General Ins. Co. of America v. City of Colorado Springs, 80SC139
| Decision Date | 21 December 1981 |
| Docket Number | No. 80SC139,80SC139 |
| Parties | GENERAL INSURANCE COMPANY OF AMERICA, Safeco Insurance Company of America, Washington corporations; and Mountain States Investment Builders; Gene A. Becker, Individually and as a partner in and d/b/a Mountain States Investment Builders, a partnership; Dick N. Richards, Individually and as a partner in and d/b/a Mountain States Investment Builders, a partnership; and Clyde Skeen, Individually and as a partner in and d/b/a Mountain States Investment Builders; John Does, one through five inclusive, Individually and as a partner in and d/b/a Mountain States Investment Builders, Petitioners, v. CITY OF COLORADO SPRINGS, A municipal corporation, State of Colorado, Respondent. |
| Court | Colorado Supreme Court |
Cross, Gaddis, Kin & Quicksall, Larry R. Gaddis, Colorado Springs, for all petitioners.
Grant, McHendrie, Haines & Crouse, P. C., Peter J. Crouse, Phyllis Cox, Denver, for petitioners Safeco Insurance Co. and General Insurance Co. of America.
Rector, Retherford, Mullen & Johnson, Jerry A. Retherford, Neil C. Bruce, Colorado Springs, for respondent.
We granted certiorari to review the decision of the Court of Appeals in City of Colorado Springs v. General Insurance Co., Colo.App., 616 P.2d 147 (1980), which reversed a summary judgment entered in favor of corporate sureties and individual defendants on a surety bond issued pursuant to a municipal ordinance in order to secure a municipal corporation against a subdivision developer's noncompletion of certain street improvements. The Court of Appeals, construing the bond to be a penalty bond, held that nonperformance by the subdivision developer entitled the city to recover the full amount of the bond irrespective of any proof of damage and directed the district court to enter summary judgment for the city. We reverse the judgment of the Court of Appeals and remand with directions.
In June 1972 Mountain States Investment Builders (MSIB) applied for and received from the City of Colorado Springs (city) approval of the final plat of the Central Colorado Bank subdivision. The subdivision was to be developed for high-rise residential use. MSIB also had requested of the city council a waiver of the city zoning ordinance which restricted office use in high-rise buildings to 10% of the floor space, and a conditional use so as to permit the construction of a high-rise commercial office building in the subdivision. 1 The city council denied the request and its decision was appealed. Ultimately, the appeal was dismissed pursuant to stipulation of the city and the owner of the subdivision.
Before the appeal had been dismissed, MSIB, in January 1973, filed with the city council a plat extending two streets, Barnes Avenue and Printers Road, beyond the Central Colorado Bank subdivision. 2 The street extension plat depicted the land adjacent to the streets as unplatted and undeveloped. At the time the plat was filed with the city council, section 13-19(B)(4)(a) of the city's Subdivision Ordinance required that a letter of credit and/or a cash or performance bond accompany the final plat in order to "secure to the City the actual construction and installation of all required street improvements if the improvements are not installed; and park and land fees; and drainage basin fees; and recordation fees ...." Section 13-22(a) of the Subdivision Ordinance also provided:
Pursuant to these provisions MSIB as principal and Safeco Insurance Company of America (Safeco) as surety executed on March 6, 1973, a surety bond which provided, in pertinent part, as follows:
The city council approved the plat for the street extensions and on March 23, 1973, the plat was filed of record with the County Clerk and Recorder.
MSIB initially spent about $50,000 for rough grading and engineering work on the street improvements. However, in 1974 the relationship between MSIB and the owner of the subdivision, Union Printers Home, foundered and MSIB failed to complete the improvements. In September 1974 MSIB filed reorganization proceedings in bankruptcy and thereafter sought vacation of both the Central Colorado Bank subdivision and the street extensions. The city council denied the application to vacate. Upon the expiration of the two year period for completing the street improvements, the city commenced an action on the bond against MSIB, several individual partners of MSIB, Safeco and General Insurance Company (defendants). 4 The defendants denied liability on the bond, claiming that the city suffered no damage by the noncompletion of the street improvements and asserted various affirmative defenses including impossibility of performance, estoppel, and mutual mistake.
The city filed a motion for summary judgment on the ground that the bond was either a penalty bond or a contract for liquidated damages. The district court denied the city's motion for summary judgment but entered summary judgment for the defendants, none of whom had moved for such relief. The court concluded that the bond was an indemnity bond and since the subdivision development had been abandoned by MSIB and there was no need for the street improvements, the city sustained no damage and therefore could not recover. The Court of Appeals, construing the bond as a penalty bond, reversed the judgment and remanded with directions to enter summary judgment in favor of the city. 5 We conclude that the bond in question is an indemnification bond and unresolved issues of fact render summary judgment inappropriate under the present state of the record.
The defendants argue that the Court of Appeals incorrectly construed the bond as a penalty bond, rather than an indemnity bond, and therefore erred in ordering summary judgment for the full amount of the bond without proof of damage to the city. We agree with the defendants' argument. Although the character of the bond in question is not determinable from its own terms, it is quite clear that, when considered in light of the ordinance pursuant to which it was issued, the bond contemplates indemnification to the city to cover the cost of the uncompleted work up to the amount of the bond.
A surety bond is a written contract guaranteeing performance of an obligation by another and is to be interpreted according to the standards which govern the construction of contracts in general. E.g., Covey v. Schiesswohl, 50 Colo. 68, 114 P. 292 (1911); Bonney v. Robertson, 6 Colo.App. 485, 41 P. 842 (1895); Restatement of Security, § 88 (1941). The significance of construing the contractual obligation as either a penalty bond or an indemnity bond is critical to the obligee's right to recover against the principal and surety without proof of damage. If the surety agreement is construed as a penalty bond, the city may recover the full amount of the bond upon nonperformance by MSIB irrespective of damage. E.g., Clark v. Barnard, 108 U.S. 436, 2 S.Ct. 878, 27 L.Ed. 780 (1883). On the other hand, a construction of the surety agreement as an indemnity bond will limit the city's right of recovery to the cost of completion of the improvements, not to exceed the face amount of the bond. E.g., United States v. Zerbey, 271 U.S. 332, 46 S.Ct. 532, 70 L.Ed. 973 (1926), Morro Palisade Co. v. Hartford Accident & Indemnity Co., 52 Cal.2d 397, 340 P.2d 628 (1959); County of Los Angeles v. Margulis, 6 Cal.App.2d 57, 44 P.2d 608 (1935); Town of Stoneham v. Savelo, 341 Mass. 456, 170 N.E.2d 417 (1960). A court must interpret the language of the bond in accordance with the intent of the parties, which generally is to be determined from the language of the instrument itself. Radiology Professional Corporation v. Trinidad Health Association, 195 Colo. 253, 577 P.2d 748 (1978). However, where the meaning of an instrument is uncertain, extrinsic evidence may...
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