Lewis Jorge Const. v. Pomona Unified Sch.

Filed 11/26/02 Lewis Jorge Const. v. Pomona Unified Sch. Dist. CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or
ordered published for purposes of rule 977.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
LEWIS JORGE CONSTRUCTION
MANAGEMENT, INC.,
Plaintiff, Respondent and
Appellant,
v.
POMONA UNIFIED SCHOOL DISTRICT
et al.,
Defendants, Appellants and
Respondents.
B143162
(Super. Ct. No. KC 023186)
APPEAL from a judgment of the Superior Court of Los Angeles County. Harold
Cherness, Judge. Affirmed in part, reversed in part, and remanded.
Case, Ibrahim & Clauss, Brian S. Case, F. Albert Ibrahim, and Michael A. Peters
for Plaintiff, Respondent and Appellant.
Best, Best & Krieger, Howard B. Golds, Piero C. Dallarda; Horvitz & Levy,
Mitchell C. Tilner, and John A. Taylor, Jr. for Defendants, Appellants and Respondents.
_______________

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Pomona Unified School District (the "District") appeals the judgment entered in
favor of Lewis Jorge Construction Management, Inc. ("Lewis Jorge") in the latter's
lawsuit for breach of a construction contract, claiming the trial court committed
instructional error and other errors of law. Lewis Jorge filed a cross-appeal, claiming that
the trial court wrongly precluded its recovery of certain categories of damages. We find
merit in several of the arguments proffered on appeal, and so affirm in part and reverse in
part.
FACTS
In 1994, the District solicited bids for construction of the Vejar Elementary School
(the "Project"). Lewis Jorge, a private building contractor owned and operated by Robert
Lewis, was the lowest bidder. On or about August 18, 1994, the District awarded the
construction contract (the "Contract") to Lewis Jorge. The total contract amount was
$6,029,000.
The Contract required Lewis Jorge to finish the School within 425 days after the
District issued a "Notice to Proceed." The District issued the Notice to Proceed on
September 30, 1994, which fixed the initial construction deadline at December 2, 1995.
After factoring in 51 days of delay due to rain, the parties agreed to a new completion
date of January 22, 1996. The Contract also included a liquidated damages clause,
requiring Lewis Jorge to pay the District $500 for each day of delay.
On June 5, 1996, the District terminated the Contract with Lewis Jorge.
Lewis Jorge sued, claiming that the District's termination of the Contract after the
Project was essentially complete breached the Contract. After a bifurcated trial, and
pursuant to two special verdicts, the jury awarded Lewis Jorge $362,671 for sums due
under the Contract, and $3,148,197 in lost profits due to Lewis Jorge's loss of bonding
capacity following the termination. The jury awarded an additional $399,669 for claims
CNA, Lewis Jorge's surety, asserted against Lewis Jorge. The jury found in favor of

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Lewis Jorge on the District's cross-complaint for breach of contract and breach of the
covenant of good faith and fair dealing.
Lewis Jorge also sued Christopher Butler, a District employee, who was the
District's project manager on the Project. The jury rejected Lewis Jorge's theory of
liability based on Butler's fraud and/or malice, but found that Butler was negligent, and
held him jointly and severally liable for $3,510,868, consisting of the $362,671 in
benefits Lewis Jorge would have received under the Contract but for the District's breach,
and $3,148,197 in Lewis Jorge's lost profits.
In post-trial motions, the trial court awarded Lewis Jorge $696,778 in attorney fees
and costs and $167,186 in pre-judgment interest, and denied Lewis Jorge's motion for
penalties and interest under Public Contract Code section 7107. All parties appealed.
DEFENDANTS' APPEAL
1. Butler's liability
Butler contends that the judgment against him must be reversed, because he owed
no duty to Lewis Jorge to protect it from economic injury. Lewis Jorge argues that, under
the authority of Biakanja v. Irving (1958) 49 Cal.2d 647 and its progeny, Butler is liable
for his negligent performance of professional services which were intended to benefit
Lewis Jorge. Butler's contention is well taken.
Under California law, "[t]he threshold element of a cause of action for negligence
is the existence of a duty to use due care toward an interest of another that enjoys legal
protection against unintentional invasion. . . . Whether this essential prerequisite to a
negligence cause of action has been satisfied in a particular case is a question of law."
(Adelman v. Associated International Insurance Co. (2001) 90 Cal.App.4th 352, 360.) In
Biakanja v. Irving, supra, 49 Cal.2d 647, our Supreme Court undertook to create a
checklist of factors to consider in assessing the existence of a legal duty of one party to
another in the absence of privity of contract between them. In Biakanja, the defendant
notary public had prepared the will of the plaintiff's brother which left the entire estate to

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the plaintiff. Due to the defendant's negligence, the will was improperly attested and
could not be admitted to probate. As a result, the plaintiff received only her in testate
share of the estate. The Court concluded that the defendant owed a duty of reasonable
care to the plaintiff which he had clearly breached. In reaching this conclusion, the Court
was careful not to declare an unlimited scope of liability in favor of any person who
might have received a benefit under a contract but for its negligent performance. The
Court emphasized that the "end and aim" of the will transaction was to benefit the
plaintiff, and the injury to her from the defendant's negligence was clearly foreseeable.
(Id. at p. 650.)
Biakanja has no direct application to the facts of this case. Here, Lewis Jorge
asserts that Butler negligently performed the prime construction contract entered into by
and between Lewis Jorge and the District. However, Butler was not a party to that
contract, and had no contractual obligations to anyone by reason of that contract. Rather,
the District promised to perform certain duties, as specified in the contract, by and
through its "Construction Manager." While Biakanja disposes of the impediment of lack
of privity of contract in certain third party beneficiary situations, it does not hold that one
can be liable for negligent performance of a contract to which one is not a party.
In order to fit the Biakanja rubric, Lewis Jorge must seek to hold Butler liable for
negligent performance of his employment contract with the District. Lewis Jorge has
never framed its negligence allegations in this manner. Moreover, there is no authority
for holding an employee liable to a third party for economic injury based on negligent
performance of his job.
The District goes to great lengths to explain how Ratcliff Architects v. Vanir
Construction Management, Inc. (2001) 88 Cal.App.4th 595 is dispositive of this issue,
while Lewis Jorge goes to equal lengths to distinguish that case. Both parties are well off
the mark. Aside from the fact that both Ratcliff and the instant case concerned the
construction of a school project, the two cases have nothing in common. The issue in
Ratcliff was the architect's rights under a contract between the school district and the

