Cathedral Group v. Gen.
Construction Management Co.
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Cathedral Group v. Gen. Construction Management Co. CA4/2
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face="Times New Roman">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opinion has not been certified for publication or ordered published for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
face="Times New Roman">CATHEDRAL GROUP, LTD.,
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Cross-defendant, and Appellant,
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face="Times New Roman">GENERAL CONSTRUCTION MANAGEMENT COMPANY,
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Cross-complainant, and Respondent.
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INC079181)
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face="Times New Roman"> O P I N I O N
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Court of
County. Randall Donald
White, Judge. Affirmed.
Plaintiff, Cross-defendant, and Appellant.
Roemer & Harnik, Brian S. Harnik, and
Helene P. Dreyer Koch for Defendant, Cross-complainant, and Respondent.
I. INTRODUCTION
Construction Management Company (General), a general contractor, completed a
40-unit condominium project for appellant Cathedral Group, Ltd. (Cathedral), a
real estate developer, after another contractor left the job. The parties signed a “Cost of the Work Plus a
Fee†contract on American Institute of Architects (AIA) Document A114 (the AIA
contract). The AIA contract did not
expressly authorize General to be paid for “general conditions†expenses, but section
7.7.1 authorized payment for “[o]ther costs incurred . . . to the
extent, approved in advance in writing†by Cathedral.
A dispute arose concerning whether the
parties agreed, before they signed the AIA contract, that General would be paid
the fixed sum of $42,640 per month for its estimated general conditions
expenses, including its project-related staff time and off-site office overhead. Cathedral claimed there was no such parol
agreement: the AIA contract governed the
issue; the AIA contract did not authorize payment for any estimated general
conditions expenses; and no off-site office overhead or off-site staff time was
either identified in or compensable under the AIA contract.
General claimed the parties’ principals, Gary
Covel for General and Moe Nasr for Cathedral, agreed General would be paid
$42,640 per month, its estimated general conditions expenses, before the AIA
contract was signed, and that Nasr confirmed the agreement both in writing and
by his conduct. Thus, General argued, section
7.7.1 of the AIA contract, the “other costs†provision, required Cathedral to
pay General the agreed upon, fixed monthly sum for estimated general conditions
expenses.
Following a bench trial, the trial court
found in favor of General and awarded it $401,035.85, plus interest, for Cathedral’s
breach of the AIA contract. Among other
things, the court credited Covel’s testimony that he and Nasr agreed General
would be paid $42,640 per month for general conditions expenses, with no
requirement for “backup†documentation, and found Nasr’s testimony denying the
agreement not credible.
Cathedral asserts three claims of error on
this appeal: (1) the trial court
misinterpreted the AIA contract and violated the parol evidence rule in
construing section 7.7.1 as authorizing payment for General’s estimated general
conditions; (2) the AIA contract is inconsistent with and therefore precludes
the court’s additional finding that Cathedral was barred from denying the prior
oral agreement based on waiver and estoppel principles; and (3) General failed
to prove its damages with competent evidence.
We interpret the AIA contract de novo and
conclude, with the aid of extrinsic evidence, including the principal’s
testimony, that section 7.1.1 is reasonably susceptible to the interpretation urged
by General: it authorizes payment for General’s
estimated general conditions expenses. We
also conclude substantial evidence supports the trial court’s conclusion that the
parties did in fact intend and agree that section 7.7.1 required Cathedral to
pay General $42,640 per month for general conditions expenses. We reject Cathedral’s other claims of error and
affirm the judgment in all respects.
II. FACTS AND PROCEDURAL HISTORY
In 2005 and 2006, Cathedral owned a 40-unit
condominium project under construction in Cathedral
City (the project). Cathedral’s principal, Moe Nasr, was the
architect on the project and had over 25 years of experience in real estate
development. The first contractor to
work on the project, Gencon Construction (Gencon), agreed to complete the project
for the fixed fee of $4,435,040. Gencon’s
fixed fee included an 8 percent contractor’s fee and a 5 percent fee for
“general conditions.â€
By late 2006, there were problems with
Gencon’s work and Cathedral hired a new general contractor, General, to
complete the project. General’s principal,
Gary Covel, had over 30 years of experience as a general contractor and was
familiar with AIA contract documents.
Due to the “enormous unknowns†involved in assuming the project and
correcting problems in Gencon’s work, Covel would not agree to complete the
project for a fixed sum. Instead, Covel and
Nasr agreed that General would complete the project for the costs of
construction plus an 8 percent contractor’s fee.
