California F.I. v. Litton Loan Servicing

Filed 8/3/07 California F.I. v. Litton Loan Servicing CA1/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FIRST APPELLATE DISTRICT

DIVISION TWO

Plaintiff and appellant California F.I., LLC (plaintiff) appeals from the trial courts entry of judgment in favor of defendants Litton Loan Servicing, LLP (Litton) and The Provident Bank, a corporation (Provident) after sustaining their demurrer. We reverse the judgment, vacate the courts order sustaining the demurrer, and remand this matter to the trial court for further proceedings.

BACKGROUND

The relevant facts, as alleged in plaintiffs complaint and indicated in the exhibits to the complaint, are as follows:

Lou Marie B. and William Lumagui (Lumaguis) obtained a loan from a predecessor to Provident, secured by a deed of trust against certain residential property in San Leandro, California (property). The loan was eventually assigned to Provident, which transferred it to Litton for servicing The Lumaguis defaulted on the terms of the loan, and notice of default was issued and recorded, as was a notice of trustees sale. The trustees sale did not take place as scheduled, however, because the Lumaguis filed for bankruptcy. On September 2, 2004, the automatic stay that arose upon the Lumaguis filing of their bankruptcy was terminated by court order, so that the trustees sale could proceed.

On September 23, 2004, the day before the trustees sale of the property, bankruptcy counsel for Lumagui and bankruptcy counsel for Litton and/or Provident spoke by phone and verbally agreed to enter into a Stipulation and Order in the bankruptcy . . . . The only documents confirming said verbal agreement are an e-mail . . . and the bankruptcy Stipulation and Order . . . . The verbal agreement, as confirmed by [the e-mail and Stipulation and Order] does notinclude any agreement between the lender/beneficiary [Litton and/or Provident] and the trustor/borrower [Lumagui] for a postponement of the September 24, 2004 trustees sale and thus is not a mutual agreement for the postponement of the trustees sale under [Civil Code] 2924g(c)(2). Copies of both the e-mail and the stipulation and order referred to in the complaint were attached as exhibits. The e-mail, dated September 23, 2004, stated in relevant part as follows (we repeat the general format of the e-mail because the ends of certain lines are cut short in the copy attached):

Miriam: This will confirm our conversation on 9/23/04 wherein

advised that our office did receive the cashiers

check representing the 9/04 post-petition payment. This will

the

debtor post petition current, with the exception of any accru

unpaid

late charges. Provident has agreed to vacate the Order grant

from

stay upon the entry of a Stipulation and Order providing for

for

the following adequate protection to be afforded Provident:

1. Payment of all post-petition late charges which remai

paid directo to Provident, to be recieved on or before 10/15

2. Debtor to commence making regular payments on 10/1/04

3. Should debtor default on any payment -- Movant will ob

from say upon the submission of a Declaration and

proposed Order granting relief to the Court;

4. Prospective relief from stay as to Debtors should the

BK Petition within 180 days of the entry of any Order grant

relief, or from the date the within BK case is dismissed, whi

later

5. Waiver of the 10 day stay period under BK Rule 4001(a

6. Payment of Movants attorneys fees and costs.

7. Movant may file an Amended POC for reimbursement of s

8. An Order to the Trustee directing the Chapter 13 Trus

making

payments to the Movant on account of pre-petition arr

9. Vacating the Order granting relief entered on 9/9/04

entry of the Stipulation

and Order which has been approved by Judge Newsome

The e-mail directed the recipient to prepare a Stipulation and Order and fax it to Misty, who was to

review same,

and advise if it is agreeable. If so, she will execute it an

it to

you for filing and service, including

service on the Chapter 13 trustee.

The prior Order will only be vacated upon the entry and appro

proposed Stipulation.

This e-mail made no reference to the trustees sale scheduled for the next day,

September 24, 2004.

According to plaintiffs complaint, the next day the trustee proceeded with the sale in full compliance with the law. Plaintiffs bid of $335,000 was accepted, and plaintiff made payment. A trustees deed upon sale was prepared and delivered to plaintiff on the same day, and was recorded by plaintiff within the week. Plaintiff asserts that under the circumstances, it became a bona fide purchaser of the property, and that its title must be conclusively presumed to be valid pursuant to Civil Code section 2924.

On October 11, 2004, the trustee wrote to plaintiff, stating that the trustees sale was void due to the vacating of the stay motion in the bankruptcy case, and that it would be returning the money paid and rescinding the trustees deed. It subsequently sent a check to the plaintiff, which plaintiff refused to accept.

