Fidelity & Deposit Co. v. Bondwriter Southwest, Inc.
228 Ariz. 84
| Ariz. Ct. App. | 2011Background
- Fidelity sued Bondwriter for breach of contract and negligence after Bondwriter issued incorrect bonds for the Flagstaff Project.
- Agency agreement limited Bondwriter's authority to act only as expressly authorized, with Bondwriter liable for unauthorized acts by its agents.
- Power of attorney instructed that Fidelity bonds must be submitted for approval before execution; Sparks and Stanton held power of attorney.
- Bondwriter mistakenly issued $2,379,724 Flagstaff Project bonds instead of the approved ASU Project bonds; error discovered after delivery to Adaptive.
- Copies of bonds were made and delivered to Flagstaff, which accepted them; Fidelity later paid claims totaling $875,735 and recovered some payments.
- Trial court found Bondwriter breached the agency and power of attorney agreements and awarded Fidelity damages but allocated 5% fault to Bondwriter for contract damages, with others at fault for negligence; court awarded attorneys’ fees to Fidelity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether comparative fault applies to contract damages | Fidelity: fault allocation cannot reduce contract damages | Bondwriter: UCATA fault apportionment applies to all damages | Comparative fault does not apply to breach of contract damages; vacate and remand for revised judgment |
| Whether Fidelity ratified Bondwriter's actions | Fidelity did not ratify; actions were to protect interests | Bondwriter: ratification occurred by Fidelity’s affirmation of bonds | Fidelity did not ratify Bondwriter's actions; ratification not shown |
| Whether Bondwriter breached the agency and power of attorney agreements | Bondwriter prepared, signed, and delivered bonds without authorization, breaching agreements | Bondwriter contends no breach unless execution occurred with Fidelity's authorization | Bondwriter breached both the agency and power of attorney agreements by preparing, signing, and delivering unauthorized bonds |
| Whether Fidelity's contract damages were foreseeable and recoverable, and whether mitigation was properly applied | Damages stemming from unauthorized bonds were foreseeable; Fidelity acted reasonably to mitigate | Damages not foreseeable or should have been avoided by Fidelity | Damages were foreseeable; Fidelity acted reasonably to mitigate; damages awarded on contract claim reinstated after remand |
Key Cases Cited
- Larson v. National Surety Co., 171 Minn. 455 (Minn. 1927) (treats delivery/issuance issues; relevant to execution and authorization)
- All Am. Sch. Supply Co. v. Slavens, 125 Ariz. 231 (Ariz. 1980) (contract damages and foreseeability considerations)
- Jimenez v. Sears, Roebuck and Co., 183 Ariz. 399 (Ariz. 1995) (UCATA and comparative fault framework in Arizona)
- Haysville U.S.D. No. 261 v. GAF Corp., 233 Kan. 635 (Kan. 1983) (comparative negligence not proper in breach of contract actions)
- Klingler Farms, Inc. v. Effingham Equity, Inc., 171 Ill.App.3d 567 (Ill. App. 1988) (refuses extension of comparative fault to contract actions)
- Lesmeister v. Dilly, 330 N.W.2d 95 (Minn. 1983) (contract law typically not framed in fault terms)
- Bd. of Educ. of the Hudson City Sch. Dist. v. Sargent, Webster, Crenshaw & Folley, 71 N.Y.2d 21 (N.Y. 1987) (contract damages not reduced by comparative negligence)
- Sassen v. Tanglegrove Townhouse Condo. Ass'n, 877 S.W.2d 489 (Tex.App. 1994) (rejects applying comparative negligence to contract claims)