Use this button to switch between dark and light mode.

Experience a New Era in Legal Research with Free Access to Lexis+

Cates Construction, Inc. v. Talbot Partners

Cates Construction, Inc. v. Talbot Partners

Supreme Court of California

July 29, 1999, Decided

No. S061215.

Opinion

 [*34]  [**410]  [***858]    BAXTER, J. 

This case presents issues relating to the contract and tort liability of a commercial surety to a real estate developer under a bond guaranteeing the contract performance of a general contractor on a multimillion dollar condominium construction project. For the reasons set forth below, we conclude that the bond at issue contractually obligates the surety to pay damages attributable to the general contractor's failure to promptly and faithfully perform its contract obligations by [****4]  the agreed date. We further conclude that, as a matter of law, the developer may not recover in tort for  [*35]  the surety's breach of the covenant of good faith and fair dealing implied in the performance bond. In light of these conclusions, we reverse the judgment of the Court of Appeal insofar as it affirmed the underlying award of tort damages for breach of the implied covenant and permitted an award of punitive damages.

FACTUAL AND PROCEDURAL BACKGROUND

The following background is taken in large part from the Court of Appeal opinion.

In 1989, Talbot Partners (Talbot) hired Cates Construction, Inc. (Cates) to build a condominium project in Malibu on property purchased by Talbot for $ 1 million.  [***859]  The construction contract called for Cates to complete the project and have it ready for occupancy in eight months. Talbot received financing for the construction through the Bank of Montecito (the bank). The financing was secured by a deed of trust on the property and was conditioned on the issuance of a performance bond in favor of the bank.

At the time the construction contract was signed, Talbot required Cates to furnish a performance bond and a labor and materials [****5]  payment bond. Transamerica Insurance Company (Transamerica), 3 a commercial surety company, issued the bonds in favor of Talbot as obligee and the bank as co-obligee. Talbot paid the $ 27,000 premium on the bonds. Transamerica and Cates also executed an indemnity agreement which allowed Transamerica to recover from Cates all good faith disbursements made under the bonds.

Read The Full CaseNot a Lexis Advance subscriber? Try it out for free.

Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.

21 Cal. 4th 28 *; 980 P.2d 407 **; 86 Cal. Rptr. 2d 855 ***; 1999 Cal. LEXIS 4847 ****; 99 Daily Journal DAR 7725; 99 Cal. Daily Op. Service 6021

CATES CONSTRUCTION, INC., et al., Plaintiffs, Cross-defendants and Appellants, v. TALBOT PARTNERS et al., Defendants, Cross-complainants and Respondents;TIG INSURANCE COMPANY, Plaintiff, Cross-defendant and Appellant, v. TALBOT PARTNERS et al., Defendants, Cross-complainants and Respondents.

Subsequent History:  [****1]  Rehearing Denied September 29, 1999, Reported at: 1999 Cal. LEXIS 6614.

Prior History: Superior Court of Los Angeles County. No. BC023655. David Eagleson, Temporary Judge, 1 and William E. Burby, Jr., Judge.

Disposition: The judgment of the Court of Appeal is reversed insofar as it affirmed the award of tort damages for breach of the implied covenant and permitted an award of punitive damages. The matter is remanded to that court for further proceedings consistent with this opinion.

CORE TERMS

surety, insurer, obligee, performance bond, default, insurance policy, damages, contractor, construction contract, breaches, surety bond, tort remedy, suretyship, parties, bad faith, settlement, fair dealing, good faith, contracts, bonds, punitive damages, tort recovery, obligations, terms, breach of the implied covenant, surety insurance, decisions, insurance contract, completion, negotiated

Civil Procedure, Remedies, Bonds, Execution of Bonds, Contracts Law, Secured Transactions, Default, General Overview, Sureties, Liability, Business & Corporate Compliance, Negotiable Instruments, Enforcement, Joint & Several Instruments, Contracts Law, Types of Contracts, Guaranty Contracts, Contract Interpretation, Construction Contracts, Covenants, Good Faith & Fair Dealing, Breach, Torts, Pain & Suffering, Emotional Distress, Damages, Punitive Damages, Types of Damages, Insurance Law, Emotional Distress Damages, Punitive Damages, Evil & Malicious Intent, Claim, Contract & Practice Issues, Subrogation, Business Torts, Bad Faith Breach of Contract, Breach of Contract Actions, Life Insurance, Beneficiaries, Adhesion Contracts, Governments, Fiduciaries, Policy Interpretation, Fiduciary Responsibilities, Liability & Performance Standards, Bad Faith & Extracontractual Liability, Admiralty & Maritime Law, Maritime Contracts, Education Law, Faculty & Staff, Employment Contracts, Measurement of Damages, Foreseeable Damages, Aggravating Circumstances