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Jacks v. Crawford Inv. Co.

COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION TWO
May 24, 2012
E052650 (Cal. Ct. App. May. 24, 2012)

Opinion

E052650

05-24-2012

GERALD JACKS, Plaintiff and Appellant, v. CRAWFORD INVESTMENT COMPANY et al., Defendants and Respondents.

Gerald L. Jacks, in pro. per., for Plaintiff and Appellant. Granowitz, White and Weber and Steven R. Weber for Defendant and Respondent Crawford Investment Company. Pite Duncan and Christopher L. Peterson for Defendant and Respondent Saxon Mortgage Services, Inc.


NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Super.Ct.No. CIVDS1004532)


OPINION

APPEAL from the Superior Court of San Bernardino County. Donald R. Alvarez, Judge. Affirmed.

Gerald L. Jacks, in pro. per., for Plaintiff and Appellant.

Granowitz, White and Weber and Steven R. Weber for Defendant and Respondent Crawford Investment Company.

Pite Duncan and Christopher L. Peterson for Defendant and Respondent Saxon Mortgage Services, Inc.

I. INTRODUCTION

In 2004, plaintiff and appellant Gerald Jacks borrowed $128,000 and secured the loan with a first deed of trust against certain property in San Bernardino (the Property). Later, he deeded the Property to a corporation, GJ & Son Enterprise, Inc. (GJ & Son). According to Jacks, he was the president and sole shareholder of GJ & Son before its Nevada charter was revoked in September 2008.

In January 2006, GJ & Son borrowed $25,000 from defendant and respondent Crawford Investment Company (Crawford). The loan was secured with a second deed of trust against the Property.

Crawford asserts that the loan was actually made by Arrowhead Service Corporation. According to Jacks, Crawford owns and operates Arrowhead and Shoshone Service Corporation. He alleges that "all three corporations are operated by the same directors and officers and are not independent, but one entity, sharing the same building." By this allegation, it appears that Jacks is asserting that the alleged acts and omissions of any of these three entities are acts or omissions by Crawford. We will accept as true these allegations for purposes of reviewing a ruling on a demurrer and assume that Crawford is the lender on the junior deed of trust.

After the senior loan became delinquent in 2008, Crawford paid the delinquent amount to the senior lender, added that amount to the balance of its loan, and declared a default under the second deed of trust. It later sold the Property at a nonjudicial foreclosure sale.

Jacks sued Crawford and defendant and respondent Saxon Mortgage Services, Inc. (Saxon) for damages. Crawford demurred to the complaint. Among other arguments, Crawford asserted that Jacks is not the real party in interest as to the claims asserted in the complaint. Jacks, Crawford argued, was attempting to assert claims that (if they exist at all) belong to GJ & Son.

The court sustained the demurrer and granted Jacks leave to amend the complaint. The court stated that Jacks "must cure the revocation of its corporate charter" and "substitute the corporation in as the real party in interest."

Jacks filed his first amended complaint (FAC) in July 2010. It was uncertain whether GJ & Son was a plaintiff in the FAC, which was apparently drafted without the aid of counsel. Jacks has since made clear, however, that his claims are asserted solely in his individual capacity, not on behalf of the corporation.

The FAC is filed by Jacks in propria persona. In the caption of the document, he identifies the plaintiffs as "GJ AND SON ENTERPRISE, INC" and "GERALD L. JACKS SR PRESIDENT." The FAC does not thereafter mention the corporation and is signed by Jacks in his individual capacity only.

Although Saxon was named as a defendant in the caption of the FAC, Jacks did not include any allegations explicitly referring to Saxon. The pleading includes a claim for breach of contract as to Crawford, but is otherwise vague as to the claims asserted.

Crawford and Saxon filed separate demurrers to the FAC, each accompanied by a request for judicial notice of certain deeds and deeds of trust concerning the Property. Jacks opposed the demurrers, but not the requests for judicial notice.

Following a hearing, the court granted the requests for judicial notice, sustained the demurrers without leave to amend, and entered judgment of dismissal as to both defendants. (Our record does not indicate the grounds upon which the court sustained the demurrers.) Jacks appealed.

For the reasons set forth below, we affirm the judgment.

