First Nationwide Savings v. Perry

• Citation: 15 Cal.Rptr.2d 173,11 Cal.App.4th 1657
• Decision Date: 03 December 1992
• Docket Number: No. H008601,H008601
• Court: California Court of Appeals Court of Appeals
• Parties: FIRST NATIONWIDE SAVINGS, etc., Plaintiff and Appellant, v. David PERRY, as Trustee, etc., Defendant and Respondent.

Page 173

15 Cal.Rptr.2d 173

11 Cal.App.4th 1657

FIRST NATIONWIDE SAVINGS, etc., Plaintiff and Appellant, v. David PERRY, as Trustee, etc., Defendant and Respondent.

No. H008601.

Court of Appeal, Sixth District, California.

Dec. 3, 1992.

Cameron & Dreyfuss, Steven R. Cameron and Lawrence J. Dreyfuss, Orange, for plaintiff and appellant.

Adleson, Hess, Christensen & Kelly and Phillip M. Adleson, San Jose, for defendant and respondent.

ELIA, Associate Justice.

First Nationwide Savings ^S sued Sunrise Trust for unjust enrichment and money had and received. Sunrise demurred to the second amended complaint. The demurrer was sustained without leave to amend. Judgment was entered against FNS.

On appeal, we consider whether a beneficiary ^S can recover for unjust enrichment from a nonassuming grantee of a purchase money deed of trust (Sunrise) after the trustee mistakenly reconveys the deed of trust and the grantee sells the property, thereby obtaining all the proceeds from the sale. For reasons we shall explain, we conclude that a cause of action may be stated. Accordingly, the judgment is reversed.

FACTS AND PROCEDURAL BACKGROUND

In May 1983, Gary Madden borrowed $146,000 from FNS. The loan was evidenced by a written promissory note. Madden used the loan to purchase a single family residence in Campbell, California. The note was secured by a written deed of trust in which Madden conveyed for the benefit of FNS a power of sale of the single family residence. The deed of trust was recorded on June 2, 1983.

Madden subsequently sold the property. The purchaser took the property subject to FNS's deed of trust. In January 1986, a trustee's sale was held pursuant to the nonjudicial foreclosure of a deed of trust junior to the FNS deed of trust. Sunrise Trust, with David Perry as trustee, purchased the property at the trustee's sale. Sunrise purchased the property subject to FNS's deed of trust.

In May 1986, Master Mortgage Company (MMC), the trustee on the FNS deed of trust, mistakenly executed a reconveyance of the FNS deed of trust. The reconveyance was recorded on June 25, 1986. According to the complaint, MMC was not The trustee's deed to Sunrise was recorded on August 13, 1986.

authorized to reconvey the deed of trust and did not intend to do so.

On December 17, 1986, Sunrise sold the property to Vernon and Vera Sundberg. Because of the reconveyance, FNS did not receive any of the proceeds from the sale of the property to the Sundbergs.

In 1988, FNS sued Gary Madden for imposition of a constructive trust, money lent, conversion, cancellation of instrument, declaratory relief and breach of promissory note. In 1989, FNS filed its first amended complaint naming Sunrise as a defendant. The complaint stated causes of action for unjust enrichment and money had and received. Sunrise's demurrer to the first amended complaint was sustained with leave to amend.

On November 19, 1990, FNS filed its second amended complaint for unjust enrichment and money had and received. On April 1, 1991, Sunrise's demurrer to the second amended complaint was sustained without leave to amend. A judgment of dismissal was entered.

This appeal ensued.

STANDARD OF REVIEW

In examining the sufficiency of the complaint, "[w]e treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed." (Serrano v. Priest (1971) 5 Cal.3d 584, 591, 96 Cal.Rptr. 601, 487 P.2d 1241; Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) "[W]e give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that 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. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff." (Blank v. Kirwan, supra, 39 Cal.3d at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

DISCUSSION

I. UNJUST ENRICHMENT CAUSE OF ACTION

FNS argues its complaint states a claim for unjust enrichment. In examining this contention, we must review principles of restitution and secured transactions law, as well as the pertinent case authorities. After doing so, we shall conclude that FNS's complaint can be amended to state a cause of action for unjust enrichment.

