Gantry Construction Co. v. American Pipe & Construction Co.

In September 1966, appellant, American Pipe and Construction Co. (Ameron) contracted to sell a substantial quantity of pipe to respondent, Gantry Construction Company (Gantry), for use in constructing a project for the City of Los Angeles. The contract called for delivery of the pipe in installments, for invoicing the delivered pipe, and for payment by Gantry for delivered pipe by the 25th of each month after invoice. Pursuant to the provisions of its contract with the city, Gantiy procured a performance bond from Pacific Indemnity (Pacific).

It is clear from the whole record that Gantry was underfinanced and that it depended on progress payments from one job to meet unpaid bills on a previous job. Gantry admitted at the trial that it never intended to meet the contract terms for payment, but that it intended from the first to wait from 30 to 60 days before making a required contractual payment. Pursuant to its business policy (and economic need) Gantry for several months used the progress payments made to it by the city on the contract herein involved to meet obligations arising out of an earlier contract with the city. As a result, although billings by Ameron started…