Opinion
NOT TO BE PUBLISHED
Sonoma County Super. Ct. No. SCV 226091
RIVERA, J.
This is an appeal and cross-appeal following a jury verdict in favor of plaintiffs, Don and Kathy Zeppenfeld, on their complaint for fraud against defendant, Martin Reilley (Reilley), in connection with the sale of a newly constructed home in Santa Rosa (the property). The jury found by special verdict, among other things, that Reilley made false representations and failed to disclose material facts about the property. Reilley appeals from the judgment and from postjudgment orders awarding attorney fees and denying his new trial motion. The Zeppenfelds have cross-appealed from an order granting summary adjudication of their breach of contract and related warranty claims and from an order granting a setoff in the final judgment for prelitigation and pretrial settlements. We affirm in part and reverse in part.
We will refer to Don and Kathy Zeppenfeld by their first names when speaking of them individually and as Zeppenfelds when speaking of them collectively; we mean no disrespect by the use of their first names.
I. FACTUAL AND PROCEDURAL BACKGROUND
On September 16, 1996, Reilley, an attorney in Sonoma County, purchased certain real property for $165,000. At the time of purchase, the property was a vacant lot on which Reilley intended to build a home for his family. Reilley hired Alexei Botygin (Botygin) to design the home and supervise its construction. Reilley retained William Gordon (Gordon), a general contractor to do the framing, foundation, driveway, and finish work. Gordon eventually took over responsibility for coordinating the subcontractors.
In May 1997, while the home was under construction, Reilley decided to sell the property and listed it with his real estate agents, Sherree and Harry Fogel. The Zeppenfelds first saw the house on a rainy day in January 1998, and they observed that the windows were leaking. When the Zeppenfelds asked about the leaks, Sherree said that the leaks would be fixed and that the house would carry a one-year builder’s warranty.
We will refer to Sherree and Harry Fogel by their first names when speaking of them individually and as Fogels or realtors when speaking of them collectively; we mean no disrespect by the use of their first names.
The Zeppenfelds’ real estate agent, Jeffrey Schween (Schween), prepared an offer to purchase the house and submitted it on January 21, 1998. Despite the fact that the home was new and still under construction, Schween utilized a standard form contract for the sale of used homes, which contained an “ ‘as is’ ” clause and a standard integration clause. After multiple counteroffers were exchanged, a purchase agreement (contract) was executed. The contract provided for various contingencies, including that all repairs under the contract were to be completed by the close of escrow.
Sometime in late January or early February 1998, Gordon recaulked the windows at the property. In the transfer disclosure statement for the property, dated February 4, 1998, and received by the Zeppenfelds on February 16, 1998, Reilley stated, “leaks in windows in downstairs rec room and other areas being addressed.” In the supplemental transfer disclosure statement, also dated February 4, 1998, and received by the Zeppenfelds on February 16, 1998, Reilley stated Gordon was “currently” repairing “leaks” at the property.
In February 1998, Reilley hired Babson & Sons Construction, Inc., (Babson & Sons) to complete the construction and repairs of the house, including repair of various leaks. Babson & Sons inspected the house and noted several other items to correct, including deck leaks, which it included in an “Extra Repairs Needed” list.
The Zeppenfelds, accompanied by Schween, conducted a preliminary walk through of the house sometime on or before February 11, 1998. As part of this initial walk through, the following two documents were prepared: (1) “Buyer’s Preliminary walk-through,” and (2) “Buyer’s Expectations.” The documents listed items that the Zeppenfelds wanted and expected Reilley to address, including the repair of various window leaks.
On March 19, 1998, a day before escrow closed, the Zeppenfelds conducted a final walk through inspection of the property and prepared a “Final Walk-through Inspection Guide,” which was accepted by Reilley subject to an addendum to the contract. The March 19, 1998, addendum (addendum) states, in pertinent part, as follows: “Regarding the Real Estate Transfer Disclosure Statement received by Buyer on 2/16/98 - Seller states the following[: ¶] Leaks in the house and the decks were discovered after the 2/4/98 disclosure & Seller has had those leaks addressed. Buyer is aware of that fact.” Escrow closed on March 20, 1998.
In November 1998, the window and deck leaks reoccurred. The Zeppenfelds contacted Reilley, and he came out to the property with Babson & Sons to investigate the damage. Babson & Sons subsequently denied any responsibility for the damage and refused to do any further work. When the Zeppenfelds asked Reilley to honor the warranty on the property, Reilley stated that he was an “owner/builder and had no responsibility.”
The Zeppenfelds hired Wesley Daniels (Daniels), an expert in the field of water leak investigation and repair, to determine the cause of the water leaks. Daniels determined that the water leaks were the result of defects and improper installation of the windows and decks, including defects in the framing, sheet metal flashing, building paper, and caulking used in the construction. Daniels opined that the window leaks had simply been recaulked. He further opined that Babson & Sons had not repaired the windows, because it wanted Gordon, the general contractor, to deal with the repairs.
The record reflects that Daniels initially had been jointly retained by the Zeppenfelds and Reilley. At some point, Reilley informed the Zeppenfelds that he would no longer pay for Daniels’s services.
The leaks were eventually repaired for $90,000. The Zeppenfelds purchased the property for $672,000. At the time of the purchase, the property had an appraised value of $710,000. The Zeppenfelds sold the property in 2002 for $922,250.
Prior to filing the instant action, the Zeppenfelds settled their claims against one of the window subcontractors for approximately $1,500. Also, during mediation, the Zeppenfelds settled their claims against Schween ($20,000) and the Fogels ($10,000).
It is unclear whether the settlement was with Shelter Glass, International Window, or both.
In January 2001, the Zeppenfelds filed a complaint against Reilley, Gordon (individually and as Gordon Construction), Matt Thorson (individually and as Matt Thorson Tile), and Tri-County Heating & Sheet Metal (Tri-County) alleging causes of action for strict liability, breach of implied warranty, negligence, breach of contract, and breach of express warranty. Reilley was not named in the negligence cause of action, but was the sole defendant named in connection with the breach of contract and breach of express warranty causes of action.
In January 2002, the Zeppenfelds filed a first amended complaint, adding causes of action for intentional fraud and deceit, and negligent misrepresentation against Reilley. Following the filing of the first amended complaint, the Zeppenfelds settled with Gordon for $65,000 and with Tri-County for $10,000.
In June 2004, the trial court granted Reilley’s motion for summary adjudication of the Zeppenfelds’ causes of action for breach of contract, breach of express warranty, and breach of implied warranty. The trial court refused to consider the Zeppenfelds’ evidence due to procedural defects, and further ruled that such evidence was precluded by the parol evidence rule.
On July 15, 2004, Division Four of the First District Court of Appeal (this Division) denied the Zeppenfelds’ petition for writ of mandate, challenging the trial court’s rulings. Pursuant to Evidence Code section 452, subdivision (d), we take judicial notice of the record in Zeppenfeld v. Superior Court (Jul. 15, 2004, A107064).
Trial proceeded against Reilley on the fraud causes of action only. Don testified that at his first visit to the property, Sherree represented that the leaks would be fixed properly and that there would be a one-year warranty. Don further testified that prior to making an offer on the property, Reilley told him that the leaks would be fixed. During the escrow period, Reilley had a conversation with the Zeppenfelds in the driveway of the property, wherein he represented that Babson & Sons, as the general contractors, would “stand behind their work” and that Babson & Sons would “do a good job” fixing the property.
Don testified that he did not hire an expert to inspect the property during the escrow period because it was “a brand-new house and it still needed to be completed, and we had the assurances of both the Fogels and Mr. Reilley that it would be completed in a workmanlike manner.” He further testified that “the understanding was that we were — the understanding, clearly across the board from not just the Fogels, but Marty and my agent, was that Babson was going to fix the problem, they were going to stand behind their work; and if . . . the problem reoccurred, that I had a year’s warranty and they’d come back out and fix it.” However, in December 1998 Don learned that Babson & Sons would not fix the leaks that had reappeared. Reilley told Don that the Zeppenfelds could not go after Babson & Sons or Botygin; Reilley suggested that the Zeppenfelds should go after the original contractors.
Don testified that Reilley told him that Botygin “didn’t have two nickels to rub together; and that he had been in this accident, . . . and he [Reilley] knew that because his firm was representing him in the suit—or postaccident.”
Kathy testified that Sherree told the Zeppenfelds at their first visit to the property that it was an “Alex Botygin house,” and that the house would have a one-year warranty. Kathy also recalled the conversation in the driveway of the property that took place during the escrow period. She remembered Reilley stating that “Babson would finish the house; if there were ever any issues, that he would come back out and fix any problems. That it would be finished as per code.” Reilley represented that there would be a one-year warranty. Kathy testified that she would not have bought the house had she known unlicensed contractors had worked on the construction.
Sherree testified that she told Reilley that it was his obligation to create a warranty. Sherree thought she told the Zeppenfelds that the property had a warranty. She testified that she had always expected that there would be a warranty and she never told the Zeppenfelds anything contrary to this understanding. Sherree recalled giving Reilley a sample warranty to get things started. However, she could not recall Reilley’s response to her suggestion that a warranty should be provided. Sherree did not do any follow-up investigation to determine whether any written warranties were created by Reilley or the contractors.
Gordon testified that, on or before February 13, 1998, he had a conversation with Reilley regarding the water-intrusion problems at the property. During that conversation, Gordon recalled telling Reilley that he would have used different corner boards, different types of paper, and different types of caulking. Gordon also recalled telling Reilley that the deck had various construction problems. On or before February 13, 1998, Gordon told Reilley that he (Gordon) “would need to do [a] more destructive investigation to determine the source of the problem.” Reilley told Gordon that Babson & Sons was “taking over.”
Stacy Patterson, who had been previously employed by Babson & Sons, testified that he told Reilley that he did not like the way the deck had been constructed. He testified that the window leaks under the deck were due to trim and flashing problems with the deck that created a damming effect. Patterson recalled that either he or his stepfather, Bob Babson, told Reilley about the damming problem. Patterson told Reilley that the recaulking done by Gordon was merely “a band-aid fix.” Patterson did not remember Reilley ever asking him to fix the problem.
Bob Babson testified that he agreed to fix various leaks that were listed on the “punch list.” However, Babson told Reilley that he was only going to fix “obvious leaks” and would not be doing “full repairs” to the property. Reilley never told Babson that he wanted him to do a full repair.
Matthew Thorson, formerly doing business as Matt Thorson Tile, testified that he had worked on the decks at the property. Thorson told Reilley that he was not a licensed contractor. Reilley “seemed to be quite fine” with Thorson’s unlicensed status. Thorson told Reilley that the application of the siding was incorrect because it should not have been installed over the sheet metal prior to the waterproofing of the deck. Reilley never told Thorson to fix the problem.
Botygin testified that he told Reilley that he was not a licensed architect or contractor. His written agreement with Reilley contained a seven-year limited warranty on the structure.
