Filed 11/14/14 Sternlib v. Story Lending CA2/3
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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
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              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                DIVISION THREE


RIKA STERNLIB et al.,                                                 B248260

         Plaintiffs and Respondents,                                  (Los Angeles County
                                                                      Super. Ct. No. LC085619)
         v.

STORY LENDING, LLC,

         Defendant and Appellant.



         APPEAL from judgment of the Superior Court of Los Angeles County,
Maria E. Stratton, Judge. Affirmed in part, reversed in part with directions.


         Law Offices of Robert D. Coppola, Jr. and Robert D. Coppola, Jr. for Defendant
and Appellant.


         Rogers & Harris and Michael Harris for Plaintiffs and Respondents.


                                            _____________________
                                    INTRODUCTION
       Defendant Story Lending, LLC (Story) appeals from a judgment entered after a
bench trial awarding Plaintiffs Rika Sternlib and Joseph Sternlib damages for breach of a
construction loan contract. We conclude the record supports the trial court’s finding that
Story breached the agreement by refusing to make an authorized loan disbursement when
due. However, because the trial court applied an incorrect measure of damages, we will
reverse the award and remand the case for a retrial on the damages issue.
                   FACTS AND PROCEDURAL BACKGROUND
       Plaintiffs Rika and Joseph Sternlib are husband and wife. In 2004, Rika Sternlib
acquired two adjacent hillside lots for a purchase price of $575,500. For several years,
Plaintiffs worked on a building plan for a residence on one of the lots. The plan was
finally approved by the City of Los Angeles in October 2008.
       In June 2008, Plaintiffs began looking for a loan to finance construction.
Plaintiffs’ broker contacted three lenders, but Story was the only one interested in the
loan. Story makes “hard money loans,” which rely primarily on the equity in the
property pledged as security, rather than the borrower’s credit history. These loans are
customarily offered to borrowers who cannot qualify for a conventional loan.
       In July 2008, while still seeking final approval from the City of Los Angeles,
Plaintiffs had the property appraised twice in advance of closing the loan with Story.
Based on preliminary plans for the residence, both appraisals valued the property at $2.25
million, even though the listed square footage differed by 240 square feet between the
two appraisals.
       On September 11, 2008, Plaintiffs entered into the loan agreement with Story.
The loan agreement provides that “[u]pon Borrower’s compliance with the requirements
of Lender set forth in this Agreement, Lender shall advance to Borrower an amount not to
exceed” $1,635,450. All funds advanced were to be “charged against Borrower’s
promissory note to Lender . . . in the original principal sum of” $1,635,450. The note
was secured by a deed of trust, which Story recorded as a lien on the property.



                                             2
       Among the “Conditions Precedent for Advances” set forth in paragraph 2 of the
loan agreement, subparagraph m provides: “Based on the required loan to value ratio
determined by Lender prior to closing, Borrower’s equity in the project, exclusive of any
loan proceeds, must already be in the project or placed with Lender, before Lender shall
have any obligation to fund the Loan or any part thereof. Further, Lender’s loan to value
requirements must continue to be met and/or maintained throughout the entire
construction phase of the Loan.”
       Additionally, subparagraphs k and l required Plaintiffs to submit a written draw
request, together with “[a]ny consents, certificates of approval, . . . evidence of partial or
final completion, . . . or such other documents as Lender may reasonably require” as
further conditions precedent. According to the trial court’s findings, these provisions
required Plaintiffs to retain an independent third party to review and approve each phase
of construction for every loan advance. Plaintiffs retained Builders Control Service Co.
(Builders Control) for this purpose.
       Escrow closed on September 27, 2008. Story tendered the first loan draw of
$44,977.87 directly out of escrow by way of two checks made out to the Department of
Building and Safety. The funds were earmarked to pay two large permit fees. Story also
paid a $10,013 fee for Builders Control out of escrow. Thereafter, construction began.
       In October 2008, Plaintiffs requested a second draw of $124,700. Builders
Control approved the request; however, it was unable to disburse the funds to Plaintiffs
due to a “problem” in Story’s office. Ten days later, Story funded the second draw.
       In November 2008, Plaintiffs requested a third draw of $125,000. Builders
Control approved the request, but again was unable to disburse the funds, and directed
Plaintiffs to speak with Story about the money. Plaintiffs spoke with Story’s owner, Rev
Karpman, who told them he needed to talk with his investors and partners before funding
the advance. Two weeks later, Plaintiffs received a $125,000 check from Story.
Karpman told them the check could be deposited in two days. As winter approached,
Plaintiffs’ goal was to complete the undergrade work on the project while the weather
was good.


