Court Opinion

ID: 6345768
Source: CourtListenerOpinion
Date Created: 2022-06-01 17:00:14.581445+00
Date Added: 2024-06-11T09:15:05.193721
License: Public Domain

United States Court of Appeals
                     For the First Circuit

No. 21-1126

                     ARCH INSURANCE COMPANY,

                      Plaintiff, Appellee,

                               v.

                    THE GRAPHIC BUILDERS LLC,

                      Defendant, Appellant,

                       RCM MODULAR, INC.,

                           Defendant.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. Nathaniel M. Gorton, U.S. District Judge]

                             Before

                  Thompson, Lipez, and Kayatta,
                          Circuit Judges.

           Richard E. Briansky, with whom Eckert Seamans Cherin &
Mellott, LLC and Peckar & Abramson, P.C. were on brief, for
appellant.

          Jonathan C. Burwood, with whom Watt, Tieder, Hoffar &
Fitzgerald, LLP was on brief, for appellee.

                          June 1, 2022
           LIPEZ, Circuit Judge.           In this diversity case, The

Graphic Builders LLC ("Graphic"), a general contractor, is seeking

to enforce a performance bond issued by Arch Insurance Co. as

surety for a subcontractor hired to work on a major project for

Graphic.   Arch, however, claims that Graphic breached the terms of

the performance bond, and it seeks a judgment declaring that it

has no liability under the bond.           The district court sided with

Arch,   concluding   that   Graphic    was   required   to   terminate   the

subcontractor as a condition of seeking performance from Arch but

had not done so.     See Arch Ins. Co. v. Graphic Builders LLC, 519

F. Supp. 3d 54, 60-61 (D. Mass. 2021).            Accordingly, the court

granted summary judgment for Arch.

           On appeal, Graphic argues that the district court erred

in concluding that Arch's obligation to provide the warranty

performance   it   seeks    was   conditioned    on   termination   of   the

subcontractor.     Graphic asserts that both the bond's language and

relevant precedent support its position. We disagree and therefore

affirm the district court's judgment.

                                      I.

           When reviewing a grant of summary judgment, we consider

the facts in the light most favorable to the nonmoving party. See,

e.g., Modeski v. Summit Retail Sols., Inc., 27 F.4th 53, 56 (1st

Cir. 2022).   In this case, there is no material disagreement about

the facts, which we set forth below.         Graphic and Arch debate only

                                   - 2 -
whether those facts give rise to Arch's obligations under the

performance bond.

           In 2017, Graphic was hired for a construction project in

Charlestown,    Massachusetts,      that    consisted   of    converting      an

existing   commercial   building       to    loft-style      apartments       and

constructing a four-story apartment building on the same property.

Graphic and the property owner agreed on a modular method of

construction for the new building, and Graphic then selected an

experienced modular manufacturer, RCM Modular, Inc., to fabricate

and assemble the structure at a cost of about $8.6 million.               Among

the   obligations   included   in    the    subcontract      was   a   "Special

Manufacturers [sic] Warranty" for the modular units' windows and

doors.1

           A   performance   bond    issued    in   conjunction        with   the

subcontract rendered Arch, as surety, "jointly and severally"

responsible for RCM's obligations.          Section 3 of the bond, which

is reproduced in Section II below, specifies the actions by Graphic

      1Graphic asserts in its brief that Arch was obliged "to issue
a post-completion window warranty and other warranties," but it
does not specify what "other warranties" are at issue. At oral
argument, Graphic's counsel stated that only the window warranty
is at issue.    Following Graphic's lead, we focus on the window
warranty and consider waived any assertion that a different
analysis would apply to "other warranties."

                                    - 3 -
that would trigger Arch's "obligation under th[e] Bond," including

declaring RCM in default and terminating the subcontract.2

             Shortly after RCM delivered the modular units to Graphic

in   May   2018,    Graphic   complained     to   RCM   that    the    units   were

defective.       Graphic reported that, among other issues, the windows

leaked and the exteriors of the modules were misaligned.                       In a

letter to Arch recounting the sequence of events that followed its

initial complaints, Graphic reported that it had received "no

meaningful response from RCM."        It therefore "engaged in remedial

efforts     to    correct   the   defectively     delivered      and    installed

modules."3       Issues remained, however, and Graphic and RCM met at

the project site in September 2018 to "develop[] a remediation

plan to correct the defective work[,] including producing the

window     manufacturer's     warranty."      According    to    Graphic,      "RCM

