Caruso v. Great Western Savings

• Court: California Court of Appeals
• Writing for the Court: BOREN; TURNER, P.J., and ASHBY
• Citation: Caruso v. Great Western Savings, 280 Cal.Rptr. 322, 229 Cal.App.3d 667 (Cal. App. 1991)
• Decision Date: 23 April 1991
• Docket Number: No. B045859,B045859
• Parties: Vince CARUSO et al., Plaintiffs in Intervention and Appellants, v. GREAT WESTERN SAVINGS, Defendant and Respondent.

Page 322

280 Cal.Rptr. 322

229 Cal.App.3d 667

Vince CARUSO et al., Plaintiffs in Intervention and Appellants, v. GREAT WESTERN SAVINGS, Defendant and Respondent.

No. B045859.

Court of Appeal, Second District, Division 5, California.

April 23, 1991.

Busetti and Feinstein and John F. Busetti, Los Angeles, for plaintiffs in intervention and appellants.

Frandzel & Share, Steven N. Bloom and Craig A. Welin, Los Angeles, for defendant and respondent.

BOREN, Associate Justice.

Appellants, Vince Caruso and Sande St. John, appeal following their unsuccessful complaint in intervention by which they sought to block a foreclosure sale by respondent, Great Western Savings. Appellants claim that respondent should have applied insurance proceeds received after property damage from land movement to reduce the amount owed on a promissory note and thus to extinguish its trust deed. The trial court determined that appellants had no claim or interest in the insurance proceeds and were not entitled to an injunction or an accounting and that respondent was entitled to its costs, including attorney's fees, incurred in protecting its deed of trust. We affirm, but remand the matter on the issue of attorneys' fees.

FACTS

In July of 1981, Vince Caruso owned a residence located on Castlemare Road in Pacific Palisades. Thereafter, the property became part of the bankruptcy estate of Caruso's ex-wife, Monique. In May of 1982, the trustee in bankruptcy, David Gill, sold the property to Martin Rosen and Helen Ware, who executed a $104,000 note and deed of trust (hereinafter, the Gill note and deed of trust). Rosen and Ware obtained property insurance from the Insurance Company of North America (INA). In December of 1982, massive soil and land movement caused substantial damage to the property which became uninhabitable.

On February 28, 1983, the trustee in bankruptcy executed and delivered a subordination agreement to Great Western which provided that the lien of the Gill deed of trust would be subordinated to the lien of a Great Western deed of trust which was recorded soon thereafter. On March 9, 1983, Rosen and Ware executed a $200,000 note and, as security, a deed of trust to Great Western (hereinafter, the Great Western note and deed of trust).

In March of 1983, the property on Castlemare Road was appraised at approximately $390,000. Estimates on the cost to stabilize the site and to repair the residence ranged from $317,000 to $500,000.

In July of 1984, INA paid $297,000 on a property damage claim by Rosen and Ware. Of that total, INA paid $97,000 to Rosen and Ware and issued a check for $200,000 payable to Rosen, Ware and Great Western. Disputes ensued as to the disbursement of the $200,000 insurance claim check. Rosen and Ware wanted the insurance proceeds to remedy the soil subsidence problem and repair the residence. Great Western did not want to release the insurance proceeds for property repair until it could be assured that the earth movement which caused the problem could be stopped and that the residence could be restored with the insurance proceeds. Rather, Great Western wanted the insurance proceeds applied to the $200,000 loan.

The dispute over the insurance proceeds was tentatively resolved in August of 1984. Rosen, Ware and Great Western reached an interim agreement whereby Great Western released $10,000 of the insurance proceeds to Rosen and Ware, but placed the remaining $190,000 in a joint account with Rosen and Ware to receive the interest from the account. In the meanwhile, on January 18, 1985, Gill assigned all beneficial interest in the Gill note and deed of trust to Caruso.

With the dispute over the insurance proceeds not finally resolved after two years, in August of 1986 Great Western filed an action against Rosen and Ware for declaratory relief regarding distribution of the remaining $190,000. In September of 1987, Rosen and Ware stopped making payments on the note and defaulted on their loan obligation to Great Western. In November of 1987, Rosen and Ware informed Great Western that they had abandoned the Castlemare Road property and had ceased all efforts to correct the property's defects.

