Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment and order of the Superior Court of San Diego County, Charles R. Hayes, Judge., Super. Ct. No. GIC781343.
AARON, J.
I.
INTRODUCTION
J. Alvarez Construction, Inc. (Alvarez), a framing contractor, entered into an agreement with Western National Group, L.P. (Western National), a general contractor, to assist in the construction of an apartment complex. After the parties had various disputes regarding Alvarez's and Western National's respective obligations under the agreement, Alvarez recorded a mechanics' lien on the property on which the apartment complex was being built. Shortly thereafter, Western National terminated Alvarez and ordered Alvarez off the job site. Western National subsequently recorded a "release bond" pursuant to Civil Code section 3143 for the purpose of releasing the property from the lien. Alvarez later recorded an additional mechanics' lien on the property.
Alvarez brought claims against Western National that included breach of contract, quantum meruit, and foreclosure on the mechanics' liens. After a bench trial, the trial court found in favor of Alvarez on all of its claims and entered a judgment awarding Alvarez damages in the amount of $637,344.99, and interest in the amount of $257,731.79. The judgment also states that Alvarez "has a mechanics' lien" on the property in the amount of $539,337.99. The trial court entered a postjudgment order awarding Alvarez costs in the amount of $30,843.64.
On appeal, Western National raises a number of claims of error concerning liability, damages, prejudgment interest, and costs. We affirm the trial court's finding of liability with respect to Alvarez's breach of contract claim. We conclude that we need not consider Western National's contention that the court erred in finding Western National liable on Alvarez's quantum meruit claim in light of our disposition of the other claims Western National raises in this appeal. We reverse the judgment on Alvarez's mechanics' lien claim and remand with directions that the trial court conduct further proceedings regarding the release bond that Western National executed.
With respect to damages, we conclude that the trial court improperly awarded damages for delayed performance ($93,672), unsubstantiated lost profits ($42,737), and unsigned change orders ($8,199.15), and that the damage award must therefore be reduced by $144,608.15, to $492,736.84. Similarly, if the court determines on remand that Alvarez is entitled to recover on the release bond, any subsequent judgment on the bond must also be reduced by $101,871.15, to $437,466.84, for amounts improperly awarded for delayed performance ($93,672), and unsigned change orders ($8,199.15).
The original judgment properly did not award lost profits damages on the mechanics' lien claim.
The trial court must recalculate the award of prejudgment interest on remand, to correspond with our reduction of the damages. In recalculating prejudgment interest, the trial court must toll the accrual of prejudgment interest for the period during which the case was stayed pursuant to Alvarez's motion for a stay. Finally, because the trial court erred in awarding nonstatutory costs in a postjudgment proceeding, the cost award must be reduced by $18,073.64.
II.
FACTUAL AND PROCEDURAL BACKGROUND
A. Factual background
In February 2001, Western National entered into a contract with Ameriton Properties, Inc. (Ameriton) to construct six apartment buildings and several ancillary buildings on property (Property) located on Navajo Road in San Diego. In March, Western National and Alvarez executed a letter of intent awarding Alvarez the framing subcontract on the project. On June 20, Alvarez signed a subcontract (Agreement) for the framing on the project.
Alvarez began to perform under the Agreement in June 2001. Over the course of several months, the parties had a number of disputes regarding the progress of the framing work. Western National attributed to Alvarez delays in completing the framing, and Alvarez attributed the delays to Western National. On October 17, 2001, Western National delivered a notice to Alvarez that stated in part, "[T]o insure that all materials that have been invoiced are on the job and that we have sufficient funds to cover all labor costs, all funds are on hold until we are satisfied." The next day, Alvarez recorded a mechanics' lien on the Property to secure unpaid framing labor and materials it had provided to the project.
On October 24, 2001, Western National delivered another notice to Alvarez. This notice informed Alvarez that Alvarez had failed to fully comply with the insurance requirements under the Agreement, and had also failed to increase its production on the project. The letter further stated that unless Alvarez fully complied with the terms of the Agreement within 24 hours, Western National would terminate the Agreement pursuant to the Agreement's termination provision.
Within 24 hours of receiving the notice, Alvarez obtained additional insurance in an attempt to correct the deficiencies Western National had noted, and provided Western National with documentation of the additional coverage. On October 25, 2001, Western National delivered a notice to Alvarez that stated that Alvarez, "remains in breach of the insurance requirements and production requirements for the project." Western National stated in the notice that it was terminating Alvarez pursuant to the Agreement's termination provision. Western National ordered Alvarez off the job site that same day.
B. Procedural history
In April 2002, Alvarez filed a first amended complaint against Western National and other parties. Alvarez's claims against Western National included breach of contract, quantum meruit, and foreclosure on its mechanics' liens.
In the Spring of 2005, the trial court held a bench trial. In November 2005, the trial court entered a final statement of decision in which it found in favor of Alvarez on its breach of contract, quantum meruit, and mechanics' lien claims. The trial court found that Alvarez was entitled to the following damages and prejudgment interest on its breach of contract claim:
"With regard to the issue of whether [Western National's] breach caused any damages to Alvarez, the court's decision is that [Western National's] breach of the contract was the proximate cause of damages to Alvarez in the total amount of $637,344.99, plus interest at the legal rate from the date of breach October 25, 2001. Alvarez'[s] damages consist of the unpaid amounts invoiced under the contract through the date of termination ($414,266.84), the amounts invoiced for labor and materials on change orders ($8,199.15), the unpaid amounts invoiced for roof trusses made by Madera supplied to and used in the project ($23,200.00), the amounts invoiced for roof trusses from Madera that were not used in the project ($55,270.00), an additional amount Alvarez was entitled to invoice under the contract for delays at the project caused by [Western National] that resulted in additional labor expenses ($93,672.00), and an amount for the lost profit that Alvarez would have earned on the remaining contract work if [Western National] had not terminated the contract ($42,737.00)."
With respect to Alvarez's quantum meruit and mechanics' lien claims, the trial court awarded the same damages as it had awarded on the breach of contract claim, except that the court did not award the $55,270 in damages for unused trusses or the $42,737 in lost profit damages. As with the breach of contract claim, the trial court awarded prejudgment interest on all damages, accruing from October 25, 2001.
The statement of decision referred to this claim as one of "unjust enrichment, " and noted that Alvarez was entitled to recover damages in quantum meruit.
In December 2005, the court entered a judgment in favor of Alvarez. The judgment awarded Alvarez damages in the amount of $637,344.99 and interest in the amount of $257,731.79. The judgment also states that Alvarez "has a mechanics' lien" on the property in the amount of $539,337.99. The trial court subsequently entered a postjudgment order awarding Alvarez costs in the amount of $30,843.64.
The judgment properly did not award Alvarez duplicative damages on the alternative theories of liability.
Western National timely appeals from the court's judgment and the postjudgment order awarding costs.
III.
DISCUSSION
A. Liability issues
1. The trial court did not err in determining that Western National breached the Agreement
Western National claims the trial court erred in determining that it breached the Agreement. Alvarez maintains that this court must affirm the trial court's determination that Western National breached the Agreement because Western National has not challenged the trial court's finding that Western National terminated Alvarez in retaliation for recording a mechanics' lien, and not because of a lack of production or insufficient insurance coverage. Alvarez contends that Western National's action constituted a breach of the Agreement's implied covenant of good faith and fair dealing. In reply, Western National argues that the covenant of good faith and fair dealing did not prohibit it from exercising its termination right under the Agreement, even if it had an "ulterior motive" for doing so.
Accordingly, we must consider Western National's contention that Western National's action does not, as a matter of law, constitute a breach of the duty of good faith and fair dealing. This is a question of law, which we review de novo. (See Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799 ["[w]hen the decisive facts are undisputed, we are confronted with a question of law, " for which de novo standard of review applies].)
a. Governing law
"[I]t is well established that a covenant of good faith and fair dealing is implicit in every contract. [Citations.] The essence of the implied covenant is that neither party to a contract will do anything to injure the right of the other to receive the benefits of the contract. [Fn. omitted.] [Citations.]" (Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 43.)
In Carma Developers, Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342 (Carma), the court discussed the purposes, scope, and limitations of the implied covenant of good faith and fair dealing. The Carma court began its analysis by noting that "in situations where one party is invested with a discretionary power affecting the rights of another, " the covenant of good faith and fair dealing requires that "[s]uch power . . . be exercised in good faith." (Id. at p. 372; see also Locke v. Warner Bros., Inc. (1997) 57 Cal.App.4th 354, 367 (Locke) ["The implied covenant of good faith and fair dealing obligated Warner to exercise . . . [its contractual] discretion honestly and in good faith"]; Call v. Alcan Pac. Co. (1967) 251 Cal.App.2d 442, 447 [contractor's "option to terminate [subcontractor] must be exercised in good faith"].)
Carma was decided by a panel of seven justices of the Court of Appeal sitting as the Supreme Court due to the recusal of all members of the Supreme Court. (Carma, supra, 2 Cal.4th at p. 350.)
After acknowledging the difficulty of defining precisely what is required by the covenant, the Carma court noted that the covenant has both a subjective and an objective component:
"[I]t has been suggested the covenant has both a subjective and objective aspect ─ subjective good faith and objective fair dealing. A party violates the covenant if it subjectively lacks belief in the validity of its act or if its conduct is objectively unreasonable. [Citations.] In the case of a discretionary power, it has been suggested the covenant requires the party holding such power to exercise it 'for any purpose within the reasonable contemplation of the parties at the time of formation ─ to capture opportunities that were preserved upon entering the contract, interpreted objectively.' [Citation.]" (Carma, supra, 2 Cal.4th at p. 372.)
