Little v. Cfs Service Corp.

• Decision Date: 27 January 1987
• Citation: 188 Cal.App.3d 1354,233 Cal.Rptr. 923
• Court: California Court of Appeals Court of Appeals
• Parties: William LITTLE and Frank Darmiento, Plaintiffs and Appellants, v. CFS SERVICE CORPORATION, a California corporation et al., Defendants and Respondents. B015176.

Page 923

233 Cal.Rptr. 923

188 Cal.App.3d 1354

William LITTLE and Frank Darmiento, Plaintiffs and Appellants, v. CFS SERVICE CORPORATION, a California corporation et al., Defendants and Respondents.

B015176.

Court of Appeal, Second District, Division 1, California.

Jan. 27, 1987.

As Modified on Denial of Rehearing Feb. 23, 1987.

Review Denied April 16, 1987.

Rich & Ezer, Mitchel J. Ezer, Los Angeles, for plaintiffs and appellants.

McKenna, Conner & Cuneo, Aaron M. Peck, Terry O. Kelly, and Jane F. Reid, Los Angeles, for defendants and respondents.

LUCAS, Acting Presiding Justice.

Plaintiffs Little and Darmiento appeal from the decision of the court in a non-jury trial that the foreclosure sale at which their bid to purchase real property had been accepted was an attempted sale which was wholly void and which cannot be the basis for a cause of action for damages for breach of contract. We affirm the judgment.

FACTS

The following facts are based on a stipulation by the parties. Additional facts are included in the discussion.

On July 25, 1978, Culver Federal Savings and Loan Association, a predecessor of defendant Coast Savings (Coast) made a real estate loan to Charles Gotanda (Gotanda) in the amount of $130,000, which was secured by a first trust deed on Gotanda's single family residence. Approximately five years later, in May of 1983, Gotanda permitted various defaults to occur under the deed of trust, and Coast, through defendant CFS Service Corporation (CFS) as its trustee, commenced foreclosure proceedings On the morning of Friday, January 6, 1984, a foreclosure sale was commenced as scheduled at the offices of California Posting and Publishing Company, a company which was conducting the foreclosure sale as agent of CFS. Despite the fact that the secured indebtedness owing to Coast amounted to $135,088.35, substantially less than the actual value of the real property security, neither trustor Gotanda, nor the holder of a subordinate trust deed in the amount of $300,000, nor a judgment creditor for $348,137.83 appeared to bid at the sale. As a result, the bid of plaintiff Frank Darmiento, as agent for plaintiff William Little, for $135,089 was the high bid. The value of the property was approximately $360,000.

by recording a notice of default in August of 1983. After Gotanda had failed to cure the defaults during the 90-day statutory reinstatement period, a sale date was eventually set for January 6, 1984.

Following the sale, CFS commenced a re-review of all records to ensure that all statutory requirements, including the giving of all required notices, had been fully satisfied. It was at this point, on Tuesday, January 10, that CFS first discovered that, through a clerical oversight or computer error, notices of the intended sale on January 6, 1984, had never been sent to Gotanda, to the junior lienor, or to the judgment creditor. Upon discovering this error, CFS immediately explained the error to Mr. Darmiento, returned the unnegotiated checks which had been tendered by him (together with interest thereon), refused to issue a trustee's deed, and announced its intention to renotice the sale.

This action was prepared and filed on January 19, 1984, and, after it was served and the identity of Coast's attorneys ascertained, on January 25, 1984, plaintiffs formally re-tendered the checks to Coast's counsel. The tender was refused.

ISSUES

1. Was the sale void because of lack of notice to the trustor, the junior lienor, and the judgment creditor?

2. Did the trustee, after discovering the lack of notice and returning plaintiffs' money, properly refuse to issue a deed to plaintiffs?

3. Were plaintiffs entitled to damages other than interest on their money for the period it was retained by defendants?

WAS THE VOIDNESS ISSUE PROPERLY BEFORE THE TRIAL COURT?

Plaintiffs preliminarily contend that the issue of whether the contract was void or voidable was never properly before Judge Bigelow at trial because Judge Torres had previously decided that the contract was not void when he ruled on defendants' motion for summary adjudication of issues. Plaintiffs are correct in this assertion, but upon appeal from the judgment of the trial court, the issue of whether or not the contract is void or voidable is now properly before us for review. (Barth-Wittmore Ins. v. H.R. Murphy Enterprises, Inc. (1985) 169 Cal.App.3d 124, 136, 214 Cal.Rptr. 894.)

DISCUSSION

"The word 'void,' in its strictest sense, means that which has no force and effect, is without legal efficacy, is incapable of being enforced by law, or has no legal or binding force, but frequently the word is used and construed as having the more liberal meaning of 'voidable.' " (Black's Law Dict. (5th ed. 1979) p. 1411, col. 2.) "Voidable" is defined as "[t]hat which may be avoided, or declared void; not absolutely void, or void in itself...." (Ibid.)

