Regency Midland Construction, Inc. v. Legendary Structures, Inc.

A general contractor named Regency Midland

Construction, Inc. hired subcontractor Legendary Structures, Inc.

to do the concrete work for a new apartment building. Legendary

quit halfway through. Regency and Legendary sued each other.

Their dispute turns on the “retention” clause in the contract. The

trial court properly granted summary judgment for Regency and

dismissed Legendary’s cross-claims. We affirm.

First is background. The deal was for about $2 million of

concrete work for a new 71-unit apartment building. After

Legendary quit, Regency got ANM Construction to finish the

concrete job. Regency and Legendary fell to feuding about who

owed whom what.

The fight was about retention. Regency withheld money

from Legendary, citing the retention clause. Before Legendary

quit, Regency had paid Legendary about $1 million for its work.

That sum was 90% of Legendary’s billings because the contract

allowed Regency to withhold 10% of the amount due Legendary

as security to ensure Legendary properly completed the job.

Regency withheld from Legendary about $125,000, which we call

the retention sum. Regency insisted on keeping that sum.

Legendary demanded it. That is the main dispute.

The trial court granted Regency’s motion for summary

judgment, thus allowing Regency to keep the retention sum.

Legendary appeals, saying the contract language entitles it to the

sum.

Our review of this summary judgment ruling is

independent. (Conroy v. Regents of University of California

(2009) 45 Cal.4th 1244, 1249.) Summary judgment is not

disfavored, but rather a good way to test the merits without the

burdens of trial. (Perry v. Bakewell Hawthorne, LLC (2017) 2

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Cal.5th 536, 542.) The usual rules governing this procedure

apply. (See, e.g., Code Civ. Proc., § 437c, subds. (c) & (p)(2).)

This summary judgment appeal is purely a duel over

contract interpretation, with no disputed issues of fact. The key

sentence in the contract between Regency and Legendary

specified “Ten percent (10%) of Subcontractor’s contract amount

shall be withheld and will be released 35 days after completion of

subcontractors work.” This 10% withholding created the

retention sum.

Felix Frankfurter reputedly said the three rules of

statutory interpretation are to read the statute, read the statute,

and read the statute. The same wise counsel applies to

interpreting every text. So we read read read the contract, which

we now describe.

The contract is two pages, with a two page attachment. It

begins by listing the date as “AUGUST/13/2015.” (The oddity of

this usage will later assume significance.) The contract lists the

lending bank and other preliminary information for the

construction project. It then announces the agreement is

between Regency “hereafter called ‘CONTRACTOR’” and

Legendary “hereafter called ‘SUBCONTRACTOR’ . . . .” It

specifies the concrete work for Legendary to perform. Next it

states the total sum of $2,165,000 for the whole project is “TO BE

PAID EACH MOTH [sic] ACCORDING TO THE PROGRESS OF

THE WORK ACCORDING TO THE BANKS [sic] SCHEDULE.”

We pause to emphasize that these preliminary lines of text

contain odd stylistic usages and spelling and punctuation errors,

some of which we have just noted. There also is a varying and

apparently random pattern of capitalization, with some words in

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all capitals, some words with initial capitals, and some words

with no capital letters. These points too later become significant.

Now comes the vital sentence: the retention clause. This

clause is one of the primary recitals of the contract. It is one

sentence long. It includes strikeout wording, a typed substitute

insertion that replaces the strikeout words, and two sets of

handwritten initials in the margin to show approval of the

wording change.

Together with the strikeout words, the original retention

clause reads: “Ten percent (10%) of Subcontractor’s contract

amount shall be withheld and will be released 30 days after final

completion of the building.”

The typed insertion for the strikeout is this: “35 days after

completion of subcontractors [sic] work.” We note the drafters’

omission: there is no possessive apostrophe, either singular or

plural. We count this as a simple error. “Subcontracting work”

would seem to be the phrase to use if one wanted to avoid an

apostrophe. Below we return to the significance, or rather the

insignificance, of this error.

The pair of handwritten initials is next to this insertion.

So the final and complete retention clause — striking the

strikeout and inserting the insertion — reads like this, with our

italics: “Ten percent (10%) of Subcontractor’s contract amount

shall be withheld and will be released 35 days after completion of

subcontractors work.”

The central dispute boils down to the meaning of

“subcontractors” in this sentence.

There are many more words in the contract, including a socalled

Article 13, but the retention clause is the key. The other

words are either consistent or irrelevant.

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We recite that key language (with our italics) once more,

for coherence and emphasis: “Ten percent (10%) of

Subcontractor’s contract amount shall be withheld and will be

released 35 days after completion of subcontractors work.”

Legendary’s argument is not crystalline but amounts to

this: the italicized word “subcontractors” must mean any

subcontractor, not just Legendary. Legendary itself did not

complete the concrete subcontracting work, true, but the

replacement subcontractor ANM did, so once ANM completed the

work, Legendary should get the 10% Regency withheld from the

payments for the work Legendary did before it abandoned the

project. To do otherwise, Legendary protests, is “baseless and

inequitable.” In sum, then, Legendary says subcontractor should

be interpreted to mean any concrete subcontractor, not

Legendary in particular.

