Court Opinion

ID: 3187302
Source: CourtListenerOpinion
Date Created: 2016-03-21 19:06:10.841834+00
Date Added: 2024-06-11T08:39:01.977941
License: Public Domain

Filed 3/21/16 Ins. Co. of the West v. United Security Bank 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                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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

INSURANCE COMPANY OF THE WEST,
                                                                                           F068649
         Cross-complainant and Appellant,
                                                                          (Super. Ct. No. 10CECG002913)
                   v.

UNITED SECURITY BANK,                                                                    OPINION
         Cross-defendant and Appellant.

         APPEAL from a judgment of the Superior Court of Fresno County. Kristi C.
Kapetan, Judge.
         Humphrey, Berger & Associates, Kenneth S. Humphrey, Neil H. Berger, Danielle
St. Clair and Stanley Haren for Cross-complainant and Appellant.
         Wanger Jones Helsley, Scott D. Laird, Troy T. Ewell and Dylan J. Crosby for
Cross-defendant and Appellant.
                                                        -ooOoo-
         Cross-complainant, Insurance Company of the West (ICW), appeals from the
judgment entered on its cross-complaint after the trial court granted the motion for
summary judgment filed by cross-defendant, United Security Bank (Bank). ICW
contends triable issues of material fact remained about the meaning of the term “the loan
matures” as it was used in the contract in issue, and whether maturity of the loan
terminated Bank’s obligations under the contract and barred ICW’s cross-complaint for
breach of contract and conversion. ICW also challenges the exclusion of some evidence
it presented with its opposition to Bank’s motion. Bank cross-appeals, challenging the
denial of its request for an award of attorney fees as the prevailing party. We affirm the
judgment and the order denying attorney fees.
                    FACTUAL AND PROCEDURAL BACKGROUND
       Sanger II CA, LLC (Sanger II) proposed construction of a residential development
on tract 5372 in the City of Sanger (City). As part of that project, City entered into a
subdivision improvement agreement with Sanger II in which Sanger II agreed to install
certain infrastructure improvements in connection with the development of the residential
subdivision. The work was to be completed by August 31, 2006. The agreement
required that Sanger II provide City with a performance bond in the amount of $600,000,
to guarantee proper installation of the infrastructure improvements.
       Sanger II and Bank entered into a construction loan agreement, in which Bank
agreed to loan Sanger II up to $2,197,700 to finance construction of the subdivision
development, including the infrastructure improvements. The construction loan
agreement bore a maturity date of April 5, 2007. ICW issued a surety bond, which
guaranteed performance by Sanger II of the installation of the infrastructure
improvements required by its subdivision improvement agreement with City.
Subsequently, Sanger II transferred its interest in and obligations under the construction
loan agreement to Mister C. Investment Corporation, Incorporated (Mister C.).1
       On January 4, 2006, Bank issued to ICW a set aside letter, in which Bank agreed
to allocate $600,000 of the loan funds to pay the costs of the infrastructure work covered
by ICW’s performance bond. Bank promised that, if Sanger II failed to complete or pay
for the bonded work, and ICW was required by its bond to perform Sanger II’s
obligations, on ICW’s written demand, Bank would disburse to ICW the remaining

1      Further references to Sanger II include Mister C., as its successor in interest.

                                                 2.
undisbursed balance of the loan funds, if any, in the same manner in which Bank would
have made the funds available to Sanger II, for ICW to use in connection with the bonded
work. The set aside letter included a provision stating that Bank’s “obligations under this
letter will expire and terminate upon the earliest to occur of the following events: … the
loan matures.”
       Bank and Sanger II entered into two debt modification agreements, which together
extended the maturity date of the construction loan from April 5, 2007, to July 5, 2008.
On February 2, 2010, ICW sent Bank a letter, which stated City had demanded that ICW
complete the remaining infrastructure improvements under the performance bond. ICW
demanded that Bank honor its obligations under the set aside letter and disburse to ICW
the balance of the remaining loan funds. Bank did not release any funds to ICW,
asserting more than $600,000 had already been paid to Sanger II for the bonded work.
       City sued Sanger II and ICW for failing to complete construction under the
subdivision improvement agreement. ICW eventually settled the City’s claims against it
for a payment of $255,000. ICW cross-complained against Sanger II, Bank, and others.
After multiple demurrers, ICW’s operative pleading was its third amended cross-
complaint, which alleged causes of action for breach of contract and conversion against
Bank.2 Both causes of action were based on allegations Bank failed to disburse funds to
ICW as required by the set aside letter; both sought damages of $255,000.
       Bank moved for summary judgment in its favor on ICW’s third amended cross-
complaint, asserting ICW could not establish the elements of a breach of contract because
Bank’s obligations under the set aside letter terminated by its terms when the loan
matured, which occurred before ICW made any claim against Bank. Further, Bank
contended ICW could not establish the elements of a conversion cause of action, because

2       ICW’s third amended cross-complaint also originally included a cause of action for
negligence against Bank, but Bank’s demurrer to that cause of action was sustained without
leave to amend before the trial court ruled on Bank’s motion for summary judgment.

                                              3.
the termination of Bank’s obligations under the set aside letter meant ICW was not
entitled to immediate possession of any construction loan funds at the time of the alleged
conversion, so those funds could not have been converted. ICW opposed the motion for
summary judgment. It argued the termination provision of the set aside letter was
ambiguous, and triable issues of fact remained as to its meaning. Additionally, even if
Bank’s obligations under the set aside letter terminated as it claimed, ICW asserted it was
still entitled to pursue a claim for a breach of the set aside letter that occurred prior to
termination.
       After sustaining 14 of Bank’s 19 objections to ICW’s evidence, the trial court
granted Bank’s motion for summary judgment. The subsequent judgment indicated Bank
was the prevailing party, entitled to its costs under Code of Civil Procedure section 1032.
Bank then moved for an award of attorney fees, based on an attorney fee provision in the
construction loan contract. It contended the subrogation claim ICW had attempted to
state in the first and second amended cross-complaints, and the negligence cause of
action it had attempted to state in the first, second, and third amended cross-complaints,
actually alleged breach of the terms of the construction loan contract. Bank contended it
was entitled to an award of attorney fees on the subrogation and negligence causes of
action, because the construction loan contract contained a provision for recovery of
attorney fees and Bank was the prevailing party on those causes of action, having
disposed of them by demurrer. ICW opposed the motion for attorney fees, asserting its
subrogation and negligence causes of action were not based on the construction loan
agreement, to which it was not a party; further, the attorney fee provision in that
agreement was not broad enough to support an award of attorney fees on a tort or
noncontract cause of action, and there was no attorney fee agreement in the set aside
letter on which to base an award of attorney fees. The trial court denied Bank’s motion
for attorney fees.

                                               4.
       ICW appeals from the judgment entered in Bank’s favor. Bank cross-appeals
from the order denying it an award of attorney fees.
                                       DISCUSSION
I.     Motion for Summary Judgment
       A.       Standard of review
       Summary judgment is properly granted when there is no triable issue of material
fact and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc.,
§ 437c, subd. (c).) A moving defendant or cross-defendant can meet its burden by
demonstrating that a cause of action has no merit, which it can do either by showing that
one or more elements of the cause of action cannot be established or by establishing an
affirmative defense to the cause of action. (Code Civ. Proc., § 437c, subds. (o), (p)(2).)
“We review an order granting summary judgment de novo.” (Powell v. Kleinman (2007)
151 Cal.App.4th 112, 121 (Powell).) In doing so, we “‘exercise an independent review to
determine if the defendant moving for summary judgment met its burden of establishing
a complete defense or of negating each of the plaintiff’s theories and establishing that the
action was without merit.’” (Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243,
253 (Nazir).)
       “[W]e apply the same three-step analysis required of the trial court: We first
identify the issues framed by the pleadings, since it is these allegations to which the
motion must respond. Secondly, we determine whether the moving party has established
facts which negate the opponents’ claim and justify a judgment in the movant’s favor.
Finally, if the summary judgment motion prima facie justifies a judgment, we determine
whether the opposition demonstrates the existence of a triable, material factual issue.”
(Torres v. Reardon (1992) 3 Cal.App.4th 831, 836.)

                                             5.
       B.     Breach of contract cause of action
              1.     Maturity date
       ICW’s breach of contract cause of action alleged Bank promised in the set aside
letter to allocate $600,000 of the construction loan funds to pay for costs of the work
guaranteed by ICW’s performance bond, and to pay to ICW any undisbursed funds if
Sanger II failed to complete the improvements and ICW incurred liability under the
performance bond. It alleged Sanger II failed to complete the bonded work, City made a
demand on ICW under the performance bond, and Bank failed to pay to ICW the
undisbursed balance of the loan funds, even though ICW paid City $255,000 pursuant to
its obligation under the performance bond. The breach of contract cause of action alleged
Bank breached the set aside letter by failing to allocate the loan funds as promised and
failing to pay ICW the undisbursed balance of the loan funds at the time of ICW’s
demand.
       Bank based its motion for summary judgment as to the breach of contract cause of
action on an argument that Bank’s obligations to ICW under the set aside letter
terminated before ICW demanded Bank perform pursuant to that letter, because the
maturity of the loan terminated Bank’s obligations and the loan matured more than a year
before ICW made its demand for performance. Thus, the primary issue presented by the
motion for summary judgment as to the breach of contract cause of action was whether
Bank’s obligations under the set aside letter, by its terms, terminated prior to the time
ICW demanded disbursement of loan funds pursuant to the set aside letter based on
Sanger II’s failure to complete construction of the bonded improvements.
       In support of its motion, Bank presented the construction loan contract and
promissory note between Bank and Sanger II, the subdivision improvement agreement
between City and Sanger II, two debt modification agreements between Bank and
Mister C., which together extended the maturity date of the loan to July 5, 2008, the set
aside letter, ICW’s performance bond, and ICW’s February 2, 2010, letter to Bank

                                             6.
demanding that it disburse funds to ICW under the set aside letter. The portions of the set
aside letter cited by Bank provided:

               “If the Borrower [Sanger II] fails to complete or pay for the Bonded
       Work in a manner which is acceptable to the Bond Obligee [City], and the
       Surety [ICW] is required under the Bond(s) to perform Borrower’s
       obligations, we [Bank] will disburse to the Surety the remaining
       undisbursed balance of the Loan funds, if there is any, for the Surety to use
       at the times, and on the terms and subject to the conditions set forth in the
       Loan Documents, all in the same manner in which we would have made the
       Loan funds available to Borrower for its use in connection with the Bonded
       Work. We will have no obligation to disburse these Loan funds to the
       Surety unless we receive the Surety’s written demand.…