In a “cost plus†contract arrangement, the
owner has no guaranteed maximum price protection; the owner simply agrees to
pay the costs of construction plus a contractor’s fee. The central dispute in this case is whether Cathedral
agreed to pay General a fixed monthly fee of $42,640 for estimated
but undocumented general conditions expenses in addition
to the other costs of constructing the project plus an 8 percent
contractor’s fee.
In September 2006, Nasr and Covel met to
discuss the project before they signed the AIA contract in December 2006. According to Nasr, he and Covel discussed and
agreed that General’s compensation would be the cost of construction, including
the costs of “general conditions†incurred on
cleaning, protection, security), plus an 8 percent contractor’s fee.
Nasr claimed the compensable “general
conditions†costs included “any labor that the contractor uses on the job,†but
not the costs of General’s supervisory and other personnel who worked on the
project, or General’s off-site office overhead expenses. In Nasr’s view, the 8 percent contractor’s fee
was to cover General’s off-site overhead and personnel expenses. Nasr denied he ever agreed to pay General a
flat monthly fee or a stipulated sum for general conditions expenses.
Covel’s testimony was at odds with Nasr’s
regarding General’s compensation for general conditions expenses and what those
expenses included. According to Covel,
in September 2006, he and Nasr discussed and agreed that General would receive a
fixed fee of $42,640 “and some odd dollars†per month for general conditions. Covel testified: “We agreed on a fixed fee. The general conditions are an estimate of the
cost to the contractor to do the work, and it’s typically a fixed fee that’s
arrived at through negotiations . . . and that’s exactly how we did
this one.â€
General’s permanent office in Rancho Mirage was
only 5 to 10 minutes from the project site.
Thus, according to Covel, he and Nasr agreed they would use the telephones,
faxes, personnel, and equipment at General’s off-site office rather than incur
the costs associated with an on-site construction trailer, including storage, telephones,
faxes, and equipment. General’s off-site
office expenses and personnel costs were to be part of the general conditions
estimate, along with General’s personnel costs associated with the project. Covel would not have agreed to complete the
project had he understood he would not receive a fixed monthly fee for these general
conditions expenses.
All of the testimony and
pre-AIA contract discussions and communications was provisionally admitted into
evidence over Cathedral’s objection based on the parol evidence rule.
In December 2006, the parties signed the AIA
contract, titled “Standard Form of Agreement Between Owner and Contractor where
the basis of payment is the Cost of the Work Plus a Fee without a Guaranteed
Maximum Price.†Article 7 of the AIA
contract is titled “Costs to Be Reimbursed.â€
Section 7.1 states: “The term Cost
of the Work shall mean costs necessarily incurred by the Contractor in the
proper performance of the Work. Such
costs shall be at rates not higher than the standard paid at the place of the
Project except with prior consent of the Owner.
The Cost of the Work shall include only the items set forth in this
Article 7.â€
In preprinted type, section 7.2.2 authorizes
payment for “[w]ages or salaries of the Contractor’s supervisory and
administrative personnel when stationed at the site
with the Owner’s approval†(italics added), but this sentence is marked “N/A.†In the next paragraph, section 7.2.2
continues in preprinted italics: “
stationed at the Contractor’s principal or other offices shall be included in
the Cost of the Work, identify the personnel to be included, whether for all or
only part of the time and the rates at which time will be charged to the Work.†No persons or rates are listed under the
italicized provision.
Article 7 goes on to list additional costs
the owner must pay. Other than section 7.2.2, no provision in article 7 expressly
authorizes payment for any personnel costs or off-site
office costs.
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costs incurred in the performance of the Work if, and to the extent, approved
in advance in writing by the Owner.â€
Article 8 is titled “Costs Not to be
Reimbursed†and states in section 8.1: “The
Cost of the Work shall not include: .1 Salaries and other compensation of the Contractor’s
personnel stationed at the Contractor’s principal office or offices other than
the site office, except as specifically provided in Sections 7.2.2 and 7.2.3,
or as may be provided in Article 14.[
[¶] .2 Expenses
of the Contractor’s principal office and offices other than the site office. [¶] .3 Overhead and general expense except as may be
expressly included in Article 7. [¶] . . .
[¶] .7 Any
cost not specifically and expressly described in Article 7.â€
Section 1.1 contains an “integration†clause:
“The Contract represents the entire and
integrated agreement between the parties hereto and supersedes prior
negotiations, representations or agreements, either written or oral. . . .†Section 1.1.1 limits what can constitute a
modification of the contract to written amendments signed by both parties,
change orders, and written change directives.
