F. Rodgers Insulation Interiors, Inc. v. F. Rodgers Insulation, Inc.

Filed 1/30/07 F. Rodgers Insulation Interiors, Inc. v. F. Rodgers Insulation, Inc. CA4/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FOURTH APPELLATE DISTRICT

DIVISION TWO

APPEAL from the Superior Court of Riverside County. E. Michael Kaiser, Judge. Affirmed in part, reversed in part, and remanded with directions.

Law Office of Robert A. Huddleston, Robert A. Huddleston, Joan E. Presky; Best, Best, & Krieger, Howard B. Golds, Cynthia M. Germano, and John D. Higginbotham, for Plaintiffs, Cross-defendants and Appellants F. Rodgers Insulation Interiors, Inc. and F. Rodgers Insulation, Inc.

Lax & Stevens and Paul A. Lax; Lascher & Lascher and Wendy C. Lascher, for Defendants, Cross-complainants, and Appellants Kenneth J. Sirls and The Sirls Family Trust.

Both sides appeal from the judgment which was in favor of F. Rodgers Insulation Interiors, Inc. (Interiors) but which awarded damages to Kenneth J. Sirls (Sirls) and The Sirls Family Trust (the Trust).

I. PROCEDURAL BACKGROUND AND FACTS

Frank Rodgers (Rodgers) formed F. Rodgers Insulation, Inc. (FRI), a mechanical insulation contractor, in Northern California in 1986. Rodgers, along with Lyle Mick McGuire (McGuire), subsequently formed Interiors, an interiors insulation contracting company, in approximately 1996 or 1997.

Saddleback Insulation, Inc. (Saddleback) performed essentially the same services as Interiors in Southern California. The Trust owned all of Saddlebacks stock. Sirls, the CEO and president of Saddleback, was generally responsible for the day-to-day operations of Saddleback.

In 2001, Interiors purchased Saddleback from Sirls and the Trust. Prior to the purchase, Interiors representatives met several times with Sirls, who provided a December 31, 2000, financial statement that had been prepared by Saddlebacks accountants. Based upon that financial statement, Interiors offered $2.5 million to purchase Saddleback. Thereafter, in an effort to increase the price that Interiors would pay, Sirls indicated that Saddleback had a good March. He offered Saddlebacks internal March 31, 2001, financial statement that showed an increase in equity and income. Based on the March 2001 financial statement, Interiors increased its offer to the Sirls and the Trust to $3.5 million.

When Sirls indicated that $3.5 million was not enough, the parties agreed to an additional $300,000. Although Interiors and Sirls agreed that the $300,000 was part of the purchase price and therefore had nothing to do with employment of Sirls, for various reasons the parties designated the amount as a bonus in the employment agreement (Employment Contract) that was entered into at the same time, and agreed that the amount would be paid at the end of the four-year term thereof.

Prior to the consummation of the purchase, Interiors subsequently did further due diligence, including inquiring about the workers compensation claim history of Saddleback. As the purchase negotiations progressed, Interiors also continued to receive internal financial statements from the Trust, the combination of which showed positive financial information.

Based thereon, in June 2001, Interiors entered into an Agreement for Purchase and Sale of Stock (the Agreement) with Sirls and the Trust to purchase all of the Trusts stock in Saddleback. The Agreement called for an initial payment to the Trust of $225,000 at the time of closing, with the remaining balance of $3,175,000 paid by way of a Promissory Note (the Note), the form of which was specified in the Agreement. The Note, which was guaranteed by FRI, provided for a balloon payment of $1,250,000 on January 10, 2002, with the remaining $1,925,000 paid over four years at 8 percent interest in monthly payments. In addition, the Agreement required Interiors to pay the Trust a total of $100,000 at a rate of $25,000 per year for four years, for a noncompetition covenant, which Interiors timely paid.

The Agreement also imposed obligations on Sirls and the Trust. Pursuant to Article 2, they represented and warranted that the financial statements, including the March 31, 2001, internal financial statement that was attached as an exhibit to the Agreement, were accurate and were prepared in accordance with generally accepted accounting principles. They also represented and warranted that there were no material changes in the financial condition of the company between the date of the financial statements and the closing on July 1, 2001. Sirls and the Trust further represented and warranted that none of the warranties contained any untrue representations of fact or omissions.

Finally, the Agreement provided that Interiors could offset any amount owing on the Note by any damage sustained because of the breach by Sirls and/or the Trust.^[1] Likewise, the Note, which expressly states that it is executed as part of the Agreement, contains a substantively identical provision allowing offset.^[2] Sirls testified he understood that Interiors had the right to set off against the amount of the Note any damages that it sustained because of a default or breach by Sirls and/or the Trust of the Agreement, and that FRI, as guarantor, had the same rights as Interiors.

