Fabinger v. International Fidelity Ins. Co. CA3

Filed 8/18/14 Fabinger v. International Fidelity Ins. Co. CA3
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Placer)
----

LUDEK FABINGER, C072328

Plaintiff and Respondent, (Super. Ct. No. SCV27567)

v.

INTERNATIONAL FIDELITY INSURANCE
COMPANY,

Defendant and Appellant.

Plaintiff Ludek Fabinger contracted to purchase a luxury penthouse condominium
at Lake Tahoe, and deposited $3,000,000 in earnest money. In accordance with state law,
this deposit was covered by surety bonds, and then released to the developer. The
developer defaulted on the construction loan, and, at the close of escrow of the
condominium, was unable to deliver clear title. Fabinger demanded of the developer and
the sureties the return of his earnest money deposit. He did not receive return of his
deposit.

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 Fabinger, along with other purchasers who had made deposits, brought suit against
the developer and the two sureties. As to defendant International Fidelity Insurance
Company (IFIC), they sought declaratory relief to resolve whether the surety was
obligated to pay them the proceeds of the surety bond equal to their earnest money
deposits. Separately, Fabinger moved for summary adjudication as to IFIC. The trial
court granted the motion and entered judgment in favor of Fabinger.
IFIC appeals. It contends the trial court erred in granting summary adjudication
because (1) the motion should have been continued so IFIC could take Fabinger’s
deposition; (2) Fabinger’s evidence of his deposit lacked foundation; and (3) Fabinger
failed to show he was ready, willing, and able to perform his obligations under the
purchase contract. Further, IFIC contends (1) it was error to award a money judgment on
a declaratory relief action; (2) the judgment failed to acknowledge Fabinger’s settlement
with the other surety; and (3) the prejudgment interest rate should have been the contract
rate of five percent.
We find merit only in the last contention. As we explain, we modify the judgment
to provide for a prejudgment interest rate of five percent and reject IFIC’s remaining
contentions.
FACTUAL AND PROCEDURAL BACKGROUND
On May 6, 2008, Fabinger executed a purchase and sale agreement with Highlands
Hotel Company (Highlands) to purchase Penthouse Unit 21 at the Highlands
development at North Star. Highlands had accepted the contract on March 31, 2008. The
purchase price was $3,305,000, and Fabinger made an earnest money deposit of
$3,000,000, which was received on April 17, 2008. The purchase agreement
contemplated close of escrow within 30 months after Highlands accepted the agreement.
The purchase contract provided that title to the property would be conveyed subject only
to permitted exceptions, such as property taxes not yet delinquent and liens approved by
the purchaser.

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 The purchase contract set forth the remedy in case of a default by Highlands: “If
Seller has not complied with Seller’s obligations under this Agreement, Purchaser must
send Seller a notice that Purchaser considers Seller to be in default and providing a
reasonably detailed statement of the nature of the default. Upon receipt of that notice,
Seller shall have ten (10) days in which to fulfill Seller’s obligations. Purchaser agrees
that Purchaser’s sole remedy in the event that Seller does not fulfill its obligations prior
to the expiration of the ten (10) day cure period is to rescind this Agreement and to
receive a refund of all monies that Purchaser has paid to Seller.”
In accordance with state law, Highlands obtained a $3 million blanket surety bond
from IFIC to protect the purchasers.1 The surety bond provided: “Whereas, Principal
[Highlands] has elected, in lieu of individual tract bonds, to give this surety bond to the
State of California in compliance with Section 11013.2(c) and/or Section 11013.4(b) of
the Business and Professions Code of the State of California, as applicable, as a blanket
and continuing obligation for the benefit and protection of each and every purchaser of
any lot or lots within each and every subdivision now or hereafter offered for sale or
lease, or sold or leased by Principal directly or through his agents in the State of
California.”
Fabinger and Highlands entered into an addendum to the purchase contract. The
addendum amended the section relating to default by seller to provide that the
purchaser’s remedy was a return of monies paid “plus 5% amortized interest from the
date of the execution of this Addendum.” The time for closing of escrow was changed to
be within 20 months. The addendum also provided that the property would be delivered
on or before November 15, 2009. If Highlands failed to deliver the property by that date,
the parties agreed to a penalty of $550 per day, and the agreement would remain in full

1 Highlands also obtained a surety bond from another surety, RLI Insurance Co. (RLI).
That surety bond is not at issue in this appeal, except as discussed in part V, post.

