Kuehnel v. PHH Mortgage
Filed 4/11/13 Kuehnel v. PHH Mortgage CA4/3
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115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
FOURTH
APPELLATE DISTRICT
DIVISION
THREE
ERIKA KUEHNEL,
Plaintiff and Appellant,
v.
PHH MORTGAGE,
Defendant and Respondent.
G046510
(Super. Ct. No. 30-2010-00407237)
O P I N I O N
Appeal from a judgment
of the Superior Court
of
County, Glenda Sanders, Judge.
Reversed.
Law Offices of Quintana
| Reynard, Lincoln B. Quintana and
John S. Reynard for Plaintiff and Appellant.
Wright, Finlay & Zak,
Charles C. McKenna and Peter M. Watson for Defendant and Respondent.
* * *
This case comes to us
from a demurrer to a second amended complaint, sustained without leave to
amend.
assumed true, even if those facts are counterintuitive. Moreover the plaintiff receives the benefit
of all reasonable inferences from those facts.
(E.g., Mosby v. Liberty Mutual
Ins. Co. (2003) 110 Cal.App.4th 995, 999.)
There is indeed much in the second amended complaint in this case which
is both counterintuitive and, as the trial judge correctly noted, vague. There are obvious gaps and unanswered
questions. It is as if the second
amended complaint had come into the court like Richard III, unfinished, sent
before its time, and scarce half made up.
Be that as it may, the
defendant mortgage company did not engage in what a leading treatise on civil
procedure notes to be the dubious effort of forcing the plaintiff borrower to
answer the unanswered questions by a series of demurrers for uncertainty.
coup de grace, a demurrer based on the theory the forbearance agreement signed
by the borrower unambiguously provided for a payment of $12,685.89 on November 1, 2009, and the borrower
had failed to allege she made that payment.
We reverse for two
reasons. First, the text of the
unambiguously provide for payment of $12,685.89 on November 1, 2009.
When scrutinized, the text of the agreement is larded with
ambiguity. (The trial judge, more
charitable than we, simply observed it was “hardly a model of clarity.â€) As we show below, the text was reasonably
susceptible of the interpretation the payment might have been spread out “over
time.†Second, the reasonableness of the
possibility of the payment being spread out over time is corroborated by the
factual allegations of the second amended complaint, which alleges that
a payment coupon book, including payments to begin on the very date of the
ostensible $12,685.89 payment. That
action – at least on the limited facts before us – could readily lead a
reasonable borrower to conclude the coupons reflected that the $12,685.89 –
otherwise due on November 1, 2009
– might be spread out over time. Thus,
the demurrer was not well taken.
FACTS
As described above, the
plaintiff is entitled to all reasonable inferences from the facts stated in the
complaint. The trial court could also
properly take judicial notice of various real estate documents recorded by the
lender. With these rules in mind, we provide
our exposition of the second amended complaint against which the successful
demurrer was asserted. All quotations
are from the second amended complaint.
We also explicitly identify where we draw reasonable inferences from the
quoted facts:
In 2004, PHH Mortgage
Services lent Erika Kuehnel and Justin Kerfoot $656,000 secured by a 30-year
mortgage on their residence in Costa Mesa. In 2009, PHH Mortgage “erroneously marked the
loan as delinquent,†claiming the May and June payments had not been received
in “bank-to-bank payment methods.â€
The reasonable inference
from these words is that Kuehnel somehow had funds transferred to PHH, but the
lender did not credit them against what was due under the loan. That inference is further supported by the
allegation that Kuehnel then “contacted†PHH in “anticipation of a payment
reset.†PHH “stated that
that Plaintiff enter into a forbearance agreement . . . that relieved Plaintiff
of payment obligations for July, August, September and October 2009.†(Italics added.) Noteworthy here are the allegations that PHH
told Kuehnel that he was current and
that the recommended relief of “payment obligations†would be for
On July 11, 2009, Kuehnel signed a written agreement
proffered by PHH concerning a “temporary hardship forbearance plan.†For the moment we need only note the
agreement had a line stating, “Amount Due Next Payment Date: $12,685.89.â€
The next payment date was in November.
