Merced v. American Motorists Ins. Co.

• Decision Date: 17 February 2005
• Docket Number: No. F044023.,F044023.
• Citation: 24 Cal.Rptr.3d 788,126 Cal.App.4th 1316
• Court: California Court of Appeals Court of Appeals
• Parties: CITY OF MERCED, Plaintiff and Respondent, v. AMERICAN MOTORISTS INSURANCE COMPANY, Defendant and Appellant.

24 Cal.Rptr.3d 788

126 Cal.App.4th 1316

CITY OF MERCED, Plaintiff and Respondent, v. AMERICAN MOTORISTS INSURANCE COMPANY, Defendant and Appellant.

No. F044023.

Court of Appeal, Fifth District.

February 17, 2005.

Negele & Associates, James R. Negele, Los Angeles, and Alice M. Graham, Marina del Rey, for Defendant and Appellant.

Law Offices of Steven J. Hassing and Steven J. Hassing, Roseville, for Plaintiff and Respondent.

OPINION

GOMES, J.

American Motorists Insurance Company (AMIC) appeals from the judgment after court trial in favor of the City of Merced (City) on the City's claim for enforcement of a performance bond. On appeal AMIC contends the court erred in concluding the City suffered damages and the City did not enter into an illegal assignment of its claim against the bond. AMIC also contends construction of the improvements the bond covered released the bond. As we shall explain, we will affirm the judgment.

FACTUAL AND PROCEDURAL HISTORIES

Sometime prior to 1990, the City adopted the Campus North Specific Plan (Campus North), which encompasses 78 acres in north Merced. Campus North was subdivided into several tracts. The City projected that hundreds of units would be developed in Campus North by various developers.

In September 1991, Grant Homes, Inc. (Grant)¹ entered into a Subdivision Agreement with the City to develop a portion of Campus North referred to as Campus North Unit No. 1 (Unit No. 1), comprised of 66 units. The agreement required Grant to construct certain improvements within one year. Grant also promised to construct future additional improvements, which the agreement called "deferred work." Deferred work refers to improvements in a large development project intended to mitigate the project's impacts. These improvements are not required to be built in the earlier phases of the project because they are not needed at that time, but may be required later as development progresses. Grant agreed to obtain a performance bond in the amount of $45,000 for its pro-rata share of the deferred work specified in the agreement. The City determined Grant's pro-rata share by multiplying the total estimated cost of the deferred work by a ratio of the 66 units in Unit No. 1, divided by the 678 total units in Campus North.

In June 1993, Grant entered into a second Subdivision Agreement with the City, this time regarding the installation of improvements in Campus North Unit No. 2 (Unit No. 2), comprised of 43 units. The agreement required Grant to provide a second performance bond covering its pro-rata share of the following deferred work:

"A) Realignment of Black Rascal Creek when the vacant property to the south and/or southeast of Rice Court ... first obtains a Final Map.

"B) Installation of a permanent storm pump station and detention basin when the vacant property to the south and/or [sic] of Rice Court ... first obtains a Final Map or when some other development proposal requires it.

"C) Median and other work in G Street when West El Portal Drive connects to G or when a third final map is recorded in the Campus North Specific Plan Area. The latter shall also result in the extension of West El Portal Drive to G Street.

"D) Deferred improvements for Sundance Drive and bikeway parcel including paving, curb, gutter, sidewalk, bikeway, landscape and irrigation. This work shall be constructed when a third Final Map is recorded in the Campus North Specific Plan area."

The agreed-upon bonded amount for this deferred work was $90,400. In determining the bond amount, the City used the same formula it used for the bond required for Unit No. 1. Although the number of units in Unit No. 2 was fewer than in Unit No. 1, the bond amount increased because the deferred improvements specified in subdivision (D) for Sundance Drive and the bikeway were not included in Unit No. 1's deferred work. On May 21, 1993, AMIC issued a performance bond in the face amount of $90,400, naming the City as obligee, for the deferred work described in the June 1993 Subdivision Agreement.

After Grant completed construction of the homes in Unit No. 2, the City was advised Grant would be unable to perform the deferred work because Grant was insolvent. Union Bank took title to Grant's property and, by deed recorded December 27, 1996, conveyed the remaining undeveloped property within Units No. 1 and No. 2 to Northern California Universal Enterprise Company (NCUEC), an entity owned by Joe Wu. In February 1997, NCUEC deeded the property to Campus Vista, a California limited partnership controlled by Wu.

