Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County No. GIC848638, Louis S. Vargas, Judge.
AARON, J.
I.
INTRODUCTION
Defendant Jane Marvaso appeals from a judgment of the trial court in which the court created an equitable mortgage in her favor in the amount of $189,350 on real property located on Enders Avenue in San Diego (Property).
In 2000, Marvaso agreed to sell the Property to Michael Lowe for a total of $277,500, which Lowe was to pay over a five-year period. The unconventional contract (the contract) between the parties created a seller-financed transaction pursuant to which Lowe would make a $15,000 down payment, pay 60 monthly installments of between $1,200 and $1,300, and at the end of five years, make a balloon payment for the balance of the purchase price. The contract also provided that Lowe would take immediate possession of the Property and that Marvaso would convey a 90 percent interest in the Property to Lowe. In 2002, Marvaso executed a grant deed in which she conveyed a 90 percent interest in the property to Lowe and retained a 10 percent interest.
At the end of the five-year period, Lowe failed to make the final two installment payments and did not make the final balloon payment. He died less than two weeks after the balloon payment was due.
Plaintiff Delard Barnes, as Trustee of the Michael G. Lowe Trust (Trust), filed a declaratory relief action against Marvaso seeking a declaration of the parties' rights and obligations with regard to ownership of the Property. Marvaso filed a cross-complaint against Barnes seeking both rescission of the contract Marvaso entered into with Michael Lowe in 2000 and restitution, and also seeking to quiet title to the Property. Marvaso contended that because Lowe had materially breached the contract, she was entitled to rescind the contract and recover full ownership of the Property.
Lowe transferred his 90 percent interest in the Property into the Trust soon after he received it.
The trial court concluded that the Trust owns 90 percent of the Property and that Marvaso owns 10 percent. The court further concluded that the Property is subject to an equitable mortgage in favor of Marvaso in the amount of $189,350, and that upon payment of the mortgage balance, Marvaso must relinquish her 10 percent interest in the Property to the Trust. The court further ordered Marvaso to cooperate with Barnes in his efforts to refinance the Property, to enable Barnes to pay off the mortgage Marvaso holds.
We conclude that the trial court did not abuse its discretion in fashioning an equitable resolution in this case, but that the court did err in three respects. First, the trial court should have included in the mortgage sum a reasonable rate of interest on the balance of the loan that remains unpaid. Second, the court should have included in the mortgage the property taxes Marvaso paid on the Property during the course of the litigation. Finally, the trial court exceeded the scope of the declaratory relief Barnes requested when it went beyond simply declaring that Marvaso has a duty to cooperate with Barnes, and instead, ordered that she do so. We therefore reverse in part the trial court's judgment and remand the case to the trial court with directions to recalculate the dollar amount of the mortgage Marvaso holds. We also modify the judgment with regard to Marvaso's duty to cooperate in the financing of the property. The judgment is otherwise affirmed as modified.
II.
FACTUAL AND PROCEDURAL BACKGROUND
A. Factual background
On January 26, 2000, Marvaso and Lowe entered into the contract for the sale of the Property. Under the terms of the contract, Lowe made a down payment to Marvaso in the amount of $15,000 and took immediate possession of the Property. The contract contemplated an original purchase price of $250,000, which Lowe was to pay in a number of installments, including the $15,000 down payment, monthly payments over five years totaling $76,200, and a final balloon payment of $186,300, which included the remaining balance plus an additional $27,500, that was to be paid after refinancing of the Property. The contract stated that performance of the contract was to be completed no later than April 1, 2005. However, the contract did not contain a clause stating that time was of the essence.
The contract identified this amount as the agreed upon "appreciation" of the property over the five-year payment period. Because the $27,500 was not part of the original purchase price, it appears that this amount constituted the amount the parties agreed would sufficiently compensate Marvaso for the delay in receiving full payment for a period of years. Regardless of how it is described, however, it is clear that the parties agreed that Lowe would pay Marvaso $27,500 over the purchase price of the Property at the end of the contract term.
In April 2002, Marvaso conveyed a 90 percent ownership interest in the property to Lowe by grant deed. The grant deed, recorded April 18, 2002, provides:
"Jane Marvaso . . . hereby GRANT(S) to Michael Lowe 90% and Jane Marvaso 10% in joint tenancy the following real property: commonly described as 6973 Enders Avenue, San Diego, County of San Diego, State of California . . . ."