A. Restitution

We begin with the law of restitution. An individual is required to make restitution if he or she is unjustly enriched at the expense of another. (Rest., Restitution, § 1; California Federal Bank v. Matreyek (1992) 8 Cal.App.4th 125, 131, 10 Cal.Rptr.2d 58.) A person is enriched if the person receives a benefit at another's expense. (Rest., Restitution, supra, § 1, com. a.) Benefit means any type of advantage. (Rest., supra, § 1, com. b; California Federal Bank v. Matreyek, supra, 8 Cal.App.4th at p. 131, 10 Cal.Rptr.2d 58.)

The fact that one person benefits another is not, by itself, sufficient to require restitution. The person receiving the benefit is required to make restitution only if the circumstances are such that, as between the two individuals, it is unjust for the person to retain it. (Rest., Restitution, supra, § 1, com. c.) For example, a person who improves his or her land usually benefits his or her neighbors to some extent. In that case, however, restitution is not required because it would not be unjust to permit the neighbors to retain the benefit of the landowner's work. (Ibid.)

Determining whether it is unjust for a person to retain a benefit may involve policy considerations. For example, if a person receives a benefit because of another's mistake, policy may dictate that the person making the mistake assume the risk of the error. The desirability of allowing a party to retain the benefit of his or her bargain may preclude the injured party from receiving restitution. Similarly, "a customary way of regarding a particular type of transaction may justify the inference that the payor has assumed the risk of mistake, as in the case of payment for a quitclaim deed to land not owned by the transferor...." (Rest., Restitution, supra, Introd. note, p 28.)

In addition, the same equitable considerations justifying restitution may constitute a defense to a restitution claim. For these reasons, "restitution is commonly denied against an innocent transferee or beneficiary, if he has changed his position after the transaction and it is impossible or impractical to restore him to his original position." (Rest., Restitution, supra, Introd. note, p. 28; City of Hope Nat. Medical Center v. Superior Court (1992) 8 Cal.App.4th 633, 637, 10 Cal.Rptr.2d 465.) Likewise, a bona fide purchaser is generally not required to make restitution. (Rest., Restitution, supra, § 13.)

By contrast, a transferee with knowledge of the circumstances giving rise to an unjust enrichment claim may be obligated to make restitution. For example, "A person who has entered into a transaction with another under such circumstances that, because of a mistake, he would be entitled to restitution from the other, ... [p] (b) is entitled to restitution from a third person who had notice of the circumstances before giving value or before receiving title or a legal interest in the subject matter." (Rest., Restitution, supra, § 13.)

Finally, section 168 of the Restatement of Restitution provides, "Where a person holding property in which another has a beneficial interest transfers title to the property in violation of his duty to the other, the transferee holds the property subject to the interest of the other, unless he is a bona fide purchaser."

The foregoing principles demonstrate that restitution may be required when the person benefitting from another's mistake knew about the mistake and the circumstances surrounding the unjust enrichment. In other words, innocent recipients may be treated differently than those persons who acquire a benefit with knowledge. Accordingly, under restitution law, Sunrise's knowledge, discussed infra, is an important consideration in determining the validity of FNS's unjust enrichment claim.

B. Purchase Money Deed of Trust

We next review secured transactions principles to consider their impact upon FNS's claim for unjust enrichment. According to Sunrise, secured transactions law precludes FNS's cause of action. As we shall explain, we disagree.

"In California, as in most states, a creditor's right to enforce a debt secured by a mortgage or deed of trust on real property is restricted by statute. Under California law, 'the creditor must rely upon his security before enforcing the debt. (Code Civ.Proc., §§ 580a, 725a, 726.) [Fn. omitted.] If the security is insufficient, his right to a judgment against the debtor for the deficiency may be limited or barred by sections 580a, 580b, 580d, or 726 of the Code of Civil Procedure.' [Citation.]" (Guild Mortgage Co. v. Heller (1987) 193 Cal.App.3d 1505, 1510, 239 Cal.Rptr. 59; see also Rettner v. Shepherd (1991) 231 Cal.App.3d 943, 949, 282 Cal.Rptr. 687.)

A " 'deficiency judgment' is a personal judgment against the debtor for the difference between the debt and the proceeds received by the creditor from the sale of the security at a ... foreclosure sale. [Citation.]" (Coppola v. Superior Court (1989) 211 Cal.App.3d 848, 866, 259 Cal.Rptr. 811.)

Because this case concerns a purchase money deed of trust, no deficiency judgment would be allowed. (Code Civ.Proc., § 580b.) In other words, FNS could not recover the difference between the debt and the sale proceeds if the property had been foreclosed. According to Sunrise, this same rule...