Decisions Pursuant to Rule 1:28.
Amended judgment affirmed.
ss In an August 31, 1995 letter to Ratcliff, TJEG requested $234,067 in additional compensation for construction administration from June 1994 through August 1995, and projected $96,536 in additional construction administration fees for September 1995 to February 1996, for a total of $330,603. Fred Jacob discussed this letter with Thurston, who agreed on TJEG's methodology for calculating the additional fee request. Ratcliff directed TJEG to perform all of the additional construction administration work and TJEG performed the work. On December 31, 1995, TJEG invoiced Ratcliff $330,603 for unpaid contract administration services.
In June 1996, Ratcliff and the County executed a contract amendment (Ratcliff/County Amendment No. 3) that increased Ratcliff's Basic Services fee by $400,000 for contract administration plus a separate $50,000 Extra Services allowance intended for TJEG. The amendment also stated, "Approval of this Amendment settles any and all claims by [Ratcliff] which have been previously submitted regarding the Contract Administration of Phases I through III." The County's representative, Countryman, testified that as part of an amendment to the Ratcliff/County Contract the County had approved about $200,000 for TJEG's services, which he assumed was part of the $400,000 figure in Ratcliff/County Amendment No. 3. TJEG's expert Zion opined that Ratcliff violated its duty of care to TJEG when it negotiated additional construction contract administration fees from the County for itself, waiving further claims, but failed to request adequate fees to cover TJEG's additional construction administration costs.
In August 1996, Ratcliff and TJEG executed an amendment to the Ratcliff/TJEG Contract (Ratcliff/TJEG Amendment No. 3), which provided $50,000 in additional compensation to cover the expense of a TJEG employee's attendance at a weekly meeting with contractors through October 1997. This $50,000 in compensation was in addition to the $16,000 a month in additional costs encompassed in TJEG's already outstanding fee request. TJEG did not intend to waive its claim for those fees by signing Amendment No. 3.
In the August 1997 Purple Book, Ratcliff omitted its own construction contract administration fee requests because Kit Ratcliff concluded the $400,000 it had received under Ratcliff/County Amendment No. 3 "was the best deal we were going to get." The Purple Book, however, did include TJEG's construction administration claims for $244,184 for June 1994 to December 1996; $145,083 for January to June 30, 1997, and $88,640 in projected costs for July to December 1997 for a total of $477,907.
A summary table of the design team's requests for additional compensation in the Purple Book identifies TJEG's contract administration costs for this period as $86,640 rather than $88,640. However, Ratcliff's executive summary in the Purple Book identifies the sum as $88,640 and supporting documentation for the claim in the Purple Book (including a tally of individual TJEG employees' projected labor hours and costs) identify the figure as $88,640. When considered in its entirety, the trial court could reasonably find that the Purple Book asserted an $88,640 claim and the lower amount in the summary table was a typographical error.
In December 1997, Ratcliff and the County executed another contract amendment (Ratcliff/County Amendment No. 4) that extended the construction administration services authorized in Ratcliff/County Amendment No. 3 for three months and increased Ratcliff's compensation by another $111,666. Ratcliff/County Amendment No. 4 again stated, "Approval of this Amendment constitutes full and final settlement of any and all claims for the provision of services under [the provisions regarding the construction contract administration phase] as contained in the [Ratcliff/County Contract] and the [Ratcliff/County Amendment No. 3]." Also in December 1997, Ratcliff and TJEG executed a contract amendment (Ratcliff/TJEG Amendment No. 5) that increased TJEG's fee by $21,000 for contract administration fees from November 1997 through January 1998.
Before trial, TJEG tallied all of the hours it spent on contract administration on the Project from June 1994 through March 1998. The total with escalation was $848,285. TJEG had been paid $265,995 that had been budgeted for construction contract administration in the original contract, $50,000 under Ratcliff/TJEG Amendment No. 3, and $21,000 under Ratcliff/TJEG Amendment No. 5. It sought an award of the remaining balance of $511,290.
Additional/Extra Services
David Sasai, TJEG's Project coordinator, testified that Ratcliff directed TJEG to perform several Additional Services as defined in the Ratcliff/TJEG Contract during the Project. Sasai's practice on receiving such a request from Ratcliff was to document the request, price it in consultation with the various disciplines within TJEG, review the price estimate with Ted or Fred Jacob, and then submit the price documentation to Ratcliff. Ratcliff would direct TJEG to perform Additional Services either orally, by change order, or by providing documents that showed changes. Ratcliff never told Sasai that TJEG needed written authorization before performing the requested Additional Services or that it would not be paid in the absence of prior written authorization. Ted Jacob testified similarly. When Ratcliff directed TJEG to proceed with Additional Services without providing written authorization, TJEG documented the scope of work and a fee proposal for the request and presented it to Ratcliff for signature and approval. Ratcliff never told TJEG not to proceed with this work.