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force and effect subject to the remaining requirements, including the 20-month close of
escrow, with an adjustment to the purchase price for the penalty. Fabinger executed the
addendum at the same time as he executed the purchase contract; Highlands signed on
June 6, 2008.
In March 2010, Highlands and Fabinger entered into an amendment to the
purchase contract, reducing the purchase price to $2,999,950. The amendment required
the approval of Highlands’ lender. The lender did not consent to the reduced sale price.
Highlands defaulted on its construction loan, which was secured by a first deed of
trust on the property. The lender was not willing to release the lien for close of escrow
on the condominium units. Consequently, Highlands was unable to deliver clean title to
Fabinger and complete escrow by the 20-month deadline.
Fabinger and other purchasers brought suit against Highlands, IFIC, and others for
return of their earnest money deposits. The first amended complaint (FAC) alleged that
“[b]y this Complaint--and prior written notice--plaintiffs notify Highlands of its breach of
contractual and other legal obligations and plaintiffs’ terminating and rescinding the real
estate purchase and sale contracts with Highlands based on its breach of contract, its
fraudulent non-disclosures of material facts, and failure of consideration.” The FAC also
alleged that plaintiffs had notified IFIC of their claims against Highlands and against the
surety bond.
The FAC alleged only a cause of action for declaratory relief against IFIC. The
FAC alleged that plaintiffs had notified IFIC of their claims on the surety bond and IFIC
had not responded. Plaintiffs anticipated that IFIC would deny the claims. Plaintiffs
asked the court to resolve the dispute with IFIC as to whether IFIC “must pay to Plaintiffs
surety bond proceeds equal to their earnest money deposits, prejudgment interest, and
costs of suit.”

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 Subsequent to the filing of the FAC, the court-appointed receiver for Highlands
executed a notice of termination for Fabinger’s purchase agreement for the sale of the
unit.
The plaintiffs, excluding Fabinger, obtained a default judgment against Highlands,
in the amount of their earnest money deposits plus interest.2
Fabinger moved for summary adjudication against IFIC. He set forth as
undisputed various facts about the purchase agreements, the surety bond issued by IFIC,
and Highlands’s inability to deliver a clean title in order to close escrow within the 20-
month deadline. He argued he was entitled as a matter of law to an order directing IFIC
to return his earnest money deposit from the bond.
In response, IFIC first requested a continuance to take Fabinger’s deposition.
Further, IFIC argued the motion should be denied because Fabinger had failed to produce
admissible evidence to establish his $3,000,000 deposit, and failed to show that he was
prepared to perform. IFIC disputed Fabinger’s asserted undisputed fact, based on his
declaration, that he had deposited $3,000,000 solely on the basis of lack of foundation.
IFIC did not offer any conflicting evidence.
The trial court overruled the objection to Fabinger’s declaration and granted the
motion for summary adjudication. The court entered judgment against IFIC, directing
IFIC to pay Fabinger “$3,000,000.00, up to the penal sum or legal limits of the IFIC
bond, plus interest at the legal rate of 10% per annum, accruing at $821.90 per day from
June 6, 2008, the date escrow was scheduled to close.”3

2 Around January 2011, Fabinger separated from the other plaintiffs and later obtained
his own counsel.
3 It appears the court misspoke: The June 6, 2008 date was not the date escrow was
scheduled to close, but rather was the date the addendum was signed. Under the
addendum, the date of the addendum’s execution was the date from which interest must
be paid if the seller breached the contract.

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 DISCUSSION
I
Denial of Motion to Continue
IFIC first contends the trial court erred by refusing to continue the motion for
summary adjudication until Fabinger’s deposition could be taken.
A. The Law
“If it appears from the affidavits submitted in opposition to a motion for summary
judgment or summary adjudication or both that facts essential to justify opposition may
exist but cannot, for reasons stated, then be presented, the court shall deny the motion, or
order a continuance to permit affidavits to be obtained or discovery to be had or may
make any other order as may be just. The application to continue the motion to obtain
necessary discovery may also be made by ex parte motion at any time on or before the
date the opposition response to the motion is due.” (Code Civ. Proc., § 437c, subd. (h)
(section 437c(h)).)
“The nonmoving party seeking a continuance ‘must show: (1) the facts to be
obtained are essential to opposing the motion; (2) there is reason to believe such facts
may exist; and (3) the reasons why additional time is needed to obtain these facts.
[Citations.]’ [Citations.]” (Frazee v. Seely (2002) 95 Cal.App.4th 627, 633 (Frazee).)
“[S]ection 437c, subdivision (h) requires more than a simple recital that ‘facts essential to
justify opposition may exist.’ The affidavit or declaration in support of the continuance
request must detail the specific facts that would show the existence of controverting
evidence.” (Lerma v. County of Orange (2004) 120 Cal.App.4th 709, 715 (Lerma).)
Otherwise, any unprepared party could invoke section 437c(h) to obtain an automatic
continuance. (Ibid.) “The party seeking the continuance must justify the need, by
detailing both the particular essential facts that may exist and the specific reasons why
they cannot then be presented.” (Id. at p. 716.)

