Travelers Casualty and Surety Company v. Amoroso
2004 WL 1918890 (N.D. Cal. Aug. 24, 2004)

Contractor claimed that surety, in its capacity as surety, had verbally promised that it would use $3 million paid to it by contractor to pay contractor’s subcontractors, suppliers, and overhead expenses and to issue stop notice release bonds so contractor could continue working. Instead, surety allegedly failed to take these actions and issued hold funds letters to owners of contractor’s projects directing owners not to pay contractor. Court dismissed without leave to amend contractor’s claim against surety for breach of the implied covenant of good faith and fair dealing.

The court found that, where the written indemnity agreement between the parties contained an integration clause, any oral contract between the parties was not valid and contractor could not claim implied rights based on invalid contracts. The court also found that surety did not breach the implied covenant as to the written indemnity agreement where the agreement expressly stated that surety had the exclusive right to settle all claims against contractor, that surety had the express right to demand the $3 million collateral paid by contractor and the express right to use those funds in its discretion. The doctrine of the implied covenant of good faith and fair dealing cannot be used to create implicit rights that contradict the express terms of an agreement.

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