Union Asphalt, Inc. v. Planet Insurance

Here we hold that Civil Code section 3267 does not preclude third tier subcontractors and material suppliers from a right of action on a payment bond.

Facts

Riverglen Investments, Ltd., sought to develop a subdivision in the City of El Paso de Robles (the City). The subdivision agreement with the City required the construction of certain offsite public improvements for which Riverglen was required to provide performance and payment bonds. Planet Insurance Company provided the bonds. The bonds were substantially in the form set forth in Government Code sections 66499.1 and 66499.2.

Riverglen entered into a contract with Spiess Construction to construct the improvements. Spiess subcontracted 100 percent of the work to Swift Tectonics. Swift subcontracted portions of the work to Union Asphalt and contracted for materials with Southern Pacific Milling and Westburn. Riverglen stopped paying its contractors in 1990.

Union, Southern Pacific and Westburn filed complaints alleging they were entitled to recover under the bond. Planet moved for and obtained summary judgment in its favor on the ground that third tier subcontractors were not entitled to recover under Planet’s…