Procedural Posture

Appellant homeowner challenged a judgment of the Superior Court of Santa Clara County, California, in favor of respondent contractor in its suit for breach of the parties’ contract to build and install decorative ironwork at the owner’s residence. The owner also challenged the trial court’s denial of his motion for judgment notwithstanding the verdict/new trial and award of penalties and attorney fees under Civ. Code, § 3260.1, to the contractor.

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Overview

The trial court gave a jury instruction regarding awarding penalties pursuant to § 3260.1. The court found substantial evidence supporting the jury’s conclusion that the contractor completed or substantially completed the contract. Thus, there was no willful departure from the terms of the contract. Having substantially, if not fully, performed, the owner did not have the right to insist the contractor should have finished a minor repair before his obligation to pay the July 16, 2002 invoice arose. Thus, there was substantial evidence to support the contractor’s breach of contract claim. The term “progress payment” had a particular meaning in the construction industry. As enacted in § 3260.1, a progress payment was a payment other than a down payment that was to be made before the project is completed. Accordingly, because the parties’ agreement called for a payment of the net due under the contract upon satisfactory completion of the project, there was no evidence that the owner wrongfully withheld a progress payment. Thus, the trial court erred in instructing the jury regarding the two percent penalty pursuant to § 3260.1 and also erred in awarding attorney fees under § 3260.1.

Outcome

The court reversed the trial court’s award of penalties and attorney fees under § 3260.1, and, in all other respects, affirmed the judgment. The court remanded the matter to the trial court to enter a new judgment that did not include an award of such penalties and attorney fees.