Before purchasing the property in December 1996, Wu conducted due diligence. Among other things, Wu reviewed the conditions for Grant's subdivision and discussed them with the City. John Franck, the City's Senior Civil Engineer, explained to Wu that Grant was obligated to perform work which had been deferred until the third final map of the area was filed, and if Wu filed a map, it would be the third, triggering map. Jack Lesch, the City's Director of Planning, told Wu if Wu took over the property he would be responsible for finishing Grant's portion of the deferred work. Both Lesch and Franck, however, advised Wu numerous times that Grant's pro-rata share of the deferred work was bonded and if Wu agreed to perform Grant's deferred work, the City would make demand on the bonds and use its best efforts to obtain the bond proceeds, which it would pay to Wu to defray his costs in completing Grant's obligations. Wu would not have purchased the property had he not been told the bonding money would be available.

In May 1997, NCUEC and Wu entered into an agreement with the City for zone and general plan changes for the undeveloped property within Unit Nos. 1 and 2. As part of this agreement, Wu promised to perform certain items of deferred work, including all the deferred work Grant was obligated to perform under the June 1993 Subdivision Agreement, as well as additional improvements not within Grant's obligations.

In September 1997, Campus Vista entered into a Subdivision Agreement with the City regarding installation of improvements in a subdivision referred to as Campus Vista, which was within Campus North. The agreement required Campus Vista to provide the City with a $217,988 performance bond for deferred work on extending West El Portal to G Street and for work on G Street, including traffic signal, turn lanes, median and related work, which Wu agreed to perform. This work was deferred until development of Lot 41 or until the City Engineer determined it was necessary.

On November 5, 1997, the City informed Grant its obligations to perform the deferred work listed in its Subdivision Agreements with the City had been triggered by the recent recording of the Campus Vista Subdivision Final Map. The City demanded Grant perform the work. On November 17, 1997, Grant advised the City it was unable to respond to the request for construction of the deferred items because it was insolvent and had ceased operating months before. On November 24, 1997, and again on December 2, 1997, the City informed AMIC that Grant would not be performing the deferred work and demanded payment on Grant's bond.

On May 18, 1998, the Merced City Council passed a resolution authorizing Wu's attorney, the Law Offices of Steven J. Hassing, to file suit on the City's behalf to enforce Grant's bond obligations. The following day, this lawsuit was filed. The second amended complaint names the City as the plaintiff and AMIC as the defendant, and contains a single cause of action for enforcement of the surety performance bond.

In May 2000, the City filed a separate lawsuit against Campus Vista for breach of contract after Campus Vista refused to complete the deferred work specified in its Subdivision Agreement. The City and Campus Vista settled that lawsuit in July 2000, with Campus Vista agreeing to construct a traffic signal at the corner of West El Portal and G Street according to a schedule set forth in a written settlement agreement and to post a $78,000 cash bond in lieu of its $217,988 performance bond.

In July 2002, the City agreed to pay Campus Vista approximately $132,000 as partial reimbursement for its total cost of constructing the stop light at West El Portal and G Street. By the time of trial in March 2003, Wu testified he had completed construction of Grant's deferred work, with the exception of the bicycle path. Wu spent $715,879 in completing all of the common area improvements. The City did not actually perform any of the deferred work, and therefore did not incur any expense in constructing the improvements.

Following a court trial, the court orally issued a tentative decision finding in the City's favor on its claim. The City submitted a proposed statement of decision; in turn, AMIC filed opposition to the proposed statement of decision which also requested the court to address additional questions. The court adopted the proposed statement of decision without change.

The trial court entered judgment in the City's favor in the amount of $141,199.77, representing principal of $90,400, plus $50,799.77 in interest. The judgment further stated the City was the prevailing party and the judgment could be amended in due course to include costs and attorney fees. AMIC filed a notice of appeal from this judgment.²

DISCUSSION

In its statement of decision, the trial court addressed and rejected various defenses AMIC raised. These defenses were: 1) a May 1994 subdivision status inquiry released the bond; 2) the City did not suffer damages; 3) the agreement between Wu and the City whereby the City agreed to pay Wu the proceeds from this lawsuit constitutes an illegal assignment; 4) that same agreement is unenforceable; and 5) the City waived any claims against AMIC in this case when it settled another lawsuit brought against AMIC concerning a performance bond which pertained to the same improvements as the bond in the current case.

On appeal,...