Section 13.4.2 contains a no waiver by
conduct provision: “No action or failure
to act by the Owner, Architect or Contractor shall constitute a waiver of a
right or duty afforded them under the Contract, nor shall such action or
failure to act constitute approval of or acquiescence in a breach thereunder, except
as may be specifically agreed in writing.â€
Finally, articles 11 and 12 authorize Cathedral to audit General’s books
and records and make adjustments prior to “final payment.â€
David Brotman, an architect, testified for
Cathedral concerning the application of the AIA contract provisions. According to Brotman, the “N/A†after the
first sentence of section 7.2.2 meant that General was not to be paid for the
costs of its project-related supervisory and administrative personnel, and any
work performed in General’s off-site office was its own overhead expense and
was not to be reimbursed under the AIA contract.
Brotman also testified that section 7.7.1 was
an “open door†provision intended to cover costs the parties did not know
about, provided they were approved in writing.
Section 7.7.1 only covered costs that were not otherwise covered in the
AIA contract, however. In Brotman’s
opinion, any “estimated amounts†for general conditions was not a compensable
“Cost of the Work,†as the term was defined in articles 7 and 8 of the AIA
contract. Article 11 gave Cathedral the right
to audit the job, and General should have had receipts for all of its expenses
and time cards for workers who worked on the job site.
The parties originally believed the project
could be completed in 90 days. The AIA
contract required General to achieve “[s]ubstantial [c]ompletion†by April 15,
2007, but the project was not completed until June 5, 2008. Numerous problems with Gencon’s work had to
be remediated.
Estimateâ€
Shortly after the AIA contract was signed, Cathedral
made an initial “prepayment†to General of $75,000 on December 15. On January 4, 2007, General sent its first
invoice to Cathedral listing “General Conditions[,] December 13-January 5[,]
Amount $1,627.50 per day [¶] Total $39,060.00 [¶] Balance
Due $39,060.00.†Attached to General’s
first invoice was a one-page breakdown titled “General Conditions Estimate,â€
listing General’s “General Expense[s]†and “Project Staff†expenses on monthly and
six-month bases.
The General Conditions Estimate identified
the job functions of each staff person working for General on the project, and
an estimate of the portion of their time they would be working on the project (e.g.,
“Project Executive (15% of time),†“Project Engineer (50% of time),†“Project Superintendent
(100% of time)).†The estimate also listed
the “Unit Cost†of each project staff member on per month and six-month
bases. “Total Project Staff†expenses were
estimated to be $42,640 per month and $233,340 for six months. Total “General Expense[s]†were estimated to
be $6,185.01 for the first month of the project and $14,235 for six months, bringing
the total general conditions estimate to $247,575.
In preparing the General Conditions Estimate,
Covel used a form titled “General Conditions Estimate†given to him by Nasr in
September 2006 which Nasr and Gencon used in preparing Gencon’s contract. Covel filled in his estimated amounts next to
the line items listed, and testified the line items listed were “typically
items that are paid or associated with a construction trailer, an office,†and the
“project staff†expenses were for “folks that it takes to man the job[,] . . .
provide the supervision and the work force . . . .â€
Nasr testified he sent the blank General
Conditions Estimate to Covel “to explain to him what his fee of 8 percent would
cover.†Nasr did not consider the line items
listed on the estimate to be included in the costs of the work, but he never
told Covel or General that either orally or in writing.
General billed Cathedral a total of $2,881,597.98
for the project, including $444,140 for general conditions. The $444,140 amount for general conditions
was billed in monthly increments: $39,060
in January 2007; $42,640 in February through August 2007; $21,320 in September
2007; and $42,640 in April and May 2008.
Cathedral paid General’s January 4, 2007, invoices and several
subsequent invoices, without objection.
Nasr explained he paid many of General’s invoices
even though they included estimated general conditions expenses because he knew
Cathedral had the right to audit General’s project-related expenses at the end
of the job and he would be entitled to recoup any overpayment. He considered his interim payment of
General’s invoices to be “a rolling draw†by General, pending the audit at the
end of the job. When asked why he was
not worried his payment of the invoices might mislead Covel to believe General’s
estimated general conditions expenses were proper charges, Nasr replied: “Because we had a contract.â€
in a series of early 2007 e-mails that it agreed before General began working
on the project to pay General for “general conditions.†In the e-mails, Cathedral sought breakdowns and
back up documentation of the amounts General was billing for “Estimated General
Conditions.†The e-mails indicated Cathedral’s
lender was requesting the itemizations and documentation as a condition of
releasing funds to pay the general conditions portions of General’s
invoices. The e-mails are detailed
here.