After Great Western had agreed to an extension of time based on the early intention of Rosen and Ware to correct the property's defects, on December 7, 1987, Rosen and Ware answered Great Western's complaint for declaratory relief. Also on December 7, 1987, Caruso assigned an undivided 16 percent interest in the Gill note and deed of trust to Sande St. John. On February 2, 1988, Caruso and St. John completed nonjudicial foreclosure proceedings under their Gill deed of trust. At the foreclosure sale, Caruso and St. John made a full credit bid of $131,580.24 (the amount owed under the Gill note and deed of trust) and became sole owners of the Castlemare Road property, subject only to the lien represented by the note secured by the deed of trust held by Great Western. After acquiring the property, Caruso and St. John refused to make any payments due under the Great Western note. As observed by Caruso and St. John, $190,000 of the insurance proceeds were still on hand until April of 1989, but Great Western had added interest and other charges on the $200,000 original note, which could have been retired in 1984, and thus the total due was now $241,516.

As a result of the failure of Rosen and Ware to make payments on the note since at least September of 1987, Great Western gave notice that it intended to foreclose on the property. On July 1, 1988, Caruso and St. John attempted to prevent the nonjudicial foreclosure sale, scheduled for July 5, 1988, by intervening and seeking injunctive relief. As a basis for their complaint in intervention, Caruso and St. John alleged, in essence, that Great Western should have credited the loan obligation of Rosen and Ware with the $190,000 in insurance proceeds. Great Western countered that Rosen and Great Western were designated as joint beneficiaries of the insurance, preventing Great Western's unilateral application of the insurance proceeds, and that Rosen and Ware had asserted that the Castlemare Road property was not impaired, thus entitling them to all or some of the insurance proceeds.

On July 1, 1988, the court issued a temporary restraining order as to the foreclosure sale on the express condition that Caruso and St. John cure the monetary default under the Great Western deed of trust, which required payment of $23,349.08. Caruso made the necessary payment, and Great Western cancelled the sale date and the notice of default. On July 22, 1988, the request by Caruso and St. John for a preliminary injunction was denied, and the temporary restraining order was dissolved. After July 1, 1988, Caruso and St. John refused to make any payments on the Great Western note, which resulted in the property again going into foreclosure.

Prior to the first trial date, in November of 1988, Great Western, Rosen and Ware reached an agreement regarding the disbursement of the insurance proceeds. Pursuant to the settlement agreement, Rosen and Ware received $40,000 of the insurance proceeds.

At trial, Great Western, Caruso and St. John submitted the matter on the basis of their joint stipulation of undisputed facts and their briefs. On April 27, 1989, the court issued a minute order reflecting its tentative decision. The court deemed that Caruso and St. John had no right, claim or interest in the homeowner's insurance policy on the Castlemare Road property, and that Great Western should apply the remaining insurance proceeds (approximately $150,000) to the outstanding principal balance due on the Great Western note. The court also tentatively ruled that Caruso and St. John were not entitled to injunctive relief or to an accounting. After oral argument on May 15, 1988, the trial court's tentative decision became its ruling.

In June of 1989, Great Western filed a proposed judgment and its memorandum of costs which included a request for attorney's fees. After Caruso and St. John filed their objections, which were denied, on August 31, 1989, the court entered an amended judgment finalizing its ruling and granting Great Western its costs, including attorney's fees. The costs and attorney's fees became a lien against the Castlemare Road property.

Caruso and St. John appeal.

DISCUSSION

I. The Complaint in Intervention

Caruso and St. John contend that the trial court erred in ruling that they had no interest in the insurance proceeds and thus no standing to challenge the application of the insurance proceeds. Caruso and St. John claim that since they hold title to the property subject to the Great Western deed of trust, having succeeded to the title of Rosen and Ware by foreclosing on the property, they have standing to question and dispute the amount claimed by Great Western as due on its note and deed of trust. As Caruso and St. John view the matter, it was apparent in late 1984 or early 1985 that the $200,000 in insurance proceeds should have been subtracted from the $200,000 principal amount on the Great Western note, and that Great Western improperly delayed in subtracting the value of the insurance proceeds from the balance of the note until the judgment, on August 31, 1989. Great Western's purported delay from 1984 to 1988 in prosecuting its claim against Rosen and Ware as to the insurance proceeds prevented Caruso and St. John from saving the money in arrears (over $23,000 in interest and related charges) on the $200,000 value of the note between July of 1988 and August of 1989. However, the trial court properly ruled that Caruso and St. John had no interest in the insurance proceeds because, after their nonjudicial foreclosure proceedings under the Gill deed of trust, they made a full credit bid for the property which resulted in the total satisfaction of the secured obligation.

In Cornelison v. Kornbluth (1975) 15 Cal.3d 590, 125 Cal.Rptr. 557, 542 P.2d 981, the court...