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03/24/76 P. R. POST CORPORATION v. MARYLAND

March 24, 1976

P. R. POST CORPORATION
v.
MARYLAND CASUALTY COMPANY



Appeal from Oakland, Arthur E. Moore, J.

Leave to appeal applied for.

Bronson, P. J., and R. B. Burns and D. E. Holbrook, Jr., JJ.

SYLLABUS BY THE COURT

1. Arbitration and Award -- Effect of Arbitration Award -- Contract Terms.

It has long been the policy of the State of Michigan to encourage the settling of disputes through arbitration rather than through resort to the courts, and the award of an arbitrator is equivalent to the judgment of a court where a dispute is submitted to arbitration pursuant to the terms of a contract between the parties.

2. Arbitration and Award -- Principal and Surety -- Construction Contracts -- Third-Party Construction Companies -- Default -- Forms -- Construction of Terms.

A defendant surety company is bound by an arbitration award to a plaintiff arising out of the default of a third-party construction company, bonded by the defendant, where the bonding agreements state that the construction "contract is by reference made a part hereof" and the bond was written on a form furnished by the defendant; the provisions of a bond written on a form furnished by a surety will be strictly construed against the surety.

3. Arbitration and Award -- Prima Facie Evidence -- Principal and Surety -- Damages -- Default -- Construction Contracts -- Defenses -- Fraud.

An arbitration award in favor of a plaintiff against a third-party contractor is only prima facie evidence, and not res judicata, against a defendant surety company in a suit by the plaintiff against the surety for the damages arising out of the contractor's default on a construction contract, and this rule is subject to the qualification that there can be no fraud or collusion between the plaintiff and the contractor; this rule specifically reserves for the defendant bonding company the opportunity to present any special defenses that it might have as to its liability.

4. Arbitration and Award -- Principal and Surety -- Notice -- Due Process -- Arbitration Hearings -- Prima Facie Evidence -- Burden of Proof.

A defendant surety company was not denied due process by not having been given notice of an arbitration hearing involving a construction company bonded by the defendant, since an arbitration award is only prima facie evidence against the surety and all that results by making such an award prima facie evidence is to shift the burden of proof to the defendant, which does not violate due process in a civil action.

5. Fraud -- Principal and Surety -- Defenses -- Liability.

A defendant surety company must show that a plaintiff was a party to a fraud for the defendant to successfully invoke the defense of fraud in a suit by the plaintiff against the defendant surety seeking to recover damages for the default on a ...


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