FV-1, Inc. v. Pro Value Properties

Filed 9/18/09 FV-1, Inc. v. Pro Value Properties CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

APPEAL from a judgment of the Superior Court of Los Angeles County.

Rita J. Miller, Judge. Reversed.

The Ryan Firm, Timothy M. Ryan for Plaintiff and Appellant.

No appearance for Defendant and Respondent.

_______________

Cross-defendant FV-1 appeals the judgment entered in favor of cross-complainant Pro Value Properties, Inc. ("Pro Value") following trial of the latter's lawsuit for unjust enrichment. We determine that the cross-complaint fails to state a cause of action, and so reverse the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

In August 2004, Vilma Garcia executed a note secured by a Deed of Trust in favor of WMC Mortgage with respect to the real property located at 674 Manzanita Avenue, Sierra Madre, California (the "Property"). The note and deed of trust were subsequently assigned to FV-1. Garcia defaulted under the terms of the note, and FV-1 instructed Quality Loan Service Corp. ("QLS") to institute non-judicial foreclosure proceedings on the Property, which QLS undertook to do, commencing with the recordation of a Notice of Default. Because QLS was not the trustee named in the deed of trust, it was required to record a Substitution of Trustee pursuant to Civil Code section 2934a. This it neglected to do. Pursuant to a recorded Notice of Trustee Sale, QLS sold the Property to the highest bidder, Pro Value, on June 9, 2005 for $842,000. QLS issued a Trustee's Deed of Sale to Pro Value in July 2005, which was subsequently recorded.

Some time thereafter, QLS and FV-1 realized that there was no recorded Substitution of Trustee naming QLS as trustee. Consequently, both QLS and FV-1 determined that the Trustee's Deed of Sale was void.

In August 2005, FV-1 filed this lawsuit, alleging causes of action for cancellation of an instrument and declaratory relief. FV-1 named both QLS and Pro Value as defendants. Pro Value cross-complained against FV-1 for breach of contract, negligence and negligent misrepresentation, and against QLS for negligence.

In October 2005, QLS returned the $842,000 purchase price of the Property together with seven percent interest to Pro Value. Pro Value rejected the proffered funds, claiming that it was the rightful owner of the Property.

Because Pro Value had rejected QLS's proffer of the $842,000 sales price, QLS continued to hold those funds. It therefore filed a complaint in interpleader, seeking a determination of who was entitled to the $842,000 proceeds realized from the sale of the Property.

QLS moved for summary judgment as to FV-1's complaint and Pro Value's cross-complaint. After hearing arguments on the motion on January 25, 2007, the trial court ruled that the Trustee's sale was void and that the Trustee's Deed of Sale which QLS issued to Pro Value was of no force or effect. The court further ruled that Pro Value was entitled to the return of the principal funds plus interest at the legal rate. The court requested additional briefing regarding the legal rate of interest to be applied in this case. Additionally, the trial court ruled against Pro Value on each of the causes of action alleged in its cross-complaint.

Thereafter, Pro Value moved for leave to file a first amended cross-complaint, and set the motion for hearing on March 27, 2007. The trial court permitted Pro Value to file the amended cross-complaint, which contained a single cause of action against FV-1 and Garcia for unjust enrichment.

On May 14, 2007, the trial court issued its ruling on the pending interest issue. The court found that although the Trustee's sale was void and there was no contract as a matter of law, QLS owed interest at the rate of ten percent that is, the rate which applies to obligations founded on contract. The court also found that QLS's tender of funds to Pro Value in October 2005 was insufficient, since it included seven percent interest instead of ten percent interest. Consequently, the court found that QLS owed Pro Value ten percent interest on the $842,000 "from the date of sale through the date [QLS] returns the purchase proceeds with 10% interest." QLS appealed that ruling.

Trial on Pro Value's sole remaining claim, for unjust enrichment against FV-1, was conducted on January 28, 2008. At the time, FV-1 was not represented by counsel, and FV-1 did not appear at trial. The trial court permitted Pro Value to proceed with trial in FV-1's absence. The trial court entered judgment in favor of Pro Value in the sum of $161,485.84. FV-1 appeals that judgment.

Meanwhile, this Court heard QLS's appeal of the trial court's ruling that QLS's tender to Pro Value of $842,000 together with seven percent interest was ineffective, because the sales proceeds should have accumulated interest at the rate of ten percent. We reversed that ruling, finding that QLS's October 5, 2005 tender of the purchase price plus interest at seven percent was an effective tender, and that Pro Value had suffered no damages. (Pro Value Properties, Inc. v. Quality Loan Service Corp. (2009) 170 Cal.App.4th 579, 583.)

DISCUSSION

FV-1 makes multiple assignments of error on this appeal. Because its first contention has merit, however, we consider only the claim that Pro Value's amended cross-complaint failed to state a cause of action against FV-1.

