Opinion
NOT TO BE PUBLISHED
Super. Ct. No. CV991464
HULL, Acting P. J.Plaintiff Walnut Manor Associates, a general partnership, owned an apartment complex in Woodland, California. After plaintiff fell behind in its payments on a second note and deed of trust held by defendant Johanna Streng Keys, defendant initiated nonjudicial foreclosure proceedings and ultimately purchased the property at a foreclosure sale.
Plaintiff initiated this action against defendant and others claiming it had not received advance notice of the foreclosure or the sale and, therefore, had no opportunity to cure the default. Following a bench trial, the court agreed plaintiff had not received notice but nevertheless concluded plaintiff failed to prove it sustained any damages thereby. The court specifically found, among other things, plaintiff had no equity in the apartment complex that was lost by virtue of the sale and plaintiff suffered no adverse income tax consequences from the realization of capital gains. The court entered judgment for defendant.
Plaintiff appeals, arguing the evidence proved it suffered a loss of equity in the apartment complex. Plaintiff further argues its individual partners suffered adverse income tax consequences by virtue of capital gains realized as a result of the foreclosure sale and it suffered other losses as well. Finally, plaintiff contends the court erred in failing to require defendant to indemnify it for a judgment entered earlier in favor of the trustee who conducted the foreclosure sale and erred in failing to award nominal damages.
We conclude substantial evidence supports the trial court’s findings and affirm the judgment.
Facts and Proceedings
Plaintiff is a general partnership formed in 1984 for the purpose of purchasing from defendant the Walnut Manor Apartments (Walnut Manor or the property), a 24-unit apartment complex in Woodland, California. Plaintiff paid $770,000 for the property, assuming a first note and deed of trust and executing a second note and deed of trust in favor of defendant in the amount of $280,000. Under the terms of the second note, interest at the rate of 10 percent was deferred for two years and interest-only payments were required thereafter. The note matured in 10 years.
Plaintiff has two classes of partners. The class A partner is the Mifsud Family Trust. The initial class B partners were Craig M. Compiano, V. Eric Russell, Kurt C. Borgwardt, Steven M. Davis and Christine Compiano-Davis. Craig Compiano is plaintiff’s managing partner. The use of two classes of partners was for income tax purposes. The class A partner provided the down payment for the purchase through the sale of other property and was allocated a guaranteed annual return. The class B partners contributed no money initially but were required to finance the operations of the property and were allocated all net income or losses. The class B partners used the investment primarily as a tax shelter.
Plaintiff hired Natoma Management Company (Natoma) to manage the day-to-day operations of Walnut Manor. Natoma was later replaced by Westcal Property Management Company (Westcal).
Although plaintiff raised the rents during the time it owned Walnut Manor, those rents were never sufficient to pay the debt service on the property.
In 1988, plaintiff renegotiated the first note and deed of trust. The amount of this new note was $325,000. Defendant agreed to subordinate her note to the new first note.
In 1994, the parties negotiated an extension of defendant’s note and deed of trust for three years at a slightly higher interest rate. The amount of this new note was $336,000.
In 1995, plaintiff fell behind in its monthly payments on defendant’s note and defendant’s son, George Streng, acting as defendant’s agent, directed Allied Trustee Services (Allied) to initiate nonjudicial foreclosure proceedings. A notice of default was filed in September 1995 and served on plaintiff. On November 14, plaintiff paid $13,409.60 to clear the default.
In late July or early August 1996, Compiano spoke with Streng about the condition of Walnut Manor and plaintiff’s need to put money into the property to get it ready for sale before defendant’s note matured in April 1997. Compiano requested that the second note be rewritten retroactively to a lower interest rate in order to provide money for renovations. Streng asked plaintiff to put what they discussed in writing to defendant.
On August 25, 1996, Compiano wrote defendant a letter stating that Walnut Manor “continues to be a ‘problem property.’” Compiano explained that unless plaintiff does $20,000 to $30,000 in repairs by April 1997, defendant’s note would be jeopardized. According to Compiano, defendant’s note had consumed 30 percent of the income from the property, leaving no money for routine maintenance and depleting the value of the property. Compiano requested that defendant accept $150,000 as payoff on her note. Compiano stated his “honest[]” belief that the value of defendant’s note was no more than $150,000, given that the property might have to be sold in a distressed sale at a price less than $500,000.
Compiano received no response to his letter and spoke no further with Streng. At the time, 21 of the 24 units at Walnut Manor were rented. Nevertheless, Westcal informed Compiano it would require $100,000 to $150,000 to bring the property to good rentable condition.