II. FACTUAL SUMMARY

Our factual summary is based on the properly pleaded allegations of the FAC and matters that may be judicially noticed; we do not consider as true plaintiff's contentions, deductions, or conclusions of fact or law. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
Attached to Jacks's opening brief on appeal are certain documents, including a copy of a check dated June 10, 2008, in the amount of $3,414.97 drawn on the account of Crawford and payable to Saxon, and a onepage document titled, "SERVICING NOTES," which appear to be a record of notes regarding the junior loan. These documents are not part of the record on appeal and do not appear to be judicially noticeable. Therefore, we cannot consider them in reviewing the sufficiency of the FAC. (See Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 837838 [in reviewing a ruling sustaining a demurrer, the court does "not go beyond the four corners of the complaint except as to matters which are judicially noticeable"].) However, the documents may be considered as part of an offer of proof in the context of determining whether Jacks should be given leave to amend.

On October 25, 2004, Jacks executed a deed of trust to secure the performance of a $128,000 loan from WMC Mortgage Corp. (We will use the term "senior" to refer to this loan and deed of trust.) The senior deed of trust encumbered the Property. The beneficiary under that deed of trust is Mortgage Electronic Registration Systems, Inc., or MERS.

On November 12, 2004, Jacks deeded the Property to GJ & Son.

On January 6, 2006, GJ & Son borrowed $25,000 from Crawford. The loan was secured by a deed of trust on the Property. (We will use the term "junior" in referring to this loan and deed of trust.) The junior deed of trust is signed by Jacks, as president of GJ & Son.

At some point, payments on the senior loan became delinquent. Jacks alleges he was "two months delinquent and not in default." (Jacks does not explain how he could be "delinquent" without being in "default.") Crawford then advanced money to the senior lienholder to cure the delinquency. It then "charged the funds to plaintiff[']s loan," declared a default, and gave notice of its election to sell the Property.

Jacks alleges he never gave written consent for Crawford to request notice of delinquency from the senior lienholder. Nor did he consent in writing "to borrow or advance any monies for a senior lien." Crawford, he avers, "forged a written consent and obtained plaintiff[']s senior lien account information, advanced funds toward the senior lien, commenced foreclosure[,] and stole plaintiff[']s property." Jacks further alleges that Crawford breached its contract by "preventing plaintiff from performing parts of the contract" and "using an illegal clause to accelerate the due date on a contract."

Jacks alleges that a "foreclosure" sale took place on June 11, 2008. However, the copy of the trustee's deed supplied by Crawford and Saxon (of which judicial notice was taken) indicates that the Property was sold at a trustee's sale on December 4, 2008, to Shoshone Service Corporation (an affiliate of Crawford) for $5,000.

A copy of the same trustee's deed was attached to Jacks's opposition to Crawford's demurrer. The December 4, 2008, date for the trustee's sale is also indicated in the servicing notes attached to Jacks's opening brief on appeal.

Jacks requests "relief for emotional distress, compensatory and punitive damages for not less than $600,00[0].00." (He does not seek to set aside the trustee's sale of the Property.)

III. DISCUSSION

A. Standard of Review

A general demurrer, including a demurrer on the ground a complaint fails to allege facts sufficient to state a cause of action, presents pure questions of law, and as such "'presents the same question to the appellate court as to the trial court, namely, whether the plaintiff has alleged sufficient facts to justify any relief . . . .'" (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1371.) Thus, on appeal from a judgment of dismissal following an order sustaining a general demurrer, we focus on the legal sufficiency of the complaint (Landmark Screens, LLC v. Morgan, Lewis & Bockius, LLP (2010) 183 Cal.App.4th 238, 244), and we independently determine whether its allegations state a cause of action (Unfair Fire Tax Com. v. City of Oakland (2006) 136 Cal.App.4th 1424, 1427).

More specifically, we interpret the allegations of the complaint liberally, with a view to attaining substantial justice between the parties. (Alfaro v. Community Housing Improvement System & Planning Assn., Inc., supra, 171 Cal.App.4th at p. 1371; Code Civ. Proc., § 452.) That is, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. (Speegle v. Board of Fire Underwriters (1946) 29 Cal.2d 34, 42.) We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions, or conclusions of fact or law. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.) We also consider facts which may or must be judicially noticed (Blank v. Kirwan, supra, 39 Cal.3d at p. 318; Code Civ. Proc., § 430.30, subd. (a)) and exhibits to the complaint (Hoffman v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th 390, 400). Allegations that are contrary to law or to judicially noticeable facts are treated as a nullity and are disregarded. (C.R. v. Tenet Healthcare Corp. (2009) 169 Cal.App.4th 1094, 1102.) Ultimately, we must uphold the order sustaining the demurrer only if the complaint fails to state a cause of action under any possible legal theory. (Sheehan v. San Francisco 49ers, Ltd. (2009) 45 Cal.4th 992, 998.)

