NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, Plaintiff-Counter-Defendant-Appellee, v. FORTUNE CONSTRUCTION COMPANY, Defendant-Counter-Claimant-Third-Party-Plaintiff-Appellant, Arkin Construction Company, Inc., Third-Party-Defendant.
No. 01-15124.
United States Court of Appeals, Eleventh Circuit.
Feb. 7, 2003.
320 F.3d 1260
The Alabama Defendants have not entered into a settlement agreement or filed a release of their federal claims in this matter, nor did they request the district court to enter judgment against them. Regardless of their present renunciation, without a binding, judicially enforceable agreement, the Alabama Defendants could still put Household and Block to the task of defending against the non-frivolous federal law claims alleged in this declaratory judgment action. We agree with the Second Circuit that “[a] judicial declaration that [the Plaintiffs are] barred from asserting the [federal] claims would both settle the matter between these parties once and for all and dispel all uncertainty regarding the liability of [the Plaintiffs] for these claims.” Id.
CONCLUSION
The district court erred in concluding that it lacked subject-matter jurisdiction over this declaratory judgment action. Accordingly, we VACATE the judgment dismissing this action.
No. 01-15124.
United States Court of Appeals, Eleventh Circuit.
Feb. 7, 2003.
Before TJOFLAT and KRAVITCH, Circuit Judges, and VINSON *, District Judge.
VINSON, District Judge:
The primary issue presented by this appeal is whether a surety on construction contract performance and payment bonds issued on behalf of a subcontractor has superior rights to retained contract balances in the possession of the general contractor when the general contractor completed the performance and has unsatisfied claims against the defaulting subcontractor.
I. BACKGROUND
This case arises out of two construction projects—the Winston Park project in Coconut Creek, Florida, and the West Brickell project in Miami, Florida. As general contractor on the projects, Fortune Construction Company (“Fortune“) entered into two separate subcontracts with Arkin Construction Company (“Arkin“) to build the two apartment complexes, the Winston Park Subcontract and the West Brickell Subcontract. National Fire Insurance Company (“National Fire“), as surety, issued on behalf of Arkin, as principal, performance and payment bonds for the two construction projects. The performance bond and payment bond documents for the Winston Park project were standard forms issued by the American Institute of Architects.1 The performance bond and payment bond documents for the West Brickell project were drafted by National Fire with language that materially differed from the Winston Park bonds. Each of the performance bonds and each of the payment bonds incorporated the appropriate subcontract between Fortune and Arkin by reference.
During construction of the two projects, Arkin began experiencing financial difficulty. National Fire provided financing to Arkin for a short time, but later refused to continue to finance Arkin. Both projects were behind schedule by this time. Arkin‘s financial difficulties prompted Fortune and National Fire to enter into negotiations about what to do when Arkin defaulted. There was some discussion about National Fire procuring a completion contractor and about the possibility that Fortune could complete construction. The West Brickell project was near completion, but a substantial amount of work still needed to be done on the Winston Park project. Negotiations were still ongoing when, on May 29, 1997, Arkin abandoned both construction projects. On June 12, 1997, Fortune declared Arkin in default and notified National Fire accordingly.
A flurry of letters between the attorneys for Fortune and National Fire ensued. During this increasingly acrimonious exchange, National Fire contends that it tendered, or offered to tender, a completion contractor. While National Fire asserts that Fortune rejected this tender because Fortune wanted to complete construction itself, Fortune maintains that the tender was never made. Fortune demanded that National Fire perform its obligations under both performance bonds by completing the subcontracts. National Fire did not do so. While National Fire made payments to payment bond claimants on both projects, both of the construction projects were actually completed by Fortune as the
The construction subcontracts between Fortune and Arkin each contained a clause obligating Arkin to pay liquidated damages for delays in completing the projects. The Winston Park Subcontract provided for liquidated damages of $35 per day per incomplete apartment and $1,000 per day for incomplete common areas. The West Brickell Subcontract provided for liquidated damages after a specified date of $30 per day per incomplete apartment. Due to Arkin‘s dilatory performance during the Winston Park and West Brickell construction, Fortune invoked these liquidated delay damages clauses before Arkin abandoned the projects. By the time Arkin defaulted, Arkin owed $1,693,500 in liquidated delay damages on the Winston Park project and $93,600 in liquidated delay damages on the West Brickell project. The subcontracts also made Arkin responsible for the acts and omissions of its own sub-subcontractors. Allied Fire Protection Systems (“Allied“), one of Arkin‘s sub-subcontractors, failed to pay Davis-Bacon Act wages to its laborers for work performed on the West Brickell project, which apparently involved federally subsidized housing. Consequently, the Department of Labor jointly charged Fortune, Arkin, and Allied a total of $71,126 in back wages attributable to Allied‘s improper payments, which Fortune paid.