Plaintiff again fell behind in its payments on the second note. Westcal informed defendant and Streng there would be no further payments on the note.
Defendant initiated judicial foreclosure proceedings, and the court appointed a receiver to manage the property. Defendant also initiated nonjudicial foreclosure proceedings, again using Allied. Plaintiff was served at Walnut Manor and at an address in Alameda that was listed on the original deed of trust. However, the Alameda address had not been used by plaintiff since 1988. Plaintiff, in fact, had several other addresses that defendant had used in the past to communicate with Compiano. Plaintiff did not receive notice of the nonjudicial foreclosure.
In September 1996, Streng and his sister, Monica Lillya, toured Walnut Manor, inspected several apartments, and made a videotape of what they saw. They found considerable damage in the vacant apartments, roof damage and other items that needed repair.
On January 30, 1997, defendant repurchased Walnut Manor at a nonjudicial foreclosure sale for her opening bid of $110,000. Defendant assumed the first note and deed of trust on the property in the amount of $279,000, bringing her total cost to $389,000.
Defendant, Streng, Lillya, and other family members commenced repair work at Walnut Manor, which continued over the next 18 months. They did much of the work themselves, hiring professionals when necessary. They repaired the items identified in their September 1996 inspection and paid back taxes of $11,800 owed on the property. In all, defendant and her family spent approximately $146,000 on repairs plus their own time and effort.
Defendant sold Walnut Manor in August 1998 for $847,500.
Plaintiff filed suit against defendant, Allied, the receiver appointed in the judicial foreclosure proceeding, and the 1998 purchasers of Walnut Manor. Plaintiff sought to set aside the foreclosure sale and reclaim ownership of the property. The complaint also included causes of action for fraud, negligent misrepresentation, and breach of contract.
In 2001, plaintiff voluntarily dismissed its claim to set aside the foreclosure sale and dismissed all claims against the receiver and the 1998 purchasers.
Also in 2001, Allied moved for summary judgment, arguing it mailed notice of the nonjudicial foreclosure to plaintiff at the address listed on the deed of trust and it was not aware of any other address for plaintiff.
The trial court granted Allied’s motion. The court concluded Allied fulfilled its obligations under the law by sending notice to the address provided on the deed of trust. The court further concluded plaintiff failed to present any evidence creating a triable issue of fact as to whether Allied was aware of any other mailing address for plaintiff. The court also granted Allied’s motion for attorney fees. The court entered judgment for Allied, awarding $40,519.75 in legal expenses.
Following a bench trial, the trial court entered judgment for defendant. Although the court concluded defendant failed to comply with her statutory obligation to provide notice to plaintiff, the court also concluded plaintiff failed to prove it was damaged by virtue of the nonjudicial foreclosure. In particular, the court found the value of Walnut Manor was less than plaintiff’s indebtedness and, therefore, plaintiff lost no equity in the property. The court also found plaintiff had not incurred any income tax expenses from the foreclosure sale, inasmuch as income taxes are not paid by the partnership but by the individual partners. As to the individual partners, the court further concluded they could have sued in their own right but failed to do so and, in any event, there was no evidence they incurred any income tax liability as a result of the sale. Finally, the court rejected plaintiff’s claim that it should be indemnified by defendant for the judgment obtained by Allied.
Discussion
I
Standard of Review
The parties do not challenge the trial court’s determination that defendant failed to satisfy her statutory obligation to provide plaintiff notice of the nonjudicial foreclosure and sale. This appeal is limited to the court’s finding that plaintiff suffered no damages thereby. Plaintiff contends the trial court erred in finding no lost equity or income tax related damages. Plaintiff also contends it is entitled to the cost of preparing income tax returns occasioned by the foreclosure or, at the least, nominal damages. Finally, plaintiff contends the court erred in denying its claim for equitable indemnity on the judgment obtained by Allied.
“A judgment or order of a lower court is presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness.” (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.) Under Code of Civil Procedure section 632, after the court issues a tentative decision, either party may request a statement of decision explaining the basis for the court’s rulings. (In re Marriage of Dancy (2000) 82 Cal.App.4th 1142, 1159.) In the present matter, neither party requested a statement of decision. Therefore, in the event of a conflict in the evidence, “we will infer findings in favor of the judgment.” (Tyler v. Children’s Home Society (1994) 29 Cal.App.4th 511, 529.) The question then is whether substantial evidence supports those findings.