Among Additional Services claims included in the May 1995 Red Book, 17 of these claims were pursued by TJEG at trial. While Ratcliff was preparing the Red Book, Sasai met with Thurston at Ratcliff to discuss these Additional Services requests. Sasai and Thurston discussed the additional work performed by TJEG, and Sasai testified that Thurston agreed that the requested fees represented the fair value of the work. Thurston did not contend that TJEG would not be paid because it had not received prior written authorization for the work. Sasai's testimony was that Ratcliff had directed TJEG to perform all of this work; that TJEG had performed the work; that Ratcliff had never told TJEG to stop performing the work; and that Ratcliff never said TJEG would not be paid because it had not received prior written authorization.
The Red Book identified the 17 Additional Services-items as (1) increase in the number of bid packages ($44,880), (2) value engineering ($38,250), (3) additional phasing drawings ($32,640), (4) increase in site lighting ($12,500), (5) change in airflow and infection control for clinic building ($10,410), (6) relocation of dishwasher ($7,370), (7) equipment changes in the hospital ($16,000), (8) implementation of measures necessary to obtain utility rebates ($6,935), (9) uninterruptable power supply for main computer room ($11,745), (10) relocation of an emergency generator ($1,890), (11) coordination of telecommunication data systems ($6,685), (12) implementation of state energy commission recommendations ($12,265), (13) addition of emergency power to the clinic building ($11,380), (14) presentation about intercom safety and nurse call systems ($5,800), (15) change in lighting for computer room ($1,200), (16) revision of telephone systems ($3,200); and (17) design of fiber optic charting technology ($2,800). All of these Additional Services were also identified in TJEG's December 31, 1995 invoices to Ratcliff. These 17 fee requests totaled $225,950.
In May 1997 letters to Ratcliff, TJEG requested $10,850 for Additional Services performed to address a problem with the seismic bracing of above-ground piping from the central plant; $16,940 in fees for Additional Services performed to address a problem with the generators; and $36,460 in fees for Additional Services performed to address a problem with the installation of equipment and piping in the central plant. TJEG and Ratcliff agreed on this scope of work and that the requested amounts represented the fair and reasonable value of the work. Ratcliff never objected to the May 1997 letters. TJEG also incurred $55,890 in reimbursable costs above what had been budgeted as part of its fee.
The August 1997 Purple Book prepared by Ratcliff included all 17 Additional Services claims that had been included in the Red Book, the three Additional Services requests reflected in the May 1997 letters, as well as the $55,890 request for reimbursables, for a total of $346,030. Contract Termination
The sum of the 17 Additional Services claims ($225,950), the three requests made in May 1997 ($10,850 plus $16,940 plus $36,460, equaling $64,250), and the $55,890 request for reimbursables is $346,090. The total in the Purple Book is $60 less than this figure because in the Purple Book Ratcliff claimed only $36,400 for Additional Services performed to address a problem with the installation of equipment and piping in the central plant. In the Purple Book, the May 1997 requests and the $55,890 request for reimbursables total $120,080.
As noted above, Ratcliff terminated its contract with the County in March 1998, because of the ongoing disputes about the fee claims books and because of the stress of the construction contract administration work. The termination agreement was signed in May 1998.
On or about March 15, 1998, TJEG sent a series of "final invoices" to Ratcliff for TJEG's work on the Project to date based on fees that had been approved in the original contract or by contract amendment. The invoices credited fees that had been previously billed for work that was never performed because of the early termination. By submitting the invoices, TJEG asserted that it did not intend to waive its right to be paid for construction administration, the change in the Basic Services scope of work from the KMD study, or Additional Services it had performed and it continued to pursue those claims. Ratcliff never indicated in 1998 or 1999 that by submitting these invoices TJEG had settled and disposed of all of its claims. Ratcliff later paid TJEG for other items not included in these invoices and not expressly authorized in the Ratcliff/TJEG Contract or its amendments.
II. PROCEDURAL HISTORY
TJEG filed this lawsuit against Ratcliff in January 1999. The trial court granted Ratcliff's motion for judgment on the pleadings. A jury found in favor of TJEG on Ratcliff's cross-complaint. In TJEG I, we affirmed the judgment on Ratcliff's cross-complaint but reversed the judgment on TJEG's complaint. We concluded that "ambiguities exist as to material terms of the contract so as to render the judgment on the pleadings erroneous. [¶] . . . [¶] . . . Contrary to Ratcliff's argument, the [contract] amendments do not conclusively establish that they resolved all outstanding claims by TJEG. . . . [T]he amendments do not on their face establish that TJEG was not entitled to further compensation for `additional services' or other basic services beyond the original scope of the basic services provided for in the Ratcliff/TJEG contract, [¶] Moreover, as TJEG asserts, the amendments to the Ratcliff/TJEG contract do not state that they resolve all pending claims for payment by TJEG." ( TJEG I, supra, A105617.) Further, "`Additional services' is not defined and such additional services are not enumerated in either the Ratcliff/TJEG contract or the Ratcliff/County contract. . . . [T]he Ratcliff/TJEG contract is ambiguous as to whether such additional services by TJEG must be authorized by both the County and Ratcliff or solely by Ratcliff. . . . In addition, assuming County approval was required, the Ratcliff/TJEG contract is ambiguous as to which party was obligated to obtain that authorization. . . . Of course, if TJEG's contractual interpretation is correct, TJEG would be entitled to rely on the assumption that before Ratliff directed it to perform some additional service, Ratliff had obtained the County's approval." ( Ibid., fn. omitted.)
