International Fidelity Ins. Co. v. Bank
of America
Filed 5/20/13 International Fidelity Ins. Co. v. Bank of America CA3
NOT TO BE PUBLISHED
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opinion has not been certified for publication or ordered published for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
THIRD APPELLATE
DISTRICT
(Placer)
----
INTERNATIONAL FIDELITY
INSURANCE COMPANY,
Cross-complainant and Appellant,
v.
BANK OF AMERICA,
N.A.,
Cross-defendant and Respondent.
C070220
(Super. Ct. No.
SCV27567)
A developer
obtains a large construction loan to build a luxury vacation resort and enters
into contracts to sell several penthouse condominiums at the resort. The purchasers deposit earnest money which,
in accordance with state law, is covered
by surety bonds. The developer defaults
on the construction loan and the lender bank forecloses. The condominium purchasers sue the developer
and the sureties for the return of their earnest money deposits. One surety cross-complains, claiming the bank
is indebted to the surety and was unjustly enriched because it received or
benefitted from the earnest money deposits, but then refused to release its
lien, preventing the sale of the condominiums which caused the purchasers to
demand return of their deposits. Thus
begins the surety’s unsuccessful search for a cause of action under which the
bank can be held liable for the return of the earnest money deposits.
The surety,
International Fidelity Insurance Company (IFIC), appeals from a judgment of dismissal
after the trial court sustained, without leave to amend, the demurrer of the
lender, Bank of America (the Bank), to IFIC’s second amended complaint. IFIC contends the trial court abused its
discretion in sustaining the demurrer without leave to amend. IFIC contends its causes of action for money
had and received and for restitution were well pled. Further, IFIC asserts it can amend its
cross-complaint to state causes of action for statutory reimbursement,
contractual reimbursement, and subrogation.
IFIC proposes to amend its cross-complaint to allege that the IFIC
surety bonds were assigned to the Bank under the loan agreement. IFIC contends that under that assignment the
Bank assumed the obligations under the surety bonds, including the obligation
to reimburse IFIC.
As we will
explain, the trial court properly sustained the demurrer without leave to
amend. IFIC’s claims for money had and
received and restitution depend upon the Bank’s having an obligation to
withdraw or release its lien on the condominium units once they were ready for
sale--IFIC failed to allege such an obligation.
IFIC’s proposed new causes of action all depend on establishing that the
Bank assumed the developer’s obligations
under the surety bonds, but the assignment was for security. “It has long been the law in California,
reaffirmed by the Uniform Commercial Code, that an assignment for security
transfers the rights but not the obligations inherent in the assigned
contract.†(Black v. Sullivan (1975) 48 Cal.App.3d 557, 564 (
Because each of IFIC’s proposed claims lacks the requisite foundation,
IFIC cannot state a valid cause of action against the Bank. Accordingly, we shall affirm the judgment.
In reviewing an order sustaining a demurrer, we assume
the factual allegations pleaded to be true and consider matters that may be
judicially noticed. (
42.) The following facts are
alleged or are cognizable by judicial notice.
Highlands
Hotel Company, LLC (Highlands) was the developer of a
resort hotel and condominium project at Northstar. To finance the acquisition, development and
construction of the project, the Bank made a $147,000,000 construction loan to Highlands,
secured by a deed of trust recorded against the project. Highlands entered into
sales contracts with various individuals to purchase residential units at the
project (purchasers). These purchasers
deposited earnest money in escrow. As
required by Business and Professions Code sections 11013.2 and 11013.4, Highlands
and its development partner, East West Resort Development IX (East West IX),
requested that IFIC issue a blanket surety bond to secure return of the
deposits. IFIC issued a surety bond on
behalf of Highlands in the amount of $3,000,000. Highlands and East
West IX executed an indemnity agreement in favor of IFIC. Highlands defaulted on
the construction loan and the Bank initiated foreclosure proceedings, causing
the court to appoint a receiver to take control of the project.
Several
purchasers (plaintiffs) who had deposited earnest money for the purchase of
condominiums brought suit against Highlands and the
sureties for return of their earnest money deposits. They subsequently filed a first amended
complaint.
IFIC filed
a cross-complaint against Highlands, East West IX, and
the Bank. IFIC alleged the Bank was
indebted to it for “money paid.†IFIC
also sought declaratory relief as to the Bank’s obligations to IFIC and “in
connection with any loss or expense incurred by it under the Bond.†IFIC alleged, “that by virtue of its receipt
of, or benefit by, the earnest money deposits paid to [Highlands] by plaintiffs
in this action, and its refusal to release the lien created by the deed of
trust recorded against the condominium units ready for sale,†the Bank “was
unjustly enriched.†IFIC alleged that
“[t]o the extent it was required to expend monies on account of the Bond,†it
was entitled to recover such sums from the Bank and to be subrogated to any
security held by the Bank in the project.
