Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from the Superior Court of Riverside County Super.Ct.No. RIC382415. Joan F. Burgess, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.)
Case, Knowlson, Jordan & Wright, Michael F. Wright and Armen Tamzarian for Defendant and Appellant.
Paul, Hastings, Janofsky & Walker, Glenn D. Dassoff, Paul W. Cane, Jr., William W. Schofield and Scott H. Sims for Plaintiff and Respondent.
OPINION
RICHLI, J.
Defendant Westminster Central, LLC (Westminster) purchased Riverside Plaza, a shopping center that was aging none too gracefully, with the intention of renovating and updating it. Key to Westminster’s scheme was the creation of an attractive central “Main Street” area, consisting of a multiplex movie theater and restaurants. Thus, the very first new tenant Westminster entered into a lease with, before it had even broken ground, was plaintiff Krikorian Premiere Theaters, LLC (Krikorian).
The lease required Westminster to start building the theater within 730 days; if it failed to do so, both sides had the right to terminate the lease. Certain existing occupants of the shopping center (as well as certain governmental entities) held a veto power over the renovation. The lease therefore also required Westminster to obtain any necessary third party approvals within 730 days; if it failed to do so, both sides had the right to terminate the lease. Moreover, the lease required Westminster to pursue such third party approvals with “reasonable diligence.” Finally, the lease provided that Krikorian’s “sole remedy” for the failure of any of the foregoing “conditions” would be to terminate the lease (and to recover its architectural fees and costs).
Needless to say, within the agreed-upon 730 days, Westminster did not obtain the necessary third party approvals, and thus it did not start building the theater. Instead, it terminated the lease, citing its own nonperformance.
A jury found that Westminster had breached its agreement to pursue third party approvals with reasonable diligence. It awarded Krikorian $16 million in damages (subsequently augmented by $3,916,164 in prejudgment interest, $2,112,346 in attorney fees and $126,126.13 in costs, for a total judgment of $22,154,636.13).
Westminster appeals. We will hold that the “sole remedy” provision of the lease encompassed a breach of Westminster’s obligation to use reasonable diligence. Accordingly, Krikorian’s only remedy at this point is reimbursement of its architectural fees. We will therefore affirm with respect to liability but reverse with respect to damages.
I
FACTUAL BACKGROUND
Pursuant to the applicable standard of review, we view the evidence in the light most favorable to Krikorian, as the prevailing party, and we resolve all conflicts in its favor. (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 787.)
A. The Reconfiguration of Riverside Plaza.
In 1998, Westminster purchased Riverside Plaza for $9.4 million. At the time, Riverside Plaza was a “distressed property” — an old, outdated enclosed shopping mall, with many vacancies.
Westminster developed a plan to open up the enclosed mall and to reconfigure it into three distinct zones. First, on the west side, there would be a “power center,” consisting of traditional mall retailers. Second, on the east side, there would be a “neighborhood center”; an existing Vons would be expanded, and an existing Sav-On and an existing Trader Joe’s would be relocated so as to be closer to the Vons. Finally, in the middle, there would be “Main Street,” featuring restaurants and a new multiplex movie theater, which would attract particularly desirable customers into the shopping center. Thus, the theater was “the centerpiece of Westminster’s plan . . . .”
The project could not be carried out without the approval of seven existing occupants (Harris/Gottschalks, Montgomery Ward, Trader Joe’s, Vons, Sav-On, Spoons, and Cal Fed). In fact, the existing Sav-On was located right where Westminster intended to build the theater.
In its search for a theater lessee, Westminster considered some 20 to 30 companies. It came up with a short list consisting of Edwards, SoCal/Sanborn, and Krikorian. Edwards, however, was not interested. Moreover, around this time, Edwards declared bankruptcy (as did Regal Cinemas and several other major theater operators). SoCal/Sanborn was also having financial problems, and it dropped out of the negotiations. Krikorian, by contrast, “expressed interest right away in the project.” Years earlier, Krikorian had identified the Riverside Plaza area as an “excit[ing]” potential location for a movie theater. Westminster soon concluded that Krikorian was “the only game in town . . . .”
B. The Terms of the Lease.
In September 2000, after more than a year of negotiations, involving attorneys on both sides, Westminster and Krikorian entered into a lease. Westminster was to build a multiplex theater at Riverside Plaza, and Krikorian was to lease the theater for 20 years. The starting rent — approximately $1.4 million per year — would be six times more than the rent for any other single tenant at Riverside Plaza.
Attached to the lease was a site plan of the entire shopping center project. Also attached was a “footprint,” or plot plan, of the theater itself, which was to be approximately 71,463 square feet and to have 17 screens. Westminster wanted the footprint incorporated into the lease to make sure that Krikorian could not subsequently change the size, configuration, or layout of the theater.
