Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment and an order of the Superior Court for the County No. LC 073322, of Los Angeles. Richard Adler, Judge.
Jamie R. Schloss for Plaintiff and Appellant.
Prenovost, Normandin, Bergh & Dawe and Tom R. Normandin for Defendant and Respondent Genisys Financial Corporation.
Law Offices of Glenn H. Wechsler and Glenn H. Wechsler for Defendant and Respondent First American Title Insurance Company.
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
SUMMARY
A debtor’s real property was sold at an execution sale that his judgment creditor initiated. In addition to his debt to the judgment creditor, the debtor owed $50,000 to a lender, secured by a second deed of trust on the property. Because the lender had not recorded its deed of trust, the judgment creditor’s lien had priority. The $50,000 promissory note to the lender was not paid from the proceeds of the sale.
The debtor now sues the lender and a title insurance company employed by the lender. He alleges negligence and breach of contract based on the failure to record the deed of trust securing the $50,000 note. The debtor’s theory is that he paid a $50 recording fee in connection with the loan, and the lender did not record the deed of trust. Had the lender recorded the deed of trust, the debtor says, the $50,000 loan would have been paid from the proceeds of the foreclosure sale. The debtor claims to have been damaged in the amount of “at least $50,000” and to have suffered “damage to his reputation and credit history . . . .”
There is no merit to the debtor’s theory, and the trial court correctly sustained demurrers to his complaint. Even if the complaint could be read to allege a contract between the lender and the debtor to record the trust deed, as a matter of law the debtor cannot allege any damages proximately caused by the breach. The trial court erred, however, in imposing sanctions in connection with the debtor’s motion to compel further answers to interrogatories, so the sanctions order must be reversed.
FACTUAL AND PROCEDURAL BACKGROUND
Konstantine Campbell sued Genisys Financial Corporation and First American Title Insurance Company for breach of contract and negligence. We summarize the facts alleged in the operative third amended complaint.
Campbell bought property on Califa Street in Woodland Hills in 1995. In 2002, Campbell borrowed $50,000 from Genisys. He signed a promissory note; a second trust deed on the Califa property secured payment of the note. (Campbell refers to the note and deed as “the Campbell Loan.”) The settlement charges for the Campbell Loan were $4,025; Campbell paid this sum to Genisys from the loan’s proceeds. Of that amount, $50 was a recording fee for the second trust deed. Genisys and First American failed to record the trust deed. Genisys later transferred the note and trust deed to Mortgage Lenders Network USA, Inc. (MLNUSA). It then serviced the Campbell Loan.
Campbell also sued MLNUSA for violation of the Financial Code in failing to give Campbell copies of his loan documents. That claim was settled.
In June 2003, a court entered judgment against Campbell in a contested civil matter. The judgment creditor requested a court order allowing sale of the property to satisfy the judgment. Campbell contacted MLNUSA, who told him to continue paying the loan. MLNUSA told Campbell the loan would be satisfied through the trust deed at the time of the execution sale. The property was sold on August 26, 2004, but the $50,000 note was not satisfied because Genisys and First American had not recorded the trust deed. Had they done so, the trust deed would have been prior in time to the execution lien. Believing his loan had been satisfied through the execution sale, Campbell allowed the loan to go into default. MLNUSA filed an adverse credit report against Campbell. Campbell “brought the Loan current to mitigate any further damage to his credit history and reputation.”
Campbell then sued Genisys and First American, claiming breach of contract and negligence in failing to record the deed of trust. The trial court sustained demurrers to the negligence claim without leave to amend. The court sustained demurrers to Campbell’s first and second amended complaints for breach of contract, each time giving Campbell leave to amend.
In his first amended complaint, Campbell alleged “a written contract or contracts.” He did not attach any written contract to the complaint. The trial court noted that the plaintiff must either attach the contract to the complaint or set forth its terms verbatim. The second amended complaint alleged Campbell entered into “a written contract or contracts” with Genisys “evidenced by the documents attached as Exhibit 1.” Those documents were the settlement statement for the Campbell loan and Genisys’s recording instructions to First American. The second amended complaint alleged the contract’s terms were “pleaded pursuant to their legal effect because the instrument cannot be located.” Genisys’s agreement to record the deed “was based on an express contract implied from the Campbell Loan, which was reduced to a signed writing at a later time, which Campbell, despite diligent efforts, does not possess. His copy was lost, misplaced and destroyed by inadvertent error.” The trial court again sustained the demurrer with leave to amend. The court stated it was unclear whether the contract was written, oral, or implied, and the three separate theories could not be pleaded as a single cause of action; Exhibit 1 did not support the allegation the contract was written: there was no indication Genisys had a duty to record the deed. Campbell pleaded “only conclusions and no facts”; and Campbell had to allege facts showing the recordation was an intended benefit to Campbell, not just a condition of receiving the loan.
