Filed 5/8/17 BMW Financial Services v. Deloach CA4/3
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
BMW FINANCIAL SERVICES NA, LLC,
Plaintiff and Appellant,
v.
FRANK DELOACH,
Defendant and Respondent.
G053021
(Super. Ct. No. 30-2015-00768716)
O P I N I O N
Appeal from an order of the Superior Court of Orange County, Ronald L.
Bauer, Judge. Affirmed.
Caley & Associates, Rebecca A. Caley and Christopher M. Domin for
Plaintiff and Appellant.
Booth, Mitchel & Strange, James G. Stanley and Gregory H. Smith for
Defendant and Respondent.
2
INTRODUCTION
BMW Financial Services NA, LLC (BMW Financial) appeals from an
order granting a motion to compel acknowledgment of satisfaction of judgment entered in
favor of Frank Deloach. BMW Financial obtained a large default judgment against
Deloach relating to a leased car that had been repossessed with an altered odometer.
Owing to BMW Financial’s mistake in sending the Deloach account to a collection
agency, the agency and Deloach’s father settled the matter for considerably less than the
amount of the default judgment. BMW Financial tried to rescind the settlement, but
Deloach filed a motion for satisfaction of judgment, which the trial court granted.
We affirm the order. BMW Financial did not qualify for rescission of the
settlement agreement based on mistake. Substantial evidence supported the trial court’s
determination that BMW Financial bore the risk of the mistake and that enforcing the
settlement agreement would not be unconscionable.
FACTS
The facts are not disputed. Deloach leased a 2013 BMW from Shelly
BMW in Buena Park.
1
At the time of the lease, the BMW’s odometer displayed 4,293
miles. Deloach did not make his payments, and the car was repossessed. At that time,
the odometer displayed 94 miles, and inspection revealed that the odometer had been
tampered with, in violation of state and federal laws.2

BMW Financial sued Deloach for breaching the lease and for tampering
with the odometer. He did not respond, and BMW Financial took his default on April 20,

1
The lease identifies Shelly BMW as the lessor. The lease was allegedly assigned to BMW
Financial. The plaintiff in the subsequent breach of contract action was “Financial Services Vehicle Trust by and
through its servicer, BMW Financial Services NA, LLC.” For simplicity’s sake we refer to the appellant as BMW
Financial.
2
BMW Financial’s complaint alleged a cause of action only for violation of federal odometer
tampering law, 49 U.S.C sections 32701 et seq. 49 U.S.C section 32710 allows a private party to bring a civil action
for violation of the law in state court and prescribes liability for treble damages in cases of tampering with intent to
defraud.
3
2015. The BMW was sold at auction for $25,000. Because of the odometer tampering,
the vehicle had to be sold with a TMU (true mileage unknown) designation, which
impaired its value.
The account was sent to a collection agency, Firstsource Advantage, LLC.
Firstsource contacted Deloach in August 2015 to collect the balance of the account,
which, according to the information sent to the agency, stood at approximately $24,000.
At this point, David Deloach, Deloach’s father, became involved. David Deloach
negotiated a settlement with Firstsource for a complete release in exchange for $14,000.
Firstsource confirmed the settlement in writing on August 17, 2015, and thereafter
confirmed, not only the receipt of the $14,000, but also “that our client has agreed to
accept less than the full balance due as settlement on the above mentioned account.”
On August 13, 2015, the trial court entered a default judgment in favor of
BMW Financial and against Deloach for $114,677. Most of the judgment, $81,296, was
for treble damages for the odometer tampering. (See 49 U.S.C. § 32710, subd. (a).)
Counsel for BMW Financial contacted Deloach on September 15, 2015, asserting that the
August settlement was entered into by mistake and purporting to rescind it by returning
the $14,000. Deloach countered with a motion to compel acknowledgement of
satisfaction of judgment.
BMW Financial opposed the motion on grounds of mistake. A company
representative explained how the mistake occurred. After the BMW was sold at auction,
the purchase price was posted to Deloach’s account. If the balance on an account
exceeds $5,500, it is turned over to a collection agency. If the account is in litigation,
however, it is not given to a collection agency. The error occurred because Deloach’s
account was not flagged as being involved in litigation. It was therefore mistakenly sent
to Firstsource for collection.
