Opinion
G058164
02-10-2021
KEVIN HENDRA et al., Plaintiffs and Appellants, v. FELIX POSOS et al., Defendants and Appellants.
Law Office of Michael G. York and Michael G. York for Defendants and Appellants. Kevin Hendra and Janai Hendra in pro. per.; Fasel Law, Frank R. Fasel and Thomas Fasel for Plaintiffs and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2013-00641319) OPINION Appeal from a judgment of the Superior Court of Orange County, Sheila Fell, Judge. Reversed and remanded with directions. Motion to augment granted. Law Office of Michael G. York and Michael G. York for Defendants and Appellants. Kevin Hendra and Janai Hendra in pro. per.; Fasel Law, Frank R. Fasel and Thomas Fasel for Plaintiffs and Appellants.
Felix Posos and Joanne Cohen Posos (the Posos) entered into a partnership agreement with Kevin Hendra and Janai Hendra (the Hendras) to purchase a vacation rental property in Hawaii. The partnership did not continue as planned. In 2014, the Hendras prevailed against the Posos in a breach of contract action. The trial court awarded the Hendras $74,250 in damages, prejudgment interest, and full title to the property. In a prior appeal of the 2014 judgment, the Posos challenged, among other things, the damage award, claiming it was not supported by admissible evidence and was improperly calculated. We reversed and remanded in part, finding, as relevant here, the calculation of damages improper at trial. (Hendra v. Posos (Nov. 8, 2016, G051124) [nonpub. opn.] (Hendra I).)
After a limited remand retrial as to damages, the trial court again found damages in favor of the Hendras. Specifically, the court determined the Hendras were entitled to recover expenses from September 27, 2012, to November 5, 2014, the Hendras incurred expenses in four categories (association dues, insurance, taxes, and repairs), and the amount of expenses incurred by the Hendras was $73,555 (entitling them to recover one-half of that amount, or $36,777.50). Both sides appeal from the court's damages determination. The Posos contend the decision was not supported by the evidence, the court erred by ruling the Hendras were entitled to recover gross expenses for the property, and the court improperly ruled the Hendras were entitled to recover expenses for the property through November 5, 2014, instead of October 2012. In their cross-appeal, the Hendras assert the court mistakenly used the incorrect date for damages, and the court failed to award the Hendras all out-of-pocket costs presented at trial, including mortgage payments, as required by the parties' agreement. We conclude the Hendras's arguments have merit. As a result, we reverse and remand for the trial court to enter an award in favor of the Hendras.
FACTS
We incorporate by reference the facts set forth in our prior opinion, Hendra I, and briefly summarize here to frame the issues in the present appeal. (Hendra I, supra, G051124.) In 2007, the Hendras and the Posos entered into a written partnership agreement (the Agreement) to share ownership and rental operations of a condominium in Hawaii (the Property). The Agreement provided all expenses would be shared equally among the Hendras and the Posos, including the mortgage, property tax, repairs, maintenance, association dues, property management, advertising, and any other expenses arising because of the partnership.
In 2012, the Posos determined they could no longer afford to be owners of the Property. In April 2013, the Hendras filed a complaint seeking $100,523 in damages against the Posos for breach of contract. In the complaint, the Hendras alleged the Posos gave notice of their intention to withdraw from the Agreement on September 27, 2012, and thereafter, "failed to contribute to the ownership and operation of the [Property]" and were therefore the defaulting parties under the terms of the Agreement. The Posos filed a cross-complaint for declaratory relief alleging the Hendras refused all offers to transfer or sell the Property. The trial court found in favor of the Hendras and awarded them full ownership of the Property, $74,250 in damages, and 12 percent interest from September 27, 2012.
The Posos appealed, and as described above, we reversed in part and ordered a limited remand as to damages only. Specifically, we determined the following: "The contract provided the Hendras with three options in the event of a breach as follows: (1) purchasing the Posos' interest at a discounted rate; (2) compelling the Posos to sell their interest to a third party or selling the entire property; or (3) force the Posos to quitclaim their interest and 'reimburse' for 'all monies paid on their behalf, plus 12 [percent] interest.' [¶] The Hendras elected the third option and there is no dispute the court granted this requested specific performance relief. It ordered the Posos to quitclaim their interests to the Hendras. The only issue remaining was the monetary reimbursement obligation outlined in the contract. We conclude there is insufficient evidence in the record to support the court's award of $74,250. [¶] The contract specified the Posos' obligation was limited to the amount of money required to 'reimburse' the Hendras for money actually spent on their behalf." (Hendra I, supra, G051124.)
The retrial on damages occurred in May 2018. Both sides stipulated the trial exhibits would be received into evidence and there were no evidentiary objections.
At the retrial, the Posos made three arguments attempting to reduce the stipulated amount of out-of-pocket expenses suffered by the Hendras. First, the Posos contended there should be an offset of the stipulated expenses because of the income generated by the Property. Second, they asserted recovery of out-of-pocket costs was limited to a six-month period after their breach. Third and finally, the Posos argued they tendered performance and were not liable for damages.
