Cates Construction, Inc. v. Talbot Partners
980 P.2d 407 | California Supreme Court | 1999
What This Case Means for Subcontractors
A developer hired a general contractor to build a condo project in California, but the contractor fell behind schedule. The developer sued the performance bond surety for damages, claiming the surety breached its duty of good faith. The California Supreme Court ruled that while the surety is contractually liable for the contractor's failure to perform on time, the developer cannot sue the surety for tort damages or punitive damages based on breach of the implied covenant of good faith and fair dealing. This limits what remedies a project owner can pursue against a surety.
Key Takeaways
- •Performance bonds create contractual liability for delays and failure to perform, but tort claims against sureties are not allowed under California law
- •If a contractor fails to perform, you can recover actual damages from the surety under the bond contract itself—but you cannot claim punitive damages or tort-based damages
- •Make sure your subcontract and bond language clearly defines what constitutes timely performance and what damages flow from delays, since that's your contractual remedy
Bond contractually obligates surety to pay damages from contractor's failure to promptly perform.
Frequently Asked Question
Can I sue a performance bond surety for punitive damages if the contractor doesn't finish on time?
No. Under California law, you can recover actual contract damages from the surety for the contractor's failure to perform, but you cannot pursue tort claims or punitive damages against the surety. Your remedy is limited to what the bond contract itself promises to pay for delays and non-performance.
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