Defendant argues that in reviewing the record to determine if substantial evidence supports the actual or implied findings of the trial court, we must restrict our review to the evidence supporting the judgment and disregard anything to the contrary. She cites as support Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, where the high court said: “In resolving the issue of the sufficiency of the evidence, we are bound by the established rules of appellate review that all factual matters will be viewed most favorably to the prevailing party [citations] and in support of the judgment [citation]. All issues of credibility are likewise within the province of the trier of fact. [Citation.] ‘In brief, the appellate court ordinarily looks only at the evidence supporting the successful party, and disregards the contrary showing.’ [Citation.] All conflicts, therefore, must be resolved in favor of the respondent. [Citation.]” (Id. at pp. 925-926.)
The foregoing description of the substantial evidence rule does not mean we are to disregard all contrary evidence in the record. Rather, it means that where a conflict exists, we accept the evidence that supports the judgment. However, in order to determine if there is a conflict, we must first review the entire record. In doing so, we do not limit our review to isolated bits of evidence that support the judgment but consider the record as a whole. (Beck Development Co. v. Southern Pacific Transportation Co. (1996) 44 Cal.App.4th 1160, 1203-1204.) “A formulation of the substantial evidence rule which stresses the importance of isolated evidence supporting the judgment... risks misleading the court into abdicating its duty to appraise the whole record. As Chief Justice Traynor explained, the ‘seemingly sensible’ substantial evidence rule may be distorted in this fashion, to take ‘some strange twists.’ ‘Occasionally’ he observes, ‘an appellate court affirms the trier of fact on isolated evidence torn from the context of the whole record. Such a court leaps from an acceptable premise, that a trier of fact could reasonably [have believed] the isolated evidence, to the dubious conclusion that the trier of fact reasonably rejected everything that controverted the isolated evidence. Had the appellate court examined the whole record, it might have found that a reasonable trier of fact could not have made the finding in issue. One of the very purposes of review is to uncover just such irrational findings and thus preclude the risk of affirming a finding that should be disaffirmed as a matter of law.’ (Traynor, The Riddle of Harmless Error (1969) p. 27.) (Fns. omitted.)” (People v. Johnson (1980) 26 Cal.3d 557, 577-578.)
Thus, in resolving the parties’ arguments, we shall consider the entire record as a whole, but view the evidence in the light most favorable to the trial court’s judgment.
II
Lost Equity
Plaintiff contends the foreclosure sale caused it to lose all equity in Walnut Manor, i.e., the amount by which the fair market value of the property exceeded the total debts secured by it. Plaintiff’s total indebtedness was approximately $635,000.
The trial court found plaintiff had no equity at the time of the foreclosure sale, because “there was significant deferred maintenance on the property” and the property “was in a deteriorating condition.”
Plaintiff contends the record as a whole does not support that finding. Plaintiff points to evidence suggesting that the cost of needed repairs was not significant, plaintiff had been able to increase the rents beyond what they had been when the property was purchased in 1984 for $770,000, and the property was sold by defendant approximately 18 months after the foreclosure sale for $847,000 and sold again four years later for $1.5 million.
Defendant counters that the evidence, when viewed in the light most favorable to the judgment, supports the trial court’s finding. Defendant cites the letter written by Compiano in August 1996, in which he expressed his opinion the total debt on the property exceeded its value. Defendant also cites the testimony of her property valuation expert, who opined the property was worth only $360,000 in July 1996. Defendant asserts the trial court found this expert’s testimony more credible than plaintiff’s valuation evidence.
Defendant misstates the trial court’s evidentiary finding. The court’s ruling states: “Plaintiff’s evidence as to the value of the subject property was less credible than Defendant’s evidence as to the value of the subject property.” In other words, the court found the totality of defendant’s evidence was more believable than the totality of plaintiff’s evidence. The court made no express credibility findings regarding the parties’ respective experts.
Nevertheless, we agree substantial evidence supports the trial court’s determination that there was no net equity in the property at the time of the foreclosure sale. In addition to the testimony of defendant’s expert, there was substantial evidence that, after defendant’s repurchase of Walnut Manor, her family spent in the neighborhood of $150,000 on materials and contractors and contributed countless hours to rehabilitate the property before it was resold 18 months after the foreclosure sale. And while the property may have sold for $847,000 and resold again four years later for $1.5 million, plaintiff presented no evidence of the market conditions existing at the time of those sales. Hence, there is no way of knowing how much of the enhanced value was due to the condition of the property and how much was due to market forces. It was plaintiff’s burden to prove it sustained damages. (Fields v. Riley (1969) 1 Cal.App.3d 308, 313.)
Plaintiff attempts to downplay Compiano’s letter as mere posturing for purposes of renegotiating the loan. Nevertheless, that letter contains assertions by Compiano as to the condition of the property which were either true, thereby reflecting a lower value for the property, or false, thereby impugning Compiano’s credibility.
