Lowe v. NL, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

Filed 9/4/13 
Lowe v. NL, Inc. CA1/2

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>NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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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opinion has not been certified for publication or ordered published for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

 

 
>

MARTHA E. LOWE et al.,             Plaintiffs and Appellants,             v. NL, INC. et al.,             Defendants and Respondents.

A138164           (Alameda County       Super. Ct. No. RG12616626)

 

Martha E. Lowe and
Ralph Kanz (collectively, the borrowers) sued a number of parties, including,
NL, Inc. (NL), RPM Mortgage, Inc. (RPM), and Placer Title Company (Placer
Title) for, among other things, fraud and
negligent misrepresentation.  NL and
RPM (collectively, the mortgage companies) demurred and Placer Title filed a
separate demurrer.  The trial court
sustained both demurrers with leave to amend and, after the borrowers filed an
amended complaint, the mortgage companies and Placer Title again demurred.  The trial court sustained these demurrers
without leave to amend, and the borrowers appeal.  We affirm.

>BACKGROUND

            The borrowers, a married couple,
entered into a loan transaction with NL in May 2005 to purchase a property in
Oakland, California (the property).href="#_ftn1"
name="_ftnref1" title="">[1]  In 2011, after receiving loan documents, they
believed that their loan application had been backdated, forged, and
changed.  In February 2012, the
borrowers, in propria persona, filed a verified complaint with nine causes of
action against various defendants, including the mortgage companies and Placer
Title.  The claims related to the loan
and purchase of the property and their pleading included causes of action for
rescission, declaratory relief, and intentional and negligent misrepresentation.  The mortgage companies and Placer Title
separately demurred.

            On October 24, 2012, the trial court
sustained the demurrers with leave to amend. 
The court explained that the fraud causes of action in the amended
pleading “must be pled with the required particularity.”  The court also advised the borrowers that
they “shall allege facts, if possible, in support of (a) any cognizable
cause(s) of action [that] are not barred by the applicable statute(s) of
limitations, or (b) any cognizable causes(s) of action and reasons why the
applicable statute(s) of limitations do not apply thereto.  Particularly, to the extent [the borrowers]
intend[] to rely on the ‘discovery rule’ to delay accrual beyond the date(s) of
the alleged misconduct reflected in the complaint, [the borrowers] must allege the
time and manner of [the borrowers’] discovery and [their] inability to have
made earlier discovery despite reasonable diligence.  Currently, [the borrowers] have failed to
allege facts to bring [their] causes of action within the discovery rule.” 

            The borrowers filed their verified
first amended complaint (FAC) against numerous defendants on November 14,
2012.  Of the eight causes of action set
forth in the FAC, six of them were against the mortgage companies and/or Placer
Title.  These causes of action were the
following:  fraud in the inducement
(first cause of action) against the mortgage companies and Placer Title,
declaratory relief (second cause of action) against NL, cancellation of
instrument (third cause of action) against the mortgage companies and Placer
Title, intentional misrepresentation (fourth cause of action) against the
mortgage companies and Placer Title, negligent misrepresentation (fifth cause
of action) against the mortgage companies and Placer Title, and quiet title
(eighth cause of action) against the mortgage companies. 

            According to the FAC, on April 15,
2005, the borrowers met with Susan A. Thomas, a loan consultant at La Salle
Financial Inc. (LaSalle), and signed a loan application (handwritten loan
application).href="#_ftn2" name="_ftnref2"
title="">[2]  La Salle, according to the FAC, “was acting
as the agent, joint venture[r], partner, representative . . . of RPM and/or
NL.”  Lowe told Thomas that her annual
income was $50,840 and Kanz reported a salary of “approximately $10,000.”  Thomas told them that they qualified for a
$350,000 loan at 5.75 percent interest and that they could “reasonably purchase
a home with a value as high as $500,000.” 
Thomas, according to the FAC, knew that the borrowers’ income “would not
support being approved for a $350,000 mortgage loan.”  The borrowers did not receive a copy of the
loan application that they signed. 

            After consulting with their real
estate agent, Luanne Warner Katz, the borrowers on April 23, 2005, submitted an
offer of $473,000 for the property. The seller rejected this offer and the
borrowers increased their offer to $487,000, which the seller accepted.  The borrowers paid a deposit of $14,610. 

