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First Interstate Bank of California v. Winncrest Homes, Inc.

Court of Appeals of California, Third Appellate District.
Jul 25, 2003
C035434 (Cal. Ct. App. Jul. 25, 2003)


C035434. C036722.


FIRST INTERSTATE BANK OF CALIFORNIA, as Cotrustee, etc., et al., Plaintiffs, Cross-defendants and Respondents, v. WINNCREST HOMES, INC., et al., Defendants, Cross-complainants and Appellants, McMORGAN & COMPANY, Cross-defendant and Respondent. FIRST INTERSTATE BANK OF CALIFORNIA, as Cotrustee, etc., et al., Plaintiffs, Cross-defendants and Appellants, v. WINNCREST HOMES, INC., Defendant, Cross-complainant and Respondent.

Defendant and cross-complainant Winncrest Homes, Inc. (Winncrest), appeals from a judgment in favor of First Interstate Bank of California (First Interstate), the corporate cotrustee of cross-defendant Pension Trust Fund for Operating Engineers (PTF), on First Interstates action for judicial foreclosure and against Winncrest on its cross-complaint against PTF and McMorgan & Company (McMorgan). The dispute concerns the development of a residential golf course community at Rancho Murieta, approximately 25 miles from Sacramento. The trial court rejected Winncrests defenses to First Interstates foreclosure of a deed of trust on a portion of Rancho Murieta purchased by Winncrest. The court also found no merit in the misrepresentation, interference with contract and related causes of action of Winncrests cross-complaint. Winncrest contends the trial court made numerous errors during the course of the litigation that prevented a full and fair consideration of Winncrests claims. We find no merit in these contentions and affirm the judgment.


This dispute involves 3,590 acres of land commonly known as Rancho Murieta, purchased by PTF for use as a training facility for apprentice operating engineers. PTF is a multiemployer/employee pension trust fund that serves the members of Local No. 3 of the International Union of Operating Engineers. PTF later decided to develop Rancho Murieta into a residential, planned-unit development with a country club and two 18-hole golf courses and formed Rancho Murieta Properties, Inc. (RMPI), to conduct the development and marketing of the project. PTF owned all the stock of RMPI, and the trustees of PTF were the directors of RMPI.

RMPI began developing and marketing the project in May 1973, and hired Ray Henderson as the project and marketing manager. RMPI created a nonprofit, membership-based corporation, Rancho Murieta Country Club (RMCC), to manage the two golf courses, the clubhouse and related facilities (collectively the Country Club). RMCC entered into a contract with RMPI to lease the Country Club for a period of 55 years. The lease provided for annual payments of $ 164,835, increased to $ 219,000 on completion of the second golf course, and granted RMCC an option to purchase the Country Club after November 1978 for fair market value without regard to the lease.

PTF initially agreed to contribute up to $ 2.5 million to RMPI to fund RMCCs losses during the beginning of operations. This money was an advance of initiation fees for RMCC memberships. PTF and RMPI viewed the Country Club as a necessary ingredient to lot sales at Rancho Murieta. Under RMCCs bylaws, every lot owner at Rancho Murieta had a right to apply for either a golf or social membership. Initial monthly dues were set at $ 50 for golf memberships and $ 10 for social memberships. The RMCC Board of Directors had authority to increase dues by 5 percent per year. Higher increases had to be approved by the membership. Over the ensuing years, PTF, through RMPI, contributed additional sums to RMCC to cover the operating losses of the Country Club.

Because RMCC memberships were considered to be securities, RMCC was required to obtain a permit from the California Department of Corporations (DOC) before it could issue them to lot purchasers. After 1978, the DOC required RMCC to obtain annual permits to continue selling securities. DOC conditioned its permit on RMPIs commitment to fund RMCCs losses through capital contributions. RMPI consistently made this commitment.

PTF initially believed RMCC would be self-sufficient by 1980. However, because of the below-market dues charged by RMCC, a low number of members, and the inefficient layout of the golf courses, this did not occur. From time to time, RMCC was required to execute notes for equipment purchases financed by RMPI. By 1985, RMCC owed RMPI approximately $ 1.32 million.

By 1976 or 1977, PTF began looking into getting out of the project and asked Henderson to find a buyer for Rancho Murieta. The project represented only a small percentage of PTFs assets but was consuming 75 to 80 percent of PTFs management time. Rancho Murieta was also costing PTF money. Henderson presented John Anderson to PTF as a potential buyer. In early 1980, PTF and Anderson signed a letter of intent for the purchase of the project. However, the proposed transaction was never consummated.

Over the next several years, efforts to sell the project were stymied by RMCCs 55-year lease of the Country Club. These sales efforts were directed primarily by McMorgan, an investment manager for pension trust funds that had provided services to PTF since the early 1970s.

In or around 1983, Henderson sued PTF for a commission for arranging the 1980 sale to Anderson. About a year later, Anderson and John Boreta, who claimed a partnership with Anderson in the aborted 1980 sale, filed suit against PTF for damages and specific performance of the transaction that was the subject of the letter of intent.

By 1983, PTF did not wish to put any further money into the project. Jack McClurg, who had been hired to manage and sell the project, was directed to minimize PTFs further investment by reducing lot sales in order to avoid the necessity of opening new phases of the project.

Following arbitration of the Henderson lawsuit, PTF and Anderson entered into negotiations for the sale of Rancho Murieta and a joint settlement of the two lawsuits. Eventually, PTF agreed to sell the project to John and Edith Anderson (the Andersons), including all RMPI stock and all remaining Rancho Murieta property owned by RMPI or PTF, and the Andersons agreed to indemnify PTF against any recovery by Henderson or Boreta in the lawsuits. The Andersons thereafter assigned their rights in this purchase agreement to a corporation they owned, Spring Creek Development Company (Spring Creek).

The purchase price for the project was to be $ 42.2 million, with the Andersons providing a down payment of $ 14 million and the remainder to be in the form of a 10-year note secured by a portion of the property sold to the Andersons. Also pursuant to the agreement: (1) PTF accepted assignment of promissory notes from lot sales in lieu of cash payments on the 10-year note; (2) the Andersons agreed to maintain the golf courses and to fund RMCC to the extent required by the DOC to permit RMCC to issue memberships; (3) if the Andersons failed to do so, PTF could fund RMCCs losses and add the amount to the note from the Andersons; (4) the Andersons could obtain the release of large parcels of 70 to 110 acres from PTFs deed of trust for sale to third parties; and (5) upon default by Anderson, PTF had the option of declaring the full amount due or foreclosing.

Escrow on the sale closed in November 1985, and the Andersons paid Henderson slightly over $ 2 million to settle his claim. When the Andersons first note payment came due in November 1986, a portion of the payment they presented to McMorgan consisted of notes totaling $ 3.2 million. The larger of the notes was from the sale of a 20-acre parcel to Frank Ramos, 12 acres of which contained a driving range. This sale was a sham designed to create a fictional note to provide to RMPI. Ramos had not made the down payment for the property and had no intention of making any payments on the note. RMPI and McMorgan accepted the Ramos note as partial payment. Ramos thereafter defaulted on the note, and PTF foreclosed and regained ownership of the property.

The Andersons failed to make their November 1987 note payment, but PTF did not foreclose. PTF did not want to reacquire the project.

In 1986, the Andersons funded RMCCs losses, but insisted that RMCC sign a note for the amount. RMCC refused, and the Andersons refused to provide further funding. RMCC was told all funding would be by way of loans. McMorgan did not force the Andersons to finance RMCC and did not declare default. RMCC requested relief from the DOC, but the DOC took no action on the matter. Without the Andersons financial assistance, RMCC stopped making lease payments. McMorgan recommended that RMPI sue RMCC to terminate the lease.

On February 3, 1988, the DOC issued a desist and refrain order barring RMCC from issuing new memberships until it could show financial ability to run its operations.

Meanwhile, in June 1988, Winncrest entered into negotiations with RMPI to purchase all the property on the south side of Rancho Murieta, including one of the golf courses, for approximately $ 20 million. In August 1988, Winncrest entered into an agreement with RMPI to purchase a portion of parcel 7 on the south side of Rancho Murieta, consisting of approximately 150 acres (the parcel 7 agreement). The parcel 7 agreement contained a provision requiring RMPI to transfer to Winncrest, by the close of escrow, RMPIs right to the issuance of a certain number of RMCC memberships. It also required RMPI to use best efforts to cause the creation of a new class of memberships with limited golf course access. RMPI and Winncrest agreed that Winncrest would pay $ 4.845 million, $ 500,000 in cash and the rest in third party notes, and would give RMPI a note for $ 3.405 million. The notes were subject to PTFs approval as payment for release of parcel 7 from its deed of trust.

On August 31, 1988, RMPI and Winncrest met with Michael Fry, a vice-president of McMorgan, who indicated PTF would not accept assignment of a note to RMPI, but would accept a note directly to itself at a higher interest rate. At this meeting, Winncrest discussed its expectation that RMCC memberships would be available for its lot purchasers. Neither RMPI nor McMorgan disclosed any problems between RMPI and RMCC.

Rather than borrow money from PTF, Winncrest decided to enter into an agreement with FN Projects, Inc. (FN), a subsidiary of First Nationwide Bank, whereby FN would purchase the real property and Winncrest would develop it. On November 17, 1988, Winncrest assigned the parcel 7 agreement to FN and the two entered into a development management agreement (DMA).

FNs purchase of parcel 7 closed on December 30, 1988. Prior to close of escrow, RMPI discovered that the proceeds would not be sufficient to satisfy a bond payoff to the Rancho Murieta Community Services District (RMCSD), which had been formed to own and operate the water, sewer and drainage systems at Rancho Murieta. To facilitate the parcel 7 sale, Winncrest agreed to purchase parcel 5, also on the south side of Rancho Murieta. As part of the parcel 5 purchase, Winncrest paid RMPI $ 265,000 outside of escrow to be used to pay off the RMCSD debt. This $ 265,000 was a nonrefundable deposit on the parcel 5 purchase. The contract for the purchase of parcel 5, dated December 28, 1988, contained a requirement that RMPI use best efforts to cause RMCC to create a new class of memberships, 37 of which would be made available to Winncrest. Despite the Andersons default on their note, McMorgan released parcel 7 from PTFs deed of trust.

RMPI sued RMCC for collection of the notes that were made while RMPI was owned by PTF. By late 1989, negotiations between RMPI and RMCC over resolution of their funding dispute focused on RMCC buying the Country Club and RMPI forgiving all outstanding notes. On November 22, 1989, RMPI filed a second suit against RMCC seeking to terminate the lease for failure to make rent payments.

By November 3, 1989, Winncrest had decided to purchase parcel 6, consisting of approximately 57 acres. A contract for sale was executed on December 11, 1989. It did not contain any provision for RMCC memberships.

By December 1989, RMPI and RMCC tentatively agreed to resolve their dispute by RMPI forgiving all note debts and selling the Country Club to RMCC for approximately $ 9.7 million.

On December 5, Winncrest met with Fry to discuss the purchase of parcels 5 and 6 and PTF providing financing. Winncrest indicated the proposed sale of the Country Club to RMCC for $ 7 million would be a great deal for the Andersons and PTF and would put the Andersons on solid financial ground. Fry seemed to agree and indicated he wanted the Andersons to be in a solid position to pay off their debt to PTF.

In January 1990, Tallstrom met with Fry to discuss the proposed settlement of the RMPI-RMCC dispute. Fry indicated PTF would not consider releasing the Country Club from its deed of trust until it could evaluate PTFs remaining collateral, which would require resolution of the water issue.

RMPI and RMCC finalized their settlement agreement on February 26, 1990. Winncrest was informed of the agreement and, in March 1990, closed on its purchases of parcels 5 and 6. Winncrest executed promissory notes to PTF, and McMorgan released parcels 5 and 6 from PTFs deed of trust.

McMorgan refused to release the Country Club from PTFs deed of trust to facilitate the settlement agreement between RMPI and RMCC. McMorgan had decided it would not agree to a release of the Country Club, unless RMCC paid an amount equal to the fair market value of the Country Club without the long-term lease. McMorgan did not inform anyone of this decision until late 1990.

Despite the sales of parcels to Winncrest and others, the Andersons continued to be in default on their loan from PTF. In July 1990, PTF and McMorgan filed a notice of default.

Winncrest began marketing homes in parcel 7 in July 1990. However, because RMCC memberships were unavailable and there was ongoing litigation between RMCC and RMPI, sales were adversely affected. Winncrest redirected its development to smaller homes to attract purchasers who would not be dissuaded by the unavailability of RMCC memberships.

On August 24, 1990, RMCC obtained a provisional permit from the DOC to issue memberships. RMCC met with McMorgan to determine what would be required to obtain release of the Country Club from PTFs deed of trust. McMorgan indicated it would not consider the issue without a new agreement from the parties and then only when the water issue was resolved.

In February 1991, Fry told RMPI he thought the Country Club was worth approximately $ 15 million and a payment of that amount by RMCC would be required for release of the Country Club from PTFs deed of trust. However, Fry did not say PTF would release the Country Club for that amount. RMPI thereafter negotiated with RMCC for purchase of the Country Club for $ 15 million.

The economy began adversely affecting the housing market during the first quarter of 1991, although this did not become apparent until later. The years 1988 and 1989 were exceptionally good years for the Sacramento housing market. However, from 1989 to 1991, there was a 40 percent drop in housing sales. In Sacramento, the market for high-end homes dropped 40 percent.

On or around March 5, 1991, PTF and the Andersons entered into an agreement whereby PTF would be deeded back approximately 150 acres of Rancho Murieta, valued at approximately $ 8 million, in exchange for (1) forgiveness of interest owed on the Andersons debt to PTF, in the amount of approximately $ 4.4 million, and (2) cancellation of the notice of default.

Winncrest and others met with Fry in June 1991 to discuss how the ongoing Country Club dispute was affecting sales at Rancho Murieta and how the dispute might be resolved. Fry indicated he understood the others concerns and the importance of having a country club that lot purchasers could join.

RMPI attempted to obtain a commitment from McMorgan that a sale at $ 15 million would be sufficient. McMorgan insisted that RMPI submit a proposed agreement with RMCC before it would consider any proposal. McMorgan also indicated a condition of release of the Country Club would be release of the driving range property from the long-term lease. McMorgan also told RMPI it would not be permitted to use any of the sale proceeds to make delinquent tax or bond payments.

On January 25, 1992, RMPI and RMCC entered into an agreement whereby RMCC would purchase the Country Club for $ 15 million. This was forwarded to McMorgan. McMorgan thereafter obtained an appraisal that valued the Country Club at $ 18.5 million without the lease and $ 3.725 million with the lease. Based on this appraisal, McMorgan refused to release the Country Club on the terms negotiated by RMPI and RMCC. It informed RMPI and RMCC that it would require sale of the driving range to be included and that RMCC pay $ 18.5 million for everything.

RMPI pointed out to McMorgan that at a purchase price of $ 18.5 million, it would make more sense for RMCC to purchase the Country Club using the purchase option in the lease. Nevertheless, McMorgan persisted.

The RMCC membership refused to purchase on the terms dictated by McMorgan. RMCC made two settlement proposals, both of which were rejected by McMorgan. McMorgan also indicated RMCCs business plan was insufficient to support a loan from PTF to finance the purchase. RMCC then informed McMorgan it intended to exercise the purchase option of the lease. McMorgan offered to have PTF finance the purchase under new terms. However, under the new terms, it still made economic sense for RMCC to exercise the purchase option of the lease.

Once settlement discussions reached an impasse, foreclosure proceedings were initiated against the Andersons (case No. 531590) and PTF had a receiver appointed to take over the project. RMPI proceeded with its litigation against RMCC.

In early 1993, Winncrest met with McMorgan and various McMorgan and PTF attorneys. When Winncrest expressed its desire to rescind the parcel 5 and 6 purchases, McMorgan refused and terminated the meeting. Winncrest ceased making payments on its parcel 5 and 6 notes in late January 1993.

First Interstate filed a complaint against Winncrest and others for foreclosure of PTFs deeds of trust on parcels 5 and 6 (case No. 534244). Winncrest cross-complained against First Interstate, PTF, McMorgan (collectively the PTF parties) and RMPI. Although FN joined Winncrest as a cross-complainant, it eventually settled with the cross-defendants and is no longer part of the action. RMCC was later added as a cross-defendant. The second amended cross-complaint alleged 13 causes of action, four against PTF, McMorgan and RMPI (fraud, negligent misrepresentation, developer liability, and conspiracy to violate the desist and refrain order); three against PTF and McMorgan (intentional interference with contract, intentional interference with prospective economic advantage, and lender liability); two against PTF and RMPI (rescission and equitable lien); and four against RMCC (breach of contract, breach of the covenant of good faith, and two claims of tortious interference with prospective economic advantage). Winncrest later abandoned its claims against RMPI. Claims against RMCC are not part of this proceeding.

Case No. 531590 was consolidated with case No. 534244. On July 3, 1997, the PTF parties moved for summary adjudication of several claims in the cross-complaint. On July 31, PTF moved for summary adjudication of Winncrests equitable lien claim. The trial court granted the motions in part, as more fully explained hereafter. The court also granted several motions in limine filed by the PTF parties, excluding the following evidence: (1) evidence to prove Winncrests fraud claim insofar as it is based on Karoutas v. HomeFed Bank (1991) 232 Cal. App. 3d 767, 283 Cal. Rptr. 809; (2) evidence to prove Winncrests negligent misrepresentation claim; (3) evidence to prove portions of Winncrests interference with contract claim; and (4) evidence to prove Winncrests developer liability claim. The court also granted, in part, the PTF parties motion to exclude evidence relating to the Employee Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. § 1001 et seq.).