The trial court implicitly found the testimony of actual repair work done by defendant and her family to prepare the property for resale was more credible than the much lower estimate of repair work presented by plaintiff. This is a reasonable approach to take under the circumstances.
We conclude substantial evidence supports the trial court’s finding of no lost equity.
III
Income Tax Losses
With certain exceptions, the sale of real property is a taxable event. To the extent the sale price exceeds the seller’s adjusted basis in the property, the seller realizes a capital gain on which he or she must pay income tax. (See generally 26 U.S.C.A. § 1001; 38 Cal.Jur.3d (2006) Income Taxes, § 44.) The adjusted basis of commercial real property is normally the price paid for it, plus the cost of any capital improvements, minus depreciation allowances. (26 U.S.C.A. §§ 1012 and 1016.) While a taxpayer is entitled to take annual depreciation allowances on commercial property as expenses against income, thereby reducing the business income and, in turn, the income tax owed each year, those depreciation allowances also reduce the adjusted basis of the property. (26 U.S.C.A. § 1016; United States v. Ludey (1927) 274 U.S. 295, 300-301 [71 L.Ed. 1054, 1058].) Consequently, when property that has been depreciated over time is sold, the seller will end up realizing greater gain by virtue of the reduced adjusted basis.
One exception to the foregoing is an exchange of property held for productive use or investment pursuant to 26 United States Code section 1031 (hereafter section 1031). In a section 1031 exchange, where one piece of real property is exchanged for property of a like kind, the realization of gain is deferred. (§ 1031; Greenwald & Asimow, Cal. Practice Guide: Real Property Transactions (The Rutter Group 2009) ¶ 13:304, p. 13-58.) In such case, the adjusted basis of the property sold is transferred to the property purchased and any gain due to depreciation is deferred until the new property is sold. (Greenwald & Asimow, supra, ¶ 13.322, p. 13-66.)
The sale of real property in foreclosure is treated the same as a voluntary sale for purposes of income taxation. (Helvering v. Hammel (1941) 311 U.S. 504 [85 L.Ed. 303].) Hence, to the extent the property is sold for more than the debtor’s adjusted basis in the property, the debtor realizes a capital gain, even if the debtor received nothing out of the sale.
The sale of real property in a nonjudicial foreclosure extinguishes the underlying debt. (Code Civ. Proc., § 580d; Commonwealth Mortgage Assurance Co. v. Superior Court (1989) 211 Cal.App.3d 508, 514-515.) This elimination of debt is itself a gain resulting from the disposition of the property and is subject to income taxation. (Commissioner v. Tufts (1983) 461 U.S. 300, 308-309 [75 L.Ed.2d 863, 871]; Lamm v. Commissioner (8th Cir. 1989) 873 F.2d 194, 196.) Thus, if a debtor owes $300,000 on a mortgage and the property is sold in a nonjudicial foreclosure for $200,000, the creditor cannot collect the $100,000 deficiency from the debtor. By the same token, elimination of the $100,000 debt is a capital gain on which the debtor must pay income tax.
Plaintiff contends it suffered adverse income tax consequences by virtue of the foreclosure sale. That sale extinguished the indebtedness secured by the property which, as noted above, was approximately $635,000. During the 13 years it owned the property, plaintiff took depreciation allowances totaling $450,000, thereby greatly reducing the property’s adjusted basis. The extent by which the total indebtedness on the property exceeded plaintiff’s adjusted basis was plaintiff’s capital gain arising from the sale. Plaintiff’s tax expert testified plaintiff realized a gain of $309,688 on the foreclosure sale. Plaintiff argues that, but for the foreclosure sale, it would have arranged a section 1031 exchange of Walnut Manor for other property, thereby deferring that capital gain. Hence, plaintiff argues, it suffered damages in the amount of income tax that must be paid on the capital gain.
The parties spend a considerable amount of time and effort arguing over whether the law permits plaintiff, a general partnership, to recover adverse income tax consequences as damages in an action such as this. Defendant argues plaintiff may not recover such damages because the partnership does not pay taxes. Partnership income, including capital gains, is passed through to the individual partners. (See United States v. Basye (1973) 410 U.S. 441, 448 [35 L.Ed.2d 412, 419].) And since the individual partners are not parties to this action, such damages may not be recovered.
Plaintiff argues a claim based on the foreclosure sale of partnership property belongs to the partnership that owns the property. Hence, it is the partnership, not the individual partners, who must bring the action. Plaintiff further argues that, to the extent the claim for damages belongs to the individual partners, plaintiff should have been granted leave to add the partners to the action.