According to the information sent to Firstsource, the balance on Deloach’s
account was $24,442. Firstsource sent a letter dated August 10, 2015, to Deloach
4
informing him of the balance and urging him to contact it, as he “may be eligible for
payment options that were not available to you before.” David Deloach sent an email to
Firstsource dated August 17 requesting confirmation of an agreement that Firstsource
would accept $14,000 in full settlement of the debt and cause BMW Financial to execute
a dismissal with prejudice or satisfaction of judgment. Firstsource responded on the same
day, in writing, stating “Upon receipt and clearance of your payment as agreed, we will
notify our client to update its records accordingly regarding this settlement.” The next
day, Firstsource sent Deloach a letter stating, “This letter serves as confirmation that our
client has agreed to accept less than the full balance due as settlement on the above
mentioned account.” Firstsource had a preauthorized settlement authority range, and the
ultimate settlement of $14,000 was within that range.
The court issued the default judgment for $118,296 on August 13, but
BMW Financial did not learn about it until after the settlement had been concluded.3
It
appears that BMW Financial found out about the mistake in mid-September when one of
the Deloaches called its counsel about the settlement agreement.4
BMW Financial’s
counsel sent Deloach a letter dated September 15 repudiating the settlement.
The court granted Deloach’s motion to compel satisfaction of judgment
after an unreported hearing on November 23, 2015. It awarded him $2,455 in costs and
the statutory penalty of $100. The court ordered Deloach’s counsel to prepare a
satisfaction of judgment order for its signature. The order was entered on December 21,
2015.

3
BMW Financial’s counsel stated that she mailed the conformed default judgment to her client on
August 16, a Sunday, and the earliest the client could have seen it was the next day. Firstsource settled with David
Deloach on August 17.
4
In her declaration, counsel identifies the person who called her as “[Frank] Deloach’s father, Frank
Deloach.” Frank Deloach’s father is David Deloach. BMW Financial’s representative stated in her declaration that
the phone calls occurred on August 17, a date before the settlement was even confirmed. We assume the latter is
another mistake.
5
Evidently BMW Financial’s counsel submitted proposed orders to the
court, only one of which is in the record, purporting to give details of what happened at
the hearing. This effort prompted the judge to issue what was in effect a statement of
decision on January 7, 2016, explaining his reasoning. The court determined that BMW
Financial’s “authorized representative made exactly the deal that he wanted to make. He
acted within the scope of his negotiating authority and followed those instructions
precisely and without error.” The court concluded the deal was reasonable, given that
settlement amounts are routinely less than the actual debt. The court also concluded that
rescinding the settlement agreement would be unconscionable, because there was no
evidence of sharp dealing by either Deloach or an overly harsh outcome. The court
distinguished the case BMW Financial relied on, noting that the error in that case was
made by someone unrelated to the party seeking rescission for mistake, while in this case
BMW Financial itself made the error.
DISCUSSION
Code of Civil Procedure section 724.010, subdivision (a), provides: “A
money judgment may be satisfied by payment of the full amount required to satisfy the
judgment or by acceptance by the judgment creditor of a lesser sum in full satisfaction of
the judgment.”
5
Section 724.030 requires a judgment creditor to file an
acknowledgement of satisfaction of judgment with the court immediately after a money
judgment has been satisfied. If it does not do so, the judgment debtor may demand an
acknowledgment, and if the judgment creditor still will not cooperate, the judgment
debtor may move the court for an order requiring compliance with the demand. (§
724.050, subds. (a), (d).) A judgment creditor may be liable for damages and a $100
penalty for failing to comply with the demand. (§ 724.050, subd. (e).)

5
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
6
“On appeal, we will uphold the factual findings supporting the trial court’s
decision on a motion for satisfaction of judgment if the findings are supported by
substantial evidence. [Citation.] We will presume the existence of every fact the finder
of fact could reasonably deduce from the evidence in support of the judgment or order.
[Citation.]” (Jhaveri v. Teitelbaum (2009) 176 Cal.App.4th 740, 748.)
