Opinion
D036809
12-14-2006
HOWARD GENSLER et al., Plaintiffs and Appellants, v. WESTERN NATIONAL FUNDING, INC., et al. Defendants and Respondents.
In this case the trial court set aside a default and then sustained without leave to amend defendants demurrer to plaintiffs amended complaint. We affirm.
The order setting aside the default was proper. The record shows the complaint was never validly served and, in any event, defendants failure to timely respond was the result of counsels determination that no valid service had occurred. Thus the trial court was obligated to set aside the default.
The amended complaint alleges, among other claims, that defendant mortgage brokers are liable to plaintiffs for failing to provide plaintiffs with financing plaintiffs needed to acquire and improve real property. However, there is no allegation in the complaint that sets forth the essential terms of a loan commitment. (See Peterson Development Co. v. Torrey Pines Bank (1991) 233 Cal.App.3d 103, 115.) The related claims set forth in the amended complaint are also defective for reasons we explain more fully below. Accordingly, the trial court correctly sustained defendants demurrer without leave to amend.
FACTUAL AND PROCEDURAL BACKGROUND
According to plaintiff and appellant Howard Genslers second amended complaint, in 1996 he was searching for single family residences which he planned to convert to residential care facilities for senior citizens. Gensler found two residences suitable for his plans. Gensler contacted defendant and respondent Joe Lam who worked as a mortgage broker for defendant and respondent Western National Funding, Inc. (Western).
Gensler alleged Lam promised that Lam and Western could provide him with the financing he needed to acquire the residences and convert them to residential care facilities. According to Gensler, Lam stated he had investors who would provide most of the financing for both projects and he would also obtain financing on a home owned by Genslers mother-in-law and father-in-law which would be used to acquire one of the homes. Lam was successful in obtaining the financing on the home owned by Genslers mother-in-law and father-in-law, although the terms of the financing were not as favorable as Lam initially led Gensler to believe they would be.
Based on assurances he received from Lam, Gensler incurred substantial expenses in preparing the homes for conversion. However, Lam was never able to provide the financing Gensler needed to complete the conversions.
Acting in propria persona and on behalf of his in-laws, plaintiffs and respondents Teresa and Gabriel Rodrigues, on December 10, 1997, Gensler filed a complaint against Lam and Western. On that day Gensler left a copy of the summons and complaint at an office in Newport Beach which Western previously occupied. He also mailed a copy of the summons, complaint and a notice and acknowledgment of service to an address Western previously occupied in Arizona, return receipt requested. The receipt was returned and the summons, complaint and notice and acknowledgment eventually reached Western in late December 1997. On December 30, 1997, Lam retained a law firm to represent himself and Western.
Counsel for defendants examined the documents he received from Lam and noted the notice and acknowledgment of service had not been returned to Gensler. On that basis he concluded no valid service was made on defendants. Counsel for defendants attempted to contact Gensler on January 13, 1998, and again on January 23, 1998. On January 23, 1998, counsel for defendants left Gensler a detailed voice mail in which he identified himself as counsel for Western and advised Gensler he wanted to talk to Gensler about service of the complaint.
On January 26, 1998, Gensler filed a request for entry of default and a default was entered on that date. On January 30, 1998, counsel for defendants learned the default had been taken. Counsel contacted Gensler and after Gensler declined to vacate the default, Western and Lam moved for relief from the default and demurred to the complaint.
The trial court granted the motion for relief from the default and sustained the demurrer to the original complaint with leave to amend. After Gensler amended the complaint twice, the trial court sustained defendants demurrer without leave to amend. Judgment in favor of defendants was entered and Gensler filed a timely notice of appeal.
While this appeal has been pending, Western was acquired by another corporation, Island Mortgage Network, Inc. (Island). Island filed a petition for bankruptcy and it is still within the jurisdiction of the bankruptcy court. Nontheless, Lam is available to proceed. Thus our judgment is limited to adjudication of Lams rights.
DISCUSSION
I
On appeal Gensler challenges the order setting aside the default and the order sustaining defendants demurrer without leave to amend. Relief from a default is mandatory where the record shows the complaint was not properly served on the defendant. (Mannesman DeMag, Ltd. v. Superior Court (1985) 172 Cal.App.3d 1118, 1123.) Relief is also mandatory under Code of Civil Procedure section 473, subdivision (b), when the record shows an attorneys mistake, inadvertence, surprise or neglect resulted in a default. (Leader v. Health Industries of America, Inc. (2001) 89 Cal.App.4th 603, 612; see also Graham v. Beers (1994) 30 Cal.App.4th 1656, 1660.) Where relief is not mandatory, we review orders setting aside defaults for abuse of discretion. (Shamblin v. Brattain (1988) 44 Cal.3d 474, 478.)
