                                                              [PUBLISH]


             IN THE UNITED STATES COURT OF APPEALS
                                                                FILED
                    FOR THE ELEVENTH CIRCUIT          U.S. COURT OF APPEALS
                                                        ELEVENTH CIRCUIT
                     _________________________             February 07, 2003
                                                         THOMAS K. KAHN
                            No. 01-15124                       CLERK
                    _________________________
                  D.C. Docket No. 97-02439-CV-JLK

NATIONAL FIRE INSURANCE COMPANY OF HARTFORD,

                                                    Plaintiff-Counter-
                                                    Defendant-Appellee,

    versus

FORTUNE CONSTRUCTION COMPANY,

                                                    Defendant-Counter-
                                                    Claimant-Third-Party-
                                                    Plaintiff-Appellant,

ARKIN CONSTRUCTION COMPANY, INC.,

                                                    Third-Party-Defendant.

                     _________________________

               Appeal from the United States District Court
                   for the Southern District of Florida
                     _________________________

                           (February 7, 2003)
Before TJOFLAT and KRAVITCH, Circuit Judges, and VINSON*, District Judge.

VINSON, District Judge:

      The primary issue presented by this appeal is whether a surety on construction

contract performance and payment bonds issued on behalf of a subcontractor has

superior rights to retained contract balances in the possession of the general contractor

when the general contractor completed the performance and has unsatisfied claims

against the defaulting subcontractor.

I.    BACKGROUND

      This case arises out of two construction projects - - - the Winston Park project

in Coconut Creek, Florida, and the West Brickell project in Miami, Florida. As

general contractor on the projects, Fortune Construction Company (“Fortune”) entered

into two separate subcontracts with Arkin Construction Company (“Arkin”) to build

the two apartment complexes, the Winston Park Subcontract and the West Brickell

Subcontract. National Fire Insurance Company (“National Fire”), as surety, issued

on behalf of Arkin, as principal, performance and payment bonds for the two

construction projects. The performance bond and payment bond documents for the

Winston Park project were standard forms issued by the American Institute of



      *
        Honorable Roger Vinson, United States District Judge for the Northern
District of Florida, sitting by designation.
                                           2
Architects.1 The performance bond and payment bond documents for the West

Brickell project were drafted by National Fire with language that materially differed

from the Winston Park bonds. Each of the performance bonds and each of the

payment bonds incorporated the appropriate subcontract between Fortune and Arkin

by reference.

      During construction of the two projects, Arkin began experiencing financial

difficulty. National Fire provided financing to Arkin for a short time, but later refused

to continue to finance Arkin. Both projects were behind schedule by this time.

Arkin’s financial difficulties prompted Fortune and National Fire to enter into

negotiations about what to do when Arkin defaulted. There was some discussion

about National Fire procuring a completion contractor and about the possibility that

Fortune could complete construction. The West Brickell project was near completion,

but a substantial amount of work still needed to be done on the Winston Park project.

Negotiations were still ongoing when, on May 29, 1997, Arkin abandoned both

construction projects. On June 12, 1997, Fortune declared Arkin in default and

notified National Fire accordingly.

      A flurry of letters between the attorneys for Fortune and National Fire ensued.

During this increasingly acrimonious exchange, National Fire contends that it


      1
       AIA Document A311.
                                           3
tendered, or offered to tender, a completion contractor. While National Fire asserts

that Fortune rejected this tender because Fortune wanted to complete construction

itself, Fortune maintains that the tender was never made. Fortune demanded that

National Fire perform its obligations under both performance bonds by completing the

subcontracts. National Fire did not do so. While National Fire made payments to

payment bond claimants on both projects, both of the construction projects were

actually completed by Fortune as the general contractor, and Arkin is now a dissolved

corporation.

      The construction subcontracts between Fortune and Arkin each contained a

clause obligating Arkin to pay liquidated damages for delays in completing the

projects. The Winston Park Subcontract provided for liquidated damages of $35 per

day per incomplete apartment and $1,000 per day for incomplete common areas. The

West Brickell Subcontract provided for liquidated damages after a specified date of

$30 per day per incomplete apartment. Due to Arkin’s dilatory performance during

the Winston Park and West Brickell construction, Fortune invoked these liquidated

delay damages clauses before Arkin abandoned the projects. By the time Arkin

defaulted, Arkin owed $1,693,500 in liquidated delay damages on the Winston Park

project and $93,600 in liquidated delay damages on the West Brickell project. The

subcontracts also made Arkin responsible for the acts and omissions of its own sub-


                                         4
subcontractors. Allied Fire Protection Systems (“Allied”), one of Arkin’s sub-

subcontractors, failed to pay Davis-Bacon Act wages to its laborers for work

performed on the West Brickell project, which apparently involved federally

subsidized housing. Consequently, the Department of Labor jointly charged Fortune,

Arkin, and Allied a total of $71,126 in back wages attributable to Allied’s improper

payments, which Fortune paid.

      In addition to the West Brickell Subcontract between Fortune and Arkin, the

parties entered into a letter agreement dated January 15, 1996 (the same date as the

West Brickell Subcontract). This letter agreement recognized that the electrical work

had been excluded from Arkin’s subcontract on the West Brickell project, but that

Arkin had full responsibility for cost overages if the cost of the electrical work

exceeded $669,000.      Arkin’s responsibility was “either finding a replacement

subcontractor” for the electrical work at $669,000 or “issuing a credit change order

to Fortune” for any amount incurred over and above $669,000.2 However, this letter


      2
        The typed letter, dated January 15, 1996, signed by both Fortune and Arkin,
stated in pertinent part:
              RE: Construction Contract dated January 15, 1996 for
                     West Brickell Apartments

             Dear Mr. Arkin:

             The Schedule of Values attached to the . . .
             contract . . . states that the electrical, elevator and cabinet
                                           5
agreement was not listed as part of the contract documents in the West Brickell

Subcontract, which contained two merger and integration clauses. During the West

Brickell construction, Fortune’s original electrical subcontractor, Monohan’s Electric

Co., defaulted and did not complete the electrical work. Arkin failed to provide

another electrical contractor to complete the project within the fixed $669,000 price.

In hiring another electrical contractor, Fortune incurred additional costs amounting to

$404,118.81 in excess of $669,000,3 for which Fortune claims a credit against Arkin.


             trades have been excluded from said contract. The
             agreement between Fortune and Arkin is that even though
             these items have been excluded from said Contract, and
             despite the fact that the contracts with these trades are to be
             signed by Fortune (not Arkin), Arkin takes full
             responsibility for cost overages should the contract amounts
             for each of these trades exceed the following figures: (a)
             electrical – $669,000, (b) elevator – $185,000 and (c)
             cabinets – $110,916.