We need not resolve these issues. Although the trial court concluded plaintiff could not seek damages for adverse income tax consequences in its own right, the court did not rely on that finding alone. The court also found: “Plaintiff did not establish beyond a preponderance of the evidence that there were any taxable consequences to any partner. While there was evidence as to the allocation of any gain resulting from the foreclosure, the preponderance of the evidence did not establish whether that allocation of gain to each of Plaintiff’s partners actually resulted in any tax consequences to any partner. As a result, even if the Court accepted Plaintiff’s argument that it was the only party that could seek damages based on taxable consequences to its partners, Plaintiff did not meet its burden of proof to establish the extent, if any, of those income tax consequences to the individual partners.”
This alternate finding by the trial court is supported by the record. Plaintiff put in evidence two partnership income tax returns for 1997. The first includes the sale of Walnut Manor as a taxable event and allocates the gain from that sale to the individual partners. Compiano testified his share of taxes on the gain would be approximately $75,000. The second, an amended return, excludes the property sale.
Plaintiff’s tax expert, Patrick Mitchell, testified about how the gains and losses would be allocated to the individual partners. Mitchell testified he prepared the tax returns for plaintiff and for some of the partners. He in fact prepared two returns for each, one with the foreclosure sale and one without. However, Mitchell could not say whether any of the tax returns he prepared were ever filed by the partners or whether they paid any taxes as a result of the foreclosure sale. There is in fact no evidence any partner paid any taxes on the gain from the foreclosure sale and, hence, no evidence they have suffered any adverse income tax consequences.
Compiano testified he has not yet paid any tax on the gain from the foreclosure sale because of the pendency of this lawsuit. Defendant argues that, because the statute of limitations ran long ago on plaintiff’s purported tax liability, any such liability is now extinguished. Plaintiff disagrees, arguing that reporting the gain and paying the taxes must await completion of this litigation. Plaintiff cites as support Lamm v. Commissioner, supra, 873 F.2d 194 and Great Plains Gasification Associates v. Commissioner (2006) 92 T.C.M. (CCH) 534, in which the courts concluded the year in which litigation over foreclosure ends, rather than the year of foreclosure, is the proper year for reporting gain from disposition of the property.
However, in both cases, the litigation concerned the validity of the underlying debt. Had the litigation been successful, the foreclosure would have been set aside, thereby negating the taxable event. Here, however, plaintiff abandoned its quiet title claim in 2001, thereby accepting the finality of the foreclosure. At that point, disposition of the property was complete, and plaintiff was liable for any resulting tax liability. The continuing litigation is limited to the damages resulting from the foreclosure.
Furthermore, except for Compiano’s testimony that his exit strategy for Walnut Manor was to do a section 1031 exchange, no evidence was presented as to the viability of such an exchange under the circumstances presented. In other words, plaintiff presented no evidence, expert or otherwise, establishing the likelihood that, but for the foreclosure sale, plaintiff would have been able to arrange a section 1031 exchange and defer realization of gain.
There is also no evidence that, if plaintiff had received advance notice of the nonjudicial foreclosure, it could have or would have cured the default and retained the property long enough to effect a section 1031 exchange. In other words, there is no evidence that, but for defendant’s failure to comply with her notice obligations, plaintiff’s partners would not have suffered adverse tax consequences from the foreclosure sale.
We conclude substantial evidence supports the trial court’s finding that neither plaintiff nor plaintiff’s partners suffered any adverse income tax consequences from the foreclosure sale. Having so concluded, we need not consider plaintiff’s argument that the trial court should have granted leave to add the partners as additional parties.
IV
Other Alleged Damages
Plaintiff contends it is entitled to recover the cost of preparing income tax returns necessitated by the foreclosure sale. Plaintiff argues such expenses are a natural and probable consequence of defendant’s breach.
The short answer to this contention is that, because plaintiff did not seek such damages in the trial court, no evidence was presented to support such a claim. Hence, the trial court cannot be faulted for having failed to award such damages.
Plaintiff argues the issue was raised in its closing trial brief, and testimony was presented on the issue. However, in the trial brief, plaintiff said: “The simple fact of the matter is that the partnership has to file a tax return. [Defendant’s certified public accountant expert witness] admitted that a return will have to be filed. It will have to recognize the gain as the foreclosure cannot now be set aside, and pass the gain onto the partners. This is a partnership impact.” There is no suggestion here that plaintiff was seeking the cost of preparing the partnership returns.