All further statutory references are to the Code of Civil Procedure unless otherwise specified.
"On review of an order sustaining a demurrer without leave to amend, our standard of review is de novo, `i.e., we exercise our independent judgment about whether the complaint states a cause of action as a matter of law. [Citation.]" (Santa Teresa Citizen Action Group v. State Energy Resources Conservation & Development Com. (2003) 105 Cal.App.4th 1441, 1445.) "`"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 demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] . . . ." (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.)
II
The order granting relief from default was proper. As defendants point out, service of the complaint was not completed before the default was taken. The summons and complaint Gensler left at the office in Newport Beach was not complete under section 415.20, subdivision (a), because it was never mailed to the Newport Beach address. The summons and complaint mailed to the Arizona address was not served under the terms of section 415.30 because defendants did not execute and return the acknowledgment of service.
Section 415.20 states:
"(a) In lieu of personal delivery of a copy of the summons and of the complaint to the person to be served as specified in Section 416.10, 416.20, 416. 30, 416.40, or 416.50, a summons may be served by leaving a copy of the summons and of the complaint during usual office hours in his or her office or, if no physical address is known, at his or her usual mailing address, other than a United States Postal Service post office box, with the person who is apparently in charge thereof, and by thereafter mailing a copy of the summons and of the complaint by first-class mail, postage prepaid to the person to be served at the place where a copy of the summons and of the complaint were left. When service is effected by leaving a copy of the summons and complaint at a mailing address, it shall be left with a person at least 18 years of age, who shall be informed of the contents thereof. Service of a summons in this manner is deemed complete on the 10th day after the mailing."
Section 415.30 states:
"(a) A summons may be served by mail as provided in this section. A copy of the summons and of the complaint shall be mailed (by first-class mail or airmail, postage prepaid) to the person to be served, together with two copies of the notice and acknowledgment provided for in subdivision (b) and a return envelope, postage prepaid, addressed to the sender.
"(b) The notice specified in subdivision (a) shall be in substantially the following form:
Gensler argues that because the summons and complaint were sent to the Arizona address return receipt requested and the receipt was returned, service was proper under the provisions of section 415.40. Service under section 415.40 is complete 10 days after the summons and complaint are mailed. (§ 415.40.) However, by Genslers own admission, the service on the Arizona address was made under section 415.30 and included a notice which stated that service would be complete when the acknowledgment was executed. If we permitted Gensler to treat this service as both service under section 415.30 and service under section 415.40, we would create a trap for the unwary: in light of the terms of the notice, defendants would have no definitive idea of when service was complete and when their response was due. We do not believe the Legislature intended to create such confusion. Thus we are unwilling to treat the service on the Arizona address, which was expressly made under section 415.30 and included a notice as to when service would be complete, as service under section 415.40.
Section 415.40 states:
"A summons may be served on a person outside this state in any manner provided by this article or by sending a copy of the summons and of the complaint to the person to be served by first-class mail, postage prepaid, requiring a return receipt. Service of a summons by this form of mail is deemed complete on the 10th day after such mailing."
See footnote 2.
Because service was not complete before the default was taken, the trial court was required to set aside the default. (See Mannesman DeMag, Ltd. v. Superior Court, supra, 172 Cal.App.3d 1118, 1123.) Notwithstanding the lack of service, the trial court was also required to set aside the default under section 473, subdivision (b). Where an attorneys conduct is a cause in fact of an entry of default, even if it is not the only cause, relief from the default is mandatory. (SJP Limited Partnership v. City of Los Angeles (2006) 136 Cal.App.4th 511, 519-520; Benedict v. Danner Press (2001) 87 Cal.App.4th 923, 929; see also Milton v. Perceptual Development Corp. (1997) 53 Cal.App.4th 861, 867.) The few cases which have affirmed the denial of relief under section 473, subdivision (b) when an attorneys conduct contributed to the entry of default all involved circumstances in which the clients "intentional misconduct" was found to be responsible, at least in part, for the dismissal or entry of default. (See Benedict v. Danner Press, supra, 87 Cal.App.4th at p. 929.) Because there was no evidence of intentional client misconduct in Benedict v. Danner Press, the court concluded: "Inasmuch as respondents counsel submitted declarations indicating ways in which counsels mistake or neglect caused the entry of default, the trial court properly granted the requested relief, even though [the clients] mistakes were an additional cause in fact of the entry of default." (87 Cal.App.4th at p. 932.)
