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Kiski Area School Dist. v. Mid-State Surety Corp.

December 17, 2008

KISKI AREA SCHOOL DISTRICT, A MUNICIPAL AUTHORITY
v.
MID-STATE SURETY CORPORATION, A MICHIGAN CORPORATION, AND LANMARK, INC., A PENNSYLVANIA CORPORATION APPEAL OF: MID-STATE SURETY CORPORATION, A MICHIGAN CORPORATION



Appeal from the Order of the Superior Court entered April 18, 2007 at No. 428 WDA 2006 reversing the Order of the Court of Common Pleas of Westmoreland County, entered January 25, 2006 at No. 6225 of 1999 and remanding the case.

The opinion of the court was delivered by: Madame Justice Greenspan

CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, GREENSPAN, JJ.

ARGUED: September 9, 2008

OPINION

We consider whether a broad release of a contractor that is silent as to any release of the contractor's surety nonetheless discharges the surety. Appellant, Mid-State Surety Corporation ("Mid-State"), appeals from the Superior Court's decision which reversed the trial court and held that the Kiski Area School District (the "School District") could pursue a performance bond claim against Mid-State, notwithstanding the School District's release of, and final payment to, bonded contractor Lanmark, Inc. ("Lanmark"). We reverse the Superior Court and reinstate the trial court's order entering summary judgment in favor of Mid-State. We hold that Mid-State's obligations vis-à-vis the School District were discharged by the School District's broad release of Lanmark.

FACTS

On February 27, 1997, the School District and Lanmark entered into an agreement (the "Contract"), pursuant to which Lanmark agreed to provide services as part of the construction and renovation of the Allegheny-Hyde Park Elementary School in Allegheny Township, Westmoreland County, Pennsylvania (the "Project"). Among other provisions, Article 8.4 of the Supplementary Conditions to the Contract contained a provision that obligated Lanmark to pay the School District liquidated damages for delay in completing the Contract work.

Mid-State provided a performance bond for the Project that named Lanmark as the principal and the School District as the obligee (the "Bond"). Pursuant to Article 6 of the Bond, in the event of default by Lanmark, in exchange for payment of any remaining Contract balance, Mid-State agreed to assume responsibility to complete Lanmark's work.

As the Project neared completion, the School District became dissatisfied with the quality and timeliness of Lanmark's work. The School District declared Lanmark to be in default, withheld final payment from Lanmark, and demanded that Mid-State assume responsibility for the remaining work. The School District failed to remit the remaining Contract balance to Mid-State.

Lanmark initiated a civil action against the School District seeking payment of the Contract balance (the "Lanmark Matter"). The School District counterclaimed against Lanmark and joined Mid-State in the Lanmark Matter. The School District also filed a separate civil action against Lanmark and Mid-State (the "School District Matter"). The School District Matter was stayed pending the resolution of the Lanmark Matter.

On July 12, 2001, following settlement negotiations, the School District and Lanmark reached a settlement that was placed on the record before the Honorable Gary P. Caruso. The parties acknowledge that neither the School District nor Lanmark mentioned Mid-State during the negotiations. The terms of the settlement, as recorded that day, were as follows:

The Kiski Area School District shall pay to Lanmark, Incorporated, a sum of $430,000. The parties further agree that they will enter into a release that will contain the following language: That the release shall be for any and all claims that Lanmark and/or the Kiski Area School District has, have had, or may in the future have against each other, known or unknown, arising out of or relating to the construction contract dated February 27th, 1997, regarding the Allegheny/Hyde Elementary School or the construction project concerning the Allegheny/Hyde elementary school; excepting therefrom any third party tort action.

Following the hearing, counsel for the parties attempted to negotiate the language of a release. Lanmark and Mid-State requested that the release contain a proviso that the School District had released its claims against Mid-State. The School District repeatedly and emphatically refused to include this language. The School District argued that it had reserved its rights as against Mid-State. Because the parties were unable to reach an agreement on additional language, the School District and Lanmark executed a release that was limited to the verbatim terms of the July 12, 2001 proceeding (the "Release"). The Release is silent as to the School District's purported reservation of rights against Mid-State.

On September 23, 2005, Mid-State filed a motion for summary judgment in the School District matter, arguing that the Release discharged Mid-State and moreover that the School District's final payment to Lanmark barred any claim on the Bond. Mid-State's motion was granted on January 25, 2008. The trial court, citing Metropolitan Nat'l Bank v. Merchants' & Mfrs' Nat'l Bank, 25 ...


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