Opinion
B225795 B227711
09-27-2011
HARRIET GOSLINS et al., Plaintiffs and Appellants, v. RONALD TAXE, Individually and as Trustee, etc. et al., Defendants and Respondents.
Anderson, McPharlin & Conners, Jesse S. Hernandez, Vanessa H. Widener and Eduardo A. Brito for Plaintiffs and Appellants. Richard Taxe, in pro. per., for Defendant and Respondent. Gregory Grantham, in pro. per., and for Defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC419306)
APPEALS from a judgment and order of the Superior Court of Los Angeles County, Susan Bryant-Deason, Judge. Judgment and order reversed with directions.
Anderson, McPharlin & Conners, Jesse S. Hernandez, Vanessa H. Widener and Eduardo A. Brito for Plaintiffs and Appellants.
Richard Taxe, in pro. per., for Defendant and Respondent.
Gregory Grantham, in pro. per., and for Defendants and Respondents.
Harriet Goslins, Janey Sweet as trustee of the Janey Sweet Revocable Trust and Sara Lemlich as trustee of the Sara Lemich Trust purchased a trust deed from Diversified Mortgage Company (DMC), a mortgage broker. DMC represented to plaintiffs that the trust deed was in first priority position. Plaintiffs later learned that a previously recorded trust deed in favor of Massrock, Inc. (Massrock) was in first priority position. A nonjudicial foreclosure on the Massrock trust deed in September 2009 extinguished plaintiffs' trust deed, and Massrock purchased the real property at the foreclosure sale.
Plaintiffs sued Massrock, its president and the borrowers who had executed both the Massrock trust deed and the DMC trust deed. Plaintiffs seek to invalidate the trustee's deed in favor of Massrock and the Massrock trust deed, obtain declaratory relief establishing the DMC trust deed as a first priority lien, and alternatively establish an equitable first priority lien under principles of equitable subrogation. The trial court sustained a demurrer to all counts alleged in the complaint and awarded attorney fees to two defendants as prevailing parties in an action on a contract.
On appeal, plaintiffs challenge the sustaining of the demurrer and the attorney fee award. We conclude that the sustaining of the demurrer to several counts was error. We therefore will reverse the judgment, with the result that there is no prevailing party at this time and no basis for an award of attorney fees as costs.
FACTUAL AND PROCEDURAL BACKGROUND
1. Factual Background
Ronald Taxe and Nadina Taxe are trustees of the Taxe Family Trust of 2001. They sought to borrow $250,000 from DMC and agreed that the loan would be secured by a first priority trust deed to be recorded against real property located at 5066 West Jefferson Boulevard, Los Angeles. A preliminary title report provided to DMC in early 2005 stated that a trust deed in favor of Massrock in the original amount of $400,000 was recorded against the property in July 2003, among other encumbrances. Richard Taxe is Ronald Taxe's brother and is the president and sole director of Massrock.
Ronald Taxe, Nadina Taxe and Richard Taxe later, in December 2005, stated to DMC that all encumbrances other than certain specified encumbrances had been paid or reconveyed. They did not identify the Massrock trust deed as an existing encumbrance and therefore represented that it had been paid or reconveyed. Ronald Taxe and Nadina Taxe also represented in a written mortgage loan disclosure statement and a written good faith estimate in January 2006 that the only existing lien was a $100,000 trust deed in favor of DMC. DMC prepared a deed of reconveyance stating that the Massrock trust deed "has been fully paid" and obtained Richard Taxe's signature on the deed of reconveyance in January 2006, but failed to record it. A preliminary title report issued in January 2006 disclosed other existing trust deeds and encumbrances, but did not disclose the Massrock trust deed as an existing encumbrance.