Concurrently with and as part of the Agreement, Interiors and Sirls entered into a written Employment Contract, pursuant to which Interiors agreed to employ Sirls as an executive vice-president, for a term of four years beginning July 1, 2001. Sirlss salary was $16,800 per month. At the end of Sirlss term, i.e., on June 30, 2005, whether or not he was still employed by Interiors, he was to be paid a bonus of $300,000. Rodgers testified this amount represented the additional $300,000 that the Sirls and the Trust had requested on the purchase price. Thus, although the amount was stuck into the Employment Contract, it was really part of the purchase. Rodgers also testified that the amount would be paid to Sirls on its due date.

The Employment Contract provided, among other things, that Sirls would devote his entire time to the duties assigned to him by Interiors, and that Interiors could terminate Sirls for good cause, including gross negligence in the performance of his duties or breach of work rules (after a written warning) or dishonesty (in which case immediate termination without warning was appropriate).

Once the sale was finalized, Saddleback became the Southern California branch of Interiors. Interiors retained all of Saddlebacks personnel,, and Sirls became responsible for management of the branch.

The branch immediately began to lose money. The result for the fiscal year (October 1, 2001, to September 20, 2002) was a loss of $239,068. There was an additional loss of $60,000 for November 2002.

During the same time period, various incidents occurred which led Interiors to conclude that Sirls was not a very good manager. Consequently, the decision was made to demote Sirls from the position of executive vice-president to estimator in December 2002, and different personnel were brought in to manage the branch.

In approximately December 2002, McGuire was meeting with a sales representative from Johns Manville, a supplier, by the name of Thomas Beckers (Beckers). Sirls poked his head into the room where the meeting was taking place and said he would not be attending the meeting because he had been demoted to an estimator.

A few days later, Sirls called Beckers. Sirls was very upset and told Beckers there were estimators who had worked with Sirls for years who were very upset about his demotion and were thinking of leaving Interiors. Sirls indicated that three or four of the estimators were looking at going on their own with strong backing. Sirls asked if Johns Manville would be interested in setting up an account or providing pricing to them. Sirls also indicated that he would stay with Interiors until his non-compete agreement expired, but that he would be ready to compete thereafter. Beckers testified that Sirls called him two more times in the next two months for the same reason.

Beckers told McGuire about the conversations with Sirls, who in turn put Rodgers in contact with Beckers. Beckers then repeated to Rodgers the contents of the conversation with Sirls. When Rodgers confronted Sirls, Sirls denied that he had approached Johns Manville about buying direct for another company, about buying direct for two employees whose names Sirls had mentioned to Beckers, or about buying direct for anybody else. Subsequently, on February 19, 2003, Rodgers terminated Sirls for dishonesty as allowed by the Employment Contract. As of the date of Sirlss termination, there were less than 28.5 months remaining on the term of the Employment Contract.^[3]

After Sirls was terminated, Interiors began investigating the branchs finances to determine the cause(s) of the continuing losses. Interiors discovered that Sirls had made misrepresentations in the financial statements that were provided as part of the sale of the business. Such misrepresentations caused the value of Saddleback to be overstated by approximately $375,000. Interiors also learned that Sirls had failed to disclose information regarding a workers compensation claim that resulted in additional costs to Interiors. Consequently, in February 2003, Interiors ceased making payments under the Note and initiated this action.

The complaint was filed on February 28, 2003. It alleged causes of action for declaratory relief, breach of written agreements, intentional and negligent misrepresentation, and breach of fiduciary duty. Sirls and the Trust filed their answer to the complaint and cross-complained against Interiors and Rodgers. The operative third amended cross-complaint alleged causes of action for breach of the Agreement, breach of the Employment Contract, and breach of the Note, enforcement of guaranty against Interiors, intentional interference with contractual relations against Rodgers, and fraud.

Prior to trial, the trial court ruled on various motions in limine. Relevant to this appeal is the motion of Interiors, which sought to exclude any evidence mentioning, among other things, the $300,000 bonus that is stated in the Employment Contract, on the grounds that the payment was not yet due and there had been no evidence of anticipatory breach. Sirls opposed the motion, arguing that he should be allowed to introduce evidence of this bonus because, inter alia, Interiors anticipatorily breached the Employment Contract and thereby harmed him, and if Sirls prevailed on his claims for breach of contract, he was entitled to all damages, including the $300,000 bonus that was due on June 30, 2005. The trial court denied the motion, stating: The opposition brings up the issue of anticipatory breach, which if the defendant prevails on that breach of contract issue, hes entitled to all of his damages. So the motion would be denied. Thats the final payment of -- due Kenneth Sirls for his non-competition agreement, $300,000 agreement under [his] [E]mployment [Contract].

