Eleventh Circuit to Address Surety’s Unilateral Completion Defense

The dispute arose from an AIA 312 performance bond issued on behalf of a pool subcontractor.  To trigger surety’s obligations, the bond required the obligee to, among other things, declare principal in default and terminate its right to perform the subcontract.  The bond then gave the surety the right to elect one of several options to rectify the alleged default, including the right to complete the subcontract.  In addition, the subcontract required the obligee to provide the principal with two (2) separate three-day notices before being able to terminate the subcontract and pursue a claim under the bond.

The obligee default terminated the principal and, over surety’s objections, decided to complete the subcontract on its own and then make a claim against surety for the excess cost.  Before making demand upon surety, however, the obligee arranged to complete the subcontract and did, in fact, commence the completion work only two (2) days after making its demand upon the surety.   The obligee continued without interruption to complete the subcontract, depleting the subcontract funds in the process.