      2Arch's performance bond is in a standard format commonly
used in the construction industry and known as an American
Institute of Architects A312 Performance Bond (2010 ed.). See,
e.g., St. Paul Fire & Marine Ins. Co. v. VDE Corp., 603 F.3d 119,
124 (1st Cir. 2010) (noting that a leading commentator on
construction law has described the A312 performance bond as "one
of the clearest, most definitive, and widely used type of
traditional   common   law   'performance   bonds'   in   private
construction" (quoting Philip L. Bruner & Patrick J. O'Connor,
Jr., 4A Bruner & O'Connor on Construction Law § 12:16 (2009))).
      3Although the record is somewhat unclear on this point, it
appears that a substantial amount of the remedial work was done by
third-party subcontractors hired by Graphic but that RCM itself
was asked to address the window deficiencies.

                                     - 4 -
failed to complete the remediation plan," and the manufacturer

refused to provide a warranty.

          There followed a series of letters from Graphic to RCM

and Arch, initially providing notice only of RCM's potential

default and then, on April 30, 2019, notifying RCM and Arch of

RCM's default.    The April 30 letter stated that Graphic was

declaring RCM in default because, among other reasons, it had

failed to deliver a window warranty and had not "undertake[n]

remedial steps to defectively rendered Work and forc[ed] Graphic

to do so at its own expense."    Graphic noted, however, that it was

"not yet terminating its Subcontract with RCM," but reserved the

right to do so.   Graphic followed up with another letter to Arch,

dated May 3, reiterating the notice of default and advising that

"Graphic is not yet taking the next step of terminating the

Subcontract and making demand on the Bond in the hope that RCM

and/or Arch" would arrange to quickly complete the unfinished work

and "make a good faith move to reduce the large financial impacts

Graphic has suffered."4   In a letter dated May 3, Arch acknowledged

receipt of Graphic's April 30 and May 3 communications, noting its

     4 The May 3 letter detailed the expedited remedial work
Graphic deemed necessary to allow building occupancy by June 1 and
asked that "RCM and/or Arch deploy, without further delay, the
qualified staff, materials and equipment needed to correct
defectively rendered Work" or to complete unfinished work. Among
the listed requests, subject to the project owner's agreement, was
"a warranty bond as a substitute for the window warranty that RCM
has been unable to deliver."

                                 - 5 -
understanding that Graphic was "not attempting to make a claim on

the Arch Performance Bond."

           In September 2019, Graphic sent a detailed letter to

Arch, with a copy to RCM, stating that it was providing notice of

RCM's default pursuant to the terms of the performance bond and

demanding that Arch pay $3.175 million in remedial costs that

Graphic had incurred "as a result of [RCM]'s failure to perform."

In response, Arch denied liability on the ground that Graphic had

not complied with multiple prerequisites specified in the bond for

triggering Arch's surety obligations.    Arch noted, inter alia, the

undisputed fact that Graphic had "not terminat[ed] RCM before it

undertook to complete RCM's scope of work," a failure that,

according to Arch, rendered the bond "null and void."

           In December 2019, Arch filed this action seeking a

declaratory judgment that Graphic had materially breached the

performance   bond,   thereby   discharging    Arch    from   liability.5

Graphic   counterclaimed,   asserting   that   the    preconditions   for

performance set forth in section 3 of the bond do not apply to

Arch's obligations to indemnify Graphic for its costs related to

RCM's defective work or the surety's obligation to provide a window

     5 An earlier state-court lawsuit filed by Graphic against RCM,
later amended to include Arch, was removed to federal court by
Arch and consolidated with this action. In its brief, Arch reports
that, in May 2021, an arbitration panel awarded Graphic roughly
$1.8 million against RCM. We note these other proceedings solely
as background; they play no role in our resolution of this appeal.

                                - 6 -
warranty in RCM's stead.            Arch subsequently moved for summary

judgment.       In   its    opposition,     Graphic     asserted,    among   other

arguments,    that     it   could   not    satisfy    the   bond's    termination

requirement "because RCM had 'substantially completed' its work

under the subcontract and thus could not be terminated."                       Arch

Insurance Co., 519 F. Supp. 3d at 61.

             In granting summary judgment for Arch, the district

court rejected Graphic's assertion that it was unable to terminate

the subcontract.       It found that Graphic had "indisputably failed

to comply with a condition precedent" for Arch's liability under

the performance bond by "unilaterally arrang[ing] for third-party

subcontractors to remediate RCM's work" instead of terminating

RCM.   Id.      Accordingly, the court held that Graphic materially

breached the bond and that Arch was "discharged from any and all

liability" under it.        See id.   This appeal followed.