Reilley testified that he told Gordon to fix the leaks. On February 13, 1998, Reilley learned that Gordon, on at least two occasions, had unsuccessfully tried to caulk the windows. Reilley denied meeting with the Zeppenfelds in the driveway, and denied that the Zeppenfelds had asked him about warranties. He further denied having any conversations with the Zeppenfelds regarding the construction, or that Botygin had been in an accident, or that he would replace Botygin with another reputable contractor. Reilley did not recall Sherree sending any sample warranties. He denied telling Zeppenfelds during the escrow period that the contractors would “stand behind their work” if there ever was a problem. Reilley stated that although it was “everyone’s presumption” that the contractors would stand behind their work, he never had a conversation with the Fogels about the contractors coming back if there were problems. Reilley testified that the only warranty he mentioned to the Fogels was the one contained in his agreement with Botygin. Reilley denied knowing that Thorson was an unlicensed contractor.
By special verdict the jury found in favor of the Zeppenfelds on the fraud causes of action. The jury awarded the Zeppenfelds $178,000.
Reilley filed a motion for new trial on various grounds, including that the Zeppenfelds’ fraud allegations were barred by the statute of limitations. The trial court denied the motion for new trial in its entirety. However, the trial court granted Reilley’s motion to determine setoff and amount of judgment, and issued an order reducing the amount of the judgment to $71,500. In determining the amount of setoff, the trial court judicially noticed the Zeppenfelds’ prior settlements with other parties, which totaled $106,500.
The trial court denied Reilley’s motion for attorney fees and costs. The court struck $1,659 of the Zeppenfelds’ costs and awarded them attorney fees and costs in an amount in excess of $500,000.
II. DISCUSSION
A. Appeal
In support of his appeal, Reilley advances numerous claims of error, which we address in turn.
1. The Parol Evidence Rule Does Not Bar the Zeppenfelds’ Evidence
Reilley claims the Zeppenfelds’ evidence he falsely promised that the window leaks would be repaired, that the repairs would be up to code, and that there would be a warranty is barred the parol evidence rule.
The parol evidence rule is a rule of substantive law that bars the introduction of extrinsic evidence to contradict the terms of a final and complete (i.e., integrated) written agreement. (Code Civ. Proc., § 1856, subd. (a); Masterson v. Sine (1968) 68 Cal.2d 222, 225; Marani v. Jackson (1986) 183 Cal.App.3d 695, 701.) “Under that rule the act of executing a written contract, whether required by law to be in writing or not, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument. [Citation.] Extrinsic evidence cannot be admitted to prove what the agreement was, not for any of the usual reasons for exclusion of evidence, but because as a matter of law the agreement is the writing itself. [Citation.]” (BMW of North America, Inc. v. New Motor Vehicle Bd. (1984) 162 Cal.App.3d 980, 990 (BMW of North America).) The rule does not, however, prohibit the introduction of extrinsic evidence “to explain the meaning of a written contract . . . [if] the meaning urged is one to which the written contract terms are reasonably susceptible.” (Id. at p. 990, fn. 4.)
“ ‘It is . . . settled that parol evidence of fraudulent representations is admissible as an exception to the parol evidence rule to show that a contract was induced by fraud.’ ” (Pacific State Bank v. Greene (2003) 110 Cal.App.4th 375, 389 (Greene).) Code of Civil Procedure section 1856, subdivision (g) provides in relevant part: “This section does not exclude other evidence of the circumstances under which the agreement was made or to which it relates, as defined in Section 1860, or to explain an extrinsic ambiguity or otherwise interpret the terms of the agreement, or to establish illegality or fraud.” (Italics added.)
This has long been the law in California. In Ferguson v. Koch (1928) 204 Cal. 342, 344-345 (Ferguson), the seller contended that the buyer was barred by the parol evidence rule from introducing evidence contradicting the sales agreement where the buyer alleged he had been fraudulently induced to enter into an automobile purchase agreement through the nondisclosure of material facts and affirmative misrepresentations. Our Supreme Court rejected the argument and explained that “Parol evidence is always admissible to prove fraud, and it was never intended that the parol evidence rule should be used as a shield to prevent the proof of fraud. Hence, the fact that the sale of an automobile is evidenced by a written contract will not prevent the purchaser from proving by parol evidence that the sale was induced by fraud. And this is true even though the contract recites that all conditions and representations are embodied therein. [Citations.] There is no such sanctity surrounding a writing that parties may not be permitted to go back of it and show that there was such fraud practiced in the procurement of the same as to vitiate the writing. The law never countenanced a rule which would deny to one the right to prove that fraud had been practiced upon him. [Citations.]” (Id. at p. 347; accord, Vai v. Bank of America (1961) 56 Cal.2d 329, 344; Greene, supra, 110 Cal.App.4th at pp. 390-392 [distinguishing between promissory fraud, which is not a valid exception to the parol evidence rule, and misrepresentations of fact over the content of an agreement at the time of execution, which is a valid exception to the parol evidence rule].)
Reilley attempts to avoid the exception set forth in Code of Civil Procedure section 1856, subdivision (g). Since Ferguson, the fraud exception to the parol evidence rule has been refined. The fraud exception is no longer “applicable where ‘promissory fraud’ is alleged, unless the false promise is independent of or consistent with the written instrument. [Citations.]” (Continental Airlines Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388, 419, fn. omitted.) “ ‘Promissory fraud’ is a promise made without any intention of performing it.” (Alling v. Universal Manufacturing Corp. (1992) 5 Cal.App.4th 1412, 1436.) In Bank of America etc. Assn. v. Pendergrass (1935) 4 Cal.2d 258, 263, the California Supreme Court pronounced the following limitation on the fraud exception: “Our conception of the rule which permits parol evidence of fraud to establish the invalidity of the instrument is that it must tend to establish some independent fact or representation, some fraud in the procurement of the instrument or some breach of confidence concerning its use, and not a promise directly at variance with the promise of the writing.” The court explained that use of promissory fraud to invalidate an integrated agreement would nullify the parol evidence rule. (See ibid.)
Here, Reilley contends that the fraud exception does not apply because the Zeppenfelds’ evidence contradicted and/or varied the terms of the contract. Reilley looks to the integration clause of the purchase contract stating that no representations were made except as contained in the contract. However, an integration clause does not foreclose a buyer from relying on extrinsic misrepresentations of the seller or an agent. (Ron Greenspan Volkswagen, Inc. v. Ford Motor Land Development Corp. (1995) 32 Cal.App.4th 985, 987, 992-993 (Greenspan Volkswagen); Danzig v. Jack Grynberg & Associates (1984) 161 Cal.App.3d 1128, 1138.) This is based on the fundamental public policy that one cannot contract away his own fraud, and that the parol evidence rule should not be used as a shield to prevent the proof of fraud. (See Ferguson, supra, 204 Cal. at p. 347; Greenspan Volkswagen, supra, 32 Cal.App.4th at pp. 992-993.)
Reilley cites Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 347 (Casa Herrera) for the proposition that our Supreme Court has further refined the parol evidence rule to provide “ ‘absolute protection from liability’ ” for fraud based on oral promises. Reilley’s reliance on Casa Herrera is misplaced. The issue in Casa Herrera was whether termination of an underlying action based on the parol evidence rule constituted a favorable termination for purposes of a subsequent malicious prosecution action. (Id. at p. 341.) There, the seller of an oven filed a malicious prosecution action against the purchasers, following the nonsuit granted against the purchasers on their causes of action for breach of contract and fraudulent misrepresentations. (Id. at pp. 339-340.)
In Casa Herrera, the seller, in a written sales contract, promised that the oven would produce 1,500 dozen 10-ounce tortillas per hour. The purchasers sued the seller, claiming it had promised the oven would produce 1,500 dozen 16-ounce tortillas per hour, and that the seller knew the oven did not and could not do so. (Casa Herrera, supra, 32 Cal.4th at p. 339.) The appellate court affirmed the judgment in favor of the seller, finding that the parol evidence rule barred the purchasers from attempting to show that the seller had breached a promise (or fraudulently promised) to provide an oven producing 16-ounce tortillas at a rate of 1,500 per hour. (Id. at p. 340.)
Our Supreme Court held that termination of the underlying action based on the parol evidence rule was on the merits, and therefore there was a favorable termination. (Casa Herrera, supra, 32 Cal.4th at pp. 341-342, 349.) In so holding, the court discussed the substantive nature of the parol evidence rule, and observed “our courts have consistently rejected promissory fraud claims premised on prior or contemporaneous statements at variance with the terms of a written integrated agreement. [Citations.]” (Id. at p. 346, italics added, fn. omitted.) The court further noted that “the parol evidence rule, as a practical matter, provides ‘absolute protection from liability’ for prior or contemporaneous statements at variance with the terms of a written integrated agreement.” (Id. at p. 347, fn. omitted.)
Significantly, Casa Herrera involved promissory fraud, not fraud in the inducement or misrepresentations of fact. (See Casa Herrera, supra, 32 Cal.4th at pp. 346-347 & fn. 6.) “California law distinguishes between fraud in the ‘execution’ or ‘inception’ of a contract and fraud in the ‘inducement’ of a contract. In brief, in the former case ‘ “the fraud goes to the inception or execution of the agreement, so that the promisor is deceived as to the nature of his act, and actually does not know what he is signing, or does not intend to enter into a contract at all, mutual assent is lacking, and [the contract] is void. . . .’ ” [Citation.] Fraud in the inducement, by contrast, occurs when ‘ “the promisor knows what he is signing but his consent is induced by fraud, mutual assent is present and a contract is formed . . . .” ’ ” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 415.)
We interpret the Supreme Court’s further refinement of the parol evidence as stated in Casa Herrera, supra, 32 Cal.4th at page 347, as applying to a prior or contemporaneous promise that varies or contradicts the promise of the writing, not a misrepresentation of fact (see Greene, supra, 110 Cal.App.4th at pp. 390-391). The extrinsic evidence in Casa Herrera regarding the seller’s purported representations about the oven unquestionably contradicted the terms of the contract. (See Casa Herrera, supra, 32 Cal.4th at p. 340.) Accordingly, such representations were appropriately barred by the parol evidence rule.
Here, unlike in Casa Herrera, the Zeppenfelds’ evidence that Reilley represented that the leaks had been fixed is not contrary to the terms of the contract. A contractual provision directly at variance with the Zeppenfelds’ evidence would be one affirmatively stating that no repairs to the property are contemplated under the contract. None of the contractual provisions say this. Rather, paragraph 17 of the contract, provides, in pertinent part, as follows: “REPAIRS: Repairs under this Agreement shall be completed prior to Close Of Escrow, unless otherwise agreed in writing. . . . Repairs shall be performed in a skillful manner with material of quality comparable to existing materials.” And, the addendum to the contract specifically states “leaks in the house and the decks were discovered . . . [and] Seller has had those leaks addressed.” Read together, these provisions are consistent with the Zeppenfelds’ evidence regarding Reilley’s representations about the repairs.
To the extent the “ ‘as is’ ” provision can be read as disclaiming any repairs or warranties under agreement, the evidence shows that the parties not only abandoned or ignored the “ ‘as is’ ” provision, but substituted a course of conduct after the agreement was signed that is wholly incompatible with this provision. “When one party has, through oral representations and conduct or custom, subsequently behaved in a manner antithetical to one or more terms of an express written contract, he or she has induced the other party to rely on the representations and conduct or custom. In that circumstance, it would be equally inequitable to deny the relying party the benefit of the other party’s apparent modification of the written contract.” (Wagner v. Glendale Adventist Medical Center (1989) 216 Cal.App.3d 1379, 1388 (Wagner).)