Ronald Taxe and Nadina Taxe executed a $250,000 promissory note secured by a deed of trust against the property in January 2006 and jointly with DMC instructed the escrow company to record the trust deed "in the 1st position" and obtain a lender's title insurance policy "insuring the loan as a 1st trust deed on the property." Ronald Taxe and Nadina Taxe also agreed under the terms of the escrow instructions to "payoff the existing liens on said property and pay the delinquent property taxes from the Borrower's proceeds." Accordingly, Ronald Taxe and Nadina Taxe paid off the prior $100,000 trust deed in favor of DMC, delinquent property taxes, and two judgments from the loan proceeds. A trust deed in favor of DMC securing the $250,000 note was recorded on January 24, 2006.
DMC assigned the trust deed to plaintiffs in February 2006. Plaintiffs were unaware of the Massrock trust deed at the time, and DMC represented to plaintiffs that the assigned trust deed was in first priority position.
Massrock recorded a notice of default of the Massrock trust deed in May 2009. Plaintiffs also recorded a notice of default of the assigned DMC trust deed in May 2009. Massrock later noticed a trustee's sale to take place on August 27, 2009.
2. Trial Court Proceedings
Plaintiffs filed a complaint on August 5, 2009, against Ronald Taxe, Nadina Taxe, Richard Taxe, Massrock and Gregory Grantham as trustee of the Massrock trust deed, alleging counts for (1) declaratory relief, (2) quiet title, (3) imposition and foreclosure of an equitable first priority lien, (4) constructive trust, (5) fraud, and (6) negligent misrepresentation. Massrock and plaintiffs agreed on August 20, 2009, that neither side would conduct a trustee's sale before November 2, 2009. Despite this agreement, plaintiffs recorded a notice of sale on August 24, 2009, scheduling a trustee's sale to take place on September 17, 2009. Plaintiffs contend they did so inadvertently. Massrock then proceeded with its own trustee's sale on September 9, 2009, and purchased the real property at the sale. A trustee's deed to Massrock was recorded on September 11, 2009.
Plaintiffs filed a first amended complaint with leave of court in January 2010 alleging the same six counts and adding a seventh count for cancellation of the trustee's deed and reconveyance of the Massrock trust deed. The trial court sustained with leave to amend a demurrer by all defendants other than Richard Taxe to each count alleged in the first amended complaint. Richard Taxe answered the first amended complaint.
Plaintiffs filed a second amended complaint in May 2010 alleging counts for (1) declaratory relief, against all defendants; (2) quiet title, against all defendants; (3) imposition and foreclosure of an equitable first priority lien, against all defendants; (4) constructive trust, against Ronald Taxe and Nadina Taxe; and (5) cancellation of the trustee's deed and reconveyance of the Massrock trust deed, against Massrock and Grantham. Plaintiffs allege that the Massrock trust deed purportedly was given in connection with the sale of artwork by Richard Taxe to Ronald Taxe, but it was a sham intended to deceive creditors and in fact no consideration was given for the Massrock trust deed.
Plaintiffs allege in their first count that they are bona fide purchasers for value of the $250,000 trust deed and had no notice of the Massrock trust deed, that the Massrock trust deed and trustee's sale are invalid and did not extinguish plaintiffs' trust deed, that their trust deed is a valid and existing first priority lien and, alternatively, that they are entitled to an equitable first priority lien based on subrogation. They seek a judicial declaration establishing their interest in the property and declaring defendants' competing claims invalid.
Plaintiffs allege in their second count that defendants claim that the foreclosure of the Massrock trust deed extinguished plaintiffs' trust deed, but that defendants actually have no interest in the property, or, alternatively, defendants' interest is subject to or subordinate to plaintiffs' trust deed. Plaintiffs seek to quiet title as of January 24, 2006, with a determination that their trust deed was and is a first priority lien with seniority over any interest of defendants or that plaintiffs have an equitable first priority lien encumbering the property.
Plaintiffs allege in their third count that part of the proceeds of the $250,000 loan was used to pay prior encumbrances against the property and that plaintiffs are entitled to an equitable lien and to be equitably subrogated to the rights of the holders of the prior encumbrances to the extent that the loan proceeds satisfied those encumbrances. They allege in their fourth count that Ronald Taxe and Nadina Taxe hold the loan proceeds and profits from those proceeds in constructive trust for the benefit of plaintiffs. They allege in their fifth count that the trustee's deed to Massrock should be canceled and the Massrock trust deed reconveyed.
