Opinion
C062830 Super. Ct. No. SCV20482
10-12-2011
MARTIN A. TORRES, Plaintiff and Respondent, v. SEABERG CONSTRUCTION, INC. et al., Defendants and Appellants.
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Placer)
In this case a subcontractor sued the owner of a development project for tortiously interfering with a contract between the subcontractor and the contractor and sued the contractor for failure to pay him monies due on the contract. The court awarded the subcontractor damages for breach of contract against the contractor and damages for tortious interference with the contract against the developer. We will affirm the judgment.
The contractor does not contest the award of contract damages. Rather the principle question is whether defendants John Foggy (Foggy) and Rocklin 65, L.L.C. (Rocklin 65) were strangers to the contract as that term is clarified in Woods v. Fox Broadcasting Sub., Inc. (2005) 129 Cal.App.4th 344. The trial court rejected the arguments that Foggy and Rocklin 65 were agents of the contractor, Seaberg, either for purposes of reviewing invoices or for purposes of obtaining payment from the construction financer. We find substantial evidence to support the conclusion and will affirm the judgment.
The defendants Foggy and Rocklin 65 do not claim that they had a valid defense of privilege or justification which might make them immune from liability for intentional interference with the contract between the contractor and subcontractor. (See Imperial Ice Co. v. Rossier (1941) 18 Cal.2d 33, 35-37.)
A stranger to a contract may be held liable for the tort of intentionally interfering with the performance of the contract. A stranger is a noncontracting party. (Applied Equipment Corp. v Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 513-514; Woods v. Fox Broadcasting Sub., Inc. , supra. ) That is what occurred in this case.
Defendant Rocklin 65 was the owner of a real estate development project in the city of Rocklin, California, known as Rocklin 65, involving the construction of 28 commercial buildings. Defendant Foggy was the manager of Rocklin 65. The general contractor on the project was defendant Seaberg Construction, Inc. (Seaberg). Seaberg subcontracted with plaintiff Martin Torres (Torres) to complete work on the installation of water, sewer and fire lines when the original subcontractor left the jobsite.
The subcontract provided that Torres was to "present receipts or releases of lien(s) satisfactory to Contractor" for work performed and Seaberg was obligated to "pay or cause [them] to be paid" upon receipt of payment from the owner. (Italics added.) Nonetheless, Foggy engaged Stephen Long to review and approve payment requests from Torres and most of the payments to the subcontractors, including Torres, were made from a Rocklin 65 account. When Rocklin 65 failed to pay invoices submitted by him, Torres sued defendant Seaberg for breach of contract and defendants Foggy and Rocklin 65 for interference with his contractual relations with Seaberg.
There is no provision of the contract that provides that the work must be performed to the satisfaction of the owner.
The case was tried to the court. It found that "Foggy/Rocklin 65 interfered with Seaberg's responsibilities for oversight and payment approval, and set up a process for payment which was not contemplated by the contract, erroneously calculated the amount of money to which Torres was entitled, withheld payment on the contract as a bargaining position, and consequently forced Torres to terminate the contract with Seaberg." The court awarded Torres $306,011.48 on the contract claim against Seaberg and $150,000 in general damages and $306,011.48 in special damages on the interference claim against Foggy and Rocklin 65. Since the special damages on the interference claim are the same as the damages awarded on the contract claim, the defendants are jointly liable for that amount.
On appeal the defendants argue that a stranger to a contract does not include an owner of the project who has an economic interest in the performance of the contract. They rely on Mintz v. Blue Cross of California (2009) 172 Cal.App.4th 1594. Mintz is not on point. It involved an agent of a party to the contract. The court found that Blue Cross, the party charged with interfering with a contract of medical insurance between CALPERS and a beneficiary, was "an agent of CALPERS in administering the contract of [medical] insurance." (Id. at p. 1603.)
The defendants do not challenge the breach of contract award.
The defendants then claim the owner "was an agent of Seaberg" because Rocklin 65 "was vested with the power, by the terms of the subcontract agreement, to administer and oversee the receipt of draws from the construction lender, and to pay the subcontractors working on the project, on behalf of Seaberg Construction." The contract says no such thing. It recognizes the obvious, that the owner has secured the money for the construction project from a lender.