On February 9, 2007, Nicole Voraberger, who
handled bookkeeping for Cathedral, e-mailed General concerning its January
invoice, asking it to specify “what the Gen. Condition were for [
Gina Wilkerson, Voraberger’s counterpart at General, replied: “Here is the breakdown for January. You should have received the hard copy with
all the invoices . . . . [¶] I
have also attached a copy of the estimated general condition provided by your
company and [that] was approved prior to the start of the project. Our General [C]onditions was an estimate of
the approximate time required to complete this project. As of this point the hours have exceeded the
estimated cost. Hopefully this
information will suffice for the bank.â€
General another e-mail asking for “a breakdown†of the general conditions of
$42,640 on the “last draw,†apparently referring to General’s March 2007
invoice. On March 19, Wilkerson
responded: “I am glad you brought this
to my attention. This is the form that
was sent to Moe [Nasr] before we started the project. It was approved prior to us starting. I have inadvertently been billing you [$]42,640.00
that is for the project staff only. The
general expense amount comes up to $1,610.01 a month. The actual monthly amount is $48,825.01. I hope there is some way to add the
[$]3,220.02 that has been shorted the last two months. . . .â€
responded: “I need a little bi[t] more
info. We do know
that the Gen. Cond. total amount was approved by Moe [Nasr]. Could you tell me your people breakdown on
the Gen. Cond. I guess this is helpful
in case of bank audit. Do you guys keep
time sheets in case of audit stating how many hours the different people spend
on our project[?] Please help me with
any of these question[s] to process the draw.â€
(Italics added.)
Following additional e-mails, Wilkerson wrote
to Voraberger on April 4 saying she had received a check but “[w]e noticed that
it was $42,640.00 short and [we] were wondering when to expect that.†Voraberger replied: “As you know no back up was provided for the
general condition draw amount on all three draws. This is the reason the bank held back the funding.â€
On April 5, Nasr wrote to Wilkerson about the
lack of detailed breakdown for the general conditions billings: “Gina: Normally,
our contract has a fee of 8% and General condition of 8%. The contractor charges as % of completion each
month so if they do $250[,]000 worth of work they get $20[,]000 in general
condition and 250[,]000+20[,]000=270[,]000x.08=$21[,]600 in fee. No one will ask for GC
back up [in those circumstances].
However since this is time and material contract and per your bills it
looks like all expenses included in the body of the project, such as cleaning
or power and other standard GC items.
And the general condition amount is so large in comparison to the
contract amount, it needs to be explained:
We did ask for this cost before we started the
project as I told Gary [Covel] I will pay it. But as we go forward each month I need to
explain each position’s time on that list.
I can not just tell the bank that you have no other contract and you
Gary Sr. and Gary Jr. work on this full time plus an engineer and a field
super. In future phases we will go back
to standard contract so we won[’]t have this problem.â€
Covel testified that in his 30 years in the
construction business he had never been asked to provide “backup†documentation
for general conditions. When Cathedral
asked for documentation for the general conditions estimates, General provided
the general conditions estimates and some “daily logs.â€
Party
In October 2007, General stopped work on the
project. Cathedral was behind in paying
General’s monthly invoices. The parties
agreed to a payment plan that allowed the project to continue but that did not
resolve their dispute over the general conditions expenses. General again stopped work in February 2008, but
completed the project on June 5, 2008. Upon
completion of the project on June 5, 2008, General claimed Cathedral owed it
$401,035.85 on the project.
On May 28, 2008, near the end of the project,
Cathedral’s counsel requested an audit of General’s project costs under the
final adjustment and resolution provisions of the AIA contract set forth in
article 11. In July 2008, Cathedral’s
attorney hired John Maxwell, a certified public accountant, to review the invoices
General claimed it paid in completing the project. On August 1, Maxwell completed his analysis
and concluded General’s “cost of the work†totaled $2,120,889.65. This amount, plus the 8 percent contractor’s
fee, totaled $2,290,560.70 and represents the total amount Cathedral claimed it
owed General under the AIA contract.
Cathedral paid General $2,447,962.17. Thus, Cathedral claimed it overpaid General
$157,401.40 ($2,447,962.17 minus $2,290,560.70) and was entitled to recover the
overpayment.
In June 2008, General recorded a mechanic’s
lien on the project, and Cathedral sued to remove the lien. General cross-complained for breach of
contract, foreclosure of mechanic’s lien, quantum meruit, and open book
account. The mechanic’s lien was removed
and Cathedral amended its complaint to seek the alleged overpayment.
May 2011, the court issued a statement of decision in favor of General and
against Cathedral on their respective claims.
The court ruled that section 7.7.1 of the AIA contract required Cathedral
to pay General $42,640 per month for general conditions expenses. Alternatively, the court ruled Cathedral was
barred from denying it agreed to pay the estimated general conditions expenses based
on principles of waiver and equitable estoppel. Judgment was entered in favor of General for
$401,035.85, plus 10 percent interest from June 5, 2008. Cathedral appealed.