On October 12, 2004, the bankruptcy court filed a stipulation and order agreed to by the parties which, among other things, vacated the Order granting relief entered on 9/9/04. Plaintiff alleges in its complaint that this stipulation and order vacated the September 2, 2004 order granting motion for relief from stay. The stipulation and order does not refer to the trustees sale.

In late October 2004, plaintiffs counsel asserted by letter that plaintiff was a bona fide purchaser, and that the trustees sale was neither void nor voidable; plaintiff subsequently filed an unlawful detainer action against the Lumaguis in November 2003.

In December 2004, the trustee recorded a notice of rescission of the trustees deed upon sale that it had previously issued to plaintiff. The notice, which is also attached to the complaint, states that the beneficiary desires to rescind the Trustees Deed recorded upon the foreclosure sale which was conducted in error due to a failure to communicate timely, notice of conditions which would have warranted a postponement of the foreclosure which did occur on 9/24/04.

In June 2005, plaintiff filed a first amended complaint against numerous defendants that is the subject of this appeal. Plaintiff sued to quiet title and for declaratory relief against all defendants, and for damages for wrongful rescission of foreclosure and trustees deed upon sale and for slander of title against certain defendants, including Provident and Litton. The court sustained the demurrer without leave to amend as to the quiet title, declaratory relief, and slander of title causes of action, and with leave to amend as to the wrongful rescission of foreclosure cause of action. The relevant part of the courts ruling states:

All of Plaintiffs causes of action against Defendants Litton and Provident are based on the allegation that Defendants instructed the trustee to issue a Notice of Rescission of the trustees sale. Plaintiff admits in the First Amended Complaint and its brief that Defendants and the trustors agreed prior to the trustees sale to reinstate the bankruptcy stay. That stay necessarily precluded the trustee from going forward with the sale, and the only reasonable inference from the agreement to reinstate the stay is that Defendants and the trustors agreed to postpone the sale. In light of the agreement between the trustors and Defendants to reinstate the stay, there was no contractual or statutory basis to go forward with the foreclosure sale. That agreement was a sufficient basis for the trustee to postpone the sale, and the sale was void as a matter of law. Civil Code 2924g(c)(2); [Bank of America v. La Jolla Group II (2005) 129 Cal.App.4th] 706, 712-713. Thus, Plaintiff lacks any ownership interest in the property and was not damaged by the Notice of Rescission.

The trial court also found that the conclusive presumptions created by Civil Code section 2924 do not apply because the notice of rescission did not result from a claim that the sale was not properly noticed. The court also sustained the demurrer to plaintiffs slander of title cause of action without leave to amend for the independent reason that plaintiff did not allege facts showing that defendants acted with malice.

The trial court subsequently granted a motion to dismiss plaintiffs complaint against Litton and Provident with prejudice after plaintiff failed to file an amended complaint on the third cause of action for damages.

The trial court entered a judgment of dismissal, and this timely appeal followed. During the pendency of this appeal, plaintiff asked that we take judicial notice of certain documents, which request we took under submission to decide with the merits of this appeal by order dated September 14, 2006. We hereby grant this request. Defendants asked that we take judicial notice of certain documents, which request we granted by order dated November 16, 2006.

DISCUSSION

Plaintiff argues that the trial court made an error of law when it sustained the demurrer as to all four causes of action for a number of reasons. Plaintiff first argues that the September 24th trustees sale was not void due to the trustees action in violation of Civil Code section 2924g, subdivision (c)(2), since the September 23rd e-mail and the October 12th stipulation and order do not include any mutual agreement to postpone the trustees sale. We agree that such a mutual agreement was not necessarily a part of any agreement between the parties, requiring that the trial courts judgment and order sustaining the demurrer be vacated and this matter remanded for further proceedings. In light of our ruling, we have no need to, and do not, address the other issues plaintiff raises on appeal.^[1]

We independently reviewthe ruling on a demurrer and determine de novo whether the complaint alleges facts sufficient to state a cause of action. [Citation.] We assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded, and matters of which judicial notice has been taken. [Citation.] We construe the pleading in a reasonable manner and read the allegations in context. [Citation.] We affirm the judgment if it is correct on any ground stated in the demurrer, regardless of the trial court's stated reasons. [Citation.] (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 111.)

While the decision to sustain or overrule a demurrer is a legal ruling subject to de novo review on appeal, the granting of leave to amend involves an exercise of the trial court's discretion. (Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494, 1501.)