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 Where the party seeking a continuance of a summary judgment motion fails to
meet the requirements of section 437c(h), the court must determine whether that party has
nonetheless established good cause for a continuance. (Lerma, supra, 120 Cal.App.4th at
p. 716.) We review the trial court’s decision for an abuse of discretion. (Ibid.)
B. IFIC’s Showing
In opposition to Fabinger’s motion for summary adjudication, IFIC requested the
court deny the motion or grant a continuance to allow IFIC to depose Fabinger. IFIC
argued it “should have the right to determine why, if indeed it was true, Mr. Fabinger put
down such a large deposit, what his relationship was with the developer and its
principals, what other representations might have been made to him or by him at the time
he entered into the transaction or thereafter, whether the ‘deposit’ was in fact a ‘loan,’
whether such a scheme was merely a way for the developer to raise money from Mr.
Fabinger and, since he couldn’t secure the loan as a practical matter by further
encumbering the property, to try to secure the loan by way of the RLI or IFIC bond.
There could obviously be other lines of questioning, as well.”
Counsel’s declaration supporting the opposition detailed the discovery problems
IFIC had with Fabinger. Fabinger failed to verify discovery responses and failed to
appear for a scheduled deposition. The declaration did not state what facts counsel
expected to learn in the deposition or how those facts are essential to defeat summary
adjudication by creating a triable issue of material fact.
C. Analysis
The declaration failed to fulfill the requirements of section 437c(h). While it set
forth the reason that Fabinger’s deposition had not been taken, it did not identify the
essential facts that may exist or the reason IFIC believed those facts existed. The
declaration did not “detail the specific facts that would show the existence of
controverting evidence.” (Lerma, supra, 120 Cal.App.4th at p. 715, italics added.)
Indeed, it did not detail any facts at all, but spoke only to the discovery problems. Only

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the opposition indicated what counsel would ask in the deposition and it showed that
counsel wanted to question Fabinger’s motive in making such a large deposit in hopes of
uncovering unknown facts of undetermined significance. It is not enough to explain what
one will ask in further discovery; one must explain what one will likely learn--the
essential facts to oppose the motion--to obtain a continuance. (See Frazee, supra, 95
Cal.App.4th at p. 633). Further, the moving party must make this showing by affidavit or
declaration. (Id. at p. 634; § 437c, subd. (h).)
IFIC failed to meet the requirements of section 437c(h), and offered no other good
cause for a continuance. The trial court did not abuse its discretion in denying IFIC’s
request for a continuance.
II
Evidence of Fabinger’s Deposit
IFIC contends the trial court erred by considering Fabinger’s “dubious evidence”
of his $3,000,000 deposit. IFIC contends Fabinger’s declaration that he made the deposit
was inadequate because he provided no foundation, such as when, how and to whom he
made the payment.
A witness must have personal knowledge of the particular matter as to which he
testifies. (Evid. Code, § 702, subd. (a).) Fabinger’s declaration stated that he had
personal knowledge of the fact that he deposited $3,000,000 into escrow. “A witness'
personal knowledge of a matter may be shown by any otherwise admissible evidence,
including his own testimony.” (Evid. Code, § 702, subd. (b).) Fabinger’s declaration
was sufficient to establish that he made the deposit.
IFIC contends oral testimony is not admissible to prove the content of a writing.
(Evid. Code, § 1523.) Fabinger, however, was not trying to prove the content of a
writing, but the fact that he made a deposit. Tellingly, IFIC offered no evidence to
dispute this fact.