            On April 27, 2005, Katz contacted
Jackie Hutty, an agent for Placer Title, to complete a Preliminary Title Report
and Escrow Transaction.  On this same
date, Katz also contacted LaSalle and spoke with Thomas or Susan M. Andrade
about the borrowers’ possible purchase of the property.  Andrade determined that Lowe had an excellent
credit score but Kanz did not have credit and was ineligible for a mortgage
loan.  Andrade contacted Lowe and
proposed a loan at 5.875 percent.  She
advised Lowe that she, alone, should be on the loan.  The borrowers received no other information
or disclosures regarding the loan.

            On this same date, April 27, 2005,
Thomas or Andrade contacted Craig J. Conrad to have him appraise the
property.  Conrad, according to the FAC,
was an agent of the mortgage companies and was informed that the target value
for the appraisal was $487,000.  Conrad
submitted his appraisal on April 29, 2005, and, based on the “sales comparison
approach,” valued the property at $487,000.

            On May 6, 2005, NL transmitted
“Specific Closing Instructions” to Placer Title as well as other closing
documents that needed to be signed.  On
this same date, RPM transmitted a facsimile with various documents, including a
loan application with the information typed on the form.

On
May 12, 2005, the borrowers signed the closing documents at the offices of
Placer Title.  Lowe executed a promissory
note (the note) for $350,000, secured by the property that designated NL as the
“Lender.”  The borrowers also signed a
deed of trust (the deed).  The documents
included the disclosure that the note was being sold and that Countrywide and
Bank of America, National Association (Bank of America), as successor to
Countrywide, would assume servicing the note. 


Lowe
admitted that on May 12, 2005, after she signed the note, she did receive a
copy of the typed loan application.  She
signed this loan application on May 12, 2005, and it was missing “Section X,”
which stated that a face-to-face interview had been conducted.  Additionally, the loan application sent by
RPM contained fraudulent income amounts for Lowe “that someone placed in the
application without [the borrowers’] approval or consent.”  The borrowers asserted in their FAC:  “Lowe was quickly going through numerous
documents and had no reason to think Defendants would have altered the income
information she had provided or in any other way falsify documents.  As a result Lowe was unaware Defendants had
overstated her monthly income.”

On
May 16, 2005, the borrowers wired a payment of $137,222.71 to Placer Title to
be placed into escrow.  Placer Title
recorded the deed on May 17, 2005. 

From
2009 through 2011, the borrowers sought to modify their home loan.  On June 16, 2011, the borrowers received a
letter with the loan documents from Bank of America.  The loan application included two copies of
page three.  The first copy of page three
had Lowe’s signature, which was forged, 
according to the FAC.  “Section X”
on page three stated that Lowe “met in a ‘[f]ace-to-face interview’ with”
Andrade.  It showed the date of April 15,
2005, and a purchase price of $487,000, but this sale price, according to the
FAC, “was not agreed to until April 26, 2005.” 
The second copy of page three, the one actually signed by Lowe, did not
include “Section X,” and had the date of May 12, 2005.  This section was redacted, according to the
FAC, “to conceal from [the borrowers] the fraudulent information that Lowe had
met face-to-face with Andrade, and that Andrade had not signed and dated the
application.”  Other than the different
dates and the missing “Section X,” the two page threes contained identical
information.  On September 20, 2011, the
borrowers received a copy of the appraisal, which they had not received
previously.  They noticed that it
contained inaccurate information. 

The
FAC alleged that “[a]ny applicable statutes of limitations have been tolled
until June 16, 2011[,] when [the borrowers] received a copy of the [loan]
application” from Bank of America.