The theater was to be built on a “deck” — i.e., on the second floor, on top of a first-floor parking structure. It would be connected via a bridge to a two-story parking structure next door. Krikorian liked the deck design because it provided “great parking” — which is crucial to the success of a theater — along with good circulation and visibility.
The cost of building the theater shell was tiered: Westminster was responsible for all expenses up to the “[t]arget [c]ost” of $120 per rentable square foot (RSF); Krikorian was responsible for all costs between $120 and $135 per RSF; and the parties would share equally all costs between $135 and $145 per RSF. If it appeared that the costs would exceed $145 per RSF, both sides had the right to terminate the lease. Westminster, however, was solely responsible for the cost of the deck, which was not included in the $120 target cost for the shell.
The parties had to agree on the theater design and layout in accordance with a specified construction schedule. First, within 60 days after the lease went into effect, Westminster had to submit preliminary plans, consistent with the footprint, to Krikorian. Within 30 days after that, Krikorian had to either approve the plans or specify any desired modifications.
Within 90 days after both sides approved the preliminary plans, Westminster had to submit final plans, consistent with the preliminary plans, to Krikorian. From that point, Krikorian had 30 days to either approve the final plans or specify any desired modifications, and both sides had 90 days to agree on the final plans; if they failed to agree by that time, they both had the right to terminate the lease. Finally, within 30 days after the final plans were approved, Westminster had to apply for a building permit.
Section 3.1 of the lease, as relevant here, provided:
“This Lease, and the respective obligations of Landlord and Tenant under this Lease, are conditioned upon and Landlord shall deliver written notice to Tenant upon satisfaction of each of the following:
“(A) Landlord obtains all governmental approvals, licenses, and permits required to construct and complete the Building, the Deck, and the balance of Landlord’s Work . . ., all of which Landlord agrees to pursue with reasonable diligence.
“(B) Landlord obtains the cooperation of, and binding agreements with, the existing occupants of the Shopping Center as necessary to (i) remodel the Shopping Center . . ., and (ii) permit the construction of the Building, the Deck, and the Common Areas . . ., all of which Landlord agrees to pursue with reasonable diligence.
“(C) Landlord’s relocation of the present occupants of the Shopping Center as necessary to permit the construction of the Building, the Deck, and the Common Areas . . ., all of which Landlord agrees to pursue with reasonable diligence.
We will refer to governmental approvals under section 3.1(A), agreements with existing occupants under Section 3.1(B), and the relocation of existing occupants under Section 3.1(C), collectively, as “third party approvals.”
“(D) Tenant obtains all governmental approvals, licenses and permits required to operate a motion picture theater, all of which Tenant agrees to pursue with reasonable diligence.”
Section 3.3 of the lease, as relevant here, provided:
“3.3 Right to Terminate Lease.
“(A) Approvals Not Procured. If the conditions set forth under Sections 3.1 (A), (B), (C) and/or (D) of this Lease are not satisfied within seven hundred and thirty (730) days following the Commencement Date, then Landlord or Tenant shall have the right to terminate this Lease effective upon thirty (30) days advance written notice to the other. . . .
“(B) Delay in Starting Landlord’s Work. If Landlord fails to commence construction of the Building (which shall be defined as the trenching for foundations for construction of the Building Deck . . .) within seven hundred and thirty (730) days following the Commencement Date, then Landlord or Tenant shall have the right to terminate this Lease effective upon thirty (30) days advance written notice to the other. . . .
“(C) Delay in Completing Landlord’s Work. If Landlord fails to (i) substantially complete Landlord’s Work [or] the Common Areas . . ., and (ii) deliver possession of the Building to Tenant, within one thousand four hundred and sixty (1,460) days following the Commencement Date, then Landlord or Tenant shall have the right to terminate this Lease effective upon thirty (30) days advance written notice to the other. . . . [¶] . . . [¶]
“Terminating this Lease shall be Tenant’s sole remedy for any of the conditions set forth under this Section 3.3; provided however, that in the event of any such termination pursuant to this Section 3.3, Landlord shall reimburse Tenant for Tenant’s architectural fees and costs incurred by Tenant in preparing the Tenant Improvement Plans . . . .” (Italics added.)
The lease included a covenant not to compete, in which Krikorian agreed that, once it started paying rent, it would not own or operate another theater within three miles of Riverside Plaza.
Section 19.3 defined a “Landlord Default” as “Landlord’s failure to observe or perform any of the terms, covenants, conditions, or provisions of this Lease to be observed or performed by Landlord, where such failure continues for thirty (30) days following delivery of Tenant’s written notice thereof to Landlord . . . .”
Section 19.4 then provided: “Upon any Landlord Default, Tenant shall have the right at anytime thereafter to pursue any right or remedy now or hereafter available to Tenant pursuant to the Lease, at Law, or in equity; provided, however, Tenant shall not have the right to terminate this Lease as a result of any Landlord Default, provided that nothing herein shall be construed as prohibiting Tenant from bringing an action at Law or in equity to terminate this Lease as a result of any Landlord Default respecting a material provision of this Lease which materially and adversely impacts Tenant’s ability to conduct its business.”
