Theraube v. Rodriguez

Filed 7/16/06 Theraube v. Rodriguez CA2/3

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

APPEAL from a judgment and an order of the Superior Court of Los Angeles County, Susan Bryant-Deason, Judge. Judgment reversed and order reversed.

Ernster Law Offices, William R. Larr and Mary K. Lenahan for Plaintiff and Appellant.

Molino & Associates and Steven R. Berardino for Defendants and Respondents.

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The principal issues raised in these consolidated proceedings are (1) whether a seller of real property can avoid his liability to his buyer for breach of contract and violation of Civil Code, section 1113 on the ground that, prior to delivery of his grant deed to the buyer, the seller had been fraudulently induced to deliver to another a grant deed of the same parcel of property and (2) what are the subrogation rights of the buyer's title insurer after it expends funds to remove the cloud on the buyer's title arising from the first grantee's claim.

Plaintiff, defendant, cross-complainant and cross-defendant Manuel Rodriguez (Rodriguez) alleged that he originally had purchased the subject property and employed defendant, cross-complainant and cross-defendant Martin Sandoval (Sandoval) to manage it, collect rents, use the rent money to pay on Rodriguez's purchase money loans, and then remit the remaining rent money to Rodriguez. In response, Sandoval claimed that he had used Rodriguez as a straw man to purchase the property and, while Rodriguez took out the loans and obtained legal title, Sandoval had always been the owner of legal and equitable title.

Some years after the original purchase of the subject property, Sandoval caused Rodriguez to sign a grant deed transferring legal title to the property from Rodriguez to Sandoval. Rodriguez, who claims that he does not read or write English, alleged that Sandoval had presented a grant deed to him with the explanation that it was simply a document that would make it easier for Sandoval to collect the rents. Later, when Sandoval stopped using the rent money to pay on the two loans secured by the property and Rodriguez began receiving default notices, Rodriguez immediately brought the loans current and then, shortly thereafter, paid them off. A few months later, he sold the subject property to plaintiff and defendant Ana Theraube (Theraube). In connection with such sale, he delivered to her a grant deed.

Theraube's title insurer, however, failed to discover the prior grant deed that Rodriguez had unknowingly delivered to Sandoval. It had been recorded seven days prior to the recordation of Theraube's deed from Rodriguez. Rodriguez alleged that it was not until the Theraube's title insurer became involved in the property that he finally discovered that what he had signed at Sandoval's request was a deed to the property. Based on this new information, Rodriguez sued Sandoval. Some months later, Theraube sued Rodriguez for failure to deliver clear title to the property and sued both Rodriguez and Sandoval, seeking cancellation of Sandoval's deed from Rodriguez, the quieting of her title, and declaratory relief. These two actions were consolidated. Theraube eventually settled with Sandoval by the payment of $70,000 in exchange for his quit‑claim deed to the subject property and an exchange of releases. The $70,000 consideration was paid to Sandoval by her title insurer.

Thereafter, the two cases were bifurcated for trial, with Rodriguez's suit against Sandoval tried first. At phase one of the trial, Sandoval changed his position with respect to how he came to have received a deed from Rodriguez. By stipulation and testimony, he admitted that he had defrauded Rodriguez into signing the grant deed on which his prior claim of title had been based. The trial court accepted that stipulation and the deed to Sandoval was declared void ab initio; and title was quieted in Theraube. Judgment was entered in favor of Rodriguez in his suit against Sandoval.

Based on this conclusion of phase one of the dispute, the trial court (in phase 2) entered judgment in favor of Rodriguez and against Theraube in her suit against him. In granting judgment against Theraube, the trial court reasoned that Theraube had not suffered any damages from Rodriguez's breach of contract to deliver clear title to her since, eventually, the Sandoval deed had been voided, she had obtained clear title to the property, and her legal fees and payment to Sandoval for his quitclaim deed had been paid by her title insurer. In addition, Rodriguez was awarded contractual attorney's fees and costs against Theraube. Theraube has filed a timely appeal from both the judgment against her and the post judgment order for fees and costs.

We find that Theraube's challenge to the judgment is meritorious and we will therefore reverse the judgment and remand the case for further proceedings. Because the judgment fails, so also does the order awarding attorney's fees against Theraube.