As for evidence, plaintiff cites the testimony of its tax preparer, Patrick Mitchell, who testified about preparing two returns for the partnership for 1997, one with the foreclosure sale and one without, and two returns for the individual partners, and further testified about the recapture of depreciation allowances and other damage calculations. Plaintiff also cites several exhibits, including tax returns and calculations of tax consequences from the foreclosure. Nowhere in the foregoing is there evidence of the cost to plaintiff of preparing the tax returns occasioned by the foreclosure.
Plaintiff contends it is nevertheless entitled to nominal damages. Civil Code section 3360 states: “When a breach of duty has caused no appreciable detriment to the party affected, he may yet recover nominal damages.” “Nominal damages are properly awarded in two circumstances: (1) Where there is no loss or injury to be compensated but where the law still recognizes a technical invasion of a plaintiff’s right or a breach of a defendant’s duty; and (2) although there have been real, actual injury and damages suffered by a plaintiff, the extent of plaintiff’s injury and damages cannot be determined from the evidence presented.” (Avina v. Spurlock (1972) 28 Cal.App.3d 1086, 1088.)
Defendant argues this issue was not raised below and, therefore, has been forfeited. As a general matter, appellate courts will not consider issues or theories raised for the first time on appeal unless the question is one of law to be applied to undisputed facts. (Johanson Transp. Service v. Rich Pik’d Rite, Inc. (1985) 164 Cal.App.3d 583, 588.)
Plaintiff contends the question whether nominal damages should be awarded is one of law, which may be raised for the first time on appeal. Plaintiff cites Ericson v. Playgirl, Inc. (1977) 73 Cal.App.3d 850, where the issue of nominal damages was first raised on appeal and the court permitted such an award. However, in that case, the plaintiff had been awarded actual damages in the trial court and the appellate court had reversed because the damages were too speculative. (Id. at p. 859.) The appellate court reduced the damage award to nominal damages. Obviously, in that case, there was no occasion for the plaintiff to seek nominal damages in the trial court.
Plaintiff also cites Hotel & Restaurant Employees & Bartenders Union, Local 28 v. Francesco’s B., Inc. (1980) 104 Cal.App.3d 962. However, in that case the appellate court reversed in part a judgment of dismissal entered after the trial court sustained the defendant’s demurrer without leave to amend. (Id. at p. 965.) The defendant there claimed on appeal that the plaintiff could not state a cause of action because it had not suffered any damages. The court explained that, on remand, the plaintiff would be able to seek nominal damages. (Id. at p. 973.) Again, there was no occasion prior to the appeal for the plaintiff to request nominal damages.
Here, the trial court found for plaintiff on the issue of liability for breach of the notice requirement but concluded plaintiff had suffered no damages thereby. Thereafter, defendant sought an award of costs and attorney fees. The court awarded costs but no attorney fees. At no time during this process did plaintiff seek an award of nominal damages.
Civil Code section 3360 makes an award of nominal damages discretionary with the trier of fact. As such, the decision whether to make such an award necessarily turns on the evidence presented to the court. (Pacific States Auxil. Corp. v. Farris (1931) 118 Cal.App. 522, 524.) By failing to request nominal damages, plaintiff did not give the trial court an opportunity to explore the issue and exercise its discretion. The issue has therefore been forfeited.
V
Equitable Indemnity
As described earlier, plaintiff brought this action against defendant, Allied, the receiver, and the 1998 purchasers seeking to quiet title to the property and alleging causes of action for fraud, negligent misrepresentation, and breach of contract. Plaintiff later dismissed the quiet title claim and dismissed all claims against the receiver and the 1998 purchasers.
Plaintiff’s claims against defendant and Allied centered around the failure of those parties to provide advance notice of the nonjudicial foreclosure and eventual sale of Walnut Manor.
Allied moved for summary judgment, arguing among other things that it mailed notice of the nonjudicial foreclosure to plaintiff at the address listed on the deed of trust and it had no knowledge of any other address for plaintiff. The trial court granted Allied’s motion, concluding plaintiff failed to present evidence creating a triable issue of fact as to whether Allied was aware of any other mailing address for plaintiff. The court thereafter granted Allied’s motion for attorney fees and entered judgment for Allied in the amount of $40,519.75.
