Not All Bonds Are Created Equal: Distinguishing a Common Law Bond From a Statutory Bond

In Florida, the construction industry is booming, but there are also a lot of legal disputes. One common cause of these disputes is poorly written documents, like contracts and bonds. There are two main types of bonds for construction projects: statutory bonds, which are required by law for public projects, and common law bonds, which are not as strictly regulated. Even though the law says that statutory bonds should always be used for public projects, in reality, common law bonds are still used sometimes. The challenge is figuring out which type of bond is being used in a specific case. The main test to determine if a bond is statutory or common law depends on the obligations placed on the person and their guarantor. A statutory bond meets the minimum legal requirements, while a common law bond goes beyond those requirements. In a specific case, United Bonding Insurance Co. v. City of Holly Hill, the city had a contract with Rowell Construction Company to build a sewer system. Rowell got a performance bond from United Bonding Insurance Company, which met the minimum requirements of the contract, but also provided extra coverage. When a subcontractor didn’t get paid, they sued for the money owed from the performance bond, which also covered labor and materials. United’s defense relied on a law that said a lawsuit had to be filed within one year of materials being delivered. However, the court ruled that the performance bond in question was a common law bond, not subject to the time limitations of the law United relied on. The court said that any ambiguity in the bond should be interpreted in favor of the people the bond was supposed to protect. This means that the bond could be used to sue for a longer period of time than the one year limitation. The court also said that bonds for public works projects are considered common law bonds if they are written in a more expanded way than required by the law. This means that the bond can be used to sue for a longer period of time. The law for construction bonds on public works projects changed over time through amendments to F.S. §255.05. In the case Martin Paving Company v. United Pacific Insurance Company, the court ruled that if a bond for a public construction project isn’t properly filed, then the claimant doesn’t have to follow all the other requirements to make a claim on the bond. But in Florida Crushed Stone Company v. American Home Assurance Company, the court said that just because the bond doesn’t have all the required information, it doesn’t mean the claimant can ignore the other requirements. In that case, the court ruled in favor of the surety because the claimant didn’t follow all the requirements of §255.05(2). In a court case, the Second District Court of Appeal said that if a surety (who guarantees a bond) doesn’t follow the rules for giving notice, they can’t use a shorter time limit for making a claim. This is important because it means that mistakes in legal documents can lead to big changes in how long you have to make a claim and how much money you can get. So, it’s really important to read and understand the rules and write documents correctly to save yourself money in the long run. If a contract for construction in Florida is $100,000 or less, the contractor doesn’t need to get a payment and performance bond. But, if a contractor doesn’t get paid, they need to give notice to the contractor and the surety within a certain amount of time. They have up to 1 year to file a lawsuit. These rules also apply to public construction projects. If the bond doesn’t follow the rules, the surety might not be able to enforce the restrictions. And, the payment bond must be recorded with the court clerk. Brian Scott Dranoff is a lawyer in Miami who helps people with legal issues related to business and construction. This column is written on behalf of a group of lawyers who focus on real estate and estate planning. They want to make sure their members understand their duty to help the public, improve how the law is used, and make the study of law better.

Source: https://www.floridabar.org/the-florida-bar-journal/not-all-bonds-are-created-equal-distinguishing-a-common-law-bond-from-a-statutory-bond/