The trial courts ruling focuses on plaintiffs admission that defendants and the trustors (the Lumaguis) agreed the day before the September 24th trustees sale to reinstate the bankruptcy stay. The court concludes that [t]hat stay necessarily precluded the trustee from going forward with the sale, and the only reasonable inference from the agreement to reinstate the stay is that Defendants and the trustors agreed to postpone the sale. Similarly, defendants argue that the parties had a plan to put [the] Lumaguis back on track, and this necessarily means that they agreed and understood that the foreclosure sale would not proceed the very next day. Respectfully, there simply is no other reasonable interpretation.

Neither plaintiffs allegations about the parties September 23rd verbal agreement, nor the e-mail and stipulation and order attached to the complaint support the courts conclusion. In reaching this determination, we are mindful, as defendants urge, that to the extent the factual allegations conflict with the content of the exhibits to the complaint, we rely on and accept as true the content of the exhibits and treat as surplusage the pleaders allegations as to the legal effect of the exhibits. (Barnett v. Firemans Fund Insurance Co. (2001) 90 Cal.App.4th 500, 505.) We also are mindful of certain rules of contractual interpretation, although not raised by the parties in their briefs. However broad may be the terms of a contract, it extends only to those things concerning which it appears that the parties intended to contract. (Civ. Code, 1648.) Our Supreme Court has noted, in rejecting the argument that a contracts terms necessarily implied a restrictive covenant although there was no language in the contract to support such a provision, that [t]he question may not be resolved by what the parties might have provided had they thought about it, nor by what the court might conclude regarding abstract fairness. The question of what is to be included in the contract is for the parties, not for the court, to determine. (Stockton Dry Goods Co. v. Girsh (1951) 36 Cal.2d 677, 680.) Moreover, courts are not at liberty to revise an agreement under the guise of construing it. Neither abstract justice nor the rule of liberal interpretation justifies the creation of a contract for the parties which they did not make themselves. Courts cannot make for the parties better agreements than they themselves made or rewrite contracts because they operate harshly or inequitably as to one of the parties. (Hinckley v. Bechtel Corp.(1974) 41 Cal.App.3d 206, 211.)

We cannot agree with the trial court that the terms of the parties agreement, as indicated in the e-mail and stipulation and order, necessarily meant that the parties agreed to postpone the trustees sale. There is at least one other equally reasonable inference that can be drawn from the allegations and documents. That is, given the complete silence regarding the September 24th trustees sale, it is also reasonable to conclude that the attorneys and parties involved in the discussions were unaware of the trustees sale and did not consider it at all in the course of their negotiations. Indeed, the September 23rd e-mail indicates that the lender was unwilling to vacate the prior bankruptcy court order granting relief from stay until the court approved the partys stipulation and proposed order, and that someone on the lenders side was to review a draft of such a document and would advise if it is agreeable. These statements in the e-mail suggest that any agreement reached between the parties would not become effective for some time. It is reasonable to infer from this that the negotiators did not consider the trustees sale, as its immediacy would as likely as not have spurred them to proceed in a quicker fashion than they did, or at least make explicit any agreement to postpone the sale pending the finalization and filing of the stipulation and order. Furthermore, assuming this was the case, the lender might have sought different terms, or might not have been willing to enter into an agreement affording the trustors any relief at all, if it had known about the scheduled trustees sale. Accordingly, we cannot agree with the trial court that the only reasonable inference from the parties agreement to reinstate the stay is that defendants and the trustors agreed to postpone the trustees sale. It is just as likely that the parties did not consider the trustees sale at all.

We also note that the copy of the September 23rd e-mail attached to the complaint is obviously incomplete. As indicated in the background section ante, several lines are cut short along the right margin, resulting in an unknown number of missing words. In their opposition brief, defendants quote from this document, and in doing so they add and complete certain words in an effort to make selected excerpts comprehensible. Given the incomplete nature of this document as offered, we have no basis for agreeing with defendants version, or with knowing exactly what has been omitted from the document that was in the original message. As we indicate herein, we are reluctant to affirm the sustaining of the demurrer based in part on the interpretation of a document that contains no reference to the subject at hand, i.e., the trustees sale; we are particularly loathe to do so when the version of the document contained in the record is obviously incomplete.

