MÁRQUEZ, J.—
This dispute arose from a public works project involving the construction of a dental clinic at the Presidio of Monterey (the Project). The owner, the United States Army Corps of Engineers (the Corps), retained JMR Construction Corp. (JMR) as general contractor for the Project. JMR, in turn, entered into various subcontracts, including separate electrical and plumbing subcontracts, with Environmental Assessment and Remediation Management, Inc. (EAR). SureTec Insurance Company (SureTec) issued separate bonds guaranteeing EAR's performance under the two subcontracts.
While the Project was ongoing, JMR (1) communicated with EAR about alleged delays, deficient and late submittals, and improper plumbing work, and (2) retained certain funds otherwise due to EAR under the subcontracts. After the Project was completed, JMR filed suit against EAR and SureTec (collectively, defendants) for breach of contract and for foreclosure of the performance bonds. JMR alleged it was damaged as a result of EAR's failure to perform under the two subcontracts. EAR filed a cross-complaint for recovery of retention funds withheld under the subcontracts.
After a court trial, JMR was awarded the net amount of $315,631, which included an offset for the retention funds JMR withheld under the subcontracts. In posttrial proceedings, the court issued an order determining JMR
EAR makes seven arguments on appeal. First, it asserts there was no substantial evidence to support the trial court's finding it was liable to JMR for delays on the Project. Second, it argues the court erred by using the Eichleay method of calculating extended home office overhead damages. Third, it asserts the court erred by utilizing the modified total cost method of calculating disruption and delay damages. Fourth, it argues the court, in its statement of decision, failed to address essential matters of fact and law. Fifth, it contends the court erred in determining JMR was entitled to attorney fees in defending the cross-complaint. Sixth, it asserts JMR was not entitled to recover its expert witness fees pursuant to section 998. And seventh, it contends the court erred by denying its motion for new trial.
SureTec contends JMR cannot prevail against SureTec because JMR failed to declare EAR in default under the subcontracts, and JMR failed to notify SureTec of any such default. It also contends the order finding JMR entitled to attorney fees on EAR's cross-complaint was improper as to SureTec. Further, it contests the award to JMR of expert witness fees under section 998. And it argues that SureTec's liability must be limited to a maximum of $471,881, the ceiling of its liability under the performance bond on the plumbing subcontract.
In the published portion of this opinion, we conclude the court did not err in its utilization of the Eichleay method to calculate extended home office overhead damages and in its use of the modified total cost method of calculating JMR's disruption and delay damages. We also hold the court did not err in finding SureTec liable under the performance bonds, concluding that formal notice of EAR's default was not a condition precedent to JMR's recovery under the bonds. In the unpublished portion of this opinion, we conclude (1) there was substantial evidence supporting the court's finding that EAR was liable to JMR for Project delays; (2) the court's statement of decision was not defective; (3) defendants' challenges to the interim, nonfinal, postjudgment order determining that JMR was entitled to recover attorney fees in defending the cross-complaint are not cognizable at this time; (4) defendants' challenges to the award of JMR's expert witness fees under section 998 are meritorious; (5) EAR's claim that the court abused its discretion in denying EAR's motion for new trial has no merit; and (6)
On April 29, 2010, JMR filed its complaint against EAR and SureTec. JMR alleged four causes of action: (1) breach of the plumbing subcontract; (2) enforcement and foreclosure on the performance bond for the plumbing subcontract; (3) breach of the electrical subcontract; and (4) enforcement and foreclosure on the performance bond for the electrical subcontract. The first and third causes of action were alleged against EAR, while the second and fourth causes of action were alleged against SureTec.
EAR filed a cross-complaint against JMR alleging breach of contract and common counts. It alleged in separate causes of action that JMR had breached the electrical subcontract and plumbing subcontract, and that as a result of these breaches, EAR had been damaged in an amount in excess of $108,913.31.