The Carma court also clarified that certain actions are not prerequisites to establishing a claim that a party has breached the covenant of good faith and fair dealing:
"Notwithstanding the difficulty in devising a rule of all-encompassing generality, a few principles have emerged in the decisions. To begin with, breach of a specific provision of the contract is not a necessary prerequisite. [Citation.] Were it otherwise, the covenant would have no practical meaning, for any breach thereof would necessarily involve breach of some other term of the contract. [Fn. omitted.] Nor is it necessary that the party's conduct be dishonest. Dishonesty presupposes subjective immorality; the covenant of good faith can be breached for objectively unreasonable conduct, regardless of the actor's motive. [Citation.]" (Carma, supra, 2 Cal.4th at p. 373.)
The duty of good faith and fair dealing is also limited by the purposes for which it is implied:
"It is universally recognized the scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract. [Citation.] As explained in Foley [v. Interactive Data Corp. (1988) 47 Cal.3d 654, 668, under traditional contract principles, the implied covenant of good faith is read into contracts 'in order to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract's purpose.' [Citation.]" (Carma, supra, 2 Cal.4th at p. 373.)
Thus, a party may breach the covenant by engaging in conduct, "[that, ] though not prohibited [by the parties' contract], is nevertheless contrary to the contract's purposes and the parties' legitimate expectations." (Carma, supra, 2 Cal.4th at p. 373.)
In applying this law, the Carma court considered whether a lessor had breached the covenant of good faith and fair dealing by terminating a lease upon the lessee's issuance of a notice of intent to sublet or assign, so that the lessor could obtain for itself the appreciated rental value of the premises. (Carma, supra, 2 Cal.4th at p. 374.) In concluding that the lessor had not breached the covenant of good faith and fair dealing, the Carma court emphasized that the lease specifically gave the lessor the right to terminate the leasehold in order to allow the lessor to capture the appreciation:
"That paragraph does not merely permit termination upon notice of intent to sublease or assign. It also allows the lessor to pursue a new lease directly with the proposed transferee or another without sharing any profit with the lessee. Since, in pursuing this option, the lessor would be giving up an assumed stream of income from the current lessee, the only incentive for doing so would be the hope of receiving higher rent from a new lessee. Consequently, it was certainly within the reasonable expectations of the parties that [lessor] might terminate the lease upon a proposed transfer in order to claim for itself appreciated rental value of the premises." (Ibid.)
The Carma court reasoned that the lessor had not breached the covenant of good faith because its "termination of the lease in order to claim for itself appreciated rental value of the premises was expressly permitted by the lease and was clearly within the parties' reasonable expectation." (Carma, supra, 2 Cal.4th at p. 376.)
b. Western National was required to exercise its right to terminate in good faith
The Agreement contains a termination provision that provides in relevant part:
"Upon notification from Contractor by telegram or by written notice that Subcontractor's performance under this Agreement is unsatisfactory, or upon notification that Subcontractor has failed to comply fully with the terms of this Agreement, or that Subcontractor's work needs correction or has been damaged, Subcontractor shall promptly take all actions necessary to fully comply with the terms of the Contract Documents and the requirements of Contractor. Should Subcontractor fail to do so within twenty-four (24) hours after such notification Contractor may terminate this Agreement."
Pursuant to Carma, Western National was required to exercise its discretionary right to terminate in good faith. (Carma, supra, 2 Cal.4th at p. 372.)
c. Western National breached the Agreement by failing to exercise its right to terminate in good faith
In its statement of decision, the trial court made the following factual finding:
"The decision to terminate the contact was made by Millard Thacker, Western National's project manager. The court does not believe Mr. Thacker's testimony that he terminated the contract because of Alvarez'[s] lack of production or because of deficiencies in the insurance coverages. Mr. Thacker terminated the contract in retaliation for Alvarez recording a mechanics lien on October 18, 2001."
Western National does not challenge the trial court's finding that it terminated the contract in retaliation for Alvarez's recording of a mechanics' lien. Thus, the issue before this court is whether the trial court erred in determining that Western National breached the agreement because, as Western National maintains, its termination of Alvarez does not, as a matter of law, constitute a breach of the duty of good faith and fair dealing.
As the Carma court noted, the duty of good faith has both a subjective and an objective component. In this case, Western National's action violated both prongs of the covenant. The trial court's unchallenged finding establishes that Western National knew it was not terminating Alvarez for either of the two reasons for which it was authorized to exercise its termination right under the Agreement, namely Alvarez's unsatisfactory performance, or Alvarez's failure to comply fully with the Agreement. Western National thus could not have had a subjective belief in the validity of its action.
Further, one cannot conclude that in terminating Alvarez in retaliation for Alvarez's filing a mechanics' lien, Western National acted pursuant to "'any purpose within the reasonable contemplation of the parties at the time of formation.' [Citation.]" (Carma, supra, 2 Cal.4th at p 372.) Unlike the situation in Carma, in which the lessor was acting for a purpose "expressly permitted by the lease and . . . clearly within the parties' reasonable expectation" (Carma, supra, 2 Cal.4th at p 376), there is nothing in the Agreement that suggests that the parties contemplated that Western National would have the right to terminate Alvarez if Alvarez were to record a mechanics' lien. Nor has Western National identified any evidence that suggests that the parties reasonably contemplated that Western National would act pursuant to such a purpose. A finding that Western National's action constituted a breach of the implied covenant of good faith and fair dealing thus does not conflict with any of the provisions of the Agreement. (Compare with Storek & Storek, Inc. v. Citicorp Real Estate, Inc. (2002)100 Cal.App.4th 44, 61 ["No obligation to act in good faith can be implied to contradict or limit . . . [contract's] express condition precedent"]; Third Story Music, Inc. v. Waits (1995) 41 Cal.App.4th 798, 808 ["courts are not at liberty to imply a covenant directly at odds with a contract's express grant of discretionary power"].)
While it is true that the Agreement did not expressly prohibit Western National from terminating Alvarez for recording a mechanics' lien, the very purpose of the implied covenant of good faith is to prohibit actions, "[that, ] though not prohibited [by the parties' contract], [are] nevertheless contrary to the contract's purposes and the parties' legitimate expectations." (Carma, supra, 2 Cal.4th at p. 373.) In this case, there can be little doubt that the parties did not believe Western National would have the right to terminate Alvarez if Alvarez were to record a mechanics' lien. In fact, if the parties had expressly granted Western National such a right, the agreement would have been null and void as contrary to public policy. (Civ. Code, § 3262, subd. (a).)
Western National's action in terminating Alvarez for asserting its constitutionally (Cal. Const., art. XIV, § 3) and statutorily (Civ. Code, § 3110) protected right to record a mechanics' lien constitutes a breach of the covenant of good faith and fair dealing. A breach of this covenant constitutes a breach of the Agreement. (See Locke, supra, 57 Cal.App.4th at p. 363, fn. 3 [party adequately pled breach of implied covenant of good faith and fair dealing claim by alleging breach of contract claim because breach of covenant constituted breach of contract].) Accordingly, the trial court did not err in concluding that Western National breached the Agreement.
In view of our conclusion that Western National breached the implied covenant of good faith and fair dealing, we need not consider the parties' other arguments regarding the trial court's finding that Western National breached the Agreement.
2. Quantum meruit
Western National claims that the trial court erred in finding it liable on Alvarez's quantum meruit claim because the termination clause of the Agreement expressly authorized Western National's termination of Alvarez. We need not consider this claim because the trial court did not award any damages on this claim that it did not also award as damages for breach of contract. To the extent we reduce Alvarez's damages for breach of contract, the corresponding damages awarded under a quantum meruit theory of liability are similarly reduced. (See part III.B., post.)
3. The judgment as to Alvarez's mechanics' lien claim must be reversed and the case remanded for further proceedings
Western National claims in its opening brief that this court must reverse the judgment as to Alvarez's mechanics' lien claim because Western National is not an owner of the property to which the lien attached. In its respondent's brief, Alvarez argues that the trial court did not err in entering a judgment against Western National on Alvarez's mechanics' lien claim because Western National executed a release bond in which Western National agreed to be bound up to the amount of $1,647,704.01 if the court were to determine that Alvarez's mechanics' lien was valid. In its reply brief, Western National claims that this court may not affirm the judgment on the mechanics' lien claim on the ground that Western National posted a release bond and stipulated that the release bond attached to Alvarez's mechanics' lien, because Alvarez failed to assert a claim for recovery on the release bond in its first amended complaint, and failed to present substantial evidence of the release bond or the stipulation at trial.
The parties have responded to our request for supplemental briefing on the question whether this court may direct the trial court to enter a new judgment on Alvarez's mechanics' lien claim that states that Alvarez may recover on the release bond that Western National executed. Western National argues that this court may not direct the entry of such a judgment because the record indicates that Alvarez did not seek recovery on the release bond in the trial court. Alvarez argues that this court may direct the trial court to enter a new judgment that specifies that it is entitled to recover on the release bond. Alternatively, Alvarez argues that this court may remand the matter to the trial court for the purpose of making factual findings in conjunction with a postjudgment motion for enforcement of the release bond, which Alvarez intends to file on remand.
a. Factual and procedural background
On October 18, 2001, Alvarez recorded a mechanics' lien on the Property. On October 19, 2001, Western National, as principal, and Insurance Company of the West, as surety, executed a release bond in the amount of $1,647,704.01 in order to release Alvarez's mechanics' lien on the Property. On December 4, 2001, Western National recorded the bond. In January 2002, Alvarez filed its original complaint in this action. In its complaint, Alvarez alleged that it was entitled to foreclose on its October 18, 2001 mechanics' lien. On March 22, 2002, Alvarez recorded a second mechanics' lien on the Property.