The third amended complaint alleged causes of action against Genisys for breach of oral contract, breach of implied contract, and breach of contract implied by law, as well as a single cause of action against First American for breach of contract. Campbell alleged Genisys contracted to perform services “for benefit of [Campbell],” including recording the trust deed, in return for the $4,025. This was “an express oral contract as well as being implied from the Campbell Loan.” The settlement statement and related loan documents evidenced this oral contract; the note and deed were “separate contracts . . . .” Genisys breached an implied contract: Campbell hired Genisys to record the deed of trust, and Genisys knew that failure to record it could cause Campbell serious detriment. And Genisys breached a contract implied by law, because Campbell paid Genisys $50 to record the deed, a duty “implied by Civil Code § 2948.5 . . . .” Genisys hired First American to record the deed of trust “pursuant to a contract”; Campbell was an intended beneficiary of that contract.
Campbell alleged the failure of Genisys and First American to record the trust deed violated their contractual duties to Campbell, “who would be protected by the recordation if subsequent creditors filed liens against or foreclosed on” the Califa Street property. He asserted that recording the trust deed was for his benefit “because a) he paid for it to be recorded; and b) recording the deed of trust secured the promissory note to equity held by Campbell in the underlying real property.” The failure to record the deed “caused damage to Campbell’s personal property and to his reputation,” specifically:
· “Campbell was able to settle with his judgment creditor, and if the Deed had been recorded would have paid off the Note completely at the time of the execution sale on Califa, which had substantial equity.”
· Failure to record the deed “caused Campbell to suffer detriment and damages relating to his credit scores based on loan late notices and then purported default, and these notices damaged Campbell’s personal reputation, his ability to obtain credit, and was the proximate and legal cause of damage to plaintiff’s personal reputation and plaintiff’s property, causing Campbell damage and requiring him to borrow money at higher interest rates because of the credit blemish caused by defendant’s failure to record the Deed.”
· The marred credit information made it more difficult for Campbell to obtain a construction loan in 2005. “Campbell also requested [MLNUSA] correct his credit history, which was partially but not completely performed so damage still remains on Campbell’s credit history as of March, 2006.”
The trial court sustained the demurrers of Genisys and First American to the third amended complaint with leave to amend. The court observed that Campbell’s change from alleging a written contract in the second amended complaint to alleging an oral and/or implied contract, without explanation, “may constitute a ‘sham.’ ” (At the hearing, Campbell’s counsel stated the contract was “a combination” of all three types: oral, written and implied.) The court concluded neither the third amended complaint nor the oral argument “shed light on how the parties reached agreement upon the terms, conditions and circumstances under which each of these distinct types of agreements were entered.” The court stated Campbell had to plead, with specificity, what parts of the contract were oral/implied and what parts were written/express; why both could exist at the same time; and what the terms of the oral/implied contract were, “including who the contract was formed with, and the exact terms of the contract, including time of performance.” Also, because Campbell pleaded only conclusions and no facts, it was unclear whether the $50 was a condition of providing the loan or rather a duty Genisys and First American owed Campbell. The court rejected the defendants’ assertion that Campbell had not adequately pleaded damages for breach of oral contract (based on lack of foreseeability and lack of causation), concluding that issue was reachable only by summary adjudication.
Campbell declined to amend the complaint. The trial court entered an order of dismissal and then a judgment against Campbell. Campbell appealed from the judgment, and from an order denying his motion to compel Genisys to “acknowledge satisfaction of judgment” in connection with Campbell’s payment of $500 in sanctions. (We describe below the facts pertinent to that dispute.)
