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Performance Bonds

 

Introduction

The performance bond is essentially an insurance policy or guaranty, providing security that a construction contract or subcontract will be completed in a timely and workmanlike manner.[1] The performance bond is for the benefit of the bond “obligee.”  In a Miller Act or Little Miller Act project, the bond obligee is the government owner.  A private owner could also require a performance bond from the general contractor.  A general contractor could require a performance bond from a subcontractor.

Whoever requires the bond is the “obligee,” who is the only beneficiary of the bond.  Whoever supplies the bond to the obligee is the bond “principal.”   In the event of default on the contract, the surety can usually either take over and complete the project or allow the bond obligee to complete it and the surety would pay the costs incurred.

The federal “Miller Act” (40 U.S.C.A. Section 3131, et seq.) is the grandfather of all public project-bonding statutes. The Miller Act requires performance and payment bonds for the “construction, alteration, or repair of any public building or public work of the United States.”[2] Payment and performance bonds are required for any contract for the construction, alteration or repair of any public building or public work of the United States that is for an amount greater than $150,000.[3]

Most states have similar laws for state and municipal projects. These state laws are similar to the federal Miller Act and are referred to as “Little Miller Act” statutes. The Miller Act was first enacted in 1935, and federal courts have provided much guidance on its interpretation. State courts interpreting their own Little Miller Acts will often look to federal case law for guidance.

State bond principals and claimants should remember, however, that the Little Miller Acts in each state vary slightly and that state courts are not required to follow federal courts. In the case of a private project or subcontractor bond, there is no statute dictating bond requirements or interpretations. A court will often look at state or federal Miller Act law to answer these questions, but private bonds are actually a matter of contract.  The parties could agree to whatever they wanted in the bond contract.

The Miller Act and Little Miller Act statutes state only that the performance bond is required, but do not say much about how performance bond rights are enforced or how they can be lost.  Most of the guidance on these issues is found in the bond itself and court case law established over centuries of suretyship law.  The Miller Act does not require a certain form for the performance bond, but the Code of Federal Regulations does “prescribe” a standard form.[4] That “prescribed” form is apparently not required, but is usually used.

A performance bond is simply a contract.[5] Normal principles of contract interpretation are used to determine the rights and obligations of the surety and bond obligee (whoever required the bond).[6] The bond will typically incorporate the contract by reference, making the contract a part of the bond.   Accordingly, the provisions of the contract and the performance bond must be read together in order to properly interpret the bond.[7]

Owners and general contractors (bond obligees) that require bonds should be careful with the “bond form” they are accepting.  A performance bond form can add more requirements to preserve rights under the bond, including multiple notices of default, required meetings or long waiting periods before replacing or supplementing a bond principal (contractor that supplied the bond).  Of course, sureties want all these requirements so that they can adequately investigate claims and to discourage rash action by an owner.  The same requirements, however, can cause additional delays in completion and higher legal fees.

Possible Bond Claimants

Only the bond obligee can make a claim under a performance bond for completion of a project. Suppliers of labor and material can seek payment only under the payment bond.[8] However, the payment bond and performance bond are sometimes included in one document.[9] Especially in a private project, it is important to read the operative language in a payment or performance bond. It does not matter that the title of a document is “Performance Bond.” If the operative language guarantees payment to all subcontractors supplying labor or material to the project, then subcontractors and suppliers will have a claim under the bond.[10]

Possible Bond Claims—Compensable Costs

The performance bond will generally cover the owner’s cost in completing the contract in the event of default by the bond principal.  In general terms, the liability of a surety is coextensive with that of the principal.  In other words, the surety is liable for all the contractual obligations of the bond principal.[11] A surety is bound to perform whatever is legally required of its principal.[12]

 

However, some courts have held that a surety is not liable for consequential damages, delay damages or legal fees unless the bond contract states that the surety is liable for these types of damage.  In other words, the surety’s liability is limited by the provisions of the bond contract.[13] If the bond states only that the surety is liable for the "cost of completion," then the surety may not be liable for delay or legal fees.[14]

 

Most bonds refer to and “incorporate” the contract into the bond, and the majority view is that most damages from any breach of the contract are recoverable from the bond surety.  This includes warranty obligations or correction of defective work.  As discussed, below, the surety usually has several different options to complete the contract or provide funding for completion.

Delay Damages

If the performance bond incorporates the construction contract and “time is of the essence” in contract performance, then the bond obligee (usually owner) can sometimes recover damages for delay.  Both of these features are in most performance bonds, but it is important for the bond obligee to confirm this before accepting a bond.  Some courts have ruled that a surety has no liability for delay damages of any type, unless the bond form states that the surety is liable for such damages.[15]

If there is a liquidated damages provision in the bonded contract and the contract is incorporated into the bond, then these liquidated damages should be payable by the surety.[16] In fact, delay damages from the surety may be limited to the liquidated damages provision,[17] although courts have allowed delay damages in excess of the liquidated amount in the event of abandonment of the project.[18]

Attorney’s Fees

In general, attorney’s fees are not recoverable in any litigation unless there is an agreement in a contract or a statute allowing legal fees.[19] The Miller Act statute does not call for recovery of legal fees in a performance bond, so recovery of legal fees would normally require a contract term in either the construction contract or the bond itself.[20] Two exceptions would be legal fees incurred in reprocurement contracts as a cost of completion[21] or where a breach of contract has forced the bond obligee to maintain or defend a lawsuit with a third person.[22]

Legal fees incurred by the bond obligee in a dispute with the bond principal or the surety would not be recoverable in the absence of a statute or contract term.[23] Performance bonds sometimes expressly require payment by the surety of legal fees incurred.[24] Some commonly used bond forms have an attorney’s fee provision.[25] However, there is no requirement of such a term.  Bond obligees would normally want to require an attorney’s’ fee provision in a bond, in order to recover those expenses in the event of default and insolvency of the bond principal.  Sureties and bond principals would normally want to avoid such a term.

Some states have statutes allowing an award of attorney’s fees for a surety’s “bad faith” in failing to investigate or pay a claim.[26]

An attorney’s fee provision in the bonded contract would allow recovery of attorney’s fees in litigation on against the bond principal.  If the bond principal remains solvent, this would allow the bond obligee to recover legal expenses. Such a construction contract term may also allow recovery of legal fees on the performance bond, depending again on the wording of the bond.[27] If the bond allows for recovery of all damages resulting from the principal’s breach of the construction contract, legal fees may be recoverable on the bond.  If the bond only allows for the cost of completion of the scope of work, however, legal fees may not be covered.  Some courts only allow recovery of legal fees from the surety if the bond states that the surety is liable for legal fees.[28] Again, bond obligees, sureties and bond principals should pay attention to the wording of the bonds they require or provide.

Interest

Under the federal Miller Act, an award of prejudgment interest by the surety after default on performance bond obligations is in the sound discretion of the trial court. However, the purpose of prejudgment interest is compensatory, not penal.[29] Under some state law, prejudgment interest is mandatory for liquidated amounts in some state Little Miller Act or private bond cases.[30] Interest is sometimes awarded based on the time of the obligee’s first demand or the time that the surety should have performed its obligations under the bond.[31]

Warranty Obligations

Depending on the wording of the performance bond form, the surety can be liable for warranty obligations lasting longer than what the statute of limitations on the bond would otherwise be.  If the bond states that the surety will be liable until the principal has faithfully performed all terms of the contract, which includes a five year warranty on a roof, then the surety may also bound for that five year period.[32]

Performance Bond Surety Rights and Duties

A potential performance bond claimant has two overriding concerns to make sure the surety will be obligated to pay damages.  A claimant must look at the bond itself to determine what will create an obligation to the surety.[33] Second, a potential claimant should avoid prejudicing the surety and make sure the surety has every opportunity to protect itself and minimize losses to the obligee (usually owner) and surety.