             This responsibility on the part of Arkin includes, but is not
             limited to, either Arkin finding a replacement subcontractor
             to contract for the specific trade at the above referenced
             amounts, or Arkin issuing a credit change order to Fortune
             for any amounts over and above the above referenced
             figures. . . .
(R.85, Ex. C.)
      3
        The affidavits of Michael Spetko, the Project Manager for the West Brickell
project, and Ernesto Gordo, an employee of Fortune who participated in negotiating
the West Brickell Subcontract with Arkin are in the record. (R.89.) In these affidavits,
Spetko and Gordo assert that they were involved in negotiating the subcontract and
that the letter agreement was intended by both Arkin and Fortune to be an integral part
                                           6
      After Fortune completed the two construction projects, Fortune presented

National Fire with an accounting of its “performance” costs to complete the Arkin

subcontracts. National Fire then prepared an accounting of the net remaining contract

proceeds.4 According to National Fire, the remaining contract proceeds exceeded

Fortune’s costs of completion. National Fire requested that, according to the terms

of the bonds, the unpaid contract balances be credited to the respective subcontracts

and paid to National Fire, as the subrogee of Arkin. Fortune refused to pay National

Fire the contract balances, claiming that it had superior right to the contract balances

due to National Fire’s failure to perform on its performance bonds and because of

Fortune’s right to set off the remaining contract claims Fortune had against Arkin.

National Fire initiated this civil action against Fortune alleging assignment of Arkin’s

rights under the subcontracts, equitable subrogation, and breach of the bond contracts.

Fortune filed a counterclaim against National Fire for failure to perform under the

performance bonds and failure to make the required payments under the payment




of the subcontract on the West Brickell project. Gordo added that the letter agreement
was made an addendum to the subcontract. There is nothing in writing evidencing
incorporation of the letter agreement.
      4
        Fortune retained possession of certain proceeds from the two subcontracts
pursuant to retainage and progress-payment provisions of the subcontracts. However,
the exact amount of contract balances remaining is a matter of dispute between the
parties.
                                           7
bonds with respect to payments for Davis-Bacon Act violations, electrical overages,

and the liquidated delay damages. Fortune also joined Arkin as a third party

defendant responsible for the same damages, due to its breach of the two subcontracts.

      Before trial, National Fire filed seven different motions for partial summary

judgment.5 The district court entered three separate orders granting partial summary

judgment with respect to several of National Fire’s motions and granted the remainder

in a pretrial conference order. In its first partial summary judgment order, the district

court pointed to the language of the “Performance Bond Contract,” although the court

did not specify which performance bond,6 and held that National Fire had a right to

equitable subrogation “under the payment and performance bonds.” Thus, the district

court held that National Fire’s equitable subrogation right to the contract balances was

superior to Fortune’s right to set off its claims against Arkin under both the payment



      5
        Each motion addressed a discrete legal issue, and five of the motions were
simultaneously filed. We discourage this practice of unnecessarily filing multiple
motions for partial summary judgment. While the legal issues in this case are
complex, combining the various legal issues into a single motion would have helped
the trial court achieve a broader understanding of the entire case. National Fire’s
attempt to break this case into little pieces seems to have contributed to the confusion
below. See also S.D. Fla. Loc. R. 7.1(C)(2).
      6
      As noted earlier, the documents were different for each project. From
examining the language quoted by the district court, we determine that the court cited
the Winston Park performance bond. The district court made reference to neither the
language of the West Brickell performance bond nor either of the two payment bonds.
                                           8
and the performance bonds. In its pretrial conference order, the district court

characterized this ruling as establishing that, to the extent the contract balances

exceeded Fortune’s reasonable costs to complete construction after Arkin’s default,

“the excess is to be paid to National Fire up to the amount of National Fire’s payment

bond expenditures.” (R.67 at 2.) In that same order, the district court held that

“National Fire had no obligation to complete [construction itself] or to tender [a

completion contractor], but rather its obligation was to pay the excess of the costs to

complete the contract over the contract balance, if any.”7 (R.67 at 3.) According to

the district court, as a matter of law, National Fire’s failure to complete construction

or to arrange for the completion of construction was not a breach of National Fire’s

performance bond obligations, and thus Fortune was not entitled to consequential

damages from National Fire for the costs that Fortune incurred due to Arkin’s default

under the subject subcontracts.

      In its second order granting National Fire partial summary judgment, the district

court held that the letter agreement between Fortune and Arkin concerning liability

for electrical overages was a separate agreement that had not been integrated into the

contracts on which the bonds had been issued. In its third order granting National Fire


      7
       Again, in making this determination, the district court did not cite any of the
operative language from any of the bonds in support of its ruling. National Fire’s
performance obligations materially differed under the two performance bonds.
                                           9
partial summary judgment, the district court summarily dismissed with prejudice

Fortune’s Davis-Bacon wage claim against National Fire, without explanation.

      At trial, the district court directed judgment as a matter of law in favor of

Fortune on its third party claim against Arkin in the amount of $1,748,150 as to the

Winston Park project and $432,000 as to the West Brickell project. These amounts

included the Davis-Bacon wage claim, the electrical overage costs, and the liquidated

delay damages.8 After this ruling, the only issues that remained for the jury at trial

were: a determination of the reasonable costs Fortune incurred in completing

construction,9 the amount of unpaid contract balances at the time of Arkin’s default,

and the amount of payment bond claims paid by National Fire. The district court

instructed the jury to this effect, incorporating several of the court’s prior rulings.10

      8
       Because National Fire did not pursue its assignment claim, the district court
granted Fortune judgment as a matter of law as to that claim.
      9
       The district court instructed the jury that, in making this determination, the jury
was not to include unreasonable costs Fortune could have avoided, costs related to
correcting design defects, the liquidated delay damages, costs for electrical overages,
and the Davis-Bacon wage claims. (R.133 at 9, 10, 12.)
      10
        Specifically, the district court instructed the jury:
      The Court has found, as a matter of law, that National Fire has a right to
      recoup payments it made under the payment bonds from the unpaid
      balance of the subcontract. This right is superior to Fortune’s right to
      apply the unpaid balance of the subcontract to claims that it might have
      against Arkin. The Court having so determined, this issue is not for your
      consideration.


