US District Court in New York Dismisses Contractor’s Performance Bond Claim Against Subcontractor’s Surety Because of Contractor’s Failure to Provide Pre -Default Notification

U.S. ex rel. Platinum Mechanical, LLC v. U.S. Surety. Co.
07 Cv. 3318(CLB), 2007 U.S.Dist. LEXIS 94026( S.D.N.Y. Dec. 21, 2007)

CFP Group, Inc. was awarded a contract with the United States Government to refurbish facilities at Stewart Air National Guard Base in New York. Platinum Mechanical, LLC subcontracted to perform all of the plumbing and HVAC work for the Project. All work on the Project was to be completed by March 12, 2007. Notice to proceed issued on June 14, 2006.

Utica Mutual issued a performance bond as the surety for Platinum. The performance bond, an American Institute of Architects form (AIA Form 312), required CFP to notify Platinum and Utica Mutual if CFP was considering declaring a default, and to defer formal declaration of a default for at least 20 days thereafter. The performance bond required notice to the surety to be sent to the address shown for the surety on the signature page As the project completion date approached, it became apparent Platinum would not timely finish its work. On February 28, 2007, CFP notified Platinum it was concerned it would not complete the work by March 12, 2007. On March 12, 2007, CFP notified Platinum orally that it was in default and on March 19, 2007, CFP sent a letter to Platinum to the same effect. The March 19 letter was copied to the signatory on behalf of Utica Mutual, without indicating the address to which the letter was mailed. Utica Mutual asserted that the first notice it received was a May 2, 2007 letter addressed to someone other than the signatory, but otherwise sent to the correct address. This assertion was not contested by CFC.

On April 25, 2007, Platinum sued CFP and its sureties for failing to pay it for its work. In turn, CFP brought a counterclaim for breach of contract against Utica Mutual and Platinum. Utica Mutual filed a motion for summary judgment seeking dismissal of CFP’s counterclaim on the ground that CFP had failed to provide the pre-default notification required by the bond. Utica Mutual claimed that the delay in notification deprived it of the ability to investigate or cure a default, or to control expenses. CFP contended that it would not have been possible to predict a default before February 28, 2007, and that, in any event, it would have been impossible for a surety to cure between February 28 and March 12, 2007.

The Court determined that under New York law, the performance bond pre-default notification provision established a condition precedent to Utica Mutual’s liability under the bond. Further, CFC’s inability to show that its March 19, 2007 notice letter was mailed to the address specified in the bond, and the further delay in providing any notice to Utica Mutual at the correct address until May 2, 2007, resulted in the conclusion that CFC had failed to satisfy the condition and required dismissal of its claim.

Click here to view full opinion as PDF (provided with the permission of LexisNexis).

This entry was posted in Breach of Contract and tagged , , . Bookmark the permalink.