In response, the Hendras presented uncontroverted, stipulated evidence they incurred at least $151,847.08 in out-of-pocket expenses related to the Property between September 27, 2012, (date of the Posos' breach) and March 7, 2015, (date the Posos executed the quitclaim deed). While the Posos did not stipulate all expenses were recoverable by the Hendras, they did stipulate the Hendras actually incurred the expenses related to the Property as detailed in their trial brief and supported by the trial exhibits, in the amount of $151,847.08 (including mortgage payments, association dues, repairs, insurance, property taxes, and appliance and property transfer fees).
Both sides orally requested the trial court issue a statement of decision as to how it determined the damages. The court agreed. On June 29, 2018, the trial court filed a minute order on the retrial. In the order, the court stated it, "calculated the expenses paid by [the Hendras] from September 27, 2012 through November 5, 2014." It also stated, "[e]xpenses identified at trial included [a]ssociation payments, repairs to the property, insurance[,] and taxes." The court determined, "[The Posos] are responsible for [one-]half of these expenses, and the [j]udgment shall issue in the amount of $36,777.50 plus interest per the contract at 12 [percent]." The Hendras then filed a further request asking the court to issue a statement of decision to clarify the damages calculation. In response, the court issued a minute order stating it "issued its explanation in the decision" and denied issuing a formal statement of decision.
DISCUSSION
The Posos assert the trial court erred by awarding damages because: (1) the amount of expenses awarded was more than the expenses claimed by the Hendras; (2) the Hendras were not entitled to recover gross expenses for the Property; and (3) the Hendras were not entitled to recover expenses for the Property after October 2012. In their cross-appeal, the Hendras contend: (1) the court mistakenly used the incorrect date for the out-of-pocket costs, and (2) the court erred by failing to award the Hendras all of their out-of-pocket costs. Based on the stipulated evidence, we agree with the Hendras that the court mistakenly wrote they were entitled to their out-of-pocket costs through November 5, 2014, when the calculations clearly demonstrated it intended to award those costs through March 7, 2015. We also determine the court erred by omitting mortgage payments from the Hendras' out-of-pocket costs. Accordingly, we reverse the court's judgment and remand the matter to the trial court to enter judgment for the Hendras, as specified below.
I. Damages Award Supported by Evidence
The Posos first contend the damages award at retrial was not supported by evidence because when they add up the awarded expenses (association dues, repairs, insurance, and taxes) from September 27, 2012, to November 5, 2014, it does not equal the court's award of $36,777.50 in expenses (which represented one-half of $73,555). We disagree.
While a statement of decision would have aided our review, it is clear the trial court's calculations were based not on the November 5, 2014, date, but instead on the March 7, 2015, date. Adding association dues, repairs, insurance, and taxes from October 2012, to November 2014, equals $61,834, approximately $12,000 short of the court's calculation of total damages. However, in reviewing the uncontroverted evidence at retrial, specifically the spreadsheet contained in exhibit 29, it is evident the court erred when it wrote the Hendras were only entitled to damages through November 5, 2014, the date of the initial judgment. Instead, it is apparent the court calculated damages through March 7, 2015, the date that the Posos complied with the initial judgment and executed the quitclaim deed. This makes practical sense, as damages should have continued to accrue until the Posos actually satisfied the terms of the initial judgment.
Indeed, adding the parties' costs from September 27, 2012, through March 7, 2015 gets to $151,845. Deducting all the mortgage payments ($76,294) and appliance/property transfer costs ($1,715) equals $73,836. Dividing that amount by two to obtain each parties' share is $36,918, a difference of only $140.50 from the actual award. It is clear the court intended to award the Hendras their out-of-pocket expenses until the date the Posos actually transferred the Property. This also comports with option three of the Agreement, as discussed in Hendra I, which required a defaulting party to pay out-of-pocket costs to the non-defaulting party from the date of the first nonpayment until the date in which the Property is sold or repayment.
The Hendras assert this nominal difference may be the result of an award of a few appliance and property transfer costs. --------
The Posos argue they tendered interest in the Property in October 2012, thereby alleviating their requirement to pay out-of-pocket costs from that point on. Not so. The Posos were not only required to quitclaim the Property, but also were required to pay damages resulting from their breach, in the form of out-of-pocket costs, as prescribed by the Agreement. The Posos never properly tendered performance under the Agreement, alleviating them of paying out-of-pocket damages, until March 2015, when they finally complied with the court's judgment and executed the quitclaim deed.
II. Gross Expenses Recoverable
The Posos contend the trial court's award of out-of-pocket expenses was improper because it did not account for any vacation rental income generated by the Property. Specifically, they seek an offset of the stipulated costs. Their contentions lack merit.
A vacation rental is not a passive activity. Instead, it requires significant human capital to generate income. But for the Hendras' personal acts during the period of breach, including performing the Posos' assigned tasks, there would be no income for the property. The Posos are not entitled to the fruits of the Hendras' labor.
