Henry Aguila vs First American Title Insurance Company et al
Henry Aguila vs First American Title Insurance Company et al
Case Number
23CV00204
Case Type
Hearing Date / Time
Fri, 02/02/2024 - 10:00
Nature of Proceedings
Demurrer
Tentative Ruling
For the reasons more fully articulated below: (1) The demurrer to the first cause of action for breach of contract will be sustained solely on the ground that the cause of action failed to allege the contractual provision alleged to have been breached, with leave to amend on or before February 23, 2024; (2) The demurrer to the second cause of action for breach of the implied covenant of good faith and fair dealing will be overruled; and (3) The demurrer to the third cause of action for breach of obligation to report payments on judgment will be sustained, without leave to amend.
Background: On January 18, 2023, plaintiff Henry Aguila (Aguila) filed a complaint, in pro per, against defendants First American Title Insurance Company (First American), Pico Rivera First Mortgage Investors, LP (Pico Rivera), Mortgage Co. of Santa Barbara (MCSB)—alleged to be a general partner in Pico Rivera, and Andrew Fuller (Fuller), alleging causes of action for (1) breach of contract, (2) breach of contract/third party beneficiary, (3) breach of the covenant of good faith and fair dealing, (4) inducing breach of contract, (5) intentional infliction of emotional distress, and (6) negligence.
After a motion to have Aguila declared a vexatious litigant, for a pre-filing order, and to post security of $35,000, was filed by defendants MCSB, Pico Rivera, and Fuller, attorney Ronald D. Tym substituted into the action on Aguila’s behalf. Because Aguila was now represented by counsel, the court denied the request for an order requiring Aguila to post security before proceeding with the action, but granted the motion finding Aguila to be a vexatious litigant (Code Civ. Proc., § 391, subd. (b)) and to require a prefiling order (Code Civ. Proc., § 391.7).
Aguila filed his First Amended Complaint (FAC) on July 31, 2023. The FAC named the same parties as defendants, and alleged causes of action for (1) breach of contract (against Pico Rivera and MCSB), (2) breach of the covenant of good faith and fair dealing (against Pico Rivera and MCSB), (3) breach of obligation to report payments on judgment (against Pico Rivera and MCSB), and (4) intentional interference with contractual relations (against First American).
The first cause of action for breach of contract alleges that on July 16, 2015, Thee Aguila, Inc. (TAI) borrowed $5,700,000 from Pico Rivera, secured by property located at 8825 Washington Blvd. in Pico Rivera, CA. Plaintiff Aguila was, at that time, the sole shareholder of TAI. He entered into a personal guarantee of all of TAI’s obligations to Pico Rivera, including the loan. First American issued a lender’s policy of title insurance, insuring the priority of the Deed of Trust. Aguila believes that the policy was in an amount not to exceed the outstanding amount of the loan. Its purpose was to protect Pico Rivera against losses up to the outstanding amount of the loan, arising from the failure of Pico Rivera to be able to get fully repaid on the Loan due to encumbrances other than Excluded Encumbrances under the policy. First American’s obligation was directly connected to the status of the Loan, and the amount which was outstanding.
TAI defaulted on the Loan, and Pico Rivera conducted a trustee’s sale of the property on December 6, 2017, under which it took title to the property as a result of a credit bid of $5,105,000. Prior to the credit bid, $6,116,346.01 was due and owing on the loan. Following the trustee’s sale, no more than $1,011,346.01 remained due and owing on the Loan.
Aguila alleges that he was fraudulently induced by Pico Rivera to enter into a Settlement Agreement in November 2020, in which he agreed to a stipulated judgment against him (Case No. 18CV04958) in the amount of $3,867,113.84, to settle his obligations under the Guarantee. However, that amount was far in excess of the amount actually due under the Guarantee, since Pico Rivera intentionally failed to credit its $5,105,000 credit bid against the amount due and owing under the loan. On information and belief, Aguila alleges that on December 28, 2021, Pico Rivera received $1,100,000 from First American under the Lender’s Policy of Title Insurance, but failed to credit this amount received towards the Loan, against the amount Aguila allegedly owed pursuant to the Guarantee and the stipulated judgment. Its failure to credit the amounts received towards the amount due under the Guarantee is a breach of the Guarantee Agreement, and an attempt to double dip by attempting to be paid twice for the same loan. While, under the terms of the Guarantee Agreement, Pico Rivera may have been free to release First American from its obligation under the Lender’s Policy of Title Insurance without payment of any amounts by First American, the Guarantee Agreement did not permit Pico Rivera to keep for itself the amounts received from First American, without also crediting the payment towards Aguila’s obligation under the Guarantee. He alleges he has been damaged by Pico Rivera to the extent the amounts received by Pico Rivera toward the loan, which Pico Rivera did not credit to his obligations under the Guarantee.