In April 2002, Alvarez filed a first amended complaint against Western National, Insurance Company of the West, and various other parties, including Ameriton and Archstone Communities Trust (Archstone). In the complaint, Alvarez alleged that Ameriton was the owner of the Property and that Archstone was Ameriton's agent. The first cause of action was entitled "Recovery on Release Bond Against Defendant Insurance Company of the West." In this claim, Alvarez alleged:
"Plaintiff is informed and believes and thereon alleges that defendant Western National, as principal, and defendant INSURANCE COMPANY OF THE WEST, as surety, . . . executed a release bond in connection with the above-described work of improvement. Said bond was provided to Contractor as number 1840969, effective October 19, 2001, in the sum of $1,647,704.01. The bond provides for payment in full of the claims of [Alvarez, ] and is by its terms made to inure to the benefit of [Alvarez] to give them a right of action to recover on the bond in this action."
The second cause of action was entitled, "Foreclosure on Mechanics Lien as Against All Defendants." This claim referred to the October 18, 2001 and March 22, 2002 mechanics' liens, and incorporated all of the allegations of the previous paragraphs in the first amended complaint, including the paragraph quoted above pertaining to the release bond.
On June 27, 2002, Alvarez dismissed without prejudice its claims against Insurance Company of the West, Ameriton, and Archstone. On July 1, 2002, the parties entered into a stipulation that provided, "[T]he Release Bond (Bond No. 184 09 69) filed in this action will extend to both of the mechanics' liens (Nos. 2001-0754445 and 2002-0243157) filed by [Alvarez]." The stipulation further provided, "[Alvarez] agrees that with this signed stipulation, it will dismiss without prejudice all defendants other than [Western National]."
On October 7, 2002, the parties entered into a stipulation for the purpose of staying the action pending resolution of a related criminal matter. As part of that stipulation, the parties stipulated in relevant part:
"2. The parties agree that the plaintiff may amend the Complaint to include Insurance Company of the West ("ICW"), the bondholder for defendant as an additional defendant.
"3. The parties agree that the bond provided by [Insurance Company of the West] as the surety of [Western National] will apply to plaintiff's first lien filed on October 18, 2001, which has been reduced in an amount proportionate to the amount of money already paid by defendant, and the second lien filed on March 22, 2002, both of which will be released."
This stipulation was filed with the trial court and signed by the trial judge on October 18, 2002.
In May 2005, during Western National's direct examination of Thacker at trial, Thacker referred to the release bond, stating, "Also, Archstone has a risk management group, and as soon as that lien hits, they stop ─ we don't get a dime until we bonded a hundred and fifty percent of the lien." Thereafter, the following colloquy occurred:
"[Western National's counsel]: Just to complete this whole dialogue, you referenced the mechanics' lien. Exhibit 202 is ─ I believe that's the mechanic's lien. Let me put that in front of you. That's binder 2. [¶] That's not it. Here it is. It's Exhibit 201. Is Exhibit 201 the mechanic's lien you were referring to? [¶] (Ex. 202 marked for identification.)"
"[Thacker]: Yes, it is."
Exhibit 202 is the release bond. Near the end of the trial, the court asked the parties whether they agreed to the following procedure for admitting evidence: "[T]o the extent an exhibit was referenced in testimony and used by a witness, my clerk ordinarily will cause that to be received into evidence if your exhibit list so indicates. It's just in." Both parties agreed to this procedure.
The parties did not transmit Exhibit 202 to this court as part of the record on appeal. (See Cal. Rules of Court, rule 8.224.) However, we directed Alvarez's counsel to send us Exhibit 202, and we have reviewed the exhibit. (See Cal. Rules of Court, rule 8.224 (d) ["At any time the reviewing court may direct the superior court or a party to send it an exhibit"].)
During the trial of the case, Western National filed a motion for judgment in which it asserted the following:
"In this matter, [Western National] obtained and recorded a release bond, and thereby cleared titled to the Project. As such, [Alvarez] cannot foreclose on the mechanics' lien which it filed, and instead must look to recover only on the bond."
During his closing argument, Alvarez's counsel stated, "[W]e're only proceeding on three causes of action: Breach of contract, foreclosure on mechanics' lien, and quantum meruit." The following colloquy occurred while Alvarez's counsel was arguing regarding the merits of the mechanics' lien claim:
"The court: Is foreclosure of the mechanic's lien an issue in view of the fact that they bonded around it?"
[Alvarez's counsel]: Yes, it is. The parties had stipulated to dismiss with prejudice the insurance companies and what not and with the agreement that in the event the Court renders judgment on the mechanics' lien count, then my understanding is the release bond will step in at that point and pay for it, but we do need a judgment on that count in order to implicate the release bond. In other words, we don't intend to actually foreclose on the property but we do need a judgment with respect to the claim to foreclose."
Western National's counsel stated during his closing argument, "I'm not entirely certain how the mechanics' lien claim can be pursued here because of the fact that there's been a bonding around these mechanics' liens." Western National's counsel specifically mentioned that the release bonds were in evidence.
Although Western National's counsel referred to "release bonds, " it appears that Western National executed only one release bond.
Alvarez submitted a proposed statement of decision that stated that Alvarez was entitled to "foreclosure of its mechanics' lien." The proposed statement of decision did not refer to the release bond or to the stipulations pertaining to the bond. Western National filed an objection to the proposed to statement of decision in which it argued that foreclosure on the mechanics' lien was improper because Archstone was not a party to the litigation and "mechanics' lien release bonds were obtained to release Archstone's property from the litigation, and they were admitted into evidence." In November 2005, the trial court issued a statement of decision in which it concluded, with respect to Alvarez's mechanics' lien, that "Alvarez is entitled to foreclosure on its mechanics lien in the amount of $539,337.99, plus interest at the legal rate from the date of the breach, October 25, 2001."
In December 2005, the trial court entered judgment in favor of Alvarez. The judgment states in part, "Plaintiff, [Alvarez] has a mechanics' lien on the real property described as Mission Trails Apartments located at 7133 Navajo Road, San Diego, California 92119, in a sum comprised of damages in the amount of $539,337.99, interest on said damages in the amount of $218,099.38, and costs of suit in the amount of $30,843.64."
Western National filed a motion to set aside and vacate the judgment. In its motion, Western National claimed that "the mechanics' lien forecloseure claim . . . must be denied in all respects" because the owners of the Property were not named as parties to the litigation. Alvarez filed an opposition to Western National's motion in which it argued that the failure to include a property owner in a judgment for foreclosure of a mechanics' lien does not render the judgment void. Rather, Alvarez's argued, the judgment is merely unenforceable against the nonparty. After Western National filed a reply, the trial court held a hearing on Western National's motion.
At the outset of the hearing, Alvarez requested permission to file a declaration of its counsel. Alvarez attached the October 19, 2001 release bond and the July 1, 2002 stipulation as exhibits to the declaration of counsel. Over Western National's objection, the trial court permitted Alvarez to file the declaration and accompanying exhibits. Thereafter, the trial court denied the motion to set aside and vacate the judgment.
b. The law governing mechanics' liens and release bonds
Generally speaking, a mechanics' lien is a lien on real property given to persons who have performed labor or furnished materials or equipment contributing to the improvement on the property. (See Civil Code, § 3110.) In Hutnick v. U.S. Fidelity & Guaranty Co. (1988) 47 Cal.3d 456, 462 (Hutnick), the Supreme Court described the constitutional underpinnings of mechanics' lien law in California:
"Mechanic's lien law derives from our state Constitution, which provides: 'Mechanics, persons furnishing materials, artisans, and laborers of every class, shall have a lien upon the property upon which they have bestowed labor or furnished material for the value of such labor done and material furnished; and the Legislature shall provide, by law, for the speedy and efficient enforcement of such liens.' (Cal. Const., art. XIV, § 3.) The mechanic's lien is the only creditors' remedy stemming from constitutional command and our courts 'have uniformly classified the mechanics' lien laws as remedial legislation, to be liberally construed for the protection of laborers and materialmen.' [Citation.] '[S]tate policy strongly supports the preservation of laws which give the laborer and materialman security for their claims.' [Citation.]"
The Hutnick court noted that Civil Code section 3143 provides a statutory procedure by which a party may execute and record a bond, known as a "release bond, " in place of real property subject to a mechanics' lien. (Hutnick, supra, 47 Cal.3d at pp. 462-463.) The effect of executing and recording a release bond is that the principal and surety on the release bond assume liability for the mechanics' lien claim:
Civil Code section 3143 provides, "If the owner of property, or the owner of any interest therein, sought to be charged with a claim of lien, or any original contractor or subcontractor disputes the correctness or validity of any claim of lien, he may record in the office of the county recorder in which such claim of lien was recorded, either before or after the commencement of an action to enforce such claim of lien, a bond executed by a corporation authorized to issue surety bonds in the State of California, in a penal sum equal to 11/2 times the amount of the claim or 11/2 times the amount allocated in the claim of lien to the parcel or parcels of real property sought to be released, which bond shall be conditioned for the payment of any sum which the claimant may recover on the claim together with his costs of suit in the action, if he recovers therein. Upon the recording of such bond the real property described in such bond is released from the lien and from any action brought to foreclose such lien. The principal upon such bond may be either the owner of the property or the owner of any interest therein, or any original contractor, subcontractor, or sub-subcontractor affected by such claim of lien."
