Here’s a question we’d assumed had been definitively answered about twenty-five years ago. Apparently not, or else it’s another example of people raising old questions they themselves just thought of. 

Bondwriter, a Fidelity agent, mistakenly issued a contractor’s bond without authority. The contractor knew of the mistake and returned it –  but had first made a copy, with which it was able to get a job since the property owner (the City of Flagstaff), which usually demanded an original, didn’t check to see whether it had one. The contractor didn’t finish the project; Fidelity decided it had to pay on the bond; then it sued Bondwriter for breach of contract and negligence. Bondwriter named the contractor and owner as non-parties at fault. 

After a bench trial the trial court ruled for Fidelity but allocated 95% of the fault to the contractor and Flagstaff on both the contract and negligence claims. Fidelity appealed, arguing that allocation of fault does not apply to contract.

The court of appeals agrees. 12-2506 does not mention contract; “fault,” which it does mention, isn’t a concept that applies in contract; the legislative history had nothing to do with contract.

This is probably the reason the case was published. Most of the long opinion deals with Bondwriter’s attempts to argue that it wasn’t at fault because Flagstaff “ratified” the contract or because it didn’t really breach the exact wording of its agency agreement. This makes slightly more sense when you know that the lower court had ruled before trial that the bond was invalid, someone having convinced it that a municipality can’t, by statute, make a bond claim unless it has the original. But Bondwriter, although it was apparenlty the “someone,” drew the wrong conclusions about what that meant to the case.

(link to opinion)