We first observe that the subject of this dispute is a settlement agreement,
and not a commercial contract or a construction bid. Settlement agreements are highly
favored under California law. (See, e.g.., City of Orange v. San Diego County Employees
Retirement Assn. (2002) 103 Cal.App.4th 45, 55; Frankel v. Board of Dental Examiners
(1996) 46 Cal.App.4th 534, 552.) Although ordinary contract principles, including the
availability of rescission for mistake (see, e.g., Harris v. Rudin, Richman & Appel (2002)
95 Cal.App.4th 1332), govern settlement agreements, the favored position of these
agreements factors into the assessment of the unconscionability of enforcement.
Our Supreme Court’s decision in Donovan v. RRL Corp. (2001) 26 Cal.4th
261 (Donovan) deals with rescission for mistake of fact.6
In Donovan, a mistake made by
a local newspaper caused an error in a car dealer’s advertisement regarding the price of a
used car. (Id. at pp. 268-269.) The dealer was unaware of the mistake until a customer
came in with the advertisement and offered to buy the car for the incorrect price. (Id. at
p. 269.) The customer was immediately told that the advertisement was a mistake by
both the salesman to whom he made the offer and the sales manager. (Id. at p. 268.)
Nevertheless, the customer sued the dealer for breach of contract, fraud, and negligence.
(Ibid.)
Adopting the test set forth in the Restatement Second of Contracts, the
court held that the following facts must be established to qualify for rescission based on

6
Deloach argued that BMW Financial had to file a complaint for rescission rather than oppose his
motion under section 724.050. If mistake is a ground for vacating a satisfaction of judgement (see Remillard Brick
Co. v. Dandini (1950) 98 Cal.App.2d 617, 622), we think it can also be a defense to a motion to compel entry of a
satisfaction of judgment.
7
mistake of fact: “(1) the defendant made a mistake regarding a basic assumption upon
which the defendant made the contract; (2) the mistake has a material effect upon the
agreed exchange of performances that is adverse to the defendant; (3) the defendant does
not bear the risk of the mistake; and (4) the effect of the mistake is such that enforcement
of the contract would be unconscionable.”
7
(Donovan, supra, 26 Cal.4th at p. 282.)
In this case, the first two parts of the test are undisputed. BMW Financial
made a material mistake that led to the Deloach settlement agreement for significantly
less money than the default judgment. So who bears the risk of that mistake, and does
the effect of the mistake make the enforcement of the settlement agreement
unconscionable?
I. Allocation of Risk
Restatement Second of Contracts, section 154 states: “A party bears the
risk of a mistake when [¶] (a) the risk is allocated to him by agreement of the parties, or
[¶] (b) he is aware, at the time the contract is made, that he has only limited knowledge
with respect to the facts to which the mistake relates but treats his limited knowledge as
sufficient, or [¶] (c) the risk is allocated to him by the court on the ground that it is
reasonable in the circumstances to do so.” The Donovan court held that the third
alternative applied in that case. (Donovan, supra, 26 Cal.4th at p. 283.)
The court then observed that the risk of mistake must be allocated to a party
when the mistake results from that party’s “neglect of a legal duty.” (Donovan, supra, 26
Cal.4th at p. 283.) That is, it is reasonable under the circumstances to allocate the risk to
the party who had neglected a legal duty. But what constitutes neglect of a legal duty?
The Donovan case chiefly concentrates on what it is not. It is not, for instance, ordinary

7
Restatement Second of Contracts, section 153 states: “Where a mistake of one party at the time a
contract was made as to a basic assumption on which he made the contract has a material effect on the agreed
exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the
mistake under the rule stated in § 154, and [¶] (a) the effect of the mistake is such that enforcement of the contract
would be unconscionable, or [¶] (b) the other party had reason to know of the mistake or his fault caused the
mistake.”
8
carelessness or negligence, but it could be extreme negligence. (Id. at pp. 283-284.) It is
not necessarily the violation of a statute. (Id. at pp. 284-285.)
BMW Financial argues that the risk of the mistake can be assigned to it
only if it neglected a legal duty. Failing to tag the Deloach account as being in litigation
was not neglect of a legal duty, so BMW Financial should not have to bear the risk.
