Cates Construction, Inc. v. Talbot Partner

21 Cal. 4th 28 (1999)

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Nature of the Case

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Facts

Talbot hired Cates to build a condo project in Malibu on property purchased by Talbot for $1 million. Cates was to finish in eight months. Talbot got financing from the Bank of Montecito. That financing was secured by a deed of trust on the property and was conditioned on the issuance of a performance bond in favor of the bank. Talbot required Cates to furnish the performance bond and a labor and materials payment bond. Transamerica issued the bonds in favor of Talbot as obligee and the bank as co-obligee. Talbot paid the $27,000 premium on the bonds. Transamerica and Cates then executed an indemnity agreement which allowed Transamerica to recover from Cates all good faith disbursements made under the bonds. The contract claims were adjudicated, and it was finally held that Transamerica breached the performance bond and that the breach has caused the loss of the project. After the trial on the contract claims, Talbot tried its tort cause of action. On Transamerica's motion, the jury was not informed of the findings or the award in the breach of contract trial. The parties also stipulated to compensatory tort damages in the total of $1. The jury decided that Transamerica breached the implied covenant of good faith and fair dealing and was guilty of malice and oppression in doing so. The jury awarded $28 million in punitive damages. That was modified by the court to $15 million. The contract award came to $2,596,600. Transamerica appealed.