Free Appendix - District Court of California - California

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adopted policy--which requires employees to be retained
so long as a specified condition does not occur--has be-

Both Asmus, supra, 23 CaL.4th 1 and DiGiacinto v.

Ameriko-Omserv Corp., supra, 59 CaL.App.4th 629, are
inapposite because, as discussed ante, the arbitration
agreement provision contained in the employee hand-

come a part of the employment contract, may the em-

ployer (***13) thereafter unilaterally (termnate) the
policy, even though the specified condition has not occured?' " (!d. at pp. 5-6, fn. omitted.) In holding an employer could do so, the Supreme Cour recognized that "Califomia law permts employers to implement policies that may become unlateral implied-in-fact contracts when employees accept (**229) them by continuing their employment." (Id. at p. 11.) In Asmus, both parties agreed that the employees had accepted a unilateral contract by their performnce. (Ibid.) Thus, the question in
Asmus was whether the unilateral contract, once formed,

book here placed plaintiffs on notice that they would be
required to enter into a separate arbitration agreement

with AreL. As this record shows, neither plaintiff entered into an arbitration agreement.
In their reply brief on appeal, defendants also cite

Craig v. Brown & Root, Inc., supra, 84 CaL.App.4th 416,
420, in which the appellate cour rejected an employee's

could be unlaterally modified or termnated by the employer. (Ibid.)

contention the evidence was insufficient to show she entered a binding arbitration agreement with her employer. The cour cited evidence the employer sent the

employee a memorandum informg her of the employer's new dispute resolution program, emphasized "IT APPLIES TO YOU," and explained "(i)t wil govem all futue legal disputes between you and (***16) the Com-

In contrast, the core issue in this case, as framed by the motion to compel arbitration, is whether the documents prepared by Arel show an express bilateral contract was entered into through which the partes agreed to arbitrate. As discussed ante, the documents do not. At
oral argument on appeal, defendants argued plaintiffs

accepted a unilateral contract to arbitrate by contiuing to work for Are1 after their receipt of the employee
handbook. But, as discussed ante, the employee hand-

pany." (Id. at p. 419.) Unlike the arbitration agreement provision in the Arel employee handbook, the memorandum in Craig v. Brown & Root, Inc., established in and of itself the employer's dispute resolution program, and did not (**230) include an express requirement that its employees sign an arbitration agreement. Therefore,
Craig v. Brown & Root, Inc., is inapposite.

book's arbitration provision only placed plaintiffs on
notice (***14) that they would be called upon to sign a

separate binding arbitration agreement, thereby contradicting defendants' argument the provision in the handbook and subsequent performance constituted a unlatbinding arbitration. Defendants' argument on appeal does not (*1172) withstand legal or factual analysis and is fudamentally different from their posieral contract of

Defendants also contend the signed arbitration agreement required by the arbitration agreement provision in the Arel employee handbook was impliedly unnecessary to establish an arbitration agreement between Arel and plaintiffs. However, such an interpretation of the arbitration agreement provi- (* 1173) sion contradicts
that same provision's express term requiring a signed

tion before the trial cour. Indeed, the reply brief in support of the motion to compel arbitration, which defendants filed in the trial cour, stated, "(p )laintiffs insist that the arbitration agreements are 'unilateral(,') and therefore

agreement. (See Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 CaL.4th 342, 374 (6 CaL. Rptr. 2d 467, 826 P.2d 710) ("implied term
should never be read to vary express term"); Benach v.
County of Los Angeles (2007) 149 CaL.App.4th 836, 855,

unenforceable. Not tre. The arbitration agreements are expressly mutual--compelling both (p )laintiffs and (d)efendants to arbitrate 'Any dispute arising out of employment with the Company.' "
The issue presented in DiGiacinto v. Ameriko-

fn. 12 (57 CaL. Rptr. 3d 363) (" '(i)t is universally recognied the scope of conduct prohibited by the covenant of

good faith is circumscribed by the puroses and express
term of

the contract' ").)

Omserv Corp., supra, 59 CaL.App.4th 629, 631, was

Defendants next argue the acknowledgment receipt

"whether the employer of an at-wil employee is liable
for breach of contract when the employer notifies the employee of a prospective change in his rate of compensation and thereafter the employee continues in employ-

(***17) form signed by each plaintiff constitutes evidence of each plaintiffs acquiescence to the arbitration agreement provision in the employee handbook. But the language of the acknowledgment receipt form relegates
the employee handbook's status to "an excellent resource for employees with questions about the Company," and
fuher states the employee handbook is "designed to

ment." In concluding that an employer is not so liable,
the appellate cour noted, "the majority (*** 15) line of

cases supports the proposition that as a matter of law, an

at-wil employee who continues in the employ of the
employer after the employer has given notice of changed
term or conditions of employment has accepted the

acquaint new employees, and reacquaint existing em-

ployees, with Human Resource policies, operational issues, employee services, and benefits that reflect the desire to provide a professional work environment." The

changed term and conditions." (!d. at p. 637.)

acknowledgment receipt form states, "(e)mployees are

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encouraged to carefully review the Employee Handbook and become familiar with the contents and periodic updates. "

offce of the Judge is simply to ascertain and declare

Conspicuously absent from the acknowledgment re-

ceipt form is any reference to an agreement by the employee to abide by the employee handbook's arbitration

agreement provision. Indeed, the line preceding each
plaintiffs signatue on his or her respective acknowl-

edgment receipt form explains, "(m)y signatue acknowledges that I have read and understood the statements

what is in term or in substance contained therein, not to insert what has been omitted ..."). Taken as a whole, the documents submitted by defendants in support of their motion do not constitute an arbitration agreement. We therefore conclude the trial cour did not err by denying defendants' motion to compel arbitration. Because we conclude the documents submitted in support of defendants' motion do not constitute an agreement to arbitrate,
we do not need to consider other grounds relied upon by

above as well as the contents of the Handbook, and wil

the trial cour in denying defendants' motion to compel
arbitration. (* 1174)

direct any questions (***18) to my supervisor or the
Director of

Human Resources."

DISPOSITION
The order is affrmed. Respondents shall recover

(5) We cannot and will not create a term of a contract between the partes that the evidence does not show was ever agreed upon by the parties. (Code Civ. Proc., §

costs on appeal.

1858 ("In the constrction of a statute or instrment, the

Moore, Actig P. J., and Ikola, 1., concured.

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EXHIBIT 26

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LEXSEE 231 CAL APP 3D 1089

HANS S. NYMAR, Plaintiff, Cross-defendant and Appellant, v. HEART FEDERA SAVINGS & LOAN ASSOCIATION et al., Defendant, Cross-complainant and Respondent
No. C005999

Court of Appeal of California, Third Appellate District
231 CaI. App. 3d 1089; 283 CaI. Rptr. 53; 1991 CaI. App. LEXIS 727; 91 CaI. Daily Op. Service 5021; 91 Daily Journal DAR 7922

June 27, 1991

PRIOR HISTORY: (***1) Superior Cour of Siskiyou County, No. 40973, James E. K1eaver, Judge.