The bond may state that the surety is liable whenever the bond principal (contractor) is “in default.”  More often the surety has no obligation until the obligee has “declared the contractor in default.”  Sometimes, the surety has no obligation until the bond principal’s contract has been actually “terminated.”  Usually, the surety has no obligation under the bond if the obligee itself has breached the contract.  There is no substitute for referring to the bond regularly to make sure a claimant is following the correct procedure at each step.[34]

A surety normally has no liability until the Principal has defaulted on the contract.[35] The surety also has no obligation to act until the “conditions precedent” in the bond occur.  In fact, the surety must be careful to avoid interfering with its own principal and their contract.  Before a declaration of default, sureties face possible tort liability for meddling in the affairs of their principals, usually a claim of tortuous interference with contract.[36] After a declaration of default, the relationship changes dramatically, and the surety owes immediate duties to the obligee (usually owner).[37]

As discussed below, a bond will usually provide multiple options to a surety once there is an obligation to act, including financing the principal to continue work, providing a replacement contractor, or the surety taking over the project.[38]

Subrogation

When a principal defaults on a contract guaranteed by a performance or payment bond and the surety performs on the bond and contract, the doctrine of equitable subrogation allows the surety to enforce the rights of the principal against the obligee.  Equitable subrogation arises by operation of law. It is not based on contract or the privity of parties.[39] Most important, the surety is entitled to receive the balance of the contract owed by the obligee once the surety performs that contract.[40]

The surety’s subrogation right to the contract balance held by the obligee has priority over the claims of the contractor's general or judgment creditors and trustee in bankruptcy.[41] The subrogated bonding company has priority over other secured lenders of the bond principal, regardless of when the secured lender filed its UCC Financing Statement. Many cases state that there is no need for a surety to file a UCC Financing Statement.[42]

The surety cannot, however, assert any greater rights than the bond principal.  The surety has priority over the contract balance only to the extent it paid expenses in performing the contract.  For example, the surety cannot recover from the obligee the surety’s incidental expenses incurred enforcing its rights against the principal.[43]

Notice of Default

A contractor is usually entitled to notice of default before their contract can be terminated.  It is even more critical to give the performance bond principal and surety notice of contractor default, in order to preserve performance bond rights. If the contract is incorporated into the bond and requires notice a certain number of days before termination, the surety may be relieved of any obligation if the contractor is terminated early.[44]

It is impossible to send a surety too many notices, only too few notices or insufficiently clear notices.[45] Again, you must consult the bond itself to see exactly what type of notice or wording is required to invoke surety liability.  If the contract and the bond have no requirement of notice of default, courts have held that it is not necessary to provide notice of default.[46] Nonetheless, it is the best practice for bond obligees to keep sureties informed of all problems on the project and all corrective actions, no matter what the requirements of the bond.

A legally sufficient cure notice must inform the contractor and surety of the specific defaults, which the obligee regards as sufficiently material to future contract performance to warrant termination of the contract if the defaults are not cured.[47] A declaration of default sufficient to invoke the surety's obligations under the bond must be made in clear, direct, and unequivocal language.[48] Correspondence regarding problems on the project is insufficient to put the surety on notice of possible termination. It is also important to provide this notice of default early, while there is a greater possibility of avoiding damage and before the bond obligee takes steps and incurs costs in remedying the default.[49]

Some courts have held that a surety must show that it was prejudiced by the lack of notice.[50] This may be a minority view, however.  Most courts would say that proper notice is essential to surety liability if the bond wording clearly establishes notice as a condition precedent to surety liability.

Once the contractor and surety are put on notice of default in accordance with the contract and bond, the surety is in a difficult spot if the default is disputed.  The surety still needs to worry about interfering with the principal’s contract and business if there is any question that the principal is in default.  As a practical matter, the principal is the surety’s customer, the person that chose the surety and pays the bond premium.  This is an important business relationship.  On the other hand, the surety is also at risk of breaching its obligations to the obligee under the bond.


Surety Options on Performance Bond Default

Sureties and claimants must again review the bond form to determine the surety’s options once the principal is properly declared in default.[51] Generally, the surety may be able to 1)  finance the original bond principal to complete the project,  2)  “tender” a replacement contractor, acceptable to the obligee, that will complete the project under a contract with the obligee  3) “take over” the project and complete it under contracts between the surety and replacement contractors,  4) simply pay the bond obligee the penal amount of the bond, or  5) “do nothing” and let the obligee complete the project.[52] Each option (if each exists) has potential risks and advantages to the surety and obligee.

A surety is entitled to the unpaid contract balance from the obligee to complete the project.   The surety’s ultimate loss is usually a function of the amount of the unpaid contract balance held by the obligee compared to the costs of completion.  For this reason, it is a problem for the surety if the principal succeeded in negotiating a contract that is “front end loaded.”  A surety can also be released inadvertently if the bond obligee advances money early in order to keep the principal working.[53]

A surety’s first choice will usually be to help the bond principal complete the project.  Of course, a surety does not like to risk more money with a principal that is in trouble.  However, this will usually result in the lowest costs to the surety, as long as the principal is capable of completing the project.  This will be the fastest way to complete the contract, lowering the risk of delay damages.  The existing contractor is the most familiar with the project and is already mobilized.  The biggest issue is whether the principal is competent, honest and capable of completion and whether the obligee is willing to allow the principal to continue.

In order to tender a replacement contractor, the surety must investigate the status of work to be complete and prepare a complete bid package to send out to potential contractors.  One disadvantage is that this takes time on a project that is already delayed.  A replacement contractor can also be a problem with public owners that are bound by statute to use particular competitive bidding procedures.  A surety would typically require a performance bond from the new contractor.  The surety then offers the new contractor to the obligee, along with the new performance bond and payment for any price increase in exchange for a release from any further obligation on the original performance bond. Obligees often do not want to provide such a release and instead want to require the surety to take over the project using the same replacement contractor.

A “takeover agreement” with the surety will often save time, because the surety can often begin work on some portions of the project almost immediately, while perhaps seeking competitive bids for some later portions of the project.   This will also usually save money, since a replacement contractor on a troubled project is usually going to be at a high price, with large contingency factors.  The surety and obligee must negotiate a takeover agreement.  That usually involves issues of whether the surety’s costs will still be limited to the penal amount of the bond and whether the obligee will waive some or all of any delay claim.  In the absence of such an agreement, the surety could end up liable for costs of completion greater than the penal amount of the bond.[54]

A surety will usually have the option of “buying back the bond,” by simply paying the penal amount to the obligee.  This is certainly the quickest solution and allows the surety to move forward on its primary goal of selling more bonds on other projects.  However, a surety will usually hope to pay less than the full penal amount of a project.   Accordingly, this is a good option only if it is clear that the obligee’s damages will be the full penal amount and the surety gets the agreement of the bond principal and indemnitors.  Of course, it is always possible to negotiate a lesser amount with the obligee for a full release, but an obligee will do this only if they are comfortable about the risks and costs of completion.