"A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures. [Citations.]" (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616.) The complaint must be "so bad" that the defendant "cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her." (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2011) ¶ 7:85, p. 7(1)-39.)

In determining whether the court properly sustained the demurrer without leave to amend, we determine whether there is a reasonable possibility an amendment could cure the defects in the pleading. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) If we determine there is a reasonable possibility the plaintiff could cure the defects with an amendment, we conclude the trial court abused its discretion and we reverse the judgment; if not, no abuse of discretion has occurred and we affirm the judgment. (Ibid.) The plaintiff bears the burden of proving there is a reasonable possibility an amendment would cure the defect. (Ibid.) The plaintiff may make this showing for the first time on appeal. (Rakestraw v. California Physicians' Service (2000) 81 Cal.App.4th 39, 43.) B. Saxon Demurrer

Saxon asserts that the FAC is subject to demurrer for uncertainty and for failure to state a cause of action against it. Although demurrers for uncertainty are disfavored, we agree with Saxon that the FAC is so uncertain that Saxon cannot reasonably determine what counts or claims are asserted against it. The more significant problem with Jacks's appeal is that the facts and theories he proposes would not support a cause of action against Saxon if he was given leave to amend. We will therefore uphold the court's ruling and affirm the judgment of dismissal as to Saxon.

1. The FAC is Uncertain as to Saxon

The FAC does not mention Saxon except to list it as a defendant, along with Crawford, in the caption of the pleading. There are no labels of causes of action identifying which cause of action is being asserted against which defendant. Although there are numerous allegations regarding conduct by Crawford, there are none that explicitly refer to Saxon. There is one sentence in the body of the FAC that uses the plural "defendants," which could allude to both defendants listed in the caption. That sentence is: "The defendants['] conduct not only excuses performance on the plaintiff[']s part, but also clearly constitute a breach of contract." However, the pleading does not identify any contract to which Saxon is a party or explicitly allege any acts or omissions by Saxon. The FAC concludes by accusing Crawford of "actions [that] are unethical, unprofessional and in violation of Senate Bill 1137 rules," and requests $600,000 in damages. Again, it does not mention Saxon.

In his opening brief on appeal, Jacks requests that we take judicial notice that Saxon "held the first position at the time the Breach of Security was enacted." He offers no factual or legal support for this request, and we know of no basis for taking judicial notice of this fact. Accordingly, the request is denied.

Based on the four corners of the pleading, there is nothing that indicates what type of entity Saxon is, what business it engages in, whether it ever entered into a contract with Jacks, or why it might have any connection with the matters alleged in the FAC. Because there is nothing to apprise Saxon of any claims asserted against it or of the issues to which it must respond, it is subject to demurrer for uncertainty. (See Weil & Brown Cal. Practice Guide: Civil Procedure Before Trial, supra, ¶ 7:85, p. 7(1)-39.)

In his opposition to Saxon's demurrer and in his brief on appeal, Jacks contends he is suing Saxon on a theory of "breach of security." He relies in part on facts and theories not alleged in the FAC. Indeed, neither "breach of security" nor any similar phrase is mentioned in the pleading. We will consider his argument in the context of determining whether he should be given leave to amend his complaint to assert such a claim.

2. Leave to Amend Was Properly Denied

In his opening brief on appeal, Jacks offers the following additional facts regarding Saxon's alleged wrongdoing: Jacks "refinanced" the senior loan to Saxon in 2004; the senior loan was delinquent in April and May 2008; in June 2008, a loan servicing agent for Crawford contacted Saxon to inquire about the status of Jacks's loan; a Saxon "loss mitigation" representative informed Crawford that the total due on the senior loan was $3,414.97; Crawford thereafter sent a check to Saxon in that amount, along with a letter stating that the funds were forwarded by the junior lienholder; the next day, Crawford commenced foreclosure proceedings and eventually "seized" the Property.

