United States: U.S. District Court In Puerto Rico, Applying Connecticut Law, Considers Application Of Notice Requirements To Termination Of Joint Subcontractors

Last Updated: January 31 2014
Article by Jeffrey R. Mullen

Fed. Ins. Co. v. Empresas Sabaer, Inc.
2013 U.S. Dist. LEXIS 112930 (D.P.R. Aug. 9, 2013)

This action arose out of a surety's claim for expenses incurred for correcting a subcontractor's defective work. DTC Engineering and Constructors, LLC ("DTC") and the U.S. Army Corps of Engineers (the "Corps") entered into a contract for the design and construction of the Armed Forces Reserve Center at Fort Buchanan, located in Guaynabo, Puerto Rico. Federal Insurance Company ("Federal") and DTC subscribed to a payment and performance bond as surety and principal, respectively, naming the government as obligee. DTC subsequently entered into a subcontract (the "Subcontract") with Empresas Sabaer, Inc. ("Sabaer") and BBS Developers, S.E. ("BBS") (collectively the "Subcontractors"). The Subcontract provided that Sabaer was required to complete the work under Subcontract, while BBS was responsible for providing technical and economic support. United Surety and Indemnity Co. ("USIC") and the Subcontractors, as surety and principal, respectively, subscribed to a payment and performance bond and named DTC as obligee. DTC assigned to Federal all of its rights emerging from the Subcontract and USIC's bond.

Federal exercised its right to complete the Project and executed a takeover agreement with the Corps and DTC. On October 18, 2011, Federal notified Sabaer, USIC, and BBS of "deficiencies in the form of an incorrectly installed silt fence and concrete pads that were rejected by quality control." On the same day, Federal informed Sabaer, USIC, and BBS that it "was considering declaring them in default of the Subcontract" and requested a conference with them to discuss completion of their contractual obligations. However, Federal sent the letter to Sabaer and BBS to their addresses listed on their performance bond, and not their addresses listed on the Subcontract.

On October 26, 2011, Federal sent Sabaer another letter expressing its desire to meet with representatives from Sabaer and USIC to discuss the allegedly uncured deficiencies. On November 10, 2011, Federal sent letters to USIC and Sabaer at their contractual addresses of record stating that Federal intended to formally terminate Sabaer for default pursuant to the Subcontract. On November 15, 2011, Federal formally declared Sabaer in default by letter addressed to USIC, providing Sabaer and BBS with carbon copies by mail. Federal then filed suit against the Subcontractors to recover $286,233.62 in expenses incurred to correct Sabaer's deficient work. In defense, Sabaer contended that Federal never provided BBS with the contractually required notice prior to the termination for default because the correspondence was neither addressed to BBS nor sent to the address listed in the Subcontract. Both Federal and the Subcontractors moved for summary judgment.

To resolve whether Sabaer and BBS were properly notified, the Court first looked to the terms of the Subcontract. Under the "Subcontractor's Failure to Perform" section, Federal could terminate for default the Subcontractors upon three days written notice of the Subcontractors' failure to perform, unless the condition specified in such notice was eliminated within the three day period. Under the "Notice" section, the Subcontract stated that "[a]ll notices shall be addressed to the Parties at the addresses set out herein, and shall be considered as delivered when postmarked, if dispatched by registered mail, or when received in all other cases, including facsimiles." "Parties" was a defined term in the Subcontract and included DTC, BBS and Sabaer. The address set out in the Subcontract for both BBS and Sabaer was 65 Infanteria Station, San Juan, Puerto Rico.

The Court then looked to the letters sent by Federal to determine whether they provided sufficient notice. The Court concluded that Sabaer received letters at the Infanteria Station address listed under the Subcontract, and thus had actual notice of Federal's intent to terminate due to default. The Court, however, determined that no such notice was provided to BBS. The October 18th and November 15th letters were sent to BBS at the address of Calle Lepanto URB, El Alamein, San Juan, Puerto Rico. While this address was listed as BBS's address on the performance bond, the Subcontract required that notice be sent to the Infanteria Station address.

Nonetheless, applying Connecticut law as was called for by the Subcontract's choice of law provision, the Court held that Federal adequately notified BBS. The Court specified: "The contract plainly states that notice shall be provided to both BBS and Sabaer in writing at the Infanteria Station address on the Subcontract. Plaintiffs did not do this. Thus, the inquiry should cease, but Connecticut law holds otherwise." The Court traced the history of Connecticut and Second Circuit jurisprudence on the matter, dating back to a 1914 Connecticut Supreme Court case holding that notice to one joint contractor sufficed as notice to a second joint contractor. The Court found that "BBS's agreements with Sabaer and its actions during the life of the Subcontract reveal that it was inextricably intertwined with and reliant upon Sabaer" and that "Sabaer ostensibly performed all of the duties under the Subcontract." Thus, consistent with Connecticut precedent, the Court held that notice to Sabaer conveyed notice to BBS with respect to matters affecting their joint obligation, irrespective of whether BBS actually received notice.

Further the Court found that Federal's failure to send notice to BBS at the Infanteria Station address is overcome not only by Connecticut's notice-to-one, notice-to-both rule, but also by the Subcontracts requirement that the Subcontractors subscribe to a performance bond in which the Subcontractor's included a second address to which Federal sent notice. The Court found that in Connecticut, "[w]here the question whether proper notice was given depends on the construction of a written instrument or the circumstance are such as to lead to only one reasonable conclusion, it will be one of law, but where the conclusion involves the effect of various circumstances capable of diverse interpretation, it is necessarily one of fact for the trier." Because the Subcontract contemplated submission of a performance bond, BBS provided its address at the Calle Lepanto location on the bond, and the bond was signed subsequent to the Subcontract, the Court concluded that notice was properly sent to that address. The Court reasoned that "no reasonable fact finder could conclude that notice was improper and the court must adhere to Connecticut's interpretation of what constitutes proper notice." Therefore, the Court determined notice was properly given and granted summary judgment in favor of Federal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Jeffrey R. Mullen
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions