Guam Resorts Inc v G C Corporation [2013] GUSC 10; 2013 Guam 10 (2 July 2013)

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G.C. CORPORATION and DONG YANG CORPORATION,
Defendants-Appellees/Cross-Appellants.

Supreme Court Case No.: CVA12-003
Consolidated with CVA12-004, CVA12-019, CVA12-020
Superior Court Case Nos.: CV0137-08, CV1491-07

Appeal from the Superior Court of Guam
Argued and submitted February 22, 2013
Hagåtña, Guam

Appearing for Plaintiff-Appellant/ Cross-Appellee (Guam Resorts, Inc.): Thomas J. Fisher, Esq. Fisher & Assocs. 167 E. Marine Corps Dr., Ste. 101 Hagåtña, GU 96910	Appearing for Defendant-Appellee/ Cross-Appellant (G.C. Corporation): Joyce C.H. Tang, Esq. Civille & Tang, PLLC 330 Hernan Cortez Ave., Ste. 200 Hagåtña, GU 96910
	Appearing for Defendant-Appellee/ Cross-Appellant (Dong Yang Corporation): Thomas McKee Tarpley, Esq. Thomas McKee Tarpley Law Firm 414 W. Soledad Ave. GCIC Bldg., Ste. 904 Hagåtña, GU 96910

BEFORE: F. PHILIP CARBULLIDO, Chief Justice; KATHERINE A. MARAMAN, Associate Justice; RICHARD H. BENSON, Justice Pro Tempore.

[1] This litigation arises as a contract dispute between a contractor, G.C. Corporation ("GCC"), a subcontractor/guarantor, Dong Yang Corporation ("Dong Yang"), and the owner of the Okura Hotel, Guam Resorts, Inc. ("GRI"). The trial court found that both GCC and GRI breached obligations to each other, specifically, that GRI reinterpreted the terms of payment in the contract and withheld additional money. It declined to make a specific finding on the amount of work completed and thus did not calculate damages on that basis. It found GCC liable for consequential damages for attorney's fees, as a result of forcing GRI to participate in other litigation because of GCC's breach. The trial court also found that the guaranty agreement between Dong Yang and GRI was exonerated. The trial court further found that Dong Yang was equitably estopped from foreclosing on its mechanic's lien because it held itself out to be a valid guarantor after the guaranty had been exonerated, continuing until it filed the lien, leading GRI to rely on its conduct to its detriment. GRI, GCC, and Dong Yang all filed appeals.

[2] For reasons explained below, we affirm in part, reverse in part, and remand for a limited purpose.

[3] In 2006, GRI sought bids for a renovation project on the Okura Hotel. In September 2006, it agreed to a contract with GCC.[1] GRI agreed to pay GCC $20,800,000.00 as the total value of the contract, or construction contract sum. The contract called for an "initial [Payment] Upon Commencement of Work" of 10% of the construction contract sum, or $2,080,000.00. Record on Appeal ("RA"), Aff. Mark Day, Ex. B, English Constr. Agreement at 1 (Dec. 6, 2010). Subsequent payments "for [the] amount due" were to be made at the end of every month ("progress payments"); however, "20% of progress payments [were] retained" by GRI ("retainage"), to be settled within a month of completion. Id. The contract also stated the Japanese language version of the contract served as the original and the English translation was not legally binding.

[4] Article 26 of the contract governed payment. Article 26(2) reiterated the arrangement with respect to progress payments, where GRI would pay GCC 80% "of the amount of the Construction Contract Sum corresponding to the completed portion of the Work that has passed the inspection of Supervisor" each month. Id. at 9. The remaining 20% served as the retainage. Article 26(4) of the contract stated that if "prepayment has been received, the amount of the progress payment to be billed . . . shall be calculated pursuant to the following formula." Id. at 9. The formula was that the amount to be billed was equal to the construction contract sum minus the amount prepaid, divided by construction contract sum, the product of which was multiplied by the amount calculated under Article 26(2). Id.

Amount to be Billed = Amount Pursuant to (2) x		Construction Contract Sum - Amount Prepaid
		Construction Contract Sum

Id. GCC's translation of Article 26(2) and (4) stated that "[w]hen having received payment in advance," such "partial payment" could be requested by the contractor. RA, GCC Answer & Countercl., Ex. A, English Constr. Agreement at 11 (Dec. 27, 2007).

[5] The Japanese version of the contract at different places used the terms "maeberai" and "daiikaime." Transcripts ("Tr."), vol. 4 at 99, 157-61 (Bench Trial, July 30, 2009); RA, Aff. Mark Day, Ex. A, Japanese Constr. Agreement at 1, 9-10 (Dec. 6, 2010). At trial, Mr. Kilhak Kunimoto ("Kunimoto"), architect for GRI, testified concerning the terms. He stated that "daiikaime" meant "first payment" and was used in place of "initial [payment]" from the English contract. Tr., vol. 4 at 106 (Bench Trial). He testified that "maeberai" appeared in place of "amount prepaid" in Article 26(4) and meant "advance payment." Id. at 157-59. He testified that the terms did not have the same meaning.

[6] A great deal of dispute arose surrounding the meaning of the Japanese terms as they applied to Article 26. Specifically, the parties disputed whether the 10% payment of $2,080,000.00 was a prepayment or advance payment, as argued by GRI, or a first, mobilization, or initial payment, as advocated by GCC. If it were considered prepayment, then it would be factored in under the formula of Article 26(4), such that progress payments to GCC would be further reduced to compensate for this amount being paid upfront. As a mobilization payment, it would be money paid to GCC upfront to cover initial costs, not subject to retainage or factoring in the formula in Article 26(4), though it would count towards the construction contract sum of $20,800,000.00, the total amount GRI would owe by the completion of construction. Under that reading, Article 26(4) would apply to any payments made in advance by GRI to GCC to cover costs in the course of construction, as a loan, distinct from the 10% payment.

