## Facts

- An owner contracted with a builder to construct a residence for $25,000 with a stated completion date and a 10% retainage.
- A compensated surety issued a performance bond in the contract amount, conditioned on retainage and providing that plan/specification changes increasing the amount payable to the contractor by more than 10% of the bond penalty required the surety’s written consent.
- Numerous changes were made during construction; only a small portion of extras was submitted in writing as increased cost.
- Additional alterations were authorized on a cost-plus basis through the owner’s father-in-law; the surety later asserted these changes exceeded the bond’s 10% limit.
- The project ran past the completion date; the contractor failed to pay labor and material bills, and the owner began paying costs in full as bills were presented.
- The contractor eventually abandoned the job; the owner completed the residence at a substantially higher total cost than the contract price and gave the surety written notice of default shortly after abandonment.
- The owner sued the surety on the bond in federal court; the surety claimed discharge due to material alterations and payment departures without written consent.
- The trial court found the surety’s local agent knew of the delays, extensive changes, waiver of retainage, altered payment practices, and the contractor’s financial distress, and nevertheless told the owner to proceed and do the best he could to finish.
- The trial court entered judgment for the owner for roughly $12,000 and awarded prejudgment interest; the surety appealed and the owner cross-appealed on damages.

## Issues

1. Whether material changes and payment departures that likely exceeded the bond’s 10% change limit, made without the surety’s written consent, discharged the surety or were waived by the surety’s knowledge and conduct.
2. Whether the evidence supported the trial court’s damages award on the performance bond.
3. Whether Kansas law permitted prejudgment interest on the owner’s recovery as an unliquidated claim.

## Decision

- The court affirmed liability on the bond, holding the surety waived reliance on the written-consent and change-limit conditions through knowledgeable acquiescence and affirmative encouragement to continue.
- The court affirmed the damages award, concluding it was supported by substantial evidence and would not be disturbed on appeal or cross-appeal.
- The court reversed the award of prejudgment interest because, under Kansas law, interest is generally not recoverable on unliquidated claims absent special circumstances not shown.

## Legal Principles

- A surety is generally discharged when the principal contract is materially altered in a way that increases the surety’s risk without the surety’s consent.
- A compensated surety may waive contractual conditions limiting alterations (including written-consent and cost-increase caps) by conduct showing acceptance of the altered performance, including knowledgeable acquiescence and affirmative encouragement.
- Knowledge coupled with failure to object under circumstances calling for objection, and especially active advice to proceed despite known deviations, can constitute implied consent or waiver.
- Under Kansas law, prejudgment interest is not allowed on unliquidated damages unless unreasonable delay or other equitable grounds justify it; disputed completion-cost calculations typically render a performance-bond claim unliquidated.

## Conclusion

The court held the surety remained liable because its agent’s informed acquiescence and encouragement waived the bond’s written-consent and change-limit defenses, upheld the trial court’s damages finding as supported by the record, and set aside prejudgment interest because the claim was unliquidated under Kansas law.


Trinity Universal Ins. Co. v. Gould, 258 F.2d 883 (10th Cir. 1958)