Wyatt v. Union Mortgage Co.

Decision Date10 August 1979
Docket NumberS.F. 23748
Citation598 P.2d 45,24 Cal.3d 773,157 Cal.Rptr. 392
CourtCalifornia Supreme Court
Parties, 598 P.2d 45 Joseph R. WYATT et al., Plaintiffs and Respondents, v. UNION MORTGAGE COMPANY et al., Defendants and Appellants.

Ball, Hunt, Hart, Brown & Baerwitz, Joseph A. Ball, Long Beach, Joseph D. Mullender, Jr., Long Beach, David G. Finkle, Los Angeles, Laurence F. Jay, Long Beach, Michael J. Maloney, Patrick T. Madden and Michael C. Cohen, Los Angeles, for defendants and appellants.

Steven J. Schwartz, Volk, Newman, Marsh, Gralla & Karp, James H. Karp, Bruce H. Newman, Los Angeles, Richard L. Goff, Heller, Ehrman, White & McAuliffe, Pettit & Martin, Joseph W. Rogers, Jr., and Susan M. Popik, San Francisco, as amici curiae on behalf of defendants and appellants.

Irvine P. Dungan, Sacramento, for plaintiffs and respondents.

Stanley W. Blackfield, Hayward, Peter F. Elkind and Boxer & Elkind, Oakland, as amici curiae on behalf of plaintiffs and respondents.

BIRD, Chief Justice.

This is an appeal brought by a mortgage loan broker, its affiliated corporations, their principal shareholder, and several of the corporations' officers and directors from a judgment which imposed on them compensatory and punitive damages for breach of duties which were allegedly owed to respondents during the negotiation of a second mortgage loan. Liability of all but one of the appellants is premised on a theory of civil conspiracy. Appellants contend that (1) the record discloses neither the breach of a duty nor the existence of a conspiracy, (2) the trial court erred in concluding that the statute of limitations on respondents' claims was tolled until the "last overt act" in the conspiracy, and (3) punitive damages were excessive.

I

Stockton Home Mortgage Company (Stockton) and Union Home Loans (formerly Union Mortgage Company) (Union) are affiliated corporations engaged in the mortgage loan brokerage business. Stockton operates primarily in northern California, while Union's business is confined to the southern part of the state. Appellant Western Computer Service (Western) is the servicing agent for loans negotiated by Stockton and Union, and appellant Secured Investment Corporation (Secured) is its predecessor. Appellant Irving Tushner (Tushner) is the principal and controlling shareholder of Stockton, Union, Western and Secured. All of the corporations use the business name "Union Home Loans" and are headquartered at the same Los Angeles address. Appellants Esther Flink (Flink) and Elinore Tushner are Tushner's sister and former wife, respectively; each served one or more of the appellant corporations as an officer or director during some or all of the time described in the complaint. Appellant David Marks (Marks) served as president of Secured and Western during a portion of the period at issue.

The essential facts elicited at trial, viewed most favorably to respondents, appear as follows: In 1966, Stockton carried on an extensive television advertising campaign in the Sacramento area. One frequently aired advertisement announced that a $1,000 loan could be paid back completely, principal and interest, for $18 per month. In fact, no such loan was available.

Lured by the advertising claims, respondents, Joseph and Clarice Wyatt, visited Stockton's Sacramento office in November 1966. They sought to retain Stockton's services to negotiate a second mortgage loan on their home for purposes of completing certain home improvements. (Such loans are solicited by mortgage brokers from private, noninstitutional lenders.) Respondents agreed in writing to a loan negotiated by Stockton in the gross amount of $1,325 (including the brokerage fee and closing charges), with payments of $20 per month over 36 months (the 1966 loan). The loan officer orally advised respondents that a "small" balloon payment would be due in the 37th month. (A balloon payment is the amount necessary to amortize principal and interest unpaid at maturity when the prescribed monthly installments have been insufficient to do so.) Because Mr. Wyatt worked seasonally as a construction laborer respondents specifically inquired of the loan officer about the "grace period" for late installments and were told that a late charge would not be assessed until a payment was 10 days overdue. In response to respondents' further questions about the interest rate, the loan officer quoted a figure of "seven or eight percent."

