Opinion
B152542.
7-31-2003
GRIS, INC., Plaintiff and Appellant, v. SANG HYUN RHO et al., Defendants and Respondents.
Maurice Edward Franklin Law Offices and M. Edward Franklin for Plaintiff and Appellant. Pasternak, Pasternak & Patton and John W. Patton, Jr. for Defendants and Respondents Sang Hyun Rho and Byong Suk Rho; Law Offices of William Balderrama and William Balderrama for Defendant and Respondent Veras Escrow Service, Inc.
I. INTRODUCTION
Plaintiff, Gris, Inc., appeals from a judgment entered on its complaint arising from the sale and purchase of commercial real property known as the Gold Plaza. Plaintiff sold the property to, defendants, Sang Hyun Rho and Byong Suk Rho (the "Rhos"). Defendant, Veras Escrow Service, Inc., acted as the escrow agent. Plaintiffs counsel, Maurice Edward Franklin, has also appealed from an order imposing $ 1,412 in sanctions against him pursuant to Code of Civil Procedure section 128.7. We affirm the judgment in favor of the Rhos and Veras Escrow Service, Inc. We reverse the sanctions award against Mr. Franklin.
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
II. BACKGROUND
A. Pleadings
The complaint, which was filed on October 29, 1999, alleged that plaintiff purchased the Gold Plaza at a sheriffs sale on March 10, 1999. On July 7, 1999, plaintiff and the Rhos executed an agreement for the sale of the Gold Plaza for $ 2,360,000 payable in cash of $ 540,000 and assumption of the existing California Federal Bank ("Cal Fed") loan of $ 1,820,000. At the time the agreement was executed on July 7, 1999, Cal Fed had scheduled a trustees sale for July 15, 1999.
According to the complaint, Veras Escrow Service, Inc. acted as escrow agent on the purchase of the Gold Plaza property. The Rhos deposited $ 30,000 into an escrow account that was opened on July 7, 1999. Plaintiff executed a grant deed in the Gold Plaza to the Rhos. Pursuant to the purchase contract and escrow instructions, Veras Escrow Service, Inc. was required to hold the grant deed until the Rhos had complied with their contractual duties. Veras Escrow Services, Inc. was authorized to deliver the grant deed to the Rhos when two conditions were satisfied. The first precondition to delivery of the grant deed was the deposit of $ 540,000 in cash toward the $ 2,360,000. The second precondition was that Cal Fed and the Rhos would enter into a forbearance agreement. The complaint alleged that rather than depositing $ 540,000, the Rhos only deposited $ 453,000 in cash in escrow. Rather than paying $ 2,360,000 for the Gold Plaza, the Rhos only paid $ 2,246,478.42 or $ 113,521.58 less than required by the purchase contract and escrow instructions. On July 15, 1999, although the Rhos had not complied with the terms of the purchase agreement and the escrow instructions, Veras Escrow Service, Inc. delivered the grant deed to the county recorder for recordation.
The complaint contained two causes of action for contract breach. The first cause of action alleged the Rhos breached the purchase agreement and the escrow instructions by failing to deposit $ 540,000 prior to July 15, 1999, recordation of the trust deed. It was further alleged the Rhos failed to pay the full $ 2,360,000 for the Gold Plaza. The third cause of action was against Veras Escrow Service, Inc. for causing the grant deed to be recorded when the Rhos had not complied with terms of the purchase agreement and escrow instructions.
Plaintiff sought declaratory relief in the second cause of action against the Rhos concerning whether it was liable for $ 40,979 in security deposits paid by the tenants in the Gold Plaza, which sum was being held by Veras Escrow Service, Inc. Plaintiff alleged in the declaratory relief cause of action that it was not liable for the security deposits which had been paid to the former owners of the Gold Plaza. In the fourth cause of action, plaintiff alleged that Veras Escrow Service, Inc. had breached its fiduciary duty to plaintiff by: altering the purchase agreement and escrow instructions without plaintiffs prior written consent to reduce the purchase price from $ 2,360,000 to $ 2,333,478.42; concealing and failing to disclose that the Rhos broker was attempting to credit a sales commission that was not to be paid until the final close of escrow on the $ 540,000 agreement; and by falsely stating to plaintiff that it had received all the cash to be deposited. The complaint alleged that Veras Escrow Service, Inc. knew that it had not received the cash in accordance with the written instructions and plaintiff had not consented to reduce the purchase price. Plaintiff alleged that Veras Escrow Service, Inc. had acted willfully and with the intent to injure plaintiff. The fifth cause of action for negligence against Veras Escrow Service, Inc., alleged that Veras Escrow Service, Inc. had negligently failed to performed its duties as an escrow holder. In the sixth cause of action, plaintiff alleged that the grant deed conveyed no title to the Rhos because of improper delivery. Plaintiff sought to cancel the grant deed and quiet title to the property based on the aforementioned allegations.
Veras Escrow Service, Inc. answered the complaint and cross-complained against the Rhos for indemnity. The Rhos answered the complaint and cross-complained against plaintiff for declaratory relief. The Rhos cross-complaint alleged that they deposited $ 453,000 into escrow and received credits totaling an additional $ 105,142.25, which included an agreed upon credit from the real estate broker for his $ 70,800 sales commission. At the close of escrow, the existing deed of trust on the property secured the amount of $ 1,793,478.42. The Rhos alleged they owed no additional money and that plaintiff was liable for the security deposits of $ 40,979 which was being held in escrow.
B. Factual Matters
The evidence established that plaintiff obtained title to the Gold Plaza by making $ 10,000 credit bid at a sheriffs sale in March 1999. Plaintiff was formed by a number of individuals known as the Anayas. The Anayas were Guillermo A. Anaya, Blanca R. Anaya, and Isabel A. Vega. They had been tenants of the Gold Plaza. The Anayas formed plaintiff in order to purchase the Gold Plaza. In 1993, the Anayas obtained a $ 150,000 judgment against the prior owner of the Gold Plaza, Young A. Shin. Ms. Shin quitclaimed the Gold Plaza to her son Tom Shin. The Anayas scheduled a sheriffs sale of the Gold Plaza in July 1997. But before the sale Tom Shin filed for bankruptcy. A bankruptcy trustee took possession of the property. The bankruptcy trustee abandoned the Gold Plaza property in January 1999.
At the time that plaintiff acquired the Gold Plaza, the property was encumbered by a first trust deed which secured a $ 1,828,000 loan due to Cal Fed and a second trust deed which secured a $ 220,000 loan to the Small Business Administration. The loans were both delinquent in the amount of $ 110,000 on the Cal Fed loan and $ 86,000 on the small business association loan. In January 1999, Cal Fed began a non-judicial foreclosure and also filed a judicial foreclosure complaint. The original foreclosure sale was scheduled for June 3, 1999, which was postponed to July 15, 1999, when plaintiff and the Rhos began negotiations.
The Rhos began their negotiations to purchase the property through Edward Kim, a real estate broker. On July 7, 1999, the Rhos and plaintiff entered into a sale and purchase agreement. The "Sales Escrow Instructions" which contained the parties agreement provided that the total consideration for the purchase of the Gold Plaza would be $ 2,360,000. The escrow was scheduled to close on September 6, 1999. The agreement provided that: the Rhos were to deposit into escrow the sum of $ 30,000; prior to close of escrow the Rhos would deposit the sum of $ 510,000; and the Rhos would assume the existing debt of approximately $ 1,820,000. Paragraph 2 of page 1 of the instructions provided that the Rhos would cause a wire transfer or a cashiers check in the amount of $ 540,000 to be deposited into escrow, of which $ 30,000, would be deposited immediately for credit to their account.