"The purpose of the release bond procedure is to provide a means by which, before a final determination of the lien claimant's rights and without prejudice to those rights, the property may be freed of the lien, so that it may be sold, developed, or used as security for a loan. [Fn. omitted.] [Civil Code] [s]ection 3143 provides that a mechanic's lien release bond 'shall be conditioned for the payment of any sum which the claimant may recover on the claim together with his costs of suit in the action, if he recovers therein.' The 'claim' for which the principal and surety assume liability in the bond is the 'claim of lien.' [Citation.] The release bond procedure thus protects the lien claimant by providing an alternate source of recovery on the claim of lien. The release bond procedure 'does not deprive the [lien claimant] of its constitutional right to a lien' but '[o]n the contrary, it provides for the speedy and efficient enforcement of such lien . . . .' [Citation.] The recording of the release bond does not extinguish the lien; rather, the bond is substituted for the land as the object to which the lien attaches. (See Marsh, Cal. Mechanics' Lien Law (3d rev. ed. 1988) § 8.28 ['The recordation of the bond in effect transfers the claim of lien from the owner's land to the bond.'].)" (Hutnick, supra, 47 Cal.3d at pp. 462-463.)
The Hutnick court noted that, "Because recovery on the bond is a part of the process for enforcing the mechanics' lien, authorities from other jurisdictions have concluded that a cause of action to foreclose a mechanics' lien is substantially the same whether relief is sought against the liened property or against a bond which has been substituted for the property." (Hutnick, supra, 47 Cal.3d at p. 463.) The Hutnick court agreed with these authorities and concluded that in seeking to enforce a "mechanic's lien first against the liened property and subsequently against the release bond, " a plaintiff "pursue[s] a single cause of action." (Ibid.)
In Grade-Way Construction Co. v. Golden Eagle Ins. Co. (1993) 13 Cal.App.4th 826, 832, the court concluded that the Bond and Undertaking Law (Code Civ. Proc. § 995.010 et seq.) applies to release bonds executed pursuant to Civil Code section 3143. The Bond and Undertaking Law specifies the manner by which a beneficiary may seek to recover on a bond. Code of Civil Procedure section 996.410, subdivision (a) provides, "The beneficiary may enforce the liability on a bond against both the principal and sureties." The Bond and Undertaking Law specifies two methods by which a beneficiary may enforce the principal's and surety's liability on the bond.
Code of Civil Procedure section 996.430 provides in relevant part:
"(a) The liability on a bond may be enforced by civil action. Both the principal and the sureties shall be joined as parties to the action.
"(b) If the bond was given in an action or proceeding, the action shall be commenced in the court in which the action or proceeding was pending. If the bond was given other than in an action or proceeding, the action shall be commenced in any court of competent jurisdiction, and the amount of damage claimed in the action, not the amount of the bond, determines the jurisdictional classification of the case."
Alternatively, Code of Civil Procedure section 996.440 subdivision (a) specifies that bonds that are given "in an action or proceeding" may be enforced pursuant to a summary postjudgment motion procedure. (National Technical Systems v. Commercial Contractors, Inc. (2001) 89 Cal.App.4th 1000, 1007.) Code of Civil Procedure section 996.440 provides in relevant part:
"(a) If a bond is given in an action or proceeding, the liability on the bond may be enforced on motion made in the court without the necessity of an independent action.
"(b) The motion shall not be made until after entry of the final judgment in the action or proceeding in which the bond is given and the time for appeal has expired or, if an appeal is taken, until the appeal is finally determined. The motion shall not be made or notice of motion served more than one year after the later of the preceding dates."
"[A] judgment of liability on a bond shall be in favor of the beneficiary and against the principal and sureties and shall obligate each of them jointly and severally." (Code Civ. Proc. § 994.460.) However, a surety is not bound by a judgment obtained by a beneficiary against the principal in a case in which the surety was not a party. (National Technical Systems v. Superior Court (2002) 97 Cal.App.4th 415, 421 (National Technical Systems).)
c. Alvarez is not entitled to a judgment of foreclosure on its mechanics' liens on the Property
The judgment in this case provides that Alvarez "has a mechanics' lien" on the Property. There is no reference in the judgment to either the release bond or to the parties'stipulations pertaining thereto. The judgment must be reversed because the parties stipulated that both of Alvarez's mechanics' liens would attach to the release bond, and not to the Property. Thus, Alvarez is clearly not entitled to a judgment of foreclosure of its mechanics' liens on the Property. (See Frank Curran Lumber Co. v. Eleven Co. (1969) 271 Cal.App.2d 175, 185 ["Since the effect of the recording of the bond was to free the real property from the effect of the claim and lien and any action brought to foreclose such lien, and since no personal judgment could be rendered against the landowners, it was proper, upon granting summary judgment, to dismiss the action as to them"].)
Although the judgment states merely that Alvarez "has" a mechanics' lien on the Property, in its statement of decision, the trial court stated that Alvarez is entitled to "foreclosure of its mechanics' lien." Thus, we construe the court's judgment as a judgment of foreclosure on the mechanics' lien.
d. The case must be remanded for further proceedings with respect to whether Alvarez is entitled to recover against Western National and/or Insurance Company of the West on the release bond
In this case, Alvarez did not make clear in the trial court the manner by which it intended to seek to recover on the release bond. As noted above, the Bond and Undertaking Law specifies two ways in which a beneficiary may seek to recover on a release bond. We discuss the potential applicability of both sections to this case and remand the matter to the trial court for further proceedings.
i. Code of Civil Procedure section 996.430
It is clear that Alvarez cannot prevail against Insurance Company of the West on the release bond pursuant to Code of Civil Procedure section 996.430 since Insurance Company of the West did not participate in the trial and was not a defendant in the action at the time of judgment. Thus, Alvarez is not entitled to a judgment against Insurance Company of the West pursuant to Code of Civil Procedure section 996.430.
However, the record is unclear as to whether Alvarez sought recovery on the release bond against Western National pursuant to Code of Civil Procedure section 996.430, and if so, whether Alvarez adequately established its entitlement to such relief. On remand, the trial court is directed to consider whether Alvarez is entitled to recover against Western National on the release bond pursuant to Code of Civil Procedure section 996.430. To the extent the trial court determines that Alvarez may recover against Western National on the release bond pursuant to Code of Civil Procedure section 996.430, the trial court is directed to enter a judgment that provides that Alvarez is entitled to recover on the release bond against Western National in an amount that shall include damages of $437,466.84; interest to be determined by the trial court in light of our conclusions in part III.D, post; and costs in the amount of $12,769.95.
We have calculated the $437,466.84 in the following manner. The original judgment of $539,337.99 on the mechanics' lien claim must be reduced in light of our conclusions in part III.B, post by $93,672 for delay damages and $8,199.15 damages for unsigned change orders. The $12,769.95 cost award was calculated by reducing the original cost award of $30,843.64 by $18,073.69 in light of our conclusions in part III.E, post.
To the extent the trial court determines that Alvarez may not recover against Western National on the release bond pursuant to Code of Civil Procedure section 996.430, the trial court shall enter a new judgment that specifies that Alvarez has a claim on a release bond executed by Western National in an amount that shall include damages of $437,466.84, in light of our conclusions in part III.B, post; interest to be determined by the trial court in light of our conclusions in part III.D, post; and costs in the amount of $12,769.95, in light of our conclusions in part III.E, post. The judgment shall further specify that the trial court will entertain a postjudgment motion pursuant to Code of Civil Procedure section 996.440 to enforce the liability of Western National and Insurance Company of the West on the release bond.
ii. Code of Civil Procedure section 996.440
Alvarez indicated in its supplemental brief in this court that, if this case is remanded to the trial court for further proceedings as to the enforceability of the release bond, Alvarez intends to file a postjudgment motion pursuant to Code of Civil Procedure section 996.440. We express no opinion on the merits of any such motion, since that issue is not before this court in this appeal. However, nothing in this opinion shall be construed to preclude the trial court's consideration of Alvarez's anticipated postjudgment motion pursuant to Code of Civil Procedure section 996.440 to enforce the liability of Western National and Insurance Company of the West on the release bond, if the trial court determines that such a motion is proper in this case. Further, we express no opinion as to whether Alvarez may bring a separate action against one or both of these parties to recover on the bond. (See National Technical Systems, supra, 97 Cal.App.4th at p. 420 [noting in case where surety was not party in original action and claimant could not enforce surety's liability on bond pursuant to Code of Civil Procedure section 996.440 that claimant would "have to litigate the liability on the bond as against [surety]" in separate action].)
However, we acknowledge the anomaly created by the application of the Bond and Undertaking Law in a case where a beneficiary of a release bond intends to proceed by way of the postjudgment proceeding provided by Code of Civil Procedure section 996.440. In such a case, because the release bond has been recorded, a judgment of foreclosure on the mechanics' lien on the property is improper. However, because the beneficiary intends to seek to enforce the liability of the principal and surety on the bond in a postjudgment proceeding, the judgment cannot provide for the beneficiary's recovery on the release bond.