Jacks explains that Saxon's disclosure of his "private or personal financial information" regarding the senior loan constitutes an actionable "Breach of Security" under Civil Code sections 1798.82 and 1798.84. As a result of this breach, Crawford was able to determine that the senior loan was delinquent, forward a sum of money to bring the senior loan current, then declare its own loan to be in default and, ultimately, acquire the Property at the trustee's sale. As we explain below, such facts do not support a cause of action against Saxon.

All further statutory references are to the Civil Code unless otherwise indicated.

Section 1798.81.5, subdivision (a), provides: "A business that owns or licenses personal information about a California resident shall implement and maintain reasonable security procedures and practices appropriate to the nature of the information, to protect the personal information from unauthorized access, destruction, use, modification, or disclosure."

Under section 1798.82, subdivision (a), a "person or business that conducts business in California, and that owns or licenses computerized data that includes personal information, shall disclose any breach of the security of the system following discovery or notification of the breach in the security of the data to any resident of California whose unencrypted personal information was, or is reasonably believed to have been, acquired by an unauthorized person."

For purposes of this statute, "personal information" is defined as "an individual's first name or first initial and last name in combination with any one or more of the following data elements, when either the name or the data elements are not encrypted: [¶] (1) Social security number. [¶] (2) Driver's license number or California Identification Card number. [¶] (3) Account number, credit or debit card number, in combination with any required security code, access code, or password that would permit access to an individual's financial account. [¶] (4) Medical information. [¶] (5) Health insurance information." (§ 1798.82, subd. (h).)

In 2008, when the alleged disclosures by Saxon took place, what is now subdivision (h) of section 1798.82 was designated subdivision (e). (Stats. 2011, ch. 197, § 2, p. 2314.)

Section 1798.84, subdivision (b), provides for the right to bring a civil action for violating section 1798.82.

Jacks contends that the disclosure by Saxon to Crawford of the delinquency on the senior loan and the amount of the delinquency constitutes a breach of Saxon's security system for purposes of section 1798.82. It does not. That statute is concerned with the disclosure of "personal information" as defined in the statute. The FAC does not allege—and Jacks does not indicate he could allege—that Saxon provided Crawford with Jacks's social security number, driver's license or California identification number, Jacks's account number "in combination with any required security code, access code, or password that would permit access to [Jacks's] financial account," medical information, or health insurance information. In the absence of such an allegation, no cause of action for breach of security under sections 1798.82 and 1798.84 is stated.

Jacks also points to section 2924e. Subdivision (a) of that statute provides: "The beneficiary or mortgagee of any deed of trust or mortgage on real property either containing one to four residential units or given to secure an original obligation not to exceed three hundred thousand dollars ($300,000) may, with the written consent of the trustor or mortgagor that is either effected through a signed and dated agreement which shall be separate from other loan and security documents or disclosed to the trustor or mortgagor in at least 10-point type, submit a written request by certified mail to the beneficiary or mortgagee of any lien which is senior to the lien of the requester, for written notice of any or all delinquencies of four months or more, in payments of principal or interest on any obligation secured by that senior lien notwithstanding that the loan secured by the lien of the requester is not then in default as to payments of principal or interest."

Section 2924e, in essence, provides certain types of junior lienholders with a method to ensure that they are notified when a senior loan is four months delinquent. (See generally 1 Bernhardt, Cal. Mortgages, Deeds of Trust, and Foreclosure Litigation (Cont.Ed.Bar 4th ed. 2012) § 2.6, p. 63.) If the junior lienholder gives the senior lienholder the request to be notified in the form and manner described by the statute, the senior lienholder has a duty to notify the junior lienholder of such delinquency. (§ 2924e, subd. (c).) If a senior lienholder who has received such a request then forecloses on the senior deed of trust without giving notice of delinquency to the junior lienholder, the senior lienholder "shall be liable to the [junior lienholder] for any monetary damage due to the failure to provide notice within the time" required under the statute. (§ 2924e, subd. (d).)

There are no facts set forth in the FAC, and none suggested in Jacks's briefs on appeal, that implicate section 2924e. That statute provides a method for creating a right in the junior lienholder to receive notice of delinquency and a corresponding duty in the senior lienholder to provide such notice. If the right is established and the duty thereafter breached, the junior lienholder has a cause of action for damages against the senior lienholder. (§ 2924e, subd. (d).) Significantly, the statute does not create any right or cause of action in the borrower or trustor.