In
October 2009, PHH sent payment coupons for payments that were to begin November
2009, running through September 2010.
Kuehnel “tendered payment of the coupon amount each month in that
period.†PHH simply refused to credit
those payments toward Kuehnel’s loan.
Also in October 2009,
PHH demanded $24,045.32 (the second amended complaint does not say how the
demand was conveyed) on the theory that Kuehnel had not made the May 2009
payment, and was in fact “6 months past due on the loan.†The assertion of a missed May 2009 payment
would also be made in a letter from PHH dated December 4, 2009.
Thereafter, an agent of
PHH filed a notice of default in January 2010, claiming $34,103.96 was
due. The same agent recorded a notice of
sale in April 2010. Foreclosure sale of
the property was eventually postponed to September 14, 2010.
THE
LITIGATION
On September 13, 2010,
the day before the scheduled foreclosure, Kuehnel filed her original complaint
in this action.
title="">[3] A year later, in September 2011, Kuehnel
filed a second amended complaint, listing various causes of action centered on
the question of whether the forbearance agreement absolutely required a payment
of $12,685.89 on November 1, 2009, or was susceptible of a reading in which
Kuehnel would be able to repay that amount “over time.†PHH filed a demurrer to that pleading,
contending each cause of action was meritless on the facts alleged, and the
allegations supporting it were vague, ambiguous and uncertain.
In December 2011, the
trial judge sustained the demurrer without leave to amend. The judge noted what we have noted as well –
the allegations in the complaint were indeed vague – but did not otherwise
specify how they were vague. On the
merits, the judge read the forbearance agreement to require the payment of
$12,685.89 on November 1, 2009 as a condition precedent of any other benefits
of the agreement, and, since Kuehnel had already had two chances to plead, felt
it was clear by the time of the second amended complaint that she was not going
to be able to allege she made that payment.
In early January 2012,
Kuehnel brought a motion for reconsideration, based on recently taken
deposition testimony of PHH’s “person most knowledgeable†about Kuehnel’s loan
who, Kuehnel argued, allegedly admitted that PHH believed her obligation was
confined to the payment coupons sent her in October. The motion was denied in early February
2012.
DISCUSSION
The core issue on appeal
is whether the forbearance agreement unambiguously required Kuehnel to make a
lump sum payment of $12,685.89 on or before November 1, 2009, or whether it is
interpretation which would allow Kuehnel to pay the $12,685.89 over time. A few basic principles of contract
interpretation are germane to the case before us: Contracts must be viewed in light of the
circumstances surrounding their formation, their purposes, and the nature of
the parties. (See Frittelli, Inc. v. 350 North Canon Drive, LP (2011) 202 Cal.App.4th
35, 50.) When language is explicit and
clear, it governs. (See
Cal.4th 1109, 1115.) On the other hand,
if the text of a contract is ambiguous or uncertain, its terms must be
construed in the sense the promisor believed at the time of the making of the
contract the promisee understood them.
(Civ. Code, § 1649.) And if
there’s still uncertainty after application of these basic rules, the language
must be construed “most strongly†against the party who drafted the
contract. (Civ. Code, § 1654.) Ambiguity requires two or more
interpretations of language, each of which is reasonable and unstrained. (Shell
Oil Co. v. Winterthur Swiss Ins. Co. (1993) 12 Cal.App.4th 715, 737.) Language must be construed in context; there
is no ambiguity in the abstract. (
(1992) 2 Cal.4th 1254, 1265.)
A.
There is much about the
text of the forbearance contract which raises unanswered questions. But the key ambiguity concerns the
juxtaposition of a statement “Amount Due Next Payment Date: $12,685.89†against a line that soon follows
it, “Payments that are deferred may be paid
on your next payment due date or repaid over a period of time.†(Italics added.) One cannot dismiss this sentence as merely
holding out a possibility based on some contingency (e.g., if the borrower qualifies for some assistance program), because, on
its face, the sentence is a straight-on declarative sentence describing the
terms of the plan, and holding out to the reader two possibilities – either
paying deferred payments on the “next payment due date†or repaying them “over
a period of time.†There is nothing
definitive in the agreement establishing the reference to deferred payments
does not include the $12,685.89 itself.
