Commercial Standard Ins. Co. v. Bank of America
| Decision Date | 12 April 1976 |
| Citation | 129 Cal.Rptr. 91,57 Cal.App.3d 241 |
| Court | California Court of Appeals Court of Appeals |
| Parties | COMMERCIAL STANDARD INSURANCE CO., Cross-Complainant and Appellant, v. BANK OF AMERICA, Cross-Defendant and Respondent. Civ. 15479. |
Commercial Standard Insurance Company (hereinafter 'Surety') appeals from an order of the trial court dismissing its second amended cross-complaint against Bank of America (hereinafter 'Bank') entered after Bank's general demurrer to Surety's cross-complaint was sustained without leave to amend.
On August 17, 1972, Arnold R. and Mary Mendoza (hereinafter collectively 'Owner') entered into a contract with International Development Corporation (hereinafter 'Contractor') whereby Contractor agreed to construct a duplex on Owner's property located at Sunset Beach. Prior to executing the contract, Owner entered into an agreement with Bank for a construction loan in the amount of $57,786 for which Owner agreed to pay Bank a loan fee of $1,383.99 and 7 1/2 percent per annum on the outstanding loan balance. Bank agreed to disburse the loan funds to Contractor for work completed on the project as evidenced by inspection reports supplied by Bank employees. As a condition to granting the loan, Bank required Contractor to post performance and labor and material payment bonds. Thereafter, Contractor, as principal, and Surety executed and delivered to Owner, as creditor, a performance bond in the amount of the construction loan and a labor and materials payment bond in the amount of $28,893.
In November 1972, after a substantial start had been made on the project, Contractor defaulted. Owner filed a complaint against Surety and Contractor seeking damages for fraud and praying for a declaration that the performance and payment bonds were valid and binding as against Contractor and Surety. Surety answered and cross-complained against Owner and Contractor alleging causes of action for indemnity, reimbursement, and a declaration of Surety's rights. Surety then amended its cross-complaint to allege a cause of action against Bank seeking a declaration of Surety's right to be indemnified by Bank against any liability Surety might incur as a result of claims by Owner, laborers, materialmen and subcontractors made under the performance and payment bonds.
The trial court sustained Bank's general demurrer to Surety's amended cross-complaint insofar as it attempted to state a cause of action for implied indemnity against Bank and granted Surety leave to amend. Surety then filed a second amended cross-complaint against Bank seeking a declaration of Surety's rights to be indemnified by Bank and to be subrogated to Owner's claims against Bank and to recover damages for Bank's alleged negligent disbursement of loan proceeds. In essence, Surety's second amended cross-complaint alleges that Bank disbursed an excessive amount of the loan proceeds to Contractor. These excessive disbursements were allegedly caused either by Bank's failure properly to inspect the construction project to ascertain the amount of work completed or by Bank's failure to disburse funds in accordance with correct inspection reports. The second amended cross-complaint also alleges that because of Bank's negligent disbursement of funds, when Contractor defaulted, there were insufficient funds held by Bank to complete the project and pay laborers and materialmen and that as a direct and proximate result of Bank's negligence, Surety incurred liability for claims of Owner, laborers, materialmen and subcontractors.
Surety contends that the trial court abused its discretion in sustaining Bank's demurrer to Surety's second amended cross-complaint without leave t amend inasmuch as Surety's cross-complaint states or could be amended to state causes of action based on implied indemnity, equitable subrogation and negligence.
On appeal from an order sustaining a demurrer without leave to amend, an appellate court must treat every material, issuable fact properly pleaded as true. (Roberts v. Wachter, 104 Cal.App.2d 281, 287--288, 231 P.2d 540; Shaeffer v. State of California, 3 Cal.App.3d 348, 354, 83 Cal.Rptr. 347.) 'All that is necessary as against a general demurrer is to plead facts entitling the (cross-complainant) to some relief.' (Roberts v. Wachter, supra, 104 Cal.App.2d at p. 288, 231 P.2d at p. 544; accord: Kauffman v. Bobo & Wood, 99 Cal.App.2d 322, 323, 221 P.2d 750, and cases there cited.)
The doctrine of implied indemnity is a recent development (first established in California in S.F. Unified Sch. Dist. v. Cal. Bldg., etc., Co., 162 Cal.App.2d 434, 328 P.2d 785 (Jul.1958)) utilized to more equitably distribute the burden of a judgment as between tortfeasors. (See Atchison, T. & S.F. Ry. Co. v. Franco, 267 Cal.App.2d 881, 884--889, 73 Cal.Rptr. 660; see also City & County of S.F. v. Ho Sing, 51 Cal.2d 127, 130--131, 330 P.2d 802; Molinari, 'Tort Indemnity in California,' 8 Santa Clara Lawyer 159.) Surety and Bank are not co-tortfeasors, and the doctrine of implied indemnity has no application to the case at bench.
Surety contends that, upon making good Owner's loss resulting from Contractor's default, Surety became subrogated to Owner's rights against all malefactors, including Bank. (See, e.g., Rossmoor Sanitation, Inc. v. Pylon, Inc., 13 Cal.3d 622, 633--34, 119 Cal.Rptr. 449, 532 P.2d 97; Hartford Acc. & Indem. Co. v. Bank of America, 220 Cal.App.2d 545, 551--554, 34 Cal.Rptr. 23; Meyer Koulish Co. v. Cannon, 213 Cal.App.2d 419, 425, 28 Cal.Rptr. 757.)
Bank contends that Surety's right to subrogation is negated by Civil Code sections 2847 and 2848. Section 2847 provides: 'If a surety satisfies the principal obligation, or any part thereof, whether with or without legal proceedings, the principal is bound to reimburse what he has disbursed, including necessary costs and expenses; But the surety has no claim for reimbursement against other persons, though they may have been benefited by his act, except as prescribed by the next section.' (Emphasis added.) The next section referred to is section 2848, which provides: 'A surety, upon satisfying the obligation of the principal, is entitled to enforce every remedy which the creditor then has against the principal to the extent of reimbursing what he has expended, and also to require all his co-sureties to contribute thereto, without regard to the order of time in which they became such.' Thus, Bank contends that Surety is subrogated to the rights of Owner against Contractor, but not against third persons, including Bank. 1
Bank's contention is not persuasive. Civil Code section 2848 does not comprehensibly and exclusively measure a surety's rights to subrogation; '(t) hat section is merely declaratory of the common law on the subject, and controlling only so far as it goes.' (Estate of Elizalde, 182 Cal. 427, 432, 188 P. 560, 562.) Moreover, the California cases have approved application of the doctrine of subrogation to the creditor's rights against third persons when the surety's equities are superior to those of the third party wrongdoer. (Hartford Acc. & Indem. Co. v. Bank of America, supra, 220 Cal.App.2d at pp. 550--558, 34 Cal.Rptr. 23; see also Meyers v. Bank of America, etc., Assn., 11 Cal.2d 92, 102--103, 77 P.2d 1084; Rest. Security, § 141, cl. (c).) The second amended cross-complaint alleges that it was Bank's negligence that caused the loss, and, accordingly, Surety should be subrogated to the rights of Owner against Bank.
Next Bank contends that it exercised control over the distribution of the loan proceeds not for the benefit of Owner, but for its own benefit and that, therefore, it owed no duty to Owner with respect to disbursement of the loan proceeds. We have little doubt that Bank's...
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