              “This is an irrevocable commitment of Loan funds, which is not
       subject to recall or offset. Please understand, however, that this
       commitment is expressly conditioned on the closing of the Loan … and the
       Surety’s insurance of the bond(s), as well as the conditions set forth here.
       Our liability, if any, under this letter will be decreased by the aggregate
       amount of Loan funds which we actually disburse to Borrower. Our
       obligations under this letter will expire and terminate upon the earliest to
       occur of the following events: (a) the Bond Obligee has accepted the
       Bonded work; (b) the loan funds being held are completely disbursed; (c)
       the Surety is discharged under the bond(s); (d) the bond(s) expire(s); (e) the
       loan matures; (f) the loan is paid in full; or (g) the original of this letter is
       returned to us.”
       Bank contended its obligations under the set aside letter terminated on the earliest
of seven events, one of which was “the loan matures.” Bank argued the loan matured on
the maturity date set out in the loan documents. That date was originally designated as
April 5, 2007, but was later extended to July 5, 2008. Because Bank had no obligation to
disburse funds to ICW without a written demand, and ICW did not make a written
demand for disbursement of the remaining loan funds to it until February 2010, Bank
contends its obligation to ICW had expired or terminated prior to the time the demand
was made. Thus, it had no obligation to disburse funds to ICW in response to its demand,
so there was no breach of the set aside letter.

                                              7.
       ICW contended the term “the loan matures” was ambiguous and should be
interpreted in light of extrinsic evidence relating to its meaning. Therefore, a trial was
needed in order to consider the extrinsic evidence and determine the meaning of the
phrase, so a triable issue of material fact remained and the requirements for summary
judgment were not met.
       The set aside letter does not define the term “the loan matures.” The ordinary
rules of contract interpretation apply. “‘The fundamental goal of contractual
interpretation is to give effect to the mutual intention of the parties.’ [Citations.] The
mutual intention to which the courts give effect is determined by objective manifestations
of the parties’ intent, including the words used in the agreement, as well as extrinsic
evidence of such objective matters as the surrounding circumstances under which the
parties negotiated or entered into the contract; the object, nature and subject matter of the
contract; and the subsequent conduct of the parties.” (Morey v. Vannucci (1998) 64
Cal.App.4th 904, 912.) A party’s subjective intent is irrelevant. (Stewart v. Preston
Pipeline Inc. (2005) 134 Cal.App.4th 1565, 1587.)
       In its separate statement of undisputed material facts, Bank included as facts: that
Bank and Mister C. entered into debt modification agreements that extended the maturity
date of the construction loan from April 5, 2007, to July 5, 2008, and that the construction
loan matured on July 5, 2008. As evidence of these facts, it relied on the declaration of
Bank’s vice president/real estate construction manager, Porsche Saunders, the
construction loan agreement, the promissory note, and the debt modification agreements.
ICW did not file a separate statement disputing any of the facts set out by Bank as
undisputed. (See Cal. Rules of Court, rule 3.1350(f), (h).) Rather, it filed only a separate
statement setting out additional facts it contended were undisputed. Thus, ICW
technically did not challenge Bank’s statement that the loan matured on July 5, 2008.
The trial court, however, did not base its decision on ICW’s failure to expressly dispute

                                              8.
that fact in its separate statement. Rather, it treated Bank’s statement that the
construction loan matured on July 5, 2008, as the one fact disputed by ICW.
       ICW contends here, as it did in the trial court, that the term “the loan matures” is
ambiguous; it asserts that, because the term is subject to interpretation, a triable issue of
fact remains as to its meaning, and summary judgment was not proper because the parties
had a right to present extrinsic evidence to the trier of fact to assist in resolving the
dispute as to its meaning.
       “When a contract is reduced to writing, the intention of the parties is to be
ascertained from the writing alone, if possible.” (Civ. Code, § 1639.) The “clear and
explicit” meaning of the contract terms, interpreted in their “ordinary and popular sense,”
controls judicial interpretation, unless the words are “used by the parties in a technical
sense, or unless a special meaning is given to them by usage.” (Civ. Code, §§ 1638,
1644.) “‘In seeking to ascertain the ordinary sense of words, courts … regularly use the
phrase “ordinary dictionary definition [or meaning]” as if “ordinary” were synonymous
with “dictionary.” [Citations.] ... It is thus safe to say that the “ordinary” sense of a word
is to be found in its dictionary definition.’” (Stamm Theatres, Inc. v. Hartford Casualty
Ins. Co. (2001) 93 Cal.App.4th 531, 539, fn. omitted.)
       Bank and the trial court invoked a dictionary definition to determine the meaning
of the phrase “the loan matures.” The trial court cited the definition of the term “date of
maturity” found in Black’s Law Dictionary: “The date when a debt falls due.” (Black’s
Law Dict. (9th ed. 2009) p. 452, col. 2.) ICW contends a different definition is used in
certain state and federal statutes, creating an ambiguity in the meaning of the term as used
in the set aside letter.
       ICW relies on definitions of the term “maturity date” found in Health and Safety
Code section 129010 and title 12 of the United States Code section 1707. Health and
Safety Code section 129010 is found in the California Health Facility Construction Loan
Insurance Law, which provides an insurance program for the construction of health

                                               9.
facilities. (Health & Saf. Code, §§ 129000, 129005.) It defines “‘[m]aturity date’” as:
“the date that the loan indebtedness would be extinguished if paid in accordance with
periodic payments provided for by the terms of the loan.” (Health & Saf. Code,
§ 129010, subd. (k).) The federal statute is part of a program to insure eligible residential
mortgages. (12 U.S.C. §§ 1707-1715z-20.) It defines “‘maturity date’” as “the date on
which the mortgage indebtedness would be extinguished if paid in accordance with
periodic payments provided for in the mortgage.” (12 U.S.C. § 1707(c).) ICW seems to
interpret these definitions as meaning the maturity date is the date on which the loan is
paid in full. That is not the language used, however. The statutes do not define the
maturity date as the date the loan is actually extinguished by payment in full. Rather,
they make the maturity date the date the last payment is due by the terms of the loan
contract. The date the last payment is due is the date the loan would be extinguished if
payments were made in accordance with the periodic payments provided for in the loan
agreement.
       This interpretation is consistent with the dictionary definition of the term. It is
also consistent with the definitions used in Burrill v. Robert Marsh & Co. (1934) 138
Cal.App. 101 (Burrill). In Burrill, the court cited the following dictionary and case
definitions of the term “‘maturity’ as ‘the time when a bill or note becomes due,’ … ‘a
becoming due; termination of the period a note or other obligation has to run,’” (id. at
p. 105) and, with respect to commercial paper, “‘the time when the paper becomes due
and demandable; that is the time when an action can be maintained thereon to enforce
payment.’” (Ibid.)
       Our interpretation is also in harmony with the opinion in Jessup Farms v. Baldwin
(1983) 33 Cal.3d 639 (Jessup Farms), a case cited by both the parties and the trial court.
In Jessup Farms, Holstein Heifer Ranch (HHR) executed a promissory note in 1972 for
which it was the principal obligor; the plaintiffs and the defendant signed as co-obligors.
Three subsequent notes were signed by HHR and the plaintiffs only. The plaintiffs sued

                                             10.
the defendant, seeking contribution toward payment of the 1972 note. The issue was
whether payments made by HHR should have been first applied to the 1972 note,
extinguishing that debt and the defendant’s obligation under it, rather than applying the
payments ratably among the obligations, leaving a balance on the 1972 note on which the
defendant was liable for contribution. (Id. at p. 643.) Civil Code section 14793 provided
that, when several obligations were owed and neither debtor nor creditor expressly
applied payments to a particular obligation, payments were to be applied in the order
specified; the obligation earliest in date of maturity had priority over obligations maturing
later. (Jessup Farms, at pp. 650–651.)
       The plaintiffs contended that, although the 1972 note stated it was due on May 6,
1973, that note was renewed by execution of the 1973 note. (Jessup Farms, supra, 33
Cal.3d at p. 654.) They contended the renewed 1972 note, the 1973 note, and another
note became due simultaneously on March 13, 1974, the date of the creditor’s first
demand for payment. The court concluded the 1973 note did not renew the 1972 note,
both because its terms provided otherwise and because the 1972 note had matured, by its
terms, prior to execution of the 1973 note. (Id. at p. 656.) The creditor “could have
brought suit on the 1972 note as of May 6, 1973. It is settled that an obligation ‘matures’
when the holder of the note has a legal right to bring an action to force payment.” (Ibid.)
The court concluded the 1972 note was the earliest in date of maturity, payments should
have been credited first to payment of the 1972 note, and such payments would have
extinguished the 1972 obligation so that the defendant was not liable to the plaintiffs for
contribution. (Id. at p. 659.)
       Thus, the maturity date of the 1972 note was the date on which payment was due,
when the creditor was entitled to bring an action for payment if payment was not made

3      All further statutory references are to the Civil Code unless otherwise indicated.

                                               11.
timely. That was the date the court used in determining which note was earliest in date of
maturity under the statute.
         In JCC Development Corp. v. Levy (2012) 208 Cal.App.4th 1522 (JCC
Development), JCC owed Levy money under a promissory note secured by a deed of
trust. The full amount of principal and interest was due on September 30, 2006. (Id. at
p. 1525.) The note provided that, if any payment was not made when due, Levy had the
right to declare the indebtedness immediately due and payable, and thereafter interest
would accrue at a higher rate. (Id. at p. 1526.) When the note matured on September 30,
2006, the parties were negotiating a sale of the property from JCC to Levy, and Levy did
not demand payment. (Ibid.) Negotiations broke down and, in 2007, Levy recorded a
notice of default and election to sell the property; the notice of default calculated the
interest due at the higher rate applicable if Levy had accelerated the due date on JCC’s
default. (Id. at p. 1527.) JCC paid the amount under protest, then sued Levy to recover
the excess interest. (Id. at p. 1528.)
         Levy contended, and the trial court agreed, the default interest rate was triggered
at the time the note matured. (JCC Development, supra, 208 Cal.App.4th at p. 1532.)
On appeal, Levy conceded that, once the promissory note matured and the payment of
principal and interest became due, the acceleration clause could not be triggered because
there was nothing to accelerate. (Id. at p. 1533.) He argued the default interest rate was a
separate provision from the acceleration clause, that could be invoked without
acceleration of the maturity date. (Ibid.) The court disagreed: “The plain language of
the note states that once one of the circumstances occurred which would accelerate the
loan, ‘thereafter’ interest could accrue at the maximum legal rate.… Levy, the drafter of
the agreement, could have included language stating that the default interest rate applied
not only after circumstances of acceleration, but also after the loan matured and no
payment was made, but he did not include such additional language.” (Id. at pp. 1533–
1534.)