Given its ruling on the motion of Interiors, the trial court instructed the jury on the doctrine of anticipatory breach: A party can breach or break a contract before performance is required by clearly and positively indicating by words or conduct that he or she will not or cannot meet the requirements of the contract. If [Sirls] proves that he would have been able to fulfill the terms of the employment agreement, and that Interiors clearly and positively indicated by words or conduct that it would not or could not meet the contract requirements, then Interiors breached the contract.

Thus, counsel for Sirls argued that, based on the doctrine of anticipatory breach, the $300,000 should be included in the jurys award:

There is also an instruction, and this goes to the question of whether or not the $300,000 in the agreement should be part of the damage award. Certainly the agreement calls for $300,000 to be paid July of next year. The agreement also calls for payments to be made monthly. Now, no payments have been made for the last -- since February 19, 2003, on the note at all.

There is also a jury instruction that says that a party can breach or break a contract before performance is required by clearly and positively indicating, by words or conduct, that he or she will not or cannot meet the requirements of the contract.

They have missed the monthly payments of whatever they are, whatever the amount in that note is, for now 17 straight months. I submit that the evidence that we have provided on that subject and the fact that there has been no payment allows you to find that it is reasonable to conclude that there will not be a payment. You can judge that by the conduct, that is, failure to pay, at any point since February 19, 2003.

On August 24, 2004, the jury returned a special verdict wherein it found that the Sirls and the Trust had breached the Agreement and had negligently misrepresented facts in connection with the sale of Saddleback. However, the jury found that Interiors was not damaged. The jury also found that Interiors breached the Employment Contract with Sirls and found that Sirls was entitled to damages in the amount of $519,000.

Over the objections of Interiors and after several rounds of motions and hearings, the trial court entered judgment on January 26, 2005. The judgment provided that Interiors breached the Employment Contract with Sirls and that he was entitled to damages in the amount of $819,000, $519,000 of which is to be paid forthwith and $300,000 that is due on July 1, 2005. The judgment also provided: On the Declaratory Relief Cause of Action . . . [Sirls and the Trust] shall have judgment against [Interiors] . . . for $1,362,826 for the balance of the Promissory Note as of January 1, 2005; $1,080,862 of which is to be paid forthwith and $281,964 is to be paid monthly as required by the Promissory Note[.]

Following the motion of the Sirls and the Trust for an award of attorney fees and prejudgment interest, the trial court awarded prejudgment interest on both the Employment Contract and the Note. Both parties appeal.

APPEAL OF INTERIORS

II. TRIAL COURTS INTERPRETATION OF JURYS VERDICT

The jury returned the following special verdict:

1. Did Kenneth Sirls and the Sirls Family Trust breach the Purchase Agreement?

Yes X No __ [] . . . []

2. Was [Interiors] damaged by the breach?

Yes X No __ [] . . . []

3. What is the amount of the damage?

$ 0

4. Did Kenneth Sirls breach the Employment Agreement?

Yes __ No X [] . . . []

7. Did Kenneth Sirls and the Sirls Family Trust negligently misrepresent an important fact to [Interiors] in connection with the sale of Saddleback?

Yes X No __ [] . . . []

8. Was [Interiors] damaged by the misrepresentation?

Yes __ No X [] . . . []

15. Did [Interiors] breach the Purchase Agreement?

Yes __ No X [] . . . []

18. Did [Interiors] breach the Employment Agreement?

Yes X No __ [] . . . []

19. Was Sirls damaged by the breach?

Yes X No __ [] . . . []

20. What is the amount of the damage?

$519,000.00

Clearly, the above verdict indicates the jury found that Sirls and the Trust breached the Agreement and misrepresented an important fact in connection with the sale of Saddleback. The jury also found that Interiors was damaged by the breach, not the misrepresentation; however, it assessed the damages as zero. Regarding the claim of breach by Sirls and the Trust, the jury found that Interiors did not breach the Agreement, but did breach the Employment Contract of Sirls. Thus, it awarded damages to Sirls in the amount of $519,000.

