I. E. Associates v. Safeco Title Ins. Co.

• Decision Date: 01 August 1985
• Court: California Supreme Court
• Parties: , 702 P.2d 596 I.E. ASSOCIATES, Plaintiff and Appellant, v. SAFECO TITLE INSURANCE COMPANY, Defendant and Respondent. L.A. 31966.

Page 438

216 Cal.Rptr. 438

39 Cal.3d 281, 702 P.2d 596

I.E. ASSOCIATES, Plaintiff and Appellant, v. SAFECO TITLE INSURANCE COMPANY, Defendant and Respondent.

L.A. 31966.

Supreme Court of California.

Aug. 1, 1985.

As modified Sept.25, 1985.

Linda Cory Allen, Richard H. Benes, and Procopio, Cory, Hargreaves & Savitch, San Diego, for plaintiff and appellant.

Irwin J. Nowick and Katz, Hoyt, Seigel & Kapor, Los Angeles, as amici curiae, for plaintiff and appellant.

Higgs, Fletcher & Mack, Donald H. Glaser, J. Tim Konold and Sheila M. Muldoon, San Diego, for defendant and respondent.

Hiestand & Keene, Fred J. Hiestand, San Francisco, Scott R. Keene, Novato, Richard P. Bertolino, Steven R. Cameron, Sacramento, Peter L. Townsend, Lee P. Bardellini Garrison, Townsend & Orser, San Francisco, Phillip M. Adleson, Patric J. Kelly and Adleson, Hess, Christensen & Perkins, San Jose, as amici curiae, for defendant and respondent.

KAUS, Justice.

I.E. Associates (Associates) appeals from a summary judgment granted in favor of defendant Safeco Title Insurance Company (Safeco). The principal issue presented is whether, in addition to the notification procedures prescribed by statute, a trustee in a non-judicial foreclosure has a common law duty to make reasonable efforts to contact a defaulting trustor/debtor. We conclude that the statutory procedures are exclusive and affirm the judgment.

I. FACTS

In April 1977, Associates, a general partnership, purchased certain real property from the Bishops for $105,000. As part of the purchase price, Associates gave the Bishops a promissory note for $8,250, secured by a deed of trust in favor of the Bishops, naming Safeco as trustee. The trust deed contained the signatures of each of the four partners but no printed version of their names. It listed Associates' address as "480 Camino Del Rio South, San Diego, California 92108," and stated that any notice of default or notice of sale pursuant to foreclosure was to be mailed to the trustor at the address stated on the trust deed. Associates hired Mission Professional Properties (MPP) to manage the property and to make monthly payments on the note.

Unknown to Associates, MPP stopped making the monthly payments in July 1981. In January 1982, the Bishops notified Safeco of Associates' default.

Safeco recorded a notice of default and election to sell. In accordance with the procedures prescribed in Civil Code section 2924b, ¹ Safeco sent a copy by registered mail to Associates at the address listed in the deed of trust, but it was returned, marked "address unknown." A copy was then sent to Associates, in care of MPP, since Safeco had noted that the grant deed had been addressed to Associates in care of MPP at another suite at the same street address. That notice was also returned, marked "address unknown." Safeco additionally searched the 1982 San Diego telephone directory for a listing for Associates, but found none.

Safeco's recorded notice of sale was posted on the property described in the deed of trust and at the San Diego County Courthouse, and was published in accordance with the statutory requirements. The notice of sale was again mailed to Associates at both previously used addresses, and the letters were again returned unopened.

The surplus of the sale was distributed to the partners of Associates in care of their attorney. The communication regarding the surplus was the first actual notice Associates or its partners received.

Associates brought an action for damages against MPP and Safeco, alleging as to the latter negligence and breach of trust in failing to take reasonable steps to notify Associates of the default and impending foreclosure sale. ² Safeco moved for summary judgment, claiming no liability because it had given notice in accordance with statutory procedures and had no duty to take any further steps to attempt to discover a current address for Associates. The trial court agreed and granted summary judgment for Safeco.

On appeal, Associates contends (1) there were triable issues of fact regarding Safeco's compliance with the statutory procedures, and (2) there is, in addition, a common law duty to make reasonable efforts to notify a defaulting trustor.

II. COMPLIANCE WITH STATUTORY PROCEDURES

Section 2924b, subdivisions (2)(a) and (2)(b) require the trustee to mail the specified notices to the trustor "at his last known address if different than the address specified in the deed of trust...." Subdivision (2)(c) provides that "As used in subdivisions (a) and (b), the 'last known address' ... means the last business or residence address actually known by the ... trustee...."