Plaintiff contends it is entitled to indemnity from defendant for the judgment awarded to Allied. The trial court provided the following explanation for rejecting this contention: “At trial in this case, there was no evidence presented that Plaintiff has paid [Allied] the amount awarded [Allied] as a result of the summary judgment order. In addition, the attorney fees and costs of suit incurred by [Allied] resulted from Plaintiff’s unilateral decisions to sue [Allied] in the instant case and to oppose [Allied’s] motion for summary judgment. Accordingly, the applicable law... does not support Plaintiff’s indemnification claim. Further, there was no evidence presented at trial that Plaintiff was legally required to sue [Allied] or to oppose the motion for summary judgment brought by [Allied] in order to preserve any legal rights Plaintiff may have had against Defendant....” As we shall explain, we conclude the trial court reached the right decision, although perhaps for the wrong reasons.
“Indemnity may be defined as the obligation resting on one party to make good a loss or damage another party has incurred.” (Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 628.) “The right to indemnification arises from two general sources: ‘First, it may arise by virtue of express contractual language establishing a duty in one party to save another harmless upon the occurrence of specified circumstances. Second, it may find its source in equitable considerations brought into play either by contractual language not specifically dealing with indemnification or by the equities of the particular case.’” (Smoketree-Lake Murray, Ltd. v. Mills Concrete Construction Co. (1991) 234 Cal.App.3d 1724, 1735-1736.) This latter form of indemnity, implied indemnity, is premised “‘on the equities of the circumstances, i.e., tortfeasors sharing loss in proportion to their culpability, contracting parties sharing loss relative to their breach.’ [Citations.] Implied contractual indemnity is a type of equitable indemnity [citation], predicated on the indemnitor’s breach of contract with the indemnitee.” (Garlock Sealing Technologies, LLC v. NAK Sealing Technologies Corp. (2007) 148 Cal.App.4th 937, 967-968.)
Defendant contends the trial court was correct in concluding plaintiff has no claim for indemnity because it has not yet paid the Allied judgment. Defendant cites as support E. L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 506 (White), where the state high court said: “It is well settled that a cause of action for implied indemnity does not accrue or come into existence until the indemnitee has suffered actual loss through payment.” (See also People ex rel. Dept. of Transportation v. Superior Court (1980) 26 Cal.3d 744, 751.) Defendant also cites Civil Code section 2778, subdivision (2), which states: “Upon an indemnity against claims, or demands, or damages, or costs, expressly, or in other equivalent terms, the person indemnified is not entitled to recover without payment thereof.”
Defendant’s reliance on the foregoing authorities is misplaced. Civil Code section 2778 sets forth rules for interpreting a contract of indemnity. There is no evidence here of a contract of indemnity between plaintiff and defendant. Furthermore, subdivision (1) of that section states: “Upon an indemnity against liability, expressly, or in other equivalent terms, the person indemnified is entitled to recover upon becoming liable.” (Italics added.) As for White, the court there went on to say the party seeking indemnity before payment may nevertheless be entitled to file a claim for declaratory relief. (White, supra, 21 Cal.3d at p. 506.)
In the present matter, even if plaintiff would not be entitled to recover in damages the amount of the judgment entered in favor of Allied, plaintiff might still be entitled to a declaration of its right to indemnity.
Defendant argues plaintiff has no right to indemnity because implied indemnity arises only where two parties are made responsible by law to an injured third party. Defendant argues she “is not responsible in any way for the attorney fees that [plaintiff] was ordered to pay Allied.” Defendant points to the fact the first cause of action of the complaint sought to quiet title to the property, but Allied was never a titleholder. Defendant further asserts plaintiff had no evidence to support its other claims against Allied, inasmuch as Allied properly sent notice to the address on the deed of trust. Defendant argues there is no authority for requiring her to indemnify plaintiff “for its own foolhardiness in choosing to sue Allied without any evidence to support its charges.”
Given defendant’s position at trial that Streng had in fact provided Allied with plaintiff’s current address, it is disingenuous at best for defendant to now assert plaintiff was somehow foolhardy in suing Allied. Defendant’s argument assumes plaintiff should have foreseen the trial court’s ultimate rejection of defendant’s theory. But in plaintiff’s view, somebody failed to provide proper notice, and that somebody was either defendant or Allied. And because plaintiff knew defendant was aware of plaintiff’s current address, plaintiff cannot be considered foolhardy in concluding Allied may have been the guilty party.
Nevertheless, plaintiff’s claim as to the Allied judgment is not really one for indemnity. In Bear Creek Planning Com. v. Title Ins. & Trust Co. (1985) 164 Cal.App.3d 1227 (Bear Creek), a case relied upon by the trial court, this court indicated implied contractual indemnity arises from the contractual relationship between the parties rather than equitable principles. We explained that “implied contractual indemnity is based upon the premise that a contractual obligation to perform ‘carries with it an implied agreement to indemnify and to discharge forseeable [sic] damages resulting to the plaintiff [indemnitee] from the defendants’ [indemnitor’s] negligent performance.’” (Id. at p. 1237.) We therefore concluded comparative fault principles, applicable in equitable indemnity cases, do not apply to implied contractual indemnity claims. (Id. at pp. 1238-1239.) In effect, we concluded implied contractual indemnity can apply even where the indemnitor is not itself liable to the injured party.
