Diamond Benefits Life Ins. Co. v. Troll

• Court: California Court of Appeals
• Citation: 66 Cal.App.4th 1,77 Cal.Rptr.2d 581
• Docket Number: No. E019044,E019044
• Parties: , 98 Cal. Daily Op. Serv. 6383, 98 Daily Journal D.A.R. 8857 DIAMOND BENEFITS LIFE INSURANCE COMPANY, Plaintiff and Appellant, v. Raymond T. TROLL, Individually and as Executor, etc., Defendant and Appellant.
• Decision Date: 17 August 1998

Page 581

77 Cal.Rptr.2d 581 66 Cal.App.4th 1, 98 Cal. Daily Op. Serv. 6383, 98 Daily Journal D.A.R. 8857 DIAMOND BENEFITS LIFE INSURANCE COMPANY, Plaintiff and Appellant,
v.
Raymond T. TROLL, Individually and as Executor, etc., Defendant and Appellant. No. E019044. Court of Appeal, Fourth District, Division 2, California. Aug. 17, 1998.
Certified for Partial Publication. ^*

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[66 Cal.App.4th 3] Quinn, Emanuel, Urquhart & Oliver and Harold W. Hopp, Los Angeles, for Plaintiff and Appellant.

Criste, Pippin & Golds, Robert L. Pippin and Marie A. Bochnewich, Palm Desert, for Defendant and Appellant.

OPINION

WARD, Associate Justice.

FACTS AND PROCEDURAL BACKGROUND

Defendant and appellant Raymond T. Troll, individually and as executor of the Estate of J.A. Troll (collectively hereafter referred to as Troll), is the owner of real estate in Indio, California. Plaintiff and respondent Diamond [66 Cal.App.4th 4] Benefits Life Insurance Company (Diamond) is the owner of real estate adjacent to that owned by Troll. Diamond owns and operates a golf course known as the Indian Springs Country Club on its property.

When the golf course was developed by a previous owner, two of the holes of the course were constructed (apparently inadvertently) on Troll's property. When this was discovered, Troll and the previous owner of the golf course negotiated a settlement of the property dispute. In the settlement, by grant of easement, Troll and the previous owner of the golf course created various easements that accrued to the benefit of Troll. His property was the dominant tenement and the golf course, or portions thereof, became the servient tenement. The easements consisted of: (1) rights of access at different locations across portions of the golf course property; (2) the right to drain water from the dominant tenement onto the servient tenement; (3) the right to annex portions of the dominant tenement to a planned unit development on the servient tenement; and, (4) the right to owners of a portion of the dominant tenement to the same golfing privileges enjoyed by the property owners of the servient tenement. The grant of easement was recorded on October 12, 1988. ¹

Diamond was the beneficiary of trust deeds on the golf course property. The trust deeds were recorded on March 15, 1988, and July 29, 1988. In 1989 Diamond brought a judicial foreclosure action against the owners of the golf course. Troll was not made a party to that action. On November 6, 1990, the United States District Court for the Central District of California entered a judgment of foreclosure directing the United States Marshal to sell the property that was subject to the trust deeds. The property foreclosed included the servient tenement under the grant of easement. On February 6, 1992, Diamond purchased the property at foreclosure sale and, thereafter, it received a marshal's deed to the golf course property.

Troll filed an action to quiet title to the easements and for damages against Diamond. Diamond demurred to the complaint and the trial court sustained the demurrer without leave to amend. Subsequently, Diamond filed this quiet title action. The trial court entered a judgment that permitted Troll to exercise an equitable right of redemption of all of the property sold at the foreclosure for the price paid at that sale.

[66 Cal.App.4th 5] Troll appeals from the judgment contending: 1) a quiet title action does not extinguish a junior interest when the owner of that junior interest was not made a party to a prior judicial foreclosure, 2) he was entitled to a pro tanto redemption, 3) the enforcement of the trust deed by Diamond was precluded by the statute of limitations and 4) Troll was entitled to a statutory right of redemption as well as to an equitable redemption.

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Diamond cross appeals, contending that Troll's easement rights were extinguished by the foreclosure proceedings.

We conclude that since Troll was not named initially in the judicial foreclosure, the foreclosure had no effect upon his rights in the property foreclosed. However, Diamond retained the right to foreclose against Troll's interest and that right was effectively exercised through the quiet title proceedings. We further conclude that Troll was entitled to the same rights of redemption in the quiet title action that he would have had in the original foreclosure action; however, he was not entitled to a pro tanto redemption. We order the judgment modified to reflect that Troll was entitled to a one-year redemption period.