Based on the same allegations, the FAC alleges a cause of action for breach of the implied covenant of good faith and fair dealing. The FAC then alleges a cause of action entitled “breach of obligation to report payments on judgment,” in which Aguila seeks to compel Pico Rivera to file an acknowledgment of satisfaction of the abstract of judgment in Case No. 18CV04958, alleging that the FAC serves as Notice to Pico Rivera under Code of Civil Procedure section 724.050. The FAC alleges that because of Pico Rivera’s failure to comply with Sections 724.030 through 724.050, Aguila has been damaged in suffering emotional distress and physical ailment, in an amount of at least $5,000,000, and has incurred legal fees and expenses and other damages arising from Pico Rivera’s failure to timely report satisfaction of the stipulated judgment.
On November 1, 2023, defendant Fuller was dismissed from the action.
Pico Rivera and MCSB have generally demurred to the three causes of action alleged against them (i.e., breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of the obligation to report payments on the judgment), and seek to have the demurrer sustained without leave to amend.
Aguila has opposed the demurrer.
ANALYSIS: For reasons more fully articulated below, the Court will sustain the demurrer to the first cause of action for breach of contract, with leave to amend solely on the ground that the cause of action failed to allege the contractual provision alleged to have been breached; will overrule the demurrer to the second cause of action for breach of the implied covenant of good faith and fair dealing; and will sustain the demurrer to the third cause of action, without leave to amend. With respect to the grant of leave to amend, any such further amended pleading shall be filed no later than February 23, 2024.
I. Standards on demurrer.
The court’s task in ruling on a demurrer is to determine whether the complaint states a cause of action. (People ex rel. Lungren v. Superior Court (1996) 14 Cal.4th 294, 300.) A demurrer admits the truth of all material facts properly pleaded (Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 966-967), no matter how unlikely or improbable they may be (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604), or how unlikely it will be that plaintiff will be able to prove the claim (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214). The court also assumes the truth of all reasonable inferences that may be drawn from the properly pleaded facts. (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1083.) The assumption of truth does not apply, however, to contentions, deductions, or conclusions of law or fact. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters, and therefore lies only where the defects appear on the face of the pleading or are judicially noticed. (Id.)
II. Third cause of action for failure to properly report credits toward the judgment.
While the complaint alleges the beach of contract and breach of the implied covenant of good faith and fair dealing causes of action prior to its cause of action for failure to properly report credits toward the judgment, the arguments defendants made in support of their demurrer to the third cause of action are incorporated into those made in support of their demurrer to these causes of action. Similarly, the arguments which Aguila makes to support his breach of contract and breach of the covenant of good faith and fair dealing causes of action directly address the obligations to credit the amounts of the credit bid and received from First American against the amount owed on the Guaranty. Since those issues are more directly relevant to the third cause of action, the Court will first address and resolve the demurrer to the third cause of action, before proceeding to analyze the demurrers to the breach of contract and implied covenant claims.
A. Party arguments.
Defendants make a multi-faceted argument in support of their demurrer to this cause of action, including that (a) filing a new case is the wrong procedure to get a credit toward a judgment, and a motion should have been filed in Case No. 18CV04958 (in which the stipulated judgment was entered), after first sending the demand required by Code of Civil Procedure section 724.050, none of which were done by Aguila; (b) Pico Rivera had no obligation to credit the amount of its settlement with First American to the amount which Aguila owed under the Guaranty; (c) Pico Rivera had no obligation to credit the amount of the credit bid at foreclosure sale to the amount Aguila owed under the Guaranty; (d) Aguila released any claims he has against defendants in executing the Settlement Agreement and Mutual Release in Case No. 18CV04958; (e) within the Guaranty Agreement itself, Aguila waived any protections that might apply, including “offset”; and (f) the cause of action is an improper motion for reconsideration of Aguila’s motion to vacate the stipulated judgment in Case No. 18CV04958, which was already made and lost, and in which he failed to raise the credit bid argument.