Judicial economy would be better served if, under such circumstances, the beneficiary informs the trial court of its intention to seek to recover on the release bond by way of a postjudgment proceeding as provided in Code of Civil Procedure section 996.440. The trial court should specify in its judgment whether the party is entitled to prevail on the underlying mechanics' lien claim and the amount of lien. The judgment should further specify that the party has a claim on a release bond and that the court will entertain a postjudgment motion to enforce liability on the bond pursuant to Code of Civil Procedure section 996.440.
B. Damages issues
Western National raises a number of claims of error with respect to the trial court's award of damages.
1. Delay damages
Western National claims that the trial court erred in awarding Alvarez $93,672 on each of its three claims in consequential "delay damages, " for costs associated with delays in completing the project caused by Western National. Western National claims the Agreement precludes such an award. We agree.
The trial court did not award duplicative damages in its final judgment. However, we must consider whether the damages are recoverable under any of the three claims.
a. Factual and procedural background
The Agreement provides:
"CLAIMS FOR DELAY OR DAMAGE: Subcontractor expressly waives any and all rights to make claims or to be entitled to receive any compensation or damages for failure of Contractor or other trade contractors to have related portions of the project completed in time for Work of Contractor to proceed. Should the Subcontractor default in the proper performance of this Work including, without limitation, performance of punch-list or pick-up work, thereby causing delay to the project, Subcontractor shall be liable for any and all loss and damages to Contractor, including, without limitation, liquidated damages, increased financing and construction costs, lost sales opportunities, and lost revenues sustained by the Contractor. The Subcontractor shall be liable under this Paragraph even though such default is caused by strikes, lockouts, acts of God, or other reasons beyond the control of Subcontractor, unless the Subcontractor gives written notice of the delay to Contractor within four (4) days following the start of the alleged occurrence. Contractor shall not be liable to Subcontractor for loss or damages resulting from the aforementioned causes, or for Contractor's delay, or for modification or extension of the Construction Sequence or Order of Work of modification of the pace of work, or modification or extension of any progress schedule established by Contractor, or for losses or damages resulting from Change Orders, or for delays caused by other trade contractors." (Italics added.)
At trial, Alvarez offered in evidence a letter Alvarez sent to Western National on November 15, 2001 in which Alvarez stated that it "had 3 1/2 weeks (18 work days) delay to our scope of work." The November 15 letter outlined the "costs for delay" Alvarez had purportedly suffered, as follows:
"Based on one week, we ran an average of hourly payroll (Supervision, hourly carpenters, hourly laborers & equipment drivers) totaling $24,220.00. Taking one week's totals and converting it to a daily rate, our payroll was $4,844.00 gross wages per day. Our equipment charges are $900 per week for two machines. Total costs for delay is $93,672.00 ($87,192 for payroll - $6,480 for equipment)."
Joe Alvarez, Alvarez's president, testified at trial that the November 15 letter represented the amount, "I felt in my mind justifiable to backcharge Western National for the delays that were created and costed [sic] us directly on a daily basis." Joe Alvarez clarified the nature of these costs at trial as follows:
"[Alvarez's counsel]: If you're delayed such that piece workers do not have work or end up going home because they don't have work, does that actually cost you money out of pocket?"
"[Joe Alvarez]: No, it does not cost us any money out of pocket if the piece worker doesn't perform a task for that day. What does take place, [is] that [it] adds to the duration of the project in the overall."
In an exhibit Alvarez offered in evidence entitled "Schedule of Damages, " Alvarez listed "$93,672.00" in "Labor Delays."
The trial court's statement of decision provides, "[A]s of October 24, 2004 Alvarez was entitled to invoice under the contract for delays at the project caused by [Western National] that resulted in additional labor expenses in the amount of $93,672.00." The trial court also awarded delay damages in the amount of $93,672 on Alvarez's quantum meruit and mechanics' lien claims.
b. Analysis
Alvarez offered evidence at trial associated with the "costs for delay" it had suffered that it attributed to Western National, and the trial court awarded damages "for delays at the project caused by Western National." However, the Agreement clearly and unambiguously provides that Alvarez waives its right to recover delay damages, and that Western National is not liable to Alvarez for such delays. Thus, Alvarez was not entitled to recover delay damages.
We reject Alvarez's argument that it may recover delay damages pursuant to the italicized portion of the following provision in the Agreement:
"Additional work or deviation from the plans and specifications performed without a Change Order will not be subject to reimbursement. Disputed Work indicated or necessary to complete the project shall be promptly performed as ordered by the Contractor and the proper cost or credit breakdowns therefor shall be submitted immediately thereafter by Subcontractor to the Contractor for consideration. Should the plans vary from the specifications, then the specifications shall govern." (Italics added.)
The "Disputed Work" clause of this provision specifies the procedure to be utilized when the parties have a dispute as to whether a particular item of work is within the statement of work set forth in the Agreement. The clause does not authorize an award of damages to Alvarez for costs associated with delay attributable to Western National. We therefore reject Alvarez's claim that the trial court's award "for delays at the project caused by Western National, " is recoverable pursuant to this provision. In any event, Alvarez identifies no evidence from which the trial court could have determined whether the work for which Alvarez was seeking delay damages was work performed outside the Agreement's Statement of Work.
Since the Agreement provides that delay damages are not recoverable, Alvarez is not entitled to recover such damages on its quantum meruit claim. (See Hedging Concepts, Inc. v. First Alliance Mortgage Co. (1996) 41 Cal.App.4th 1410, 1420 (Hedging Concepts, Inc.) [holding party may not recover in quantum meruit where contractual term governed subject].)
Nor is Alvarez entitled to foreclose on a mechanics' lien for damages to which it is not contractually entitled. (See Civ. Code, § 3123, subd. (a) ["The liens provided for in this chapter shall be direct liens, and shall be for the reasonable value of the labor, services, equipment, or materials furnished or for the price agreed upon by the claimant and the person with whom he or she contracted, whichever is less].) Even assuming the Agreement did not bar an award for delay damages, Alvarez may not recover delay damages pursuant to its mechanics' lien claim because, "[t]he function of the mechanics' lien is to secure reimbursement for services and materials actually contributed to a construction site, not to facilitate recovery of consequential damages . . . ." (Lambert v. Superior Court (1991) 228 Cal.App.3d 383, 389 [concluding "Civil Code section 3123 [California mechanics' lien statute] does not permit a lien for delay damages"].)
On remand, the trial court is directed to reduce its damage award by $93,672 on each of Alvarez's three claims.
2. Lost profits
Western National claims that the trial court erred in awarding $42,737 in damages for lost profits because Alvarez failed to present substantial evidence of such profits.
"'Substantial evidence' is evidence of ponderable legal significance, evidence that is reasonable, credible and of solid value. [Citation] . . . Inferences may constitute substantial evidence, but they must be the product of logic and reason. Speculation or conjecture alone is not substantial evidence. [Citations.] [¶] . . . [¶] The ultimate test is whether it is reasonable for a trier of fact to make the ruling in question in light of the whole record. [Citation.]" (Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 651-652.)
"[E]vidence of lost profits must be unspeculative and in order to support a lost profits award the evidence must show 'with reasonable certainty both their occurrence and the extent thereof.' [Citation.]" (Sanchez-Corea v. Bank of America (1985) 38 Cal.3d 892, 907.) "The Court of Appeal has defined lost profits as follows: '"Net profits are the gains made from sales 'after deducting the value of the labor, materials, rents, and all expenses, together with the interest of the capital employed.' [Citation.]"' [Citations.] A plaintiff must show loss of net pecuniary gain, not just loss of gross revenue. [Citations.]" (Kids' Universe v. In2Labs (2002) 95 Cal.App.4th 870, 884.)
The only relevant evidence Alvarez cites to support the trial court's award of $42,737 in lost profit damages is Joe Alvarez's testimony that at the time of the breach, Alvarez had yet to bill Western National for $427,370 in labor charges that were contemplated in the Agreement, and that he had used a 10 percent profit margin figure in calculating Alvarez's bid. As Western National notes in its brief, it is undisputed that Alvarez presented no evidence that it had accurately assessed the costs of labor when it bid the contract. Nor did Alvarez present any evidence as to the amount of money it had expended on labor through the date of termination, or the amount of money it would have cost to complete the project. Under these circumstances, Alvarez failed to prove with reasonable certainty the extent of its lost profits.
Case law from other states supports this conclusion. In ADC Fairways Corp. v. Johnmark Const., Inc. (Va. 1986) 343 S.E.2d 90 (ADC Fairways Corp.), the Supreme Court of Virginia considered whether a trial court had erred in awarding a contractor (Johnmark) lost profits on a breached agreement to rehabilitate various apartment units. The court noted that Johnmark presented the following evidence in support of its claim for lost profits:
"Johnmark's president, Richard McCarty, described how lost profits were calculated on the work it did not complete because of the dispute with ADC. He said, on direct examination, that the units were to be rehabilitated for a price of $2,562.50 per unit, a figure which he had bid to secure the contract with ADC. He testified further that in his bid he computed '[a]pproximately 15 percent' of the $2,562.50 as profit. He went on to say that the contract called for the completion of 171 units. Thus, profits were calculated by taking 15% of $2,562.50 and multiplying that number by 171." (Id. at p. 92.)
