Mead v. Sanwa Bank California

• Decision Date: 11 February 1998
• Docket Number: Nos. E018978,E019611,s. E018978
• Citation: 71 Cal.Rptr.2d 625,61 Cal.App.4th 561
• Court: California Court of Appeals Court of Appeals
• Parties: , 98 Cal. Daily Op. Serv. 1100 Albert E. MEAD, et al., Plaintiffs and Appellants, v. SANWA BANK CALIFORNIA, Defendant and Respondent.

Page 625

71 Cal.Rptr.2d 625

61 Cal.App.4th 561, 98 Cal. Daily Op. Serv. 1100

Albert E. MEAD, et al., Plaintiffs and Appellants, v. SANWA BANK CALIFORNIA, Defendant and Respondent.

Nos. E018978, E019611.

Court of Appeal, Fourth District, Division 2, California.

Feb. 11, 1998.

Certified for Partial Publication ^*

Review Denied May 13, 1998.

[61 Cal.App.4th 563] Albert E. Mead, Jr., Pasadena, for Plaintiffs and Appellants.

White & Case, John A. Sturgeon, Los Angeles and John D. Early, Irvine, for Defendant and Respondent.

OPINION

McKINSTER, Acting Presiding Justice.

The owners of a parcel of bare land signed a long-term ground lease with a developer, who planned to improve the property with a commercial building. To facilitate that construction, the owners executed a deed of trust in favor of the developer's construction lender. Ultimately, the developer defaulted on the construction loan and the assignee of the lender foreclosed on the owner's fee interest.

The owners sued the developer, the lender, and the lender's assignee for damages and other relief. As to the lender, their theories primarily relied upon their assertion that the deed of trust was, in substance, a surety agreement. Their action against the lender was dismissed when they declined to amend their complaint after a demurrer was sustained to each count alleged. The owners appeal from the order of dismissal and from the post-judgment order awarding attorney's fees to the lender.

While we agree that the owners sufficiently pleaded that they were sureties rather than principal obligors, the owners did not ultimately demonstrate that the trial court erred in sustaining the demurrers and awarding attorney's fees. Accordingly, we affirm.

STANDARDS OF REVIEW

In evaluating an order sustaining a demurrer to a pleading, we give the pleading a reasonable interpretation by reading it as a whole and all of its parts in their context. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125, 271 Cal.Rptr. 146, 793 P.2d 479.) We assume the truth of all material facts which have been properly pleaded, of facts which may be inferred from those expressly pleaded, and of any materials facts of which judicial notice has been requested and may be taken. (Crowley v. Katleman (1994) 8 Cal.4th 666, 672, 34 Cal.Rptr.2d 386, 881 P.2d 1083; Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403, 44 Cal.Rptr.2d 339.)

When considering the legal effect of those facts, we disregard any erroneous or confusing labels employed by the plaintiff. (Saunders v. Cariss (1990) 224 Cal.App.3d 905, 908, 274 Cal.Rptr. 186.) A complaint is sufficient if it alleges facts which state a cause of action under any possible legal theory. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967, 9 Cal.Rptr.2d 92, 831 P.2d 317.) However, because it is not a reviewing court's role to construct theories or arguments which would undermine the judgment (People v. Stanley (1995) 10 Cal.4th 764, 793, 42 Cal.Rptr.2d 543, 897 P.2d 481), we consider only those theories advanced in the appellant's briefs.

THE ALLEGATIONS OF THE COMPLAINT

The operative pleading is the first amended complaint, filed in April of 1996. It alleges the following facts.

Albert E. Mead and Barbara Duque Mead are the trustees of the Albert E. Mead and Barbara Duque Mead Revocable Inter Vivos Trust. (The complaint refers to the individuals and the trust collectively as the "Meads.") The Meads bought an undeveloped parcel of property from Theodore B. Zwicker in 1988. Simultaneously, the Meads executed a 30-year ground lease to Cooley Executive Plaza II ["Cooley"], a limited partnership of which Zwicker was the general partner. The lease required the Meads to " 'subordinate' [their] interest in the Property to an anticipated construction lender's deed of trust" by executing the deed of trust, but not the promissory note which the deed of trust would secure.

In 1989, Zwicker arranged for Sanwa Bank California to provide the construction financing. The construction loan agreement and the promissory note for $1,020,000 were signed solely by Cooley. However, the deed of trust securing the performance of the obligations of Cooley under the loan agreement and the promissory note was executed by both Cooley and the Meads, and encumbered both Cooley's leasehold interest and the Meads' fee interest in the property. The deed of trust identifies the Meads and Cooley jointly as "Trustor" and imposes a variety of obligations upon the Trustor. On the other hand, it provides that the Meads assumed "no personal liability for the performance of the obligations of Cooley under this Deed of Trust" and could not be held personally liable by Sanwa.