All defendants other than Richard Taxe jointly demurred to the second amended complaint. Richard Taxe later filed a notice of joinder in the demurrer. The trial court concluded that declaratory relief was not appropriate after the foreclosure sale because plaintiffs only sought to remedy past wrongs. The court also concluded that plaintiffs could not maintain a quiet title action because " 'the holder of equitable title cannot maintain a quiet title action against the legal owner.' [Citations.]" The court concluded that plaintiffs were not entitled to an equitable lien because DMC, their assignor, had actual knowledge of the Massrock trust deed and showed inexcusable neglect in failing to record the deed of reconveyance. The court also stated that plaintiffs' allegation that they were not aware of the Massrock trust deed until May 2009 was a sham because it conflicted with their allegation that DMC was previously aware of the Massrock trust deed.
The trial court also concluded that plaintiffs had failed allege a basis to impose a constructive trust. The court stated with respect to the fifth count that plaintiffs' prior allegation that the trustee's sale was a breach of the parties' agreement not to conduct a trustee's sale conflicted with the allegation in the second amended complaint that there was no consideration for the trust deed and that the latter was "a conclusory allegation that is not admitted on demurrer." The court stated further that plaintiffs had breached the agreement by recording their own notice of sale, so Massrock's performance was excused. The court therefore sustained the demurrer without leave to amend as to each count alleged in the second amended complaint and entered a judgment of dismissal. Plaintiffs filed a timely appeal from the judgment (No. B225795).
Ronald Taxe and Nadina Taxe moved for an award of $112,437.50 in attorney fees, against all plaintiffs, under an attorney fee provision in the $250,000 note and deed of trust, as prevailing parties in an action on a contract. Plaintiffs opposed the motion. The trial court granted the motion and awarded $112,437.50 in attorney fees. Plaintiffs filed a timely appeal from that order (No. B227711). We have consolidated the two appeals.
CONTENTIONS
Plaintiffs contend (1) they have adequately alleged counts for imposition of an equitable lien, quiet title, declaratory relief, and cancellation of the trustee's deed and reconveyance of the Massrock trust deed; (2) they are entitled to leave to amend the complaint, if necessary; (3) the trustee's deed is void because Massrock was a suspended corporation at the time; (4) the attorney fee provisions in the note and trust deed do not authorize an attorney fee award in this action; and (5) the attorney fee award is excessive.
Plaintiffs fail to argue in their opening brief and argue for the first time in their reply brief that the sustaining of the demurrer to their constructive trust count was error. We ordinarily will not consider an argument raised for the first time in a reply brief because to do so would deprive the respondent of an opportunity to counter the argument in its respondent's brief. (Reichardt v.Hoffman (1997) 52 Cal.App.4th 754, 764-765.) Plaintiffs have shown no reason for us to deviate from that rule here, so we will not consider the point.
DISCUSSION
1. Standards of Review
"A demurrer tests the legal sufficiency of the factual allegations in a complaint. We independently review the sustaining of a demurrer and determine de novo whether the complaint alleges facts sufficient to state a cause of action. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415 [106 Cal.Rptr.2d 271, 21 P.3d 1189].) We assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded, and matters of which judicial notice has been taken. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081 [6 Cal.Rptr.3d 457, 79 P.3d 569].) We construe the pleading in a reasonable manner and read the allegations in context. (Ibid.) We will affirm the judgment if it is correct for any reason, regardless of the trial court's stated reasons. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967 [9 Cal.Rptr.2d 92, 831 P.2d 317].)" (MKB Management, Inc. v. Melikian (2010) 184 Cal.App.4th 796, 802.)
We review for abuse of discretion the denial of leave to amend a complaint in connection with the sustaining of a demurrer. It is an abuse of discretion to sustain a demurrer without leave to amend if there is a reasonable probability that the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1082.) The burden is on the plaintiff to demonstrate how the complaint can be amended to state a valid cause of action. (Ibid.)