Neglect of a legal duty is not, however, the only circumstance under which
a court may allocate risk. The Restatement stresses reasonableness and observes that “the
court will consider the purposes of the parties and will have recourse to its own general
knowledge of human behavior in bargain transactions[.]” (Rest.2d Contracts, § 154,
com. d.) The illustrations bear out this observation.
One of the Restatement illustrations to this section posits the sale of
farmland that is later discovered to contain valuable mineral deposits unknown to both
parties. “In some instances it is reasonably clear that a party should bear the risk of a
mistake for reasons other than those stated in Subparagraphs (a) and (b). In such
instances, under the rule stated in Subparagraph (c), the court will allocate the risk to that
party on the ground that it is reasonable to do so. A court will generally do this, for
example, where the seller of farm land seeks to avoid the contract of sale on the ground
that valuable mineral rights have newly been found.” (Rest.2d Contracts, § 154, com. d.)
It would be hard to accuse the seller in this illustration of neglecting a legal duty in
failing to discover that the land contained valuable mineral deposits. Drawing on general
knowledge of human behavior in bargain transactions, however, a court could reasonably
allocate the risk to the seller on the ground that he was in a better position to know the
composition of the property than the buyer was.
Likewise, in another illustration, a landowner and a builder make a contract
about removing gravel from the property at a stated rate per cubic yard. Unbeknownst to
both of them, part of the gravel is under water and is thus more expensive to remove.
The court will allocate the risk to the builder, not because the builder has neglected a
9
legal duty, but because it is reasonable under the circumstances to expect the builder to
have looked over the property before entering into the contract. (Rest.2d Contracts, §
154, com. d, illus. 4.)
Here, the trial court found it was reasonable under the circumstances to
allocate the risk to BMW Financial, and substantial evidence supports this conclusion.
The error was attributable solely to BMW Financial’s failure to tag Deloach’s account as
being in litigation. BMW Financial presented no evidence that Firstsource or either
Deloach knew about the default judgment when Firstsource and David Deloach entered
into negotiations to settle the case. As the court noted, a crucial difference between the
circumstances of this case and those of Donovan was that in Donovan an unrelated third
party �" a newspaper �" had made the mistake by printing the wrong sale price of a car.
(Donovan, supra, 26 Cal.4th at pp. 289-290 [“The uncontradicted evidence established
that the [newspaper] made the proofreading error resulting in [the car dealer’s]
mistake.”].) In this case, however, the mistake was BMW Financial’s and no one else’s.
There is another significant difference between this case and Donovan. In
Donovan the customer was immediately told when he produced the erroneous
advertisement that the price was a mistake, and the sales manager offered to compensate
the customer for his expenses. (Id. at p. 268.) In this case, BMW Financial waited nearly
a month to inform Deloach that it wanted to rescind.
The hard fact is that someone has to bear the risk of the mistake. Should it
be the person who negotiated a reasonable settlement for actual damages with the agent
for the other party and received confirmation that the settlement was a done deal, only to
be told a month later that the settlement was off? Or should it be the party whose error
caused the problem and who is nevertheless coming out roughly even?
II. Good Faith and Fair Dealing
The Restatement also observes that “[e]ven though a mistaken party does
not bear the risk of a mistake, he may be barred from avoidance if the mistake was the
10
result of his failure to act in good faith and in accordance with reasonable standards of
fair dealing.” (Rest.2d Contracts, § 154, com. a.) It then cites to section 157 of the
Restatement, which provides, “A mistaken party's fault in failing to know or discover the
facts before making the contract does not bar him from avoidance . . . under the rules
stated in this Chapter, unless his fault amounts to a failure to act in good faith and in
accordance with reasonable standards of fair dealing.” (Rest.2d Contracts, § 157.) BMW
Financial argues that it acted with good faith and fair dealing, so it should be entitled to
rescind.
Although “a failure to act in good faith and in accordance with reasonable
standards of fair dealing during pre-contractual negotiations does not amount to a
breach[, [n]evertheless, under the rule stated in this Section, the failure bars a mistaken
party from relief based on a mistake that otherwise would not have been made. During
the negotiation stage each party is held to a degree of responsibility appropriate to the
justifiable expectations of the other.” (Rest.2d Contracts, § 157, com. a.)8

Good faith and reasonable standards of fair dealing in this context are not
limited to an absence of cheating or of fraud. They include not disappointing the
justifiable expectations of the other party. (See Donovan, supra, 26 Cal.4th at p. 290.)