Some performance bonds give the surety the option of doing nothing, letting the obligee complete the project and then pay the obligee’s damages.  One problem with this approach is that the surety has no control over costs (or the scope of work).  Sureties sometimes do nothing, whether the bond requires affirmative action or not.  This can result in a bad faith type of claim in itself,[55] although a surety is generally entitled to accept their principal contractor’s position and deny liability.[56]

Performance Bond Surety Defenses

The surety has all the defenses that their bond principal has in defending a claim from an obligee.[57] However, a surety stands in the place of its principal and may raise only defenses available to the principal on the contract,[58] although a surety would still have “personal defenses” based on the surety bond.

Lack Default or Wrongful Termination

If the bond principal was not in default of the contract, or the default was not material, then neither the principal nor the surety is liable.[59]

If the bond principal was wrongfully terminated, then the obligee would not be entitled to damages from the bond principal or the surety.[60] In other words, even if the bond principal was in material default, the surety may be released if the obligee did not follow the proper termination procedure. In fact the surety can recover costs the surety expended to complete the project after a wrongful termination.[61]

Lack of Notice of Default

As discussed in greater detail above in Performance Bond Surety Rights & Obligations, Notice of Default, the surety may have a defense to liability if the obligee failed to give the surety notice of default or termination in accordance with the terms of the bond, at least to the extent the surety was prejudiced by that lack of notice.

Material Alteration of Contract

If the creditor and principal modify the contract, imposing a greater risk of loss on a surety, the surety can be released at least to the extent the surety is prejudiced.[62] The burden is on the surety to show a material alteration of the obligation.[63]

Courts do differ on whether that surety must show that it was prejudiced by the modifications of the contract.  Some courts hold that the payment of substantial sums before they are due, or failure to retain the required percentage, are variations in the terms of the contract that will discharge the surety from its obligations without any showing of prejudice to the surety.[64] The surety does not even need to show prejudice from the action, because the material deviation, in itself, establishes sufficient prejudice.[65]

It seems that the more modern majority view is that the surety must show prejudice by the contract modifications, and the surety’s obligation will then be discharged only to the extent of that prejudice.[66]

Many performance bond forms state that the surety will be bound by any modification without notice.  This will make it more difficult for the surety to obtain  a release based on a material alteration.  A surety may consent to material modifications in the bond contract that will affect his obligations. Further, a surety may waive notice of material modifications with specific language in the surety agreement.[67] There is no question, however, that the best practice for any bond obligee is to involve the surety in any modification of the contract and obtain the surety’s consent.[68]

Impairment of Collateral & Early Contract Payments

The obligee can lose the right to demand coverage if he impairs any collateral to which the surety could look for reimbursement. [69] This can include early contract payments to the bond principal, since the surety has subrogation (security) rights in the unpaid contract balance.[70] Most courts rule that the surety must show prejudice by the early payments[71] and the surety’s obligation will then be discharged only to the extent of that prejudice.  If the bond principal uses early payments to complete the project, for example, the surety is not prejudiced by these payments.[72]

Release of Security or Right of Subrogation

If a creditor holding collateral security surrenders it to the debtor, without the knowledge or consent of the surety, the surety is discharged, at least to the extent of the value of the property surrendered.[73] Likewise, a creditor's interference with a surety's right to subrogation may act to discharge the surety's liability.[74]

Release of Principal

Release of the debtor by the creditor, without the consent of the surety, can release the debtor's surety.[75] In other words, an owner could not come to a settlement agreement with a contractor and then pursue the surety for additional costs of completion.

Damages

Any type of bond can be a “penal” bond or an “indemnifying” or a “performance” bond.  A penal bond would be payable to the obligee on breach of the underlying contract, as a punishment.  In other words, the obligee has no need to prove damages.  Most performance bonds are indemnifying bonds, providing a guarantee of completion of the contract.[76]

The obligee’s recoverable damages are the reasonable costs of completing the contract, not to exceed the penal amount of the bond.[77] If the completion contract materially deviates from the original contract, the increased completion cost is not recoverable.  However, the cost difference remains applicable if the variations are immaterial and have not affected the contract price.[78]

Depending on the wording of the bond and the contract, the obligee can recover even special damages and other amounts recoverable under the contract.[79]

The obligee must prove that the damages were from the breach of the bonded contract.[80] It is not necessary that the obligee has actually completed the work and incurred the expenses, as long as the obligee can prove what the costs will be.

Enforcement of Performance Bond Claims

Bond claims are enforced by filing suit against the surety in the proper court. Federal Miller Act suits must be brought in the U.S. District Court for the district where the project is located.[81] Various state laws dictate the proper court for filing any Little Miller Act or private payment lawsuits.

Time Limits for Enforcement of Performance Bond Claims- Statute of Limitations

There is some uncertainty or inconsistency on the time limit (statute of limitations) to file suit to enforce performance bond rights, depending on a variety of factors.  Some states have an explicit time limit in their public procurement act for a governmental body to file suit on a performance bond.  However, it is still a question whether the government could agree to waive this time limit by accepting a bond form with a shorter time limit.

Some states have general statutes of limitations to file a suit on a bond, but it is not clear whether this time limit would also apply to governmental bodies.  There is also a common law rule that no statute of limitations applies to the King (the government).[82] Depending on the jurisdiction, this may or may not impact time limits agreed in bond contracts.

The federal Miller Act does not create a time limit for the U.S. government to enforce its performance bond rights.  Federal law also has the general common law rule that no statute of limitations applies to the government.[83] It is not clear, however, whether the federal government waives this general rule by accepting a bond with a stated time limit to file suit.

The Virginia Public Procurement Code has an explicit time limit (statute of limitations) for a governmental body to file suit on a performance bond.[84] It is possible that a surety could agree in the actual bond contract to a longer time limit to file suit,[85] although it is possible that a court would find this an impermissible violation of the statute.[86] On a private project in Virginia, the general statute of limitations of five (5) years on any written contract would apply,[87] unless the bond contract called for a shorter time limit.  A one year time limit for enforcement written in a private bond is valid in Virginia.[88]

Maryland has a twelve year general statute of limitations for enforcement of performance bond rights that seems to apply to both public and private projects.[89] It seems that even an attempt by the government to enforce rights after these time limits should fail.  However, it also seems that any shorter time limit written into a bond contract is void as a matter of public policy.[90] A Maryland public or private owner will always have twelve years to enforce its rights on a performance bond.

Pennsylvania also has a general statute of limitations for enforcement of performance bond rights.[91] On its face, this statute would apply to both public and private projects.  However, Pennsylvania also recognizes the common law that no statute of limitation applies to the government (time does not run on the King).  There is no time limit on the government, unless it is an agreed limit in the bond form.  A time limit in the performance bond contract accepted would be enforceable against the government in Pennsylvania.  The government can waive its unlimited time to enforce performance bond rights by accepting a bond that has a time limit for enforcement of rights[92]

The District of Columbia applies the common law that no statute of limitation applies to the government in the performance of public functions.[93]

Parties and Claims in Performance Bond Enforcement Suit

The obligee must sue the surety within any time limit to preserve bond rights. The claimant may also name additional defendants and bring other claims in the same suit.[94]

The obligee will usually have a contract with the bond principal for the supply of labor or materials. The claimant can name the principal as a party to the lawsuit and seek to enforce contract rights.

