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46 A.B.A. J. 649 (1960)
Surety Bonds on Public and Private Construction Projects

handle is hein.journals/abaj46 and id is 651 raw text is: Surety Bonds on Public and Private
Construction Projects
In this article, Mr. Cushman discusses the legal aspects of surety
bonds, placing special emphasis upon bonds required by the Federal
and State Governments to protect suppliers of labor and material.
Mr. Cushman's son, Robert F., collaborated with him in preparing
this article.
by Edward H. Cushman * of the Pennsylvania Bar (Philadelphia)

T'HE PREVENTION OF unjust en-
richment is the principle upon which a
mechanic's lien rests. The first mechan-
ics' lien statute in the United States
was enacted in 1791 by the General
Assembly of Maryland, to encourage
master builders to undertake the
building and furnishing houses within
the proposed capital city of Washing-
ton by securing to them a just and
effectual remedy for their advances and
earnings. Mechanics' liens have been
created by statute in every state of the
Union because of the legislative realiza-
tion of the equity in favor of the me-
chanic resulting from an enhancement
in value due to the expenditure of work
or the employment of materials upon
property justifying payment therefor.
Since the security has been enhanced in
value, creditors are not prejudiced by
the existence of the lien.
Bonds on Public Works
A building erected for the United
States is not subject to a mechanic's
lien, but the public body has a moral
obligation to see to it that the persons
who furnished labor and material re-
quired in the construction of a public
project are paid in full. In recognition
of this obligation, Congress, by the Act
of August 13, 1894, commonly called
the Heard Act, required any person
entering into a formal contract with
the United States for the construction
or repair of any public building or
public work to execute a single penal
, bond with good and sufficient sureties,

with the additional obligation that such
contractor or contractors shall prompt-
ly make payments to all persons sup-
plying him or them labor and material
in the prosecution of the work provided
for in such contract.
The United States, in requiring the
contractor to agree to pay his laborers
and materialmen and to furnish the
bond to assure such payments, ac-
quired a right against the contractor
if these suppliers were not paid.
The Heard Act failed to protect the
United States fully. A few subcon-
tractors recovered on suits instituted
thereunder before the completion of
the building. This tended to diminish
the penal sum of the bond and thus to
prejudice the United States when the
contractor failed to perform the gov-
ernment contract. Whereupon, Con-
gress, by an amendment in 1905, as-
sured the United States priority of its
demands by requiring other creditors
to refrain from suit on the bond for
six months after completion of the
contract and final settlement thereun-
der, and providing that, if the United
States had a claim on the bond, it
should have priority in distribution
ever all other claimants. Procedural
problems resulted in court decisions
prejudicial to suppliers of labor and
material.
Ohio enacted legislation under which
the performance bond was required to
contain an additional obligation for
the payment of labor and material
claims and to be in an amount equal
to fifty per cent of the contract price.

The Supreme Court of Ohio held that
when the penal sum named in the bond
was insufficient to cover the loss sus-
tained by the municipality by reason
of the contractor's failure to complete
the contract, the municipality might
recover the full penalty named in the
bond; persons who furnished labor and
material required to construct the pub-
lic improvement had no right of re-
covery, since the statute did not ex-
pressly give materialmen priority over
the municipality.
An 1892 ordinance of the City of
Lancaster, Pennsylvania, initiated the
dual bond system, which is now the
basis of the federal statute commonly
known as the Miller Act, and also of
the law in a number of states.2 The
dual bond system adequately protects
the interest of the public body by a
performance bond and at the same
time affords unpaid laborers and ma-
terialmen a reasonably swift and cer-
tain remedy under a separate or addi-
tional bond taken exclusively for their
protection.
The simplification attained by tile
separation of the dual obligation of
performance and payment of labor and
material claims achieved by the Miller
1. 40 U.S.C.A. 270 (a) to (d), August 24,
1935 49 Stat. 794.
2. Alabama Code, 2931 (9) (Supp. 1936).
California West Annos. Government Code, ch.
3, §4200 to 4210 stat. 1943, ch. 134, as last amend-
ed the stal. 1959, ch. 1594, §2. Connecticut Rev.
Stat. tit. 58, c. 362, Secs. 7214 (1949). Georgia
Code flooK 8, 1958-59 Supp. §23-1705 pages 114,
115. Maryland Laws of 1959, Ch. 10, page 15.
Pensyleania Statutes of 1931 and 1933 were
the forerunners of the Miller Act. There are too
many separate statutes for tabulation here.
Each deals with one political subdivision of the
state or other public body. For procedure, see
53 P.S. Sections 525 to 529, etc.

June, 1960  • Vol. 46  649

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