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Conway, the owner of Conway Construction, submitted a bid for the construction of a series of townhouses for the city. Conway had the lowest bid and won the contract. The contract, however, was contingent on him providing acceptable sureties in the amount of $1 million. Conway had never done such a large project and soon realized that he could not obtain the appropriate sureties. Not wanting to give up the contract with the city, Conway convinced ABC Sureties, Inc. to issue the required commitment by misrepresenting that he was a famous builder in Canada.

Halfway through the project, Conway was asked by the city to increase the number of townhouses from the contracted amount of 45, to 55 townhouses. Conway agreed to the change.

After the work was completed, it came to light that Conway had committed several breaches of contract – exclusively relating to the quality of work. The city sued ABC Sureties for a $1 million loss. ABC Sureties defended on the grounds of (1) fraud, and (2) material change in the contract.

Determine who would win on each claim and explain your reasoning.

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