The
FAC declared that on March 12, 2012, after the borrowers had filed their
original complaint in this action, counsel for LaSalle provided the borrowers
with the handwritten loan application dated April 15, 2005.  This, according to the FAC, was the first
time the borrowers discovered that the information contained in the handwritten
application dated April 15, 2005, had been changed or added without their consent.  Specifically, they discovered the
following:  The interest rate was changed
after April 15, 2005, from 5.75 to 5.875 percent.  The loan included the address of the property
but that was not known until the offer was accepted on April 26, 2005.  The legal description stated, “See Prelim,”
but the Preliminary Title Report was not ordered until April 27, 2005.  The gross monthly income had numbers not
provided by the borrowers.  They also
asserted that the amounts in the “Proposed” portion of the application
regarding a mortgage payment was based on the purchase price and could not have
been calculated until after April 15. 
Furthermore, the taxes listed were significantly lower than the amount
actually paid by the borrowers.  They
alleged in their FAC that “Section VII clearly shows that originally $500,000
was written, and $487,000 was written over it, which had to occur after April
26, 2005.”  The application, according to
the FAC, contained other errors, including the listing of Kanz’s assets and
inheritance even though he was not a co-borrower.

The
borrowers also charged that they had not received any of the required
disclosures as part of the loan process. 
The FAC requested unspecified monetary damages and the cancellation of
the promissory note and deed. 

             Both the mortgage companies and Placer Title
specially and generally demurred to the FAC.href="#_ftn3" name="_ftnref3" title="">[3]  On January 11, 2013, the trial court held the
hearing on the demurrers, and issued its orders on January 14, 2013.  The court sustained both demurrers against
the FAC without leave to amend. 

With
regard to Placer Title, the trial court explained:  “After an opportunity to amend, [the
borrowers] still fail to state facts sufficient to constitute a cognizable
cause or causes of action against [Placer Title].  The [FAC] continues to be uncertain without
proper explanation as to the nature of and extent of [Placer Title’s]
liability[,] leaving [Placer Title] unable to answer.”  The court dismissed the action as to Placer
Title. 

            The trial court ruled as follows
with regard to the mortgage companies: 
“After an opportunity to amend, [the borrowers] still fail to state
facts sufficient to constitute a cognizable cause or causes of action against
[the mortgage companies].  Additionally,
[the borrowers] failed to allege facts in support of (a) any cognizable
cause(s) of action [that] are not barred by the applicable statute(s) of
limitations, or (b) any cognizable cause(s) of action and reasons why the
applicable statute(s) of limitations do not apply thereto.”  The court dismissed the mortgages companies
from the action.

            On March 7, 2013, the borrowers, in
propria persona, filed their notice of appeal.

DISCUSSION

>I.  Standard
of Review

The standard
of review governing an appeal from the judgment after
the trial court sustains a demurrer without leave to
amend is well established.  “ ‘We treat
the demurrer as admitting all material facts properly
pleaded, but not contentions, deductions or conclusions of fact or law.  [Citation.] 
We also consider matters which may be judicially noticed.’  [Citation.] 
Further, we give the complaint a reasonable interpretation, reading it
as a whole and its parts in their context. 
[Citation.]  When a demurrername="SR;1983"> is sustained, we determine whether the complaint states
facts sufficient to constitute a cause of action.  [Citation.] 
And when it is sustained without leave to amend, we decide whether there
is a reasonable possibility that the defect can be cured by amendment:  if it can be, the trial court has abused its
discretion and we reverse; if not, there has been no abuse of discretion and we
affirm.  [Citations.]  The burden of proving such reasonable
possibility is squarely on the plaintiff.” 
(Blank v. Kirwan (1985) 39
Cal.3d 311, 318.)

An
order sustaining a demurrer may
be upheld on a ground not considered by the trial court “ ‘
“as long as it comes within the four corners of the demurrer, namely, a failure to state a cause of action.” ’ [Citations.]”  (Gabriel
v. Wells Fargo Bank, N.A. (2010) 188 Cal.App.4th 547, 556.)

Additionally, we note
that the borrowers appear in this court in propria persona, as they did in the
trial court.  “ ‘ “When a litigant is
appearing in propria persona, he [or she] is entitled to the same, but no
greater, consideration than other litigants and attorneys [citations].  Further, the in propria persona litigant is
held to the same restrictive rules of procedure as an attorney
[citation].”  [Citations.]’  [Citation.] 
In other words, when a litigant accepts the risks of proceeding without
counsel, he or she is stuck with the outcome, and has no greater opportunity to
cast off an unfavorable judgment than he or she would if represented by
counsel.”  (Burnete v. La Casa Dana Apartments (2007) 148 Cal.App.4th 1262,
1267.) 