STANDARD OF REVIEW

Matters presenting pure questions of law, not involving the resolution of disputed facts, are subject to the reviewing court's independent or de novo review. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799, 35 Cal.Rptr.2d 418, 883 P.2d 960.) When the meaning of writings is in dispute and there is no conflict in the evidence, the question is one of law and the reviewing court gives the writings its own independent interpretation. (Stratton v. First Nat. Life Ins. Co. (1989) 210 Cal.App.3d 1071, 1084, 258 Cal.Rptr. 721.) Likewise, the interpretation of a statute is a question of law to be determined by the reviewing court de novo. (California Teachers Assn. v. San Diego Community College Dist. (1981) 28 Cal.3d 692, 699, 170 Cal.Rptr. 817, 621 P.2d 856.) The facts of this case are not in dispute but there are significant issues of law to be resolved, including the interpretation of statutes and the meaning of writings which determine the rights of the parties.

DISCUSSION

A. The Holder of an Easement on Real Property, Although Junior to a Foreclosing Party, Is Not Bound by a Judgment of Foreclosure Unless Made a Party to the Judicial Foreclosure Proceedings

"It is well settled that a conveyance under a foreclosure decree does not affect the title held by persons who are not made parties to the action of [66 Cal.App.4th 6] foreclosure if such title appears of record when the action is begun." (Shurtleff v. Kehrer (1912) 163 Cal. 24, 29, 124 P. 724.) A grantee of a mortgagor, when the grant was subsequent to the recording of the mortgage, must be made a party to a suit to foreclose on the mortgage or the grantee will not be bound by the judgment of foreclosure. (Burns v. Hiatt (1906) 149 Cal. 617, 620, 87 P. 196.)

On October 12, 1988, a grant of easement was recorded affecting the real property owned by Diamond. { ct 46} The easement, accruing to the benefit of Troll, was of record when the foreclosure proceeding was started. Troll contends that it was necessary for Diamond to name and serve him as a party in the foreclosure proceeding regarding the property encumbered by the easement. Diamond argues that it was not necessary for it to serve Troll. We conclude that Troll's position, rather than Diamond's, is correct.

California Code of Civil Procedure section 726, subdivision (c), which deals with judicial foreclosures, provides: "[T]he sale of the encumbered real property ... does not affect the interest of a person who holds a conveyance from or under the mortgagor of the real property ... if the conveyance or lien appears of record in the proper office at the time of the commencement of the action and the person holding the recorded conveyance or lien is not made a party to the action." According to Civil Code section 1215, a conveyance "embraces every instrument in writing by which any estate or interest in real property is created, aliened, mortgaged, or encumbered, or by which the title to any real property may be affected, except wills."

Diamond argues that the meaning of the word "conveyance" in the present context does not include the grant of an easement. However, we see no reason to distinguish between this transfer of an interest in the real property and other transfers such as a transfer of a fractional interest or a lesser estate in the property. All interests in real

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property that are of record are matters of concern to a foreclosing party and the title company that the party employs to search the record. There is no practical reason why the foreclosing party should not name all persons who have a recorded interest in the property. To accede to Diamond's arguments here would establish a rule which allows parties foreclosing in judicial proceedings to take shortcuts in giving notice to interested parties. The modern custom and practice is to name any party who has an interest in the property. That is the logical thing to do and the logical rule for this court to follow.

Diamond argues that such a requirement would create an inconsistency between judicial and nonjudicial foreclosures; in nonjudicial foreclosures the [66 Cal.App.4th 7] trustee is not obligated to serve persons holding an easement on the subject parcel. (See Perez v. 222 Sutter St. Partners (1990) 222 Cal.App.3d 938, 272 Cal.Rptr. 119.) Perez, which deals with a nonjudicial foreclosure, holds "[t]he duties of a foreclosure trustee are strictly defined by the deed and the relevant statutes." (Id. at p. 944, 272 Cal.Rptr. 119.) Our Supreme Court has stated that "[t]he nonjudicial foreclosure statutes--an alternative to judicial foreclosure--reflect a carefully crafted balancing of the interests of beneficiaries, trustors, and trustees." (I.E. Associates v. Safeco Title Ins. Co. (1985) 39 Cal.3d 281, 288, 216 Cal.Rptr. 438, 702 P.2d 596.) A judicial foreclosure is not based on the same statutory scheme. Further, the Perez court was concerned about the obligations of trustees and the burdens placed on trustees as intermediaries between parties in dispute. In a judicial foreclosure, a party directly initiates the action, and a judicial foreclosure is a judicial action subject to statutory and common law requirements to give notice to interested parties. The rule that we support here simply requires a foreclosing party in a judicial foreclosure to give notice to persons who have a recorded interest in the real property which is...