Section 19.5(D) provided: “Cumulative Remedies. No right, remedy or election under this Lease . . . shall be deemed exclusive but shall, whenever possible, be cumulative with all other rights, remedies or elections available to such party under this Lease . . . .”
Finally, Section 19.5(E) provided: “No Waiver. No failure by Landlord or by Tenant to insist upon the performance of any of the terms of this Lease or to exercise any right or remedy upon a breach thereof . . . shall constitute a waiver of any such breach or of any of the terms of this Lease.”
C. Subsequent Developments.
Westminster had “spent a considerable amount of time” looking into how long the construction process might take. As a result, it was confident that it could commence construction within the 730-day time frame. The footprint attached to the lease was all that its architects would have needed to begin preparing preliminary plans for the theater.
Within two weeks after the lease was signed, however, Westminster began considering building the theater on ground level (“at grade”), rather than on a deck, because this would make construction both faster and cheaper.
About a month after the lease was signed, Westminster also discovered that its construction budget had mistakenly assumed that the cost of building the deck was included in the $120 target cost; in fact, the lease required it to pay this in addition to the $120 target cost. Hence, the budget understated Westminster’s share of the cost of building the theater on a deck by about $3.2 million.
Finally, in December 2000, about two months after the lease was signed, Montgomery Ward (Ward) declared bankruptcy. Westminster decided to buy Ward’s lease out of bankruptcy and demolish the Ward’s store. In its place, Westminster could build additional retail space; it could also eliminate the deck parking and the adjacent parking structure and replace them with additional surface parking.
Eventually, in August 2001, Westminster acquired the Ward’s lease for $2.8 million.
For all these reasons, Westminster did not so much as begin to have its architects prepare preliminary theater plans, as the lease required.
In May 2001, several Westminster representatives met with a Krikorian representative on the floor of a Las Vegas convention center during an annual shopping center industry convention. They showed Krikorian a new site plan, in which the theater was at grade. The meeting lasted only about 10 or 20 minutes. This was the very first time that Westminster had ever disclosed to Krikorian that it was even considering building the theater at grade.
The new plan eliminated the deck, as well as the adjacent parking structure. This would save Westminster approximately $5.5 million but it would take away from Krikorian more than 800 parking spaces close to the theater. The Krikorian representative said “[he] needed to look at it and study it, and [he] would get back to them with [his] comments.” Westminster, however, suggested there was no need to do so, because the new site plan was only a “rough sketch,” and it would be sending a more definitive site plan shortly.
By June 2001, Westminster had prepared a new (and somewhat different) site plan. However, it did not give it to Krikorian until August 2001, and then only after Krikorian phoned and asked for it. Within days after receiving it, Krikorian told Westminster they would need to meet to discuss it.
No such meeting, however, took place, until Westminster was facing a November deadline for submitting preliminary designs of the project, including the theater, to the city. Only then, on September 27, 2001, did Westminster meet with Krikorian, as well as with architects Perkowitz + Ruth (P+R). At that meeting, Krikorian orally approved an at-grade theater footprint; however, Westminster was aware that a formal written lease amendment was still necessary.
Krikorian either planned to retain or had already retained P+R to design its tenant improvements.
Westminster entered into a limited-services contract with P+R, solely for the preliminary theater designs that it needed to submit to the city. It led P+R to understand that this would be the first step toward a full-services contract for the rest of the theater architecture. Accordingly, P+R sent Westminster a contract proposal, but Westminster never accepted it and never entered into a full-services contract with P+R.
On November 6, 2001, there was another meeting between Westminster, Krikorian, and P+R. To help jump-start the design process and reduce costs, Krikorian agreed to give Westminster plans that P+R had previously prepared for another Krikorian theater, in Vista. One day later, P+R sent these plans to Westminster. Westminster, however, never responded to them.
At the same meeting, a dispute arose as to whether, in light of the elimination of the deck, Westminster, rather than Krikorian, should pay for the steel framework for stadium seating. Westminster ordered P+R to stop work until this issue was resolved. Sometime in mid-December, Westminster agreed to pay for this item. However, it was not until mid-January or early February 2002 that Westminster authorized P+R to start working again.
On November 26, 2001, Westminster sent Krikorian a proposed written lease amendment. One part of the amendment (which Westminster deliberately tried to sneak past Krikorian) changed the cost of building the foundation, formerly part of the deck cost and therefore a “sole Landlord” expense, to an expense subject to the $120 target cost — i.e., effectively shifting it to Krikorian. The foundation cost was about $7 per square foot, or about $500,000 in total. The proposed amendment also raised Krikorian’s share of common-area maintenance expenses and taxes.