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defendant construction manager. The Court of Appeal acknowledged that "Courts
sometimes impose a duty to prevent pure economic loss when there is no privity of
contract when the injured party is an intended beneficiary of a contract between the
defendant and another party. (E.g., J'Aire Corp. v. Gregory [(1979)] 24 Cal.3d [799,]
804-805.)" (Ratcliff Architects v. Vanir Construction Management, Inc., supra, at p.
605.) Here, however, Lewis Jorge does not claim rights under a contract between the
District and Butler. Rather, it claims rights vis-à-vis Butler under the contract between
itself and the District. As noted above, there is neither authority nor any public policy
rationale for extending tort liability to one who not only was not in privity of contract
with the injured plaintiff, but was not a party to the contract under which the plaintiff
seeks relief.
Accordingly, the judgment against Butler must be reversed.
2. The District's contractual liability
The Contract provided that the District could terminate the Contract if either the
District or its architect determined that Lewis Jorge was not supplying sufficient labor to
complete the Project. 1 The District argues that, "Under these provisions and in light of
1We set forth the pertinent provisions of the Contract. Paragraph 17.1 of the
General Conditions, entitled "INSUFFICIENT PERFORMANCE BY CONTRACTOR,"
provides as follows: "If, in the opinion of the District and/or the District's Architect, the
Contractor at any time during the progress of the work refuses or neglects to supply a
sufficiency of material and labor, . . . the District may, in its discretion and without
prejudice to, or waiver of, any other remedy do any or all of the following: . . . (2) initiate
default procedures; . . . ."
Paragraph 3.2 of the Contract's General Conditions states: "During the
prosecution and execution of the work defined in the Work Scope . . . , should the
District's representative or the District's Architect, in their opinion, consider that the
Contractor's plant, quality or quantity thereof and also materials and labor in general
could cause the likelihood that the work will not be constructed satisfactorily, or if
progress be not maintained to the extent guaranteed in the general construction schedule
and/or monthly progress schedule, then the District's Representative or the District's
Architect may in written modification and order, command the Contractor so to alter and

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the circumstances shown by the evidence, the District, as a matter of law, could not be
liable for breach of contract based on its termination of plaintiff. . . . [¶] Because the
District and the architect honestly believed that plaintiff's progress was inadequate and
that plaintiff was not supplying sufficient labor, the District was contractually entitled to
terminate plaintiff and cannot be liable for doing so." The District is mistaken.
In California Real Estate, Miller & Starr discuss the perils of terminating
construction contracts. "The construction contract obligates the contractor to build the
described improvements in accordance with the contract documents, drawings, and plans
and specifications. When he has completed his performance, he is entitled to be paid the
contract price according to the payment terms of the contract. Although buildings and
other improvements often contain minor defects and imperfections, the owner receives
the use and benefit of the structures. Since the owner can be compensated for the
deficiencies, it would be unfair to deny the contractor collection of the contract price
because he failed to follow the plans and specifications exactly. [¶] The contractor
improve accordingly to increase and improve the plant, to employ additional or more
skilled workmen, or otherwise to conform with the Contract as the District's
Representative or the District's Architect may deem fit and the Contractor shall, within
twenty-four (24) hours comply or take steps to comply with these requirements. In the
event that the contractor fails to respond appropriately and sufficiently within the
specified time, the Contractor shall be deemed in breach of Contract and the District shall
take the remedy as deemed convenient."
Finally, paragraph 49.1 of the Contract's General Conditions, which specified
default procedures, reads as follows: "DISTRICT'S RIGHT TO TERMINATE
CONTRACT: If the Contractor refuses or fails to prosecute the work or any separable
part thereof with such diligence as will insure that its completion within the time
specified or any extension thereof, or fails to complete said work within such
time, . . . then the District may, without prejudice to any other right or remedy, serve
written notice upon him and his surety of its intention to terminate this contract, such
notice to contain the reasons for such intention to terminate, and unless within ten (10)
days after the service of such notice such condition shall cease or such violation shall
cease and satisfactory arrangements for the correction thereof be made, this contract shall
upon the expiration of said ten (10) days, cease and terminate."

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satisfies his obligation if he builds the improvements substantially in accordance with the
contract documents without any willful or material deviations or omissions. The
contractor will have 'substantially performed' his contract obligations if the defects are
minor or trivial and not material. The owner can be compensated in damages for the
deviations, defects, and omissions if they were not done by the contractor willfully or
fraudulently, and they do not materially affect the usefulness of the improvements for the
intended purpose. . . . [¶] If the contractor's defaults are substantial and material, the
owner has the election to rescind the contract, or to take possession of the project and
complete the construction. However, whether the contractor is in default and, if in
default, whether the default is material are questions of fact to be decided subsequently
by the court. If the owner is in error and his termination of the contract is not with just
legal cause, he has breached his contract." (8 Miller & Starr, Cal. Real Estate (2d ed.
1990) § 24:59, footnotes omitted, emphasis added.)
Here, the jury determined that Lewis Jorge was not in breach: In a special
verdict, the jury found that Lewis Jorge did not breach the Contract "by failing to
complete the Vejar Elementary School project in the time allowed by contract" or "by
failing to complete all contract work required by contract." Thus, the jury had no cause
to decide whether Lewis Jorge's alleged breaches in failing to complete the project on
schedule and/or in failing to satisfy the District's demands to supply additional labor to
the job site were material. Even if the jury had determined that Lewis Jorge was in
breach of contract, due to the substantial performance doctrine, a finding that the breach
was trivial or insubstantial would have rendered the District's termination of the Contract
under the cited contract provisions without just legal cause, and itself a breach of the
Contract.
The District argues, without citation to legal authority, that the doctrine of
substantial performance did not apply to the Contract because the parties agreed that the
District could terminate the Contract under certain circumstances. The District
misapprehends the doctrine. Presumably, there are always circumstances under which

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parties to a construction contract may terminate the agreement. An owner's decision to
terminate such a contract is usually precipitated by a perceived default on the part of the
contractor, as was alleged here. The doctrine of substantial performance holds that,
notwithstanding the contractor's technical breach of the terms of the contract, the owner's
right to terminate is restricted if the contractor has substantially performed the contract,
and the owner has received the benefit of its bargain. Witkin explains the doctrine thus:
"'At common law, recovery under a contract for work done was dependent upon complete
performance, although hardship might be avoided by permitting recovery in quantum
meruit. The prevailing doctrine today, which finds its application chiefly in building
contracts, is that substantial performance is sufficient, and justifies an action on the
contract, although the other party is entitled to a reduction in the amount called for by the
contract, to compensate for the defects. What constitutes substantial performance is a
question of fact, but it is essential that there be no willful departure from the terms of the
contract, and that the defects be such as may be easily remedied or compensated, so that
the promisee may get practically what the contract calls for." (1 Witkin, Summary of Cal.
Law, supra, Contracts, § 762, p. 690; see also Denver D. Darling, Inc. v. Controlled
Environments Construction, Inc. (2001) 89 Cal.App.4th 1221, 1238-1239, fn. 8.) Thus,
in his closing arguments to the jury, Lewis Jorge's counsel's refrain of "the law trumps the
contract" aptly described the interaction of the contract's termination provisions and the
law of substantial performance.
Finally, we note that we do not disagree with the District's argument that parties to
a construction contract may agree to insist on strict performance of the contract, and
thereby forgo the doctrine of substantial performance. Indeed, this very issue was
considered some years ago in a law review note, which concluded, "It should be possible
to contract against substantial performance." (Notes and Recent Decisions, California
Law Review (1949) vol. 37, p. 498 et seq.) The note cautioned, however, that "A
properly drafted contract must leave no question of the agreement and intention of the
parties. It should indicate that the parties knew the relevant points in the law relating to