Thus, we conclude that plaintiffs complaint, and the documents attached to it, do not indicate a mutual agreement postponing the trustees sale.^[2]Therefore, it cannot be said that, as a matter of law, the trustee had no authority to proceed with the trustees sale pursuant to Civil Code section 2924g, subdivision (c)(2).^[3]

Defendants argue that to interpret the parties agreement to mean that they did not agree to postpone the foreclosure sale of the next day would render the agreement meaningless, contrary to fundamental rules of the interpretation of contracts. They note that [a] contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect. . . . Many cases invoke this rule against extraordinary or absurd interpretations, or those that make the contract illegal or unenforceable. 1 Witkin, Summary 10th (2005) Contracts, 750, p. 840, citing Civil Code 1643, case citations omitted. Defendants argument, however, misses the point. The courts task, as reflected by its own ruling, was not to determine the legal effect of the parties agreement as a matter of contractual interpretation; rather, the court needed to determine whether the parties had in fact agreed to postpone the trustees sale scheduled for the next day, so that the trustee had no authority to conduct the sale at that time. The trial court concluded that the parties agreement indicated that they had reached such an agreement; we disagree. In our view, the court, under the guise of construing the agreement, added a term for which there is no support in the agreement itself. This is not permitted, however harsh the results. (Hinckley v. Bechtel Corp., supra, 41 Cal.App.3d at p. 211.)

Defendants also cite law that [a] contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates (Civ. Code, 1647), and that [f]or the proper construction of an instrument, the circumstances under which it was made, including the situation of the subject instrument, and of the parties to it, may also be shown, so that the judge be placed in the position of those whose language he is to interpret.[] 1 Witkin, Summary 10th (2005) Contracts, 748, p.836-837 [sic], citing Civil Code 1860. Again, defendants miss the point. The complaints allegations and the attached documents do not contain any language from which we can infer a mutual agreement to postpone the trustees sale, and the circumstances allow for a plausible alternative explanation for this silence, as we have already discussed. Thus, the law defendants cite is not persuasive.

Defendants also assert that the [t]he conduct of the parties may be, in effect a practical construction thereof, for they are probably least likely to be mistaken as to the intent . . . 1 Witkin, Summary 10th (2005) Contracts, 749 p.838 [Citations]. Defendants contend that the parties execution of the stipulation and order, the Lumaguis challenge to the foreclosure sale, and the return of the purchase price to plaintiff demonstrate that the parties to the agreement intended that the foreclosure sale not go forward on September 24th. Again, we must disagree. Some of the parties actions indicate an opposition to the trustees sale and a shared belief that it was a mistake, but none of their indications demonstrate that the parties were aware of, and had entered into an agreement to postpone, the trustees sale prior to its occurrence.

Finally, defendants challenge plaintiffs assertion of the parol evidence rule to challenge the trial courts interpretation of the agreement. Our ruling does not implicate these arguments, however, and we do not further address them.

In short, the trial courts order sustaining defendants demurrer on the ground that a mutual agreement by the parties to postpone that trustees sale voided the subsequent sale must be vacated. Plaintiffs allegations and the documents attached to its first amended complaint do not necessarily demonstrate such a mutual agreement.

DISPOSITION

The judgment is reversed and the cause is remanded to the trial court with directions to vacate its order sustaining defendants' demurrer and enter a new order

that is consistent with this opinion. We note that plaintiff does not challenge on appeal the courts sustaining of its fourth cause of action, for slander of title, on a separate ground. Our ruling does not affect this determination of the trial court.

Respondents are to pay appellants appeal costs.

_________________________

Lambden, J.

We concur:

_________________________

Kline, P.J.

_________________________

Richman, J.

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^[1]Plaintiff also argues that even if the e-mail and stipulation and order should be construed as including a mutual agreement to postpone the sale, and the trustees action violated Civil Code section 2924g, subdivision (c)(2), the trustees sale was not void because plaintiff was a bona fide purchaser, and because the communication error with the trustee was outside of and dehors the foreclosure process.

^[2]Nothing we say herein precludes a conclusion based on additional evidence, such as testimony by the negotiators about what they agreed to on September 23rd, that the parties did agree to postpone the trustees sale; we simply cannot so conclude in reviewing defendants demurrer.

^[3]At the time of the trustees sale in 2004, Civil Code section 2924g, subdivision (c)(2) stated in relevant part: The trustee shall postpone the sale upon the order of any court of competent jurisdiction, or where stayed by operation of law, or by the mutual agreement, whether oral or in writing, of any trustor and any beneficiary or any mortgagor and any mortgagee. (Stats. 2001, ch. 438, 5. For subsequent amendment see Stats. 2005, ch 224, 2.)