Filed 4/9/18 Chodosh v. Robertson CA4/1
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA



MAUREEN A. CHODOSH et al.,

Plaintiffs and Respondents,

v.

GORDON M. ROBERTSON et al.,

Defendants and Appellants.
D071864



(Super. Ct. Nos. INC091596 & INC10001354)


APPEAL from an order of the Superior Court of Riverside County, Harold W. Hopp, Judge. Reversed and remand with directions.
Larry J. Lichtenegger, for Defendants and Appellants.
Weinstein Legal and Henry G. Weinstein for Plaintiffs and Respondents.
In this case we reverse an order entered in favor of a surety. The surety had issued an injunction bond after the holders of junior liens and the debtor had obtained a preliminary injunction preventing the defendants, senior lienholders, from foreclosing on a deed of trust. Although the parties agree the senior lienholders in the underlying action were the intended beneficiaries of the injunction bond, the surety erroneously named one of the junior lienholders as the beneficiary of the bond.
After the injunction had been lifted and the senior lienholders had foreclosed on their deed of trust, they attempted to recover their losses from the surety. At that point, the parties discovered the surety's erroneous designation of one of the junior lienholders as the beneficiary of the bond and the senior lienholders asked the trial court to correct the bond.
The trial court refused to correct the bond to conform to the parties' intention and entered judgment in favor of the surety. Contrary to the trial court's ruling, it had both statutory and equitable power to correct the bond; moreover, it abused its discretion in failing to do so.
FACTUAL AND PROCEDURAL BACKGROUND
1. Prior Proceedings
On January 19, 2006, John Skordoulis borrowed $925,000 from a mortgage brokerage company, Cedar Funding, Inc. (Cedar Funding) and provided Cedar Funding with a note and first deed of trust on real property in Palm Springs. Between February 1, 2006, and September 1, 2006, Cedar Funding sold fractionalized interests in the note and deed of trust to a number of investors, who are the defendants and appellants in this consolidated action.
On August 15, 2007, Skordoulis was advanced an additional $800,000 on a note and second deed of trust he had given Cedar Funding.
Between November 6, 2007 and July 28, 2008, Skordoulis gave a second group of investors three additional notes, in the total amount of $400,000 secured by third, fourth and fifth deeds of trusts. The second group of investors (junior lienholders) were plaintiffs below. One of them, Chodosh, is a respondent herein.
The first note went into default on August 1, 2008, and the trustee under the first deed of trust recorded a Notice of Default on October 15, 2009; shortly thereafter the trustee recorded a Notice of Trustee's Sale. At that point, the unpaid balance on the first note was $1.247 million.
On December 2, 2009, Skordoulis filed a complaint against the senior lienholders and the trustee. Skordoulis sought a temporary restraining order (TRO) and preliminary injunction preventing the trustee's sale. The trial court denied Skordoulis's application for a TRO and set a hearing date in March 2010 on his motion for a preliminary injunction.
Prior to the hearing on the injunction, the junior lienholders filed a separate action against the senior lienholders in which they also sought injunctive relief from the trustee's sale. Their application for injunctive relief was heard by a different judge and granted effective February 23, 2010. However, as a condition of enjoining the trustee's sale, the junior lienholders were required to post a $500,000 injunction bond. Chodosh posted the bond.
2. Bond Enforcement
After the trustee's sale was enjoined, the junior lienholders' action and Skordoulis's action were consolidated. The senior lienholders filed a cross-complaint in which they asked for judgment on the first note and judicial foreclosure on the first deed of trust.
The senior lienholders prevailed on the merits. Both the junior lienholders' complaint and Skordoulis's complaint were dismissed, judgment in the total amount of $1.5 million on the note was entered and the trial court conducted a judicial foreclosure. The senior lienholders submitted a successful $1.2 million credit bid.
The senior lienholders then brought a motion to enforce the injunction bond. They argued they had suffered more than $596,000 in damages as a result of the delay they had experienced in foreclosing on the first deed of trust. At that point, the parties discovered that the bond, instead of naming as beneficiaries either the trustee under the deed of trust or the senior lienholders, in fact named one of the junior lienholders, Chodosh, as the sole beneficiary of the bond.
In response to the senior lienholders motion, a representative of the surety executed a declaration in which she conceded that naming Chodosh as beneficiary of the bond was a mistake and that the surety intended to name the trustee under the first deed of trust as the beneficiary. Nonetheless, both the surety and the junior lienholders opposed enforcement of the bond on the grounds the senior lienholders did not have standing to enforce the bond.
The trial court conducted a hearing on the senior lienholders' motion to enforce the bond and denied the motion. The trial court agreed the senior lienholders were the intended beneficiaries of the bond. The trial court stated: "[A]ll parties to the extent they thought about it, believed the bond to protect the foreclosing lenders, not just the foreclosure company." However, the trial court further found that the time in which to raise that defect was governed by Code of Civil Procedure section 995.93 and the time had passed. The trial court found the trustee under the first deed of trust was the beneficiary of the bond and that the senior lienholders, because they were not named beneficiaries, could not enforce the bond.
Nonetheless the trial court found that, in the event on appeal we determined that the senior lienholders could recover on the bond, they had suffered $295,455 in losses as a result of the delay caused by the preliminary injunction. The senior lienholders filed a timely notice of appeal.
DISCUSSION
I
