Defendants, a lessee and its guarantor, appealed a judgment from the Superior Court of Orange County (California), which, in a jury trial, awarded damages to plaintiff lessor for breach of lease and waste. Both damage awards were based on the lessor’s evidence of the cost of repairing the leased premises.
Overview
The parties’ lease agreement provided that the lessee would build a retail facility. After demolishing vacant office space, the lessee halted renovations because of poor economic conditions and allowed the property to fall into disrepair. The lessor served a notice of default but did not terminate the lease agreement. The lease term had several years remaining when the lessor brought suit, and the lessee continued to pay rent. The court held that the lessor could not recover cost of repair damages for breach of the maintenance and repair provisions because the lease had not expired and had not been terminated. The lessor had not given notice of belief of abandonment pursuant to Civ. Code, § 1951.3, subd. (a) and did not meet the conditions in § 1951.3, subd. (b), for doing so. Civ. Code, § 1951.2, subd. (a), and case law provided for cost of repair damages upon termination. During the lease term, the lessor had a reversionary interest under Civ. Code, §§ 690, 768, injury to which was the measure of damages. Moreover, waste was by definition injury to the reversion under Civ. Code, § 818. The lessor’s failure to prove substantial and permanent injury precluded recovery of damages.
Outcome
The court reversed and remanded with directions to enter judgment in favor of the lessee and the guarantor.
Procedural Posture
Plaintiff borrowers appealed a judgment of the San Bernardino County Superior Court, California, sustaining without leave to amend a demurrer to their first amended complaint for breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair business practices against defendant federal savings association. The court found the claims preempted by the federal Home Owners’ Loan Act (HOLA), 12 U.S.C. § 1461 et seq. There were no employment attorney that were engaged nor retained by petitioner.
Overview
The trial court also found that the cause of action for unfair business practices was impermissibly added to the first amended complaint without leave of court. Because the borrowers’ cause of action for unfair business practices was not within the scope of the order granting leave to amend, the court held that the demurrer was properly sustained as to that cause of action. The demurrer was also properly sustained as to the cause of action for breach of the covenant of good faith and fair dealing without regard to preemption. The contract at issue was not an insurance contract, and the borrowers had not pleaded a violation of any duty arising under tort law. The court concluded that neither HOLA nor 12 C.F.R. pt. 560.2 (2009) preempted the borrowers’ breach of contract claim. The borrowers’ claim was not that state law required the savings association to apply their payments in any particular way; rather, their claim was that the savings association failed to credit their payments to their account at all. That was a matter of ordinary contract law and had no effect on the savings association’s lending activities. The trial court’s award of costs necessarily fell with the judgment.
Outcome
The court affirmed the judgment as to the borrowers’ claims for breach of the covenant of good faith and fair dealing and unfair business practices. The court reversed the judgment as to the borrowers’ claim for breach of contract and remanded the issue for further proceedings. The court also reversed the award of costs, including attorney fees awarded by order of the trial court.