This early procedural history is recited in our opinion TJEG I, supra, A105617.
After remand, TJEG filed a second amended complaint asserting causes of action for breach of contract, breach of implied contract, breach of the covenant of good faith and fair dealing, and quantum meruit. The contract causes of action went to trial before a jury, with the trial court interpreting the contract and instructing the jury on its application. In closing argument, TJEG asked the jury to award it $312,548 for work caused by the increased basic scope of work on the Project (the $395,630 claim in the Red and Purple Books minus $83,082 [21 percent] for work that was also included in TJEG's construction administration claim); $511,290 for unpaid construction contract administration work; and $346,090 for uncompensated Additional Services work it performed. The total amount of TJEG's claim was $1,169,928. The jury returned a general verdict in TJEG's favor for $1,080,698.
See footnote 9, ante.
After trial, TJEG moved to dismiss its quantum meruit cause of action without prejudice. The trial court dismissed the claim with prejudice. TJEG also moved for an award of prejudgment interest. Over Ratcliff's opposition, the trial court granted the motion and awarded $1,278,675 in prejudgment interest pursuant to Civil Code section 3287, subdivision (a), and an alternative discretionary award of $1,017,657 in prejudgment interest pursuant to Civil Code section 3287, subdivision (b). The court entered judgment in the amount of $2,359,373 (the jury's award of $1,080,698 plus prejudgment interest of $1,278,675).
Ratcliff filed a motion for judgment notwithstanding the verdict and a motion for a new trial relying in part on alleged errors in the jury instructions. The court denied both motions.
TJEG moved for an award of attorney fees under the parties' contract and pursuant to statute. The court granted the motion and awarded $2,253,411.97 in attorney fees.
Ratcliff appeals from the judgment, from the order denying its motion for judgment notwithstanding the verdict, and from the award of attorney fees. TJEG has filed a "protective cross-appeal" from the order dismissing its quantum meruit claim with prejudice.
III. DISCUSSION
Ratcliff challenges the judgment on the grounds that the jury instructions were argumentative, contradictory and confusing. It further contends that the award of prejudgment interest was unauthorized because TJEG's claims were neither certain nor capable of being made certain by calculation. We reject both arguments and affirm the judgment.
Ratcliff challenges the award of attorney fees and costs solely on the ground that it must be reversed if the judgment or prejudgment interest award is reversed. Because we affirm the judgment and award of prejudgment interest, we affirm the award of fees and costs as well. We dismiss TJEG's protective cross-appeal as moot. We also deny Ratcliff's January 26, 2010 motion to strike new contention in cross-appellant's reply brief as moot.
A. Jury Instructions
Ratcliff argues the trial court erred in providing the jury with argumentative and contradictory instructions. It contends that the instructions precluded fair consideration of Ratcliff's primary defense that the only valid and enforceable contract between Ratcliff and TJEG was exclusively incorporated in the agreement signed by both parties on August 13, 1993, and in its five written amendments.
The major flaw in this argument is that the issue of contract interpretation was never submitted to the jury. The court ruled that it would provisionally admit evidence to support the parties' conflicting interpretations of the contracts, and would submit special interrogatories to the jury if it became necessary for it to resolve such issues. The trial court ultimately found no conflicting extrinsic evidence requiring jury resolution, interpreted the contract as a matter of law on the basis on the evidence, and instructed the jury accordingly. The court concluded the contract was not integrated, that it consisted of writings in addition to those identified by Ratcliff, and that it did not require TJEG to confirm the County's approval of additional work before it performed that work. Because these issues were settled as far as the jury was concerned, the alleged instructional errors could not have misled the jury into rejecting contrary theories. In any event, Ratcliff fails to make any showing of a reasonable probability that any errors in the instructions affected the jury's verdict.
1. Standard of Review
"The propriety of jury instructions is a question of law that we review de novo. [Citation.]" ( Cristler v. Express Messenger Systems, Inc. (2009) 171 Cal.App.4th 72, 82 [ 89 Cal.Rptr.3d 34].) In Soule v. General Motors Corp. (1994) 8 Cal.4th 548 [ 34 Cal.Rptr.2d 607, 882 P.2d 298] ( Soule), the California Supreme Court definitively held, "[T]here is no rule of automatic reversal or `inherent' prejudice applicable to any category of civil instructional error, whether of commission or omission. A judgment may not be reversed for instructional error in a civil case `unless, after an examination of the entire cause, including the evidence, the court shall be of the opinion that the error complained of has resulted in a miscarriage of justice.' (Cal. Const., art. VI, § 13.) . . . [¶] Instructional error in a civil case is prejudicial `where it seems probable' that the error `prejudicially affected the verdict.' [Citations.]" ( Soule, at p. 580.)