A five-day court trial took place in January 2012. After the parties submitted posttrial briefs in lieu of final argument, the court issued a ruling on April 30, 2012, finding in favor of JMR in the total amount of $379,318, which amount included a deduction of $121,893 that had been previously withheld from EAR under the subcontracts. The court further ordered that EAR take nothing on its cross-complaint.
Pursuant to the court's request, JMR submitted a proposed statement of decision in which it withdrew one of its claims and adjusted the amount of another claim, resulting in revised damages award of $315,631. The damages were derived by (1) adding five damage figures in amounts of $29,249 (air
In postjudgment proceedings (discussed in greater detail, post), the court issued an order on November 13, 2012, granting JMR's request for recovery of expert fees of $90,644.07. In the same order, the court reaffirmed a prior tentative ruling that it would award attorney fees to JMR for its successful defense of EAR's cross-complaint in an amount to be determined at a later time.
EAR asserts four challenges to the court's judgment. First, it contends there is no substantial evidence to support the court's finding that EAR breached its subcontracts with JMR. Second, it argues the court erred in using the Eichleay formula of calculating home office overhead damages. Third, it claims the court erred in applying the modified total cost method of damages in connection with alleged delay damages associated with the interior installation of metal studs and drywall (hereafter, the framing and drywall phase). And fourth, it argues the court's statement of decision was defective in that it failed to take into consideration essential matters of fact and law. We address each of these contentions below.
In the alternative to its sufficiency-of-the evidence challenge, EAR contests the court's acceptance of the Eichleay formula of recovering home office
JMR presented evidence of damages that involved four categories: (1) field overhead delay damages; (2) home office overhead (Eichleay delay damages); (3) delay damages associated with the framing and drywall phase of the Project, utilizing the modified total cost method; and (4) costs associated with EAR's failure to supply an approved air compressor. We will not summarize the air compressor damages, since they are not at issue in this appeal. But given their interrelationship with the Eichleay delay damages, we will review the evidence of field overhead damages even though those damages are not directly challenged by EAR.
Daniel Spade, JMR's project manager, testified that the Corps had rejected JMR's recovery of any extended overhead damages resulting from delays in the Project's completion. The Corps rejected these damages because there were concurrent delays caused by parties other than the Corps. At trial, JMR's construction management expert, John Elmer, explained that when the owner of a public works project causes delay, and a subcontractor or subcontractors concurrently cause delay, the owner may grant the general contractor an extension of time to complete the project, but it will not grant the general contractor compensable time (i.e., delay damages payable by the owner). Elmer testified that under such circumstances, the general contractor will typically seek delay damages from the subcontractor, under the theory that the general contractor "should have recovered compensable time, but . . . was precluded from [doing so] because of [the subcontractor's] delay."
Juan Perez, a construction expert retained by JMR, provided extensive testimony regarding JMR's delay damages attributable to EAR. Defendants did not challenge Perez's qualifications as an expert. Perez testified that he has had experience in presenting disruption claims on behalf of contractors. A disruption claim is based upon a contractor's intended performance or method of performance being impacted by another contractor or by an event, resulting in the contractor's performance being more costly because it is either done out of sequence or for an extended duration.
Perez calculated JMR's damages based upon (1) his review of the project documents, and (2) his reliance upon the opinions of John Elmer, JMR's
Perez opined that, under the two subcontracts combined, EAR was responsible for at least 75 percent of the delay damages sustained by JMR during the 142-day concurrent delay period identified by Elmer. Perez arrived at this percentage allocation after considering (a) Elmer's allocation of EAR's responsibility for concurrent delays (63 percent); (b) a determination of EAR's percentage of the total contract value of the mechanical, electrical, and plumbing trades (67 percent); and (c) the percentage of punch list items for the 142-day concurrent delay period (83 percent).
Perez also rendered the opinion that JMR sustained field overhead damages associated with EAR's concurrent delay. Field overhead costs are the costs a contractor incurs in maintaining its field operations, including cost items such as storage trailers, office trailers, and a job superintendent's salary. Perez concluded that JMR's total field overhead damages for which EAR was responsible was $161,851.33.