Although the grant deed stated that Lowe and Marvaso were to hold title as joint tenants, no joint tenancy was created because the parties held unequal interests in the property. The parties thus held title as tenants in common. (See Yeoman v. Sawyer (1950) 99 Cal.App.2d 43 [if a joint tenancy is not valid because one party owns a greater share than the other, a tenancy in common is created].) Marvaso does not challenge the nature of the estate.
On June 25, 2003, Lowe created his will and the Michael G. Lowe Trust (Trust). Lowe identified his interest in the Property and devised that interest to the Trust. The transfer was recorded on June 25, 2003. Lowe named Delard Barnes as Trustee of the Trust.
Lowe made monthly payments over the course of almost five years that totaled $73,150. He made 58 of the 60 payments that were required under the payment schedule before he died on April 12, 2005. Lowe had paid a total of $88,150 of the $91,200 that the contract required he pay over the first five years. At the time of his death, Lowe still owed the final balloon payment of $186,300.
B. Procedural background
On June 6, 2005, Barnes, as Trustee of the Trust, filed an action for declaratory relief against Marvaso. Barnes sought a declaration of the parties' rights and obligations as to the Property, and requested any other relief the court might deem proper.
On June 14, Marvaso filed a lis pendens on the Property and cross-complained against Barnes, alleging causes of action for ejectment and declaratory relief, and seeking to quiet title. She later amended the cross-complaint to add a request to rescind the contract.
In November 2005, property taxes on the Property came due. Although the contract required that the purchaser pay the property taxes, Marvaso paid $4,930.56 in property taxes in late 2005.
Marvaso acknowledged at trial that she did not pay any of the property taxes on the Property from the time the contract was signed to the time of Lowe's death. After his death, Marvaso received at her home address the property tax bill for the Property from San Diego County in the fall of 2005. Marvaso conceded that she did not (1) contact Barnes to ask him to pay the property tax bill; (2) forward the bill to the Trust; or (3) send the bill to Barnes's attorney's office. She chose instead to pay the bill herself.
In January 2006, Barnes moved for summary judgment. The trial court denied Barnes's motion.
A bench trial commenced on July 10, 2006. The trial court heard testimony from Barnes, Marvaso, and Floyd Hangen, an expert Marvaso called as a witness to testify as to rental values in the area. The trial concluded on July 12, and the parties submitted closing briefs. The trial court issued a tentative decision on July 25, finding in favor of Barnes on his declaratory relief cause of action, and requested that Barnes submit a proposed statement of decision.
Barnes submitted a proposed statement of decision, to which Marvaso objected on a number of grounds. The trial court nevertheless signed and filed the proposed statement of decision and entered judgment on September 25, 2006.
The judgment states:
"IT IS ORDERED, ADJUDGED AND DECREED that Plaintiff is GRANTED Declaratory Relief as prayed for in the Complaint. The Michael G. Lowe Trust dated 6/25/03 is the 90% owner of the real property located at 6973 Enders Ave., San Diego, California 92122 subject to a mortgage in the amount of $189,350.00 in favor of Defendant Jane E. Marvaso. Defendant Jane Marvaso is ordered to cooperate and complete all documentation necessary for purposes of refinancing the Property and paying off the remaining balance due Defendant Jane E. Marvaso of $189,350.00. Upon payment by Plaintiff to Defendant Jane Marvaso of the remaining balance of $189,350.00, the Court declares Plaintiff to be the 100% and sole owner of the real property located at 6973 Enders, Ave., San Diego, California 92122."
Marvaso filed a timely notice of appeal on November 13, 2006.
III.
DISCUSSION
A. Legal standards
We begin by noting that the relief each party sought in this case was predominately equitable. Both parties requested declaratory relief, and Marvaso sought rescission, another equitable remedy. The trial court ultimately determined that equity did not require rescission, but did require the creation of an equitable lien, or mortgage, in favor of Marvaso. Because the trial court "exercised its equitable powers when fashioning" relief between the parties here, "we review the judgment under the abuse of discretion standard. [Citations.] Under that standard, we resolve all evidentiary conflicts in favor of the judgment and determine whether the court's decision '"falls within the permissible range of options set by the legal criteria."' [Citations.]" (Hirshfield v. Schwartz (2001) 91 Cal.App.4th 749, 771.)