In Prince v. Pacific Gas & Electric Co. (2009) 45 Cal.4th 1151, a case decided after the trial court issued its ruling in this matter, the state high court disapproved of Bear Creek. The high court concluded “implied contractual indemnity has always been subject to the rule that ‘“there can be no indemnity without liability.”’” (Prince, at p. 1165.) According to the court, “while Bear Creek correctly observed that the implied contractual indemnity doctrine is grounded upon the indemnitor’s failure to properly perform contractual duties owed to the indemnitee, the decision was flawed to the extent it viewed the doctrine as akin or analogous to express contractual indemnity. Express indemnity has never required joint liability and... equating the two doctrines would lead to anomalous results.” (Id. at p. 1166.) The court concluded there can be no implied contractual indemnity in the absence of joint liability of the indemnitor and indemnitee to the injured third party. (Ibid.)
In the present matter, plaintiff argues it is entitled to implied contractual indemnity because the judgment obtained by Allied is a direct result of defendant’s breach of her contractual duty to provide Allied with plaintiff’s current mailing address. Plaintiff argues that when it discovered there had been a foreclosure sale, it questioned defendant and her agents about how this could have happened without plaintiff’s knowledge, “but they were not forthcoming.” Therefore, according to plaintiff, it reasonably proceeded against both defendant and Allied.
Plaintiff further argues Allied later obtained summary judgment only because Streng could not recall in his deposition that he had provided Allied with other addresses. Allied relied in part on this deposition testimony to support its motion. Later, Streng recalled having given Allied other addresses but, despite coming to this realization before Allied was granted summary judgment, Streng did not alert the court of the discrepancy in his deposition testimony.
Plaintiff’s arguments raise several potential theories of indemnity. First, plaintiff argues it is entitled to indemnity because its liability to Allied arose from defendant’s failure to provide Allied with the correct address for notice of the foreclosure. According to this theory, if defendant had provided the correct address, plaintiff would have received notice, the default would have been cured, the foreclosure sale would not have taken place, no lawsuit would have been filed, and no judgment would have been entered for Allied.
Plaintiff’s second theory revolves around defendant’s failure to explain to plaintiff how the foreclosure sale had gone through without plaintiff’s knowledge. The idea here is that, if defendant had acknowledged its failure to provide the correct address to Allied, plaintiff would not have sued Allied and Allied would not have obtained the judgment.
Finally, plaintiff asserts it is entitled to indemnity because Allied obtained summary judgment based on Streng’s failure to correct his deposition testimony before Allied’s motion was granted. Had Streng corrected his testimony or otherwise alerted the court, plaintiff argues, Allied’s motion would have been denied.
It is readily clear only the first of plaintiff’s theories even remotely suggests a claim for implied contractual indemnity. As explained above, there can be no implied contractual indemnity in the absence of liability of both the indemnitor and indemnitee to the injured third party. Plaintiff asserts its liability to Allied for the latter’s legal expenses is a direct result of defendant’s failure to provide Allied with the proper address. This failure to provide the correct address arguably gives rise to an independent claim by Allied against defendant.
However, it was not defendant’s failure to provide Allied with the correct address that caused Allied to be dragged into this lawsuit. On the contrary, it was plaintiff’s misconception that defendant had in fact provided Allied with the correct address that led plaintiff to sue Allied. It is thus only under plaintiff’s second theory of indemnity, in which plaintiff alleges defendant failed to cooperate with plaintiff in assessing how the foreclosure sale could have proceeded without plaintiff’s knowledge, that defendant’s actions could arguably have led to Allied being joined in the action.
But plaintiff’s second theory of indemnity does not give rise to any liability flowing from defendant to Allied. Assuming defendant was somehow obligated to provide plaintiff with information about how plaintiff had not received notice, this obligation would not give rise to any duty owed to Allied and, hence, no liability to Allied. Likewise, defendant’s failure to insure that Streng’s deposition testimony was accurate, as alleged under plaintiff’s third theory of indemnity, does not give rise to any liability of defendant to Allied.
We conclude the trial court did not err in refusing to require defendant to indemnify plaintiff for the judgment obtained by Allied.
Disposition
The judgment is affirmed.
We concur: ROBIE, J. BUTZ, J.