Trial proceeded subject to the foregoing in limine rulings. At the close of Winncrests case-in-chief, the court granted nonsuit on Winncrests fraud, lender liability, and breach of the covenant of good faith claims. The court also granted nonsuit on that portion of Winncrests intentional interference with contract claim relating to the DMA. Winncrest dismissed the remaining portion of its intentional interference with contract claim and abandoned its rescission and conspiracy claims.

The court heard the foreclosure action and Winncrests defenses thereto. The court rejected Winncrests antideficiency statute and usury defenses and entered judgment for the PTF parties. Winncrest and FN moved for a new trial. The motion was denied, and this appeal followed.


Winncrest contends the trial court made a number of errors in its piecemeal dismantling of the cross-complaint. Winncrest contends discovery was improperly restricted, motions in limine were wrongly granted and nonsuit was erroneously entered on several causes of action. Winncrest also contends the court erred in rejecting its antideficiency and usury defenses to the foreclosure complaint. With one minor exception, we reject all of these contentions.


Discovery of Attorney-Client

Privileged Documents

In July 1993, Winncrest served a subpoena duces tecum on Fry and McMorgan directing them to appear at a deposition and produce various documents related to the Rancho Murieta project. Thirteen storage boxes of documents were reviewed by the PTF parties attorneys and approximately one and one-half boxes of documents were produced. Although many documents in the 13 boxes had been designated for exclusion by the PTF parties attorneys, some were inadvertently included in the production. Altogether, over 230 attorney-client communications were produced. Of these, 115 or more were identified as "mere cover letters" and included intentionally.

A request had also been made by RMCC in the RMPI-RMCC litigation to C.W. Sweeney & Company (Sweeney), PTFs plan administrator, to produce documents relating to the Rancho Murieta project. The PTF parties attorneys decided to make this production available in the PTF-Anderson and PTF-Winncrest litigation as well. Thirty-four boxes of documents were produced. Although an attempt was made to exclude attorney-client privileged documents, over 58 were produced anyway. Many of these were duplicates of those produced on behalf of McMorgan.

During Frys deposition in January 1994, counsel for Winncrest questioned him, without objection, regarding eight of the attorney-client documents that had been produced. No objection was raised until more privileged documents were introduced at the resumption of Frys deposition in April 1994.

The following month, the PTF parties demanded return of the attorney-client documents that had been produced in error. In July 1994, the PTF parties moved for protective orders to obtain return of the documents. The court granted the motion in part, finding that inadvertent production of the McMorgan documents was not a waiver of the attorney-client privilege. The court directed the return of various documents. However, the court concluded that the production on behalf of Sweeney amounted to a waiver of the privilege, even as to documents duplicated in the McMorgan production. In subsequent orders, a discovery referee concluded that the Sweeney waiver was not a general, subject matter waiver but only a waiver as to the documents included.

Winncrest contends that given the circumstances surrounding the McMorgan production and the PTF parties conduct thereafter, the PTF parties voluntarily waived the attorney-client privilege as to all of the documents purportedly produced in error. According to Winncrest, the only reasonable conclusion from the PTF parties conduct in connection with the production and thereafter is that the McMorgan production of privileged documents was intentional. Winncrest further contends the denial of additional discovery on the Sweeney documents was improper.

Evidence Code section 912, subdivision (a), provides that "the right of any person to claim a privilege provided by Section 954 (lawyer-client privilege) . . . is waived with respect to a communication protected by such privilege if any holder of the privilege, without coercion, has disclosed a significant part of the communication or has consented to such disclosure made by anyone. Consent to disclosure is manifested by any statement or other conduct of the holder of the privilege indicating consent to the disclosure, including failure to claim the privilege in any proceeding in which the holder has the legal standing and opportunity to claim the privilege."

In the case of attorney-client communications, the holder of the privilege is the client. (Evid. Code, § 953, subd. (a); see State Comp. Ins. Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644, 652.) "Where a client voluntarily testifies as a witness to confidential communications made by him to his attorney he thereby waives the privileged character of such communications and both he and his attorney may then be fully examined in relation thereto." (Agnew v. Superior Court (1958) 156 Cal. App. 2d 838, 841, 320 P.2d 158.) The privilege may also be "lost where the attorney, with the consent of the client, discloses the content of otherwise privileged communications . . . ." (Klang v. Shell Oil Co. (1971) 17 Cal. App. 3d 933, 938, 95 Cal. Rptr. 265.) However, waiver does not occur upon the "accidental, inadvertent disclosure of privileged information by the attorney." (State Comp. Ins. Fund v. WPS, Inc., supra, 70 Cal.App.4th at p. 654.) Courts do not favor a "gotcha" theory of waiver, whereby "an underlings slip-up in a document production becomes the equivalent of actual consent." (Ibid.; OMary v. Mitsubishi Electronics America, Inc. (1997) 59 Cal.App.4th 563, 577.)

Here, it was the attorneys for the PTF parties who disclosed the privileged documents. Winncrest contends "the words and conduct of PTFs attorneys demonstrate[] that PTF consented to the subject disclosure." In particular, Winncrest points to the fact the PTF parties attorneys voluntarily produced 115 privileged documents in the McMorgan production and an additional 58 privileged documents in the Sweeney production. Furthermore, the PTF parties counsel permitted Fry to be questioned about several of those documents without objection. Finally, the PTF parties waited until May 1994, after Winncrest had used some of the documents to defeat summary adjudication, to seek return of the privileged documents.

Although consent of the client may be inferred from conduct of counsel under certain circumstances, as where disclosure was for the clients benefit (Klang v. Shell Oil Co., supra, 17 Cal. App. 3d at p. 938), Winncrest points to no evidence from which it might be inferred that the PTF parties consented to the production. All the conduct highlighted by Winncrest was by the PTF parties counsel. At any rate, the record contains substantial evidence to support the trial courts conclusion that the disclosure by counsel was inadvertent.

One of the PTF parties attorneys, Charlene Mitchell, submitted a declaration explaining the circumstances surrounding the production of McMorgan documents. Thirteen boxes of documents were transferred to counsels offices, where they were reviewed and categorized as either within the scope of the subpoena and nonprivileged, within the scope of the subpoena and privileged, or outside the scope of the subpoena. After all documents were identified, each page of the nonprivileged documents within the scope of the subpoena was to be marked with an "McM" label and a number. Privileged documents were to be marked with a "Priv" label and a number. Labeled documents were then to be photocopied. The only documents to be produced were those with an "McM" label.

In April 1994, when counsel for Winncrest requested that certain privileged documents be marked for identification at Frys deposition, Mitchell learned for the first time that something had gone wrong with the production. Although privileged, the documents contained an "McM" label. In addition, other privileged documents were introduced at the deposition that did not contain a label. Mitchell looked into the matter and discovered that some boxes of documents had been sent out for copying after the documents had been tagged by counsel, but before "McM" or "PRIV" labels had been affixed. According to Mitchell, labeling after return of the copied documents must have been done incorrectly.

Mitchells declaration was echoed by that of Robert Walker, another of the PTF parties attorneys, who helped with the document production. In addition, Dave Howard, a vice-president of McMorgan, submitted a declaration in which he stated no one at McMorgan authorized or approved the production of privileged documents to Winncrest or waived the attorney-client privilege.

The foregoing evidence adequately demonstrates that the disclosure of privileged McMorgan documents was inadvertent and that there was no waiver as to those documents.

Winncrest nevertheless contends that because the PTF parties waived the attorney-client privilege as to 58 documents in the Sweeney production, 115 documents in the McMorgan production and four documents on which Fry was questioned without objection at his deposition, the PTF parties voluntarily waived the privilege as to all attorney-client communications regarding the Rancho Murieta project. Winncrest argues that a party cannot selectively waive the attorney-client privilege on some portions of communications and assert it on others.

In Jones v. Superior Court (1981) 119 Cal. App. 3d 534, 174 Cal. Rptr. 148, the court concluded that the mother of a woman suing for injuries resulting from the mothers ingestion of the drug diethylstilbestrol (DES) while the plaintiff was in utero had waived the physician-patient privilege by disclosing a "significant part" of her communications with physicians about that subject and the related subject of her pregnancy. (Id. at pp. 540, 546.) The court adopted a broad definition of "communication" as used in Evidence Code section 912, subdivision (a), to include all communications regarding a particular subject rather than a particular document or discussion. However, the court also made clear that the waiver would not extend to all communications regarding the mothers health, only the two subjects on which there had been a significant disclosure. (Id. at pp. 546-547, 548.)

Winncrest seeks to use the disclosure of certain privileged documents to establish a waiver of all attorney-client communications regarding the Rancho Murieta project. Winncrest contends there can be "little doubt" that the documents produced constitute a significant part of the communications regarding PTFs involvement with the Rancho Murieta project.

We are not persuaded. The 115 "cover letters" voluntarily produced by the PTF parties are significant on the issue of waiver only if they contained privileged information. Winncrest argues that the court was provided with exemplars of the letters designated by the PTF parties as cover letters and they show the letters were "obviously much more." Winncrest further argues that differentiating between "cover letters" and other types of communications between attorney and client "is a `slippery slope that opens a virtual Pandoras Box as to what can be purposefully produced, and what can be purposefully withheld without a waiver of the privilege."

We do not encounter a slippery slope when we differentiate between privileged communications and nonprivileged communications. A privilege does not attach to a communication simply because it is between attorney and client. (Marshall v. Marshall (1956) 140 Cal. App. 2d 475, 480, 295 P.2d 131; People v. Hall (1942) 55 Cal. App. 2d 343, 356, 130 P.2d 733.) A confidential communication between counsel and client is defined as "information transmitted between a client and his or her lawyer in the course of that relationship and in confidence . . . ." (Evid. Code, § 952.) Thus, a communication that imparts no information or advice would not be included. Nor would a communication that was not intended to be kept confidential. (See Evid. Code, § 952.) Communications between the attorney and a third party, even though dealing with a subject for which the attorney was retained, are not privileged. (Sharon v. Sharon (1889) 79 Cal. 633, 678; Title Ins. etc Co. v. California Dev. Co. (1915) 171 Cal. 173, 220, 152 P. 542.)

Winncrest refers this court to five letters that it claims are exemplars of the "cover letters" intentionally produced by the PTF parties. The first is an October 29, 1985, letter from Thomas E. Stanton, an attorney, to John Sweeney regarding the minutes of PTF and RMPI board meetings on October 21, 1985. In the letter, Stanton suggests certain changes to the minutes. This letter does not purport to impart any legal advice. It contains nothing more than a factual recitation of what took place at the board meetings.

The second letter is dated July 6, 1989, from Stanton to Sweeney and concerns underground storage tanks. It also does not impart any legal advice. In the letter, Stanton informs Sweeney that the matter should be referred to McMorgan and promises that Sweeney will be informed of any further developments. In addition to containing no legal advice, this letter addresses a topic not germane to the instant dispute.

The third letter is dated June 25, 1982, from Morton to Stanton and Barry Hinkle and discusses suggested terms of a servicing agreement. The relationship of this letter to the dispute between Winncrest and the PTF parties is not apparent. It appears to discuss the terms of an agreement between PTF and McMorgan and, as such, may be a communication between opposing sides of the agreement. Hence, it would not have been intended to be confidential.

The fourth letter is dated February 20, 1992, and is from Fry to Silas Payne, an attorney. It states: "Enclosed is a copy of an article from the Rancho Murieta Times that was forwarded to me today. As you can see from the article and the highlighted section, the writer says some things about the Pension Trust Fund that are not true and have some legal implications. After you and co-counsel review the article, let me know what steps, if any, we would take in refuting his comments." Although this letter solicits legal advice, it does not itself impart such advice. The PTF parties could reasonably have concluded it did not contain confidential information.

The last letter, dated August 13, 1985, is from Attorney Victor Van Bourg to Sweeney. This letter transmits a copy of the agreement between PTF and Anderson for purchase of stock and assets. It also discusses how future work on the agreement and transfer will be divided among counsel. However, like the other letters, it does not purport to impart any legal advice. All the information contained therein is factual.

While a party should not be permitted to reveal as much of confidential communications as he pleases and then retain the privilege as to the rest (Kerns Constr. Co. v. Superior Court (1968) 266 Cal. App. 2d 405, 414, 72 Cal. Rptr. 74), it must first be determined that the communications revealed were, in fact, confidential. Winncrest has not established the confidential nature of the 115 or more cover letters.

As to the other documents produced on behalf of McMorgan, Winncrest has not established that they amount to a significant portion of the communications between the PTF parties and counsel from 1972 to 1992. That the letters covered a broad spectrum of topics does not establish they were a significant part of the communications on those topics or that the topics were a significant part of all the topics that came up between the PTF parties and counsel during this period.

The scope of any waiver "should be determined primarily by reference to the purpose of the privilege . . . ." (Jones v. Superior Court, supra, 119 Cal. App. 3d at p. 547.) It is the basic policy of the attorney-client privilege to promote free communication between attorney and client and to safeguard confidential disclosures of the client and the advice of the attorney. This policy supports liberal construction in favor of exercise of the privilege. (2 Witkin, Cal. Evidence (4th ed. 2000) Witnesses § 99, p. 352.) While the exercise of the privilege may result in suppression of relevant evidence, this is necessary to protect the client in making full disclosure to the attorney. (City & County of S. F. v. Superior Court (1951) 37 Cal.2d 227, 235.) " Unless he makes known to the lawyer all the facts, the advice which follows will be useless, if not misleading; the lawsuit will be conducted along improper lines, the trial will be full of surprises, much useless litigation may result. Thirdly, unless the client knows that his lawyer cannot be compelled to reveal what is told him, the client will suppress what he thinks to be unfavorable facts." (Ibid.)

Here, the record supports the trial courts conclusions that the McMorgan disclosure was inadvertent and that there was no blanket waiver of all attorney-client communications on every topic discussed by the PTF parties and counsel for 20 years regarding the Rancho Murieta project. There was no error in limiting Winncrests discovery.


Motion to Compel Production of Stone House Documents

On July 17, 1995, Winncrest served a subpoena on Sweeney seeking production of the following records:

"1. All DOCUMENTS demonstrating who was an officer or director of the Stone House Investment Company at any time between 1968 and 1988.

"2. All DOCUMENTS RELATING TO the Stone House Investment Companys interest in what is known as the STONE HOUSE PROPERTIES between 1968 and 1988.

"3. All DOCUMENTS RELATING TO any ownership or shareholder interest in the Stone House Investment Company by any PTF Trustee at any time after PTF purchased the Rancho Murieta properties.

"4. All DOCUMENTS demonstrating who had an ownership or shareholder interest in the Stone House Investment Company prior to June 12, 1987.

"5. All DOCUMENTS RELATING TO any ownership interest in what is known as the STONE HOUSE PROPERTIES by any PTF Trustee at any time after PTF purchased the Rancho Murieta properties.

"6. All DOCUMENTS demonstrating who owned the STONE HOUSE PROPERTIES prior to June 12, 1987.

"7. All DOCUMENTS RELATING TO any business dealings between Stone House Investment Company and PTF.

"8. All DOCUMENTS RELATING TO any business dealings between Stone House Investment Company and RMPI."

In March and again in May of 1996, Winncrests counsel, Neal Pfeiffer, inquired about the status of the document production. On June 12, 1996, James Wesser, counsel for Sweeney, responded with a letter objecting to the subpoena on various grounds. Wesser further indicated no documents existed that were responsive to items 3, 5, and 7, and documents responsive to items 1, 2, 4, and 6 "are public documents and are equally accessible to [Winncrest]." Nevertheless, Wesser stated public documents in Sweeneys possession would be produced.

In July 1996, Winncrest received 30 pages of "public" documents responsive to the subpoena. Other responsive documents were withheld on the basis of the attorney-client privilege or because they contained financial information relating to Sweeney or its employee pension plan. On August 27, 1996, Pfeiffer requested production of further documents responsive to the subpoena and a log of privileged documents that had been withheld. On September 30, Wesser notified Pfeiffer that a privilege log was being prepared and would be provided as soon as possible.

Nearly nine months later, on June 20, 1997, Pfeiffer sent a letter to Wesser requesting the promised privilege log. Wesser responded on June 24 that he was working on the matter. The privilege log was produced by Wesser on July 25, 1997. However, it covered only those documents withheld under the attorney-client privilege.

In August 1997, Winncrest moved to compel the production of further documents responsive to the Sweeney subpoena. On September 17, a discovery referee issued a report directing the production of documents responsive to the subpoena, except those identified in the privilege log. On or about October 31, PTF moved to set aside the referees report. On November 14, 1997, the trial court approved and adopted the referees report.

That same day, Winncrest demanded production of the Sweeney documents. On December 3, 1997, Sweeney delivered additional documents to Winncrest. Again, documents containing financial information were excluded. Sweeney provided Winncrest another privilege log, which identified 18 documents purportedly containing financial information. One of the 18 documents was also an attorney-client document, and three had previously been produced to Winncrest.