Jacks points out that the junior lienholder has the right to notice of a delinquency only if its request for such notice is made "with the written consent of the trustor or mortgagor . . . ." This does not mean, as Jacks believes, that the trustor has a cause of action if his written consent is not first obtained. Rather, the requirement of the trustor's consent is expressed as a prerequisite to establishing the junior lienholder's right to receive notice of a delinquency and of the senior lienholder's obligation to provide such notice. Thus, if Crawford did not obtain the trustor's consent (or otherwise failed to comply with the requirements of the statute), it would not have the right to receive from Saxon (if Saxon is the senior lienholder) a notice of delinquency; nor would Saxon have any obligation to give Crawford such notice. The statute simply does not create any rights or obligations with respect to Jacks (or GJ & Son).

The statute does not preclude a junior lienholder who has not obtained the trustor's written consent from informally inquiring of the senior lienholder about the delinquency or default on the senior loan. Nor does it preclude the senior lienholder from responding to such a request. It appears from the loan servicing notes attached to Jacks's opening brief that this kind of informal request and response is what took place in this case. Section 2924e simply does not govern this situation.
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For the foregoing reasons, Jacks has not satisfied his burden of showing that he could state a cause of action against Saxon for breach of security.

In addition to a cause of action for breach of security, Jacks states that he is asserting a claim against Saxon for breach of contract, including breach of the implied covenant of good faith and fair dealing. His only explanation of this claim, however, is that Saxon "initiated the default of the [junior] Deed of Trust before the commencement of foreclosure and the sale of the property." Although this statement is not entirely clear, his theory appears to be that Saxon informed Crawford of the delinquency on the senior loan, which caused Crawford to advance sums to Saxon to cure the delinquency, which led to a default on the junior loan and, ultimately, the trustee's sale of the Property. Even if we assume such facts, they do not indicate a breach of any contractual duty on the part of Saxon.

Because Jacks failed to establish that he could amend his complaint to state a cause of action against Saxon, we affirm the judgment of dismissal as to Saxon. C. Crawford Demurrer

Crawford demurred to the FAC on the ground, among others, that the FAC fails to state a cause of action against it. We agree. First, because the claim or claims against Crawford arise out of the loan and deed of trust entered into with GJ & Son and the trustee's sale of GJ & Son's Property, Jacks is not the real party in interest and therefore has no right to sue on such claims. Second, even if Jacks was a proper plaintiff or the claims were asserted by GJ & Son, the claim or claims are legally insufficient.

1. Jacks is Not the Real Party in Interest as to Claims Against Crawford

"Every action must be prosecuted in the name of the real party in interest . . . ." (Code Civ. Proc., § 367.) If the plaintiff is not the owner of or entitled to assert a particular cause of action, the complaint is subject to a general demurrer. (5 Witkin, California Procedure (5th ed. 2008) Pleading, § 970, pp. 382-383.)

"It is fundamental that a corporation is a legal entity that is distinct from its shareholders. . . . [¶] Because a corporation exists as a separate legal entity, the shareholders have no direct cause of action or right of recovery against those who have harmed it." (Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1108.)

Here, Jacks is suing Crawford for breach of contract and, somewhat vaguely, "wrongful foreclosure." The essence of these claims appears to be that Crawford requested and obtained information from the senior lienholder regarding the delinquency on the senior loan without first getting the borrower's written consent, Crawford advanced money to cure the delinquency, and Crawford declared a default and foreclosed on the junior deed of trust based on an illegal loan acceleration clause.

Based on the deeds and deed of trust that were judicially noticed, GJ & Son was the borrower under the junior loan, the trustor under the junior deed of trust, and the owner of the Property at the relevant times. Jacks does not dispute any of these facts. Indeed, he attaches a copy of the first page of the junior deed of trust (showing GJ & Son as the trustor) and the first page of the junior note (showing GJ & Son as the borrower) to his opposition to Crawford's demurrer. It does not appear that there is any factual basis for finding a contractual or other legal relationship between Crawford and Jacks. Therefore, if Crawford breached any contractual duty existing under these documents or violated any statutory duty concerning nonjudicial foreclosures, such duties were plainly owed to GJ & Son, not Jacks.