Indeed, the textual
context of the repaid-over-period-of-time clause confirms the linkage between
the $12,685.89 clause and the repaid-over-period-of-time clause. Underneath the $12,685.89 line is a sentence,
bracketed in double asterisks – presumably to get the reader’s attention – that
invites the reader to “continue reading to learn more about homeowner
assistance plans that may reduce the next payment amount.†An ordinary reader could easily assume the
“next payment amount†refers to the $12,685.89.
The trial judge assumed
one could stop reading with the typographical break line separating the bottom
four paragraphs from the rest of the body of the document. We cannot agree. The sentence set off in asterisks contains no
language at all suggesting the terms of the plan are finished. By way of overview, the words in those four
paragraphs seem to state, on their face, that they are describing the terms of
the plan the borrower has entered into, as distinct from offering something on
top of the existing plan in the way infomercials do (“but wait, there’s more;
if you call within the next 10 minutes . . .).â€
Indeed, the very first
of those four paragraphs contains language so broad it could even include the
payments. While we do not read it that
way, it certainly does nothing to contraindicate an interpretation giving the
borrower the chance to repay the aggregate total of four months of payments
over time: “Under the terms of this
plan, you will not be required to make your monthly mortgage payments for the
period of time detailed above. In
addition, you will not be assessed late [sic]
for the duration of the forbearance.â€
B. Surrounding
Circumstances
Having chosen to demur,
PHH necessarily is stuck with Kuehnel’s version of the circumstances
surrounding the formation of the agreement as stated in the second amended
complaint.
Several allegations are
salient: One, Kuehnel was
agreement. One reasonable inference is
that the agreement was not necessarily a loan modification precipitated by
recent unemployment or other inability of the borrower to make payments, but an
accounting mechanism to straighten out PHH’s error in failing to credit
Kuehnel’s May and June 2009 payments.
Two, plaintiff alleges
PHH’s accountings were in error in two major respects: First, it had failed to correctly credit
Kuehnel’s May and June 2009 payments.
Second, in October 2009 – even before the putative November 1, 2009
payment was due – it erroneously claimed Kuehnel was behind some $24,045.32 on
her mortgage. The $24,045.32 figure
makes absolutely no sense at all given any of the facts alleged in the
complaint or otherwise to be derived from the judicially noticed recorded
documents, but it does give rise to a reasonable inference that PHH’s
accounting of Kuehnel’s loan had, even before November 1, 2009, become riddled
with errors and was in dire need of straightening out.
Three, and most
importantly, prior to the putative November 1, 2009 payment, PHH sent payment
coupons for payments which were to begin
November 2009, running through September 2010, and Kuehnel thereafter
“tendered payment of the coupon amount each month in that period,†but PHH
refused to credit those payments toward Kuehnel’s loan. The fact PHH sent Kuehnel a coupon book
reasonable inference that some amounts already deferred (or even increased, as
mentioned in the third paragraph) had been amortized into the coupon book. We note, in this regard, that because this
case comes to us on demurrer, PHH has not yet had the opportunity to present
any evidence concerning the nature and amount of the coupon payments which
might allow a court to exclude the possibility the payments included the
repayment of the $12,685.89 “over time.â€
C.
Having examined both the
text of the agreement and surrounding circumstances, we are forced to
reverse. This is a textbook case
illustrating why ambiguous agreements need the explication of parol evidence to
understand the intent of the parties.
(E.g., L.B. Research &
Education Foundation v. UCLA Foundation (2005) 130 Cal.App.4th 171, 179
[“We emphasize that our decision about whether this contract is in fact
ambiguous might, given an appeal at a different stage in this case, be enhanced
by the consideration of extrinsic evidence . . ., which might in the end bring
us to a different conclusion . . . .â€].)
