California Federal Bank v. Matreyek

• Decision Date: 09 June 1986
• Citation: 10 Cal.Rptr.2d 58,8 Cal.App.4th 125
• Parties: CALIFORNIA FEDERAL BANK, Plaintiff and Appellant, v. Bill Albin MATREYEK, as Trustee for the Bill Albin Matreyek Trust and Mary Elizabeth Burney Matreyek Trust U/D/T
• Court: California Court of Appeals Court of Appeals

Page 58

10 Cal.Rptr.2d 58

8 Cal.App.4th 125

CALIFORNIA FEDERAL BANK, Plaintiff and Appellant, v. Bill Albin MATREYEK, as Trustee for the Bill Albin Matreyek Trust and Mary Elizabeth Burney Matreyek Trust U/D/T June 9, 1986, Defendants and Respondents.

Civ. B059760.

Court of Appeal, Second District, Division 3, California.

July 20, 1992.

Stell, Levine, Bookman & Weiss and Lawrence E. Bookman, Los Angeles, for plaintiff and appellant.

Covington & Crowe and Melanie Fisch, Ontario, for defendants and respondents.

KLEIN, Presiding Justice.

Plaintiff and appellant California Federal Bank (CalFed) appeals a judgment of dismissal following the sustaining of a demurrer to its original complaint interposed by defendants and respondents Bill Albin Matreyek, as trustee for the Bill Albin Matreyek Trust and Mary Elizabeth Burney Matreyek Trust U/D/T June 9, 1986 (hereafter, the Matreyeks).

The issues presented are whether CalFed has pled or is capable of pleading causes of action for unjust enrichment and equitable subrogation.

For the reasons discussed below, the judgment is affirmed.

FACTUAL AND PROCEDURAL BACKGROUND

On December 3, 1990, CalFed filed this action against the Matreyeks for (1) restitution based on unjust enrichment; (2) equitable subrogation; (3) money had and received; and (4) money paid. The complaint alleged, in relevant part:

On June 8, 1988, pursuant to a note secured by a deed of trust, CalFed loaned the Matreyeks $7,060,000, at an annual interest rate of 10.25 percent. The note required monthly payments of $62,047 through July 1, 1995, at which time the entire principal balance then owing would be due. The note further provided the Matreyeks would owe CalFed a prepayment penalty in the event the note were repaid early. (CalFed did not attach a copy of the note as an exhibit to its complaint.)

In May 1988, CalFed entered into a written agreement with the Federal National Mortgage Association (Fannie Mae), wherein Fannie Mae committed to purchase and fund the subject loan, while CalFed would provide servicing of the loan. The Fannie Mae commitment required CalFed to collect from the Matreyeks and to pay to Fannie Mae a prepayment penalty in the event of an early payoff.

Pursuant to the commitment, Fannie Mae funded the loan, and on June 28, 1988, CalFed assigned the note and deed of trust to Fannie Mae.

On September 22, 1989, in response to a request from the Matreyeks, CalFed advised them they could obtain substitute financing and pay off the loan without incurring any prepayment penalty. This advice was given in good faith but was erroneous.

In December 1989, the Matreyeks paid off the principal balance and accrued interest which was then due and owing on the note. Under the mistaken belief that no prepayment penalty was due, CalFed caused the note to be cancelled and the deed of trust to be reconveyed without requesting the prepayment penalty from the Matreyeks.

Thereafter, CalFed discovered it should have assessed the prepayment penalty at the time of the payoff. Due to CalFed's error, on July 10, 1990, it was required to pay Fannie Mae the prepayment penalty in the amount of $653,998.74. ¹

CalFed notified the Matreyeks its earlier advice regarding the prepayment penalty had been erroneous and it made written demand upon them to repay that full sum to CalFed. The Matreyeks refused. The Matreyeks received a net economic benefit as a result of the note payoff in that they obtained substitute financing with Mutual of New York (MONY) at an interest rate of 9 percent per annum, 1.25 percent less than the CalFed loan. Even after deducting the MONY refinancing costs, the Matreyeks derived a net benefit of about $358,239.03 by refinancing without incurring the prepayment penalty. The Matreyeks refused to pay any part of that sum.

In the first cause of action, unjust enrichment, CalFed pled the Matreyeks had been unjustly enriched by enjoying the more favorable substitute financing without paying the prepayment penalty.

