Opinion
2d Civil B303697
07-21-2022
GENOVA CAPITAL, INC., Plaintiff and Appellant, v. BRIGHAM FIELD, et al., Defendants and Respondents.
The Ryan Firm and Timothy M. Ryan, Andrew Mase, for Plaintiff and Appellant. Manatt, Phelps & Phillips and Benjamin G. Shatz, for Defendants and Respondents.
NOT TO BE PUBLISHED
Superior Court County of Ventura No. 56-2019-00532526-CU-UD-VTA Kevin G. DeNoce, Judge
The Ryan Firm and Timothy M. Ryan, Andrew Mase, for Plaintiff and Appellant.
Manatt, Phelps & Phillips and Benjamin G. Shatz, for Defendants and Respondents.
YEGAN, J.
Appellant Genova Capital, Inc., brought an unlawful detainer action against respondents Brigham Field and Colette Pelissier. The action was filed after a nonjudicial foreclosure sale at which appellant had purchased the property owned and occupied by respondents. Appellant appeals from the judgment entered in respondents' favor after a court trial.
The trial court determined that respondents were entitled to remain in possession of the property because (1) the price paid by appellant for the property was grossly inadequate, and (2) a procedural irregularity had occurred that led respondents to reasonably but mistakenly believe that the sale would be postponed. The court found that, but for this procedural irregularity, respondents would have prevented the sale by timely paying the full amount due under the deed of trust encumbering the property. Appellant does not dispute that the sales price was grossly inadequate. He contends that the claimed procedural irregularity was not sufficient to defeat the unlawful detainer action. We disagree and affirm.
Factual and Procedural Background
Respondents are married. In 2013 they purchased a home in Malibu ("the property") for $16 million. The property is on the Ventura County side of the border with Los Angeles County. Respondent Pelissier testified that they put "[a]bout a million dollars" into improving the property.
In April 2017 respondent Field signed a promissory note for $125,000 in favor of appellant. Field received a loan from appellant in the same amount. Payment of principal plus interest was due on or before June 30, 2017. The note was secured by a deed of trust signed by both respondents and encumbering the property.
Respondents defaulted on the note. "Notice of Default under the deed of trust was recorded on April 15, 2019 [record citation]. Notice of Trustee's sale was recorded on June 18, 2019 [record citation]." The sale was scheduled to be conducted at 11:00 a.m. on August 14, 2019. On that date, approximately $160,000 was owed on the note.
Joshua Hunter is appellant's president and CEO. In the morning on the day before the sale, Field offered to wire Hunter the "'160K right now if you send me a written confirmation that the sale is being canceled.'" Hunter replied, "'I am not going to cancel until you initiate the wire. That is the deal.'" "'Once I see the wire has been ordered per the wiring instructions I will immediately postpone the sale.'" Field said, "'I cannot wire until I have written confirmation that the sale is postponed. It is not my money .'"
Field did not wire the funds. The sale was not postponed. The property was sold to appellant for $160,074.39. That same day, Pelissier purchased a $161,000 cashier's check from Wells Fargo Bank. The check was printed at 3:40 p.m., too late to stop the trustee's sale.
On August 23, 2019, respondents filed an action for unlawful foreclosure against appellant. Five days later, appellant filed the instant unlawful detainer action against respondents. Appellant's complaint alleged that it "is entitled to possession and is the owner of record" of the property.
Trial Court's Statement of Decision
Respondents argued that in the morning on August 14, 2019, before the sale occurred, Field had made a "[f]ull [t]ender" to appellant of the amount due under the note. Thus, "there was an effective redemption, and the power of sale was terminated."
The trial court rejected respondents' argument. It concluded that Field had made a conditional, not unconditional, offer to pay the $160,000 because he agreed to wire this amount only after Hunter had sent "'written confirmation that the sale is being canceled.'" The court explained, "As a conditional offer, it did not constitute a legal tender" necessary to stop the foreclosure sale. The law is that a "tender to be valid must be of full performance [citation], and it must be unconditional." (Still v. Plaza Marina Commercial Corp. (1971) 21 Cal.App.3d 378, 385; see also Civ. Code, § 1494.)