The bare text of the agreement is riddled with ambiguity and thus was
reasonably susceptible of the conclusion Kuehnel had the option of paying the
$12,685.89 either in a lump sum on November 1, 2009, or as part of a plan
represented by the payment coupons sent her in October.
Of course, this is the
story on demurrer. No court has yet
heard PHH’s side of the story. It is
certainly possible that PHH’s real intention was only to defer three payments –
or was it four? the agreement is that
poorly drafted – until November 1,
2009. But the text of the agreement and
circumstances we know now are
virtually impenetrable, so we cannot, at this stage, say the agreement required
a November 1, 2009 payment of $12,685.89, which if not made, would constitute a
default.
In light of our
determination, it is premature to address the various causes of action which
may, or may not, be contingent on the issue of whether the payment of
$12,685.89 on November 1, 2009, was absolutely required. Moreover, in light of the prematurity of the
appeal from the minute order sustaining the demurrer, there is also no need to
address the question of whether Kuehnel’s later motion for reconsideration was
timely, or made on new facts or law, except to observe that that evidence
presented on the motion – at least Kuehnel’s version of it – further supports
the notion the payment booklet could be reasonably interpreted by Kuehnel to
provide for the option of paying the $12,685.89 over time.
DISPOSITION
The judgment is
reversed. The case now returns to square
one; all causes of action remain potentially viable at this point. Our determination, however, is essentially
interlocutory. PHH may yet prevail. Accordingly, we do not award appellate costs
now, but accord the trial judge discretion to award the appellate costs of this
proceeding at the conclusion of the litigation.
(Boicourt v. Amex Assurance Co.
(2000) 78 Cal.App.4th 1390, 1404.)
BEDSWORTH,
ACTING P. J.
WE CONCUR:
ARONSON, J.
THOMPSON, J.
name="_ftn1" title=""> [1] Technically, the appeal is
premature. The notice of appeal was
filed February 14, 2012, designating the appeal is from an order or judgment
filed “12/16/11.†The 12/16/11 document, however, was no
judgment, but simply a minute order reflecting the defendant’s demurrer to the
plaintiff’s second amended complaint had been sustained without leave to amend
as to all causes of action. Minute
orders sustaining demurrers without leave to amend, as distinct from formal
judgments of dismissal, are, of course, nonappealable. (Sisemore
v. Master Financial, Inc. (2007) 151 Cal.App.4th 1386, 1396.) However, we may take judicial notice of trial
court records showing that on April 5, 2012 (after completion of the formal
record on appeal), a formal judgment of dismissal was filed. Accordingly, we exercise our discretion to
deem the premature notice of appeal filed in February to be from the later
appealable judgment filed in April. (See
Cal. Rules of Court, rule 8.104(d)(2) [“The reviewing court may treat a notice
of appeal filed after the superior court has announced its intended ruling, but
before it has rendered judgment, as filed immediately after entry of
judgment.â€].)
name="_ftn2" title=""> [2] As the Rutter Group Civil
Procedure Treatise notes, demurrers for uncertainty are disfavored, and “will
be sustained only where the complaint is so bad that the defendant cannot
reasonably respond; i.e., he or she cannot reasonably determine what issues
must be admitted or denied, or what counts or claims are directed against him
or her.†(Rylaarsdam et al., Cal.
Practice Guide: Civil Procedure Before
Trial (The Rutter Group 2012) ¶ 7:85, p. 7(I)-39.)
The
treatise goes on to say what most lawyers already know, namely that judges
don’t like demurrers for uncertainty:
“[J]udges usually make short shrift of demurrers for uncertainty. They
expect counsel to clear up any ambiguities through discovery, or stipulations,
rather than by demurrer.†(Rylaarsdam et
al., Cal. Practice Guide: Civil
Procedure Before Trial (The Rutter Group 2012) ¶ 7:85, p. 7(I)-39.) What is implicit in this comment is that a
defendant cannot go from a complaint containing some ambiguities directly to
demurrer for failure to state a cause of action without doing something short
of a demurrer for uncertainty to clear up those ambiguities first.
