Opinion
NOT TO BE PUBLISHED
Alameda County Super. Ct. No. HG06-258953
Jones, P.J.
Ramiro Martinez and Marisela Castenda Nunez (appellants) appeal an order granting them a portion of the surplus proceeds from a trustee’s sale of real property. They contend the court erred in awarding the bulk of the proceeds to Rahmat Sayed Ayar (respondent).
BACKGROUND
Underlying Action: Ayar v. Martinez
Appellants were the record title owners of a house in Hayward. Town & Country Title Services, Inc., (Town & Country) was the trustee under a deed of trust encumbering the house. On February 25, 2005, appellants and respondent executed a purchase agreement for respondent to buy appellants’ house for $340,000, with escrow to close March 25, 2006. On February 27, 2005, appellants cancelled the agreement.
On March 16, 2005, respondent brought an action against appellants for damages for breach of the purchase agreement and for specific performance. On April 20, 2005, appellants’ default was entered because they failed to appear and answer within the time allowed.
On July 7, 2005, the court held a hearing on respondent’s request for a default judgment. The minutes for the hearing state that his “Request for Civil Default Judgment” shall be granted; and that his request for a judgment of attorney fees and costs and for monetary damages due to adverse finance charges is granted, subject to submission of a memorandum of costs to the court. The minutes further state that respondent is to prepare a “new (Proposed) Judgment” and submit it with a memorandum of costs for the court’s review.
On July 11, 2005 the house was sold in a trustee’s sale for $436,900.
On July 15, 2005, respondent submitted a declaration stating he was entitled to attorney fees and costs of $20,272 and monetary damages of $96,901.20. The damages figure was based on the difference between the cost of a loan to purchase the house in February 2005 and the cost of a loan to purchase it in July 2005.
On September 14, 2005, respondent’s attorney, Matthew Oliveri, submitted a declaration in support of respondent’s statement of damages. He declared: on July 11, while he was out of the state, he received a telephone call from an unidentified caller who said appellants’ house was being auctioned at a foreclosure sale at that moment. Neither his office nor respondent was aware of the foreclosure sale. His office was unsuccessful in stopping the sale and placing a hold on the surplus funds generated by the sale. On August 23, Oliveri received a letter from appellants’ attorney, Todd Cramer, stating that the foreclosure trustee was holding $147,000 in surplus funds, which the trustee was planning to interplead. He and Cramer agreed that the current fair market value of the house was between $500,000 and $550,000. Using $525,000 as a fair market value midpoint, and subtracting therefrom the purchase price agreed to by respondent and appellants, respondent’s money damages were “at least” $185,000: $525,000 - $340,000. Under Civil Code section 3306, the court was empowered to award the entire amount of excess funds to respondent for appellants’ bad faith breach of contract. Respondent requested the court to issue a default judgment of $175,792.16 against appellants, comprised of the excess funds of $147,000, prejudgment interest of $7,570.76, attorney fees of $20,272, and costs of $949.
On September 16, 2005, appellants opposed respondent’s request for entry of default judgment. They argued that respondent was not entitled to money damages on a default judgment because his complaint did not demand any money damages. Although their opposition states that “it appears” it will be necessary for them to move to set aside the default because respondent refused to set aside the judgment voluntarily, the appellate record does not contain such a motion, nor do the parties refer to one in their appellate briefing or suggest appellants made a motion to set aside the judgment.
The appellate record contains only the first page of the Ayer v. Martinez complaint, the caption of which is “Plaintiff’s First Amended Complaint for Damages for Breach of Written Contract, Specific Performance, Breach of the Implied Covenant of Good Faith and Fair Dealing, Intentional Interference with Contract, Intentional Interference with Prospective Economic Advantage, Negligent Interference with Business Relationships, and Unfair Business Practices under California Business and Professions Code Section 17200.” Presumably some of these causes of action pertained only to the real estate agent for Martinez, who was also a defendant to the action but is not a party to this appeal. The parties to this appeal do not dispute that this complaint prayed for specific performance as the remedy for appellants’ breach of the purchase agreement rather than the remedy of a specific amount of money damages.
On October 3, 2005, the court entered a judgment which ordered immediate specific performance of the purchase agreement, attorney fees and costs of $20,950.10, and monetary damages of $10,000. The judgment does not identify the basis of the monetary damages.
The judgment was prepared by respondent’s attorney and as presented to the court stated that respondent’s “request for a Judgment of Monetary Damages due to adverse finance charges is hereby GRANTED in the following amount of $10,000.00. . . .” The court struck the phrase “due to adverse finance charges” before it entered the judgment.
