610 Defenses of Surety

• Jurisdiction: Arizona

(a) Failure to Join Principal

The principal obligor on a bond must be a party to any suit against the surety. The surety’s defense that the principal obligor was not included as a party can be waived by failure to object at trial.

Rule 17(f) of Arizona Rules of Civil Procedure requires that the principal obligor be a party to any lawsuit against a surety unless the principal obligor is dead, insolvent, or cannot be located. In conjunction with this rule, one should also refer to the suretyship provisions in A.R.S. § 12-1641 et seq. Under the suretyship statutes, the creditor can be required to first execute upon the assets of the principal obligor before proceeding against the surety.

In U.S. Fidelity & Guar. Co. v. Alfalfa Seed & Lumber Co., 38 Ariz. 48, 297 P. 862 (1931), Alfalfa was owed money by a contractor who furnished materials used in the construction of a schoolhouse. It sued the surety without suing the contractor and recovered a judgment against the surety. This judgment was reversed on the grounds that § 3732 of the statutes then in effect (now Rule 17(f)) required that the principal obligor be a party to any such suit. Alfalfa cited § 3836 (now A.R.S. § 44-141), which provided that all parties to a joint obligation are severally liable. The court held that this applied to the situation after the judgment is obtained, not to who must be sued in the first place.

In this case, the principal obligor had in fact sought to intervene, and his intervention had been denied by the court. The court held that it was error to deny him the right to intervene. Hill v. Alfalfa Seed & Lumber Co., 38 Ariz. 70, 297 P. 868 (1931).

In Massachusetts Bonding & Ins. Co. v. Lentz, supra, the owner sued both the contractor and the surety, but served only the surety. The court held that the owner’s failure to serve the contractor would have been a valid defense for the surety at the trial level. However, the owner’s intention not to serve the contractor had been clear, and since no objection had been made at trial by the surety, the court held that this defense had been waived. See also Commercial Standard Ins. Co. v. West, 74 Ariz. 359, 249 P.2d 830 (1952); State Auto. & Cas. Underwriters v. Engler, 90 Ariz. 321, 367 P.2d 665 (1962).

In SCA Constr. Supply v. Aetna Cas. & Sur. Co., supra, the court held that it is necessary to join the principal when suing the surety on a Little Miller Act Bond. The Arizona Supreme Court reversed the court of appeals decision, which had followed federal precedent rather than Rule 17(f), Arizona Rules of Civil Procedure.

In United States ex rel. C.W. Henderson v. Nucon Constr., 49 F.3d 1421 (9th Cir. 1995), the Ninth Circuit ruled that one can bring a Miller Act claim without joining the general contractor. In interpreting a federal statute, the court held that federal law, rather than Arizona law, would apply.

(b) Substantial Changes

Any material changes in the obligation not assented to by the surety as one of the parties to the contract will discharge the surety from liability.

In Prescott Nat’l Bank v. Head, 11...