Judgment against a Principal is Binding and Conclusive on a Surety

By Gallivan White & Boyd, PA

The South Carolina Court of Appeals recently reaffirmed the rule that "a judgment against a principle is binding and conclusive on a surety." Ward v. Fed. Co., 233 S.C. 561, 106 S.E.2d 169 (1958). In International Fidelity Ins. Co. v. China Construction America (SC) Inc., Opinion No. 4288, August 21, 2007, Contractor subcontracted electrical work from Subcontractor and had to post performance and payment bonds in the full amount of the subcontract from Surety. Subcontractor became insolvent and failed to complete the subcontract on time. Contractor sought breach of contract damages against Subcontractor and Surety among other relief. Surety "bonded off the liens" and Contractor received a judgment against Subcontractor for breach of contract. Thereafter, Surety filed an action against Contractor for the balance of the subcontract, arguing that the prior judgment against Subcontractor was not binding because it was beyond the scope and coverage of the bond.

The Court of Appeals affirmed the Circuit Court's ruling that the prior judgment against Subcontractor was binding on Surety. The Court cited the rule from Ward which held that: "the liability of a surety is dependent on the outcome of litigation in which his principle is or may be involved, a judgment against a principal is binding and conclusive on the surety, and the surety may not impose defenses which should or might have been set up in the action in which the judgment was recovered, or require proof of the facts on which the judgment rests, or attach the validity of the judgment, except for fraud or collusion or want of jurisdiction." The Ward court also explained that this is the rule irrespective of whether the surety had "notice of the suit or opportunity to defend."

As such, in South Carolina a judgment against the principle of a surety is binding and conclusive upon the principle absent fraud, collusion or want of jurisdiction and it is irrelevant whether surety had notice or opportunity to defend in the suit.