Around February 2002, a Krikorian representative told a Westminster representative that they needed to have a meeting to discuss the proposed lease amendment, as well as the lack of any architectural plans for the theater. The Westminster representative responded that he would not be available to meet until May.
In February through April 2002, P+R produced several different preliminary theater designs. Westminster, however, was not happy with any of them. In April 2002, without consulting Krikorian, Westminster terminated P+R.
Westminster became concerned that Krikorian might terminate the lease because it was so far behind on construction. Accordingly, by March 2002, it had begun looking for an alternative theater lessee. Ultimately it contacted 19 other theater operators.
In May 2002, representatives of Westminster finally met with a Krikorian representative. Krikorian explained that it had not responded to the proposed lease amendment because Westminster had not yet presented a theater plan. Westminster’s position was that only if and when Krikorian did respond to the proposed lease amendment would it then “move forward” with a theater plan. Accordingly, within a day or two, Krikorian sent Westminster a “redlined” version of the proposed lease amendment. Westminster, however, did not respond to Krikorian’s version, despite weekly follow-up calls and a follow-up letter from Krikorian’s attorney.
D. Westminster’s Termination of the Lease.
By August 14, 2002, Westminster had decided to terminate the lease. At that point, it still had not obtained all of the necessary agreements and approvals from Vons and Sav-On. An expert witness for Krikorian testified that Westminster did not use reasonable diligence in obtaining the necessary third party approvals.
On August 27, 2002, Krikorian gave Westminster written notice of default. The asserted defaults were failure to use reasonable diligence to obtain third party approvals under section 3.1, failure to provide plans, and failure to commence construction.
On September 18, 2002, Westminster gave Krikorian written notice that it was terminating the lease, citing its own failure to begin construction within 730 days, as required by section 3.3(B) of the lease. Westminster also asked for an accounting of Krikorian’s architectural fees and costs so Westminster could reimburse them.
This was slightly premature. The lease was dated “as of” September 18, 2000, but it actually went into effect on September 26, 2000. Thus, September 18, 2002, was only 722 days after the lease went into effect, although Westminster mistakenly believed that it was 730 days after the lease went into effect.
Krikorian never sent such an accounting. Its architectural fees totaled somewhere between $7,000 and $20,000.
On December 23, 2002, Westminster gave Krikorian an amended notice that it was terminating the lease, this time additionally citing its own failure to obtain third party approvals as required by section 3.1 of the lease.
Meanwhile, in October 2002, Westminster entered into a letter of intent with Signature Theaters as the new theater lessee, and in July 2003, Westminster and Signature entered into a lease.
E. Evidence of Damages.
Krikorian introduced expert testimony that as of 2003, the market value of the theater, assuming it had been constructed in accordance with the lease, was $25.5 million. This figure was based on the projected net cash flow from the theater over the life of the 20-year lease, discounted to present value.
II
PROCEDURAL BACKGROUND
Krikorian filed this action against Westminster, asserting causes of action for breach of lease and for breach of the implied covenant of good faith and fair dealing. Westminster filed a demurrer, arguing that Krikorian’s claims were barred by the “sole remedy” provision. The trial court overruled the demurrer.
Thereafter, Westminster filed a motion for summary judgment, arguing again, among other things, that Krikorian’s claims were barred by the “sole remedy” provision. The trial court denied the motion.
Krikorian filed a motion in limine to preclude expert testimony on whether the requirement that Westminster use reasonable diligence was a covenant or a condition (i.e., for purposes of the scope of the “sole remedy” provision). The trial court ruled that, if Westminster breached some other provision of the lease, despite carrying out its obligation to use reasonable diligence, the “sole remedy” provision would apply; however, if Westminster breached its very obligation to use reasonable diligence, the “sole remedy” provision would not apply. It precluded the parties from presenting any parol evidence on this point.
After a trial, the jury returned a special verdict finding Westminster liable for breach of contract; specifically, it found that Westminster failed to use reasonable diligence as required under section 3.1. It also found Westminster liable for breach of the implied covenant of good faith and fair dealing. It found that Krikorian’s damages, as a result of either breach or both, were $16 million.
The trial court entered judgment in favor of Krikorian and against Westminster for $16 million, plus $3,916,164 in prejudgment interest, $2,212,346 in attorney fees, and $126,126.13 in costs, for a total of $22,154,636.13.
III
THE EFFECT OF THE “SOLE REMEDY” PROVISION
Westminster contends that the “sole remedy” provision in section 3.3 of the lease limited Krikorian’s remedy to recovery of its architectural fees and costs.
“‘It is solely a judicial function to interpret a written contract unless the interpretation turns upon the credibility of extrinsic evidence, even when conflicting inferences may be drawn from uncontroverted evidence.’ [Citation.]” (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 527, quoting Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 439.) Krikorian concedes that the construction of the “sole remedy” provision was a question of law that did not turn on the credibility of extrinsic evidence and that therefore did not have to be submitted to the jury.