In addition to the West Brickell Subcontract between Fortune and Arkin, the parties entered into a letter agreement dated January 15, 1996 (the same date as the West Brickell Subcontract). This letter agreement recognized that the electrical work had been excluded from Arkin‘s subcontract on the West Brickell project, but that Arkin had full responsibility for cost overages if the cost of the electrical work exceeded $669,000. Arkin‘s responsibility was “either finding a replacement subcontractor” for the electrical work at $669,000 or “issuing a credit change order to Fortune” for any amount incurred over and above $669,000.2 However, this letter agreement was not listed as part of the contract documents in the West Brickell Subcontract, which contained two merger and integration clauses. During the West Brickell construction, Fortune‘s original electrical subcontractor, Monohan‘s Electric Co., defaulted and did not complete the electrical work. Arkin failed to provide another electrical contractor to complete the project within the fixed $669,000 price. In hiring another electrical contractor, Fortune incurred additional costs amounting to $404,118.81 in excess of $669,000,3 for which Fortune claims a credit against Arkin.
Before trial, National Fire filed seven different motions for partial summary judgment.5 The district court entered three separate orders granting partial summary judgment with respect to several of National Fire‘s motions and granted the remainder in a pretrial conference order. In its first partial summary judgment order, the district court pointed to the language of the “Performance Bond Contract,” although the court did not specify which performance bond,6 and held that National Fire had a right to equitable subrogation “under the payment and performance bonds.” Thus, the district court held that National Fire‘s equitable subrogation right to the contract balances was superior to Fortune‘s right to set off its claims against Arkin under both the payment and the performance bonds. In its pretrial conference order, the district court characterized this ruling as establishing
In its second order granting National Fire partial summary judgment, the district court held that the letter agreement between Fortune and Arkin concerning liability for electrical overages was a separate agreement that had not been integrated into the contracts on which the bonds had been issued. In its third order granting National Fire partial summary judgment, the district court summarily dismissed with prejudice Fortune‘s Davis-Bacon wage claim against National Fire, without explanation.
At trial, the district court directed judgment as a matter of law in favor of Fortune on its third party claim against Arkin in the amount of $1,748,150 as to the Winston Park project and $432,000 as to the West Brickell project. These amounts included the Davis-Bacon wage claim, the electrical overage costs, and the liquidated delay damages.8 After this ruling, the only issues that remained for the jury at trial were: a determination of the reasonable costs Fortune incurred in completing construction,9 the amount of unpaid contract balances at the time of Arkin‘s default, and the amount of payment bond claims paid by National Fire. The district court instructed the jury to this effect, incorporating several of the court‘s prior rulings.10 The jury returned a verdict in
II. STANDARD OF REVIEW
The standard of review for a district court‘s rulings on motions for summary judgment is de novo, and an appellate court is to apply the same legal standards that bound the district court. See Sarfati v. Wood Holly Assocs., 874 F.2d 1523, 1525 (11th Cir. 1989); Carlin Communication Inc. v. Southern Bell Tel. & Tel. Co., 802 F.2d 1352, 1356 (11th Cir. 1986). Likewise, de novo review is appropriate when addressing the construction of written contracts. See Securities & Exchange Comm‘n v. Elliott, 953 F.2d 1560, 1582 (11th Cir. 1992). A jury‘s verdict is reviewed for sufficiency of the evidence and will not be overturned unless no rational trier of fact could have reached the same conclusion based upon the evidence in the record. See Quick v. Peoples Bank of Cullman County, 993 F.2d 793, 798 (11th Cir. 1993).
A motion for summary judgment should be granted when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.”