B. The trial court did not abuse its discretion in denying Marvaso's request to rescind the contract
Marvaso contends that she is entitled to rescind the contract and to recover full ownership of the Property. Specifically, Marvaso maintains that because Lowe and his successor materially breached the contract, Marvaso is entitled to her choice of remedies, which includes rescission. We conclude that the trial court did not abuse its discretion in denying Marvaso's request to rescind the contract and recover full title to the property. First, allowing Marvaso to rescind the contract would require voiding a valid grant deed that unconditionally conveyed partial ownership of the Property to Lowe. Second, the trial court was free to determine that the equities in this case did not entitle Marvaso to rescind the contract, but rather, required the creation of an equitable mortgage on the property in her favor. However, although the trial court did not abuse its discretion in establishing an equitable lien or mortgage on the property, the trial court failed to include in the mortgage amount the prejudgment and postjudgment interest on certain amounts due to Marvaso, as well as the amount of property taxes Marvaso paid while this action was pending.
1. There is no basis for extinguishing the grant deed
Marvaso contends that Lowe breached the contract by failing to make all required payments under the contract, failing to pay property taxes as required under the contract, and failing to name Marvaso as an additional insured on the Property. Marvaso asserts that these material breaches amount to a failure of consideration, thus giving her the right to rescind the contract and to take back title to the Property as if the parties had never entered the contract. However, regardless of whether Lowe and/or Barnes breached the contract, there exists a valid grant deed by which Marvaso granted to Lowe a 90 percent ownership interest in the Property.
"Although, in general, instruments will be canceled by courts of equity for failure of consideration in a material respect [citations], this is not the rule in the case of an executed conveyance to land. It has been repeatedly held that, in the absence of fraud, a conveyance of real estate, fully executed on the part of the grantor, cannot be set aside for a failure of consideration on the sole ground that the promises and agreements, not amounting to conditions subsequent, which induced its execution, and which by the terms of the contract under which the deed is made were not to be performed until after its execution, have not been performed. [Citations.]" (Williams v. Reich (1932) 123 Cal.App. 128, 131.; see also Johnson v. Clark (1936) 7 Cal.2d 529, 533 ["a grantor who has executed a deed absolute or other executed transfer in consideration of promises of the grantee is not entitled to rescind upon failure of consideration arising from the grantee's failure to fulfill his promises, but is limited to his right of action for damages for breach of contract"]; Masero v. Bessolo (1927) 87 Cal.App. 262, 266 [failure of consideration not sufficient to support remedy of cancellation of deed of conveyance; rather, damages may be available]; Schott v. Schott (1914) 168 Cal. 342, 345-346 [no right to rescind or have deed set aside where there was no agreement that the failure to do the promised acts would be a condition or affect the validity of the deed]; Lawrence v. Gayetty (1889) 78 Cal. 126, 135 ["to hold that a vendee of real estate could, for a failure to pay the purchase-money, repudiate his deed and recover the land, would render real estate titles dangerously uncertain"].)
Again, the recorded grant deed at issue in this case provides:
"Jane Marvaso . . . hereby GRANT(S) to Michael Lowe 90% and Jane Marvaso 10% in joint tenancy the following real property: commonly described as 6973 Enders Avenue, San Diego, County of San Diego, State of California . . . ."
Marvaso signed the grant deed on April 2, 2002, and it was recorded on April 18. Upon executing the grant deed, Marvaso unconditionally transferred a 90 percent interest in the property to Lowe. It is of no consequence for purposes of determining the validity of the grant deed that the consideration required of Lowe under the contract failed for lack of payment. Consideration is not necessary to effect the voluntary transfer of real property. (See Civ. Code, § 1040; Huntoon v. Southern Trust & Commerce Bank (1930) 107 Cal.App. 121, 127.) Rather, "[a] deed without consideration is valid if it is executed voluntarily by the grantor, with knowledge of its contents and with the intent to convey the property described. [Citation.]" (Id. at pp. 127-128.)