Regency’s position, by contrast, is subcontractor’s work

means Legendary’s work specifically. Legendary’s work was the

entire concrete job the contract specified — providing all the

labor, materials, and equipment and ensuring the result was up

to code and free of liens — which Legendary never completed.

Thus Legendary is entitled to no further sums. The fact ANM

substituted in to save the day does not matter, according to the

language of the contract, says Regency.

Regency is right and so was the trial court’s result.

As a matter of literal interpretation, Regency wins. The

contract defines “SUBCONTRACTOR” as “Legendary Structures,

Inc.” Legendary’s attempt to expand this definition to include

ANM violates the contractual language.

There are two wrinkles, but they are inconsequential. The

drafters made two textual errors. We repeat the key sentence

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again, now with no italics: “Ten percent (10%) of Subcontractor’s

contract amount shall be withheld and will be released 35 days

after completion of subcontractors work.” First, as already noted,

the drafters omitted the possessive apostrophe from the inserted

word “subcontractors.” Second, the drafters did not place either

“Subcontractor’s” or “subcontractors” in all capitals, as appeared

earlier in the document, thus creating a triple inconsistency in

the use of capital letters in this word. Legendary’s lawyers do not

make anything of these drafting flaws, and neither do we. Given

the pattern of spelling and capitalization errors elsewhere in this

document, we ascribe these two errors to carelessness rather

than intentionality. These careless errors are inconsequential.

As a matter of purposive interpretation, Regency wins

again. Purpose can be illuminating when interpreting any

written directive, because understanding what the parties were

trying to accomplish by means of their words can help make

sense of those words. (See, e.g., Falkowski v. Imation Corp.

(2005) 132 Cal.App.4th 499, 509–515 (Falkowski); Rest.2d

Contracts, § 202, subd. 1 & com. c, pp. 86 & 88.) The Falkowski

opinion, for instance, exemplifies purposive interpretation when

it rejected one party’s proposed interpretation because that

interpretation “fail[ed] to further the purposes” for which the

contract was created. (Falkowski, supra, 132 Cal.App.4th at p.

509.)

A sense of purpose can be especially important when

careless errors plague a text. If a purpose is clear, it can be an

anchor in an error-ridden sea.

What was the purpose of the retention language? What

were the contract parties trying to accomplish by including this

clause, which they amended so conspicuously with their

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strikeouts and insertion? No party offered extrinsic evidence.

We discern the contract’s purpose from the contract’s words. (Cf.

Falkowski, supra, 132 Cal.App.4th at pp. 509–510 [neither side

offered extrinsic evidence; court relied only on contract language

to determine contractual purpose].)

The purpose of the retention clause was, as Legendary put

it in oral argument, to “ensure proper performance.” This

description is obviously correct.

There are many dimensions to proper performance. Two

are to finish the job and to finish it swiftly. But Legendary did

not finish swiftly. It did not finish at all. So it justly must suffer

the consequences of its contractual failing, which is loss of the

10% withholding. The trial court’s ruling is consistent with this

result and was correct.

In other cases with other facts, other aspects of proper

performance may be significant. In those other cases, the parties

would do well to explain to judges the purpose of the contract

language and how that purpose does or does not fit those facts.

Legendary on appeal has formulated new arguments it

never presented to the trial court. The arguments involve Civil

Code sections 3275 and 8810. Legendary has forfeited the new

arguments. Legendary claims its new arguments are strictly

legal and therefore we have discretion to consider them. But

Legendary’s reply brief at page 15 belies this “strictly legal” claim

because Legendary faults Regency for failing to offer facts in

response to the arguments Legendary never made in the trial

court. And Legendary offers no good reason why we should

exercise discretion to depart from the usual and usually sound

forfeiture rule.

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There is a second issue in this appeal. Legendary makes

this second argument about attorney fees.

A prevailing party is entitled to recover attorney fees by

contract. (Butler-Rupp v. Lourdeaux (2007) 154 Cal.App.4th 918,

923.) This contract had such a provision.

Trial courts determine who is the prevailing party based on

an evaluation of whether a party prevailed on a practical level.

Among the factors the trial court should consider is the extent to

which each party has realized its litigation objectives. We review

for abuse of discretion the trial court’s assessment of which party

prevailed. (Olive v. General Nutrition Centers, Inc. (2018) 30

Cal.App.5th 804, 824 (Olive).)

Legendary incorrectly argues the trial court erred by

awarding attorney fees because Legendary, not Regency, was the

prevailing party in the trial court. This is incorrect. Regency

established Legendary was liable to it and not vice versa.

Regency won a dollar judgment against Legendary. Regency

prevailed. The trial court ruling was correct.

Legendary notes Regency won less than it requested. This

fact can be pertinent in a damages-only trial, where the

defendant stipulates to liability. (E.g., Olive, supra, 30

Cal.App.5th at pp. 822–829.) This is not a case like that.

The judgment is affirmed. Costs to Regency.