III. DISCUSSION
Cathedral initially claims the court violated
the parol evidence rule in interpreting section 7.7.1, the “other costsâ€
provision of the AIA contract, as requiring Cathedral to pay General’s
estimated general conditions expenses. We begin by
reviewing the settled principles of contract interpretation governing this
claim.
of Contract Interpretation
The goal of contract interpretation is to
give effect to the parties’ mutual intent at the time of contracting. (Civ. Code, § 1636; Cedars-Sinai
Medical Center v. Shewry (2006) 137 Cal.App.4th 964, 979.) When a contract is reduced to writing, the
intention of the parties is to be ascertained from the writing alone, if
possible. (Civ. Code, § 1639.)
Under
California’s parol evidence rule, “‘[w]hen the parties to a written contract have
agreed to it as an “integrationâ€â€”a complete and final embodiment of the terms
of an agreement—parol [i.e., extrinsic] evidence cannot be used
Newport Beach Country Club v. Newport Beach Country Club, Inc.
(2003) 109 Cal.App.4th 944, 953, italics added, quoting Masterson v. Sine (1968) 68 Cal.2d. 222,
225; Code Civ. Proc., § 1856, subds. (a), (b); Civ. Code, § 1625.) An agreement may be completely or only partially
integrated; that is, the parties may intend a writing to be a final and
complete expression of their entire agreement or of only certain terms of their
agreement. (Masterson v. Sine, supra, 68 Cal.2d. at p. 225.) If an agreement is only partially integrated,
then the parol evidence rule applies only to the integrated part. (Ibid.) Still, the terms of an integrated agreement
may be explained by evidence of the parties’ course
of dealing and course of performance.
(Code Civ. Proc., § 1856, subd. (c).) The court may also consider the circumstances
under which the contract was made and the situation of the parties in
construing the terms of an integrated agreement. (Code Civ. Proc., §§ 1856, subd. (g),
1860.)
The
parol evidence rule also does not prohibit the provisional introduction of
extrinsic evidence to explain meaning of a written contract if its terms are
reasonably susceptible to the meaning urged.
(Casa Herrera, Inc. v. Beydoun (2004) 32
Cal.4th 336, 343; Winet v. Price (1992) 4 Cal.App.4th
1159, 1165 [parol evidence admissible to construe ambiguous language of written
instrument].) “The
test of admissibility of extrinsic evidence to explain the meaning of a written
instrument is not whether it appears to the court to be plain and unambiguous
on its face, but whether the offered evidence is relevant to prove a meaning to
which the language of the instrument is reasonably susceptible.†(Pacific Gas & E. Co.
v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37;
754.)
The
decision whether to admit parol evidence actually involves a
the court provisionally receives (without actually admitting) all credible
evidence concerning the parties’ intentions to determine ‘ambiguity,’ i.e.,
whether the language is ‘reasonably susceptible’ to the interpretation urged by
a party. If in light of the extrinsic
evidence the court decides the language is ‘reasonably susceptible’ to the
interpretation urged, the extrinsic evidence is then admitted to aid in the
second step—interpreting the contract. [Citation.] . . . [¶] Different
standards of appellate review may be applicable to each of these two steps,
depending upon the context in which an issue arises. The trial court’s ruling on the threshold
determination of ‘ambiguity’ (i.e., whether the proffered evidence is relevant
to prove a meaning to which the language is reasonably susceptible) is a
question of law, not of fact. [Citation.]
Thus the threshold determination of
ambiguity is subject to independent review. [Citation.] . . .
“The
second step—the ultimate construction placed upon the ambiguous language—may
call for differing standards of review, depending upon the parol evidence used
to construe the contract. When [as here]
the competent parol evidence is in conflict, and thus requires resolution of
credibility issues, any reasonable construction will be upheld as long as it is
supported by substantial evidence. [Citation.]†(Winet v.
Price, supra, 4 Cal.App.4th at pp. 1165-1166; Founding Members of the Newport Beach Country Club
v. Newport Beach Country Club, Inc., supra,
the Interpretation Urged by General
The
parties agree the AIA contract is integrated on the question of General’s compensation
for project-related expenses, including general conditions expenses. Their dispute centers on whether section
7.7.1 of the AIA contract is reasonably susceptible to the interpretation urged
by General, namely, that it authorizes payment for General’s $42,640 in
estimated monthly general conditions expenses.
We
review this question de novo. (
testimony of Covel and Nasr concerning the parties’ precontract discussions and
intentions in entering into the contract (see ibid.),
we agree with the trial court that section 7.7.1 is reasonably susceptible to
being interpreted to require payment for General’s estimated general conditions
expenses.