We review a district court‘s grant of judgment as a matter of law de novo,
III. DISCUSSION
A. Equitable Subrogation and Entitlement to Set-Off
The major issue raised in this appeal is National Fire‘s equitable subrogation rights under the two performance bonds and the two payment bonds. National Fire asserts that it possesses a superior right to the unpaid contract balances in light of a surety‘s recognized right to equitable subrogation.12 The District Court agreed and ruled below that National Fire had superior equitable subrogation rights under both its payment and its performance bonds. However, Fortune argues that the liquidated delay damages, Davis-Bacon Act violations, and the electrical overage costs incurred by Arkin should be set off against any unpaid contract balances that National Fire is claiming through equitable subrogation.
Fortune relies primarily upon United States v. Munsey Trust Co., 332 U.S. 234, 236, 108 Ct. Cl. 765, 67 S. Ct. 1599, 1600, 91 L. Ed. 2022, 2023 (1947), in which the Supreme Court of the United States addressed the issue of “whether percentages retained pursuant to contract by the United States may be subjected to its set-off claims despite the claims of a surety who has paid laborers and materialmen.” In Munsey Trust, the Government had entered into six contracts with a contractor to paint and repair certain federal buildings. Each contract was subject to both a performance bond and a payment bond. Although the contractor completed the work on the contracts so that the surety did not have to perform under the performance bond, the surety did pay $13,065.93 on payment bond claims made by laborers and materialmen. Under the terms of the contracts, the Government had retained percentages of the progress payments due to the contractor, amounting to $12,445.03. Subsequently, the same contractor submitted a bid to the Government for another project, which the Government accepted. However, the contractor failed to enter into a contract for the work, and another contractor performed the job at a price considerably higher than the bid price accepted by the Government, which resulted in damages to the Government in the amount of $6,731.50. In paying over the contract amount that it had retained on the other six contracts to the surety, the Government set off the $6,731.50 it claimed. The surety protested the set-off and asserted its right to an additional $3,568.23. See id. at 332 U.S. 234, 237-39, 67 S. Ct. at 1600-01.
With respect to any claims that may have been asserted by the contractor against the Government, the Supreme
[O]ne whose own appropriation and payment of money is necessary to create a fund for general creditors is not a general creditor. He is not compelled to lessen his own chance of recovering what is due him by setting up a fund undiminished by his claim, so that others may share it with him. In fact, he is the best of secured creditors; his security is his own justified refusal to pay what he owes until he is paid what is due him.
Id. at 332 U.S. 234, 240, 67 S. Ct. at 1602 (emphasis added). Therefore, the Court held that the Government could set off the amount it claimed. See also United States ex rel. P.J. Keating Co. v. Warren Corp., 805 F.2d 449, 452 (1st Cir. 1986) (recognizing that “Government‘s set off right is superior to a claim by a Miller Act surety under its payment bond to the same contract earnings“); Marriott Corp. v. Dasta Constr. Co., 26 F.3d 1057, 1070-71 (11th Cir. 1994) (recognizing owner‘s right to set-off against unpaid contract balance).
National Fire relies on the subsequent Supreme Court decision in Pearlman v. Reliance Ins. Co., 371 U.S. 132, 83 S. Ct. 232, 9 L. Ed. 2d 190 (1962), in which the Court addressed the issue of whether a government contractor‘s trustee in bankruptcy or the contractor‘s payment bond surety had the superior right to a fund withheld by the Government out of earnings due to the contractor. The Court recognized the clearly established right of subrogation, which provides that “a surety who pays the debt of another is entitled to all the rights of the person he paid to enforce his right to be reimbursed,” and held for the surety. Id., 371 U.S. at 137, 83 S. Ct. at 235. The Supreme Court also noted that the Munsey Trust decision had no effect upon its prior holdings in Prairie State Bank v. United States, 164 U.S. 227, 32 Ct. Cl. 614, 17 S. Ct. 142, 41 L. Ed. 412 (1896), and Henningsen v. United States Fid. & Guar. Co., 208 U.S. 404, 28 S. Ct. 389, 52 L. Ed. 547 (1908), that “there is a security interest in a withheld fund ... to which the surety is subrogated.” Pearlman, supra, 371 U.S. at 137, 83 S. Ct. at 235. The Supreme Court construed Munsey Trust as limited to the narrow proposition that “the Government could exercise the well-established common-law right of debtors to offset claims of their own against their creditors.” Id. at 140, 83 S. Ct. at 237. Otherwise, the equitable rights of a surety to subrogation were left undisturbed. See id. Therefore, the surety had a superior right, vis-a-vis the principal‘s trustee in bankruptcy, to funds held by the Government. Pearlman did not involve the priority of rights between a surety and the obligee.