The defendants then rely upon a provision of the subcontract that the subcontractor was not entitled to payment from the contractor until the contractor was paid by the owner and imply that the provision authorizes the owner to stand in the shoes of the contractor as its agent. The implication is not warranted. Moreover, as the trial court held, the provision was unenforceable as in violation of the California lien laws. (Wm. R. Clarke Corp. v. Safeco Ins. Co. (1997) 15 Cal.4th 882.)
Lastly, the defendants claim the owner was an agent of the contractor on the ground that the money that funds the subcontract came from a lender with whom the owner had a contractual relationship. Not so. The subject of the claim of interference was the contract between Seaberg and Torres, not the contract between the owner and the lender. Nor was the owner an agent of Seaberg for purposes of the owner's contract with the lender since Seaberg was not a party to that contract.
For these reasons we shall affirm the judgment.
Seaberg also argues that there was insufficient evidence to support Torres' claim of an account stated. Since Seaberg does not claim the court was in error in finding a breach of contract and the amount awarded on that claim was in excess of the amount awarded on the account stated, the amount awarded was subsumed within that award. Therefore it is unnecessary for this court to reach the issue.
FACTS
The following facts taken from the Statement of Decision of the trial court or from the record are undisputed.
The Rocklin 65 project is a commercial development project which consisted of 28 separate buildings including commercial, retail, and office condominium space. Rocklin 65 hired Seaberg as the general contractor on the project. Foggy is an individual in the business of real estate development and is the manager of Rocklin 65.
When the Rocklin 65 project was in its initial construction phases, the underground work, consisting of the installation of water, sewer, and fire lines, was performed by a company known as Down Under Construction pursuant to a subcontract with Seaberg. Down Under left the jobsite in 2006 having failed to complete the underground work. Seaberg then hired Torres, a civil engineer, as subcontractor, to perform the work that Down Under failed to complete. Seaberg and Torres signed a written time and materials contract but orally agreed to the terms of payment.
Seaberg subsequently obtained a judgment against Down Under in the amount of $700,000.
Although Seaberg was the general contractor on the project, and the only person responsible for payment of the Torres invoices, Seaberg did not control the funds which were used to pay them. Seaberg's agreement with the owner, Foggy and Rocklin 65, was that Seaberg would accept the invoices, work out any discrepancies on the invoices with Torres, and forward the invoices to the owner to pay Seaberg. Seaberg did not bid the project for a sum certain. He was paid a monthly salary as the general contractor. Nearly all of the payments for materials and equipment were made by John Foggy/Rocklin 65 to the subcontractors and Seaberg was to receive a bonus on the basis of his performance.
The invoices were initially reviewed and approved by Seaberg and forwarded to Foggy and Rocklin 65 for their review and payment and the invoice for the work performed in July of 2006 was paid in full. After the initial payment of invoices Rocklin 65 balked at paying the invoices as presented. Foggy assigned an associate, Stephen Long, to review, approve, disapprove or adjust the invoices for payment. When Long reviewed the invoices on behalf of Foggy/Rocklin 65, he refused payment for overtime. Disputes also arose over the Torres' time records and equipment charges. In October 2006, $50,000 was paid on an invoice leaving $100,000 due and unpaid. In December 2006 an invoice for $110,075 went unpaid. The billing for February 2007 in the amount of $32,068.06 also remained unpaid. As a consequence of these failures Torres was put out of business.
The trial court concluded: "In terms of the work which Torres did on the project, Seaberg was unable to pinpoint any mistakes made by Torres. The failure to pay Torres' invoices was not due to any problems with the work which Torres had done." "There is no evidence that Seaberg provided any input into Rocklin 65's determination not to make any payments on the invoices. [¶] There are no issues . . . whether Torres General Engineering failed to perform its obligations to perform work on the project or whether there was substandard work performed by Torres General Contracting on the project." Lastly, the court said that "defendants have failed to prove [claimed] offsets by a preponderance of the evidence, and that Seaberg is not entitled to any offsets." For these reasons the court concluded that defendants were attempting to coerce Torres into lowering the amounts claimed.