CALIFORNIA OFFICIAL REPORTS HEADNOTES

DISPOSITION:
SUMMARY:

The judgment is affrmed.

Classified to Californa Digest of Offcial Reports, 3d
Series

(1) Banks and Banking § 16--Loans--Relationship Between Lender and Borrower. --The relationship
between a lending institution and its borrower-client is

CALIFORNIA OFFICIAL REPORTS SUMMARY

A propert owner brought an action against a lending institution alleging negligence in the institution's appraisal of the propert used as security for a loan. The institution appraised the propert and approved the loan, finding the propert was in good condition. However, the
owner subsequently discovered the propert was in need
of costly repairs. The institution cross-complained for

not fiduciary in natue. A commercial lender is entitled
to pursue its own economic interest in a loan transaction.
This right is inconsistent with the obligations of a fiduci-

ary that require the fiduciar knowingly agree to subordinate its interest to act on behalf of and for the benefit
of another.
(2) Pleading § 13--Construction--Allegations Inconsistent With Title. --The nature of a cause of action is

foreclosure of the note and moved for summary judg-

ment. Plaintiff opposed, asserting his claims against the institution operated as a setoff against any indebtedness
owed under the note, and arguing there remained a tri-

detenned by the allegations set forth therein, not by the

title ascribed to it by the pleader.
(See 4 Witkin, Cal. Procedure (3d ed. 1985) Plead-

able issue as to defendant's negligence. The trial cour granted defendant summary judgment on the complaint and the cross-complaint. (Superior Cour of Siskiyou
County, No. 40973, James E. K1eaver, Judge.)

ing, § 404.)

The Cour of Appeal affrmed. It held that the lending institution, actig within the scope of its conventional activities as a lender of money, owed no duty of care to the borrower in preparing an appraisal of the securty for
the loan, since the purose of the appraisal was to protect

(3) Summary Judgment § 3--Propriety--When Motion Brought by Defendant. --Summary judgment is prop-

erly granted only when the evidence in support of the moving part establishes that there is no issue of fact to
be tried, and the moving part is entitled to judgment as

a matter of law. Generally, when the defendant is a moving part, it must conclusively negate a necessary ele-

the lender, not the borrower. It thus held that defendant was entitled to summary judgment on the complaint, since it had completely negated an element of plaintiffs action. (Opinion by Scotland, J., with Sims, Acting P. 1., and Nicholson, J., concuring.)
HEADNOTES

ment of each cause of action alleged by the plaintiff or
prove an affrmative defense that would bar every cause

of action, demonstrating that under no hypothesis is there
a material issue of fact that requires the process of a triaL.

(4) Summary Judgment § 19--Hearing and Determi-

nation--Motion Brought by Defendant on Its Cross-

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complaint. --Where a defendant seeks summary judg-

ment on its cross-complaint, defendant is in a position

analogous to that of a plaintiff moving for summary judgment. Accordingly, in order to prevail, defendant must establish each element entitling it to judgment and
disprove all affrmative defenses asserted by the plaintiff,
the cross-defendant, demonstrating the absence of any

(8) Banks and Banking § 16--Loans--Relationship Between Borrower and Lender--Lender's Lack of Duty of Care. --As a general rule, a financial institution
owes no duty of care to a borrower when the institution's

involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.
Thus, a lender has no duty to disclose its knowledge that

material issues of fact that would necessitate trial of the
matter.

the borrower's intended use of the loan proceeds represents an unsafe investment. Liability to a borrower for
negligence arises only when the lender actively partici-

(Sa) (5b) (5c) (5d) (5e) Banks and Banking § 16-Loans--Lender's Duty of Care to Borrower-Appraisal. --In a borrower's action against a lending

pates in the financed enteiprise beyond the domain of the usual money lender. Similarly, a financial institution engaged in its conventional role as a lender of money is
not liable to a thid part for any financial failure of that

institution for negligently conducting an appraisal in which defendant cross-complained for foreclosure, the
trial cour properly granted summary judgment to defendant on the main action and cross-action, since defendant
conclusively negated an element of the borrower's action. Plaintiff alleged that defendant appraised his propert at

which is financed, or for any loss or damage due to a
defect in, or resultig from, the failure of the borrower to

use due care in the design, manufactue, constrction, repair, modification, or improvement of real or personal
propert that was financed by a loan from the institution.

a certain value and approved the loan, finding the propert to be in good condition, but soon thereafter plaintiff

discovered that the propert was in need of costly repairs. Since defendant was actig within the scope of its conventional activities as a lender of money, it owed no duty of care to the borrower in preparing an appraisal of

(9) Banks and Banking § 16-Loans--Lender's Duty of Care to Borrower-- Test for Determining. --Ordinarily a lending institution owes no duty of care to a borrowerclient. The test for determning whether a financial institution owes a duty of care to a borrower-client involves

the security for the loan. The purose of the appraisal
was to protect the lender, not to induce the borrower to enter into the transaction or to assure him the collateral

was sound. Moreover, the borrower, in purchasing the propert, was in as good as, if not better, position than
the lender to discover defects. Also, public policy pre-

the balancing of various factors, among which are: the extent to which the transaction was intended to affect the plaintiff; the foreseeability of harm; the degree of certainty that the plaintiff suffered injur; the closeness of
the connection between the defendant's conduct and the
injur suffered; the moral blame attached to the defen-

cluded the imposition of a duty on the part of lending

dant's conduct; and the policy of preventing futue harm.

institutions, since this duty would increase the cost of
housing.

COUNSEL: Carr, Kennedy, Peterson & Frost and
Robert M. Harding for Plaintiff, Cross-defendant and
Appellant.

(See 4 Witkin, Summary of CaL. Law (9th ed. 1987) Real Propert, § 30.)
(6) Deeds of Trust § 25--Remedies--Action on Debt-Defenses--Setoff. --Setoff is an appropriate defense to a
foreclosure action under a deed of trst. The basis for

McKenna, Conner & Cuneo, Mckenna & Cuneo, Martin
H. Kresse, Line A. Freeman and Aaron M. Peck for

Defendant, Cross-complainant and Respondent.
JUGES: Opinon by Scotland, J., with Sims, Acting P. 1., and Nicholson, J., concuring.

this defense is Code Civ. Proc., § 431.70, which provides

that cross-demands for money between two persons may be set off against each other and considered paid to the
extent they balance in amount.

OPINION BY: SCOTLAND

(7) Negligence § 9--Elements of Actionable Negligence--Duty of Care--Statement of Rules--Existence

OPINION
peals from the judgment entered in favor of defendant, Heart Federal Savings & Loan Association, after the trial
cour granted defendant's motion for summary judgment
in this action to recover damages allegedly resulting

of Duty as Question of Law. --The existence of a duty of care owed by a defendant to a plaintiff is a prerequisite to establishing a claim for negligence. Whether a
legal duty exists in a given case is primarily a question of law. To the extent it presents solely an issue of law, the question of whether a duty exists may be resolved on a motion for summary judgment.