We note that neither Munsey Trust nor Pearlman attempted to differentiate the surety‘s equitable subrogation rights on the basis of whether a payment or a performance bond obligation had been fulfilled. Under Florida law, which applies here, a performance and payment bond surety‘s rights to equitable subrogation depend upon the nature of the obligation fulfilled by the surety under the terms of the bonds. In Transamerica Ins. Co. v. Barnett Bank of Marion County, 540 So.2d 113, 115 (Fla. 1989), the Supreme Court of Florida addressed the issue of “whether a surety‘s equitable subrogation
[T]he surety in cases like this undertakes duties which entitle it to step into three sets of shoes. When, on default of the contractor, it pays all the bills of the job to date and completes the job, it stands in the shoes of the contractor insofar as there are receivables due it; in the shoes of laborers and material men who have been paid by the surety—who may have had liens; and, not least, in the shoes of the [obligee], for whom the job was completed.
Id. at 115-16 (quoting National Shawmut Bank v. New Amsterdam Cas. Co., 411 F.2d 843, 844-45 (1st Cir. 1969)). Therefore, “[a] surety who performs or pays on behalf of a [sic] obligee steps into the shoes of the obligee to the extent of performance or payment.” Id. at 116 (emphasis added). Thus, only a performance and payment bond surety who pays all of the bills of the job to date and completes the job is entitled to stand in the contractor-principal‘s shoes and demand payment of unpaid balances from the obligee. The surety‘s rights, “as subrogee, are not inferior even to the rights of the obligee and may be asserted against the obligee.” Id. The Transamerica opinion of the Supreme Court of Florida recognizes that a performing surety may assert a right to contract proceeds superior to the obligee because, by completing the project, the surety conferred a benefit on the obligee and, therefore, stepped into the shoes of the obligee. See id. at 115-16. Where a surety pays the claims of laborers and materialmen, the surety is only entitled to stand in the shoes of those laborers and materialmen who might have had liens, “but for” the surety‘s payment.13 Of course, in both cases, the surety‘s subrogation rights exist only to the extent of the surety‘s performance. The fact that the surety in this case, National Fire, did not complete performance distinguishes this case from Transamerica.
We conclude that National Fire‘s right to subrogation is controlled by the rationale of the former Fifth Circuit‘s decision in Trinity Universal Ins. Co. v. United States, 382 F.2d 317 (5th Cir. 1967).14 In Trinity Universal, the former Fifth Circuit addressed “whether, when a Miller Act surety completes a defaulted contract pursuant to its performance bond, the government may set off taxes owed by the contractor against the surety‘s claim to the fund retained by the government to insure performance.” Id. at 318. Finding that there was no right to set-off, the former Fifth Circuit recognized that, in Munsey Trust, the rights of the surety were limited to those of subrogee of the contractor because the surety had only performed under a payment bond. Id. at 319. Having made payments pursuant to its payment bond, the surety in Munsey Trust became a creditor of the Government with respect to the funds retained by the Government, and the Government could exercise the well-established common law right to set-off claims against its creditors. Id. at 319-20.
Courts often fail to address the distinction between a surety‘s right to subrogation when the surety makes payments under a payment bond, as compared to the surety‘s rights when it performs its performance bond obligations. The payment bond surety, who stands in the shoes of laborers and materialmen, normally has priority with respect to remaining contract balances because those laborers and materialmen would have high priority liens against the property under state law. Under Florida law, construction liens of laborers and materialmen have priority over all subsequently recorded encumbrances on the owner‘s property.