Ratcliff argues that a more lenient standard for reversal applies when jury instructions are internally inconsistent or contradictory as opposed to flatly erroneous. Citing Henderson v. Harnischfeger Corp., Ratcliff argues reversal is required on a showing that contradictory instructions possibly affected the verdict. ( Henderson v. Harnischfeger Corp. (1974) 12 Cal.3d 663, 671 [ 117 Cal.Rptr. 1, 527 P.2d 353] ( Henderson).) In Soule, however, the Supreme Court clearly held that its "adoption of [the aforementioned] uniform test for civil instructional error disposes of [the] contention that we must find the erroneous [instruction in this case] prejudicial because it raises a mere possibility that the jury's verdict was based on an incorrect legal theory. (See, e.g., [citation]; Henderson[, at pp.] 671-674 . . . ; [citation].) The oft-repeated maxim that an appellate court may not `speculate' on the instructional basis of a general verdict cannot mean that a civil judgment must invariably be reversed unless the record explicitly shows that the jury did not rely on the erroneous theory. Such a rigid rule would be at odds with People v. Watson [(1956) 46 Cal.2d 818, 836-837 [ 299 P.2d 243]], which sought to eliminate the notion that the `mere possibility' of prejudice from trial error warrants reversal under article VI, section 13 of the California Constitution. . . ." ( Soule, supra, 8 Cal.4th at p. 581, fn. 11.) The court noted that article VI, section 13's reference to "`misdirection of the jury' . . . logically includes every kind of instructional error. It seems manifest that incorrect, ambiguous, conflicting, or wrongly omitted instructions may equally `misdirect' the jury's deliberations." ( Soule, at p. 579, italics added.)
We apply Soule's "uniform test for civil instructional error," which asks if it is reasonably probable the error affected the verdict.
2. Interpretation of the Contract
Before trial, the court informed the parties that issues of contract interpretation were questions of law that the court would decide based on the written terms of the parties' contract and any relevant extrinsic evidence presented at trial (subject to the jury's resolution of factual conflicts in the extrinsic evidence). The jury would decide issues of breach and damages.
At the close of TJEG's case, the court heard argument on Ratcliff's motion for nonsuit, and focused on the issue of TJEG's right to claim additional fees for Basic Services under the Ratcliff/TJEG Contract. Among other things, Ratcliff argued that TJEG's claims for additional work based on an increase in the basic scope of work on the project (including the additional contract administration claims) were precluded by the incorporated provisions of paragraph 5 of the Ratcliff/County Contract, and that paragraph 5.05 ("Substantial changes in the Project's scope shall provide sufficient basis for renegotiation of [Ratcliff's] fee.") was an unenforceable agreement to agree. TJEG argued that, under the authority of Coleman Engineering Co. v. North American Aviation, Inc. (1966) 65 Cal.2d 396 [ 55 Cal.Rptr. 1, 420 P.2d 713] ( Coleman), such contract modifications were within the contemplation of the parties, enforceable even in the absence of prior agreement on price or cost, and required the parties to negotiate in good faith for an appropriate adjustment.
In Coleman, the parties' contract (which consisted of purchase orders) included a provision that, "`Buyer reserves the right at any time to make changes in drawings and specifications. . . . In such event there will be made an equitable adjustment in price and time of performance mutually satisfactory to Buyer and Seller. . . .'" ( Coleman, supra, 65 Cal.2d at p. 400.) When changes later occurred, the plaintiff requested an adjustment in both the price and the time for performance. ( Id. at p. 401.) Negotiations on a new fee were unsuccessful, and the plaintiff stopped working on the project. The defendant argued that the plaintiff's termination of work was a breach. ( Id. at pp. 401-402.) The Supreme Court held, "[T]he effect to be given to the provision for adjustment of price to the mutual satisfaction of the parties [i.e., an agree-to-agree provision] should not be determined merely from the written agreement itself but should depend upon the changes requested. . . . Undoubtedly, if the subsequent changes are minor or of not great magnitude the contractor must perform and obtain a subsequent judicial determination as to the price of the changes. However, where the changes are of great magnitude in relation to the entire contract, the contractor must negotiate in good faith to settle the price [citation], and where he has done so, he is not required to continue performance in the absence of an agreement as to the price." ( Id. at p. 406.) TJEG argued that Coleman "doesn't say you have to stop working[.] . . . [If] you keep working you are going to get your recovery at the end on the contract." The court found Coleman to be controlling authority.
The trial court ultimately provided special jury instructions on the meaning of the parties' contract. The trial court first instructed the jury that: "The written contract admitted in evidence as Exhibits 57 [Ratcliff/TJEG Contract] and 37 [TJEG's August 11, 1993 letter and enclosures, which included TJEG's August 13 and 17, 1992 letters to Ratcliff], as amended by the parties, governs the rights and duties of the parties. It is my job as judge to interpret the meaning of this contract, and therefore, I will tell you what the contract means. [Ratcliff] and [TJEG] entered into a consulting agreement whereby [TJEG] agreed to perform mechanical, electrical, and plumbing design services, as required in the agreement, based on the [KMD] report. [Ratcliff] agreed to pay [TJEG] a fixed fee for those services. [TJEG] was required to perform Basic Services for the mechanical, plumbing, fire protection, and electrical portions of the Project in accordance with the consulting agreement, and in accordance with [Ratcliff's] agreement with the [County] insofar as it required Basic Services for the mechanical, electrical, and plumbing systems. . . ."