II.  >Appealability

            Although
not raised as an issue by any party, the borrowers are appealing from orders
sustaining the demurrers, which are nonappealable orders.  (See, e.g., Molien v. Kaiser Foundation Hospitals (1980) 27 Cal.3d 916, 920,
disapproved on other grounds in Burgess
v. Superior Court (1992) 2 Cal.4th 1064, 1074.)  The existence of an appealable judgment or
order is a jurisdictional prerequisite to an appeal.  (Jennings
v. Marralle (1994) 8 Cal.4th 121, 126.) 
A reviewing court must raise the issue on its own initiative whenever a
doubt exists as to whether the trial court has entered a final judgment or
other order or judgment made appealable by Code of Civil Procedure section
904.1.href="#_ftn4"
name="_ftnref4" title="">[4]  (Harrington-Wisely
v. State of California (2007) 156 Cal.App.4th 1488, 1494.)  Thus, prior to addressing the merits of the
borrowers’ arguments, we must first determine whether we have jurisdiction over
this appeal.

            Some
courts have deemed an order sustaining a demurrer without leave to amend to
incorporate a judgment of dismissal in the interest of justice and to prevent
delay.  (Beazell v. Schrader (1963) 59 Cal.2d 577, 579-580.)  In the present case, the trial court’s orders
reveal a clear intention to make a final ruling, as the court dismissed the
mortgage companies and Placer Title from the lawsuit.  (See Randle
v. City and County of San Francisco (1986) 186 Cal.App.3d 449, 454.)  The orders fully resolve all issues
concerning the borrowers and the mortgage brokers and Placer Title.  We therefore exercise our discretion to deem
the minute orders that sustained the
demurrers without leave to amend and dismissed the mortgage brokers and Placer
Title as judgments of dismissal, and we will treat the notice of appeal as
applying to the judgments.  (See, e.g., >Beazell, at pp. 579-580; Thaler v.
Household Finance Corp. (2000) 80 Cal.App.4th 1093, 1098.)

III.  >The Fraud and Misrepresentation Claims

>A.  The
Pleading Requirements

The borrowers set forth
claims for fraud in the inducement (first cause of action), intentional or
fraudulent misrepresentation (fourth cause of action), and negligent
misrepresentation (fifth cause of action) against the mortgage companies and
Placer Title.  To
establish a claim for fraud in the inducement or intentional or fraudulent
misrepresentation, the plaintiff must prove: 
“ ‘(1) the defendant represented to the plaintiff that an important fact
was true; (2) that representation was false; (3) the defendant knew that the
representation was false when the defendant made it, or the defendant made the
representation recklessly and without regard for its truth; (4) the defendant
intended that the plaintiff rely on the representation; (5) the plaintiff reasonably
relied on the representation; (6) the plaintiff was harmed; and, (7) the
plaintiff’s reliance on the defendant’s representation was a substantial factor
in causing that harm to the plaintiff. 
[Citations.]’ ”  (>Perlas v. GMAC Mortgage, LLC (2010) 187
Cal.App.4th 429, 434.)  Negligent
misrepresentation is similar to intentional misrepresentation but it lacks the
element of intent to deceive and the plaintiff needs to allege the defendant
lacked any reasonable ground for believing the statement to be true.  (Charnay
v. Cobert (2006) 145 Cal.App.4th 170, 184.) 


            Allegations in a fraud action “must be specifically
pleaded.  This means:  (1) general pleading of the legal conclusion
of fraud is insufficient; and (2) every element of the cause of action for
fraud must be alleged in full, factually and specifically, and the policy of
liberal construction of pleading will not usually be invoked to sustain a
pleading that is defective in any material respect.”  (Wilhelm
v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324,
1331.)  

B.  >Failure
to State Sufficient and Specific Facts

            With regard to their first cause of action, the borrowers
asserted in their FAC that their application for the loan was forged,
backdated, and falsified to inflate their income to permit them to qualify for
a loan from NL.  The borrowers alleged that
they were provided a redacted version of the loan application.  The redacted information on page three, in
“Section X,” contained the false information that Lowe had met face-to-face
with Andrade.  The borrowers alleged in
their FAC that RPM or “another party” redacted this section.  The loan application also contained
fraudulent income amounts for Lowe that “someone placed in the application
without” the borrowers’ approval or consent.