In addition to the surety, the bond principal signs the bond and also has obligations under the bond, if the contract is breached. This bond is another type of contract signed for the benefit of the obligee. A obligee can sue both the surety and the bond principal on this (bond) contract.

An obligee does not have to enforce all of these rights but has the option to pick and chose which to enforce. This can be important in the case of bankruptcy. If the contract principal has filed for bankruptcy, the “automatic stay” prevents anyone from filing suit against this debtor. An obligee can elect, however, to refrain from suing the bankrupt debtor and go against just the surety.

Assignment of Performance Bond Rights

The general rule is that a governmental body can assign its rights under a bond for the purpose of obtaining the contract performance guaranteed by the bond and upon showing that the improvements have been made.[95] In other words, the government can assign the right to payment from the surety as a financing tool to get the contract improvements complete.  A guarantor on the contract, for example, may be motivated to get the contract complete and can then collect the costs from the surety.

Surety Rights and Defenses on Both Performance and Payment Bonds


Duty to Investigate

Any surety should and usually will promptly investigate any claims made on a bond.[96] The surety has no duty to create plaintiffs' claims, but rather to corroborate the accuracy of properly documented claims.  If the claimant fails to submit substantiated claims, the surety has no further duty to investigate.[97] Once a surety confirms that a genuine dispute over liability exists, the surety has no further duty to investigate the claim on the bond.  The surety has every right to await the outcome of the liability dispute before paying on the performance bond.[98]

Duty to Settle Claims in Good Faith

A surety has to be concerned about paying claims prematurely or without adequate basis.[99] However, many indemnity agreements, signed by the principal for the benefit of the surety, grant the right to settle claims or require additional security if the principal wishes to litigate claims.  The surety has much greater leeway to settle claims with such contract terms.[100]

A surety also has to be concerned about delaying payment on legitimate claims, which can also constitute bad faith.[101]

Execution, Delivery and Acceptance of Bond

It is hornbook law that a payment or performance bond must be executed, delivered[102] to the obligee and accepted by the obligee in order to be enforceable.[103] Courts have developed a number of elastic interpretations of these requirements, however, when the facts of the case require some flexibility.

It seems fairly certain that an enforceable payment or performance bond must be executed by the surety.  The more common issue is when the bond has not been signed by the principal.  Bonds usually state on their face that the surety and principal “jointly and severally” agree, meaning they are liable together and separately.  Accordingly, at least the surety is still liable on the bond if only the surety signed it.  In any event, failure of a principal to sign a bond does not invalidate the bond.[104] A principal that never signed the bond can still be liable on the bond, however, if the principal signed a related document.  The bonded contract, for example, usually states that the bond principal will supply the payment and performance bonds.  If the principal signed this contract, this may be enough to create principal liability on the bond in addition to liability on the contract.[105]

Similarly, delivery of the bond to the principal is normally sufficient to bind the surety to the bond.  In other words, delivery to the bond obligee is not necessarily required.   A bond is considered delivered once it has passed beyond the dominion, control and authority of the surety and is no longer subject to recall.[106] The bond principal may act as the surety's agent for such purpose.[107] Courts sometimes also state that the bond is an enforceable contract once the parties agree to supply the bond, whether the document is ever delivered.[108]

Acceptance of the bond presents the least difficulty.  Acceptance is presumed if the bond is retained.[109] Physical possession of a bond may not be necessary for acceptance. The obligee's acceptance of delivery is presumed if beneficial to the obligee. [110] However, there is no acceptance if the obligee expressly rejects the bond because it is in an improper form.[111]

Fraud by Obligee

A surety can obtain a release of liability if the obligee committed some type of fraud or concealment of material facts, resulting in issuance of the bond.  An obligee cannot actively and fraudulently conceal pertinent facts from a surety during negotiations and then turn to the surety for reimbursement of damages.[112] The most common material facts involve the financial strength of the principal[113] or current default on a contract.[114]

In general, an obligee does not have to disclose unrequested information to a surety.  A surety has a duty to seek out important information that is available to it.  The surety cannot neglect to ask questions and then avoid liability by accusing the obligee of failing to disclose information that it was not required to disclose under the surety contract.[115] However if there is a request for information, there is a duty to disclose known facts.  There may also be a duty to inform if the obligee is aware that the surety is mistaken as to material facts.[116]

Penal Amount

A performance or payment bond has a penal amount, which is usually the amount of the bonded contract, but could be less.  A surety cannot usually be liable for more than the penal amount of the bond, even if the obligee or  claimant has suffered damage in excess of that penal amount.[117] Some courts have allowed recovery for more than the penal amount, when the surety has acted in bad faith in failing or refusing to fulfill its obligations under a performance bond.[118] In other words, the surety breached its bond contract, in addition to the principal breaching the underlying contract.[120] In addition, if the surety and principal agree to a “takeover agreement” by the surety after default on a performance bond, the surety could end up liable for costs of completion greater than the penal amount.[120]

 

 


[1] State Highway Admin. v. Transamerica Ins. Co., 278 Md. 690, 367 A.2d 509 (1976); Mayor of Baltimore v. Fidelity & Deposit Co., 282 Md. 431, 386 A.2d 749 (1978).

[2] 40 U.S.C.A. §3131(b).

[3] 40 U.S.C.A. §3131 states that bonds are required for contracts over $100,000, but 48 CFR §28.102-2(b) apparently raises the threshold to $150,000.

[4] 48 CFR §53.228 (b).

[5]United States Plywood Corp. v. Continental Casualty Co., 157 A.2d 286 (D.C. Ct. App. 1960); Bd. of Trs. v. Int'l Fid. Ins. Co., 2014 U.S. Dist. LEXIS 149342, 8-9 (E.D. Pa. Oct. 21, 2014); L & A Contracting Co. v. Southern Concrete Servs., 17 F.3d 106, 109 (5th Cir. Miss. 1994).

[6]Siegfried Constr., Inc. v. Gulf Ins. Co., 2000 U.S. App. LEXIS 1304, 9-10 (4th Cir. Va. 2000)[The court's task is to enforce contracts as written, not to unilaterally alter the parties' obligations], citing D.C. McClain, Inc. v. Arlington County, 249 Va. 131, 452 S.E.2d 659, 662 (Va. 1995).

[7]Siegfried Constr., Inc. v. Gulf Ins. Co., 2000 U.S. App. LEXIS 1304, 11 (4th Cir. Va. 2000), citingNew Amsterdam Cas. Co. v. Moretrench Corp., 184 Va. 318, 35 S.E.2d 74, 77 (1945), Carnell Constr. Corp. v. Danville Redevelopment & Hous. Auth., 2012 U.S. Dist. LEXIS 86283, 14-16 (W.D. Va. 2012).

[8] Sun Insurance Co. of New York v. Diversified Engineers, Inc., 240 F.Supp. 606, 611 (D.Mont. 1965).

[9]See e.g.Phoenix Ins. Co. v. Lester Bros., Inc., 203 Va. 802, 127 S.E.2d 432 (1962).

[10] However, a bond obligee does have the right to seek payment from a performance bond surety if a bond principal fails to pay subcontractors and suppliers. Mai Steel Service, Inc. v. Blake Constr. Co., 981 F.2d 414, 421 (9th Cir. Cal. 1992). A bond principal does not perform its contractual obligations for purposes of a performance bond until it pays for all the labor and materials used in completing its work. A failure to pay a supplier constitutes a breach of the contract. Glens Falls Indem. Co. v. United States ex rel. Westinghouse Elec. Supply Co., 229 F.2d 370, 375 (9th Cir. 1955).