The court awarded Torres $306,011.48 on the contract claim against Seaberg and $150,000 in general damages and $306,011.48 in special damages on the interference claim against Foggy and Rocklin 65.
DISCUSSION
I
Interference with Contractual Relations
"Contract and tort are different branches of the law. Contract law exists to enforce legally binding agreements between parties; tort law is designed to vindicate social policy. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683 [].)" (Applied Equipment Corp. v. Litton Saudi Arabia, Ltd. (1994) 7 Cal.4th 503, 514.) "The differences between contract and tort give rise to distinctions in assessing damages . . . ." (Id. at p. 515.) A party to a contract cannot recover tort damages for a breach of the contract. Rather, "California recognizes a cause of action against noncontracting parties who interfere with the performance of a contract. 'It has long been held that a stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract.'" (Applied Equipment Corp. , supra, 7 Cal.4th at p. 513; but see Woods v. Fox Broadcasting Sub., Inc., supra.) In this context, a stranger to a contract is one who is not a party to the contract or an agent of a party to the contract, i.e. one who cannot collect contract damages for a breach of the contract or one who does not claim an immunity from suit. That is the petard upon which Foggy and Rocklin 65 have hoisted themselves.
Defendants seek to trade on a generalized meaning of the term "stranger" to argue that an owner is not a stranger to a subcontract between a contractor and a subcontractor "when the owner was responsible, consistent with industry practice, for reviewing, approving, and submitting subcontractor invoices to the construction lender for payment." That is not the law for the reasons set forth above.
The subcontract established the relationships of the parties. It provided as follows:
"Compensation - Unless noted otherwise in the Contract Documents, payment to be made as follows: ninety percent (90%) of the value of work in place the last day of each month as determined by Contractor and Owner in accordance with the payment provisions of the Contract Documents. The Contractor shall pay or cause to be paid to the subcontractor, on or before the 25th day of each month 90% of the approved value of the materials supplied and work performed during the preceding month. The obligation to make any payments due under this Agreement is subject to condition precedent of payment by Owner to Contractor, thereof. Subcontractor expressly agrees that he will not be entitled to any payments, including final payment, until Contractor has received payments from Owner. . . . Unless otherwise noted, all payment requests by Subcontractor shall be in the Contractor's office on or before the 25th of each month for all work done that month. Before each payment is made as provided herein, Subcontractor shall present receipts or releases of lien(s) satisfactory to Contractor, on account of work done or materials and equipment furnished by Subcontractor to Contractor. Contractor may make any payment due under the Agreement by joint check."
There is no provision of the contract which provides that the work on the project must be completed to the satisfaction of the owner. (Cf. 10 Miller & Starr, Cal. Real Estate (3d Ed. 2010) § 27.104 ["In some contracts the owner reserves the right to inspect the work, and the work of the general contractor and all subcontractors must be completed to the satisfaction of the owner as a condition precedent to payments due under the contract. Similarly, some subcontracts [as here] require that the work be performed to the satisfaction of the general contractor. Such satisfaction conditions are valid, but the owner or contractor, as the case may be, must exercise judgment in good faith, and the work must be performed in a manner that would be satisfactory to a reasonable person."]; Thomas Haverty Co. v. Jones, 185 Cal. 285, 295; Fielding & Shepley v. Dow (1945) 72 Cal.App.2d 18, 21.) In this case, the contract provides that the work must be performed "satisfactory to Contractor."
Foggy and Rocklin 65 were not contractually authorized to insert themselves between Seaberg and Torres in the review and payment of the receipts submitted by Torres. There is no provision in the subcontract for the owner to represent the contractor in the review and payment of work done or materials and equipment furnished by the subcontractor. Rather, the subcontract between Seaberg and Torres is explicit that it was Seaberg's obligation to review and approve the receipts tendered by Torres and to pay them if "satisfactory to Contractor . . . ."
The subcontract provides: (1) that the "Contractor shall pay or cause to be paid to the Subcontractor, on or before the 25th day of each month 90% of the approved value of the materials supplied and work performed during the preceding month," and (2) "[b]efore each payment is made . . . Subcontractor shall present receipts or releases of lien(s) satisfactory to Contractor, on account of work done or materials and equipment furnished by Subcontractor to Contractor. Contractor may make any payment due under this Agreement by joint check." (Italics added.)