            The borrowers also alleged that the appraisal contained
incorrect information related to the number of bedrooms and other features of
the property.  At one point in their
pleading the borrowers claimed that they “were not given an opportunity to
review the [a]ppraisal before signing documents at closing.”  They maintained that they first received a
copy of the appraisal on September 22, 2011. 


            The borrowers further declared in their FAC that the
mortgage companies and Placer Title falsely represented that the borrowers
qualified for a loan in the amount of $350,000 and knew that the appraisal over
valued the property.  The borrowers also
charged that that they were told that they qualified for a loan at 5.75 percent
interest but received a loan at 5.875 percent interest. 

            None of the abovementioned allegations supports a claim
for fraud or misrepresentation.  Many of
the allegations failed to identify the particular person or entity making the
misrepresentation––e.g., RPM or “another party” redacted “Section X” and
“someone” put false information regarding their incomes.  More importantly, the fraud claim is fatally
flawed because the pleading did not include allegations that the borrowers
reasonably relied on these misrepresentations. 
The borrowers claimed that their incomes were inflated, that the
mortgage rate was increased, and that they were permitted to qualify for a loan
in the amount of $350,000 when they did not actually qualify for such a
loan.  The borrowers, however, admitted
that they received a copy of their loan application and that application
included all of this information.  Lowe’s
initials were on pages one and two of the loan application, below the interest
rate of 5.875 percent and the allegedly inflated income figures.  In their FAC, they also admitted that Andrade
contacted them and told them that they would not qualify for the loan initially
discussed, and that they should apply for a loan at 5.875 percent.  Additionally, they confirmed in their FAC
that they were able to make their mortgage payments.  They claimed that they “have never been late with,
or missed a mortgage payment, an amount of at least $1700 per month for over
seven years . . . .” 
Nothing in their pleading suggested how they relied on any of the
alleged inaccuracies in the appraisal report.

            The borrowers incorporated and relied on the same alleged
misrepresentations as pleaded in the first cause of action in the fourth and
fifth causes of action.  The only
additional claims made in these causes of action were that the mortgage
companies and Placer Title prepared and provided the note and deed for
signature.  These causes of action, too,
were silent regarding any reasonable reliance by the borrowers on any alleged
misrepresentations in the note and deed.

            Accordingly, we conclude that the borrowers have failed
to set forth with specificity reasonable reliance on any of the alleged
misrepresentations.

C.  Insufficient Facts to State a Cause of Action Against Placer Title

            An additional basis for affirming Placer Title’s demurrer
against the fraud and misrepresentation claims is that, as the escrow holder,
it had no liability for incorrect information in the loan application and other
closing documents.href="#_ftn5"
name="_ftnref5" title="">[5]  Other than acknowledge that Placer Title was
a trustee on the deed, the allegations in the FAC concerned Placer Title’s role
as the escrow holder.  The FAC stated
that Placer Title received the check and funds to be deposited into escrow,
prepared a preliminary title report, and provided the borrowers with the
documents to sign in its office. 

“[I]t
is generally held that no liability attaches to the escrow holder for his [or
her] failure to do something not required by the terms of the escrow or for a
loss incurred while obediently following his [or her] escrow
instructions.”  (Lee v. Title Ins. & Trust Co. (1968) 264 Cal.App.2d 160,
162-163; see also Blackburn v. McCoy (1934)
1 Cal.App.2d 648, 655.)  If the escrow
holder fails to carry out an instruction it has contracted to perform, the
injured party has a cause of action for breach of contract.  (Amen
v. Merced County Title Co. (1962) 58 Cal.2d 528, 532.)  An escrow holder “has no general duty to
police the affairs of its depositors”; rather, an escrow holder’s obligations
are “limited to faithful compliance with [the depositors’] instructions.”  (Claussen
v. First American Title Guaranty Co. (1986) 186 Cal.App.3d 429,
435-436.)  Absent clear evidence of
fraud, an escrow holder’s obligations are limited to compliance with the
parties’ instructions.  (>Lee v. Title Ins. & Trust Co.,> supra, 264 Cal.App.2d at
p. 162.) 