Perez testified that he calculated damages for JMR's home office costs (otherwise known as unabsorbed overhead costs) using the Eichleay formula. Perez explained that this formula "is a method of allocating those home office overhead costs to a project that [has] been extended or delayed." According to Perez, the Eichleay formula is the "exclusive method approved by the Federal Government to arrive at the fair compensation amount for unabsorbed overhead costs." He testified that "[b]ut for the concurrent delays on the project, the Eichleay [f]ormula would have been used by both JMR and the Government to arrive at the fair compensation amount for unabsorbed overhead costs that belonged to JMR."
JMR qualified its vice-president, Ron Rivard, as an expert witness in estimating interior framing and drywall work. Rivard had over 30 years' experience as a licensed general contractor, and approximately 35 years as an estimator in which he had estimated at least 300 jobs.
Craig Connerty, a certified public accountant with 27 years of experience, testified as an expert on JMR's behalf. JMR had been a client of Connerty's accounting firm for over 15 years. Connerty reviewed the costs posted in JMR's books allocated to the framing and drywall phase of the Project. He testified that the total costs allocated to this phase was $461,535, and he reviewed the subcategories of those costs. Connerty "did a lot of testing with regard to the accounts for reasonableness" by selecting a number of different invoices for review before arriving at the $461,535 figure. Connerty also noted that this figure should be reduced by approximately $48,200 to account for costs that, based upon his conversation with Rivard, were erroneously posted to the framing and drywall phase.
Perez offered testimony relating to disruption damages for the framing and drywall phase. In forming his opinion, Perez spoke with job superintendent Steven Hupaylo, project manager Daniel Spade, and JMR's vice-president Ron Rivard. Perez also reviewed documents identifying the costs of the framing and drywall phase; certified payroll figures indicating the number of workers on the jobsite during that phase; and other correspondence. Perez relied on Hupaylo's testimony to the effect "that every wall was impacted by EAR's performance, meaning that the impacts and the costs [were] intrinsically intertwined [and it was] difficult if not impractical or impossible to segregate [the] individual impacts." In calculating disruption damages, Perez performed a "modified total cost analysis." He described this approach as follows: "[Y]ou would take a selected portion of the contractor's costs that he incurred and subtract from that the contractor's budget for those items, removing . . . items which were not part of the original budget . . . to ensure you're comparing apples to apples."
Thus, one component of Perez's calculation was the original bid. Perez did an independent analysis of JMR's bid for the framing and drywall phase. He found that Rivard's bid contained the kind of detail indicative of a good
Perez also reviewed the "logged" costs that related to the framing and drywall phase of the Project. This amount totaled $461,534. Perez subtracted the costs that had been incorrectly allocated to the framing and drywall phase. These were the same figures identified in the testimony of JMR's accounting expert, Craig Connerty. Perez also subtracted a per diem figure associated with the erroneously posted costs. Perez then calculated the total amount of disruption damages allocable to EAR relating to the framing and drywall phase, which he determined to be $185,729.
An appellant's challenge to damages, depending upon its specific nature, may be subject to a substantial evidence, abuse of discretion, or de novo standard of review. The question of whether a plaintiff was, in fact, damaged by the defendant's breach of contract is reviewed for substantial evidence. (See GHK Associates v. Mayer Group, Inc. (1990) 224 Cal.App.3d 856, 873 [274 Cal.Rptr. 168] (GHK).) The question of whether "a certain measure of damages is permissible given the legal right the defendant has breached, is a matter of law, subject to de novo review. [Citation.]" (New West Charter Middle School v. Los Angeles Unified School Dist. (2010) 187 Cal.App.4th 831, 843 [114 Cal.Rptr.3d 504] (New West); see Hurtado v. Superior Court (1974) 11 Cal.3d 574, 579 [114 Cal.Rptr. 106, 522 P.2d 666].) But where the measure of damages is legally permissible, a trial court's choice of that measure, among other legally permissible measures of damages, is reviewed for abuse of discretion. (New West, at p. 843, citing GHK, at p. 873.)
