Alvarez v. Martinez

Filed 3/12/07 Alvarez v. Martinez CA5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIFTH APPELLATE DISTRICT

APPEAL from a judgment of the Superior Court of Fresno County. Jon N. Kapetan, Judge.

Law Offices of Leech & Associates and Ralph J. Leech for Defendants and Appellants.

No appearance for Plaintiffs and Respondents.

No appearance for Defendant and Respondent.

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Eulalio and Elpidia Martinez agreed to sell a portion of the five-acre parcel they owned in Fresno County to Emigdio and Angelina Alvarez.^[1] Alvarez sued to quiet title when the transaction could not be completed. The trial court entered a monetary judgment in favor of Alvarez, impliedly denying the quiet title action.

Martinez argues the trial court erred for various reasons. We agree the trial court erred in refusing to permit Martinez a setoff for the reasonable rental value of the property and will reverse the judgment.

FACTUAL AND PROCEDURAL SUMMARY

In 1990 Alvarez agreed to purchase one-half acre of property from a five-acre parcel owned by Martinez for the price of $3,500. The purchase price was paid in full. Alvarez placed a mobile home on the property and made related improvements at a total cost, including the purchase price, of approximately $19,500.

When Martinez attempted to deed the one-half acre to Alvarez, they discovered they could not sell only a portion of the five-acre parcel. Therefore, title never passed to Alvarez.

Alvarez filed a complaint to quiet title to the property. Martinez filed an answer denying the essential allegations of the complaint and asserting various affirmative defenses.

The only two witnesses at trial were Elpidia Martinez and Eulalio Alvarez. They testified to the above facts with no significant discrepancies. In addition, Eulalio Alvarez testified that currently he rents the mobile home for $280 per month. The rent for land on which to put a mobile home in the same area would cost approximately $150-$200 per month.

Approximately one month after the one-day trial concluded, the trial court issued an order requiring Alvarez to file an amended complaint to conform to proof no later than April 19, 2004. Alvarez never requested permission to file an amended complaint.

Alvarez filed an amended complaint on May 28, 2004, over Martinezs objection that it was untimely. The amended complaint added a cause of action for breach of contract.

On June 4, 2004, the trial court issued its order awarding Alvarez damages in the amount of $19,500.^[2] The order does not refer to the quiet title cause of action that the trial court apparently found in favor of Martinez. Judgment was entered consistent with the order.

DISCUSSION

As we read Martinezs brief, they are making three arguments on appeal. We proceed directly to the issue of setoff, which we find dispositive.

I. The Trial Court Erred in Failing to Set Off the Reasonable Rental Value of the Property

The equitable defense of setoff has existed since at least the 17th century. (Granberry v. Islay Investments (1995) 9 Cal.4th 738, 743-744.) Under general and well-established principles of equity, either party to a transaction involving mutual debts and credits can strike a balance, holding himself owing or entitled only to the net difference. [Citations.] California has multiple statutory setoff provisions, including, in addition to Government Code section 12419.5, Code of Civil Procedure section 431.70, which authorizes the setoff of cross-demands for money, and Code of Civil Procedure section 666, which requires a setoff where a cross-complainants recovery exceeds that of the plaintiff. [] In the usual case, an offset has the salutary effects of (1) eliminating a superfluous exchange of money between mutual debtors [citation], and (2) protecting each party from the risk that the other may collect the debt owed to him or her, then default upon his or her own obligation. [Citation.] However, the benefits of a setoff are sometimes outweighed by the risk of unfairness which may be created by allowing a setoff in specific circumstances. When this is the case, in light of the equitable origin of setoff rights, such rights may be restricted by judicial limitations imposed to uphold independent state policy. [Citations.] (Garg v. People ex rel. State Bd. of Equalization (1997) 53 Cal.App.4th 199, 211-212, disapproved on other grounds in Agnew v. State Bd. of Equalization (1999) 21 Cal.4th 310, 333.)

The situation presented to the trial court fell squarely within the provisions of Code of Civil Procedure section 431.70.^[3] For the purpose of our analysis we assume, without deciding, that (1) the trial court correctly permitted the filing of the amended complaint, (2) the amended complaint stated a valid cause of action, and (3) the trial court correctly determined Alvarez was entitled an award of damages in the amount of $19,500 for breach of contract.

Martinezs answer to the complaint did not assert setoff as a defense, the typical method to raise the issue. Of course, when Martinez filed his answer, the only cause of action in the complaint sought to quiet title to the property, so damages were not an issue. Nor was Martinez given an opportunity to file an answer to the amended complaint, as the trial court issued its judgment approximately seven days after the amended complaint was filed.

