Appellate Court of Maryland

Southway Builders, Inc. v. MAAMECH Mid-Atlantic, Inc.

Case no.: 259, Sept. Term 2024
Date filed: July 14, 2026

A Maryland appeals court has ruled that a one-year claim limitation period in a subcontractor’s performance bond was enforceable even if it violated Maryland public policy. The subcontract between two Maryland companies had been executed in Maryland. But the bonded project was located in Virginia, and Virginia law allows a one-year limitation period.

Southway Builders Inc. was the general contractor for the construction of a housing development in Lorton, Virginia. Southway subcontracted the plumbing and HVAC work to MAAMECH Mid-Atlantic Inc. Both companies were from Maryland, and the subcontract was executed there. The subcontract said any action under the contract had to be filed in the circuit court for the city of Baltimore.

MAAMECH was required to furnish a performance bond naming Southway as the obligee. The subcontractor obtained a bond from US Surety Co. and US Specialty Insurance Co. The bond stated that any claim against the bond had to be filed in court in the jurisdiction where the project was located. Claims against the bond had to be initiated within one year of the subcontractor’s default. If the enforceability of the limitation period was called into question, “the minimum period of limitations available to the Surety as a defense in the jurisdiction where any proceeding is instituted shall apply.”

Southway subsequently notified the sureties that MAAMECH was in default. The contractor and the sureties negotiated for months, seeking a way to work with MAAMECH to complete its scope of work. They signed a memorandum of understanding, but the negotiations ultimately proved unsuccessful. Southway filed suit against the subcontractor and its performance sureties in the Baltimore circuit court. They filed the suit 13 months after the declaration of default.

The sureties sought declaratory judgment in the Virginia courts. At this point, MAAMECH was insolvent and out of business. The matter went all the way to the Virginia Supreme Court, which ruled the one-year limitation period in the performance bond applied, and Southway’s claim against the bond had not been timely.

Southway continued to pursue the matter in the Maryland courts, arguing that applying the one-year limitation period would violate Maryland public policy. The subcontract was executed in Maryland between two Maryland companies. Maryland law allows a 12-year limitation period for claims of this nature. The sureties should not be allowed to channel the litigation into Virginia and reduce the claim period to one year. Despite this argument, the Baltimore circuit court dismissed Southway’s suit. The contractor appealed.

The Appellate Court of Maryland, in an unreported opinion, said the performance bond expressly required that claims against the bond be filed in the jurisdiction where the project was located. The bond referenced the allowable limitation period of that jurisdiction. Southway and the sureties had agreed in the memorandum of understanding that Virginia law would apply, which was appropriate given the project's location. The court stated the following: “[T]he project is located in Lorton, Virginia. Southway acknowledged in its complaint that the Project was located there. The work was to be performed in Virginia, and none of it was to be performed in Maryland . . . that is the contact that matters most.”

The court also said, “Because, as explained above, Virginia law governs the parties’ agreements and because Virginia, unlike Maryland, permits the one-year contractual limitation contained in the Performance Bond, the limitations period is enforceable and Southway’s claim is time-barred regardless of the forum in which it is brought.”

This performance bond combined a forum-selection provision with choice-of-law language. This is not unusual.

An obligee of a bond should be aware of the applicable claim limitation period. This is a particular challenge with payment bonds on private projects. Parties furnishing labor or materials to a bonded project should insist on seeing a copy of the bond. On public projects, statutes or regulations generally specify the basic terms of a payment bond.

Participants: No attorneys of record listed
Before: Judges Zic, Kehoe, and Eyler
Opinion by: Judge Zic
Outcome: Dismissal of claim against performance bond affirmed

Source: Attach the complete opinion or decision PDF here.