Here,
the FAC did not allege clear evidence that Placer Title committed any fraud and
an escrow holder’s duty does not extend to notifying the parties of any
suspicious fact.

D.  Statute of Limitations

            The trial court also properly
sustained the mortgage companies’ demurrer against the borrowers’ fraud and
misrepresentation claims on the basis that they were barred by the statute of
limitations.href="#_ftn6" name="_ftnref6"
title="">[6]  All of the allegations in the FAC focused on
the origination of the loan, which closed in May 2005, and this lawsuit was not
filed until February 16, 2012.

The statute of
limitations for fraud or mistake is three years.  (§ 338, subd. (d).)  A cause of action does not accrue, however,
until “the discovery, by the aggrieved party, of the facts constituting the
fraud or mistake.”  (§ 338, subd. (d).)

The borrowers
acknowledge that they filed their lawsuit more than three years after they
purchased their home in 2005.  They
maintain, however, that the statute of limitations was tolled under the delayed
discovery and fraudulent concealment rules. 
(See § 338, subd. (d).)  They
contend that the trial court abused its discretion in sustaining the demurrer
because “[g]enerally, statute of limitations issues raise questions of fact
that must be tried . . . .”  (>Kline v. Turner (2001) 87 Cal.App.4th
1369, 1374.)

Although the statute of
limitations is a factual issue, it can be subject to demurrer if the pleading
discloses that the statute of limitations has expired regarding one
or more causes of action.  (>Fuller v. First Franklin Financial Corp. (2013)
216 Cal.App.4th 955, 962.)  If a demurrer
demonstrates that a pleading is untimely on its face, it becomes the
plaintiff’s burden “even at the pleading stage” to establish an exception to
the limitations period.  (>Aryeh v. Canon Business Solutions, Inc. (2013)> 55 Cal.4th 1185, 1197 (>Aryeh).)

The three-year statute of
limitations may be tolled under the delayed discovery or fraudulent concealment
rule.  A cause of action accrues under
the discovery rule when the “ ‘plaintiff either (1)
actually discovered his injury and its negligent cause or (2) could have
discovered injury and cause through the exercise of reasonable diligence
. . . .’ 
[Citations.]”  (>Leaf v. City of San Mateo (1980) 104
Cal.App.3d 398, 407, italics omitted.) 
Fraudulent concealment tolls the statute
of limitations if a defendant’s
deceptive conduct “has caused a claim to grow stale.”  (Aryeh,
supra, 55 Cal.4th at p. 1192.)  In support of
this doctrine, a plaintiff must allege the supporting facts—i.e., the date of
discovery, the manner of discovery, and the justification for the failure to
discover the fraud earlier—with the same particularity as with a cause of
action for fraud.  (Community Cause v. Boatwright (1981) 124 Cal.App.3d 888, 900-902.)

The borrowers insist
that they had no duty to investigate because the mortgage brokers had a
fiduciary relationship with them and a duty to make a full and complete
disclosure of all material facts.  (See >Lee v. Escrow Consultants, Inc. (1989)
210 Cal.App.3d 915, 921.)  Even if we presume a
fiduciary relationship existed between the mortgage companies and the buyers,
the duty to investigate was relaxed, not eliminated.  (See ibid.)  “ ‘If the plaintiff and defendant are in a
confidential relationship[,]’ ” the duty to investigate arises when “ ‘the
plaintiff becomes aware of facts which would make a reasonably prudent person
suspicious’ ” and the plaintiff “ ‘may then be charged with knowledge of facts
that would have been discovered by such an investigation.’ ”  (Ibid.) 

The
borrowers contend
that they had no reason to become suspicious until June 16, 2011, when they
received the loan application from Bank of America that
included a page three with the redaction and an unredacted page three that
included the assertion that Lowe met face-to-face with Andrade.  This allegedly false information caused them
to examine “more carefully” the loan application, which they had received in
2005, and discover the other errors.