On appeal, Interiors contends that the trial court, under the guise of interpreting the verdict, improperly invaded the province of the jury and substituted its verdict for theirs. It claims that the findings of the jury clearly represent an unequivocal victory for Interiors, and an equally unequivocal defeat for Sirls as to the Purchase Agreement. Thus, it argues that the trial courts subsequent decision to award Sirls and the Trust the entire balance of the purchase price is a direct repudiation of the jurys findings on the primary dispute in this appeal. We agree.

The verdict should be liberally construed to uphold the judgment. [Citations.] Although it falls to the trial judge to interpret the verdict from its language considered in connection with the pleadings, evidence, and instructions, where the trial court does not interpret the verdict or interprets it erroneously, an appellate court will interpret the verdict if it is possible to give a correct interpretation. [Citation.] (Cucamonga County Water Dist. v. Southwest Water Co. (1971) 22 Cal.App.3d 245, 255; Hathaway v. Spiro (1985) 164 Cal.App.3d 359, 366 [The court is vested with the duty to interpret the verdict from its language, taking into account the pleadings, evidence and instructions]; Telles v. Title Ins. & Trust Co. (1969) 3 Cal.App.3d 179, 185; Fernandez v. Consolidated Fisheries, Inc. (1953) 117 Cal.App.2d 254, 263.)

Sirls, the Trust, and the trial court felt that the verdict was erroneous and that the court could interpret it by determining that the jury found that Interiors remained liable for $1,362,826, representing the balance of the Note as of January 1, 2005, as well as $819,000 representing the jurys award of $519,000 on Sirlss Employment Contract and $300,000 that was due on July 1, 2005, and which Interiors several times during the course of the trial made the statement that we owe it, were going to pay it. However, considering the pleadings and the instructions, we find that the trial court erred in interpreting the jurys verdict.

A. Pleadings of Interiors.

We begin our analysis by considering the complaint of Interiors, which consists of seven causes of action. The first count sought declaratory relief regarding the obligations of the parties under the Agreement. Specifically, Interiors claimed that breach of the Agreement by Sirls and the Trust caused [Interiors] damages in excess of the amount remaining due and owing to [Sirls and the Trust] pursuant to the Promissory Note for which Interiors is entitled to set-off all of their damages against all amounts remaining due and owing under and by reasons of the Promissory Note. The second count accused Sirls and the Trust of breaching the Agreement, while Interiors claimed it had performed or was excused from performing all obligations and requirements of the Agreement and the Note. The third count sought declaratory relief against Sirls regarding the obligations of the parties under Sirlss Employment Contract. Interiors claimed that Sirlss actions constituted good cause for Interiors to terminate the contract and all further obligations to him. The fourth count accused Sirls of breaching the Employment Contract, which excused Interiors from performing all obligations and requirements. The fifth count alleged that Sirls and the Trust made false representations in the Agreement with knowledge that they were untrue. The sixth count alleged that Sirls and the Trust made representations in the Agreement without a reasonable basis for making such representations. And the final count claimed that Sirls disclosed confidential information regarding Interiorss business.

Considering the above claims, clearly the pleading of Interiors sought a finding that Sirls and the Trust breached the Agreement, that Interiors was excused from performing all remaining obligations and requirements of the Agreement and the Note, that Sirls and the Trust falsely represented the status of Saddleback, and that Interiors was entitled to recover the damages it incurred. The pleadings further sought a determination that Sirls had breached his Employment Contract, which excused Interiors from any remaining obligations and requirements under such contract.

B. Pleadings of Sirls and the Trust.

In the amended cross-complaint filed by Sirls and the Trust, they claimed that the Agreement requires payments to be made pursuant to the terms of the Note. [Interiors] has failed to make payments in accordance with the requirements of the Note and is therefore in breach of the payment provisions of the Note and the . . . Agreement. As a result of this breach, Sirls and the Trust claimed to be damaged. In the second count, Sirls claimed that Interiors breached the Employment Contract with him, which entitled him to additional payments under the [Contract] as liquidated damages. The third count specifically alleged that Interiors breached the Note by failing to make the required payments. Because of this breach, Sirls and the Trust sought the unpaid balance plus interest. The fourth count sought to enforce the guarantee executed by FRI regarding the Note. The fifth count accused Rodgers of intentionally interfering with the contract relations between Sirls and the Trust, on one hand, and Interiors on the other, under the Agreement, the Note, and the Employment Contract. The sixth count for fraud claimed that Interiors and Rodgers never intended to pay the full purchase price of Saddleback as evidenced by their action of terminating Sirlss employment.

Clearly, the cross-action of Sirls and the Trust sought the unpaid balance on the Note plus interest, the remaining amount due on Sirlss Employment Contract, and further damages incurred as a result of the actions of Interiors.