“‘“The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the ‘mutual intention’ of the parties. ‘Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. [Citation.] Such intent is to be inferred, if possible, solely from the written provisions of the contract. [Citation.] The “clear and explicit” meaning of these provisions, interpreted in their “ordinary and popular sense,” unless “used by the parties in a technical sense or a special meaning is given to them by usage” [citation], controls judicial interpretation. [Citation.]’ [Citations.] A [contract] provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable. [Citation.] But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract.” [Citation.]’” (TRB Investments, Inc. v. Fireman’s Fund Ins. Co. (2006) 40 Cal.4th 19, 27, quoting MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 647-648.)
Section 3.3 provided that, if the “conditions” set forth in section 3.1 were not satisfied within 730 days, either Westminster or Krikorian could terminate the lease. It then further provided that such termination was Krikorian’s “sole remedy for any of the conditions set forth under this Section 3.3 . . . .” (Italics added.) Krikorian argues that Westminster’s obligation under section 3.1 to use reasonable diligence to obtain third party approvals was a covenant, not a condition. A given contractual obligation, however, may be both a covenant and a condition. (See generally Kulawitz v. Pacific etc. Paper Co. (1944) 25 Cal.2d 664, 669.) Section 3.1 provided that “the respective obligations of Landlord and Tenant . . . are conditioned upon . . . satisfaction of each of the following[.]” (Italics added.) “The following” included not only the third party approvals, but also Westminster’s promise to use reasonable diligence in pursuing them.
It could be argued that the parties specifically provided that Westminster was obligated to use reasonable diligence because they intended Krikorian to have a remedy for a breach of this obligation above and beyond its rights in the event of a mere failure of a condition. However, spelling this out added nothing to the parties’ contractual rights and duties. As Krikorian itself argued below, “even if the Lease did not expressly require [Westminster] to proceed with ‘reasonable diligence,’ the law would impose that requirement.” “Even if [a] condition is not also a covenant, the party who has the obligation to remove or satisfy the condition is under an implied covenant to use due diligence in attempting to do so.” (1 Miller & Starr, Cal. Real Estate (3d ed. 2000) § 1:157, p. 650; e.g., Lynch v. Keystone Consol. Min. Co. (1912) 163 Cal. 690, 699-700; Fry v. George Elkins Co. (1958) 162 Cal.App.2d 256, 261.) Thus, the lease reasonably used the word “condition” to refer not only to the conditions in section 3.1 (and section 3.3), but also to Westminster’s express or implied obligation to use reasonable diligence to fulfill those conditions.
Moreover, the use of the term “remedy” indicates that the “sole remedy” provision applied to a breach of covenant. Ordinarily, upon the failure of a pure condition — i.e., a contingency outside Westminster’s control — Krikorian would have no right to any “remedy.” (Bennett v. Carlen (1963) 213 Cal.App.2d 307, 310-311.) It could be entitled to a “remedy” if, and only if, Westminster somehow failed to perform. Moreover, the use of the term “sole remedy” indicates that the parties were deliberately excluding any other remedies that Krikorian might otherwise have for Westminster’s nonperformance. This would include the benefit-of-the-bargain damages that the jury actually awarded.
Krikorian argues that the parties were not necessarily using the word “remedy” as a legal term of art. With respect to a thoroughly lawyered contract like the one before us, this is absurd. Certainly they were not using it in its colloquial sense of “[a] cure for a disease or other disorder of body or mind . . . .” (Oxford English Dict. (2d ed. 1989) <http://dictionary.oed.com/cgi/entry/50202266>, as of Apr. 4, 2008, at def. 1a.) Moreover, our reasoning leads to the same conclusion even if they were using it in its alternative colloquial sense of “reparation, redress, [or] relief.” (Id. at def. 2a.)
Conversely, if Krikorian’s position were correct, there would have been no need for the “sole remedy” provision at all. Section 3.3 already provided that, if one of the specified conditions failed, Krikorian would have the right to terminate the lease. All that it would have been necessary to add would be that, if Krikorian exercised that right, it would be affirmatively entitled to reimbursement of its architectural fees. There would have been no reason to describe termination (or termination plus reimbursement) as its “sole remedy.”
Significantly, some of the other conditions in section 3.3 were indisputably also covenants. For example, elsewhere in the lease, Westminster expressly covenanted to construct the building. Section 3.3(B) provided that, if Westminster failed to commence construction of the building within the 730-day period, either Westminster or Krikorian could terminate the lease. Section 3.3(C) similarly provided that, if Westminster failed to complete the building and deliver possession of it within a 1,460-day period, either Westminster or Krikorian could terminate the lease. Then, under the “sole remedy” provision, termination of the lease (plus reimbursement of its architectural fees) was Krikorian’s sole remedy for the failure of these conditions — even though that failure would also be a breach of covenant.
