International Fidelity Ins. Co. v. Bank of America
A developer obtains a large construction loan to build a luxury vacation resort and enters into contracts to sell several penthouse condominiums at the resort. The purchasers deposit earnest money which, in accordance with state law, is covered by surety bonds. The developer defaults on the construction loan and the lender bank forecloses. The condominium purchasers sue the developer and the sureties for the return of their earnest money deposits. One surety cross-complains, claiming the bank is indebted to the surety and was unjustly enriched because it received or benefitted from the earnest money deposits, but then refused to release its lien, preventing the sale of the condominiums which caused the purchasers to demand return of their deposits. Thus begins the surety’s unsuccessful search for a cause of action under which the bank can be held liable for the return of the earnest money deposits.
The surety, International Fidelity Insurance Company (IFIC), appeals from a judgment of dismissal after the trial court sustained, without leave to amend, the demurrer of the lender, Bank of America (the Bank), to IFIC’s second amended complaint. IFIC contends the trial court abused its discretion in sustaining the demurrer without leave to amend. IFIC contends its causes of action for money had and received and for restitution were well pled. Further, IFIC asserts it can amend its cross-complaint to state causes of action for statutory reimbursement, contractual reimbursement, and subrogation. IFIC proposes to amend its cross-complaint to allege that the IFIC surety bonds were assigned to the Bank under the loan agreement. IFIC contends that under that assignment the Bank assumed the obligations under the surety bonds, including the obligation to reimburse IFIC.
As we will explain, the trial court properly sustained the demurrer without leave to amend. IFIC’s claims for money had and received and restitution depend upon the Bank’s having an obligation to withdraw or release its lien on the condominium units once they were ready for sale--IFIC failed to allege such an obligation. IFIC’s proposed new causes of action all depend on establishing that the Bank assumed the developer’s obligations under the surety bonds, but the assignment was for security. “It has long been the law in California, reaffirmed by the Uniform Commercial Code, that an assignment for security transfers the rights but not the obligations inherent in the assigned contract.†(Black v. Sullivan (1975) 48 Cal.App.3d 557, 564 (Black).) Because each of IFIC’s proposed claims lacks the requisite foundation, IFIC cannot state a valid cause of action against the Bank. Accordingly, we shall affirm the judgment.
Comments on International Fidelity Ins. Co. v. Bank of America