                                              12.
       During the term of the loan, on default by JCC, Levy could have accelerated the
due date and increased the interest rate. However, “[o]nce the note matured, there was
nothing to accelerate. JCCDC’s failure to make payment upon maturity did not trigger
the default interest rate provision which only applies to circumstances of acceleration.”
(JCC Development, supra, 208 Cal.App.4th at p. 1535.)
       Thus, the JCC Development court also interpreted the maturity date of the loan to
be the date on which payment became due in full. The maturity date was not the date
payment was made in full.
       We conclude the trial court correctly interpreted the maturity date of the loan to be
the date on which the final payment was due, that is, the maturity date designated in the
promissory note, as extended by the subsequent debt modification agreements: July 5,
2008. By the plain terms of the set aside letter, Bank’s obligations under the letter
terminated on that date.
              2.     Extrinsic evidence
       ICW contends the term “the loan matures” is ambiguous and it is entitled to
submit extrinsic evidence to aid in interpretation of the term. Extrinsic evidence is
admissible to resolve an ambiguity in the contract terms. (WYDA Associates v. Merner
(1996) 42 Cal.App.4th 1702, 1710.) The decision whether to admit extrinsic evidence
involves a two-step process. “‘First, the court provisionally receives (without actually
admitting) all credible evidence concerning the parties’ intentions to determine
“ambiguity,” i.e., whether the language is “reasonably susceptible” to the interpretation
urged by a party. If in light of the extrinsic evidence the court decides the language is
“reasonably susceptible” to the interpretation urged, the extrinsic evidence is then
admitted to aid in the second step—interpreting the contract. [Citation.]’ [Citation.] The
trial court’s determination of whether an ambiguity exists is a question of law, subject to
independent review on appeal. [Citation.] The trial court’s resolution of an ambiguity is
also a question of law if no parol evidence is admitted or if the parol evidence is not in

                                             13.
conflict. However, where the parol evidence is in conflict, the trial court’s resolution of
that conflict is a question of fact and must be upheld if supported by substantial evidence.
[Citation.] Furthermore, ‘[w]hen two equally plausible interpretations of the language of
a contract may be made ... parol evidence is admissible to aid in interpreting the
agreement, thereby presenting a question of fact which precludes summary judgment if
the evidence is contradictory.’” (Ibid.)
       ICW did not present any competent extrinsic evidence to demonstrate the
language of the parties’ agreement was reasonably susceptible to ICW’s interpretation.
The only evidence it offered regarding the intent of the parties as to the meaning of the
term “the loan matures” was the declaration of ICW’s counsel, describing the deposition
testimony of Jonathan Monsor, the person who signed the set aside letter on behalf of
ICW, and an excerpt of that deposition transcript. In his deposition, Monsor testified he
did not recall any negotiation of the terms of the set aside letter or any discussion about
when the loan matured. To him, loan maturity meant “the lender’s terms and conditions
in their loan agreement have been satisfied.”
       “The mutual intention to which the courts give effect is determined by objective
manifestations of the parties’ intent, including the words used in the agreement, as well as
extrinsic evidence of such objective matters as the surrounding circumstances under
which the parties negotiated or entered into the contract; the object, nature and subject
matter of the contract; and the subsequent acts and conduct of the parties.” (City of
Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445,
474 (Atascadero).) The subjective, undisclosed intent or understanding of one of the
parties is irrelevant to contract interpretation. (Founding Members of the Newport Beach
County Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 956
(Founding Members).) To the extent Monsor’s belief as to the meaning of “the loan
matures” represented Bank’s understanding of the term, ICW did not present any
evidence that his understanding was disclosed to or shared by Bank. Monsor’s

                                             14.
subjective, undisclosed belief as to the meaning of the term was irrelevant to the
interpretation of the term. Consequently, there was no extrinsic evidence from which the
trial court could conclude that “the loan matures” was reasonably susceptible to the
interpretation ascribed to it by ICW. ICW failed to demonstrate any ambiguity raising a
triable issue of fact for determination at trial.
               3.     Acceleration
       ICW argues that Bank declared the loan in default and accelerated it prior to the
maturity date specified in the debt modification agreements. It contends the trial court
improperly engaged in fact finding and weighing of evidence by rejecting ICW’s
evidence of acceleration of the loan. It seems to contend acceleration of the loan
prevented the loan from maturing, so its evidence raised a triable issue of fact regarding
whether the loan matured on July 5, 2008. We find no merit in ICW’s arguments.
       “The term ‘acceleration clause’ refers to the provision in a promissory note or trust
deed that requires payment of the total unpaid balance of the principal and interest on the
occurrence of a specified event or events and before the obligation otherwise matures.”
(5 Miller & Starr, Cal. Real Estate (4th ed. 2015) § 13:130, p. 488.) “An acceleration
clause advances the date of payment of future installments when there is default in a
payment.” (Aristocrat Highway Displays, Inc. v. Stricklen (1945) 68 Cal.App.2d 788,
791–792.) The construction loan contract and the promissory note between Sanger II and
Bank provided that, if Sanger II defaulted, Bank could, at its option, “make all or any part
of the amount owing … immediately due.”
       In its separate statement of undisputed material facts, Bank presented as an
undisputed fact a statement that the loan file for the Sanger II loan contained an
unexecuted letter, dated April 24, 2008, from Rhodlee Braa (chief credit officer for Bank)
to Sean Castiglione and, based on the absence from the file of an executed copy of the
letter and certified mail receipts showing delivery, the letter was never sent and the
construction loan was never accelerated. The evidence cited in support of the statement

                                               15.
included a copy of the unexecuted letter, which advised that the loan was in default due
to “the entity name change without notifying the Bank and 5 other causes.” It demanded
the recipient “repay this obligation” by a specified date, and stated the total amount due
by that date.
       ICW did not file a separate statement disputing any of the facts presented in
Bank’s separate statement. Instead, ICW’s separate statement of undisputed material
facts presented other facts, which ICW contended were undisputed. In its separate
statement, ICW asserted Sanger II was in default under the construction loan as of June
12, 2008, and Bank accelerated the due date of the loan, making it due and payable on
that date. In support, it relied on a notice of default and election to sell, recorded on June
12, 2008.
       In its ruling on the motion for summary judgment, the trial court stated: “On this
motion, [Bank] presented evidence that it did not accelerate the debt by sending a
demand letter to Sanger II. [Bank] has shown that the letter dated April 28, 2008 [sic]
from Rhodlee Braa purporting to show that a demand was sent to Sanger II was a draft
only, and was never sent. [¶] Moreover, the Notice of Default does not support finding
acceleration, since it merely demanded the amount then due.”
       ICW’s separate statement did not dispute Bank’s assertion that the default letter
was never sent, nor did it cite any evidence supporting such a dispute. By accepting
Bank’s undisputed fact and evidence, the trial court did not improperly engage in fact
finding or weigh the evidence. It simply accepted the facts presented by Bank and not
disputed by ICW as undisputed facts.
       Even if ICW had submitted sufficient evidence to raise a triable issue regarding
whether the due date of the loan was accelerated, it would not have changed the outcome
of the motion. As previously discussed, the maturity date of a loan is the date by which
full payment of the indebtedness must be made under the loan agreement. Thus,

                                             16.
acceleration of the due date of all future installments of a loan, or of the unpaid balance
of principal and interest, advances the maturity date of the loan.
       In Burrill, the defendants guaranteed payment of promissory notes “at maturity, or
any time thereafter.” (Burrill, supra, 138 Cal.App. at p. 102.) The notes were payable by
their terms on April 1, 1930. (Id. at p. 103.) The notes also contained an acceleration
provision, permitting the plaintiff to make the principal and all unpaid interest
immediately due and collectable in the event of a default in payment. (Id. at p. 105.) In
1928, when payments under the notes were in default, the plaintiff sued on the
guarantees. The defendants asserted the action was premature, because they guaranteed
payment at maturity, which they asserted was April 1, 1930. (Id. at p. 104.)
       On appeal, the issue was whether the word “maturity” meant only the date
specified in the note as the maturity date, or any date after which plaintiff could sue on
the note, pursuant to its terms. (Burrill, supra, 138 Cal.App. at p. 105.) The court
defined “‘maturity’ as ‘the time when a bill or note becomes due,’” and “‘the time when
an action can be maintained thereon to enforce payment.’” (Ibid.) The guarantees did
not promise payment on or after the specific date, April 1, 1930, but “at maturity.” The
court concluded the term “maturity,” when read with the acceleration clauses in the notes,
“should be construed to mean the date when the holder of the notes had a legal right to
begin action to force payment thereof.” (Id. at p. 106.) It rejected the defendants’
argument the action was premature and affirmed the judgment for the plaintiff. Thus, the
court interpreted the term “maturity” to include an accelerated maturity date.
       Accordingly, if Bank declared a default and accelerated the due date of the
outstanding balance of the loan, as ICW contends, then the maturity date of the loan was
advanced to a date prior to July 5, 2008. In that event, Bank’s obligations under the set
aside letter terminated even earlier than July 5, 2008.
       Thus, even if ICW could establish that the trial court erred in concluding the due
date of the Sanger II loan was not accelerated by Bank, that error was not prejudicial to