We also review for abuse of discretion the sustaining of a demurrer to a count for declaratory relief based on a determination that such relief is not appropriate at the time. (Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 647-648.)
2. Plaintiffs Adequately Allege that the Trustee's Sale Was Invalid
A person challenging the validity of a nonjudicial foreclosure sale may commence an action to set aside the sale. (Bank of America etc. Assn. v. Reidy (1940) 15 Cal.2d 243, 248; Brown v. Busch (1957) 152 Cal.App.2d 200, 203-204.) "It is the general rule that courts have power to vacate a foreclosure sale where there has been fraud in the procurement of the foreclosure decree or where the sale has been improperly, unfairly or unlawfully conducted, or is tainted by fraud, or where there has been such a mistake that to allow it to stand would be inequitable to purchaser and parties. Sham bidding and the restriction of competition are condemned, and inadequacy of price when coupled with other circumstances of fraud may also constitute ground for setting aside the sale." (Bank of America, supra, at p. 248.)
An action to set aside a trustee's sale is an equitable action. (Raedeke v. Gibraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665, 671.) Whether the circumstances justify setting aside the sale is an issue for the trial court to decide as the trier of fact. (Brown v. Busch, supra, 152 Cal.App.2d at p. 204.)
Gross inadequacy of the sales price coupled with fraud or some other irregularity or unfairness resulting in prejudice to the plaintiff is a common ground for setting aside a trustee's sale (e.g., Millennium Rock Mortgage, Inc. v. T.D. Service Co. (2009) 179 Cal.App.4th 804, 810-812; Whitman v. Transtate Title Co. (1985) 165 Cal.App.3d 312, 323), but is not the only ground. Some circumstances may justify setting aside a trustee's sale despite the trustee's compliance with the statutory notice requirements and regardless of the adequacy of the sales price. In particular, the absence of consideration for or invalidity of the trust deed subject to the foreclosure would justify setting aside a sale to the beneficiary. (Stirton v. Pastor (1960) 177 Cal.App.2d 232, 234.) Other circumstances also may create such unfairness as to justify the court, in equity, setting aside the sale despite compliance with the statutory notice requirements and regardless of the sales price. (E.g., Bank of America v. La Jolla Group II (2005) 129 Cal.App.4th 706, 712-713 [beneficiary had accepted payment and agreed to reinstate the loan before the trustee's sale].)
Plaintiffs allege in their second amended complaint that the Massrock trust deed was a sham intended to deceive creditors and was given for no consideration. We conclude that this allegation, if true, could support a decision by the trial court, in equity, to set aside the trustee's sale and cancel the trustee's deed. Plaintiffs seek this relief in their fifth count. We conclude that the sustaining of the demurrer to the fifth count was error. In light of our conclusion, we need not address plaintiffs' contention, not alleged in their complaint, that the trustee's deed is void because Massrock was a suspended corporation at the time of the trustee's sale.
Contrary to the trial court's ruling, the allegation that there was no consideration for the Massrock trust deed does not conflict with plaintiffs' prior allegation that the foreclosure sale was conducted in violation of the parties' agreement not to proceed with the foreclosure.
3. Plaintiffs Adequately Allege an Equitable First Priority Lien
A person who pays off an encumbrance or makes an expenditure that otherwise enhances the property value generally is entitled to an equitable lien against the property if necessary to avoid unjust enrichment. (Simon Newman Co. v. Fink (1928) 206 Cal. 143, 146-147(Simon Newman); Jones v. Sacramento Sav. & Loan Assn. (1967) 248 Cal.App.2d 522, 530.) If a person paying off an encumbrance reasonably expects to receive a lien with the same priority as the lien that is paid off, the payor is equitably subrogated to the rights of the prior lienholder and will receive an equitable lien with the same priority as the lien that is paid off to the extent of the payment made, provided that there is no prejudice to intervening lienholders. (Simon Newman, supra, at pp. 146-147; cf. Copp v. Millen (1938) 11 Cal.2d 122, 126-130; see Civ. Code, §§ 2903, 2904; Caito v. United California Bank (1978) 20 Cal.3d 694, 704; Rest.3d Property, Mortgages, § 7.6 & com. e, pp. 519-520.)