                                           10
The jury returned a verdict in favor of National Fire, finding that contract balances

remained on both projects after the deduction of Fortune’s reasonable costs to

complete construction,11 and awarded National Fire $255,774 as to the West Brickell


      The Court has also previously determined that, at this juncture, the
      reasonable costs of completing construction are to be credited against
      the contract balance....[T]o the extent the contract balance exceeds the
      reasonable costs of completing construction, the excess is to be paid to
      National Fire up to the amount of National Fire’s payment bond
      expenditures.
                                         ***
      In determining the reasonable cost to complete the projects, the Court
      has previously determined that certain damages and consequential post
      default costs that may have been incurred by Fortune must not be
      considered part of the reasonable cost to complete the projects and may
      not be assessed against National Fire. These include: (1) delay damages,
      including liquidated damages specified in the Arkin subcontracts; (2)
      damages relating to Fortune’s electrical overage claim; (3) damages
      relating to Fortune’s Davis-Bacon Act claim. While these items may
      constitute proper claims against Arkin, they are not to be considered part
      of the reasonable cost to complete the projects and may not be applied
      against National Fire.
                                         ***
      In determining whether National Fire breached the performance bond,
      you must accept that the Court has previously determined that National
      Fire had no obligation to complete the project itself or to tender a
      completion contractor. Rather, National Fire’s only performance bond
      obligation is to pay any excess, should it exist, of the reasonable cost to
      complete by Fortune over the contract balance at the time of default by
      Arkin.
      (R.133 at 7, 12, 20).
      11
        Part of the jury’s consideration in awarding National Fire damages was the
determination of the reasonable costs of completion. However, the verdict form did
not require the jury to make a specific finding as to the reasonable completion costs
                                          11
project and $336,896.28 as to the Winston Park project, to which the district court

added prejudgment interest. This appeal followed.

II.   STANDARD OF REVIEW

      The standard of review for a district court’s rulings on motions for summary

judgment is de novo, and an appellate court is to apply the same legal standards that

bound the district court. See Sarfati v. Wood Holly Assocs., 874 F.2d 1523, 1525

(11th Cir. 1989); Carlin Communication Inc. v. Southern Bell Tel. & Tel. Co., 802

F.2d 1352, 1356 (11th Cir. 1986). Likewise, de novo review is appropriate when

addressing the construction of written contracts. See Securities & Exchange Comm’n

v. Elliott, 953 F.2d 1560, 1582 (11th Cir. 1992). A jury’s verdict is reviewed for

sufficiency of the evidence and will not be overturned unless no rational trier of fact

could have reached the same conclusion based upon the evidence in the record. See

Quick v. Peoples Bank of Cullman County, 993 F.2d 793, 798 (11th Cir. 1993).

      A motion for summary judgment should be granted when “the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any material fact and that



or as to the contract balances remaining before deductions. Instead, the jury merely
calculated the remaining contract balances after reasonable completion costs and other
costs were deducted. We have labored to try to infer the completion costs and
remaining balances in light of the jury’s verdict, but we have been unable to do so.
                                          12
the moving party is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(c).

“[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after

adequate time for discovery and upon motion, against a party who fails to make a

showing sufficient to establish the existence of an element essential to that party's

case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v.

Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265, 273 (1986); see

also Morisky v. Broward County, 80 F.3d 445, 447 (11th Cir. 1996). On a summary

judgment motion, the record and all reasonable inferences that can be drawn from it

must be viewed in the light most favorable to the non-moving party. See Whatley v.

CNA Ins. Cos., 189 F.3d 1310, 1313 (11th Cir. 1999).

       We review a district court’s grant of judgment as a matter of law de novo,

evaluating “whether such sufficient conflicts exist in the evidence to necessitate

submitting the matter to the jury or whether the evidence is so weighted in favor of

one side that one party must prevail as a matter of law.” Thosteson v. United States,

304 F.3d 1312, 1316 (11th Cir. 2002). The evidence is evaluated in the light most

favorable to the non-moving party. Id.



III.   DISCUSSION

       A.    Equitable Subrogation and Entitlement to Set-Off


                                          13
      The major issue raised in this appeal is National Fire’s equitable subrogation

rights under the two performance bonds and the two payment bonds. National Fire

asserts that it possesses a superior right to the unpaid contract balances in light of a

surety’s recognized right to equitable subrogation.12 The District Court agreed and

ruled below that National Fire had superior equitable subrogation rights under both

its payment and its performance bonds. However, Fortune argues that the liquidated

delay damages, Davis-Bacon Act violations, and the electrical overage costs incurred

by Arkin should be set off against any unpaid contract balances that National Fire is

claiming through equitable subrogation.

      Fortune relies primarily upon United States v. Munsey Trust Co., 332 U.S. 234,

236, 67 S. Ct. 1599, 1600, 91 L. Ed. 2022, 2023 (1947), in which the Supreme Court

of the United States addressed the issue of “whether percentages retained pursuant to

contract by the United States may be subjected to its set-off claims despite the claims


      12
         Fortune contends that equitable subrogation is not appropriate because
National Fire did not complete, pursuant to its performance bonds, either the West
Brickell or the Winston Park projects, and issues of fact exist concerning whether
National Fire paid all of its payment bond obligations. See Affidavit of Michael J.
Getz (listing unpaid subcontractors, laborers, and materialmen) (R.44.) From the
record, it appears that one sub-subcontractor, Aurora Plumbing Corp., was pursuing
a payment claim in state court at the time of trial. (R.149 at 55-59.) National Fire,
however, represents that it fully satisfied its payment obligations by paying over $1.4
million in payment bond claims, which amounted to every claim timely submitted.
For purposes of this appeal, we have assumed that the district court has resolved all
factual issues with respect to the payment bond claims.
                                          14
of a surety who has paid laborers and materialmen.”            In Munsey Trust, the

Government had entered into six contracts with a contractor to paint and repair certain

federal buildings. Each contract was subject to both a performance bond and a

payment bond. Although the contractor completed the work on the contracts so that

the surety did not have to perform under the performance bond, the surety did pay

$13,065.93 on payment bond claims made by laborers and materialmen. Under the

terms of the contracts, the Government had retained percentages of the progress

payments due to the contractor, amounting to $12,445.03. Subsequently, the same

contractor submitted a bid to the Government for another project, which the

Government accepted. However, the contractor failed to enter into a contract for the

work, and another contractor performed the job at a price considerably higher than the

bid price accepted by the Government, which resulted in damages to the Government

in the amount of $6,731.50. In paying over the contract amount that it had retained

on the other six contracts to the surety, the Government set off the $6,731.50 it

claimed. The surety protested the set-off and asserted its right to an additional

$3,568.23. See id. at 332 U.S. 237-39, 67 S. Ct. at 1600-01.

      With respect to any claims that may have been asserted by the contractor

against the Government, the Supreme Court recognized that “[t]he government has the

same right ‘which belongs to every creditor, to apply the unappropriated moneys of


                                          15
his debtor, in his hands, in extinguishment of the debts due to him.’” Id. at 239, 67 S.

Ct. at 1602 (quoting Gratiot v. United States, 40 U.S. 336, 370, 10 L. Ed. 759 (1841)).

However, the surety argued that it had subrogation rights superior to both the laborers

and materialmen to whom the surety had paid and to the Government, the bond

obligee. In response to this argument, the Supreme Court observed that:

             [O]ne whose own appropriation and payment of money is
             necessary to create a fund for general creditors is not a
             general creditor. He is not compelled to lessen his own
             chance of recovering what is due him by setting up a fund
             undiminished by his claim, so that others may share it with
             him. In fact, he is the best of secured creditors; his security
             is his own justified refusal to pay what he owes until he is
             paid what is due him.

