Iverson v. Spang Industries, Inc.

Citations: 45 Cal. App. 3d 303; 119 Cal. Rptr. 399; 1975 Cal. App. LEXIS 1686Docket: Civ. 34782

Court: California Court of Appeal; February 13, 1975; California; State Appellate Court

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Milton C. Iverson filed a lawsuit against Spang Industries, Inc. for damages due to Spang's breach of a lease covenant requiring the lessee to restore the premises to its original condition upon surrender, excluding normal wear and tear. Spang cross-complained against its sub-lessees, Donald Conn and Zebb, seeking indemnification in case it was found liable. The trial court awarded Iverson $2,711.45, plus attorney's fees and costs, while granting Spang indemnification of $2,336.48 from Zebb and $259.61 from Conn, but denied Spang's request for attorney's fees.

Iverson contended that the trial court erred by not fully accounting for the damages from Spang's breach, specifically regarding the building’s reduced rental value. The court concluded that the condition of the property upon lease termination was similar to its original state, estimating Iverson's total damages at $5,422.90. Iverson, however, argued he incurred $3,862.78 in repair costs and suffered a loss of $10,700 due to diminished rental value. He referenced three potential measures for damages in such cases: the cost of restoration, the reduction in market value, or specific performance of the covenant.

In jurisdictions like California, the restoration principle dictates that damages for a lessee's breach of a covenant to maintain or surrender premises in good repair are measured by the reasonable cost to restore the premises. This includes allowances for rental losses during the repair period. Iverson claims entitlement to damages based on both the restoration costs and reduced rental values over the lease term, arguing that renting below market value was an effort to mitigate damages from Spang's breach. However, no California case supports this double recovery, although some other jurisdictions have allowed reduced rental value as a damage measure in exceptional cases. The trial court applied the correct damage measure, determining the restoration costs at $5,422.90, and there is no evidence suggesting it overlooked costs related to removal and restoration. The court's findings indicate a comprehensive consideration of all relevant evidence regarding the property's condition and repair costs, with an assumption that the trial court thoroughly evaluated witness credibility and evidence discrepancies.

Evidence indicates that $8,309.31 was spent on repairs and restoration of the leased premises, with over half of this amount contributed by the current lessee, Concept Manufacturing Co. In return for this investment, Concept received a reduced monthly rent and a month of free rent. Some repairs were attributed to normal wear and tear, which the court determined should be charged to the previous lessee, Iverson. The trial court found total damages to be $5,422.90, apportioning 50% to Graywood Corporation (the prior lessee) and 50% to defendant Spang, resulting in $2,711.45 each. Plaintiff contended it was erroneous to allocate damages between Graywood and Spang, as Graywood was not a party to the case. The lease included a provision acknowledging that the premises were in good condition upon entry and required the lessee to return them in good condition, except for reasonable wear and tear. The court noted that Spang did not inspect the premises upon taking possession, and they were not in good condition at that time. It cited case law affirming that such covenants should not impose undue repair obligations on a lessee, and that ordinary wear and tear should be expected. The evidence supported the trial court’s conclusion that some damages were not attributable to Spang, as they resulted from reasonable wear and tear and actions by Graywood. Therefore, the court’s apportionment of damages was upheld as proper.

Appellant seeks prejudgment interest on damages awarded, arguing that under section 3287 of the Civil Code, interest should be included as the damages were certain and calculable. Appellant cites West v. Holstrom, where the amount owed was clear due to fixed tariff rates. However, in this case, the court notes that prior to judgment, Spang could not ascertain the amount owed because the repair costs were not clearly attributable to specific issues or wear and tear. Consequently, interest cannot be awarded before judgment when damages cannot be determined without conflicting evidence, as established in Conderback, Inc. v. Standard Oil Co.

Regarding attorney's fees, the trial court awarded appellant $750, significantly less than the requested $5,000. Appellant challenges this amount as unreasonably low and constituting an abuse of discretion. The court has discretion in awarding fees when a contract does not specify an amount, considering factors such as the value of the property, complexity of the case, necessity for legal expertise, and time spent. Previous cases affirm that the burden to overturn a trial court's decision on reasonable attorney fees is substantial, and the determination of what constitutes a reasonable fee lies with the trial judge.

Reversal of the trial court's decision regarding attorney's fees is only justified if the awarded amount is so disproportionate as to "shock the conscience," suggesting influence from passion or prejudice. In this case, the $750 fee, approximately 30% of the final judgment, was found reasonable and within the court's discretion, demonstrating careful consideration of the principles for determining attorney's fees.

Cross-appellant Spang claims entitlement to indemnification from Zebb and Conn based on express indemnity clauses in their subleases, asserting that damages to the premises occurred during their occupancy. However, the trial court found substantial evidence supporting that Spang occupied the premises and caused additional damage beyond normal wear and tear, leading to the court's refusal to grant full indemnification.

Additionally, Spang contests the trial court's denial of attorney's fees, which are only awarded if authorized by statute or contract. The subleases included a clause stipulating that the losing party in specific legal actions must pay the prevailing party's attorney's fees. Although the trial court ruled in favor of Spang on the cross-complaint, it did not award attorney's fees, which appears inconsistent with the statutory framework outlined in Section 1021 of the Code of Civil Procedure, permitting such awards only when specified by statute or contract.

The agreement stipulated that the prevailing party in a lease covenant breach action is entitled to reasonable attorney's fees. Although cross-defendants argued that Spang was not a true prevailing party due to liability for damages, the complaint and cross-complaint are deemed independent, allowing Spang to be recognized as the prevailing party in this context. According to section 1021 of the Code of Civil Procedure and relevant case law, a contract's provision for attorney's fees is enforceable when a suit is initiated to uphold those terms, and the trial court's failure to award such fees is considered an error. The court's reasoning in Heidt v. Miller Heating, Air Conditioning Co. supports the conclusion that the trial court erred by not awarding attorney's fees to Spang Industries, Inc. Consequently, the judgment denying these fees is reversed, while all other aspects of the judgment are affirmed. The case is remanded for the trial court to determine the reasonable attorney's fees for the cross-complaint, amend the findings and conclusions accordingly, and issue a revised judgment. Both parties will bear their own appeal costs. The judgment details also note the rental value discrepancies and the complexity of the case, along with specific figures related to indemnification and damages.