                                               3
       In December 2008 or January 2009, Plaintiffs requested a fourth draw of
$164,000. Builders Control approved the request, but advised Plaintiffs that Story “had
no money” and they would need to “ ‘go fight with Rev Karpman.’ ” Karpman told
Plaintiffs he had “stopped the funding because he had no money; [as] he had lost it
investing in Panama.”
       Plaintiffs told Karpman they needed to put in rebar and concrete immediately,
before the rains came. After visiting the construction site, Karpman asked Plaintiffs what
amount they needed to “ ‘stop the damage.’ ” Plaintiffs said they needed at least $70,000
to protect the site from the upcoming rainy season. Story tendered $30,000 on January
22, 2009, and an additional $20,000 on February 2, 2009. Plaintiffs purchased concrete
and told Karpman they needed the remaining funds to pour it. Karpman told Plaintiffs
that his partners would not let him release more money on the loan.
       The next day, Karpman suggested Plaintiffs speak with a different lender to obtain
another loan. Plaintiffs were not interested in another loan, as they had already paid
points and fees to Story. However, because they could not stop construction, Plaintiffs
spoke with two or three other lenders. The lenders were unwilling to make another loan
due to Story’s $1.6 million lien on the property.
       Plaintiffs obtained small loans from family and friends to finish the rebar and
concrete. However, Plaintiffs’ building permits eventually expired. Thus, to
recommence construction, Plaintiffs will be required to obtain all new permits and new
approvals for the work that has been completed.
       Plaintiffs sued Story for breach of the loan agreement. After a bench trial, the
court issued a statement of decision finding “Story breached its loan agreement with
[Plaintiffs] by failing to fund the construction loan as approved by Builders Control.”
With respect to damages, the court found Plaintiffs were entitled to “the reasonable cost
of completing the work,” less the amount “Plaintiffs currently owe defendant Story” for
“the draws funded before [Story] breached the contract.” Relying on an exhibit
submitted by Plaintiffs showing “what it would currently cost to complete the
construction,” the trial court concluded Plaintiffs were entitled to a net award of


                                              4
$276,473.13. In light of the net award, the court also found it “equitable to cancel the
deed of trust.”
       Story did not object to the statement of decision or move for a new trial.
                                       DISCUSSION
       1.     The Record Supports the Trial Court’s Breach of Contract Determination
       As explained in its statement of decision, the trial court concluded Story breached
the loan agreement by refusing to advance funds that were approved by Builders Control
for the next phase of construction. Though Story challenges this finding on several
grounds, all essentially collapse into a single contention—namely, that Story had no
obligation to make further advances if, at any time during the construction phase, the
loan-to-value ratio exceeded a level determined by Story prior to closing. We conclude
Story has failed to establish reversible error. As we shall explain, the court made a
dispositive finding, based on an admission by Story’s owner, that Story stopped making
authorized loan advances due to a shortage of funds stemming from losses it suffered in
an unrelated investment—not because of a problem with the loan-to-value ratio.
       We begin with perhaps the most fundamental principle of appellate review—that a
judgment is presumed correct, all inferences are indulged in its favor, and all ambiguities
are resolved to support affirmance. (Denham v. Superior Court (1970) 2 Cal.3d 557,
564; Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 631.) The
appellant bears the burden of overcoming this presumption by presenting a record that
affirmatively demonstrates error. “Failure to provide an adequate record on an issue
requires that the issue be resolved against [the appellant].” (Hernandez v. California
Hospital Medical Center (2000) 78 Cal.App.4th 498, 502.) Thus, for instance, where the
appellant fails to provide a reporter’s transcript, “it is presumed that the unreported trial
testimony would demonstrate the absence of error.” (Estate of Fain (1999)
75 Cal.App.4th 973, 992; see also Foust v. San Jose Construction Co., Inc. (2011)
198 Cal.App.4th 181, 187 [affirming judgment where appellant included only selected
excerpts from clerk’s transcript and failed to include reporter’s transcript or exhibits,
preventing meaningful review].)


