Plaintiff subcontractor appealed a judgment from the Superior Court of Los Angeles County (California) that held plaintiff, in its action for breach of contract brought against defendant prime contractor, failed to provide a surety bond acceptable to defendant in accordance with the contract, and defendant was entitled to cancel the contract.
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Defendant prime contractor contracted with plaintiff subcontractor and required plaintiff to furnish a surety bond by a company acceptable to defendant. When plaintiff tendered a surety bond defendant rejected the surety bond because it found the surety company unacceptable. Defendant then cancelled the contract, and plaintiff sued for breach of contract. After trial, plaintiff requested special findings on whether defendant's rejection of the surety bond was in good faith and reasonable. The trial court refused and then found that plaintiff failed to submit a surety bond acceptable to defendants, thereby, breaching the contract which entitled defendant to cancel. The appellate court reversed. Where a contract called for satisfaction as to commercial value or quality or sufficiency, which could be evaluated objectively, the standard of a reasonable person must be used in determining whether or not satisfaction has been received, and defendant could not arbitrarily and capriciously repudiate the contract by claiming dissatisfaction with the surety bond. The matter was remanded so that the trial court could make the required findings of fact and conclusions of law.
The judgment of the trial court, which held that plaintiff subcontractor failed to provide a surety bond acceptable to defendant prime contractor and that defendant was entitled to cancel the contract, was reversed and remanded. The trial court was ordered to enter a judgment after making the required findings of fact and conclusions of law on whether defendant acted in good faith and reasonably when it rejected the bond.