Deloach was certainly justified in expecting that Firstsource could settle his debt with
BMW Financial, especially after receiving a letter from Firstsource stating, “[O]ur client
[i.e., BMW Financial] has agreed to accept less than the full balance due as settlement of
the above mentioned account.” The recipient of this letter could reasonably infer that
Firstsource had consulted BMW Financial as to this particular settlement and received its
particular approval. BMW Financial therefore had another opportunity to discover that

8
As the Restatement acknowledges, the duty of good faith and fair dealing implied in every
contract does not apply to pre-contract negotiations. (Rest.2d Contract, § 157, com. a; see Racine & Laramie, Ltd. v.
Department of Parks & Recreation (1992)11 Cal.App.4th 1026, 1935 and fn. 4.)
11
the account was in litigation. Moreover, there is no evidence that David Deloach was
pressing Firstsource to settle immediately. There was time to check the records.
III. Unconscionability
In discussing unconscionability, the Donovan court focused on the
difference between the correct price and the mistaken price. It discussed not only the loss
the dealer would sustain by selling the disputed car at the mistaken price, but also other
cases involving substantial differences between the two prices. The court concluded that
forcing a sale at such a loss would be unconscionable. (Donovan, supra, 26 Cal.4th at
pp. 292-293.)
In this case, the trial court found that enforcing the settlement agreement
would not be unconscionable, and once again substantial evidence supports this
conclusion. BMW Financial received $39,000 for the leased BMW �" $25,000 from its
sale at auction and $14,000 from the settlement. The balance on the Deloach account
when it was sent to Firstsource was $24,442. BMW Financial’s actual loss was a little
over $10,000. On the plus side, as is so often true of settlements, BMW Financial had a
$14,000 bird in the hand and did not have to spend money chasing after $24,000 it might
never collect. Its recognition of this benefit is reflected in the fact that Firstsource was
authorized to accept $14,000 to settle a $24,000 debt. As the court observed,
“Judgements are routinely satisfied by a payment of less than its face amount, and the
circumstances of this case made such a deal very likely.” An additional factor, as
discussed above, is the favored position that settlements occupy in California law.
The large discrepancy between the amount of the settlement and the amount
of the default judgment in this case was, for the most part, the penalty awarded for
odometer tampering. BMW Financial considers this the final pivot point of the analysis
of the case. At oral argument, its counsel was astonished that we did not realize we were
dismantling the entire federal statutory scheme preventing odometer fraud if we did not
consider the punitive damages award. This astonishment reflects a fundamental
12
misunderstanding of punitive damages. This amount did not reflect an actual loss to
BMW Financial, as was true of the cases cited in Donovan. (Cf. Conservatorship of
O’Connor (1996) 48 Cal.App.4th 1076, 1098 [contract voidable for mistake only if
enforcement more onerous to party seeking avoidance than would it would have been
without mistake].) “The purpose of punitive damages is to punish wrongdoers and
thereby deter the commission of wrongful acts.” (Neal v. Farmers Ins. Exchange (1978)
21 Cal.3d 910, 928, fn. 13; see PPG Industries, Inc. v. Transamerica Ins. Co. (1999) 20
Cal.4th 310, 319; Adams v. Murakami (1991) 54 Cal.3d 105, 110; Civ. Code, § 3345,
subd. (b).) Penalties and punitive damage awards are not intended to compensate
plaintiffs or make them whole. Moreover, the loss of this extra cash �" assuming it was
collectable from a person who could not make his car lease payments �" may have the
salutary effect of making BMW Financial more vigilant in its bookkeeping. We hope his
escape in this case has a similarly salutary effect on the younger Deloach. A lifetime
rarely includes two instances of such unconscionable luck.
DISPOSITION
The order granting respondent’s motion to compel satisfaction of judgment
is affirmed. Respondent is to recover his costs on appeal.
BEDSWORTH, J.
WE CONCUR:
O’LEARY, P. J.
FYBEL, J.