"'The doctrine of tender has been correctly summarized in this fashion:" . . . The tenderer must do and offer everything that is necessary on his part to complete the transaction, and must fairly make known his purpose without ambiguity, and the act of tender must be such that it needs only acceptance by the one to whom it is made to complete the transaction."' [Citations.] In other words, . . . 'it is a debtor's responsibility to make an unambiguous tender of the entire amount due or else suffer the consequence that the tender is of no effect.'" (Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 439 (Nguyen).)
But the trial court found that, during the afternoon on the day before the trustee's sale, Hunter had "communicated to Field in a manner which could reasonably lead Field to believe that the sale is being postponed ...." The court relied on a "text message exchange between Mr. Fi[el]d and Mr. Hunter introduced in the . . . trial as exhibit 224." The court continued, "This and other exchanges between the parties[] lead[] the court to believe that absent these last minute negotiations on the afternoon prior to the foreclosure sale, [respondents] would have paid the loan off [before the sale]. The fact that they were able to obtain a cashier's check for the full indebtedness shortly after the foreclosure sale confirms funds were available." "Under these circumstances, it would be unjust to remove [respondents] from the premises."
The court found that the price paid by appellant for the property - approximately $160,000 - "was grossly inadequate." Respondents had at least "$2 million of equity in the property, rendering the purchase price a mere 8% of the value of the property." The $2 million equity figure was based on appellant's "evidence and argument that the property was worth [$]14 million despite [respondents] having purchased the property in 2013 for [$]16 million." The court was "persuaded that the value of the home is between [$]15 and [$]18 million, meaning that [appellant] acquired between [$]2 and [$]6 million by way of a purchase for approximately $160,000."
The trial court concluded: "The court finds that the purchase price at the non-judicial foreclosure sale of the subject property was grossly inadequate and that an injustice would result to enforce said sale and evict [respondents]. The court is satisfied that the last minute negotiations between the parties resulted in a procedural irregularity sufficient to deny [appellant] possession of the premises at this time. The issues addressed in this ruling are better fleshed out and addressed in the unlimited quiet title action. The court hereby conditionally rules in favor of [respondents] on the issue of possession of the premises, contingent upon [them] paying off the subject note in its entirety, plus costs." It is undisputed that respondents made the required payment.
First Issue: Inadequacy of Sales Price and Procedural Irregularity Are Litigable Issues
Appellant states that the first issue on appeal is, "May an affirmative defense of 'inadequacy of sales price and procedural irregularity' be litigated in an unlawful detainer action under Code of Civil Procedure section 1161a[, subdivision] (b)(3) [(section 1161a(b)(3))]?" This is an issue of law that we review de novo. (Board of Administration v. Wilson (1997) 52 Cal.App.4th 1109, 1127 (Wilson).)
Section 1161a(b)(3) provides that a person in possession of property may be removed from the property through an unlawful detainer action "[w]here the property has been sold in accordance with Section 2924 of the Civil Code [(section 2924)], under a power of sale contained in a deed of trust . . ., and the title under the sale has been duly perfected." "Accordingly, where, as here, an unlawful detainer action is brought pursuant to Code of Civil Procedure section 1161a, subdivision (b)(3), title is at issue." (Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 1011; see also Crummer v. Whitehead (1964) 230 Cal.App.2d 264, 268 (Crummer) ["Although this was an action in unlawful detainer, brought pursuant to Code of Civil Procedure section 1161a, subdivision 3 [now (b)(3)], appellant was entitled to dispute the validity of the trustee's sale and to place respondent's title in issue"].) Appellant acknowledges, "In an unlawful detainer matter after foreclosure, . . . 'courts must make a limited inquiry into the basis of the plaintiffs title.'"