Approximately 60 days later, Sweeney filed a notice of appeal from the trial courts order. Sweeney thereafter requested and received an extension of time to file its opening brief in the appeal. On or about June 18, 1998, this court dismissed Sweeneys appeal as having been taken from a nonappealable order. Sweeney requested a rehearing. On July 15, 1998, Sweeney filed a petition for writ of mandate to overturn Judge Lewiss order. On July 17, 1998, we granted rehearing on Sweeneys appeal. However, on August 7, we again concluded that Sweeneys appeal was from a nonappealable order and dismissed. On August 13, we denied Sweeneys petition for writ of mandate. Winncrest contends the petition for writ of mandate was filed two days before our order denying it, i.e., on August 11, which would have been after dismissal of the appeal, thus suggesting further delaying tactics. We take judicial notice of our file in the mandate proceeding (case No. C030027) and note the petition was filed on July 15, 1998.)

On August 14, August 28, and September 10, 1998, Pfeiffer wrote Wesser demanding production of the documents responsive to the Sweeney subpoena. On September 16, Pfeiffer received a letter from Wesser indicating PTF would not be producing the documents. This was reiterated by Wesser in meetings with other counsel for Winncrest on September 18 and 21, 1998.

On October 2, 1998, Winncrest filed a motion to compel compliance with the trial courts order. At the time, trial of Winncrests cross-complaint was already underway. On October 20, 1998, the trial court denied the motion. By that time, trial of Winncrests cross-complaint had completed; therefore, according to the trial court, "the time for resolution of discovery disputes and for imposition of sanctions [had] passed." The court further concluded that Winncrest failed to establish a sufficient connection between Sweeney and PTF to warrant an award of sanctions against the latter, and failed to establish any prejudice from withholding the documents. Finally, the court indicated Winncrests claim that the documents might provide grounds for a new trial "is too speculative to justify an order compelling production of the documents at this time."

Winncrest contends the trial court violated Code of Civil Procedure section 1008 by essentially reconsidering and reversing the earlier trial court order compelling production of documents. Subdivision (a) of that section reads: "When an application for an order has been made to a judge, or to a court, and refused in whole or in part, or granted, or granted conditionally, or on terms, any party affected by the order may, within 10 days after service upon the party of written notice of entry of the order and based upon new or different facts, circumstances, or law, make application to the same judge or court that made the order, to reconsider the matter and modify, amend, or revoke the prior order. . . ."

The PTF parties contend Winncrest has waived this claim by failing to set forth all material evidence relevant to the issue. A party attacking a finding of fact is required to set forth in its appellate brief all material evidence on the point, not merely that favorable to its case. (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881, 92 Cal. Rptr. 162, 479 P.2d 362.) "An appellants failure to state all of the evidence fairly in its brief waives the alleged error." (County of Solano v. Vallejo Redevelopment Agency (1999) 75 Cal.App.4th 1262, 1274.) However, Winncrest is not attacking a finding of fact as being unsupported by the evidence. Nor is it claimed that Winncrest left out facts on the issue. Rather, at most, Winncrest failed to provide a complete description of the procedural history leading up to the trial courts ruling. But, Winncrest provided enough for this court to resolve the issue presented. It is, in fact, the PTF parties who have provided a misleading description of the procedural posture. The PTF parties say that in response to the initial subpoena, "Sweeney produced some documents and a log of withheld privileged documents." The PTF parties fail to mention that the production came approximately one year after the subpoena and only after further inquiries by Winncrest, and the log came later still. The PTF parties next say Winncrest did not file a motion to compel until two years later. The PTF parties ignore that the first year was spent trying to get an initial response from Sweeney and most of the second year was spent trying to get Sweeney to provide the promised privilege log. The motion to compel came one month after Sweeney finally provided the log.

The PTF parties next argue that Winncrest waived its claim to obtain production of the subpoenaed documents by failing to take action in a timely manner. The PTF parties point out that five weeks passed between Sweeneys supplemental production and Sweeneys appeal of the trial courts order. During that time Winncrest did nothing to secure additional documents or to have Sweeney held in contempt. (The PTF parties request that we take judicial notice of our file in the earlier appeal (case No. C028621) is granted.) The PTF parties further point out that John Sweeney was subpoenaed for trial but was not asked to produce the Stone House documents and was not asked about the Stone House Investment Company, or the Stone House property. Winncrest made no attempt to introduce at trial any of the Stone House documents produced by Sweeney. According to the PTF parties, "Winncrests indifference to the Stone House Documents is evidenced by the fact that compliance was not raised until well after trial, and then only in the context of providing support for Winncrests Motion for New Trial."

The fact that Winncrest may have taken no action to secure additional documents during a five-week period following Sweeneys supplemental production of a handful of documents would appear to be of little importance in light of the more than two years of effort trying to obtain the subpoenaed documents. As to Winncrests failure to subpoena Stone House documents for trial, this should come as no surprise, given Sweeneys response to the discovery subpoena. A trial subpoena for the same documents would likely have been a futile act. Finally, regarding Winncrests failure to question Sweeney about the Stone House matter or to introduce Stone House documents produced by Sweeney, this does not show disinterest in the subject but a failure to obtain adequate discovery. The purpose of discovery is to ascertain the evidence relevant to a dispute so that a party can determine what evidence to produce at trial. The trial itself is not the place to find out what the evidence is. Sweeney improperly delayed Winncrests efforts at every turn to ascertain whether there was relevant evidence regarding the Stone House matter and ultimately ignored a court order to produce documents relevant to that matter. These are tactics and acts that ill-serve the legal profession and we condemn them.

Nevertheless, we agree with the trial court that the time to produce any additional documents regarding the Stone House matter had passed by the time of Winncrests second motion to compel. Contrary to Winncrests assertions, the courts ruling on that motion was not a reconsideration of the prior ruling. The court did not reverse the earlier ruling that the documents were subject to discovery. Instead, the court essentially concluded that any such discovery was moot in light of the completion of trial on the cross-complaint. If Winncrest believed the Stone House documents might have had a bearing on its claims, it should have obtained the necessary discovery before commencement of trial. If Sweeney refused, Winncrest was obliged to seek assistance from the court. To have proceeded to trial without obtaining the discovery amounts to a waiver of that discovery.

Winncrest contends the documents could have had a bearing on its motion for new trial, which was still pending at the time of the trial courts discovery ruling. However, a party seeking discovery cannot be permitted to proceed to trial without obtaining the requested information, and then in the event of an adverse judgment, pursue the discovery in an effort to find grounds for a new trial. By failing to force Sweeney to produce all documents responsive to its subpoena before proceeding to trial, Winncrest waived any claim based on denial of that discovery.

On the other hand, we agree with Winncrest that sanctions for failure to comply with discovery, and in particular the trial courts order, are appropriate. Although Sweeney had every right to appeal an adverse ruling by the trial court by every means possible, once it lost any chance of the original discovery order being overturned, it was obliged to comply. Nevertheless, Sweeney refused to do so.

A party may believe a court order is "wrong-headed or a waste of time or picayunish — but he disregards it at his peril." (Morgan v. Southern Cal. Rapid Transit Dist. (1987) 192 Cal. App. 3d 976, 983, 237 Cal. Rptr. 756, disapproved on other grounds in Schwab v. Rondel Homes, Inc. (1991) 53 Cal.3d 428, 434, 280 Cal. Rptr. 83, 808 P.2d 226.) "Disobedience of the courts discovery order [is] an abuse of discovery (Code Civ. Proc., § 2023, subd. (a)(7)) for which the court [is] authorized to impose sanctions delineated in [Code of Civil Procedure] section 2023 , subdivision (b) . . . ." (Kuhns v. State of California (1992) 8 Cal.App.4th 982, 988.) "What is at stake . . . is the integrity of the discovery process and the interest of the court in compelling `obedience to its judgments, orders and process." (Sauer v. Superior Court (1987) 195 Cal. App. 3d 213, 230, 240 Cal. Rptr. 489.)

Here, the only entity to have disobeyed a discovery order was Sweeney. Although it appears the same counsel represented both Sweeney and PTF, they are nevertheless distinct entities. The trial court found that Winncrest failed to establish a sufficient connection between Sweeney and PTF to warrant an award of sanctions against the latter, and Winncrest does not challenge this finding. To the extent joint counsel took action beneficial to PTF but detrimental to Sweeney, that is a matter for those parties to resolve. Because Sweeney was not a party to this action, and therefore any sanction against it cannot affect the outcome of the dispute between Winncrest and the PTF parties, Sweeneys discovery abuse is no basis for overturning the judgment below. Even so, the matter will be remanded to the trial court to determine an appropriate sanction for Sweeneys noncompliance with the courts discovery order.


Exclusion of Evidence on Interference

With Contract Claim

The trial court granted, in part, the PTF parties motion in limine to exclude evidence bearing on Winncrests intentional interference with contract claim. That claim alleged that PTF and McMorgan intentionally interfered with Winncrests contractual rights, under the contracts to purchase parcels 5, 6 and 7, to obtain RMCC memberships for lot purchasers when they refused to approve the various RMPI-RMCC settlements and release the Country Club from PTFs deed of trust. It further alleged that PTF and McMorgan knew, or should have known, their actions would interfere with the DMA. The trial court concluded that the contracts to purchase parcels 5 and 6 did not contain a provision entitling Winncrest to RMCC memberships, except a promise in the parcel 5 contract to use best efforts to create a new class of memberships. The court also concluded that Winncrest waived any right to RMCC memberships arising out of the parcel 7 contract by failing to obtain, by the close of escrow, an assignment of the right to issuance of such memberships.

Winncrest challenges both conclusions. Winncrest contends that despite the absence of an express provision in the parcel 5 and 6 contracts, the right to RMCC memberships was implicit in the language of RMCCs bylaws and the parties recognition of the importance of such memberships to lot sales. Winncrest further contends that subsequent conduct of the parties before a dispute arose demonstrated their recognition of a right to RMCC memberships arising out of the contracts. Finally, Winncrest contends the trial court misinterpreted the parcel 7 contract, which it argues did not require the delivery of memberships or even the assignment of the right to memberships by the close of escrow.

Winncrests contentions present issues of contract interpretation. In such matters, our overriding goal is to ascertain the mutual intention of the parties at the time of contracting, "so long as the same is ascertainable and lawful." (Civ. Code, § 1636; Southern Pacific Transportation Co. v. Santa Fe Pacific Pipelines, Inc. (1999) 74 Cal.App.4th 1232, 1240.) Normally, the language of a contract governs its interpretation, "if the language is clear and explicit, and does not involve an absurdity." (Civ. Code, § 1638.) However, "[a] contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates." (Civ. Code, § 1647.)

"The parol evidence rule generally prohibits the introduction of any extrinsic evidence to vary or contradict the terms of an integrated written instrument. (Code Civ. Proc., § 1856.) It is based upon the premise that the written instrument is the agreement of the parties. [Citation.] Its application involves a two-part analysis: 1) was the writing intended to be an integration, i.e., a complete and final expression of the parties agreement, precluding any evidence of collateral agreements [citation]; and 2) is the agreement susceptible of the meaning contended for by the party offering the evidence?" (Gerdlund v. Electronic Dispensers International (1987) 190 Cal. App. 3d 263, 270, 235 Cal. Rptr. 279.)

Regarding the second part of this analysis, the State Supreme Court explained in Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 39-40, 69 Cal. Rptr. 561, 442 P.2d 641: "Although extrinsic evidence is not admissible to add to, detract from, or vary the terms of a written contract, these terms must first be determined before it can be decided whether or not extrinsic evidence is being offered for a prohibited purpose. The fact that the terms of an instrument appear clear to a judge does not preclude the possibility that the parties chose the language of the instrument to express different terms."

The terms of an agreement may also be explained by subsequent conduct. (Code Civ. Proc., § 1856, subd. (c).) For example, in Crestview Cemetery Assn. v. Dieden (1960) 54 Cal.2d 744, 8 Cal. Rptr. 427, 356 P.2d 171, the parties entered into an agreement whereby an attorney was to be paid $ 7,500 to perform services for a company in an effort to obtain the right to use certain real property as a cemetery. The attorney obtained a rezoning ordinance to permit cemetery use, but a subsequent referendum reversed this decision. A dispute arose thereafter over whether the attorney had been engaged to obtain the rezoning ordinance or the ultimate right to use the property as a cemetery. The trial court ruled in favor of the attorney. (Id. at pp. 751-752.)

The state high court affirmed. In so doing, the court was persuaded, in part, by conduct of the parties after they had entered into the agreement and before the dispute arose. After the attorney obtained the rezoning ordinance, a woman informed company representatives that she intended to pursue a referendum to reverse the ordinance. Nevertheless, the company congratulated the attorney for having completed his job so successfully and the attorney asked for payment. (Crestview Cemetery Assn. v. Dieden, supra, 54 Cal.2d at pp. 748-749.) Three days later, the company sent the attorney partial payment, with an accompanying letter stating the payment was "on account of your legal fee in the amount of $ 7,500 for services in connection with the adoption of a rezoning ordinance . . . ." The letter further complimented the attorney on his work. (Id. at p. 749.)

The court concluded that the evidence of the parties conduct demonstrated their understanding that the attorney had been engaged to obtain the rezoning ordinance and nothing more. In support of its consideration of this evidence, the court explained: "That the actions of the parties should be used as a reliable means of interpreting an ambiguous contract is, of course, well settled in our law. . . . `The reason underlying the rule is that it is the duty of the court to give effect to the intention of the parties where it is not wholly at variance with the correct legal interpretation of the terms of the contract, and a practical construction placed by the parties upon the instrument is the best evidence of their intention." (Crestview Cemetery Assn. v. Dieden, supra, 54 Cal.2d at pp. 752-753.) The court continued: "This rule of practical construction is predicated on the common sense concept that `actions speak louder than words. Words are frequently but an imperfect medium to convey thought and intention. When the parties to a contract perform under it and demonstrate by their conduct that they knew what they were talking about the courts should enforce that intent." (Id. at p. 754; see also Universal Sales Corp. v. Cal. etc. Mfg. Co. (1942) 20 Cal.2d 751, 761-762, 128 P.2d 665; Southern Pacific Transportation Co. v. Santa Fe Pacific Pipelines, Inc., supra, 74 Cal.App.4th at p. 1242; Automobile Salesmens Union v. Eastbay Motor Car Dealers, Inc. (1970) 10 Cal. App. 3d 419, 424, 89 Cal. Rptr. 20.)

The rule of practical construction set forth in Crestview Cemetery Assn. v. Dieden, supra, 54 Cal.2d 744, as well as the other aids for interpreting a written contract, apply only to the consideration of existing contract terms. The admission of parol evidence to determine whether an agreement is reasonably susceptible to a particular interpretation is not a license to admit evidence of "extrinsic collateral agreements." (Brawthen v. H & R Block, Inc. (1972) 28 Cal. App. 3d 131, 136, 104 Cal. Rptr. 486.) Evidence offered to establish a collateral agreement or additional terms of an integrated agreement, rather than to explain an ambiguity or to establish that contract terms are reasonably susceptible to a particular interpretation, remains inadmissible. (Bionghi v. Metropolitan Water Dist. (1999) 70 Cal.App.4th 1358, 1367-1368.) Evidence of subsequent conduct by the parties is admissible only to explain an ambiguity. As explained by the court in Crestview Cemetery Assn. v. Dieden, supra, 54 Cal.2d at page 754: "Appellants correctly claim that this doctrine of practical construction can only be applied when the contract is ambiguous. . . . [Citations.] But the question involved in such cases is ambiguous to whom? Words frequently mean different things to different people. Here the contracting parties demonstrated by their actions that they knew what the words meant and were intended to mean. Thus, even if it be assumed that the words standing alone might mean one thing to the members of this court, where the parties have demonstrated by their actions and performance that to them the contract meant something quite different, the meaning and intent of the parties should be enforced. In such a situation the parties by their actions have created the `ambiguity required to bring the rule into operation."

The rule of practical construction has no application in this matter. The parcel 6 contract was integrated, and Winncrest is not attempting to create or explain an ambiguity in the language of that contract. Rather, Winncrest is attempting to establish the existence of a new term. Winncrest does not argue that a provision of the contract can be read to imply a right to RMCC memberships. Instead, Winncrest contends such a provision was understood by the parties to be part of the agreement. However, as indicated, parol evidence may not be used to establish a collateral agreement or additional terms of an integrated agreement. (Bionghi v. Metropolitan Water Dist., supra, 70 Cal.App.4th at pp. 1367-1368.)

Although the parcel 5 contract did not contain an integration clause, it did contain an express provision that the "seller shall use its best efforts to cause [RMCC] to create a new class of Associate Memberships, 37 of which shall be made available to Buyer." If the parties had the foresight to include this express promise regarding memberships in their agreement, it is not reasonable to infer they intended an implied right of memberships as well.

The evidence in the record suggests Winncrest expected that its lot purchasers in parcels 5 and 6 would be entitled to RMCC memberships. This may, in fact, have been contemplated by all the parties. This right is reflected in the RMCC bylaws, which state that "Property Owner Members shall consist of those male or female residents of the State of California of legal age who hold record title to a lot within Rancho Murieta . . . ." However, this is not a contractual right created by the parcel 5 or 6 purchase agreements. Those agreements did not contain a promise, express or implied, that RMCC memberships would be made available. The absence of such memberships would not give rise to a claim for breach of contract against RMPI. Nor could it form the basis of a claim for intentional interference with contract.

The parcel 7 contract contained a provision, section 3.09, which provided that the close of escrow was contingent on the satisfaction of a number of conditions, including the following: "(f) Prior to the close of escrow, Seller shall assign to Buyer its rights to obtain the issuance of not more than 1,200 social memberships from RMCC to future residents of the Property . . . . The rights so assigned by Seller shall permit such social members to convert their memberships to Golf memberships in accordance with RMCCs rules and regulations immediately after the 1,000 golf membership limit adopted by RMCC has been attained, or 12 months after the execution of this Contract, whichever comes first. . . ." (Hereafter section 3.09(f).)