(*1092) (**54) Plaintiff, Hans S. Nymark, ap-

from defendant's negligence in appraising plaintifts
propert in connection with his application for a loan

from defendant to refinance the purchase money mort-

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gage on the propert. We agree with the trial cour that a financial institution acting within the scope of its conventional activities as a lender of money owes no duty of care to a borrower in preparing an appraisal of the security for a loan when the purose of the appraisal simply
is to protect the lender by satisfying it that the collateral

Bank (1989) 213 Cal.App.3d 465, 476-478 (261
Cal.Rptr. 735). A commercial

lender is entitled

to pursue its own economic interests in a loan transaction. ( Kruse v. Bank of America (1988)
202 Cal.App.3d 38, 67 (248 Cal.Rptr. 217).) This

right is inconsistent with the obligations of a fiduciary which require that the fiduciary know-

(***2) provides adequate security for the loan. Accordingly, we shall affir the judgment.
Facts and Procedural History

ingly agree to subordinate its interests to act on
behalf of and for the benefit of another. (Com-

mittee on Children's Television, Inc. v. General
Foods Corp. (1983) 35 Cal.3d 197, 221 (197

In 1981, plaintiff purchased a single family residence on five acres of land near Mt. Shasta. As part of
the purchase agreement, he executed a promissory note

Cal.Rptr. 783, 673 P.2d 660).
(***4)

in favor of the sellers in the principal sum of $ 129,000
secured by a deed of

trst on the propert.

wanted to refinance the note and applied for a $ 100,000
loan from defendant. After defendant conducted an ap-

(*1093) Approximately two years later, plaintiff

2 Although plaintiff entitled his cause of action, "Breach of Contract, Injunction," he did not plead the elements essential to state such a claim. (See
4 Witk, Cal. Procedure (3d ed. 1985) Pleading,

§§ 464-489, pp. 504-524.) The natue of a cause

praisal of plaintiffs propert, the loan was approved.
Plaintiff executed a promissory note in favor of defendant in the principal amount of $ 100,000, which was
secured by a deed of

of action is determed by the allegations set
fort therein, not by the title ascribed to it by the

pleader. (!d., at § 404, p. 454.) Here, the allega-

trst on the propert. The proceeds

of the loan were used to pay the sellers the balance owed on the original note.
Plaintiffs cause of action against defendant centers

tions sound in negligence and, despite the title given to this cause of action, plaintiff characterizes it as one for negligence. It has not been argued either in the tral cour or on appeal that the

complaint is for breach of contract.

on the appraisaL. (1) (See fD. 1., (2) (See rD. 2.) The
complaint alleges that, as part of the loan transaction,

Defendant answered and cross-complained for judi-

defendant conducted the appraisal, which was paid for by plaintiff; the appraisal report represented that plaintiffs residence was of "A + quality" and that the "roof, foundation, plumbing, mechanical, (***3) electrcal all appear OK;" plaintiff relied upon these representations in agreeing to enter into the loan transaction; the representations were untre; approximately four years after the appraisal was completed, an inspection performed by the County of Siskiyou revealed numerous constrction defects and building code violations costing in excess of $ 50,000 to repair, resulting in the propert being "redtagged" as unsafe for habitation; defendant conducted its inspection of the premises in such a negligent manner

cial foreclosure of its deed of trst and for indemnty
against the person who prepared the appraisal in con-

junction with defendant. With respect to the cause of
action for judicial foreclosure, the cross-complaint al-

leges that plaintiff is in default on the promissory note, having failed to make any payments since May 1, 1987,
monthly payments thus defaulted (***5) by (plaintiff) is $ 11,599.24." The cross-complaint fuher alleges that defendant has elected, pursuant to the default provisions

(*1094) and that "(a)s of May 1, 1988, the total of

of its note, to declare the whole sum of principal and
interest immediately due and payable. Defendant sought a deficiency judgment against plaintiff.

that it failed to observe and disclose these defects; and "as a proximate result of defendant's breach of its fiduciary duty, (I) plaintiff has been required to vacate his home and obtain another residence for his family and incur legal expenses." 2 The (**55) complaint prayed for damages in an unspecified amount and for a prelimnary and permnent injunction to enjoin defendant from
foreclosing under its deed of trst.

Defendant moved for summary judgment on its cross-complaint for judicial foreclosure. Plaintiff opposed the motion, asserting that his claims against defendant operate as a setoff against the indebtedness owed

under the note, and arguing that triable issues of fact

exist with respect to his entitlement to this setoff -- i.e., whether defendant was negligent, and whether this resulted in damage to plaintiff. The trial cour granted

1 To the extent this crytic allegation may be
constred as pleading a breach of fiduciary duty,

defendant's motion, finding that "no cause of action may
be stated against defendant. . . (because) (n)o duty ex-

isted as between defendant Heart and plaintiff regarding
the appraisal for loan puroses."

it fails as a matter of law. The relationship between a lending institution and its borrower-client

is not fiduciary in natue. (Price v. Wells Fargo

Judgment was entered in favor of defendant on both the complaint and the cross-complaint for judicial fore-

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closure. The judgment accorded defendant the right to recover a deficiency judgment against plaintiff in the
event the proceeds from the foreclosure sale are insufficient (***6) to satisfy the indebtedness owed to it by

provides that cross-demands for money between two
persons may be setoff against each other and considered paid to the extent they balance in amount. 4 ( American

plaintiff. The foreclosure proceedings were stayed by

the trial cour pending this appeaL.

Nat. Bank v. Stanfill (1988) 205 Cal.App.3d 1089, 1097 (252 Cal.Rptr. 861); Hauger, supra, at p. 755.)

Discussion
I

4 Code of Civil Procedure section 431. 70 states
in pertent part: "Where cross-demands for

money have existed between persons at any point
in time. . ., and an action is thereafter com-

when the evidence in support of the moving part establishes that there is no issue of fact to be tried" and the moving part is entitled to judgment as a matter oflaw. ( Lipson v. Superior Court (1982) 31 Cal.3d 362,374 (182

(3) "Sumary judgment is properly granted only

menced by one such person, the other person may

assert in the answer the defense of payment in

that the two demands are compensated so far as they equal each other. . . ."
(***9) (Sb) It was defendant's burden as the moving part in the sumry judgment motion to disprove

Cal.Rptr. 629, 644 P.2d 822); Code Civ. Proc., § 437c,

subd. (c).) Here, defendant does not occupy the tyical position of a defendant moving for summry judgment. 3

(4) By seeking summary judgment on its cross-

complaint, defendant is in a position analogous to that of a plaintiff moving for summary judgment. Accordingly,

ths defense. (Hayward Union etc. School District V. Madrid, supra, 234 Cal.App.2d at p. 120.) To do so, defendant had to negate an essential element of plaintiffs negligence claim which served as the basis for the setoff
defense. (Ibid.) Defendant argued that plaintiff has no setoff against the indebtedness under the promissory note

in order to prevail, defendant must establish each element entitling it to judicial foreclosure and disprove all

affrmative defenses asserted by plaintiff (crossdefendant), demonstrating the absence of any material

issues of fact which would necessitate tral of the matter.