A defendant in an unlawful detainer action brought pursuant to section 1161a(b)(3) may show that the property was not duly sold and title was not duly perfected because of the gross inadequacy of the sales price combined with a procedural irregularity concerning the sale. In Crofoot v. Tarman (1957) 147 Cal.App.2d 443, 446, the court referred to "the well-settled rule that, although inadequacy of price standing alone will not afford ground for setting aside a trustee's sale, yet gross inadequacy of price in conjunction with irregularities which have the effect of conducing to the inadequacy of price or which have in some other way contributed to the injury to the trustor will afford such support." (See also Millennium Rock Mortgage Inc. v. T.D. Service Co. (2009) 179 Cal.App.4th 804, 810 (Millennium) ["''While mere inadequacy of price, standing alone, will not justify setting aside a trustee's sale, gross inadequacy of price coupled with even slight unfairness or irregularity is a sufficient basis for setting the sale aside"'"].)
Appellant asserts, "[T]he question is not whether inadequacy of purchase price and irregularity can be litigated in defense of a post foreclosure unlawful detainer - it can - but it cannot be successful if there is no evidence of a valid tender . . . ." (Italics added.) But, respondents note, "[I]f an unlawful detainer defendant could prove [a valid] tender . . ., then the defendant would prevail outright - without any need to reach any other defensive doctrines, including inadequacy coupled with irregularity." A treatise on California real property law observes, "If the trustor . . . pays or effectively tenders payment of the amount of the debt being foreclosed and related costs before the foreclosure sale, there is an effective redemption, and the power of sale is terminated." (5 Miller &Starr, Cal. Real Estate (4th ed., Dec. 2021 update) § 13:239; see Lichty v. Whitney (1947) 80 Cal.App.2d 696, 702 ["As the tender released the security, the trustee's sale on June 30th was void and conveyed no title to Mrs. Whitney"].)
Accordingly, inadequacy of price and procedural irregularity may be litigated in an unlawful detainer action under section 1161a(b)(3) even though the trustor did not make a valid tender prior to the foreclosure sale.
Second Issue: Inadequacy of Price and Procedural Irregularity Were Not Required to be Pleaded as an Affirmative Defense
Appellant states that the second issue on appeal is, "Was it prejudicial error for the trial court to enter judgment against [appellant] based on the [respondents'] affirmative defense of 'inadequacy of sales price and procedural irregularity,' when that affirmative defense was not pled in [respondents'] answer and was objected to in the trial court?" This is also an issue of law subject to de novo review. (Wilson, supra, 52 Cal.App.4th at p. 1127.)
Because respondents did not plead inadequacy of price and procedural irregularity as an affirmative defense, appellant argues that they forfeited the defense. "'"A party who fails to plead affirmative defenses waives them." . . .'" (Department of Finance v. City of Merced (2019) 33 Cal.App.5th 286, 294.)
"In State Farm Mut. Auto. Ins. Co. v. Superior Court (1991) 228 Cal.App.3d 721 . . ., the court explicated the difference between denials (also known as traverses) and affirmative defenses (also known as new matters). The court stated, 'Under Code of Civil Procedure section 431.30, subdivision (b)(2), the answer to a complaint must include "[a] statement of any new matter constituting a defense." The phrase "new matter" refers to something relied on by a defendant which is not put in issue by the plaintiff. [Citation.] Thus, where matters are not responsive to essential allegations of the complaint, they must be raised in the answer as "new matter." . . .' [Citation.]" (Walsh v. West Valley Mission Community College Dist. (1998) 66 Cal.App.4th 1532, 1546 (Walsh).)
Appellant put in issue whether the property had been duly sold and whether its title to the property had been duly perfected. Paragraph 13 of the unlawful detainer complaint alleged that the property had been "sold to [appellant] in compliance with Civil Code section 2924" and its title to the property had been "duly perfect[ed]." This allegation was required pursuant to section 1161a(b)(3), which provides that a person in possession of property after a trustee's sale may be removed from the property if "the property has been sold in accordance with Section 2924 . . . and title under the sale has been duly perfected." (See Crummer, supra, 230 Cal.App.2d at p. 268 ["The burden of proof rested upon [plaintiff in an unlawful detainer action] to show that the trust property had been duly sold to him and that his title was duly perfected"].)