Id. at 332 U.S. 240, 67 S. Ct. at 1602 (emphasis added). Therefore, the Court held that

the Government could set off the amount it claimed. See also United States ex rel. P.J.

Keating Co. v. Warren Corp., 805 F.2d 449, 452 (1st Cir. 1986) (recognizing that

“Government’s set off right is superior to a claim by a Miller Act surety under its

payment bond to the same contract earnings”); Marriott Corp. v. Dasto Constr. Co.,

26 F.3d 1057, 1070-71 (11th Cir. 1994) (recognizing owner’s right to set-off against

unpaid contract balance).

      National Fire relies on the subsequent Supreme Court decision in Pearlman v.

Reliance Ins. Co., 371 U.S. 132, 83 S. Ct. 232, 9 L. Ed. 2d 190 (1962), in which the

Court addressed the issue of whether a government contractor’s trustee in bankruptcy

                                           16
or the contractor’s payment bond surety had the superior right to a fund withheld by

the Government out of earnings due to the contractor. The Court recognized the

clearly established right of subrogation, which provides that “a surety who pays the

debt of another is entitled to all the rights of the person he paid to enforce his right to

be reimbursed,” and held for the surety. Id., 371 U.S. at 137, 83 S. Ct. at 235. The

Supreme Court also noted that the Munsey Trust decision had no effect upon its prior

holdings in Prairie State Bank v. United States, 164 U.S. 227, 17 S. Ct. 142, 41 L. Ed.

412 (1896), and Henningsen v. United States Fid. & Guar. Co., 208 U.S. 404, 28 S.

Ct. 389, 52 L. Ed. 547 (1908), that “there is a security interest in a withheld fund . .

. to which the surety is subrogated.” Pearlman, supra, 371 U.S. at 137, 83 S. Ct. at

235. The Supreme Court construed Munsey Trust as limited to the narrow proposition

that “the Government could exercise the well-established common-law right of

debtors to offset claims of their own against their creditors.” Id. at 140, 83 S. Ct. at

237. Otherwise, the equitable rights of a surety to subrogation were left undisturbed.

See id. Therefore, the surety had a superior right, vis-a-vis the principal’s trustee in

bankruptcy, to funds held by the Government. Pearlman did not involve the priority

of rights between a surety and the obligee.

       We note that neither Munsey Trust nor Pearlman attempted to differentiate the

surety’s equitable subrogation rights on the basis of whether a payment or a


                                            17
performance bond obligation had been fulfilled. Under Florida law, which applies

here, a performance and payment bond surety’s rights to equitable subrogation depend

upon the nature of the obligation fulfilled by the surety under the terms of the bonds.

In Transamerica Ins. Co. v. Barnett Bank of Marion County, 540 So. 2d 113, 115 (Fla.

1989), the Supreme Court of Florida addressed the issue of “whether a surety’s

equitable subrogation rights are limited to rights it obtains by standing in the shoes of

the defaulting contractor. ” In considering this issue, the court observed:

             [T]he surety in cases like this undertakes duties which
             entitle it to step into three sets of shoes. When, on default
             of the contractor, it pays all the bills of the job to date and
             completes the job, it stands in the shoes of the contractor
             insofar as there are receivables due it; in the shoes of
             laborers and material men who have been paid by the surety
             – who may have had liens; and, not least, in the shoes of the
             [obligee], for whom the job was completed.

Id. at 115-16 (quoting National Shawmut Bank v. New Amsterdam Cas. Co., 411 F.2d

843, 844-45 (1st Cir. 1969)). Therefore, “[a] surety who performs or pays on behalf

of a [sic] obligee steps into the shoes of the obligee to the extent of performance or

payment.” Id. at 116 (emphasis added). Thus, only a performance and payment bond

surety who pays all of the bills of the job to date and completes the job is entitled to

stand in the contractor-principal’s shoes and demand payment of unpaid balances from

the obligee. The surety’s rights, “as subrogee, are not inferior even to the rights of the

obligee and may be asserted against the obligee.” Id. The Transamerica opinion of

                                           18
the Supreme Court of Florida recognizes that a performing surety may assert a right

to contract proceeds superior to the obligee because, by completing the project, the

surety conferred a benefit on the obligee and, therefore, stepped into the shoes of the

obligee. See id. at 115-16. Where a surety pays the claims of laborers and

materialmen, the surety is only entitled to stand in the shoes of those laborers and

materialmen who might have had liens, “but for” the surety’s payment. Of course, in

both cases, the surety’s subrogation rights exist only to the extent of the surety’s

performance. The fact that the surety in this case, National Fire, did not complete

performance distinguishes this case from Transamerica.13

      We conclude that National Fire’s right to subrogation is controlled by the

rationale of the former Fifth Circuit’s decision in Trinity Universal Ins. Co. v. United

States, 382 F.2d 317 (5th Cir. 1967).14 In Trinity Universal, the former Fifth Circuit

addressed “whether, when a Miller Act surety completes a defaulted contract pursuant


      13
        “‘Subrogation rights place a party . . . in the legal position of one who has
been paid money because of the acts of a third party. Thus, the subrogee ‘stands in
the shoes’ of the subrogor and is entitled to all of the rights of its subrogor, but also
suffers all of the liabilities to which the subrogor would be subject.’” Cleary Bros.
Constr. Co. v. Upper Keys Marine Constr., Inc., 526 So. 2d 116, 117 (Fla. 3d DCA
1988) (quoting Allstate Ins. Co. v. Metropolitan Dade County, 436 So. 2d 976, 978
(Fla. 3d DCA 1983)).
      14
        The Eleventh Circuit has adopted as precedent decisions of the former Fifth
Circuit rendered prior to October 1, 1981. See Bonner v. Prichard, 661 F.2d 1206
(11th Cir.1981).
                                           19
to its performance bond, the government may set off taxes owed by the contractor

against the surety’s claim to the fund retained by the government to insure

performance.” Id. at 318. Finding that there was no right to set-off, the former Fifth

Circuit recognized that, in Munsey Trust, the rights of the surety were limited to those

of subrogee of the contractor because the surety had only performed under a payment

bond. Id. at 319. Having made payments pursuant to its payment bond, the surety in

Munsey Trust became a creditor of the Government with respect to the funds retained

by the Government, and the Government could exercise the well-established common

law right to set-off claims against its creditors. Id. at 319-20.

      However, the former Fifth Circuit noted that, “[a] different situation occurs

when the surety completes the performance of a contract. The surety is not only a

subrogee of the contractor, and therefore a creditor, but also a subrogee of the

government and entitled to any rights the government has to the retained funds.” Id.

at 320. The distinction between a surety’s rights when performing under a payment

bond or a performance bond is important. When a surety completes the project itself

or pays the excess completion costs pursuant to the performance bond, the surety

confers a benefit upon the obligee, whether the obligee is the Government or a private

entity. That benefit relieves the obligee of the burden of completing the construction.

