609 Measure of Damages

• Jurisdiction: Arizona

(a) Performance Bond

Where a contract is breached, the performance bond surety is liable for the actual cost required to complete the contract, less the balance remaining unpaid and any other appropriate offsets.

In Dale Benz, Inc., Contractors v. American Cas. Co., 303 F.2d 80 (9thCir. 1962), the surety on a performance bond was required to pay the cost of completing the contract, less the unpaid balance and various offsets discussed in Sections 104, 112(a), and 112(c).

In Prescott Nat’l Bank v. Head, 11 Ariz. 213, 90 P. 328 (1907), the surety for the contractor had also supplied materials to the contractor, and sought to enforce a lien for the materials against the owner. The owner maintained that it would be inequitable to permit the surety to assert its lien. The court disagreed and stated, “If the lienholder and the surety happen to be the same person, a situation arises wherein there should be a mutual offsetting of obligations; . . .” Id at 220.

In Michael Weller, Inc. v. Aetna Cas. & Sur. Co., 126 Ariz. 323, 614 P.2d 865 (App. 1980), the court upheld summary judgment for the surety as against a contractor. The surety bond did not become effective until June 30, 1973. The contractor submitted an affidavit indicating that its work covered the period October 1972 to November 30, 1973, although it had submitted a 100% complete invoice on June 8, 1973.

The court held that the affidavit was insufficient to raise a question of fact as to the liability of the surety because the affidavit did not indicate how much of the $24,000 total claim applied to the period after June 30, 1973. If only $10 worth of work was done after that date, it would not be proper to permit the contractor to pursue its entire claim of $24,000 against the surety. The affidavit was therefore inadequate and the surety was entitled to summary judgment.

(b) Interest

Interest on liquidated amounts is recoverable on a bond from the date the account became due. Courts are split as to whether a surety must pay interest prior to receiving notice of claim. On un liquidated amounts, interest is recoverable from the date of verdict or judgment.

In Webb v. Crane Co., supra, a materialman’s entitlement to interest was an issue where there was no dispute as to the amount owed. The court concluded that since it was a condition of the performance bond that the contractor “shall promptly pay . . . materialmen,” his obligation was as broad as his subcontractor’s. The court stated:

The fact that the latter was

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