Respondents denied paragraph 13's allegations "generally and specifically." Under this denial respondents could present evidence showing that the property had not been duly sold and appellant's title had not been duly perfected because the sales price was grossly inadequate and there was a procedural irregularity concerning the sale. "This evidence could properly be presented in order to disprove allegations that [appellant] made in its complaint." (Walsh, supra, 66 Cal.App.4th at p. 1547.) Third Issue: Substantial Evidence Supports the Trial Court's Findings of Inadequacy of Price and Procedural Irregularity
Appellant states that the third and final issue on appeal is, "Was it prejudicial error for the trial court to enter judgment against [appellant] based on [respondents'] affirmative defense of 'inadequacy of sales price and procedural irregularity,' when there was no substantial evidence of tender or any procedural irregularity regarding compliance with Civil Code section 2924?"
Appellant does not dispute the trial court's finding that the sales price of $160,000 was grossly inadequate. "Thus, gross inadequacy of the price has been established. The question remains whether there was an irregularity in the sale." (Millennium, supra, 179 Cal.App.4th at p. 810.)
Appellant maintains there is no substantial evidence of a procedural irregularity sufficient to invalidate his title to the property. "As in other cases involving the issue of substantial evidence, we are bound to 'consider the evidence in the light most favorable to the prevailing party, giving him the benefit of every reasonable inference, and resolving conflicts in support of the judgment.'" (Shade Foods, Inc. v. Innovative Products Sales &Marketing, Inc. (2000) 78 Cal.App.4th 847, 891.) "Substantial evidence is evidence that is 'of ponderable legal significance,' 'reasonable in nature, credible, and of solid value,' and '"substantial" proof of the essentials which the law requires in a particular case.'" (Conservatorship of O.B. (2020) 9 Cal.5th 989, 1006.) "Our authority begins and ends with a determination as to whether, on the entire record, there is any substantial evidence, contradicted or uncontradicted, in support of the judgment." (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 630-631.)
In concluding that there was a procedural irregularity, the trial court relied on text messages between Field and Hunter during the afternoon on August 13, 2019, the day before the trustee's sale. The text messages are set forth in Exhibit 224, which was received in evidence. Exhibit 224 is not included in the Clerk's Transcript on Appeal. Neither party requested that the exhibit be transmitted to this court. (Cal. Rules of Court, rule 8.224.) "Where exhibits are missing we will not presume they would undermine the judgment." (Western Aggregates, Inc. v. County of Yuba (2002) 101 Cal.App.4th 278, 291.)
The void left by the missing exhibit is filled by testimony at trial. Field testified that Exhibit 224's text messages concerned an attempt by him and Hunter to reach "a global settlement" on three issues. The first was respondents' $2.5 million promissory note in favor of appellant. The note was secured by a second deed of trust on the property. The second issue was an unsecured capital contribution of $400,000 made by appellant on respondents' behalf. Hunter "wanted security" on the $400,000. The third issue was the secured $125,000 promissory note. In a text message to Field on August 9, 2019, Hunter said, "'We planned to stop the [trustee's] sale if we could agree to something or even be negotiating on an agreement.'" Field understood this "to mean that as long as Mr. Hunter and I were having a discussion on the global resolution and particularly securing the [$]400[,000], that the foreclosure sale would be at least postponed."
Field testified that on August 12, 2019, two days before the sale, he had a telephone conversation with Hunter. Hunter said "that the sale was going to be postponed." He also said, "'I do not want your house. I don't want any of it."
On the day before the sale, at 1:57 p.m. Hunter texted Field, "'Nothing has changed in my mind from our conversation yesterday.'" Within an hour after Hunter's text, Field texted back, "'We need written confirmation that the sale is postponed.'" At 3:03 p.m. Field texted Hunter, "'You offered to postpone the sale, but when and how can we confirm that has been done? It's not something I can leave hanging." Hunter responded, "'I will email you the confirmation. You will also be able to call and verify." Field understood the last sentence as meaning "[t]hat we would be able to call the trustee and verify the fact that the sale had been postponed." Field replied, "'Oh, thank you. . . . I'm glad we can work on this together for solutions.'"