[11]Ranger Constr. Co. v. Prince William County School Board, 605 F.2d 1298 (4th Cir. Va. 1979); Dale Benz, Inc. Contractors v. American Casualty Co., 303 F.2d 80 (9th Cir. Ariz. 1962).

[12]Turner Constr. Co. v. First Indem. of Am. Ins. Co., 829 F. Supp. 752, 759 (E.D. Pa. 1993), aff’d 22 F.3d 303 (3rd Cir. 1994).

[13]N. Am. Specialty Ins. Co. v. Chichester Sch. Dist., 158 F. Supp. 2d 468, 473 (E.D. Pa. 2001).

[14]Downingtown Area Sch. Dist. v. International Fid. Ins. Co., 769 A.2d 560, 565-566 (Pa. Commw. Ct. 2001).

[15] Downingtown Area Sch. Dist. v. International Fid. Ins. Co., 769 A.2d 560, 565-566 (Pa. Commw. Ct. 2001); N. Am. Specialty Ins. Co. v. Chichester Sch. Dist., 158 F. Supp. 2d 468, 473 (E.D. Pa. 2001)[delay damages identified in the bond].

[16]Southern Roofing & Petroleum Co. v. Aetna Ins. Co., 293 F. Supp. 725, 731-32 (E.D. Tenn. 1968).

[17]Ranger Constr. Co. v. Prince William County School Board, 605 F.2d 1298, 1306-07 (4th Cir. Va. 1979).

[18]Continental Realty Corp. v. Andrew J. Crevolin Co., 380 F. Supp. 246, 257 (S.D. W. Va. 1974).

[19]Ranger Constr. Co. v. Prince William County School Board, 605 F.2d 1298, 1301 (4th Cir. Va. 1979).

[20]Ranger Constr. Co. v. Prince William County School Board, 605 F.2d 1298, 1301-04 (4th Cir. Va. 1979).

[21]Ranger Constr. Co. v. Prince William County School Board, 605 F.2d 1298, 1305 (4th Cir. Va. 1979); Turner Constr. Co. v. First Indem. of Am. Ins. Co., 829 F. Supp. 752, 765 (E.D. Pa. 1993), aff’d 22 F.3d 303 (3rd Cir. 1994).

[22]Ranger Constr. Co. v. Prince William County School Board, 605 F.2d 1298, 1301-05 (4th Cir. Va. 1979).

[23]Turner Constr. Co. v. First Indem. of Am. Ins. Co., 829 F. Supp. 752, 765 (E.D. Pa. 1993), aff’d 22 F.3d 303 (3rd Cir. 1994).

[24]Ranger Constr. Co. v. Prince William County School Board, 605 F.2d 1298, 1303 (4th Cir. Va. 1979).

[25]See e.g. AIA Document A312.

[26] 42 Pa.C.S. § 8371; Turner Constr. Co. v. First Indem. of Am. Ins. Co., 829 F. Supp. 752, 763 (E.D. Pa. 1993), aff’d 22 F.3d 303 (3rd Cir. 1994).

[27]Dale Benz, Inc. Contractors v. American Casualty Co., 303 F.2d 80, 85 (9th Cir. Ariz. 1962).

[28]N. Am. Specialty Ins. Co. v. Chichester Sch. Dist., 158 F. Supp. 2d 468, 473 (E.D. Pa. 2001).

[29]United States v. Seaboard Surety Co., 817 F.2d 956, 965-966 (2d Cir. N.Y. 1987)[interest cannot be assessed prior to the date the government began paying to complete the project], citingRodgers v. United States, 332 U.S. 371, 373, 92 L. Ed. 3, 68 S. Ct. 5 (1947).

[30]Turner Constr. Co. v. First Indem. of Am. Ins. Co., 829 F. Supp. 752, 762 (E.D. Pa. 1993), aff’d 22 F.3d 303 (3rd Cir. 1994)[the Pennsylvania Supreme Court directs that in all cases of contract interest is allowable at the legal rate from the time payment is withheld after it has become the duty of the debtor to make the payment.  Allowance of interest does not depend upon discretion but is a legal right; citing Palmgreen v. Palmer's Garage, Inc., 383 Pa. 105, 108, 117 A.2d 721, 722 (1955); D.C. Code § 15-108.

[31]London & Lancashire Indem. Co. v. Smoot, 287 F. 952, 956-957 (D.C. Cir. 1923); New Amsterdam Casualty Co. v. United States Shipping Board Emergency Fleet Co., 16 F.2d 847, 852 (4th Cir. Md. 1927).

[32]Turner Constr., Inc. v. American States Ins. Co., 579 A.2d 915, 919 (Pa. Super. Ct. 1990);  Milwaukee Bd. of Sch. Dirs. v. BITEC, Inc., 2009 WI App 155 (Wis. Ct. App. 2009).

[33]United States Plywood Corp. v. Continental Casualty Co., 157 A.2d 286 (D.C. Ct. App. 1960)[payment bond].

[34] For example, under an AIA Document A312-2010 (Performance Bond), Section 3 (paraphrased), the surety has no obligation to act until:

  1. The Owner first provides notice to the Contractor and Surety that the Owner is considering declaring Contractor in default, and
  2. The Owner then declares a Contractor default AND terminates the Contract AND notifies the Surety, and
  3. The Owner agrees to pay the balance of the Contract price to the Surety, and
  4. There is no Owner default under the Contract.

 

[35]Granite Computer Leasing Corp. v. Travelers Indem. Co., 894 F.2d 547, 551 (2d Cir. N.Y. 1990).

[36]See e.g. Gerstner Electric, Inc. v. American Ins. Co., 520 F.2d 790 (8th Cir. Mo. 1975).

[37]Zoby v. United States, 364 F.2d 216, 219 (4th Cir. Va. 1966), citingPhoenix Ins. Co. v. Lester Bros., Inc., 203 Va. 802, 127 S.E. 2d 432 (1962); L & A Contracting Co. v. Southern Concrete Servs., 17 F.3d 106, 111 (5th Cir. Miss. 1994).

[38]Granite Computer Leasing Corp. v. Travelers Indem. Co., 894 F.2d 547, 551 (2d Cir. N.Y. 1990).

[39]XL Specialty Ins. Co. v. DOT, 269 Va. 362, 370, 611 S.E.2d 356,370 (2005).

[40]Pearlman v. Reliance Insurance Co., 371 U.S. 132, 136, 9 L. Ed. 2d 190, 83 S. Ct. 232 (1962); Finance Co. of America v. United States Fidelity & Guaranty Co., 277 Md. 177, 182-184, 353 A.2d  249, 252-53 (Md. Ct. Spec. App. 1976).

[41]Western Casualty & Surety Co. v. Brooks, 362 F.2d 486, 490 (4th Cir. W. Va. 1966); International Fidelity Ins. Co. v. Ashland Lumber Co., 250 Va. 507, 511-512, 463 S.E.2d 664, 666-67 (1995); Fid. & Deposit Co. v. Royal Bank, 2003 U.S. Dist. LEXIS 7687, 6-8 (E.D. Pa. 2003).