The rationale of Trinity Universal controls the respective rights of National Fire and Fortune to any retained contract balances in Fortune‘s possession. To further analyze the surety‘s subrogation rights, it is necessary to differentiate between what claims are covered by each of the respective bonds. Since National Fire did not
Our holding that National Fire is not entitled to equitable subrogation for any performance bond related claims is also based upon our conclusion that the district court erred in its partial summary judgment ruling that National Fire had no obligation under the performance bonds for either project to complete construction itself or to arrange for the completion of construction.16 Such a ruling would have been correct if the bonds were indemnity-type, but it is undisputed in the record that the performance bonds in this case were not merely indemnity bonds. The touchstone of any right to subrogation under a performance bond is actual and full performance of the bond‘s obligations.
Whenever [Arkin] shall be, and declared by [Fortune] to be in default under the [Winston Park Subcontract], [Fortune] having performed [Fortune‘s] obligations thereunder, [National Fire] may promptly remedy the default, or shall promptly
1) Complete the [Winston Park Subcontract] in accordance with its terms and conditions, or
2) Obtain a bid or bids for completing the [Winston Park Subcontract] in accordance with its terms and conditions, and upon determination by [National Fire] of the lowest responsible bidder, or if [Fortune] elects, upon determination by [Fortune] and [National Fire] jointly of the lowest responsible bidder, arrange for a contract between such bidder and [Fortune], and make available as Work progresses ... sufficient funds to pay the cost of completion less the balance of the contract price; but not exceeding, including other costs and damages for which [National Fire] may be liable hereunder, the amount [of the bond].
Under the terms of this bond, when Arkin was declared in default, National Fire had three options: (1) it could remedy the default; (2) it could complete construction itself; or (3) it could arrange for the completion of construction by selecting, either by itself or jointly with Fortune, a completion contractor and by making funds available to the completion contractor for completion costs in excess of the contract price. National Fire could not, as the
The district court also erred in applying the same analysis to National Fire‘s West Brickell performance bond obligation as to the Winston Park performance bond obligation. Unlike the Winston Park performance bond, the West Brickell performance bond‘s terms potentially contemplated completion of construction by Fortune. The West Brickell performance bond stated:
Whenever [Arkin] shall be, and be declared by [Fortune] to be in default under the subcontract, [Fortune] having performed [Fortune‘s] obligations thereunder:
(1) [National Fire] may promptly remedy the default subject to the provisions of paragraph 3 herein; or
(2) [Fortune] after reasonable notice to [National Fire] may, or [National Fire] upon demand of [Fortune] may arrange for the performance of [Arkin‘s] obligation under the subcontract subject to the provisions of paragraph 3 herein;
(3) The balance of the subcontract price ... shall be credited against the reasonable cost of completing performance of the subcontract. If completed by [Fortune], and the reasonable cost exceeds the balance of the subcontract price, [National Fire] shall pay to [Fortune] such excess, but in no event shall the aggregate liability of [National Fire] exceed the amount of this bond.
(Emphasis added).
Under this provision, National Fire also had three alternatives: (1) it could remedy the default; (2) if Fortune provided National Fire reasonable notice that Fortune wished to arrange for completion, it could allow Fortune to arrange for the completion of construction; or (3) if Fortune demanded that National Fire arrange for completion of construction, it could arrange for completion of construction itself. According to the evidence in the record (and construing the record in the light most favorable to Fortune since it appears to be a genuine factual dispute), Fortune did not wish to complete construction of the West Brickell project itself after Arkin defaulted. Instead, Fortune demanded that National Fire arrange for completion of construction of the West Brickell project, and National Fire refused to do so. Paragraph three of the West Brickell performance bond does contemplate the possibility that Fortune could have completed the subcontract itself. However, this contingency would only occur if, under the second alternative, Fortune sought to complete construction itself or, under the third alternative, National Fire arranged for Fortune to complete construction. In either of these cases, Fortune (not National Fire) could choose whether Fortune would voluntarily complete construction. Because it appears National Fire did not perform, it is not entitled to subrogation with respect to the West Brickell performance bond.