In such circumstances, an implicit agreement exists that the surety has a right to all


                                           20
retained funds and any remaining progress sums, and the obligee does not possess a

right to set-off.15 See id. at 320-21; see also Aetna Cas. & Surety Co. v. United States,

435 F.2d 1082, 1083-84 (5th Cir. 1970) (finding that surety’s payments made under

performance bond were not subject to set-off).

      Courts often fail to address the distinction between a surety’s right to

subrogation when the surety makes payments under a payment bond, as compared to

the surety’s rights when it performs its performance bond obligations. The payment

bond surety, who stands in the shoes of laborers and materialmen, normally has

priority with respect to remaining contract balances because those laborers and

materialmen would have high priority liens against the property under state law.



      15
         In Dependable Ins. Co. v. United States, 846 F.2d 65 (Fed. Cir. 1988), the
Federal Circuit also recognized that a surety’s subrogation rights, with respect to set-
offs asserted by the Government, vary depending upon whether the surety performed
under a performance bond or a payment bond. In that case, the surety acknowledged
that, under Munsey Trust, “the government’s right to retained contract proceeds are
generally superior to those of a payment bond surety.” Id. at 67. The Federal Circuit
further explained why performing performance bond sureties have superior rights to
the obligee, while payment bond sureties do not:
              [W]hen a surety finances completion of a project, it confers
              a benefit upon the government by relieving it of the task of
              completing performance itself. It therefore becomes
              subrogated not only to the rights of the prime contractor but
              to those of the government. Accordingly, a completing
              performance bond surety has the right to accumulated
              contract proceeds free from setoff by the government.
Id. at 67.
                                           21
Under Florida law, construction liens of laborers and materialmen have priority over

all subsequently recorded encumbrances on the owner’s property. Fla. Stat. §

713.07(3) (1997). Of course, the payment bond surety’s subrogation is limited to

proper payments made to valid lien claimants. Likewise, the performance bond surety

who actually performs stands in the principal’s shoes and can demand payment of the

remaining contract balances. Further, such a performance bond surety’s rights to

contract balances are superior to the obligee’s and any claims the obligee may have

against the principal. Where, as in this case, the surety makes payments under the

payment bonds, but does not fulfill its performance bond obligations, this distinction

is critical to an equitable prioritization of rights, particularly where it is the obligee

who performs in the face of the surety’s possible breach of the performance bond.

      The rationale of Trinity Universal controls the respective rights of National Fire

and Fortune to any retained contract balances in Fortune’s possession. To further

analyze the surety’s subrogation rights, it is necessary to differentiate between what

claims are covered by each of the respective bonds. Since National Fire did not

complete construction under its performance bonds, it has acquired equitable

subrogation rights only with respect to its payment bonds. The district court erred to

the extent that it granted summary judgment for National Fire on its claim of equitable

subrogation arising out of the performance bonds. Further, the extent of National


                                           22
Fire’s subrogation under the payment bonds to Fortune is limited to the amount of the

valid claims National Fire properly paid on a particular project after Fortune’s

reasonable costs to complete construction on the project are deducted from the

remaining contract balances.

      Our holding that National Fire is not entitled to equitable subrogation for any

performance bond related claims is also based upon our conclusion that the district

court erred in its partial summary judgment ruling that National Fire had no obligation

under the performance bonds for either project to complete construction itself or to

arrange for the completion of construction.16 Such a ruling would have been correct

if the bonds were indemnity-type, but it is undisputed in the record that the

performance bonds in this case were not merely indemnity bonds. The touchstone of

any right to subrogation under a performance bond is actual and full performance of



      16
        National Fire could not, as the district court ruled, simply “do nothing” and
pay for any excess construction costs. As noted in one treatise:
             The seductive enticement of the ‘do nothing’ option to the
             surety is avoiding the immediate cost of completion, but
             this course of action remains advantageous only if the
             surety is correct in its analysis that it has no liability to the
             obligee....Some bond forms remove the surety’s ‘do
             nothing’ option. These instruments require the surety to
             act. If the surety believes it has a defense, it may reserve its
             rights and litigate -- but it must perform.
Phil Bruner & Patrick O’Connor, 4 BRUNER & O’CONNOR ON CONSTRUCTION LAW
§ 12:82 n.5 (2002), WL BOCL § 12:82.
                                          23
the bond’s obligations. RESTATEMENT (THIRD) OF SURETYSHIP & GUARANTY § 27

(1995). The language of the two performance bonds plainly contravenes the district

court’s ruling. The Winston Park performance bond provided that:

             Whenever [Arkin] shall be, and declared by [Fortune] to be
             in default under the [Winston Park Subcontract], [Fortune]
             having performed [Fortune’s] obligations thereunder,
             [National Fire] may promptly remedy the default, or shall
             promptly

             1) Complete the [Winston Park Subcontract] in accordance
             with its terms and conditions, or

             2) Obtain a bid or bids for completing the [Winston Park
             Subcontract] in accordance with its terms and conditions,
             and upon determination by [National Fire] of the lowest
             responsible bidder, or if [Fortune] elects, upon
             determination by [Fortune] and [National Fire] jointly of
             the lowest responsible bidder, arrange for a contract
             between such bidder and [Fortune], and make available as
             Work progresses...sufficient funds to pay the cost of
             completion less the balance of the contract price; but not
             exceeding, including other costs and damages for which
             [National Fire] may be liable hereunder, the amount [of the
             bond].

Under the terms of this bond, when Arkin was declared in default, National Fire had

three options: (1) it could remedy the default; (2) it could complete construction itself;

or (3) it could arrange for the completion of construction by selecting, either by itself

or jointly with Fortune, a completion contractor and by making funds available to the

completion contractor for completion costs in excess of the contract price. National


                                           24
Fire could not, as the district court held, merely ignore Fortune’s demands that

National Fire perform, force Fortune to complete construction, and then pay Fortune

for reasonable costs in excess of the contract price. The express terms of the Winston

Park performance bond placed the burden of performance on National Fire. Because

National Fire did not perform, it is not entitled to subrogation with respect to the

Winston Park performance bond.

      The district court also erred in applying the same analysis to National Fire’s

West Brickell performance bond obligation as to the Winston Park performance bond

obligation.    Unlike the Winston Park performance bond, the West Brickell

performance bond’s terms potentially contemplated completion of construction by

Fortune. The West Brickell performance bond stated:

              Whenever [Arkin] shall be, and be declared by [Fortune] to
              be in default under the subcontract, [Fortune] having
              performed [Fortune’s] obligations thereunder:

              (1) [National Fire] may promptly remedy the default
              subject to the provisions of paragraph 3 herein; or

              (2) [Fortune] after reasonable notice to [National Fire] may,
              or [National Fire] upon demand of [Fortune] may arrange
              for the performance of [Arkin’s] obligation under the
              subcontract subject to the provisions of paragraph 3 herein;

              (3) The balance of the subcontract price ... shall be credited
              against the reasonable cost of completing performance of
              the subcontract. If completed by [Fortune], and the
              reasonable cost exceeds the balance of the subcontract

                                           25
           price, [National Fire] shall pay to [Fortune] such excess,
           but in no event shall the aggregate liability of [National
           Fire] exceed the amount of this bond.
      (Emphasis added).