Section 2924e, for example, which Jacks contends requires written consent before obtaining notice of delinquency from a senior lienholder, refers to the "written consent of the trustor or mortgagor." (§ 2924e, subd. (b), italics added.) The trustor in this case is GJ & Son. Thus, even if we construed that statute as creating a duty to obtain the trustor's consent, this duty was owed to GJ & Son, not to Jacks. Moreover, any breach of contract that occurred must necessarily have been a breach of a contractual duty owed to GJ & Son, because GJ & Son was the only borrower under the junior note and the only trustor under the junior deed of trust.

A corporate shareholder may be able to bring a derivative suit to enforce the corporation's rights. (Grosset v. Wenaas, supra, 42 Cal.4th at p. 1108.) While Jacks expressly acknowledges the possibility of a derivative suit and indicates he has knowledge regarding the nature of a derivative action, he makes clear that he is not pursuing, and does not intend to pursue, a derivative action in this case. He states he "does not seek to recover on behalf of the Corporation for injury done to the Corporation by defendant(s). [Rather], the gravamen of Plaintiff's cause of action is injury to himself."

Jacks refers us to Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93. In that case, a majority of shareholders of a savings and loan association engaged in a series of transactions which had the effect of making their shares more marketable and valuable than the shares held by the minority shareholders. (Id. at pp. 102-105.) The plaintiff, a minority shareholder, sued the defendant majority shareholders for breach of fiduciary duty and other claims. (Id. at pp. 101, 105.) The California Supreme Court held that the plaintiff could sue the majority shareholders directly, stating that "she does not seek to recover on behalf of the corporation for injury done to the corporation by defendants. . . . [T]he gravamen of her cause of action is injury to herself and the other minority stockholders." (Id. at p. 107.)

Unlike the plaintiff in Jones, Jacks is not suing other shareholders of GJ & Son for their wrongful conduct toward him; he is suing Crawford for Crawford's alleged breaches of duty owed to GJ & Son. Any harm to Jacks due to the loss of the Property as an asset of the corporation, such as a reduction of the value of his interest in GJ & Son, is merely "incidental to an injury to the corporation." (See Jones v. H. F. Ahmanson & Co., supra, 1 Cal.3d at p. 107.) Jones, therefore, does not support Jacks's claim of a right to a direct action against Crawford.

Jacks's reliance on Klopstock v. Superior Court (1941) 17 Cal.2d 13 is also misplaced. As Crawford points out, the action in that case was a derivative action in which the "corporation is the ultimate beneficiary" and the "particular stockholder who brings the suit is merely a nominal party plaintiff." (Id. at p. 21.) It does not support Jacks's argument.

We therefore conclude that Jacks is not the real party in interest as to the claims asserted in the FAC. Because he does not indicate that he will pursue the matter as a derivative action or cause GJ & Son to bring its own claim, the court did not abuse its discretion in denying Jacks leave to amend.

2. Failure to State a Cause of Action

Even if Jacks could pursue his claims in his own name or as a derivative action, the FAC fails to state a cause of action against Crawford.

In the FAC, Jacks alleges that Crawford declared a default on the junior loan based in part on the nonpayment of the advance Crawford made to cure the delinquency on the senior loan. Jacks contends that the declaration of default is a breach of contract because it was based on "an illegal clause that was not set forth in plaintiff[']s promissory note." He relies on section 2924.5.

Section 2924.5 provides: "No clause in any deed of trust or mortgage on property containing four or fewer residential units . . . or in any obligation secured by any deed of trust or mortgage on property containing four or fewer residential units . . . that provides for the acceleration of the due date of the obligation upon the sale, conveyance, alienation, lease, succession, assignment or other transfer of the property subject to the deed of trust or mortgage shall be valid unless the clause is set forth, in its entirety in both the body of the deed of trust or mortgage and the promissory note or other document evidencing the secured obligation."

Section 2924.5 applies to so-called "due-on" clauses, which are "commonly used in real property security transactions to provide, at the option of the lender, for acceleration of the maturity of the loan upon the sale, alienation or further encumbering of the real property security." (Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, 946, fn. 1; 1 Bernhardt, Cal. Mortgages, Deeds of Trust, and Foreclosure Litigation, supra, § 8.8, pp. 648-649.) The purpose of the statue is to "increase the likelihood [that borrowers] will receive notice of the nature and extent of any restraints thereby placed upon their right of alienation." (Fernandez v. American Sav. & Loan Assn. (1984) 159 Cal.App.3d 667, 672.)