Cooley defaulted on its obligations under both the ground lease and the promissory note in 1993. In August of that year, Sanwa commenced nonjudicial foreclosure proceedings by recording a notice of default. The Meads urged Sanwa to either seek the appointment of a receiver or allow the Meads to assume Cooley's obligations. Sanwa assured the Meads that a receiver would be appointed. The Meads also filed an unlawful detainer action to remove Cooley from possession of the property. The action was dismissed in 1994, after Sanwa made the dismissal a condition of a forbearance agreement by which Sanwa agreed to postpone publication of its notice of sale.

In August of 1995, the last of numerous extensions of the maturity date of the promissory note expired, and the note became due. Sanwa started a new foreclosure proceeding, but assured the Meads that it would proceed only against Cooley's leasehold interest. Sometime thereafter, Sanwa reversed itself and informed the Meads that it intended to foreclose on its security interest in the fee as well as the leasehold.

In December of 1995, the Meads formally demanded that Sanwa exhaust all remedies against Cooley prior to exercising any right under the deed of trust against the Meads. In particular, they demanded that Sanwa terminate the pending foreclosure proceedings as to the Meads' fee interest in the property.

Further allegations will be discussed in connection with individual counts.

PROCEDURAL BACKGROUND

Also in December of 1995, the Meads filed suit against Sanwa, Zwicker, and Cooley. A demurrer by Sanwa was sustained with leave to amend. Thereafter, the Meads filed their first amended complaint. As to Sanwa, it asserts claims for damages on the basis of: breach of fiduciary duty (first count); breach of the covenant of good faith and fair dealing (second count); fraud (third count); negligent misrepresentation (fourth count); waste (fifth count); rescission and restitution (sixth count); negligence (seventh count); and breach of written contract (eighth count).

Sanwa again demurred: generally as to all counts, and specially as to the misrepresentation counts. The trial court sustained the demurrers to all counts, but granted leave to amend the third, fourth, fifth and sixth. When the Meads declined to amend, the complaint was dismissed and judgment was entered in favor of Sanwa.

Thereafter, Sanwa moved for attorney's fees pursuant to Civil Code section 1717. Over the Meads' opposition, the Trial court granted the motion and awarded fees and costs in the sum of $45,870.29.

The Meads separately filed appeals from the order of dismissal and from the order granting the attorney's fees. We consolidated the two appeals for decision.

CONTENTIONS

Generally, the Meads contend that they are sureties rather than principal obligors, and they were denied their statutory rights as sureties. ¹ More specifically, they argue that each count of the complaint states sufficient facts to constitute a cause of action. In addition, they contend that they were deprived of a fair hearing below on the demurrer, and that the trial court erred in awarding attorney's fees in any amount.

DISCUSSION

A. THE COMPLAINT SUFFICIENTLY ALLEGES THAT THE MEADS ARE SURETIES.

"The suretyship relation ... arises where two persons are under obligation to the same obligee, who is entitled to but one performance, as between the two who are bound, and one of them should ultimately bear the burden of the obligation. The obligor ultimately responsible for the debt is the principal and the other is the surety." (Everts v. Matteson (1942) 21 Cal.2d 437, 447, 132 P.2d 476.)

A suretyship may result from different types of promises: "A surety ... is one who promises to answer for the debt, default, or miscarriage of another, or hypothecates property as security therefor." (Civ.Code, § 2787.) Those promises may be made in an express agreement or may be implied by law. (See, e.g., Braun v. Crew (1920) 183 Cal. 728, 731, 192 P. 531 [mortgagor and maker of secured note becomes surety when the property is sold and buyer assumes the debt].)

Because the parties focus primarily upon whether the Meads are sureties or principal obligors, we address that issue first. Have the Meads adequately pleaded the existence of a suretyship relationship between themselves and Sanwa?

The Meads repeatedly allege that they were the sureties of Cooley's debt, not principal obligors. Sanwa dismisses those allegations on the ground that unsupported factual conclusions are disregarded when ruling on a demurrer. (Moore v. Regents of University of California, supra, 51 Cal.3d at p. 125, 271 Cal.Rptr. 146, 793 P.2d 479.) However, the Meads pleaded a variety of facts to support that conclusion, including the following: only Cooley signed the note; the deed of trust recites that it secures the performance by Cooley of his obligations under the construction loan agreement and the note; the certificate of authority given by the Meads to Sanwa reiterates that the deed of trust is given to secure repayment of Cooley's obligations; the deed of trust recites that the Meads shall have no personal liability for the payment of Cooley's obligations; Sanwa excluded the Meads from negotiations...