In opposition to the demurrer, Aguila argues that his third cause of action for the failure of Pico Rivera to properly report credits toward the judgment is adequately pleaded. Aguila likens his filing of the current action as complying with the requirement that he serve a demand upon the judgment creditors to require the filing of a satisfaction of judgment. He further contends that he will be bringing a noticed motion for an order requiring Pico Rivera to comply with the demand, in compliance with Section 724.050(d). With respect to defendants’ argument that the third cause of action (and Aguila’s contemplated future motion to compel satisfaction of judgment) can only be heard within Case No. 18CV04958, in which the judgment at issue was issued, Aguila argues that the various departments of the Santa Barbara Superior Court “are but one court,” and that his filing of the action and future motion in Dept. 4 constitutes their filing in the court in which the judgment was issued, citing People v. Madrigal (1995) 37 Cal.App.4th 791, 796. He further contends there is no requirement that the Section 724.050 motion be heard by the same judge who issued the judgment.
B. Analysis
1. Wrong court, wrong procedure
Code of Civil Procedure section 724.050 provides:
(a) If a money judgment has been satisfied, the judgment debtor, the owner of real or personal property subject to a judgment lien created under the judgment, or a person having a security interest in or a lien on personal property subject to a judgment lien created under the judgment may serve personally or by mail on the judgment creditor a demand in writing that the judgment creditor do one or both of the following:
(1) File an acknowledgment of satisfaction of judgment with the court.
(2) Execute, acknowledge, and deliver an acknowledgment of satisfaction of judgment to the person who made the demand.
(b) The demand shall include the following statement: “Important warning. If this judgment has been satisfied, the law requires that you comply with this demand not later than 15 days after you receive it. If a court proceeding is necessary to compel you to comply with this demand, you will be required to pay my reasonable attorney's fees in the proceeding if the court determines that the judgment has been satisfied and that you failed to comply with the demand. In addition, if the court determines that you failed without just cause to comply with this demand within the 15 days allowed, you will be liable for all damages I sustain by reason of such failure and will also forfeit one hundred dollars to me.”
(c) If the judgment has been satisfied, the judgment creditor shall comply with the demand not later than 15 days after actual receipt of the demand.
(d) If the judgment creditor does not comply with the demand within the time allowed, the person making the demand may apply to the court on noticed motion for an order requiring the judgment creditor to comply with the demand. The notice of motion shall be served on the judgment creditor. Service shall be made personally or by mail. If the court determines that the judgment has been satisfied and that the judgment creditor has not complied with the demand, the court shall either (1) order the judgment creditor to comply with the demand or (2) order the court clerk to enter satisfaction of the judgment.
(e) If the judgment has been satisfied and the judgment creditor fails without just cause to comply with the demand within the time allowed, the judgment creditor is liable to the person who made the demand for all damages sustained by reason of such failure and shall also forfeit one hundred dollars ($100) to such person. Liability under this subdivision may be determined in the proceedings on the motion pursuant to subdivision (d) or in an action. [Emphasis added.]
This statutory scheme has been found to be the exclusive method for a judgment debtor to obtain an order for entry of satisfaction of judgment. (Horath v. Hess (2014) 225 Cal.App.4th 456, 468; Quintana v. Gibson (2003) 113 Cal.App.4th 89, 94.) In analyzing the legislative history of the statutory scheme, the court in Horath found that the exclusivity of the procedure was intentional. (Horath v. Hess, supra, 225 Cal.App.4th at pp. 94-95.) The failure to comply with the procedural requirements of Section 724.050 precludes entitlement to an order compelling acknowledgment of satisfaction of judgment. (David S. Karton v. Musick, Peeler Garrett LLP (2022) 83 Cal.App.5th 1027, 1042 [involving a claimed right to entry of satisfaction of judgment based upon a claimed offset to the amount of the judgment.)