Winncrest contends the trial court erred in concluding that section 3.09(f) had been waived when escrow closed without the indicated assignment. Winncrest argues that the court misinterpreted the provision to require assignment of the memberships themselves, rather than the right to obtain memberships. According to Winncrest, this interpretation rendered the provision meaningless, inasmuch as memberships could not be assigned until lots were sold, and lots could not be sold until the property was purchased and subdivided. Winncrest further argues that by the close of escrow, it could have been assigned only the right to obtain memberships in the future, and that because the Country Club was the crucial feature of the development, Winncrest would never have waived this right. Finally, Winncrest argues the only thing it may have waived by failing to obtain the assignment before the close of escrow was the right to obtain the assignment at that time. According to Winncrest, it retained the right to demand the assignment at some later time.

The PTF parties counter that the trial court did not misinterpret the parcel 7 contract but instead concluded that Winncrest had waived the requirement that RMPI assign its right to obtain RMCC memberships for the lots in parcel 7. They further contend Winncrests interpretation of section 3.09(f) violates the parol evidence rule, because it would replace a provision requiring assignment by the close of escrow with one requiring assignment at any time. Finally, the PTF parties contend Winncrest had no rights in the parcel 7 contract with which they could have interfered because Winncrest assigned its rights in the contract to FN.

We agree with the PTF parties that the trial court did not misinterpret section 3.09(f). In ruling against Winncrest, the court clearly explained its understanding that the provision required assignment of the right to obtain memberships, not assignment of the memberships themselves. As to Winncrests contention that it did not waive the right to compel an assignment of membership rights but only the right to compel the assignment by the close of escrow, this is a question of contract interpretation. Winncrest argues that the issue of waiver is one of fact for the jury. (See Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal. App. 3d 101, 151, 135 Cal. Rptr. 802.) However, that would be true if the question were whether there had been a waiver. Here, there is no question Winncrest failed to require the assignment by the close of escrow. The question is whether the contract required that such assignment be completed by the close of escrow. In other words, the question is not whether Winncrest failed to require assignment by the close of escrow but the legal effect of that failure.

To answer this question, we look to the language of the contract. As noted, section 3.09(f) states that, "prior to the close of escrow, Seller shall assign to Buyer its rights to obtain the issuance of not more than 1,200 social memberships . . . ." If this language were not sufficiently clear, the beginning of section 3.09 states: "The close of escrow opened pursuant to Section 2.01, and Buyers obligation to purchase the property pursuant to this Contract, are contingent on the satisfaction of the following conditions, which are solely for Buyers benefit unless otherwise indicated." The requirement to assign the right to obtain social memberships was a condition precedent to the close of escrow and Winncrests obligations under the parcel 7 contract. It was not a separate covenant of the agreement with an open-ended time of performance.

Winncrest contends that unless it informed RMPI that it would require strict compliance with the time requirement of section 3.09(f), RMPI was free to perform at any time. According to Winncrest, "it was within Winncrests rights under the contract and California law to retain entitlement to the assignment of RMCC membership rights while waiving the time requirement for RMPI to assign its right to compel issuance of RMCC memberships." (Emphasis omitted.) However, Winncrest cites no authority, either in the contract or in California law, for this assertion. Where a point is raised in an appellate brief without argument or legal support, "it is deemed to be without foundation and requires no discussion by the reviewing court." (Atchley v. City of Fresno (1984) 151 Cal. App. 3d 635, 647, 199 Cal. Rptr. 72.) "An appellate brief `should contain a legal argument with citation of authorities on the points made. If none is furnished on a particular point, the court may treat it as waived, and pass it without consideration. [Citation.] [P] . . . This court is not inclined to act as counsel for . . . appellant and furnish a legal argument as to how the trial courts rulings . . . constituted an abuse of discretion." (In re Marriage of Schroeder (1987) 192 Cal. App. 3d 1154, 1164, 238 Cal. Rptr. 12.)

Finally, Winncrest contends the evidence that the trial court precluded it from presenting would not have violated the parol evidence rule because it concerned the issue of waiver rather than the proper interpretation of section 3.09(f). However, a review of the record reveals otherwise. In its motion for the introduction of extrinsic evidence, Winncrest sought to produce evidence of the intent, purpose and understanding of the principals of RMPI and Winncrest regarding the creation of the right to obtain RMCC memberships. In its motion for review of the in limine rulings, Winncrest again sought to present evidence to establish the parties understanding that the contracts gave Winncrest the right to RMCC memberships. There was no mention of the waiver issue. Except where only questions of law are presented, a party may not for purposes of appeal change the theory upon which the case was tried. (Sylve v. Riley (1993) 15 Cal.App.4th 23, 26, fn. 1.)

The parcel 7 contract required the assignment of the right to memberships by the close of escrow. This was a condition precedent to the close of escrow. Although it would appear to have been a simple matter for RMPI to assign such right to Winncrest, Winncrest does not claim it was done or point to any evidence of an assignment. Thus, the trial court did not err in determining that Winncrest waived any claim it may have had to RMCC memberships under the parcel 7 contract. Having so concluded, we need not consider whether Winncrest waived any rights it may have had in the parcel 7 contract by assigning the contract to FN. We also need not consider the parties arguments regarding whether Winncrest and FN were engaged in a joint venture or whether Winncrest was a third party beneficiary of the agreement between RMPI and FN.


Partial Nonsuit on Interference

With Contract Claim

As a result of the trial courts ruling on the PTF parties motions in limine, Winncrests interference with contract claim was reduced to interference with the DMA and interference with that portion of the parcel 5 contract requiring RMPI to use best efforts to create 37 new RMCC memberships with weekday golf access. The court thereafter granted nonsuit on that portion of Winncrests remaining claim relating to the DMA, concluding that the claim was without merit because the provisions of the DMA were not sufficiently specific to support a claim for RMCC memberships. The court further concluded that the claim was time barred as to any conduct prior to June 4, 1991. Winncrest thereafter voluntarily dismissed that portion of its claim concerning the best efforts provision of the parcel 5 contract.

Winncrest contends the court erred because the evidence supports a finding that PTF and McMorgan intentionally engaged in behavior that interfered with the DMA and the parcel 5 contract. Winncrest argues that PTF and McMorgan knew of the contractual relationship between Winncrest and FN to develop parcel 7 and between Winncrest and RMPI to develop parcel 5, knew that the parcel 7 contract required RMPI to cause the issuance of RMCC memberships and to use best efforts to cause the creation of 300 associate memberships, knew that the parcel 5 contract required RMPI to use best efforts to cause the creation of 37 new associate memberships, and knew that under RMCC bylaws, Rancho Murieta lot purchasers had a right to RMCC memberships. Winncrest further argues that PTF and McMorgan were aware that the availability of Country Club memberships was critical to lot sales at Ranch Murieta and that settlement of the RMPI-RMCC dispute was the only way RMCC would be able to resume issuing memberships. Finally, according to Winncrest, PTF and McMorgan knew that their actions would prevent settlement of the RMPI-RMCC dispute, yet proceeded to thwart those settlement efforts.

The PTF parties contend Winncrest has waived any appeal rights regarding the parcel 5 contract by voluntarily dismissing that portion of its claim. We agree. Generally, there is no right to appeal from a voluntary dismissal. (Denney v. Lawrence (1994) 22 Cal.App.4th 927, 930, fn. 1.) "However, when a dismissal was requested after an adverse trial court ruling so that an appeal could be taken promptly, and operates as a request for an entry of judgment based on the adverse ruling, an appeal will lie." (Ibid.) The question is whether the dismissal was a voluntary relinquishment of the action or was intended merely to expedite the appeal. (Casey v. Overhead Door Corp. (1999) 74 Cal.App.4th 112, 116, fn. 2.)

In this matter, while Winncrest dismissed the remaining portion of its interference with contract claim, it did not dismiss its other remaining claims. By the time of the dismissal, Winncrest had already presented its case. Thus, the dismissal did not expedite resolution of the case or the ultimate appeal of the matter. It cannot be viewed as having been done for that purpose.

Winncrest nevertheless argues "there is no requirement that such a dismissal finally dispose of all remaining issues in the case so that the appeal may be taken immediately thereafter." According to Winncrest, "it is sufficient if the voluntary dismissal expedite the appeal." However, Winncrest provides no legal support for this assertion. As indicated previously, a point raised in an appellate brief without legal support "is deemed to be without foundation and requires no discussion by the reviewing court." (Atchley v. City of Fresno, supra, 151 Cal. App. 3d at p. 647.) Furthermore, Winncrest has not shown how its dismissal of the interference claim expedited the appeal, except by the inconsequential effect of having fewer issues to resolve during the remainder of the proceedings.

The only issue before us is whether the trial court erred in granting nonsuit on Winncrests claim for interference with the DMA. "A defendant is entitled to nonsuit if the trial court determines the evidence presented by the plaintiff is insufficient as a matter of law to permit a jury to find in [its] favor. The court may not weigh the evidence or consider the credibility of witnesses. Instead, it must accept the evidence most favorable to the plaintiff as true and disregard conflicting evidence. The plaintiffs evidence must be given all the value to which it is legally entitled, including every legitimate inference that may be drawn in the plaintiffs favor. A mere `scintilla of evidence is not enough, however. There must be substantial evidence creating a conflict for the jury to resolve. In reviewing a grant of nonsuit, we follow the same rules requiring the evidence to be evaluated in the light most favorable to the plaintiff and least favorable to the defendant. All presumptions, inferences, and doubts are resolved against the defendant. We may not affirm, unless judgment for the defendant is required as a matter of law." (Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1065.)

A nonparty to a contract may be held liable for intentionally interfering with its performance. (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126, 270 Cal. Rptr. 1, 791 P.2d 587.) The elements of such a claim are: "(1) a valid contract between plaintiff and a third party; (2) defendants knowledge of this contract; (3) defendants intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." (Ibid.) A cause of action will lie where a third partys intentional interference was by unlawful means or by lawful means without sufficient justification. (Fifield Manor v. Finston (1960) 54 Cal.2d 632, 635, 7 Cal. Rptr. 377, 354 P.2d 1073.) "The most general application of the rule is to cases where the party with whom the plaintiff has entered into an agreement has been induced to breach it, but the rule is also applicable where the plaintiffs performance has been prevented or rendered more expensive or burdensome and where he has been induced to breach the contract by conduct of the defendant, such as threats of economic reprisals." (Lipman v. Brisbane Elementary Sch. Dist. (1961) 55 Cal.2d 224, 232, 11 Cal. Rptr. 97, 359 P.2d 465.)

Winncrest points to no provision of the DMA that PTF or McMorgan caused FN to breach nor one that was rendered more expensive or burdensome for Winncrest to perform due to PTFs or McMorgans conduct. Rather, Winncrest claims that the conduct of PTF and McMorgan in interfering with settlement of the RMPI-RMCC dispute made performance of the DMA less profitable. In other words, Winncrest expected to profit from the DMA through the sale of lots, but PTF and McMorgan made the sale of lots more difficult. This is not a claim for interference with the DMA but for interference with the economic advantage Winncrest expected to receive from the DMA. Thus, the court properly concluded that Winncrest failed to state a claim for intentional interference with the DMA.

Having so concluded, we need not consider whether the court properly concluded that Winncrests claims are barred by the statute of limitations as to any conduct prior to June 4, 1991.


Exclusion of Evidence on

Developer Liability Claim

Winncrest contends the trial court erred in granting the PTF parties motion in limine to exclude evidence on Winncrests fifth cause of action alleging developer liability. According to Winncrest, this claim was premised on two cases, Ravens Cove Townhomes, Inc. v. Knuppe Development Co. (1981) 114 Cal. App. 3d 783, 171 Cal. Rptr. 334 (Ravens Cove), and Cohen v. S & S Construction Co. (1983) 151 Cal. App. 3d 941, 201 Cal. Rptr. 173 (Cohen).

In Ravens Cove, the homeowners association of a condominium project brought an action against the developer for defects in common area landscaping and the exterior walls of individual units. The association claimed that the developers breached a fiduciary duty by failing to fund a maintenance reserve account. (Ravens Cove, supra, 114 Cal.App.4th at p. 787.) According to the evidence presented, the developers controlled the homeowners association until May 1974, when it was turned over to the homeowners. No reserve or operating funds had ever been established by the developers. In May 1974, there were defects in the landscaping stemming from soil preparation and variances between the drainage and irrigation systems put in by the developer and the landscape architect plans. There was also unpainted siding on the individual units that was decomposing. (Id. at pp. 788-789.)

The court indicated that the developers, who were the directors of the homeowners association until May 1974, owed a fiduciary duty to the homeowners. According to the court, such fiduciaries "may not make decisions for the Association that benefit their own interests at the expense of the association and its members." (Ravens Cove, supra, 114 Cal.App.4th at p. 799.) The directors did so by failing to fund a reserve account at a time when they would have been responsible for most of the fees. The court concluded: "Since the Associations original directors (comprised of the owners of the Developer and the Developers employees) admittedly failed to exercise their supervisory and managerial responsibilities to assess each unit for an additional reserve fund and acted with a conflict of interest, they abdicated their obligation as initial directors of the Association to establish such a fund for the purposes of maintenance and repair. Thus, the individual initial directors are liable to the Association for breach of basic fiduciary duties of acting in good faith and exercising basic duties of good management." (Id. at pp. 800-801.)

In Cohen, individual homeowners brought an action against the developer for failure to enforce the covenants, conditions and restrictions (CC&Rs) of the subdivision. At all pertinent times, the developers controlled the homeowners associations board of directors, and the court concluded that the association had an affirmative duty to enforce the CC&Rs. (Cohen, supra, 151 Cal. App. 3d at pp. 944-945.) Citing Ravens Cove, the court concluded that the developer therefore owed the association members a fiduciary duty not to make decisions that favored itself over the interests of the members. (Cohen, supra, 151 Cal. App. 3d at p. 945.)

Winncrest contends the facts of the instant matter are analogous to those in Ravens Cove. According to Winncrest, (1) the developer, PTF, created a nonprofit association, RMCC, to provide all homeowners with an amenity, (2) PTF initially controlled RMCC, (3) while in control of RMCC, PTF took actions that were in PTFs best interest but resulted in RMCC being undercapitalized, (4) RMCC was an essential part of the development, and (5) because of the under capitalization of RMCC, subsequent buyers were harmed. Winncrest contends this matter is even more egregious than Ravens Cove, because in that case the developer simply walked away from the development, whereas here, PTF sold the development to an "undercapitalized, inexperienced developer who then, at the behest of PTF, filed suit against [RMCC] in an attempt to rob it of its essential asset—the country club and golf courses. PTF then stymied all attempts to settle that lawsuit and force[] it to a conclusion."

It is readily apparent the decision in Ravens Cove was premised on the developers being the directors of the homeowners association at the critical time and, in that capacity, they owed a fiduciary duty to the individual members of the association to act in their best interests. When the developers failed to create and fund a reserve account, they were acting in their own best interests and contrary to the best interests of the homeowners. The present matter differs from Ravens Cove in that at the time the funding for RMCC was established, PTF was acting on its own behalf as a separate entity rather than as a director or other fiduciary of RMCC. The financial structure of RMCC was established at the time it was created.

The cases also differ in that in Ravens Cove, the fiduciary developers failed to fund a reserve account to cover deficiencies in their construction of the development. They did so in order to benefit themselves at the expense of future home buyers. Here, PTF allegedly established RMCC with a membership pricing scheme that did not provide enough money for RMCC to be profitable. However, this pricing scheme inured to the benefit of the Country Club members. PTF funded any losses incurred by RMCC.

There being no fiduciary duty owed by PTF or McMorgan to future purchasers at Rancho Murieta during the period when the pricing of RMCC was established, Ravens Cove is inapposite. To the extent any claim could be established from the inadequate pricing scheme established by PTF, it would have to be one based on fraud, e.g., a claim by lot purchasers that they were misled into believing they could enjoy the benefits of the Country Club at a below-market price. However, that is not this case.

Winncrest contends the present matter is analogous to Cohen in that after the sale of Rancho Murieta to the Andersons, PTF and McMorgan retained control of the development but failed to take steps to compel the Andersons to fund RMCC. We disagree. The developer owed a fiduciary duty in Cohen, because it controlled the associations board of directors, which itself owed the members a fiduciary duty. After the sale of Rancho Murieta to the Andersons, PTFs only remaining interest in the development was as a creditor. It was not a director of RMPI or RMCC and owed no fiduciary duty to any lot owners. Although PTF and McMorgan may have retained control over the Andersons, by the threat of a default, such control did not create a fiduciary duty to third parties. Absent a fiduciary duty, PTF was not obligated to force Anderson to act in the best interests of RMCC or its members. Therefore, the trial court did not err in excluding evidence on Winncrests developer liability claim.


Nonsuit on Lender Liability Claim

PTF loaned money to the Andersons to finance their purchase of the Rancho Murieta project. PTF also loaned money to Winncrest to finance Winncrests purchase of parcels 5 and 6. Winncrest contends that in each instance, PTF stepped outside the normal role of a lender and actively participated in the enterprise. Consequently, PTF owed a duty of care, which it breached when it interfered with the settlement of the RMPI-RMCC dispute. Winncrests lender liability claim is also alleged against McMorgan. However, inasmuch as McMorgan did not loan any money to anyone, Winncrest does not claim the court erred in granting nonsuit as to McMorgan.