Under this provision, National Fire also had three alternatives: (1) it could remedy the

default; (2) if Fortune provided National Fire reasonable notice that Fortune wished

to arrange for completion, it could allow Fortune to arrange for the completion of

construction; or (3) if Fortune demanded that National Fire arrange for completion of

construction, it could arrange for completion of construction itself. According to the

evidence in the record (and construing the record in the light most favorable to

Fortune since it appears to be a genuine factual dispute), Fortune did not wish to

complete construction of the West Brickell project itself after Arkin defaulted.

Instead, Fortune demanded that National Fire arrange for completion of construction

of the West Brickell project, and National Fire refused to do so. Paragraph three of

the West Brickell performance bond does contemplate the possibility that Fortune

could have completed the subcontract itself. However, this contingency would only

occur if, under the second alternative, Fortune sought to complete construction itself

or, under the third alternative, National Fire arranged for Fortune to complete

construction. In either of these cases, Fortune (not National Fire) could choose

whether Fortune would voluntarily complete construction. Because it appears

National Fire did not perform, it is not entitled to subrogation with respect to the West

                                           26
Brickell performance bond.

      We also find that disputed issues of material fact exist in the record about

whether National Fire’s failure to perform amounted to a breach of its performance

bond obligations, as described above. National Fire claims it appropriately tendered

a completion contractor and that Fortune refused this tender. (Aff. of Raymond

Lemming, R.27 at 4-5.) Fortune claims a completion contractor was never tendered

despite its demands. (Aff. of Michael Getz, R.44 at 2.) This obvious factual conflict

was presented to the district court in the parties’ arguments on National Fire’s motions

for partial summary judgment. The only way the district court avoided confronting

this conflict was by erroneously ruling that, as a matter of law and without reference

to the language of the performance bonds, National Fire had no obligation to tender

a completion contractor or to complete performance itself. Summary judgment on

Fortune’s breach of contract claim against National Fire was improper and we remand

for further proceedings on this issue.17

      B.     Fortune’s Setoff Claims

      Having concluded that National Fire is only entitled to equitable subrogation


      17
        Determination of the factual dispute about whether National Fire actually
breached the performance bonds is unnecessary to our ruling on National Fire’s claim
of equitable subrogation. It is undisputed that National Fire did not, in fact, complete
construction, and for that reason National Fire cannot claim subrogation under the
performance bonds.
                                           27
with respect to valid payments made under its payment bonds, and that Fortune is

entitled to a setoff for all items encompassed within the scope of the performance

bonds, we now must consider the specific claims for which Fortune seeks setoff.

      1.     Liquidated Delay Damages

      Fortune contends that National Fire is responsible for liquidated delay damages

that had accrued prior to Arkin’s default due to Arkin’s failure to timely perform on

both projects. Although Fortune obtained judgment as a matter of law against Arkin

for these damages, Fortune seeks to set these damages off against the retained contract

balances. Fortune also argues that National Fire is contractually liable for these

damages because the bonds incorporated by reference the underlying subcontracts

which expressly provided for delay damages. However, National Fire denies any

responsibility for delay damages, arguing that such damages are unrelated to the

completion of the bonded construction projects and that the performance bonds do not

expressly recognize liability for delay damages.

      We look to Florida law to see what a surety’s obligations are in the

circumstances of this case. As a general proposition, the true performance bond

requires a surety to guarantee the performance through completion of the underlying

contract. See Federal Ins. Co. v. Southwest Fla. Retirement Ctr., Inc., 707 So. 2d

1119, 1121 (Fla. 1998). However, in American Home Assurance Co. v. Larkin


                                          28
General Hospital, Ltd., 593 So. 2d 195 (Fla. 1992), the Supreme Court of Florida held

that “a surety cannot be held liable for delay damages due to the contractor’s default

unless the bond specifically provides coverage for delay damages.” Id. 593 So. 2d at

196 (footnote omitted).      In Larkin General Hospital, the contractor had not

substantially completed the project by the target date, but the owner did not declare

the contractor in default. Nearly eighteen months later, after a dispute arose between

the owner and contractor, the owner declared the contractor in default and notified the

surety. The surety elected not to complete performance and the owner used another

contractor to complete the job. In the owner’s action against the surety for breach of

the performance bond, the trial court included in its damage award the owner’s

consequential delay damages for the contractor’s tardy performance. Importantly for

purposes of our analysis, there was no liquidated or other type of damages provision

in the underlying contract. The Larkin General Hospital court noted:

             [t]he purpose of a performance bond is to guarantee the
             completion of the contract upon default by the contractor.
             Ordinarily a performance bond only ensures the completion
             of the contract. The surety agrees to complete the
             construction or to pay the obligee the reasonable costs of
             completion if the contractor defaults.

Id. at 198 (citations omitted). Although a surety’s liability is coextensive with that of

the principal, “the surety’s liability for damages is limited by the terms of the bond.”

Id. Therefore, the Supreme Court of Florida found that “[t]he language in the

                                           29
performance bond, construed together with the purpose of the bond, clearly explains

that the performance bond merely guaranteed the completion of the construction

contract and nothing more.” Id. (emphasis added); see also Mycon Constr. Corp. v.

Board of Regents, 755 So. 2d 154, 155 (4th DCA 2000) (“Because the performance

bond contains no provision for damages for delay, the surety cannot be held liable for

such damages.”). However, unlike the performance bond in Larkin General Hospital,

the bonds at issue in this case expressly incorporated the subcontracts, which, in turn,

do expressly provide for liquidated delay damages.

      Larkin General Hospital could possibly be interpreted to mean that a

performance bond surety cannot be held liable for, or denied subrogation for, delay

damages, whether liquidated or unliquidated, unless the responsibility for delay

damages is specified on the face of the performance bond. However, we do not read

the decision that broadly.18 The “purpose of the bond” must be considered, which

requires reference to the contract secured by the bond. Where a provision for

liquidated delay damages is clearly delineated in the underlying contract and

incorporated by reference into the bond, the surety is on notice of the time element of

performance and the contractual consequences of failure to timely perform in


      18
       The Supreme Court of Florida has since declined to extend Larkin General
Hospital beyond delay damages. Federal Ins. Co. v. Southwest Fla. Retirement Ctr.,
707 So. 2d 1119, 1121 (Fla. 1998).
                                          30
accordance with the contract. Once the liquidated damages accrue, the contractor-

principal owes a debt to the obligee which is, in effect, a reduction of (or contractual

off-set to) the contract price. In such event, the obligee becomes the creditor of the

principal and the performance bond surety should not have superior rights to the

obligee in the remaining contract balances where liquidated damages have been

suffered. This is especially true where, as here, the surety does not remedy the

principal’s delay by performing the surety’s obligations under the performance bond.

