Sukut-Coulson, Inc. v. Allied Canon Co.

• Decision Date: 20 October 1978
• Docket Number: INC,SUKUT-COULSO,SUKUT-CONSTRUCTION
• Citation: 85 Cal.App.3d 648,149 Cal.Rptr. 711
• Court: California Court of Appeals Court of Appeals
• Parties: , a California Corporation, Plaintiff and Respondent, v. ALLIED CANON COMPANY, Cabot, Cabot & Forbes Land Trust, a Massachusetts Business Trust, and Stuyvesant Insurance Company, a corporation, Defendants and Appellants., formerly named Sukut-Coulson, Inc., a California Corporation, Plaintiff and Respondent, v. STUYVESANT INSURANCE COMPANY, a corporation, Defendant and Appellant. CABOT, CABOT & FORBES LAND TRUST, a Massachusetts Business Trust, Plaintiff and Appellant, v. AMERICAN INSURANCE COMPANY, a corporation, and Stuyvesant Insurance Company, a corporation, Defendants and Respondents. Civ. 52489.

Page 711

149 Cal.Rptr. 711

85 Cal.App.3d 648

SUKUT-COULSON, INC., a California Corporation, Plaintiff and Respondent, v. ALLIED CANON COMPANY, Cabot, Cabot & Forbes Land Trust, a Massachusetts Business Trust, and Stuyvesant Insurance Company, a corporation, Defendants and Appellants.

SUKUT-CONSTRUCTION, formerly named Sukut-Coulson, Inc., a California Corporation, Plaintiff and Respondent, v. STUYVESANT INSURANCE COMPANY, a corporation, Defendant and Appellant.

CABOT, CABOT & FORBES LAND TRUST, a Massachusetts Business Trust, Plaintiff and Appellant, v. AMERICAN INSURANCE COMPANY, a corporation, and Stuyvesant Insurance Company, a corporation, Defendants and Respondents.

Civ. 52489.

Court of Appeal, Second District, Division 2, California.

Oct. 20, 1978.

Anderson, McPharlin & Conners and Eric Winter, Los Angeles, for defendant and appellant Stuyvesant Ins. Co.

Brown & Brown by Howard B. Brown, Los Angeles, for defendants and appellants Cabot, Cabot & Forbes and Allied Canon.

George C. Halversen, Los Angeles, for plaintiff and respondent Sukut-Coulson, Inc. and Sukut Const., Inc.

FLEMING, Associate Justice.

Three consolidated actions which center on the claim by Sukut-Coulson, Inc. (Sukut) for money due for labor and materials furnished subdivider Allied Canon Company (Allied) in connection with the construction of a public improvement project.

As a condition of development for a Benedict Canyon subdivision, Allied was required by the City of Los Angeles, under Business and Professions Code section 11612, ¹ to procure labor and materials bonds for the benefit of contractors, laborers, and materialmen involved with the public improvements in the project. Accordingly, on 27 April 1971 Allied obtained a bond in the penal sum of $890,000 on Tract 24862 from the American Insurance Company (American), and on 26 August 1971 a bond in the penal sum of $142,000 on Tract 24981 from the Stuyvesant Insurance Company (Stuyvesant).

The city permit for which the surety bonds were issued was for construction only (streets, sewers, sewer drains) and did not include major grading on the tracts. Both bonds provided for payment of reasonable attorneys fees if suit were brought to enforce the surety obligations.

On 14 May 1971 Sukut and Allied contracted for Sukut to do all major grading on the project. ² A subsequent construction contract dated 15 February 1972 and amended July 15 and August 25 required Sukut to construct streets, storm drains, and walls for Tracts 24862 and 24981. Periodically, Sukut submitted invoices to Allied for work done under the construction contract until completion of the contract on 22 November 1972. No party contests the adequacy, propriety and necessity of the work performed by Sukut or the reasonableness of the amounts invoiced to Allied.

After its execution of the grading and construction contract, Allied obtained a construction loan from Cabot, Cabot & Forbes (CC&F), which received a first trust deed on Tracts 24862 and 24981 as security for repayment. At some unknown time after Sukut began construction Allied defaulted on its loan obligation, and CC&F became owner of record through a nonjudicial foreclosure on the trust deed. Prior to that time, however, Sukut on 30 November 1972 and 4 January 1973, on the basis of unpaid invoices, recorded mechanics liens on the tracts in sums of $164,139 and $41,843, respectively.

Sukut filed an action seeking recovery of sums due under the construction contract and foreclosure of its mechanics liens (LASC No. C 48543), and thereafter in another action sought recovery against the sureties on their bonds for all grading and construction performed on Tracts 24862 and 24981 (LASC No. 115404). CC&F then filed a declaratory relief action seeking a determination that the surety bonds, not the mechanics liens, were Sukut's primary source of recovery (LASC No. 133596). These three actions were consolidated for trial.