We also find that disputed issues of material fact exist in the record about whether National Fire‘s failure to perform amounted to a breach of its performance bond obligations, as described above. National Fire claims it appropriately tendered a completion contractor and that Fortune refused this tender. (Aff. of Raymond Lemming, R.27 at 4-5.) Fortune claims a completion contractor was never tendered despite its demands. (Aff. of
B. Fortune‘s Setoff Claims
Having concluded that National Fire is only entitled to equitable subrogation with respect to valid payments made under its payment bonds, and that Fortune is entitled to a setoff for all items encompassed within the scope of the performance bonds, we now must consider the specific claims for which Fortune seeks setoff.
1. Liquidated Delay Damages
Fortune contends that National Fire is responsible for liquidated delay damages that had accrued prior to Arkin‘s default due to Arkin‘s failure to timely perform on both projects. Although Fortune obtained judgment as a matter of law against Arkin for these damages, Fortune seeks to set these damages off against the retained contract balances. Fortune also argues that National Fire is contractually liable for these damages because the bonds incorporated by reference the underlying subcontracts which expressly provided for delay damages. However, National Fire denies any responsibility for delay damages, arguing that such damages are unrelated to the completion of the bonded construction projects and that the performance bonds do not expressly recognize liability for delay damages.
We look to Florida law to see what a surety‘s obligations are in the circumstances of this case. As a general proposition, the true performance bond requires a surety to guarantee the performance through completion of the underlying contract. See Federal Ins. Co. v. Southwest Fla. Retirement Ctr., Inc., 707 So.2d 1119, 1121 (Fla. 1998). However, in American Home Assurance Co. v. Larkin General Hospital, Ltd., 593 So.2d 195 (Fla. 1992), the Supreme Court of Florida held that “a surety cannot be held liable for delay damages due to the contractor‘s default unless the bond specifically provides coverage for delay damages.” Id. 593 So.2d at 196 (footnote omitted). In Larkin General Hospital, the contractor had not substantially completed the project by the target date, but the owner did not declare the contractor in default. Nearly eighteen months later, after a dispute arose between the owner and contractor, the owner declared the contractor in default and notified the surety. The surety elected not to complete performance and the owner used another contractor to complete the job. In the owner‘s action against the surety for breach of the performance bond, the trial court included in its damage award the owner‘s consequential delay damages for the contractor‘s tardy performance. Importantly for purposes of our analysis, there was no liquidated or other type of damages provision in the underlying contract. The Larkin General Hospital court noted:
[t]he purpose of a performance bond is to guarantee the completion of the con-
tract upon default by the contractor. Ordinarily a performance bond only ensures the completion of the contract. The surety agrees to complete the construction or to pay the obligee the reasonable costs of completion if the contractor defaults.
Id. at 198 (citations omitted). Although a surety‘s liability is coextensive with that of the principal, “the surety‘s liability for damages is limited by the terms of the bond.” Id. Therefore, the Supreme Court of Florida found that “[t]he language in the performance bond, construed together with the purpose of the bond, clearly explains that the performance bond merely guaranteed the completion of the construction contract and nothing more.” Id. (emphasis added); see also Mycon Constr. Corp. v. Board of Regents, 755 So.2d 154, 155 (4th DCA 2000) (“Because the performance bond contains no provision for damages for delay, the surety cannot be held liable for such damages.“). However, unlike the performance bond in Larkin General Hospital, the bonds at issue in this case expressly incorporated the subcontracts, which, in turn, do expressly provide for liquidated delay damages.
Larkin General Hospital could possibly be interpreted to mean that a performance bond surety cannot be held liable for, or denied subrogation for, delay damages, whether liquidated or unliquidated, unless the responsibility for delay damages is specified on the face of the performance bond. However, we do not read the decision that broadly.18 The “purpose of the bond” must be considered, which requires reference to the contract secured by the bond. Where a provision for liquidated delay damages is clearly delineated in the underlying contract and incorporated by reference into the bond, the surety is on notice of the time element of performance and the contractual consequences of failure to timely perform in accordance with the contract. Once the liquidated damages accrue, the contractor-principal owes a debt to the obligee which is, in effect, a reduction of (or contractual off-set to) the contract price. In such event, the obligee becomes the creditor of the principal and the performance bond surety should not have superior rights to the obligee in the remaining contract balances where liquidated damages have been suffered. This is especially true where, as here, the surety does not remedy the principal‘s delay by performing the surety‘s obligations under the performance bond.