C. Jury Instructions.

Turning to the jury instructions, we note that the jury was told the parties stipulated that Interiors, Sirls, and the Trust entered into the Agreement, that Interiors and Sirls entered into the Employment Contract, that Interiors signed the Note, and that FRI signed a guarantee for payment of the Note. Regarding Interiorss claim of breach of contract, the jury was told that Interiors must prove all of the following: That the parties entered into the [Agreement]; that Interiors did all or substantially all of the significant things that the [Agreement] required it to do, or that it was excused from having to do those things; that all conditions required for Sirls in the Trust performance have occurred; that Sirls and the Trust failed to do something that the [Agreement] required them to do, and that Interiors was harmed by that failure. [] If you decide that Interiors has proved each of the above, your verdict on this claim must be for Interiors. . . .

Similar instructions were given regarding Sirlss and the Trusts claim that Interiors breached the Agreement and the Note.^[4] However, regarding the Employment Contract, the jury was also told that a party can breach or break a contract before performance is required by clearly and positively indicating by words or conduct that he or she will not or cannot meet the requirements of the contract.

Regarding contract damages, if the jury found in favor of Interiors, then they had to decide how much money will reasonably compensate Interiors for the harm caused by the breach. This compensation is called damages. [] To recover damages for any harm, Interiors must prove that the harm was likely to arise in the ordinary course of events from the breach of the contract, or that when this contract was made, both parties could have reasonably foreseen the harm as the probable result of the breach. [] Interiors also must prove the amount of damages to a reasonable certainty. However, it does not have to prove the exact amount of damages. You must not speculate or guess in awarding damages. [] Interiors claims damages for Sirls[s] and the Trust[s] breach of warranties contained in the [Agreement]. As to the Employment Contract, if the jury found that Sirls was in breach, then the jury was required to award Interiors damages as follows: By reducing by $300,000 any amount found due by it to Sirls . . . under the [Note].

Similarly, if the jury found for Sirls and the Trust on their claim of breach of the Agreement, it was to decide, how much money will reasonably compensate Sirls and the Trust for harm caused by the breach. This compensation is called damages. The purpose of such damage is to put Sirls and the Trust in as good a position as they would have been if Interiors had performed as promised. Regarding the calculation of damages if the jury found that Interiors had breached the Employment Contract, the jury had to decide the amount that Sirls would have earned up to today, including any benefits and pay increases, and add the present cash value of any future wages and benefits that he would have earned up to the end of the term of the [E]mployment [C]ontract[,] minus the amount which he might have reasonably earned from other employment.

Regarding the negligent misrepresentation claim of Interiors, the jury was instructed: Interiors claims it was harmed because Sirls and the Trust negligently represented an important fact. To establish this claim, Interiors must prove all of the following: That Sirls and the Trust represented to Interiors that an important fact was true; that Sirls[s] and the Trust[s] representation was not true; that Sirls and the Trust had no reasonable grounds for believing the representation was true when they made it; that Sirls and the Trust intended that Interiors rely on this representation; that Interiors reasonably relied on Sirls[s] and the Trust[s] representation; that Interiors was harmed, and that Interiors[s] reliance on Sirls[s] and the Trust[s] representation was a substantial factor in causing this harm.

As for damages, the jury was told: The following are the specific items of damage claimed by Interiors. The difference between the amount Interiors paid and the fair mark[et] value of Saddleback Insulation at the time of the sale, amounts that Interiors reasonably spent in reliance on Sirls[s] and the Trust[s] false representation if those amounts would not have otherwise been spent in the purchase or acquisition of the property, and lost profits.

D. Analysis.

Given the pleadings, the evidence, and the instructions, the jury found for Interiors on its breach of contract claim. As Interiors points out, the only way that [it] could have breached the [Agreement] was by an unexcused failure to pay the remaining balance on the . . . Agreement and [the] . . . Note. Interiors [sic] only obligation as to the . . . Agreement was to pay specified sums of money at specified times. Interiors was required to: (1) pay $225,000 at the time the sale closed; (2) pay the remainder of the purchase price ($3,175,000), as memorialized in the . . . Note; and (3) pay $100,000 for the non-compete covenant. Sirlss and the Trusts counsel argued, Did [Interiors] breach the [Agreement]? Well, [it] didnt have a lot to do under the [A]greement, just pay, and they stopped paying . . . on the [N]ote in February of 03. They have not made a payment since then on the [N]ote. . . . I think this has to be answered yes. Unless Interiors was excused from paying the remaining balance, the jury would have had to find that Interiors breached the Agreement. However, the jury found that Sirls and the Trust had breached the Agreement, and had committed negligent misrepresentation in connection with the Agreement.