Paragraph 3 of page 1 of the escrow instruction provides: "BUYER will deliver to you any instruments and/or funds required from Buyer to enable you to comply with these instructions, all of which you are authorized to use and/or deliver on or before September 6, 1999 . . . ." Paragraph 13 of page 1 of the escrow instructions provides: "PURCHASE PRICE: $ 2,360,000.00 payable cash of $ 540,000.00 to the existing Cal Fed [first] of approximately $ 1,820,000.00. The existing Cal Fed [first] to be assumed or Mr. Rho is to obtain approval of the forbearance agreement. In no event, Buyers down payment shall exceed $ 540,000.00." (Original bold.) Paragraphs 5 through 8 of page 2 of the escrow instructions provide: "(5) ESCROW: To open on July 7, 1999, Mr. Rho to deposit $ 30[,000] into escrow at opening. Mr. Rho to apply immediately to assume the Cal Fed [first] upon opening of escrow and to provide a financial package to support approval of the assumption, i.e., completed Cal Fed application, financial statements, tax returns, history of Mr. Rho, proof that the $ 510[,000] additional needed to close escrow is available and on deposit at a local bank, thrift or other institution, for immediate wire transfer to escrow upon (a) approval of Mr. Rhos assumption of Cal Fed [first]; or (b) immediately on Cal Feds execution of a forbearance agreement with Mr. Rho, whichever first occurs. [P] (6) FORBEARANCE: Upon Cal Feds approval of forbearance agreement, the escrow will close immediately provided (a) [plaintiff] deposits into escrow a written instrument from the SBA releasing its lien on the subject property for cash to be paid from escrow and (b) Title company is ready to issue the title policy concurrently with the closing. [P] (7) The forbearance agreement shall be effective only upon: (a) approval of the agreement by all the parties involved; and (b) the successful consummation of the escrow to transfer the title to Mr. Rho; and (c) the Cal Fed Note is completely cured from the Sellers proceeds of the sale upon closing of the escrow. [P] (8) Plaintiff will take the lead in negotiating the forbearance agreement with Cal Fed, subject to approval by Mr. Rho." (Original bold.)
Paragraph 12 of page 2 of the escrow instructions states: "ESCROW CANCELLATION : The property is currently under foreclosure process by California Federal Bank and the trustee sale is scheduled on July 15, 1999. If the property is sold by Cal Fed through the trustee sale or the seller loses or doesnt have the ownership interest on the property in any other means, the escrow shall be terminated and the deposit shall be returned to the buyer without any amendment to the escrow nor approval from the seller. The seller acknowledges that if the property is being sold through the trustee sale, the buyer and [its agents] reserve the right to participate in the trustee sale without any liability to the seller." (Original bold.) Paragraph 7 of page 4 provides: "TIME OF ESSENCE; ENTIRE CONTRACT; CHANGES: Time is of the essence. All understandings between the parties are incorporated in the Agreement. Its terms are intended by the parties as a final, complete, and exclusive expression of their agreement with respect to its subject matter, and may not be contradicted by evidence of any prior agreement or contemporaneous oral agreement. The Agreement may not be extended, amended, modified, altered, or changed in any respect whatsoever except in writing signed by Buyer and Seller." (Original bold.)
The instructions also provided that upon the close of escrow, a commission of $ 70,800 was to be paid to Mr. Kim and Mr. Franklin was to receive $ 65,000. The instructions were amended to provide that the payments in favor of Mr. Kim and Mr. Franklin were irrevocable and would be received simultaneously upon closing regardless of the purchase price.
Sue Han handled the transaction as an escrow officer for Veras Escrow Service, Inc. Ms. Han testified that 99 percent of the time the amount owed to a lender changed so that adjustments must be made to keep the sales price the same. As a result, she drafted an amended instruction which provided: "BUYER TO QUALIFY FOR LOAN: The close of this escrow is subject to Buyer qualifying for and assuming the existing FIRST Deed of Trust per its terms, securing a Note having an approximate unpaid balance due of $ 1,820,000.00. Escrow Holder is instructed to obtain a beneficiarys statement on said loan, to be approved by the Buyer prior to close of escrow. Escrow Holder is instructed to adjust any difference in the unpaid balance due, after same has been figured to a current status, in the amount of the down payment so that the sale price remains the same."
According to Ms. Han, on July 7, 1999 she discussed this clause with plaintiffs counsel, Mr. Franklin. Ms. Han also sent a copy of the language to Mr. Kim, the broker. Mr. Franklin told Ms. Han he did not want the escrow instructions changed. Mr. Franklin stated: "I gave you a draft of what I wanted. Thats what I wanted." She then inquired of Mr. Franklin how the parties wanted the difference in the purchase price to be resolved if the amount of the Cal Fed lien was more or less than $ 1,828,000. Mr. Franklin advised her that: "Well worry about that later. Just put what I gave you." The final escrow instructions did not contain a clause addressing the issue of the difference if the Cal Fed loan differed from $ 1,828,000.
Mr. Kim testified that after escrow opened he provided Mr. Franklin with proof of fund documents. Mr. Kim also advised Mr. Franklin that before the close of escrow the Rhos would have to liquidate $ 100,0000 in mutual funds, which process would take about 7 to 10 days. Also after the escrow was opened, Mr. Franklin and Cal Fed began negotiations regarding the forbearance agreement. The Rhos wanted at least 12 months to assume the loan or to obtain alternative financing. Cal Fed initially would only agree to a 90-day forbearance period. The Rhos were unwilling to purchase the property with only a 90-day forbearance period. As a result, the Rhos did not liquidate their mutual funds.
On July 14, 1999, a day before the scheduled foreclosure sale and seven days after the escrow opened, a number of events occurred. Cal Fed agreed to a 180-day forbearance agreement, which plaintiff, the Rhos, and a Cal Fed employee executed. On July 14, 1999, plaintiff, the Rhos, and a Cal Fed employee signed the forbearance agreement. The July 14, 1999, agreement allowed the Rhos six months to either qualify to assume the existing Cal Fed loan or to obtain new financing for the Gold Plaza. However, Cal Fed would only agree to postpone the scheduled foreclosure sale one additional day to July 16, 1999.
Mr. Kim testified that he told Mr. Franklin that the Rhos might not be able to liquidate the sufficient assets to cover the deposit. Therefore, the Rhos would be unable to make the deposit as required by the agreement and escrow instructions. In order to make up for the shortfall, Mr. Kim and Mr. Franklin agreed to give the Rhos a credit for the sales commission of $ 70,800. This would obviate the need for the Rhos to put the $ 70,800 into escrow. Ms. Han testified that in separate conversations, Mr. Kim and Mr. Franklin advised her that the Rhos should be credited with the amount of the brokers commission. In her experience, this was not an unusual practice to credit a brokers commission as a part of a down payment.
By the end of the day on July 14, 1999, the Rhos had made cash deposits into escrow of $ 453,000. Also on July 14, 1999, plaintiff was notified that at the close of escrow on July 15, 1999, the amount of the note to be assumed by the Rhos would be $ 1,793,478.42, which was $ 26,521.58 less than the amount stated in the sales contract. Ms. Han gave the letter from Cal Fed to Veras Escrow Service, Inc. which stated that was the actual balance due on the loan. The amount was approximately $ 27,000 less than the sum set forth in the escrow instructions. Mr. Anaya, plaintiffs chief executive officer, read the letter and signed a box stating "ACCEPTED & APPROVED." Mr. Anaya testified he was only accepting the amount owed but was not agreeing to an adjustment of the sales price. Ms. Han testified that she was orally instructed by Mr. Kim and Mr. Franklin to close escrow and that the final purchase price would be worked out later outside of escrow. Mr. Franklin, who questioned himself on direct examination, testified he never agreed that the escrow was closed without his consent. The escrow closed on July 15, 1999.
C. The Judgment
The jury found in favor of plaintiff on the contract breach claim against the Rhos. Plaintiff was awarded $ 26,521.58. On the quiet title claim, the jury found in favor of the Rhos. In this respect, the jurors found that plaintiff was not entitled to possession of the Gold Plaza property. The jury found in favor of Veras Escrow Service, Inc. concluding: it did not breach its contractual obligations; it did not commit fraud by breaching its fiduciary obligations; and it was not professionally negligent.