Simon Newman, supra, 206 Cal. at page 146, stated, " 'One who advances money to pay off an encumbrance on realty at the instance of either the owner of the property or the holder of the [e]ncumbrance, either on the express understanding, or under circumstances from which an understanding will be implied, that the advance made is to be secured by a first lien on the property, is not a mere volunteer; and in the event the new security is for any reason not a first lien on the property, the holder of such security, if not chargeable with culpable and inexcusable neglect, will be subrogated to the rights of the prior encumbrancer under the security held by him, unless the superior or equal equities of others would be prejudiced thereby, and to this end equity will set aside a cancellation of such security, and revive the same for his benefit.' " (Accord, Smith v. State Savings & Loan Assn. (1985) 175 Cal.App.3d 1092, 1096; Katsivalis v. Serrano Reconveyance Co. (1977) 70 Cal.App.3d 200, 210-211.)
Defendants argue that, as a matter of law, equitable subrogation is appropriate only if the payor had no actual knowledge of an intervening lien. We disagree. Although in some circumstances the payor's actual knowledge of an intervening lien may establish that the payor did not reasonably expect to receive a senior lien, the payor's actual knowledge does not necessarily conclusively establish that fact in all circumstances. Whether the payor reasonably expected to receive a senior lien or, to the contrary, is "chargeable with culpable and inexcusable neglect" (Simon Newman, supra, 206 Cal. at p. 146), depends on the particular facts and circumstances in each case.
The plaintiff in Simon Newman, supra, 206 Cal. 143, made a loan to an individual defendant the proceeds of which paid off a personal property mortgage held by a bank. The bank mortgage was released, and the plaintiff received a new mortgage. During the loan negotiations, a bank officer had informed the plaintiff of the bank mortgage and two unsecured loans made by the bank officer personally, but had failed to disclose a junior mortgage securing another loan made by the bank officer personally. The plaintiff sued the bank officer and others, seeking to be equitably subrogated to the bank's interests as the holder of the prior mortgage. The trial court concluded that the plaintiff was entitled to equitable subrogation despite the intervening lien. (Id. at pp. 144-145.)
The California Supreme Court affirmed, holding that a person who pays off an encumbrance with the understanding, express or implied, that he or she will receive a lien with the same priority as the lien that is paid off is equitably subrogated to the rights of the prior lienholder, provided that the payor is "not chargeable with culpable and excusable neglect" and there is no prejudice to third parties. (Simon Newman, supra, 206 Cal. at p. 146.) We understand this to mean that a payor who reasonably expects to receive a lien with the same priority as the lien that is paid off is entitled to equitable subrogation, provided that there is no prejudice to intervening lienholders, as we have stated.
Simon Newman rejected the argument that the evidence did not support the finding that the plaintiff had no actual knowledge of the bank officer's intervening mortgage. (Simon Newman, supra, 206 Cal. at pp. 145-146.) Simon Newman also rejected the argument that constructive notice based on the recordation of the intervening mortgage would preclude equitable subrogation, and stated in dicta that Darrough v. Herbert Kraft Co. Bank (1899) 125 Cal. 272 suggested "[t]hat such a right would not be so affected in the absence of actual knowledge." (Simon Newman, supra, 206 Cal. at p. 147.) Unlike the situation here where plaintiffs contend their assignor was assured that a known intervening lien had been released, in Simon Newman the plaintiff's expectation of a first priority lien depended on its complete ignorance of the intervening lien. (Id. at p. 145.) In our view, Simon Newman does not suggest that actual knowledge of an intervening lien necessarily precludes equitable subordination. Instead, Simon Newman suggests that actual knowledge of an intervening lien precludes equitable subrogation if the payor's expectation of a first priority lien depends on complete ignorance of an intervening lien.
