Berman v. Aetna Cas. & Surety Co.
| Decision Date | 23 July 1974 |
| Citation | 40 Cal.App.3d 908,115 Cal.Rptr. 566 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Barney BERMAN, Plaintiff and Appellant, v. The AETNA CASUALTY AND SURETY COMPANY, a corporation, and the City of Los Angeles, a municipal corporation, Defendants and Respondents. Civ. 42090. |
LaFollette, Johnson, Horgan & Robinson by Jon A. Shoenberger, Los Angeles, for plaintiff and appellant.
Maurice H. Wallbert, Los Angeles, for defendant and respondent Aetna Cas. and Surety Co.
Burt Pines, City Atty., Charles Sullivan, Asst. City Atty., and Myrtle Dankers, Deputy City Attys., for defendant and respondent City of Los Angeles.
Barney Berman 1 appeals the order of dismissal of his complaint for declaratory and equitable relief after the trial court sustained without leave to amend the demurrers of defendants Aetna Casualty and Surety Company and City of Los Angeles.
The complaint alleges as follows:
S & W Construction Company, a partnership, owned hillside property on Laurel Canyon Blvd. in Los Angeles which it intended to subdivide and develop for residential housing. As a condition of approval of subdivision and construction plans, the City required S & W to complete grading and street improvements. In 1961 S & W, as principal, and Aetna, as surety, executed a $50,000 bond guaranteeing satisfactory and faithful performance of the grading under City regulations. The City issued a grading permit in March 1963.
In October 1963 S & W borrowed $200,000 from Peoples Bank, giving its promissory note secured by a trust deed on the Laurel Canyon property. In making the loan and accepting the security the Bank relied on the fact that grading would be performed as required by regulations, that Aetna's bond guaranteed performance, and that the City had a policy of applying proceeds of defaulted bonds toward performance of bonded work.
In July 1966 the Bank assigned its interest in the note and trust deed to Berman. The latter accepted the assignment in reliance on the fact that grading would be performed as required by City regulations, that Aetna's bond guaranteed performance, and that the City had a policy of applying bond proceeds to performance of bonded work. S & W failed to perform the grading work and defaulted on its promissory note. In June 1968 Berman foreclosed on the trust deed, and in September 1968 the City declared performance under Aetna's bond in default.
Costs for completion of the grading work have risen to $173,555. The City demands that Berman complete the grading work and offers to apply the proceeds of an earlier defaulted performance bond ($56,000 from Hartford Insurance Co.) only if Berman completes the grading. Aetna refuses to pay on its performance bond and contends that completion of the grading by Berman will relieve it of any obligation under its bond. In 1969 the City sued Aetna and S & W to recover proceeds of the bond and damages for failure to complete the grading work, but the City has been dilatory in prosecuting that suit.
The complaint prays for a declaration of rights and obligations of the parties under the subdivision and construction statutes and under the bond, for an order to the City to diligently seek full performance of the grading work by S & W, and, if Berman performs the work, for an order compelling S & W to reimburse him and declaring that Aetna shall not be exonerated on its bond by reason of his performance.
In our view the allegations of the complaint would entitle Berman to declaratory relief. (Code Civ.Proc., §§ 1060, 1062.) The City required a faithful performance bond because of its potential liability for injury to persons or property which might result from dangerous or defective conditions created by the failure of completion of required improvements. (County of Los Angeles v. Margulis, 6 Cal.App.2d 57, 59--60, 44 P.2d 608.) If the City were to exercise its discretion and enforce payment on the faithful performance bond and if Berman were to complete the required improvements and thereby mitigate the City's potential liability, then Berman would be entitled to share in the proceeds of the faithful performance bond to the extent of the reasonable value of the required improvements he had provided. This result follows from our conclusion that while the City alone is entitled to institute legal action to collect on the faithful performance bond (Morro Palisades Co. v. Hartford Accident & Indemnity Co., 52 Cal.2d 397, 401, 340 P.2d 628; Evola v. Wendt Construction Co., 170 Cal.App.2d 21, 25--26, 338 P.2d 498), the City is not entitled to treat as a windfall the proceeds of a faithful performance bond realized as a...
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