                                             17.
ICW, since Bank’s obligations under the set aside letter still would have terminated prior
to ICW’s demand for performance by Bank.
                 4.     Other arguments concerning interpretation of language
          ICW argues at length that the purpose of the set aside letter does not support an
interpretation that Bank’s obligations under the letter terminated at the maturity date of
the loan. Its arguments are not supported by evidence submitted in opposition to Bank’s
motion and are not consistent with the plain meaning of the language used in the set aside
letter.
          ICW issued its performance bond, guaranteeing performance of the construction
contract by Sanger II. It claims it was induced to do so by Bank’s issuance of the set
aside letter. The performance bond, however, was issued prior to the Bank’s issuance of
the set aside letter. Even if ICW issued the performance bond in reliance on some
promise of Bank to provide a set aside letter in the future (there was no evidence of such
a promise cited in either party’s separate statement of undisputed material facts), ICW
could not have been induced to act by the terms of the set aside letter provided, or its
understanding of them, since the letter had not yet been provided and there is no evidence
its terms were known to ICW at the time the performance bond was issued.
          ICW cites language in the set aside letter stating this is “an irrevocable
commitment of Loan funds, which is not subject to recall or offset,” and argues it would
be reasonable to infer from this language an intent that, if Sanger II defaulted in its
performance, “the funds identified in the Set Aside Letter would be available to protect
ICW’s interests until all the Loan funds were disbursed.” The language of commitment,
however, is immediately followed by language placing conditions on that commitment,
and the provision terminating Bank’s obligations under the letter on the earliest to occur
of seven specified events, including “the loan matures” and “the loan funds being held
are completely disbursed.” Thus, it would not be reasonable to infer that Bank would
make the funds available to ICW until all the loan funds were disbursed, when there were

                                                18.
six other events that could terminate Bank’s obligations if they occurred prior to full
disbursement, including “the loan matures.”
       ICW discusses the seven events that could terminate Bank’s obligations under the
set aside letter and what its expectations would have been in those situations, to support
its argument that it did not intend for Bank’s obligations under the set aside letter to
terminate before the loan had been paid by the borrower. The court cannot give effect to
the undisclosed intent or unexpressed expectations of one party to the contract, however.
(Founding Members, supra, 109 Cal.App.4th at p. 956.) ICW cites no evidence in the
record to support its own claimed expectations. It also cites no evidence of any
discussion or negotiation of the termination term, or of any expression of ICW’s
expectations to Bank, at the time the set aside letter was provided by Bank and accepted
by ICW. Thus, we have not been cited to any evidence that both parties understood,
agreed to, or shared ICW’s purported expectations regarding how the termination
provision would apply.
       We can only interpret the set aside letter as it was written. It is not our function to
insert what was omitted, omit what was inserted, make a new contract for the parties, or
rewrite or alter by construction what was agreed to by the parties. (Sass v. Hank (1951)
108 Cal.App.2d 207, 215.) We cannot rewrite the set aside letter to make it more
favorable to ICW than its actual terms justify.
       The seven events set out in the set aside letter that would cause Bank’s obligations
to expire or terminate included “the loan matures,” “the loan funds being held are
completely disbursed,” and “the loan is paid in full.” We cannot construe “the loan
matures” to mean the same as either the “the loan funds being held are completely
disbursed” or “the loan is paid in full” without nullifying it as a contract term. “Courts
must interpret contractual language in a manner which gives force and effect to every
provision, and not in a way which renders some clauses nugatory, inoperative or
meaningless.” (Atascadero, supra, 68 Cal.App.4th at p. 473.) ICW has not demonstrated

                                             19.
that its opposition to Bank’s motion for summary judgment raised a triable issue of
material fact concerning interpretation of the termination provisions of the set aside letter.
              5.     Breach occurring prior to termination
       ICW contends that, even if Bank’s obligations under the set aside letter terminated
on the maturity date of the promissory note, ICW still had a viable breach of contract
cause of action against Bank for breaches that occurred prior to that termination. ICW
asserts Bank promised in the set aside letter “that it would ensure that $600,000 was, in
fact, applied towards the Bonded Subdivision Improvements.” ICW claims Bank
breached that promise prior to the termination of its obligations under the set aside letter
by failing to ensure the funds disbursed were used for the bonded work.
       ICW does not cite any specific language in the set aside letter where Bank
promised to ensure the $600,000 was actually used for the bonded work. In the set aside
letter, Bank agreed: “[W]e agree to allocate Loan funds in the amount of $600,000 to pay
the costs of the Bonded Work. We have no obligation to ensure that the Bonded Work is
properly completed in a timely manner according to any required standard of
workmanship. Moreover, we make no representation or warranty as to whether the
amount of Loan funds being set aside will be sufficient to complete the Bonded Work or
not.” The language does not support ICW’s assertion that Bank promised to “ensure that
$600,000 was, in fact, applied” toward the bonded work.
       Further, even if Bank had some obligation to see that the $600,000 allocated to the
bonded work was not only disbursed for that work, but was actually applied toward that
work, ICW’s opposition to the motion did not present any evidence of a pre-termination
breach of that obligation. Its separate statement of undisputed material facts stated that
all disbursements of construction loan funds were made in or prior to November 2007. It
stated that, at the time of the last disbursement in November 2007, “there was an
undisbursed balance of the construction loan funds of at least $885,910.87.” This
“balance of the construction loan funds” could only refer to the balance remaining for the

                                             20.
entire construction project, rather than the bonded work alone, since the amount set aside
for the bonded work was only $600,000. ICW’s separate statement then asserted Bank
disbursed “Construction Loan Funds” for certain work that was not included in the
bonded work and for certain work that was defectively performed. It did not present
undisputed facts, supported by evidence, that Bank disbursed such funds out of the
$600,000 set aside for the bonded work, rather than out of the construction loan funds as
a whole.
       Thus, ICW did not present facts, supported by evidence, raising a triable issue of
material fact concerning whether Bank breached its obligations under the set aside letter
prior to termination of those obligations.
       C.      Conversion cause of action
       “Conversion is the wrongful exercise of dominion over the personal property of
another.” (Taylor v. Forte Hotels International (1991) 235 Cal.App.3d 1119, 1124.)
“The elements of a conversion [cause of] action are: (1) plaintiff’s ownership or right to
possession in the property at the time of the conversion; (2) defendant's conversion by a
wrongful act or disposition of plaintiff's property rights; and (3) damages.” (Chartered
Bank of London v. Chrysler Corp. (1981) 115 Cal.App.3d 755, 759–760.) The trial court
granted summary judgment as to the conversion cause of action, finding it was dependent
on the breach of contract claim. ICW could not establish a right to possession of the
undisbursed construction loan funds set aside for the bonded work unless it established its
interpretation of the termination provisions of the contract was correct (or at least raised a
triable issue of material fact regarding that interpretation). That is, ICW would not have
had a right to possession of the set aside funds if Bank’s obligations under the set aside
letter terminated prior to any demand by ICW that Bank disburse funds to it pursuant to
the terms of the set aside letter.
       ICW’s only argument in support of its conversion cause of action is that, if its
breach of contract cause of action is viable because Bank’s obligations under the set aside

                                             21.
letter did not terminate on July 5, 2008, ICW would have had a right to immediate
possession of the set aside funds when it demanded those funds from Bank. Because
ICW has not raised a triable issue of fact supporting the viability of its breach of contract
cause of action, it has not raised a triable issue of material fact regarding whether it had
an immediate right to possession of any part of the set aside funds. Accordingly, the trial
court properly granted summary judgment of the conversion cause of action.
       D.     Exclusion of evidence
       In reviewing a motion for summary judgment, we review the trial court’s rulings
on evidentiary objections using an abuse of discretion standard. (Powell, supra, 151
Cal.App.4th at p. 122; Carnes v. Superior Court (2005) 126 Cal.App.4th 688, 694.) ICW
contends the trial court abused its discretion by sustaining some of Bank’s evidentiary
objections and excluding relevant, admissible evidence ICW submitted in opposition to
Bank’s motion for summary judgment.
       Bank submitted written objections to 19 specific items of evidence submitted by
ICW in opposition to the motion for summary judgment. The trial court sustained
objections to 14 items and overruled objections to the remaining five. ICW contends the
trial court erred by making a blanket ruling on the objections, without specifying the
reasons for sustaining or overruling each objection. It asserts the error was prejudicial
because the trial court did not consider a large amount of the evidence it presented, which
supported its opposition to the motion and which, if considered, would have raised a
triable issue of material fact warranting denial of the motion.
       ICW cites Twenty-Nine Palms Enterprises Corp. v. Bardos (2012) 210
Cal.App.4th 1435 (Twenty-Nine Palms), for the proposition that “[w]hen a trial court
issues a blanket ruling on numerous evidentiary objections without providing any
reasoning, there ‘is hardly a ruling, as it could not provide any meaningful basis for
review.’” (Id. at p. 1447.) ICW contends Bank asserted multiple grounds for each
objection to ICW’s evidence and the trial court sustained 14 of the 19 objections without

                                             22.
explaining its reasoning or specifying on which ground or grounds the objections were
sustained. ICW maintains the trial court’s order was the type of impermissible blanket
ruling rejected by Twenty-Nine Palms.
       In Twenty-Nine Palms, the plaintiff moved for summary judgment. In reply to the
defendant’s opposition, the plaintiff raised 39 objections to the defendant’s evidence.
(Twenty-Nine Palms, supra, 210 Cal.App.4th at p. 1443.) At the hearing of the motion,
the trial court sustained all of the plaintiff’s objections without explanation. (Id. at
pp. 1444–1445.) The court concluded the trial court abused its discretion by doing so,
although it found the error was harmless. (Id. at p. 1449.)
       The court noted that, when a trial court issues a blanket ruling on numerous
evidentiary objections without reasoning, “the ‘appellate court[] [is] left with the
nebulous task of determining whether the ruling that was purportedly made was within
the authority and discretion of the trial court and was correct.’” (Twenty-Nine Palms,
supra, 210 Cal.App.4th at p. 1447.) It stated: “Although summarily ruling on numerous
evidentiary rulings is a common labor-saving practice in law and motion courts, the
objections in this case needed individual attention.” (Ibid.) The plaintiff had submitted
33 objections, 48 pages in length, to a seven-page declaration; the objections addressed
large sections of the declaration, on a variety of grounds. (Ibid.) Many of the grounds
were without merit, such as relevance objections to clearly relevant evidence. (Id. at
p. 1448.) The court concluded: “Given the sweeping nature of the objections …, and the
problematic nature of some of the objections, … we conclude the trial court’s blanket
ruling sustaining all the objections, without reasoning, was an abuse of discretion.” (Id.
at p. 1449.)
       The court in Twenty-Nine Palms relied on Nazir in reaching its decision. In Nazir,
the defendant moved for summary judgment; its reply included 764 objections to the
plaintiff’s opposing evidence, set forth in 324 pages. (Nazir, supra, 178 Cal.App.4th. at
p. 254.) The trial court overruled the defendant’s objection No. 27 and sustained the rest,