On November 7, 2005, respondent moved to vacate the October 3 default judgment and grant him a new trial on the question of damages. Alternatively, respondent asked the court to modify the October 3 judgment by deleting the order for specific performance of the purchase agreement and increasing the amount of money damages from $10,000 to $180,570.76, comprised of (a) $147,000 held by the foreclosure trustee, (b) $7,570.76 in prejudgment interest, (c) $25,000 in attorney fees, and (d) $1,000 in costs.
Attorney Oliveri submitted a declaration in support of the motion to vacate that largely reiterated his declaration of September 14. He further declared: on May 19, 2005, the foreclosure trustee recorded a notice of trustee sale, with a foreclosure sale scheduled for June 2005, but appellants made a partial payment of their mortgage in June 2005 and the sale was halted. Neither Oliveri’s office nor respondent could have known that a second foreclosure sale was proceeding on July 11, 2005 because under Civil Code section 2924 the foreclosure trustee does not have to “‘re-notice’” the second foreclosure sale once the original foreclosure sale is postponed.
Appellants opposed the motion on the grounds it was untimely as a motion for new trial and it failed to raise any new facts or law that were not known to and considered by the court when it entered the October 3 judgment.
On December 6, 2005, respondent’s motion to vacate/for new trial was denied without prejudice. He did not move again to vacate the October 3 judgment, and there was no appeal therefrom.
Present Interpleader Action
On March 6, 2006, Town & Country filed a petition to resolve the competing claims for the surplus proceeds from the foreclosure sale of the Hayward house. Respondent filed a claim for the entire amount of the surplus proceeds. He asserted he was entitled from the proceeds the $30,950.01 for attorney fees and costs he was awarded in the October 3, 2005 default judgment. He asserted he was entitled to the balance of the surplus proceeds under theories of res judicata, collateral estoppel, Civil Code section 2924k, equitable conversion and unclean hands, because he had been the equitable owner of the property and successor in interest since the February 25, 2005 purchase agreement.
Appellants filed a claim for the total amount of the surplus proceeds pursuant to Civil Code sections 2924j and 2924k.
Following a hearing, the court found that respondent became the owner of the Hayward house under the doctrine of equitable conversion when he executed the purchase agreement, despite the fact appellants wrongfully refused to convey title, and that his right to specific performance of the purchase agreement was confirmed in the July 7, 2005 minute order and the October 3, 2005 judgment. Therefore, the court concluded, he became the owner prior to the July 11 trustee sale and had an equitable right to the surplus proceeds of the trustee sale of the property, less the purchase agreement price: $436,000 - $340,000 = $96,900. He was also entitled to the monetary award of $30,950.10 he was awarded in the October 3, 2005 default judgment, giving him a total award of $127,850.10 from the surplus trustee sale proceeds.
The court awarded appellants $13,699.84, which represented the amount they would have received under the purchase agreement, less debts paid in foreclosure, attorney fees and costs incurred in the trustee’s sale and the instant distribution proceeding, and the monetary award in the October 3, 2005 default judgment.
DISCUSSION
Distribution under Civil Code Section 2924k
Appellants contend they are entitled to the entire amount of the surplus proceeds under Civil Code section 2924k because they were the vested owners of the Hayward house on July 11, 2005, when it was sold in the trustee’s sale.
All further section references are to the Civil Code.
Section 2924k sets out the order of priority for the distribution of the proceeds from a trustee’s sale. Following satisfaction of all costs associated with the sale and all outstanding mortgages and liens (§ 2924k, subd. (a)(1), (2), (3)), payment shall be made to “the trustor or the trustor’s successor in interest. In the event the property is sold or transferred to another, to the vested owner of record at the time of the trustee’s sale.” (§ 2924k, subd. (a)(4).)
As noted, the trial court concluded that respondent was the owner of the Hayward house as of the July 11 trustee sale under the doctrine of equitable conversion. This doctrine provides that when a binding executory contract for the sale of real property is entered into, an equitable conversion occurs whereby the buyer is deemed the equitable owner of the property and the seller is deemed the owner of the purchase money, with an equitable lien on the property for the balance of the unpaid purchase price. (Mamula v. McCulloch (1969) 275 Cal.App.2d 184, 193.) The seller is regarded as holding the legal title in trust for the buyer, and the buyer is considered the trustee of the purchase money for the benefit of the seller. (Id. at pp. 193, 194.) If the buyer performs all conditions precedent that entitle him under the purchase agreement to a conveyance of the property on a given day, he will be considered the owner of the property on that day, and the seller will be regarded as the owner of the purchase money. (Ibid.) The fact that the seller refuses to perform his part of the purchase agreement and refrains from making the conveyance to which the buyer is entitled on compliance with the provisions of the agreement does not affect the status of the parties or their rights in the property. (Ibid.) When a buyer has performed or offered to perform his covenants, he will be treated in equity as the owner of the property from the time provided in the purchase agreement for conveyance of the property, and the seller will be regarded as merely holding the legal title to the property in trust for the buyer. (Ibid.) Stated more concisely, “‘[a]n unconditional contract for the sale of land, of which specific performance would be decreed, grants the purchaser equitable title, and equity considers him the owner. [Citations.]’” (Rogers v. Davis (1994) 28 Cal.App.4th 1215, 1222-1223.)
