Kalfountzos v. Hartford Fire Ins. Co

In Kalfountzos v. Hartford Fire Ins. Co. (1995) 37 Cal.App.4th 1655, a subcontractor on a public works project sued both the general contractor and the surety which had issued the payment bond and stop notice release bond. The general contractor in Kalfountzos was in corporate suspense and could not defend itself in court. ( Kalfountzos, supra, 37 Cal.App.4th at pp. 1656-1657.) The trial court entered the general contractor's default. ( Id. at p. 1658.) In a subsequent proceeding in the same action, the trial court ruled the surety could assert the general contractor's defenses and setoffs, even though the general contractor was subject to a default judgment. (Ibid.) The Court of Appeal affirmed. It restated the general rule that a surety may raise all defenses that would be allowed a principal. ( Id. at pp. 1658-1659, citing Flickinger v. Swedlow Engineering Co. (1955) 45 Cal.2d 388, 394.) It then concluded the surety could raise those defenses, "even though the principal, as here, is precluded from raising those defenses and setoffs because of a legal disability having nothing to do with the validity of the defenses and setoffs." ( Kalfountzos, supra, 37 Cal.App.4th at p. 1659.) Any other result would be an "unjustified windfall" to the subcontractor. (Ibid.)