It is also significant that both Krikorian and Westminster had the right to terminate the lease based on Westminster’s failure to satisfy these conditions. If the parties intended Westminster to be liable for benefit-of-the-bargain damages based on its failure to use reasonable diligence, they would scarcely have allowed Westminster itself to terminate the lease based on such failure. And they certainly would not have gone on to provide that termination was Krikorian’s “sole remedy.”
In the process of drafting the lease, the right to terminate, originally unilateral, was made mutual at Westminster’s request.
In our view, then, the “sole remedy” provision applies to the failure of any of the conditions in section 3.3, whether they failed because Westminster failed to use due diligence or for reasons beyond Westminster’s control. Admittedly, it could be argued that we are still using the word “remedy,” rather awkwardly, to describe Krikorian’s rights in the event of the failure of a condition for reasons beyond Westminster’s control. If a condition did fail, however, it would not necessarily be immediately clear whether that failure was Westminster’s fault; it was highly foreseeable that there would be a dispute over whether Westminster had used reasonable diligence. The parties could reasonably choose to use the words “sole remedy” to ensure that, even in that case, Krikorian’s rights would be limited, with no need to determine which side was right. Most importantly, however, if the parties intended the exact opposite — if they intended that Krikorian’s rights would be limited if, but only if, a condition failed through no fault of Westminster — then they would not have used the words “sole remedy” at all.
Krikorian also argues that our interpretation renders Westminster’s promise to use reasonable diligence illusory; if Westminster wanted out of the lease, all it had to do was fail to exercise reasonable diligence, wait out the 730 days, then terminate the lease. This overlooks Krikorian’s entitlement to reimbursement of its architectural fees.
In this respect, this case is analogous to Bleecher v. Conte (1981) 29 Cal.3d 345, which involved an agreement for the purchase and sale of land. Escrow was to close the day after a final tract map was recorded. The buyers agreed to make a $1,000 escrow deposit and to “‘do everything in their power to expedite the recordation of the final map and [to] proceed with diligence.’” (Id. at p. 348.) The agreement included a liquidated damages clause, which provided that the seller’s “sole remedy” for a breach by the buyers was to receive their plans and reports. (Id. at p. 348 & fn. 2.) Ultimately, the buyers made the $1,000 escrow deposit, but the seller refused to sign the escrow instructions and refused to proceed with the sale. The trial court held the seller liable for specific performance. (Id. at p. 349.)
On appeal, “the seller contend[ed] that the buyers’ promise was illusory since they assumed no real obligations under the agreement. . . . She claim[ed] that the buyers could decline to have a tract map prepared or to obtain city approval for development, renege on the agreement, and still get back their $1,000 escrow deposit.” (Bleecher v. Conte, supra, 29 Cal.3d at pp. 350-351.) The Supreme Court disagreed. (Id. at 351-353.) It noted that “[t]he present contract would have no value to the buyers if they did not proceed in good faith and obtain the necessary reports and approvals. The buyers do not have an unfettered right to cancel their contract or ignore their contractual obligations.” (Id. at p. 351.) Rather, the buyers “had an enforceable obligation to proceed diligently with the recordation of the tract map . . . .” (Id. at p. 352.)
Here, similarly, the lease had no value to Westminster unless it both pursued and obtained the necessary third party approvals. While this was the major incentive for performance, Westminster also faced a very real and enforceable sanction for nonperformance — liability for Krikorian’s architectural fees.
It is true that, if Westminster did use reasonable diligence, and if it was still unable to obtain all of the necessary third party approvals, Krikorian would be entitled to the identical remedy. But this does not that mean that Westminster’s promise was illusory. It simply means that Westminster agreed to compensate Krikorian even if it was not in breach. Westminster still had an incentive to perform its promise to use reasonable diligence, unless and until the third party approvals became wholly impossible to obtain; if that happened, however, Krikorian could no longer benefit from, and would not care about, Westminster’s reasonable diligence.
Krikorian relies on section 19.4, which defined its remedies upon a default by Westminster. Section 19.4, however, merely provided that “[u]pon any Landlord Default, Tenant shall have the right at anytime thereafter to pursue any right or remedy now or hereafter available to Tenant pursuant to the Lease, at Law, or in equity . . . .” In light of the “sole remedy” provision, the right to recover benefit-of-the-bargain damages based on Westminster’s failure to use reasonable diligence simply was not a “right or remedy . . . available to Tenant . . . .”