DISCUSSION
Campbell lists 11 “questions on appeal.” The questions are reducible to four: (1) whether Campbell’s third amended complaint states a claim for breach of contract against either Genisys or First American; (2) whether the trial court erred in sustaining demurrers to the negligence cause of action in Campbell’s first amended complaint without leave to amend; (3) whether the trial court erred in rulings on discovery and sanctions; and (4) whether the trial court erred in denying Campbell’s motion to compel Genisys to “acknowledge satisfaction of judgment” in connection with Campbell’s payment of $500 in sanctions. We find no error.
A. The third amended complaint does not state a claim for breach of contract.
The third amended complaint fails to state a claim for breach of contract against either Genisys or First American.
1. Genisys.
The essence of Campbell’s claim is that a contract to record the trust deed – alleged to be a “combination” of written, oral, and implied contract – arose in connection with Campbell’s loan transaction with Genisys, because Campbell paid a $50 recording fee. Because Genisys did not record the trust deed, Campbell did not get what he paid for, so Genisys breached the contract. Campbell was damaged because, when a judgment creditor executed on his house, Campbell’s other debts had priority and the Genisys debt was not paid from the proceeds. Campbell’s allegations do not state a cause of action for several reasons.
First, virtually the only relevant factual allegation in the complaint is that Campbell paid the recording fee. The other allegations are entirely conclusory. Campbell alleges that, in return for his payment of the $4,025 in settlement fees, “Genisys contracted to perform various services for benefit of [Campbell], which included recording the Deed . . . .” But Campbell does not identify any writing in which Genisys promised to record the trust deed, whether “for [the] benefit of [Campbell]” or otherwise. Nor does Campbell state any facts to support his allegation that he “entered into an oral contract with defendant Genisys” for the performance of “various services for benefit of [Campbell].” Nor does Campbell allege any conduct from which an implied in fact contract could have arisen. (4 Witkin, Cal. Procedure (4th ed. 1997) Pleading, § 487, p. 578 [“[a]n implied in fact contract arises from conduct, without express words of agreement”; “ ‘the facts from which the promise is implied must be alleged’ ”].)
The trial court was not required to accept as true the conclusory allegation -- devoid of facts -- that Genisys entered into a contract to record the trust deed “for benefit of [Campbell].” This is particularly so when the allegation is contrary both to well-known principles that apply to loan transactions secured by residential property and to common sense. In a residential loan transaction, the lender does not contract with the borrower to record the trust deed “for the benefit of” the borrower. While the borrower is required to pay the recording fee and other fees as a condition of receiving the loan, the lender records the trust deed for its own benefit, not for the borrower’s benefit. Campbell failed entirely to plead any facts from which one could infer that his loan transaction differed in any way from an ordinary residential loan transaction.
Second, even if we assume that Campbell adequately pleaded an agreement by Genisys to record the trust deed for Campbell’s benefit, Campbell’s complaint does not -- because it cannot -- sufficiently allege damages caused by Genisys’s breach. A cause of action for breach of contract requires a pleading of the contract, plaintiff’s performance, defendant’s breach, and damage to plaintiff. (4 Witkin, Cal. Procedure, supra, § 476, p. 570.) The plaintiff must allege facts “showing that the damages recited were a result of the defendant’s breach” – i.e., causation. (Id. § 501, p. 589; see 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 870, p. 956 [“[i]t is essential to establish a causal connection between the breach and the damages sought”]; see also Witkin, Summary of Cal. Law, supra, § 871, p. 957 [general damages for breach of contract “are ordinarily confined to those that would naturally arise from the breach, or that might have been reasonably contemplated or foreseen by both parties, at the time they made the contract, as the probable result of the breach”].) Here, Campbell claims he suffered damages “proximately and legally caused by defendant’s breach of contract in the sum of at least $50,000.00 . . . .” But he alleges no facts from which one could infer that the failure to record actually caused him any damage, or that either party reasonably could have contemplated any damage to Campbell.