Here, the Zeppenfelds presented evidence that Reilley and his agents represented that the leaks would be fixed and that such work would be warranted. In early 1998, Reilley asked Gordon to fix the leaks. Later, during the escrow period, Reilley hired Babson & Sons to complete the repairs, which included repairs of various window and deck leaks. The Zeppenfelds’ reliance on the representations and conduct is shown by the fact that they did not obtain an independent inspection before moving in, as allowed by the written contract. By attempting to correct the leaks and making representations that the leaks had been “addressed” and that the repairs would be warranted and up to code, Reilley is estopped from arguing that the Zeppenfelds’ evidence is barred by the parol evidence rule. (See Conley v. Matthes (1997) 56 Cal.App.4th 1453, 1466; Wagner, supra, 216 Cal.App.3d at p. 1388.)
In sum, we conclude the trial court did not err in admitting the Zeppenfelds’ evidence of misrepresentations regarding the window repairs and that the work would be warranted and “ ‘up to code.’ ”
2. The Zeppenfelds Presented Admissible Evidence of Recoverable Damages
Reilley argues that the Zeppenfelds failed to produce legally sufficient evidence to prove that they suffered recoverable damages. Reilley insists that the jury’s award of $178,000 in damages is the result of the trial court’s prejudicial error in allowing Don to opine as to the actual value of the property without a lawful basis for his opinion.
a. Background
Following a lengthy Evidence Code section 402 hearing, Don testified as to his methodology of determining his damages. Don testified that he relied on comparable home sales occurring both before and after his purchase of the property, as well as his cost of repairs, in forming his opinion regarding the amount of damages. Don testified that, in making an offer on the property, he reviewed approximately three to five comparable sales to determine whether the listing price of $699,000 was appropriate for the size and location of the property. None of the comparable sales he reviewed disclosed any defects or problems with the properties. In connection with obtaining a mortgage, the Zeppenfelds obtained an appraisal of the property. Don testified that the appraisal corroborated the sales price that he had offered. The appraisal did not incorporate any construction defects. At the time of the appraisal, Don was not aware of any construction defects other than the leaks he thought were being repaired. After various credits, the Zeppenfelds purchased the property for a net price of $672,000.
Don testified that the actual value of the property in 1998 was $500,000. He arrived at this amount by deducting “dollar-for-dollar” the costs of completed repairs ($90,000) and prospective repairs ($40,500) from the $672,000 purchase price. He also deducted approximately $34,000 for a 3 to 5 percent “unknown factor,” which he believed would reduce the property’s value in the eyes of any future buyer.
Don relied on the circumstances of the subsequent sale of the property to corroborate his methodology. Specifically, he testified that he used six comparable sales in setting the resale price of the property in 2001. In reviewing the comparable sales in his neighborhood, Don compared the square footage of the properties that had sold with that of his property. The comparable sales that he reviewed disclosed no defects. Based on the comparable sales and the fact that their home had been appraised for $1,080,000, the Zeppenfelds listed the property for $1,100,000. In listing the property, the Zeppenfelds disclosed that various repairs had been made and that structural items had yet to be corrected. The Zeppenfelds also disclosed that unlicensed contractors had worked on the property. Ultimately, the Zeppenfelds reduced the price to $999,950 to be in line with what they believed the house was worth after taking into consideration the disclosures. After the price reduction, the Zeppenfelds received an offer, which resulted in an agreed price of $930,000. The price was further reduced due to the buyer’s concerns about the disclosures and the property. The property ultimately sold for $922,250.
b. Law
“There are two measures of damages for fraud: out-of-pocket and benefit-of-the-bargain. The out-of-pocket measure restores a plaintiff to the financial position he enjoyed prior to the fraudulent transaction, awarding the difference in actual value between what the plaintiff gave and what he received. The benefit-of-the-bargain measure places a defrauded plaintiff in the position he would have enjoyed had the false representation been true, awarding him the difference in value between what he actually received and what he was fraudulently led to believe he would receive. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1240 . . . (Alliance Mortgage).)” (Fragale v. Faulkner (2003) 110 Cal.App.4th 229, 236 (Fragale).)
However, “ ‘[i]n fraud cases involving the ‘purchase, sale or exchange of property,’ the Legislature has expressly provided that the ‘out-of-pocket’ rather than the ‘benefit-of-the-bargain’ measure of damages should apply.’ (Alliance Mortgage, supra, 10 Cal.4th at p. 1240.) Civil Code section 3343 provides the exclusive measure of damages for fraud in such cases.” (Fragale, supra, 110 Cal.App.4th at p. 236.) Civil Code section 3343, subdivision (a) provides that a person “defrauded in the purchase, sale or exchange of property is entitled to recover the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received . . . .” The defrauded person is also entitled to recover “any additional damage arising from the particular transaction, including any of the following: [¶] (1) Amounts actually and reasonably expended in reliance upon the fraud. [¶] (2) An amount which would compensate the defrauded party for loss of use and enjoyment of the property to the extent that any such loss was proximately caused by the fraud” (Ibid.) Section 3343 specifically excludes benefit-of-the-bargain damages by prohibiting the defrauded person from recovering “any amount measured by the difference between the value of property as represented and the actual value thereof.” (Id., subd. (b)(1).)
“The ‘out-of-pocket’ measure of damages ‘is directed to restoring the plaintiff to the financial position enjoyed by him prior to the fraudulent transaction, and thus awards the difference in actual value at the time of the transaction between what plaintiff gave and what he received. . . .’ [Citations.]” (Alliance Mortgage, supra, 10 Cal.4th at p. 1240.) “[A]ctual value” for purposes of Civil Code section 3343 means “market value.” (Nece v. Bennett (1963) 212 Cal.App.2d 494, 497 (Nece) citing Bagdasarian v. Gragnon (1948) 31 Cal.2d 744, 753.) “While cost of repairs has some probative worth on the issue of value, it is not of itself the proper measure of damages. [Citations.]” (Central Mutual Ins. Co. v. Schmidt (1957) 152 Cal.App.2d 671, 676-677.) In other words, cost of repairs may not be separately assessed without reference to the loss of market value of the property. (See Sacramento & San Joaquin Drainage Dist. v. Goehring (1970) 13 Cal.App.3d 58, 65-66.)
c. Analysis
Reilley argues that Don’s opinion testimony lacked probative value and should have been excluded because it was improperly based on the cost of repairs and included nonrecoverable benefit-of-the-bargain damages.
Reilley relies on various authority for the proposition that evidence of the purchase price and cost to repair is insufficient to prove damages under Civil Code section 3343, as such evidence does not establish what the market value of the property would have been had the true facts been known regarding the leaks and other defects. However, this authority is inapposite as the buyers in those cases presented no evidence of market value. (See, e.g., Saunders v. Taylor (1996) 42 Cal.App.4th 1538, 1543 [owners merely testified as to purchase price; no evidence produced regarding market value had the true facts been known re lack of permits and noncompliance with building code]; see also Gonsalves v. Hodgson (1951) 38 Cal.2d 91, 101 [no evidence other than cost of fishing vessel]; Nece, supra, 212 Cal.App.2d at p. 497 [owner testified that he did not know the value of the property].)
Similarly, Housley v. City of Poway (1993) 20 Cal.App.4th 801 (Housley), cited by Reilley, is distinguishable. There, a property owner sought damages for inverse condemnation and fraud based on an easement granted to the city. (Id. at pp. 805-806.) The owner argued that a “slope easement” granted to the city constituted a “taking” and was based on the misrepresentations of the developer that there would be no slope built in the easement. (Id. at p. 806.) The owner presented no evidence on the fair market value of the land taken, and instead introduced expert testimony to show the cost of repair as exceeding $150,000. Whereas, the city presented evidence that the value of the slope easement was $10,100 and that the value of the entire fee interest of the taken land was $40,400. (Ibid.) On appeal, the city argued that the trial court failed to limit the damages instructions to the “ ‘fair market value’ ” of the property taken, and improperly instructed the jury that it could consider other measures of damages, including the cost of repair. (Id. at pp. 807, 811-813 & fn. 10.) In reversing, the appellate court determined, among other things, that there was no authority holding that “ ‘cost of repair’ ” is relevant where an owner of property is induced by fraud to part with his land. (Id. at p. 813.) Rather, the court stated that the appropriate measure of damages was the out-of-pocket standard, which was limited to the value of the land under the slope, along with any other damages within the scope of Civil Code section 3343. (Housley, at p. 813.)
Here, unlike the owner in Housley, the Zeppenfelds presented evidence of the market value of property. Specifically, Don testified as to the value of the property at the time of his purchase, both in the nondefective and defective condition. Based on comparable sales from 1997 and 1998, he opined the property was worth $672,000 in a nondefective condition, but only worth $500,000 had there been a full disclosure of the repairs needed. The Zeppenfelds did not rely solely on the cost of repairs as the measure of damages, but utilized such costs as a factor in determining the market value of the property at the time of purchase. Contrary to Reilley’s contention, Don’s testimony regarding the cost of repairs had probative worth on the issue of value.
Reilley maintains, however, that Don “was not competent” to determine the effect of the defects on the market value of the property at the time of purchase. We disagree. An owner, as a general rule, may give an opinion as to the value of his or her property. (Evid. Code, § 813, subd. (a)(2).) However, an owner’s right to offer an opinion is not absolute, as it cannot be used as a means of placing incompetent evidence before the jury. (See Contra Costa Water Dist. v. Bar-C Properties (1992) 5 Cal.App.4th 652, 661.) An owner’s valuation opinion also must have adequate foundation. (See Fragale, supra, 110 Cal.App.4th at pp. 240-241, fn. omitted.)
“The opinion of a witness as to the value of property is limited to such an opinion as is based on matter perceived by or personally known to the witness or made known to the witness at or before the hearing, whether or not admissible, that is of a type that reasonably may be relied upon by an expert in forming an opinion as to the value of property . . . .” (Evid. Code, § 814.) According to Evidence Code section 814, such matters include, but are not limited to, the matters listed in Evidence Code sections 815 to 821, inclusive. Of particular interest here is Evidence Code section 815, which provides, in pertinent part, as follows: “When relevant to the determination of the value of property, a witness may take into account as a basis for an opinion the price and other terms and circumstances of any sale or contract to sell and purchase which included the property or property interest being valued or any part thereof if the sale or contract was freely made in good faith within a reasonable time before or after the date of valuation . . . .”