Here, in light of the fact Lam retained a lawyer very shortly after he received a copy of the summons and complaint, and counsel shortly thereafter attempted to contact Gensler, there is nothing in this record which would support a finding of any intentional misconduct on Lams or Westerns part. Thus given counsels affidavit taking responsibility for the failure to file a response before the default was taken, relief from the default was mandatory. (87 Cal.App.4th at p. 932.)
Finally, even if relief was not mandatory, in light of the documents counsel received from Lam, which indicated service was under section 415.30 and would not be complete until the acknowledgment was executed, the trial court could reasonably determine the failure to file a response before the default was entered was caused by counsels excusable neglect. (See Shamblin v. Brattain, supra, 44 Cal.3d at p. 478.) In light of counsels prompt efforts to have the default vacated voluntarily and then by way of motion, the trial court could reasonably grant discretionary relief from the default. (Ibid.)
III
Genslers second amended complaint alleges Lams and Westerns failure to obtain financing for both residential care facilities gave rise to claims for breach of contract and fraud. In addition, he alleges fraud with respect to the financing which was placed on the home owned by his mother-in-law and father-in-law. Attached to the second amended complaint are a number of documents which Western provided Gensler during the course of its attempt to obtain financing for him. In particular, Gensler relies on two letters from Lam indicating Gensler had "pre-qualified for a loan;" that Western was waiting for information from him before the loans could be finally approved; that the loan was going well and that Lam was confident the loan would "close round [sic] June 22." However, one of the documents attached to the complaint states that Gensler understood that Lam obtained funding for the loans he provided from a pool of investors.
None of the allegations of the complaint or the documents set forth an enforceable commitment to loan Gensler funds. "`A loan commitment is not binding on the lender unless it contains all of the material terms of the loan, and either the lenders obligation is unconditional or the stated conditions have been satisfied. When the commitment does not contain all of the essential terms . . . the prospective borrower cannot rely reasonably on the commitment, and the lender is not liable for either a breach of contract or promissory estoppel." (Peterson Development Co., v. Torrey Pines Bank, supra, 233 Cal.App.3d at p. 115; see also Laks v. Coast Fed. Sav. & Loan Assn. (1976) 60 Cal.App.3d 885, 892-893.) Genslers allegations and documents do not set forth an unconditional commitment to loan him money. The complaint fails to allege with any particularity the amount of the alleged loans, payment terms, or the parties rights in the event of default. According to the complaint, the loan would be based on "competitive market interest rates, about 7.5% fixed over a twenty year term." Thus the amended complaint does not set forth a contract to lend Gensler money and the trial court properly sustained the demurrer with respect to Genslers breach of contract claims.
We also note Genslers earlier pleadings, the second amended complaint itself and the exhibits attached thereto, make it unmistakable Gensler was attempting acquire the two homes for business purposes. Thus the promise to obtain financing was within the statute of frauds. (Civ. Code, § 1624, subd. (a)(7).) As defendants pointed out there is no written loan commitment in the record.
In addition to his claims for breach of contract, Gensler alleges Lams statements about the progress of the loan and his consequent commencement of construction at one of the sites give rise to claims for promissory estoppel and fraud. The difficulty with these theories is that both require reasonable reliance. (See Peterson Development Co. v. Torrey Pines Bank, supra, 233 Cal.App.3d at p. 115; Laks v. Coast Fed. Sav. & Loan Assn., supra, 60 Cal.App.3d at pp. 890-893; Hadland v. NN Investors Life Ins. Co. (1994) 24 Cal.App.4th 1578, 1586.)
In Laks v. Coast Fed. Sav. & Loan Assn. the plaintiff received a conditional loan commitment which, like the allegations in Genslers complaint about the commitment he received, was absent essential terms, "namely, payment schedules for each loan, identification of the security, prepayment conditions, terms for interest calculations, loan disbursement procedures, and rights and remedies of the parties in case of default." (60 Cal.App.3d at p. 891.) The court found these deficiencies prevented sophisticated borrowers from establishing they reasonably relied on the commitment: "While we are inclined to agree with appellants that lending institutions should be held to a high degree of responsibility in such commercial transactions, appellants are not completely free of blame. They appear, from the record, to be experienced businessmen. They retained the services of a loan broker to assist them. We cannot believe that they did not understand the conditional offer to be just that — and that the many essentials referred to were missing. They should have resolved the ambiguities and obtained a finalized agreement and not relied on the January 9, 1973, offer. In other words, they could not have had legitimate expectations that this was a binding offer; therefore, they could not reasonably have relied on it." (Id. at p. 893.)
There is no meaningful distinction between Gensler and the borrowers discussed in Laks v. Coast Fed. Sav. & Loan Assn. The record reflects Gensler was a lawyer engaged in a specialized and fairly speculative enterprise. Like the borrowers in Laks, he cannot establish he could not have reasonably confused the ambiguous and conditional representations he received from Lam and Western with a binding commitment to lend him money.