The Bank
demurred to this cross-complaint.
The trial
court sustained the demurrer with leave to amend. The court found the factual allegations of
the cross-complaint undermined the conclusion that the Bank was indebted to
IFIC. The court further found
declaratory relief was improper where the primary relief sought was the payment
of money. Construing the gist of the
declaratory relief cause of action to be a claim for indemnity, the court found
the facts alleged insufficient to state such a claim.
The
operative pleading on appeal is IFIC’s second amended cross-complaint (SACC). The SACC alleged that the earnest money
deposits were either paid to the Bank or used to pay for construction and
development of the project for the benefit of the Bank. It further alleged that after the condominium
units were completed and ready for close of escrow, the Bank “failed and
refused to withdraw the lien against the condominium units created by its
recorded deed of trust. By refusing to
withdraw its subject lien, IFIC is informed and believes that Bank of America
prevented the units from being sold.â€
The SACC
purported to state two causes of action against the Bank, the fifth and
sixth. The fifth cause of action was a
common count for “Money Had and Received.â€
It incorporated the factual allegations and alleged that the Bank
“became indebted to IFIC for money had and received.â€
The sixth
cause of action was for equitable relief. It alleged that the Bank was aware that funds
invested in the project or paid to the Bank to reduce the loan amount included
the earnest money deposits. By receipt
of, or benefit by, the earnest money deposits, and its refusal to withdraw its
lien against the condominium units, the Bank was unjustly enriched. To avoid the Bank’s unjust enrichment, IFIC
was “entitled to restitution of monies expended on account of the Bond, and is
entitled to recover such sums from the Bank,†and was “entitled to be
subrogated to the interests including any security held by†the Bank.
Ruling
The Bank
again demurred, contending the SACC failed to state facts sufficient to
constitute a cause of action.
The trial
court agreed, sustaining the Bank’s demurrer without leave to amend. The court found the Bank’s failure to
withdraw its lien did not provide a basis for a claim for money had or
received. The facts alleged did not show
that the Bank was in possession of money it had no right to retain. The sixth cause of action failed to state a
cause of action for restitution because it did not allege IFIC tendered any
money to the Bank or that IFIC had paid anything. It was also insufficient as a claim for
indemnity as the facts alleged did not establish that IFIC and the Bank were
joint and severally liable to plaintiffs.
IFIC
appeals from the judgment in favor of the Bank.
DISCUSSION
I
Standard of Review
“A demurrer
tests the sufficiency of the complaint as a matter of law; as such, it raises
only a question of law.
[Citations.]†(
Cal.App.4th 304, 316 (Osornio).) Thus, the standard of review on appeal is de
novo. (Osornio, supra, 124 Cal.App.4th at p. 316.)
“In
reviewing the sufficiency of a complaint against a general demurrer, we are
guided by long-settled rules. ‘We treat
the demurrer as admitting all material facts properly pleaded, but not
contentions, deductions or conclusions of fact or law. [Citation.]
We also consider matters which may be judicially noticed.’ [Citation.]
Further, we give the complaint a reasonable interpretation, reading it
as a whole and its parts in their context.
[Citation.] When a demurrer is
sustained, we determine whether the complaint states facts sufficient to
constitute a cause of action.
[Citation.] And when it is
sustained without leave to amend, we decide whether there is a reasonable
possibility that the defect can be cured by amendment: if it can be, the trial
court has abused its discretion and we reverse; if not, there has been no abuse
of discretion and we affirm. [Citations.] The burden of proving such reasonable
possibility is squarely on the plaintiff.
[Citation.]†(
318 (Blank).)
“To satisfy
that burden on appeal, a plaintiff ‘must show in what manner he can amend his
complaint and how that amendment will change the legal effect of his
pleading.’ [Citation.] The assertion of an abstract right to amend
does not satisfy this burden.
[Citation.] Plaintiff must
clearly and specifically set forth the ‘applicable substantive law’ [citation]
and the legal basis for amendment, i.e., the elements of the cause of action
and authority for it. Further, plaintiff
must set forth factual allegations that sufficiently state all required
elements of that cause of action.
[Citations.] Allegations must be
factual and specific, not vague or conclusionary. [Citation.]â€
(Rakestraw v. California
Physicians' Service (2000) 81 Cal.App.4th 39, 43-44.)
II
Money Had and Received
IFIC
contends the fifth cause of action in the SACC was a well pled common count for
money had and received. We disagree.
