Golden Eagle Insurance v. First Nationwide Financial Corp.

— These are consolidated appeals from two summary judgments entered in the same action in favor of different parties with identical legal positions. The common issue presented is whether a surety on a construction payment bond who pays the claim of a subcontractor who had perfected a mechanics’ lien on the improved property may by subrogation acquire the right to enforce the mechanics’ lien against the property. The trial court, in granting summary judgment against the surety, concluded that “California law is well-settled that absent fraud by the owner in bringing about the issuance of the surety bonds, a surety who has paid the claims of a lien claimant extinguishes the principal obligation and is entitled to reimbursement from its principal but is not subrogated to the rights of such former lien claimants as against the property.” We consider this statement of the law to be overbroad, and reverse the judgments.

Facts

This litigation arises out of the same failed real estate development project that was the subject of this court’s recent decision in Vallejo Development Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929 [ 29 Cal.Rptr.2d 669 ]. This was a project for…