The trial court held that, because plaintiff was not entitled to possession of the property, it was not entitled to have title quieted in its name. The trial court also tried the declaratory relief claims. The trial court found that the Rhos were entitled to the $ 40,979 that was being held in escrow to cover security deposits.
On November 30, 2000, the trial court granted the attorney fees motion of Veras Escrow Service, Inc. in the amount of $ 105,000. On January 22, 2001, the trial court ordered Mr. Franklin to pay $ 1,412 in sanctions to the Rhos as a result of a sanctions motion brought pursuant to section 128.7 and the courts inherent power. Plaintiff and Mr. Franklin filed a timely notice of appeal from the judgment and the sanctions order.
III. DISCUSSION
A. The Notice of Trial
Plaintiff argues it was not given adequate or proper notice of trial, which was set for Monday, September 25, 2000. This was because, on Friday, September 22, 2000, the trial court, outside the presence of counsel, summoned a panel of 35 prospective jurors and spoke with them about matters that were not reported. No authority has been cited nor has any argument been made as to why this procedure requires the judgment be reversed. On appeal, a party has the obligation to direct us to reasoned argument and citations to legal authority that supports its position. (Cal. Rules of Court, rule 14(a)(1)(B); Pringle v. La Chapelle (1999) 73 Cal.App.4th 1000, 1003, fn. 2;Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784-785.) Where the appellant fails to support an argument with legal authority, the court may treat the point as waived and pass it without consideration. (In re Rosenkrantz (2002) 29 Cal.4th 616, 668; People v. Stanley (1995) 10 Cal.4th 764, 793, 897 P.2d 481.)
Furthermore, plaintiff has not demonstrated any prejudice from the trial courts refusal to summon an entirely new panel of prospective jurors on September 25, 2000. The Court of Appeal has held: "It is not this courts function to serve as [appellants] backup appellate counsel and we decline to speculate as to how [appellant] may have been prejudiced . . . ." (Mansell v. Board of Administration (1994) 30 Cal.App.4th 539, 545-546; see American Sheds, Inc. v. County of Los Angeles (1998) 66 Cal.App.4th 384, 391-392.) In any event, the record shows plaintiff was not prejudiced because the trial court refused to summon an entirely new panel. Plaintiffs counsel appeared on the scheduled trial date, participated in jury voir dire, and obtained a favorable judgment on at least one of its claims against the Rhos. (Sheldon v. Landwehr (1911) 159 Cal. 778, 782, 116 P. 44 [defective notice immaterial where party is represented at the trial]; Cohen v. Hughes Markets, Inc. (1995) 36 Cal.App.4th 1693, 1696; Elliano v. Assurance Co. of America (1975) 45 Cal. App. 3d 170, 174, 119 Cal. Rptr. 653 [even though an attorney claims no intent to waive notice by appearance, actual knowledge of trial and appearance by counsel does not require reversal where the party given opportunity to present defense]; Forney v. Brodie (1934) 3 Cal. App. 2d 245, 249-250, 39 P.2d 516 [party could not complain of notice of trial where party participated in examination of jurors, helped select jurors on trial date, and presented evidence in support of his cause].
B. The Contract Breach Claims
Plaintiff argues the jurys verdict on the contract breach claims cannot be upheld because they are fatally inconsistent. Plaintiff contends that the $ 26,521.58 verdict, the difference between $ 1,820,000 and $ 1,793,478.42, against the Rhos is inconsistent with the jurys conclusion that Veras Escrow Service, Inc. did not breach the terms of the escrow instructions. Plaintiff argues that: Veras Escrow Service, Inc. was required to follow the escrow instructions; the escrow instructions provided that the purchase price would be $ 1,828,000; and Veras Escrow Service, Inc. released the grant deed from escrow for recording in spite of a $ 26,521.58 deficiency in the purchase price.
In Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711, the California Supreme Court set forth the applicable scope of an escrow holders duties as follows. "An escrow involves the deposit of documents and/or money with a third party to be delivered on the occurrence of some condition. (3 Miller & Starr, Cal. Real Estate (3d ed. 1989) § 6:1, pp. 2-3 (rev. 9/00); see Fin. Code, § 17003 , subd. (a).) An escrow holder is an agent and fiduciary of the parties to the escrow. (Amen v. Merced County Title Co. (1962) 58 Cal.2d 528, 534, 25 Cal. Rptr. 65, 375 P.2d 33 [] (Amen); Rianda v. San Benito Title Guar. Co. (1950) 35 Cal.2d 170, 173, 217 P.2d 25 [].) The agency created by the escrow is limited-limited to the obligation of the escrow holder to carry out the instructions of each of the parties to the escrow. (Vournas v. Fidelity Nat. Tit. Ins. Co. (1999) 73 Cal.App.4th 668, 674 [] (Vournas); Schaefer v. Manufacturers Bank (1980) 104 Cal. App. 3d 70, 77, 163 Cal. Rptr. 402 [] (Schaefer); Blackburn v. McCoy (1934) 1 Cal. App. 2d 648, 655, 37 P.2d 153 [].) 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, at p. 532.) [P] In delimiting the scope of an escrow holders fiduciary duties, then, we start from the principle that an escrow holder must comply strictly with the instructions of the parties. [Citations.] (Amen , supra, 58 Cal.2d at p. 531.) On the other hand, an escrow holder has no general duty to police the affairs of its depositors; rather, an escrow holders 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, 230 Cal. Rptr. 749 []; see, e.g., Vournas, supra, 73 Cal.App.4th at p. 674; Romo v. Stewart Title of California (1995) 35 Cal.App.4th 1609, 1618, fn. 9 []; Schaefer, supra, 104 Cal. App. 3d at pp. 77-78; Axley v. Transamerica Title Ins. Co. (1978) 88 Cal. App. 3d 1, 9, 151 Cal. Rptr. 570 [].) Absent clear evidence of fraud, an escrow holders obligations are limited to compliance with the parties instructions. (Lee v. Title Ins. & Trust Co. (1968) 264 Cal. App. 2d 160, 162, 70 Cal. Rptr. 378 []; 3 Miller & Starr, Cal. Real Estate, supra, § 6:26, p. 68.)" (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co., supra, 27 Cal.4th at p. 711.)
Citing Hannon v. Western Title Ins. Co. (1989) 211 Cal. App. 3d 1122, 1127, 260 Cal. Rptr. 21, plaintiff argues that the failure of an escrow holder to follow the parties instructions creates a contract breach cause of action. Although couched in legal terms, plaintiffs argument is really nothing more than it disputes the jurys resolution of factual matters raised by the parties concerning whether Veras Escrow Service, Inc. in fact followed their instructions. We review the jury findings in this regard for substantial evidence. (Estate of Joseph (1998) 17 Cal.4th 203, 217; Scott v. Pacific Gas & Electric Co. (1995) 11 Cal.4th 454, 465, 904 P.2d 834.) But there was substantial evidence that Veras Escrow Service, Inc. did follow the written and oral instructions of Mr. Franklin and Mr. Kim (who represented the seller and buyers, respectively) to close the escrow on July 15, 1999, despite the deficiency in the purchase price. There is substantial evidence the parties opened a 60-day escrow on July 7, 1999, for the sale and purchase of property in the amount of $ 2,360,000. The terms of the agreement required the buyers to deposit no more than $ 540,000 and to assume a Cal Fed loan of "approximately $ 1,820,000.00." At the time the escrow opened, on July 7, 1999, Cal Fed had a foreclosure sale scheduled for July 15, 1999. The Rhos indicated that they were not interested in purchasing the property without a forbearance agreement of at least a year, to either assume the Cal Fed loan, or to obtain new financing. Mr. Kim also testified that Mr. Franklin was advised that the buyers needed at least 7 to 10 days to liquidate a $ 100,000 mutual fund in order to make the balance of the deposit into escrow. From July 7, 1999, through July 14, 1999, plaintiffs attorney, Mr. Franklin negotiated with Cal Fed regarding the forbearance agreement. Although Cal Fed ultimately agreed to a 180-day forbearance, the agreement was signed on July 14, 1999, which was one day prior to the scheduled foreclosure sale. Cal Fed would only agree to postpone the foreclosure sale to July 16, 1999.