II
The Owner Was Not Seaberg's Agent
Defendants also argue that Rocklin 65 served as Seaberg's agent in procuring payments from the lender for subcontractors. The argument goes nowhere.
An agency relationship, i.e., one in which the agent represents the principal in carrying out the principal's contractual obligations, does not interfere with contractual relations precisely because the agent acts on behalf of the principal.
The owner's argument alludes to agency cases such as Mintz v. Blue Cross of California, supra, 172 Cal.App.4th 1594 and PM Group, Inc. v. Stewart (2007) 154 Cal.App.4th 55. But in these and similar cases the party charged with the interference was an agent of a party to the contract on which the claim of interference was based. Mintz v. Blue Cross of California, supra, relied upon by defendants, is such a case. CALPERS had contracted to provide health insurance to Mintz. Blue Cross was contractually obligated by CALPERS to administer the contract. The court held that the evidence of coverage "by its terms establishes that Blue Cross acts as an agent for CALPERS in administering the contract of insurance." (172 Cal.App.4th at p. 1603.) That is not this case.
The provisions relied upon by defendants do not relate to the subcontract between Seaberg and Torres but to the contractual relationship between Rocklin 65 and the lenders on the Rocklin 65 development. Seaberg was not a party to that contractual relationship. Hence, the defendants could not have been Seaberg's agent in securing the payments from the lenders.
Lastly, defendants rely on the following language in the subcontract. "The obligation to make any payments due under this Agreement is subject to condition precedent of payment by Owner to Contractor . . . . Subcontractor expressly agrees that he will not be entitled to any payments, including final payment, until Contractor has received payments from Owner."
Underlying the provision is the statutory obligation of the contractor to pay the subcontractor for the work performed. (Civ. Code, § 3262.) It cannot be read as authorization for the owner to interfere with the contractor's obligation to do so. The provision violates the provisions of the Civil Code which bars the waiver of lien claims by a subcontractor. As the Statement of Decision notes, this "pay if paid" provision may not be enforced as a waiver of the subcontractor's mechanic's lien rights. (Wm. R. Clarke Corp. v. Safeco Ins. Co., supra, 15 Cal.4th 882.)
The defendants have not challenged the damages which the trial judge awarded Torres on the claim of intentional interference by defendants with his contract with Seaberg.
Accordingly, we shall affirm the finding that Foggy and Rocklin 65 were liable for intentional interference with the contractual relations between Seaberg and Torres.
III
Seaberg's Claims for an Account Stated
Are Subsumed in the Contract Claim
The complaint alternatively pleaded the contract claim as an account stated. However, Seaberg did not challenge the trial court's finding that he had breached the agreement with Torres. Nor does he challenge the court's determination of the damages occurring from the breach. Rather, he challenges the finding on the claim of account stated on the ground there was no final computation of the amount due. However, the damages occurring from the breach of contract include the amounts due on the account stated. The claim is moot.
IV
The Contract Did Not Provide
for Forfeiture of Amounts Not
Tendered by the 25th of the Month
The defendants argue that contract between Torres and Seaberg disallowed payment of invoices for amounts claimed for work performed by Torres during a prior month but not billed until after the 25th of the succeeding month. The contract does not so provide.
The contract provides, first, that "[t]he Contractor shall pay or cause to be paid to the Subcontractor, on or before the 25th day of each month 90% of the approved value of the materials supplied and work performed during the preceding month" and, second, that "all payment requests by Subcontractor shall be in the Contractor's office on or before the 25th of each month for all work done that month."
These are time of payment provisions, not forfeiture of payment provisions. They state that the subcontractor will not be paid for work performed during a month unless the payment request is received on or before the 25th of the month and in that case the payment will be due the 25th of the succeeding month.