The trial court concluded that Marvaso had unconditionally conveyed a portion of her interest in the Property to Lowe. There is substantial evidence to support the court's finding, as Marvaso testified that she understood that she was going to convey property to Michael G. Lowe under the terms of the contract. She also testified that she understood the terms of the contract to mean that she "was to retain ten percent ownership in the property, and at the end of the term of our agreement after all of the monies had been paid, a new grant deed would be recorded to transfer the property to Michael after he had fulfilled the contract obligations of the sale price." Marvaso's acknowledgement that she was to retain a 10 percent ownership in the property indicates that she knew she was granting 90 percent ownership to Lowe upon execution of the grant deed. Additionally, Marvaso testified that she did not believe that Mr. Lowe did anything fraudulent with regard to the property transaction, thereby vitiating her claim that she was fraudulently induced to execute the deed.
Further, the terms of the deed clearly establish that Marvaso's conveyance of a 90 percent interest to Lowe was unconditional. There is no statement requiring that Lowe pay any amount before his ownership interest in the Property vests. Thus, upon the execution of the grant deed, Marvaso unconditionally conveyed a 90 percent ownership interest in the Property to Lowe. Marvaso nonetheless contends that her execution of the grant deed was conditioned upon her receiving payment pursuant to the contract. However, no such condition appears in the grant deed. Additionally, the fact that Marvaso executed the grant deed prior to having received payment under the contract does not render the grant deed void. Because the grant deed is valid and unconditional, any failure on Lowe's part to fulfill the terms of the contract cannot now be remedied by voiding the grant deed and returning the 90 percent interest to Marvaso.
2. The trial court did not abuse its discretion in determining that the equities favored imposition of an equitable mortgage, and not rescission of the contract
In seeking rescission, Marvaso appealed to the equitable powers of the trial court. (See Civ. Code, § 1692 ["If in an action or proceeding a party seeks relief based upon rescission and the court determines that the contract has not been rescinded, the court may grant any party to the action any other relief to which he may be entitled under the circumstances"].) "[T]he propriety of granting equitable relief in a particular case by way of cancellation, rescission, restitution or impressment of a constructive trust, generally rests upon the sound discretion of the trial court exercised in accord with the facts and circumstances of the case [citations]." (Hicks v. Clayton (1977) 67 Cal.App.3d 251, 265; see also Fairchild v. Raines (1944) 24 Cal.2d 818, 826 ["the granting or withholding of equitable relief involves the exercise of judicial discretion"].) "However, that discretion is not an arbitrary one, but should be exercised in accord with the principles and precedents of equity jurisprudence. Sound discretion is not based upon whimsy [citation]." (Hicks, supra, 67 Cal.App.3d at p. 265.)
The trial court did not abuse its discretion in fashioning equitable relief in this case. Lowe and Marvaso both performed as required by the contract for a number of years. Marvaso attested to this, acknowledging that Lowe had performed under the contract for almost five years and that she was "not aware of any evidence [that Mr. Lowe did not intend to perform under the contract of sale agreement]." Lowe paid Marvaso the $15,000 down payment and made the equivalent of 58 of the 60 installment payments that he was required to make under the contract. Further, although the final balloon payment was two months past due at the time this action was filed, the delay may be at least partially explained by the fact that Lowe died only 12 days after the balloon payment was due.
At some point Lowe made a $5,000 payment ─ more than was required under the contract. At certain times after that, Lowe failed to make full payments. However, the parties do not appear to dispute the amount that remains due.
This is not a situation in which one party simply refused to pay the other, ignoring the other party's requests for performance under the contract. Barnes testified that he discussed with Marvaso how to proceed with regard to the Property after Lowe's death. Marvaso complicated the situation during this time by requesting that Barnes sign a quitclaim deed conveying the Property back to her, and by sending Barnes a letter through counsel asking Barnes to sign a lease and pay rent. In light of the circumstances and the fact that the contract did not have a "time is of the essence" clause, the delay in payment of the full contract price was not excessive and is not sufficient to constitute a failure of consideration, as Marvaso suggests.
Further, the trial court did not leave Marvaso without a remedy. Even though the contract did not, by its terms, create a legal mortgage in Marvaso's favor, the trial court concluded that the imposition of an equitable mortgage would be the most fair resolution for both parties.