                                          II.

             On appeal, Graphic reiterates its contention that it had

no obligation to comply with section 3 of the bond to be entitled

to the performance it demands from Arch, and it also again argues

that termination was neither feasible nor legally permissible

because   RCM    had    substantially       completed    its   work    under    the

subcontract.     Before turning to those issues, however, we briefly

pause to note a change in Graphic's approach.               As described above,

Graphic asked the district court to impose two types of obligations

                                      - 7 -
on Arch: indemnification for Graphic's costs in completing RCM's

work       and    "complet[ion    of]   RCM's   Warranty   Obligations   Post

Completion."         Graphic has abandoned its indemnification claim on

appeal.6         Hence, as stated by Graphic's counsel at oral argument,

"the sole and only issue . . . in this appeal is to enforce Arch's

post-completion guarantee of its obligation to issue a window

warranty."

                 We review a district court's grant of summary judgment

de novo.         Clark Sch. for Creative Learning, Inc. v. Phila. Indem.

Ins. Co., 734 F.3d 51, 54 (1st Cir. 2013).            Here, as noted above,

the material facts are undisputed. The parties' differences spring

from the terms of the performance bond and related caselaw.

A. The Terms of the Performance Bond

                 The question at the heart of this appeal is whether

section 3 of the bond, which sets forth a series of preconditions

for Arch's obligation to act on behalf of RCM, applies to Graphic's

window warranty claim.           In relevant part, section 3 states:

                 §3 If there is no [Contractor][7] Default under
                 the [Subcontract], the Surety's obligation
                 under th[e] Bond shall arise after:

       Graphic also brought a claim under Massachusetts's unfair
       6

business practices statute that it does not pursue on appeal. See
Mass. Gen. Laws ch. 93A, §§ 2, 11.
       The performance bond identifies Graphic as "Owner," but
       7

provides in section 15 that, if the bond covers an agreement
between a contractor and subcontractor, "the term Contractor in
this Bond shall be deemed to be Subcontractor and the term Owner
shall be deemed to be Contractor."   Thus, we have replaced the
term "Owner" in section 3 with "Contractor," "Construction

                                        - 8 -
                .1 the [Contractor] first provides notice
           to the [Subcontractor] and the Surety that the
           [Contractor] is considering declaring a
           [Subcontractor] default.    Such notice shall
           indicate    whether   the    [Contractor]   is
           requesting     a    conference    among    the
           [Contractor], [Subcontractor] and Surety to
           discuss the [Subcontractor]'s performance
           . . . .

                .2    the   [Contractor]    declares    a
           [Subcontractor]   Default,   terminates    the
           [Subcontract] and notifies the Surety; and

                .3 the [Contractor] has agreed to pay the
           Balance   of  the   [Subcontract]   Price   in
           accordance with the terms of the [Subcontract]
           to the Surety or to a contractor selected to
           perform the [Subcontract].

           Under section 5 of the bond, "[w]hen the [Contractor]

has satisfied the conditions of Section 3," the surety must take

one of several specified actions at its own expense. These include

arranging for the original subcontractor to complete the job;

taking   over   completion   of    the   work    "through        its   agents   or

independent     contractors";     arranging     for   a    new    subcontractor

acceptable to the contractor; or, in lieu of completing the work,

determining "the amount for which it may be liable" and making

that payment to the contractor.

           As described below, Graphic also invokes section 1 of

the bond, which states in full: "The [Subcontractor] and Surety,

Contract"    with      "Subcontract,"         and         "Contractor"      with
"Subcontractor."

                                    - 9 -
jointly and severally, bind themselves, their heirs, executors,

administrators, successors, and assigns to the [Contractor] for

the performance of the [Subcontract], which is incorporated herein

by reference."

B. Governing Law of Contract Interpretation

           Under Massachusetts law, "we construe [the] insurance

policy de novo under the general rules of contract interpretation."

Clark Sch. for Creative Learning, 734 F.3d at 55 (quoting Valley

Forge Ins. Co. v. Field, 670 F.3d 93, 97 (1st Cir. 2012)).         Neither

party   claims   that   the    language   of   the   performance   bond   is

ambiguous; each insists that the plain language of the bond

supports its position.        We agree that there are no ambiguities in

the contested provisions and, hence, our task is to "interpret

[the bond] according to its plain terms."            Farmers Ins. Exch. v.