Here, Don testified as to the circumstances of the subsequent sale of the property that occurred approximately three years after the initial purchase. This evidence was highly relevant in determining the value of the property. Fragale, supra, 110 Cal.App.4th 229, the case upon which Reilley primarily relies in support of his contention that Don’s testimony lacked probative value, is distinguishable from the instant case. There, purchasers of a home sued the seller and a real estate broker for fraud for failing to disclose structural defects in an addition to the property that had been made without the requisite permits. (Id. at p. 232.) At trial, the purchasers presented evidence regarding the cost of repairs and were awarded damages. (Id. at pp. 234-235.) However, the trial court granted a motion for judgment notwithstanding the verdict on the grounds “there was ‘no evidence of what the market value of the property would have been had the true facts been known regarding the lack of permits and the lack of compliance with the building code.’ ” (Id. at p. 235.) On appeal, the purchasers claimed, among other things, that the trial court should have allowed them to reopen the case and enable Mr. Fragale to testify as to the value of the property. (Id. at p. 240.) In affirming the denial of the motion to reopen, the appellate court held that the purchasers failed to make an adequate offer of proof regarding the proposed testimony. (Id. at pp. 240-241, fn. omitted.) In so holding, the court explained: “The point to be proven was ‘what the market value of the house would have been had the true facts been known regarding the lack of permits and the lack of compliance with building codes.’ [Citation.] Counsel’s offer of proof provides no foundation for an opinion from Fragale on that point. The offer of proof shows only that, at some time after the Fragales purchased the house in August 1998 and before the trial in February 2001, Fragale obtained information on the value of comparable houses in the neighborhood. . . . [T]he offer of proof suggests no basis for testimony on the pertinent point: the effect on market value of the code violations and structural defects.” (Ibid., fn. omitted.)
In the instant case, the Zeppenfelds presented evidence of what the market value of the property would have been had the true facts been known regarding the window leaks and structural defects. Don testified that had he known about the defects, he would have reduced the purchase price by the amount of the cost of the repairs. Based on comparable sales from 1997 and 1998, he opined the property was worth $672,000 in a nondefective condition, but only worth $500,000 had there been a full disclosure of the repairs needed. He relied on the subsequent sale of the property to corroborate his opinion that he paid $672,000 for a home worth $500,000.
Reilley further contends that the Zeppenfelds’ inclusion of “ ‘[s]tigma’ ” damages and costs for uncompleted repairs for structural defects that did not cause other property damages constituted nonrecoverable benefit-of-the-bargain damages. We disagree. Don testified that the cost of repairs for structural defects, together with the 3 to 5 percent “unknown factor,” was taken into account in the subsequent sale of the property. These deductions were relevant in determining the difference between what the Zeppenfelds gave and what they received. (Evid. Code, § 815; Civ. Code, § 3343, subd. (a).)
In sum, the Zeppenfelds produced legally sufficient evidence to prove that they suffered recoverable damages.
3. The Trial Court Did Not Prejudicially Err in Answering the Jury’s Question
During deliberations, the jury submitted the following question to the court: “ ‘Do representations by the Fogels as Reilley’s agents count as representations by defendant?’ ” The trial court responded: “ ‘You must base your decision on the law as it has been given to you in my instructions.’ ”
Reilley argues that the trial court abused its discretion in failing to answer the question with a simple “ ‘no.’ ” Reilley insists that the trial court’s response to this question, in the absence of any applicable jury instructions regarding liability for alleged misrepresentations by his agents, was a misleading invitation to speculate.
Preliminarily, we note that Reilley did not request any jury instructions regarding the imputation of liability (or lack thereof) based on the Fogels’ representations. Although Reilley does not directly challenge the jury instructions on appeal, we nonetheless find cases discussing a trial court’s obligation to further instruct the jury when the jury seeks further guidance as instructive in resolving this issue. (See Code Civ. Proc., § 614.) Specifically, when a jury asks questions indicating it is confused and needs further explanation, failure to provide adequate clarification may be reversible error. (Bartosh v. Banning (1967) 251 Cal.App.2d 378, 387-388 [reversible error for failure to further instruct jury on self-defense and responsibility of wrongful aggressor in civil action for battery].) In a civil case an instructional error is prejudicial error only if it is reasonably probable the appellant would have received a more favorable result in the absence of the error. (Cal. Const., art. VI, § 13; Code Civ. Proc., § 475; Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 570 (Soule).) “This determination depends heavily on the particular nature of the error, and its effect on the appellant’s ability to place his or her full case before the jury. Actual prejudice must be assessed in the context of the [entire] trial record.” (Daum v. SpineCare Medical Group, Inc. (1997) 52 Cal.App.4th 1285, 1313.)
Reilley maintains that the trial court prejudicially erred when it simply referred the jury to the instructions previously provided. We disagree. Citing Harnischfeger Sales Corp. v. Coats (1935) 4 Cal.2d 319, 320-321, Reilley argues that the trial court should have told the jury that he was not liable for the Fogels’ representations because such representations contradicted the terms of the integrated contract between the parties. First, as discussed (see part II.A.1, ante), the parol evidence rule does not bar the Zeppenfelds’ evidence regarding such representations. Second, an integration clause relieves an honest seller from liability for damages arising from the fraudulent representations of his agent, but “it does not exempt the principal from liability for his own conduct.” (Herzog v. Capital Co. (1945) 27 Cal.2d 349, 353.)
Here, the Zeppenfelds presented evidence that Reilley, himself, represented that the leaks would be fixed and that the work would be warranted. Based on our review of the entire record, it is not reasonably probable Reilley would have received a more favorable result had the trial court answered the jury’s question with a simple “ ‘no.’ ” (Cal. Const., art. VI, § 13; Code Civ. Proc., § 475; Soule, supra, 8 Cal.4th at p. 570.)
That Reilley denied making such representations is not dispositive, as it was within the sole province of the jury to weigh the evidence and assess the credibility of the witnesses. (See Moreno v. Sayre (1984) 162 Cal.App.3d 116, 121.) Given the verdict, the jury obviously resolved the conflicts in the evidence in favor of the Zeppenfelds.
4. The Trial Court Properly Denied the Motion for Directed Verdict
Reilley contends that the trial court erred in denying his nonsuit motion based on the statute of limitations. However, the record reflects that the motion was made at the close of evidence. Thus, this motion was technically a motion for directed verdict. (Code Civ. Proc., § 630, subd. (a).) In any event, a motion for directed verdict, like a motion for nonsuit, operates as a demurrer to the evidence. (Brassinga v. City of Mountain View (1998) 66 Cal.App.4th 195, 210.)
a. Standard of Review
“A directed verdict may be granted only when, disregarding conflicting evidence, giving the evidence of the party against whom the motion is directed all the value to which it is legally entitled, and indulging every legitimate inference from such evidence in favor of that party, the court nonetheless determines there is no evidence of sufficient substantiality to support the claim or defense of the party opposing the motion, or a verdict in favor of that party. [Citations.]” (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 629-630 (Howard).) If the party opposing the directed verdict motion produces sufficient evidence to support a jury verdict in its favor, the motion must be denied. Reilley’s assertion that his motion for directed verdict was erroneously denied is equivalent to contending there was insufficient evidence in support of the jury verdict against him. “Only if there was no substantial evidence in support of the verdict could it have been error for the trial court earlier to have denied [Reilley’s] motion for directed verdict. [Citation.]” (Id. at p. 630.)
In reviewing the record for substantial evidence, “[w]e must accept as true all evidence and all reasonable inferences from the evidence tending to establish the correctness of the trial court’s findings and decision, resolving every conflict in favor of the judgment. [Citations.]” (Howard, supra, 72 Cal.App.4th at p. 631.) “If this ‘substantial’ evidence is present, no matter how slight it may appear in comparison with the contradictory evidence, the judgment must be upheld.” (Ibid.) Pursuant to this standard, we review the evidence to determine whether substantial evidence supports the jury’s verdict in favor of the Zeppenfelds.
b. Statute of Limitations
Reilley argues that the statute of limitations as to the Zeppenfelds’ causes of action for negligent misrepresentation and intentional fraud began to run on November 7, 1998, the date Don discovered that the leaks in the windows had reoccurred. According to Reilley, the Zeppenfelds’ cause of action for negligent misrepresentation was barred, as of November 7, 2000, by the two-year statute of limitations set forth in Code of Civil Procedure section 339, subdivision 1., and the cause of action for intentional fraud was barred, as of November 7, 2001, by the three-year statute of limitations set forth in Code of Civil Procedure section 338, subdivision (d). In response, the Zeppenfelds assert that Reilley’s statute of limitations defense was untimely and not supported by the record.
“[O]nce sued, if a defendant does not timely raise a limitations defense, it is waived regardless of how long the plaintiff has delayed.” (Hambrecht & Quist Venture Partners v. American Medical Internat., Inc. (1995) 38 Cal.App.4th 1532, 1548.) The defendant must plead in the answer to the complaint the specific statute of limitation relied upon, providing the section and applicable subdivision. (Code Civ. Proc., § 458; DeCelle v. City of Alameda (1963) 221 Cal.App.2d 528, 533.) A defendant is also required to request and present jury instructions on the defense; failure to do so forfeits the issue on appeal. (Stalberg v. Western Title Ins. Co. (1991) 230 Cal.App.3d 1223, 1232 [defense of statute of limitations cannot be raised for first time on appeal].) Moreover, raising a defense for the first time in a postverdict new trial motion generally is insufficient to preserve the issue. (See Doney v. Tambouratgis (1979) 23 Cal.3d 91, 96-100.)
Here, Reilley asserted a statute of limitations defense in his answer to the first amended complaint. However, Reilley did not otherwise pursue this defense until his oral motion for a directed verdict, which the trial court denied without prejudice. At no time did Reilley request jury instructions regarding a statute of limitations defense. After the jury rendered its special verdict, Reilley moved for a judgment notwithstanding the verdict or, alternatively, for a new trial, on the grounds that the Zeppenfelds’ action was barred by the statute of limitations. The trial court denied Reilley’s postverdict motion without comment, thus we do not know its reasoning. However, it is well established that we review the trial court’s ruling not its reasoning and will affirm a decision if it is correct in law on any ground. (Philip Chang & Sons Associates v. La Casa Novato (1986) 177 Cal.App.3d 159, 173.)
Assuming, without deciding, that Reilley’s statute of limitations defense was properly asserted in the trial court, it nonetheless fails on the merits. The gist of Reilley’s argument is that the statute of limitations began to run as soon as the Zeppenfelds noticed that the leaks had reappeared. Fraud is subject to a three-year statute of limitations. (Code Civ. Proc., § 338, subd. (d).) Although it is frequently said that “[n]egligent misrepresentation is a form of fraud” (see, e.g., Tijsseling v. General Acc. etc. Assur. Corp. (1976) 55 Cal.App.3d 623, 627, fn. 1), courts have generally concluded that negligent misrepresentation is subject to the two-year statute. (See, e.g., Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1155; Ventura County Nat. Bank v. Macker (1996) 49 Cal.App.4th 1528, 1531; Smyth v. USAA Property & Casualty Ins. Co. (1992) 5 Cal.App.4th 1470, 1477-1478.)
“In general, a claim accrues upon the occurrence of the last element essential to the cause of action, even if the plaintiff is unaware of the cause of action. Under the ‘delayed discovery rule,’ however, the accrual date of a cause of action is delayed until the plaintiff is aware of his or her injury and its cause. The plaintiff is charged with this awareness as of the date he or she suspects or should suspect that the injury was caused by someone’s wrongful act. The period of limitations, therefore, will begin to run when the plaintiff has a ‘suspicion of wrongdoing’; in other words, when he or she has notice of information of circumstances to put a reasonable person on inquiry. (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1109-1111 . . . .)” (Brandon G. v. Gray (2003) 111 Cal.App.4th 29, 35 (Brandon G.).)
“Code of Civil Procedure section 338, subdivision (d), effectively codifies the delayed discovery rule in connection with actions for fraud, providing that a cause of action for fraud ‘is not to be deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.’ In a case such as this, that date is the date the complaining party learns, or at least is put on notice, that a representation was false.” (Brandon G., supra, 111 Cal.App.4th at p. 35.)