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 III
Ability to Perform
IFIC contends the trial court erred in granting the motion for summary
adjudication because Fabinger failed to prove he was ready, willing, and able to perform
the purchase contract. IFIC relies on Ersa Grae Corp. v. Fluor Corp. (1991) 1
Cal.App.4th 613 (Ersa Grae).
In Ersa Grae, that company sued Fluor for damages for breach of a contract to sell
real property to Ersa Grae. (Ersa Grae, supra, 1 Cal.App.4th at p. 616.) The contract
contemplated that, within 120 days of execution of the agreement, Ersa Grae would form
a consortium to provide the funding to finance construction on the property. (Id. at p.
618.) Fluor decided to sell the property to another company instead of Ersa Grae. (Id. at
pp. 619-620.) The jury found that a contract had been formed between Ersa Grae and
Fluor and that Fluor breached the contract. (Id. at p. 620.) In the second phase of the
trial, the jury awarded Ersa Grae substantial damages based on the difference between the
purchase price and the value of the property at the time of the breach. (Id. at pp. 621,
626-627.)
In reversing the judgment and remanding the case for a new trial on damages, the
appellate court agreed with Fluor that the trial court should have required Ersa Grae to
prove it was ready, willing, and able to perform the contract. “Although it is true that an
anticipatory breach or repudiation of a contract by one party permits the other party to
sue for damages without performing or offering to perform its own obligations [citation],
this does not mean damages can be recovered without evidence that, but for the
defendant's breach, the plaintiff would have had the ability to perform. [Citation.]”
(Ersa Grae, supra, 1 Cal.App.4th at p. 625.) The Ersa Grae court explained that Ersa
Grae was not required to actually put together the consortium for financing the purchase,
but “evidence should have been presented by Ersa Grae to prove that, but for Fluor's

9
breach, Ersa Grae had the ability (by way of [it’s broker’s] contacts or otherwise) to form
the consortium and fund the deal.” (Id. at p. 626.)
Fabinger contends there was nothing left for him to perform because he had
deposited the entire purchase price. While the amendment to the purchase contract
reduced the purchase price to $2,999,500, that amendment required the approval of the
lender which was not obtained. Nonetheless, Ersa Grae is eminently distinguishable,
because here Fabinger sought only return of his deposit, not damages for breach of
contract. The FAC alleges that the complaint and prior written notice notified Highlands
of its breach of contractual and other legal obligations and of plaintiffs’ terminating and
rescinding the real estate purchase and sale contracts.
In arguing that Ersa Grae applies, IFIC ignores the language of the purchase
contracts which set forth the exclusive remedy where the Seller fails to meet its
obligations (such as delivering clean title). The sole remedy is rescission and return of
monies paid. Fabinger’s cause of action against IFIC was for declaratory relief and
sought only return of his deposit plus interest and costs. Under the provisions of both the
surety bond and the purchase contracts, Fabinger is entitled to return of his earnest money
deposit due to Highlands’s undisputed inability to deliver clean title. Rescission is an
appropriate remedy where there is a material failure of consideration. (Civ. Code,
§ 1689, subd. (b)(2).)
In his treatise on contracts, Professor Williston distinguishes between suits to
enforce a contract for the purchase of land or recover damages and those for rescission
and restitution with respect to the need to prove that plaintiff is ready, willing, and able to
perform.4 Noting the considerations of equity in rescission, the treatise indicates that if,

4 In concluding that Ersa Grae had to prove its ability to perform the contract, the court
relied in part on Professor Williston’s treatise on contracts. (Ersa Grae, supra,
1 Cal.App.4th at p. 625.)

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as here, the contract provides the contingencies in which restitution shall be allowed, that
provision will be enforced. (26 Williston on Contracts (4th ed. 2003) § 68:10, p. 112.)
The treatise cites as an example the exact situation here: where a seller who has accepted
deposits from buyers is then unable to deliver clean title. “Thus, where a defendant
sought to resist a plaintiff’s demand for restitution of a down payment on land that the
plaintiff had contracted to purchase and to which defendant could not convey good title
by asserting that the plaintiff was motivated by a desire to avoid the transaction in bad
faith and had not shown himself willing and able to perform, the court ruled: [¶] ‘A
contract for the purchase of lands may be rescinded, and the purchase moneys paid in
advance may be recovered, on the failure of the seller to perform, even though the
purchaser could not have performed. In an action to rescind and recover payments made
on account of the purchase price it is enough to show a breach by the seller. This is not
the rule, however, when the action is to enforce the contract or to recover damages; for
the seller’s breach, here, the one seeking damages for its breach must tender and prove
his own readiness, willingness, and ability to perform.’ ” (26 Williston on Contracts,
supra, § 68:10, pp. 114-115, quoting Weintraub v. Rungmar Realty Corp. (Sup.Ct.1962)
231 N.Y.S.2d 241, 244.)
California law permits recovery of the buyers’ deposits in this situation. In
Rutherford Holdings, LLC v. Plaza Del Ray (2014) 223 Cal.App.4th 221, the parties
contracted for the purchase and sale of a mobile home park. Rutherford made a
substantial deposit, but the sale was never completed and Rutherford sued to recover its
deposit. (Id. at pp. 226-227.) After sustaining defendant’s demurrers, the trial court
entered a judgment of dismissal. (Id. at p. 227) On appeal, the court held Rutherford
could state a cause of action “for money had and received” based on the total failure of
consideration and it was not necessary to bring a formal action for rescission. (Id. at p.
230.) “Where the failure of the consideration is total, ‘the law implies a promise on the
part of the other to repay what has been received by him under the contract . . . .’