Appellants argue the trial court erred in determining that respondent was the equitable owner of the property prior to the July 11, 2005 trustee’s sale because the July 7, 2005 minutes for the hearing on respondent’s request for default judgment state only that respondent’s “request for civil default judgment shall be granted;” the minutes do not mention specific performance or indicate that any type of order is being entered by the court. Appellants assert that the only order for specific performance of the purchase agreement was contained in the October 3, 2005 judgment in respondent’s breach of contract action, a date after the July 11, 2005 trustee’s sale.
Appellants’ literal reading of the July 7, 2005 minute order fails to place it in the context of respondent’s pleadings. A buyer has alternate remedies for breach of a real property purchase agreement: specific performance or damages measured by the payments the buyer made toward the purchase price. (Rogers v. Davis, supra, 28 Cal.App.4th at p. 1220.) Respondent’s action for breach of the purchase agreement sought the remedy of specific performance of the agreement. The July 7 minute order may not have included the exact phrase “specific performance” in granting respondent’s request for a “civil default judgment,” but it did not order any monetary damages measured by respondent’s payments toward the purchase price. Given the remedy respondent sought in his pleading, and the absence of an award for monetary damages in the July 7 minute order, the only remedy the trial court could have been granting via the grant of a “civil default judgment” was specific performance.
The minute order conditionally grants respondent’s request for “monetary damages due to adverse finance charges,” but this use of the word “damages” is a misnomer. A buyer seeking specific performance may also be awarded such compensation as is necessary to vindicate his contractual rights fully, such as the rents and profits he would have received from the time the purchase agreement should have been performed. (Rogers v. Davis, supra, 28 Cal.App.4th at p. 1221.) Respondent sought compensation for the difference between the cost of obtaining a loan in February 2005 and the increased cost of such a loan five months later, when he was granted specific performance. Such compensation does not constitute true damages as used in the sense of monetary damages as the alternative remedy to specific performance for breach of a real property puchase agreement.
Furthermore, in order to grant respondent’s request on July 7 for a default judgment in his action for breach of contract/specific performance, the court necessarily had to find that sometime before July 7 he had performed, or offered to perform, all conditions precedent entitling him to conveyance of the property pursuant to the terms of the February 25 purchase agreement. (Mamula v. McCulloch, supra, 275 Cal.App.2d at p. 194; see also Blackburn v. Charnley (2004) 117 Cal.App.4th 758, 766 [setting out the requisite elements for a grant of specific performance].) In the present action the court did not err in concluding that respondent was the equitable owner of the Hayward house before July 11, 2005.
As the equitable owner of the Hayward house at the time of the trustee’s sale, respondent was entitled, in equity, to the surplus sale proceeds under the doctrine of equitable conversion because specific performance was impossible. (Rogers v. Davis, supra, 28 Cal.App.4th at pp. 1223-1224.) Consequently, the court did not err in fashioning a remedy that awarded respondent a distribution from the trustee’s sale proceeds as if he were the “vested owner of record at the time of the trustee’s sale,” pursuant to section 2924k, subdivision (a)(4).
Res Judicata/Collateral Estoppel
Appellants contend the court was barred under the doctrines of res judicata and collateral estoppel from awarding respondent any amount greater than the amounts specifically set forth in the October 3, 2005 judgment, i.e., $20,950.10 attorney fees and costs and $10,000 in monetary damages.
“‘Res judicata’ describes the preclusive effect of a final judgment on the merits.” (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896 (Mycogen).) It prevents relitigating in a second lawsuit between the same parties or those in privity with them the same cause of action that was finally determined in an earlier lawsuit. (Ibid.; Teitelbaum Furs, Inc. v. Dominion Ins. Co., Ltd. (1962) 58 Cal.2d 601, 604 (Teitelbaum).) The doctrine is commonly referred to as claim preclusion. (Mycogen, supra, 28 Cal.4th at p. 896.) Under this doctrine, when a plaintiff prevails in the first action, his or her causes of action are merged into the judgment and may not be asserted in a subsequent lawsuit. (Id. at pp. 896-897.)