In Connor v. Great Western Sav. & Loan Assn. (1968) 69 Cal.2d 850, 73 Cal. Rptr. 369, 447 P.2d 609 (Connor), homes in a residential development suffered serious damage from cracking due to ill-designed and negligently constructed foundations that could not withstand the expansion and contraction of the underlying soil. The home purchasers sought rescission and damages from, among others, the construction lender, Great Western Savings & Loan Association (Great Western). (Id. at p. 856.) The following facts were presented to support the plaintiffs claim.

Goldberg and Brown, acting through South Gate Development Company (South Gate), undertook to purchase 547 acres in a housing project for the construction of tract homes. They signed an agreement to purchase 100 acres and a conditional agreement to purchase the remaining 447 acres over a 10-year period. (Connor, supra, 69 Cal.2d at pp. 857-858.) Goldberg approached Great Western for the funds to purchase the 100 acres. During the next several months, the parties and their lawyers worked out the details of an arrangement whereby Great Western would supply the necessary funding for purchase of the land and construction and Great Western would be given the right to make construction loans on homes and the right of first refusal on long-term loans to home buyers. (Id . at p. 858.)

Conejo Development Company (Conejo), a company that had been incorporated several months earlier with only $ 15,000 in capital, was later substituted as the purchaser of the land and the developer. (Connor, supra, 69 Cal.2d at p. 859.) The parties entered into a "land warehousing" arrangement whereby Great Western obtained title to the land for the developer until the developer was ready to use it. Great Western deposited $ 150,000 into escrow for purchase of the property and took title. South Gate was given a one-year option to purchase the land in three parcels for $ 180,000. (Id. at p. 859.)

Great Western agreed to loan the necessary construction funds to Conejo only after assuring itself that the homes could successfully be built and sold. However, Great Western had investigated and learned that Goldbergs financial condition was weak. It had also received a financial statement from Conejo listing capital of $ 325,000, of which all but $ 5,000 was estimated profits from the sale of homes. Great Western investigated no further into Conejos finances, or the foundations on which the homes were to be built. It did not require plans or specifications for the homes, cost breakdowns, a list of subcontractors, or a schedule of proposed prices. Conejo submitted to Great Western house plans that had been prepared for other developments. Great Western suggested increases in the proposed selling prices and refused any formal commitment of construction funding until a specific number of homes were presold. (Connor, supra, 69 Cal.2d at pp. 859-860.)

After the specified number of homes had been presold, Great Western loaned Conejo approximately $ 3,000,000 in construction financing, for which Conejo agreed to pay a 5 percent loan fee and 6.6 percent interest. The 5 percent loan fee was higher than usual because Great Western assessed the loan as involving a substantial risk. (Connor, supra, 69 Cal.2d at p. 861.) A subcontractor employed by Conejo began grading the property in preparation for home construction. Great Western inspectors visited the property weekly to verify that the plans were being followed and the money was being used for construction. Under the loan agreement, Great Western had the right to withhold disbursement of funds if the work did not conform to the specifications. Representatives of Great Western remained in constant communication with the developers until all the homes were completed. (Id. at p. 862.)

Pursuant to the overall agreement, when Conejo sold lots it informed buyers that Great Western was willing to make long-term loans. If a buyer wished to obtain a loan elsewhere, Great Western had 10 days to meet the terms of the proposed financing. If it did so, but the buyer still borrowed elsewhere, Goldberg and Brown were required to pay Great Western any fees and interest obtained by the other lender. (Connor, supra, 69 Cal.2d at pp. 860-861.)

Under the circumstances presented, the state high court concluded that Great Western owed home buyers a duty of care to protect them from damages caused by structural defects. (Connor, supra, 69 Cal.2d at p. 866.) Although the court rejected the plaintiffs claim that Great Western had entered into a joint venture with the developers (id. at pp. 862-863), it nevertheless applied the six-factor test of Biakanja v. Irving (1958) 49 Cal.2d 647, 320 P.2d 16 to impose an independent duty. Biakanja explained that "the determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are [1] the extent to which the transaction was intended to affect the plaintiff, [2] the foreseeability of harm to him, [3] the degree of certainty that the plaintiff suffered injury, [4] the closeness of the connection between the defendants conduct and the injury suffered, [5] the moral blame attached to the defendants conduct, and [6] the policy of preventing future harm." (Id. at p. 650.)

Regarding factor one, the court indicated that "the success of Great Westerns transactions with South Gate and Conejo depended entirely upon the ability of the parties to induce plaintiffs to buy homes in the Weathersfield tract and to finance the purchases with funds supplied by Great Western." (Connors , supra, 69 Cal.2d at p. 866.) Under factor two, the court concluded that Great Western "should have known that neither Goldberg nor Brown had ever developed a tract of similar magnitude" and that "Conejo was operating on a dangerously thin capitalization, creating a readily foreseeable risk that it would be driven to cutting corners in construction." (Ibid.) As to factors three and four, the court found it was certain that the plaintiffs suffered harm and that the harm was closely connected to Great Westerns conduct. According to the court, "Great Western not only financed the development of the Weathersfield tract but controlled the course it would take. Had it exercised reasonable care in the exercise of its control, it would have discovered that the pre-packaged plans purchased by Conejo required correction and would have withheld financing until the plans were corrected." (Id. at p. 867.) On factor five, the court found moral blame in Great Westerns actions, because Great Western failed to exercise reasonable care to avoid structural defects and "was well aware that the usual buyer of a home is ill-equipped with experience or financial means to discern such structural defects." (Ibid.) Finally, the court concluded that "the admonitory policy of the law of torts calls for the imposition of liability on Great Western for its conduct . . . ." (Ibid.)

Winncrest contends this matter is comparable to Connor with respect to PTFs loan to the Andersons because, as in Connor, PTF "stepped outside of [its] conventional role as a lender and effectively controlled [the Andersons] development of the Rancho Murieta project . . . ." Winncrest contends consideration of each of the six Biakanja factors supports treating this matter the same as Connor. We disagree.

Regarding the first factor — the extent to which the sale and loan to Anderson was intended to affect Winncrest — Winncrest contends the success of the transaction depended on the Andersons ability to convince other developers to purchase individual tracts in the development, and third party purchasers were required by PTF to obtain financing from it rather than Anderson. Even accepting that PTF expected the Andersons to sell tracts to other developers rather than complete the development itself, Winncrest cites nothing in the record to suggest there was an agreement, express or otherwise, that PTF would be given the opportunity to provide financing for any purchaser such as Winncrest. After sale of the development, PTFs involvement was that of a lender to the Andersons, with no expectation of profit beyond interest on its loan. Thus, while PTF may have foreseen sales to other developers, there is no evidence PTF expected to benefit from those sales, except to the extent that those sales would have allowed Anderson to meet his obligations to PTF. The fact that it ultimately may have arranged loans with purchasers such as Winncrest does not prove this was part of the overall scheme for financing the sale to the Andersons.

Winncrest contends harm was foreseeable, because the Andersons had no prior residential development experience and were dangerously undercapitalized. However, the harm claimed by Winncrest is not related to the Andersons inexperience or undercapitalization. Winncrest claims it was unable to sell lots because of the unavailability of RMCC memberships. This was purportedly due to a dispute between RMPI, which was controlled by the Andersons and RMCC. It was also due to a desist and refrain order that was not in existence at the time PTF sold to the Andersons. The question here is whether it was foreseeable to PTF at the time it loaned money to the Andersons to purchase the project that another developer would purchase a portion of the project from the Andersons and be harmed by the inability to sell individual lots due to the unavailability of RMCC memberships. This is clearly a stretch. Even if the Andersons did not intend to infuse any money into the project, there is nothing to suggest PTF did not expect the Andersons to be able to finance the project from money received through property sales.

Although there was evidence presented that lot sales suffered because of the unavailability of RMCC memberships and the dispute between RMPI and RMCC, there was other evidence presented that lot sales declined because of a downturn in the market in 1991 and 1992. Thus, the certainty of Winncrests harm is not altogether clear.

As to the closeness of any harm suffered by Winncrest to the conduct of PTF, Winncrest argues that when it became clear the Andersons could not meet their obligations under the purchase agreement, PTF "propped Anderson up as a `straw man owner and manipulated [its] development of the project." According to Winncrest, if PTF had exercised its control in a reasonable fashion, it could have prevented harm to Winncrest. However, Winncrest does not explain how "propping up" the Andersons caused Winncrest harm. If, as Winncrest insists, PTF controlled the Andersons actions, there is no reason to believe that if PTF had foreclosed on the Andersons loan and regained control of the project, harm to Winncrest would have been avoided. In other words, if PTF controlled the Andersons and thus manipulated the Andersons conduct, there is no reason to believe that with the Andersons out of the picture, the same sales would not have gone forward with PTF as the seller and the same fate would not have befallen Winncrest. Sales of RMCC memberships would still have been suspended and sales by Winncrest affected thereby.

Winncrests argument presupposes that if PTF had taken over the project from the Andersons, it would have financed RMCCs losses and thereby allowed RMCC to continue selling memberships. However, it is abundantly clear from the record that PTF was unwilling to finance any more of RMCCs losses.

As to moral blame, unlike Connor, the party harmed here was not individual homeowners but a sophisticated developer. All transactions were at arms length, with no party enjoying a superior bargaining position. PTFs actions in selling to the Andersons, a party perhaps not in the best financial condition, and thereafter failing to foreclose on the Andersons and regain control of the project, was an attempt to make the best of a bad situation.

Finally, a policy of preventing future harm to unsophisticated homeowners was furthered in Connor by imposing a duty on the lender. Here, the parties involved are experienced business entities who can generally be expected to take care of themselves. No general public policy would be furthered by imposing a duty under the unique circumstances of this case.

The present matter is clearly distinguishable from Connor. There, according to the high court, "Great Western voluntarily undertook business relationships with South Gate and Conejo to develop the Weathersfield tract and to develop a market for the tract houses in which prospective buyers would be directed to Great Western for their financing. In undertaking these relationships, Great Western became much more than a lender content to lend money at interest on the security of real property. It became an active participant in a home construction enterprise. It had the right to exercise extensive control of the enterprise. Its financing, which made the enterprise possible, took on ramifications beyond the domain of the usual money lender. It received not only interest on its construction loans, but also substantial fees for making them, a 20 percent capital gain for `warehousing the land, and protection from loss of profits in the event individual home buyers sought permanent financing elsewhere." (Connors , supra, 69 Cal.2d at p. 864.)

Interestingly, in Connors, the court drew a distinction between home purchasers and second mortgage holders on the houses. The court found the balance of Biakanja factors much different for the latter parties. (Connors, supra, 69 Cal.2d at p. 870.) The foreseeability of harm was much less, because the lenders had advanced only 43 percent of the face value of the notes, and injury would not occur unless the homeowners defaulted and the diminished value of the homes was insufficient to protect the lenders interests. In addition, "substantially less moral blame attached to Great Westerns conduct with respect to [second mortgage holders] than attached to its conduct with respect to plaintiffs. . . . Like Great Western itself, [the second mortgage holders] were investors in a business enterprise and dealt with Conejo as creditors, not as purchasers of the homes it built." (Id. at p. 871.) In effect, the second mortgage holders were coparticipants in the enterprise, to build and sell homes to the public, and were in a position to protect themselves. (Ibid.)

In Fox & Carskadon Financial Corp. v. San Francisco Fed. Sav. & Loan Assn. (1975) 52 Cal. App. 3d 484, 125 Cal. Rptr. 549, the plaintiff, Fox & Carskadon Financial Corp. (Fox & Carskadon), entered into an agreement with Weisel whereby Weisel agreed to sell an apartment project constructed by Weisel to El Camino Real Associates, a limited partnership to be formed by Fox & Carskadon for $ 2,375,000. Weisel obtained a construction loan of $ 1,800,000 from the defendant, San Francisco Federal Savings & Loan Association (San Francisco Federal). Later, it became apparent to San Francisco Federal that Weisel was experiencing financial difficulty, and in 1970, Weisel notified San Francisco Federal and Fox & Carskadon that he was preparing to file bankruptcy, which he did. San Francisco Federal foreclosed on its deed of trust, and purchased the property for less than its loan amount, leaving nothing for Fox & Carskadon. (Id. at p. 486.)

Fox & Carskadon filed suit against San Francisco Federal, claiming that the latter owed it a duty of care, relying in part on Connor. Fox & Carskadon argued it was in the same position as the homeowners in Connor. (Fox & Caraskadon Financial Corp. v. San Francisco Fed. Sav. & Loan Assn., supra, 52 Cal. App. 3d at pp. 486-487.) The Court of Appeal disagreed. The court found Fox & Carskadon to be in the same position as the second mortgage holders in Connor . The court explained: "Fox & Carskadon is a `large public syndication, which has enjoyed a `reputation as an experienced and reputable real estate brokerage firm in the San Francisco Bay Area. [Fox & Carskadon has] done prior business with developer Weisel on a project called Buckingham Apartments. Based on these facts, we find that [Fox & Carskadons] position is synonymous to that of the [second mortgage holders] in Connor, who, the Supreme Court stated, were able to protect themselves." (Id. at p. 487.) Winncrest here is more analogous to the second mortgage holders in Connor than the home purchasers.

Winncrest contends PTF owed it a duty of care by virtue of the parcel 5 and 6 loans. Winncrest argues that PTF stepped outside the normal role of a lender with respect to those transactions, thereby creating a duty of care not to cause the borrower harm through its actions. According to Winncrest, PTF breached that duty when it "unreasonably interfered with the settlement of the [RMPI-RMCC] dispute . . . ."

Absent special circumstances or a joint venture, a lender does not owe a borrower any duties beyond those expressed in the loan agreement. (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal. App. 3d 1089, 1096, 283 Cal. Rptr. 53; Resolution Trust Corp. v. BVS Development, Inc. (9th Cir. 1994) 42 F.3d 1206, 1214.) Winncrest does not claim a joint venture existed between itself and PTF. Rather, Winncrests claim that PTF stepped outside the normal role of a lender is apparently an attempt to allege special circumstances. However, while the exercise of excess control over the Andersons and RMPI might arguably result in a duty owed to those parties as joint venturers, it does not follow that PTF assumed a special duty to every party involved in the Rancho Murieta project to whom it loaned money. In Connor, the court found that a duty was owed to subsequent purchasers because of excess involvement in connection with the loan to the developer, not the loans to the individual homeowners. PTFs only involvement with Winncrest in connection with the parcel 5 and 6 transactions was as a lender. PTF had no voice in Winncrests activities and stood to benefit from the loan only by virtue of the interest charged. Under the circumstances presented, no special duty arose by virtue of the parcel 5 and 6 loans or, as indicated previously, the loan to Anderson. Nonsuit was therefore properly granted on Winncrests lender liability claim.


Exclusion of Evidence on Negligent

Misrepresentation Claim

The PTF parties moved in limine to exclude evidence in support of Winncrests second cause of action, which alleged negligent misrepresentation. The PTF parties argued that the claim did not allege any misrepresentation, but instead was based on nondisclosures that could not form the basis of such a claim. The PTF parties further argued that Winncrests claim was barred by the statute of limitations. The trial court granted the motion but gave Winncrest leave to amend, provided it presented evidence to support its claim. Winncrest thereafter submitted a third amended cross-complaint, but the court denied leave to amend. Winncrest challenges both rulings.

"Civil Code section 1709 provides that `one who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers. Civil Code section 1710 defines deceit as, inter alia, `the assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true . . . . Negligent misrepresentation is a form of deceit, the elements of which consist of (1) a misrepresentation of a past or existing material fact, (2) without reasonable grounds for believing it to be true, (3) with intent to induce anothers reliance on the fact misrepresented, (4) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed, and (5) damages." (Fox v. Pollack (1986) 181 Cal. App. 3d 954, 962, 226 Cal. Rptr. 532.) A claim for negligent misrepresentation requires a positive assertion of fact; an implied assertion will not do. (Wilson v. Century 21 Great Western Realty (1993) 15 Cal.App.4th 298, 306; Evan F. v. Hughson United Methodist Church (1992) 8 Cal.App.4th 828, 840, fn. 2; Huber, Hunt & Nichols, Inc. v. Moore (1977) 67 Cal. App. 3d 278, 304, 136 Cal. Rptr. 603.)

Winncrest contends its original claim was based on actual misrepresentations. Winncrest cites paragraph 105 of its cross-complaint, which reads: "Cross-defendants negligently failed to disclose the material facts herein alleged, and thereby negligently induced cross-complainants to purchase parcel 7, and cross-complainant WINNCREST to additionally purchase parcels 5 and 6, and negligently induced cross-complainants to fail to investigate and take appropriate legal action within an earlier time period. Cross-complainants justifiably relied on cross-defendants representations and nondisclosures." This paragraph alleges negligent failure to disclose, not misrepresentation.

In its reply brief, Winncrest argues that other paragraphs of the cross-complaint alleged misrepresentations by PTF. Winncrest cites various paragraphs containing allegations primarily related to PTFs willingness to release the Country Club property from its deed of trust if the property were purchased by RMCC for a particular price. However, even if these allegations state a claim for negligent misrepresentation, the court later ruled that Winncrest was unable to substantiate its claim with evidence. In effect, the court granted summary adjudication on Winncrests negligent misrepresentation claim. Thus, even if the trial court erred in granting PTFs motion in limine, the error was harmless if the courts later ruling was correct. As we shall explain, the trial court correctly rejected Winncrests claim.