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[Citation.] Such a promise is implied because the ‘defendant cannot in equity and good
conscience retain the benefits of the agreement and repudiate its burdens . . . .’
[Citation.]” (Ibid.)
The trial court did not err in granting Fabinger’s motion for summary adjudication.
IV
Propriety of Money Judgment
IFIC contends the trial court erred in granting Fabinger a money judgment because
the FAC sought only declaratory relief. IFIC cites to authority that the pleadings frame
the issues for summary adjudication, but cites to no authority that a money judgment is
improper in a declaratory relief action. The law is to the contrary. A court can award
monetary relief in a declaratory relief action where there is an actual controversy as to the
validity or the amount of plaintiff’s claim. (County of San Diego v. State of California
(2008) 164 Cal.App.4th 580, 608; accord California Bank v. Diamond (1956) 144
Cal.App.2d 387, 390 [“The complaint having stated a cause of action for declaratory
relief, the court had jurisdiction of the entire matter and jurisdiction to render the money
judgment here appealed from”].)
The trial court did not err in awarding a money judgment.
V
Failure to Acknowledge Payment by Codefendant
In a cursory argument, IFIC contends the judgment “for some unexplainable
reason,” failed to reflect the settlement between Fabinger and the other surety, RLI. IFIC
does not explain why this omission was error or how this alleged error should be
remedied. As we explain, we deem this argument forfeited.
A. Background and the Law
The fourth cause of action of the FAC sought declaratory relief that RLI must pay
plaintiffs the surety bond proceeds equal to their earnest money deposits. Shortly after
the trial court granted Fabinger’s motion for summary adjudication against IFIC, the

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court ruled that RLI’s settlement with Fabinger was a good faith settlement under Code
of Civil Procedure section 877.6.
IFIC filed an ex parte application to stay enforcement of the judgment against it
and in favor of Fabinger. The trial court granted IFIC’s motion to recall and quash
Fabinger’s writ of execution for two reasons. First, IFIC had belatedly posted an appeal
bond. Second, the court found the writs of execution did not accurately reflect credits for
amounts Fabinger had recovered from RLI.
Code of Civil Procedure section 877 (section 877) states that when a plaintiff
enters into a good faith settlement with a co-obligor subject to a right of contribution for a
debt, “it shall reduce the claims against the others . . . in the amount of the consideration
paid for it . . . .” (Code Civ. Proc., § 877, subd. (a); L.C. Rudd & Son, Inc. v. Superior
Court (1997) 52 Cal.App.4th 742, 747.) A defendant seeking offset has the burden of
proving the offset. (Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118
Cal.App.4th 1061, 1077, disapproved on other grounds in Zhang v. Superior Court
(2013) 57 Cal.4th 364, 382.) “We generally review a ruling granting or denying a section
877 settlement credit under the deferential abuse of discretion standard. [Citation.] To
the extent that we must decide whether the trial court's ruling was consistent with
statutory requirements, we apply the independent standard of review. [Citation.]” (Wade
v. Schrader (2008) 168 Cal.App.4th 1039, 1044.)
B. Analysis
Here, there is no ruling to review. The record before us does not contain any
attempt by IFIC to obtain an offset against the judgment. It is appellant's burden to
provide an adequate record on appeal. (Amato v. Mercury Casualty Co. (1993) 18
Cal.App.4th 1784, 1794.) The record shows only that IFIC was successful in recalling
and quashing the writs of execution on the judgment, in part because such writs of
execution did not accurately reflect credits for payments by RLI to Fabinger. Nothing in
the record establishes that these proceedings resulted in resolution of this issue.