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the performance and breach of contracts and contemplated the risks of impossibility,
inability and inadvertence but nevertheless contract for an exact performance." (Id. at pp.
504-505.) The note further suggested that, in order to unequivocally manifest the
intention of the parties to dispense with the substantial performance doctrine, the
following clause be included: "The legal doctrine that a contractor may recover for a
substantial performance of a building contract is to have no application to this contract."
Here, of course, nothing approaching the foregoing language appeared in the Contract.2
In sum, we reject the District's contention that the jury's determination that the District
breached the Contract must be reversed as a matter of law because the District's
termination of Lewis Jorge was authorized by the Contract.
The District also contends that the jury's finding against it on Lewis Jorge's breach
of contract claim was tainted by the trial court's error in allowing Lewis Jorge to try a
negligence claim against Butler. However, as the District cites no authority in support of
this argument, we consider the claim waived on appeal. (People v. Dougherty (1982) 138
Cal.App.3d 278, 282-283.) We note as well that the District's appellate brief fails to
direct our attention to the place in the record where the trial court erred with respect to
this issue by, for example, overruling a timely objection or failing, at the District's
request, to admonish the jury that certain evidence was admissible only against Butler.
Consequently, there is no basis to reverse the judgment as urged by the District.
3. Damages
The jury awarded two categories of damages for the District's breach of contract.
First, it awarded $362,671, representing the benefits Lewis Jorge would have received
under the Contract had the District not terminated it. The District does not challenge this
2We note as well that the Contract reflects the parties' agreement on the remedy to
be utilized should Lewis Jorge fail to complete the Project on schedule. Paragraph 44.1
of the General Conditions of the Contract provides for liquidated damages in the event
that the Project was not completed in the time specified in the Contract.

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portion of the damage award. Lewis Jorge also argued that the District's termination of
the contract caused Lewis Jorge's surety to revoke or reduce its bonding capacity, which
disabled Lewis Jorge from obtaining other jobs unrelated to the Project. The jury fixed
this category of damage at $3,148,197 in lost profits which Lewis Jorge would have
earned had its bonding capacity not been impaired as a result of the District's breach of
contract.
The District challenges the award of lost profits on three bases: (1) these were
"special damages" of which the District had no notice at the time it entered the contract;
(2) Lewis Jorge failed to prove that the District's breach caused the loss of bonding
capacity and lost profits; and (3) the claimed lost profits were "necessarily speculative"
and therefore not recoverable. We consider these contentions below.
a. Lost profits were properly awarded as general damages
At trial, the District argued to the jury that its termination of the Contract neither
caused Lewis Jorge to lose its bonding capacity nor caused it to fail to be awarded bids,
and that Lewis Jorge's loss of profits on other unrelated projects was not a foreseeable
consequence of termination of the contract, all of which are matters for the trier of fact.
It also maintained that, as a matter of law, the damages were too speculative to be
recovered. On appeal, the District seeks to overturn the award of lost profit damages by
claiming that they are "special damages," and that Lewis Jorge neither pleaded nor
proved that the District knew or should have known about the special circumstances
which caused Lewis Jorge to suffer these damages. However, a review of the record
establishes that the District never presented this argument to the trial court nor to the jury.
And we will not consider on appeal an argument not made below.3
3 In an earlier opinion in this matter filed on July 19, 2002, we declined to consider
the District's special damages argument since it had not been raised below. The District
filed a petition for rehearing, contending that the issue of waiver had not been briefed on
appeal. We granted that petition to permit the District to present its argument concerning
waiver of the special damages issue. We have fully considered the District's position,

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In its Motion in Limine No. 6, the District asked the trial court to exclude all
evidence "related to Lewis Jorge's prospective economic profits from future potential
projects (loss profits), absent a showing of the requisite foundation that: (1) it was the
District's termination of Lewis Jorge which in fact caused Lewis Jorge to be unable to
successfully bid and obtain the award of future projects; and, (2) for each specific future
project that Lewis Jorge was not able to successfully bid and win an award, Lewis Jorge
would have earned a specific profit." The District argued that "In this case, Lewis Jorge's
claims of lost profits are highly speculative and not grounded in fact and will confuse the
jury and prejudice Defendants." The District did not contend that lost profits were not
general damages but special damages to which special rules apply.
In counsels' in-chambers discussion of the jury instructions, Lewis Jorge
anticipated that the District might argue to the jury that the loss of bonding capacity was a
special circumstance of which it had no knowledge. Consequently, it requested that the
jury be instructed in BAJI No. 10.92 regarding "special damages." The District,
however, objected to this instruction, arguing: "I'm not sure what they referred to special
damages. I mean I don't think they're seeking damages on this case. They're seeking
consequential damages. Arising out of the breach and two consequential damages. I
don't see any special damages being sought here either in the complaint or anywhere
else."
Similarly, in its argument to the jury, the District reiterated its position that special
damages were not a part of this case. At the end of his argument to the jury, and after
discussing several of the jury instructions, the District's counsel, referring to BAJI No.
10.92, told the jury: "This one is really odd. Special damages. Mr. Ibrahim [Lewis
Jorge's counsel] and I discuss the applicability of special damages in this case. That
would probably only happen in your nightmares. Look at the instruction. [¶] 'The
plaintiff is also seeking to recover special damages for the breach of contract. Special
and again conclude that the argument is not properly before us on appeal, as it was not
raised below.

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damages are recoverable when special circumstances exist which cause some unusual
injury to plaintiff.' [¶] Now what is special circumstances here? What unusual injury
has occurred? If the loss of bonding capacity is unusual, if it's unusual – you see, Mr.
Ibrahim isn't internally consistent. First he reads about the part about unusual injury and
then he says the school district they should have known about it. But if they knew about
it, how could it be unusual. That is because this isn't meant to cover this situation. This
is meant to cover if I tell you, look I have a contract with us and I say, look, you deliver
me 50 pounds of fish and I'll pay you for it. And by the way, if you don't deliver it to me,
I'm going out of business."
Thus, rather than presenting to the jury the theory that Lewis Jorge's lost profits
resulted from special circumstances which the contractor did not communicate to the
District prior to entering the contract, the District actively sought to prevent the jury from
being instructed in the concept of special damages, and argued simply that loss of
bonding capacity and lost profits were not foreseeable consequences of its breach, and
that the District's conduct did not cause Lewis Jorge's bonding problems.
Notwithstanding the fact that the District did not rely on this argument below, we
conclude that the lost profit damages sought by Lewis Jorge were in the nature of general
damages, and not special damages as claimed by the District on appeal.
Section 347 of the Restatement Second of Contracts (the "Restatement") explains
the measure of damages for breach of contract as follows: "Subject to the limitations
stated in §§ 350-53, the injured party has a right to damages based on his expectation
interest as measured by (a) the loss in value to him of the other party's performance
caused by its failure or deficiency, plus (b) any other loss, including incidental or
consequential loss, caused by the breach, less (c) any cost or other loss that he has
avoided by not having to perform."
The Restatement identifies four limitations to the foregoing measure of damages:
avoidability (§ 350), unforeseeability (§ 351), uncertainty (§ 352), and emotional
disturbance (§ 353). The District's "special damages" argument is concerned with the