[42]Finance Co. of America v. United States Fidelity & Guaranty Co., 277 Md. 177, 182-184, 353 A.2d  249, 252-53 (Md. Ct. Spec. App. 1976); Fid. & Deposit Co. v. Royal Bank, 2003 U.S. Dist. LEXIS 7687, 6-8 (E.D. Pa. 2003).

[43]Western Casualty & Surety Co. v. Brooks, 362 F.2d 486, 491 (4th Cir. W. Va. 1966).

[44]Dragon Constr. v. Parkway Bank & Trust, 287 Ill. App. 3d 29, 33 (Ill. App. Ct. 1st Dist. 1997)[An obvious reason for this requirement was to allow the surety to exercise its right under the performance bond to participate in the selection of a successor contractor. Since the obligee replaced the contractor before informing the surety that the contractor was to be terminated, the surety was stripped of its contractual right to minimize its liability under the performance bond by ensuring that the lowest responsible bidder was selected to complete the job].

[45]Stonington Water St. Assoc., LLC v. Hodess Bldg. Co., 792 F. Supp. 2d 253, 266-267 (D. Conn. 2011); Balfour Beatty Constr. v. Colonial Ornamental Iron Works, 986 F. Supp. 82 (D. Conn. 1997)[Performance bond requirements for notice of default and demand that surety step in and perform under the bond must be met before an obligee can recover damages under the performance bond].

[46]American Surety Co. v. United States, 317 F.2d 652, 656 (8th Cir. Mo. 1963), citingNew Amsterdam Casualty Co. v. United States Shipping Board Emergency Fleet Co., 16 F.2d 847, 851-852 (4th Cir. Md. 1927).

[47]Clark Constr. Group Inc. v. Allglass Sys., 2004 U.S. Dist. LEXIS 15459, 26-27 (D. Md. Aug. 6, 2004), citing 5 Bruner & O'Connor, Construction Law § 12:41 (2004).

[48]L & A Contracting Co. v. Southern Concrete Servs., 17 F.3d 106, 111 (5th Cir. Miss. 1994).

[49]Hunt Constr. Group, Inc. v. Nat'l Wrecking Corp., 587 F.3d 1119 (D.C. Cir. 2009).

[50]New Amsterdam Casualty Co. v. United States Shipping Board Emergency Fleet Co., 16 F.2d 847, 851-852 (4th Cir. Md. 1927); Conesco Industries, Ltd. v. Conforti & Eisele, Inc., D. C., 627 F.2d 312, 317 (D.C. Cir. 1980); Blackhawk Heating & Plumbing Co. v. Seaboard Surety Co., 534 F. Supp. 309, 316-18 (N.D. Ill. 1982).  The bond form may also require a showing of prejudice.  For example, AIA Document A312-2010 (Performance Bond), Section 4 states:

§ 4 Failure on the part of the Owner to comply with the notice requirement in Section 3.1 shall not constitute a failure

to comply with a condition precedent to the Surety's obligations, or release the Surety from its obligations, except to

the extent the Surety demonstrates actual prejudice.

[51] For example, AIA Document A312-2010 (Performance Bond), Section 5 states:

§ 5 When the Owner has satisfied the conditions of [Notice of Default and Termination], the Surety shall promptly and at the Surety's expense take one of the following actions:

 

§5.1 Arrange for the Contractor, with the consent of the Owner, to perform and complete the Construction Contract;

 

§5.2 Undertake to perform and complete the Construction Contract itself, through its agents or independent

contractors;

 

§ 5.3 Obtain bids or negotiated proposals from qualified contractors acceptable to the Owner for a contract for

performance and completion of the Construction Contract, arrange for a contract to be prepared for execution by the

Owner and a contractor selected with the Owner's concurrence, to be secured with performance and payment bonds

executed by a qualified surety equivalent to the bonds issued on the Construction Contract, and pay to the Owner the

amount of damages as described in Section 7 in excess of the Balance of the Contract Price incurred by the Owner as

a result of the Contractor Default; or

 

§ 5.4 Waive its right to perform and complete, arrange for completion, or obtain a new contractor and with reasonable

promptness under the circumstances:

.1 After investigation, determine the amount for which it may be liable to the Owner and, as soon as

practicable after the amount is determined, make payment to the Owner; or

.2 Deny liability in whole or in part and notify the Owner, citing the reasons for denial.

 

[52]United States v. Seaboard Surety Co., 817 F.2d 956, 950-66 (2d Cir. N.Y. 1987).

[53]Southwood Builders, Inc. v. Peerless Ins. Co., 235 Va. 164, 170-71, 366 S.E.2d 104, 107-08 (1988).

[54]Mid-State Sur. Corp. v. E. Bethlehem Twp. Mun. Auth., 2005 U.S. Dist. LEXIS 15447, 50-51 (W.D. Pa. 2005); International Fid. Ins. Co. v. County of Rockland, 98 F. Supp. 2d 400, 428 (S.D.N.Y. 2000).

[55]Continental Realty Corp. v. Andrew J. Crevolin Co., 380 F. Supp. 246 (S.D. W. Va. 1974)[surety liability in excess of the penal amount of the bond, where failure to recognize breach of principal and surety obligation under the bond were tantamount to bad faith]; but seeUnited States v. Seaboard Surety Co., 817 F.2d 956, 966 (2d Cir. N.Y. 1987)[award in Continental Realty in excess of penal amount because General Insurance had disregarded a court injunction].

[56]United States v. Seaboard Surety Co., 817 F.2d 956, 950-66 (2d Cir. N.Y. 1987)[A surety may, of course, also challenge the propriety of the default termination, thereby, in effect, denying liability on the bond].

[57]Board of Supervisors v. Southern Cross Coal Corp., 238 Va. 91, 96, 380 S.E.2d 636, 639 (1989); Board of Supervisors v. Safeco Ins. Co., 226 Va. 329, 337-38, 310 S.E.2d 445, 450 (1983).

[58]Board of Supervisors v. Southern Cross Coal Corp., 238 Va. 91, 96, 380 S.E.2d 636, 639 (1989); Board of Supervisors v. Safeco Ins. Co., 226 Va. 329, 337-38, 310 S.E.2d 445, 450 (1983).

[59]Fox Lake v. Aetna Casualty & Surety Co., 178 Ill. App. 3d 887, 534 N.E.2d 133 (Ill. App. Ct. 2d Dist. 1989).

[60]Bell BCI Co. v. HRGM Corp., 2004 U.S. Dist. LEXIS 15305 (D. Md. Aug. 6, 2004); William Green Constr. Co. v. United States, 201 Ct. Cl. 616, 629 (Ct. Cl. 1973).

[61]Carchia v. United States, 202 Ct. Cl. 723, 485 F.2d 622 (Ct. Cl. 1973).

[62]XL Specialty Ins. Co. v. DOT, 269 Va. 362, 370, 611 S.E.2d 356, 370 (2005); Chas. H. Tompkins Co. v. Lumbermens Mut. Casualty Co., 732 F. Supp. 1368, 1377 (E.D. Va. 1990)[In Virginia, a compensated surety will be excused from its obligation if the other parties materially alter the underlying risk without its consent]; Board of Supervisors v. Southern Cross Coal Corp., 238 Va. 91, 94, 380 S.E.2d 636, 638 (1989)[stating that the rule is otherwise for an accommodation (unpaid volunteer) surety, who would historically be discharged from any obligation if there is any change in the obligation]; Travelers Indem. Co. v. Ballantine, 436 F. Supp. 2d 707, 712 (M.D. Pa. 2006).