                                              23.
without explanation. (Id. at pp. 254–255.) The appellate court found this was an abuse
of discretion. “[W]e have no hesitancy in holding that the sustaining of all but one of
defendants’ 764 objections was an abuse of discretion. Put otherwise, there is no way
that the trial court could properly have sustained 763 objections ‘“‘guided and controlled
… by fixed legal principles.’”’” (Id. at p. 255.) Some of the objections did not state any
ground for the objection, 250 failed to quote the evidence that was the subject of the
objection, 27 objected to the plaintiff’s brief, rather than his evidence, and many were
patently frivolous. (Id. at p. 256.)
        Here, Bank raised 14 objections to specific portions of the declaration of ICW’s
counsel, Stanley Haren, one objection to a portion of the declaration of Martin Hanson, a
senior claims consultant for ICW, and four objections to documents of which ICW
requested judicial notice. Many of the objections to Haren’s declaration were to his
restatement of other evidence: the content of documents attached as exhibits to his
declaration, the content of documents produced by other parties during discovery, or
statements made by witnesses in their depositions. Unlike the situations in Twenty-Nine
Palms and Nazir, the objections were only 13 pages in length, the evidence challenged
was clearly identified, only 19 items of evidence were challenged, only one to three
grounds for objection were identified for each item of evidence, and the objections were
not patently frivolous.
        Moreover, the trial court did not make a blanket ruling on all the objections. It
specified by number which objections were sustained and which were overruled. It
stated: “Most objections have been sustained, on the bases argued by [Bank].” We
construe this to mean that most of Bank’s objections were sustained and, where they were
sustained, they were sustained on the grounds presented by Bank. We do not construe it
as a vague statement that the objections were mostly sustained on the grounds argued by
Bank.

                                             24.
         The trial court also explained: “However, where the exhibits attached to the
declaration are able to be considered for the facts presented (such as deposition
testimony, where the deposition testimony supports the fact stated), objections have been
overruled to the extent possible, in an effort to construe the evidence as liberally as
possible in favor of the opposing party in determining the existence of a triable issue of
fact.” Thus, where Bank objected to Haren’s restatement of the content of documents,
such as deposition transcripts, the trial court overruled the objections when the document
itself was consistent with Haren’s representation. This indicates the trial court considered
each objection made, and the items to which the objection was made, and ruled on them
accordingly. It did not make a blanket ruling on the objections as a whole. The trial
court did not make the type of impermissible ruling rejected by Twenty-Nine Palms and
Nazir.
         ICW specifically challenges the trial court’s rulings on nine of the objections. We
consider them separately.
                1.     Objections Nos. 4, 8, 9, and 10
         In these objections, Bank challenged Haren’s declaration regarding Bank’s
production of spreadsheets entitled “Project Cost Report” in response to ICW’s request
for production of documents. Bank objected to both the project cost report itself and
Haren’s statements about its content. Haren represented the spreadsheets were prepared
by Bank to document each disbursement of the construction loan. He further stated the
report showed the last disbursement of funds under the construction loan occurred on
November 19, 2007, and set out the amounts disbursed for specific improvements.
         Bank raised three objections to these items: (1) The report and the information it
contained were irrelevant to ICW’s causes of action; (2) The evidence lacked foundation
because the report was not properly authenticated; (3) The declarant, Haren, lacked
personal knowledge of the document and its contents, and without such knowledge he

                                             25.
could not competently give the testimony offered in the declaration. The trial court
properly sustained Bank’s objections Nos. 4, 8, 9, and 10.
       The project cost report would be relevant, if at all, only to ICW’s claim that Bank
breached the set aside letter prior to termination by not ensuring proper use of the set
aside funds. Because ICW has failed to identify any language in the set aside letter
imposing an obligation on Bank to ensure that the set aside funds were actually used to
pay for construction of the bonded work, it has not demonstrated that this evidence is
relevant to resolution of the summary judgment motion.
       Further, “the testimony of a witness concerning a particular matter is inadmissible
unless he has personal knowledge of the matter.” (Evid. Code, § 702, subd. (a).) When
challenged by objection, such personal knowledge must be shown. (Evid. Code, § 702,
subd. (b).) Haren’s declaration attempted to set out and explain the contents of the
project cost report, a document produced by another party in discovery. There was no
evidence he prepared the report or had any basis in personal knowledge for his attempt to
explain or interpret its content. The trial court did not abuse its discretion by sustaining
the objection on the ground of lack of personal knowledge.
       Bank’s objection that the document was not authenticated also has merit.
Evidence Code section 1401 requires authentication of a writing before it may be
received in evidence, and before secondary evidence of its content may be received in
evidence. (Evid. Code, § 1401, subds. (a), (b).) Thus, the project cost report was
required to be authenticated before it, or Haren’s statements about its content, could be
received in evidence. “Authentication of a writing means (a) the introduction of evidence
sufficient to sustain a finding that it is the writing that the proponent of the evidence
claims it is or (b) the establishment of such facts by any other means provided by law.”
(Evid. Code, § 1400.)
       The fact that a party produced a document in discovery does not authenticate the
document. (Kim v. Toyota Motor Corp. (2016) 243 Cal.App.4th 1366, 1393.)

                                             26.
“Documents obtained in discovery in response to a request for production of documents
may be used to support or oppose a motion for summary judgment, but must be presented
in admissible form. This means the evidence must be (1) properly identified and
authenticated.… Unless the opposing party admits the genuineness of the document, the
proponent of the evidence must present declarations or other ‘evidence sufficient to
sustain a finding that it is the writing that the proponent of the evidence claims it is.’”
(Serri v. Santa Clara University (2014) 226 Cal.App.4th 830, 855 (Serri).)
          To authenticate a document produced by another party in discovery, a party may
obtain an admission of its genuineness in response to a request for admissions;
alternatively, it may obtain deposition testimony from the person who prepared the
document. (See Serri, supra, 226 Cal.App.4th at p. 855.) When an attorney for a party
does not have personal knowledge of the preparation of the document and cannot attest
that it is genuine, complete, and accurate, the attorney is not competent to authenticate
the document. (See O’Laskey v. Sortino (1990) 224 Cal.App.3d 241, 249–250,
disapproved on other grounds in Flanagan v. Flanagan (2002) 27 Cal.4th 766, 776,
fn. 4.)
          There was no evidence in Haren’s declaration that he prepared or had personal
knowledge of the preparation of the project cost report. There was no evidence he did, or
could, attest to the genuineness, completeness, or accuracy of the document. ICW
presented no admission of Bank or deposition testimony of some representative of Bank
establishing the document was what ICW represented it to be. Accordingly, we conclude
the trial court did not abuse its discretion by sustaining Bank’s objection to the
admissibility of the project cost report and the statements in Haren’s declaration about its
content.
          Moreover, the exclusion of this evidence was not prejudicial to ICW. “The trial
court’s error in excluding evidence is grounds for reversing a judgment only if the party
appealing demonstrates a ‘miscarriage of justice’—that is, that a different result would

                                              27.
have been probable if the error had not occurred.” (Zhou v. Unisource Worldwide (2007)
157 Cal.App.4th 1471, 1480.) According to Haren’s declaration, the purpose of the
project cost report was to document each disbursement of the construction loan. He
stated that the report indicated certain amounts of the construction loan funds had been
disbursed for certain work. He did not state, and nothing in the report itself indicates,
that any particular amount for any particular work was disbursed from the $600,000 set
aside for the bonded work. As a result, the information in the document and Haren’s
declaration were irrelevant to any issue presented by Bank’s summary judgment motion
and it is not reasonably probable its admission would have resulted in a different outcome
of the motion.
              2.     Objections Nos. 11 and 12
       Objections Nos. 11 and 12 challenged paragraphs 16 and 17 of Haren’s
declaration. In those paragraphs, Haren described the deposition testimony of James
Bales, whom he identified, without citation to any evidence, as “a contractor hired by
Sanger II to perform the subdivision improvements on Tract 5372 that were guaranteed
by ICW’s performance bond to the City.” In paragraph 16, Haren stated that Bales
testified that certain work he performed was performed on land that was not part of
tract 5372 and was not included in the plans showing the work required on tract 5372. In
paragraph 17, Haren stated that Bales testified the improvements on tract 5372 did not
include a Pacific Gas & Electric Company (PG&E) trench and he did no work for
construction of a PG&E trench. Pertinent excerpts from Bales deposition transcript were
attached to Haren’s declaration.
       Bank objected to this testimony on the grounds it was irrelevant, it lacked
foundation because the construction plans for tract 5372 were not authenticated or in
evidence, it lacked personal knowledge because Bales lacked personal knowledge of the
construction plans and what was included in them, and it violated the best evidence rule

                                             28.
because Haren’s declaration presented his interpretation of Bales testimony, rather than
the testimony itself.
       Although the ruling on Bank’s objections seemed to indicate the trial court would
consider evidence, such as deposition transcripts, attached to Haren’s declaration, when
that evidence supported the facts stated in the declaration, the trial court expressly
sustained objections Nos. 11 and 12. That ruling was neither erroneous, nor prejudicial.
       As with objections Nos. 4, 8, 9, and 10, the only issue to which this evidence
might have been relevant was ICW’s claim that Bank breached the set aside letter prior to
termination by failing to ensure proper use of the set aside funds. Because the language
of the set aside letter did not impose an obligation on Bank to ensure that the set aside
funds were actually used by Sanger II or to pay for construction of the bonded work, this
evidence was not relevant to resolution of the summary judgment motion.
       Further, Bales’ deposition testimony merely indicates Bales performed certain
work that was not included in the general plans for the whole project, but was included in
a different set of plans; there was also a separate set of plans for a PG&E trench, but
Bales did not install the trench. Even if that testimony had been considered by the trial
court, it would not have changed the outcome of the motion, because it did not raise a
triable issue of fact regarding whether Bank had an obligation to ensure the set aside
funds were used for the bonded work or whether any of the set aside funds were
improperly disbursed or used.
              3.        Objection No. 14
       Bank objected to paragraph 20 of Haren’s declaration, which described deposition
testimony given by Monsor, the person designated by ICW as the person most
knowledgeable about the set aside letter, among other things. Bank objected that the
evidence was irrelevant, among other objections.
       In paragraph 20, Haren asserted Monsor signed the set aside letter on behalf of
ICW. He stated Monsor testified that his and ICW’s understanding of the provision that