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second of these limitations, unforeseeability. Section 351 of the Restatement provides in
pertinent part:
"(1) Damages are not recoverable for loss that the party in breach did not have
reason to foresee as a probable result of the breach when the contract was made.
"(2) Loss may be foreseeable as a probable result of a breach because it follows
from the breach
"(a) in the ordinary course of events, or
"(b) as a result of special circumstances, beyond the ordinary course of events, that
the party in breach had reason to know."
In Comment b to section 351, the Restatement discusses "general" and "special"
damages: "Loss that results from a breach in the ordinary course of events is foreseeable
as the probable result of the breach. See Uniform Commercial Code § 2-714(1). Such
loss is sometimes said to be the 'natural' result of the breach, in the sense that its
occurrence accords with the common experience of ordinary persons. . . . The damages
recoverable for such loss that results in the ordinary course of events are sometimes
called 'general' damages. [¶] If loss results other than in the ordinary course of events,
there can be no recovery for it unless it was foreseeable by the party in breach because of
special circumstances that he had reason to know when he made the contract. . . . The
damages recoverable from loss that results other than in the ordinary course of events are
sometimes called 'special' or 'consequential' damages. These terms are often misleading,
however, and it is not necessary to distinguish between 'general' and 'special' or
'consequential' damages for the purpose of the rule stated in this Section."
The foregoing measure of damages has long been applied in California. "For the
breach of an obligation arising from contract, the measure of damages, except where
otherwise expressly provided by this code, is the amount which will compensate the party
aggrieved for all the detriment proximately caused thereby, or which, in the ordinary
course of things, would be likely to result therefrom." (Civ. Code § 3300.) "Under
general contract principles, when one party breaches a contract the other party ordinarily

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is entitled to damages sufficient to make that party 'whole,' that is, enough to place the
nonbreaching party in the same position as if the breach had not occurred. (Applied
Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515; 1 Witkin,
Summary of Cal. Law (9th ed. 1987) Contracts, § 813; Rest.2d Contracts, ¶ 347.) This
includes future profits the breach prevented the nonbreaching party from earning at least
to the extent those future profits can be estimated with reasonable certainty. (See, e.g.,
Sanchez-Corea v. Bank of America (1985) 38 Cal.3d 892, 907-908; Coughlin v. Blair
(1953) 41 Cal.2d 587; Summary of Cal. Law, supra, Contracts, § 823.)" (Postal Instant
Press, Inc. v. Sealy (1996) 43 Cal.App.4th 1704, 1708-1709.)
BAJI No. 10.90, entitled "General Damages/Breach of Contract," expresses the
foregoing measure of damages as follows: "The measure of [general] damages for the
breach of a contract is that amount which will compensate the injured party for all the
[detriment] [or] [loss] caused by the breach, or which in the ordinary course of things,
would be likely to result therefrom. The injured party should receive those damages
naturally arising from the breach, or those damages which might have been reasonably
contemplated or foreseen by both parties, at the time they made the contract, as the
probable result of the breach. As nearly as possible, the injured party should receive the
equivalent of the benefits of performance. [¶] Damages must be reasonable. Plaintiff
cannot recover a greater amount as damages than [he] [or] [she] could have gained by the
full performance of the contract." Those damages which "naturally arise from the
breach" or are the "natural and probable consequence of the breach" are those which
follow a breach "in the ordinary course of events."
Like the Restatement, California incorporates the holding of Hadley v. Baxendale
(1854) 156 Eng. Rep. R. 145 which limits the damages recoverable for breach of contract
based on their foreseeability: "Where two parties have made a contract which one of
them has broken, the damages which the other party ought to receive in respect to such
breach of contract should be such as would fairly and reasonably be considered either
arising naturally, i.e., according to the usual course of things, from such breach of

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contract itself, or such as may reasonably be supposed to have been in the contemplation
of both parties, at the time they made the contract, as the probable result of the breach of
it. Now, if the special circumstances under which the contract was actually made were
communicated by the plaintiff to the defendant, and thus known to both parties, the
damages resulting from the breach of such contract, which they would reasonably
contemplate, would be the amount of injury which would ordinarily follow from the
breach of contract under these special circumstances so known and communicated."
(Hadley v. Baxendale, supra, 156 Eng.Rep. 145, 151.)
Cases which have disallowed recovery of special damages under the foregoing
principle include Mitchell v. Clark. (1886) 71 Cal. 163 and Automatic Poultry Feeder
Co. v. Wedel (1963) 213 Cal.App.2d 509. In the former case, the defendant breached a
contract by failing to deliver $1,500 to plaintiff's creditor. Plaintiff was sued by his
creditor and his good were sold at a sacrifice, to plaintiff's injury. While the $1,500 owed
by defendant was recoverable as general damages, the special injury suffered by plaintiff
by reason of the forced sale was not, since there was no evidence that defendant was
aware of plaintiff's insolvency and the probability of suit. Similarly, in Wedel, plaintiff
turkey farmer had an agreement with a third party to raise turkeys. He purchased a
feeding machine from defendant manufacturer, the use of which caused the death of
several thousand turkeys. Plaintiff sued for damages for breach of warranty, and also
sought recovery of the bonus which the third party would have paid if the mortality of his
flocks had been less than ten percent. Although the defendant was aware of the third-
party contract, there was no showing that it had notice or knowledge of the bonus
provisions of that agreement. Consequently, the bonus was not recoverable. (Automatic
Poultry Feeder Co. v. Wedel, supra, 213 Cal.App.2d at p. 514.)
As can be seen from the foregoing examples, special damages are not recoverable
absent notice because, unless the plaintiff communicates to the defendant at the time of
contracting the special circumstances under which the plaintiff is operating, the defendant
would have no reason to suspect that its breach of contract would result in this category

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of damages. In the instant case, Lewis Jorge was not laboring under a special
circumstance which, unbeknownst to the District, would cause the District's breach of
contract to result in damages which do not normally flow from the breach of a
construction contract. To the contrary, all public works contractors must provide various
bonds to secure their performance in order to be awarded construction contracts. A
contractor who cannot obtain such bonds will not be long in business. And of course, the
District was well aware of this fact, since one of the District's requirements of the
successful bidder was that the contractor be able to post a performance bond.
Moreover, impairment of bonding capacity has long been recognized as a direct
consequence of an owner's breach of a construction contract. (Warner Constr. Corp. v.
City of Los Angeles (1970) 2 Cal.3d 285; S.C. Anderson, Inc. v. Bank of America (1994)
24 Cal.App.4th 529.) "[L]ost profit from impaired bonding capacity is recoverable in a
proper case, and is not inherently speculative." (Arntz Contracting Co. v. St. Paul Fire &
Marine Ins. Co. (1996) 47 Cal.App.4th 464.) Other jurisdictions are in accord. For
example, in Laas v. Montana State Highway Commission (1971) 483 P.2d 699, a jury
awarded a contractor damages against the state for breach of a road construction contract,
which damages included future lost profits which resulted from impairment to the
plaintiff's bonding capacity as a consequence of the state's failure to timely pay amounts
owing under the contract. "In essence, the plaintiff alleges he was so entangled over this
particular contract, and went so far in debt as a result of the delays in this contract, that he
lost his bonding capacity, and thereby lost profits in the years 1967, 1968 and 1969. He
proved he had always been a successful contractor, had always made a profit on all of his
jobs over some 22 years, and on that basis, he lost anticipated or future profits for the
three years in question to the extent of $250,000. The jury agreed with him to the extent
of $78,000." (Id. at p. 700.) The Supreme Court of Montana upheld the jury's verdict,
finding that "[t]he loss of bonding capacity in an entanglement such as the instant case is
clearly foreseeable, and in the ordinary course of things, would be likely to result
therefrom. . . ." (Id. at p. 704.)