During deliberations, the jury requested or inquired about the following: (1) Beckerss testimony; a note concerning Rodgerss testimony and how he came up with $2.5 million and $3.8 million offers; and Ed Capparellis testimony; (2) If both Ken Sirls and The Family Trust are mention [sic] in the same question with an and how do we answer if we find different for each party?; (3) With respect to the [Agreement] and sale of Saddleback Sirls and the Sirls Family Trust are one and the same[?]; and (4) If we award money under the [Agreement] does it take into consideration the outstanding amount due on the contract? Will it cancel out the balance due on the contract? [] Do we need to consider interest on any settlements? The last question was answered in the negative. Regarding the question about the award of money under the Agreement, the jury was told: Any award of damages for the breach of the [Agreement] should be the amount you find that that party is presently do [sic].

Interiors argues that the only conclusion that can be drawn which gives effect to the entire Special Verdict, the pleadings, and the evidence, is that the jury offset the damages suffered by Interiors against the remaining balance on the . . . Note. We agree. As Interiors points out, both the Agreement and the Note provided that Interiors was entitled to offset the amount owed under the Note against damages sustained because of any default by Sirls and the Trust. Interiors brought this action seeking damages and a determination that it was excused from all further obligations under the Agreement and the Note based on the actions of Sirls and the Trust. In order to find that Sirls and the Trust breached the Agreement, the jury instructions required the jury to find that Interiors did all or substantially all that the Agreement required, or that Interiors was excused from having to do those things. By finding that Sirls and the Trust (not Interiors) breached the Agreement, the jury clearly found that Interiors was excused from any remaining obligations under the Agreement and the Note.

Furthermore, the jurys question during deliberation indicated its desire to offset the remaining balance on the Note by the damages resulting from Sirlss and the Trusts breach and misrepresentation. If the jury had not engaged in an offset, their answers to the special verdict questions would have been different. For example, instead of indicating that Interiors had been damaged, albeit $0, the jury would have simply indicated that Interiors had not been damaged at all. However, because the jury questioned whether its award of damages took into consideration the outstanding amount due on the contract and whether the award would cancel the balance due, the jury clearly concluded that Interiors was excused from paying the remaining balance due on the Note and thus was presently [due] $0. As such, we find no support for the trial courts entry of an award of damages in favor of Sirls and the Trust in the amount of $1,326,826.

Likewise, we find no support for the trial courts action of increasing the award of $519,000 in favor of Sirls by $300,000. As Interiors points out, the jurors considered the evidence, heard the arguments of counsel, were instructed on the doctrine of anticipatory breach, and fixed the damages at $519,000. As the record shows, the jury was charged with deciding the amount that Sirls would have earned up to today, including any benefits and pay increases, and add[ing] the present cash value of any future wages and benefitsthat he would have earned up to the end of the term of the [E]mployment [C]ontract[,] minus the amount which he might have reasonably earned from other employment. (Italics added.) [W]e presume the jury followed the courts instruction. [Citation.] (Boeken v. Philip Morris, Inc. (2005) 127 Cal.App.4th 1640, 1677.)

From this courts point of view, it appears that the award of $519,000 does not include the $300,000 because of the instructions and the evidence. The jurors were told that if they found that Sirls was in breach of the Employment Contract, then they were required to reduce the award of damages to Sirls or the Trust by $300,000. Nonetheless, the jurors found that Interiors breached the Employment Contract. Thus, Sirls was entitled to the $300,000. However, to actually award the $300,000 was not an issue before them at trial, Interiors represented that the $300,000 is part of the contract that is owed to Sirls and [w]e intend on paying that on . . . 7-1-05. The amount had nothing to do with Sirlss employment. Instead, Interiors admitted that the amount would be paid to Sirls because it owed him the $300,000 guarantee. Given Interiorss acknowledgment of the $300,000 liability and the fact that Interiors did not dispute the fact that it was due, logic dictates that Interiors did not need a judgment which awarded such sum.^[5]

While it is the duty of the trial court to make the judgment conform to the verdict when the intention of the jury is clear from the language of the verdict, considered in connection with the pleadings, the evidence and the instructions [citation], the court has no power to make a judgment that does not conform to the intention of the jury. (Telles v. Title Ins. & Trust Co., supra, 3 Cal.App.3d at p. 187.)