[63]Board of Supervisors v. Southern Cross Coal Corp., 238 Va. 91, 95, 380 S.E.2d 636, 639 (1989)[whether an alleged material variation occurs before or after the principal's default, a compensated surety has the burden of showing it by a preponderance of the evidence].

[64]Southwood Builders, Inc. v. Peerless Ins. Co., 235 Va. 164, 170-71, 366 S.E.2d 104, 107-08 (1988).

[65]Southwood Builders, Inc. v. Peerless Ins. Co., 235 Va. 164, 170-71, 366 S.E.2d 104, 108 (1988), citing A. Stearns, The Law of Suretyship § 6.3 (5th ed. 1951); Continental Ins. Co. v. City of Virginia Beach, 908 F. Supp. 341, 347-348 (E.D. Va. 1995).

[66]Mergentime Corp. v. Washington Metro. Area Transit Auth., 775 F. Supp. 14, 20-21 (D.D.C. 1991)[If the principal and creditor modify their contract, without the surety's consent, the compensated surety is discharged if the modification materially increases his risk, and not discharged if the risk is not materially increased, but his obligation is reduced to the extent of loss due to the modification]; Pennsylvania R. Co. v. Fidelity & Deposit Co., 81 F.2d 526, 529 (3d Cir. 1935); North Am. Specialty Ins. Co. v. Chichester Sch. Dist., 2000 U.S. Dist. LEXIS 10745, 39-40 (E.D. Pa. July 20, 2000).

[67]Travelers Indem. Co. v. Ballantine, 436 F. Supp. 2d 707, 712 (M.D. Pa. 2006).

[68]See e.g.Mergentime Corp. v. Washington Metro. Area Transit Auth., 775 F. Supp. 14, 20-21 (D.D.C. 1991).

[69]St. Paul Fire & Marine Ins. Co. v. Commodity Credit Corp., 646 F.2d 1064, 1073 (5th Cir. Tex. 1981), citingUnited States v. Continental Casualty Co., 512 F.2d 475, 478 (5th Cir. 1975).

[70]Southwood Builders, Inc. v. Peerless Ins. Co., 235 Va. 164, 170-71, 366 S.E.2d 104, 107-08 (1988).

[71]Pickens County v. National Surety Co., 13 F.2d 758, 762 (4th Cir. S.C. 1926).

[72]Ramada Development Co. v. United States Fidelity & Guaranty Co., 626 F.2d 517, 522 (6th Cir. Mich. 1980); Transamerica Ins. Co. v. Kennewick, 785 F.2d 660 (9th Cir. Wash. 1986).

[73]First Am. Title Ins. Co. v. First Alliance Title, Inc., 718 F. Supp. 2d 669, 682 (E.D. Va. 2010), citing Morton v. Dillon, 90 Va. 592, 19 S.E. 654, 655 (Va. 1894); see also Phoenix Ins. Co. v. Lester Bros., Inc., 203 Va. 802, 808, 127 S.E.2d 432 (1962).

[74]First Am. Title Ins. Co. v. First Alliance Title, Inc., 718 F. Supp. 2d 669, 682 (E.D. Va. 2010), citing Francisco's Adm'r v. Shelton's Ex'r, 85 Va. 779, 8 S.E. 789, 795 (1889).

[75]Food Lion v. S.L. Nusbaum, 202 F.3d 223, 226 (4th Cir. 2000).

[76] But seeBoard of Supervisors v. Safeco Ins. Co., 226 Va. 329, 336, 310 S.E.2d 445, 448-49 (1983)[It is unnecessary for an obligee to prove a financial loss as a prerequisite to recovery, since a performance bond is intended to guarantee completion of the improvements it covers and the obligee need not incur any expense before collecting on the bond].  Safeco is criticized in a dissent as incorrectly interpreting an indemnifying bond as a penal bond.

[77]Board of Supervisors v. Ecology One, Inc., 219 Va. 29, 36-37, 245 S.E.2d 425, 429-30 (1978); but seeBoard of Supervisors v. Safeco Ins. Co., 226 Va. 329, 336, 310 S.E.2d 445, 448-49 (1983.  Safeco is criticized in a dissenting opinion and seems inconsistent with Ecology One.

[78]American Surety Co. v. United States, 317 F.2d 652, 657 (8th Cir. Mo. 1963).

[79]Continental Realty Corp. v. Andrew J. Crevolin Co., 380 F. Supp. 246, 253 (S.D. W. Va. 1974); Miracle Mile Shopping Center v. National Union Indem. Co., 299 F.2d 780, 783 (7th Cir. Ind. 1962).

[80]Board of County Supervisors v. Sie-Gray Developers, Inc., 230 Va. 24, 30, 334 S.E.2d 542, 546-47 (1985); but seeBoard of Supervisors v. Safeco Ins. Co., 226 Va. 329, 335, 310 S.E.2d 445, 449 (1983).

[81] 40 U.S.C.A. §3133(b)(3)(B).

[82] Nullum tempus occurrit regi or nullem tempus occurrit republicae; Wilson Area Sch. Dist. v. Skepton, 71 Pa. D. & C.4th 142, 151-52,  2005 Pa. Dist. & Cnty. Dec. LEXIS 174 (Pa. County Ct. 2005); MCI Constructors v. Greensboro, 125 F. App'x 471, 478-79 (4th Cir. 2005).

[83]Guaranty Trust Co. v. United States, 304 U.S. 126, 132-133, 58 S. Ct. 785; 82 L. Ed. 1224 (U.S. 1938).

[84] Va. Code Ann. § 2.2-4340[within five years on any VDOT project and within one year on all other Virginia public projects after (i) completion of the contract, including the expiration of all warranties and guarantees, or (ii) discovery of the defect or breach of warranty that gave rise to the action], which should be applicable only to Virginia Little Miller Act Public  bonds.

[85]Reliance Ins. Co. v. Trane Co., 212 Va. 394, 184 S.E.2d 817 (1971).

[86]APAC-Atlantic, Inc. v. General Ins. Co., 273 Va. 682; 643 S.E.2d 483 (2007); Hughes & Co. v. Robinson Corp., 211 Va. 4, 175 S.E.2d 413 (1970).

[87] Va. Code Ann. § 8.01-246(2).

[88]In re 1616 Reminc Ltd. Partnership, 9 B.R. 679, 682 (Bankr. E.D. Va. 1981) citing 3A Michie's Jur., Building Contracts, § 22 (1976 Replacement).

[89] Maryland Courts and Judicial Proceedings Code Section 5-102[An action on one of the following specialties shall be filed within 12 years after the cause of action accrues: (2) Bond except a public officer's bond].

[90] Md. Insurance Code Ann. §12-104; Hagerstown Elderly Assocs. L.P. v. Hagerstown Elderly Bldg. Assocs. L.P., 368 Md. 351, 356-63, 793 A.2d 579, 582-86 (2002).

[91] 42 Pa.C.S. §5523[The following actions and proceedings must be commenced within one year: (3) An action upon any payment or performance bond], both of which would appear to apply to both public and private bonds].

[92] Nullum tempus occurrit regi or nullem tempus occurrit republicae; Wilson Area Sch. Dist. v. Skepton, 71 Pa. D. & C.4th 142, 151-52,  2005 Pa. Dist. & Cnty. Dec. LEXIS 174 (Pa. County Ct. 2005).