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"It is a well-settled rule that the damages that can be recovered for any breach of
contract are only such as may reasonably be supposed to have been in the contemplation
of the parties at the time of entering into the agreement, as the probable result of a breach.
Other damages are too remote. . . . This rule does not mean that the parties should
actually have contemplated the very consequence that occurred, but simply that the
consequence for which compensation is sought, must be such as the parties may be
reasonably supposed, in the light of all the facts known, or which should have been
known to them, to have considered as likely to follow in the ordinary course of things,
from a breach, and, therefore, to have in effect stipulated against. The understanding and
intention of the parties in this regard must of course be ascertained from the language of
the contract, in the light of such facts. (Hunt Bros. Co. v. San Lorenzo Water Co.
[(1906)], 150 Cal. 51, 56.)" (California Press Manufacturing Co. v. Stafford Packing Co.
(1923) 192 Cal. 479, 483-484.) Thus, the standard for the award of general damages
within the contemplation of the parties is an objective one ("should have been known"),
not whether, subjectively, the breaching party considered the consequence which
ultimately occurred. (See, e.g., Comment a to Rest.2d Contracts, § 351 ["the party in
breach need not have made a 'tacit agreement' to be liable for the loss. Nor must he have
had the loss in mind when making the contract, for the test is an objective one based on
what he had reason to foresee"].)
The District misapprehends the foregoing well-settled rule. It avers that it did not
contemplate, and was not unreasonable in failing to contemplate, that Lewis Jorge would
suffer millions of dollars in lost profits by reason of the District's termination of the
Contract. However, the parties need not have contemplated "the consequence that
occurred, but simply the consequence," that is, loss of bonding capacity, "for which
compensation is sought." The jury found, and common sense supports the finding, that a
builder of public construction projects, which must provide a bond with each and every
bid it submits, will be injured if, as a consequence of an owner's wrongful termination of
its contract, and wrongful resort to the contractor's bonding company to complete the

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project, it can no longer secure performance and completion bonds. Even the District's
project manager on the project, Mr. Butler, acknowledged that he knew that Lewis
Jorge's bonding capacity could be impaired as a result of the District's termination of the
contract.
Finally, we note that, after presiding over the trial of this matter, and in ruling on
post-trial motions, the trial court expressed its view of the issue as follows: "On the issue
of damages, I think it is foreseeable that if you are terminated from a public project,
you're going to lose your bonding capacity. And that's what happened here. You lose
your bonding capacity, you lose your ability to make money. You lose your ability to bid
on job."
In sum, we conclude that substantial evidence supports the jury's conclusion that
Lewis Jorge sustained over $3 million in lost profits as a result of the District's breach of
contract.4 Contrary to the District's characterization of Lewis Jorge's lost profits as
"special damages," these sums are recoverable as general damages because they follow
from the breach in the ordinary course of events and as the natural and probable
consequence of the breach.
b. Lost profits are not too speculative; adequate proof of damages
Relying on Kajima/Ray Wilson v. Los Angeles County Metropolitan
Transportation Authority (2000) 23 Cal.4th 305, the District argues that lost profits
flowing from the loss of bonding capacity are necessarily speculative, and therefore may
not be recovered. The District's reliance is misplaced.
4 The standard of review of the sufficiency of the evidence is whether substantial
evidence supports the judgment. (Bickel v. City of Piedmont (1997) 16 Cal.4th 1040,
1053.) On a challenge to the sufficiency of the evidence, the appellant's opening brief
must set forth all the material evidence on point; the brief cannot merely state facts
favorable to appellant. (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.)
The District's brief falls short of this requirement.

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The Supreme Court in Kajima/Ray granted review "to determine whether the
lowest responsible bidder who is wrongfully denied a public contract has a cause of
action for monetary damages against the public entity, and if so, whether those damages
include lost profits." (Kajima/Ray Wilson v. Los Angeles County Metropolitan
Transportation Authority, supra, 23 Cal.4th at p. 310.) The Court concluded that such a
cause of action is viable, solely under the equitable doctrine of promissory estoppel, in
order "to do rough justice when a party lacking contractual protection relied on another's
promise to its detriment." (Id. at p. 315.) The Court employed the promissory estoppel
doctrine "primarily to further certain public policies by creating a damages remedy for a
public entity's statutory violation." (Ibid.) The Court limited the monetary damages
recoverable under the promissory estoppel theory to bid preparation expenses,
disallowing recovery of lost profits on the rejected bid. Among the reasons proffered for
this result was the fact that, under the terms of the bid solicitation, the public entity was
entitled to reject all bids. Thus, while the MTA represented that, if the contract were
awarded, it would go to the lowest responsible bidder, it did not represent that the lowest
responsible bidder would be awarded the contract.
Lewis Jorge was not wrongfully denied a public contract. Rather, it was awarded
a contract as the lowest responsible bidder. Unlike the plaintiff in Kajima/Ray, Lewis
Jorge had no need to rely on the equitable doctrine of promissory estoppel to recover
damages; the construction contract itself was the source of that remedy. Thus
Kajima/Ray offers no assistance to our analysis of this case.
Neither does S.C. Anderson, Inc. v. Bank of America (1994) 24 Cal.App.4th 529,
which the District cites in support of its argument. In S.C. Anderson, the plaintiff
contractor was engaged to construct tenant improvements on two buildings, while the
defendant bank was the lender on the project. The plaintiff claimed that, due to the
defendant's fraud, it was not timely paid for its work on the project, resulting in a
diminishment of its working capital. This in turn led to a reduction in its bonding
capacity, from an aggregate exposure or $10,000,000 to an aggregate limit of $5,000,000.

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The plaintiff bid on a public construction project for which it was the low bidder.
All bids were rejected, and the project was then rebid. The plaintiff prepared its rebid in
the amount of $2,980,000, including a 5 percent profit margin of $140,588. However, the
surety refused to provide a bid bond because the project would cause the plaintiff to
exceed its then existing $5,000,000 aggregate bonding capacity. Consequently, the
plaintiff did not submit its bid on, and was not awarded, the construction contract. The
successful low bid was $3,027,036.
"Based on these facts, [the plaintiff] contended that, but for its inability to obtain a
bid bond, it would have been the successful low bidder for the . . . project and would have
realized a profit of $140,588 had it completed the work." (S.C. Anderson, Inc. v. Bank of
America, supra, 24 Cal.App.4th at p. 534.) The court acknowledged that the Supreme
Court in Warner "has recognized this ground of recovery in construction cases." (Ibid.)
The defendant bank moved for nonsuit on the ground that the plaintiff failed to
present facts sufficient to support an award of lost profits. "Specifically, the Bank argued
that because [plaintiff] had not presented evidence of its past profitability, it failed to
establish it would have earned the 5 percent profit margin projected in the rebid." (S.C.
Anderson, Inc. v. Bank of America, supra, 24 Cal.App.4th at p. 534.)
The appellate court stated the rule for proof of lost profits thus: "Lost anticipated
profits cannot be recovered if it is uncertain whether any profit would have been derived
at all from the proposed undertaking. But lost prospective net profits may be recovered if
the evidence shows, with reasonable certainty, both their occurrence and extent.
(Sanchez-Corea v. Bank of America (1985) 38 Cal.3d 892, 907.) It is enough to
demonstrate a reasonable probability that profits would have been earned except for the
defendant's conduct. (Kerner v. Hughes Tool Co. (1976) 56 Cal.App.3d 924, 937;
accord, Maggio, Inc. v. United Farm Workers (1991) 227 Cal.App.3d 847, 869-876.)
The plaintiff has the burden to produce the best evidence available in the circumstances
to attempt to establish a claim for loss of profits. (Warner Constr. Corp. v. City of Los