FACTUAL AND PROCEDURAL BACKGROUND

1. Rodriguez's Complaint

a. The Allegations

Rodriguez filed his suit against Sandoval on October 28, 2003. He alleged that in June 2000, he purchased an apartment building situated in the City of Los Angeles, with a loan from a Julius Green. In that same month, he entered into an oral agreement with Sandoval whereby Sandoval would manage the apartment building for him in return for an agreed payment. Pursuant to that agreement, Sandoval's duties would include collecting rents from the tenants, paying the mortgage with the rent money, and paying the excess rents to plaintiff. The oral agreement was made in Spanish. Sandoval understands, reads, writes and speaks English and Spanish. Rodriguez does not read or write English.

In May 2001, Sandoval caused Rodriguez to sign a document which Sandoval falsely stated was simply a document that would assist Sandoval in collecting rents from the tenants. In fact, the document, which was written in English (and which Rodriguez could not read), was a grant deed in fee simple for the subject property. Rodriguez received no consideration for this purported transfer of title to Sandoval.

In August 2001, Rodriguez received notice that the property was in foreclosure because the mortgage payments had not been paid. He made up the shortfall by paying the lenders $7,832.25. Again in January 2002, Rodriguez received notice of past due mortgage payments in the sum of $10,000, and in March 2002, he paid the arrearages and paid off the loan, giving the lenders $58,572.70. Thereafter, on September 2, 2003, he sold the property to Theraube[1] and transferred title to her by a grant deed.

Beginning in June 2000, when Rodriguez hired Sandoval to act as building manager, Sandoval breached his oral agreement to act on behalf of Rodriguez. He did this by embezzling the tenants' rents, not making the mortgage payments, not forwarding excess rent money to Rodriguez, and causing Rodriguez to transfer the property to himself without consideration and without Rodriguez's knowledge and consent. Rodriguez discovered this breach of their agreement when Stewart Title Guaranty Company (Stewart), Theraube's title insurer, informed Rodriguez's on October 6, 2003 that he had signed a grant deed transferring the subject property to Sandoval back in May 2001. At that point, Rodriguez began looking into Sandoval's activities.

b. The Causes of Action and Claimed Damages

Rodriguez alleged causes of action against Sandoval for breach of an oral contract, breach of an implied contract, fraud, breach of fiduciary duty, unjust enrichment, money had and received, conversion, and an accounting. He claimed damages for lost rents, late charges, penalties and interest on the mortgage, all amounting to $42,832.25, plus prejudgment interest, and punitive damages.

2. Theraube's Complaint[2]

A month after Rodriguez sued Sandoval, Theraube sued Rodriguez and Sandoval on causes of action (1) quieting title of the property in herself (against Sandoval), (2) for declaratory relief as to the rights, duties and obligations of the parties (against both Sandoval and Rodriguez), (3) for cancellation of the Sandoval deed, which Theraube alleged was never intended to pass title and thus was void and unenforceable (against Sandoval and Rodriguez), (4) for breach by Rodriguez of the sales contract pursuant to which Rodriguez had sold the subject property to her, which agreement expressly (a) required Rodriguez to deliver clear title to the property but the title was instead clouded by Sandoval's adverse claim to the property, and (b) provided that the prevailing party in any litigation to enforce the contract would be entitled to recover legal expenses from the other party, and (5) for breach by Rodriguez of the implied warranty covenants set out in Civil Code section 1113.[3]

Theraube claimed damages in the full amount of her purchase price of the property, interest thereon, and legal fees incurred in her lawsuit against Rodriguez and Sandoval.

3. Sandoval's Cross-Complaints

a. The Allegations

In January 2004, Sandoval filed identical cross-complaints against Theraube and Rodriguez in each of their suits. He also filed a lis pendens in Theraube's case. His cross-complaints allege a distinctly different set of facts than those alleged by Rodriguez in his complaint.

According to Sandoval's cross-complaint, in April 2000, he drove by the property and noticed it was for sale. He called the telephone number on the for sale sign and spoke with one Oliver Galicia, a real estate broker who represented the seller of the property, Ruben Chaiez. Sandoval was told that the asking price was $180,000, and he arranged to meet with Galicia to discuss purchasing the property. He negotiated the sale price down to $155,000 because the property had code violations, and agreed to purchase the property â€