Western Federal Sav. & Loan Ass'n v. Heflin Corp., C 91-20452 JW.

• Decision Date: 17 July 1992
• Docket Number: No. C 91-20452 JW.,C 91-20452 JW.
• Citation: 797 F. Supp. 790
• Court: U.S. District Court — Northern District of California
• Parties: WESTERN FEDERAL SAVINGS & LOAN ASSOCIATION, Plaintiff, v. HEFLIN CORPORATION, et al., Defendants.

797 F. Supp. 790

WESTERN FEDERAL SAVINGS & LOAN ASSOCIATION, Plaintiff, v. HEFLIN CORPORATION, et al., Defendants.

No. C 91-20452 JW.

United States District Court, N.D. California.

July 17, 1992.

Thomas H. Squeri, Pettit & Martin, San Jose, Cal., for plaintiff.

Ernest L. Miller, Miller, Domino & Ackerman, San Jose, Cal., for defendants.

ORDER GRANTING PARTIAL SUMMARY JUDGMENT

WARE, District Judge.

Plaintiff Western Federal Savings & Loan Association ("Western Federal") brings this motion for summary judgment on the first and second causes of action of the complaint. The Court having read and considered the papers submitted by the parties, having heard oral argument, and good cause appearing hereby GRANTS Plaintiff's motion for summary judgment.

BACKGROUND

Defendant Heflin Corporation ("Heflin") purchased land in the early 1980's for the development of an eighty-unit condominium complex, Cedar Terrace Condominiums ("Cedar Terrace"). Bell Savings & Loan ("Bell"), the predecessor-in-interest to Western Federal, provided construction financing for the project. Heflin signed a Note and granted Bell a First Deed of Trust on the land.

In the mid-1980's Bell and Heflin restructured the loan. As part of the new agreement, Heflin conveyed Cedar Terrace by five Grant Deeds to five limited partnerships, Bascom Avenue Associates, Cedar Terrace Associates, the Cala Group, Heflin Group, and TR Associates ("Partnerships"). Bell canceled Heflin's Note and First Deed of Trust and received new Notes and new First Deeds of Trust encumbering the Partnerships.

In 1986 Bell filed an action in Santa Clara County Superior Court seeking judicial foreclosure and appointment of a receiver to collect rents pending foreclosure. Heflin and the Partnerships cross-complained for breach of the loan commitment agreement, fraud and bad faith. On March 30, 1986, the state court appointed a receiver to collect rents. Pursuant to a settlement reached in 1989, the parties signed and executed a general release ("Release") of all claims.

Western Federal obtained Cedar Terrace through a credit bid at the 1990 foreclosure sale. Western Federal has attempted to sell Cedar Terrace to a third-party but has been unable to obtain title insurance because of what it claims is a scrivener's error in the legal descriptions of the land in the Grant Deeds. According to Western Federal, Heflin and the Partnerships claim to own the exterior walls and roofs of Cedar Terrace. Western Federal filed this action for reformation, quiet title, indemnity and declaratory relief on July 12, 1991 in the Santa Clara County Superior Court. The action was removed to this Court on July 31, 1991.

DISCUSSION

I. Judicial Notice

Plaintiff requests that the Court take judicial notice of the following: (1) the entire state court file in action no. 599435 (consolidated), involving the judicial foreclosure action filed by Western Federal against Heflin and the Partnerships, including the complaints filed by Western Federal, the answers of Heflin and the Partnerships; and the initial order appointing receiver; and (2) certain documents contained in the public records of the Santa Clara County Recorder including the five Deeds of Trust issued by T.D. Service Company to Western Federal and the Declaration of Covenants, Conditions, and Restriction of the Cedar Terrace Condominiums. As the accuracy of these records are not subject to reasonable dispute, the Court takes judicial notice of the same. Fed.R.Evid. 201.

II. Standard For Summary Adjudication

Rule 56(d) of the Federal Rules of Civil Procedure provides that on a motion for partial summary judgment of the issues, the court is to, if practicable, "ascertain what material facts exist without substantial controversy and what material facts are actually and in good faith controverted." Summary adjudication of an issue is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to judgment on that issue as a matter of law. Fed.R.Civ.P. 56(c).

The party opposing summary judgment has the burden of presenting evidence sufficient to support a jury verdict in his favor on every essential element of the claim on which he carries the burden of proof. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 261, 106 S.Ct. 2505, 2517, 91 L.Ed.2d 202 (1986). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no `genuine issue for trial.'" Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (quoting First National Bank of America v. Cities Service Co., 391 U.S. 253, 289, 88 S.Ct. 1575, 1592, 20 L.Ed.2d 569 (1968)).