The defendants also impliedly argue that payment was forfeited because the issue was not resolved in the Statement of Decision. That also is not correct. The issue was purportedly raised in Controverted Issue No. 18, relating to invoice #1038. However, if that were the claim it was sandwiched between the claims that #1038 was "loaded up" with expenses incurred with "charges for a different project . . . ." There was no reference to the provisions of the contract. The trial court reasonably took this as a challenge to the validity of the charges and answered by saying that there was no evidence that the materials and/or equipment invoiced "were not necessary on the project."
DISPOSITION
The judgment is affirmed. The plaintiff shall recover his costs on appeal.
BLEASE, Acting P. J. HULL, J.
I concur in the result reached in the lead opinion but write separately to underscore the narrowness of our decision herein.
The lead opinion concludes the owners of the development project, Foggy and Rocklin 65, are strangers to the subcontract between Seaberg and Torres and, therefore, may be held liable for interference with that subcontract. The concurring and dissenting opinion disagrees, concluding the owners are not strangers to the subcontract in light of their interest and role in the subcontract and their legal duty to pay Torres in the event of Seaberg's default.
The basis of these divergent opinions is a disagreement over the meaning of the term "stranger to the contract." The lead opinion concludes the term covers everyone except those who are parties to the contract or agents of the parties. The concurring and dissenting opinion concludes the term encompasses anyone who "is an 'outsider' who has 'no legitimate social or economic interest in the contractual relationship.'" (Dis. & conc. opn. of Nicholson, J., p. 1.) The concurring and dissenting opinion further concludes Foggy and Rocklin 65 are not outsiders within the foregoing meaning.
I agree with the lead opinion's broader definition of the term strangers to the contract. The concurring and dissenting opinion relies on the following language from Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 513-514 (Applied Equipment): "'It has long been held that a stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract.' [Citation.] [¶] However, consistent with its underlying policy of protecting the expectations of contracting parties against frustration by outsiders who have no legitimate social or economic interest in the contractual relationship, the tort cause of action for interference with contract does not lie against a party to the contract. [Citations.]" (Fn. omitted.)
The concurring and dissenting opinion takes the foregoing dictum from Applied Equipment out of context. The case involved a claim by one contracting party against the other contracting party and the court concluded, under such circumstances, tort damages for interference with contract were unavailable. The cases cited by the high court all concerned claims against a contracting party or an agent of a contracting party. (See Shoemaker v. Myers (1990) 52 Cal.3d 1, 24-25; Kelly v. General Telephone Co. (1982) 136 Cal.App.3d 278, 288; Dryden v. Tri-Valley Growers (1977) 65 Cal.App.3d 990, 998-999.)
In my view, the concurring and dissenting opinion conflates the meaning of "stranger to the contract" with the broader concept of privilege and justification. In Imperial Ice Co. v. Rossier (1941) 18 Cal.2d 33 (Imperial Ice), the California Supreme Court provided the following explanation of justification as it relates to the tort of interference with contract: "It is universally recognized that an action will lie for inducing breach of contract by a resort to means in themselves unlawful such as libel, slander, fraud, physical violence, or threats of such action. [Citation.] Most jurisdictions also hold that an action will lie for inducing a breach of contract by the use of moral, social, or economic pressures, in themselves lawful, unless there is sufficient justification for such inducement. [Citations.]
"Such justification exists when a person induces a breach of contract to protect an interest that has greater social value than insuring the stability of the contract. [Citation.] Thus, a person is justified in inducing the breach of a contract the enforcement of which would be injurious to health, safety, or good morals. [Citations.] The interest of labor in improving working conditions is of sufficient social importance to justify peaceful labor tactics otherwise lawful, though they have the effect of inducing breaches of contracts between employer and employee or employer and customer. [Citations.] In numerous other situations justification exists [citation] depending upon the importance of the interest protected. The presence or absence of ill-will, sometimes referred to as 'malice', is immaterial, except as it indicates whether or not an interest is actually being protected. [Citations.]" (Imperial Ice, supra, 18 Cal.2d at pp. 35-36.)
The Restatement Second of Torts, section 766, defines intentional interference with contract as an interference that is both intentional and improper. Section 767, which was cited in Imperial Ice, states: "In determining whether an actor's conduct in intentionally interfering with a contract or a prospective contractual relation of another is improper or not, consideration is given to the following factors: [¶] (a) the nature of the actor's conduct, [¶] (b) the actor's motive, [¶] (c) the interests of the other with which the actor's conduct interferes, [¶] (d) the interests sought to be advanced by the actor, [¶] (e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other, [¶] (f) the proximity or remoteness of the actor's conduct to the interference and [¶] (g) the relations between the parties."