“A cause of
action is stated for money had and received if the defendant is indebted to the
plaintiff in a certain sum ‘for money had and received by the defendant for the
use of the plaintiff.’ [Citations.]†(
1611, 1623.) “Technically, an action for
money had and received lies in cases where one person has in his possession
money which in equity and good conscience he ought to pay over to another. [Citation.]â€
(Rains v. Arnett (1961) 189
Cal.App.2d 337, 344.)
IFIC
contends that the Bank’s direct receipt of money was not required; it was
sufficient if money was expended for the Bank’s benefit. IFIC contends that by issuing the bond, it
enabled Highlands to use the earnest money deposits for the benefit of the
Bank, either by enhancing the Bank’s collateral or by direct payment on the
loan. When the Bank refused to withdraw
its lien and prevented the sale of the condominiums, so that plaintiffs
demanded return of their earnest money deposits, the Bank became indebted to
IFIC in the amount of the deposits.
This
argument presupposes that the Bank was obligated to release its lien when the
condominium units were ready for sale.
IFIC contends it was the Bank’s failure to release its lien that made it
indebted to IFIC. Indeed, IFIC refers to
the Bank’s failure to withdraw its lien as “misconduct†and “wrongful.†The SACC, however, did not allege that the
Bank had an obligation to withdraw its lien as to the condominium units when
they were ready for sale and we cannot infer one. Generally, a lender is obligated to release a
lien securing its loan only when the loan is repaid. (Civ. Code, § 2941 [duty to execute
certificate of discharge upon satisfaction of debt]; see Gordon v. Hamm (1998) 63 Cal.App.4th 1324, 1331 [after loan was
made, secured lender’s sole remaining obligation was to release its lien upon
payment in full of the loan balance].)
The SACC did not allege that Highlands had repaid the loan from the
Bank. To the contrary, the plaintiffs’
first amended complaint alleged that when the Bank filed the notice of default
against Highlands, Highlands owed more than $140,000,000 on the loan.
Since the
fifth cause of action in the SACC fails to allege facts to show that the Bank
is indebted to IFAC, it fails to state a cause of action for money had and
received.
III
IFIC contends the sixth cause of action in the SACC
stated a valid cause of action for restitution based on unjust enrichment. IFIC contends that because the Bank received
or benefitted from the earnest money deposits and then refused to withdraw its
lien so the condominium units could be sold, the Bank was unjustly enriched.
“Under the
law of restitution, an individual may be required to make restitution if he is
unjustly enriched at the expense of another.
[Citation.] A person is enriched
if he receives a benefit at another's expense.
[Citation.] The term ‘benefit’
‘denotes any form of advantage.’
[Citation.] Thus, a benefit is
conferred not only when one adds to the property of another, but also when one
saves the other from expense or loss.
Even when a person has received a benefit from another, he is required
to make restitution ‘only if the
circumstances of its receipt or retention are such that, as between the two
persons, it is unjust for him to retain it.’ [Citation.]â€
(Ghirardo v. Antonioli (1996)
14 Cal.4th 39, 51, italics added.)
IFIC’s
claim that the Bank received or benefitted from the earnest money deposits
failure to release its lien. Again, the
SACC fails to allege that the Bank had any obligation to release its lien as to
the condominium units when they were ready to sell. Absent such an obligation, retaining receipt
of or benefit by the earnest money deposits was not unjust. IFIC fails to state a cause of action for
restitution.
IV
Amendment of SACC
IFIC
contends it can amend the SACC to state at least three additional causes of
action--for statutory reimbursement,
contractual reimbursement, and breach of contract by way of subrogation. IFIC asserts it can amend the SACC to allege
that Highlands assigned the Bank all right, title, and interest in the IFIC
surety bond and such assignment required the Bank to assume Highland’s
obligations under the bond. It is the
Bank’s assumption of the obligations under the bond that gives rise to the new
causes of action.
IFIC relies
on the terms of the loan agreement to establish the assignment.
could not withdraw any earnest money deposits from escrow or otherwise use them
unless three conditions were satisfied: (1) there was no default or adverse
material change; (2) the earnest money deposits were insured by a statutory bond,
the form and content of which were approved by the Bank; and (3) “Borrower has
assigned all its right, title, and interest in such bond to [the Bank] as
further security for the Loan.†The loan
agreement further provided that earnest money deposits were either to be paid
to the Bank as a principal payment or put into an account controlled by the
Bank. Highlands granted the Bank a
security interest in the controlled accounts and all funds therein “as
additional security for the Loan.â€
For
purposes of reviewing the trial court’s ruling on the Bank’s demurrer, we
accept as true factual allegations. (
allegation that Highlands assigned the surety bond to the Bank. The legal effect of that assignment--whether
it transferred obligations as well as benefits--is, however, a legal
conclusion. A demurrer does not admit
the truth of “contentions, deductions or conclusions of fact or law.†(Ibid.) We independently determine the legal effect
of the assignment.