The trial court then provided what hereafter will be referred to as the " Coleman instruction": "The contract provides methods for an adjustment in the contract price; one method for Basic Services and one method for Additional Services. For Basic Services, the agreement requires [TJEG] and [Ratcliff] to negotiate in good faith for an appropriate adjustment in fee if there is a substantial change in the scope of the Project. If an agreement on an adjustment in fee was reached, [TJEG] was required to perform the substantial change in the scope of the Project and [Ratcliff] was required to pay for the work as agreed. If no agreement on the adjustment in fee was reached, [TJEG] was entitled to be paid the reasonable value of the work performed, if any."
Regarding issues related to Basic and Additional Services, the court provided the following instructions: "To recover for a substantial change in the scope of Basic Services, [TJEG] must prove by a preponderance of the evidence that:
"a. There was a substantial change in the scope of the Project that resulted in extra work for [TJEG];
"b. That [Ratcliff] directed [TJEG] to perform the work;
"c. That [TJEG] performed the work; and
"d. That [Ratcliff] did not pay [TJEG] for the work; and
"e. [TJEG] must prove the amount of its damages." (Hereafter referred to as the Basic Services burden instruction.)
"To recover for Additional Services, [TJEG] must prove by a preponderance of the evidence that:
"a. [Ratcliff] directed [TJEG] to perform Additional Services;
"b. That [TJEG] performed the Additional Services; and
"c. That [Ratcliff] did not pay [TJEG] for the work.
"d. [TJEG] must prove the amount of its damages."
"In determining whether [TJEG] was entitled either to additional fees for a substantial change in the scope of Basic Services or Additional Services, an amendment to the Owner-Architect Agreement was not a precondition for [Ratcliff] to become obligated to pay [TJEG] any money for work performed by [TJEG]. [¶] [TJEG] was not required to obtain written authorization from [Ratcliff] or the County for a substantial change in the scope of Basic Services. [TJEG] was not required to obtain any authorization from the County. [Ratcliff] was required to obtain authorization from the County for a substantial change in the scope of Basic Services. [TJEG] was entitled to rely on [Ratcliff] to satisfy any obligation for County authorization of a substantial change in the scope of Basic Services.
"The contract documents require written authorization to [TJEG] from [Ratcliff] for Additional Services. However, if you find that [Ratcliff] issued oral direction to [TJEG] for Additional Services, that [TJEG] complied with such oral direction and provided such Additional Services, and that [Ratcliff] accepted [TJEG]'s performance, then you may find that [Ratcliff] has waived the requirement that Additional Services shall require written authorization from the Architect. [Ratcliff] was required to obtain authorization from the County for Additional Services. [TJEG] was entitled to rely on [Ratcliff] to satisfy any obligation for County authorization for Additional Services."
The court also provided a number of standard instructions on contract law, which we discuss post to the extent necessary.
a. Basic Services
Ratcliff first argues that the special instruction's discussion of Basic Services compensation was internally inconsistent and legally erroneous. According to Ratcliff, Coleman, supra, 65 Cal.2d 396, holds that parties who have an agree-to-agree provision in their contract must negotiate in good faith when a change arises, but it does not hold that a performing party is guaranteed payment for its work in the absence of a successfully negotiated agreement on a new fee. Rather, in the absence of a renegotiated fee, the performing party must either stop work on the job or perform the modified scope of work for the original fee.
Ratcliff thus argues the following two sentences in the Coleman instruction correctly reflect the Coleman holding: "For Basic Services, the agreement requires [TJEG] and [Ratcliff] to negotiate in good faith for an appropriate adjustment in fee if there is a substantial change in the scope of the Project. If an agreement on an adjustment in fee was reached, [TJEG] was required to perform the substantial change in the scope of the Project and [Ratcliff] was required to pay for the work as agreed." However, Ratcliff contends that the next sentence is inconsistent with Coleman and contradicts the first two: "If no agreement on the adjustment in fee was reached, [TJEG] was entitled to be paid the reasonable value of the work performed, if any."
We believe that the trial court's interpretation and application of Coleman was correct. Coleman addressed the enforceability of a construction contract which included a provision for renegotiation of the contract fee in the event of substantial changes in the project scope of work (an agree-to-agree provision). ( Coleman, supra, 65 Cal.2d at p. 405.) As a general principle, the court held that the enforceability of a contract leaving some of its terms to future determination depends on the relative importance of the unsettled term. ( Ibid.) Where "the indefinite promise is so essential to the bargain" that an inability to enforce it renders enforcement of the remainder of the contract unfair, the contract may be abandoned. If "the matters left for future agreement are unessential, each party will be forced to accept a reasonable determination of the unsettled point or if possible the unsettled point may be left unperformed and the remainder of the contract be enforced." ( Ibid.) In the construction context, "if the subsequent changes are minor or of not great magnitude the contractor must perform and obtain a subsequent judicial determination as to the price of the changes. However, where the changes are of great magnitude in relation to the entire contract, the contractor must negotiate in good faith to settle the price [citation], and where he has done so, he is not required to continue performance in the absence of an agreement as to the price." ( Id. at p. 406, italics added.)