Collateral estoppel, commonly referred to as issue preclusion, precludes relitigation of issues argued and necessarily decided in prior proceedings. (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341; Teitelbaum, supra, 58 Cal.2d at p. 604.) The doctrine applies in the subsequent action only if several threshold requirements are fulfilled. (Lucido, supra, 51 Cal.3d p. 341.) (1) The issue sought to be precluded from relitigation must be identical to that decided in the former proceeding. (2) The issue must have been actually litigated in the former proceeding. (3) The issue must have been necessarily decided in the former proceeding. (4) The decision in the former proceeding must be final and on the merits. (5) The party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding. (Ibid.)
Appellants contend the doctrines apply because after the July 11, 2005 trustee sale, Ayar v. Martinez changed from a case for specific performance to a case for damages, and both parties submitted argument regarding the amount of damages respondent should receive from the surplus trustee sale proceeds before the court entered judgment on October 3, 2005.
As a threshold matter, respondent argues we should not consider appellants’ contention because they are raising it for the first time on appeal. Although not as precisely articulated as in their appeal, appellants’ memorandum of points and authorities in support of their claim to the surplus trustee sale proceeds asserted that respondent “is once again trying to claim the entire amount of the surplus funds even though his excessive claim has already been rejected” in Ayar v. Martinez. Appellants’ reply to respondent’s claim for the surplus trustee sale proceeds asserted that respondent’s arguments made in the interpleader proceeding regarding res judicata and collateral estoppel “actually support [appellants’] position.” These assertions below suffice to permit appellants to make these contentions on appeal.
Nevertheless, we conclude that neither doctrine barred the court in the instant interpleader proceedings from awarding respondent a portion of the surplus trustee sale proceeds. As to res judicata, respondent brought his action in Ayar v. Martinez against appellants only, and his claim was based on their breach of the purchase agreement the parties had executed. The instant subsequent interpleader action was brought by Town & Country as holder of the surplus trustee sale funds. It was not a party to Ayar v. Martinez or in privity with those parties, and its action sought a determination of who was entitled to the surplus trustee sale proceeds. The instant action is neither an attempted relitigation of the prior cause of action for breach of the purchase agreement, nor is it a lawsuit between the same parties to the breach of purchase agreement action.
As to collateral estoppel, the issues in the present interpleader action are whether respondent was the equitable owner of the house at the time of the trustee sale and was therefore entitled to the surplus trustee sale proceeds under the doctrine of equitable conversion. These issues were not “actually litigated” nor are they “identical” to the issues “necessarily decided” in Alfar v. Martinez. (Lucido, supra, 51 Cal.3d at p. 340; Teitelbaum, supra, 58 Cal.2d at p. 604.)
Initially, the issues in Alfar v. Martinez were whether appellants had breached the purchase agreement and whether respondent demonstrated he was entitled to the remedy of specific performance for their breach. These issues were decided in respondent’s favor as of the July 7, 2005 minute order. Because specific performance became impossible due to the July 11, 2005 trustee sale, respondent asserted in a statement of damages prior to entry of judgment that he was entitled instead to monetary damages of at least $185,000: the difference between the February 2005 $340,000 purchase agreement price and September 2005 $525,000 fair market value. He argued that section 3306 authorized the court to award him the entire amount of the surplus trustee sale proceeds currently held by the trustee “as his monetary damages for [appellants’] bad faith breach of contract” and pursuant to the July 7 minute order granting a default judgment.
We reiterate that the remedy for breach of a contract to purchase real property is either specific performance or monetary damages. (Rogers v. Davis, supra, 28 Cal.App.4th at p. 1220.) Should the buyer elect monetary damages as the remedy, section 3306 establishes the measure of such damages. Fairly read, the issues raised by respondent in his statement of damages, given his specific reference to section 3306 and his formula for measuring monetary damages, were that he was now entitled to the alternate remedy of monetary damages because specific performance was impossible, and that the surplus trustee sale proceeds were available to satisfy those money damages. By its order of specific performance in the October 3, 2005 judgment, the Ayar v. Martinez court clearly rejected respondent’s assertion that he should instead receive the alternate remedy of monetary damages for the breach. On the record before us, the parties did not raise, and the Ayar v. Martinez court did not decide, the issue presented in the instant interpleader action: whether respondent was entitled to surplus trustee sale proceeds under section 2924k, governing the priority of the distribution of trustee sale proceeds, and the doctrines of equitable ownership and equitable conversion.