Also, on July 14, 1999, Cal Fed advised plaintiff that the actual balance due on the loan was $ 1,793,478.42. As noted above, this created a shortage of $ 26,521.58 in the purchase price, with only one day to complete the transaction before Cal Feds scheduled July 15, 1999, foreclosure sale. Both Mr. Kim and Ms. Han testified that Mr. Franklin, plaintiffs lawyer, was aware of the shortfall but nevertheless wanted the escrow to close prior to Cal Feds foreclosure. Ms. Han testified that as early as July 7, 1999, she advised Mr. Franklin that the possibility of a shortage could occur. She then drafted a written clause to amend the escrow instructions so that the full purchase price could be paid prior to the close of escrow. The clause was shown to Mr. Franklin and Mr. Kim. Mr. Franklin specifically instructed Ms. Han to delete the clause. Mr. Franklin further advised her that the parties would resolve the issue outside of escrow. Ms. Han and Mr. Kim both testified that they discussed the commission credit with Mr. Franklin, who approved it. Therefore, substantial evidence supports the conclusion that Veras Escrow Service, Inc. followed the instructions of plaintiffs attorney and the Rhos to close the escrow despite the shortfall and with the use of Mr. Kims commission as a credit to the buyers. The Supreme Court has held, "The general rule [is] that an escrow holder incurs no liability for failing to do something not required by the terms of the escrow or for a loss caused by following the escrow instructions. [Citation.]" (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Company, supra, 27 Cal.4th at p. 715; Lee v. Title Ins. & Trust Co., supra, 264 Cal. App. 2d at p. 163; see also The Money Store Investment Corp. v. Southern Cal. Bank (2002) 98 Cal.App.4th 722, 731.) If Veras Escrow Service, Inc. had not acted in accordance with the parties instructions, Cal Fed would have foreclosed on the Gold Plaza property. Because Veras Escrow Service, Inc. obediently followed the parties escrow instructions, no liability can be predicated on its conduct. (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co., supra, 27 Cal.4th at p. 715; Siegel v. Fidelity Nat. Title Ins. Co. (1996) 46 Cal.App.4th 1181, 1194; Hannon v. Western Title Ins. Co., supra, 211 Cal. App. 3d at p. 1128; Lee v. Escrow Consultants, Inc. (1989) 210 Cal. App. 3d 915, 921, 259 Cal. Rptr. 117.)
Furthermore, we disagree with plaintiff that the verdict in favor of Veras Escrow Service, Inc. cannot be upheld because the jury was allowed to hear evidence that the parties orally amended the instructions to close the escrow with the shortfall. As noted above, the escrow instructions provided that amendments and supplemental escrow were to be in writing. In addition, Financial Code section 17403.2, subdivision (a) provides that all escrow instructions must be in writing. Copies of amended and supplemental escrow instructions must be delivered to all parties. (Fin. Code, § 17403.3.) These statutes require original, amended, and supplementary instructions be in writing. But, they do not release an escrow holder from liability for failing to comply with oral escrow instructions. (Zang v. Northwestern Title Co. (1982) 135 Cal. App. 3d 159, 167-168, 185 Cal. Rptr. 176; see also Kirk Corp. v. First American Title Co. (1990) 220 Cal. App. 3d 785, 807, 270 Cal. Rptr. 24, overruled on a different point in Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co., supra, 27 Cal.4th at p. 714; Claussen v. First American Title Guaranty Co., supra, 186 Cal. App. 3d at p. 435.) The Court of Appeal has held, "Escrow instructions may be oral, even when some are in writing [citations] and that some escrow instructions may be implicit in the express instructions given." (Claussen v. First American Title Guaranty Co., supra, 186 Cal. App. 3d at p. 436; see Kirk Corp. v. First American Title Co., supra, 220 Cal. App. 3d at p. 807.) The escrow holder has a duty to take steps to correct any questionable matters before complying with the instructions. (Ibid.; Kirby v. Palos Verdes Escrow Co. (1986) 183 Cal. App. 3d 57, 65-66, 227 Cal. Rptr. 785; Diaz v. United California Bank (1977) 71 Cal. App. 3d 161, 167, 171, 139 Cal. Rptr. 314.) As noted, Ms. Han, the Veras Escrow Service, Inc., employee, did take steps including drafting a clause to cover the shortfall caused by the lower Cal Fed balance. It was plaintiff, through its attorney, that rejected the Ms. Hans efforts to correct the instructions in writing. Thus, the escrow closed with the shortfall in obedience to instructions of Mr. Franklin and Mr. Kim to prevent Cal Fed from foreclosing on the property the next day.
Financial Code section 17403.2, subdivision (a) provides: "No person subject to this division shall solicit or accept an escrow instruction or amended or supplemental escrow instruction containing any blank to be filled in after signing or initialing of the escrow instruction or amended or supplemental escrow instructions, nor permit any person to make any addition to, deletion from, or alteration of an escrow instruction or amended or supplemental escrow instruction, unless the addition, deletion or alteration is signed or initialed by all persons who had signed or initialed the escrow instruction or amended or supplemental escrow instruction prior to the addition, deletion or alteration."
C. Parol Evidence
Plaintiff argues that the trial court erroneously admitted parol evidence to explain the reason Mr. Kims commission was used as a credit to it. The parol evidence rule provides: "(a) Terms set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement. [P] (b) The terms set forth in a writing described in subdivision (a) may be explained or supplemented by evidence of consistent additional terms unless the writing is intended also as a complete and exclusive statement of the terms of the agreement. [P] (c) The terms set forth in a writing described in subdivision (a) may be explained or supplemented by course of dealing or usage of trade or by course of performance. [P] (d) The court shall determine whether the writing is intended by the parties as a final expression of their agreement with respect to such terms as are included therein and whether the writing is intended also as a complete and exclusive statement of the terms of the agreement. [P] (e) Where a mistake or imperfection of the writing is put in issue by the pleadings, this section does not exclude evidence relevant to that issue. [P] (f) Where the validity of the agreement is the fact in dispute, this section does not exclude evidence relevant to that issue. [P] (g) This section does not exclude other evidence of the circumstances under which the agreement was made or to which it relates, as defined in Section 1860, or to explain an extrinsic ambiguity or otherwise interpret the terms of the agreement, or to establish illegality or fraud. [P] (h) As used in this section, the term agreement includes deeds and wills, as well as contracts between parties." (Code Civ. Proc., § 1856.)