The ADC Fairways Corp. court rejected Johnmark's argument that this testimony constituted sufficient evidence to allow the court to estimate Johnmark's lost profits with reasonable certainty:
"Lost profits should not have been awarded in this case. They were completely speculative. The $47,781.13 figure was nothing more than the profit Johnmark hoped to make at the time of the bid. There was no evidence to establish that this is the profit that would have been made had Johnmark completed the project. Indeed, there was evidence from Johnmark's president that on a similar rehabilitation project for the same developer no profit had been made whatever.
"We said in Boggs v. Duncan, 202 Va. 877, 883, 121 S.E.2d 359, 363 (1961), that 'It is well settled that damages are recoverable for loss of profits prevented by a breach of contract "only to the extent that the evidence affords a sufficient basis for estimating their amount in money with reasonable certainty.' " (Citations omitted.) That standard was not met in this case. We hold, therefore, that the trial court erred in awarding Johnmark lost profits of $47,781.13." (ADC Fairways Corp., supra, 343 S.E.2d at p. 93.)
Similarly, in Marshall Const., Ltd. v. Coastal Sheet Metal & Roofing, Inc. (Fla.Ct.App. 1990) 569 So.2d 845, 847-848, the court concluded that the testimony of the president of a roofing company to the effect that his company would have received a profit of 10 percent of the bid contract price did not constitute a sufficient basis on which to award lost profits:
"Jones . . . testified that the company would have received a profit consisting of 10 percent of the contract price based upon its bid. This evidence standing alone is legally insufficient to support an award of lost profits. See U.S. Home Corp. v. Suncoast Utilities, Inc., 454 So.2d 601 (FlA.2d DCA 1984) (where the only evidence of profit was an estimate based upon a percentage of the contract price which the court rejected as speculation). [Fn. omitted.] Without evidence of Coastal's expenditures up to the time it left the job, and an amount for reasonably expected expenditures had the job been completed, there is no way for a prudent impartial person to determine whether Coastal would have earned any profit. Evidence based upon a percentage of work completed and work yet to be performed is legally insufficient to support a damages award."
Accordingly, on remand, the trial court is directed to reduce its damage award by $42,737.00 on Alvarez's breach of contract claim.
3. Unsigned change orders
Western National claims that the trial court erred in awarding Alvarez $8,199.15 in damages on each of its three claims based on unsigned change orders. We agree.
a. Factual and procedural background
The Agreement provides in relevant part:
"ADHERENCE TO PLANS AND SPECIFICATIONS. The Subcontractor shall adhere strictly to the plans and specifications and the other Contract Documents, and, where applicable, to the model homes, unless a Change Order is made. In such case, the terms of said Change Order shall be agreed in writing by the Contractor and Subcontractor before commencement of said revised Work. Additional Work or deviation from the plans and specifications performed without a Change Order will not be subject to reimbursement."
The trial court made the following findings concerning the change orders:
"The contract requires written authorization from [Western National] for change orders. Alvarez did not secure written authorization from [Western National] for the payment of Change Orders Nos. 1 through 6.
"Millard Thacker, [Western National's] project manager, orally requested Alvarez perform the work contemplated by Change Orders Nos. 1 through 6 and told Joe Alvarez that Alvarez'[s] change orders would be signed by him.
"Alvarez did in fact complete the work requested by Mr. Thacker. Under the terms of the contract, [Western National] was obligated to sign Change Orders Nos. 1 through 6."
The court also found, "Performance of conditions precedent is excused when the other party prevents performance or renders it impossible. Mr. Thacker's refusal to sign the change orders he had authorized relieves Alvarez of any obligation to have them signed in order to receive payment."
b. Analysis
The sole basis on which Alvarez contends that this court may affirm the trial court's award of damages for unsigned change orders, notwithstanding the Agreement's requirement that change orders be agreed to in writing, is that "[p]erformance of conditions precedent is excused when the other party prevents performance or renders it impossible." Assuming the validity of this premise of contract law, it has no application under the undisputed facts of this case.
The Agreement unambiguously provides that change orders "shall be agreed in writing by the Contractor and Subcontractor before commencement of said revised Work." (Italics added.) Alvarez does not argue, and the trial court did not find, that Western National prevented Alvarez from obtaining written change orders prior to the commencement of the revised work. It is undisputed that Alvarez performed the revised work first, and submitted the change orders only after it had completed the work. Because the Agreement required that "the terms of said Change Order shall be agreed in writing by the Contractor and Subcontractor before commencement of said revised Work, " (italics added), one cannot reasonably conclude that Western National prevented fulfillment of this condition. Western National's action in refusing to sign change orders Alvarez submitted after having performed the work at issue did not excuse Alvarez from its obligation to obtain a written change order prior to commencing work on revisions.
Five of the six unsigned change orders were dated November 14, 2001, several weeks after Alvarez had been terminated. The other change order is dated October 8, 2001, but there is no claim that this change order was generated prior to Alvarez performing the work.
The trial court did not find, and Alvarez has not argued on appeal, that Western National was estopped by its conduct from insisting on a written change order. Thus, we do not consider this issue.
Because Alvarez was not entitled to damages for change orders, based on an express contractual provision, Alvarez is not entitled to recover such damages on its quantum meruit claim. (See Hedging Concepts, Inc., supra, 41 Cal.App.4th at p. 1420.) Nor is Alvarez entitled to foreclose on a mechanics' lien that claims damages to which Alvarez is not contractually entitled. (See Civ. Code, § 3123, subd. (a).)
Accordingly, on remand, the trial court is directed to reduce its damage award by $8,199.15 on each of Alvarez's three claims.
4. Damages for labor Alvarez performed
Western National claims that the trial court erred in awarding Alvarez $295,611.95 in damages on each of its three claims for labor Alvarez performed prior to termination, on the ground that Alvarez failed to submit labor lien releases corresponding to the labor at issue.
a. Factual and procedural background
The Agreement provides in relevant part:
"SUBCONTRACTOR AGREES TO FURNISH TO CONTRACTOR AND CONTRACTOR MAY REFUSE PAYMENT TO SUBCONTRACTOR UNLESS AND UNTIL SUBCONTRACTOR FURNISHES TO CONTRACTOR, RELEASES OF CLAIMS OF LABORS [sic], MATERIALMEN AND SUBCONTRACTORS PERFORMING WORK OR FURNISHING MATERIAL UNDER THIS SUBCONTRACT, ALL IN A FORM SATISFACTORY TO CONTRACTOR, AND IT IS AGREED THAT NO PAYMENT HEREUNDER SHALL BE MADE EXCEPT AT CONTRACTOR'S OPTION, UNLESS AND UNTIL SUCH RELEASES ARE FURNISHED."
The trial court made the following factual findings regarding the labor lien releases:
"[] Alvarez'[s] August 15, 2001, invoice was paid by [Western National] without the presentation of lien releases.
"[] Alvarez'[s] September 15, 2001, invoice was not paid on October 15, 2001. Alvarez made a good faith attempt to comply in providing lien releases at that time.
"[] The lien releases presented by Alvarez to [Western National] fully complied with Alvarez'[s] contractual requirements.
"[] The standards in the construction industry require the general contractor communicate to the subcontractor any deficiencies in lien releases so as to allow the subcontractor an opportunity to correct any such deficiencies.
"[] [Western National] never notified Alvarez that there were any deficiencies in the lien releases.
"[] If Alvarez had been notified of any deficiencies in the lien releases, it could have taken steps to correct any such deficiencies."
The trial court further found that Western National "breached the contract on October 25, 2001 by notifying Alvarez that the contract was terminated and ordering Alvarez off the job site."
b. Governing law
"'It is well settled that an unequivocal repudiation of the contract by one party prior to material breach of the contract by the other party excuses the other party from tendering performance of his concurrently conditional obligations.' [Fn. omitted.] [Citation.]" (In re Marriage of Burkle (2006) 139 Cal.App.4th 712, 751.) Similarly, "[i]t is well settled that the breach of an important condition may excuse the other party from performance." (Wiz Technology, Inc. v. Coopers & Lybrand (2003) 106 Cal.App.4th 1, 12 (Wiz Technology, Inc.).) Witkin summarizes the applicable law in the following fashion: "[W]hether a particular breach will also give the injured party the right to refuse further performance on his or her own part, i.e., to terminate the contract. The test is whether the breach is material, and a total or complete breach is of course material and a grounds for termination by the injured party." (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 852, p. 938.)
c. Application
Western National claims that it is undisputed that Alvarez failed to provide labor lien releases for the invoices on which the trial court awarded $295,611.95 in damages, and that Alvarez's failure to provide the labor lien releases "at trial" precludes Alvarez from recovering such damages.
The parties' Agreement cannot reasonably be construed to provide that Alvarez forever forfeited its right to payment for labor it provided if it did not provide labor lien releases prior to October 25, 2001, the date of breach. Western National does not contend otherwise. We must therefore consider whether Alvarez's failure to provide the lien releases after the date of Western National's breach, including Alvarez's failure to provide the releases at trial, precludes it from recovering the $295,611.95 in damages the trial court awarded.
Western National unequivocally repudiated the contract on October 25, 2001 when it terminated the contract and ordered Alvarez off the job site. Western National's termination was a material and complete breach of the Agreement. Under these circumstances, as of October 25, 2001, Alvarez was relieved of any obligation to further perform pursuant to the Agreement. (See, e.g., In re Marriage of Burkle, supra, 139 Cal.App.4th at p. 751; Wiz Technology, Inc., supra, 106 Cal.App.4th at p. 12.) Thus, Alvarez was not required to provide labor lien releases in order to be entitled to recover the $295,611.95 in damages the trial court awarded for uncompensated labor Alvarez had performed.