"Civil Code section 2922 states that '[a] mortgage can be created, renewed, or extended, only by writing, executed with the formalities required in the case of a grant of real property.' [¶] Despite the formalities required by section 2922, it is settled that '"[every] express executory agreement in writing, whereby the contracting party sufficiently indicates an intention to make some particular property, real or personal, or fund, therein described or identified, a security for a debt or other obligation . . . creates an equitable lien upon the property so indicated, which is enforceable against the property in the hands not only of the original contractor, but of his . . . purchasers or encumbrances with notice." [Citation.] Thus, a promise to give a mortgage or a trust deed on particular property as security for a debt will be specifically enforced by granting an equitable mortgage. [Citations.]'" (Kaiser Industries Corp. v. Taylor (1971) 17 Cal.App.3d 346, 350-351 (Kaiser).)
"'An agreement that particular property is security for a debt also gives rise to an equitable mortgage even though it does not constitute a legal mortgage. [Citations.] If a mortgage or trust deed is defectively executed, for example, an equitable mortgage will be recognized. [Citations.] Specific mention of a security interest is unnecessary if it otherwise appears that the parties intended to create such an interest. [Citations.]' [Citation.]" (Kaiser, supra, 17 Cal.App.3d at p. 351.) "[T]he controlling factual question is whether or not the parties intended to make the property security for the indebtedness. The intent need not show on the face of the instrument, although the instrument must be reasonably susceptible of interpretation as a mortgage. [Citation.]" (Ibid.)
The contract is certainly reasonably susceptible of being interpreted as a mortgage, and the fact that the parties allowed Marvaso to retain a limited interest in the property is evidence that the parties intended that the Property serve as security for Lowe's debt to Marvaso. One particular paragraph in the contract further evidences that the parties intended that the Property would secure Marvaso's loan:
"GRANT DEED TO BE COMPLETED AND NOTARIZED CONVEYING PROPERTY TO (PURCHASER) MICHAEL G. LOWE AND TO BE HELD IN TRUST FOR A PERIOD OF FIVE (5) YEARS AND/OR FINAL SALE TRANSFER AS DECIDED BY BOTH PARTIES TO THIS AGREEMENT, NOT TO EXCEED THE DATE OF APRIL 1, 2005."
Although there is no indication that anything was held in trust during the length of the transaction, this provision in the contract demonstrates that the parties envisioned that Lowe's debt to Marvaso was to be secured by the Property. The fact that the parties agreed that Marvaso would retain a 10 percent interest in the Property for the purpose of retaining attachment to trust also indicates the parties' desire to create a security instrument. Marvaso's testimony supports this interpretation, as she indicated that the purpose of her retaining a 10 percent interest was to ensure that she was paid.
By providing that Marvaso would retain only a 10 percent ownership interest in the property until final payment, the contract was, in effect, a hybrid between a typical purchase and sale agreement, in which title and possession are transferred to the buyer concurrently with payment of the purchase price, and an installment land contract, in which the seller retains legal title to the property until the buyer has paid the balance in full. (See Venable v. Harmon (1965) 233 Cal.App.2d 297, 300 [noting distinction between ordinary land sales contract and installment sale contract].) "[I]t has long been recognized that an installment land sale contract is 'an imperfect or equitable mortgage, . . . [properly] treated as if it had the similitude of a mortgage, subject to foreclosure in the same way a mortgage is foreclosed.' [Citation.]" (Petersen v. Hartell (1985) 40 Cal.3d 102, 119, fn. 1 (Peterson).)
"'A court of equity looks through the form to the substance of the matter before it, and where . . . it finds a contract in the deed of conveyance securing to the vendor a lien on the land sold for the unpaid purchase-price, it treats it as, what it is substantially, a mortgage.' [Citation.]" (Peterson, supra, 40 Cal.3d at p. 119, fn. 1.) That is what the trial court did here. The court looked through the form of this convoluted transaction and determined that the parties' intention was to secure the debt Lowe owed to Marvaso with the Property.
As a result of the trial court's judgment, Marvaso now possesses all of the potential benefits that would arise from holding a loan secured by a mortgage on real property. "Tested by the standard that equity courts look with favor upon equitable liens when employed to do justice and equity, and to prevent unfair results" (Brunson v. Babb (1956) 145 Cal.App.2d 214, 229), the trial court's decision to impose an equitable lien on the Property fell within the reasonable and permissible range of options available to it.