Associates contends that there is a triable issue as to whether Safeco actually knew Associates' last known address. Associates argues that since notice to any partner is notice to the partnership under Corporations Code section 15012, actual knowledge of the address of any general partner is actual knowledge of the address of the partnership for the purpose of giving notice by mail.

The problem with this argument is that Safeco did not have actual knowledge of the address of any of the partners. All Safeco had was the names of the partners from their signatures on the note and deed of trust. Actual knowledge is that "which consists in express information of fact." ( § 18; Prouty v. Devin (1897) 118 Cal. 258, 260, 50 P. 380.) Although the circumstances might have put Safeco on inquiry as to the partners' addresses, that is by definition constructive, not actual, knowledge. ( § 19; Mason v. Hart (1956) 140 Cal.App.2d 349, 355, 295 P.2d 28.) The statute specifically requires actual knowledge. The notice given complied with section 2924b.

III. COMMON LAW DUTY

Associates contends that under agency principles the trustee of a deed of trust has an independent duty to take reasonable steps to provide actual notice to a defaulting trustor. This assertion requires us to determine whether the statutory procedures governing nonjudicial foreclosure are the exclusive source of rights, duties and liabilities. ³

The statutory provisions regulating the nonjudicial foreclosure of deeds of trust are contained in sections 2924-2924i. These provisions cover every aspect of exercise of the power of sale contained in a deed of trust. Herewith a brief overview:

At least three months before the foreclosure sale, the trustee must record a notice of default setting forth the nature of the breach and, where curable, the amount necessary to cure the default. ( §§ 2924, 2924c.) The content and form of the notice are specified in the statute. ( §§ 2924, 2924b, 2924c.) If the trustor has recorded a request for notice, or if the deed of trust contains a request for notice, ⁴ the trustee is required, within certain time limits, to mail a copy of the notice of default to the trustor at the address specified therein and at his last known address if different than the address specified. ( § 2924b.)

After the notice of default has been recorded, the trustee must allow three months to elapse to afford the trustor or junior lienholders an opportunity to cure the default. ( § 2924c.) The statute also specifies the costs and fees that may be charged in conjunction with curing the default. (Ibid.)

Before any foreclosure sale may take place, a notice of trustee's sale must be posted on the property at least 20 days before the date of the sale. The notice must also be posted in a conspicuous public place, published, recorded and mailed to all of the people who were entitled to receive notice of default. ( § 2924f.)

The property must be sold at public auction to the highest bidder. The statute specifies the time and place for the sale, who may postpone, under what circumstances and how postponements are to be announced. ( § 2924g.) It also specifically sets forth the procedures relating to bidding: the right of the trustee to first qualify bidders, the acceptable forms of cash or cash equivalents, the requirement that the funds be deposited before the sale is concluded, the right of the foreclosing beneficiary to offset his debt ("bid his paper"), the liability of a high bidder who fails to deposit the purchase price, and the liability of persons conspiring to chill bidding. ( § 2924h.) The amount of expenses and trustees fees that may be charged is also prescribed. ( §§ 2924c, 2924d.)

Finally, there are now statutory provisions requiring that special notice be given when balloon payments are involved and preventing the foreclosure process from being commenced unless such notice is given. ( §§ 2924i, 2966.)

We reviewed this statutory scheme in Garfinkle v. Superior Court (1978) 21 Cal.3d 268, 146 Cal.Rptr. 208, 578 P.2d 925, where we unanimously held that the California nonjudicial foreclosure procedure constitutes private--not state--action, which is therefore exempt from the due process constraints of the federal and state Constitutions. In considering that question--raised in connection with the plaintiffs' claim that the notice and hearing provisions were constitutionally deficient--we noted that the provisions allowed for the possibility of a defaulting trustor receiving no actual notice of the default and sale, since the statute then required only that notice be sent to the address specified in the deed of trust or request for notice. We referred this matter to the Legislature, stating: "The Legislature may therefore want to consider enacting provisions which would require the trustee to make reasonable efforts to ascertain the trustor's present address and to send the required notice to that address. Whether, apart from any question of the validity of the sale, the trustee has an independent duty, as the common agent of the parties (see Ainsa v. Mercantile Trust Co. (1917) 174 Cal. 504, 510, 163 P. 898; Pacific S. & L. Co. v. N. American etc. Co. (1940) 37 Cal.App.2d 307, 310, 99 P.2d 355) to make reasonable efforts to give actual notice is a...