RNK, Inc., 632 F.3d 777, 784 (1st Cir. 2011) (quoting Den Norske

Bank AS v. First Nat'l Bank of Bos., 75 F.3d 49, 52 (1st Cir.

1996)); see also Nicolaci v. Anapol, 387 F.3d 21, 26 (1st Cir.

2004) ("Ambiguity is not created merely because the litigants

disagree about the meaning of a contract.").

           In examining the terms of the bond, we must be mindful

that "a contract should be construed to give it effect as a

rational business instrument and in a manner which will carry out

the intent of the parties."         Starr v. Fordham, 648 N.E.2d 1261,

1270 (Mass. 1995) (quoting Shane v. Winter Hill Fed. Sav. & Loan

                                   - 10 -
Ass'n, 492 N.E.2d 92, 94 (Mass. 1986)).       To ascertain "the scope

of a party's obligations" under an agreement, we may not "isolat[e]

words and interpret[] them as though they stood alone," id. at

1269 (quoting Bos. Elevated Ry. Co. v. Metro. Transit Auth., 83

N.E.2d 445, 451 (Mass. 1949)), but must instead "construe the

contract as a whole, in a reasonable and practical way, consistent

with its language, background, and purpose," USM Corp. v. Arthur

D. Little Sys., Inc., 546 N.E.2d 888, 893 (Mass. App. Ct. 1989)

(cited favorably in MCI WorldCom Commc'ns, Inc. v. Dep't of

Telecomms. & Energy, 810 N.E.2d 802, 810 (Mass. 2004)).          Surety

agreements are similarly construed.       See St. Paul Fire & Marine

Ins. Co. v. VDE Corp., 603 F.3d 119, 122 (1st Cir. 2010) ("As a

general matter, 'surety contracts are subject to the same rules of

construction as other contracts.     The terms of surety obligations,

therefore, "should be interpreted as a whole, and not out of the

context of all the other terms."'" (quoting In re Sinking of M/V

Ukola, 806 F.2d 1, 4 (1st Cir. 1986))); Gordon & Dilworth v.

Abbott, 154 N.E. 523, 524 (Mass. 1926) ("The liability of a surety

or guarantor is to be ascertained from the terms of the written

instrument   by   which   his   obligation   is   expressed,   construed

according to the usual rules of interpretation in the light of the

subject-matter, the well-understood usages of the business, and

the relations of the parties to the transaction.").

                                 - 11 -
C. Does the Bond Oblige Arch to Provide the Window Warranty?

             It is undisputed that Graphic fulfilled the requirements

of section 3.1 of the performance bond with respect to its warranty

claim.     As described above, Graphic sent multiple letters to Arch

stating that it was considering declaring a default, including on

the warranty issue, and it sought a conference among the parties

(which occurred in April 2019). It also is undisputed that Graphic

did not fulfill the requirements of sections 3.2 and 3.3. Although

Graphic declared RCM in default, it did not terminate RCM and it

never agreed to pay Arch any portion of the contract price.

Graphic, however, maintains that its demand that Arch provide a

window warranty does not require compliance with section 3's

conditions.

             Graphic's   argument      depends     on    distinguishing       the

provision of the window warranty from the physical work that RCM

was obligated to perform under the subcontract.                Its principal

contention is that a "post-completion" warranty obligation is not

reasonably     subject   to   section     3's    termination        requirement.

Graphic, however, is not making a post-completion warranty claim

in   the     sense   that     such    a   claim        ordinarily     would   be

understood -- i.e., a demand under an operative warranty for

remediation     of   construction      work     that    is   revealed,    post-

completion, to be defective.          See, e.g., Sweetwater Apartments,

PA, LLC v. Ware Constr. Servs., Inc., No. 11-CV-155, 2012 WL

                                     - 12 -
3155564, at *5 (M.D. Ala. Aug. 3, 2012) (concluding that the surety

was liable for repairs under a one-year warranty issued by its

principal) (citing cases).8         Rather, Graphic asserts that RCM

failed to produce a promised warranty.

          The   caselaw   Graphic    cites   provides   no   support   for

excluding that sort of warranty claim from section 3's scope.

Together, sections 3 and 5 of the A312 bond protect the surety by

clearly signaling when the surety must take over for a defaulting

principal and by giving the surety the choice on how to remediate

the default.    See generally St. Paul Fire & Marine Ins. Co. v.

City of Green River, 93 F. Supp. 2d 1170, 1178 (D. Wyo. 2000),

aff'd, 6 Fed. App'x 828 (10th Cir. 2001) (noting the importance of

preserving the surety's "ability to protect itself pursuant to

performance options granted under a performance bond"); Enter.