C. The trial court failed to fashion a lien that adequately compensates Marvaso
Although Marvaso cannot prevail on her contention that the trial court should have permitted her to rescind the contract in its entirety, she raises a valid claim that the trial court's judgment is inequitable in certain respects. Specifically, there is an issue as to whether equity requires that Marvaso be compensated for the length of time the debt owed to her has remained unpaid. There is also a question as to whether equity requires that the mortgage include the amount Marvaso paid in property taxes on the Property in 2005. We conclude that the trial court's judgment resulted in an excessive recovery for Barnes by failing to include reasonable interest on the debt and the amount Marvaso paid in property taxes in 2005.
No one disputes that Barnes owes Marvaso money pursuant to the contract. Neither do the parties dispute that amounts that came due under the loan in February 2005, March 2005, and April 2005 remain unpaid. Under the parties' agreement, this debt was to have been satisfied by April 2005. It is unreasonable to conclude that there would have been no consequences for a failure to pay by those dates. By not including any interest on the amounts that remain unpaid, the trial court gave Barnes a windfall in that Barnes has retained possession of the Property, free of any obligation, for more than two and a half years at this point in time. Equity requires that the amount due to Marvaso include interest, to be calculated from the time each of the payments that remain unpaid was due. Because there are equitable considerations that could affect the determination of the appropriate rate of interest, the trial court should make this determination in the first instance.
The trial court also failed to consider the property tax bill Marvaso paid on the Trust's behalf while the litigation was pending. Although the evidence established that Barnes was unaware that the tax bill had come due because Marvaso failed to inform him that she had received the bill and paid it herself without requesting payment from him, not permitting Marvaso to recover this amount would unfairly benefit Barnes. The trial court should add to the mortgage amount the dollar amount of the property taxes Marvaso paid in 2005. Although it is fair that Marvaso be reimbursed for this amount, equity does not require that she receive interest on this amount, because she chose to pay the taxes and not tell Barnes that she was doing so, rather than ask him to pay the taxes.
D. Declaratory relief versus specific performance
Marvaso contends that the trial court erred in awarding what she calls "specific performance" to Barnes—i.e., ordering her to cooperate with Barnes for the purpose of refinancing the Property—because, she asserts, such relief exceeds the scope of the declaratory relief Barnes sought in this case. Marvaso first argues that a declaratory relief cause of action "is improper to remedy a breach of contract," suggesting that Barnes presented no cause of action to support his request that the court order her to cooperate in the refinancing of the property pursuant to a declaratory relief action. Rather, she contends, Barnes should have claimed a breach of contract on Marvaso's part for failing to participate in securing financing on the property. Marvaso further argues that the court's decision exceeded the scope of permissible declaratory relief by "creating an entirely new contract." Marvaso thus suggests that the contract did not require her to cooperate in securing financing for the residence.
Although we agree with Marvaso in part, the practical effect of our conclusion regarding this issue is minimal. We agree that Barnes's declaratory relief action did not provide a vehicle by which the court could affirmatively order that Marvaso cooperate with Barnes. "'[Declaratory] procedure operates prospectively, and not merely for the redress of past wrongs. It serves to set controversies at rest before they lead to repudiation of obligations, invasion of rights or commission of wrongs; in short, the remedy is to be used in the interests of preventive justice, to declare rights rather than execute them.' [Citations.]" (Babb v. Superior Court (1971) 3 Cal.3d 841, 848; see also Caira v. Offner (2005) 126 Cal.App.4th 12, 24 ["a declaratory action to identify rights is distinct from a coercive action to enforce rights"].) Indeed, the declaratory relief statute contemplates that declaratory actions may be brought either alone or with requests for additional relief: "He or she may ask for a declaration of rights or duties, either alone or with other relief; and the court may make a binding declaration of these rights or duties, whether or not further relief is or could be claimed at the time." (Code Civ. Proc., § 1060.) With regard to the cooperation issue, Barnes sought only declaratory relief, thereby limiting his relief to a declaration of his rights, and excluding the enforcement of those rights. The trial court thus erred in ordering Marvaso to cooperate with Barnes for the purpose of securing financing.