EAR contends that neither the Eichleay formula nor the modified total cost method was legally authorized in this case. EAR does not make the further argument that, assuming the legal validity of these damage calculations, the court abused its discretion by selecting them over other legally permissible methods of computing damages. Accordingly, we review the legal propriety of the court's use of the two damages calculations de novo. In addition, EAR
As explained by the Altmayer court: "Home office overhead costs are those that are expended for the benefit of the whole business, which by their nature cannot be attributed or charged to any particular contract. [Citation.] In contracting with the government, a company necessarily includes a portion of home office overhead expenses, which it calculates based on the contract's duration, in its estimate of costs to perform the contract. [Citation.] When the government delays or disrupts contract performance, ultimately requiring that it be extended, the contractor's stream of income from the government for the direct costs it has incurred under the contract is reduced or interrupted. [Citation.] However, home office overhead continues to accrue throughout both the original and extended performance periods, regardless of direct contract activity. [Citations.] This, of course, results in a reduction or interruption of payments for overhead, especially when, as here, the contractor has prepared a critical path schedule, for any delay along the critical path results in the delay of the overall project." (Altmayer, supra, 79 F.3d at p. 1132.)
EAR argues it was improper for the court to accept JMR's proffer of the Eichleay formula to establish its unabsorbed overhead damages caused by EAR's concurrent delay. EAR asserts there is no legal precedent for applying the formula because (1) there have been no published California decisions endorsing its use, and (2) there is no legal authority authorizing its use in situations, such as here, where the defendant causing the delay was not the government. EAR also urges that Perez, JMR's expert, "admitted application of the Eichleay formula is `debated.'"
As explained in one treatise: "A building contractor whose performance is delayed by the owner may have increased overhead and fixed costs resulting from a delay and may suffer labor and material cost increases or loss of labor productivity due to delays for all of which he or she would be entitled to damages." (Cassel et al., Cal. Attorney's Guide to Damages (Cont.Ed.Bar 2d ed. 2015) § 1.49, p. 1-50.) Extended home office overhead is one type of delay damages for which a contractor may seek recovery. (See Cal. Construction Contracts, Defects, and Litigation (Cont.Ed.Bar 2015) §§ 5.107, 6.86, pp. 5-73, 6-80; Gibbs & Hunt, Cal. Construction Law (17th ed. 2011) Construction Claims, § 6.07[F], p. 441.)
We acknowledge there are no reported California appellate decisions approving the use of the Eichleay formula. In the only reported California case addressing the formula, the appellate court did not decide the legal propriety of its use because the municipality against which such damages were sought did not dispute the formula's general applicability to construction delay claims. (See Howard Contracting, Inc. v. G. A. MacDonald Construction Co. (1998) 71 Cal.App.4th 38, 53 [83 Cal.Rptr.2d 590].)
That the circumstances of this case are different from those in which Eichleay damages are typically discussed in reported decisions—i.e., the general contractor seeking delay damages from a subcontractor, rather than from a governmental agency/owner—does not preclude use of the formula. JMR presented unrebutted testimony from Daniel Spade that because there were concurrent delays, the Corps rejected JMR's effort to recover extended overhead damages from the Corps. And JMR's construction management expert, John Elmer, testified that when the owner of a public works project causes delay, but a subcontractor or subcontractors concurrently cause delay, the owner may grant the general contractor additional time but it will not grant the general contractor compensable time (i.e., delay damages). Elmer testified that under such circumstances, the general contractor will typically seek delay damages from the subcontractor under the theory that the general contractor "should have recovered compensable time, but . . . was precluded from [doing so] because of [the subcontractor's] delay." (See William F. Klingensmith, Inc. v. U.S. (Fed.Cir. 1984) 731 F.2d 805, 809 [contractor generally denied recovery for government-caused delays where there are concurrent delays and absent "`proof a clear apportionment of the delay and expense attributable to each . . .'"]; Gibbs & Hunt, Cal. Construction Law, supra, Construction Claims, § 6.07[E], p. 440 [where owner causing project delays shows that "simultaneous cause of delay was the contractor's own mismanagement of the project," and delays "contributed to or overlapped the owner caused delays, then they may be considered concurrent and may be treated as noncompensable delays"].) EAR presented no expert testimony of its own to rebut JMR's expert testimony concerning Eichleay damages.