At 3:30 p.m. Hunter texted Field, "'So there are no surprises, my plan is to get a simple term sheet over to you and have us both sign it, then postpone.'" Field responded, "'What will it say? The TD guys are leaving at 5:00 p.m.'" "The TD guys" referred to the trustee, California TD Specialists. Field explained to the trial court, "My wife and I had called the trustee, and they told us that we needed to get a check to them in Anaheim by 5:00 p.m. . . ."
Hunter texted back to Field, "'We have until tomorrow morning at 10:30." Field undertstood this text as meaning: "I had no reason to worry. We still had, at that point, more than 12 hours in which to get this done." Field "[a]bsolutely" believed that "so long as [he was] negotiating [with Hunter], . . . there was not going to be a foreclosure sale."
At 6:23 a.m. on August 14, 2019, the day of the sale, Field texted Hunter, "'[B]ecause of the short time frame, we want to offer to pay off the [$]125,000 today. We are ready to wire, just need instructions. We did not drive to Anaheim last night to pay simply because I was under the impression that you were willing to reschedule while we worked out settlement.'" Field explained to the court: "[W]hen we had called the trustee the day before, she said the only way for her to accept a payment was a cashier's check delivered to her office before 5:00 p.m. And since Mr. Hunter was assuring me it was unnecessary, we still had until 10:30 in the morning, no problem, plenty of time. So there was no reason to drive to Anaheim." Starting at 9:57 a.m., Field and Hunter exchanged the text messages that the trial court determined did not constitute a valid tender of the amount due under the $125,000 note.
When respondents realized that the sale would not be postponed, they rushed to the site of the auction. The auctioneer "came out just a little bit after 11:00." Pelissier told him, "[W]e're making a bid for the full amount to save our home that we had millions of dollars in equity in." Using her cell phone, Pelissier logged into her Wells Fargo account and showed the auctioneer that she had a balance of "about $700,000." Pelissier said, "'I'll get a check for [$]161,000 and I'll be right back.'" The auctioneer agreed to wait. But the property was sold before Pelissier obtained the cashier's check.
The text messages and trial testimony constitute substantial evidence in support of the trial court's finding that, "[o]n August 13, the afternoon before the non-judicial foreclosure sale, [respondents] were prepared to drive to the trustee's office in Anaheim to pay the debt." But telephone conversations between Hunter and Field and Hunter's text messages led them to reasonably believe that the sale would be postponed. The trial court reasonably concluded: "[T]he effect of Mr. Hunter engaging in these last minute negotiations . . . likely resulted in [respondents] not paying off the note on the day prior to the foreclosure sale." "What makes sense is that they got caught upon in last minute negotiations and time ran out to pay off the not[]e."
Appellant contends that the inadequate price/irregularity doctrine does not apply here because "the party seeking to use the doctrine must establish that the alleged unfairness or procedural irregularity must have contributed to the inadequate price." Appellant asserts, "[N]o irregularity or unfairness contributed to the sale price; the sale price was merely the amount of the debt." But Hunter's misleading communications contributed to the inadequate price because it is reasonable to infer that without them the sale would not have occurred. Respondents would have paid off the note before the sale. Furthermore, the law does not require that the irregularity contribute to the inadequacy of the price. "California courts have long held that mere inadequacy of price, absent some procedural irregularity that contributed to the inadequacy of price or otherwise injured the trustor, is insufficient to set aside a nonjudicial foreclosure sale." (6Angels, Inc. v. Stuart-Wright Mortgage, Inc. (2001) 85 Cal.App.4th 1279, 1284 (6 Angels), italics added.) The procedural irregularity here injured respondent trustors.