Accordingly, the trial court did not err in awarding Alvarez $295,611.95 in damages for labor Alvarez had performed.
5. There is substantial evidence to support the trial court's award of $23,200 in damages on Alvarez's mechanics' lien claim for trusses used on the project
Western National claims that the trial court erred in awarding damages in the amount of $23,200 on Alvarez's mechanics' lien claim for trusses produced by a company called Madera Component Systems, Inc. (Madera). Western National claims that it was improper for the court to award these damages because there is no substantial evidence that the trusses were actually used in the construction of the project, as is required to support a mechanics' lien claim. We apply the law that governs claims of a lack of substantial evidence to support an award of damages, as outlined in part III.B.2, ante.
The trial court awarded an additional $55,270 in damages on Alvarez's breach of contract claim for trusses that were not used in the project. Western National's claim pertains only to the $23,200 damages awarded on the mechanics' lien claim for trusses that it contends were not used in the project.
Alvarez offered in evidence an invoice from Madera to Alvarez showing that Madera delivered to the site lower roof trusses for buildings 2, 3, and 4 and an additional truss for building 4, on October 31, 2001. The invoice also billed Alvarez for trusses that were intended to be used for buildings 1, 5, and 6. However, the invoice noted that Madera had not delivered these trusses. The invoice also stated:
"As I told you, superintendent 'Doug' from Western National told me today, the balance of the trusses were ordered elsewhere. I need a letter from your attorney showing that Madera's $78,470.00 will be included in your lawsuit with Western National. We will be filing liens on what was used on the project."
Millard Thacker, Western National's project manager, testified regarding the trusses as follows:
"When we replaced Alvarez with R.H. General, we tried to continue to use Madera, who was contracted with ─ a truss company that was contracted with Alvarez, and one of the problems was that there is ─ and I'm not an engineer, either, but there is a heel blocking from the trusses down to the top plate that can either be done with your trusses or they can be done with labor. You can physically build it and block it yourself. Madera did not have that done, amongst other things. . . . R.H. General and I had many meetings with Madera on-site to try and repair.
"And ultimately R.H. General came to me and says [sic], 'I cannot work with Madera. They don't give me the service that I need, and if I'm going to be able to finish this project and meet your schedule or have any, you know, opportunity, I'm going to need to go somewhere else.'so after numerous attempts in trying to get Madera and R.H. General to work together, it wouldn't happen. So they had to go to Hanson to get the last three buildings of trusses.
"[Western National's Counsel]: So in fact for the buildings which did not have trusses, you didn't use ─ you didn't have delivered the Madera trusses, right? You had Hans[o]n trusses delivered?
"[Thacker]: Last three buildings."
Robert Rodriguez, owner of R.H. General, testified as follows with respect to the trusses:
"[Alvarez's counsel]: What were the problems you found with [the Madera trusses]?
"[Rodriguez]: I found that the trusses with ─ Madera trusses that they weren't marked very well at all. They didn't fit. There was a lot of ─ I think it was ─ There was a second or the third building. The second building that was there, there was a lot of problems with the trusses. They didn't fit. I tried to get Madera to come out to fix them. They wouldn't bring anybody out. So basically I had to fix them and do the fixes and get the engineer to stamp it, and then after that building I refused to use Madera."
The invoices, in combination with Thacker's and Rodriguez's testimony, support the reasonable inference that the trusses that were delivered to the project were in fact used in the project. In particular, Thacker's and Rodriguez's testimony pertaining to the attempts to fix the Madera trusses, and Thacker's testimony regarding the use of trusses from an alternative supplier for the "last three buildings, " support the inference that the Madera trusses that were delivered to the project were used.
There is substantial evidence that the trusses at issue were used in the construction of the project. Therefore, the trial court did not err in awarding damages in the amount of $23,200 on Alvarez's mechanics' lien claim, for the trusses.
C. The trial court did not err in failing to offset Alvarez's damage award by $36,000 based on Alvarez's failure to purchase insurance policies required under the Agreement
Western National claims that the trial court erred in failing to offset Alvarez's breach of contract damages by $36,000 for Alvarez's failure to purchase occurrence based excess insurance policies for the 2000 to 2001 and 2001 to 2002 policy years, as the Agreement required.
Western National argues that it was entitled to this offset pursuant to 1st Olympic Corp. v. Hawryluk (1960) 185 Cal.App.2d 832 (1st Olympic Corp.). The 1st Olympic Corp court stated:
"It is now the settled rule, especially in cases of building contracts, that 'if there has been a substantial performance thereof by the contractor in good faith, where the failure to make full performance can be compensated in damages to be deducted from the price or allowed as a counterclaim, and the omissions and deviations were not willful or fraudulent and do not substantially affect the usefulness of the building for the purposes for which it was intended, the contractor may, in an action upon the contract, recover the amount unpaid of his contract price, less the amount allowed as damages for the failure in strict performance.' [Citations.]" (Id. at p. 836, italics added.)
Western National does not cite in its brief any evidence in the trial record that indicates that Western National suffered legally cognizable damages as a result of Alvarez's purported failure to procure the insurance required under the Agreement. The only evidence Western National's cites in support of its claim is testimony as to the cost of such insurance to Alvarez. Costs to Alvarez are not equivalent to damages suffered by Western National. (See St. Paul Fire and Marine Ins. Co. v. American Dynasty Surplus Lines Ins. Co. (2002) 101 Cal.App.4th 1038, 1061 [concluding that subcontractor's failure to provide "non-contributory" liability policy insurance policy caused no damage to contractor because there was no coverage for claim under policy for reasons distinct from non-contributory nature of policy].)
Even assuming evidence of Alvarez's costs could be considered to be evidence of Western National's damages, there was no evidence that Alvarez would not have purchased complying insurance if Western National had not breached the contract. In fact, the trial court expressly found, "Given a reasonable period of time, Alvarez would have obtained insurance coverages that fully complied with the insurance requirements of the contract." Finally, even if Alvarez's costs could be equated with Western National's damages, and Western National were entitled to an offset of damages for the portion of time prior to its breach during which Alvarez was underinsured, the trial court found that by its conduct, Western National "waived any contractual requirement that Alvarez's insurance submittals . . . be submitted within a specified time period."
Accordingly, the trial court did not err in failing to offset Alvarez's breach of contract damages in an amount equal to the cost of occurrence based insurance that Alvarez failed to obtain.
D. Prejudgment interest
Western National claims that the trial court erred in awarding Alvarez prejudgment interest, maintaining that none of Alvarez's damages were sufficiently liquidated to support an award of prejudgment interest. In the alternative, Western National contends that the trial court erred in concluding that interest began to accrue on October 25, 2001, the date on which Western National breached the Agreement, rather than at any of a number of later dates when performance by Western National was due under the Agreement. Finally, Western National claims that the trial court should have tolled the accrual of prejudgment interest during the period in which the case was stayed pursuant to Alvarez's motion for a stay.
1. The liquidated damages requirement
A court may award prejudgment interest only for liquidated damages:
"Civil Code section 3287 reads in relevant part: '"(a) Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, . . ." In other words, prejudgment interest is awarded only when the sum is liquidated within the meaning of the statute.' [Citation.]"
"'"Damages are deemed certain or capable of being made certain within the provisions of subdivision (a) of section 3287 where there is essentially no dispute between the parties concerning the basis of computation of damages if any are recoverable but where their dispute centers on the issue of liability giving rise to damage." [Citations].' [Citation.] Thus, '"'[t]he test for recovery of prejudgment interest under [Civil Code] section 3287, subdivision (a) is whether defendant actually know[s] the amount owed or from reasonably available information could the defendant have computed that amount. [Citation.]' [Citations.] 'The statute . . . does not authorize prejudgment interest where the amount of damage, as opposed to the determination of liability, "depends upon a judicial determination based upon conflicting evidence and it is not ascertainable from truthful data supplied by the claimant to his debtor." [Citations.]' [Citation.] Thus, where the amount of damages cannot be resolved except by verdict or judgment, prejudgment interest is not appropriate. [Citation.]" [Citation.]' [Citations.]" (Duale v. Mercedes-Benz USA, LLC (2007) 148 Cal.App.4th. 718, 728-729.)
We concluded in part III.B, ante, that the trial court erred in awarding damages to Alvarez for contractual delays, unsigned change orders, and lost profits. Thus, on remand, the trial court must modify the award of prejudgment interest to delete the accrual of prejudgment interest as to these damages.
With respect to the remaining components of the trial court's damages award ─ amounts invoiced under the contract through the date of termination ($414,266.84), amounts invoiced for trusses used in the project ($23,200), and amounts invoiced for trusses not used in the project ($55,270.00) ─ Joe Alvarez testified that Western National refused to pay these amounts. Western National offers no argument as to why these labor and material charges were not capable of determination. We conclude that these amounts were sufficiently capable of determination to support an award of prejudgment interest. (See Marine Terminals Corp v. Paceco, Inc. (1983) 145 Cal.App.3d 991, 996 ["By submitting the invoices to defendant, plaintiff made its damages known to defendant and rendered them 'certain'"].)
2. The trial court properly determined the accrual date for its award of prejudgment interest
Western National claims that the court erred in using the date of Western National's breach, October 25, 2001, as the accrual date for prejudgment interest. Western National argues that the trial court erred in selecting this date as the accrual date because, under the Agreement, Western National was not obligated to pay Alvarez for charges that formed the basis of the trial court's damage award until various dates falling after October 25, 2001.