Nonetheless, when the issue of damages was suggested at trial by the trial court, Martinezs counsel immediately asserted that Martinez would be entitled to a setoff of the reasonable rental value of the one-half acre that Alvarez possessed. Since Alvarez testified the rental value was $150 per month, counsel argued the evidence established that Alvarez could not recover a net monetary judgment. The trial court immediately rejected the argument, stating: With the knowledge that that [isnt] going to happen in this case, do you all want to talk about it? The trial court erred in reaching this conclusion.

The damages awarded by the trial court, and presumably sought by Alvarez (although there is nothing in the record to support such a conclusion), reimbursed Alvarez for the costs incurred in purchasing the property and in making improvements to the property. The result of the trial courts award was to permit Alvarez to live free on the one-half acre for over 13 years. Equity will not countenance such a result.

The facts of this case do not suggest that it would be unfair to permit Martinez a setoff. The contract in this case could not be performed because the parties did not realize that county zoning ordinances prohibited the subdivision of that particular lot. Elpidia Martinez testified that they attempted to deed the one-half acre to Alvarez, but were told by several individuals that it could not be done. Emigdio Alvarez did not disagree with this testimony.

At trial, Martinezs counsel stated Martinez would have transferred the one-half acre parcel to Alvarez if it were possible, but it was impossible. In other words, both parties are equally at fault, and neither should be punished for their inability to complete the contract. By reimbursing Alvarez for the costs he incurred in attempting to perform the contract, and then permitting him to live on the property without charge, the trial court penalized Martinez, resulting in an outcome that was inequitable.

This is not the first time an appellate court has reached this conclusion. In Romero v. Rainey (1955) 138 Cal.App.2d 139, there was a breach of a contract for the sale of land, with no finding that either party acted in bad faith. The trial court awarded the purchaser all costs he paid either to the seller or on behalf of the seller. From this amount the trial court set off the reasonable rental value of the property. On appeal, the purchaser argued the seller was not entitled to the setoff. The appellate court disagreed. Inasmuch as [the purchasers] are to receive all sums paid to, or for the benefit of [the sellers], it is fair to set off the reasonable rental value of the property. (Id. at p. 142.)

Similarly, it is fair that Martinez be awarded a setoff for the reasonable value of the rental value of the property for the time it has been occupied by Alvarez. Martinez, however, is not entitled to any affirmative relief, as a cross-complaint was not filed. (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 197-198.)

While we could remand this matter to the trial court to determine the amount of setoff to which Martinez is entitled, we see no reason to do so because the evidence was undisputed. Alvarez testified that the reasonable rental value of the property was between $150 and $200 per month. The parties entered into the contract for the purchase of the one-half acre on October 31, 1990. The matter was tried on February 27, 2004. Even if we were to assume that Alvarez did not take possession of the one-half acre until January 1, 1991, the period he had possession of the property was 13 years 2 months, or 158 months. Therefore, the total setoff to which Martinez is entitled is, at a minimum, $23,700 (158 x $150). Since this amount exceeds the award to Alvarez, the judgment in Alvarezs favor is reduced to zero.

DISPOSITION

The judgment in favor of Alvarez is reversed. The trial court is instructed to enter a new judgment, which shall reflect that Martinez prevailed on the quiet title action and Alvarez prevailed on the breach of contract action, but suffered no damages. The parties shall pay their own costs in the trial court and on appeal.

_____________________

CORNELL, J.

WE CONCUR:

_____________________

VARTABEDIAN, Acting P.J.

_____________________

DAWSON, J.

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^[1] To ease the readers task, we will refer to both plaintiffs as Alvarez and to both defendants as Martinez. Maria T. Romero was named as a defendant in the action but did not make an appearance. Her default was taken by Alvarez.

^[2] The trial court also issued an order to show cause regarding sanctions for counsels failure to file timely the amended complaint.

^[3] The statute reads in full: Where cross-demands for money have existed between persons at any point in time when neither demand was barred by the statute of limitations, and an action is thereafter commenced by one such person, the other person may assert in the answer the defense of payment in that the two demands are compensated so far as they equal each other, notwithstanding that an independent action asserting the persons claim would at the time of filing the answer be barred by the statute of limitations. If the cross-demand would otherwise be barred by the statute of limitations, the relief accorded under this section shall not exceed the value of the relief granted to the other party. The defense provided by this section is not available if the cross-demand is barred for failure to assert it in a prior action under [Code of Civil Procedure] Section 426.30. Neither person can be deprived of the benefits of this section by the assignment or death of the other. For the purposes of this section, a money judgment is a demand for money and, as applied to a money judgment, the demand is barred by the statute of limitations when enforcement of the judgment is barred under Chapter 3 (commencing with [Code of Civil Procedure] Section 683.010) of Division 1 of Title 9.