If a due-on clause was not "set forth, in its entirety in both the body of the deed of trust or mortgage and the promissory note," then it would arguably be unenforceable under section 2924.5. The problem with Jacks's claim is that Crawford did not rely on a due-on clause in declaring a default on the junior loan. Instead, the default was based on the nonpayment of the advance it made to cure the delinquency on the senior loan. Section 2924.5 simply does not apply in this situation.

There can be no claim that the actual basis for the declaration of default was wrongful. Section 2924c, subdivision (a)(1), provides a junior lienholder with the right to reinstate and cure a delinquent senior lien. (See Pacific Trust Co. TTEE v. Fidelity Fed. Sav. & Loan Assn. (1986) 184 Cal.App.3d 817, 825.) As Miller and Starr state: "The typical form of trust deed requires the trustor to pay all prior and senior encumbrances, charges, and liens when due, and if payment is not made, it authorizes the beneficiary to make advances to satisfy the defaults on any senior obligations when necessary for the protection of the beneficiary's security. Advances by the beneficiary can be added to the principal obligation and the total amount can be enforced by foreclosure proceedings." (4 Miller & Starr, Cal. Real Estate (3d ed. 2011) § 10:58, p. 187, fns. omitted; see also § 2876; United Sav. & Loan Assn. v. Hoffman (1973) 30 Cal.App.3d 306, 313; 1 Bernhardt, Cal. Mortgages, Deeds of Trust, and Foreclosure Litigation, supra, § 2.104, p. 140.)

Under the junior deed of trust in this case, the borrower agreed to perform all of its obligations under any senior deed of trust, including any covenant to make payments when due. It further provided that the junior lender may "disburse such sums . . . and take such action as is necessary to protect [the junior lienholder's] interest." This provision plainly authorizes the junior lienholder to advance money to the senior lienholder to cure the delinquency on the senior loan. Finally, the amounts disbursed by the junior lender to the senior lienholder to protect its interest, "shall become additional indebtedness of [the borrower] secured by this Deed of Trust" and payable upon notice from the lender requesting payment thereof.

Jacks also alleges that Crawford breached its contract by "prevention of performance." (Capitalization omitted.) He asserts the following in the FAC: "The willful and wrongful putting of an end to a contract and preventing the other party from carrying it out not only excuses performance, but also is breach of contract for which an action lies to recover all damages sustained by the injured party, thus where the defendant fails to inform plaintiff of changes in the phraseology of the form of the contract involved and there by [sic] preventing plaintiff [from] performing parts of the contract."

In his brief on appeal, Jacks supports this allegation with a citation to California Jurisprudence Third and Blair v. Brownstone Oil & Refining Co. (1917) 35 Cal.App. 394. These authorities support the principle that one party to a contract breaches the contract if he or she prevents the other party from performing his or her part of the contract. We have no disagreement with this proposition. Jacks, however, does not allege any facts to which this rule might apply, except to say that Crawford failed "to inform [him] of changes in the phraseology of the form of the contract." It is not clear what this means, and neither the FAC nor Jacks's appellate briefs provide any explanation of the statement. Instead, Jacks devotes his two-page discussion of his "Prevention of Performance" claim to the seemingly unrelated issue of whether Crawford and its subsidiaries should be considered as one entity. He does not explain how Crawford prevented him from performing his obligations under the relevant promissory notes and deeds of trust.

Jacks does not suggest any additional facts or theories that would support a valid cause of action if he was granted leave to amend. Accordingly, we will affirm the judgment of dismissal as to Crawford.

IV. DISPOSITION

The judgment is affirmed. Saxon and Crawford shall recover their costs on appeal.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

KING

J.
We concur:

McKINSTER

Acting P.J.

RICHLI

J.


Summaries of

Jacks v. Crawford Inv. Co.

COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION TWO
May 24, 2012
E052650 (Cal. Ct. App. May. 24, 2012)
Case details for

Jacks v. Crawford Inv. Co.

Case Details

Full title:GERALD JACKS, Plaintiff and Appellant, v. CRAWFORD INVESTMENT COMPANY et…

Court:COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION TWO

Date published: May 24, 2012

Citations

E052650 (Cal. Ct. App. May. 24, 2012)