A contractor fails to pay subcontractors and suppliers totaling $75,000. Multiple claims are filed against the contractor's $15,000 bond. How are the claims resolved?
Correct Answer
C) Claims are paid proportionally up to bond limit
When claims exceed the bond amount, South Carolina law requires proportional payment to all valid claimants up to the bond limit.
Why This Is the Correct Answer
When total claims exceed the bond amount, South Carolina law requires that all valid claimants share proportionally in the available bond funds rather than paying claimants on a first-come, first-served basis. Each claimant receives a percentage of their claim equal to the bond amount divided by the total claims ($15,000 / $75,000 = 20 cents on the dollar for each claimant).
Why the Other Options Are Wrong
Option A: Only material supplier claims are paid
Paying only material supplier claims and excluding subcontractors is incorrect. South Carolina bond law does not prioritize material suppliers over subcontractors — all valid claimants (both subcontractors and suppliers) are treated equally and share proportionally.
Option B: First claim filed gets full payment
A first-filed, first-paid approach would be unfair to later-filing claimants and is not the rule under South Carolina law. The statute is designed to treat all valid claimants equitably when funds are insufficient to cover all claims.
Option D: Bond is invalid for multiple claims
Bonds are not invalidated simply because multiple claims are filed or because claims exceed the bond amount. A bond remains valid and enforceable; it simply limits the total payout to its face value, which is then distributed proportionally.
Memory Technique
Think of the bond as a pie that must be sliced equally among all guests. If there are more guests than the pie can feed, everyone gets a smaller slice — no one guest gets a full piece while others get nothing. Pro-rata = proportional sharing of whatever is available.
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