After presentation of evidence by Sukut the trial court, sitting as the trier of fact, held Allied liable to Sukut for $227,810 under the construction contract; ordered foreclosure on plaintiff's mechanics liens to the extent of the lien sum of $205,982, plus prejudgment interest; held the bonding companies liable (solely on their bonded construction contracts) for any deficiency, after foreclosure, on the lien sums; and awarded attorneys fees of $57,210 to Sukut against Allied and the bonding companies. The sureties' liability for attorneys fees was made proportionate to the respective penal sums of their bonds American to pay $49,338 and Stuyvesant $7,871. Stuyvesant and Sukut cross-appeal ³ the judgment, all other parties having settled with Sukut.

1. Remedies. The main issue on appeal is whether the trial court erred when it ordered foreclosure on the mechanics liens prior to any recovery on the surety bonds. On the facts presented we think Sukut was entitled to judgment against one or both sets of defendants and entitled to pursue on execution whichever set of defendants best served its interests. In brief, priority of judgment and execution among defendants was a matter for election by Sukut and not for judicial determination.

The surety bonds of American and Stuyvesant were issued under the requirement of the then Business and Professions Code section 11612, and both by their language and that of the statute they inured to the benefit of contractors or subcontractors providing materials or performing labor on the project. ⁴ In addition to protection of the municipality from liability for a defaulting subdivider, the purpose of the surety bond is to provide a distinct remedy to public works contractors, since: (1) the mechanics lien laws, in general, do not apply to public improvements (Civ.Code, §§ 3109 et seq.); and (2) the stop-notice remedy (Civ.Code, §§ 3179 et seq.) is ineffective where the public improvement is not governmentally funded. To this extent Business and Professions Code section 11612 parallels the function and purpose of Civil Code sections 3247 to 3251, which establish public works bonding requirements for general contractors. In the latter instance, the surety's labor and materials bond (payment bond) has uniformly been held to constitute a primary and direct obligation of the surety to the subcontractors and materialmen without reference to the liability of the public works contractor the principal on the bond. (Pacific Employers Insurance Company v. State of California (1970) 3 Cal.3d 573, 576, 91 Cal.Rptr. 273, 477 P.2d 129; California Electric Supply Company v. United Pacific Life Insurance Company (1964) 227 Cal.App.2d 138, 149, 38 Cal.Rptr. 479; Bonded Product Company v. R. C. Gallyon Constr. Co. Inc. (1964) 228 Cal.App.2d 186, 190-91, 39 Cal.Rptr. 347; Lewis & Queen v. S. Edmondson & Sons (1952) 113 Cal.App.2d 705, 707, 248 P.2d 973; Pneucrete Corp. v. United States Fidelity & Guaranty Company (1935) 7 Cal.App.2d 733, 738, 46 P.2d 1000.) The liability of a surety on a Business and Professions Code section 11612 labor and materials bond should be no less direct and absolute. This comports with the general provision of Civil Code section 2807 and cases decided thereunder, which hold a surety liable immediately upon default of its principal.

Even though engaged in a public works project, Sukut possessed a second remedy by virtue of Civil Code sections 3112 and 3102, which allow mechanics liens on property adjacent to and benefited by public works (such as streets, curbs, etc.). To this end Sukut filed mechanics liens totalling $205,982 on Tracts 24862 and 24981.

In support of the trial court's decision requiring prior foreclosure, Stuyvesant argues a contractor should be required to pursue foreclosure of a mechanics lien prior to recovery on a bond. This is an overly-broad view of the law and one that is incorrect in this case. To be sure, Civil Code section 2849 provides that a surety is entitled to the benefit of every security held or acquired by a creditor to secure the principal's obligation, and Civil Code section 2845 allows a surety to require a creditor to proceed against the principal or pursue other remedies not available to the surety. However, the fact that Stuyvesant is entitled to the "benefit" of Sukut's security (the mechanics liens) and to become subrogated to their benefits on its payment of the underlying obligation does not ipso facto require Sukut to pursue foreclosure of the mechanics liens as its primary remedy. (Cf. Rest. Security, § 131, p. 355.) To so hold would emasculate the clear requirement under Civil Code section 2845 that a surety make formal demand upon its principal's creditor to pursue alternate remedies. (Glickman v. Collins (1975) 13 Cal.3d 852, 862, 120 Cal.Rptr. 76, 533 P.2d 204; United California Bank v. Maltzman (1974) 44 Cal.App.3d 41, 54, 118 Cal.Rptr. 299; Garrett v. Bomash (1935) 10 Cal.App.2d 288, 291, 51 P.2d 1100.) This is no mere formality, for implicit in such a demand is recognition by the surety of its obligation under the bond and, in effect, its admission of liability to the creditor. Here, there was no such demand, and in fact Stuyvesant and American consistently denied Any liability to Sukut under the bonds. Stuyvesant elected to resist the claim, and denied liability at trial. Having made such an election, Stuyvesant may not come in on judgment day and require Sukut to satisfy its judgment against other sources first, for at that point Sukut may choose whichever defendant or cause of action it wishes to pursue to satisfy its judgment.

We hold therefore that Stuyvesant and American were directly liable to Sukut and, in the absence of prior demand to pursue other remedies, Sukut was entitled to satisfy its judgment in full against the sureties for the labor and materials they had specifically bonded.

2. Attorneys fees. Stuyvesant asserts error in the trial court's award of attorneys fees to Sukut. Even though the plain language of its...