In the second cause of action for equitable subrogation, CalFed pled it paid the prepayment penalty to Fannie Mae in order to protect its own interest, the Fannie Mae commitment obligated CalFed to pay the prepayment penalty in the event of an early payoff of the Matreyek note, and the Matreyeks were primarily liable for the prepayment penalty while CalFed was secondarily liable. ²

The Matreyeks demurred, arguing, inter alia, CalFed bore the risk of loss from its unilateral mistake and therefore had no right to restitution, CalFed failed to allege the Matreyeks had been unjustly enriched, and CalFed waived its right to the prepayment penalty.

The trial court heard the matter and took it under submission. Later, it ruled: "Both counsel admit that there are no cases on the facts of this case. [p] ... [p] Borrower, relying on Bank's promise, changed its position by obtaining re-financing and paid bank in full without paying the pre-payment penalty. Bank confirmed this agreement by cancelling the promissory note and issuing a reconveyance of the trust deed.... All of this is routine every day commercial banking practices which a sophisticated party, like bank, understands and encourages. The story should end here. [p] Unfortunately for bank, Fannie Mae refused to waive the pre-payment clause. Bank rather than litigating with Fannie Mae, based on bank's reliance on Fannie Mae's policy of previous waivers, paid the pre-payment penalty to Fannie Mae. Bank now seeks reimburs[e]ment from borrower of the pre-payment penalty, months after cancelling the note and issuing the reconveyance in the sum of $350,000[.] [p] It is the Court's opinion that the bank had plead a classic example of both waiver and estoppel [in favor of the Matreyeks]. The bank has the contractual power to waive the pre-payment clause and did so. Borrower detrimentally relied on bank's promise by obtaining substituted re-financing which bank accepted.... [p] The fact that bank was mistaken in its reliance on Fannie Mae is not a basis for a cause of action against its borrower. It has both waived its rights and is estopped by its own conduct and borrower's detrimental reliance as pled. [p] Demurrer sustained as to all causes of action without leave to amend." (Italics deleted.)

Following entry of the judgment of dismissal, CalFed appealed.

CONTENTIONS

CalFed contends its causes of action for (1) restitution based on unjust enrichment and (2) equitable subrogation are well pled.

DISCUSSION

1. Standard of appellate review.

The function of a demurrer is to test the sufficiency of a pleading by raising questions of law. (Buford v. State of California (1980) 104 Cal.App.3d 811, 818, 164 Cal.Rptr. 264.) When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) The allegations are regarded as true and are liberally construed with a view to attaining substantial justice. (Shaeffer v. State of California (1970) 3 Cal.App.3d 348, 354, 83 Cal.Rptr. 347; King v. Central Bank (1977) 18 Cal.3d 840, 843, 135 Cal.Rptr. 771, 558 P.2d 857.)

Generally, when a demurrer is sustained without leave to amend, we decide whether there is a reasonable possibility the defect can be cured by amendment. If it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

However, where, as here, a demurrer is sustained to the original complaint, denial of leave to amend constitutes an abuse of discretion if the pleading does not show on its face that it is incapable of amendment. (King v. Mortimer (1948) 83 Cal.App.2d 153, 158, 188 P.2d 502.)

2. Trial court properly sustained demurrer without leave to unjust enrichment count.

a. General principles.

A person who has been unjustly enriched at the expense of another is required to make restitution. (Rest., Restitution, § 1.)

A person is enriched if he or she has received a benefit. (Rest., supra, § 1, com. a.) A benefit is conferred not only where one adds to the property of another, but also where one saves the other from expense or loss. Thus, the term benefit denotes any form of advantage. (Rest., supra, § 1, com. b.) However, the mere fact a person benefits another is not of itself sufficient to require the other to make restitution therefor. The recipient of the benefit is liable only if the circumstances are such that, as between the two persons, it is unjust for the recipient to retain it. (Rest., supra, § 1, com. c.)

Section 12 of the Restatement of Restitution, pertaining to unilateral mistake in bargains, provides: "A person who confers a benefit upon another, manifesting that he does so as an offer of a bargain which the other accepts or as the acceptance of an offer which the other has made, is not entitled to restitution because of a mistake which the other does not share and the existence of which the other does not know or suspect."

Comment a thereto explains: "The equitable principle by which a person is entitled to restitution for what he has transferred to another by mistake is modified by the principle that a person is entitled to the benefit of a bargain made by him without fraud or duress. Ordinarily, therefore, a person entering into a transaction in which another gives or promises consideration is not entitled to the return of what he gives merely because he is mistaken as to ... facts which cause him to enter into the transaction. A contracting party who is unaware of and does not share the mistake made by the transferor, is entitled to retain that which he has received if what he gives is sufficient consideration for a simple contract, ... The consideration which when bargained for will support a simple contract may consist of an act other than a promise, a return...