JMR presented evidence, through Perez, concerning JMR's inability to obtain other work. Perez's expert testimony was based in large part upon his conversations with Rivard and JMR's bonding agent, Sharon Rusconi. Perez testified that JMR was a woman-owned business that received work on Small Business Administration "Section 8A" projects. Such projects are not strictly bid competitively; contract awards are largely dependent on the contractor's ratings. Perez testified that as a result of Project delays during the 142-day concurrent delay period, JMR's rating was downgraded to marginal. This rating downgrade negatively impacted JMR's ability to obtain new work. Rivard informed Perez that during the period of November 2007 through sometime in 2008, JMR could not obtain a bid bond. JMR was thus precluded from bidding on public projects and could not get other work.
This evidence constituted substantial evidence of the third Eichleay prerequisite, i.e., "that [JMR] was unable to take on other work. [Citation.]" (Altmayer, supra, 79 F.3d at p. 1133.) Accordingly, EAR's claim that there was insufficient evidence supporting application of the Eichleay formula fails.
EAR, citing Amelco, supra, 27 Cal.4th at page 243, contends the total cost method of computing damages "is generally disfavored" under the law. Although not favored, the total cost method—along with its subcategory, the modified total cost method—has been recognized in California as an appropriate way of computing damages. (See, e.g., Guy F. Atkinson Co., supra, 187 Cal.App.3d at p. 32; [231 Cal.Rptr. 382]; C. Norman Peterson Co. v. Container Corp. of America (1985) 172 Cal.App.3d 628, 646-647 [218 Cal.Rptr. 592]; see also CACI No. 4541.) Further, although our high court in Amelco—because the municipality did not contest the issue—declined to decide whether the total cost formula was an appropriate method of calculating damages in a breach of a public contract case (Amelco, at p. 242), the Second District Court of Appeal, Division Two, concluded that the Amelco court in fact upheld common law principles "permit[ting] a public contractor to pursue either a total cost theory or a modified total cost theory." (Dillingham-Ray Wilson, supra, 182 Cal.App.4th at p. 1408.) The court reached this conclusion because Amelco cited Guy F. Atkinson, supra, 187 Cal.App.3d 25,
The California Supreme Court has emphasized that one of the major concerns in the use of the total cost method is that it not be used as "`a substitute for proof of causation' [citation]." (Amelco, supra, 27 Cal.4th at p. 244.) Here, there was substantial evidence of a causal connection between the extra cost JMR incurred in the Project's framing and drywall phase and EAR's breach of contract. Moreover, the cautionary statement in Amelco that the total cost method "`should be applied only to the smallest affected portion of the contractual relationship that can be clearly identified' [citation]" was heeded: JMR used the modified total cost method to calculate damages related only to the framing and drywall phase of the Project, not to damages related to the entire Project. (Ibid.)
EAR also contends there was a lack of evidence to support a finding of the four prerequisites recited in Amelco (hereafter the Amelco elements) for use of the modified total cost method. As we discuss below, the trial court specifically addressed each of the Amelco elements in its statement of decision, and substantial evidence supported the court's conclusions that JMR established each element.