In any event, section 19.4 applied to “Landlord Defaults” in general. Section 19.3 defined a “Landlord Default” as “Landlord’s failure to observe or perform any of the terms, covenants, conditions, or provisions of the Lease to be observed or performed by Landlord . . . .” Section 19.4 also provided that “Tenant shall not have the right to terminate this Lease as a result of any Landlord Default . . . .” By contrast, the “sole remedy” provision applied specifically to the failure of any of the conditions in section 3.3. Moreover, section 3.3, including the “sole remedy” provision, expressly gave Krikorian the right to terminate the lease based on the failure of any such conditions. “[U]nder well[-]established principles of contract interpretation, when a general and a particular provision are inconsistent, the particular and specific provision is par[]amount to the general provision. [Citations.]” (Prouty v. Gores Technology Group (2004) 121 Cal.App.4th 1225, 1235; see also Code Civ. Proc., § 1859; Civ. Code, § 3534.) Thus, section 3.3 constituted a “carve-out,” or an exception, to section 19.4.
While we believe the language of the lease, when taken as a whole, is not ambiguous, we may also look to the circumstances surrounding the execution of the lease. (Civ. Code, § 1647; Code Civ. Proc., § 1860.) Westminster had to lay out a massive amount of money before it could even hope to start seeing a return on its investment. First and foremost, it had to build the theater shell at its own expense (unless this cost exceeded the $120-per-square-foot cap). By contrast, at least until the theater shell was built and tenant improvements could begin, Krikorian only had to lay out a relatively trivial amount on architectural fees. Meanwhile, any number of things could happen that would make the planned renovation of the shopping center more expensive, more time-consuming, or even impossible.
Krikorian argues that it also had to refrain from opening another theater within a three-mile radius. The covenant not to compete, however, did not kick in until Krikorian started paying rent. Admittedly, it made little sense for Krikorian to open another theater while the Riverside Plaza theater was being built, because once Krikorian did start paying rent, it would have to divest itself of the other theater; moreover, any new owner would then be in competition with Krikorian’s Riverside Plaza theater. Nevertheless, the lease did not obligate Krikorian to refrain from doing so.
Under these circumstances, Westminster would not have wanted to be exposed to potential liability for Krikorian’s benefit-of-the bargain damages. Krikorian had already advised Westminster that it expected to have net income “in the millions.” While it could be argued that Westminster could avoid such liability by using reasonable diligence (and otherwise performing under the lease), it would not have wanted its diligence in carrying out such a complex project, which required it to stage-manage so many other people, entities and contingencies, to be subjected to hindsight and second-guessing. If Westminster failed to complete the theater, whether or not it used reasonable diligence, Krikorian could be made whole through reimbursement of its architectural fees. Moreover, Krikorian could easily have been willing to forego pie-in-the-sky damages in exchange for the certainty of being able to recover its architectural fees even if the project failed through no fault of Westminster — which at the time seemed entirely possible.
Although we would come to the same conclusion in any event, the parties’ course of performance further reinforces our view. The lease required Westminster to submit preliminary theater plans to Krikorian by not later than November 2000. This did not happen; to the contrary, in May 2001, Westminster belatedly revealed that it had decided to place the theater at grade, which put the architectural process back at square one. A principal of Krikorian testified that by November 2001, he had concluded that Westminster was not using reasonable diligence. Krikorian, however, did not give Westminster notice of default until August 27, 2002 — just one month before the expiration of the 730-day period. In many ways, Krikorian’s forbearance is to its credit. Nevertheless, it strongly suggests that Krikorian both knew and understood that its rights were stringently limited by the “sole remedy” provision. If Westminster wanted out of the lease, all it had to do was fail to commence construction of the theater within 730 days and reimburse Krikorian for its architectural fees. Under these circumstances, Krikorian needed to stay in Westminster’s good graces. Thus, it tolerated Westminster’s neglect and disrespect much longer than a more equal partner would have done.
Krikorian argues that a contractual limitation of remedies must be clearly expressed. (See, e.g., Michel & Pfeffer v. Oceanside Properties, Inc. (1976) 61 Cal.App.3d 433, 443; Kaiser Cement & Gypsum Corp. v. Allis-Chalmers Mfg. Co. (1963) 35 Cal.App.3d 948, 960.) The words “sole remedy,” however, are pretty clear. While it would certainly have been better to use the words “covenant or condition” instead of just “condition,” this is hindsight. As we have discussed, the word “condition” embraced Westminster’s covenant to use reasonable diligence. If the parties intended the “sole remedy” provision to apply only when the conditions in section 3.3 failed through no fault of Westminster, one would have expected them to say so. Instead, it applied whenever the conditions failed, without qualification. We find this adequately clear.
We therefore conclude that the only remedy to which Krikorian was entitled, based on Westminster’s failure to obtain third party approvals under section 3.1 of the lease, regardless of whether Westminster used reasonable diligence, was to terminate the lease and recover its architectural fees. We further conclude that Westminster had the right to terminate the lease based on its own failure to commence construction within 730 days, regardless of whether Westminster used reasonable diligence; in that event, too, Krikorian’s only remedy was to recover its architectural fees.