Campbell claims “the breaches caused damage . . . in lost Califa equity value equivalent to the balance of the Note” on the date the house was sold. We can discern no meaning in the term “lost Califa equity value.” Whatever Campbell may mean, a conclusory allegation that runs contrary to ordinary experience is not a sufficient allegation that Genisys’s failure to record the deed of trust caused damage to Campbell. Campbell’s house was sold at an execution sale, and the proceeds of that sale necessarily were paid to his creditors to satisfy Campbell’s debts, or to Campbell himself as surplus proceeds. (The complaint is notably silent on this point.) The fact that Campbell’s $50,000 note was not paid because another debt had priority cannot conceivably have resulted in legally cognizable damage. It is true that, had Genisys recorded the trust deed, the $50,000 note would have been paid. But that necessarily means that Campbell’s other debts that precipitated the execution sale would have remained unpaid. We fail to see any damage to Campbell from this state of affairs. (See Westwater v. Grace Church (1903) 140 Cal. 339, 340, 342 [demurrer to complaint for breach of contract properly sustained because damages must be “ ‘clearly ascertainable in both their nature and origin’ ” (quoting Civ. Code, § 3301) and must be such “as in the ordinary course of things would be likely to result from the act”]; cf. McDonald v. John P. Scripps Newspaper (1989) 210 Cal.App.3d 100, 102 [“two things are missing here – causation and common sense”].)
Campbell asserts he would be “better off” if the proceeds from the Califa property were used to pay the $50,000 note “rather than going to an unsecured . . . judgment creditor.” He fails to allege in his complaint or to set forth in his brief any facts showing why or how he would have been “better off.” He argues only that “a bird in [the] hand is worth two in the bush. Money in hand is worth more than an unsecured judgment.” If by this Campbell means he could have avoided paying his debt to his judgment creditor more easily than he can avoid paying his debt to Genisys, we cannot countenance that theory of damage causation. To permit a borrower, in effect, to avoid his debt because the lender failed to secure its payment by recording a trust deed would be -- in a word -- ludicrous. Moreover, even if Campbell’s theory of damage were legally cognizable, damages for breach of contract are confined to those that naturally would arise from the breach, or those reasonably contemplated or foreseen by both parties at the time of contracting as the probable result of a breach. (1 Witkin, Summary of Cal. Law, supra, § 871, p. 957.) Even if Genisys could be said to have contracted to record the deed because Campbell paid for the recording, Campbell pleaded no facts to permit any inference that Campbell and Genisys reasonably contemplated that failure to record could result in damage to Campbell.
In short, Campbell’s complaint does not allege facts to support a claim for breach of contract, whether written, oral, or implied. He alleges no facts that show any agreement by Genisys to record the trust deed for his benefit and no facts that show any legally cognizable damage to him from the failure to record.
2. First American.
Campbell alleges Genisys hired First American to record the trust deed, “and Campbell was, through his contract with Genisys, the intended beneficiary of that contract between Genisys and First America[n].” Because the complaint does not state a claim for breach of contract by Genisys, Campbell’s claim against First American necessarily fails at well. In addition, the complaint states no facts from which one could conclude that Campbell was an intended beneficiary of First American’s agreement to record the trust deed for Genisys. (See, e.g., Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524 [a third party’s rights under a contract are predicated upon the contracting parties’ intent to benefit the third party; “ ‘[t]he circumstance that a literal contract interpretation would result in a benefit to the third party is not enough to entitle that party to demand enforcement’ [Citation.]”].)
B. The first amended complaint does not state a negligence claim.
Campbell also challenges the trial court’s ruling sustaining demurrers to the negligence cause of action in his first amended complaint. Campbell alleged that Genisys’s and First American’s failure to record the deed as the written contract required breached a “professional duty” owed to Campbell. However, “conduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law.” (Erlich v. Menezes (1999) 21 Cal.4th 543, 551.) In contract cases that have permitted tort damages, “the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm.” (Id. at p. 552.) No facts alleged in Campbell’s complaint supported the existence of any duty giving rise to tort liability. “ ‘ “ ‘An omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty.’ ” ’ ” (Id. at p. 551.) Accordingly, the trial court correctly sustained the demurrers to Campbell’s negligence cause of action without leave to amend.
Campbell asserts that Civil Code section 2948.5 imposed a duty on the lender to record the deed of trust. It does not. Section 2948.5 currently provides that a borrower may not be required to pay interest for specified periods before the loan proceeds are disbursed. When Campbell’s loan was made, section 2948.5 provided that a borrower could not be required to pay interest for a period of more than one day prior to recording the mortgage or deed of trust, if the loan proceeds were paid into escrow or, if there were no escrow, the date on which the loan proceeds were made available for withdrawal. (Former Civ. Code, § 2948.5, added by Stats. 2001, ch. 302, § 1, p. 2067 and repealed by Stats. 2003, ch. 554, § 1, p. 3424.) In any case, section 2948.5 governs the payment of interest; it did not impose a duty to record the deed of trust.
