Cates Construction Inc. V. Talbot Partners

This case presents issues relating to the contract and tort liability of a commercial surety to a real estate developer under a bond guaranteeing the contract performance of a general contractor on a multimillion dollar condominium construction project. For the reasons set forth below, we conclude that the bond at issue contractually obligates the surety to pay damages attributable to the general contractor's failure to promptly and faithfully perform its contract obligations by the agreed date. We further conclude that, as a matter of law, the developer may not recover in tort for the surety's breach of the covenant of good faith and fair dealing implied in the performance bond. In light of these Conclusions, we reverse the judgment of the Court of Appeal insofar as it affirmed the underlying award of tort damages for breach of the implied covenant and permitted an award of punitive damages.