Option three under the Agreement is unambiguous. It does not provide for any offset for income. Under the Agreement, the non-defaulting owner "is entitled to recoup all monies paid on behalf of the [d]efaulting [o]wner during the period of default, plus 12 [percent] interest." Indeed, Hendra I, addressed this issue, where we construed the Agreement as permitting recovery of one-half of the "out-of-pocket expenses, plus 12 percent interest," without regard for any income generated by the vacation rental business during such time. The trial court correctly followed our instructions and did not provide an offset for income generated by the Hendras' efforts to rent out the Property.
The Posos argue that the trial court should have provided an offset for the income. Relying on Hunter v. Schultz (1966) 240 Cal.App.2d 24, 30-31 (Hunter), they argue, "a co-tenant in possession of real property who seeks contribution from the other co-tenant for expenses for the property is only entitled to recover the net expenses for the property from the co-tenant." The Posos' interpretation of Hunter is misguided.
In Hunter, plaintiff and defendant acquired a home while married. (Hunter, supra, 240 Cal.App.2d at p. 26.) When the couple separated, plaintiff moved out of the property permanently. "After her departure, she paid nothing on the mortgages, taxes, insurance, repairs or improvements on the property." (Ibid.) Defendant continued to live at the property, and a decade after she moved out plaintiff brought a partition action to determine her interest in the property. (Id. at pp. 26-27.) In determining the reimbursements to the parties out of the proceeds of a partition sale, the trial court gave credit to defendant and his new wife for the mortgage, tax, and insurance payments made after plaintiff's departure from the property but offset this credited amount by the "reasonable value of the use of plaintiff's interest in the property . . . ". (Id. at p. 32.) The Court of Appeal affirmed. (Id. at p. 34.)
Hunter, however, concerned a property occupied by one of the co-tenants. Here, unlike in Hunter, the Property was an active business property and neither party lived there. Instead, they purchased the Property to generate potential vacation rental income from third parties. From September 27, 2012, on, the Hendras performed all the work to obtain third party rentals, such as marketing, managing, and maintaining the Property.
After the Posos breached the Agreement, they not only stopped paying one-half of the costs, but also stopped providing the agreed upon, necessary labor and services for the rental of the unit. Indeed, the Hendras performed at least 500 hours per year of labor on the Property. The Posos were not entitled to an offset.
III. All Out-of-Pocket Costs Recoverable
At the retrial, the Hendras presented uncontroverted evidence of their out-of-pocket costs from September 27, 2012, through March 7, 2015, in the amount of $151,845. However, without explanation, the trial court did not award the Hendras their mortgage expenses. This was in contravention of the express terms of the Agreement and the relevant law.
Between September 27, 2012, and March 7, 2015, the Hendras made mortgage payments totaling $76,294.00. The Posos did not pay their share of the mortgage between September 27, 2012, and March 7, 2015. Under the terms of the Agreement, "All expenses shall be shared equally among the [o]wners, including such things as mortgage, property tax, repairs, maintenance, association dues, property management, advertising and other expenses arising as a result of the property ownership." Thus, the Agreement mandates the Hendras should be reimbursed for one-half of what they paid on the mortgage payments.
The mortgage payments are an out-of-pocket cost the Hendras incurred alone and that the Posos failed to contribute to in breach of the Agreement. There is no reason why such costs should not be included. A co-tenant to real property is entitled to credit for their improvements to the property. (Wallace v. Daley (1990) 220 Cal.App.3d 1028, 1036-1037.) "Credits include expenditures in excess of the co[-]tenant's fractional share for necessary repairs, improvements that enhance the value of the property, taxes, payments of principal and interest on mortgages, and other liens, insurance for the common benefit, and protection and preservation of title. [Citation.]" (Id. at p. 1035-1036.) The Hendras are entitled to reimbursement of one-half of the mortgage payments made between October 2012, and March 2015, for a total of $76,294.
IV. Motion to Augment Record on Appeal
The Posos filed a motion to augment the record on appeal to include their trial brief on the ground they submitted the brief to the trial court, the court expressly considered it, but for an unknown reason the court did not file it. California Rules of Court, rule 8.155(a)(1)(A), provides that a reviewing court may augment the record on appeal to include a document that was filed or lodged with the trial court. Accordingly, we grant the Posos' motion to augment pursuant to California Rules of Court, rule 8.155(a)(1)(A).
DISPOSITION
We reverse the trial court's judgment and remand the matter for the trial court to enter judgment as follows: the Hendras are entitled to one-half of all out-of-pocket costs, including mortgage payments from September 27, 2012, to March 7, 2015, and without any offset for income, in the amount of $75,923.54, plus 12 percent interest. We grant the Posos' motion to augment the record on appeal. The Hendras shall recover their costs on appeal.
O'LEARY, P. J. WE CONCUR: ARONSON, J. THOMPSON, J.