                                               5
       Furthermore, not every purported error sanctions a reversal. Pursuant to statute
and constitutional mandate, no judgment may be reversed on the basis of an error unless
the record demonstrates the error was “prejudicial” and caused the appellant “substantial
injury,” such that “a different result would have been probable if such error . . . had not
occurred.” (Code Civ. Proc., § 475; see also Cal. Const., art. VI, § 13.) Thus, “if there is
a finding of fact that is dispositive and necessarily controls the judgment, the presence or
absence of findings on other issues is inconsequential.” (Alpine Ins. Co. v. Planchon
(1999) 72 Cal.App.4th 1316, 1320 (Alpine).)
       Story does not dispute that it refused to release all funds approved by Builders
Control for Plaintiffs’ fourth loan draw. Nevertheless, it contends this was not a breach,
because its obligation to make further advances under the agreement was conditioned
upon the original loan-to-value ratio being maintained throughout the construction phase
of the loan. The trial court rejected this contention. Among other things, the court
implicitly credited Mr. Sternlib’s testimony that Story’s owner, Karpman, admitted he
“did not . . . [stop] the funding because of a loan to value problem,” but rather “because
he had no money; [as] he had lost it investing in Panama.” The court’s rejection of
Story’s loan-to-value ratio defense also is supported by the absence of any evidence—
either discussed in the statement of decision or appearing in the appellate record supplied
by Story—compelling a finding that the value of the property had diminished to the point




                                              6
that it no longer supported the original loan-to-value ratio when Story refused to advance
the funds.1
       Story’s arguments on appeal simply ignore this dispositive finding and thus fail to
establish reversible error. (See Alpine, supra, 72 Cal.App.4th at p. 1320.) For instance,
Story principally contends the trial court erred in concluding Story was required to
determine a baseline loan-to-value ratio and communicate the ratio to Plaintiffs prior to
closing. Contrary to the court’s interpretation, Story argues there was no such
requirement, because the loan-to-value ratio was “readily determinable” at closing from
“the amount of the loan and the estimated value of the improvements” as stated in the
appraisals.
       Even if Story’s interpretation is correct, there is no reversible error. For purposes
of assessing prejudice, it makes no difference whether we construe the loan-to-value
requirement as having been set by the ratio that existed at closing, because the trial court
found Story’s decision to refuse future funding was not supported by evidence of a loan-
to-value problem. There is no evidence in the record presented by Story that compels a
finding that the property lost value after the original ratio was established.




1
        At most, the court’s statement of decision refers to “a second appraisal dated later
in the fall” of 2008, which Story attempted to introduce into evidence. The court did not
admit the appraisal, as Story “was unable to lay a foundation.” Story does not challenge
this evidentiary ruling on appeal. It nevertheless claims the appraisal’s “creation at the
request of Story was established by in Court testimony.” However, Story failed to supply
a transcript or settled statement concerning such testimony, let alone identify any
evidence showing the property diminished in value after the loan closed.