For example, in Brandon G., a legal malpractice action for failure to file a timely governmental tort claim, the court ruled that the clients’ cause of action against a county for misrepresentations accrued on the date the clients read a county file containing complaints against a day care center, rather than the earlier date when they learned that one of their children had been molested at said day care center. (Brandon G., supra, 111 Cal.App.4th at pp. 32-36, fn. omitted.) In Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 476-477, the plaintiff allegedly was induced to leave his former employment by the representation that the defendant employer followed a nondiscrimination policy. There, the court held that the crucial event for accrual purposes was the date on which the plaintiff first learned that the employer actually followed a discriminatory policy. (Id. at pp. 484-485) In other words, the date the plaintiff learned that the representation was false. (Id. at p. 484.) Similarly, in Snow v. A. H. Robins Co. (1985) 165 Cal.App.3d 120, 134-135, the court ruled that a cause of action for misrepresentations about a defective intrauterine contraceptive device accrued not when the plaintiff became pregnant, but when she learned that the manufacturer had misrepresented the effectiveness of the device.
Here, the Zeppenfelds’ claims of misrepresentation against Reilley accrued not when the leaks reappeared, but when the Zeppenfelds learned that Reilley’s representations about the repairs were false. In other words, the reappearance of the leaks did not put the Zeppenfelds on notice that unlicensed contractors had worked on the property, that Gordon merely recaulked the windows, that Patterson told Reilley Gordon’s repairs were “band-aid” fixes, that the contractors were not going to stand behind their work, or that Reilley had no warranty in place. Thus, contrary to Reilley’s contention, the statute of limitations did not commence on November 7, 1998. On this record, Reilley fails to meet his burden on appeal of establishing prejudicial error.
We conclude that the trial court properly denied Reilley’s motion for directed verdict as substantial evidence supports the jury’s verdict in favor of the Zeppenfelds.
5. The Trial Court Did Not Err in Denying Reilley’s Motion to Tax Costs
The Zeppenfelds filed a memorandum of costs claiming $32,431.48. With the exception of items not relevant here, the trial court denied Reilley’s motion to tax. On appeal, Reilley argues that $13,022.25 should be stricken from the Zeppenfelds’ costs because the Zeppenfelds failed to meet their burden of proving that all of their claimed costs were necessary to the conduct of the litigation. Specifically, Reilley argues that the Zeppenfelds failed to provide adequate explanation for their claimed costs for models, blowups, photocopies of exhibits, and witness fees. Reilley further contends that the Zeppenfelds’ costs bill included “numerous nonrecoverable charges.”
The trial court reduced the Zeppenfelds’ costs by $1,659.
a. Applicable Law
Code of Civil Procedure section 1033.5 enumerates the items allowed as costs in civil actions, including: fees of expert witness ordered by the court (id., subd. (a)(8)); ordinary witness fees (id., subd. (a)(7)); fees for court-ordered transcripts of court proceedings (id., subd. (a)(9)); and fees for models, blowups, and photocopies of exhibits if they are “reasonably helpful to aid the trier of fact” (id., subd. (a)(12)).
“Whether a cost item was reasonably necessary to the litigation presents a question of fact for the trial court and its decision is reviewed for abuse of discretion. [Citation.] However, because the right to costs is governed strictly by statute [citation] a court has no discretion to award costs not statutorily authorized. [Citations.]” (Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 774 (Ladas).) In awarding costs, a trial “court’s first determination . . . is whether the statute expressly allows the particular item, and whether it appears proper on its face. [Citation.]” (Nelson v. Anderson (1999) 72 Cal.App.4th 111, 131 (Nelson).) “If the items appearing in a cost bill appear to be proper charges, the burden is on the party seeking to tax costs to show they were not reasonable or necessary. On the other hand, if the items are properly objected to, they are put in issue and the burden of proof is on the party claiming them as costs. [Citations.]” (Ladas, supra, 19 Cal.App.4th at p. 774.)
“[T]he mere filing of a motion to tax costs may be a ‘proper objection’ to an item, the necessity of which appears doubtful, or which does not appear to be proper on its face. [Citation.] However, ‘[i]f the items appear to be proper charges the verified memorandum is prima facie evidence that the costs, expenses and services therein listed were necessarily incurred by the [party claiming them as costs] [citations], and the burden of showing that an item is not properly chargeable or is unreasonable is upon the [objecting party].’ [Citations.]” (Nelson, supra, 72 Cal.App.4th at p. 131.)
b. Postage, Facsimile, Express Mail, Telephone, and Computerized Legal
Research
Reilley has not correctly described many of the so-called “nonrecoverable charges” awarded to the Zeppenfelds. Contrary to Reilley’s contention, the Zeppenfelds did not seek costs for postage, facsimile, express mail or telephone charges, nor for computerized research. Nor did Reilley move to tax such costs. Accordingly, Reilley’s contention that $6,864.05 should be stricken from the Zeppenfelds’ costs is without merit.
According to Reilley, the Zeppenfelds sought “$4,141.76 for postage, facsimile, express mail & telephone” and “$2,722.29 for computerized legal research.” Although these costs were listed in the Zeppenfelds' exhibit G in support of their motion for attorney fees and costs (see Code Civ. Proc., §§ 1032, 1033.5, subd. (a)(10)(A) & last para.), they were not requested in the memorandum of costs.
c. Court Reporter Fees
The trial court awarded the Zeppenfelds $3,317.50 for court reporter fees. Reilley argues that $915 should be stricken for “[c]ourt reporter fees for partial transcripts not ordered by the court.” The Zeppenfelds’ costs bill worksheet listed $2,402.50 for court reporter fees for “Sonoma Superior [Court].” The Zeppenfelds submitted further documentation (exhibit G to the declaration of Zeppenfelds’ counsel, Ira James Harris (Harris), in support of their costs), which listed three additional transcript fees: (1) $215 to Eva Popovich for the June 25, 2004, transcript; (2) $537.00 to Luel Simson on February 27, 2005; and (3) $163 to Stefanie McMurtrie on March 1, 2005.
At the hearing on posttrial motions, the Zeppenfelds’ counsel argued that Judge Mulkey implicitly ordered the transcript of the June 2004 hearing, and as such the $215 paid to Eva Popovich was authorized. Counsel further argued the $537 paid to Luel Simson was for her court reporting of the trial. Neither party specifically mentioned the $163 paid to Stefanie McMurtrie.
With respect to the fees for the June 2004 hearing, the nature of Judge Mulkey’s ruling reflects that the trial court implicitly ordered the transcript of the proceedings. At the hearing on the summary adjudication motion, the trial court provided a detailed ruling in excess of 25 pages. However, no corresponding written ruling appears in the record. Specifically, the trial court stated: “The ruling has been given to the court reporter and taken by her, so I don’t anticipate giving any further written rulings in the matter.” Both parties requested a copy of the transcript. Under these circumstances, we conclude that the trial court implicitly ordered the transcript of the June 25, 2004, summary adjudication hearing.
With respect to the additional transcript fees, the record reflects that such fees were incurred with respect to the daily court reporting of trial. As the prevailing parties, the Zeppenfelds were statutorily entitled to such fees. (See Code Civ. Proc., § 1033.5, subd. (a)(9).) Accordingly, we conclude that trial court properly awarded the Zeppenfelds the entire amount of the court reporter fees sought.
d. Models, Blowups, and Photocopies of Exhibits
The trial court awarded the Zeppenfelds $1,487.98 for “[m]odels, blowups, and photocopies of exhibits.” Reilley insists the award was in error because the Zeppenfelds failed to provide an adequate explanation for these costs. However, other than Reilley’s mere objection, there is nothing establishing that these costs were unnecessary or excessive. The Zeppenfelds contend that all of the blowups and copies of exhibits were used at trial and none was lavish. Under the circumstances, we cannot find that Reilley has met his burden of demonstrating the “[m]odels, blowups, and photocopies of exhibits” were unnecessary or unreasonable in cost, or that the court abused its discretion in allowing the costs to be charged to him under Code of Civil Procedure section 1033.5, subdivisions (a)(12) and (c)(4). (See Shamblin v. Brattain (1988) 44 Cal.3d 474, 478-479 [“[w]hen two or more inferences can reasonably be deduced from the facts, the reviewing court has no authority to substitute its decision for that of the trial court”].)
e. Witness Fees
The trial court awarded the Zeppenfelds $9,830.40 for witness fees. Reilley contends that $9,400 should be stricken because the Zeppenfelds accounted for only $430.40 of these fees in their costs bill. This contention is completely without merit. The Zeppenfelds’ costs bill clearly lists and explains the fees for both ordinary witnesses ($430.40) and expert witnesses ($9,400.00). Reilley’s thinly-veiled attack on the award of expert witness fees pursuant to Code of Civil Procedure section 998 is not well taken. The record reflects that the Zeppenfelds secured a judgment greater than the section 998 offer. As the Zeppenfelds were the prevailing parties, they were statutorily entitled to their expert witness fees. (See Code Civ. Proc., § 998.)
The cost bill lists the name of each ordinary witness, days of testimony, the per diem fees, along with mileage fees. With respect to the expert fees, the costs bill provides the name of each witness, number of hours, and hourly rate.
B. Cross-appeal
The Zeppenfelds argue that the trial court erroneously granted summary adjudication as to their breach of contract and warranty claims. They further argue that the trial court erred in granting Reilley’s motion for setoff.
1. Summary Adjudication
a. Standard of Review
We generally review the trial court’s decision to grant summary adjudication de novo and decide independently whether the facts not subject to triable dispute warrant judgment for the moving party as matter of law. (Intel Corp. v. Hamidi (2003) 30 Cal.4th 1342, 1348 (Intel); Code Civ. Proc., § 437c, subd. (c).) However, the trial court’s decision to grant summary adjudication after striking all of the Zeppenfelds’ evidence due to procedural defects is reviewed for an abuse of discretion. (Collins v. Hertz Corp. (2006) 144 Cal.App.4th 64, 67; Parkview Villas Assn., Inc. v. State Farm Fire & Casualty Co. (2005) 133 Cal.App.4th 1197, 1208.) In applying the abuse of discretion standard of review, it is not the role of the appellate court to substitute its own views as to the proper decision. (Security Pacific Nat. Bank v. Bradley (1992) 4 Cal.App.4th 89, 93 (Security Pacific).) The trial court’s discretion, however, “is not unlimited and must be ‘ “exercised in conformity with the spirit of the law and in a manner to subserve and not to impede or defeat the ends of substantial justice.” ’ [Citations.]” (Elston v. City of Turlock (1985) 38 Cal.3d 227, 233 (Elston) superseded by statute on another point as stated in Tackett v. City of Huntington Beach (1994) 22 Cal.App.4th 60, 64.) Moreover, “ ‘a trial court order denying relief is scrutinized more carefully than an order permitting trial on the merits.’ [Citations.]” (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 980.) With these standards in mind, we turn to the issues raised in this case.
