Cathedral Group v. Gen. Construction Management Co. CA4/2 (2013) · DecisionDepot
Cathedral Group v. Gen. Construction Management Co. CA4/2
California Court of Appeal Dec 9, 2013 No. E054971Unpublished
Filed 12/9/13 Cathedral Group v. Gen. Construction Management Co. CA4/2
NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION TWO
CATHEDRAL GROUP, LTD.,
Plaintiff, Cross-defendant, and E054971 Appellant, (Super.Ct.No. INC079181) v. OPINION GENERAL CONSTRUCTION MANAGEMENT COMPANY,
Defendant, Cross-complainant, and Respondent.
APPEAL from the Superior Court of Riverside County. Randall Donald White,
Judge. Affirmed.
Hill, Farrer & Burrill, Dean E. Dennis, and Neil D. Martin for Plaintiff, Cross-
defendant, and Appellant.
Roemer & Harnik, Brian S. Harnik, and Helene P. Dreyer Koch for Defendant,
Cross-complainant, and Respondent.
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I. INTRODUCTION
Respondent General 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
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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.
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II. FACTS AND PROCEDURAL HISTORY
A. Background
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.”
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.
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B. The Pre-AIA Contract Discussions
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 the project site (e.g., temporary utilities, water trucks,
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.”
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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 documentary evidence concerning the parties’ pre-AIA
contract discussions and communications was provisionally admitted into evidence over
Cathedral’s objection based on the parol evidence rule.
C. The AIA Contract Terms
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.” 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.”
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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: “If it is intended that the wages
or salaries of certain personnel 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.1 But section 7.7.1 authorizes 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.”
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
1 Section 7.2.3 authorizes payment for “[w]ages 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.”
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provided in Article 14.[2] [¶] .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.”
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.” Finally, articles 11 and 12 authorize Cathedral to audit General’s books and
records and make adjustments prior to “final payment.”
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
2Article 14, titled “Miscellaneous Provisions,” does not address the “Cost of the Work” or any off-site costs.
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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.
D. The “General Conditions Estimate”
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,” listing
General’s “General Expense[s]” and “Project Staff” expenses on monthly and six-month
bases.
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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 . . . .”
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.
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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.”
E. The Early 2007 E-mail Exchanges
Cathedral indicated 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.
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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 [sic]?” On February 2, 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.”
On March 16, Voraberger sent 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. . . .”
On March 20, Voraberger 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
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spend on our project[?] Please help me with any of these question[s] to process the
draw.” (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.”
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.”
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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.”
F. The Amounts Claimed by Each 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.
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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.
G. Decision and Judgment
Following the bench trial in 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
A. Section 7.7.1 and the Parol Evidence Rule
Cathedral initially claims the court violated the parol evidence rule in interpreting
section 7.7.1, the “other costs” 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.
1. Principles 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
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(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 “integration”—a complete and final embodiment of the terms of
an agreement—parol [i.e., extrinsic] evidence cannot be used to add to or vary its
terms.’” (Founding Members of the Newport Beach Country Club v. Newport Beach
Country Club, Inc. (2003) 109 Cal.App.4th 944, 953, italics added, quoting Masterson v.
The decision whether to admit parol evidence actually involves a two-step process:
“First, 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,
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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, 109 Cal.App.4th at p. 953.)
2. Section 7.7.1 is Reasonably Susceptible to 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. (Winet v. Price, supra, 4 Cal.App.4th at p.
1165.) Based on the terms of the AIA contract and the 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.” (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.
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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 Items” 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.
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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]ork”: (1) “[o]verhead
and general expenses”; (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 costs” not otherwise identified in the contract,
Cathedral argues section 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
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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.
3. Substantial Evidence Supports the Trial 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
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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 in
writing. (AIA 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,” 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 General’s invoices, without objection, and each invoice
included a full or partial month’s charges for estimated general conditions expenses.
22
Nasr never told General he was paying the general conditions expenses under protest or
pending an audit at the end of the job.
B. Waiver and Estoppel Were 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.” (Panno v.
Russo (1947) 82 Cal.App.2d 408, 412.)
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
23
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.” (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. (Superior Dispatch, Inc. v.
Insurance Corp. of New York, supra, 181 Cal.App.4th at p. 187.) We review the court’s
waiver and estoppel findings for substantial evidence (Panno v. Russo, supra, 82
Cal.App.2d at p. 413) and conclude 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
24
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 . . . .” 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, supra,
§ 5.249.) 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]; Panno v. Russo,
supra, 82 Cal.App.2d at pp. 411-413; Bettelheim v. Hagstrom Food Stores (1952) 113
Cal.App.2d 873, 878.)
25
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.
C. There Was No Failure of Proof on General’s Damages
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.
26
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 $401,035.85.3
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
3 We disregard the rounding error.
27
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.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
KING J.
We concur:
RAMIREZ P. J.
CODRINGTON J.
28
AI Brief
AI-generated · verify before citing
Holding. The court held that section 7.7.1 of the AIA contract was reasonably susceptible to the interpretation that it authorized payment for the contractor's estimated monthly general conditions expenses, and that substantial evidence supported the trial court's finding that the parties intended such an agreement.
Issues
Whether section 7.7.1 of the AIA contract is reasonably susceptible to the interpretation that it authorizes payment for estimated general conditions expenses.
Whether the trial court violated the parol evidence rule in its construction of the AIA contract.
Whether substantial evidence supports the trial court's finding that the parties agreed to the fixed monthly sum for general conditions.
Disposition. Affirmed
Quotations verified verbatim against the opinion
“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.”