C. The trial court erred in imposing a $500 sanction on Campbell and his counsel.
Campbell served Genisys with Judicial Council form interrogatories seeking, among other things, information about the contract alleged in the complaint. Campbell was not satisfied with Genisys’s responses, and moved to compel further responses. On July 5, 2006, the trial court ruled the responses were proper and complete, with one exception attributable to inadvertence. It further found Campbell’s motion was brought without substantial justification, and imposed a $500 sanction against Campbell and his counsel.
Campbell argues Genisys’s responses were deficient under Code of Civil Procedure section 2030.220. That statute requires interrogatory answers to be as complete and straightforward as the information reasonably available to the responding party permits. Campbell points to form interrogatory No. 50.1: it requested, for each agreement alleged in the pleadings, the identification of all documents that were part of the agreement and related information. Genisys answered:
“There are no DOCUMENTS that are part of Plaintiff’s farfetched allegation that Genisys agreed to record the Deed of Trust in his favor. Plaintiff is not honest.”
Ordinarily, we would defer to the trial court’s finding that Genisys’s responses were complete. However, in a later ruling on Genisys’s attorney fees motion, the trial court specifically found that Genisys’s answer to interrogatory No. 50.1 “was evasive and deprived [Campbell] of 2 of the 3 documents that [Campbell] now claims constitute the recording agreement.” As the trial court stated, Genisys’s “misleading” response to interrogatory No. 50.1 ultimately caused no prejudice to Campbell. Nevertheless, because the court (albeit belatedly) found that Genisys should have identified the documents in response to the interrogatory, Campbell should not have been sanctioned for bringing a motion to compel further responses. (Code Civ. Proc., § 2030.300 [propounding party may move for an order compelling a further response if propounding party deems an answer to a particular interrogatory is evasive or incomplete].) Accordingly, the trial court’s award of $500 in sanctions must be reversed.
D. Campbell’s claim of error in the trial court’s denial of his motion to compel Genisys to acknowledge satisfaction of judgment is moot.
Campbell paid the $500 in sanctions. Then, after making a demand that Genisys refused, he moved to compel Genisys to acknowledge satisfaction of judgment under the Enforcement of Judgments Law. (Code Civ. Proc., §§ 680.010 – 724.260.) The trial court denied Campbell’s motion. The court stated that, while monetary sanction orders are enforceable as money judgments, in this case there was neither a signed order nor an entry of judgment, so there was no basis for an acknowledgement of satisfaction of judgment. The court expressly found that Campbell timely paid the monetary sanction in full.
The Enforcement of Judgments Law permits a judgment debtor to demand that the judgment creditor file an acknowledgement of satisfaction of judgment with the court and execute, acknowledge, and deliver an acknowledgement to the judgment debtor. (Code Civ. Proc., § 724.050, subd. (a).) If the judgment creditor fails to comply, the judgment debtor may apply to the court, on noticed motion, for an order requiring the judgment creditor to do so. The court then may order the creditor to comply or order the court clerk to enter satisfaction of the judgment. (Id. subd. (d).) If the creditor fails to comply with the demand without just cause, the judgment creditor is liable to the person who made the demand for all damages sustained. He also must forfeit $100 to that person. (Id. subd. (e).)
We will refrain from extended comment on the apparent waste of attorney, client, and court resources expended to litigate Campbell’s asserted right to obtain a statutory acknowledgement of satisfaction of judgment for a $500 sanctions payment, when counsel expressly confirmed receipt and deposit of the money on behalf of Genisys. Fortunately, we need not devote further effort to the issue, because it is moot in light of our reversal of the sanctions order.
DISPOSITION
The judgment is affirmed. The minute order dated July 5, 2006, is reversed to the extent it orders monetary sanctions against Campbell and his counsel of record in the amount of $500, and Genisys is directed to return that sum to Campbell. Genisys Financial Corporation and First American Title Insurance Company are to recover their costs on appeal.
We concur: RUBIN, Acting P. J. FLIER, J.