What Coleman does not expressly address is whether a contractor faced with a substantial change in its originally contracted scope of work, who is unable to successfully negotiate a price for that additional work, may elect to continue to work and reserve its right to subsequently obtain a judicial determination as to the value of the changes. The trial court concluded that it may and we agree. So long as the other contracting party continues to demand performance of the increased scope of work, and in the absence of any conflicting provision of the contract, the contractor may continue to work after unsuccessful negotiations and subsequently recover the value of that work. To hold otherwise would compel a contractor to walk off the job in the face of what it believes to be major changes in the scope of work required of it, with significant consequences if its judgment is later proven wrong, or alternatively forfeit any right to seek compensation for that work, regardless of the extent of the additional burdens imposed. It would also be particularly anomalous to read Coleman as permitting a contractor to obtain a subsequent judicial determination of the value of changes to the scope of work that "are minor or of not great magnitude," while denying the contractor the right to such a determination and any recovery where "changes are of great magnitude in relation to the entire contract." The interpretation urged by Ratcliff is also impractical and economically inefficient. Construction projects pose complex time management challenges, requiring multiple contractors and subcontractors to coordinate their efforts as numerous design revisions and change orders inevitably arise. To complete these projects efficiently, the parties must be able to continue working despite contract disputes with reasonable assurances of the ability to ultimately obtain a fair resolution of those disputes.
Although both paragraph 5.05 of the Ratcliff/County Contract and Coleman speak of "substantial" changes to the contract, the term necessarily has different meanings in the two contexts. Under paragraph 5.05, a "substantial" change in the scope of work is a basis for renegotiating the Basic Services fee. "Substantial" thus necessarily encompasses any change in the scope of work that warrants additional compensation, including "minor" changes as that term is used in Coleman (which Coleman holds the contractor must perform, subject to later compensation). In Coleman, a "substantial" change that entitles a contractor to stop working on a project in the absence of a renegotiated fee is one that is "substantial in relation to the remainder of the agreement so that the provision for change orders becomes an `essential element' of the contract. . . ." ( Coleman, supra, 65 Cal.2d at p. 406.) The change is great enough not only to call for additional compensation, but also to allow a party to abandon the contract altogether. We need not decide whether the change of scope in TJEG's work on the Project was "substantial" in the Coleman sense because TJEG never stopped performing on the contract until Ratcliff itself terminated its contract with the County.
The jury was told that the parties were required to negotiate in good faith to set a new fee if the scope of work in the contract changed substantially. To the extent they agreed upon compensation, TJEG was entitled to recover the agreed-upon amount. To the extent that negotiations were unsuccessful and Ratcliff nevertheless directed TJEG to perform the work, TJEG was entitled to compensation for the fair and reasonable value of the additional work it performed pursuant to that direction. The instruction as a whole correctly reflects the trial court's reading of Coleman, which we approve.
Ratcliff next argues that the Basic Services burden instruction "abandoned the Coleman rule altogether, saying nothing about a renegotiated fee. Now, inexplicably, [TJEG] had to prove only that Ratcliff `directed' work constituting a substantial change in basic services." As noted, however, Ratcliff misreads both Coleman and the Coleman instruction to permit recovery only if negotiations on a new fee culminate in a mutual agreement. In fact, the trial court interpreted Coleman to allow a party that performed the increased work to be paid in any event: it must be paid the agreed-upon fee if negotiations are successful, and the fair and reasonable value of the work if negotiations are unsuccessful. The Basic Services burden instruction is consistent with this rule and the court thus correctly instructed the jury.
Finally, Ratcliff complains that "the jury had to guess whether any agreement was required" and whether a breach needed to be proven, issues raised by the court's standard instructions on contract law but not directly addressed in the special instruction. We see no confusion in the instructions when they are read as a whole. The trial court instructed the jury that "[t]he written contract admitted as Exhibits 57 and 37, as amended by the parties, governs the rights and duties of the parties." That is, the court itself determined the existence and terms of the parties' underlying contract. The court further instructed the jury that "[t]he contract provides methods for an adjustment in the contract price" and described in the Coleman instruction the method of adjusting the Basic Services compensation based on a substantial increase in the scope of work. The standard instructions on reaching an agreement were relevant to the jury's determination of whether Ratcliff and TJEG had actually negotiated a new fee between themselves based on the increased scope of work. The standard instructions on breach of contract were relevant to the jury's determination of whether Ratcliff had paid TJEG for either the agreed upon value, or the reasonable value, of Basic Services work TJEG actually performed that was outside the original scope of the Project.