because his complaint fails to state a cause of action for negligence in that two essential elements are absent: a duty of care owed by defendant to plaintiff, and damages
sustained by plaintiff as a result of defendant's alleged

(Hayward (*1095) Union etc. School Dist. v. Madrid
(1965) 234 Cal.App.2d 100, 120 (44 Cal.Rptr. 268).
(***7)
3 Generally, when the defendant is the moving

negligence.
II

part, it must conclusively negate a necessary

(7) The existence of a duty of care owed by a defendant to a plaintiff is a prerequisite to establishing a
claim for negligence. (Beauchamp v. Los Gatos Golf Course (1969) 273 Cal.App.2d 20, 32 (77 Cal.Rptr.

element of each cause of action alleged by the

plaintiff or prove an affrmative defense that
would bar every cause of action, demonstrating that under no hypothesis is there a material issue
of fact that requires the process of a tral. (

914).) "Whether a legal duty exists in a given case is
pririly a question of law." ( Wylie V. Gresch (1987)

Molko v. Holy Spirit Assn. (1988) 46 Cal.3d
1092, 1107 (252 Cal.Rptr. 122, 762 P.2d 46); DeRosa v. Transamerica Title Ins. Co. (1989)
213 Cal.App.3d 1390, 1395 (262 Cal.Rptr. 370).

191 Cal.App.3d 412, 416 (236 Cal.Rptr. 552).) To the extent it presents solely an issue of law, the (***10)
question of whether a duty exists may be resolved on a
motion for sumary judgment. (See Jones-Hamilton Co.

v. Franchise Tax Bd. (1968) 268 Cal.App.2d 343, 347

(Sa) As previously noted, plaintiff argued setoff as a defense to the judicial foreclosure action. He contended that the claims alleged in his complaint operate as a setoff against the amount he owed to defendant under the promissory note and thus constitute a defense to the foreclosure action because "the damages proximately (**56) caused by (defendant) . . . could possibly exceed the balance of (plaintiffs) indebtedness under the promissory (***8) note." (6) Setoff is an appropriate defense to a
foreclosure action under a deed of trst. ( Hauger v.

(73 Cal.Rptr. 896).

found, any California case specifically addressing
whether a lender has a duty of care to a (*1096) borrower in appraising the borrower's collateral to determne

(Sc) The pares have not identified, nor have we

if it is adequate security for a loan. 5 (8) However, as a general rule, a financial institution owes no duty of care
to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of

money. ( Wagner v. Ben-

Gates (1954) 42 Cal.2d 752, 754-755 (269 P.2d 609);

Note, Procedure: Cross Demands: Automatic Setoff
(1954) 42 Cal.L.Rev. 897, 901-902.) The basis for this defense is Code of Civil Procedure section 431.70, which

son (1980) 101 Cal.App.3d 27, 34-35 (161 Cal.Rptr.

516); Fox & Carskadon Financial Corp. v. San Francisco Fed. Say. & Loan Assn. (1975) 52 Cal.App.3d 484,
488, 489 (125 Cal.Rptr. 549); (**57) Bradler v. Craig

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(1969) 274 Cal.App.2d 466, 473, 476 (79 Cal.Rptr. 401).) Thus, for example, a lender has no duty to disclose

its knowledge that the borrower's intended use of the
loan proceeds represents (***11) an unsafe investment.

suIting from the failure of the borrower to use due care in, the design, manufacture, constrction, repair, modification or improvement of real or per-

( Wagner v. Benson, supra, 101 Cal.App.3d at pp. 3335.) "The success of the (borrower's) investment is not a

sonal propert, which design, etcetera was financed by a loan from the institution. (Civ.
Code, § 3434.)

benefit of the loan agreement which the (lender) is under
a duty to protect (citation)." ( ¡d., at p. 34.) 6 "Liability to

a borrower for negligence arises only when the lender 'actively partcipates' in the financed enterprise 'beyond
the domain of the usual money lender.''' ( !d., at p. 35;
quotig Connor v. Great Western Say. & Loan Assn.

(5d) Here, defendant performed the appraisal of plaintiffs propert in the usual course and scope of its
loan processing procedures to protect defendant's interest

(1968) 69 Cal.2d 850, 864 (73 Cal.Rptr. 369, 447 P.2d 609, 39 AL.R.3d 224).)
5 The case closest in similarity is Gay v. Broder (1980) 109 Cal.App.3d 66 (167 Cal.Rptr. 123). In
Gay, an appraiser designated by the Veterans

by satisfying it that the propert provided adequate security for the loan. The complaint does not allege, nor does anything in the summary judgment papers indicate, that the appraisal was intended to induce (* 1097) plaintiff to enter into the loan transaction or to assure him that his collateral was sound. Accordingly, (***13) in preparing the appraisal, defendant was acting in its conven-

Administration (V A) to appraise propert which was the subject of a veteran's application for a VA guaranteed loan negligently undervalued the

tional role as a lender of money to ascertain the suffciency of the collateral as security for the loan. "Norml
supervision of the enterprise by the lender for the protection of its security interest in loan collateral is not 'active

propert. As a result, the veteran was unable to
obtain a VA loan and had to get conventional financing at a greater cost. He sued the appraiser

partcipation' (in the financed enterprise beyond that of
the ordinary role of a lender in a loan transaction)." ( Wagner v. Benson, supra, 101 Cal.App.3d at p. 35.) Thus, we must conclude that defendant owed no duty of

for negligence. After the appraiser's demurer was sustained, a judgment of dismissal was entered. The appellate cour affimed, holding that

care to plaintiff in the preparation of the propert appraisaL.

the appraiser did not owe a duty of care to the
veteran who applied for the loan. It reasoned:

Our conclusion is consistent with that of the SuVermont. In Hughes v. Holt (1981) 140 Vt. 38 (435 A.2d 687), the plaintiffs purchased a house which tued out to be temrte infested. While a contractor was attemptig to correct the problem, the house colpreme Cour of

Under federal law, the V A has a statutory duty to

appraise propert which is the subject of a VA
loan application and may designate an appraiser for that purose. The statute is designed to protect the federal governent from having to assume the responsibility of a guarantor because of inadequate security. (!d., at pp. 69-74.) Since the statute is intended to protect the VA and not the loan applicant, the appraiser's duty of care extended only to the VA. Otherwise, "(c)oncem

lapsed. The plaintiffs sued, among others, the bank
which financed the purchase and its appraiser who, in
settng the value of the propert, overlooked the temrte
damage. The complaint alleged that the bank was negligent in estimating the residence's value for mortgage

puroses (*** 14) and that plaintiffs relied on the ap-

with the possibility of claims against him for refusing to set a value as high as the loan desired by the applicant veteran would deter the appraiser
from reportng to the admstration his tre opin-

praisal to their detriment in purchasing the house. However, the confidential appraisal report was for the exclu-

ion as to value and tend to cause him to breach his duty to the federal governent. The policy considerations against the imposition of liability in the instant case are manifest." (!d., at p. 75.)
(***12)
6 Similarly, a financial institution engaged in its

sive use of the bank and was not intended to operate as a representation to the buyers regarding the quality of the home to be purchased. The Vermont cour held the defendant bank was not liable for damages incured by its
borrower-client as a result of the defendant's negligence

in appraising the client's propert. (!d., at pp. 688-689.)

