dissenting.
In the process of bestowing a million-dollar windfall on the County, the majority treats an indemnification bond as a penal bond and thus relieves the County of the burden to establish damages. I cannot join in such an exercise.
If a surety agreement is construed as a penalty bond, the obligee may recover the full amount of the bond upon nonperfor*340manee by the principal without regard to damage. Clark v. Barnard, 108 U.S. 436, 458-61 (1883). But if the agreement is construed as an indemnity bond, the obligee’s right of recovery is limited to the cost of completion of the improvements, not to exceed the face amount of the bond. See United States v. Zerbey, 271 U.S. 332, 338 (1926). And, contrary to the majority’s view, in the case of an indemnity bond the obligee must establish its claim for damages by reason of the principal’s nonperformance. General Insurance Co. v. City of Colorado Springs, 638 P.2d 752, 759 (Colo. 1981); see United States v. Zerbey, 271 U.S. at 338, 341; Clark v. Barnard, 108 U.S. at 453-54.
In the present case, the conditions of the several security instruments are indentical:
“The condition of the above obligation is such that whereas, the said CROWS NEST HARBOUR has presented to the Board of Supervisors of Stafford County, Virginia, for recordation a plat of subdivision in Aquia Magisterial District, Stafford County, Virginia . . . and whereas, a condition of the approval and recordation of said plat is construction of the streets and water and sewer lines therein in accordance with the specifications shown on said plat, and whereas, CROWS NEST HARBOUR has undertaken to complete said water and sewer lines and streets in a workmanlike manner in accordance with said specification within 24 months from the date hereof.
“NOW, THEREFORE, if the said Principal shall well and faithfully do and perform the things agreed by it to be done, as hereinabove stipulated, then this obligation shall be void, otherwise, the same shall remain in full force and effect; it being expressly understood and agreed that the liability of the Surety for any and all claims hereunder shall in no event exceed the penal amount of this obligation as herein stated.”
Manifestly, the bonds, as well as the subdivision ordinances and the applicable statute, created the obligation to indemnify the County for the cost of uncompleted streets, water lines and sewer lines. Implicitly, the agreements indicate that the parties intended to provide security for full completion of the streets and lines once construction had begun. See Board of Supervisors v. Ecology *341One, Inc., 219 Va. 29, 36-37, 245 S.E.2d 425, 429-30 (1978). Here, such construction was never commenced; indeed, there was only de minimis work done on the subdivision parcels. As a matter of fact, the streets and utility lines in this aborted development will never be constructed.
Under these circumstances, no damage has been or will be suffered by the County. Yet, the majority has converted a performance bond into a contract for liquidated damages. This inequitable result amounts to a forfeiture, penalizing the surety under the guise of enforcing the terms of an indemnity bond.
I would affirm the judgment below.
RUSSELL, J., joins in dissent.