IFIC
contends that by accepting the benefits of the surety bond, the Bank also
accepted its obligations. These
obligations include reimbursing the surety if the surety satisfies the
principal obligation. (Civ. Code, §
2847.) To establish the Bank’s
assumption of the obligations, IFIC relies on two provisions of the Civil
Code. Civil Code section 1589
provides: “A voluntary acceptance of the
benefit of a transaction is equivalent to a consent to all the obligations
arising from it, so far as the facts are known, or ought to be known, to the
person accepting.†Civil Code section
3521 provides: “He who takes the
benefit must bear the burden.â€
The Bank
contends these provisions of the Civil Code are inapplicable because the
assignment here was an assignment for security.
(See St. Paul Fire & Marine
Ins. Co. v. James I. Barnes Constr. Co. (1963) 59 Cal.2d 691 (
an absolute assignment and a conditional assignment for security].) This distinction is recognized in the comment
to section 10303 of the Commercial Code, dealing with the assignment of
leases. The comment states: “The subsection states a rule of construction
that distinguishes a commercial assignment, which substitutes the assignee for
the assignor as to rights and duties, and an assignment for security or
financing assignment, which substitutes the assignee for the assignor only as
to rights. . . . Whether a buyer of leases is the holder of a
commercial assignment, or an assignment for security or financing assignment
should be determined by the language of the assignment or the circumstances of
the assignment.†(U. Com. Code com.,
reprinted at 23C West's Ann. Cal. Com. Code (2002 ed.) foll. § 10303, p.
403.) An assignment for security
transfers the rights, but not the obligations, of the assigned contract. (Black,
supra, 48 Cal.App.3d at p. 564.)
In
conditional assignment for security where the language of the assignment stated
the assignment was “for better protection of†the assignee. (St.
Paul Fire, supra, 59 Cal.2d at p. 699.)
In Black, supra, 48 Cal.App.3d
at
p. 561, the assignment of a
note and deed of trust was “solely
for the purpose of securing legal and/or attorney’s fees.†The assignment was found to be an assignment
for security which did not obligate the assignees to comply with a statutory
requirement to provide a beneficiary statement.
(Black, supra, 48 Cal.App.3d
at pp. 563-564.) Here, the provisions of
the loan agreement, upon which IFIC relies for the proposed allegation of the
assignment, provides for the assignment of the surety bond to the Bank “as
further security for the Loan.†This clear
language indicates the assignment of the IFIC surety bond was for security
only.
Despite
this clear language--“as further securityâ€--IFIC contends the assignment of the
surety bond was not for security because, it argues, the bond did not secure
performance of the loan agreement. We
reject this argument. The assignment of
the benefits of the surety bond did serve to protect the Bank’s
collateral. The purchasers’ earnest
money deposits gave them a purchaser’s lien against the condominiums. (Civ. Code, § 3050.) The lien created by Civil Code section 3050
may compete for priority with other encumbrances such as a mortgage or deed of
trust. (Garcia v. Atmajian (1980) 113 Cal.App.3d 516, 520-521.) Thus, by assuring that it received the
benefit of the IFIC surety bond, the Bank assured the priority of its lien.
We conclude
that IFIC’s proposed amendment to the SACC regarding the assignment to the Bank
of the IFIC surety bond does not allow the legal conclusion that the Bank
assumed the obligations of the bond.
Hence, this proposed amendment will not state a valid cause of
action. Since IFIC proposes no other
amendment to the SACC, IFIC has failed to demonstrate that it could amend the
SACC to state a valid cause of action against the Bank. The trial court properly sustained the Bank’s
demurrer without leave to amend.
The judgment is affirmed.
The Bank shall recover its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(2).)
DUARTE , J.
We concur:
RAYE , P. J.
NICHOLSON , J.
name="_ftn1" title="">[1] The loan agreement was attached as an exhibit
to the Bank’s complaint in its judicial foreclosure action against
Highlands. In the proceedings below, the
Bank requested and the trial court granted, judicial notice of the foreclosure
complaint and exhibit. IFIC requests
this court take judicial notice of these documents. We grant the request. We may take judicial notice of the records of
any court in this state and of any matter as to which the trial court properly
took judicial notice. (Evid. Code, §§
452, subd. (d); 459, subd. (a).)