[93]District of Columbia v. Owens-Corning Fiberglas Corp., 572 A.2d 394, 403-404 (D.C. 1989).

[94]Board of County Comm'rs v. Cam Constr. Co., 300 Md. 643, 651, 480 A.2d 795, 800 (1984)[Little Miller Act Rights nonexclusive].

[95]Board of County Supervisors v. Sie-Gray Developers, Inc., 230 Va. 24, 30, 334 S.E.2d 542, 546 (1985); Board of Supervisors v. Ecology One, Inc., 219 Va. 29, 33, 245 S.E.2d 425, 428 (1978), citingClearwater Associates v. F. H. Bridge & Son, Contractors, 144 N.J. Super. 223, 229, 365 A.2d 200, 204 (1976); County of Will v. Woodhill Enterprises, Inc., 4 Ill. App. 3d 68, 74, 75, 274 N.E.2d 476, 481-82 (1971).

[96]See e.g. Va. Code Anno. §38.2-510; 40 P.S. §1171.5(a).

[97]Farmer's Union Cent. Exchange, Inc. v. Reliance Ins. Co., 675 F. Supp. 1534, 1542 (D.N.D. 1987).

[98]Brinderson-Newberg Joint Venture v. Pac. Erectors, Inc., 971 F.2d 272, 283 (9th Cir. Cal. 1992).

[99]See e.g. St. Paul Fire & Marine Ins. Co. v. Pepsico, Inc., 160 F.R.D. 464 (S.D.N.Y. 1995);  Cincinnati Ins. Co. v. Savarino Constr. Corp., 2011 U.S. Dist. LEXIS 29899, 28-29 (S.D. Ohio Mar. 21, 2011).

[100]General Accident Ins. Co. of Am. v. Merritt-Meridian Constr. Corp, 975 F. Supp. 511, 515-517 (S.D.N.Y. 1997); In re Kora & Williams Corp., 2006 Bankr. LEXIS 4207, 27-28 (Bankr. D. Md. 2006).

[101]Argonaut Ins. Co. v. Wolverine Constr., Inc., 976 F. Supp. 2d 646, 654 (D. Md. 2013), citing Atl. Contracting & Material Co., Inc. v. Ulico Cas. Co., 380 Md. 285, 844 A.2d 460, 473-74 (Md. 2004); Continental Realty Corp. v. Andrew J. Crevolin Co., 380 F. Supp. 246 (S.D. W. Va. 1974)[surety liability in excess of the penal amount of the bond, where failure to recognize breach of principal and surety obligation under the bond were tantamount to bad faith]; but seeUnited States v. Seaboard Surety Co., 817 F.2d 956, 966 (2d Cir. N.Y. 1987)[award in Continental Realty in excess of penal amount because surety had disregarded a court injunction].

[102]Berry v. United States Fidelity & Guaranty Co., 249 Md. 150, 154, 238 A.2d 907, 909 (1968), citing Stearns, The Law of Suretyship, § 2.9 at 20-21 (5th Ed., 1951).

[103]John McShain, Inc. v. Eagle Indem. Co., 180 Md. 202, 206, 23 A.2d 669, 670 (1942); McDevitt & St. Co. v. Seaboard Sur. Co., 1995 U.S. App. LEXIS 15076 (4th Cir. N.C. 1995).

[104]Central National Insurance Company v. Whitehall Construction, Inc., 1988 U.S. Dist. LEXIS 2121 (N.D. Ill. 1988), citing Donaldson v. Hartford Acci. & Indem. Co., 269 Pa. 456, 464, 112 A. 562, 565 (1921).

[105]Central National Insurance Company v. Whitehall Construction, Inc., 1988 U.S. Dist. LEXIS 2121 (N.D. Ill. 1988).

[106]Donaldson v. Hartford Acci. & Indem. Co., 269 Pa. 456, 464, 112 A. 562, 565 (1921); Central National Insurance Company v. Whitehall Construction, Inc., 1988 U.S. Dist. LEXIS 2121 (N.D. Ill. 1988).

[107]Berry v. United States Fidelity & Guaranty Co., 249 Md. 150, 154, 238 A.2d 907, 909 (1968), citing Stearns, The Law of Suretyship, § 2.9 at 20-21 (5th Ed., 1951); Central National Insurance Company v. Whitehall Construction, Inc., 1988 U.S. Dist. LEXIS 2121 (N.D. Ill. 1988); but seeRachman Bag Co. v. Liberty Mut. Ins. Co., 46 F.3d 230 (2d Cir. N.Y. 1995).

[108]Donaldson v. Hartford Acci. & Indem. Co., 269 Pa. 456, 465-66, 112 A. 562, 566 (1921).

[109]John McShain, Inc. v. Eagle Indem. Co., 180 Md. 202, 206-207, 23 A.2d 669, 670 (1942).

[110]McDevitt & St. Co. v. Seaboard Sur. Co., 1995 U.S. App. LEXIS 15076 (4th Cir. N.C. 1995).

[111]John McShain, Inc. v. Eagle Indem. Co., 180 Md. 202, 206-207, 23 A.2d 669, 670 (1942); McDevitt & St. Co. v. Seaboard Sur. Co., 1995 U.S. App. LEXIS 15076 (4th Cir. N.C. 1995).

[112]St. Paul Fire & Marine Ins. Co. v. Commodity Credit Corp., 646 F.2d 1064, 1072-73 (5th Cir. Tex. 1981).

[113]Magee v. Manhattan Life Ins. Co.,  92 U.S. 93, 98, 23 L. Ed. 699, 700 (1875).

[114]Rachman Bag Co. v. Liberty Mut. Ins. Co., 46 F.3d 230 (2d Cir. N.Y. 1995).

[115]Turner Constr. Co. v. First Indem. of Am. Ins. Co., 829 F. Supp. 752, 761 (E.D. Pa. 1993), aff’d 22 F.3d 303 (3rd Cir. 1994).

[116]St. Paul Fire & Marine Ins. Co. v. Commodity Credit Corp., 646 F.2d 1064, 1072-73 (5th Cir. Tex. 1981).

[117]Board of Supervisors v. Safeco Ins. Co., 226 Va. 329, 338-39, 310 S.E.2d 445, 450-51 (1983); Turner Constr. Co. v. First Indem. of Am. Ins. Co., 829 F. Supp. 752, 759 (E.D. Pa. 1993), aff’d 22 F.3d 303 (3rd Cir. 1994).

[118]Continental Realty Corp. v. Andrew J. Crevolin Co., 380 F. Supp. 246, 252-53 (S.D. W. Va. 1974); but seeUnited States v. Seaboard Surety Co., 817 F.2d 956, 966 (2d Cir. N.Y. 1987)[award in Continental Realty in excess of penal amount because General Insurance had disregarded a court injunction].

[119]London & Lancashire Indem. Co. v. Smoot, 287 F. 952, 956-957 (D.C. Cir. 1923)[liable for prejudgment interest in excess of penal amount]; New Amsterdam Casualty Co. v. United States Shipping Board Emergency Fleet Co., 16 F.2d 847, 852 (4th Cir. Md. 1927)[liable for prejudgment interest in excess of penal amount].

[120]International Fid. Ins. Co. v. County of Rockland, 98 F. Supp. 2d 400, 428 (S.D.N.Y. 2000).

 

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