Whitby Landmark Dev. v. Mollenhauer Constr.,

Whitby Landmark Dev. v. Mollenhauer Constr. (2003), 178 O.A.C. 49 (CA)

MLB headnote and full text

Temp. Cite: [2003] O.A.C. TBEd. OC.048

Whitby Landmark Development Inc. (plaintiff/appellant/respondent by way of cross-appeal) v. Mollenhauer Construction Limited and Zurich Indemnity Company of Canada (defendants/respondent/appellant by way of cross-appeal)

(C35318)

Indexed As: Whitby Landmark Development Inc. v. Mollenhauer Construction Ltd. et al.

Ontario Court of Appeal

Weiler, Rosenberg and Feldman, JJ.A.

October 17, 2003.

Summary:

Whitby was the owner of a condominium project constructed by Mollenhauer. Performance of the project was bonded by Zurich. Mollenhauer became insolvent after substantial completion of the project but owed Whitby monies under the construction contract respecting cost savings it had achieved and that it had contracted to share with Whitby. Whitby sought to recover its share of the cost savings under the performance bond.

The Ontario Superior Court, in a decision reported at [2000] O.T.C. Uned. A62, dismissed the action. Although the trial judge held that the bond would cover the claim for cost savings under the construction contract, Whitby's claim failed because, upon Mollenhauer's default, Whitby did not immediately declare the contractor in default and call on the bond. Zurich suffered prejudice because it was deprived of a reasonable opportunity to protect its position before Mollenhauer's financial demise. Whitby appealed. Zurich cross-appealed.

The Ontario Court of Appeal dismissed the appeal and cross-appeal.

Building Contracts - Topic 7505

Performance bonds - General principles - Extent of liability of surety - Whitby was the owner of a condominium project constructed by Mollenhauer - Performance of the project was bonded by Zurich - Mollenhauer owed Whitby monies under the construction contract respecting cost savings it had achieved and that it had contracted to share with Whitby - Mollenhauer became insolvent - Whitby sought to recover its share of the cost savings under the performance bond - Zurich argued that the performance bond was only intended to cover the costs of completing the physical construction work under the contract, but did not extend to collateral obligations of the contractor such as its obligation to share the cost savings it achieved - The trial judge held that the performance bond was answerable for the claim - The Ontario Court of Appeal held that there was no basis in the language of the performance bond or in the circumstances surrounding its negotiation or completion to suggest that the cost-sharing provisions of the construction contract were not included as bonded losses - See paragraphs 14 to 27.

Building Contracts - Topic 7589

Performance bonds - Defences of surety - Failure to comply with notice requirements - Whitby was the owner of a condominium project constructed by Mollenhauer - Performance of the project was bonded by Zurich - Mollenhauer owed Whitby monies under the construction contract respecting cost savings it had achieved and that it had contracted to share with Whitby - Mollenhauer became insolvent - Whitby sought to recover its share of the cost savings under the performance bond - The trial judge held that Whitby breached its obligations under the bond by failing to declare Mollenhauer in default for failure to deliver a certificate of the total cost of the work no later than 150 days after the date of substantial completion - Timely notice of the default was a condition precedent to payment by Zurich under the bond - Zurich was prejudiced by Whitby's failure to provide notice of default - The Ontario Court of Appeal dismissed Whitby's appeal - Whitby failed to make a timely declaration of the very default on which it relied in calling on the bond - See paragraphs 28 to 35.

Cases Noticed:

Fuller (Thomas) Construction Co. (1958), v. Continental Insurance Co., [1973] 3 O.R. 202 (H.C.), refd to. [para. 16].

American Home Assurance Co. v. Larkin General Hospital (1992), 593 So.2d 195 (Fla.), dist. [para. 20].

Downingtown Area School District v. International Fidelity Insurance Co. (2001), 769 A.2d 560 (Pa. Commw. Ct.), dist. [para. 21].

Amerson v. Christman (1968), 261 Cal. App.2d 811, refd to. [para. 23].

Cates Construction Inc. v. Talbot Partners (1997), 53 Cal. App.4th 1420, revd. (1999), 21 Cal.4th 28, refd to. [para. 23].

Pacific Employers Insurance Co. v. Berkeley (City) (1984), 158 Cal. App.3d 145, refd to. [para. 23].

Riva Ridge Apartments v. Fisher (Robert G.) Co. (1987), 745 P.2d 1034 (Colo. Ct. App.), refd to. [para. 23].

Griffin (R.J.) & Co. v. Continental Insurance Co. (1998), 497 S.E.2d 586 (Ga. Ct. App.), refd to. [para. 23].

Citadel General Assurance Co. v. Johns-Manville Canada Inc. et al., [1983] 1 S.C.R. 513; 47 N.R. 280; 147 D.L.R.(3d) 593, refd to. [para. 33].

Authors and Works Noticed:

Scott, Kenneth W., and Reynolds, R. Bruce, Surety Bonds (1993 Looseleaf), pp. 2-34, 7-1 [para. 16].

Counsel:

W. Andrew McLauchlin and Robert J. Kennaley, for the appellant/respondent by way of cross-appeal;

Roger J. Gillott, for the respondent/appellant by way of cross-appeal.

This appeal and cross-appeal were heard on March 6, 2003, before Weiler, Rosenberg and Feldman, JJ.A., of the Ontario Court of Appeal. The following judgment was delivered for the court by Feldman, J.A., who released the decision on October 17, 2003.