Surety Liable for Attorneys Fees and Statutory Penalties Awarded Against Principal

Nat’l Tech. Sys. v. Superior Court, 97 Cal. App. 4th 415 (2002)

In this case, subcontractor National Technical Systems sought to enforce a stop notice release bond against surety United Pacific Insurance Company.  In a prior trial in which UPIC was not joined as a party, NTS had obtained a judgment against a general contractor, including attorneys fees and statutory penalties.  In a subsequent claim against UPIC, NTS had sought to introduce evidence of the judgment and attendant attorneys fees and penalties.  UPIC filed two motions in limine to exclude the evidence.  The first motion sought to exclude evidence of the judgment on the grounds that UPIC was not a party to the prior action and thus not bound by the judgment.  The second motion sought to exclude evidence of the attorneys fees and statutory penalties on the grounds that these awards were not recoverable under the stop notice release bond and that UPIC could only be liable for labor, service and materials furnished on the project.  The trial court granted UPIC’s motions, and NTS sought a writ of mandate directing the court to vacate the order granting the motions.

The court of appeals ruled that a surety is not bound by an earlier judgment against its principal, and therefore UPIC was not bound by provisions in the judgment awarding attorneys fees and statutory penalties to NTS.  However, the court of appeals further ruled that a surety’s liability on the bond is commensurate with that of the principal, and held that NTS could recover attorneys fees and statutory penalties from UPIC upon an appropriate showing.