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First National Insurance Co. v. Cam Painting

May 15, 2009

FIRST NATIONAL INSURANCE COMPANY, ET AL., PLAINTIFFS AND RESPONDENTS,
v.
CAM PAINTING, INC., ET AL., DEFENDANTS AND APPELLANTS.



APPEAL from a judgment of the Superior Court of Los Angeles County. Aurelio Munoz, Judge. Reversed. (Los Angeles County Super. Ct. No. BC330442).

The opinion of the court was delivered by: Armstrong, J.

CERTIFIED FOR PUBLICATION

Appellant Cam Painting, Inc. was the contractor on a construction project for the Los Angeles Unified School District, the Noble project. Cam hired a subcontractor, Sabco Electrique, Inc. Under the Cam-Sabco contract, Sabco was required to provide a payment and performance bond, with Cam as obligee. Sabco obtained its bond from respondent First National Insurance Company, which, coincidentally, had also issued a bond to Cam on the Noble project, with the LAUSD as obligee. In connection with the issuance of the bonds, both Cam and Sabco signed indemnity agreements in favor of First National.

When Sabco failed to pay a supplier, Allsale Electric, First National paid the claim, allocated half the payment to each bond, and sought indemnity from both Cam and Sabco. The trial court found that First National could allocate the loss to the Cam bond as well as the Sabco bond. We disagree. As obligee on the Sabco bond, Cam was entitled to have First National pay the Allsale claim, which all parties agree was a valid claim. Cam's rights as obligee were not diminished by the fact that Cam was also the principal on a First National bond. We thus reverse the judgment in favor of First National and the order awarding it attorneys' fees as prevailing party in this action.

Cam has another contention: in a different part of this action, Cam sued Sabco for breach of contract, alleging that Sabco had drilled through asbestos, contrary to contract specifications. Cam prevailed and Sabco was ordered to pay damages and attorneys' fees pursuant to a clause in the Cam-Sabco contract. First National, as Sabco's surety, was made jointly and severally liable for the damages, but not the fees. Cam contends that First National should have been made jointly and severally liable for the fee award. On that claim, we again agree with Cam, and order the trial court to make that order.

Facts

The Bonds and Indemnity Agreements

The Cam Bond and Agreement

As a contractor on a public works project in excess of $25,000, Cam was obliged to file a payment bond. (Civ. Code, § 3247.) The bond is a $2.29 million payment and performance bond with Cam as the principal, First National as the surety, and the LAUSD as obligee. It binds First National to pay "If the Contractor or his Subcontractors fail to pay for any materials . . . and also, in case suit is brought upon the bond, reasonable attorney's fees, to be fixed by the court."

The indemnity agreement connected to the bond was signed by Priamos Yenaris as an individual indemnitor and by Maureen Grady, as president of Cam and as an individual indemnitor.*fn1 It obligates those parties to indemnify First National for any loss it incurred by reason of having executed the bond.

The Sabco Bond and Agreement

A contractor on a public works project "may require of the subcontractors a bond to indemnify the original contractor for any loss sustained by the original contractor because of any default by the subcontractors . . . ." (Civ. Code, § 3248, subd. (b).) Cam required such a bond from Sabco. The Sabco bond is a $400,000 performance and payment bond, with Sabco as the principal, First National as the surety, and Cam as obligee. The payment portion of the bond provides that if Sabco failed to pay "any of the persons named in Section 3181 of the Civil Code," a category which includes suppliers like Allsale, First National would "pay for the same, in an amount not exceeding the amount specified in this bond, and also, in case suit is brought upon this bond, [ ] reasonable attorney's fees, to be fixed by the court."

There was an indemnity agreement in connection with this bond, too. It was signed by Melanie Banescu individually and as president of Sabco, Stefan Banescu, and Dan Constantinescu.*fn2 It obligated those parties to pay First National all costs, including attorneys' fees, which First National incurred by reason of having executed the bond.

The Complaint

The Noble project was completed by December 2004. In March of 2005, Allsale sued Sabco, the LAUSD, Cam, and First National. Factually, the complaint alleged that Sabco owed Allsale $47,000 for materials Allsale supplied to Sabco. Against Sabco, the causes of action were breach of contract (the credit application which allowed Sabco to purchase materials on credit), open book account, account stated, and quantum valebant.

Although the LAUSD was the obligee on Cam's bond, under Civil Code section 3248, a supplier such as Allsale had a direct right of action on the bond, without reference to the liability of the contractor. (Civ. Code, § 3248, subd. (c); Sukut-Coulson, Inc. v. Allied Canon Co. (1978) 85 Cal.App.3d 648, 654.) Allsale's complaint thus included a cause of action against all defendants for the proceeds of the Cam bond.*fn3 The Sabco bond is not referenced in the original complaint, but in June, Allsale filed an amended complaint which added a claim for recovery on the Sabco bond. At trial, Cam's expert explained that a supplier like Allsale would have had no way of knowing about the existence of the Sabco bond, but would contact the LAUSD and learn the identity of the surety for the prime contractor.

Cam's Cross-Complaint and Motion for Attorneys' Fees

On May 12, 2005, Cam cross-complained against Sabco and First National. Against Sabco, there was a cause of action for breach of contract, alleging that Sabco had breached its contract by failing to pay Allsale and by performing substandard work. There was also a cause of action against Sabco for equitable indemnity, seeking amounts Cam incurred as the result of the Allsale complaint, including the cost of defending that complaint. The cause of action against First National was on the performance portion of the Sabco bond, alleging that First National was liable on the bond because Sabco had performed substandard work and because Sabco had failed to pay Allsale.

The Cam-Sabco contract is attached to the cross-complaint. An attorneys' fees clause provides that in the event that either Sabco or Cam institutes suit on the contract against the other party or its ...


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