Freeman v. Lind

• Decision Date: 29 May 1986
• Court: California Court of Appeals Court of Appeals
• Parties: Sarita FREEMAN, et al., Plaintiffs and Appellants, v. Frank W. LIND, Northwestern Title Co. of Butte County, et al., Defendants and Respondents. Civ. 24087.

Page 515

226 Cal.Rptr. 515

181 Cal.App.3d 791

Sarita FREEMAN, et al., Plaintiffs and Appellants, v. Frank W. LIND, Northwestern Title Co. of Butte County, et al., Defendants and Respondents.

Civ. 24087.

Court of Appeal, Third District, California.

May 29, 1986.

Certified for Partial Publication ^*

Review Denied Aug. 20, 1986.

[181 Cal.App.3d 793] Eugene Schneider for plaintiffs and appellants.

Robert F. O'Neal, John A. Holland, MacKay & Zukerman, C. Robert MacKay, Miller, Starr & Regalia, and Harry D. Miller, for defendants and respondents.

CARR, Associate Justice.

This is an appeal from a judgment of nonsuit entered after plaintiffs' opening statement at trial. ¹ The primary issue tendered is whether the failure of a trustor to provide fire insurance on the secured property in accordance with the terms of the trust deed precludes the trustor, as a matter of law, from maintaining an action for wrongful foreclosure when the sole basis for declaring a default and instituting foreclosure is the lack of fire insurance.

We hold that the failure to secure fire insurance on the secured property precludes an action for wrongful foreclosure only when the lack of such insurance impairs the security for the underlying debt and this is a factual issue to be determined by the trier of fact. Accordingly, we shall reverse the nonsuit as to the defendant Lind and affirm as to defendants Northwestern Title Company of Butte County (Northwestern Title) and Central Bank.

FACTUAL AND PROCEDURAL BACKGROUND

The facts, as set forth in plaintiffs' opening statement, which for purposes of this appeal we accept as true are: On July 21, 1972, Myrtle Noel sold a parcel of property in Butte County to Terry and Martha Davis. In connection therewith, the Davises executed and delivered to Noel a promissory note in the amount of $18,000, payable in monthly installments of $150 at seven percent interest. The note was secured by a deed of trust on the property naming Noel beneficiary and defendant Northwestern Title trustee. Defendant Central Bank was the designated agent of Noel for the receipt of payments under the note.

The provisions of a fictitious deed of trust previously recorded were incorporated in the Davis deed of trust. Included in such provisions was a standard insurance clause, which provided: "A. To protect the security of this Deed of Trust, Trustor agrees ...: [p] 2. To provide, maintain and deliver to Beneficiary fire insurance satisfactory to and with loss payable to Beneficiary. The amount collected under any fire or other insurance policy may be applied by Beneficiary upon any indebtedness secured hereby and in such order as Beneficiary may determine, or at option of Beneficiary the entire amount so collected or any part thereof may be released to Trustor. Such application or release shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice." (See also Bernhardt, Cal. Mortgage and Deed of Trust Practice (Cont.Ed.Bar 1979) § 3.7, p. 79.)

By November 1978, ownership in the property was held by Judith Redwing, Me-Shra-Kwi, and Vince Zager. At that time, plaintiffs Onita Dougherty and Sarita Freeman befriended Redwing and Kwi and became interested in purchasing their interests in the property. The owners were behind on note payments. Plaintiffs attempted to pay for them but Central Bank rejected their payment.

On September 12, 1978, plaintiffs purchased the interests of Redwing and Kwi. That month, unknown to plaintiffs, defendant Frank Lind, Noel's son and attorney, instituted nonjudicial foreclosure proceedings by filing a notice of default and election to sell on behalf of his mother, alleging the property was in default for failure to pay principal and interest on the note and property taxes and insurance on the security property.

Following acquisition of interest in the property, plaintiffs ascertained from Central Bank that at least $700 was owed on the note and they tendered that amount. Central Bank, knowing payments were in default, contacted Noel to ask her whether the bank should accept the payment. Noel gave her permission. A week later, plaintiffs discovered they owed an additional $150, which they paid to Central Bank. Records of the bank indicated that as of the last payment, November 20, 1978, plaintiffs were current in payments through December 1, 1978. County tax records indicated property taxes were not due until December 10, 1978.