Section
7.7.1 authorized payment for “[o]ther costs incurred in
the performance of the Work if, and to the extent, approved in advance in
writing by the Owner.â€
(Italics added.) Architect
Brotman testified that section 7.1.1 is an “open door†provision that allows payment
of costs not otherwise identified in the contract.
“General conditions†expenses, as the
parties defined them in the general conditions estimate, were costs not
otherwise identified in the AIA contract.
Our
interpretation of section 7.1.1 is consistent with the other terms of the AIA
contract, including section 7.2.2. The
parties marked “N/A†after the first sentence of section 7.2.2, which would
have authorized General to be paid for “wages or salaries of [its] supervisory
and administrative personnel when stationed at the site
. . . .†(Italics
added.) But there was no construction
trailer on the site. As a result, none
of General’s project-related staff were “stationed†at the project site. General’s office was only 5 to 10 minutes
away from the project site, and Covel and Nasr agreed that using General’s nearby
office would save the costs associated with a construction trailer. This explains why the first sentence of
section 7.2.2 was marked “N/A.†It also
meant General would not recoup the costs of “Temporary Facilities and Related Itemsâ€
authorized by section 7.5, or on-site office expenses, authorized by section
7.5.4.
The
second sentence of section 7.2.2 authorized payment for off-site stationed
personnel, provided they were listed, but no off-site stationed personnel are
listed after the second sentence of section 7.2.2. But the parties’ antecedent agreement to pay
General a fixed monthly sum for general conditions expenses, including for
off-site stationed personnel, explains why no off-site personnel were listed
after the second sentence of section 7.2.2.
Rather than list off-site personnel in section 7.2.2, General’s “general
conditions estimate†included the same information together with estimates of
General’s off-site overhead expenses, the other major component of the General’s
estimated general conditions expenses.
Cathedral
argues section 7.7.1 is not reasonably susceptible of being interpreted to
authorize payment for the general conditions in view of sections 8.1 and 7.2.2. Section 8.1 excludes three items from the compensable
“[c]ost of the [w]orkâ€: (1) “[o]verhead
and general expensesâ€; (2) off-site office expenses; and (3) expenses for personnel
“stationed at the Contractor’s principal office . . . except as
specifically provided in Sections 7.2.2 . . . .†Because no off-site personnel are listed in
section 7.2.2 and section 7.7.1 only authorizes payment for “other costsâ€
7.7.1 cannot reasonably be interpreted as authorizing payment for General’s
general conditions expenses. We
disagree.
No
“general conditions expenses,†as the parties defined them in the agreed-upon General
Conditions Estimate, are identified in the AIA contract. In the general conditions estimate, which
Nasr approved both in writing and by his conduct, the parties defined “general
conditions expenses†as including off-site office overhead expenses and
off-site personnel expenses. If a construction
trailer had been placed on the project site, the costs of “temporary
facilities†(i.e., a construction trailer) and “expenses of the site office†would
have been compensable under sections 7.5 and 7.5.4. But it was discussed and agreed that no such
expenses would be incurred because General’s off-site office would be used in
lieu of a construction trailer. The
absence of a construction trailer also explains why no off-site
stationed personnel were listed in section 7.2.2, but were instead
listed in the general conditions estimate.
In sum, the estimated general conditions expenses, as the parties
defined them, included covered costs that would have otherwise been paid under
sections 7.2.2, 7.5, and 7.5.4 had there been an on-site construction
trailer.
Under
these circumstances, section 7.7.1 is reasonable susceptible to General’s
interpretation. Given the absence of a construction
trailer and Covel’s testimony that contractors are typically paid their general
conditions expenses as part of the costs of a project, Cathedral’s
interpretation of the AIA contract as prohibiting compensation for the
estimated general conditions expenses is unreasonable. (Code Civ. Proc., § 1856, subd. (g);
Civ. Code § 3542 [interpretation of contract must be reasonable].)
Cathedral’s
interpretation would require General to assume all of the costs of its project-related
personnel and project-related office expenses.
According to Covel, that is inconsistent with logic and construction
industry standards. In light of the
foregoing, we reject Cathedral’s additional claim that payment for the estimated
general conditions constituted an unauthorized (i.e., unwritten and unapproved)
modification of the AIA contract.
Court’s Conclusion That Section 7.7.1 Required Cathedral to Pay General’s
Estimated General Conditions Expenses
The
second part of our analysis is governed by the substantial evidence standard of
review. (Winet v.
