Not all bonds are created equal: distinguishing a common law bond from a statutory bond.

• Author: Dranoff, Brian Scott
• Position: Florida

Too often in the law, great advancements are encountered by greater obstacles. It is no secret that Florida's construction industry is booming, yet so is the litigious nature of the Sunshine State. While construction litigation may be spawned by a variety of sources, the primary path to the courtroom is most often paved by a pen, not a pulley. Ambiguous drafting of documents, including general contracts, subcontracts, performance bonds, and so forth, is the predominant cause for the intimate relationship between the construction industry and the legal system. This article shall serve to facilitate a better understanding of what constitutes a statutory bond issued for the construction or repair of a public building, and a common law performance bond serving the same or a similar purpose. The former is subject to the requirements and limitations of F.S. [section] 255.05; the latter is unfettered by exacting statutory constraints.

F.S. [section] 255.05 requires the acquisition of a payment and performance bond by any person entering into a formal contract with any public authority (i.e., the state of Florida, city of Miami, Miami-Dade County, etc.) or political subdivision thereof, for the construction or repair of a public building or public work. (1) Section 255.05(4) goes on to state that the payment provisions of all bonds furnished for public works contracts shall, regardless of form, be construed and deemed statutory bond provisions. Section 255.05(4), added by the Florida Legislature in 1980 in response to growing concerns of sureties that "common law bond arguments" were frequently being used to evade the notice requirements of [section] 255.05(2), (2) seemingly eliminates the sustenance of common law bonds. (3) Notwithstanding, Florida case law reveals that common law bonds are still very much a part of today's construction industry. The real challenge lies in distinguishing a common law bond from a statutory bond.

The primary test in determining whether a bond is a statutory bond or a common law bond depends upon an examination of the obligations imposed upon the principal and its surety. The test requires a comparison of the minimum requirements enunciated in the statute and the language contained within the bond." (4)

The solution, in its most rudimentary form, is as follows: "Statutory bonds are those which meet the minimum requirement of [section] 255.05; common law bonds are those which provide coverage in excess of the minimum statutory requirements." (5) This apparently simple solution, however, does not always equate to simple application thereof. An examination of those cases addressing the complexities inherent in such application shall better illustrate the nuances that differentiate statutory from common law bonds.

In United Bonding Insurance Co. v. City of Holly Hill, 249 So. 2d 720 (Fla. 1st DCA 1971), the City of Holly Hill entered into a contract with Rowell Construction Company for the construction of a sanitary sewer system, the terms of which required Rowell to furnish a bond for such work. Rowell procured a performance bond from United Bonding Insurance Company which met the minimum requirements of the contract, but also provided additional coverage agreeing to indemnify and save harmless the city from, among other things, all labor performed in the work, whether by subcontractor or otherwise. (6) Martin Brick & Sand Company, as subcontractor, furnished certain materials to Rowell, as contractor, for use in the performance of the contract. Consequent to not receiving payment, Martin instituted suit on the performance bond issued by United for recovery of the amount due from Rowell.

United's entire defense was predicated upon the time limitations of F.S. [section] 255.05(2), as Martin brought its suit more than one year after delivery of the materials furnished. United's reliance upon the aforementioned statute, however, was thwarted by appellee's reliance on the same, [section] 255.05(6). F.S. [section] 255.05(6) states, "All bonds executed pursuant to this section shall make reference to this section by number and shall contain reference to the notice and time limitation provisions of this section." The First District Court of Appeal opined:

It is our view that had appellant surety company intended that the performance bond which it issued to Rowell be a statutory bond given for the sole purpose of meeting the minimum requirements of F.S. Section 255.05, F.S.A., it would have so provided in the bond itself and specified the time limitation of one year within which suits could be brought against it on the bond as restricted by the statute. By granting extensive coverage...