                                             29.
the obligations under the set aside letter would terminate when the loan matured was that
those obligations would terminate when all of the terms and conditions of the loan
agreement had been satisfied. Haren attached excerpts from Monsor’s deposition
transcript to his declaration. In the attached excerpts, Monsor testified to his
understanding of the meaning of the provision.
       The undisclosed intent or understanding of a party, or in this case a representative
of a party, is irrelevant to contract interpretation. (Founding Members, supra, 109
Cal.App.4th at p. 956.) Even if Monsor’s understanding represented ICW’s
understanding, ICW presented no evidence Monsor’s understanding of the termination
provision was disclosed to or discussed with Bank. In fact, the portion of Monsor’s
deposition transcript attached to Haren’s declaration indicated otherwise: that the
termination provision was not negotiated or discussed by the parties. Monsor’s
subjective, undisclosed belief as to the meaning of the termination provision was
irrelevant to the interpretation of that provision. The trial court properly sustained Bank’s
objection No. 14.
              4.     Objection No. 15
       Bank’s objection No. 15 was directed at one paragraph of the declaration of
Martin Hanson, a senior claims consultant employed by ICW. In the challenged
paragraph, Hanson asserted that, after receiving a letter from City advising that Sanger II
was in default of the subdivision improvement agreement, he investigated and discovered
that, with minor exceptions, none of the improvements called for in that agreement had
been installed or completed in a manner acceptable to City. Additionally, the estimated
cost of completion of the improvements would exceed $600,000 and Sanger II, the
principal on the performance bond, and its guarantors were unable or unwilling to
perform or pay the cost of completion. Bank objected that the evidence was irrelevant,
and that the statements regarding the work, the cost of the improvements, and the
guarantors’ willingness to pay lacked foundation and personal knowledge.

                                             30.
       ICW contends the evidence is relevant to the issue of damages. It asserts it
incurred damage when Sanger II failed to perform the bonded work and City made a
demand for performance under ICW’s performance bond. Bank’s motion for summary
judgment, however, did not challenge whether ICW sustained damages as a result of
Sanger II’s failure to complete its construction obligations. The primary issue presented
by Bank’s motion was whether Bank’s obligation under the set aside letter terminated
because the loan matured prior to ICW’s demand for performance under that letter. ICW
has not demonstrated how the asserted facts or Hanson’s evidence are relevant or
material to the issues presented by Bank’s motion, nor has ICW shown how the outcome
of the motion would have been different if the trial court had admitted the evidence. The
trial court did not abuse its discretion by sustaining objection No. 15.
              5.     Objection No. 19
       ICW’s undisputed material fact No. 11 stated: “ICW’s performance bond
provides that ICW can comply with its obligations by payment to the City.” The
evidence it relied on in support of this fact was ICW’s performance bond, which was
attached as an exhibit to ICW’s third amended cross-complaint, of which Bank had
requested that the trial court take judicial notice. Bank’s objection No. 19 seemed to
object both to the relevance of fact No. 11 and to the admissibility of the performance
bond that was part of ICW’s own pleading. Bank asserted the performance bond lacked
foundation because a party may not rely on its own pleadings as evidence in opposition to
a motion for summary judgment. (See Parker v. Twentieth Century-Fox Film Corp.
(1970) 3 Cal.3d 176, 181.)
       ICW argues that the performance bond is central to the litigation, because without
it, ICW would not have requested that Bank provide a set aside letter. ICW has not
demonstrated that any error in excluding the performance bond resulted in prejudice to it.
Even if the performance bond was admissible because Bank acted upon it as authentic by
relying on it in Bank’s motion for summary judgment (Evid. Code, § 1414, subd. (b);

                                             31.
Ambriz v. Kelegian (2007) 146 Cal.App.4th 1519, 1527), the performance bond was
offered by ICW only to support a statement that ICW was able to comply with its
obligations under the performance bond by making payment to City. ICW has not shown
how that fact is relevant or material to the issues presented by Bank’s motion for
summary judgment. It has not demonstrated that, if the trial court had considered the
performance bond as evidence supporting the statement of fact presented, there was a
reasonable probability the outcome of the motion would have been different.
              6.     Conclusion
       “The burden is on the appellant in every case affirmatively to show error and to
show further that the error is prejudicial.” (Vaughn v. Jonas (1948) 31 Cal.2d 586, 601.)
ICW has failed to demonstrate any prejudicial error in the trial court’s evidentiary
rulings.
II.    Attorney Fees
       In its cross-appeal, Bank challenges the trial court’s denial of its motion for an
award of attorney fees on ICW’s negligence and subrogation causes of action.
       A.     Standard of review
       “On review of an award of attorney fees after trial, the normal standard of review
is abuse of discretion. However, de novo review of such a trial court order is warranted
where the determination of whether the criteria for an award of attorney fees and costs in
this context have been satisfied amounts to statutory construction and a question of law.”
(Carver v. Chevron U.S.A., Inc. (2002) 97 Cal.App.4th 132, 142.) In other words, “it is a
discretionary trial court decision on the propriety or amount of statutory attorney fees to
be awarded, but a determination of the legal basis for an attorney fee award is a question
of law to be reviewed de novo.” (Ibid.) In this case, Bank challenges the trial court’s
interpretation of the statutory and contractual provisions governing its claim for attorney
fees and its characterization of the causes of action ICW alleged in its cross-complaints.

                                             32.
No disputed extrinsic evidence was submitted, so the issue presents a question of law for
de novo review.
       B.     Contractual attorney fees
       “Each party to a lawsuit must pay his or her own attorney fees except where a
statute or contract provides otherwise.” (Cargill, Inc. v. Souza (2011) 201 Cal.App.4th
962, 966 (Cargill).) “In any action on a contract, where the contract specifically provides
that attorney’s fees and costs, which are incurred to enforce that contract, shall be
awarded either to one of the parties or to the prevailing party, then the party who is
determined to be the party prevailing on the contract, whether he or she is the party
specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition
to other costs.” (§ 1717, subd. (a).) “Section 1717 was enacted to establish mutuality of
remedy where a contractual provision makes recovery of attorney fees available for only
one party and to prevent oppressive use of one-sided attorney fees provisions.” (Milman
v. Shukhat (1994) 22 Cal.App.4th 538, 543.) Section 1717 governs only attorney fee
awards on contract causes of action. (Exxess Electronixx v. Heger Realty Corp. (1998)
64 Cal.App.4th 698, 708 (Exxess).)
       Generally, attorney fees are awarded under section 1717 only when the litigation
is between signatories to the contract. (Cargill, supra, 201 Cal.App.4th at p. 966.)
“Under some circumstances, however, the reciprocity principles of Civil Code section
1717 will be applied in actions involving signatory and nonsignatory parties. [Citation.]
‘Its purposes require [Civil Code] section 1717 be interpreted to further provide a
reciprocal remedy for a nonsignatory defendant, sued on a contract as if he were a party
to it, when a plaintiff would clearly be entitled to attorney’s fees should he prevail in
enforcing the contractual obligation against the defendant.’” (Real Property Services
Corp. v. City of Pasadena (1994) 25 Cal.App.4th 375, 380 (Real Property Services).)
       “Two situations may entitle a nonsignatory party to attorney fees. First is where
the nonsignatory party ‘stands in the shoes of a party to the contract.’ [Citation.] Second

                                             33.
is where the nonsignatory party is a third party beneficiary of the contract.” (Cargill,
supra, 201 Cal.App.4th at p. 966.) An award of attorney fees may not be imposed
against a nonsignatory simply because the nonsignatory litigant asked for them in his or
her pleading. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162
Cal.App.4th 858, 898.)
       Whether a contractual right to recovery of attorney fees extends to fees incurred in
a tort cause of action depends upon the language of the contractual provision. (Gil v.
Mansano (2004) 121 Cal.App.4th 739, 743 (Gil).) A broadly phrased attorney fee
provision may support an award to the prevailing party on a tort cause of action, if the
party seeking fees has prevailed within the meaning of the provision and if the type of
claim is within the scope of the provision. (Ibid.) The reciprocity of section 1717 does
not apply to attorney fees on tort causes of action, however. (Moallem v. Coldwell
Banker Com. Group, Inc. (1994) 25 Cal.App.4th 1827, 1833 (Moallem).) If a contract
provision is broad enough to authorize recovery of fees on a tort cause of action, but
authorizes them only for one of the parties, only that party may recover its attorney fees if
it prevails on the tort cause of action.
       After judgment was entered in favor of Bank on ICW’s third amended cross-
complaint, Bank moved for an award of attorney fees pursuant to section 1717 and an
attorney fees provision included in the construction loan agreement. Bank based its
request on ICW’s inclusion of a subrogation cause of action in its first and second
amended cross-complaints, and a negligence cause of action in its first, second, and third
amended cross-complaints. Although ICW was not a signatory to the construction loan
agreement, Bank asserted the subrogation and negligence causes of action alleged Bank
owed a duty of care to ICW arising out of the contractual provisions of the construction
loan agreement. Bank contended the subrogation and negligence causes of action were
disguised causes of action for breach of the construction loan contract and were therefore
“on the [construction loan] contract,” which authorized Bank’s recovery of attorney fees.