The same is true of other opinions suggesting that actual knowledge of an intervening lien would preclude equitable subordination. (Darrough v. Herbert Kraft Co. Bank, supra, 125 Cal. at pp. 274-275; Shaffer v. McCloskey (1894) 101 Cal. 576, 578-579; Smith v. State Savings & Loan Assn., supra, 175 Cal.App.3d at p. 1098.)
The plaintiff in Copp v. Millen, supra, 11 Cal.2d 122, was the assignee of a mortgage and a trust deed that were in default. The property owner executed a new mortgage in the amount of the outstanding balance, and the original mortgage and trust deed were discharged. In the interim between the recording of the original mortgage and trust deed and the recording of the new mortgage, the owner had entered into a land sale contract with a third party. The plaintiff filed an action to foreclose on the new mortgage and sought to be equitably subrogated to the rights of the holder of the original mortgage and trust deed. (Id. at pp. 124-125.) The trial court found that the plaintiff had actual knowledge of the land sale contract and denied relief against the new purchaser. (Id. at p. 125.)
Copp stated that there was evidence that the plaintiff and the property owner intended to substitute the new mortgage for the original security and mistakenly believed that the new mortgage would be a first priority lien. (Copp v. Millen, supra, 11 Cal.2d at p. 126.) Copp stated that, in those circumstances, the plaintiff would be entitled to a first priority lien to the extent that there was no prejudice to the intervening lienholder. (Id. at p. 130.) Copp stated: "some knowledge or means of knowledge of the existence of other person's rights in the property does not in every case preclude the court from granting the relief sought. So that if, notwithstanding the mortgagee had some knowledge or notice, the intervening lienholder is not prejudiced by the continuance of the priority of the original mortgage and is in no different position than he would have been had the release not been recorded, equity will place the parties in their original position." (Ibid.)
Copp stated that the plaintiff's knowledge of the land sale contract did not compel the conclusion that the plaintiff knew or reasonably should have known that the new mortgage would not be a first priority lien. (Copp v. Millen, supra, 11 Cal.2d at p. 130.) Copp stated further: "The trial court apparently concluded that the plaintiff's knowledge of the existence of Russell's contract was alone sufficient to exclude the plaintiff from any relief by way of foreclosure. The court refused to admit evidence offered by the plaintiff to show the circumstances under which the release and renewal of the mortgage and trust deed were made." (Id. at p. 130.) Copp held that the exclusion of evidence was error. (Id. at pp. 130-131.) Thus, Copp supports the proposition that actual knowledge of an intervening lien does not preclude equitable subrogation if, despite such knowledge, the party seeking subrogation reasonably expected to receive a first priority lien.
Copp v. Millen, supra, 11 Cal.2d at page 130, stated, "it does not appear that the plaintiff knew or should have known that Russell's unrecorded contract to purchase was not subject to plaintiff's mortgage."
Lawyers Title Ins. Corp. v. Feldsher (1996) 42 Cal.App.4th 41, affirmed a summary judgment against the assignee of a lender seeking to be equitably subrogated to the rights of a senior lienholder. The lender was an experienced hard money lender who had actual knowledge of an intervening trust deed and knew that the holders of the intervening trust deed had agreed to subordinate their trust deed only on certain terms, including a written subordination agreement. (Id. at pp. 44, 52.) Yet the lender made no affirmative effort to obtain a subordination agreement before completing the loan, and there was no evidence that anyone had agreed to obtain a subordination agreement. (Id. at p. 52.) Lawyers Title concluded that the lender's failure to protect his interests despite his actual knowledge and experience constituted " 'culpable and inexcusable neglect' " precluding equitable subrogation. (Id. at p. 54, quoting Simon Newman, supra, 206 Cal. at p. 146.) Lawyers Title did not hold or suggest that actual knowledge of an intervening trust deed precludes equitable subrogation as a matter of law in all circumstances, but instead held that the evidence compelled the conclusion that the lender's neglect in those circumstances was inexcusable. (Id. at pp. 52, 54.)
