another entity he controlled, E&I. This error proved fatal when the completing contractor sought additional payment and attempted to recover as E&I, not E&C. The court denied these claims because it was E&C who had entered into the contract, not E&I. E&C also failed to properly assign its contract to E&I.
Liberty Mutual and the Insurance Company of the State of Pennsylvania as surety issued performance and payment bonds in connection with the construction of an electrical substation for the Western Area Power Administration. When the general contractor encountered difficulties, it hired E&I as its subcontractor to assist with completion.
The general contractor ultimately defaulted, the surety timely investigated, and the surety searched for a completion contractor. The principal of E&I negotiated a completion contract with the surety through a different legal entity, E&C. The completion contract between the surety and E&C contained a “non-assignment” clause, prohibiting E&C from assigning the contract to any other entity without the consent of the owner and the surety.
The principal of both E&I and E&C claimed that when he read the proposed completion contract, he asked the owner to change the completion contractor to E&I. E&I did, in fact, operate as the completion contractor, but never entered into a written completion agreement. E&I could not show that there was any agreement, even an oral agreement, to assign the completion contract to E&I.
Assignments, even oral assignments, are enforceable under South Dakota state law. The parties’ actions can sometimes waive a non-assignment clause and the formalities of a written assignment. Yet in this case, the court held that E&I did not meet the low bar to show that there was an assignment. Under South Dakota Law, despite the existence of a non-assignment clause, an oral assignment is generally valid if “any language however informal” shows “clear evidence of the intent to transfer rights.” It was not sufficient that the principal of E&I purportedly told the owner that he wanted to change the contracting entity to E&I. Nor was it sufficient that E&I actually performed the work. In any event, a careful completion contractor could have resolved this problem by either (1) executing an assignment in writing or (2) executing a new completion contract between the correct entity and the surety.
By its very nature, a completion contract typically involves a distressed project. Yet, the E&I decision cautions that careful attention to the details of the completion agreement is all the more critical in the face of uncertainty. When a dispute arises, courts will not overlook the plain terms of the contract.
Courts are loathe to read into a contract missing essential terms such as the price, subject matter, and—as critical here—the parties to the contract. E&I attempted to rescue its critical error by asserting claims for unjust enrichment, fraud and deceit, and negligent misrepresentation. These claims were unsuccessful, in part, because the surety acted reasonably and in good faith in negotiating the takeover agreement. E&I complained that the surety did not supply complete copies of the project documents. Yet, E&I had access to those documents elsewhere, was aware the documents were incomplete, and as a subcontractor was aware that the project was already disorganized. The surety lacked the intent to deceive. E&I’s unjust enrichment claims likewise failed because there was a valid contract between E&C and the surety.
E&I recently filed a petition for appellate review with the Supreme Court of the United States. As discussed in this analysis, one of E&I’s main claims is that it was properly assigned the contract, or even if it was not proper, the assignment was good enough. E&I attacks the 8th Circuit’s ruling as “unduly formalistic.” In this observer’s view, the Supreme Court is unlikely to take up this case or excuse E&I and E&C’s lax approach to contracting. One thing is certain, sureties and contractors can be assured that the best protection against litigation risk is the careful attention to the terms of the completion contract, including assuring that the contract is with the right parties.
- 134 F.4th 504 (8th Cir. 2025).
