June 15, 2021
Procedural Posture

Procedural Posture

Appellants, a general contractor and its guarantors, sought review of a judgment from the Superior Court of Los Angeles County (California), which allowed respondent surety to attribute part of a loss from a subcontractor’s failure to pay a supplier to the general contractor’s performance bond. On a cross-complaint, the trial court awarded damages and attorney fees to the general contractor and against the subcontractor for a breach of contract.

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Overview

The surety issued performance bonds to both the subcontractor and the general contractor on the same project. After paying the supplier’s claim, the surety allocated half the payment to each bond and sought indemnity from both the subcontractor and the general contractor. The court held that the general contractor, as obligee on the subcontractor’s bond under Civ. Code, § 2787, was entitled to have the surety pay the supplier’s claim. The general contractor’s rights as obligee were not diminished by the coincidental fact that the general contractor was also the principal on another bond issued by the same surety. The supplier’s right of action under Civ. Code, § 3181, protected the supplier but did not assist the surety. Because the surety had a duty of diligent investigation under Cal. Code Regs., tit. 10, § 2695.1, there was no merit to its argument that its lack of information made the apportionment reasonable. On the cross-complaint, the general contractor was entitled to recover attorney fees from the surety under Civ. Code, § 2808, based on a fee provision in its agreement with the subcontractor, which had to be read together with the bond as provided in Civ. Code, § 1642.

Outcome

The court reversed the judgment against the general contractor and its individual guarantors, reversed the award of attorney fees to the surety as the prevailing party against the general contractor and its individual guarantors, and amended the judgment in favor of the general contractor to make the surety jointly and severally liable for the award of attorney fees to the general contractor.