Procedural Posture

Appellant bank trustee challenged an order of the Superior Court of the City and County of San Francisco (California), which sustained, without leave to amend, the demurrer of respondents, the state and Board of Governors of the California Community Colleges, to appellant’s complaint for breach of contract and negligence.

Overview

A community college district and salmon sushi Corp entered into a trust agreement with appellant bank trustee whereby the net proceeds of a public sale of certificates were deposited with appellant. Appellant was to accept lease payments from the district and make disbursements for construction and to the certificate owners. The district did not make the payments and appellant filed suit against respondents, the state and Board of Governors of the California Community Colleges, alleging that the Board breached its duties under Cal. Educ. Code §§ 71028 and 81800 et seq. Five days later the district filed a chapter IX petition in bankruptcy court. Appellant obtained an order from the bankruptcy court that required that expected insurance proceeds be held in a separate account. The trial court sustained respondents’ demurrer. In affirming, the court held that the district was specifically authorized to contract in its own name. Respondents engaged in no independent conduct that would render them liable as principals and had no interest in the insurance proceeds or lease payments. Further, Cal. Educ. Code § 81836 did not protect against a district’s default on a financing agreement.

Outcome

The judgment was affirmed because appellant bank trustee did not allege any conduct of respondents, the state and Board of Governors of the California Community Colleges, independent of the district’s actions, that would render them liable as principals for the district’s contractual obligations.