Cap., Inc. v. San-Gra Corp., 284 F. Supp. 2d 166, 177 (D. Mass.

2003) (same).   Graphic appears to be arguing that this protection

is inapplicable to its warranty claim for two primary reasons: (1)

it is not asking Arch to remedy or complete RCM's physical window

work, and (2) the warranty does not come into play until after the

physical work is done.    Neither reason stands up to scrutiny.

     8We cite to the unpublished decision in Sweetwater Apartments
because Graphic relies on that case, and on a half-dozen other
cases cited in Sweetwater, both published and unpublished, to
support its argument.

                               - 13 -
            The   obligation   to    provide   a   manufacturer's   window

warranty is a distinct element of the Graphic-RCM subcontract.

The mere fact that the warranty obligation does not involve hands-

on construction does not reveal why it would be excluded from the

conditions in the bond that apply to other performance elements of

the subcontract.    Nor does timing provide the explanation.        While

the benefits of a warranty ordinarily may be realized after a

construction project is completed (or substantially completed),

see, e.g., Stonington Water St. Assocs., LLC v. Hodess Bldg. Co.,

792 F. Supp. 2d 253, 260 (D. Conn. 2011) (describing "the punch

list" as the "list of warranty work"), procuring the warranty from

the window manufacturer was an          obligation that needed to be

fulfilled before RCM's performance under the contract would be

complete.   Indeed, Graphic has valued RCM's warranty obligation at

$2 million, a significant proportion of the subcontract's total

price tag of roughly $8.6 million.9

            We see nothing in the language of the bond that would

exclude RCM's default in fulfilling the warranty obligation from

section 3's requirements.      The performance options available to

Arch under section 5 of the bond are no less suitable for the

     9  In its Opposition to Plaintiff's Motion for Summary
Judgment, Graphic stated that it was "forced . . . to sign an
independent guaranty in the amount of $2 million providing the
[project] Owner the same rights as under the contractual warranty,"
and it listed "a warranty liability in the amount of $2 million"
among its damages related to RCM's work.

                                    - 14 -
warranty obligation than for the physical work of fixing the

windows. Arch might have attempted to secure the warranty by using

its   own   agents    or   a   new    subcontractor   to   remedy     the   window

problems, as contemplated by section 5. Or it might have attempted

to    secure    the   warranty      through   negotiations   with     the   window

manufacturer based on the remedial work that RCM had already

performed.

               Importantly, as these possible scenarios for Arch's

actions under section 5 reveal, the warranty "performance" that

Graphic seeks is inextricably linked to the window installation

itself.     The warranty was withheld based on the manufacturer's

assessment that the installation remained problematic even after

RCM's remedial efforts.10           In effect, then, Graphic's version of a

warranty claim is an attempt to shift to Arch the risk Graphic

assumed when, instead of terminating RCM and placing the burden of

remediating the window installation in Arch's hands, it persisted

in demanding action from RCM.

               To separate the subcontract's window installation and

warranty       obligations     in    the   way   Graphic   proposes    would    be

inconsistent with the "language, background, and purpose" of the

performance bond, USM Corp., 546 N.E.2d at 893, as it would clearly

       In a March 2019 email to Graphic, the window manufacturer
       10

referred to ongoing "installation deficiencies at this project
[that] are incompatible with issuance of a warranty."

                                       - 15 -
frustrate the bond's design to allow the surety to manage the

response to a default for which it would be responsible.             With

respect to securing the warranty, Graphic's decision to eschew

termination   and   continue   working   with   RCM   despite   Graphic's

ongoing dissatisfaction with RCM's performance was no different,

under the terms of the bond, from a unilateral decision to replace

RCM with a third-party subcontractor.     Both decisions sidestep the

requirements of section 3 and "extinguish[] the options available

to [the surety] under [section 5] of the performance bond."        Solai

& Cameron, Inc. v. Plainfield Cmty. Consol. Sch. Dist. No. 202,

871 N.E.2d 944, 956 (Ill. App. Ct. 2007); see also, e.g., Seaboard

Sur. Co. v. Town of Greenfield, 370 F.3d 215, 220 (1st Cir. 2004)

(noting that "[c]ourts have consistently held that an obligee's

action that deprives a surety of its ability to protect itself

pursuant to performance options granted under a performance bond

constitutes a material breach, which renders the bond null and

void" (quoting St. Paul Fire & Marine, 93 F. Supp. 2d at 1178));

Dragon Constr., Inc. v. Parkway Bank & Tr., 678 N.E.2d 55, 58 (Ill.