       Story also points to testimony from Plaintiffs’ construction superintendent, who
claimed Karpman told him there were problems with the loan-to-value ratio. Regardless
of whether Karpman made such a statement, the statement alone does not compel a
finding that the property in fact diminished in value. Further, the trial court was free to
disbelieve the superintendent’s testimony, as the court impliedly did in rejecting Story’s
loan-to-value ratio defense.


                                              7
       For the same reason, Story’s related argument that the trial court erred by
considering extrinsic evidence fails to support reversal of the judgment. Citing isolated
references in the court’s statement of decision to “oral discussions” and what Plaintiffs
“believed,” Story argues the court improperly considered extrinsic evidence in
determining the parties intended Builders Control to take charge of the entire loan
commitment after escrow in order to make periodic disbursement to Plaintiffs as the
construction progressed. Story contends this interpretation is inconsistent with the
express provisions of the loan agreement, which allow Story to refuse an advance based
on the loan-to-value ratio, regardless of whether Builders Control approved the advance
for the next phase of construction. But here too, the trial court’s purported error
concerning which entity would control the loan proceeds is inconsequential, because the
court implicitly found Story refused to make the requested advance due to a shortage of
funds stemming from unrelated investment losses—not because there was an actual
problem with the loan-to-value ratio.2




2
        Story also contends the court erred by relying on Builders Control’s approval,
while failing to make findings that Plaintiffs “were in compliance with the stated
prerequisites of the Loan Contract.” Insofar as Story failed to bring this purported
omission to the trial court’s attention in accordance with Code of Civil Procedure section
634, we must conclude the objection was waived and presume that the trial court made all
factual findings necessary to support the judgment. (Uzyel v. Kadisha (2010)
188 Cal.App.4th 866, 896 [“If an omission [in the statement of decision] is not brought to
the trial court’s attention as provided under the statute, . . . the reviewing court will
resolve the omission by inferring findings in favor of the prevailing party on that issue”];
see also In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1138 [“it would be unfair to
allow counsel to lull the trial court and opposing counsel into believing the statement of
decision was acceptable, and thereafter to take advantage of an error on appeal although
it could have been corrected at trial”].)


                                              8
       Finally, Story contends the court abused its discretion by refusing to admit certain
exhibits into evidence. Though Story claims error with respect to several exhibits,3 it
discusses the contents of only Exhibit 62—a letter purportedly signed by Plaintiffs
acknowledging that a reduction in square footage from the plans used for the original
appraisal had caused the loan-to-value ratio to exceed the “original” requirement of
“60%.”4 Plaintiffs denied signing the letter, and the trial court refused to receive Exhibit
62 into evidence “because it lacked foundation.” We find no abuse of discretion.
       Story attempted to authenticate Exhibit 62 through the testimony of Nikie
Alishahi, a secretary for Story, who claimed she typed the letter and witnessed Plaintiffs
sign it. The trial court determined that Alishahi “was not credible,” as “she basically
responded to leading questions asked by defendant Story.” “Such a credibility
determination is uniquely the province of the trial court. Just as we may not reweigh the
evidence, we do not reassess credibility determinations.” (Ellis v. Toshiba America
Information Systems, Inc. (2013) 218 Cal.App.4th 853, 884.) Having concluded Alishahi
lacked credibility, the trial court acted well within its discretion by excluding evidence
she purported to authenticate.


3
        Story does not discuss the contents of these other exhibits or explain how their
admission would have changed the resulting judgment. In addition to providing an
adequate record demonstrating error, Story’s burden as appellant includes the obligation
to present a reasoned argument demonstrating why a purported error has resulted in
prejudice. “[O]ur duty to examine the entire cause arises when and only when the
appellant has fulfilled his duty to tender a proper prejudice argument. Because of the
need to consider the particulars of the given case, rather than the type of error, the
appellant bears the duty of spelling out in his brief exactly how the error caused a
miscarriage of justice.” (Paterno v. State of California (1999) 74 Cal.App.4th 68, 106,
italics added.) Insofar as Story simply claims error without showing prejudice, it has
failed to meet its burden for reversal. (See Santina v. General Petroleum Corp. (1940)
41 Cal.App.2d 74, 77 [“Where any error is relied on for a reversal it is not sufficient for
appellant to point to the error and rest there”].)
4
       As Plaintiffs point out, Exhibit 62 misrepresents the original loan-to-value ratio,
which was 72.6 percent at closing, based on a loan amount of $1,635,450 and an
appraised property value of $2.25 million.