A summary adjudication motion is subject to the same rules and procedures as summary judgment motion. (Code Civ. Proc., § 437c, subd. (f)(2); Hansen Mechanical, Inc. v. Superior Court (1995) 40 Cal.App.4th 722, 726-727.)
b. The Trial Court Abused Its Discretion in Granting Summary Adjudication
Without Providing the Zeppenfelds an Opportunity to Correct the Curable
Procedural Defects
(1) Background
On July 25, 2003, Reilley filed a motion for summary adjudication regarding the Zeppenfelds’ causes of action for strict liability, breach of implied warranty, breach of contract, and breach of express warranty. The hearing was originally noticed for October 21, 2003. The Zeppenfelds timely opposed the motion on October 6, 2003. The opposition included declarations from Harris, Don, and Schween. The Zeppenfelds also filed a separately bound set of exhibits, which included various documents and excerpts of relevant deposition testimony.
On October 21, 2003, Judge Knoel Owen denied the motion for summary adjudication without prejudice due to procedural defects in the moving papers. The trial court also ruled that Reilley’s motion as to the first cause of action (strict liability) was moot because the Zeppenfelds had dismissed that cause of action.
The trial court noted that “[b]oth the motion and opposition papers do not comply with [California Rules of Court, rule] 342 [now rule 3.1350] or [Sonoma County Superior Court Rules, rule] 5.9.” However, the record on appeal does not reveal the nature of the procedural deficiencies.
Following various continuances, a trial setting conference was held on April 2, 2004, at which time the matter was assigned to a visiting judge for trial to commence on July 26, 2004. The visiting judge was also assigned to hear a motion for summary adjudication set for June 25, 2004. The visiting judge was subsequently challenged. On May 5, 2004, Judge Mulkey was assigned to hear the motion for summary adjudication.
The record reflects that the continuances were necessitated by recusals of the assigned judges.
On June 1, 2004, the Zeppenfelds filed their opposition to Reilley’s renewed motion for summary adjudication. The Zeppenfelds’ opposition was nearly identical in all material respects to their opposition to the prior motion. The opposing papers included a memorandum of points and authorities; a separate statement of undisputed facts; a request for judicial notice; separate declarations from Harris, Don, and Schween; and a separately bound volume of exhibits. In his declaration, Harris refers to exhibits A through P, however they are not attached to his declaration. Rather, the exhibits are contained in a separately bound volume of exhibits. The Zeppenfelds also filed a request for judicial notice of the original declarations of Don and Schween that were previously filed with the trial court on October 6, 2003. The request for judicial notice attached a copy of the declarations, but the exhibits referenced in the declarations were not attached.
On June 18, 2004, Reilley filed objections to the Zeppenfelds’ evidence, claiming, among other things, that (1) Harris’s declaration failed to attach the exhibits referenced therein, and Harris’s separate declaration submitting the exhibits lacked personal knowledge; and (2) the request for judicial notice was defective for failure to attach the exhibits referenced in the declarations. On June 25, 2004, the trial court sustained the objections and refused to consider the Zeppenfelds’ evidence. The trial court also denied Harris’s request for relief, under Code of Civil Procedure section 473, to be allowed to cure these procedural defects.
In denying Harris’s Code of Civil Procedure section 473 request, the trial court noted that trial was set to commence in two weeks.
(2) Analysis
It is apparent that much of the confusion with regard to this issue stems from the fact that the Zeppenfelds’ exhibits were contained in a separately bound volume. Reilley relies on the general rule that assertions in declarations referring to written documents are incompetent and cannot be considered unless authenticated copies of the documents are attached or a sufficient excuse for nonproduction is shown. (Dugar v. Happy Tiger Records, Inc. (1974) 41 Cal.App.3d 811, 815-816; Miller & Lux, Inc. v. Bank of America (1963) 212 Cal.App.2d 719, 725.) However, where the evidence in opposition to a motion for summary adjudication “exceeds 25 pages, the evidence must be separately bound and must include a table of contents.” (Cal. Rules of Court, rule 3.1350(g) [former rule 342(g)].)
Here, the Zeppenfelds’ evidence in opposition to Reilley’s motion (exhibits A through P), which is comprised of various documents and deposition excerpts, is nearly 200 pages in length. Under these circumstances, the Zeppenfelds properly submitted a separately bound volume of exhibits, with an appropriate table of contents. (Cal. Rules of Court, rule 3.1350(g).) Moreover, this is the same evidence that is referenced in the original declarations of Don and Schween, which were attached to the Zeppenfelds’ request for judicial notice. Although it is somewhat cumbersome to cross-reference the exhibits with the declarations, in striking this evidence the trial court so elevated form over substance as to abuse its discretion.
The trial court compounded this error by sustaining Reilley’s hyper-technical objections to Harris’s declaration—that Harris had not properly authenticated the deposition excerpts—without allowing Harris an opportunity to cure the defect. Code of Civil Procedure section 437c, subdivision (d) provides in relevant part that declarations filed in conjunction with a motion for summary adjudication “shall be made by any person on personal knowledge, shall set forth admissible evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated . . . .” (See also Regents of University of California v. Superior Court (1996) 41 Cal.App.4th 1040, 1044.) “The requirement of this section is not that the declarant recite the conclusion that he can competently testify but that he allege facts showing his competence.” (Roy Brothers Drilling Co. v. Jones (1981) 123 Cal.App.3d 175, 181-182.)
In his declaration, Harris states: “I am competent to testify to the following facts, which are true of my own personal knowledge.” Although it is true that Harris provided no facts in his declaration explaining the basis of his knowledge, at the summary adjudication hearing Harris averred that he was present at each and every one of the depositions. Harris further requested relief pursuant to Code of Civil Procedure section 473, which the trial court denied.
“Where, as here, the trial court denies the motion for relief from default, the strong policy in favor of trial on the merits conflicts with the general rule of deference to the trial court’s exercise of discretion. [Citation.] Unless inexcusable neglect is clear, the policy favoring trial on the merits prevails. [Citation.]” (Elston, supra, 38 Cal.3d at p. 235.) Simply put, absent exceptional circumstances not present here, an order based upon a curable procedural defect that effectively results in a judgment against a party is an abuse of discretion. (Kalivas v. Barry Controls Corp. (1996) 49 Cal.App.4th 1152, 1161 (Kalivas) [failure to file written opposition to summary judgment motion]; Security Pacific, supra, 4 Cal.App.4th at pp. 97-99 [failure to file separate statement when opposing summary judgment motion].)
In Security Pacific, the appellate court reversed a trial court order granting summary judgment for plaintiff based on defendant’s failure to file the separate statement required by Code of Civil Procedure section 437c, subdivision (b). (Security Pacific, supra, 4 Cal.App.4th at p. 92.) In concluding the trial court abused its discretion, the appellate court explained that “granting a motion for summary judgment based on a procedural error by the opposing party is equivalent to a sanction terminating the action in favor of the other party. Accordingly, the propriety of the court’s order should be judged by the standards applicable to terminating sanctions.” (Id. at p. 97.) Reviewing the relevant authority, the court held, “Terminating sanctions have been held to be an abuse of discretion unless the party’s violation of the procedural rule was willful [citations] or, if not willful, at least preceded by a history of abuse of pretrial procedures, or a showing less severe sanctions would not produce compliance with the procedural rule.” (Id. at p. 98.)
In Kalivas, the court followed Security Pacific and reversed a trial court order granting a summary judgment motion because the party opposing the motion, having been misled by an invalid local courtroom rule, had filed no written opposition papers. (Kalivas, supra, 49 Cal.App.4th at pp. 1154, 1161-1162.) “ ‘Sanctions which have the effect of granting judgment to the other party on purely procedural grounds are disfavored. [Citations.]’ ” (Id. at pp. 1161-1162.)
The Kalivas court, like the court in Security Pacific, noted that the procedural error was a “curable defect” from which the party moving for summary judgment had suffered no prejudice. (Kalivas, supra, 49 Cal.App.4th at p. 1162; see Security Pacific, supra, 4 Cal.App.4th at p. 98.) Moreover, in Kalivas, as in Security Pacific, there had been no showing that the party opposing summary judgment had previously violated any pretrial rules or engaged in any dilatory conduct. (Kalivas, supra, 49 Cal.App.4th at p. 1162; see Security Pacific, supra, 4 Cal.App.4th at pp. 98-99.) Accordingly, the Kalivas court concluded, as had the court in Security Pacific, that the trial court’s order was an abuse of discretion: “An order based upon a curable procedural defect (such as the failure to file a separate statement), which effectively results in a judgment against a party, is an abuse of discretion.” (Kalivas, supra, 49 Cal.App.4th at p. 1161.)
Here, the deficiencies in Harris’s declaration were curable defects from which Reilley suffered no prejudice. Specifically, Harris averred that he attended every deposition. Reilley has not argued, either in the trial court or on appeal, that he would have suffered any prejudice if the trial court had granted the Zeppenfelds’ motion for relief pursuant to Code of Civil Procedure section 473. Furthermore, there was no showing that the Zeppenfelds had previously engaged in any willful or obstructive conduct with respect to the summary adjudication motion.
In sum, the trial court manifestly abused its discretion in granting summary adjudication without providing the Zeppenfelds an opportunity to correct the curable procedural defects in their opposition papers.
c. Triable Issues of Material Fact Exist Regarding the Breach of Contract and
Breach of Express Warranty Causes of Action
Although the trial court granted the motion on procedural grounds, it nonetheless considered the motion on the merits. Accordingly, we review the trial court’s decision to grant summary adjudication de novo and decide independently whether the facts not subject to triable dispute warrant judgment for Reilley as a matter of law. (Intel, supra, 30 Cal.4th at p. 1348; Code Civ. Proc., § 437c, subd. (c).)
As an initial matter, Reilley argues that the Zeppenfelds have waived their arguments by failing to properly cite to the record; the Zeppenfelds merely cite to their memorandum of points and authorities in opposition to Reilley’s motion for summary adjudication. Although we agree that the Zeppenfelds’ citation to the record in their opening brief was woefully inadequate, and that the Zeppenfelds’ legal arguments and analysis were of minimal assistance to the court, we are permitted, but not required, to treat the issue as waived. (Duarte v. Chino Community Hospital (1999) 72 Cal.App.4th 849, 856 [argument “may” be deemed waived due to inadequate briefing].) Here, we choose to address the merits.
The Zeppenfelds contend that the trial court erred in summarily adjudicating their fourth cause of action for breach of contract and fifth cause of action for express warranty. They argue that triable issues of fact exist regarding whether the contract encompassed an agreement to repair the leaks, whether such repairs would be warranted, and whether such warranties were disclaimed by the contract.
In granting Reilley’s summary adjudication, the trial court primarily relied on the parol evidence rule. However, as discussed (see part II.A.1, ante), the Zeppenfelds’ evidence regarding Reilley’s promise to fix the leaks and that such repairs would be warranted is not barred by the parol evidence rule as it comes within the fraud exception. Inasmuch as the Zeppenfelds’ causes of action for fraud, breach of contract, and breach of express warranty are based on the same underlying facts, the parol evidence rule does not preclude consideration of the Zeppenfelds’ evidence in ruling on the merits of Reilley’s motion for summary adjudication.