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 Nor does IFIC argue on appeal that the judgment should be modified to include an
offset pursuant to section 877. Indeed, IFIC’s argument mentions neither section 877 nor
an offset. Further, IFIC provides no citation to authority in support of its position, instead
merely fulminating about Fabinger’s greed. (See Cal. Rules of Court, rule 8.204(a)(1)(B)
[each point in a brief must be supported by “argument and, if possible, by citation of
authority”].) “We are not bound to develop appellants' arguments for them. [Citation.]
The absence of cogent legal argument or citation to authority allows this court to treat the
contentions as [forfeited]. [Citation.]” (In re Marriage of Falcone & Fyke (2008)
164 Cal.App.4th 814, 830.) We do so here.
VI
Prejudgment Interest Rate
Finally, IFIC contends the trial court erred in awarding prejudgment interest of ten
percent because the addendum provided for an interest rate of only five percent. On this
point, we agree.
Under the addendum, if Seller could not fulfill its obligations, Purchaser was “to
receive a refund of all monies that Purchaser has paid plus 5% annualized interest from
the date of the execution of this Addendum.” The judgment called for interest “at the
legal rate of 10% per annum” from June 6, 2008.
Civil Code section 3289 provides in part: “(a) Any legal rate of interest stipulated
by a contract remains chargeable after a breach thereof, as before, until the contract is
superseded by a verdict or other new obligation. ¶ (b) If a contract entered into after
January 1, 1986, does not stipulate a legal rate of interest, the obligation shall bear
interest at a rate of 10 percent per annum after a breach.”
Where the contract provides for an interest rate, that interest rate prevails over the
rate set forth in Civil Code section 3289. (Roodenburg v. Pavestone Co., L.P. (2009) 171
Cal.App.4th 185, 192 [contract rate of 18% instead of legal rate of 10%].) This rule
applies regardless of whether the stipulated interest rate is greater or lesser than the legal

14
rate. (See Reidy v. Miller (1927) 85 Cal.App.764, 768 [error to award 7% prejudgment
interest where lease agreement stipulated 4%].)
Fabinger contends the contractual interest rate does not apply because IFIC was
not a party to the addendum, or the purchase agreement. He relies on Harm v. Frasher
(1960) 181 Cal.App.2d 405. In Harm, two groups, the Harm Interests and the Frasher
Estate, entered into separate contracts to sell their controlling interests in a trucking
business to Copperstate; each contract was contingent on the sale by the other group. The
Frasher Estate delayed the sale and the Harm Interests sued for damages due to the delay
and obtained a judgment. (Id. at pp. 410-411.) On appeal, defendants contended the trial
court erred in awarding prejudgment interest of seven percent instead of five percent, the
rate set forth in the sale contract. The appellate court disagreed. “The obvious fallacy of
this contention is that the plaintiffs are not suing the party who agreed to pay 5 per cent
interest on the purchase price.” (Id. at p. 418.)
While IFIC was not a party to the addendum, it is a surety, and as such its liability
is commensurate with that of its principal, Highlands. (Civ. Code, § 2808.) By the
addendum, Highlands contracted with Fabinger to alter its liability in two ways from that
set forth in the purchase agreement if Highlands could not fulfill its obligations. First, it
agreed to pay interest from the date of the addendum, rather than the date of the breach.
Second, it agreed to an interest rate of five percent. IFIC’s liability as surety is fixed by
this agreement. We have held that a surety was bound by the contractual interest rate,
even though it was not a party to that contract. (Granite Construction Co. v. American
Motorists Ins. Co. (1994) 29 Cal.App.4th 658.) In that case, Granite had not been paid
for work in paving streets and brought suit against the surety to recover. Granite’s
contract provided for an interest rate of 18 percent for any unpaid balance. The surety
argued that since the surety bond did not provide an interest rate, Granite was limited to
the legal rate of 10 percent. We disagreed, holding that since the bond was to provide
recourse for those who furnished labor and materials but were not paid, Granite was

15
entitled to prejudgment interest at the contractual rate of 18 percent. (Id. at p. 671.)
Here, the IFIC surety bond was to provide recourse for purchasers who made a deposit
but never received what they purchased. (Bus. & Prof. Code, § 11013.2.) Under
Granite, IFIC is liable for only the contractual rate of interest of five percent up to the
time of judgment. (Civ. Code, § 3289, subd. (a); see Code Civ. Proc., § 685.010, subd.
(a) [10% interest on unsatisfied money judgment].)
DISPOSITION
We modify the judgment to provide for prejudgment interest at the rate of five
percent. As modified, the judgment is affirmed. Fabinger shall recover costs on appeal.
(Cal. Rules of Court, rule 8.278(a)(3).)

DUARTE , J.

We concur:

NICHOLSON , Acting P. J.

MURRAY , J.

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