Opinion ID: 781023
Heading Depth: 3
Heading Rank: 1

Heading: National Fire's Breach of Contract Claim

Text: 56 Fortune argues that National Fire's breach of contract claim should not have been submitted to the jury because Fortune was not a signatory to the performance bonds on which the claim was based. National Fire asserts that the terms of the bond obligated Fortune to pay National Fire the balance of the proceeds of the Fortune-Arkin subcontract after Fortune completed construction. The terms of the bonds plainly contradict National Fire's argument. Normally, bond agreements create duties that run from the surety to the obligee. The obligee is a beneficiary of the agreement between surety and principal. While there may possibly be some circumstances under which a bond's terms might impose duties on the obligee, Fortune was merely a beneficiary of the performance bonds here. 23 As discussed above, bonds are to be interpreted according to ordinary principles of contract construction. American Home Assurance Co. v. Larkin Gen. Hosp., Ltd., 593 So.2d at 195, 197 (Fla.1992); Restatement (Third) of Suretyship & Guaranty §§ 17(2), 32(1) (1995). 57 In the event that Arkin defaulted, under the terms of both performance bonds National Fire could complete construction itself or agree with Fortune to jointly select another contractor to finish construction, which could possibly be Fortune if the parties so agreed. If the latter occurred, the performance bonds obligated National Fire to make available funds for the completion of construction to the extent the costs exceeded the balance of the contract price. This provision does not require Fortune to tender to National Fire the remaining contract price if Fortune completed construction at a cost less than the contract price. Our interpretation of the bonds' terms is consistent with the surety's traditional duty to complete construction in the event of the principal's default. The purpose of a performance bond is to assure the obligee that construction will be completed and that it will not be liable for construction costs in excess of the contract price in the event the contractor defaults. If National Fire had completed construction, it would have been entitled to payment of the contract price, or under equitable subrogation, entitled to the remaining contract balances held by Fortune. However, National Fire did not complete construction under the bond's terms. Instead, Fortune completed construction and, luckily for National Fire, at a cost less than the contract price. Under no reasonable construction of the performance bonds' terms can a contractual duty be found for Fortune to pay National Fire the remaining balance after Fortune completed construction. Therefore, the district court erred in allowing National Fire's breach of contract claim to be submitted to the jury. Further, even if (as National Fire claims) Fortune did prevent National Fire from completing construction by refusing to accept National Fire's tender of a completion contractor, National Fire could only assert this fact as an affirmative defense that its liability under the performance bonds was discharged, not as a breach of contract claim against Fortune. See Ins. Co. N. Amer. v. Metro. Dade County, 705 So.2d 33, 34-35 (Fla. 3d DCA 1997)(obligee's failure to timely notify surety of latent defects discharged surety). See also St. Paul Fire & Marine Ins. Co. v. City of Green River, 93 F.Supp.2d 1170 (D.Wyo.2000), aff'd, 2001 WL 369831 (10th Cir.2001).