The trial court specifically found JMR had established the first Amelco element—"the impracticality of proving actual losses directly." (Amelco, supra, 27 Cal.4th at p. 243.) In so concluding, the court cited the testimony of JMR's job superintendent, Steven Hupaylo, which it found credible. As the court stated, Hupaylo had testified that JMR had a good design for performing the framing and drywall work, but he (Hupaylo) "had to wait for EAR to complete its rough-in work before he could complete the walls, and, because of EAR's delays, he never had all four walls and a ceiling in any room to work with." The trial court concluded: "Consequently, the disruption occurred throughout the entire period of that work, was not confined to one particular section or time, so [it] could not be tracked specifically as the disruption occurred." Furthermore, Perez testified, based upon Hupaylo's testimony, that because "every wall was impacted by EAR's performance, [this] mean[t] that the impacts and the costs are intrinsically intertwined [and it is] difficult if not impractical or impossible to segregate [the] individual impacts."
The trial court also found JMR had established the second Amelco element, i.e., the reasonableness of its bid. (Amelco, supra, 27 Cal.4th at p. 243; see Gibbs & Hunt, Cal. Construction Law, supra, Construction Claims, § 6.14[A], p. 471 [stressing the importance of accuracy of bid estimate to contractor's claim under total cost method].) The court noted that (1) Rivard, as an expert experienced in estimating, testified concerning his methodology
Likewise, the court concluded JMR's actual costs for the framing and drywall phase were reasonable—the third Amelco element. (Amelco, supra, 27 Cal.4th at p. 243.) In concluding that "the actual costs were reasonable and accurately recorded," the trial court cited to the testimony of JMR's experts, Connerty and Perez. It noted that Connerty reviewed JMR's costs associated with the framing and drywall phase, and that Connerty's work was "substantial." The trial court indicated that Connerty "did not just accept JMR's numbers; he [`]did a lot of testing['] of the accounts for reasonableness by actually reviewing a number of invoices, and conducted an independent analysis."
Finally, the trial court found JMR was not responsible for the added costs—the fourth Amelco element. (Amelco, supra, 27 Cal.4th at p. 243.) It concluded EAR was solely at fault for the disruption in the completion of the framing and drywall phase. The court cited the testimony of Hupaylo that because of EAR's delays in "not having materials, not having skilled people, and sometimes not having any people working at all, JMR's crews had to work piecemeal" and in an inefficient manner to complete the work. The court "accept[ed] the testimony of Steve Hupaylo as accurate." It also relied on Perez's testimony that, based upon his review of certified payroll records, "the number of [EAR] workers reported on the certified payroll corresponded with the low percentage of completion." Perez also testified that EAR's rough-in work took four months to complete, notwithstanding that EAR had scheduled 34 days for the work. The trial court agreed with Perez's "conclusion that . . . JMR was confronted with the incomplete work and stacking of trades, which disrupted its efficiency."
EAR points to testimony it presented to suggest that JMR's cost overruns were due to its hiring of expensive out-of-town labor and the high level of quality required for the drywall finish. But the trial court rejected these arguments. The court indicated in its statement of decision that "Pendurthi's contrary conclusory explanations [regarding the framing and drywall disruption we]re not credible," and the court found Pendurthi's "testimony weak and unreliable." Moreover—as was the case with JMR's presentation of Eichleay damages—EAR offered no expert testimony to contradict JMR's showing that the modified total cost method was appropriate for calculating its damages associated with the framing and drywall phase.
Lastly, EAR contends the disruption damages awarded by the court were "admittedly inaccurately calculated" because they failed to account for a $90,000 miscoding error about which Rivard testified. This argument relates to cross-examination in which defendants' counsel asked if Rivard had given prior deposition testimony to the effect that there was an approximate $90,000 miscoding of costs that were not related to the framing and drywall phase of the Project. Defendants raised this issue twice in their posttrial briefing. The trial court addressed this contention in its statement of decision. The court concluded that Rivard's deposition testimony concerning the "$90,000 coding overcharge" was essentially superseded by testimony from Perez and Connerty that, shortly before trial, Rivard advised them that the adjustment for miscoded items was approximately $48,200.
