U.S. Financial v. Sullivan

Decision Date29 January 1974
Citation37 Cal.App.3d 5,112 Cal.Rptr. 18
CourtCalifornia Court of Appeals Court of Appeals
PartiesU.S. FINANCIAL, a corporation, et al., Plaintiffs and Appellants, v. James SULLIVAN et al., Defendants and Respondents. Civ. 12446

KAUFMAN, Associate Justice.

Plaintiff and appellant Home Federal Savings and Loan Association of San Diego (Home Federal) appeals from a judgment of dismissal following the sustaining of demurrers without leave to amend to causes of action 63 through 78 of the third amended complaint.

Facts 1

From August 20, 1963 to May 7, 1964, respondent James Sullivan 2 was the owner, developer and subdivider of a residential tract of land consisting of approximately 40 lots. Although it is not expressly alleged, we infer that respondent Pacific Southwest Investment Inc. (Pacific Southwest) succeeded to the interest of James Sullivan on or about May 7, 1964 and thereafter was the owner, developer and subdivider of said tract. Respondent Hugh M. Gallaher is a civil engineer and a purported expert in the field of soil testing. Respondent Zampese and DeBenedet is a partnership engaged, apparently as a contractor, in excavation and grading. It is alleged that Sullivan, Pacific Southwest, Gallaher and Zampese and DeBenedet did the grading, engineering, soil testing, construction, and other work involved in the development of the tract.

On May 7, 1964, Home Federal loaned specified amounts of money on 39 lots in the tract to Pacific Southwest for the purpose of constructing single-family dwellings on completed lots within the tract. In exchange, Pacific Southwest executed and delivered to Home Federal 39 promissory notes and a deed of trust on each of the 39 lots, naming Home Federal as the beneficiary therein. At that time, each lot was of sufficient value to provide adequate security for the loan made thereon.

On October 28, 1964, U.S. Financial, the plaintiff in causes of action 1 through 53 and 55 in the third amended complaint, loaned $30,000 to Pacific Southwest for the purpose of completing single-family dwellings on 38 lots in the tract. To secure repayment of this loan, U.S. Financial received from Pacific Southwest a promissory note secured by a second deed of trust on the 38 lots. U.S. Financial subsequently advanced an additional $24,282.27 to Pacific Southwest which amount was also secured by the second deed of trust.

Pacific Southwest defaulted on the U.S. Financial note and second deed of trust. U.S. Financial caused a power-of-sale foreclosure and bought the 38 lots at the sale. It received a trustee's deed on April 9, 1965.

In November 1965, Home Federal reconveyed its previously existing deeds of trust on 25 lots and, in exchange, received from U.S. Financial new promissory notes and deeds of trust on these lots.

In the development of the tract, the lots had been cut and filled and houses erected thereon. On or about November 1, 1965, a differential settlement occurred in the filled earth, causing foundation failure, cracks and other damage to the houses constructed on the lots. 3 The differential settlement, however, was not visible, apparent or known to either U.S. Financial or Home Federal until on or about December 31, 1966. After the damage was discovered, U.S. Financial apparently caused some corrective work to be done, and the improved losts were sold by U.S. Financial to individual purchasers. As part of the transaction, the individual purchasers executed and delivered to Home Federal new promissory notes secured by first deeds of trust. Home Federal executed and delivered a full reconveyance of the previously existing notes and deeds of trust and forgave substantial sums to which it was entitled thereunder. Prior to the sale to individual purchasers, U.S. Financial was in default of payment on Home Federal's notes and deeds of trust. Although Home Federal could have instituted foreclosure proceedings and thereafter could have probably procured deficiency judgments against U.S. Financial (see Paramount Sav. & Loan Assn. v. Barber, 263 Cal.App.2d 166, 69 Cal.Rptr. 390; Cal. Real Estate Secured Transactions (Cont.Ed.Bar) p. 301), it did not do so. 4

On October 27, 1967, Home Federal filed the instant action seeking money damages against James Sullivan, Pacific Southwest, Hugh M. Gallaher and Zampese and DeBenedet for an impairment of its security interest in the several subdivision lots. Causes of action 63 through 70 allege that defendants' negligent acts 5 were the direct and proximate cause of the differential settlement in filled earth which damaged the lots and improvements thereon and rendered them insufficient to secure the promissory notes of Home Federal. Causes of action 71 through 78 allege that defendants defectively manufactured the lots and are liable under the theory of strict liability. Respondents James Sullivan, Hugh Gallaher and Zampese and DeBenedet separately demurred to causes of action 63 through 78. The court sustained the demurrers without leave to amend 'on the grounds that they fail to state sufficient facts to state a cause of action since the facts alleged do not show why said Plaintiff did not foreclose and obtain a deficiency judgment from U.S. Financial.' Contentions, Discussion and Disposition Appealability of the Judgment