Price, supra, 4 Cal.App.4th at pp. 1165-1166.) The parties presented conflicting evidence on
the question, but substantial evidence supports the trial court’s ultimate
construction of section 7.1.1 as requiring Cathedral to pay General’s estimated
general conditions expenses: Covel testified
he and Nasr agreed General would be paid around $42,640 per month for general
conditions expenses, before the AIA contract was signed. Nasr gave Covel a blank “General Conditions
Estimate†form to complete, and Covel did so.
Nasr then approved General’s estimated general conditions expenses
contract, § 7.1.1.)
Nasr
approved the estimated general conditions expenses in writing in his April 5, 2007,
e-mail to General’s bookkeeper. In the e-mail
he said he needed a breakdown of the fixed amounts General was billing for general
conditions to satisfy Cathedral’s lender, but not because he was disputing Cathedral’s
obligation to pay the estimated amounts invoiced. In reference to the estimates, he wrote: “We did ask
for this cost before we started the project as I told Gary [Covel] I will pay
it.†(Italics added.)
In the same April 2007 e-mail, Nasr explained
that in a fixed-fee contract, which typically includes a fixed amount for general
conditions, “[n]o one will ask for GC back up,â€
but in this case Cathedral’s bank was asking for backup because the parties had
an open-ended, cost-plus-fee contract. In
a May 2007 e-mail to Covel, Nasr again confirmed Cathedral was obligated to pay
the estimated general conditions expenses: “Gary: Now that I[’ve] got this out of them[,] I am
going to fight for the balance,†meaning all of General’s estimated monthly
general conditions expenses. Nasr also admitted
that Cathedral’s payments to General were not conditioned on bank approval. Finally, Nasr paid many of
objection, and each invoice included a full or partial month’s charges for
estimated general conditions expenses.
Nasr never told General he was paying the general conditions expenses
under protest or pending an audit at the end of the job.
Properly Applied
Based
on Nasr’s conduct and representations to General, the trial court concluded
Cathedral was estopped from claiming, and waived any right it may have had to
claim, it was not obligated to pay the estimated general conditions
expenses. Cathedral challenges the
sufficiency of the evidence supporting these findings, and also challenges the
court’s authority to make them in light of the nonwaiver provisions in the AIA
contract at section 13.4.4. These claims
are without merit.
As
the trial court pointed out in its statement of decision: “It is well settled that the
rule against varying the terms of a written instrument by parol [evidence,] or
seeking to alter a contract in writing other than by a contract in writing or
an executed oral agreement, is subject to the exception that a party to a contract
may by conduct or representations waive the performance of a condition thereof or
be held estopped by such conduct or representations to deny that he has
waived such performance.†(
Waiver
is the intentional relinquishment of a known right and may be implied by a
party’s conduct manifesting its intention to waive a known right. (Gould v. Corinthian
Colleges, Inc. (2011) 192 Cal.App.4th 1176, 1179.) A party may waive a contractual right when
its conduct is “so inconsistent with any intent to enforce the right as to
induce a reasonable belief that it has been relinquished.†(Utility Audit Co., Inc. v.
City of Los Angeles (2003) 112 Cal.App.4th 950, 959.) Similar to waiver, equitable estoppel arises
when a party has, by statements or conduct, reasonably led another to believe a
particular thing true and to act upon such belief to his detriment. (Superior Dispatch, Inc. v.
Insurance Corp. of New York (2010) 181 Cal.App.4th 175, 186-187.)
“Waiver
is a question of fact for the trial court.â€
(Gould v. Corinthian Colleges, Inc., supra,
192 Cal.App.4th at p. 1179.) Likewise,
the “reasonable reliance†element of equitable estoppel is a question of fact
for the trial court. (
181 Cal.App.4th at p. 187.) We review the
court’s waiver and estoppel findings for substantial evidence (
substantial evidence supports the court’s applications of the waiver and
estoppel doctrines to Cathedral’s conduct.
In
its statement of decision, the trial court found Covel’s testimony credible and
Nasr “incredible in his denial†that the parties agreed General would be paid for
its estimated general conditions expenses. In addition, Nasr’s conduct showed a clear
intention to waive any right Cathedral may have had not to pay the estimated
general conditions expenses. Nasr’s
conduct also reasonably induced General to rely on Cathedral’s continuing
representation that it would pay the expenses.
Cathedral
paid General’s first invoice dated January 4, 2007, for estimated
general conditions expenses only, without
objection, and paid several more invoices without objection. In the April and May 2007 e-mails to General,
Nasr confirmed in writing Cathedral’s agreement to pay estimated general conditions
expenses, despite the demands by Cathedral’s lender for documentation supporting
the estimates. Nasr conceded he never told
Covel or anyone else at General he believed Cathedral had no obligation to pay
the estimates, and Covel testified he never would have accepted the project had
he known Cathedral had no intention of paying his monthly, estimated general
conditions expenses.