However, this does not mean that the trial court erred in making the implicit determination that Barnes has the right to Marvaso's cooperation in seeking financing. The court should simply have declared that Marvaso has a duty to cooperate with Barnes for the purpose of refinancing the Property—without ordering her to do so. Although Marvaso contends that such a declaration ignores the contract and "creat[es] an entirely new contract," we disagree. Marvaso relies on the trial court's ruling on an earlier summary judgment motion to the effect that the contract "does not explicitly state Defendant must cooperate or assist in a refinance of the Property." However, it is clear that the trial court changed its view after trial, since the court ultimately found that the parties intended that Lowe pay the remaining balance on the loan "after a refinancing on the Property." A fair interpretation of the contract supports the trial court's conclusion that the parties contemplated that Lowe would seek to refinance the property in order to pay Marvaso the remaining balance at the end of the first five years. Although the contract does not expressly state that Marvaso was to participate in Lowe's refinancing efforts, the contract provides:
"G. JANE E. MARVASO WILL RETAIN TEN (10%) [sic] OWNERSHIP IN SAID PROPERTY FOR THE PURPOSE OF RETAINING ATTACHMENT TO TRUST, AT END OF TERM OF FIVE (5) YEARS, THE BALANCE WILL BE DUE UPON RECORDING OF GRANT DEED AND A NEW ESTABLISHED SALE PRICE OF $275,000.00.
"H. PROCEEDS OF FINANCING TO BE DISTRIBUTED AS FOLLOWS:
1. BALANCE DUE OF $158,800.00 PLUS $27,500.00 TO BE CONSIDERED VALUE APPRECIATION OF PROPERTY[.]" (Italics added.)
It is unreasonable to conclude that the contract contemplated that Lowe would be financing anything other than the Property that is the subject of the contract, as no other property is mentioned, and there would be no reason for the contract to mention financing if Lowe was to obtain the final payment through means other than financing the subject Property. Thus, the trial court reasonably interpreted the contract as envisioning that Lowe would obtain a loan on the Property, and that the proceeds of this financing would go to Marvaso as final payment for the Property.
Although the contract does not expressly require that Marvaso cooperate with Lowe in obtaining the financing, the contract was clear in stating that Marvaso was to retain a 10 percent ownership interest in the Property until such time as the balance was paid in full. It would be unreasonable to read the contract as allowing Marvaso to retain a 10 percent interest so that she could, if she so desired, make it difficult for Lowe to obtain financing by failing to make her 10 percent interest available to secure the financing. "'It is well settled that, in California, the law implies in every contract a covenant of good faith and fair dealing. [Citations.] Broadly stated, that covenant requires that neither party do anything which will deprive the other of the benefits of the agreement. [Citation.]'" (Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal.4th 85, 91.) Thus, the implied covenant of good faith and fair dealing requires that Marvaso—as part owner of the property that that would be subject to financing in order to complete the transaction between the parties—not hinder Lowe's ability to obtain financing by refusing to cooperate in that process, if her cooperation is necessary. The trial court reasonably determined that Marvaso has an implied duty to cooperate in the process of obtaining financing on the property.
IV.
DISPOSITION
The judgment of the trial court is reversed insofar as it does not include in the dollar amount of the equitable mortgage interest on the sums still owed Marvaso under the contract, or the amount Marvaso paid in property taxes on the Property. The case is remanded to the trial court to determine the appropriate rate of interest. The trial court shall then recalculate the amount of Marvaso's mortgage on the Property to include these additional sums.
In addition, the portion of the judgment that states, "Defendant Jane Marvaso is ordered to cooperate and complete all documentation necessary for purposes of refinancing the Property and paying off the remaining balance due Defendant Jane E. Marvaso . . . " shall be modified to read: "Defendant Jane Marvaso has a duty to cooperate and complete all documentation necessary for purposes of refinancing . . . ."
Finally, both parties indicated during oral argument that if this court concludes that Barnes is to retain his 90 percent interest in, and possession of, the property, the parties want the refinancing to occur as soon as possible so that Marvaso can receive the money due to her, and Barnes can receive the final 10 percent interest in the property. With this in mind, the trial court should set a reasonable time frame during which the parties are to commence and complete the refinancing of the property. The trial court should retain jurisdiction over this matter to monitor the status of the equitable remedy.
The parties shall bear their own costs on appeal.
WE CONCUR: NARES, Acting P. J. McINTYRE, J.