                                            34.
       The construction loan contract contained a provision that, on or after default, the
borrower and owner (Sanger II) would “pay all expenses of the collection, enforcement
or protection of [Bank’s] rights and remedies under this Agreement or any other Loan
Document.” Bank contended it prevailed on the negligence and subrogation causes of
action because they were disposed of by demurrer before the trial court granted summary
judgment. Although ICW was not a signatory to the construction loan contract, Bank
argued that, if ICW had prevailed on its subrogation or negligence cause of action, ICW
would have been entitled to attorney fees under the provision in the construction loan
contract; applying the reciprocity of section 1717, Bank contended that, when it prevailed
on those causes of action, Bank was entitled to its attorney fees.
              1.      Negligence cause of action
       Bank contends the negligence cause of action ICW attempted to state in the first,
second, and third amended cross-complaints was actually a disguised cause of action for
breach of the construction loan contract. Because Bank prevailed on the negligence
cause of action, it maintains it is entitled to recover its attorney fees incurred in defense
of that cause of action, based on the attorney fee provision in the construction loan
contract and section 1717.
       The negligence cause of action of the third amended cross-complaint alleged Bank
had established written internal procedures and policies governing its administration of
construction loans and disbursement of the proceeds of those loans. Bank had a duty to
ICW, arising from its obligations under the set aside letter, to follow its internal
procedures and policies in administering the construction loan to Sanger II, and to
exercise reasonable care and skill to disburse the loan proceeds only for work actually
performed by Sanger II, only for work on tract 5372, and only if all conditions for
disbursement were satisfied. Bank allegedly breached those duties by disbursing
construction loan funds for work that was not performed or was not properly performed.
As a proximate result of Bank’s negligence, none of the work guaranteed by ICW’s

                                              35.
performance bond was performed or completed by Sanger II, even though Bank
disbursed construction loan funds to Sanger II for the performance of that work; as a
result, ICW incurred losses, costs and expenses under its performance bond.
       The negligence cause of action in the third amended cross-complaint was not a
disguised cause of action for breach of the construction loan contract. It did not allege
the elements of a cause of action for breach of the construction loan contract: the
existence of the contract, performance by ICW or excuse for nonperformance, breach by
Bank, and damages. (First Commercial Mortgage Co. v. Reece (2001) 89 Cal.App.4th
731, 745.) In fact, it did not even mention the construction loan contract. Rather, it
alleged the negligent breach of duties arising out of the set aside letter and Bank’s own
policies and procedures.
       The negligence cause of action of the first and second amended cross-complaint
alleged the construction loan agreement between Bank and Sanger II provided Bank
would only disburse loan funds after inspecting the work and determining it was properly
performed. In accordance with the construction loan agreement and the set aside letter,
Bank had a duty to ICW to exercise reasonable care and skill to allocate the construction
loan proceeds in accordance with the nature, extent and estimated costs of the subdivision
improvements as represented by Bank in the set aside letter. The second amended cross-
complaint alleged the set aside letter referred to and incorporated by reference the
construction loan agreement. The first and second amended cross-complaints alleged
Bank breached its duty by, among other things, failing to allocate the loan proceeds in
accordance with the set aside letter, carelessly inspecting the work performed by Sanger
II, and negligently disbursing loan proceeds for work that was not performed or was not
properly performed. As a proximate result, ICW incurred losses, costs and expenses
under its performance bond.
       The negligence cause of action of the first and second amended cross-complaints
did not allege a cause of action for breach of the construction loan contract. It did not

                                             36.
allege ICW was a party to or a third party beneficiary of the construction loan agreement,
or was otherwise entitled to enforce the terms of that agreement. It did not allege ICW
performed its obligations under that agreement. It did not directly allege that Bank
breached the construction loan agreement or that ICW was thereby injured.4 Rather, the
negligence cause of action attempted to engraft some of the provisions of the construction
loan contract into the set aside letter, an agreement to which ICW was a party, then allege
a negligent breach of the set aside letter. The negligence cause of action alleged Bank
owed ICW a duty of reasonable care arising out of the construction loan agreement and
the set aside letter, which referred to and incorporated the construction loan agreement. It
alleged Bank breached that duty of care, causing losses to ICW under its performance
bond. We interpret the negligence cause of action as an attempt by ICW to allege a cause
of action for Bank’s negligence in the performance of its obligations under the set aside
letter, which allegedly imposed on Bank some of the duties set out in the construction
loan contract.
       Generally, an action is not “‘on the contract’” and section 1717 does not apply
when the action alleges a tort arising out of or relating to the contract. (Moallem, supra,
25 Cal.App.4th at p. 1830.) For example, an action for professional negligence, which
alleges breach of a duty that exists only because the parties have a contractual agreement,
is not an action on the contract for purposes of section 1717. (Loube v. Loube (1998) 64
Cal.App.4th 421, 429–430.) Because ICW’s negligence cause of action was not “on the
contract,” section 1717 and its provision for reciprocity did not authorize an award of
attorney fees against a nonsignatory to the contract on that cause of action.

4       Bank misquotes the negligence cause of action when it states: “ICW, in its negligence
claim, alleged that ‘[Bank] breached the CLA [construction loan agreement] by’” certain alleged
conduct. The page of the record Bank cited actually alleges: “[Bank] breached its duties of care
and skill to ICW by” the specified conduct.

                                              37.
       Bank contends that, even if the negligence cause of action did not allege a claim of
breach of the construction loan agreement, Bank was entitled to attorney fees as the party
prevailing on the negligence cause of action because the attorney fees provision in the
construction loan agreement was broad enough to authorize an award of fees on a tort
cause of action. ICW, however, was not a party to the construction loan contract and did
not agree to the attorney fees provision. Further, the language of that provision was not
broad enough to encompass an attorney fee award on a tort cause of action.
       Section 1717 makes unilateral attorney fees provisions mutual in actions on the
contract. Thus, if the contract provides that one party may recover its attorney fees if it
prevails in litigation to enforce the contract, either party to the contract may recover its
attorney fees when it is the prevailing party on the contract. In some circumstances, this
reciprocity is extended to actions in which a nonsignatory sues or is sued by a signatory
to the contract containing the attorney fees provision. (Real Property Services, supra, 25
Cal.App.4th at p. 380.) Attorney fees may be awarded to “‘a nonsignatory defendant,
sued on a contract as if he were a party to it, when a plaintiff would clearly be entitled to
attorney’s fees should he prevail in enforcing the contractual obligation against the
defendant.’” (Ibid.) Likewise, “‘[w]here a nonsignatory plaintiff sues a signatory
defendant in an action on a contract and the signatory defendant prevails, the signatory
defendant is entitled to attorney fees only if the nonsignatory plaintiff would have been
entitled to its fees if the plaintiff had prevailed.’” (Cargill, supra, 201 Cal.App.4th at
p. 967.)
       The reciprocity of section 1717 applies only when attorney fees are requested by
the party prevailing on the contract. It does not make a unilateral provision reciprocal on
tort claims. (Brown Bark III, L.P. v. Haver (2013) 219 Cal.App.4th 809, 828.) “A party
may recover attorney fees on a tort claim only if an attorney fee provision broad enough
to cover tort claims expressly identifies that party as a party entitled to its benefits.”
(Ibid.) Thus, Bank would be entitled to an award of attorney fees on ICW’s negligence

                                              38.
cause of action only if the attorney fee provision in the construction loan contract
expressly authorized Bank’s recovery, from ICW or a litigant in ICW’s position, of its
attorney fees on a tort cause of action.
       The attorney fees provision in the construction loan contract provided: “On or
after Default, to the extent permitted by law, I agree to pay all expenses of collection,
enforcement or protection of your rights and remedies under this Agreement or any other
Loan Document.” The term “I” referred to the borrower and owner, Sanger II. The term
“you” referred to the construction lender, Bank. The provision is unilateral. It only
authorizes an award of attorney fees in favor of Bank and against Sanger II. It does not
authorize an award in favor of or against any other litigant.
       Thus, if ICW had prevailed on its negligence cause of action, the attorney fee
provision in the construction loan contract would not have authorized an award of
attorney fees in its favor. The reciprocity provision of section 1717 would not have
authorized an award to Bank, both because ICW had no entitlement to an award of
attorney fees that could be made reciprocal and because the reciprocity provision does
not apply to tort causes of action.
       Further, the language of the attorney fee provision is too restrictive regarding the
circumstances under which attorney fees may be recovered to authorize an award of
attorney fees on a tort cause of action. Sanger II was only required to “pay all expenses
of collection, enforcement or protection of [Bank’s] rights and remedies under this
Agreement or any other Loan Document.” Whether attorney fees may be awarded on a
tort claim depends upon the language of the contractual attorney fees provision and
“‘whether the type of claim is within the scope of the provision.’” (Gil, supra, 121
Cal.App.4th at p. 743.) “[A] broadly phrased contractual attorney fee provision may
support an award to the prevailing party in a tort action.” (Ibid.)
       An attorney fees provision authorizing an award of attorney fees in an action to
“enforce” the contract or its provisions does not cover tort claims. (Gil, supra, 121

                                             39.
Cal.App.4th at p. 743.) Likewise, provisions for attorney fees have been held to apply
only to actions “on the contract” when a purchaser agreed “‘to pay all expenses,
including reasonable attorney’s fees … incurred in the collection, by suit or otherwise, of
any amount payable under this contract’” (Berge v. International Harvester Co. (1983)
142 Cal.App.3d 152, 163, fn. 8) and when the parties agreed to an award of fees in an
action “‘to enforce the terms hereof or declare rights hereunder’” (Exxess, supra, 64
Cal.App.4th at pp. 708–713).
          In contrast, broader attorney fee provisions, that are not limited to fees incurred to
enforce the agreement or collect under it, have been held to encompass awards of
attorney fees incurred in litigation of tort or other noncontract causes of action. A fee
agreement entitling the prevailing party to attorney fees in an action “‘arising out of the
execution of this agreement’” (Santisas v. Goodin (1998) 17 Cal.4th 599, 603, 608),
“‘arising out of this agreement’” (Adam v. DeCharon (1995) 31 Cal.App.4th 708, 711,
712), “‘relating to’ the contract” (Moallem, supra, 25 Cal.App.4th at p. 1831), or “‘[i]f
this Agreement gives rise to a lawsuit or other legal proceeding between any of the
parties hereto’” (Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338, 1340)
is broad enough to encompass both tort and contract actions.
          The contract provision in this case limits recovery to “expenses of collection,
enforcement or protection of your rights and remedies under this Agreement or any other
Loan Document.” A tort cause of action does not enforce or protect a party’s rights and
remedies under a contract. (Exxess, supra, 63 Cal.App.4th at p. 709.) Accordingly, we
conclude the attorney fee provision in the construction loan contract was not broad
enough to encompass an award of attorney fees against ICW on its negligence cause of
action.
                 2.     Subrogation cause of action
          Bank argues it is entitled to attorney fees on ICW’s subrogation cause of action
because, although ICW was a nonsignatory to the construction loan contract, it would