Appellant maintains that, as in 6 Angels, the inadequate price/irregularity doctrine is inapplicable because the claimed irregularity "falls outside the procedural requirements for foreclosure sales described in the statutory scheme, and . . . [therefore] is 'dehors the sale proceedings.'" (6 Angels, supra, 85 Cal.App.4th at p. 1285, italics added.) In Nguyen, supra, 105 Cal.App.4th at p. 445, the court cited 6 Angels as authority for the following rule: "To justify setting aside a presumptively valid foreclosure sale, the claimed irregularity must arise from the foreclosure proceeding itself. [Citations.] A mistake that occurs outside (dehors) the confines of the statutory proceeding does not provide a basis for invalidating the trustee's sale. [Citations.]"
We take judicial notice that "dehors" is a French word meaning "outside."
Appellant argues: "The record fails to disclose any actual evidence of a procedural irregularity regarding compliance with Civil Code section 2924.... The trial court was not permitted to rely on the text message evidence concerning 'last minute negotiations' between the parties, in order to form the basis of its conclusion that these negotiations 'resulted in a procedural irregularity sufficient to deny Plaintiff possession of the Premises at this time.' [Record citation.] The court's statement is a sort of 'apples and oranges' comparison-procedural irregularities . . . concern compliance with statutory procedures; negotiations are not part of the statutory nonjudicial foreclosure procedure." "[T]he negotiations are wholly outside of the technical requirements of a properly held nonjudicial . . . sale held in accordance with Civil Code section 2924. [Citation.] As such, the negotiations, as a matter of law, cannot amount to a 'procedural irregularity.'"
We disagree. One of the purposes of the statutes regulating nonjudicial foreclosure sales is "to protect the debtor/trustor from wrongful loss of the property." (Moeller v. Lien (1994) 25 Cal.App.4th 822, 830.) "The debtor is protected by notice requirements . . . and a right to postpone the sale." (Id. at p. 832.) Civil Code section 2924g, subdivision (c)(1)(C) provides that "[t]he trustee shall postpone the sale in accordance with" the "mutual agreement, whether oral or in writing, of any trustor and any beneficiary . . . ." (Italics added.) "The right of the trustor to postpone the foreclosure sale by agreement with the beneficiary is as important to the protection of the trustor's property from wrongful foreclosure as are the notice requirements . . . ." (Residential Capital v. Cal-Western Reconveyance Corp. (2003) 108 Cal.App.4th 807, 822-823.) By leading respondents to reasonably believe that the sale would be postponed, Hunter created an irregularity in the statutory procedure concerning postponement. This irregularity "substantially infringe[d] on the rights of the trustor[s] to protect [their] encumbered real property from loss by foreclosure." (Id. at p. 822.) But for Hunter's "last minute negotiations," it is reasonable to infer that respondents would have obtained the cashier's check the day before the scheduled sale and would have paid off the note. As the trial court observed, "Given that [respondents] had sufficient funds to pay the note off on the date of the . . . foreclosure sale, it makes no sense that they would allow their property to be foreclosed upon and thereby lose millions of dollars of equity."
"'[W]here the inadequacy [of price] is palpable and great[,] very slight additional evidence of unfairness or irregularity is sufficient to authorize the granting of the relief sought.'" (Winbigler v. Sherman (1917) 175 Cal. 270, 275.) Here, the evidence of unfairness was not "slight"; it was overwhelming. Because Hunter's communications lulled respondents into a false sense of security that the sale would be postponed, appellant was able to acquire the property "for a mere pittance" of its actual value. (Id. at p. 277.) Respondents lost millions of dollars of equity in the property.
Hunter is appellant's president and CEO. It would be unconscionable to allow appellant to profit at respondents' expense from Hunter's misleading communications. In these circumstances, substantial evidence supports the trial court's finding that "the last minute negotiations between the parties resulted in a procedural irregularity sufficient to deny [appellant] possession of the [property] at this time."
Although Hunter's communications were misleading, the trial court said it did "not believe that Mr. Hunter intentionally led [respondents] to believe a settlement was imminent in order to purchase the property at foreclosure."
Disposition
The judgment is affirmed. Respondents shall recover their costs on appeal.
We concur: GILBERT, P. J., PERREN, J.