Given the above analysis, it clearly appears that the trial courts interpretation of the verdict is erroneous. We find no support in the jurys verdict for an award of $1,326,826, or the additional $300,000. Thus, to the extent that the amount of damages in the judgment differs from the amount awarded by the jury in the special verdict, the judgment, including any award of attorney fees, entered by the trial court is reversed. The matter is remanded and the trial court is instructed to enter a new judgment which is consistent with the jurys verdict, namely, that the award of damages is limited to $519,000.

Because we have found that the trial court misinterpreted the jurys verdict, we need not address whether or not the imposition of damages violates the constitutional right of Interiors to have both liability and damages determined by a jury and whether the judgment violates Code of Civil Procedure section 662.5.

III. AWARD OF PREJUDGMENT INTEREST

Interiors contends that Sirls is not entitled to prejudgment interest because (1) he failed to apply for such award prior to entry of judgment, and (2) the jurys award included interest.^[6]

It is well established that prejudgment interest is not a cost, but an element of damages. [Citations.] . . . the cost bill is not an appropriate vehicle for requesting interest under [Code of Civil Procedure] section 3287. In our view, prejudgment interest should be awarded in the judgment on the basis of a specific request therefor made before entry of judgment. This view is buttressed by California Rules of Court, rule 875,^[[7]] which provides: The clerk shall include in the judgment any interest awarded by the court and the interest accrued since the entry of the verdict. [Citation.] (North Oakland Medical Clinic v. Rogers (1998) 65 Cal.App.4th 824, 830, fn. omitted (North Oakland).) Relying on this case, Interiors contends Sirlss late filing of the motion for prejudgment interest (on February 9, 2005, when the judgment was filed 14 days earlier on January 26) precludes Sirls from recovering any prejudgment interest. We reject this contention for the following reasons.

To begin with, we note that as early as October 2004, Interiors was aware of Sirlss intent to seek prejudgment interest (along with costs and attorney fees) by virtue of the proposed judgment that Sirls prepared.^[8] Although Interiors objected to Sirlss attempt to claim costs and attorneys fees, Interiors was silent regarding the request for interest. Second, in the October 2004 letters from Sirlss counsel to counsel for Interiors, it was made known that Sirls was seeking interest which was currently accruing each day. And finally, we find the facts in this case to be distinguishable from those in North Oakland, supra, 65 Cal.App.4th 824. In North Oakland, the prevailing party did not make a request for interest prior to entry of judgment, or at any of the postjudgment proceedings that followed. (Id. at p. 831.) Instead, the first request for interest came at virtually the last minute when the prevailing parties inserted an interest award in the order awarding costs which they presented to the court, in clear violation of [the other partys] due process right to notice and an opportunity for hearing. (Ibid.) Here, such was not the case. Interiors was aware of Sirlss intent to seek prejudgment interest well before the trial court entered judgment, during the time that Interiors prepared written objections to the proposed judgment, and during each hearing on the proposed judgment. Accordingly, we find that Sirls is entitled to prejudgment interest.

Regarding the claim that the jurys award includes interest, we also reject such contention. The jury specifically asked, Do we need to consider interest on any settlements? The court replied, No. Again, we presume the jury followed such instruction and did not include interest in the award of damages. (Boeken v. Philip Morris, Inc., supra, 127 Cal.App.4th at p. 1677.)

CROSS-APPEAL OF SIRLS

IV. ATTORNEY FEES BASED ON THE EMPLOYMENT CONTRACT

At the trial level, Sirls argued that he was entitled to his attorney fees under his Employment Contract, even though it did not provide for such fees, because the Non-Disclosure and Non-Competition Agreement (Non-Comp Agreement) attached to the Employment Contract provided for attorney fees. Rejecting the argument of Sirls, the trial court stated: The [Employment Contract] does not contain an attorney fee provision. Therefore, there are no attorneys fees awarded with respect to the [Employment Contract] issue. On appeal, Sirls challenges the trial courts ruling contending that Civil Code section 1642^[9]authorizes the award of attorney fees under his Employment Contract because it was one of many parts of the same transaction, namely the purchase of Saddleback. Thus, he argues that because his Employment Contract, the Non-Comp Agreement, the Agreement, and the Note were all part of the same transaction, he can rely on the attorney fee clause in any of the other agreements to support a claim under his Employment Contract. We disagree.