The cour reasoned that this was not a case "where a bank goes beyond its role as mortgagee and gets involved in a capacity beyond that of a mere lending

conventional role as a lender of money is not liable to a third part for any financia1 failure of

agency so that a duty relationship analogous to that of a

that which is financed (Fox & Carskadon Finan-

seller or broker may come into being. . . ." (!d., at p.
688.)

cial Corp. v. San Francisco Fed. Say. & Loan
Assn., supra, 52 Cal.App.3d at pp. 486-489), or

We note the Supreme Cour of Iowa has reached a
contrary result. In Larsen v. United Fed. Say. & Loan Ass'n (Iowa 1981) 300 N.W.2d 281 (21 AL.RAth 855),

for any loss or damage due to a defect in, or re-

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23 I Ca1. App. 3d 1089, *; 283 Ca1. Rptr. 53, **; 1991 Ca1. App. LEXIS 727, ***; 91 Ca1. Daily Op. Service 5021

the plaintiffs signed an offer to buy a home for $ 45,000
contingent upon their securing "conventional financing."

Francisco Fed. Sav. & Loan Assn., supra, 52 Ca1.App.3d

at pp. 488-489; cf. Gay v. Broder, supra, 109

As part of the loan process, the house was appraised by an employee of the defendant lending institution. He valued (***15) the house at $ 45,000, and the realtor informed plaintiffs "the appraisal 'was okay and there
was nothig wrong. '" Plaintiffs relied on the appraisal in purchasing the propert. When they moved in, plaintiffs
discovered major strctual defects requiring (**58) up

Ca1.App.3d at pp. 73-74.)
7 The Iowa analysis in Larsen and the Wiscon-

sin holding in Costa are founded on the theory of
negligent misrepresentation set fort in Restate-

ment Second of Torts section 522. This section
provides in pertent part: "(1) One who, in the

to $ 19,000 to correct. They sued the lender, alleging it

course of his business, profession or employment,

negligently supplied misinformation about the condition of the home, which induced them to complete the purchase. The Iowa cour concluded the lender was liable

. . . supplies false informtion for the guidance of others in their business transactions, is subject to

because it owed a duty to its borrower-clients to use reasonable care in appraising the propert. (Id., at pp. 284-

liability for pecunary loss caused to them by
their justifiable reliance upon the informtion, if
he fails to exercise reasonable care or competence
in obtaing or communicating the informtion."

288.) The cour explained: "(I)n determing whether a duty exists in this case, the key inquiry is whether (the lender) knew or should (*1098) have foreseen that (the
borrowers) would rely on its appraisa1." (!d., at p. 286.)

Subsection 2 provides that liability is limited to
loss suffered (a) by the person or one of the limited group of persons "for whose benefit and

The cour rejected the lender's argument that the appraisal was "for its own purose and protection, 'solely to

justify its investment in the subject propert.'" (Ibid.) The

guidance" the inormation was supplied, and (b) though reliance thereon by the person or persons
the inormtion was intended to "inuence."

cour reasoned: "Even though the appraisal might be
made primarily for the benefit of the lending institution,

the appraiser should (*** 16) also reasonably expect the home purchaser, who pays for the appraisal and to whom the results are reported (and who has access to the written report on request), wil rely on the appraisal to reaffirm his or her belief the home is worth the price he or she offered for it. The purchaser of the home should be among those entitled to rely on the accuracy of the report and therefore should be entitled to sue for damages resulting frorn a negligent appraisa1. (para.) . . . (The

This theory of negligent misrepresentation is inapplicable here because plaintiff did not allege that the appraisal prepared by defendant's agent was intended for plaintiffs benefit and guidance
or to inuence hi in the loan transaction.

Rather, plaintiff effectively conceded that the appraisal was undertaken simply to protect defendant's interest in the transaction.
(***18) (*1099) (5e) Application of

these factors

to the circumstances here supports our conclusion that

lender) had every reason to know its appraisal would

influence this home purchase, which encompassed the

defendant did not owe a duty of care to plaintiff in preparing the appraisa1.

loan transaction. It is not umeasonab1e to hold (the
lender) to a duty of care to the (borrowers), an obvious

(1) As previously noted, the purose of the appraisal

part to that transaction." ( !d., at p. 287; accord Costa v. Neimon (1985) 123 Wis.2d 410 (366 N.W.2d 896).
We reject the Iowa analysis because it focuses upon the foreseeability of reliance by the borrower. 7 (9) In Californa, the test for detemmnig whether a financial
institution owes a duty of care to a borrower-client "'involves the balancing of various factors, among which are
(I) the extent to which the transaction was intended

was to protect defendant's interest by satisfying it that plaintiffs propert provided adequate security for the
loan. Plaintiff did not allege that the appraisal was in-

tended to assure him that his collateral was sound or to induce him to enter into the loan transaction. Thus, the appraisal was not intended to affect plaintiff in a manner
dictatig the existence of a duty of care in its preparation.

(***17) to affect the plaintiff, (2) the foreseeability of harm to him, (3) the degree of certainty that the plaintiff
suffered injur, (4) the closeness of the connection be-

(**59) (2) While it was foreseeable the appraisal might be considered by plaintiff in completing the loan

transaction, the foreseeability of harm was remote.
Plaintiff was in as good a position as, if not better position than, defendant to know the value and condition of the propert. One who seeks financing to purchase real propert has many means available to assess the propert's value and condition, including comparable sales,

tween the defendant's conduct and the injur suffered, (5)
the moral blame attached to the defendant's conduct, and

(6) the policy of preventing futue harm.'" ( Connor v.
Great Western Say. & Loan Assn. (1968) 69 Ca1.2d 850, 865 (73 Ca1.Rptr. 369, 447 P.2d 609, 39 A.L.R.3d 224),
quoting Biakanja v. Irving (1958) 49 Ca1.2d 647, 650

advice from a realtor, independent appraisal, contractors' inspections, personal observation and opinon, and the

(320 P.2d 16); Fox & Carskadon Financial Corp. v. San

like. Here, plaintiff (***19) already had purchased the

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house and had lived in it for two years, apparently without complaint, before applying to defendant for a refinancing loan. We believe it is not reasonably foreseeable that a borrower wil be infuenced to his or her detriment by an appraisal prepared by the lender for its own benefit because the borrower is in a position in which he or she knows or should know the value and condition of
the propert independent of the appraisal made for the

Benson, supra, 101 Cal.App.3d at p. 34.) Moreover,

creation of such a duty would adversely affect consumers, partcularly those seeking to acquire affordable housing. A lender which curently obtains a cursory appraisal at minimal cost to the borrower in (***21) order to satisfy itself that the collateral provides adequate security for the loan would be compelled by the theat of negligent appraisal liability to undertake a comprehensive

lender's protection. Stated another way, the borrower
should be expected to know that the appraisal is intended for the lender's benefit to assist it in determng whether to make the loan, and not for the purose of ensuring that
the borrower has made a good bargain, i.e., not to insure the success of the investment. (Cf. Wagner v. Benson, supra, 101 Cal.App.3d at p. 34.)

examiation of the collateraL. The added cost of such a
detailed appraisal undoubtedly would be passed on to the borrower. For housing loans, ths consequence would be contrary to the public interest in reducing the cost of acquiring housing. (See, e.g., Health & Saf. Code, §§
52535, 52580.)