In responding to Westminster’s “sole remedy” contention, Krikorian never suggests that it was entitled to damages based on any other breach. Admittedly, in responding to a separate contention by Westminster (see part VI.B, post), Krikorian does argue that Westminster was liable, not only for breach of section 3.1 of the lease, but also for breach of the implied covenant of good faith and fair dealing. For example, it argues that Westminster breached the implied covenant by, among other things, deciding to build the theater at grade, firing P+R, and seeking replacement theater operators. Krikorian concludes that, because Westminster was already in breach of the implied covenant, Westminster was not entitled to terminate the lease.
As we just noted, however, the lease expressly allowed Westminster to terminate based on its own failure — with or without reasonable diligence — to begin construction within 730 days. “[A]n implied covenant of good faith and fair dealing cannot contradict the express terms of a contract. [Citation.]” (Storek & Storek, Inc. v. Citicorp Real Estate, Inc. (2002) 100 Cal.App.4th 44, 55, fn. omitted.) “We are aware of no reported case in which a court has held the covenant of good faith may be read to prohibit a party from doing that which is expressly permitted by an agreement. On the contrary, as a general matter, implied terms should never be read to vary express terms.” (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 374.) Thus, Westminster’s termination of the lease could not, in and of itself, violate the implied covenant. Moreover, even assuming that some of its actions while the lease was still in effect could or did breach the implied covenant, Krikorian specifically disclaimed any damages independently attributable to those actions. Westminster’s rightful termination of the lease superseded any such damages.
In sum, then, we hold that Krikorian was not entitled to recover any damages other than reimbursement of its architectural fees. The award of $16 million in damages is not supported by the evidence. Hence, we must reverse the award.
IV
WESTMINSTER’S OTHER CONTENTIONS
Because the award of damages must be reversed, Westminster’s additional contention that Krikorian’s benefit-of-the-bargain damages were speculative is moot.
We still must consider, however, whether we should reverse only the award of damages, or whether we should also reverse the finding of liability. Westminster raises two contentions with respect to the finding of liability, which we now discuss.
A. The Form of the Special Verdict.
Westminster contends that the special verdict was defective because the jury was not asked whether the conditions precedent to Westminster’s performance had been satisfied. Westminster, however, failed to object to the special verdict form on this ground. Accordingly, it forfeited the asserted defect. (Mardirossian & Associates, Inc. v. Ersoff (2007) 153 Cal.App.4th 257, 277.)
Westminster points out that it did request a special verdict that asked, “Did Westminster Central commence construction of the Building within seven hundred thirty (730) days following the Commencement Date of the Lease?” When the trial court, however, asked counsel for Westminster why they had requested this particular question, they essentially agreed that it was unnecessary. The trial court therefore decided not to use it. Westminster never argued that it was relevant to whether the conditions precedent to Westminster’s performance had been satisfied. Thus, it failed to raise below the particular error that it is now asserting on appeal.
Moreover, asking this would not have been the same thing as asking whether the conditions precedent to Westminster’s performance had been satisfied. First, commencing construction within 730 days was not a condition precedent. If Westminster could not (in Krikorian’s view) or did not (in our view) commence construction within 730 days, it had the right to terminate the lease. Unless and until Westminster gave notice of termination, however, it continued to have an obligation to perform. Thus, this was a condition subsequent, at best, not a condition precedent. Second, the proposed special verdict did not address any of the other occurrences that Westminster now claims were conditions precedent to its performance, such as obtaining third party approvals as required by section 3.1. Hence, we conclude that the claimed error was forfeited.
B. Cause of Action for Breach of the Implied Covenant.
Westminster also contends that Krikorian’s cause of action for breach of the implied covenant of good faith and fair dealing should not have been submitted to the jury. Even so assuming, this does not require reversal of the jury’s liability finding unless Westminster can show prejudice. (Cal. Const., art. VI, § 13; Code Civ. Proc., § 475; Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 570.) Krikorian did not seek, and the jury did not award, any additional damages based on the implied covenant. Moreover, the implied covenant will not entitle Krikorian to any additional damages on remand.
Westminster argues that Krikorian was erroneously allowed to introduce evidence in support of the implied covenant cause of action. In particular, it complains about the admission of evidence that it did not promptly tell Krikorian that it was considering building the theater at grade and that it began soliciting other potential theater operators while the lease was still in effect. This evidence, however, was relevant to whether Westminster was using reasonable diligence. Accordingly, it was relevant to Krikorian’s breach of contract cause of action. (Indeed, Westminster argues that the same alleged breaches were the basis of both the implied covenant cause of action and the breach of contract cause of action.) The evidence would have been admissible even in the absence of the implied covenant cause of action.
We therefore conclude that Westminster has not shown any prejudice from this claimed error.
V
DISPOSITION
The judgment with respect to liability is affirmed; the judgment with respect to damages is reversed. Westminster is awarded costs on appeal against Krikorian.
We concur: McKINSTER, Acting P.J., MILLER, J.