                                              9
       2.     The Trial Court Applied the Incorrect Measure of Damages
       We turn now to Story’s claim that the trial court applied the wrong measure of
damages for breach of the loan agreement. Except where otherwise expressly provided
by statute, the measure of damages for a breach of contract “is the amount which will
compensate the party aggrieved for all the detriment proximately caused thereby, or
which, in the ordinary course of things, would be likely to result therefrom.” (Civ. Code,
§ 3300.) Under this general rule, “no person can recover a greater amount in damages for
the breach of an obligation, than he could have gained by the full performance thereof on
both sides.” (Civ. Code, § 3358.) “ ‘ “The basic object of damages is compensation, and
in the law of contracts the theory is that the party injured by breach should receive as
nearly as possible the equivalent of the benefits of performance. [Citations.]” ’
[Citation.] A compensation system that gives the aggrieved party the benefit of the
bargain, and no more, furthers the goal of ‘predictability about the cost of contractual
relationships . . . in our commercial system.’ ” (KGM Harvesting Co. v. Fresh Network
(1995) 36 Cal.App.4th 376, 382, italics added.) “When an incorrect measure of damages
is used, the trial court’s award should be reversed and the case remanded for a retrial on
the damages issue.” (Avenida San Juan Partnership v. City of San Clemente (2011)
201 Cal.App.4th 1256, 1280 (Avenida).)
       In calculating Plaintiffs’ recoverable damages for Story’s breach of the loan
agreement, the trial court employed a measure of damages customarily reserved for
construction contract claims based on defective or untimely construction. Using this
measure, the court determined Plaintiffs were entitled to the amount “it would currently
cost [Plaintiffs] to complete the construction,” less the amount Plaintiffs owed Story for
“the draws funded before [Story] breached the contract.” In essence, the trial court’s
award requires Story to pay for the entire cost of construction, while requiring Plaintiffs
to repay only the portion of the loan that Story funded at the time of breach. This is not
the correct measure of damages for breach of a contract to lend money.




                                             10
       In accordance with the rule that damages are limited to losses sustained (Civ.
Code, §§ 3300, 3358), “[i]t is well settled that the measure of damages for breach of a
contract to lend money is not the amount agreed to be loaned.” (Annot., Measure and
elements of damages for breach of contract to lend money (1981) 4 A.L.R.4th 682, 686.)
While only a handful of California decisions have considered the lender’s liability for
such a breach, courts in most jurisdictions have recognized that “in the absence of special
circumstances reasonably supposed to have been within the contemplation of the parties
when the contract was made, the measure of damages for breach of a contract to lend
money is the difference between the interest that the borrower contracted to pay and what
he was compelled to pay to procure the money elsewhere.”5 (Ibid. [collecting cases];
3 Miller & Starr, 12 Cal. Real Est. (3d ed. 2013) § 36:9.) Consistent with this view, the
Restatement of Contracts provides that “[d]amages for breach of a contract to lend money
are measured by the cost of obtaining the use of money during the agreed period of
credit, less interest at the rate provided in the contract, plus compensation for other
unavoidable harm that the defendant had reason to foresee when the contract was made.”
(Rest., Contracts, § 343; see also 3 Miller & Starr, supra, 12 Cal. Real Est., § 36:9;
Rest.2d Contracts, § 351, com. E, p. 140 [recognizing, “[b]ecause credit is so widely
available,” in most cases “the lender’s liability will be limited to the relatively small
additional amount that it would ordinarily cost to get a similar loan from another lender,”
unless “the lender has reason to foresee that the borrower will be unable to borrow
elsewhere or will be delayed in borrowing elsewhere”].)