While it is true that the terms of the bonds in this case do not expressly require the surety to assume responsibility for delay, “[i]t is the general rule of contract law that where a writing expressly refers to and sufficiently describes another document, the other document is to be interpreted as part of the writing.” Lord & Son Constr., Inc. v. Roberts Electrical Contractors, Inc., 624 So.2d 376, 377 n. 2 (Fla. 1st DCA 1993). Even after Larkin General Hospital, Florida courts have continued to utilize the well-established doctrine of incorporation by reference to impose liability on a performance bond surety. See DCC Constructors, Inc. v. Randall Mech. Inc., 791 So.2d 575, 576-77 (Fla. 5th DCA 2001); Southwest Fla. Retirement Ctr. v. Fed Ins. Co., 682 So.2d 1130, 1132-33 (Fla. 2d DCA 1996), aff‘d, 707 So.2d 1119 (Fla. 1998). The “purpose” of the performance bonds was to insure performance in accordance with the terms of the respective subcontracts, and those terms plainly include adverse direct consequences for delay. Therefore, under the
However, Fortune‘s claim for delay damage set-off is not entitled to priority over National Fire‘s valid payment bond claims. A performing payment bond surety stands in the shoes of the laborers and materialmen who might have had liens on the property. That right is generally superior to the rights of either the principal or the obligee. To the extent of the payment bond claims actually and properly paid, National Fire‘s right to any unpaid contract balances is superior to Fortune‘s liquidated delay damages claim.19 We express no opinion about whether National Fire may be responsible for delay damages related to Fortune‘s breach of contract claims on the performance bonds.
2. Davis-Bacon Wages
The district court granted National Fire partial summary judgment on Fortune‘s counterclaim for set-off of the amount of back wages Fortune paid due to violations of the Davis-Bacon Act by one of Arkin‘s subcontractors on the West Brickell Project. The Davis-Bacon Act requires laborers on federally funded projects to be paid not less than the “prevailing” wages in the locale. See
We conclude that the Davis-Bacon wages paid by Fortune are part of Fortune‘s reasonable cost of completion of construction.20 The Davis-Bacon wage
3. Electrical Overages
Fortune also claims the Fortune-Arkin letter agreement gives Fortune a right to payment from National Fire for the electrical overages Fortune paid on the West Brickell project. However, the West Brickell performance bond cannot be construed to cover an agreement that was not identified in the West Brickell Subcontract.22 The West Brickell performance bond specifically incorporated the West Brickell Subcontract by reference. The list of “Contract Documents” identified in the West Brickell Subcontract, which sets forth the documents that are part of the bonded subcontract, does not include the letter agreement. The subcontract made no other reference to the letter agreement, even though the parties made several other handwritten alterations to the subcontract. Merger and integration provisions in both the “Contract Documents” section and in Article 17 of the subcontract provide that the referenced documents are the entire and complete agreement of the parties. Since the bond was issued on the subcontract without reference to the letter agreement, the letter agreement is not within the scope of contract work that National Fire agreed to insure when it issued the bond. Further, the district
C. Remaining Issues
1. National Fire‘s Breach of Contract Claim
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 195, 197 (Fla. 1992);
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, Nation-
2. Prejudgment Interest
Finally, we consider the district court‘s award of prejudgment interest on the jury‘s damages verdict in favor of National Fire, retroactive to January 30, 1998. Fortune notes that National Fire did not pay one payment bond claimant on the West Brickell project until March 19, 2001, and last paid a like claimant on the Winston Park project on May 15, 2001. Fortune argues that any equitable subrogation rights did not accrue until those dates, when performance under the bonds was complete. Therefore, Fortune contends that prejudgment interest should have been calculated from those dates on the respective projects, and not over three years earlier.
We agree. Prejudgment interest in an action for breach of contract is allowable from the date the debt is due. See, e.g., Paoli v. Natherson, 732 So.2d 486, 488 (Fla. 2d DCA 1999). Where the judgment liquidates the plaintiff‘s damages, the plaintiff is entitled, as a matter of law, to prejudgment interest from the date of that loss. Argonaut Ins. Co. v. May Plumbing Co., 474 So.2d 212, 215 (Fla. 1985). However, in this case, National Fire‘s right to equitable subrogation under its payment bonds with respect to the remaining contract balances did not arise until all of its payment bond obligations had been performed.