In Woods v. Fox Broadcasting Sub., Inc. (2005) 129 Cal.App.4th 344 (Woods), the plaintiffs were minority shareholders of a joint venture named Fox Family who sued a majority shareholder for interference with a contract the plaintiffs had with Fox Family. The defendant demurred to the complaint on the basis that it was not a stranger to the contract in light of its majority stake. The trial court sustained the demurrer, but the Court of Appeal reversed. (Id. at pp. 347-349.) In doing so, the appellate court read the term "stranger to the contract" as the lead opinion does here, to mean everyone except the parties and their agents. (Id. at p. 353.)
Although Woods involved the meaning of the term "stranger to the contract," the court explained in a footnote that the defendant may nevertheless be entitled to a privilege against liability for interference with contract. According to the court, such a defense might be available to the majority shareholder based on its economic interest, regardless of whether it was a party or agent of a party. However, because privilege is a defense, it could not be determined on demurrer. (See Woods, supra, 129 Cal.App.4th at p. 351, fn. 7.)
Foggy and Rocklin 65, as the owners of the project with a financial stake in the subcontract between Torres and Seaberg, might have been entitled to a qualified privilege to interfere with that subcontract to protect their own interests. However, privilege is an affirmative defense that must be pleaded and proven. (See Woods, supra, 129 Cal.App.4th at p. 356; Richardson v. La Rancherita (1979) 98 Cal.App.3d 73, 80.) That did not occur here. These defendants relied instead on a theory that they were agents of Seaberg for purposes of determining whether they were strangers to the contract. As I have explained, I agree with the lead opinion that substantial evidence supports rejection of this defense. Hence, I concur in the result reached in the lead opinion.
HULL, J. Nicholson, J., Concurring and Dissenting
I respectfully concur and dissent. The lead opinion holds that an owner of property who is responsible for paying the subcontractor is a stranger to the contract between the contractor and subcontractor and, therefore, may be held liable in tort for intentionally interfering with the contract between the contractor and subcontractor. In my opinion, such an owner is not a stranger to the contract between the contractor and subcontractor because of the owner's interest and role in the contract and the owner's duty to pay the subcontractor.
"[A] stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract. [Citation.]" (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.)
Concerning who is a stranger to a contract, the Supreme Court has said: "California recognizes a cause of action against noncontracting parties who interfere with the performance of a contract. 'It has long been held that a stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract.' [Citation.] [¶] However, consistent with its underlying policy of protecting the expectations of contracting parties against frustration by outsiders who have no legitimate social or economic interest in the contractual relationship, the tort cause of action for interference with contract does not lie against a party to the contract. [Citations.]" (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 513-514 (Applied Equipment), original italics, fn. omitted.)
Thus, a "stranger" to a contract is an "outsider" who has "no legitimate social or economic interest in the contractual relationship." (Applied Equipment, supra, 7 Cal.4th at p. 514.) That cannot possibly describe the owner in this case. He has a clear economic interest in the contract between the contractor and subcontractor, and, under this definition, would not be a stranger to the contract.
Nonetheless, Division Eight of the Second Appellate District, in two cases, has rejected this language from Applied Equipment in favor of a broader, though not fully defined, concept of stranger to a contract. The two cases from that division are Woods v. Fox Broadcasting Sub., Inc. (2005) 129 Cal.App.4th 344 (Woods) and Mintz v. Blue Cross of California (2009) 172 Cal.App.4th 1594 (Mintz).