Winncrest contends it provided the court with adequate evidence to support the allegations in its proposed cross-complaint. According to Winncrest, it presented evidence of PTFs misrepresentations that PTF held the following beliefs: "(1) the proposed sale of the golf course facilities was a windfall to PTF; (2) a sale of the Country Club facilities under the proposed settlement agreement would benefit PTF; and (3) [PTF] wanted Anderson to pay off his note and to get his deed of trust off their books." Winncrest contends these misrepresentations led it to believe that a settlement between RMPI and RMCC would be consummated.

The evidence to which Winncrest refers is the deposition testimony of Thomas Winn and Christo Bardis, two of the founders of Winncrest. Bardis testified about a meeting in late 1989 with Fry in which they discussed problems at Rancho Murieta and the possible sale of the Country Club. They also discussed PTF loaning money for Winncrests purchase of parcel 7. According to Bardis, they discussed a purchase price for the Country Club of $ 7 million and a value for the Country Club of $ 3 million. Bardis believed Fry concurred in his estimate of the Country Clubs value, taking into consideration the existing lease and that a purchase of the Country Club for $ 7 million would be a windfall to PTF. However, Bardis did not recall Fry saying PTF would agree to a settlement between RMPI and RMCC or to release the Country Club from its deed of trust. During the meeting, Fry said something to the effect that he would like to see "the loan" paid off and to get it off his books.

Winn testified that he met with Fry and Bardis in December 1989 to discuss PTFs position regarding the release of the Country Club from its deed of trust. There was also a discussion of the assignment of RMCC memberships under the parcel 7 contract. Winn told Fry that Winncrest was due social memberships and was encouraged by the potential settlement of the dispute between RMPI and RMCC. Winn believed the sale of the Country Club was imminent and was led to believe Fry agreed with this assessment. Winn testified that Fry seemed to agree that a purchase price of $ 7 million for the Country Club would be beneficial to PTF.

The foregoing evidence falls far short of establishing misrepresentations by Fry regarding PTFs willingness to release the Country Club from its deed of trust. While Fry may have agreed the Country Club was worth only $ 3 million with the existing lease, and that a price of $ 7 million for the property would therefore be beneficial to PTF, this is not a representation that PTF would release the Country Club from its deed of trust if the property were purchased at that price. There is no evidence Fry believed the valuation of the Country Club with the lease was the proper measure to use. On the contrary, there was evidence that Fry hoped to avoid the lease altogether, thereby greatly increasing the value of the Country Club. As indicated previously, negligent misrepresentation requires a positive assertion of fact. (Wilson v. Century 21 Great Western Realty, supra, 15 Cal.App.4th at p. 306.)

In a footnote, Winncrest cites Schoenberg v. Romike Properties (1967) 251 Cal. App. 2d 154, 59 Cal. Rptr. 359, and Hale v. Wolfsen (1969) 276 Cal. App. 2d 285, 81 Cal. Rptr. 23, for the proposition that a representation may arise from silence. However, Hale made this assertion in dictum, citing as support Schoenberg. (Hale v. Wolfsen, supra, 276 Cal. App. 2d at p. 291.) In Schoenberg, the plaintiffs had agreed to sell their home to the Caseys for $ 10,000 and a note for $ 117,000 secured by a deed of trust on other property owned by the Caseys. (Schoenberg v. Romike Properties, supra, at pp. 156-157.) After the Caseys defaulted, it was discovered that the property used as collateral did not have a sufficient value to satisfy the debt. The plaintiffs brought an action against their real estate agents who had convinced them to accept the Caseys property as collateral. Several agents had presented to the plaintiffs a false appraisal of the property and represented that the plaintiffs could not go wrong by taking a deed of trust on the property. (Id. at pp. 156, 160.) One agent, Pratt, made the representations to the plaintiffs while another, Benner, stood by and did not express disagreement. Instead, Benner indicated the plaintiffs were fortunate to be able to sell their property. (Id. at p. 160.)

In finding Benner to be liable for misrepresentation, the court indicated: "It is true, as Mrs. Benner asserts, that there was no evidence that she made any statement as to value of the Casey property, but we cannot say, in contradiction of the courts finding, that her conduct did not amount to a representation that the property was worth what Pratt said it was worth. The significance of her conduct was to be gauged by the effect it would have upon plaintiffs." (Schoenberg v. Romike Properties, supra, 251 Cal. App. 2d at pp. 160-161.)

Schoenberg is inapposite. There, the various real estate agents were acting in concert, with only one doing the talking. Furthermore, as the plaintiffs agents, they owed them a fiduciary duty. As explained by the court in Schoenberg: "In view of the relationship between Mrs. Benner and the Schoenbergs it was reasonable for the court to find that Mrs. Benner caused plaintiffs to believe that she agreed with Pratts representations." (Schoenberg v. Romike Properties, supra, 251 Cal. App. 2d at p. 161.) Here, Fry was not acting in concert with anyone who made misrepresentation to Winncrest. At most, Fry did not correct possible misunderstandings by Winn and Bardis. Fry owed Winncrest no fiduciary duty. Furthermore, nobody at the December 1989 meeting represented that PTF would agree to release its security interest in the Country Club property for a purchase price of $ 7 million or any other price. Thus, there was no such statement for Fry to adopt by silence.

Winncrest also cites Randi W. v. Muroc Joint Unified School Dist. (1997) 14 Cal.4th 1066, 929 P.2d 582 (Randi W.). There, the state high court concluded that school districts could be held responsible for injuries caused by a teacher for whom the school districts had provided letters of reference that failed to disclose prior misconduct by the teacher. The letters of recommendation contained "unreserved and unconditional praise for" the teacher despite knowledge that the teacher had been accused of sexual misconduct. (Id. at p. 1070.) The court explained that it viewed the case "as a `misleading half-truths situation in which defendants, having undertaken to provide some information regarding [the teachers] teaching credentials and character, were obliged to disclose all other facts which `materially qualify the limited facts disclosed." (Id. at p. 1082.)

Here, we have no positive assertions by Fry that required further facts to qualify them. It is not alleged that Fry made any representations regarding PTFs willingness to release its security interest in the Country Club property. Rather, Winncrests claim is premised on statements made by its own representatives, with which Fry silently concurred, from which Winncrest inferred other facts. There were no representations or half-truths by Fry. Reduced to its essence, Winncrests claim is that in the face of statements by Winn and Bardis that a sale of the Country Club property for $ 7 million would be a windfall to PTF, Fry failed to inform them that PTF would not agree to release the Country Club property from its deed of trust for less than the full value of the property without the lease. However, absent a duty to disclose this information, imposed by contract, statute or otherwise, such a claim is without merit. (Eddy v. Sharp (1988) 199 Cal. App. 3d 858, 864, 245 Cal. Rptr. 211.) Under the circumstances presented here, there was no such duty; hence, the trial court properly rejected Winncrests negligent misrepresentation claim.


Nonsuit on Fraud


Winncrest contends the trial court erred in granting nonsuit on its fraud claim. That claim was based on PTF and McMorgan failing to disclose and actively concealing known facts relevant to Winncrests purchase of lots 5, 6 and 7 in an effort to induce Winncrest to follow through with those sales. We find no error.

In the absence of a fiduciary or confidential relationship, the elements of a fraud claim based on nondisclosure of facts in a real estate transaction are: "(1) Nondisclosure by the defendant of facts materially affecting the value or desirability of the property; (2) Defendants knowledge of such facts and of their being unknown to or beyond the reach of the plaintiff; (3) Defendants intention to induce action by the plaintiff; (4) Inducement of the plaintiff to act by reason of the nondisclosure; and (5) Resulting damages." (Lingsch v. Savage (1963) 213 Cal. App. 2d 729, 738, 29 Cal. Rptr. 201.) Fraud differs from negligent misrepresentation in the element of knowing intent to induce detrimental reliance. "It is the element of intent which makes fraud actionable, irrespective of any contractual or fiduciary duty one party might owe to the other." (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 482.)

A cause of action based on nondisclosure of material facts by a nonfiduciary has been recognized in three contexts: "(1) the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead; (2) the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff; (3) the defendant actively conceals discovery from the plaintiff." (Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 294, fns. omitted, 85 Cal. Rptr. 444, 466 P.2d 996.)

Winncrest contends that PTFs and McMorgans active involvement in the Rancho Murieta project after its sale to the Andersons created an enhanced duty to its borrowers, including Winncrest, which required the disclosure of all material facts pertinent to the borrowers decision to enter into a borrower-lender relationship. However, this is just a rehash of Winncrests lender liability claim, which we have already rejected. (See part VI ante, at p. 55.) There is no evidence that PTF stepped outside the normal role of a lender after sale of the project to the Andersons.

Winncrest nevertheless contends PTF and McMorgan were under a duty of full disclosure at the time of the 1988 and 1989 meetings between Winncrest and Fry. Winncrest argues that the evidence presented at trial demonstrated PTF and McMorgan were aware of a fact material to Winncrests purchases of parcels 5, 6 and 7 and knew Winncrest could not know that fact, namely, the secret plan to hold the Andersons in default and to force them to sue RMCC to cancel the Country Club lease. Winncrest further argues that the evidence demonstrated PTF and McMorgan led Winncrest to believe PTF wanted the Andersons to be in a solid financial position and that PTF and McMorgan would not impede resolution of the RMPI-RMCC dispute when, in fact, PTF "did not want [the Andersons] to pay-off [sic] [their] note and would in fact do everything they could to prevent a sale of the leased facilities to RMCC." According to Winncrest, PTF and McMorgan allowed Winncrest to maintain the mistaken belief that RMCC memberships would be available to its lot purchasers.

As explained in connection with Winncrests negligent misrepresentation claim, there is no evidence of misrepresentations by Fry at the 1988 and 1989 meetings. At most, Fry failed to dispel Winncrests misconception that PTF considered a sale of the Country Club for $ 7 million to be a windfall and, hence, would be willing to allow that sale to go forward and release PTFs security interest in the property. Fry did not inform Winncrest of the secret plan, assuming one existed, not to release the Country Club under any circumstances and to force the Andersons to sue to terminate the Country Club lease. The question then is whether PTF and McMorgan were under a duty to make such disclosures.

We have no doubt that if PTF had sold parcels 5, 6 and 7 directly to Winncrest under agreements that required PTF to provide Winncrest with RMCC memberships, and at the time if PTF was aware of information, unknowable to Winncrest, that those memberships could not be provided, PTF would be guilty of fraud. In effect, PTF would have promised to provide a benefit while knowing and intending not to follow through. But this matter is far removed from that scenario.

PTF was not the seller of the property to Winncrest and, therefore, made no promise to provide Winncrest with RMCC memberships. PTF was the beneficiary of a deed of trust on the property and, as to parcels 5 and 6, loaned the money for Winncrests purchase. Winncrest cites Karoutas v. HomeFed Bank, supra, 232 Cal. App. 3d 767, for the proposition that a beneficiary under a deed of trust owes a duty to a subsequent purchaser of the property to disclose facts material to the value of the property that are unknown to the purchaser. In Karoutas, the Court of Appeal found that the following allegations of the complaint created a duty of disclosure by a trust deed beneficiary: "(1) the property [the plaintiffs] purchased has been and is subject to substantial, permanent, and progressive soil movement; (2) this condition subjects the residence on the property to severe forces and stresses; (3) [the trust deed beneficiary] knew, through the [owners of the property] and expert reports, of these conditions but suppressed and failed to disclose them; (4) the [plaintiffs], at the time they purchased the property, did not know of these conditions and would not have purchased the property had they known; and (5) the [plaintiffs] could not and did not inspect the property prior to purchase." (Id. at p. 771.)

Karoutas does not help Winncrest. There, the beneficiary had foreclosed on the trust deed and, therefore, was the party initiating the sale. It was the only party in a position to benefit from it and the only party with whom the plaintiffs dealt in connection with the sale. The cases cited by Karoutas bear this out, as they dealt with duties owed by the seller of property. (See Barnhouse v. City of Pinole (1982) 133 Cal. App. 3d 171, 189-190, 183 Cal. Rptr. 881; Buist v. C. Dudley DeVelbiss Corp. (1960) 182 Cal. App. 2d 325, 329, 332.) Finally, the plaintiffs in Karoutas were individuals rather than sophisticated developers.

There is also no evidence PTF or McMorgan was aware of facts that would have barred the issuance of RMCC memberships to Winncrests lot purchasers. Assuming there was a secret plan to force the Andersons to sue to cancel the Country Club lease and PTF was not willing to release its security interest in the Country Club for less than full value absent the lease, this does not establish that RMCC memberships would be unavailable. PTF and McMorgan could readily have expected that by the time Winncrest wanted to issue memberships to lot purchasers, the dispute over the lease and the sale of the Country Club would have been resolved. The fact PTF and McMorgan did not intend to release the Country Club until RMCC paid full value without the lease does not foreclose a belief that RMCC would do so. Winncrest cites no evidence that PTF or McMorgan could not reasonably have believed the dispute would not be resolved, either as they desired or otherwise.

Assuming Winncrest had a reasonable expectation that RMCC memberships would be available to its lot purchasers, PTF and McMorgan had no duty to disclose facts to them that might have a bearing on the availability of such memberships. They were not the sellers of parcels 5, 6 and 7, nor did they participate in the sales in such a way as to give rise to a duty. While they may have had exclusive knowledge of their secret plan to hold out release of the Country Club until RMCC paid full value, this exclusive knowledge alone does not give rise to a duty of disclosure. Absent a duty of disclosure, and absent affirmative representations, there is no fraud claim. Nonsuit was properly granted.


Exclusion of ERISA Evidence

Winncrest sought to introduce evidence at trial that PTF and McMorgans concern over prior ERISA violations in connection with its Rancho Murieta investment was the motivating factor behind the 1985 sale of the project to the Andersons and the secret plan to force the Andersons to sue RMCC to cancel the Country Club lease, thereby allowing PTF to reclaim the project without the lease. Winncrest also sought to present evidence that PTF and McMorgans claim of an ERISA prohibition against release of the Country Club from the deed of trust for less than full face value was false. The trial court granted the PTF parties motion in limine to exclude the evidence, concluding its probative value was outweighed by the potential for undue consumption of time and confusion of the issues. (Evid. Code, § 352.)

Winncrest contends the court erred. Winncrest argues that the probative value of the evidence far outweighed any concerns over consumption of time or confusion of issues. According to Winncrest, "whether PTF . . . had an undisclosed plan to force Anderson to sue to void RMCCs lease and to keep Anderson in default as a `straw man owner of the Rancho Murieta project was at the heart of Winncrests fraud, interference with contract, and rescission claims. The evidence provided a motive behind PTF[s] . . . actions and explained why [PTF] would have pursued such a plan." Winncrest further argues that whether ERISA concerns were the true reason for PTFs refusal to release the Country Club from its deed of trust or "a subterfuge to hide PTF[s] . . . true plan" was also at the heart of Winncrests claims. We find no error.

Evidence Code section 352 permits the exclusion of relevant evidence where "its probative value is substantially outweighed by the probability that its admission will (a) necessitate undue consumption of time or (b) create substantial danger of undue prejudice, of confusing the issues, or of misleading the jury." (Evid. Code, § 352.) "We review a trial court order denying a motion to exclude evidence under Evidence Code section 352 for abuse of discretion." (People v. Williams (1997) 16 Cal.4th 153, 213, 940 P.2d 710.) "A trial courts exercise of discretion will not be disturbed unless it appears that the resulting injury is sufficiently grave to manifest a miscarriage of justice. [Citations.] In other words, discretion is abused only if the court exceeds the bounds of reason, all of the circumstances being considered." (People v. Green (1995) 34 Cal.App.4th 165, 182-183.)

Assuming Winncrest is correct that at the time of its purchases of parcels 5, 6 and 7, PTF had a secret plan to obtain cancellation of the Country Club lease and that PTFs concern over past ERISA violations was the reason for this plan, we fail to see how this helps Winncrests case. As indicated previously, Winncrests fraud claim is without merit, because PTF owed Winncrest no duty to disclose its secret plan. Winncrests interference with contract claim is also without merit, because Winncrest had no right to RMCC memberships arising from its various contracts. Because the only alleged adverse effect of the secret plan was that it interfered with the ability of RMCC to issue memberships, the ERISA evidence was not probative on that claim. Finally, on the rescission claim, Winncrest asserts, at most, a unilateral mistake of fact. That mistake, however, was due to the failure of PTF to disclose its secret plan, not any action by RMPI, the contracting party. There is no claim that RMPI, which at the time was owned by the Andersons, was aware of PTFs secret plan and failed to reveal it to Winncrest. A unilateral mistake will not invalidate an agreement, absent a showing that the other party was aware of the mistake and unfairly took advantage of the mistaken party. (Meyer v. Benko (1976) 55 Cal. App. 3d 937, 944, 127 Cal. Rptr. 846.)

Furthermore, while the trial court precluded Winncrest from introducing evidence, including expert testimony, regarding ERISA, it did not exclude evidence that PTF and McMorgan were concerned about the requirements of federal law. In other words, the court did not preclude Winncrest from presenting evidence of a motivation underlying PTF and McMorgans secret plan.