Another term frequently used in cases dealing with sales under trust deeds is "invalid," which is defined in Black's as "Vain; inadequate to its purpose; not of binding force or legal efficacy; lacking in authority or obligation." (Ibid., at p. 739, col. 2.)

In many of the cases, void, voidable, and invalid appear to be used interchangeably. Examples of cases in which the terminology is difficult to understand are Seccombe The general rule in the United States on voidness or voidability of sale is set out in 55 American Jurisprudence Second: "[D]efects and irregularities in a sale under a power render it merely voidable, and not void.... However, substantially defective sales have been held void where the defect lay in a particular as to which the statutory provision was regarded as mandatory...." (55 Am.Jur.2d Mortgages, § 746, p. 673.) "A sale under a power in a mortgage without reasonable notice will be set aside." (Ibid., § 775, p. 691.)

v. Roe (1913) 22 Cal.App. 139, 133 P. 507 and Mack v. Golino (1950) 95 Cal.App.2d 731, 213 Cal.Rptr. 760.

In our research as to the circumstances in which California courts have determined sales under a deed of trust to be either void or voidable for notice defects, we have found no case which presents our precise factual pattern. No case draws a bright line between a major and a minor notice defect so as to dictate a certain result. A full range of notice defects is alleged in both lines of cases, from no notice of any kind of the ultimate sale date (Pierson v. Fischer (1955) 131 Cal.App.2d 208, 280 P.2d 491, "voidable"; Holland v. Pendleton Mtge. Co. (1943) 61 Cal.App.2d 570, 143 P.2d 493, "void") to inadequate posting on the property to be sold (Leonard v. Bank of America Etc. Assn. (1936) 16 Cal.App.2d 341, 60 P.2d 325, "voidable"; United Bank & Trust Co. v. Brown (1928) 203 Cal. 359, 264 P. 482, "void").

Although the extent of the defect is not determinative, what seems to be determinative is the existence and effect of a conclusive presumption of regularity of the sale. A deed of trust, which binds the trustor, may direct the trustee to include in the deed to the property recitals that notice was given as required under the deed of trust and state that such recitals shall be conclusive proof of the truthfulness and regularity thereof.

Where there has been a notice defect and no conclusive presumption language in the deed, the sale has been held void. (Scott v. Security Title Ins. & Guar. Co. (1937) 9 Cal.2d 606, 72 P.2d 143; United Bank & Trust Co. v. Brown, supra, 203 Cal. 359, 264 P. 482; Standley v. Knapp (1931) 113 Cal.App. 91, 298 P. 109; Seccombe v. Roe, supra, 22 Cal.App. 139, 133 P. 507.)

Where there has been a notice defect and conclusive presumption language in a deed along with recitals as to the various postponements of a sale, the court has held the sale void on the basis that the deed showed that proper notice could not have been given. It has been held that the recitals of the postponement dates were controlling rather than the recitals as to the regularity of the notice. (Holland v. Pendleton Mtge. Co., supra, 61 Cal.App.2d 570, 576-577, 143 P.2d 493.)

Where there has been a notice defect and conclusive presumption language in the deed, courts have characterized the sales as "voidable." (Lancaster Security Inv. Corp. v. Kessler (1958) 159 Cal.App.2d 649, 324 P.2d 634; Pierson v. Fischer, supra, 131 Cal.App.2d 208, 280 P.2d 491; Mack v. Golino (1950) 95 Cal.App.2d 731, 213 Cal.Rptr. 760; Leonard v. Bank of America Etc. Assn., supra, 16 Cal.App.2d 341, 60 P.2d 325.) The trustor wishing to set aside a "voidable" sale must prove to the trial court that the conclusive presumption language does not apply to the sale either because there are grounds for equitable relief, such as fraud related to the provision, or because the conclusive presumption does not apply to the buyer, often on the basis that the buyer is not a bona fide purchaser for value. The trustor may then attempt to prove defective notice. (Wolfe v. Lipsy (1985) 163 Cal.App.3d 633, 639-640, 209 Cal.Rptr. 801; Lancaster Security Inv. Corp. v. Kessler, supra, 159 Cal.App.2d 649, 655, 324 P.2d 634.) ¹

In our case, the trust deed provided that in the deed to the property to be prepared by the trustee, "The recitals in such Deed of any matters, proceedings and facts shall be conclusive proof of the truthfulness and regularity thereof." Although conclusive presumption language was directed to be included in the trustee's deed, that deed was never prepared, executed or delivered. The trustee discovered the notice defect before completing the transaction by preparation and delivery of the deed; in the absence of the proper notice, the trustee was not required to prepare and deliver a deed containing the conclusive presumption language required by the trust deed. (See Bayer v. Hoagland (1928) 95 Cal.App. 403, 408, 273 P. 58.) Since the deed was neither prepared nor delivered, any language regarding presumptions of regularity of notice of sale which would have been contained therein...