4.3.4.4.3 Damages Recoverable Under Bond

• Jurisdiction: Arizona

Absent restrictions in the bond, including the amount of the bond, the surety’s liability is coextensive with that of its principal.^[68] Where the obligee completes, recovery includes the amount actually and reasonably expended in completion of the contract in excess of the original contract price. ^[69]

Damages collectible against a surety traditionally were limited to breach of contract damages. The Arizona Supreme Court has held, however, that the obligee on a performance bond may maintain a tort action against the surety for breach of the surety’s duty to act in good faith in responding to a claim that the principal has defaulted.^[70]

Special or consequential damages may be recoverable if they are within the contemplation of the parties to the contract. Such damages may include liquidated damages.^[71] Special damages may include litigation expenses, architect’s fees, and attorneys’ fees.^[72] These damages also may include loss of rents or loss of use occasioned by the owner’s inability to use the project as agreed in the contract.^[73] The contractor’s tax obligations may also be covered by a performance bond if payment of such taxes is a requirement of a contract with the taxing authority.^[74]

Sureties also have been held liable for the cost of replacing work that was not...