IV. CONCLUSION
For the above reasons, the judgment of the district court is AFFIRMED IN PART and REVERSED IN PART and this case is REMANDED for further proceedings consistent with this opinion.
UNITED STATES of America, Plaintiff-Appellee, v. Eric WATKINS, Defendant, Jaunna Watkins, Collin Williams, Lincoln Watkins, Interested Parties-Appellants.
No. 02-10434
Non-Argument Calendar.
United States Court of Appeals, Eleventh Circuit.
Feb. 7, 2003.
Notes
RE: Construction Contract dated January 15, 1996 for West Brickell Apartments
Dear Mr. Arkin:
The Schedule of Values attached to the ... contract ... states that the electrical, elevator and cabinet trades have been excluded from said contract. The agreement between Fortune and Arkin is that even though these items have been excluded from said Contract, and despite the fact that the contracts with these trades are to be signed by Fortune (not Arkin), Arkin takes full responsibility for cost overages should the contract amounts for each of these trades exceed the following figures: (a) electrical—$669,000, (b) elevator—$185,000 and (c) cabinets—$110,916. This responsibility on the part of Arkin includes, but is not limited to, either Arkin finding a replacement subcontractor to contract for the specific trade at the above referenced amounts, or Arkin issuing a credit change order to Fortune for any amounts over and above the above referenced figures....
(R.85, Ex. C.)
The Court has found, as a matter of law, that National Fire has a right to recoup payments it made under the payment bonds from the unpaid balance of the subcontract. This right is superior to Fortune‘s right to apply the unpaid balance of the subcontract to claims that it might have against Arkin. The Court having so determined, this issue is not for your consideration.
The Court has also previously determined that, at this juncture, the reasonable costs of completing construction are to be credited against the contract balance.... [T]o the extent the contract balance exceeds the reasonable costs of completing construction, the excess is to be paid to National Fire up to the amount of National Fire‘s payment bond expenditures.
***
In determining the reasonable cost to complete the projects, the Court has previously determined that certain damages and consequential post default costs that may have been incurred by Fortune must not be considered part of the reasonable cost to complete the projects and may not be assessed against National Fire. These include: (1) delay damages, including liquidated damages specified in the Arkin subcontracts; (2) damages relating to Fortune‘s electrical overage claim; (3) damages relating to Fortune‘s Davis-Bacon Act claim. While these items may constitute proper claims against Arkin, they are not to be considered part of the reasonable cost to complete the projects and may not be applied against National Fire.
***
In determining whether National Fire breached the performance bond, you must accept that the Court has previously determined that National Fire had no obligation to complete the project itself or to tender a completion contractor. Rather, National Fire‘s only performance bond obligation is to pay any excess, should it exist, of the reasonable cost to complete by Fortune over the contract balance at the time of default by Arkin.
(R.133 at 7, 12, 20).
[W]hen a surety finances completion of a project, it confers a benefit upon the government by relieving it of the task of completing performance itself. It therefore becomes subrogated not only to the rights of the prime contractor but to those of the government. Accordingly, a completing performance bond surety has the right to accumulated contract proceeds free from setoff by the government.
Id. at 67.
The seductive enticement of the “do nothing” option to the surety is avoiding the immediate cost of completion, but this course of action remains advantageous only if the surety is correct in its analysis that it has no liability to the obligee.... Some bond forms remove the surety‘s “do nothing” option. These instruments require the surety to act. If the surety believes it has a defense, it may reserve its rights and litigate—but it must perform.
Phil Bruner & Patrick O‘Connor, 4 BRUNER & O‘CONNOR ON CONSTRUCTION LAW § 12:82 n. 5 (2002), WL BOCL § 12:82.
These wages could also be considered as being within National Fire‘s payment bond obligation, but because of unique language in the West Brickell payment bond, the Davis-Bacon wage claims escape coverage under the bond. National Fire was only obligated under the West Brickell payment bond to make payments to valid “claimants“, defined as those persons having a “direct contract” with Arkin. The Davis-Bacon wage claimants were employees of Allied who did not technically have a “direct contract” with Arkin.