Woods dealt with alleged interference by a shareholder with a contract between the corporation and another entity. Relying on the language in Applied Equipment, the trial court sustained the owner's demurrer on causes of action alleging interference with the contract. (Woods, supra, 129 Cal.App.4th at pp. 347-349.) Division Eight of the Second Appellate District reversed. It characterized the case as one "where a powerful shareholder allegedly interferes in a contract between the corporation whose shares it owns and some other person or entity." (Id. at p. 353.) The court concluded that the definition of "stranger" in Applied Equipment was "dicta at best" because each case cited by Applied Equipment involved an attempt to hold a party or an agent of a party to the contract liable for interference with the contract. (Woods, supra, at p. 352.) Having discredited the language in Applied Equipment, Woods adhered to a line of cases that held that "owners or officers of a business entity could be held liable for interfering with that entity's contracts . . . ." (Woods, supra, at p. 353.) Woods reasoned: "[W]e find it highly unlikely that Applied Equipment intended to hold, or should be construed as holding, that persons or entities with an ownership interest in a corporation are automatically immune from liability for interfering with their corporation's contractual obligations. [Citations.]" (Woods, supra, at p. 353.) Thus, Woods concluded that, under the circumstances of that case, the shareholder was a stranger to the contract between the corporation and another entity.
Division Eight of the Second Appellate District next addressed the definition of "stranger" in Mintz, holding that an agent of a party to the contract is not a stranger and therefore cannot be held liable in tort for interfering with the contract. In Mintz, the plaintiff obtained health insurance from CalPERS. Blue Cross of California was named in the contract of insurance as an administrator of the medical benefits. The plaintiff filed suit against Blue Cross, alleging intentional interference with the contract between the plaintiff and CalPERS. The trial court sustained Blue Cross's demurrer as to intentional interference with the contract, and Division Eight affirmed as to that determination. (Mintz, supra, 172 Cal.App.4th at pp. 1598-1603.) Mintz noted that "the pertinent question is whether Blue Cross is 'a stranger' to the health insurance contract between [the plaintiff] and CalPERS" and concluded that a "representative of a contracting party may not be held liable for the tort of interfering with its principal's contract . . . ." (Id. at pp. 1603, 1607.)
Mintz distinguished Woods, saying: "Woods merely concludes that a shareholder is not automatically immune from liability for interfering with the contractual obligations of the company in which it holds shares [citation]; Woods does not stand for the proposition that the agent of a contracting party may be liable for interference with its principal's contract." (Mintz, supra, 172 Cal.App.4th at p. 1604, fn. 3.)
The lead opinion apparently defines a "stranger" as one who is neither a party to the contract nor an agent of a party. This definition, in my opinion, does not necessarily follow from precedent. It certainly does not square with the definition in Applied Equipment, and, although Woods and Mintz rejected the broad language in Applied Equipment, those cases hold only that an owner is not "automatically immune" from tort liability for interference with a contract (Woods, supra, 129 Cal.App.4th at p. 353) and an agent is automatically immune (Mintz, supra, 172 Cal.App.4th at p. 1607). Those cases simply do not hold, categorically, that one who is neither a party nor an agent of a party to a contract is necessarily a stranger to that contract.
The broad language in Applied Equipment and precedent both support a holding that, under the circumstances of this case, the owner was not a stranger to the contract between the contractor and subcontractor.
First, as noted, the owner in this case had a "legitimate social or economic interest in the contractual relationship" between the contractor and subcontractor. Under Applied Equipment, supra, 7 Cal.4th at page 514, the owner was not a stranger to that contract.
This case is unlike Woods. There, the owner was simply a shareholder in a corporation. The interference alleged there had nothing to do with the owner's legitimate role in the contractual relationship. In fact, it appears that the shareholder had no legitimate role in the contractual relationship -- an interest in the relationship, perhaps, but no role. (Woods, supra, 129 Cal.App.4th at pp. 347-348.)
Here, unlike in Woods, the owner had a role in the contractual relationship. Although the contract did not spell out the role, that role is borne out by both practice and law.