The Restatement Third of Property, Mortgages takes the position that a payor's actual knowledge of an intervening lien does not necessarily preclude equitable subrogation, and the controlling question instead is whether the payor reasonably expected to receive a lien with the same priority as the encumbrance being paid. (Id., § 7.6, com. e., pp. 519-520; see Comment, Subrogation of Mortgages in California: A Comparison with the Restatement and Proposals for Change (2001) 48 UCLA L.Rev. 1633, 1655-1657 [favoring the Restatement position].) We agree and conclude that this controlling question is a question of fact.
Plaintiffs allege in their second amended complaint that Ronald Taxe and Nadina Taxe agreed that DMC's $250,000 loan would be secured by a first priority trust deed against the property. Although DMC was aware of the existence of the Massrock trust deed as early as 2005, plaintiffs allege that Ronald Taxe, Nadina Taxe and Richard Taxe later represented that the Massrock trust deed had been paid or reconveyed and was not among the encumbrances remaining against the property.Ronald Taxe, Nadina Taxe and DMC jointly instructed the escrow holder that the $250,000 loan was to be secured by a first priority trust deed, and the borrowers agreed to pay off the existing liens from the loan funds. We conclude based on these allegations that plaintiffs adequately allege that DMC, as their assignor, reasonably expected to receive a first priority trust deed. Plaintiffs seek the imposition of an equitable first priority lien in their third count. We conclude that the sustaining of the demurrer to the third count was error.
Contrary to the trial court's ruling, plaintiffs' allegation that they were not aware of the Massrock trust deed until May 2009 does not conflict with their allegation that DMC was previously award of the Massrock trust deed. In any event, plaintiffs as assignees stand in the shoes of DMC as assignors (Civ. Code, § 1459; Code Civ. Proc., § 368), and the relevant knowledge is that of DMC.
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4. Plaintiffs Adequately Allege a Count to Quiet Title
A quiet title action is an action to resolve competing claims to real or personal property. (Code Civ. Proc., § 760.020, subd. (a).) Such claims may include legal or equitable interests. (Id., § 760.010, subd. (a).) A holder of equitable title seeking to quiet title against a holder of legal title must allege facts constituting fraud or other circumstances that would justify invalidating the defendant's legal title. (Strong v. Strong (1943) 22 Cal.2d 540, 546; Aalwyn's Law Institute v. Martin (1916) 173 Cal. 21, 26.)
Some opinions state that a holder of equitable title, or more generally a holder of an equitable interest, cannot maintain a quiet title action against a legal owner. (E.g., G. R. Holcomb Estate Co. v. Burke (1935) 4 Cal.2d 289, 297; Los Angeles County v. Hannon (1910) 159 Cal. 37, 48; Buchner v. Malloy (1909) 155 Cal. 253, 255; Lewis v. Superior Court (1994) 30 Cal.App.4th 1850, 1866; Stafford v. Ballinger (1962) 199 Cal.App.2d 289, 294-295; South v. Wishard (1954) 123 Cal.App.2d 642, 653.) We believe that such statements overstate the rule and that the rule actually supported by these authorities and those cited above is that a holder of equitable title cannot maintain a quiet title action against a holder of valid legal title and therefore must allege facts constituting fraud or other circumstances that would justify invalidating the defendant's legal title. (Strong v. Strong, supra, 22 Cal.2d at p. 546; Aalwyn's Law Institute v. Martin, supra, 173 Cal. at p. 26; De Leonis v. Hammel (1905) 1 Cal.App. 390, 394; see 5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 667, p. 93; see also Warren v. Merrill (2006) 143 Cal.App.4th 96, 113-114.)
