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Where City terminated its contractor for cause, the contractor moved for summary judgment arguing that the termination was defective for lack of an architect’s certificate of good cause for termination as required by the applicable AIA A201 contract document.  On the project, the city and contractor each accused the other of causing delay.  The city issued a Notice of Termination, stating that its letter constituted a seven-day written notice of termination of the Contract, but it did not provide an architect’s certificate.  An email to the city from an individual at the architectural firm called the “project coordinator” (who was not a licensed architect) stating that the contractor “continues to multiply the challenges of completion of the project” and asking the question, “Is this the point where we agree to call an end to this situation?” was found not to constitute an architect’s certificate of cause.   The court concluded: “An architect’s certification not having been rendered, a condition precedent [to termination] failed…”  Summary judgment was therefore granted and affirmed.  The surety also filed for summary judgment, arguing that written notice of the termination was not given to it simultaneously and this prejudiced its ability to mitigate its loss.   Town of Plainfield v. Paden Engineering Co., Inc., 943 N.E.2d 904 (2011).

Surety Discussion

In affirming summary judgment for the surety, the court held that the surety was not required to show actual prejudice arising from the city’s failure to give the surety timely notice of intent to default terminate and permit the surety to choose one of the five options available to it upon such a notice.  The court made a point of distinguishing surety contracts and insurance policies and the differences in treatment of sureties and insurance companies, and explained that “A surety’s liability must be measured by the strict terms of his contract.” “Lack of timely notice was presumptively prejudicial.”  “We may not rewrite clear and unambiguous language of a contract to alter the obligations of parties…. As such, we will not extend the coverage of the performance bond beyond that for which the parties have contracted.  Nor will we re-allocate the opportunity for mitigation of damages bargained for by the Sureties and agreed to by [the city].  In short, [the city] is bound by the terms of the contract into which it entered and the Sureties are liable for no more than the contract provisions would dictate.”

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 14, No.4 (April 2012).

Copyright 2012, ConstructionRisk.com, LLC