The practice used by the owner, contractor, and subcontractor was as follows: (1) the subcontractor performed the work and then submitted invoices for the work (this was an hourly contract, not a by-the-job agreement) to the contractor, (2) the contractor reviewed the invoices then forwarded them to the owner, and (3) the owner reviewed the invoices then paid the subcontractor directly. The owner paid the invoices because the contractor had no control over the construction funds that the subcontractor was paid from. Problems arose when the owner questioned the charges in the subcontractor's invoices and did not pay the amounts charged. Thus, as a matter of practice, even if it was not spelled out in the contract, the owner had a role in the contractual relationship -- reviewing and paying the invoices. Indeed, it is illogical to argue that (1) the owner committed a wrong by not paying the amounts charged and (2), at the same time, the owner had no role in the execution of the contract. Either (1) the owner had no obligation and no role in the execution of the contract or (2) the owner had an obligation and role and was therefore not a stranger to the contract. This contract was predicated on the owner's payment of construction funds for the subcontractor's work; therefore, the owner was not a stranger to the contract.
Furthermore, even assuming the contract and its execution did not give rise to a determination that, as a practical matter, the owner was not a stranger to the contract, the contract between the contractor and the subcontractor gave rise to a legal duty on the part of the owner to pay for the subcontractor's work. Constitutional and statutory law provide a subcontractor with a mechanic's lien on the property for the value of the work performed and materials furnished. (See Wm. R. Clarke Corp. v. Safeco Ins. Co. (1997) 15 Cal.4th 882, 888-889, citing Cal. Const., art. XIV, § 3 and various Civil Code provisions.) Therefore, in the event of the contractor's failure to pay the subcontractor, the owner is directly liable for payment to the subcontractor. This is more than an indirect role or mild interest in the contract.
Consequently, I do not agree with the holding of the lead opinion that the owner is necessarily a stranger to the contract if the owner is neither a party nor an agent of a party to the contract.
Mintz is distinguishable. It involved an agent but cannot be read to hold that all noncontracting entities are strangers to the contract unless they are agents of a party. Here, the owner's role and interest in the contract was sufficient to avoid stranger status regardless of whether the owner was technically an agent of the contractor.
Nevertheless, having distinguished Mintz, I would find for the owner even if Mintz were binding on this issue. By practice and by law, the owner here was obligated to pay the subcontractor. Since the explicit contractual obligation was for the contractor to pay the subcontractor, the owner was the contractor's agent in making those payments.
Unlike the shareholder in Woods, or even the agent in Mintz, the owner here, along with the owner's property and money, was the whole reason-for-being of the contract between the contractor and the subcontractor. That is more than a stranger's interest.
This case is most similar to PM Group, Inc. v. Stewart (2007) 154 Cal.App.4th 55 (PM Group), an opinion of Division Three of the Second Appellate District, in which the court held that Rod Stewart and his representatives could not be held liable in tort for intentional interference with contract. The plaintiff concert promoter attempted to contract with Stewart to perform a concert tour. In contemplation of that contract, the promoter entered into subcontracts with various subpromoters to carry out the tour. In the end, Stewart and his representatives did not sign a final contract with the concert promoter. The trial court entered judgment against Stewart and his representatives for interference with the subcontracts. (Id. at pp. 58-61.)
Division Three of the Second Appellate District reversed as to the causes of action for interference with contract. It stated: "[A]s a matter of law, Stewart and his agents could not have interfered with the performance of these subcontracts. The tort of intentional interference with contractual relations is committed only by 'strangers -- interlopers who have no legitimate interest in the scope or course of the contract's performance.' (Applied Equipment[, supra,]7 Cal.4th [at p. ] 514.) Consequently, a contracting party is incapable of interfering with the performance of his or her own contract and cannot be held liable in tort for conspiracy to interfere with his or her own contract. [Citations.] Because the subcontracts at issue here provided for Stewart's performance, neither Stewart nor his agents can be liable for the tort of interfering with the subcontracts." (PM Group, supra, 154 Cal.App.4th at p. 65.)
As in PM Group, the subcontract here contemplated, at least implicitly, the contractual relationship between the owner and contractor and the performance of the owner. Therefore, the owner here was not a stranger to the subcontract, even if the owner was not the contractor's agent for the purpose of the subcontract.
Although the PM Group decision refers to "Stewart and his agents," Stewart and the agents were not agents with respect to the subcontracts between the promoter and the subpromoters. The agency relationship was between Stewart and his agents negotiating the original concert tour contract. Thus, PM Group is not an agency case and, in reality, is very much similar to this case.
Therefore, I would reverse as to the tortious interference with contract cause of action.
NICHOLSON, J.