As Interiors notes, this argument was not raised at the trial level nor was there any evidence of the factual predicates for the application of Civil Code section 1642. Nonetheless, even if it were, we reject it because the Employment Contract, including the Non-Comp Agreement, between Interiors and Sirls, and the various documents comprising the Agreement and the Note between Interiors and Sirls and the Trust, are not among the same parties and do not relate to the same subject matter pursuant to Civil Code section 1642. Nor do these contracts comprise one transaction. The action of Sirls and the Trust on the Agreement and the Note was not an action on Sirlss Employment Contract within the meaning of Civil Code section 1642. Sirls was represented by counsel during the negotiation and subsequent drafting of all documents relating to the sale of Saddleback and Sirlss employment by Interiors following such sale. The fact that some of the contracts contain an attorney fees clause while the Employment Contract does not represents the intention of the parties. Thus, the trial court correctly denied Sirlss request for attorney fees based on his breach of Employment Contract claim.

V. PREVAILING PARTY ON THE AGREEMENT AND NOTE

Sirls and the Trust contend that the trial court erred in concluding that they were not the prevailing parties on the claims involving the Agreement and the Note. We disagree. As we noted above, the jury clearly found in favor of Interiors regarding the claims involving the Agreement and the Note. Moreover, in choosing not to award damages, the jury clearly intended to offset the balance due on the Note, which was the relief Interiors sought. As Interiors states, the jury effectively awarded damages to Interiors in the amount of money that Interiors had withheld and would not have to pay, i.e., the difference between the contract price and the true (lesser) value of Saddleback. Moreover, because we have reversed the award of damages on the Agreement and the Note as found by the trial court, the claim of Sirls and the Trust of being the prevailing party under these contracts is moot.

Having found that Sirls and the Trust are not the prevailing parties, and thus not entitled to any attorney fees, we need not address the issue of whether the trial court abused its discretion apportioning such fees. As we stated above, the award of attorney fees to Sirls and the Trust is reversed.

VI. DISPOSITION

The judgment on the declaratory relief action in favor of Sirls and the Trust is reversed. The award of $1,326,826 in damages, plus an additional $300,000, is reversed. To the extent that Sirls and the Trust were awarded costs, attorney fees and prejudgment interest associated with the claims involving the Agreement and the Note, such award is also reversed. In all other respects, the judgment is affirmed. The matter is remanded and the trial court is instructed to enter a new judgment that is consistent with the jurys verdict; namely, that the award of damages is limited to $519,000, plus any applicable

prejudgment interest, in favor of Sirls based on his breach of Employment Contract claim. Interiors is to recover its costs on appeal.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

HOLLENHORST

Acting P. J.

We concur:

MCKINSTER

J.

MILLER

J.

Publication courtesy of California pro bono legal advice.

Analysis and review provided by La Mesa Property line attorney.

^[1]This note shall provide that it was issued pursuant to this Agreement, between the obligee (Shareholder) and the obligor (Buyer) and that the obligor expressly reserves against the obligee and any subsequent holder of the note, the right to offset against sums payable under this note an amount equal to damages sustained by the obligor because of any default by the obligee or by [Sirls] under this Agreement. . . .

^[2][O]bligor expressly reserves against the obligee and any subsequent holder of this Promissory Note the right to offset against any sums payable under this Promissory Note an amount equal to the damages sustained by the obligor because of any default by the obligee or by Kenneth J. Sirls under the Agreement.

^[3]The Employment Contract was effective from July 1, 2001, to June 30, 2005.

^[4]To recover damages from Interiors for breach of the [Agreement] and/or the [Employment Contract], Sirls must prove as to each or either contract all of the following: That the parties entered into the contract; that Sirls did all or substantially all of the significant things that the contract required him to do, or that he was excused from having to do those things; that all conditions required for Interiors[s] performance had occurred; that Interiors failed to do something that the contract required it to do, and that Sirls was harmed by that failure. [] If you decide that Sirls has proven each of the above with respect to either or both of the contracts, your verdict on this claim must be for Sirls. If you do not find that all of the above has been proven, your verdict must be for Interiors.

^[5]Given the admissions in the trial transcript, if Interiors failed to pay the $300,000 to Sirls as it represented and acknowledged was owed, we anticipate Sirls succeeding in any action necessary to recover such sum.

^[6] Because we have reversed the award of damages to the Trust, our discussion of this issue applies only to Sirls.

^[7]Effective January 1, 2007, California Rules of Court, rule 875, is now rule 3.1802.

^[8]As prevailing parties, Kenneth J. Sirls and the Sirls Family Trust shall also be entitled to interest in the amount of $________, costs of suit in the amount of $________ and attorneys fees in the amount of $________.

^[9]Civil Code section 1642 provides: Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together. That is, several papers relating to the same subject matter and executed as parts of substantially one transaction, are to be construed together as one contract. [Citations.] (Dell Merk, Inc. v. Franzia (2005) 132 Cal.App.4th 443, 453.)