(3) We will assume for the purose of this analysis that plaintiff suffered injur.
(4) As discussed above, the connection between defendant's conduct and the injury suffered is tenuous because the appraisal was intended for the lender's benefit,

not to assure the borrower that his collateral was sound.

For the reasons stated above, defendant, actig in its conventional role as a lender of money, owed no duty of care to plaintiff in preparig the appraisal of his collateraL. A contrary conclusion would produce the incongrous result that a lender which conducts an appraisal for its own benefit could become responsible for guaranteeing to the borrower the adequacy and soundness of the

(5) There (***20) is no moral blame because plaintiff was in a position to protect himself from loss. (Fox

collateral the borrower has pledged as securty for the loan. Such a nonsensical result is not compelled by the
law. (Cf. Gay v. Broder, supra, 109 Cal.App.3d at pp.

& Carskadon Financial Corp. v. San Francisco Fed.
Sav. & Loan Assn., supra, 52 Cal.App.3d at p. 489.)

74-75; Kinner v. World Sav. & Loan Assn., supra, 57
Cal.App.3d at pp. 729-734.) 8

(6) "(A) strong public policy exists, if our financial institutions are to remain solvent, to prevent a conventional money lender from having to insure (the success of

8 We requested and received supplemental
briefing on an issue relating to whether the damages claimed by plaintiff were the proximate result of defendant's alleged negligence. In light of our holding that plaintiffs claim fails due to the absence of a duty of care by defendant, it is unnecessary to address the damages element of this cause of action.

every investment)." ( Fox & Carskadon Financial
(*1100) Corp. v. San Francisco Fed. Sav. & Loan Assn.,

supra, 52 Cal.App.3d at p. 489; cf. Kinner v. World Sav.

& Loan Assn. (1976) 57 Cal.App.3d 724,728-734 (129 Cal.Rptr. 400). Imposition on a lender of a duty of care

in the preparation of an appraisal done solely for the lender's benefit "would drastically alter the risk undertaken by the (lender) in the loan agreement." ( Wagner v.

(***22) (**60) The judgment is affrmed.

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LEXSEE 233 CAL. APP. 3D 103

PETERSON DEVELOPMENT COMPANY, INC., et aL., Plaintiffs and Appellants, v. TORRY PINES BANK et aL., Defendants and Respondents
Nos. D012843, D013435

Court of Appeal of California, Fourth Appellate District, Division One

233 CaL. App. 3d 103; 284 CaL. Rptr. 367; 1991 CaL. App. LEXIS 914; 91 CaL. Daily Op. Service 6394; 91 Daily Journal DAR 9850

August 9,1991

NOTICE: (**1) Opinion certfied for partial publication - Pursuant to California Rules of Cour, rule 976.1, this opinon is certified for publication with the exception of part III.

covenant, and the trial cour granted the motion. Defendants then successfully moved for an award of attorney
fees under Civ. Code, § 1717, based on an attorney fees

clause in a letter of commtment to provide permanent
financing that had been part of the loan transaction. (Superior Cour of San Diego County, No. 608331, Thomas Oliver LaVoy and Harrison R. Hollywood, Judges.)
In a consolidated appeal of the summary judgment

SUBSEQUENT HISTORY: Review Denied November 14, 1991.

Mosk, J. is of the opinon the petition should be

granted.

PRIOR HISTORY: Superior Cour of San Diego
County, No. 608331, Thomas Oliver LaVoy and Harrison R. Hollywood, Judges.

and of the order grantig attorney fees, the Cour of Appeal affumed the summary judgment, and, for reasons stated in an unpublished part of the opinon, affumed the order grantig attorney fees. The cour held that, even if
an action for breach of an oral contract was barred by the statute of limitations, the dispositive issue on appeal was

DISPOSITION: The judgment and order are affrmed,
and the writ of supersedeas is discharged as of the date of
the issuance of the remitttu. The requests for sanctions

whether the letter of commtment represented an enforceable written contract, and, since it was missing certain required term, like the identity of the potential

for a frivolous appeal and for an inadequate provision of
the appellate record are denied. TPB and TPEC shall be

buyer, it did not create an enforceable contract. The cour
held, fuher, that plaintiffs' cause of action for breach of

allowed their attorney's fees on appeal in an amount to be determed by the superior cour on fiing of a cost bil.

SUMMARY:

CALIFORNIA OFFICIAL REPORTS SUMMARY

A corporation and its president brought an action
against a bank and its subsidiary seeking damages arising out of a constrction loan transaction. Plaintiffs, claimig that they had entered into the loan transaction because of defendants' representation that permnent financing would be provided for the constrction project, based the

the implied covenant of good faith and fair dealing had to be considered as seeking damages on a contract theory and could not be maintained in the absence of an underlying contract. Finally, the cour held that the bank's relationship to the corporation and its president was not that of a fiduciary, and that the bank accordingly could not be held liable on theories of fiduciary duty or constrctive fraud. (Opinion by Huffman, Acting P. J., with Froehlich, J., concuring. Separate opinion by Nares, J., concuring in the result.)
HEADNOTES

action on theories of breach of contract, breach of the
covenant of good faith and fair dealing, breach of fiduciary duty, and constrctive fraud. Defendants moved for summary judgment, emphasizing the defense that the
two-year statute of limitations in Code Civ. Proc., § 339,

CALIFORNIA OFFICIAL REPORTS HEADNOTES

Classified to Californa Digest of Offcial Reports, 3d
Series

barred any claim based on oral contract or breach of

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1991 Cal. App. LEXIS 914, **; 91 Cal. Daily Op. Service 6394
(1) Appellate Review § 161.4--Imposition of Sanctions
for Frivolous Appeal. --Defendants whose summary

tions have been satisfied. Thus, a letter of commtment to

provide permnent financing that was part of a loan
transaction between a corporation and its president and a
bank and its subsidiary did not create an enforceable

judgment motion had been granted by the trial cour were
not entitled to sanctions for inadequate record ( CaL.