After plaintiffs made their payments, Lind discharged Central Bank as Noel's agent. On November 27, Lind rescinded on the first notice of default and filed a second notice, alleging the same reasons for default as in the first notice. Plaintiffs had three months within which to cure the default or face a foreclosure sale. (See Civ. Code, § 2924c.) In fact, there was no fire insurance on the property at that time but principal and interest were current and taxes were not yet overdue.

Upon receiving notice of default, plaintiffs contacted Central Bank to ascertain what was necessary to cure the default but the bank told them it had been released as agent. Shortly thereafter, on December 1, Noel assigned all her interest in the property to Lind.

On December 10, plaintiffs drove to Oroville to determine first-hand what was necessary to cure the default. While there, they recorded their deed and paid the taxes on the property. They then went to On December 15, Robison wrote a letter to plaintiff Onita Dougherty listing 24 major defects in the property structures that would have to be repaired or replaced in order to cure the default, none of which, except for failure to maintain fire insurance, was listed in the notice of default. ² Robison concluded: "As you can see, the problems are very serious. The property value must be maintained so that the value of the property exceeds the debt. [p] Each of the above conditions must be cured to remove the default. I don't really see how all these matters can be cured, meaning that the entire balance of $13,346.17 plus interest from December 1st would have to be paid to cure the default. If the trustors elect to cure, the premises will have to pass county inspection." In fact, the value of the property, excluding the structures, exceeded the amount of the indebtedness.

Northwestern Title, where they were directed to Lind's attorney, Mr. Robison.

Plaintiffs attempted to cure the defects listed in the letter as well as they could but were unable to do so within the time allowed. They also attempted to procure fire insurance but were refused such coverage as the property was in default and proceeding to foreclosure. Plaintiffs attempted several times, unsuccessfully, in late January and early February 1979 to ascertain exactly how much money was required to make payments current.

On February 9, 1979, Robison wrote a letter to plaintiffs stating that "Mr. Lind feels that the property should either be paid off or the foreclosure continued." On behalf of Lind, Robison offered to refund to plaintiffs the $850 they previously paid to Central Bank and any funds they had expended in restoring the property.

Finally, on February 20, 1979, plaintiffs received a letter from Robison setting out exactly what was required to cure the default: (1) restore the premises to a condition acceptable to Lind, as outlined in the December 15 letter; (2) pay fees, principal and interest of $536.04, due as of February 16, 1979, and accumulating interest of $4.9645 per day (representing the total owed less the $850 already paid to Central Bank); and (3) produce proof of fire insurance with Lind as loss payee. Robison informed plaintiffs that Central Bank accepted their payments on November 13 and 20 without authority to do so. He reiterated that Lind would refund those amounts if they wished and would consider reimbursing plaintiffs for expenditures made in restoring the property. Robison also offered to refund the amount plaintiffs paid for taxes. On February 23, Robison wrote a letter to plaintiffs' attorney repeating these conditions.

On February 27, 1979, plaintiffs tendered a check to Robison in the amount of $537. Robison informed plaintiffs the payment was too late and foreclosure proceedings would ensue.

The record further discloses that on March 6, 1979, plaintiffs filed a complaint against Noel, Lind, and Northwestern Title seeking (1) a declaration that plaintiffs have not breached the obligations secured by the deed of trust; (2) a determination of the amount paid by plaintiffs and a declaration that plaintiffs have tendered to both Northwestern Title and to Noel and Lind a sufficient amount to cure the alleged default; (3) punitive damages in that defendants' refusal to accept the amount tendered was not done to achieve the intentions of the deed of trust and promissory note but to intentionally deprive plaintiffs of their interest in the property; (4) a temporary On March 26, 1979, the notice of default was rescinded. Plaintiffs proceeded with their action and, on May 9, filed a first amended complaint, adding as defendants Central Bank and Vince Zager, co-owner of the property. Plaintiffs alleged the same causes of action as in the first complaint and added the following: (1) damages from Zager for refusing to participate in plaintiffs' action to preserve and protect their title to the property; (2) negligent misrepresentation against Central Bank for falsely representing to plaintiffs that their payments were current as of December 1, 1978; (3) fraud against Central Bank based on the same facts; (4) wrongful foreclosure against Noel and Lind in that they filed notice of default with no reasonable grounds for believing that plaintiffs were in default; (5) wrongful foreclosure in that Noel and Lind knew plaintiffs were not in default; and (6) defendants acted with oppression, fraud or malice in filing the notice of default in that they did not act to achieve the intentions...