The parol evidence rule is based on the premise that the written instrument is the agreement of the parties. (Banco Do Brasil, S.A. v. Latian, Inc. (1991) 234 Cal. App. 3d 973, 1001, 285 Cal. Rptr. 870; Gerdlund v. Electronic Dispensers International (1987) 190 Cal. App. 3d 263, 270, 235 Cal. Rptr. 279.) The issue of whether the rule applies so as to exclude any collateral oral agreement is one of law to be determined by the court. (§ 1856, subd. (d); Banco Do Brasil, S.A. v. Latian, Inc., supra, 234 Cal. App. 3d at p. 1001.) The issue is resolved de novo on appeal. (Banco Do Brasil, S.A. v. Latian, Inc., supra, 234 Cal. App. 3d at p. 1001; Wagner v. Glendale Adventist Medical Center (1989) 216 Cal. App. 3d 1379, 1386, 265 Cal. Rptr. 412.) In order to apply the parol evidence rule, a court resolves two issues. First, the court determines whether the writing was intended to be an integration, the complete and final expression of the parties contract, which precludes any evidence of collateral agreements. Second, the court evaluates whether the agreement susceptible of the meaning asserted by the party offering the evidence. (Banco Do Brasil, S.A. v . Latian, Inc., supra, 234 Cal. App. 3d at p. 1001; Gerdlund v. Electronic Dispensers International, supra, 190 Cal. App. 3d at p. 270.) In analyzing the threshold issue of whether the parties intended the written instrument to serve as the exclusive embodiment of their agreement, the Court of Appeal in Banco Do Brasil, S.A. v. Latian, Inc., supra, 234 Cal. App. 3d at pages 1002-1003, held the following four factors must be evaluated: "(1) does the written agreement appear on its face to be a complete agreement; obviously, the presence of an integration clause will be very persuasive, if not controlling, on this issue; (2) does the alleged oral agreement directly contradict the written instrument; (3) can it be said that the oral agreement might naturally have been made as a separate agreement or, to put it another way, if the oral agreement had been actually agreed to, would it certainly have been included in the written instrument; and (4) would evidence of the oral agreement be likely to mislead the trier of fact." (See Software Design & Application, Ltd. v. Price Waterhouse (1996) 49 Cal.App.4th 464, 470; Hayter Trucking, Inc. v. Shell Western E & P, Inc. (1993) 18 Cal.App.4th 1, 15.)
We disagree with plaintiff that the parol evidence rule applies here. After the written agreement was executed on July 7, 1999, a number of issues arose which would have left the escrow short of funds to close. The Rhos were unable to liquidate the $ 100,000 mutual fund before the scheduled July 15, 1999, Cal Fed foreclosure of its first trust deed. The loan balance owed to Cal Fed was less than that anticipated by the parties. Contrary to the advice of Ms. Han of Veras Escrow Service, Inc., Mr. Franklin declined an offer to have escrow instructions inserted to resolve the issue of the actual loan balance. Of course, had Ms. Han opted to forestall the closing of escrow, plaintiff would have forfeited its interest in the property because Cal Fed was going to foreclose on its first trust deed on July 15, 1999. In order to avoid this result, plaintiff and Mr. Kim, on behalf of the Rhos, orally agreed that his sales commission could be used. This is not an admission of evidence of a prior or contemporaneous agreement contradicting the express written terms of the integrated escrow instructions. Rather, this is evidence of an oral modification of the written agreement.
The parole evidence rule only excludes extrinsic evidence of prior or contemporaneous agreements. (Conley v. Matthes (1997) 56 Cal.App.4th 1453, 1466; Marani v. Jackson (1986) 183 Cal. App. 3d 695, 699, fn. 2, 228 Cal. Rptr. 518.) The parol evidence rule does not exclude evidence of subsequent oral agreements. (Conley v. Matthes, supra, 56 Cal.App.4th at p. 1466; Marani v. Jackson, supra, 183 Cal. App. 3d at p. 699, fn. 2.) Our colleagues in Division Seven of this appellate district have held: "The parties to a written agreement may modify it by an executed oral agreement. The written contract remains in effect to the extent it has not been modified. (Civ. Code, § 1698, subds. (b), (c) [a contract in writing may be modified by an oral agreement to the extent the oral agreement is executed by the parties and is supported by consideration].)" (Conley v. Matthes, supra, 56 Cal.App.4th at p. 1465, original italics.)
Also the parol evidence rule is inapplicable because the oral agreement has been executed. The parties agreed to the sale and purchase of the property with the use of the commission in consideration of the Rhos deposit in cash of almost one-half million dollars. It also was done in order to avoid a forfeiture of plaintiffs interest in the Gold Plaza property. Plaintiff cannot at the same time argue it was entitled to the benefit of preventing the foreclosure (by having Mr. Kim not receive a $ 70,800 commission so that the escrow could close) and then contend that the transaction was barred by the written agreements. No doubt, the escrow instructions contained a clause precluding modification except by a writing. But, by accepting the benefits of the modification, plaintiff is estopped from arguing evidence of the oral amendment is barred by the parol evidence rule. (Conley v. Matthes, supra, 56 Cal.App.4th at p. 1466; Wagner v. Glendale Adventist Medical Center, supra, 216 Cal. App. 3d at p. 1388.) The Court of Appeal has held: "When one party has, through oral representations and conduct or custom, subsequently behaved in a manner antithetical to one or more terms of an express written contract, he or she has induced the other party to rely on the representations and conduct or custom. In that circumstance, it would be equally inequitable to deny the relying party the benefit of the other partys apparent modification of the written contract." (Wagner v. Glendale Adventist Medical Center, supra, 216 Cal. App. 3d at p. 1388; accord, Day v. Greene (1963) 59 Cal.2d 404, 409-410, 29 Cal. Rptr. 785, 380 P.2d 385.)
D. The Fiduciary Duty Breach Instruction
Plaintiff argues the trial court improperly refused to submit the fiduciary duty issue to the jury for determination, when that theory was alleged in the complaint and supported by evidence. The issue arose when the trial court indicated that it planned to submit the fiduciary duty breach theory to the jury on the issue raised by the pleadings and the evidence, which supported a fraud claim.
Plaintiff argues that the trial court prejudicially instructed the jury on a fraud cause of action based on fiduciary duty breach. Plaintiff argues this issue was different from the fiduciary duty breach as pled in the complaint. The trial court concluded that the evidence introduced at trial showed a fraud cause of action predicated upon a fiduciary duty breach theory. The trial court instructed the jury on the elements of a fraud claim in conjunction with instructions that Veras Escrow Service, Inc. was acting in a fiduciary capacity for plaintiff and Rhos. The jury was instructed in part: "Except as you may otherwise be instructed, where material facts are known to one party and not to the other, failure to disclose them is not actionable fraud unless there is some relationship between the parties which gives rise to a duty to disclose such known facts. [P] A duty to disclose known facts arises where the party having knowledge of the facts is in a fiduciary relationship. [P] A fiduciary relationship exists whenever under the circumstances trust and confidence reasonably may be and is reposed by one person in the integrity and fidelity of another. [P] A duty to disclose known facts arises in the absence of fiduciary or confidential relationship where one party knows of material facts and also knows that such facts are neither known nor readily accessible to the other party. [P] A fiduciary relationship existed between plaintiff Gris and the defendant Veras [Escrow Service, Inc.] and between defendant[] Rho and defendant Veras [Escrow Service, Inc.] as a result of the escrow instructions. Defendant Veras [Escrow Service, Inc.] was the fiduciary. [P] An escrowholder owes the parties to the escrow the fiduciary duty to faithfully comply with the parties instructions."
Given the pleadings and state of the evidence, the trial court did not err in its ruling that fiduciary duty breach instructions based on a fraud theory were required. As noted above, the Supreme Court has recently reiterated the principle that an escrow holders fiduciary duties consists of a duty to strictly comply with the instructions of the parties. (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. , supra, 27 Cal.4th at p. 711, quoting Amen v. Merced County Title Co., supra, 58 Cal.2d at p. 531.) However, the fiduciary duty is limited to faithful compliance with the instructions of the parties. (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co., supra, 27 Cal.4th at p. 711; Claussen v. First American Title Guaranty Co., supra, 186 Cal. App. 3d at pp. 435-436.) Of course, if there is clear evidence of fraud, a fiduciary duty breach claim can arise. (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co., supra, 27 Cal.4th at p. 711; Lee v. Title Ins. & Trust Co., supra, 264 Cal. App. 2d at p. 162; 3 Miller & Starr, Cal. Real Estate, supra, § 6:26, p. 68.)