Rules of Cour, rule 5.1(i)) or for frivolous appeal ( Code
Civ. Proc., § 907; Cal. Rules of Court, rule 26(a)), where

contract to provide permnent financing where, even if

the identity of the bank's subsidiary as permnent lender
was established by reference to a constrction loan

statements by the trial judge showed that he had not relied on the part of the record defendants alleged was incomplete, and the issues presented on appeal were com-

agreement that was also part of the transaction, other

plex and challenging, making it impossible to say that
the appeal was frivolous or taken solely for delay.

material contractual term of the letter were missing or were inadequately defined. Specifically, the identity of
the potential borrower was not made clear; the amount of
the loans was not specified; and term of

repayment were

(2) Summary Judgment § 19--Hearing and Determination--Function of Court--Showing Required. --The

only vaguely stated.

language and adept pleading and to ascertain, by means of affidavits, the presence or absence of triable issues of fact. Accordingly, the fuction of the trial cour in ruling on a motion for summry judgment is merely to determine whether such issues of fact exist, and not to decide the merits of the issues themselves. The affidavits of the

purose of summary judgment is to penetrate evasive

(7) Contracts § 44--Breach--Covenant of Good Faith

and Fair Dealing. --A cause of action for breach of the implied covenant of good faith and fair dealing must be

considered to seek damages on a contract theory. An underlying contract is required to state such cause of
action or the related theory of bad faith denial of con-

moving part should be strictly constred, and those of the opponent liberally constred. Any doubts as to the propriety of granting the motion should be resolved in
favor of the part opposing the motion. A defendant is

tract.
(8) Fraud and Deceit § 19--Constructive Fraud--

Confidential Relations. --It is essential to the operation

entitled to sumary judgment if the record establishes as a matter oflaw that none of the plaintiffs asserted causes
of action can prevaiL.

of the doctrine of constrctive fraud that there exist a
fiduciary or special relationship.

(9) Appellate Review § 55--Adherence to Theory of
the Case. --An appellate cour may allow an appellant to

(3) Contracts § 23--Construction of Several Contracts
Together. --In Civ. Code, § 1642, which provides that

several contracts relating to the same matters, between
the same partes, and made as part of one transaction are

assert a new theory of the case on appeal where the facts were clearly put at issue at trial and are undisputed on
appeaL.
(lOa) (lOb) Escrows § 3--Competency, Duties, and

to be taken together, the term "contract" is descriptive only of a writing and, in reality, refers to an instrment.
(4) Contracts § I-Implied Contracts. --Under Civ.

Liabilties of Escrow Holder. --An escrow holder is the
limited agent and fiduciary of all partes to an escrow.

Code, § 1621, which defines "implied contract," an agreement may be established by the acts and conduct of the parties and all the circumstances of the case.

The agency is limited because the escrow agent only represents his pricipals insofar as he carries out the escrow instrctions. An escrow holder has a fiduciary duty to communicate to his principal knowledge acquired in
the course of his agency with respect to material facts

-Conflct With Deposition Statements. --In general,
sented to oppose summary judgment proceedings.

(5) Summary Judgment § 11--Affdavits--Suffciency-

which might affect the principal's decision as to a pend-

admssions against interest in deposition testimony wil
control over contradictory statements in affdavits pre-

ing transaction. A breach of ths fiduciary duty or the failure to use reasonable skill in carring out escrow instrctions subjects the escrow holder to liability. To pro-

(See 6 Witkin, Cal. Procedure (3d ed. 1985) Pro-

ceedings Without Trial, § 292.)

tect the interests of the parties, an escrow agent who has an interest in the transaction is obligated to disclose that interest before accepting employment; and, in order to

guarantee proper performnce of escrow duties, an escrow agent should not be a part to the transaction.
(11) Escrows § 1--Definition--Purpose. --An escrow

(6) Loans § 1--Letter of Commitment. --Letters of
commtment, for which a fee is paid, constitute an option to the applicant to obtain the loan at the specified term. A loan commtment is not binding on the lender unless it

contains all the material term of a loan and either the lender's obligation is unconditional or the stated condi-

may be defined as a transaction in which one person, for the purose of effecting a sale, transfer or encumbrance
of real or personal propert to another person, delivers

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any written instrment, money, evidence of title or other thing of value to a third part, the escrow holder or depository, to be held by him for ultimate transmittal to the
other person upon the happening of an event or the performance of certain specified conditions.

contractual attorney's fees clause. Peterson's action for

damages against TPB and TPEC arose out of a constrction loan transaction and alleged theories of breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, and constrctive fraud.
In this appeal by Peterson of

both the summary judgment

(12) Banks and Banking § 1--Fiduciary Relationship
in Transactions. --A lender does not generally assume

order and the attorney's fees award, the issues presented include the enforceability as a contract of a letter of

any obligations regarding the viability of the project or
investment which is financed by the loan funds so long as the conduct of the lender is limited to the activities which customarily are associated with the lending func-

commtment to provide permanent financing, and the potential liability of TPB as a fiduciary in connection with its performnce of escrow services as part of its loan processing procedures. We conclude the trial cour
correctly entered summary judgment for TPB and TPEC and properly awarded attorney's fees under Civil Code

tion, and, with respect to ordinary bankng transactions, a
bank is in no sense a tre fiduciary. Thus, in a loan trans-

action between a bank and its subsidiary and a corpora-

tion and its president, the bank's activities as an escrow
holder did not create a fiduciary or special relationship

section 1717. We affum and award attorney's fees on appeal, while denying the partes' requests for sanctions
on appeaL.

where the relationship between the parties fell into the category of a norml, commercial bankng transaction,
and, despite the existence of an "escrow statement," the

Factual and Procedural Background
In November 1984, Peterson's (**3) chairan Eric

bank never held itself out as a neutral conduit for the exchange of documents and money.
(13) Fraud and Deceit § 22--Actions--Defenses-Constructive Fraud--Statute of Limitations. --A cor-

Peterson signed the documents required to obtain a $ 492,000 constrction loan from TPB to finance a sevenunt subdivision on Geneva Place in Escondido. Several

poration and its president had no basis to claim any justified "delayed discovery" of an alleged constrctive fraud

by a bank in the course of a loan transaction, and the

statute of limitations for a fraud action ( Code Civ. Proc., § 338, setting a three-year period) thus was not tolled, where the corporation and its president had been placed
on notice with respect to their claim more than three
years before they fied their complaint against the bank.

months earlier, in negotiating for the loan, Peterson's chief financial officer Tracy Emblem (Tracy) and its president Thor Emblem (Thor) (respectively, daughter and son-in-law of Eric Peterson) had discussed the financing at a meeting with TPB's senior vice-president Walter Strangman. At that meeting, Peterson claimed,
Strangman orally represented TPB would make the constrction loan and would also provide permnent financ-

ing upon the project's completion, as well as extending
the constrction loan's one-year term if

necessary.

COUNSEL: Thor O. Emblem and Tracy L. Emblem for Plaintiffs and Appellants.
Brobeck, Phleger & Harrison, Wiliam D. Baldwin, William F. Sullivan and Michael J. Barr for Defendants and Respondents.

(* 1 08) The facts of the transaction, as shown in the

moving, opposing, and replying summary judgment papers, disclose that when Tracy, Thor, and Eric Peterson
arrved at TPB to sign the loan papers, Strangman was
not available. The loan processor gave them the papers

JUGES: Opinion by Huffman, Acting P. J., with Froehlich, J., concuring. Separate opinon by Nares, J.,
concuring in the result.