The
borrowers’ argument is essentially that the statute of limitations was tolled
until they had reason to know that they should have looked more carefully at
the loan documents.  It is true that they
might not have had an actual
suspicion of wrongdoing until 2011, but they admitted in their FAC that they
received the loan application and note when they signed the closing documents
on May 12, 2005.  Thus, for example, the
purportedly inflated income figure and the increased interest rate were in the
loan application (on page two) that they received in May 2005, and Lowe’s initials
were on that page.  They never alleged
that they were denied an opportunity to read the documents.  Rather, they declared:  “Lowe was quickly going through numerous
documents and had no reason to think Defendants would have altered the income
information she had provided or in any other way falsify documents.”  Thus the sole information that they allegedly
did not receive in 2005 was “Section X” on page three.

Furthermore,
the borrowers claimed in their FAC that they have been paying their mortgage and
the amounts required under the loan. 
They therefore had constructive, if not actual, knowledge of the
interest rate. 

A
reasonably prudent person in the borrowers’ position would have become aware of
the alleged wrongdoing when she or he received the loan documents in 2005 and
when she or he made mortgage payments at the increased interest rate.  The borrowers are thus charged with the
knowledge of the contents of the documents provided to them.  (See Lee
v. Escrow Consultants, Inc., supra, 210 Cal.App.3d at p. 921.)  The “false” information in the documents
would have made a reasonably prudent person suspicious and a diligent
investigation would have resulted in their requesting all of the documents and
the discovery that “Section X” had been redacted from their loan application.

We
thus conclude that the allegations in the FAC established that the borrowers
could have discovered all of the misrepresentations connected to the loan
process through due diligence in 2005. 
The borrowers’ fraud and misrepresentation claims are therefore time
barred.

>IV.  The
Cancellation of Instrument and Quiet Title Claims

            In their third cause of action, the borrowers set forth a
claim for cancellation of instrument against the mortgage companies and
Placer Title.  (See Civil Code, § 3412.)href="#_ftn7" name="_ftnref7" title="">[7]  In their eighth cause of action, they alleged
a quiet title action against NL.  For
both of these claims, the borrowers incorporated by reference their allegations
related to their fraud claims and, again, set forth allegations of misrepresentation
related to the signing of the note and deed. 
Since we have concluded that the borrowers failed to state a claim for
relief under a fraud theory, they cannot state cognizable causes of action for
cancellation of instrument and quiet title based on fraud.

>V.  >The Declaratory Relief Claim

            The
borrowers requested declaratory relief
against NL in their second cause of action.  They
asserted that Bank of America had communicated inconsistent information to them
regarding the current holder on the note. 
They sought “a judicial determination of the identity” of the owner of
the note and a declaration to have NL provide the original note with the
assignment.

            “
‘The fundamental basis for declaratory relief is the existence of an >actual, present controversy over a
proper subject.’  [Citation.]”  (City
of Cotati v. Cashman (2002) 29 Cal.4th 69, 79.)  Here, there is no present controversy as
alleged in the FAC.  (See §§ 1060,
1061.)  The FAC alleged that NL disclosed
in 2005 that the note was being sold and that Bank of America would assume
servicing the note.  The borrowers did
not allege that there was any dispute as to the identity of the servicer of the
loan; nor did they maintain that they had been unable to make their monthly
mortgage payments.  To the contrary, they
declared that they have made all of their monthly payments and that Bank of
America is their servicer.  Accordingly,
there is no present controversy between NL and the borrowers.

>VI.  The Borrowers
Cannot Amend to State a Cognizable Legal Claim

            The
borrowers claim that the trial court should have provided them with another
opportunity to amend their pleading to allege facts sufficient to cure the
defects in their FAC.  (See § 472c.)  The burden is on the borrowers to demonstrate
that the trial court abused its discretion in sustaining the demurrer without
leave to amend.  (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.)  The borrowers must show “in what manner” they
can amend their complaint “and how that amendment will change the legal effect”
of their pleading.  (Ibid.)  “[L]eave to amend
should not be granted where . . .
amendment would be futile.”  (>Vaillette v. Fireman’s Fund Ins. Co. (1993)
18 Cal.App.4th 680, 685.)