As noted above, Pro Value's amended cross-complaint alleged a single cause of action against FV-1, for unjust enrichment. After reciting the undisputed facts concerning the circumstances of the foreclosure sale and the trial court's invalidation of the Trustee's Deed of Sale issued to Pro Value in July 2005, the cross-complaint alleges that Pro Value "has advanced sums of money believing it was the owner of the Property. Defendants FV-1 and Vilma Garcia have benefited from [Pro Value's] advancement of funds on behalf of the Property. [] FV-1 has benefited from the time [Pro Value] owned the Property in that FV-1's loan has continued to accrue interest pursuant to the terms of FV-1's loan." These allegations do not establish a right on the part of Pro Value to recoup from FV-1 monies paid to third parties in connection with Pro Value's purchase and ownership of the Property.

As FV-1 observes, California courts have consistently held that "unjust enrichment" is not a cause of action: "There is no cause of action for unjust enrichment. Rather, unjust enrichment is a basis for obtaining restitution based on quasi-contract or imposition of a constructive trust. (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, 1015, 1016, pp. 1104-1105.)" (McKell v. Washington Mut., Inc. (2006) 142 Cal.App.4th 1457, 1490.) Thus, in its amended cross-complaint Pro Value was in fact seeking restitution from FV-1, on a theory of quasi-contract. "Quasi-contract," in turn, "is simply another way of describing the basis for the equitable remedy of restitution when an unjust enrichment has occurred." (McBride v. Boughton (2004) 123 Cal.App.4th 379, 388, fn. 6.)

"The right to restitution or quasi-contractual recovery is based upon unjust enrichment. Where a person obtains a benefit that he or she may not justly retain, the person is unjustly enriched. The quasi-contract, or contract 'implied in law,' is an obligation (not a true contract . . .) created by the law without regard to the intention of the parties, and is designed to restore the aggrieved party to his or her former position by return of the thing or its equivalent in money. . . . [] However, '[t]he mere fact that a person benefits another is not of itself sufficient to require the other to make restitution therefore.' (Rest., Restitution 1, Comment c; see Marina Tenants Assn. v. Deauville Marina Dev. Co. (1986) 181 C.A.3d 122, 134." (1 Witkin, Summary of Cal. Law, supra, Contracts, 1013, p. 1102.)

Pro Value bases its restitution claim upon the notion that FV-1 "benefited" from Pro Value's purchase of the Property at the foreclosure sale. Thus, the amended cross-complaint alleged that "FV-1 has benefited from the time Cross Complainant owned the Property in that FV-1's loan has continued to accrue interest pursuant to the terms of FV-1's loan." However, Pro Value is seeking restitution for the sums which it paid to its lender and to the taxing authorities when it believed that it owned the Property. FV-1 received no benefit of any kind from these payments, since it had no obligation to pay property taxes on the Property, or interest on Pro Value's mortgage. Thus it cannot be said that Pro Value made payments which ought rightfully to have been paid by FV-1.[1] "If the money is paid in satisfaction of an obligation actually owed by the plaintiff, he or she is obviously not entitled to restitution even though the performance was induced by mistake or fraud." (1 Witkin, Summary of Cal. Law, supra, Contracts, 1025, p. 1117.) We note as well that Pro Value does not allege that FV-1 received money which it should turn over to Pro Value; rather, it alleges that FV-1 received the "benefit" of the accrual of interest on a note in default, a dubious benefit indeed.

In sum, while the monies that Pro Value expended in connection with its purchase and ownership of the Property which, due to the mistakes of others, it did not actually own may be recoverable on some other legal theory, they are not recoverable as restitution based on unjust enrichment. Because this was the sole basis for recovery under Pro Value's amended cross-complaint, the judgment in its favor must be reversed.

DISPOSITION

The judgment is reversed. FV-1 is to bear its own costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

ARMSTRONG, J.

I concur:

MOSK, J.

I concur in the reversal but would remand for a new trial. First, I agree with cross-defendant, FV-1, Inc., there is no cause of action for unjust enrichment. But the label attached to a count is not controlling. (Daily Journal Corp. v. County of Los Angeles (2009) 172 Cal.App.4th 1550, 1554-1555; Black v. Department of Mental Health (2000) 83 Cal.App.4th 739, 745.) The controlling issue is whether the first amended cross-complaints factual allegations state a cause of action under any legal theory which in this case is for restitution. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38-39; Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 103.) Here, the first amended cross-complaint alleges, Pro Value Properties, Inc., paid taxes and other expenses on the property, after paying the purchase price, under the incorrect assumption the trustee sale was valid. And the first amended cross-complaint alleges that cross-defendant benefited from those payments. This states a claim for restitution even though the cause of action is mislabeled unjust enrichment. (Ghirado v. Antonioli (1996) 14 Cal.4th 39, 51; Philpott v. Superior Court (1934) 1 Cal.2d 512, 517.) Second, the judgment must nonetheless be reversed as there is no evidence cross-defendant received notice of trial. (Code Civ. Proc., 594, subd. (b); In re Marriage of Goddard (2004) 33 Cal.4th 49, 57-58; Au-Yang v. Barton (1999) 21 Cal.4th 958, 962-967.) I would remand for a retrial where the remaining issues raised by cross-defendant can be litigated.

TURNER, P. J.

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[1] Of course, Ms. Garcia was obligated to pay property taxes on the Property during the time that she owned it. Consequently, if she redeemed the Property from foreclosure, Pro Value may have a valid claim against her for restitution based on unjust enrichment. Ms. Garcia, however is not a party to this appeal.