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Angeles [(1970)] 2 Cal.3d [285] at p. 302; Stott v. Johnston (1951) 36 Cal.2d 864, 876.)"
(S.C. Anderson, Inc. v. Bank of America, supra, 24 Cal.App.4th at p. 535.)
The appellate court ruled, however, that there was "no evidence which would have
enabled the jury to conclude it was reasonably probable the company would in fact have
earned a profit of $140,588 had it been awarded the . . . project. (See Warner Constr.
Corp. v. City of Los Angeles, supra, 2 Cal.3d at p. 301.)" (S.C.Anderson, Inc. v. Bank of
America, supra, 24 Cal.App.4th at pp. 535-536.) The plaintiff failed to produce evidence
"relating to the accuracy of its bid, its ability to competently and efficiently perform
the . . . project, or its likely net profit." (Id. at p. 537.) Rather, its proof of lost profits
consisted of evidence that it "generally used a 5 to 8 percent profit and overhead figure in
its bids." (Id. at p. 534.) The appellate court ruled that this proof was not sufficient. It
did not rule, as the District would have us believe, that lost profits from a loss of bonding
capacity are inherently speculative and thus not recoverable. To the contrary, S.C.
Anderson v. Bank of America has been cited for the proposition that "lost profit from
impaired bonding capacity is recoverable in a proper case, and is not inherently
speculative." (Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996) 47
Cal.App.4th 464, 489.)
The black letter law on lost profits is easily understood: "Where the defendant's
breach of contract prevents the plaintiff from carrying on some particular business in
which profits might have been made, these profits are not necessarily too uncertain of
realization for recovery as damages, even though they are dependent on the uncertain
conduct of customers and competitors. If the business is one that has already been
established, a reasonable prediction can often be made as to its future on the basis of its
past history. Evidence as to its past expenditures and receipts and of the conditions under
which the business was carried on is frequently held to afford a sufficiently certain basis
for a verdict awarding damages for profits prevented." (5 Corbin on Contracts, § 1023.)
The fact that an established construction company may recover an award for lost
profits resulting from reduced bonding capacity has been recognized in California for

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over 30 years. (Warner Constr. Corp. v. City of Los Angeles, supra, 2 Cal.3d 285.)
There is no question that such an award is permissible: "For an established firm . . . , an
award for lost profits could not be criticized as speculative." (Id. at p. 301, citation
omitted.) The only question arising in the case law concerns the adequacy of proof. "As
to the reasonableness of the assumptions underlying the experts' lost profit analysis,
criticisms of an expert's method of calculation is a matter for the jury's consideration in
weighing that evidence. (Brandon & Tibbs v. George Kevorkian Accountancy Corp.
(1990) 226 Cal.App.3d 442, 460.) 'It is for the trier of fact to accept or reject this
evidence, and this evidence not being inherently improbable provides a substantial basis
for the trial court's award of lost profits . . . .' (Id. at pp. 469-470.)" (Arntz Contracting
Co. v. St. Paul Fire & Marine Ins. Co., supra, 47 Cal.App.4th 464, 489-490.)
Here, Lewis Jorge presented the expert testimony of Robert Knudsen, a partner
with PricewaterhouseCoopers, to establish its lost profit damages. Mr. Knudsen was
qualified as an expert without objection. His expert qualifications included the
following: he was awarded a master's degree in business administration with an
emphasis in accounting by the University of California at Berkeley; he was a certified
public accountant licensed by the State of California; he had for the prior 12 years
worked in the Financial Services Practice at PricewaterhouseCoopers, where he
conducted various financial analyses for businesses, including the calculation of lost
profits for approximately 100 business clients, including construction companies. Mr.
Knudsen had previously been qualified as an expert in damages in court proceedings.
Mr. Knudsen testified that in the four years preceding its termination, Lewis Jorge
was a growing company, the working backlog of which increased from under $5 million
in June of 1992 to $20 million in June of 1996. This growth occurred while the growth
of the construction market in Southern California overall remained "flat." After the June
1996 termination, growth in the Southern California commercial construction market
"took off." Although Knudsen could have relied on Lewis Jorge's historical growth to
assume continued backlog growth, Knudsen chose to be conservative and assumed that

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Lewis Jorge would have maintained its $20 million backlog for a period of no growth.
Mr. Knudsen concluded that, had Lewis Jorge's bonding capacity continued uninterrupted
between June 1996 and March 2000, it would have earned profits of $4.5 million during
that period, which sum, discounted to present value, amounted to lost profit damages of
$3,148,107.
In late 1995, when CNA's surety manager reviewed Lewis Jorge's financial
records, he determined that the contractor had completed all jobs on time, that there had
been no claims filed against any bonds, and that its credit record did not present any
problems or issues. Additionally, Lewis Jorge's bonding agent testified that the
contractor was very successful in completing projects and building up its working capital
and net worth, which resulted in a doubling of its bonding capacity.
The District did not present expert testimony contradicting the conclusions of
Lewis Jorge's expert. The jury awarded Lewis Jorge lost profits in nearly the precise
amount calculated by Mr. Knudsen.
In sum, as the court in Laas v. Montana State Highway Commission, supra,
explained: "There is no question but that the plaintiff was damaged by reason of the
breach of the contract by the State. The evidence reflected the plaintiff had been
averaging an annual gross volume of business in excess of $300,000 for the four year
period immediately prior to the completion of the contract. The jury awarded less than
10 per cent per year for profit for the three year period following the completion of the
contract. In the face of no rebutting evidence, we find nothing unreasonable in either the
amount nor the way in which the amount was determined, under the facts of this case."
(483 P.2d 699, 705.) Here, too, it cannot be doubted that Lewis Jorge was injured by
reason of the District's breach. Lewis Jorge presented evidence that it had been in
business for over ten years, that the business had consistently grown over that period of
time, had generated a certain amount of revenue over the four years previous to the loss
of its bonding capacity, and had consistently enjoyed net profits of a given percentage of
revenue, such evidence is sufficient to support an award of lost profits. Like the Laas

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court, we can find nothing unreasonable in either the amount of lost profits nor the
method by which they were arrived at. Indeed, Lewis Jorge presented the "best
evidence" of damages for lost profits, as explicated by the Supreme Court in Warner
Const. Corp. v. City of Los Angeles, supra, 2 Cal.3d at p. 302.
4. Attorney fee award
The trial court, relying on Civil Code section 1717, awarded Lewis Jorge
$696,778 in attorney fees. The District maintains that this was error, since the contract
did not contain an attorney fee provision.
Lewis Jorge based its right to attorney fees on two contract provisions. First,
Lewis Jorge cites paragraph 85.2 of the Contract, which provides: "If a CONTRACTOR
failed to furnish to the DISTRICT within ten (10) calendar days after demand by the
DISTRICT, satisfactory evidence that a lien or stop notice has been so released,
discharged, or secured, then DISTRICT may discharge such indebtedness and deduct the
amount required therefore, together with any and all losses, costs, damages, and
attorney's fees and expenses incurred or suffered by DISTRICT from any sum payable to
CONTRACTOR under CONTRACT." Lewis Jorge maintains that, under the reciprocity
provisions of Civil Code section 1717, the foregoing unilateral attorney fee provision was
rendered mutual, entitling Lewis Jorge to recover its attorney fees. Lewis Jorge also cites
the performance bond between Lewis Jorge and CNA, which was incorporated by
reference into the construction contract and provided for attorney fees to the prevailing
party in any lawsuit on the bond, as the source of its right to attorney fees. Neither of the
cited attorney fee provisions authorizes the fee award in this case.
Section 1717 provides in part as follows: "In any action on a contract, where the
contract specifically provides that attorney's fees and costs, which are incurred to enforce
that contract, shall be awarded either to one of the parties or to the prevailing party, then
the party who is determined to be the party prevailing on the contract, whether he or she
is the party specified in the contract or not, shall be entitled to reasonable attorney's fees