IV
In addition to the claims related to the financing Gensler needed to obtain and remodel the two residences, the second amended complaint alleges Lam and Western were guilty of breach of contract, fraud and breach of fiduciary duty with respect to the financing Lam arranged for Genslers in-laws, the Rodrigueses. The complaint alleges Lam promised a better interest rate on the Rodrigueses loan than he eventually obtained, presented the less attractive loan to the Rodrigueses without telling Gensler, and when Gensler complained, told Gensler he would refund his fee on the transaction if Gensler found a better loan. The complaint further alleges Gensler obtained a better loan, advised Lam, but Lam never refunded his fee.
The trial court properly sustained the demurrer to these causes of action. In light of the fact the Rodrigueses executed the loan documents Lam presented, they cannot allege they intended other terms or relied on representations of other terms. (See Hadland v. NM Investors Life Ins. Co., supra, 24 Cal.App.4th at p. 1589.) With respect to the refund claim, Gensler does not allege any new consideration for the promised refund or the terms of the "better" loan he was able to secure for the Rodrigueses. In general, without consideration a promise is not enforceable. (See 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, §§ 202-204, pp. 236-239; Civ. Code, § 1550.) Moreover, as defendants point out, it is not possible to determine whether Gensler obtained a better loan without some allegation as to the terms of the replacement loan.
V
Prior to the hearing on defendants demurrer to the second amended complaint, Gensler moved to strike the demurrer. The demurrer realleged Genslers contract claims were barred by the statute of frauds. Gensler moved to strike the statute of frauds portion of the demurrer on the grounds that, although his original complaint and first amended complaint referred to the commercial purpose of the financing he was seeking, his second amended complaint deleted those references. The deletion was an apparent effort to avoid the statute of frauds which requires commercial loan commitments be in writing and signed by the lender. (See Civ. Code, § 1624, subd. (g).) According to Gensler the motion to strike should have been heard before the demurrer. (See § 435, subd. (b)(3).)
The trial courts failure to hear the motion to strike before sustaining the demurrer did not prejudice Gensler. As we have discussed, his contract causes of action were defective on grounds separate from the statute of frauds. Moreover, the motion to strike lacked merit. The trial court could consider Genslers earlier allegations in determining whether the contract was barred by the statute of frauds. (See Amid v. Hawthorne Community Medical Group, Inc. (1989) 212 Cal.App.3d 1383, 1387 [trial court may consider prior pleadings in determining whether amended pleading is a sham].)
The judgment is affirmed. Respondent to recover his costs of appeal.
We Concur:
McCONNELL, P. J.
McINTYRE, J.
"(Title of court and cause, with action number, to be inserted by the sender prior to mailing)
"NOTICE
"To: (Here state the name of the person to be served.)
"This summons is served pursuant to Section 415.30 of the California Code of Civil Procedure. Failure to complete this form and return it to the sender within 20 days may subject you (or the party on whose behalf you are being served) to liability for the payment of any expenses incurred in serving a summons upon you in any other manner permitted by law. If you are served on behalf of a corporation, unincorporated association (including a partnership), or other entity, this form must be signed in the name of such entity by you or by a person authorized to receive service of process on behalf of such entity. In all other cases, this form must be signed by you personally or by a person authorized by you to acknowledge receipt of summons. Section 415.30 provides that this summons is deemed served on the date of execution of an acknowledgment of receipt of summons.
_____________________________________ "Signature of sender
"ACKNOWLEDGMENT OF RECEIPT OF SUMMONS
"This acknowledges receipt on (insert date) of a copy of the summons and of the complaint at (insert address).
"Date: _________________________________ "(Date this acknowledgment is executed) _____________________________________ "Signature of person acknowledging receipt, with title if acknowledgment is made on behalf of another person
"(c) Service of a summons pursuant to this section is deemed complete on the date a written acknowledgment of receipt of summons is executed, if such acknowledgment thereafter is returned to the sender.
"(d) If the person to whom a copy of the summons and of the complaint are mailed pursuant to this section fails to complete and return the acknowledgment form set forth in subdivision (b) within 20 days from the date of such mailing, the party to whom the summons was mailed shall be liable for reasonable expenses thereafter incurred in serving or attempting to serve the party by another method permitted by this chapter, and, except for good cause shown, the court in which the action is pending, upon motion, with or without notice, shall award the party such expenses whether or not he is otherwise entitled to recover his costs in the action.
"(e) A notice or acknowledgment of receipt in form approved by the Judicial Council is deemed to comply with this section."