App. Ct. 1997) ("Surely, [the insurer] would not have issued the

surety bonds if it did not have the authority to protect itself

through the selection of a successor contractor.").

              Arguably, then, to obtain Arch's performance of RCM's

promise to provide the manufacturer's window warranty, Graphic

should have terminated RCM and asked Arch to take over the task of

                                - 16 -
properly     completing        the     window        installation          work      to    the

satisfaction of the manufacturer. At a minimum, however, the terms

of   the    bond     required     Graphic       to     comply       with      section     3's

prerequisites to trigger Arch's specific obligation to furnish the

window     warranty.        Put   simply,     Graphic      is       claiming      that    RCM

defaulted     in    performing       the    warranty      portion        of    its    window

obligations,        but   it   has    not   satisfied         the    bond's       condition

precedent for Arch to assume responsibility for that default.

             In resisting this construction of the bond, Graphic has

insisted that, pursuant to the subcontract and general principles

of contract law, it properly gave RCM the opportunity to cure the

window defects.11         See generally 4A Philip L. Bruner & Patrick J.

O'Connor, Jr., 4A Bruner & O'Connor on Construction Law § 12:42

(August     2021)    (hereafter       "Bruner      &    O'Connor")         (stating       that

"[t]ermination for default clauses commonly require the obligee to

give the contractor and the surety 'notice of default' prior to

termination        for    default"    for    the       purpose      of     "giv[ing]       the

contractor    an     opportunity       to   'cure'      the    default        and    thereby

preclude termination").              Moreover, Graphic says, it would have

     11In its September 2019 letter to RCM and Arch, Graphic said
that it had "expressly negotiated the right to cure RCM's defects
without terminating the Subcontract and collect these costs from
both RCM and the Surety."       Although section 16.3.1 of the
subcontract states that Graphic is authorized to correct RCM's
defective work and charge RCM for "any damage, loss, cost or
expense suffered or incurred," the provision makes no reference to
the surety.

                                        - 17 -
faced "the potential risk of a claim for wrongful termination" if

it had terminated RCM and invoked the performance bond instead of

working with RCM to resolve the window issues.

             We acknowledge the difficulty contractors may face in

navigating    between    the     risk    of    premature     termination    of    a

subcontractor    and    the    risk     of    failing   to    comply     with    the

requirements of section 3 of the A312 performance bond.                    See 4A

Bruner & O'Connor, supra, at § 12:38 (noting that "[a] wrong

decision to terminate is a material breach of contract and results

in the obligee's completion of the contract without recourse

against the contractor or surety" and that "[t]he wrong decision

not to terminate may result in unsatisfactory completion . . . ,

with recourse limited to the contractor and not the surety").                   Yet

that is the framework under which Graphic agreed to operate

pursuant to the performance bond, and it was obliged to adhere to

the bond's terms to invoke the bond's coverage. Under those terms,

it   was   Graphic's    burden   to     determine   if,    and   when,    RCM   had

defaulted and to terminate RCM if it sought recourse for the

default from Arch. See generally Salois v. Dime Sav. Bank of N.Y.,

FSB, 128 F.3d 20, 26 n.10 (1st Cir. 1997) ("[U]nder Massachusetts

law, 'one who signs a writing that is designed to serve as a legal

document . . . is presumed to know its contents.'" (quoting Hull

v. Attleboro Sav. Bank, 596 N.E.2d 358, 362 (Mass. App. Ct. 1992))

(omission in original)).

                                      - 18 -
              In any event, the record unequivocally belies Graphic's

suggestion that a delicate balance between premature and required

termination existed here.         Graphic first sought remediation from

RCM in May 2018, and it complained repeatedly about defective

window installation -- along with making demands for the warranty

-- through the spring of 2019.          In the first of two letters sent

to RCM in October 2018, Graphic demanded "a full-scale remediation

effort" that would "ensure complete and permanent correction of

every window."       In the same letter, Graphic directed RCM "to

immediately      provide    the      missing    warranty,"     along     with

"confirmation that the final installation currently in progress

complies with the manufacturer's requirements."

              More than two months later, in its January 2019 letter

notifying RCM and Arch of RCM's potential default, Graphic stated

that    RCM   was   in   "material    breach   of   the   Subcontract"   and

identified, among the breaches, the "[f]ailure to install properly

all windows in accordance with the manufacturer's requirements."