      While it is true that the terms of the bonds in this case do not expressly require

the surety to assume responsibility for delay, “[i]t is the general rule of contract law

that where a writing expressly refers to and sufficiently describes another document,

the other document is to be interpreted as part of the writing.” Lord & Son Constr.,

Inc. v. Roberts Electrical Contractors, Inc., 624 So. 2d 376, 377 n.2 (Fla. 1st DCA

1993). Even after Larkin General Hospital, Florida courts have continued to utilize

the well-established doctrine of incorporation by reference to impose liability on a

performance bond surety. See DCC Constructors, Inc. v. Randall Mech. Inc., 791 So.

2d 575, 576-77 (Fla. 5th DCA 2001); Southwest Fla. Retirement Ctr. v. Fed Ins. Co.,

682 So. 2d 1132-33 (Fla. 2d DCA 1996), aff’d, 707 So. 2d 1119 (Fla. 1998). The

“purpose” of the performance bonds was to insure performance in accordance with the

terms of the respective subcontracts, and those terms plainly include adverse direct


                                          31
consequences for delay. Therefore, under the particular facts of this case, the

unequivocal delay damages provisions of the subcontracts are properly considered

part of the bonds issued by National Fire because of the incorporation by reference.

Moreover, the liquidated delay damages are properly considered part of the

performance of the subcontracts, and it is undisputed that Fortune completed the

projects, with no performance-related costs being incurred or paid by National Fire.

Accordingly, Fortune’s claim for set-off of the delay damages is entitled to priority

over National Fire with respect to any of National Fire’s claims related to the

performance bonds.

      However, Fortune’s claim for delay damage set-off is not entitled to priority

over National Fire’s valid payment bond claims. A performing payment bond surety

stands in the shoes of the laborers and materialmen who might have had liens on the

property. That right is generally superior to the rights of either the principal or the

obligee. To the extent of the payment bond claims actually and properly paid,

National Fire’s right to any unpaid contract balances is superior to Fortune’s

liquidated delay damages claim.19 We express no opinion about whether National Fire

may be responsible for delay damages related to Fortune’s breach of contract claims



      19
        It is not clear from the record, but it appears that National Fire’s payment bond
equitable subrogation claims may exhaust the contract balances retained by Fortune.
                                           32
on the performance bonds.

      2.     Davis-Bacon Wages

      The district court granted National Fire partial summary judgment on Fortune’s

counterclaim for set-off of the amount of back wages Fortune paid due to violations

of the Davis-Bacon Act by one of Arkin’s subcontractors on the West Brickell Project.

The Davis-Bacon Act requires laborers on federally funded projects to be paid not less

than the “prevailing” wages in the locale. See 40 U.S.C. § 276a(a); Walsh v. Schlecht,

429 U.S. 401, 411, 97 S. Ct. 679, 686, 50 L. Ed. 2d 641 (1977). The Act requires that

“every contract based upon these specifications shall contain a stipulation that the

contractor or his subcontractor shall pay all mechanics and laborers” the federally

mandated wages. 40 U.S.C. § 276a(a) (emphasis added). Federal regulations

applicable to contracts and subcontracts under the Davis-Bacon Act provide, “The

prime contractor shall be responsible for the compliance by any subcontractor or

lower tier subcontractor....” 29 C.F.R. § 5.5(a)(6) (1999).

      We conclude that the Davis-Bacon wages paid by Fortune are part of Fortune’s

reasonable cost of completion of construction.20 The Davis-Bacon wage claims paid


      20
        One could evaluate Fortune’s Davis-Bacon Act claim, as Fortune suggests, as
part of National Fire’s performance bond obligation because the West Brickell
performance bond specifically incorporated by reference the West Brickell
Subcontract which imposed on Arkin the responsibility for Arkin’s subcontractors’
acts and omissions. However, we think the Davis-Bacon Act wages are properly
                                         33
by Fortune represent wages of laborers on the West Brickell project that should have

properly been paid as part of the costs of construction. Because of Arkin’s failure to

properly supervise Allied’s compliance with the Davis-Bacon Act, as Arkin was

required to do under the West Brickell Subcontract, federal funds payable to Fortune,

as general contractor, for the West Brickell project sufficient to pay Allied’s

employees could have been withheld. 40 U.S.C. § 276a-2(a). If the remaining federal

funds were insufficient to repay the employees, the Davis-Bacon Act gave Allied’s

employees the right to file a lien on the West Brickell property for the difference. 40

U.S.C. § 276a-2(b); Fla. Stat. § 713.03. We reverse the district court’s grant of partial

summary judgment to National Fire on this issue and hold that Fortune has a right to

set off its $71,126.00 Davis-Bacon Act claim against the remaining contract balances




considered costs of construction because they represent wages that should have
properly been paid, and were paid, through enforcement by the Department of Labor,
to the laborers on the West Brickell project. Such wages were a part of the cost of
completion.
       These wages could also be considered as being within National Fire’s payment
bond obligation, but because of unique language in the West Brickell payment bond,
the Davis-Bacon wage claims escape coverage under the bond. National Fire was
only obligated under the West Brickell payment bond to make payments to valid
“claimants”, defined as those persons having a “direct contract” with Arkin. The
Davis-Bacon wage claimants were employees of Allied who did not technically have
a “direct contract” with Arkin.
                                           34
as part of Fortune’s reasonable costs of completion.21

      3.     Electrical Overages

      Fortune also claims the Fortune-Arkin letter agreement gives Fortune a right to

payment from National Fire for the electrical overages Fortune paid on the West

Brickell project. However, the West Brickell performance bond cannot be construed

to cover an agreement that was not identified in the West Brickell Subcontract.22 The


      21
         The parties also have raised an issue concerning whether public policy favors
holding either the principal contractor or a subcontractor’s surety responsible for
ensuring payment of Davis-Bacon wages. As discussed earlier, Fortune is required
by law, as well as by public policy, to ensure compliance by its subcontractors with
the Davis-Bacon Act. See 40 U.S.C. §276a; 29 C.F.R. §5.5(a)(6). Fortune satisfied
this responsibility in the West Brickell Subcontract, which was incorporated by
National Fire’s performance bond, by requiring Arkin to be responsible for the acts
and omissions of its subcontractors. We first note that Fortune actually paid the
Department of Labor’s Davis-Bacon Act claim for restitution. Fortune only seeks
reimbursement from Arkin and National Fire for their failure to pay the claim when
requested to do so. Moreover, in the West Brickell performance bond, National Fire
necessarily accepted the risk that its principal, Arkin, would not fulfill these
obligations imposed upon it by the Act and its subcontracts. As a result, we conclude
that the policy behind the Davis-Bacon Act will not be frustrated by allowing Fortune
to recover this amount as a part of its reasonable costs of completion.
      22
        According to Fortune, the letter agreement dated January 15, 1996, is included
in the bonded West Brickell Subcontract as evidenced by the fact that National Fire
admitted its inclusion in its Answer to Fortune’s counterclaim. At oral argument,
counsel for Fortune indicated that this admission by National Fire had not been
brought to the trial judge’s attention prior to the granting of summary judgment
against Fortune. Counsel for National Fire indicated that the admission was
inadvertent. It appears that National Fire did erroneously admit that this agreement
was part of the bonded subcontract, but we do not believe that this inadvertent
admission should control liability for these overage costs when it was not considered
                                         35
West Brickell performance bond specifically incorporated the West Brickell