The Basic Services burden instruction clearly and correctly set forth this framework for the jury to follow. There was no reasonable probability of confusion.
b. Additional Services and Waiver
Ratcliff argues the trial court failed to clearly instruct the jury on the requirements for finding that Ratcliff had waived a contractual requirement of prior written authorization for performance of Additional Services on the Project. After providing the Additional Services burden instruction quoted above, the court gave the Special Waiver instruction also quoted above. The court also told the jury: "A condition is waived when a party by his words or conduct justifies another to believe that a conditional promise will be performed despite the non-occurrence of a condition, and the other party relies upon the manifestations to his substantial detriment." (Hereafter referred to as the General Waiver instruction.)
Ratcliff first complains that the Additional Services burden instruction makes no mention of the written authorization requirement contained in the contract (i.e., Extra Services rendered by Ratcliff must be "first authorized in writing" by the County [Paragraph 5.03]; Additional Services under Part IV of the Ratcliff/TJEG Contract to be provided at specified hourly billing rates, with "prior written authorization" from Ratcliff). However, the instruction requires proof that Ratcliff "directed" TJEG to perform the Additional Services and does not state that an oral direction would be sufficient. It leaves that issue open. Two paragraphs later, in the Special Waiver instruction, the court advised the jury that Ratcliff's oral direction to TJEG to perform the services combined with Ratcliff's acceptance of the services would constitute a waiver. This Additional Services instruction was an appropriate application of the General Waiver instruction to the facts of the case: Ratcliff's conduct of accepting services without complaint in the absence of written authorization would justify TJEG in believing the written authorization condition had been waived, and TJEG's performance of substantial work in the expectation of being paid would amount to reliance to its substantial detriment. Ratcliff has not demonstrated how these instructions might have misled the jury or caused them to improperly reject Ratcliff's defense.
c. Implied-in-Fact and Modified Contracts
Ratcliff argues the instructions on implied-in-fact and modified contracts did not clearly state whether contracts could be modified by conduct alone or whether words were required. In one instruction, the trial court told the jury that "[c]ontracts can be . . . modified by the conduct of the parties, without spoken or written words." In another instruction, the court told the jury, "You must decide whether a reasonable person would conclude from the words and conduct of [TJEG] and [Ratcliff] that they agreed to further modify the contract." The latter instruction, however, did not require words to prove a modification or otherwise contradict the first instruction. The jury was instructed to consider the parties' words and conduct, but was also told it could find a modification based on conduct alone. There was no internal contradiction in the instructions.
Ratcliff argues a combined instruction on contract formation and modification was confusing because it did not clearly state whether the following language applied only to contract formation, or to modification as well: "Conduct will create a contract if the conduct of both parties is intentional and each knows, or has reason to know, that the other party will interpret the conduct as an agreement to enter into a contract." However, the very next sentence in the instruction explains, "[Ratcliff] contend[s] that the parties did not enter into a contract or amendment [i.e., modification] other than the Architect-Consultant Agreement and its five amendments because such an agreement or amendment was never written or signed. To overcome this contention, [TJEG] must prove all of the following: [¶] 1. That the parties understood and agreed to the terms of the agreement; and [¶] 2. That the parties agreed to be bound without a written agreement." In other words, the jury was instructed that if conduct was the basis for finding a modification, the conduct must show agreement to be bound (i.e., intentional conduct the party has reason to know the other party will interpret as agreement) and must be understood as agreeing to the modified terms, and agreeing to be bound without a writing. The instructions are not contradictory or misleading. Moreover, Ratcliff again offers no explanation of how this alleged lack of clarity might have affected the verdict.
d. Covenant of Good Faith and Fair Dealing
Ratcliff argues that the instructions on breach of the covenant of good faith and fair dealing were confusing because they required TJEG to prove it had a contract with Ratcliff and that all conditions for Ratcliff's performance under the contract had occurred or were waived, but the previously discussed alleged instructional errors interfered with the jury's ability to make those determinations. "[T]he jury could not decide [TJEG]'s implied covenant claim without determining which contracts came into being; what they said in the end about [TJEG]'s compensation; whether any agreement at all was required on the basic services issue; and whether [TJEG] had to prove, and if so did prove, that Ratcliff had waived the written-authorization clause respecting additional services." As already explained, the court decided and instructed the jury that TJEG and Ratcliff had a written contract and described its terms to the jury. The court told the jury under the terms of the contract TJEG was entitled to be paid for any additional Basic Services that the jury found that Ratcliff had directed it to perform that were based on a substantial change in the scope of the Project; that TJEG was entitled to be paid the fair value of such services in the event it could not negotiate a new fee with Ratcliff; and that Ratcliff's oral direction to TJEG to perform Additional Services combined with its acceptance of those services could constitute a waiver of the contractual written authorization requirement. Therefore, there were no instructional contradictions or ambiguities that prevented the jury from accurately applying the implied covenant instructions.
e. Summary Instruction
Ratcliff argues the trial court provided an argumentative instruction summarizing the parties' positions in the trial.
