If the language of a contractor's bond is ambiguous or uncertain, it will be construed most strongly against a compensated surety and in favor of the obligees or beneficiaries under the bond, such as the laborers and materialmen for whose benefit it was ostensibly executed. On the other hand, since an ordinary or conventional type of contractor's bond is a simple contract, and since the cardinal rule in the construction of contracts is to ascertain and give effect to the intention of the parties if that can be done consistently with legal principles, the liability of a surety upon such a bond is dependent upon his covenants and agreements.
Plaintiff subcontractors brought suit to recover expenses for performance of parts of a bond entered into between the contractor and the government for the construction of military barracks. A provision of the bond stated that if claims for costs from the performance of a subcontract were not paid, the claimants would have the right to bring an action against the subcontractor and surety on behalf of unpaid claimants. Defendant surety asserted as a defense plaintiffs' failure to comply with time for notice and commencement requirements under the Miller Act (Act), 42 U.S.C.S. § 270b. Plaintiffs filed a motion to strike the defense. The district court granted plaintiffs' motion.
Was plaintiff subcontractor obliged to comply with the requirements of the Miller Act to render defendant surety liable for the subcontract bond?
Defendant’s defense was rejected because the bond made no mention of compliance with the Act. Although a surety was often a favorite of the law, that rule did not apply to sureties engaged in the business for profit and therefore the rights and liabilities of the parties were governed by the rules applicable to contracts of insurance. Plaintiffs had to be given the benefit of the doubt springing from the ambiguity and coverage afforded by the bond and, therefore, plaintiffs' motion to strike the defense at issue was granted.