There was also no probative value in evidence that PTF and McMorgan were not motivated by ERISA concerns in rejecting the various settlement agreements between RMPI and RMCC. Such evidence had no bearing on Winncrests nonexistent fraud and interference with contract claims. It also could not have been the basis for rescission of Winncrests purchase agreements. There is no suggestion that RMPI knew PTF and McMorgan would insist on a full value purchase. On the contrary, RMPI entered into settlement agreements with RMCC that provided for a lower purchase price. Thus, even if the trial court overstated the prejudicial effect of opening up the case to ERISA testimony, it cannot be said the court abused its discretion in excluding the proffered evidence.


Nonsuit on Covenant of Good Faith Claim

Winncrest contends the trial court erred in granting nonsuit on that portion of its lender liability cause of action that alleged breach of the covenant of good faith and fair dealing. Winncrest argues that the loan agreements between itself and PTF support such a claim. In particular, Winncrest argues that PTF knew the purpose of the loans was to allow Winncrest to purchase parcels 5 and 6 for development and that the success of such development, i.e., the sale of homes, depended on the availability of RMCC memberships. Winncrest contends PTF breached the covenant of good faith and fair dealing when it refused to approve the settlement and release the Country Club from its deed of trust.

"Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement. (Rest.2d Contracts, § 205.)" (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683-684, 254 Cal. Rptr. 211, 765 P.2d 373.) An implied covenant of good faith and fair dealing exists to ensure that neither party will do anything to injure the right of the other to receive the benefits of his or her bargain. (Universal Sales Corp. v. Cal. etc. Mfg. Co. (1942) 20 Cal.2d 751, 771, 128 P.2d 665.) Such a covenant has been implied in a borrower-lender context. (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 782, 157 Cal. Rptr. 392, 598 P.2d 45.)

An implied covenant of good faith and fair dealing is read into a contract in order to protect the express promises therein. (Foley v. Interactive Data Corp., supra, 47 Cal.3d at pp. 689-690.) Thus, the scope of protection provided is circumscribed by the purposes and express terms of the agreement. (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 373, 826 P.2d 710.) The covenant imposes on each party an "affirmative duty to do `everything the express terms of the contract presuppose they will do to accomplish its purpose." (Wagner v. Benson (1980) 101 Cal. App. 3d 27, 32, 161 Cal. Rptr. 516.)

The covenant of good faith and fair dealing finds particular application where a contract invests in one party a discretionary power affecting the rights of the other. (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc., supra, 2 Cal.4th at p. 372.) In this matter, the deed of trust provided by the Andersons to PTF in connection with the loan to the Andersons for purchase of Rancho Murieta contained a provision whereby portions of the real property could be released from the trust deed as those portions were sold. However, expressly excluded from this provision was the Country Club. Thus, release of such property from the deed of trust was within PTFs discretion.

The PTF parties contend that by asserting a breach in the refusal to release the Country Club from PTFs deed of trust, Winncrest is essentially seeking to enforce an implied covenant that PTF will assure Winncrests ability to sell lots. According to the PTF parties, before such a promise can be implied, Winncrest must satisfy the following five-factor test: "(1) the implication must arise from the language used or it must be indispensable to effectuate the intention of the parties; (2) it must appear from the language used that it was so clearly within the contemplation of the parties that they deemed it unnecessary to express it; (3) implied covenants can only be justified on the grounds of legal necessity; (4) a promise can be implied only where it can be rightfully assumed that it would have been made if attention had been called to it; (5) there can be no implied covenant where the subject is completely covered by the contract." (Lippman v. Sears, Roebuck & Co. (1955) 44 Cal.2d 136, 142, 280 P.2d 775; see also Third Story Music, Inc. v. Waits (1995) 41 Cal.App.4th 798, 804; City of Glendale v. Superior Court (1993) 18 Cal.App.4th 1768, 1778.)

The PTF parties misunderstand Winncrests claim. Winncrest is not seeking to imply an affirmative duty on PTF to act in such a way as to assure that Winncrest will profit from its purchase of parcels 5 and 6. Rather, Winncrest claims PTF had an obligation not to take action that would interfere with Winncrests ability to profit. The covenant of good faith and fair dealing is implied in the parcel 5 and 6 loan agreements as a matter of law. The question here is not whether such covenant should be implied but whether the covenant is broad enough to require PTF to agree to release the Country Club from its deed of trust under the circumstances presented.

Winncrest cites as support for its claim Schoolcraft v. Ross (1978) 81 Cal. App. 3d 75, 146 Cal. Rptr. 57 (Schoolcraft ). In Schoolcraft, the plaintiffs purchased a home from the defendant for $ 14,500 and executed a promissory note secured by a deed of trust naming the defendant as beneficiary. (Id. at pp. 77-78.) The plaintiffs purchased a fire insurance policy that provided two options upon a loss: collecting the cash value of the house at the time of the loss, or rebuilding the house and receiving reimbursement from the insurance company of up to $ 14,100. (Id. at p. 78.)

The house was thereafter destroyed by fire and the plaintiffs decided to rebuild it. At the time, the remaining debt was $ 13,585.01. They received a check from the insurance company for $ 8,250 payable to the plaintiffs and the defendant and were informed the balance of the $ 14,100 would be paid upon completion of the new house. (Schoolcraft, supra, 81 Cal. App. 3d at p. 78.) However, the defendant refused to permit the proceeds to be used for rebuilding the house, invoking a clause in the trust deed giving her the option to apply the insurance proceeds to the indebtedness. The plaintiffs thereafter ceased payment on the note, and foreclosure proceedings were instituted. The property was sold to the defendant at a private sale for $ 600, and later resold by her for $ 6,000. (Id. at pp. 78-79.)

The plaintiffs filed suit against the defendant for the damages incurred due to the defendants refusal to permit the rebuilding of the home. They introduced evidence that a new home could have been constructed for $ 14,100 and would have had a fair market value of $ 20,000. They expressed a willingness to sell the new home upon completion and to remit the balance of the note to the defendant. The trial court found a breach of the covenant of good faith and fair dealing under these circumstances and awarded damages of $ 4,500. (Schoolcraft, supra, 81 Cal. App. 3d at p. 79.)

The Court of Appeal affirmed. The court held that the contractual right of the trust deed beneficiary to apply insurance proceeds to the balance of a note must be exercised in good faith and that to the extent the security is not impaired, the beneficiary must permit the proceeds to be used to rebuild the home. (Schoolcraft, supra, 81 Cal. App. 3d at p. 77.) The court found substantial evidence to support the trial courts conclusion that the security was not impaired and that the beneficiary failed to act in accordance with the implied covenant. (Id. at pp. 80-81.)

In reaching this conclusion, the court relied in substantial part on Milstein v. Security Pac. Nat. Bank (1972) 27 Cal. App. 3d 482, 103 Cal. Rptr. 16 (Milstein). In Milstein, the City of Los Angeles condemned a 10-foot strip of commercial property owned by Milstein, including the front of a building on the property, and deposited the estimated value of the condemned property into court. Milstein sought the use of the funds for repairs to the building. However, Milstein had given a deed of trust to Security Pacific National Bank, which claimed that under the terms of the trust deed, it had the right to collect that portion of the condemnation proceeds necessary to satisfy the note and deed of trust. The trial court denied any apportionment, and the Court of Appeal affirmed, based on the covenant of good faith. (Id. at pp. 485-486.) The court explained: "The purpose of the note and deed of trust is that respondents shall have the use of the funds loaned on the terms and at the interest rate specified in the note, and that appellant shall have the security provided by the deed of trust. To carry out that purpose, the implied covenant of good faith and fair dealing requires that appellant beneficiary exercise its discretion with respect to the condemnation fund in such fashion that it distribute to respondent borrowers all proceeds in excess of those necessary to recoup any impairment in security caused by the eminent domain proceeding. Since the trial court concluded on substantial evidence that appellants security is not impaired, respondents are entitled to all of the proceeds of the eminent domain action." (Id. at p. 487.)

In Schoolcraft, the court concluded that the same principle adopted in Milstein should apply because "while the language in the deed of trust in [Schoolcraft] differs slightly from the instrument in Milstein, in both situations the provisions were designed to accomplish the same ends." (Schoolcraft, supra, 81 Cal. App. 3d at p. 80.) The court continued: "The purpose of a deed of trust is that the borrower will have the use of funds loaned on specific terms and the lender will have the right to a specified repayment that is secured by the deed of trust [citation]. The lender does not have the right to unilaterally cut off the borrowers right to use the loaned funds unless he can show that his security is impaired. [P] Here there is no evidence that the security was impaired by the fire nor is there any evidence that plaintiffs were unwilling or unable to continue making payments on the property. The sole reason advanced for defendant Ross[s] conduct was that she was old and sick and needed the money immediately to take care of her medical needs." (Id. at pp. 80-81, fn. omitted.)

Although not explicitly spelled out, it is apparently Winncrests position that while PTF had the option to refuse to release its security interest in the Country Club, it could not do so unless there was otherwise a threat to its interests. Winncrest argues that there was no such threat, because each of the various proposals for settlement of the dispute between RMPI and RMCC would have been beneficial to PTF. Each of those settlement proposals called for purchase of the Country Club for a price in excess of its fair market value in light of the long-term lease.

Schoolcraft and Milstein are inapposite. There, the trust deed beneficiary had the right to reclaim all or a portion of the loan proceeds, but the court concluded that the beneficiary could exercise that right only if there was a threat to the beneficiarys security. Here, PTF did not seek to reclaim the loan proceeds from Winncrest. Winncrest was left to use the loan proceeds, i.e., the benefit of its bargain, as it saw fit. Furthermore, Winncrest has not shown that PTFs interests were not threatened by release of the Country Club from its deed of trust under the terms of the various settlement proposals. Although the purchase price for the Country Club would have been greater than its fair market value with the long-term lease, it was not greater than the fair market value absent the lease. At the time of the proposed settlement, PTF and McMorgan could reasonably have anticipated that the Country Club would be sold to RMCC under the terms of the lease, i.e., at fair market value without the lease, or that the Country Club would be reclaimed by RMPI absent the lease, due to RMCCs default.

The covenant of good faith and fair dealing imposes a duty to protect the benefits of the agreement. "While this duty exists in addition to any contractual obligation, the nature and extent of the requirements of fair dealing are determined by the agreement itself." (Wagner v. Benson, supra, 101 Cal. App. 3d at p. 34.) "The success of the [borrowers] investment is not a benefit of the loan agreement which the [lender] is under a duty to protect [citation]. The ultimate use to which the loan proceeds are put is only secondarily related to the immediate purpose of the contract. At most, the [borrowers] investment interests must be given reasonable consideration by the [lender] in charting its conduct. [Citations.] However, a contracting party is not required to totally disregard its own interests to show good faith." (Id. at pp. 34-35.)

Because Winncrest had no right to RMCC memberships under the terms of its various purchase agreements, no conduct by PTF or McMorgan could have impaired such right and, hence, no conduct by PTF or McMorgan could have breached the covenant of good faith. Nonsuit was properly granted on that portion of Winncrests lender liability claim alleging breach of the covenant of good faith.


Deficiency Judgment

On December 15 and 16, 1998, the court tried PTFs claim in the main action for a deficiency judgment against Winncrest. Winncrest contended it was entitled to the protection of Code of Civil Procedure section 580b (section 580b), both as to the 1985 Anderson note and deed of trust, by way of "pass through," and the parcel 6 note. The court ruled for PTF. In its statement of decision, the court concluded that the 1985 loan to the Andersons was not a purchase money note, because the real property owned by RMPI, not that sold by PTF to the Andersons, was the security for the note. The court also concluded that Winncrest was judicially estopped from arguing that section 580b applied to the 1985 transaction. Further, the court concluded that Winncrest was not entitled to "pass through" protection because it purchased parcel 6 from RMPI, not the Andersons, and parcel 6 was only a small portion of the property involved in the 1985 transaction. Finally, the court concluded that Winncrest was not entitled to the protection of section 580b in connection with its loan from PTF for the purchase of parcel 6, because the property was purchased from RMPI, the property was purchased for commercial rather than owner-occupied use, and PTF did not have a special involvement in negotiating the terms of the purchase.

Winncrest takes issue with the trial courts statement of decision. Winncrest contends the statement fails to include findings on several controverted issues. However, with two exceptions, Winncrest does not identify what findings the court failed to make. Instead, Winncrest identifies a number of evidentiary facts, which it argues supports a contrary finding on the issues the court did decide. For example, in support of its argument that the Andersons and RMPI were entitled to the protection of section 580b on the note and deed of trust to PTF, Winncrest cites evidence that the Andersons agreed to purchase the Rancho Murieta project and then transferred their rights in the purchase agreement to Spring Creek. The Andersons then had PTF transfer its real property and RMPIs stock to Spring Creek and had Spring Creek deed its property to RMPI. At the same time, RMPI assumed the $ 28.2 million note to PTF.

"Code of Civil Procedure section 632 requires the court, upon request, to issue a statement of decision `explaining the factual and legal basis for its decision as to each of the principal controverted issues at trial. Failure to determine a material issue in a statement of decision can, in some circumstances, be reversible error if there is evidence that would support a finding in the opposing partys favor." (Triple A Management Co. v. Frisone (1999) 69 Cal.App.4th 520, 536.) However, a statement of decision need only address ultimate rather than evidentiary facts. (Hellman v. La Cumbre Golf & Country Club (1992) 6 Cal.App.4th 1224, 1230.) A finding on ultimate facts, that is, those on which the outcome of the case turns, necessarily includes findings on all intermediate evidentiary facts necessary to sustain them. (In re Cheryl E. (1984) 161 Cal. App. 3d 587, 599, 207 Cal. Rptr. 728.) It is for the trial court to decide what are the ultimate facts of the case. (Vukovich v. Radulovich (1991) 235 Cal. App. 3d 281, 295, 286 Cal. Rptr. 547.)

The trial court was not required to include in its statement of decision findings on the evidentiary matters identified by Winncrest. In a footnote, Winncrest argues that the court failed to make a finding on Winncrests claim that RMPI became the alter ego of the Andersons following the sale of RMPIs stock to the Andersons. However, as we shall explain, determination of the alter ego status of the Andersons and RMPI is not necessary for resolution of this matter. Hence, any error by the trial court in failing to resolve that issue was harmless.

Winncrest also contends the trial courts statement of decision failed to include findings regarding the applicability of judicial estoppel. However, Winncrest does not identify what findings the court should have made. In its statement of decision, the court found: "In the jury trial of this matter, Winncrest argued as part of its fraud claim that the transaction between [the Andersons] and [PTF] was not a routine purchase money note that would be automatically subject to section 580b, but that [PTF] had deliberately structured the transaction to be non-recourse, and had included the non-recourse language in the note, as part of its secret plan to commit fraud. The Court, in ruling on the admissibility of that evidence and that argument, concluded that section 580b did not apply to the Anderson note, and that Winncrest could argue that the 1985 sale was non-recourse because of deliberate structure, and not as a matter of automatic application of the law. Winncrest is judicially estopped, and cannot now argue to the contrary, and cannot now claim that [the Andersons] had 580b protection to pass through to Winncrest."

We fail to see what further ultimate findings the court could have made on the issue. What Winncrest is really arguing is not that the trial courts finding on judicial estoppel was inadequate but that it was wrong. We agree.

"Judicial estoppel is an equitable doctrine aimed at preventing fraud on the courts. It is applied to keep litigants from playing `fast and loose with the court." (In re Marriage of Dekker (1993) 17 Cal.App.4th 842, 850.) Judicial estoppel applies when: "(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud or mistake." (Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 183.) "Judicial estoppel is an extraordinary remedy that should be applied with caution." (Kelsey v. Waste Management of Alameda County (1999) 76 Cal.App.4th 590, 598.)

On January 2, 1998, the PTF parties moved to exclude evidence that the Andersons and PTF purposely structured the 1985 transaction to be nonrecourse in nature, in furtherance of PTF and McMorgans secret plan. The PTF parties argued that pursuant to Winncrests section 580b affirmative defense, the transaction is subject to that section and, hence, is nonrecourse as a matter of law. Therefore, they argued, no evidence of the parties intent in this regard was relevant. Winncrest responded that its argument is not that the 1985 transaction is, per se, within the terms of section 580b but only "as structured." (Bold emphasis omitted.) Winncrest argued that the 1985 transaction "was not by definition a purchase money transaction subject to section 580b," because it involved not only the sale of land but the sale of corporate stock. Winncrest sought introduction of evidence to prove that notwithstanding the ambiguous nature of the transaction on paper, the parties intended the note to be nonrecourse and, therefore, subject to section 580b. The trial court eventually denied the motion to exclude the evidence, concluding that section 580b did not apply.

Obviously, there is some confusion in the trial courts ruling. If, as the court indicated, section 580b did not apply to the parcel 6 note (as the court later concluded), then the court should have granted the motion and excluded the evidence. Evidence of the parties intent to make the note nonrecourse is irrelevant if section 580b does not apply. Instead, the court denied the motion and allowed Winncrest to present evidence to prove that the 1985 transaction, as structured, was subject to section 580b.

At any rate, the PTF parties judicial estoppel argument is without merit. Winncrest did not take a position in connection with the prior evidentiary matter that was inconsistent with its argument that section 580b applied to the 1985 transaction. For judicial estoppel to apply, "the party must have taken positions that are so irreconcilable that . . . `"one necessarily excludes the other."" (Bell v. Wells Fargo Bank (1998) 62 Cal.App.4th 1382, 1387.) That is not the case here.