In March 2019, as noted above, the window manufacturer communicated

its concern about continuing installation deficiencies.            Then, in

April and May 2019, Graphic notified Arch of RCM's default,

including the failure to provide the warranty, while expressly

declining to terminate the subcontract.12           Hence, even if Graphic

       In May 2019, Graphic proposed three "undertakings" to RCM
       12

and Arch "to avoid termination and to mitigate the cascading

                                     - 19 -
justifiably and properly allowed RCM to attempt to cure the window

problems and obtain the manufacturer's warranty into the fall of

2018,        that    rationale   for    refraining   from     termination   cannot

insulate Graphic's decision not to do so when those initial

curative efforts failed -- or at least by the following spring,

when it deemed RCM in default.13

                We likewise find untenable Graphic's contention that

section 1 of the bond, which broadly asserts RCM's and Arch's joint

and several responsibility for performing the contract, supports

its warranty claim against Arch.               Graphic makes the astonishing

assertion that "[n]owhere in [section] 1 of the Arch Performance

Bond     or    the    Subcontract      . . . are   any   of   [Graphic]'s   rights

negative       consequential impacts associated with such a decision."
As noted        above, these included a demand that "RCM and/or Arch
secure a        warranty bond as a substitute for the window warranty
that RCM       has been unable to deliver."
         We note that, in deposition testimony, Graphic's
        13

representative, Marvin Lahoud, stated that Graphic's interactions
with Arch and RCM in 2018 and 2019 were aimed at eliciting
cooperation in resolving the construction problems without the
need to terminate RCM.      Lahoud explained that RCM's "specific
manufacturing techniques and abilities" precluded terminating the
subcontract   because    no    other  subcontractor   could   have
satisfactorily completed the modular construction work in RCM's
stead, at least without extraordinary expense and a lengthy delay.
We do not minimize the difficulties Graphic faced in completing
the project in a timely way. However, the view that only RCM could
appropriately perform the remedial work is inconsistent with
Graphic's acceptance of a bond under which Arch's obligation to
perform includes the right to choose the path forward in the event
of a default, including the option to select alternative
contractors.

                                         - 20 -
contingent upon termination of RCM."            While that statement is

accurate, basic contract principles -- and Massachusetts law --

make clear that section 1 of the bond is only reasonably understood

as qualified by the provisions and conditions that follow.                See

McAdams v. Mass. Mut. Life Ins. Co., 391 F.3d 287, 299 (1st Cir.

2004) ("Contracts must . . . be read as a whole."); Bos. Elevated

Ry. Co., 83 N.E.2d at 451 (rejecting a construction of a contract

derived from "isolating words and interpreting them as though they

stood alone").    The surety is not a party to the subcontract, and

it necessarily plays a different role in the relationship among

the parties.     That role is defined by the bond, which, for the

specific warranty claim at issue here, requires Graphic to fulfill

the prerequisites of section 3 before Arch's "obligation under

th[e] Bond shall arise."      See Elm Haven Constr. Ltd. P'ship v.

Neri Constr. LLC, 376 F.3d 96, 100 (2d Cir. 2004) (noting that one

of the "standard principles of contract interpretation" applicable

to surety bonds "is that, before a surety's obligations under a

bond can mature, the obligee must comply with any conditions

precedent" (quoting U.S. Fid. & Guar. Co. v. Braspetro Oil Servs.

Co., 369 F.3d 34, 51 (2d Cir. 2004))).

          Hence,   pursuant   to    the     unambiguous   language   of   the

performance bond, any obligation of Arch to provide the window

warranty was conditioned on Graphic's termination of RCM, an action

Graphic chose not to take.

                                   - 21 -
D.     Was Termination of RCM Foreclosed as a Matter of Law?

             As a backup argument, Graphic asserts that applicable

judicial precedent prevented it from terminating the subcontract

after RCM had delivered and installed the modules -- i.e., after

the "physical" work covered by the subcontract, albeit defective,

was completed.        Graphic's contention that it was not permitted to

terminate     RCM     despite   the     bond's     requirement      rests    on   the

proposition that a contractor may not lawfully be terminated once

its work under a contract is "substantially complete."                      But even

if this proposition is generally correct, see 4A Bruner & O'Connor,

supra, at § 12:45,14 it does not help Graphic on the record before

us.

              Section 10.1.3 of the Graphic-RCM subcontract defines

"substantial completion" as "the time when construction Work is

sufficiently        complete    in    accordance     with     the   Drawings      and

Specifications so the Owner can occupy or utilize the Work or a

designated portion thereof for the use to which it was intended."