Plaintiffs allege that they are holders of a first priority trust deed in the original amount of $250,000. Plaintiffs allege that defendants claim that the foreclosure sale extinguished plaintiffs' trust deed, but that the foreclosure sale did not extinguish their trust deed and that Massrock actually has no interest in the property. Plaintiffs allege that this is so because the Massrock trust deed was a sham, because DMC mistakenly believed that the Massrock trust deed had been reconveyed while defendants were aware that there was no reconveyance, and because the foreclosure sale was conducted in violation of the parties' agreement not to proceed with the trustee's sale. Plaintiffs seek a determination that their trust deed was in first priority position as of January 24, 2006, and is an existing first priority lien with seniority over any interest of defendants, or, alternatively, that plaintiffs have an equitable first priority lien encumbering the property. We conclude that these allegations of fraud, mistake and other circumstances may be sufficient, in equity, to justify the invalidation of Massrock's legal title and that plaintiffs adequately allege a count to quiet title.
5. The Sustaining of the Demurrer to the Declaratory Relief Count Was Proper
A party may obtain declaratory relief concerning the parties' rights and duties with respect to a written instrument or property if there is an actual controversy as to the parties' rights and duties. (Code Civ. Proc., § 1060.) A court may refuse to grant declaratory relief, however, if it determines that such relief "is not necessary or proper at the time under all the circumstances." (Id., § 1061.)
The purpose of declaratory relief is to enable the parties to shape their conduct so as to avoid a breach and subsequent litigation. (Meyer v. Sprint Spectrum L.P., supra, 45 Cal.4th at p. 647; Babb v. Superior Court (1971) 3 Cal.3d 841, 848.) " '[D]eclaratory procedure operates prospectively, and not merely for the redress of past wrongs. It serves to set controversies at rest before they lead to repudiation of obligations, invasion of rights or commission of wrongs; in short, the remedy is to be used in the interests of preventive justice, to declare rights rather than execute them. [Citations.]' " (Babb, supra, at p. 848.) A court may sustain a demurrer to a count for declaratory relief if the plaintiff only seeks redress for past wrongs for which a cause of action for other relief has already accrued. (Baldwin v. Marina City Properties, Inc. (1978) 79 Cal.App.3d 393, 407-408.)
Plaintiffs' first count for declaratory relief seeks the same relief sought in the third count for imposition of an equitable lien and fifth count for cancellation of the trustee's deed and reconveyance of the Massrock trust deed, and seeks no other relief. Because those causes of action have already accrued, we conclude that the sustaining of the demurrer to the declaratory relief count was not an abuse of discretion. Although plaintiffs contend they are entitled to leave to amend their complaint if necessary, they fail to explain how they could amend their declaratory relief count to overcome this defect and therefore are not entitled to leave to amend.
6. The Attorney Fee Award Must Be Reversed
Plaintiffs contend this action is not an action to adjudicate their rights as assignees under the $250,000 note and trust deed, so the attorney fee provision does not provide for fees incurred in this action. We need not decide this question because regardless of whether the fee provision authorizes an award of fees in this action, our reversal of the judgment means that there is no prevailing party at this time and no basis for an award of attorney fees as costs to the prevailing party.
Our reversal of the judgment sets the matter at large as if there had been no judgment and automatically vacates an award of costs incidental to the judgment. (Monson v. Fischer (1933) 219 Cal. 290, 291; Evans v. Southern Pacific Transportation Co. (1989) 213 Cal.App.3d 1378, 1388.) The order awarding attorney fees as costs to Ronald Taxe and Nadina Taxe as prevailing parties will therefore be reversed. (Gillan v. City of San Marino (2007) 147 Cal.App.4th 1033, 1053.)
DISPOSITION
The judgment and order awarding attorney fees are reversed with directions to the trial court to vacate the order sustaining the demurrer to each count and enter a new order overruling the demurrer to the counts for quiet title, imposition of an equitable lien and cancellation of instruments, and sustaining the demurrer to the counts for declaratory relief and constructive trust. Plaintiffs are entitled to recover their costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
CROSKEY, J.
WE CONCUR:
KLEIN, P. J.
KITCHING, J.