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in addition to other costs. [¶] Where a contract provides for attorney's fees, as set forth
above, that provision shall be construed as applying to the entire contract, unless each
party was represented by counsel in the negotiation and execution of the contract, and the
fact of that representation is specified in the contract." (Civ. Code, § 1717, subd. (a).)
Neither paragraph 85.2 of the Contract nor the performance bond provides for
recovery of attorney fees incurred to enforce the Contract between the parties.
Consequently, section 1717 simply does not come into play. "The California Supreme
Court has determined that one may only recover attorney's fees pursuant to section 1717
if one 'would have been liable' for such fees had the opposing party prevailed. (Reynolds
Metals Co. v. Alderson [(1979)] 25 Cal.3d [124,] 129.) Judging by this language,
Reynolds and section 1717 require that the party claiming a right to receive fees establish
that the opposing party actually would have been entitled to receive them if he or she had
been the prevailing party." (Leach v. Home Savings & Loan Assn. (1986) 185
Cal.App.3d 1295, 1306-1307.)
Here, under no theory would the District have been entitled to an award of
attorney fees had it prevailed at trial. Consequently, the trial court erred in awarding
Lewis Jorge such fees pursuant to Civil Code section 1717.
5. Prejudgment interest
Finally, the District challenges the trial court's award of prejudgment interest on
$1,017,678.
The jury found that, "[w]without applying any credit for payments by the District
after termination, . . . the contract balance . . . , including all change orders and extra
work to which Lewis Jorge was entitled . . . at termination" was $1,017,678. Of that
amount, the District later paid a total of $655,007 to the surety CNA to finish the project.
The difference between the amount due Lewis Jorge at termination and the District's
post-termination payments to CNA was $362,671, which amount the jury awarded to

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Lewis Jorge as contract damages to compensate it for "the benefits that Lewis Jorge
would have received from the contract if the District had not terminated Lewis Jorge."
In a post-trial motion, Lewis Jorge argued that it was entitled to prejudgment
interest not only on the $362,671 that the jury awarded but also on the $655,007 that the
District paid to CNA, which the jury did not award to Lewis Jorge. The trial court agreed
and awarded $167,186 in prejudgment interest, the full amount requested by plaintiff.
The District acknowledges that the trial court had discretion pursuant to Civil
Code section 3287 to award prejudgment interest on the amount of the judgment.
Subdivision (b) of that section provides as follows: "Every person who is entitled under
any judgment to receive damages based upon a cause of action in contract where the
claim was unliquidated, may also recover interest thereon from a date prior to the entry of
judgment as the court may, in its discretion, fix, but in no event earlier than the date the
action was filed." (Civ. Code, § 3287, sub. (b).) Clearly, this section authorizes an award
of prejudgment interest on the contract damages reflected in a judgment. It does not,
however, permit the award of prejudgment interest on sums which are not ultimately
reduced to a judgment. Thus, while Lewis Jorge may have sought, as an item of
damages, a jury award for interest on the sums which the District failed to pay when due
(see, e.g., Civ. Code, § 3288), there is no authority for the award of prejudgment interest
on any amount in excess of the judgment for contract damages, or $362,671.
Accordingly, the order awarding prejudgment interest is reversed, and the matter
remanded to the trial court for an award of pre-judgment interest based on the amount of
the judgment alone.
LEWIS JORGE'S APPEAL
1. Public Contract Code section 7107
Public Contract Code section 7107 states in pertinent part: "(c) Within 60 days
after the date of completion of the work of improvement, the retention withheld by the
public entity shall be released. In the event of a dispute between the public entity and the

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original contractor, the public entity may withhold from the final payment an amount not
to exceed 150 percent of the disputed amount. . . . (f) In the event that retention
payments are not made within the time periods required by this section, the public entity
or original contractor withholding the unpaid amounts shall be subject to a charge of 2
percent per month on the improperly withheld amount, in lieu of any interest otherwise
due."
Lewis Jorge contends that the trial court erred in failing to include in the judgment
"an award of a 2% monthly charge on any wrongfully withheld amounts in lieu of interest
otherwise due." The District maintains that the amount in dispute was in excess of 150
percent of the retentions, and that Lewis Jorge was therefore not entitled to a two percent
monthly charge in lieu of interest. Lewis Jorge counters that there was no "good faith"
dispute, and the District should not escape charges in lieu of interest by "concocting a
dispute where none existed." Lewis Jorge further contends that "there was no disputed
amount," and that the District was thus not entitled to withhold any amounts from Lewis
Jorge.
The trial court concluded, not surprisingly, that there was an actual, good faith
dispute between the parties. The court also impliedly determined that the amount in
dispute was in excess of 150 percent of the sums withheld from Lewis Jorge. Those
findings are supported by substantial evidence.
In its respondent's brief, the District describes the amount in dispute as follows:
cost of work completed by the replacement contractor, $258,240; cost of work remaining
unfinished by the replacement contractor, $50,424; estimated cost of corrective electrical
work, $318,325; cost of west line retaining wall and grading, $123,000, for a total
amount in dispute of $749,989. Lewis Jorge responds to this argument as follows: "On
appeal, and for the first time ever, the District asserts that the amount of work in dispute
was approximately $750,000. The District never argued that the amount in dispute was
$750,000 whether at trial, pre trial or post trial proceedings." However, whether or not
the District made this argument below, each of the cost elements of the District's

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calculation of the amount in dispute was introduced in evidence, and thus provides
substantial evidence for the trial court's finding that the amount in dispute exceeded 150
percent of the retentions.
In short, after presiding over a seven-week trial, and after the rendition of a multi-
million-dollar judgment for Lewis Jorge which fully compensated it for the damages its
suffered as a result of the District's breach of contract, the trial court determined that a
two percent charge in lieu of interest pursuant to Public Code section 7107 was not
justified. We can find no fault with that ruling.
2. Pass-Through Claims
Lewis Jorge next complains that the trial court disallowed the presentation of
evidence of its subcontractors' pass-through claims against the District, arguing "Pass-
through claims are recognized by many states and have recently been discussed
approvingly in the case of Howard Contracting Inc. v. G.A. MacDonald Construction
Co., Inc. (1998) 71 Cal.App.4th 38." The District maintains that Lewis Jorge's complaint
did not assert such claims, and that due process therefore demands that the claims not be
allowed. It also argues that Lewis Jorge lacks standing to appeal the trial court's ruling,
since any recovery based on the pass-through claim would go to Lewis Jorge's
subcontractors. Because we agree that Lewis Jorge lacks standing, we do not consider
the District's due process argument.
Howard Contracting summarized the status of pass-through claims, as follows:
"As a matter of law, a general contractor can present a subcontractor's claim on a pass-
through basis. (Maurice L. Bein, Inc. v. Housing Authority (1958) 157 Cal.App.2d 670.)
When a public agency breaches a construction contract with a contractor, damage often
ensues to a subcontractor. In such a situation, the subcontractor may not have legal
standing to assert a claim directly against the public agency due to a lack of privity of
contract, but may assert a claim against the general contractor. In such a case, a general
contractor is permitted to present a pass-through claim on behalf of the subcontractor

