Construction/Fee Clause Interpretation: Where Payment Bond Made Clear That Surety Not Liable To Additional Fees/Costs Above Penal Bond Sum, Party Obtaining Fees In Derogation Of This Limitation Not Entitled to Fees

 

Only County Entitled to Additional Fees/Costs Over Penal Sum Based on Clear Terms in Payment Bond.

     In Granite Constr. Co. v. Bond Safeguard Ins. Co., Case No. C066759 (3d Dist. Mar. 13, 2014) (unpublished), surety under a payment bond lost an exoneration argument at trial based on a settlement agreement which had a release that was only effective if payment was made; because payment wasn’t made, the release never occurred so no prejudice attended in relation to an argument that a release of a defaulting contractor harmed surety. However, the lower court did hit surety with $224,541.34 in attorney’s fees (a fee award in favor of contractor) based upon some attorney’s fees clauses in the payment bond.

     That fee award against surety was reversed—went POOF! on appeal.

     The bond language was dispositive in this one. It did provide for an award of fees and costs incurred by County (a party to the subdivision agreement), but did not provide for any additional fees or costs above the penal sum of the bond to parties like contractor--although the contractor was a beneficiary for amounts up to the penal sum. (Nissho of California, Inc. v. Bond Safeguard Ins. Co., 220 Cal.App.4^th 974, 991 (2013).) No different result occurred under Civil Code section 1717 because a surety is not liable for attorney’s fees in excess of the penal sum of the bond unless the contract specifically obligates otherwise. (National Technical Systems v. Superior Court, 97 Cal.App.4^th 415, 425-426 (2002).) Because the fees awarded would exceed the penal sum, that award was reversed.