4.3.4.5.3 Damages Recoverable Under Payment Bonds

• Jurisdiction: Arizona

As a general rule, in the absence of fraud or overreaching, the measure of damages against the payment bond is the agreed value of the labor or materials furnished under the terms of the contract with the person with whom the claimant dealt.^[106] The claimant also can waive the agreed contract price and attempt to recover for the reasonable value of the labor performed and materials furnished. This claim is called quantum meruit.^[107]

While interest is recoverable on the claim, the time interest commences varies from state to state. The Arizona courts are split on whether interest commences when the principal’s obligation accrues^[108] or from when the surety had sufficient information upon which to make payment.^[109]

Under the Miller Act, and in many states, the American rule controls the award of attorneys’ fees. Under the American rule, attorneys’ fees are not allowed in the absence of an express statute or an enforceable contract providing for them.^[110] In suits brought in Arizona state courts on the payment bond under Arizona’s Little Miller Act, reasonable attorney’s fees will be allowed by statute to the prevailing party.^[111] Interest and reasonable attorneys’ fees may also be permitted under the prompt payment provisions applicable to private and public projects.^[112]

The Arizona courts have not addressed whether a surety on a payment bond may be held liable for tort damages for failing to act in good faith. The issue may arise out of failure to investigate a payment bond claim. Some courts have held sureties on statutory bonds, including statutory payment bonds, cannot be liable in tort for damages beyond those covered by the statute.^[113]

^[106] Royal Indem. Co. v. Woodbury Granite Co., 101 F.2d 689 (D.C. Cir. 1938).

^[107] U.S. v. P.T. Carlin Constr. Co., 254 F. Supp. 637 (E.D. N.Y. 1966).

^[108] Webb v. Crane Co., 52 Ariz....