The somewhat esoteric legal problem presented here is not at all new. In Morgan v. Thrift (1852) 2 Cal. 562, 563–564, the plaintiffs in an action obtained an injunction and provided a bond which named defendants identified by fictitious names. When the fictitious defendants appeared and prevailed in the action and brought a separate proceeding on the bond, the trial court refused to admit the bond, apparently because the bond did not specifically name them, and dismissed the action on the bond. In reversing, the Supreme Court stated: "The Practice Act permits a party defendant, whose name is unknown, to be sued by any name. It follows, as a consequence, that where a bond has to be executed by the plaintiff, and is executed to the defendant by a wrong name, the latter has his remedy on such bond, and may describe it as given to him. And in such a case he may show by the record of the suit in which the bond was given, and by extraneous facts, that he was the person intended as the obligee." (Ibid.) The principle set forth in Morgan v. Thrift has been relied upon and followed without variance since it was decided. (See Winick Corp. v. County Sanitation Dist. No. 2 (1986) 185 Cal.App.3d 1170, 1179.)
In enacting a comprehensive revision of the law with respect to bonds, the Legislature recognized this principle in section 995.380 which states: "(a) If a bond does not contain the substantial matter or conditions required by this chapter or by the statute providing for the bond, or if there are any defects in the giving of the bond, the bond is not void so as to release the principal and sureties from liability.
"(b) The beneficiary may, in proceedings to enforce the liability on the bond, suggest the defect in the bond, or its giving or filing, and enforce the liability against the principal and the persons who intended to become and were included as sureties on the bond."
Contrary to the trial court's determination, the senior lienholders did not, by virtue of failing to raise the misnomer at or near the time the bond was issued, waive their right to have the bond corrected. When, for whatever reason, a beneficiary believes a bond is "insufficient"— e.g. because it is not in an appropriate amount, or the surety is not an admitted insurer—the beneficiary must raise the insufficiency within 10 days after service of the bond. (See §§ 995.920, 995.930.) If objection to the sufficiency of a bond is not made within 10 days or within the time period provided by another statute governing the particular bond, the objection is waived. (§ 995.930, subd. (c).) However, here, the senior lienholders did not in any respect challenge the "sufficiency" of the bond, they only asserted that the bond, while sufficient, did not accurately identify them as beneficiaries. That defect in the bond is plainly the subject of section 995.380, which by its express terms permits the issue to be raised in any enforcement proceeding, such as the one initiated by the senior lienholders.
The interpretation and expanded application of sections 995.920 and 995.930 adopted by the trial court is problematic on at least two levels. First, if we accepted that interpretation, we would create a conflict with the provisions of section 995.380, which expressly permits defects to be brought at the time a bond is enforced. In interpreting statutes, we must, when possible, avoid such conflicts. (Taxpayers to Limit Campaign Spending v. Fair Political Practices Commission (1990) 51 Cal.3d 744, 764 [principles of statutory interpretation require courts to "reconcile or harmonize conflicting statutory provisions in an effort to give effect to all provisions if it is possible"].) Second, the trial court's application of the bond statute has the obvious effect of entirely relieving the surety of the very liability which it agreed to undertake; the law abhors such forfeitures and requires we interpret statutes so that we avoid them. (See People v. Ranger Ins. Co. (1998) 66 Cal.App.4th 1549, 1552.) We will avoid both of these problems by recognizing a distinction between an "insufficiency" in an otherwise proper bond and "defects" in a bond which, if not corrected, might create serious inequity.
In sum, at the time the senior lienholders moved to enforce the bond they could and did ask the trial court to correct it and substitute them as beneficiaries. As we noted, the trial court found the senior lienholders were the intended beneficiaries of the bond and there is no dispute in the record they were. Thus, as was the case in Morgan v. Thrift, the trial court erred in failing to correct the bond and substitute the senior lienholders as the beneficiaries.
II
By way of a conditional determination, the trial court found that, in any event, the senior lienholders suffered $295,000 in damages by way of the lost use of funds they experienced while they litigated their right to foreclose. However, the trial court declined to award the senior lienholders the $89,000 in unpaid property taxes and interest and penalties they claimed were incurred during the litigation and which one of the senior lienholders paid when they acquired the property. This was also an error.
"It is well settled the damage recoverable under an injunction bond, such as the bond at bench, is for all loss proximately resulting from the injunction." (Surety Sav. & Loan Assn. v. National Automobile & Cas. Ins. Co. (1970) 8 Cal.App.3d 752, 757.) Here, but for the injunction, the senior lienholders could have promptly acquired the property and avoided the property taxes altogether by way of selling it or otherwise benefiting from use of the property and thereby benefiting from the taxes. However, because of the injunction they were not able to either avoid the taxes by sale or realize the rental value of the property; thus, the property taxes represented a complete loss to them caused by the injunction. Because the senior lienholders acquired the property by way of judicial foreclosure, thereby preserving their right to collect a deficiency against their debtor, this is not an instance in which it is appropriate to presume the senior lienholders full-credit bid fully compensated them for their losses. (Compare Pacific Inland Bank v. Ainsworth (1995) 41 Cal.App.4th 277, 282–284 [full-credit bid at nonjudicial foreclosure prevents action for damage to security caused by debtor].)
However, the senior lienholders agree there is a factual dispute with respect to the amount of taxes, interest and penalties incurred while the injunction was in place; thus, we must remand to the trial court to determine the amount of property taxes incurred while the injunction was in place.
DISPOSITION
The order denying the senior lienholders any recovery on the bond is reversed and remanded. On remand, the trial court is directed to award the senior lienholders the $295,000 in lost use of money it determined in its initial ruling, plus the amount of property taxes, interest and penalties incurred while the injunction was in place.
The senior lienholders to recover their costs on appeal.


BENKE, Acting P. J.

WE CONCUR:



O'ROURKE, J.



IRION, J.