Turning now to the merits of Winncrests section 580b argument, Winncrest contends evidence of the various pieces of the transaction, including the original purchase agreement between the Andersons and PTF, the transfer of the Andersons interest in the transaction to Spring Creek, PTFs transfer of property to Spring Creek, Spring Creeks transfer of property to RMPI, the joint execution of the $ 28.2 million note by the Andersons, Spring Creek and RMPI, the transfer of Spring Creeks stock to RMPI, Inc., and the transfer of RMPI, Inc.s stock to Rancho Murieta Investors, shows that the $ 28.2 million note was intended to be a purchase money obligation. Winncrest argues that because parcel 6 was part of the property purchased in 1985, the purchase money nature of the 1985 transaction carried through to Winncrests purchase of parcel 6.

Because we disagree with the second part of Winncrests argument, we need not address the first. Winncrest cites Costanzo v. Ganguly (1993) 12 Cal.App.4th 1085, 1090, for the proposition that when a purchase money obligation is assigned, the assignee is also subject to section 580b. Winncrest also cites Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 49-50, 924 P.2d 996, for the proposition that a purchase money note and deed of trust subject to section 580b retain this protection after they are assumed by another.

These cases do not help Winncrest. Assuming RMPI was the purchaser of the Rancho Murieta project in 1985, it did not assign its note to Winncrest in connection with the parcel 6 transaction. Nor did Winncrest assume RMPIs obligation under the 1985 loan. Instead, a new transaction was formulated whereby RMPI sold a portion of the property obtained in 1985 and PTF provided the financing. This was not, as Winncrest argues, a substitution of the parcel 6 note for a portion of the 1985 note. It was a totally new transaction where the lender happened to be the same. This was no more a substitution of one note for a portion of another than if RMPI had sold individual lots to consumers and PTF had provided the financing.

Winncrest next contends it was entitled to the protection of section 580b in its own right, by virtue of the parcel 6 transaction. Winncrest argues that while PTF was the lender and RMPI was nominally the seller, PTF was so involved in the transaction that it became the seller. Winncrest relies on the fact that PTF held the Andersons note, which was in default, yet refrained from foreclosing. Instead, PTF controlled Anderson and, hence, RMPI by the threat of foreclosure. PTF was, therefore, calling the shots when RMPI sold parcel 6 to Winncrest.

"Our Supreme Court has stated that section 580b applies automatically only to `standard purchase money transactions (Spangler v. Memel [(1972)] 7 Cal.3d [603,] 611), i.e., where the vendor of real property retains an interest in the land sold to secure payment of part of the purchase price. (Roseleaf Corp. v. Chierighino (1963) 59 Cal.2d 35, 41 [27 Cal.Rptr. 873, 378 P.2d 97].) Where the transaction is a variation of the standard purchase money mortgage transaction, the antideficiency statute applies only when doing so will promote the purposes underlying section 580b." (Costanzo v. Ganguly, supra, 12 Cal.App.4th at p. 1091.) Courts will interpret the term "vendor" broadly if to do so will further the purposes of antideficiency legislation. (Conley v. Matthes (1997) 56 Cal.App.4th 1453, 1461.)

"The primary purpose of [section 580b] has been stated as follows: where inadequacy of the security results from a decline in property values during a general or local depression, the deficiency bar prevents the aggravation of the downturn that would result if defaulting purchasers lost the land and were also burdened with personal liability. [Citations.] `[Section 580b], and the related sections passed at the same time, were intended to prevent creditors from buying in property for a nominal sum, after the debtor had defaulted, and then holding the defaulting debtor for a large deficiency judgment." (Union Bank v. Anderson (1991) 232 Cal. App. 3d 941, 946, 283 Cal. Rptr. 823.)

Where a purchase and loan transaction is structured in such a way as to hide its purchase money nature, the purposes of the antideficiency statutes will be furthered by recognition of section 580b protection. This is the case where the lender is, as a practical matter, the vendor as well. As one court has stated, "the critical factors in determining vendor status are the degree of the lienholders participation in the sale and whether the financing the lienholder provided was necessary to the consummation of the sale." (Conley v. Matthes, supra, 56 Cal.App.4th at p. 1462.) For example, in Jackson v. Taylor (1969) 272 Cal. App. 2d 1, 76 Cal. Rptr. 891, the plaintiffs held a purchase money note secured by a junior lien on two parcels of property. (Id. at p. 2.) After default on the note, the owner/debtor agreed to sell the property to new buyers in 1965. To facilitate the sale, the plaintiffs agreed to reconvey their deed of trust in exchange for cash and a new note secured by a new junior lien. (Id. at p. 3.) Later, the senior lien holder foreclosed, thereby extinguishing the plaintiffs lien. (Id. at pp. 3-4.) The court held that the plaintiffs were not entitled to a deficiency judgment. (Id. at pp. 6-7.) Even though they were not the owners of the property when the second note was created, they were necessary parties to the transfer to the new buyers. By consenting to and participating in the sale, they "were vendors of their interest as beneficiaries under the original trust deed" and were therefore "vendors with respect to the 1965 purchase . . . ." (Id. at p. 6.)

In Shepherd v. Robinson (1981) 128 Cal. App. 3d 615, 180 Cal. Rptr. 342, which was disapproved on other grounds in DeBerard Properties, Ltd. v. Lim (1999) 20 Cal.4th 659, 671, 976 P.2d 843, the plaintiffs held a purchase money lien, and when the owner borrower experienced financial problems, he decided to sell the property. To facilitate the sale, the plaintiffs agreed to reduce the debt owed by the owner and to subordinate their lien to a new senior lien. (Shepherd v. Robinson, supra, 128 Cal. App. 3d at pp. 620-621.) The court held that the plaintiffs were necessary parties to the transfer, and by consenting to and participating in it, they were "vendors" of their interest as beneficiaries under the original trust deed, and subject to section 580b. (Id. at p. 623.)

In the present matter, PTF cannot be said to have been a vendor of its interest as a beneficiary of the trust deed executed by the Andersons. That trust deed remained intact following the sale of parcel 6, although, presumably, the property covered by it was reduced accordingly. While PTFs loan to Winncrest may have helped to facilitate the sale, it cannot be said to have been a necessary component. In other words, the sale could have gone forward without PTFs participation by Winncrest obtaining financing elsewhere. PTF was not required to reconvey its deed of trust from the Andersons in exchange for a new one or to subordinate its deed of trust.

There is also no evidence that PTF had any say in structuring the deal between RMPI and Winncrest. Although Winncrest cites testimony by Thomas Winn that PTF insisted on being the lender for the transaction, it cites no evidence that PTF set any of the terms of the purchase or otherwise participated as a seller rather than a lender. Because PTFs participation in the parcel 6 transaction was as a lender only, it was not subject to section 580b. The trial court did not err in rejecting Winncrests antideficiency defense.


Usury Defense

In connection with the purchase of parcel 6, Winncrest borrowed $ 2,216,000 from PTF and executed a promissory note providing for repayment in two years and interest at the rate of 12 percent per annum. The note required monthly interest-only payments of $ 22,160 and provided that in the event interest payments were not made when due, they "shall become a part of the principal and bear interest at the interest rate of this Note." Winncrest contends the requirement that unpaid interest become part of principal and bear like interest makes the note usurious, and, therefore, PTF is not entitled to collect any interest on the note.

During trial, the parties stipulated that Winncrests usury defense on the parcel 6 note would be considered after resolution of the section 580b defense. After the court ruled for the PTF parties on the section 580b issue, it instructed Winncrest to propose a procedure for conducting a hearing on the usury issue. Winncrest submitted a memorandum that outlined the arguments of the parties and proposed a procedure. Winncrest did not brief the merits. The PTF parties thereafter submitted their own proposal for a procedure and included arguments on the merits. The PTF parties also offered to reduce the interest charged to the legal rate pursuant to a savings clause in the note. The court ruled that it is unnecessary to determine if the note was usurious, because assuming it was, the note was salvaged by the savings clause. The court permitted PTF to recover at a rate of 12 percent. Winncrest moved to vacate the courts ruling and requested an opportunity to brief the merits. The court considered the issue no further.

California Constitution, article XV, section 1 limits the interest rate for a "loan or forbearance" of money not primarily for personal, family or household purposes, to the higher of: "(a) 10 percent per annum or (b) 5 percent per annum plus the rate prevailing on the 25th day of the month preceding the earlier of (i) the date of execution of the contract to make the loan or forbearance, or (ii) the date of making the loan or forbearance established by the Federal Reserve Bank of San Francisco on advances to member banks under Sections 13 and 13a of the Federal Reserve Act . . . ." It is undisputed that the maximum rate of interest at the time of the parcel 6 loan was 12 percent.

The PTF parties contend Winncrest has waived its usury defense by failing to assert it as an affirmative defense. The usury defense was not raised in Winncrests answer to the foreclosure complaint or in Winncrests cross-complaint or amended cross-complaints.

In Willcox v. Edwards (1912) 162 Cal. 455, 462, 123 P. 276, the state high court indicated the defense of usury "must be made affirmatively in some recognized mode, or it is waived." Because a usurious contract is voidable rather than void, the innocent party must assert its unlawful nature in some manner. (Ibid.) In Andrews v. Reidy (1936) 7 Cal.2d 366, 60 P.2d 832, the court held that the plaintiff waived the usury defense by failing to raise it in a prior proceeding, where the defendants right to receive payment had been adjudicated. (Id. at p. 370.) In Zimmerman v. Boyd (1929) 97 Cal.App. 406, 275 P. 509, usury was raised by one of two defendants in connection with a motion to dismiss. However, because that defendant was not a party to the usurious contract, he could not take advantage of the defense.

None of the foregoing cases stands for the proposition that the defense of usury must be raised as an affirmative defense or by any other specific means. As the court in Willcox indicated, it must be raised by some "recognized mode." (Willcox v. Edwards , supra, 162 Cal. at p. 462.) In Andrews, the court suggested the trial court might raise the defense on its own motion. (See Andrews v. Reidy, supra, 7 Cal.2d at p. 369.) Here, the defense was raised by Winncrest during the proceedings, and we have no reason to believe it was not by some recognized mode. Therefore, there was no waiver.

"The essential elements of usury are: (1) The transaction must be a loan or forbearance; (2) the interest to be paid must exceed the statutory maximum; (3) the loan and interest must be absolutely repayable by the borrower; and (4) the lender must have a willful intent to enter into a usurious transaction." (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 798, 883 P.2d 960.) An attempt to exact a usurious rate of interest on a note renders the interest provision void and results in a note payable at maturity without interest. (Epstein v. Frank (1981) 125 Cal. App. 3d 111, 122-123, 177 Cal. Rptr. 831.) In addition, any usurious interest collected on the note may be offset against the principal in an action to collect on the note. (Shirley v. Britt (1957) 152 Cal. App. 2d 666, 669, 313 P.2d 875.)

Winncrest contends the note at issue here is usurious because: (1) it specifies the maximum interest rate, (2) it contains a provision for the payment of interest at intervals less than a year, and (3) in the event of nonpayment, the interest becomes part of principal and bears like interest. We agree.

In First American Title Ins. & Trust Co. v. Cook (1970) 12 Cal. App. 3d 592, 90 Cal. Rptr. 645 (First American), the defendant borrowed $ 55,000 to be repaid many years later with monthly, interest-only payments at 10 percent, which was the maximum allowable rate. The note also provided that any interest not paid when due would be added to principal and bear like interest. (Id. at pp. 595-596.) This latter provision rendered the note usurious. The court explained: "Where . . . a note provides for the monthly payment of interest at the maximum legal rate, the provision that the interest not so paid `shall be added to the principal and thereafter bear like interest as the principal makes the note usurious. Where interest is compounded annually at the maximum rate after default, the sum charged as interest for any one year will not exceed the maximum rate upon the amount of money owed at the commencement of the year, but the sum charged will exceed that rate if the interest is compounded at shorter intervals." (Id. at p. 597, italics omitted.)

The usurious nature of a transaction is determined by the amount of interest agreed on at the time of making the loan. (Abbot v. Stevens (1955) 133 Cal. App. 2d 242, 248, 284 P.2d 159.) Here, at the time of the parcel 6 note, Winncrest agreed to pay the maximum rate of 12 percent, plus interest on any monthly interest payment not made. It is this compounding that made the amount Winncrest agreed to pay greater than 12 percent and, thus, usurious.

The PTF parties contend the parcel 6 note was not usurious because it called for monthly interest payments of $ 22,160, for a total of $ 265,920. According to the PTF parties, "that is the amount of interest that accrues in one year on the original principal sum of $ 2,216,000 at the rate of 12 percent per annum simple interest." The PTF parties also contend the provision that requires unpaid interest be added to principal and bear like interest does not make the parcel 6 note usurious, because the monthly interest-only payments remain the same. According to the PTF parties, the note in First American provided that when unpaid interest is added to principal, the monthly payments increased accordingly. The PTF parties argue that the parcel 6 note is different, because interest on any unpaid interest payments does not become due and payable until the note matures and, therefore, cannot become delinquent if not paid during the term of the note. According to the PTF parties, if interest on delinquent interest payments cannot be added to the principal of the note, then "no interest on interest accrues."

This argument is preposterous. The fact that Winncrests monthly payments do not change in the event of a missed payment does not mean interest on the unpaid interest does not accrue. It most certainly does. The only difference is that payment of this accrued interest is delayed until maturity of the note. There is no requirement, as the PTF parties apparently believe, that interest accrue during the term of the loan on the interest that accrues on unpaid interest. The critical inquiry is whether, under the terms of the note, the borrower is required to pay a higher rate of interest than permitted by law. Here, the note required Winncrest to pay the maximum rate. However, the note further provided that if monthly interest payments were not made, they would be added to principal and accrue like interest. Thus, an amount greater than the legal rate could accrue if payments were not made. This is the evil the constitutional usury provision seeks to avoid.

The PTF parties contend, and the trial court agreed, the savings clause of the note protects it from being found usurious. The PTF parties argue that the parties to the note intended that in the event the terms of the note provide for interest in excess of that permitted by law, the amount permitted by law should be used instead. Winncrest counters that the terms of the purported savings clause in the note do not show an intent to comply with the usury laws but to violate such laws until such time as a court concludes the note is usurious.

The parcel 6 note provided: "No interest or any other amount paid or agreed to be paid to the Lender under this Note and/or any Loan Document for the use, forbearance, or detention of money shall exceed the highest lawful rate permissible under any applicable usury law. If fulfillment of any provision hereof or of the Loan Documents shall be deemed, by a court of competent and final jurisdiction, to violate any applicable usury law, the obligation to be fulfilled shall be reduced to the limit of such validity, and any amount received in excess of such limit shall be applied to reduce the unpaid principal balance hereof and not to the payment of interest. . . ."

We disagree with Winncrest that the foregoing provision shows an intent to violate the law until ordered otherwise. The provision reveals an uncertainty as to the requirements of the usury laws and an attempt to stay within the law. In the event a court determines the note to be usurious, all excess interest previously received is to be applied to principal.

However, the remainder of the savings clause creates some confusion. It reads: "Notwithstanding the foregoing, the Maker acknowledges that the Lender is a pension fund and is subject to the Employee Retirement Income Security Act of 1974 (P.L. 93406). Pursuant to the provisions of Section I of Article XV of the California Constitution and Civil Code section 1917.220, the Maker acknowledges that the Lender is exempt from the provisions of the California Usury Law. The Maker and the Lender intend that all amounts to be received or which are actually received under this Note or the Loan Documents shall be exempt from the provisions of any applicable usury law." At the time the parcel 6 note was executed, Civil Code section 1917.220 provided that the usury provisions of the State Constitution were inapplicable to any "pension fund" or "retirement system" subject to ERISA. However, since then the Court of Appeal in Varr v. Olimpia (1996) 45 Cal.App.4th 675, 680, concluded that this provision is preempted by ERISA. The PTF parties do not contend Varr was wrongly decided, and we shall accept its holding for purposes of this appeal.

One element of a usury claim is "a willful intent to enter into a usurious transaction." (Ghirardo v. Antonioli, supra, 8 Cal.4th at p. 798.) While intent to impose a usurious rate of interest may be presumed from a note that clearly shows such an intent on its face (Denny v. Hartley (1957) 154 Cal. App. 2d 304, 306, 315 P.2d 893), the instrument here does not do so. On the one hand, it shows that the parties intended to limit the interest charged to that permitted by law. However, it goes on to say the parties believed the note was exempt from usury laws.

Nevertheless, we believe the two parts of the savings clause can be reconciled. While the parties may have believed their transaction was exempt from usury because PTF was a pension fund, they nevertheless had the foresight to recognize they might be wrong. Therefore, they provided that in the event a court concludes there is no exemption and the rate charged exceeds that permitted by usury law, the lawful rate shall be substituted and all prior overpayments shall be credited to principal. The trial court found that this provision saved the note from a finding of usury, and we agree. Winncrests usury defense was properly rejected.


The judgment is affirmed. The matter is remanded to the trial court for further proceedings to determine an appropriate sanction in connection with Sweeneys violation of the trial courts discovery order. Cross-defendants First Interstate, PFT, and McMorgan are entitled to costs on appeal.


Summaries of

First Interstate Bank of California v. Winncrest Homes, Inc.

Court of Appeals of California, Third Appellate District.
Jul 25, 2003
C035434 (Cal. Ct. App. Jul. 25, 2003)
Case details for

First Interstate Bank of California v. Winncrest Homes, Inc.

Case Details

Full title:FIRST INTERSTATE BANK OF CALIFORNIA, as Cotrustee, etc., et al.…

Court:Court of Appeals of California, Third Appellate District.

Date published: Jul 25, 2003


C035434 (Cal. Ct. App. Jul. 25, 2003)

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