In this case, fraud and breach of fiduciary duty were different labels for the same cause of action alleged in the complaint and presented by the facts of this case. Plaintiff alleged in the complaint that: Veras Escrow Service, Inc. altered the escrow instructions without its approval; Veras Escrow Service, Inc. concealed or failed to disclose that Mr. Kims commission was being used as a credit to the buyers; and Veras Escrow Service, Inc. falsely stated that it had received all the cash needed to close the escrow. There was substantial evidence that the parties instructed Ms. Han to close the escrow with the shortfall and by using Mr. Kims commission as a credit for the Rhos. However, plaintiff denied that Veras Escrow Service, Inc. was acting in accordance with any oral instructions from Mr. Franklin. If the jury believed Mr. Franklins version of the facts, Veras Escrow Service, Inc. was acting in direct conflict with the parties instructions. If these circumstances were accepted by the jury, the following would be the state of affairs: Veras Escrow Service, Inc. would have closed the escrow knowing that the Rhos had not deposited the correct amount of money; Mr. Kims commission had improperly been used as a credit; and that plaintiffs principals knew nothing of these circumstances. These facts were sufficient to support the trial courts conclusion that the fiduciary duty breach claim amounted to a fraud allegation. Accordingly, the trial court correctly concluded that Veras Escrow Service, Inc. should be instructed in accordance with the fraud theory raised by both the pleadings and the evidence.
E. The Declaratory Relief Claim
Plaintiff contends the trial court erred in resolving the declaratory relief claims in the complaint and cross-complaint in favor the Rhos concerning who was entitled to $ 40,979 being retained in escrow. The amount was being retained for security deposits that might have been made by tenants of Gold Plaza to the prior owners, Ms. Shin and her son, Mr. Shin, who were no longer available. Plaintiff argued that it was not liable for the deposits. The Rhos contended that plaintiff was liable. As part of escrow instructions, the parties, however, agreed the security issue would be resolved as follows: "To the extent that [plaintiff] is liable for tenant deposits paid since the Tom Shin discharge (which deposits are now being held by Biggs & Co., $ 11,321.00), those deposits will be delivered or credited to Buyer. To the extent that a tenant claims to have paid Tom Shin or Young Shin a deposit that is not presently being held by Biggs & Co., $ 40,979.00 will be withheld from Seller in escrow until a determination is obtained by the Seller in Bankruptcy Court (or other forum having jurisdiction), as to whether [plaintiff] is liable for that deposit. If [plaintiff] is so liable, those funds will be paid over to the Buyer. If not, those funds will be paid to Seller."
Citing the language of the contract between the parties, the trial court found that the Rhos were entitled to the deposit. In so ruling, the trial court stated: "While the contract alludes to other forum having jurisdiction the proper forum is the bankruptcy court which is in a position to adjudicate the rights of the parties absent from this proceeding—the tenants and the SHINS. [P] [Plaintiff] failed to utilize the Bankruptcy Court. To convince the court by a preponderance of the evidence [plaintiff] has failed to offer sufficient evidence that it is entitled to those funds. Therefore, the court finds for [the Rhos] and against [plaintiff] and orders the $ 40,979.00 presently held in escrow to be delivered to [the Rhos]."
Civil Code section 1950.7 provides in part: "(a) Any payment or deposit of money the primary function of which is to secure the performance of a rental agreement for other than residential property or any part of the agreement, other than a payment or deposit, including an advance payment of rent, made to secure the execution of a rental agreement, shall be governed by the provisions of this section. With respect to residential property, the provisions of Section 1950.5 shall prevail. [P] (b) Any such payment or deposit of money shall be held by the landlord for the tenant who is party to the agreement. The claim of a tenant to the payment or deposit shall be prior to the claim of any creditor of the landlord, except a trustee in bankruptcy. [P] . . . [P] (d) Upon termination of the landlords interest in the unit in question, whether by sale, assignment, death, appointment of receiver or otherwise, the landlord or the landlords agent shall, within a reasonable time, do one of the following acts, either of which shall relieve the landlord of further liability with respect to the payment or deposit: [P](1) Transfer the portion of the payment or deposit remaining after any lawful deductions made under subdivision (c) to the landlords successor in interest, and thereafter notify the tenant by personal delivery or certified mail of the transfer, of any claims made against the payment or deposit, and of the transferees name and address. If the notice to the tenant is made by personal delivery, the tenant shall acknowledge receipt of the notice and sign his or her name on the landlords copy of the notice. [P] (2) Return the portion of the payment or deposit remaining after any lawful deductions made under subdivision (c) to the tenant. [P] (e) Upon receipt of any portion of the payment or deposit under paragraph (1) of subdivision (d), the transferee shall have all of the rights and obligations of a landlord holding the payment or deposit with respect to the payment or deposit. . . ." (Italics added.)
Plaintiff argues that, there was no evidence that it ever obtained any deposits within the meaning of Civil Code section 1950.7 from any of the tenants nor did it take possession of the Gold Plaza property. Hence, plaintiff argues, it cannot be liable for the deposits as a matter of law. Because of privity of contract, the obligation with respect to security deposits of a landlord is a personal one. (Federated Mortgage Investors v. American Sav. & Loan Assn. (1975) 47 Cal. App. 3d 917, 922-923, 121 Cal. Rptr. 137.) The security deposits obligation does not run with the title. (Ibid.) The buyer of real property acquires no right to security deposits merely because it has succeeded to title to the property. (Ibid ; Gallagher v. McMann (1932) 119 Cal.App. 688, 690, 7 P.2d 204.) The Court of Appeal has held: "In the absence of [an] agreement, a sale of the property [does] not transfer the security deposits to the buyer. [Citation.] [The buyer] acquires no right to the security deposits merely because it succeeded to the title to the property." (Federated Mortgage Investors v. American Sav. & Loan Assn., supra, 47 Cal. App. 3d at pp. 922-923.)
Upon termination of their rental agreements, tenants are entitled to repayment of their security deposits after any lawful deductions. (Civ. Code, § 1950.7, subds. (c) & (d)(1); Federated Mortgage Investors v. American Sav. & Loan Assn., supra, 47 Cal. App. 3d at p. 925; Garfinkle v. Montgomery (1952) 113 Cal. App. 2d 149, 158, 248 P.2d 52; Thompson v. Swiryn (1950) 95 Cal. App. 2d 619, 629, 213 P.2d 740.) Initially, the obligation to repay the tenants rests on the party receiving them. (Civ. Code, § 1950.7, subd. (b); Federated Mortgage Investors v. American Sav. & Loan Assn., supra, 47 Cal. App. 3d at p. 925.) When title to property is transferred, however, a seller has the option of refunding a tenants deposit or transferring the funds to the buyer. Upon such a transfer, the seller is relieved of any further obligation. (Civ. Code, § 1950.7, subd. (d)(1) & (2); Federated Mortgage Investors v. American Sav. & Loan Assn., supra, 47 Cal. App. 3d at p. 923; Garfinkle v. Montgomery, supra, 113 Cal. App. 2d at p. 158.) The seller and buyer may not expressly or impliedly agree to reduce or eliminate the rights of the tenants to a refund of the security deposits. (Federated Mortgage Investors v. American Sav. & Loan Assn. , supra, 47 Cal. App. 3d at p. 925.) However, nothing precludes parties from when title to property is transferred from contractually determining by an escrow which party will bear the obligation of returning the security deposits in order to complete the sales transaction. (Id. at p. 926.)
In this case, the parties specifically agreed in the escrow instructions that the security issue would be resolved by following a procedure; viz. plaintiff obtaining a determination in bankruptcy court or other forum that it was not liable. The Los Angeles Superior Court is such a forum. Civil Code section 1950.7 and Federated support the trial courts determination that the security deposits should be awarded to the Rhos. Plaintiff presented no evidence that it ever repaid a single tenants deposit. The Rhos, as the new owners, now have the obligation to refund deposits because they have received the funds posted by the tenants. Accordingly, the trial court properly resolved the tenant deposit issue based on the express agreement of the parties. (Civ. Code, § 1950.7, subd. (d)(1) & (2); Federated Mortgage Investors v. American Sav. & Loan Assn., supra, 47 Cal. App. 3d at pp. 922-926.)