[7] GCC subcontracted some of the work to Dong Yang. As part of the agreement, GCC presented Dong Yang to GRI as a guarantor. In September 2006, Dong Yang signed a statement promising GRI to act as guarantor of the project, and that it would be jointly and severally liable for any obligations in case of default by GCC.

[8] During construction, a number of change orders were approved by GRI, adding to the nature and scope of the work. GRI approved $797,600.00 worth of work, rendering the total value of the contract $21,597,600.00.

[9] A number of disputes arose during construction. Of significance to the present appeal, following the sixth progress payment, GRI made changes to the amount paid, decreasing what GCC actually received. It specifically did so by considering the initial 10% payment as prepayment, applying the formula for Article 26(4) to the payments going forward, reducing the amount given to GCC in payments seven through eleven. It retroactively applied this to payments one through six as well, deducting a greater amount to compensate for what it deemed to be earlier overpayment. Kunimoto testified that this seemed onerous. He stated that the typical retainage in the industry was 5-10%. He testified that Mr. Noshita, a supervisor at GRI, had disagreed with Kunimoto's decision not to apply Article 26(4), and acted to decrease the amount that was actually paid to GCC. Then Kunimoto was relieved of duty on the project by Mr. Mori, President of GRI. There were also a number of disputes about use of outside construction material that had not undergone inspection, as promised in the contract.

[10] In September 2007, GCC ceased construction with only a portion of the project completed. GRI notified GCC that it believed this action signified GCC's repudiation of the contract.

[11] At the time of suspension, the court found that GRI had paid GCC $6,967,547.19, which includes the initial 10% payment, but does not include any retainage.

[12] On November 20, 2007, GCC sent a 15-day notice of a mechanic's lien against the hotel in the amount of $2,349,618.70. It recorded the lien against the hotel on December 6, 2007.

[13] Dong Yang filed a mechanic's lien against the hotel on November 29, 2007. It filed a second lien in January 2008, but the court later found the attempt to enforce it untimely, and Dong Yang did not appeal that decision.

[14] On December 12, 2007, GRI sued GCC to quiet title and extinguish the lien. GCC brought counterclaims for breach of contract, quantum merit, and sought foreclosure of the lien.

[15] Dong Yang sued GRI and GCC to foreclose on its mechanic's liens and for breach of contract. GRI filed suit against GCC for breach of contract, breach of constructive trust, fraudulent misrepresentation, constructive fraud, and slander of title, and against Dong Yang for breach of guaranty. The cases were consolidated, but then the parties agreed to bifurcate the claims by GRI against Dong Yang and Dong Yang's claim for indemnification against GCC from the other issues.

[16] The court held a ten-day bench trial on the main case between GCC and GRI, the pertinent facts of which were discussed above.

[17] Following trial, on March 17, 2011, the court issued an Amended Findings of Fact and Conclusions of Law. It found that when work ceased on the renovations, between 30.39% and 39.62% of the project had been completed, but it could not determine the exact percentage from the evidence submitted. Specifically, it noted that the only evidence to support GRI's 30.39% was the testimony of Mr. Tomada, who was not qualified as an expert. However, it also found that while GCC had expert testimony from Kunimoto that 39.62% had been completed, it found that that figure was based in part on work and materials that had not been incorporated into the project, particularly for claims for a fire alarm system that was not installed and for a variety of installations that GCC claimed it had done, but the court found it had not.

[18] The trial court found that the final contract required a 20% retainage from each progress payment, which GRI would retain until work was completed. The contract called for a total payment of $20,800,000.00, of which 10%, or $2,080,000.00, was due upon signing. The contract permitted multiple methods of payment, and GCC opted to be paid monthly based on progress payments.

[19] The court found that starting with the seventh progress payment, problems arose. GCC's filings were not in conformity with the contract, and GRI increased its retainage from 20% to 30%. It found that there was "no way for [this] Court to determine" how much of payment applications 7-11 were reduced because GRI refused to pay GCC a 50% deposit for certain items and materials. RA, Am. Finds. Fact & Concl. L. at 10 (Mar. 17, 2011). When work was suspended, GCC claimed to have received $4,815,731.74, while GRI retained $1,658,378.36.

[20] The court noted the dispute over the meaning and significance of "maeberai" and "daiikaime." Id. at 17. The court concluded that GRI's interpretation, leading to a 28% retainage, "[was] not reflective of what the parties negotiated[.]" Id. It found that "maeberai" and "daiikaime" were not the same, but rather that the 10% payment was an initial payment, rather than a prepayment subject to Article 26(4). Id. at 20. Treating the terms as equivalent and factoring in the formula under Article 26(4) would have meant that GCC was essentially agreeing to a 30% retainage, when it had specifically rejected such an amount in earlier negotiations, and indeed 20% was well above the industry standard. The court found that GRI breached the contract by improperly adding to the retainage payments beyond the agreed-upon 20%.

[21] With respect to damages, the court made the following findings. On actual damages, the court found that there was neither an underpayment nor an overpayment. It noted that GRI claimed that it had overpaid, based on 30.39% of the work being done, and GCC claimed it was underpaid, based on 39.62% of the work being completed. Because the court found that it could not make a determination on how much work was completed, "both parties failed their burden of proof regarding this damage amount." Id. at 29.

Supreme Court of Guam

Guam Resorts Inc v G C Corporation [2013] GUSC 10; 2013 Guam 10 (2 July 2013)