We thus conclude there was no legal impediment to JMR's use of the modified total cost method of calculating its damages associated with the framing and drywall phase of the Project. The trial court was justified in concluding that JMR had established each of the four Amelco elements required for utilizing this method. (Amelco, supra, 27 Cal.4th at p. 243.) The fact that the damages claimed using this formula may have only been a reasonable approximation of JMR's loss associated with this phase of the Project is not an obstacle to its use, since the fact of such damages was established by substantial evidence. (Acree, supra, 92 Cal.App.4th at p. 398.)
SureTec contends the trial court erred in finding it liable under the performance bonds because JMR failed to give it (SureTec) notice of EAR's default under the subcontracts. SureTec argues that a "declaration of default was a condition precedent to SureTec's liability." It also argues that, looking at the language of the bonds as a whole, there was an implied requirement that JMR provide a notice of default to SureTec as a condition precedent to SureTec's liability under the bonds.
There was undisputed evidence, based upon Rivard's testimony, that JMR did not formally declare EAR in default under either subcontract. Nor did JMR ask SureTec to complete the bonded work under either subcontract. At trial, Cynthia Vincent, a SureTec vice-president, testified that SureTec received no notice of any default under the plumbing or electrical subcontracts. She also testified that SureTec was not given the opportunity to complete work under either subcontract, and that JMR never asked SureTec to obtain new plumbing or electrical subcontractors.
"The existence of a condition precedent normally depends upon the intent of the parties as determined from the words they have employed in the contract. [Citation.]" (Realmuto v. Gagnard (2003) 110 Cal.App.4th 193, 199
Resolution of SureTec's contention that a notice of default was a condition precedent to its liability requires an independent review of the trial court's interpretation of the bonds, since no extrinsic evidence was introduced by the parties on that question. (Campbell v. Scripps Bank (2000) 78 Cal.App.4th 1328, 1336 [93 Cal.Rptr.2d 635]; see Airlines Reporting Corp. v. United States Fidelity & Guaranty Co. (1995) 31 Cal.App.4th 1458, 1461 [37 Cal.Rptr.2d 563] [appellate court reviews interpretation of bonds de novo].)
Each subcontract here requires EAR to furnish JMR, as the named obligee, a performance bond and a payment bond "to secure the faithful performance of the Subcontract Work and to satisfy all Subcontractor payment obligations related to the Subcontract Work." On November 10, 2006, SureTec issued separate performance bonds for EAR's electrical subcontract and its plumbing subcontract, listing the penal amounts of the bonds as $732,500 and $471,881, respectively. Each performance bond specifically incorporates by reference the respective subcontract for which the bond was issued.
The one-page "Articles" of the two performance bonds contain identical language. Article 1, containing the heading "SCOPE OF BOND," states: "The Principal [EAR] and the Surety [SureTec], jointly and severally, bind themselves . . . to the Obligee [JMR] for the performance of the Subcontract." Under the heading "EFFECT OF OBLIGATION," Article 2 provides: "If the Principal performs the Subcontract, then this bond shall be null and void; otherwise it shall remain in full force and effect." Article 4, under the heading "PRINCIPAL DEFAULT," provides: "Whenever the Principal shall be, and is declared by the Obligee to be in default under the Subcontract, with the Obligee having performed its obligations in the Subcontract, the Surety may promptly remedy the default, or shall promptly" (1) "[c]omplete the Subcontract in accordance with its terms and conditions"; (2) retain a new subcontractor to complete the Principal's work under the subcontract; (3) pay the Obligee the amount for which the Surety is liable; or (4) deny liability in whole or in part, providing an explanation for doing so.