F. The Statement of Decision
Plaintiff argues the trial court committed reversible error by failing to issue a statement of decision. Section 632 provides: "In superior courts, upon the trial of a question of fact by the court, written findings of fact and conclusions of law shall not be required. The court shall issue a statement of decision explaining the factual and legal basis for its decision as to each of the principal controverted issues at trial upon the request of any party appearing at the trial. The request must be made within 10 days after the court announces a tentative decision unless the trial is concluded within one calendar day or in less than eight hours over more than one day in which event the request must be made prior to the submission of the matter for decision. The request for a statement of decision shall specify those controverted issues as to which the party is requesting a statement of decision. After a party has requested the statement, any party may make proposals as to the content of the statement of decision. [P] The statement of decision shall be in writing, unless the parties appearing at trial agree otherwise; however, when the trial is concluded within one calendar day or in less than 8 hours over more than one day, the statement of decision may be made orally on the record in the presence of the parties."
The trial court tried the declaratory relief cause of action beginning at 8:35 a.m., on October 25, 2000. The parties made oral arguments regarding the security deposits. The trial court then ordered a briefing schedule with respect to any issues the parties wished the court to consider. The minute order for the proceedings on October 25, 2000, was entered at 1:30 p.m. On November 17, 2000, the court issued its minute order specifying its findings and conclusions of law on the declaratory relief cause of action. On November 29, 2000, plaintiff filed objections to the trial courts findings and requested a written statement of decision. On November 30, 2000, the trial court denied the request for a statement of decision. In denying the request, the trial court indicated that its minute order was intended as the statement of decision. The court stated it had issued a detailed written statement in spite of the parties failure to request a written statement. The record shows that trial of the declaratory relief cause of action was submitted after a one-day trial on October 25, 2000, by 1:30 p.m. Because the trial of the declaratory cause of action was tried in less than eight hours, a request for statement of decision had to be made prior to the courts announced decision. No request was made prior to the courts announced decision. Accordingly, plaintiff has failed to demonstrate that the trial court erred in refusing to issue a statement of decision because it did not make a timely request for such. (§ 632; In re Marriage of Gray (2002) 103 Cal.App.4th 974, 977-980; Khan v. Medical Board (1993) 12 Cal.App.4th 1834, 1839-1840.)
G. The Attorney Fees Award
Plaintiff raises several contentions concerning the $ 105,000 attorney fee award in favor of Veras Escrow Service, Inc. Plaintiff argues the trial court erroneously awarded Veras Escrow Service, Inc. $ 105,000 in attorney fees. Plaintiff further argues that the trial court improperly failed to hear its motion to determine it was the prevailing party against the Rhos. Paragraph 23 of page 6 of the escrow instructions contains an attorney fee provision. It provides: "If conflicting demands are made or notice served upon you or legal action is taken in connection with this escrow, you shall not be required to determine the same or take any action in the premises, but may withhold and stop all further proceedings without liability therefore, or you may file suit in interpleader or for declaratory relief. If you are required to respond to any legal summons or proceedings, or if any action of interpleader or declaratory relief is brought to you, or if conflicting demands or notice by parties to this escrow or by any other party or parties is served upon you, we jointly and severally agree to pay reasonable escrow fees and all costs, expenses, and reasonable attorneys fees expended or incurred by you as a result of any of the above described events, and a lien is hereby created in your companys favor to cover said items. We agree to save you harmless as Escrow Holder hereunder from all losses and expenses, including reasonable attorneys fees and court costs sustained by reason of any claim, demand, or action filed, legal or otherwise, which may in any manner arise out of, or from the property which is the subject of this escrow, or out of or from this escrow, before or after closing, notwithstanding anything in these instructions to the contrary, and in addition hereto, we jointly and severally agree to pay reasonable escrow fees therefore."
Plaintiff has not challenged the amount of the attorney fee award to Veras Escrow Service, Inc. Plaintiff also admits that it obtained no relief from Veras Escrow Service, Inc. on either contract or tort claims. As the prevailing party on all theories raised against it, Veras Escrow Service, Inc. was entitled to its attorney fees. ( §§ 1025, 1032, 1033.5; Tanner v. Tanner (1997) 57 Cal.App.4th 419, 423; Childers v. Edwards (1996) 48 Cal.App.4th 1544, 1547-1551; Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338, 1341.) Plaintiff nevertheless argues the attorney fees award was improper because: the jurors returned a verdict in the sum of $ 26,521 in favor of plaintiff and against the Rhos on its contract breach claim in the first cause of action of the complaint; the defense verdict on the third cause of action in favor of Veras Escrow Service, Inc. conflicted with the jurys findings as to the first cause of action against the Rhos; given the ambiguity of the jury verdicts on the first and third causes of action, the trial court failed to find that plaintiff was the prevailing party entitled to its attorney award. This contention has no merit. First, as we have already discussed at length, the verdicts as to the first and third causes of action are not inconsistent. As we have explained, the contractual duties of the Rhos and Veras Escrow Service, Inc. were different. Second, Veras Escrow Service, Inc. was without question the prevailing party on plaintiffs contract claims. Third, the trial court correctly found that the attorney fee provision contained in paragraph 23 of page 6 of the escrow instructions was not a contractual agreement between plaintiff and the Rhos concerning litigation fees. Rather, the language of paragraph 23 expressly states that Veras Escrow Service, Inc. is entitled to attorney fees in the event of a lawsuit. Paragraph 23 does not provide for payment of attorney fees in the event of litigation between the plaintiff and the Rhos. Accordingly, the trial court properly found plaintiff was not entitled to attorney fees.
H. The Sanctions Award
Mr. Franklin contends that the sanctions order cannot be upheld under section 128.7 because there was non-compliance with the statutory "safe harbor" provisions. We agree with Mr. Franklin that the sanctions order must be reversed because there was non-compliance with the "safe harbor" provision of section 128.7.
On September 29, 2000, the Rhos filed a sanctions request for an award of sanctions against Mr. Franklin in the amount of $ 1,412 for fees and costs incurred in connection with ex parte motions noticed by him. The Rhos motion was brought pursuant to section 128.7 and the courts inherent power to control the proceedings before it. The Rhos argued that Mr. Franklin had improperly gave oral telephonic notice concerning ex parte motions on September 15, 2000, in order to harass them and to cause needless increases in the cost of the litigation. David J. Pasternak, the attorney for the Rhos, received facsimile letters from Mr. Franklin on Friday, September 15, 2000, at 8:30 a.m. and 10:37 a.m. The letters gave notice of ex parte motions that were to be presented by Mr. Franklin to the court on Monday, September 18, 2000, at 8:30 a.m. in Department 17. On Saturday, September 16, 2000, Mr. Pasternak visited his office primarily to check the fax machine for copies of the moving papers. However, no papers were in the office.
On Monday, September 18, 2000, Mr. Pasternak appeared in court at the appointed time for hearing on the Mr. Franklins ex parte motions. Counsel for Veras Escrow Service, Inc., William Balderrama, also appeared at 8:30 a.m. However, Mr. Franklin never appeared. The trial court instructed Mr. Pasternak to notice a hearing for a sanctions award on one of the trial dates for the following week. Mr. Pasternak returned to his office at 10 a.m. on Monday morning, September 18, 2000. Mr. Pasternak discovered that at 6:34 a.m. on Monday, September 18 ,2000, Mr. Franklin had sent a facsimile letter dated September 15, 2000. Mr. Franklins 6:34 a.m. letter stated that the ex parte notice was withdrawn. The Rhos sought sanctions of $ 1,412 for costs and attorney fees incurred in appearing at the September 18, 2000, ex parte hearing that never materialized and for the sanctions motion.