The contested instruction read: "[TJEG] claims that it and [Ratcliff] entered into a contract for the provision of mechanical, electrical, and plumbing services for the master plan improvements of the San Mateo County Health Center. [TJEG] claims that the terms of the contract permitted [Ratcliff] to direct changes in the scope of work to be performed and, thereafter, permitted [TJEG] to be compensated for the resulting additional work performed. [TJEG] claims that [Ratcliff] breached this contract by directing changes in the scope of work to be performed and failing to pay for the reasonable and agreed-upon value of the added scope of work performed by [TJEG]. [TJEG] also claims that, to the extent that [Ratcliff] asked [TJEG] to perform services outside the scope of the contract and those services were performed, such services were performed under the mutual agreement that [TJEG] would be paid for such services. [TJEG] further claims that [Ratcliff] breached the agreement of the parties by unfairly interfering with [TJEG]'s right to receive the benefits of the contract by misleading the County and [TJEG] as to the true project costs, by requesting additional services of [TJEG] and thereafter refusing to pay for them, failing to submit [TJEG]'s requests for additional payment to the owner of the project in a timely manner, and by obtaining compensation for [Ratcliff]'s own services from the Owner in lieu of and at the expense of [TJEG]. [TJEG] also claims that [Ratcliff]'s breach of this contract caused harm to [TJEG] for which [Ratcliff] should pay. [Ratcliff] denies [TJEG]'s claims."
Ratcliff first faults this instruction because it states that Ratcliff denies all of TJEG's claims, necessarily including the claim that TJEG and Ratcliff had entered into a contract, whereas Ratcliff's entire defense was that the parties entered into a unmodified written contract that was limited by its express terms. There was no reasonable probability the jury was misled by the instruction, as Ratcliff clearly stated its position in both opening and closing arguments that the parties had a contract that was limited to the agreement signed August 11, 1993, and its five written amendments.
Ratcliff next faults the instruction for stating that TJEG claimed the terms of the contract permitted Ratcliff to "direct" changes in the scope of work to be performed and "permitted" TJEG to be compensated for the resulting additional work performed, without providing more detail (e.g., whether the terms were written or oral). However, Ratcliff cites no authority that a summary instruction of this type must set forth the parties' positions in exhaustive detail. Later instructions elaborated on TJEG's theories and set forth all of the elements TJEG had to prove in order to prevail on its claims. Also, TJEG gave opening and closing statements that explained its theory of the case.
Ratcliff complains that the instruction said TJEG claimed that Ratcliff breached the contract by failing to pay the "reasonable and agreed-upon value of the added scope of work" it directed TJEG to perform without explaining in the summary or any other instruction "how `reasonable' and `agreed-upon' values were supposed to mesh in any of Jacob's theories." In fact, the Basic Services Coleman instruction explained that the parties had an obligation to negotiate in good faith the fee for any additional work which Ratcliff directed, and if the jury found that TJEG had performed such work, that Ratcliff had to pay the agreed-upon fee if the negotiations were successful and the fair and reasonable value of the work if the negotiations were unsuccessful.
Ratcliff also complains the instruction's description of TJEG's claim "that, to the extent that [Ratcliff] asked [TJEG] to perform services outside the scope of the contract and those services were performed, such services were performed under the mutual agreement that [TJEG] would be paid for such services" failed to define "services outside the scope of the contract," which might refer to Basic Services for an increased scope of work or Additional Services. The jury, however, was later instructed in detail about how to determine whether TJEG was entitled to additional compensation for Basic Services or Additional Services. Ratcliff also complains that this language did not specify whether "mutual agreement" was written, oral or implied, did not specify a formula or mechanism for payment, and did not clarify whether to "ask" and "direct" TJEG to perform work were synonymous. As already explained, the court instructed the jury on the meaning of the written terms of the contract that the court found to be enforceable, and how to determine whether those terms had been augmented or modified by the parties' words or conduct. The court explained how TJEG's payment should be determined under the written terms of the contract as interpreted by the court, and payment by any additional terms found by the jury to exist would be dictated by those terms. Ratcliff has made no showing whatsoever that any of these alleged ambiguities in the instructions could have affected the jury. There was no evidence that Ratcliff "asked" TJEG to perform services in a manner that might fall short of "directing" them to perform the services (nor is there anything in the record before us to indicate that Ratcliff asked the court to clarify this alleged ambiguity). The valuation of TJEG's claims at trial was consistent with the valuations placed on them by Ratcliff in the Purple Book, and there was no evidence adduced that the value of TJEG's work was any less than what TJEG claimed it to be. We reject Ratcliff's claims of instructional error and affirm the jury's award of damages to TJEG.
B. Motion for Prejudgment Interest Ratcliff argues the trial court erred in awarding prejudgment interest because the amount of TJEG's damages was not certain or capable of ready calculation, as evidenced by TJEG's shifting legal demands for damages over time. The trial court rejected Ratcliff's arguments and awarded interest based on the dates TJEG's claims became certain in the Red and Purple Books. We affirm.
See footnote, ante, page 945.
IV. DISPOSITION
The judgment and the August 2008 award of attorney fees and costs are affirmed. TJEG's protective cross-appeal is dismissed as moot. Ratcliff shall pay TJEG's costs on appeal.
Jones, R J., and Simons, J., concurred.