The fundamental flaw in Western National's argument is that prejudgment interest is a component of damages for breach of contract, not a form of payment due under a contract. (See North Oakland Medical Clinic v. Rogers (1998) 65 Cal.App.4th 824, 830 ["It is well established that prejudgment interest is . . . an element of damages"].) Thus, Alvarez's entitlement to prejudgment interest, like the remainder of its breach of contract damages, vested on the date of the breach. (See House Grain Co. v. Finerman & Sons (1953) 116 Cal.App.2d 485, 497-498 [concluding plaintiff was entitled to prejudgment interest in breach of contract case and stating, "Plaintiff's damage . . .was capable of being made certain by calculation, and the right to recover was vested upon a particular date ─ the date of the breach"]; see also North Oakland Medical Clinic v. Rogers, supra, 65 Cal.App.4th at p. 828 ["Under [Civil Code section] subdivision (a) the court has no discretion, but must award prejudgment interest upon request, from the first day there exists both a breach and a liquidated claim, " italics added].)
Western National also claims that because Alvarez was required to perform various conditions after October 25, 2001 in order to be entitled to payment under the Agreement, the trial court erred in refusing to delay the accrual of interest until Alvarez had complied with the Agreement's conditions. We reject this argument. As noted in part III.B.4, ante, Western National's complete repudiation of the Agreement and full breach thereof on October 25, 2001, relieved Alvarez of any obligation to further perform under the Agreement. (See, e.g., In re Marriage of Burkle, supra, 139 Cal.App.4th at p. 751; Wiz Technology, Inc., supra, 106 Cal.App.4th at p. 12.)
The trial court did not err in awarding prejudgment interest from the date of Western National's breach of the Agreement. (See, e.g., National Farm Workers Service Center, Inc. v. M. Caratan, Inc. (1983) 146 Cal.App.3d 796, 812 ["prejudgment interest should have been awarded as of the time of the breach of the contract"].)
3. The accrual of prejudgment interest must be tolled for the time during which the case was stayed pursuant to Alvarez's motion to stay
Western National argues the trial court erred in refusing to toll accrual of prejudgment interest for the period during which the case was stayed pursuant to Alvarez's motion to stay. We agree.
a. Factual and procedural background
In September 2002, Alvarez filed a motion to stay this case. In its brief in support of its motion, Alvarez stated:
"[Alvarez] is willing to stipulate to a 'tolling' of any prejudgment interest which would otherwise accrue on its eventual damages award from the date a stay of these proceedings is entered until the date a stay is lifted."
In October 2002, Western National stipulated to a stay of the proceedings. On October 18, 2002, the trial court entered the stay. On June 28, 2004, pursuant to another stipulation between the parties, the court lifted the stay.
In December 2005, Western National filed a motion to set aside and vacate the judgment. In its brief in support of its motion, Western National argued, among other contentions, that it would be inequitable to award prejudgment interest for the period in which the case was stayed pursuant to Alvarez's motion to stay. In February 2006, Western National filed a request for judicial notice in support of its motion to set aside and vacate the judgment, requesting that the court take judicial notice of Alvarez's offer to stipulate to a tolling of the accruing of any prejudgment interest contained in Alvarez's memorandum in support of its motion to stay the case. At the hearing on Western National's motion, Western National referred to Alvarez's offer to stipulate. Thereafter, the trial court denied Western National's motion. The trial court did not rule on Western National's request for judicial notice.
b. Governing law
"A waiver is an intentional relinquishment of a known right [citations]; may be expressed or implied [citations]; and may be implied from conduct inferentially manifesting an intention to waive. [Citations.]" (Salton Community Services Dist. v. Southard (1967) 256 Cal.App.2d 526, 532-533.) "'"The burden . . . is on the party claiming a waiver of a right to prove it by clear and convincing evidence that does not leave the matter to speculation, and 'doubtful cases will be decided against a waiver.'"' [Citations.]" (DRG/Beverly Hills, Ltd. v. Chopstix Dim Sum Cafe & Takeout III, Ltd. (1994) 30 Cal.App.4th 54, 60.)
c. Application
Alvarez's express offer to stipulate to the tolling of any prejudgment interest that might accrue for the period during which a stay was in place constitutes clear and convincing evidence that Alvarez intentionally relinquished its right to receive prejudgment interest for this period.
On remand, the trial court shall recalculate Alvarez's interest award, tolling accrual of prejudgment interest for the period during which the case was stayed pursuant to Alvarez's motion for a stay.
E. The trial court's award of costs
Western National claims that the trial court improperly awarded Alvarez $18,073.69 in costs. Western National argues that the award of $30,843.64 in costs must be reduced by this amount.
1. Factual and procedural background
The Agreement provides in relevant part:
"In the event of any dispute regarding the interpretation or enforcement of any of the terms and provisions of this Agreement, the prevailing party shall be entitled to actual attorneys' fees, expenses, and costs incurred."
In its brief in support of its motion for fees and costs, Alvarez argued that it was entitled to "$12,769.95 in costs permitted by statute and $18,073.69 in costs provided by [the Agreement] in this matter."
2. Governing law
Code of Civil Procedure section 1032, subdivision (b) provides, "Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding." Code of Civil Procedure section 1033.5 specifies items that are "allowable as costs under Section 1032."
In Hsu v. Semiconductor Systems, Inc. (2005) 126 Cal.App.4th 1330 (Hsu), the court considered whether a party may recover in a postjudgment proceeding, pursuant to a contractual cost provision, costs beyond those that are statutorily authorized in Code of Civil Procedure section 1033.5. The Hsu court noted that some courts have concluded that litigants may not "'adopt a definition of costs different from the statutory definition.'" (Hsu, supra, 126 Cal.App.4th at p. 1341, citing Fairchild v. Park (2001) 90 Cal.App.4th 919, 928-930.) Other courts have held that "litigants may contractually definecosts different from the statutory definition, although contractual costs provisions are presumed to adopt the statutory definition absent evidence to the contrary." (Hsu, supra, 126 Cal.App.4th at p. 1341, citing Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996) 47 Cal.App.4th 464, 491-492.)
Assuming that a contractual cost provision provides for a definition of costs different from that provided by statute, "Recovery of costs provided by contract must be specially pleaded and proven at trial, and not awarded posttrial. . . ." (Hsu, supra, 126 Cal.App.4th at p. 1341.) The Hsu court explained the rationale for this requirement:
"'[T]he proper interpretation of a contractual agreement for shifting litigation costs is a question of fact that "turns upon the intentions of the contracting parties." ' [Citation.] Accordingly, 'the issue must be submitted to the trier of fact for resolution pursuant to a prejudgment evidentiary proceeding, not a summary postjudgment motion.' [Citation.]" (Id. at pp. 1341-1342.)
The Hsu court also concluded that a court may not award contractual costs to a party as "an element of attorney fees under the rationale that the expenses were disbursed by the attorneys in the course of litigation." (Hsu, supra, 126 Cal.App.4th at p. 1341.) The Hsu court noted, "We disavow this court's previous adoption of that view as an unwarranted conflation of fees and costs." (Id. at p. 1342, citing Bussey v. Affleck (1990) 225 Cal.App.3d 1162, 1167 (Bussey).)
3. The cost award must be reduced by $18,073.69 because a trial court may not award contractual costs in a postjudgment proceeding
In its brief in support of its postjudgment motion for costs, Alvarez sought "$18,073.69 in costs provided by the subcontract." Even assuming that parties may agree to define costs differently from the definition provided by statute, and assuming further that the Agreement in this case provided such a definition notwithstanding its generic language, a trial court may not award, posttrial, costs that are provided by contract. (Hsu, supra, 126 Cal.App.4th at pp. 1341-1342.) Further, we reject Alvarez's argument that this court may affirm the costs award as a component of attorney fees under Bussey. (See Hsu, supra, 126 Cal.App.4th at p. 1342 [disavowing Bussey].)
Accordingly, the trial court's cost award must be reduced by $18,073.69. On remand, the court must enter a new cost award in the amount of $12,769.95.
V.
DISPOSITION
The trial court's determination that Western National is liable on Alvarez's breach of contract claim is affirmed. The trial court's determination as to Alvarez's mechanics' lien claim is reversed.
The trial court's awards of damages for contractual delays ($93,672), lost profits ($42,737), and unsigned change orders ($8,199.15) are reversed. The trial court's damages award is affirmed in all other respects.
The trial court's award of prejudgment interest is reversed in so far as the award includes interest on damages for contractual delays ($93,672), lost profits ($42,737), and unsigned change orders ($8,199.15), and interest accruing between October 18, 2002 and June 28, 2004. The court's award of prejudgment interest is affirmed in all other respects. The trial court's award of costs must be reduced by $18,073.69. The court's costs award is affirmed in all other respects.
The matter is remanded to the trial court with directions to conduct further proceedings regarding Alvarez's mechanics' lien claim and to enter a new judgment in accordance with part III.A.3, ante.
The trial court shall specify in its new judgment that Alvarez is entitled to recover against Western National damages in the amount of $492,736.84, interest to be determined by the trial court in light of the our conclusions in part III.D, ante, and costs in the amount of $12,769.95.
Each party is to bear its own costs on appeal.
WE CONCUR: McCONNELL, P. J., McINTYRE, J.