Berman v. Aetna Casualty & Surety Co.

Opinion

FLEMING, J.

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

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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.