Each subcontract details JMR's right to deduct or withhold payments to EAR, and JMR's rights in the event of EAR's breach. Furthermore, each subcontract specifically requires JMR to provide written notice to EAR in a number of circumstances. Those circumstances include where (1) JMR elects to deduct from amounts otherwise due to EAR any sums EAR owes JMR; (2)
SureTec implicitly acknowledges that neither performance bond expressly provides that JMR must give notice to SureTec of EAR's default as a condition precedent to SureTec's liability. But it asserts that "[a] contractual provision need not be expressly labeled `condition precedent' to be treated as such. Rather, whether a provision is a condition precedent is to be determined from the whole contract, its purpose, and the intention of the parties." Quoting from Wal-Noon Corp. v. Hill (1975) 45 Cal.App.3d 605, 611 [119 Cal.Rptr. 646] (Wal-Noon), SureTec contends the default notice as a condition precedent "`may be necessarily implied in the language of [the] contract. . .'" Applying principles of contract interpretation, we conclude that JMR was not required to give SureTec notice of EAR's default as a condition precedent to SureTec's liability on the bonds.
The only notice language in the bonds is found in Article 3, where SureTec expressly "waive[d] notice of any alteration or extension of the Subcontract, including but not limited to the Subcontract price and/or time, made by the Obligee [JMR]." And the default provisions in the subcontracts—incorporated by reference into the bonds—include requirements in several instances that JMR give notice to EAR without any similar requirement of giving notice to SureTec. Thus, the bonds do not contain the requisite "clear, unambiguous language" (Alpha Beta Food, supra, 45 Cal.2d at p. 771) that would support a finding that JMR was required to provide a notice of default to SureTec as a condition precedent to liability under the bonds.
Pacific Allied v. Century Steel Products (1958) 162 Cal.App.2d 70 (Pacific Allied) is instructive. There, the defendant (Century) agreed to fabricate and sell steel forms to the plaintiff (Pacific) for the purpose of using them to install storm drains. (Id. at p. 72.) Century also guaranteed that
Here, as in Pacific Allied, there was no language expressly conditioning SureTec's performance under the bonds upon receipt of a notice of default from JMR. In Pacific Allied, there was an express agreement by the plaintiff to provide some level of notification (a detailed cost breakdown) to the defendant. Here, there was no such express covenant requiring JMR to provide any notice to SureTec.
SureTec contends that, notwithstanding Article 1, its obligation here was discharged under Article 2 of the performance bonds, which reads: "If the Principal performs the Subcontract, then this bond shall be null and void; otherwise it shall remain in full force and effect." SureTec asserts that because EAR performed its obligations by completing its work under the subcontracts, the bonds became "null and void" under Article 2. This contention has no merit.
Thus, for instance, in State Bd. of Equalization v. Balboa Ins. Co. (1978) 89 Cal.App.3d 499 [155 Cal.Rptr. 205], the surety was held liable on sales tax surety bonds after the principal's default, notwithstanding the obligee's (State Board of Equalization's) failure to make demand for payment or its failure to include the surety on a notice of lien. (Id. at pp. 503-504.) The court explained that when the surety executed the surety bonds, "it did not put
We read the performance bonds together with the subcontracts to which they relate in ascertaining the intentions of the parties. (Cates Construction, supra, 21 Cal.4th at pp. 39-40.) A number of provisions in the EAR subcontracts require JMR to give notice to EAR; none of these provisions requires notice to SureTec. The performance bonds themselves contain no
We conclude the performance bonds did not require JMR to give notice of default to SureTec as a condition precedent to recovery under the bonds. Any interpretation of the bonds as implying such a condition precedent would be contrary to (1) suretyship principles (see Civ. Code, §§ 2806, 2807), and (2) the principle that conditions precedent should not be implied unless the construction is compelled by the clear language of the agreement, particularly here, where such an implied condition would result in a forfeiture. (Alpha Beta Food, supra, 45 Cal.2d at p. 771.)
III.-VI.
The judgment is affirmed. The postjudgment order of November 13, 2012, awarding expert witness fees to JMR pursuant to Code of Civil Procedure
Rushing, P. J., and Elia, J., concurred.