That     definition    tracks     the     widely   accepted    understanding       of

"substantial        completion"      in     the    construction      industry      in

Massachusetts and elsewhere.               See Kettle Brook Lofts, LLC v.

Specht, 177 N.E.3d 176, 186 (Mass. App. Ct. 2021) ("[T]he term

       Section 12:45 of the Bruner & O'Connor treatise states that
        14

an "obligee may not terminate for default a construction contract
that has been substantially performed."

                                        - 22 -
['substantially complete'] is well understood in the context of

construction of real property to refer to a state in which the

property is ready to be used for its intended purpose, in this

case, residential occupancy."); Kinetic Builder's Inc. v. Peters,

226   F.3d    1307,   1315   (Fed.   Cir.    2000)    ("A   project   should     be

considered substantially completed when it is capable of being

used for its intended purpose."); 3 Bruner & O'Connor, supra, at

§ 8:27 ("As a general rule, substantial completion is defined as

that point in the construction where the work is sufficiently

complete that the owner may occupy or utilize the work for the use

for which it was intended.").            Substantial completion does not

necessarily mean that the work is free of all defects, but only

that there is "such an approximation to complete performance that

the   owner    obtains   substantially       what    was    called   for   by   the

contract."      Handy v. Bliss, 90 N.E. 864, 864 (Mass. 1910); see

also id. at 864-65 (noting that "there might be a substantial

performance of the contract" even if "omissions and imperfections"

remain).

              Graphic's position appears to be that these principles

of    construction    law    supersede      the   bond's     pre-condition      for

termination (as we have construed the bond) for their warranty

claim.     Specifically, it argues that it could not terminate RCM

after RCM had installed the modules because the subcontract work

was at that point substantially completed -- notwithstanding the

                                     - 23 -
defects.     However,    this      assertion   of   substantial    completion

directly conflicts with Graphic's representations to RCM and Arch

throughout the nine months, from July 2018 through April 2019, in

which Graphic was demanding remediation of the work performed by

RCM before ultimately declaring RCM in default.              In its September

2019 letter to RCM and Arch, Graphic recounted that, when the first

modules were delivered and installed, the defects -- including

leaking windows -- "were so prolific and systemic that it precluded

[Graphic]   and   any   of   its    subcontractors    from    completing   the

remaining work on the Project."          In its April 30, 2019 letter to

RCM and Arch providing notice of default, Graphic listed among

RCM's material breaches of the subcontract RCM's "[f]ailure to

deploy the labor and materials needed to achieve Substantial

Completion of the Work by May 31, 2019."              Indeed, several days

later -- in its letter of May 3 -- Graphic demanded that RCM and

Arch expedite the remedial work so that the building would be ready

for occupancy by June 1.        In that letter, Graphic accused RCM of

"fail[ing] to perform under the terms of the Subcontract, or for

that matter, to perform by any measure."

            Graphic, in other words, told RCM and Arch that RCM had

not yet achieved "Substantial Completion" of its work as of May

2019 and that the building was not yet in a condition to be occupied

at that time.      Graphic's argument that it could not lawfully

terminate RCM once the modular units had been installed -- or even

                                     - 24 -
after RCM's unsuccessful attempts to fix the windows -- thus lacks

both legal and factual support.     We note, moreover, that Graphic

took the position that the option to terminate remained as late as

May 2019, when it advised RCM and Arch that it was "not yet taking

the next step of terminating the Subcontract and making demand on

the Bond."15

          In   sum,   the   performance   bond   required   Graphic   to

terminate RCM to trigger Arch's obligation to provide a window

warranty, and the undisputed facts in the record show that Graphic

had ample knowledge of RCM's alleged failures at a time when

termination remained a viable option under the relevant principles

of law.   The district court therefore properly granted summary

judgment for Arch.

          Affirmed.

     15 In its reply brief, Graphic asserts that Arch may not rely
on deposition testimony to defend the district court's grant of
summary judgment by "attempt[ing] to establish that substantial
completion was never reached and that [Graphic] consciously chose
not to terminate Arch," stating that the testimony "at most, raises
a question of fact as to whether termination was permissible when
the warranty issue arose."     Although we recount some of that
testimony above, see supra note 13, our conclusion regarding
substantial completion is based solely on the legal principles
cited above as applied to the undisputed facts in the record,
including Graphic's clear, express representations in the
correspondence it sent to RCM and Arch.

                                - 25 -