Section 3306 states: “The detriment caused by the breach of an agreement to convey an estate in real property, is deemed to be the price paid, and the expenses properly incurred in examining the title and preparing the necessary papers, the difference between the price agreed to be paid and the value of the estate agreed to be conveyed at the time of the breach, the expenses properly incurred in preparing to enter upon the land, consequential damages according to proof, and interest.”
Due Process
Appellants contend that due process barred the court from awarding respondent surplus trustee sale proceeds greater than the $30,950.10 awarded in the October 3, 2005 judgment because they were never notified during the default proceedings of the potential of a larger award against them at a later date.
“[D]ue process requires notice to defendants, whether they default by inaction or by willful obstruction, of the potential consequences of a refusal to pursue their defense. Such notice enables a defendant to exercise his right to choose--at any point before trial, even after discovery has begun--between (1) giving up his right to defend in exchange for the certainty that he cannot be held liable for more than a known amount, and (2) exercising his right to defend at the cost of exposing himself to greater liability.” (Greenup v. Rodman (1986) 42 Cal.3d 822, 829.) By the summons and complaint in Ayar v. Martinez, appellants were on notice that they were potentially exposed to an order to convey the Hayward house to respondent and attendant expenses. The Ayar v. Martinez judgment, which is final, comported with the complaint. Appellants cannot now complain the Ayar v. Martinez judgment violated their due process as a result of lack of notice of the consequences of their default.
Appellants assert that if the Ayar v. Martinez court had awarded a larger judgment, they would immediately have filed a motion to set aside the default judgment. They state they chose not to set aside the $30,950.10 judgment because they believed the costs of litigating the action would offset any gain they might make contesting that judgment. To the extent they are implying they were never on notice that they might be liable for a monetary amount larger than $30,950.10, the record contradicts this implication.
First, even before the judgment was entered on October 3, 2005, respondent argued he was entitled to at least $185,000 in monetary damages for appellants’ breach of the purchase agreement, given that specific performance had become impossible.
Second, respondent moved to vacate the October 3 judgment and grant him a new trial on the question of damages, or to modify the judgment by deleting the order of specific performance and increasing the amount of money damages. His motion was denied without prejudice, leaving open the possibility that he would renew the motion or appeal the October 3 judgment.
Finally, on December 13, 2005, a week after his motion to vacate/modify was denied, respondent informed appellants in a “final settlement offer” that if Town & Country interpleaded the surplus trustee sale proceeds, he believed that he, not appellants, would be entitled to receive the entire amount, based on Rogers v. Davis, supra, 28 Cal.App.4th 1215, a copy of which he included with his settlement offer.
Appellants were thus on notice long before the interpleader proceedings commenced that respondent was seeking monetary compensation greater than the amount awarded in the October 3, 2005 judgment for their breach of the purchase agreement as a substitute for the award of specific performance, and they were on notice of the amount of compensation sought. They were specifically on notice that, potentially, the surplus trustee sale proceeds would not be distributed to them but to respondent as the monetary substitute for the specific performance he had been awarded in the October 3 judgment but could no longer obtain. As of December 13, 2005, appellants were still well within the permissible six months to move to set aside the October 3, 2005 default judgment that ordered specific performance. (Code Civ. Proc., § 473.) If they did not want to risk distribution of the trustee sale proceeds to respondent as equitable owner of the property in the interpleader proceedings, a motion for relief from default was a mechanism by which they could instead litigate whether they had breached the purchase agreement and, if so, the amount of monetary damages, if any, to which respondent was entitled insofar as the alternate remedy of specific performance was unavailable.
Frivolous Appeal
Respondent contends appellants’ appeal is frivolous and asks for sanctions pursuant to Code of Civil Procedure section 128.6 and California Rules of Court, rule 8.276(e). For purposes of sanctions, “frivolous” is generally defined as “totally and completely without merit” or “for the sole purpose of harassing an opposing party.” (Code Civ. Proc., § 128.6, subd. (b)(2).) We decline respondent’s request because appellants’ appeal does not meet this definition.
Code of Civil Procedure section 128.6 provides that the trial court may order a party, the party’s attorney, or both, to pay reasonable expenses, including attorney fees, incurred as a result of another party’s bad faith action or tactics that are frivolous or solely intended to cause unnecessary delay.
DISPOSITION
The order granting and denying claims to the surplus proceeds after the trustee’s sale is affirmed.
We concur: Simons, J., Needham, J.
California Rules of Court, rule 8.276(e) provides that a court may impose sanctions on a party or party’s attorney for taking a frivolous appeal or appealing solely to cause delay.