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against the public agency. (D. A. Parrish & Sons v. County Sanitation Dist. [(1959)] 174
Cal.App.2d 406.) As a subcontractor, [the appellant] had no standing to sue the City
directly, particularly on a breach of contract theory, because [the subcontractor] and the
City were not in privity of contract. [¶] The settlement and litigation agreement was
predicated on the availability of the pass-through claim process. If the process is not
available to the parties, [the general contractor] has potential exposure to [the
subcontractor] through an action for rescission of the agreement based on a failure of
consideration. From a public policy standpoint, the initiation of separate litigation
against a general contractor should not be compelled merely to enable a subcontractor to
obtain standing when the general contractor previously agreed to pursue the
subcontractor's damages claim against the public agency on a pass-through basis. To
hold otherwise would be to insist on needless additional and duplicative litigation."
(Howard Contracting, Inc. v. G.A. MacDonald Construction Co., supra, 71
Cal.App.4th at p. 60.)
While Howard Contracting provides authority for the prosecution of pass-through
claims by a general contractor on behalf of a subcontractor, the parties in that case also
recognized the rules regarding standing on appeal. Code of Civil Procedure section 902
provides: "Any party aggrieved may appeal in the cases prescribed by this title." A party
is legally aggrieved for purposes of appeal if its "rights or interests are injuriously
affected by the judgment." (County of Alameda v. Carleson (1971) 5 Cal.3d 730, 737.)
In Howard Contracting, the general contractor did not appeal the trial court's decision
disallowing the pass-through claim; rather, the aggrieved subcontractor appealed that
ruling. Division Seven of this District Court of Appeal concluded that the subcontractor,
although not initially a party to the action, became a party of record by moving to vacate
the judgment under Code of Civil Procedure section 663.5 Thus, as an aggrieved party,
the contractor had standing to appeal the trial court's ruling.
5The court continued: "Further, any entity that has an interest in the subject matter
of a judgment and whose interest is adversely affected by the judgment is an aggrieved

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Here, however, none of the subcontractors whose claims Lewis Jorge wished to
prosecute made any appearance in the action below, or filed a notice of appeal. Lewis
Jorge acknowledged at trial that "if we recover for [the subcontractor], Lewis Jorge
wouldn't get a dime of it." It further represented that the liquidation agreements which
formed the basis of Lewis Jorge's right to pursue the pass-through claims (but which were
not introduced in evidence) provided that Lewis Jorge would not be liable to the
signatory subcontractors regardless of whether any sums where recovered on their behalf.
Clearly, the resolution of this issue results in no pecuniary or other benefit to Lewis
Jorge.6 Consequently, Lewis Jorge has no appellate standing to pursue the matter on the
subcontractors' behalf.
3. CNA payments
Finally, Lewis Jorge argues, "At trial, the court below allowed Lewis Jorge to put
on evidence of costs incurred by CNA as a result of the District's breach of the prime
contract. Although CNA's Mark Torp testified to the costs it incurred in completing the
punch list, the court refused to allow Lewis Jorge to put on evidence of certain payments
party and is entitled to be heard on appeal. However, the aggrieved party's interest must
be immediate, pecuniary and substantial, and not merely a nominal or remote
consequence of the judgment. (Slaughter v. Edwards (1970) 11 Cal.App.3d 285, 291.)"
(Howard Contracting, Inc. v. G.A. MacDonald Construction Co., supra, 71
Cal.App.4th at p. 58.)
6In its reply brief, Lewis Jorge challenges this conclusion, stating "Lewis Jorge is
an aggrieved party since, under the liquidation agreement with [the subcontractor], it was
required to present [the subcontractor's] claim, and in fact, although Lewis Jorge would
not receive any of [the subcontractor's] monies, it would be entitled to charge the District
overhead and profit under the prime contract change order provision, should [the
subcontractor] recover any damages against the District." As noted above, the liquidation
agreement was not admitted into evidence, and thus Lewis Jorge may not rely on its
contents in prosecuting this appeal. Additionally, its claim to entitlement of "overhead
and profit" damages based on the subcontractors' claims should appear in its complaint
for damages, not in its reply brief on appeal.

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CNA made on behalf of Lewis Jorge to the various subcontractors, and for which CNA
sought reimbursement from Lewis Jorge pursuant to its General Indemnity Agreement. It
appears the court below believed that such evidence would require a mini trial to
determine the reason(s) such payments were made, or was concerned about a possible
double recovery."
The District maintains that this argument has been waived, for three reasons.
First, characterizing the argument as "virtually impenetrable," the District cites the
principle that an appellate court may treat an issue as abandoned "if the opening brief
fails to articulate any pertinent or intelligent legal argument." Second, the District
maintains that Lewis Jorge's failure to make an offer of proof explaining what the
excluded evidence would show precludes a finding of prejudicial error. And lastly, the
District faults Lewis Jorge for failing to provide citations to the record of "any
evidentiary support for plaintiff's characterization of CNA's payments," which Lewis
Jorge had described as "payments [] made by CNA to various subcontractors to
compensate them for extra work performed, claims for delays in payment under
PCC § 7107, or other legitimate claims they might have had."
The subcontractors settled out of this lawsuit prior to trial. Some apparently
settled for less than the contract price, and some for more. During a discussion of the
introduction of the evidence concerning CNA's payments to subcontractors, the trial court
indicated its concern that "it would be necessary to have a sort of mini-trial on each one
of these events or each one of these claims." Ultimately, the court excluded the evidence,
presumably pursuant to Evidence Code section 352.
"Under Evidence Code section 352, the trial court enjoys broad discretion in
assessing whether the probative value of particular evidence is outweighed by concerns
of undue prejudice, confusion or consumption of time. Where, as here, a discretionary
power is statutorily vested in the trial court, its exercise of that discretion 'must not be
disturbed on appeal except on a showing that the court exercised its discretion in an
arbitrary, capricious or patently absurd manner that resulted in a manifest miscarriage of

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justice.'" (People v. Rodrigues (1994) 8 Cal.4th 1060, 1124, internal citations omitted.)
Here, Lewis Jorge has failed to establish an abuse of discretion. In the absence of
evidence of the total amount of damages which Lewis Jorge claims that it was entitled to
recover on account of CNA's overpayments to subcontractors, we have no means of
assessing whether the exclusion of evidence of which Lewis Jorge complains resulted in
a manifest miscarriage of justice. Consequently, we are without authority to reverse the
judgment based on this assignment of error.
DISPOSITION
The judgment against Christopher Butler is reversed; the award of prejudgment
interest is reversed; and the award of attorney fees is reversed. In all other
respects, the judgment is affirmed. The matter is remanded to the trial court for an award
of prejudgment interest consistent with this opinion. The parties are to bear their own
costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
ARMSTRONG, J.
We concur:
TURNER, P.J.
MOSK, J.

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