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 Video
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Law Practice Management
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.