In any event, even if the fraud exception were not applicable, the Zeppenfelds’ evidence that Reilley agreed to repair the leaks did not vary or contradict the terms of the contract. Rather, this evidence is relevant to explain the meaning of the phrase “[r]epairs under this Agreement” as provided for in paragraph 17 of the contract. (See BMW of North America, supra, 162 Cal.App.3d at p. 990, fn. 4.) The representations from Reilley and the Fogels, together with the references in the transfer disclosure statement and in the addendum that the leaks were being “addressed” create triable issues of fact regarding whether repairs “under” the contract included repair of the window and deck leaks. Additionally, the Zeppenfelds’ evidence that Gordon merely recaulked the windows, and that Babson & Sons only fixed obvious leaks, create triable issues of fact regarding whether the repairs were performed in a “skillful manner.”
Finally, we need not determine whether the “ ‘as is’ ” provision applies to the property, or whether it precludes evidence of prior or contemporaneous oral agreements, because even if it does, the evidence shows triable issues of fact regarding whether the parties to the agreement disclaimed any and all warranties by reason of their subsequent conduct.
It has long been the rule that “where the subsequent conduct of parties is inconsistent with and clearly contrary to provisions of the written agreement, the parties’ modification setting aside the written provisions will be implied. (Garrison v. Edward Brown & Sons (1944) 25 Cal.2d 473, 479 . . . [‘Before a contract modifying a written contract can be implied, the conduct of the parties according to the findings of the trial court must be inconsistent with the written contract so as to warrant the conclusion that the parties intended to modify the written contract’]; see also Wagner[, supra,] 216 Cal.App.3d [at p.] 1388 . . . [a written contract may be modified by contrary oral representations or conduct inducing reliance thereon by the other party].)” (Diamond Woodworks, Inc. v. Argonaut Ins. Co. (2003) 109 Cal.App.4th 1020, 1038.)
Here, the Zeppenfelds’ reliance on subsequent representations and conduct is shown by the fact that they did not obtain an independent inspection before moving in, as allowed by the written contract, because the house was newly constructed, and because Reilley had assured them that the leaks had been “addressed” and that the work would be warranted. This evidence creates triable issues of fact regarding whether the agreement was modified to include a provision that the leaks would be repaired and would be covered by a one-year warranty.
Accordingly, we conclude that the trial court erred in granting Reilley’s motion for summary adjudication of the Zeppenfelds’ fourth cause of action for breach of contract and fifth cause of action for breach of express warranty.
By reason of this holding, we do not address Reilley’s claim that, as the prevailing party on the contract, he was entitled to attorney fees.
d. No Triable Issues of Material Fact Exist Regarding the Breach of Implied
Warranty Cause of Action
The Zeppenfelds contend that the trial court erred in granting summary adjudication of their second cause of action for breach of implied warranty. In moving for summary adjudication, Reilley argued that no implied warranty of quality and fitness attached to property because he was not a “commercial developer”; and even if such warranty applied, it was expressly disclaimed by the “ ‘as is’ ” provision in the contract. On appeal, the Zeppenfelds argue that triable issues of fact exist regarding whether Reilley overcame the presumption he built the house for sale (Bus. & Prof. Code, § 7044) and that, as such, the property included implied warranties. The Zeppenfelds further contend that triable issues of fact exist regarding whether the warranties were clearly and conspicuously disclaimed under the contract.
In Pollard v. Saxe & Yolles Dev. Co. (1974) 12 Cal.3d 374, 377 (Pollard), our Supreme Court briefly set forth the history regarding two differing lines of warranty law that had developed with regard to sales of tangible chattels on the one hand and sales of buildings and land on the other. “After noting both the general rule of caveat emptor applicable in land and building sales and the related rule that implied warranties are not generally applicable to sales of land and buildings, the court explained that exceptions to those rules had developed with regard to some construction contracts because they were essentially contracts for labor and materials. [Citation.] The court also observed that purchasers of new construction usually rely upon the expertise of the builder, being without such expertise themselves and being unable to examine the finished product without disturbing it. Accordingly, the court held that builders and sellers of ‘new construction’ were subject to the implied warranty that such structures have been designed and built in a reasonably workmanlike manner. ([Pollard, supra, 12 Cal.3d] at pp. 580-581.)” (Siders v. Schloo (1987) 188 Cal.App.3d 1217, 1221 (Siders).)
There are, in turn, exceptions to this exception. Specifically, in the wake of our Supreme Court’s decision in Aas v. Superior Court (2000) 24 Cal.4th 627, 632, which precluded homeowners from recovering negligence damages in the absence of construction defects causing property damage, “the Legislature established a limited new cause of action for certain specified housing defects. (Stats. 2002, ch. 722, § 3 [enacting new Civ. Code, § 895 et seq., eff. Jan. 1, 2003].)” (Jimenez v. Superior Court (2002) 29 Cal.4th 473 483, fn. 2.) This limited cause of action applies only to a builder “who, at the time of sale, was also in the business of selling residential units to the public for the property that is the subject of the homeowner’s claim . . . .” (Civ. Code, § 911, subd. (a), italics added.) Although Civil Code section 895 et seq. does not apply to the instant case, as the purchase agreement between the Zeppenfelds and Reilley was signed prior to January 1, 2003 (see Civ. Code, § 938), this court long ago limited the “extension of implied warranty concepts to sales of new construction by commercial developers . . .” (Siders, supra, 188 Cal.App.3d at p. 1221, italics added).
In Siders, the plaintiffs attempted to convince the trial court that their case fell within the rule announced in Pollard, supra, 12 Cal.3d 374. (Siders, supra, 188 Cal.App.3d at p. 1221.) The trial court examined subsequent decisions interpreting Pollard and concluded that the term “ ‘new construction’ ” had been limited to circumstances where the plaintiff was in privity with the commercial developers of the property in question. (Siders, at p. 1221.) Reasoning that the defendants were not commercial developers in the same sense as Pollard and its progeny, the trial court ruled that no warranty had been implied in the sale to the plaintiffs. (Siders, at p. 1221.) On appeal, this Division held that there was abundant evidence to support the conclusion that the defendants were owner-builders of their personal residence and not in the business of building new homes for sale. Accordingly, this Division held that public policy considerations, which justified extension of warranty concepts to sales of new construction by commercial developers, did not warrant application of implied warranty concepts in the plaintiffs’ case. (Ibid.)
So too here, there is ample evidence to support the conclusion that Reilley was not in the “business” of building new homes for sale. The record reflects that Reilley has worked full-time as an attorney since 1978, and has had one other custom home built, other than the subject property. The Zeppenfelds, nonetheless, maintain that Reilley is subject to implied warranty liability because he does not qualify as a statutory owner-builder who is exempt from the state licensing requirements under Business and Professions Code section 7044. By this argument, the Zeppenfelds conflate the issue of licensing with the public policy considerations justifying the extension of implied warranty concepts. The Zeppenfelds cite no authority for the novel proposition that a property owner who fails to meet the requirements as an “owner-builder” for licensing purposes is transformed into a commercial developer in the business of selling new construction to the public. The relevant inquiry is not whether Reilley fails to meet the requirements of Business and Professions Code section 7044, but whether he is a commercial developer of new construction. The Zeppenfelds point to no evidence in the record that raises a triable issue of fact with respect to this issue. Following this Division’s reasoning in Siders, supra, 188 Cal.App.3d 1217, we hold that the public policy considerations, which justify extension of warranty concepts to sales of new construction by commercial developers, do not warrant application of implied warranty concepts in this case.
Business and Professions Code, section 7044 provides, in pertinent part, for an exemption to: “(b) An owner of property, building or improving structures thereon, or appurtenances thereto, who contracts for such a project with a subcontractor or subcontractors licensed pursuant to this chapter. [¶] However, this exemption shall apply to the construction of single-family residential structures only if four or fewer of these structures are intended or offered for sale in a calendar year. This limitation shall not apply if the owner of property contracts with a general contractor for the construction. [¶] . . . [¶] In all actions brought under this chapter, proof of the sale or offering for sale of any such structure by the owner-builder within one year after completion of same constitutes a rebuttable presumption affecting the burden of proof that such structure was undertaken for purposes of sale. Except as otherwise provided in this section, proof of the sale or offering for sale of five or more structures by the owner-builder within one year after completion constitutes a conclusive presumption that the structures were undertaken for purposes of sale.”
By this holding, we express no opinion whether Reilley meets the requirements of the Business and Professions Code section 7044 exemption or whether the implied warranty was disclaimed in the contract.
Accordingly, Reilley is entitled to judgment as a matter of law with respect to the Zeppenfelds’ breach of implied warranty cause of action
2. The Trial Court Properly Offset the Prior Settlement Amounts from the
Damages Award
The Zeppenfelds contend that the trial court erred in granting Reilley’s motion for setoff because, as an intentional tortfeasor, Reilley was not entitled to contribution or indemnity vis-à-vis the negligent, settling tortfeasors.
A trial court order granting a motion for offset pursuant to Code of Civil Procedure section 877 is reviewed for abuse of discretion. (May v. Miller (1991) 228 Cal.App.3d 404, 411 (May); see also Erreca’s v. Superior Court (1993) 19 Cal.App.4th 1475, 1504.)
a. One Indivisible Injury
Code of Civil Procedure, section 877 provides: “Where a release, dismissal with or without prejudice, or a covenant not to sue or not to enforce judgment is given in good faith before verdict or judgment to one or more of a number of tortfeasors claimed to be liable for the same tort, or to one or more other co-obligors mutually subject to contribution rights, it shall have the following effect: [¶] (a) It shall not discharge any other such party from liability unless its terms so provide, but it shall reduce the claims against the others in the amount stipulated by the release, the dismissal or the covenant, or in the amount of the consideration paid for it whichever is the greater. [¶] (b) It shall discharge the party to whom it is given from all liability for any contribution to any other parties.” In other words, “ ‘a good faith settlement bars nonsettling defendants from seeking contribution from a settling defendant, but in return the nonsettling defendants’ ultimate liability to the plaintiff is reduced by the amount stipulated by the release or by the amount of consideration paid.’ [Citations.]” (Reed v. Wilson (1999) 73 Cal.App.4th 439, 443; see also Bay Development, Ltd. v. Superior Court (1990) 50 Cal.3d 1012, 1018-1019.)
In order to avail himself of the setoff provision of Code of Civil Procedure section 877, the nonsettling defendant must be an alleged joint tortfeasor of the plaintiff. (See Wouldridge v. Zimmerman (1971) 21 Cal.App.3d 656, 658-659 (Wouldridge).) “The pro tanto reduction provision works to prevent settlements from producing double recoveries in the case of a single injury caused by joint tortfeasors. The general theory of compensatory damages bars double recovery for the same wrong. The principal situation is where joint or concurrent tortfeasors are jointly and severally liable for the same wrong. Only one complete satisfaction is permissible, and, if partial satisfaction is received from one, the liability of others will be correspondingly reduced. [Citation.]” (Carr v. Cove (1973) 33 Cal.App.3d 851, 854 (Carr); see also Greathouse v. Amcord, Inc. (1995) 35 Cal.App.4th 831, 840 (Greathouse) [holding that the setoff provision of section 877 only applies when the acts of multiple defendants have combined to cause one “indivisible” injury].)