The borrowers have not
demonstrated that they can amend the causes of action in their FAC to state any
legal claim.  The borrowers have not
shown how they could amend the fraud and misrepresentation claims (first,
fourth, and fifth causes of action) to toll the application of the three-year
statute of limitations.  This three-year
statute of limitations also bars the third cause of action for cancellation of
an instrument and the eighth cause of action for quiet title.  “Since there is no statute of
limitations governing quiet title actions as such, it is ordinarily necessary
to refer to the underlying theory of relief to determine which statute
applies.  [Citations.]”  (Muktarian
v. Barmby (1965) 63 Cal.2d 558, 560.) 
Here, the gravamen of the quiet title action against the mortgage
companies in the eighth cause of action is fraud, and thus the applicable
statute of limitations is three years under section 338, subdivision (d).  (See Ankoanda
v. Walker-Smith (1996) 44 Cal.App.4th 610, 615.)  Ordinarily a suit to set aside or cancel an
instrument is governed by section 343, a four-year statute of limitations.  However, when fraud or mistake is involved,
as in this case, the three-year statute of limitations applies.  (See Robertson
v. Superior Court (2001) 90 Cal.App.4th 1319, 1326.)  As already discussed, the borrowers had
actual notice of inaccurate information in the documents in 2005, and these
claims are time barred.

            The time for the remaining cause of
action for declaratory relief has also lapsed since it is based on the original
loan and allegations of fraud. 
Additionally, the borrowers have provided no argument as to how they
could amend this cause of action to allege a justiciable controversy.


            The borrowers also argue
that they pled the elements necessary to state claims for breach of a fiduciary
duty against the mortgage companies and Placer Title and breach of contract
against NL.  They now wish to amend their
pleading to add these causes of action. 
With regard to breach of a fiduciary duty, the borrowers claim that the
mortgage companies breached a fiduciary duty under Financial Code section
4979.5, subdivision (a) by forging, backdating, and redacting the loan
applications.href="#_ftn8"
name="_ftnref8" title="">[8]  Notwithstanding the authorities discussed
above at pages 11 through 12, they contend that Placer Title had a fiduciary
duty and violated it by presenting to them a loan application with a redaction
on page three.

Even if we presume
(albeit highly unlikely) that some type of fiduciary relationship existed, for
the reasons already discussed with regard to the statute of limitations and the
fraud and misrepresentation claims, a claim based on breach of a fiduciary duty
claim is time barred.  “To determine the
statute of limitations which applies to a cause of action it is necessary to
identify the nature of the cause of action, i.e., the ‘gravamen’ of the cause
of action.  [Citations.]  ‘[T]he nature of the right sued upon and not
the form of action nor the relief demanded determines the applicability of the
statute of limitations under our code.’ 
[Citation.]”  (>Hensler v. City of Glendale (1994) 8
Cal.4th 1, 22-23.)  Here, the gravamen of
the FAC is fraud and the three-year statute of limitations applies. 

            Although the borrowers’
proposed claim for breach of contract
against NL is not entirely clear, they appear to be renaming their request for
declaratory relief as a breach of contract claim.  They contend that the deed identified NL as
the lender and that they sent NL a letter requesting a “Beneficiary Statement”
as described in Civil Code section 2943, subdivision (a)(2).  They complain that NL responded that it had
sold the loan and never provided them with a “Beneficiary Statement.”

To the extent that the borrowers’ claim is
comprehensible, they seem to be contending that NL breached the deed by failing
to provide them with a “Beneficiary Statement.” 
It is completely unclear what provision in the deed obligated NL to
provide such information.  Furthermore,
the borrowers cannot state a cognizable claim for breach of contract because
they have not explained how the pleading can be amended to allege damages.  As already discussed, the borrowers have been
making their monthly mortgage payments. 
Thus, they cannot demonstrate how this alleged breach has resulted in
any damages.

In the present
case, the borrowers were permitted an opportunity to amend their
complaint.  Rather than curing the
defects in their pleading, they filed a FAC that was essentially identical to
the original complaint.  They have not demonstrated
how they could amend their pleading to state a cognizable cause of action and
we therefore conclude that the trial court did not abuse its discretion when it
sustained the demurrers without leave to amend.

>DISPOSITION

            The
orders are affirmed.  The borrowers are
to pay the costs of appeal.

 



 

                                                                                    _________________________

                                                                                    Brick,
J.*

 

 

We concur:

 

 

_________________________

Haerle, Acting P.J.

 

 

_________________________

Richman, J.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lowe  et al. v. NL, Inc. et al. (A138164)

 

 

            * Judge of
the Alameda County Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.