We are confronted at the outset by the question whether the judgment appealed from is appealable. The complaint names several parties as plaintiffs. Causes of action numbered 57 through 78 are those in which plaintiff Home Federal seeks relief. These causes of action all name as parties defendant the same persons. However, causes of action 57 through 62 involve lots 4, 14 and 35; whereas, causes of action 63 through 78 involve lots 5, 9, 12, 17, 25, 26, 31 and 32. When the court sustained respondents' general demurrers to causes of action 63 through 78 without leave to amend, it also sustained with leave to amend special demurrers grounded on uncertainty to causes of action 57 through 62, which causes are still pending. Inasmuch as causes of action 57 through 62 are still pending and name as parties defendant the same parties as causes of action 63 through 78, the question arises whether the judgment dismissing causes of action 63 through 78 violates the one-final-judgment rule. (See 6 Witkin, Cal. Procedure (2d ed.) pp. 4050, et seq.)

For all practical purposes, the judgment of dismissal constitutes a final determination that plaintiff is entitled to no relief with respect to lots 5, 9, 12, 17, 25, 26, 31 and 32. The counts still pending constitute separate claims for relief with respect to other lots, lots 4, 14 and 35. Were we free to do so, we should be inclined to adopt the rule that where a judgment of dismissal of less than all the counts in a complaint finally determines claims for relief which are separate and distinct from the claims for relief remaining to be tried, the judgment is appealable. (Cf. Fed. Rule 54(b); Reeves v. Beardall, 316 U.S. 283, 62 S.Ct. 1085, 86 L.Ed. 1478; Sears, Roebuck & Co. v. Mackey, 351 U.S. 427, 434--436, 76 S.Ct. 895, 100 L.Ed. 1297, 1305--1306; Cold Metal Process Co. v. United Eng. & F. Co., 351 U.S. 445, 452, 76 S.Ct. 904, 100 L.Ed. 1311, 1318; see 6 Witkin, Cal.Procedure (2d ed.) pp. 4062--4063.) But the rule is settled in California to the contrary. (Bank of America v. Superior Court, 20 Cal.2d 697, 701--702, 128 P.2d 357; De Vally v. Kendall De Vally O. Co., Ltd., 220 Cal. 742, 744, 745--746, 32 P.2d 638; Crofoot v. Crofoot, 132 Cal.App.2d 794, 797--799, 283 P.2d 283; Wilson v. Wilson, 96 Cal.App.2d 589, 595--596, 216 P.2d 104; see 6 Witkin, Cal.Procedure (2d ed.) pp. 4060--4062.) The entry of the judgment of dismissal was therefore improvident. The ruling of the court should have been embodied only in a minute order pending final judgment in the action.

Still, the propriety of the trial court's ruling has been briefed by both parties and trial of the case has already been delayed pending this appeal. Under the circumstances, it is unthinkable to permit this complex case to go to trial on only some of the counts because of an erroneous ruling by the trial court on defendants' demurrers when to do so would almost certainly result in an eventual appeal and reversal of the judgment because of this error. (Cf. Vasquez v. Superior Court, 4 Cal.3d 800, 806--807, 94 Cal.Rptr. 796, 484 P.2d 964.) At oral argument, the parties stipulated that we might treat the record as a petition for a writ of mandate. Although we would not accept the stipulation under ordinary circumstances, we think the circumstances of the case at bench compelling enough to indicate the propriety of a petition for writ of mandate in the first instance (cf. Vasquez v. Superior Court, Supra), and we accept the stipulation of the parties and treat the appeal as a petition for a writ of mandate. 6 (Cf. Clovis Ready Mix Co. v. Aetna Freight Lines, 25 Cal.App.3d 276, 281--282, 101 Cal.Rptr. 820.)


We are uncertain whether respondents contest the general proposition that the beneficiary of a deed of trust may maintain an action against a third party who has negligently impaired the beneficiary's security. Reference is made in respondents' brief to the so-called 'New York rule' that a mortgagee may maintain a cause of action against a third party for impairment of security only if the third party's...

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