Subcontract by reference. The list of “Contract Documents” identified in the West

Brickell Subcontract, which sets forth the documents that are part of the bonded

subcontract, does not include the letter agreement. The subcontract made no other

reference to the letter agreement, even though the parties made several other

handwritten alterations to the subcontract. Merger and integration provisions in both

the “Contract Documents” section and in Article 17 of the subcontract provide that the

referenced documents are the entire and complete agreement of the parties. Since the

bond was issued on the subcontract without reference to the letter agreement, the letter

agreement is not within the scope of contract work that National Fire agreed to insure

when it issued the bond. Further, the district court properly rejected Fortune’s offer

of parol evidence that the letter agreement was part of the subcontract because Fortune

produced no evidence that National Fire knew of the letter agreement at the time it

issued the bond. Therefore, Fortune has no right to payment for electrical overages

from National Fire and the district court properly granted summary judgment in favor

of National Fire on this issue.

       C.     Remaining Issues

              1.     National Fire’s Breach of Contract Claim


by the district court.
                                          36
      Fortune argues that National Fire’s breach of contract claim should not have

been submitted to the jury because Fortune was not a signatory to the performance

bonds on which the claim was based. National Fire asserts that the terms of the bond

obligated Fortune to pay National Fire the balance of the proceeds of the Fortune-

Arkin subcontract after Fortune completed construction. The terms of the bonds

plainly contradict National Fire’s argument. Normally, bond agreements create duties

that run from the surety to the obligee. The obligee is a beneficiary of the agreement

between surety and principal. While there may possibly be some circumstances under

which a bond’s terms might impose duties on the obligee, Fortune was merely a

beneficiary of the performance bonds here.23 As discussed above, bonds are to be

interpreted according to ordinary principles of contract construction. American Home

Assurance Co. v. Larkin Gen. Hosp., Ltd., 593 So. 2d at 195, 197 (Fla. 1992);

Restatement (Third) of Suretyship & Guaranty §§ 17(2), 32(1) (1995).

      In the event that Arkin defaulted, under the terms of both performance bonds

National Fire could complete construction itself or agree with Fortune to jointly select

another contractor to finish construction, which could possibly be Fortune if the

parties so agreed. If the latter occurred, the performance bonds obligated National


      23
        Even if the agreement imposed duties on Fortune, we find it difficult to
understand how a principal and surety could bind an obligee to perform those duties
without expressly obtaining the obligee’s consent.
                                          37
Fire to make available funds for the completion of construction to the extent the costs

exceeded the balance of the contract price. This provision does not require Fortune

to tender to National Fire the remaining contract price if Fortune completed

construction at a cost less than the contract price. Our interpretation of the bonds’

terms is consistent with the surety’s traditional duty to complete construction in the

event of the principal’s default. The purpose of a performance bond is to assure the

obligee that construction will be completed and that it will not be liable for

construction costs in excess of the contract price in the event the contractor defaults.

If National Fire had completed construction, it would have been entitled to payment

of the contract price, or under equitable subrogation, entitled to the remaining contract

balances held by Fortune. However, National Fire did not complete construction

under the bond’s terms. Instead, Fortune completed construction and, luckily for

National Fire, at a cost less than the contract price. Under no reasonable construction

of the performance bonds’ terms can a contractual duty be found for Fortune to pay

National Fire the remaining balance after Fortune completed construction. Therefore,

the district court erred in allowing National Fire’s breach of contract claim to be

submitted to the jury. Further, even if (as National Fire claims) Fortune did prevent

National Fire from completing construction by refusing to accept National Fire’s

tender of a completion contractor, National Fire could only assert this fact as an


                                           38
affirmative defense that its liability under the performance bonds was discharged, not

as a breach of contract claim against Fortune. See Ins. Co. N. Amer. v. Metro. Dade

County, 705 So. 2d 22, 34-35 (Fla. 3d DCA 1997)(obligee’s failure to timely notify

surety of latent defects discharged surety). See also St. Paul Fire & Marine Ins. Co.

v. City of Green River, 93 F. Supp. 2d 1170 (D. Wyo. 2000), aff’d, 2001 WL 369831

(10th Cir. 2001).

      2.     Prejudgment Interest

      Finally, we consider the district court’s award of prejudgment interest on the

jury’s damages verdict in favor of National Fire, retroactive to January 30, 1998.

Fortune notes that National Fire did not pay one payment bond claimant on the West

Brickell project until March 19, 2001, and last paid a like claimant on the Winston

Park project on May 15, 2001. Fortune argues that any equitable subrogation rights

did not accrue until those dates, when performance under the bonds was complete.

Therefore, Fortune contends that prejudgment interest should have been calculated

from those dates on the respective projects, and not over three years earlier.

      We agree. Prejudgment interest in an action for breach of contract is allowable

from the date the debt is due. See, e.g., Paoli v. Natherson, 732 So. 2d 486, 488 (Fla.

2d DCA 1999). Where the judgment liquidates the plaintiff’s damages, the plaintiff

is entitled, as a matter of law, to prejudgment interest from the date of that loss.

Argonaut Ins. Co. v. May Plumbing Co., 474 So. 2d 212, 215 (Fla. 1985). However,


                                          39
in this case, National Fire’s right to equitable subrogation under its payment bonds

with respect to the remaining contract balances did not arise until all of its payment

bond obligations had been performed. RESTATEMENT (THIRD)           OF   SURETYSHIP &

GUARANTY § 27 (1995). Further, any entitlement to equitable subrogation on the

remaining contract balances could not be determined until after Fortune had

completed the construction. If, as is usually the case, the cost of completion by

Fortune had equaled or exceeded the contract price, there would have been no

remaining balances and National Fire would not have been entitled to any equitable

subrogation with respect to them.       The district court erred when it awarded

prejudgment interest on National Fire’s equitable subrogation claim prior to the

completion of its payment bond obligations.

IV.    CONCLUSION

      For the above reasons, the judgment of the district court is AFFIRMED IN

PART and REVERSED IN PART and this case is REMANDED for further

proceedings consistent with this opinion.




                                         40