Under the safe harbor provisions of section 128.7, a party must be given an opportunity to appropriately correct the offending conduct before a sanction can be imposed. ( § 128.7, subd. (c)(1); Barnes v. Department of Corrections (1999) 74 Cal.App.4th 126, 130-131; Malovec v. Hamrell (1999) 70 Cal.App.4th 434, 441; Goodstone v. Southwest Airlines Co. (1998) 63 Cal.App.4th 406, 418-419.) Section 128.7, subdivision (c), as it was in effect when the sanctions motion was filed in this case, provides in part: "In determining what sanctions, if any, should be ordered, the court shall consider whether a party seeking sanctions has exercised due diligence. [P] (1) A motion for sanctions under this section shall be made separately from other motions or requests and shall describe the specific conduct alleged to violate subdivision (b). Notice of motion shall be served as provided in Section 1010, but shall not be filed with or presented to the court unless, within 21 days after service of the motion, or any other period as the court may prescribe, the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected. If warranted, the court may award to the party prevailing on the motion the reasonable expenses and attorneys fees incurred in presenting or opposing the motion. Absent exceptional circumstances, a law firm shall be held jointly responsible for violations committed by its partners, associates, and employees. [P] (2) On its own motion, the court may enter an order describing the specific conduct that appears to violate subdivision (b) and directing an attorney, law firm, or party to show cause why it has not violated subdivision (b), unless, within 21 days of service of the order to show cause, the challenged paper, claim, defense, contention, allegation, or denial is withdrawn or appropriately corrected." (Stats. 1998, ch. 121, § 2.)
The purpose of the safe harbor provision of section 128.7 is to provide an opportunity for the offending party to withdraw or correct the improper pleading so as to avoid sanctions. (Barnes v . Department of Corrections, supra, 74 Cal.App.4th at pp. 130-131; Malovec v. Hamrell, supra, 70 Cal.App.4th at p. 441; Goodstone v. Southwest Airlines Co., supra, 63 Cal.App.4th at pp. 418-419.) Thus, it is clear that a party can avoid any sanctions by withdrawing or correcting its conduct. ( § 128.7, subd. (c)(1); Barnes v. Department of Corrections, supra, 74 Cal.App.4th at pp. 130-131; Malovec v. Hamrell, supra, 70 Cal.App.4th at p. 441.) If the pleading is withdrawn during the safe harbor period, the sanctions motion may not be filed. But if the pleading is not withdrawn or corrected the sanctions motion may then be filed. (Ibid.; see Goodstone v. Southwest Airlines Co., supra, 63 Cal.App.4th at p. 424.) The safe harbor requirement contained in section 128.7, subdivision (c) is mandatory and neither a party nor the court is permitted to disregard it. (Barnes v. Department of Corrections, supra, 74 Cal.App.4th at p. 131; Malovec v. Hamrell, supra, 70 Cal.App.4th at p. 441; Goodstone v. Southwest Airlines Co., supra, 63 Cal.App.4th at p. 424; see also In re Marriage of Reese & Guy (1999) 73 Cal.App.4th 1214, 1220, fn. 3.) Furthermore, both a party seeking sanctions and the trial court setting an order to show cause must leave sufficient opportunity for the offending party to choose whether to withdraw or correct the pleading before sanctions may be imposed. (Malovec v. Hamrell, supra, 70 Cal.App.4th at p. 442; see Goodstone v. Southwest Airlines Co., supra, 63 Cal.App.4th at p. 424.)
In this case, there are two principal problems with the section 128.7 sanction order imposed on Mr. Franklin. The first is that, at the point the trial court imposed sanctions against Mr. Franklin, he had already withdrawn the motion. If there is nothing for the offending party to do to correct the conduct, the sanctions may not be imposed under section 128.7. In Malovec v. Hamrell, supra, 70 Cal.App.4th at page 441, we held a trial court could not, on its own motion, impose sanctions against an attorney for filing and pursuing an improper action after a summary judgment was granted. We concluded that the "safe harbor" provision must be complied with prior to the imposition of sanctions and could not be imposed where "it is too late for the offending party to withdraw the challenged [pleading]." (Ibid.) We explained: "In order to effectuate the safe harbor provisions, a party may not bring a motion for sanctions unless there is some action the offending party may take to withdraw the improper pleading. [Citation.] A sanctions motion may not be brought after the conclusion of the case or a disposition ruling on the improper pleading. [Citation.] Thus, a sanctions motion challenging a complaint may not be brought following the sustaining of a demurrer without leave to amend. [Citation.] Nor may a sanctions motion challenging an amendment to a complaint to name Doe defendants be brought following the dismissal with prejudice of the fictitiously named defendants. [Citation.] Neither may a motion for sanctions for filing a bad faith or frivolous complaint be brought following the granting of a defendants motion for summary judgment. Nonetheless the . . . judge found and [defendant] argues that the "safe harbor" provision is rendered a mere "empty formality" when a motion for sanctions comes after summary judgment has been granted. We fully agree with that observation. By virtue of its nature, the "safe harbor" provision cannot have any effect if the court has already rendered its judgment in the case; it is too late for the offending party to withdraw the challenged [pleading]." (Id. at p. 441, fn. omitted.) In this case, Mr. Franklin could take no action to withdraw the motions. As a result, sanctions were inappropriate under the "safe harbor" provision of section 128.7. (Barnes v. Department of Corrections, supra, 74 Cal.App.4th at pp. 131, 134-135; Malovec v. Hamrell, supra, 70 Cal.App.4th at pp. 440-442; Goodstone v. Southwest Airlines, Co., supra, 63 Cal.App.4th at p. 424; Cromwell v. Cummings (1998) 65 Cal.App.4th Supp. 10, 13; see also Barber v. Miller (9th Cir. 1998) 146 F.3d 707, 710-711; Ridder v. City of Springfield (6th Cir. 1997) 109 F.3d 288, 296-297.)
Second, the fact that the sanctions motion was never filed with the court presents an additional basis for reversing the order. Section 128.7, like rule 11 of the Federal Rules of Civil Procedure (28 U.S.C.), which section 128.7 was modeled on, makes sanctions, including an award of attorney fees, contingent on violation of the implied certification that pleadings and other papers filed with the court have factual and legal merit and are not being presented for an improper purpose. (Levy v. Blum (2001) 92 Cal.App.4th 625, 636; Barnes v. Department of Corrections, supra, 74 Cal.App.4t at p. 132; Primus Automotive Financial Services, Inc. v. Batarse (9th Cir. 1997) 115 F.3d 644, 648.) Here, the challenged pleading was never filed.
Finally, there is no merit to the contention that the sanctions may be upheld because the trial court indicated, in addition to section 128.7, it imposed the sanctions for the reasons stated in the moving papers. The argument is that, because the moving papers refer to the courts inherent power to control proceedings, sanctions on that ground could be imposed on Mr. Franklin. We disagree that the citation to the Rhos moving papers in the minute orders supports the award of $ 1,412 in attorney fees against Mr. Franklin. The sanction orders cannot be justified by resorting to the inherent power of the trial court. (Bauguess v. Paine (1978) 22 Cal.3d 626, 635-636, 150 Cal. Rptr. 461, 586 P.2d 942; Kane v. Hurley (1994) 30 Cal.App.4th 859, 864, fn. 8.)
IV. DISPOSITION
The order imposing sanctions in the amount of $ 1,412 in attorney fees is reversed. In all other respects, the judgment is affirmed. Defendants, Sang Hyun Rho, Byong Suk Rho and Veras Escrow Service, Inc., are each to recover their costs incurred on appeal from plaintiff, Gris, Inc. Any request for attorney fees on appeal shall be filed in compliance with rule 870.2 of the California Rules of Court. No costs are to be recovered by plaintiffs counsel, Maurice Edward Franklin.
We concur: GRIGNON, J., ARMSTRONG, J.