The concept of joint tortfeasors under Code of Civil Procedure section 877 is quite expansive: “[T]he language of section 877 is significant—its drafters did not use the narrow term ‘joint tortfeasors,’ they used the broad term ‘tortfeasors claimed to be liable for the same tort.’ This language was meant to eliminate the distinction between joint tortfeasors and concurrent or successive tortfeasors [citation], and to permit broad application of the statute. [Citations.]” (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 302.) Tortfeasors “include ‘likely defendants’ although unnamed as a party in either a complaint or cross complaint.” (Pacific Estates, Inc. v. Superior Court (1993) 13 Cal.App.4th 1561, 1571.)
Moreover, determining whether defendants are “tortfeasors claimed to be liable for the same tort” within the meaning of Code of Civil Procedure section 877 depends, not on whether they acted concurrently or successively, but on whether one indivisible injury resulted from their conduct. (See Greathouse, supra, 35 Cal.App.4th at p. 840; May, supra, 228 Cal.App.3d at pp. 409-410; Carr, supra, 33 Cal.App.3d at pp. 854-857 [drawing a distinction between separate torts and overlapping liability for the same injury; drivers in two accidents two months apart were not joint tortfeasors under section 877].)
Kohn v. Superior Court (1983) 142 Cal.App.3d 323 guides us in evaluating whether setoff principles should apply in the instant case. There, the buyers of a residence brought a fraud action against the seller and its brokers on the ground that they had misrepresented the prior fire damage of the property and the subsequent repairs. (Id. at pp. 325-326.) The buyers also alleged that the construction company that had repaired the fire damage and the pest control company that had inspected the property had acted negligently. The buyers settled with the pest control and construction companies but not the seller and its brokers. (Id. at p. 326.) The appellate court held that Code of Civil Procedure section 877 was applicable, even though the pest control and construction companies’ failure to inspect or repair took place on earlier dates than that of the sale. It reasoned that there was but one injury despite the sequential nature of the torts: “Here, there was but one injury, purchase of a house which was worth less than plaintiffs believed. [Citation.] The alleged tortious activities by the contractor, pest control inspector and seller were not independent, but combined to create one indivisible injury which took place when the sale was consummated.” (Kohn, at p. 329.)
Here, as in Kohn, there was but one injury, the purchase of a house with defects that should have been repaired. In other words, the negligence of the settling defendants and the fraudulent misrepresentations by Reilley were not independent, but combined to produce one indivisible injury which took place when the sale was consummated. Accordingly, we conclude that Reilley was entitled to a setoff pursuant to Code of Civil Procedure section 877.
In a somewhat protracted argument, the Zeppenfelds contend that Reilley was not entitled to a setoff because the damages awarded “do not begin to address the harm” they suffered and because the settling parties were not “ ‘responsible for the same compensatory damages’ ” as asserted against Reilley. To the extent the Zeppenfelds are asserting that Reilley is not entitled to a setoff because he was liable for a different measure of damages than the settling defendants, this argument fails for the same reasons set forth above. The relevant inquiry is whether there was one indivisible injury. (Carr, supra, 33 Cal.App.3d at p. 854.) That the Zeppenfelds may have had different theories of recovery does not preclude application of Code of Civil Procedure section 877 in this case, and the Zeppenfelds have not cited any authority to support their contention. To the extent the Zeppenfelds are asserting that there is no danger of unjust enrichment or double recovery because they did not receive all of the damages to which they were entitled, this argument similarly fails.
Citing Code of Civil Procedure section 875, subdivision (d), the Zeppenfelds argue that a nonsettling defendant has no right to indemnity, contribution or setoff when he has engaged in intentional conduct that caused the injury. That is not a correct statement of the law. Section 875 provides, in relevant part, as follows: “(a) Where a money judgment has been rendered jointly against two or more defendants in a tort action there shall be a right to contribution among them as hereinafter provided. [¶] . . . [¶] (d) There shall be no right of contribution in favor of any tortfeasor who has intentionally injured the injured person.”
“It is only in a strained sense that the pro tanto reduction approximates contribution. The purpose of [Code of Civil Procedure section 877] is to avoid the double recovery and unjust enrichment which a plaintiff would enjoy if he were able to collect part of his total claim from one, and all from another [citations].” (Wouldridge, supra, 21 Cal.App.3d at p. 658.) Furthermore, Code of Civil Procedure section 875 “is designed only to establish a right of contribution among joint tortfeasors equally liable to a plaintiff. It abrogates the common law rule [that release of one joint tortfeasor releases all,] and recognizes equitable considerations to be applied only among joint tortfeasors themselves. Section 877, on the other hand, considers only the right of the plaintiff against the several tortfeasors. ‘The “equities” . . . considered [by section 875] are those of the wrongdoers among themselves . . . .’ ” (Wouldridge, at pp. 658-659.)
By its terms, Code of Civil Procedure section 875 applies only to contribution among joint tortfeasors after a judgment has been satisfied. (See Wouldridge, supra, 21 Cal.App.3d at p. 659.) It has no application to setoff rights arising from the prelitigation or pretrial settlements in the instant case. The cases cited by the Zeppenfelds are inapposite as they do not involve Code of Civil Procedure section 877 or otherwise address the reduction of a nonsettling defendant’s liability. (See Heiner v. Kmart Corp. (2000) 84 Cal.App.4th 335, 348-350 [holding principles of comparative fault do not require apportionment of damages to reflect responsibility of battery victim for own injuries]; Baird v. Jones (1993) 21 Cal.App.4th 684, 688 [holding comparative equitable indemnity doctrine permits intentional tortfeasor to obtain indemnity from concurrent intentional tortfeasor]; Weidenfeller v. Star & Garter (1991) 1 Cal.App.4th 1, 5-7 [holding Civ. Code, § 1431.2, subd. (a), regarding apportionment for noneconomic damages in relation to fault, properly applied to intentional tortfeasor]; Allen v. Sundean (1982) 137 Cal.App.3d 216, 225-227 [holding comparative fault principles do not apply to intentional tortfeasors].)
b. Good Faith
The Zeppenfelds further argue that the prelitigation settlements with the window company and the realtors are not within the purview of Code of Civil Procedure section 877 because there was no good faith determination by the trial court as to those settlements. The Zeppenfelds contend that the absence of judicial approval leaves these settling parties subject to possible future indemnity claims by Reilley, and as such Reilley should not be entitled to setoff the prelitigation settlements.
The legal effect of a settlement on the rights of settling and nonsettling parties is premised on the settlement being made in “good faith.” However, neither Code of Civil Procedure section 877 nor section 877.6, setting forth the procedures for good faith determinations, defines this term.
In Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 873 (Abbott Ford), the California Supreme Court, quoting its decision in Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 495 (Tech-Bilt), noted that “ ‘ “formulation of a precise definition of good faith is neither possible nor practicable.” ’ ” Rather, the court observed that the good faith settlement provisions set forth in Code of Civil Procedure sections 877 and 877.6 have two primary goals: the equitable sharing of costs among the parties at fault and the encouragement of settlements. (Abbott Ford, supra, 43 Cal.3d at pp. 871-872.) The court further explained that these two goals are “inextricably linked” because “[s]ection 877 establishes that a good faith settlement bars other defendants from seeking contribution from the settling defendant (§ 877, subd. (b)), but at the same time provides that the plaintiff’s claims against the other defendants are to be reduced by ‘the amount of consideration paid for’ the settlement (§ 877, subd. (a)). Thus, while a good faith settlement cuts off the right of other defendants to seek contribution or comparative indemnity from the settling defendant, the nonsettling defendants obtain in return a reduction in their ultimate liability to the plaintiff.” (Id. at pp. 872-873; see also United Services Automobile Assn. v. Superior Court (2001) 93 Cal.App.4th 633, 641 [“[a] fundamental feature of a good faith settlement is allowing the nonsettling tortfeasor defendant a credit against any judgment taken against it to the extent of the value of the consideration paid by the settling tortfeasor”].)
“A court considering the amount of credit or setoff to be accorded a nonsettling defendant under [Code of Civil Procedure] sections 877 and 877.6 must take into account these two goals, as well as another important public policy: ‘ “the maximization of recovery to the plaintiff for the amount of . . . injury to the extent that negligence or fault of others has contributed to it.” [Citation.] Thus, while the nonsettling defendant is entitled to a fair setoff, the injured plaintiff also has a right that the setoff not be excessive.’ [Citation.]” (Franklin Mint Co. v. Superior Court (2005) 130 Cal.App.4th 1550, 1556-1557.)
Here, the Zeppenfelds do not appear to dispute the amount of the setoff per se. Rather, they argue that Reilley is not entitled to a setoff for the prelitigation settlements in the absence of a good faith determination. Code of Civil Procedure section 877.6 encourages settlements by allowing settling tortfeasors to know in advance whether a settlement is in “good faith” and whether they will be free from subsequent indemnity claims. (See Abbott Ford, supra, 43 Cal.3d at p. 896 (dis. opn. of Mosk, J.).) The good faith requirement also serves to protect the interests of the nonsettling defendants by guarding against collusion, fraud or other tortious conduct by the settling parties. (See Tech-Bilt, supra, 38 Cal.3d at p. 499; see also Abbott Ford, supra, 43 Cal.3d at pp. 896-897 (dis. opn. of Mosk, J.).)
Code of Civil Procedure section 877.6, subdivision (a)(1) provides: “Any party to an action in which it is alleged that two or more parties are joint tortfeasors . . . shall be entitled to a hearing on the issue of the good faith of a settlement . . . .” (Italics added.) As the window company and the realtors were not parties to the action, it is uncertain whether they would have been able to seek a good faith determination regarding the prelitigation settlements. However, either the Zeppenfelds or Reilley could have sought such a determination.
In any event, Code of Civil Procedure section 877.6 “provides no time limit after settlement within which a motion for determination of good faith of the settlement must be brought.” (Greshko v. County of Los Angeles (1987) 194 Cal.App.3d 822, 829 (Greshko); see also Regal Recovery Agency, Inc. v. Superior Court (1989) 207 Cal.App.3d 693, 694-695.) For example, in Greshko, settling defendants in a personal injury action were able to seek a good faith determination of the settlements nearly five years later in an indemnity action filed by a nonsettling defendant. (Greshko, supra, 194 Cal.App.3d at pp. 827-829.) Thus, when, if ever, an indemnity action is filed by Reilley, the settling parties would be able to seek a good faith determination of their prior settlements at that time. We recognize that one of the purposes underlying section 877.6 is to ease court congestion by providing finality to settlements and that permitting a subsequent indemnity action would be contrary to this purpose. (See Britz, Inc. v. Dow Chemical Co. (1999) 73 Cal.App.4th 177, 184; see also Abbott Ford, supra, 43 Cal.3d at p. 896 (dis. opn. of Mosk, J.).) However, these considerations cannot give way to the equally important goal of equitable sharing of costs among the parties at fault. (See, e.g., Abbott Ford, supra, 43 Cal.3d at pp. 871-872; Carr, supra, 33 Cal.App.3d at pp. 853-854.)
In sum, we conclude the trial court did not abuse its discretion by granting Reilley’s motion for setoff.
III. DISPOSITION
We reverse the order granting Reilley’s motion for summary adjudication as to the Zeppenfelds’ fourth cause of action for breach of contract and fifth cause of action for breach of express warranty and remand for further proceedings. We affirm the judgment in all other respects. The parties shall bear their own costs on appeal.
We concur:, REARDON, Acting P. J., SEPULVEDA, J.