III. Reformation

Plaintiff contends that the Grant Deeds and Deeds of Trust as written do not reflect the true intent of the parties.

Under California Civil Code ("Civ. Code") section 3399, a written contract may be revised to express the true intention of the parties when through fraud or mistake, the contract as written does not express the true intentions of the parties. Also see California Pacific Title Co. v. Moore, 229 Cal.App.2d 114, 40 Cal.Rptr. 61 (1964). The party seeking relief must prove the true intent of the parties by clear and convincing evidence. Shupe v. Nelson, 254 Cal.App.2d 693, 62 Cal.Rptr. 352, 357 (1967).

Here, Western Federal offers the following evidence in support of reformation: (1) The deposition testimony of Timothy Trailer, Heflin's President during the relevant time period, in which he states that he never communicated his intent to transfer less than Heflin's entire interest to the Partnerships (Trailer Dep. at 26:3-16, Ex. A. to Squeri Decl.); (2) The declarations establishing Cedar Terrace which prohibit the separate ownership of the common areas of the building from ownership of the individual units (Decl. of Covs. 2.03 at 2.1, Ex. I, Request for Judicial Notice); (3) Trailer's deposition testimony that Heflin never displayed any indicia of property ownership over any portion of Cedar Terrace after the transfer of its interest to the Partnerships (Trailer Dep. at 34:9-17, 37:19-26, 38:1-15, 39:2-4, 42:18-22, 52:13-26, 53:1-9); and, (4) section 1362 of the California Civ.Code which prohibits the separation of ownership of the common areas in Common Interest Developments.

Heflin, on the other hand, contends that genuine issues of fact remain, precluding entry of judgment against it. Heflin contends that: (1) a genuine issue of fact exists as to what instructions were given to the deed preparer; and, (2) a genuine issue of fact exists as to what discussions took place between Bell and Heflin.

On summary judgment, the opposing party may not rest on the allegations in its pleadings but must come forth with evidence sufficient to create a genuine issue of material fact. In this case, Heflin has not offered evidence sufficient to create a genuine triable issue of fact.

Robert Cavallaro, the custodian of records for the Santa Clara Land Title Company ("Title Company") states that the records do not reflect any instructions from Heflin or any other party to the escrow directing the Title Company to prepare conveyancing documents describing anything less than Heflin's full interest in the property. (Cavallaro Decl. ¶ 5).¹ In addition, while Heflin argues that a genuine factual issue exists as to what Bell and Heflin discussed regarding the conveyance, Heflin's President stated under oath that the parties never discussed the possibility of Heflin retaining an interest in the property. (Heflin Dep. at 26:3-16). Although he now claims that Heflin "intended to retain as much interest in the property as possible to protect Heflin's interest," Heflin Dep. at 32:10-20, he never communicated those intentions to Bell. (Heflin Dep. at 26:3-16).

The Court in construing the language of the contract will enforce the outward expression rather than the unexpressed intention of the parties. See, e.g., Edwards v. Comstock Ins. Co., 205 Cal. App.3d 1164, 252 Cal.Rptr. 807 (1988). The Court must conclude that if the parties intended to exclude the roofs and exterior walls, such an extraordinary conveyance would have been recorded. The undisputed evidence supports Plaintiff's contention that the parties intended that Heflin convey its entire interest to the Partnerships. Accordingly, the Court reforms the Grant Deeds and Deeds of Trust to express the true intention of the parties.

IV. Quiet Title

Western Federal argues that the reformed Deeds of Trust entitles it to quiet title against Heflin, the Partnerships, and a judgment quieting title against all named defendants except Santa Clara Land Title Company who claims no interest in the property.

California Code of Civil Procedure ("Civ. Proc.Code") section 764.010 provides that the court shall examine and determine the plaintiff's title against the claims of all the defendants.

Here, Western Federal obtained title and possession of Cedar Terrace through a non-judicial foreclosure sale in 1990. Based upon the reformed Grant Deeds and Deeds of Trust, the Court finds that Western Federal has a valid claim to title to Cedar Terrace free and clear of all junior interests and encumbrances.

Therefore, pursuant to California Civ. Proc.Code section 764.010, title in the name of Western Federal Savings & Loan Association is quieted against Heflin and the Partnerships, against all named defendants (except for Santa Clara Land Title Company) and the unknown defendants named pursuant to California Civ.Proc.Code section 762.020.²

V. Release Agreement

Defendant Heflin argues that the Release Agreement releases and waives Plaintiff's present claims and bars recovery in this action.

California Civ.Code section 1541 provides that "an obligation is extinguished by a release therefrom given to the debtor by the creditor, upon a new consideration, or in writing, with or without new consideration." As a...