At a second session, the loan officer produced a "stack" of loan documents, including a retainer agreement, a promissory note, escrow instructions, and a second trust deed. The officer leafed through the documents, briefly describing each and showing respondents where to sign. However, he never pointed out significant provisions of the written agreements or suggested that respondents read them carefully. The loan instruments actually imposed an annual interest rate of 10 percent, allowed only a five-day "grace period" for delinquent payments, and assessed a Late charge of 1 percent of the original loan balance for each overdue installment (i. e., $13.25 for each $20 installment). The actual estimated balloon payment, assuming all installments were timely paid, was set forth in the broker's loan statement as $950.70. However, the written loan agreement further provided that monthly installments would be applied first to accrued late charges and interest, rather than to reduction of principal; unreduced principal would thus be deferred until the end of the loan term, accruing additional interest in the interim. All these amounts would be added to the final balloon payment.

Respondents were late with several of their payments on the 1966 loan. Consequently, they faced a balloon payment in March 1970 of $1,340, more than the original loan principal. When respondents asked why the final payment was so high, the late charge and interest provisions of the loan agreement were explained to them. Stockton refused to extend the term of the 1966 loan, and respondents were unable to find other financing. Therefore, in March 1970, they agreed to refinance the unpaid balance through Stockton. A loan (the 1970 loan) was then negotiated in the aggregate principal amount of $2,000, with payments of $45 per month for 36 months; the loan document disclosed an estimated balance due in the 37th month of $816.18. Provisions for interest and late charges were similar to the 1966 loan. Late charges were again assessed during the term of the 1970 loan, and the actual amount demanded by Stockton at maturity (April 1973) was $1,193.16.

After repeated threats of foreclosure on their home, respondents brought suit in July 1973. Their complaint alleged, in substance, that Stockton's misleading television commercials, its misrepresentations about the terms of the 1966 loan, its failure to call respondents' attention to the very unfavorable provisions buried in the loan papers, and its extraction of late charges on the 1970 loan despite the timely payment of all installments, breached the fiduciary duty which is owed by a mortgage loan broker to those who engage its brokerage services. The complaint further alleged that the foregoing resulted from a fraudulent conspiracy engaged in by all of the appellants. Respondents sought compensatory and punitive damages, and imposition of a constructive trust.

The parties stipulated to the issuance of a preliminary injunction staying the foreclosure on respondents' residence pending a final determination of the action, and for so long as monthly installments were paid toward the balance claimed due. In June 1975, two weeks before trial, respondents, finding other financing, repaid the 1970 loan.

To prove the existence of a conspiracy among the appellants, respondents produced, at trial, a former employee who had prepared some of the advertising for the affiliated corporations after 1966. Confirming the use of the misleading television commercials in Sacramento during 1966, this employee testified that appellant Tushner had frequently stated, in meetings attended by all of the other individual appellants except Flink, that it was company policy to pursue late charges vigorously as a prime source of income, and that, if one payment was delinquent, all subsequent payments were also to be considered late. "Late charge" income figures for Secured and Western were introduced at trial for the years 1966 through 1974; the annual amounts increased from approximately $152,000 in 1966 to over $1 million for the two corporations combined in 1971.

The individual appellants were beyond subpoena range and declined to testify at trial. However, respondents read into the record selected portions of appellants' depositions, which described the corporate positions occupied by each and their respective duties. The jury assessed separate awards against each appellant, totalling $25,000 in compensatory damages and $200,000 in punitive damages. The trial court denied appellants' motion for new trial after respondents consented to a reduction of the compensatory award to $1,000.

II

This court must first decide whether the jury verdict is supported by evidence that the appellants did in fact breach fiduciary obligations owed to the respondents. Appellants take the position that their duty of disclosure was fully met when they presented to respondents written loan documents containing all the information required by Business and Professions Code section 10241. 1 Appellants also claim they never charged respondents' account with late charges unless payments were actually overdue.

A mortgage loan broker is customarily retained by a borrower to act as the Borrower's agent in negotiating an acceptable loan. All persons engaged in this business in California are required to obtain real estate licenses. (Bus. & Prof.Code, §§ 10130 and 10131, subd. (d).) Thus, general principles of agency (Civ.Code, §§ 2228 and 2322,...

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