5
       As the American Law Reports article explains, other courts have held that
“ordinarily the damages for breach of a contract to lend money cannot be more than
nominal, since usually the money may be procured elsewhere at the same rate and
without loss to the intending borrower.” (Annot., Measure and elements of damages,
supra, 4 A.L.R.4th at p. 686.)


                                              11
       Additionally, as the foregoing authorities recognize, an aggrieved borrower also
may recover special damages if the lender knew facts making a greater loss probable, and
the borrower is unable to procure substitute financing. (25 Williston on Contracts (4th
ed. 2014) § 66:101.) Thus, if the lender knew or reasonably expected the borrower to
make outlays or incur liabilities in reliance on the agreement to furnish financing, the
borrower may recover whatever was lost as a consequence of such expenditures and
liabilities upon the lender’s breach. (Id. at p. 99.) Likewise, where the lender breaches a
contract to lend money for a particular venture, and substitute financing cannot be
obtained, the borrower may recover the profits from the venture that the lender
reasonably contemplated when making the loan commitment, so long as such profits are
capable of reasonable ascertainment and are not too speculative. (Id. at pp. 98-101; see
Hunt v. United Bank & Trust Co. (1930) 210 Cal. 108, 116-117 (Hunt) [where lender
breached contract to advance money for farming purposes from which the parties
contemplated a profit would result, proper measure of damages included the lost profits
suffered by the borrower]; Landes Const. Co., Inc. v. Royal Bank of Canada (9th Cir.
1987) 833 F.2d 1365, 1372-1373 [lost profits from breach of a construction loan
commitment were too speculative to allow expert testimony concerning such profits].)
       As we have explained, in awarding Plaintiffs the amount it would have cost to
complete construction, while requiring them to repay only a fraction of the financing
Story agreed to provide, the trial court applied the wrong measure of damages. Plaintiffs
contracted to borrow money from Story—not to have Story pay the costs of
construction—and Plaintiffs were required to repay the funds they borrowed, together
with interest at the rate set forth in the loan agreement. In the event Plaintiffs can obtain
a substitute loan, they are entitled to the additional financing costs incurred above the
agreed upon interest rate, plus consequential damages caused by Story’s breach,6 less the
amount owed to Story for the loan advances Plaintiffs received. Alternatively, in the

6
      Based on the record, such consequential damages will likely include, but may not
necessarily be limited to, the costs to secure new financing, obtain new permits and repair
damage caused to the existing construction as a result of the interruption in financing.


                                              12
event Plaintiffs are unable to secure substitute financing, the trial court may find Story
knew of the loan’s purpose and reasonably contemplated the profits Plaintiffs would
realize from selling the improved property. Should the court find these profits are
reasonably ascertainable and not too speculative, Plaintiffs may be entitled to these lost
profits as an item of special damages. (See Hunt, supra, 210 Cal. at pp. 116-117.) We
express no opinion as to whether the evidence will support an award of special damages
in this case. As we cannot resolve these factual issues on appeal, damages must be
retried.7 (See Avenida, supra, 201 Cal.App.4th at p. 1280.)
                                      DISPOSITION
       The damages award is reversed and the matter is remanded for a retrial of the
damages issue. In all other respects the judgment is affirmed. In the interest of justice,
the parties shall bear their own costs on appeal.


       NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS




                                                    KITCHING, J.

We concur:




                     KLEIN, P. J.




                     ALDRICH, J.

7
       Because either measure of damages will account for the repayment of the funds
already advanced by Story, it was appropriate for the trial court to cancel the deed of
trust.


                                             13
