Morro Palisades Co. v. Hartford Accident & Indemnity

This action is brought by plaintiff corporation as assignee of San Luis Obispo County. By such action the assignee seeks to have an allegedly assigned faithful performance bond reformed and to recover on it as reformed. The trial court sustained an amended demurrer to the complaint, without leave to amend, and ordered judgment of dismissal. Plaintiff appeals. We have concluded that defendant is correct in its contention that the bond could not properly be assigned to plaintiff, that no right of plaintiff to recover on the bond appears, and that the dismissal should be upheld.

It is further pleaded that Westfall commenced improving the roads but abandoned all work about the middle of December, 1953; the county road commissioner has estimated that it will cost $22,030 to complete the road work; the obligee county, in March, 1956, made written demand on defendant surety to perform the obligation of the bond, but the surety refused; plaintiff presently owns more than 50 per cent of the land in the tract; in October, 1957, the obligee county assigned its rights in the bond to plaintiff. The purported assignment is in writing and states that “In consideration of the execution, concurrently herewith, of Forbearance to Sue” by plaintiff, the county assigns to plaintiff “all of its right, title and interest, legal or equitable, as obligee, to enforce the provisions ’ ’ of the bond. No document purporting. to constitute a covenant not to sue anyone for anything appears in the record, nor are any terms or conditions of any such agreement alleged.

The complaint, filed October 21, 1957, seeks judgment against both the principal and the surety in the sum of $22,030. It does not appear from the complaint whether West-fall still owns land in the tract or has sold or conveyed to others the portions thereof not owned by plaintiff. Neither does plaintiff allege the means by which it became owner of the “more than fifty per cent” of the land which it claims. It does not appear that plaintiff is the only person (if any) who may or might have a claim against the county because of the principal’s default.

Defendant contends, among other things, that the complaint fails to state a cause of action in that the alleged assignment of the county’s rights in the bond is illegal and ultra vires. This contention is meritorious.

The rule is that rights and liabilities under a surety bond are to be determined from the language of the bond read in the light of applicable statutes. (See County of Placer v. Aetna Cas. etc. Co. (1958), 50 Cal.2d 182 , 186 [1] [ 323 P.2d 753 ] ; Fernelius v. Pierce (1943), 22 Cal.2d 226 , 245 [7] [ 138 P.2d 12 ] ; Milliron v. Dittman (1919), 180 Cal. 443 , 445 [1]

As declared in County of Los Angeles v. Margulis (1935), 6 Cal.App.2d 57 , 59-60 [2] [ 44 P.2d 608 ], where the county sued to recover on a similar bond provided by a sub-divider to secure faithful performance of his agreement to improve certain streets and build a storm drain, “Under the contract the county was entitled to have these highways so improved, and this right was of a value equal to the cost of the work. The contract having been breached by a failure to perform, the county was entitled to a sum equal to the cost of the uncompleted portion of the work . . . Under the contract the county was entitled to receive work of a certain value. This work not having been received, the county was entitled to receive in lieu thereof as damages a sum of money equal in value to the uncompleted work which the contract called for, and appellant as surety was liable under its bond up to the penal sum therein specified.”

Here as in the Margulis ease, the county presumptively is entitled to receive the road work which Westfall agreed to complete. And here the right to recover under the bond appears clearly to be a right of the county rather than of the owner of a portion of the property which might be affected by the default. (See Evola v. Wendt Construction Co. (1959), 170 Cal.App.2d 21 , 25-26 [ 338 P.2d 498 ].) It is the county which is indemnified by the express terms of the bond against loss from “all cost and damage which

We recognize that in Christie v. Commercial Casualty Ins. Co. (1935), 6 Cal.App.2d 710 , 714 [1] [ 45 P.2d 263 ], it was held that a laborer (the foreman of the construction work) could recover unpaid wages on a public works performance bond. But there the bond was conditioned “to secure the payment of all work and labor ‘of any kind’ performed in the course of the construction of the roadway” and the court held that “The language of the bond leaves no doubt it was furnished for the direct benefit and protection of those who" perform work or supply materials for the roadway in accordance with the contract, although they may not be parties to that instrument.” The bond in issue here is conditioned for the benefit of the obligee county and by no possible view of its language can it be held to have been “furnished for the direct benefit and protection” of the principal (the sub-divider) or other-landowners in the tract. Furthermore, the Christie case does not hold, nor does any authority which has been cited or discovered suggest, that the public body .may assign its rights under such a bond to another, as plaintiff alleges has been done .in the present case. And insofar as concerns any suggestion that the county’s assignee might prosecute the action for the partial or ultimate benefit of the county, section 25203 of the Government Code specifies that the board of supervisors “shall direct and control the prosecution and defense of all suits to which the county is a party . . .” (See also County of Contra Costa v. Soto (1902), 138 Cal. 57 , 60, 62 [ 70 P. 1019 ].)

Plaintiff claims, however, that in any event it, as the present owner of the land in the subdivided tract, is a third-party beneficiary under the bond; i.e., one for whose benefit the