OPINION BY: HUFMAN
OPINION
mary judgment made by defendants Torrey Pines Bank
(TPB) and Torrey Pines (**2) Equity Corporation

to sign and said Strangman would sign later and copies would be provided. Eric Peterson signed a number of loan documents, notably the building loan agreement and a "Letter of Commtment" for permnent financing. (**4) 2 The TPB loan agreement, attached as exhibit A to Peterson's first amended complaint (the operative pleading in the case), defines the contract term "Permnent Lender" as "TPEC" (a wholly owned subsidiary of TPB), and states the term for "Permnent Commtment
Expiration Date" is not applicable. In paragraph 4.1.5

(* 1 07) The trial cour granted a motion for sum-

of the loan agreement, a condition precedent to the recordation of

the loan documents is stated: "a letter or other

written acknowledgement from the Permnent Lender

(TPEC) in this action by Peterson Development Company, Inc., and its president and sole shareholder, Eric

Peterson (collectively Peterson). Subsequently, the cour awarded attorney's fees to TPB and TPEC pursuant to a

that the Permnent Commtment is in full force and effect." The letter of commtment was issued by TPEC, and required by its term a payment of $ 4,920 for a commtment to provide permanent financing on the pro-

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ject. It provided: "This commtment is not effective until

the fee is paid and this commtment is fully signed by
both parties below." 3

son had no documentation showing TPEC had been paid
for issuing a permnent financing commtment.
By the fall of 1985, constrction of the subdivision

2 The other loan documents Eric Peterson
signed included the promissory note and deed of
trst, a personal guaranty, loan disbursement in-

strctions, and completion and release price agreements. Tracy, in her capacity as Peterson's chief financial offcer, signed a corporate borrowing resolution.

was almost completed (**7) and the constrction loan was comig due (on Nov. 27, 1985). One day when Strangman and Thor were both visiting the site, Thor asked Strangman whether TPB or TPEC would supply
the permnent financing for the project. According to Thor's deposition, Strangman replied "they decided not
to do that." According to Tracy's declaration in opposi-

(**5)

tion to the motion for summary judgment, Strangman
said TPEC was no longer making permanent financing.

3 Although Peterson signed the letter of commitment, neither TPEC, which drafted the letter,

nor TPB did so. No copy of this letter was retued to Peterson along with the other loan

According to Thor's deposition and Tracy's declaration in opposition to the summary judgment motion, Pe-

documents. Peterson did not get a copy of the letter or learn that no representative of TPEC,
such as Strangman, had ever signed it until it was produced in discovery some years later in con-

terson did not pursue the matter by demanding permnent financing from TPB or TPEC because it did not want to upset their relationship, and because it had no copy of the letter of commtment or any knowledge of
documents showing TPEC had been paid for issuing the permnent financing commtment. Thor testified at his deposition he did not learn of the existence of the letter of commtment until the later Westwind litigation, but earlier, "we knew that we had paid for some kind of take-

nection with a related action against Westwind
Mortgage Company, as wil be explained post.

The moving, opposing and reply papers presented evidence about TPB's escrow procedures. According to
Strangman, TPB processed the loan documents inter-

out commtment." Thor's deposition testimony also
stated he believed the promise of permnent financing

nally, without using an external escrow or loan escrow. Although TPB's loan processor, Bess Beagle, testified at her deposition that TPB did not have a separate escrow
departent, Strangman testified at deposition that TPB's escrow departent had prepared a loan escrow statement, and that such statements were ordinarily provided
to the borrower. Copies of the other loan documents

was based on the language of the letter of commtment and (**8) "the facts of the relationship" between Peterson and TPB/TPEC. Those facts included the condition

of the constrction loan that a take-out commtment be provided, and TPEC's providing of such a commtment
for a fee. However, he admitted that he didn't know of

were also supplied to Peterson, with the exception of the

any conversations in which TPB or TPEC promised to
provide permnent financing for the project, that he did-

letter of commtment. (See fn. 3, ante.) The (**6) escrow statement recites that it covers money settlement
"through escrow only," and shows all fuds disbursed

n't believe there was any existing commtment to provide

such financing at the time it was denied, and that the
building loan agreement naming TPEC as the permanent lender did not trgger any thought in his mind that a permanent loan commtment existed.
On his part, Eric Peterson testified at deposition that he believed he had obtained from TPB and TPEC "a constrction loan and a permnent loan," based on what

from the loan proceeds, which included $ 12,300 for loan

fees. The usual processing services for a real estate transaction were performed, such as notarizing and re-

cording documents and obtainng title insurance. No charge for escrow fees appears on the statement. A
commercial loan checklist was also used, listing "TPB

escrow" as the disbursement instrction recipient.

Thor and Tracy had told him. However, he had no
knowledge of any conversations between TPB or TPEC and any Peterson representatives on the issue of a permanent financing commtment. In his opinion, the
(* 110) loan fees charged (two and one-half points) were about what he was used to paying on similar projects. Peterson also testified he believed from his reading of the loan documents that TPBITPEC had the discretion (**9)

(* 109) At the bank, Peterson also signed loan disbursement instrctions with a tyed entry of $ 12,300 for loan fees; handwritten entries show $ 7,380 was allo-

cated to TPEC and $ 4,920 to TPB. Cashier's checks
were issued by TPB, signed by Strangman, paying TPEC
$ 7,380 out of the loan proceeds, which represented a

permnent loan commtment fee of $ 4,920 and a broker referral commssion of $ 2,460. Although Peterson received the escrow statement listing $ 12,300 total loan
fees after signing the papers, as of

to decide whether to make any fuher loans on the proj ect.

the fall of 1985, Peter-

In Strangman's deposition, he stated he originally planned to use the letter of commtment to generate fees

320

Case 5:07-cv-04808-JF

Document 50-12

Filed 07/03/2008

Page 16 of 30
Page 5

233 Cal. App. 3d 103, *; 284 Cal. Rptr. 367;

1991 CaL. App. LEXIS 914, **; 91 Cal. Daily Op. Service 6394

for TPEC, but decided not to do so before the loan was funded, for some reason he couldn't remember. The letter of commtment was prepared and presented to Peterson because of a breakdown in communication between Strangman, another bank offcial (Torres) and the loan processor. It was not TPB's usual practice to require a permanent loan commtment before funding a constrction loan.

ment there was no valid signed, written contract for per-

manent financing and no failure to disclose any such
nonexistent document. In opposition, Peterson asked for
more time to conduct discovery and argued the docu-

ments were consistent with the bank's alleged oral prom-

ise to provide permnent financing and its alleged concealment of the payment of the permnent financing fee and its failure to sign the letter.

After learng from Strangman at about the time of
completion of the project that no permnent financing would be forthcoming, Peterson contacted other lenders

6 The complaint was first fied in the Nort
County branch of the superior cour in October
1988 and was dismissed and promptly refied by

and reached an agreement for permnent financing with Westwind Mortgage Company (not a part to this action). Westwind told Strangman it would still finance

stipulation. The complaint was amended once after a demurer was sustained.
(** 12)
7 All statutory references are to the Code of

the project even if a notice of default were fied. No extensions were granted on the constrction loan although Thor may have asked for one. On February 6,

Civil Procedure uness otherwise specified.

1986, TPB fied a notice of default on the constrction loan after Peterson did not pay on time. W