Cathedral
argues the trial court’s waiver and estoppel rulings are in error because
section 13.4.2 of the AIA contract expressly precluded waiver by conduct: “No action or failure to act by the Owner,
Architect or Contractor shall constitute a waiver of a right or duty afforded
them under the Contract . . . .â€
Not so.
As
General points out, numerous jurisdictions have held anti-waiver provisions to
be of little effect because the anti-waiver provision can itself be waived, and
prohibiting waiver in some circumstances would be “manifestly unjust.†(See 1 Bruner & O’Connor on Construction
Law (2012) § 4.40; 2 Bruner & O’Connor on Construction Law,
California case law is in accord.
(Gould v. Corinthian Colleges, Inc., supra,
192 Cal.App.4th at p. 1180 [noting absence of authority that anti-waiver lease provision
could not be waived and that to find the provision had not been waived would
have been “absurd, not to mention unconscionable†under the circumstances];
873, 878.)
Cathedral
maintains there was no clear showing of waiver (Utility
Audit Co., Inc. v. City of Los Angeles, supra, 112 Cal.App.4th at p.
959 [waiver of legal right cannot be established without clear showing of
intent to give up the right].) It
argues Nasr did not clearly waive Cathedral’s right not to pay the estimated
general conditions expenses. Rather, the
evidence showed he paid the expenses only because he knew he could audit the
job, and he had every intention of asserting that none of the expenses were payable
at the end of the job. We are not
unpersuaded. The evidence supporting
both waiver and estoppel was sufficiently clear: through Nasr’s conduct in paying General’s
invoices without objection, and his failure to tell General he was paying the
invoices under protest pending an audit at the end of the job, Cathedral waived
and was equitably estopped from asserting any right it may have had to claim it
was not obligated to pay General’s estimated general conditions expenses.
Cathedral claims General’s damages claim of
$401,035.85 suffers from a failure of proof because General’s invoices were not
admitted for the truth of their contents but only for the limited purpose of
showing they were received and processed by Nasr. Thus, Cathedral argues, “[i]t was General’s
burden to prove that the costs on its invoices were true costs incurred on the
job,†and General did not meet that burden.
We disagree there was any failure of proof.
At trial it was undisputed and competent
evidence was presented showing that General’s invoices to Cathedral totaled
$2,881,597.98; Cathedral paid General a total of $2,447.962.17; and Cathedral
was entitled to around $32,600 in credits.
Thus, by simple calculation, the amount unpaid on General’s invoices to
Cathedral was $401,035.85.
In addition, Cathedral presented evidence
that General incurred $2,120,889.65 in project-related costs, exclusive of
estimated general conditions expenses, and that Cathedral owed General the
$2,120,889.65 sum plus an 8 percent contractor’s fee, or $2,290,560.70. Cathedral thus claimed it overpaid General
$157,401.47 ($2,447,962.17 minus $2,290,560.70) and was entitled to the
overpayment.
But the $401,035.85 amount unpaid on General’s
invoices to Cathedral, and awarded to General, was around $43,000 less than the
$444,140 amount the invoices included for estimated general conditions
expenses. Nasr agreed to pay General
$42,640 per month in estimated
general conditions expenses in lieu of
off-site personnel and office overhead costs actually
incurred by General. And General’s
invoices included the agreed-upon $42,640 monthly amount for estimated general
conditions expenses, though the amount was prorated for partial months General worked
on the project.
All of this evidence is sufficient to support
General’s claim of $401,035.85 in damages as a result of Cathedral’s breach of
the AIA contract. Because Nasr agreed to
pay General’s estimated rather than its actual costs incurred for general
conditions expenses, it was unnecessary for General to show its invoices
represented “true costs incurred on the job,†as opposed to agreed upon,
estimated costs incurred on the job, to the extent the invoices included the
estimated general conditions expenses.
IV. DISPOSITION
The judgment is affirmed. General shall recover its costs on
appeal.
face="Times New Roman">KING
face="Times New Roman"> J.
We concur:
RAMIREZ
P. J.
CODRINGTON
J.
and salaries of the Contractor’s supervisory or administrative personnel
engaged at factories, workshops or on the road, in expediting the production or
transportation of materials or equipment required for the Work, but only for
that portion of their time required for the Work.†Section 7.5.4 authorizes payment for document
reproductions, facsimiles, telephone calls, and similar expenses incurred “at
the site†or “the site office.â€
“Miscellaneous Provisions,†does not address the “Cost of the Work†or any
off-site costs.