                                                40.
have been entitled to fees if it had prevailed on its subrogation claim. Pursuant to the
reciprocity provisions of section 1717, Bank concludes it is therefore entitled to an award
of attorney fees. For Bank’s argument to have merit, ICW’s subrogation claim must have
been an action on the construction loan contract (the contract containing the attorney fees
provision), otherwise the reciprocity of section 1717 would not apply.
       Initially, we reject ICW’s argument that subrogation is an equitable remedy and
therefore cannot constitute a cause of action “on the contract.” “In determining whether
an action is ‘on the contract’ under section 1717, the proper focus is not on the nature of
the remedy, but on the basis of the cause of action.” (Kachlon v. Markowitz (2008) 168
Cal.App.4th 316, 347.) Although the remedy sought may be equitable, the claims may
still be actions “‘on the contract.’” (Ibid.)
       “‘Subrogation, a legal fiction, is broadly defined as the substitution of one person
in the place of another with reference to a lawful claim or right. It is a right which is
purely derivative and it permits a party who has been required to satisfy a loss created by
a third party’s wrongful act to step into the shoes of the loser and pursue recovery from
the responsible wrongdoer.’” (State Bar of California v. Statile (2008) 168 Cal.App.4th
650, 662 (Statile).) “‘“[S]ubrogation involves succession to the rights of others. Rights
under subrogation are derivative rights.”’” (Id. at p. 663.) Thus, subrogation is not itself
a cause of action; it is a means by which one party (subrogee) steps into the shoes of
another (subrogor) and prosecutes the latter’s cause of action against the third party
responsible for the loss. The cause of action may arise out of a contract or a tort.
       ICW was not a party to the construction loan contract that contained the attorney
fee provision. Thus, as a nonsignatory to that contract, ICW would be liable for Bank’s
attorney fees, incurred in the defense of its subrogation cause of action, only if the
subrogation cause of action was one “on the contract” and ICW would have been entitled
to an award of attorney fees if it had prevailed on that cause of action. A nonsignatory
party may be entitled to attorney fees when that party stands in the shoes of a party to the

                                                41.
contract or is a third party beneficiary of the contract. (Cargill, supra, 201 Cal.App.4th at
p. 966.) The question then, is whether ICW, in making its subrogation claim against
Bank, stood in the shoes of a party to the construction loan contract or was a third party
beneficiary of that contract, so that an award of attorney fees could have been made in its
favor if it had prevailed.
       The subrogation cause of action in both the first and second amended cross-
complaints was stated in one paragraph, other than the paragraph incorporating by
reference all prior allegations of the pleading: “Pursuant to the doctrine of equitable
subrogation, Civil Code §§ 2847 and 2848 and the liability of Sanger II and the other
parties and cross-defendants under the [general indemnity agreement], ICW is entitled to
recover from [Bank] the sum of the losses, costs expenses and attorney’s fees ICW has
incurred under its performance bond, in that said losses were proximately caused, in
whole or in part, by the acts and/or omissions of [Bank], as aforesaid.”
       It is not clear from the allegations of the subrogation cause of action what
substantive cause of action ICW was attempting to allege or which party was its alleged
subrogor. The subrogation cause of action did not mention the construction loan
agreement or allege any claim for breach of that agreement. It did not allege ICW was a
third party beneficiary of, or stood in the shoes of any party to, the construction loan
agreement. The only agreements mentioned in the subrogation cause of action were the
general indemnity agreement between ICW on the one hand, and Sanger II and various
other indemnitors on the other hand, and the performance bond ICW issued to City.
Subrogation permits a party who paid another’s loss “‘to step into the shoes of the loser
and pursue recovery from the responsible wrongdoer.’” (Statile, supra, 168 Cal.App.4th
at p. 662.) The loss ICW had incurred under its performance bond, which it alleged it
was entitled to recover from Bank, was the payment ICW made to City in settlement of
City’s claim that Sanger II failed to complete the bonded improvements as agreed. By
paying that loss, ICW was entitled to step into City’s shoes and pursue recovery from the

                                             42.
party or parties responsible for Sanger II’s failure to perform under the subdivision
improvement agreement. City was not a party to the construction loan agreement, and
nothing in the subrogation cause of action indicated ICW was attempting to pursue any
rights or claims of City under the construction loan agreement.
       The general indemnity agreement ICW entered into with Sanger II and other
indemnitors, which was mentioned in the subrogation cause of action, provided that
Sanger II and the other indemnitors would indemnify ICW against any losses it incurred
under its performance bond. As a party to the general indemnity agreement, ICW had a
direct action against Sanger II and the other indemnitors for any breach of that
agreement; subrogation to another’s rights was not necessary. Bank was not a party to
the general indemnity agreement, so there were no rights against Bank arising out of that
agreement to which ICW could have been subrogated.
       Section 2847 provides: “If a surety satisfies the principal obligation, or any part
thereof, whether with or without legal proceedings, the principal is bound to reimburse
what he has disbursed, including necessary costs and expenses; but the surety has no
claim for reimbursement against other persons, though they may have been benefited by
his act, except as prescribed by the next section.” Section 2848 provides: “A surety,
upon satisfying the obligation of the principal, is entitled to enforce every remedy which
the creditor then has against the principal to the extent of reimbursing what he has
expended, and also to require all his co-sureties to contribute thereto, without regard to
the order of time in which they became such.” These sections, like the general indemnity
agreement governed the relationship between principal and surety on the performance
bond; they did not provide a basis for recovery from a third party, like Bank, of amounts
paid by the surety to discharge the principal’s obligation. In any event, to the extent ICW
claimed these statutes entitled it to recover from Bank for amounts ICW paid under the
performance bond, for which ICW contended Bank’s wrongdoing was responsible, its

                                             43.
cause of action was based on statute, not on the construction loan agreement containing
the attorney fees provision.
       ICW’s subrogation cause of action sought to recover from Bank for the loss ICW
incurred under its performance bond, which it alleged was “proximately caused, in whole
or in part, by the acts and/or omissions of [Bank], as aforesaid.” The aforesaid acts and
omissions of Bank included allegations: that Bank breached the set aside letter by
improperly disbursing the set aside construction loan funds and failing to disburse to
ICW any remaining balance of those funds upon ICW’s demand after Sanger II’s default;
that Bank converted ICW’s property by failing to turn over to ICW the sum of $255,000
pursuant to the set aside letter, after Sanger II defaulted in performance of the subdivision
improvement agreement, ICW paid that amount to City in settlement of its claim, and
ICW demanded payment from Bank under the set aside letter; and that Bank breached its
duty of care to ICW, arising out of the set aside letter and the construction loan contract,
by negligently disbursing construction loan funds, causing ICW to incur losses under its
performance bond.
       The subrogation cause of action did not allege any breach of the construction loan
contract to which ICW was allegedly subrogated. It did not allege any claim by City
against Bank that ICW became subrogated to by payment under the performance bond;
there are no allegations of any injury to City arising out of any breach of contract or other
conduct by Bank. The subrogation cause of action did not allege a claim by Sanger II
against Bank for breach of the construction loan contract, to which ICW became
subrogated by paying City on behalf of Sanger II for Sanger II’s failure to perform under
the subdivision improvement agreement. Specifically, it did not allege that Bank failed
to disburse funds to Sanger II and thereby prevented it from performing under the
subdivision improvement agreement, that Bank otherwise prevented Sanger II from
completing construction of the bonded improvements or caused it to default under the
subdivision improvement agreement or under the construction loan agreement, or that

                                             44.
Sanger II sustained any damage as a result of Bank’s conduct. The only injury alleged in
the subrogation cause of action was “the losses, costs expenses and attorney’s fees ICW
has incurred under its performance bond,” which ICW alleged were proximately caused
by the acts or omissions of Bank.
       Thus, we conclude this cause of action, like the breach of contract, negligence, and
conversion causes of action, sought to remedy Bank’s alleged failure to perform in
accordance with the set aside letter, which allegedly incorporated provisions of the
construction loan agreement regarding disbursement of loan funds. It was Bank’s failure
to perform under the set aside letter that allegedly resulted in ICW’s payment to City
under the performance bond out of its own funds, rather than out of the set aside
construction loan funds. We agree with the trial court’s conclusion “that ICW was
pressing its own claims, and that these arose from the Set Aside Letter,” and ICW “was
seeking damages for alleged breaches of duties [Bank] owed to ICW.” (Emphasis
omitted.)
       Bank argues “ICW’s [second amended cross-complaint] also explicitly references
breaches of the [construction loan agreement] and alleges ‘[Bank] breached the
provisions of the Construction Loan Agreement between Sanger II and [Bank]. Sanger II
clearly had a right of action against [Bank] based upon a breach of the terms of the
Construction Loan Agreement to which it was a party.’” The portion of the record Bank
cites in support of this quotation is not the second amended cross-complaint, but ICW’s
opposition to Bank’s demurrer to the second amended cross-complaint. The quoted
language does not appear in the subrogation cause of action. Although in attempting to
defend its subrogation cause of action ICW may have argued that it alleged Bank
breached the construction loan agreement, the subrogation cause of action did not contain
such an allegation. Bank has not pointed to any language in the first or second amended
cross-complaint that makes such an allegation. The trial court sustained the demurrer to
the subrogation cause of action of the second amended cross-complaint in part because it

                                            45.
did not allege a claim by ICW either as subrogee of City or as subrogee of Sanger II.
ICW did not attempt to amend this cause of action after the demurrer to the second
amended cross-complaint was sustained with leave to amend, to allege that Bank
breached the construction loan contract and ICW was subrogated to Sanger II’s breach of
contract cause of action.
       Bank’s request for an award of attorney fees from ICW on the subrogation cause
of action was based on its assertion that the subrogation cause of action was on the
construction loan contract, which contained an attorney fee provision; it argued that,
although ICW was a nonsignatory to the construction loan contract, because ICW alleged
a claim under that contract, the provisions of section 1717 made the attorney fee
provision reciprocal and an award of attorney fees to Bank was therefore authorized by
section 1717. ICW’s subrogation cause of action was not “on the [construction loan]
contract,” however. Bank has not shown ICW would have been entitled to an award of
attorney fees under the provision in the construction loan contract if ICW had prevailed
on the subrogation cause of action. Consequently, the trial court’s denial of Bank’s
motion for attorney fees on the subrogation cause of action was proper.
                                      DISPOSITION
       The judgment and the order denying an award of attorney fees are affirmed. The
parties will bear their own costs on appeal.

                                                                _____________________
                                                                             HILL, P.J.
WE CONCUR:

 _____________________
LEVY, J.

 _____________________
PEÑA, J.

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