Quintana v. Gibson, supra, involved an action for damages arising from an automobile accident, in which plaintiff’s medical expenses had been paid by his employer’s worker’s compensation carrier. Defendant’s liability insurer paid the worker’s compensation lien, and offered to settle with plaintiff for $5,000, which plaintiff accepted, and judgment was entered pursuant to the settlement. The insurer then tendered a check for the difference between the amount of the settlement and the amount of the worker’s compensation lien that it has paid, and plaintiff refused to accept the check. The insurer demanded that the plaintiff accept the check in satisfaction of the judgment, and plaintiff refused to sign a satisfaction of judgment. Under these circumstances, the court found that the motion procedure under Section 724.050 for entry of satisfaction of judgment was the exclusive means for obtaining the offset to the amount of the judgment and corresponding entry of satisfaction of judgment.
What Aguila seeks in this cause of action is to force defendants to reduce the amount he owes on his Guaranty of TAI’s loan by the amount of the credit bid and the amount received by defendants from First American Title Insurance Company—i.e., he seeks an offset. Certainly, the direct offset he seeks does not account for the fact that the Stipulated Judgment entered against him in Case No. 18CV04958 was intended to resolve more cases than just that one, and the settlement amount of $3,867,113.84 included not just the amount of any remaining indebtedness on the Guaranty but also expressly included attorneys’ fees incurred by Pico Rivera in that action (see Settlement Agreement and Mutual Release, Ex. A to Exhibit 1 of the Demurrer’s Request for Judicial Notice, at ¶ 1.(a)). However, to the extent it seeks any offset from the amount of the Stipulated Judgment entered against him in Case No. 18CV04958, the above-cited authorities make clear that the exclusive means for him to do so is by following the procedures set forth in Code of Civil Procedure section 724.050 in Case No. 18CV04958, and not by filing a separate cause of action to compel defendants to credit those payments to the amount of the judgment.
The Court rejects Aguila’s contention that it does not matter which department of the Santa Barbara Superior Court hears his claim for offset. His contentions arise in the context of that action, and in fact the credit bid for which he seeks an offset had already occurred almost three years prior to the date upon which the Settlement Agreement and Mutual Release were entered into. The pre-filing demand procedure must be complied with within that case, and the motion to compel satisfaction of judgment upon establishment of a right to offset must also necessarily be filed within the case in which the judgment was entered. That court’s resolution of the credit issue would avoid the substantial duplication of judicial resources which would be required to have the issue resolved by a different judge who is unfamiliar with the facts and issues which arose in the context of that rather complicated litigation. The same reasoning would apply if the cases are considered to be “related cases” (which can apply to a pending case and a case which has already been resolved by entry of judgment), as reflected in California Rules of Court, rule 3.300(a).
Because the Court has found that the demand and motion procedure of Code of Civil Procedure section 724.050 constitute the exclusive means through which Aguila can compel an offset to the amount of the existing judgment against him, the necessary consequence is that there is no such cause of action as that which Aguila has attempted to state herein. As a result, the Court will sustain defendants’ demurrer to the Third Cause of Action, without leave to amend.
2. The Demurrer’s substantive claims with respect to third cause of action.
Defendants raised a number of claimed substantive defects with the third cause of action, with respect to whether they had an obligation to credit the amount of their settlement with First American to the amount Aguila owed under the Guaranty, whether they had an obligation to credit the amount of Pico Rivera’s credit bid to the amount Aguila owed, their claim that Aguila released or waived any claims he had against demurring defendants, and their contention that the third cause of action was an improper motion for reconsideration of the motion to vacate which Aguila lost in Case No. 18CV04958. Defendants then relied in part on those arguments to support their contention that the first cause of action for breach of contract failed to state a cause of action (in arguing that Aguila’s obligations under the Guaranty were not relieved by its making of a credit bid for the property in the foreclosure sale. Most of these were addressed by Aguila in his opposition to the demurrer to the first cause of action for breach of contract, and will be discussed by the Court with respect to that cause of action.
While the Court has found that Aguila’s third cause of action is an improper means of attempting to obtain a credit against the judgment against him, it does not see the current action as an improper attempt at reconsideration of his previous motion to vacate the stipulated judgment in Case No. 18CV04958. That motion had very specific grounds which are completely irrelevant to his current contention that he is entitled to a credit toward the amount of the judgment. In no way does this action seek to vacate that judgment; rather it simply seeks to have it reduced or eliminated through the application of credits toward the amounts he owed which formed the basis for the debt which was reduced to judgment in that action.
III. First cause of action for breach of contract.
A. Party arguments.
Pico Rivera and MCSB demurrer to the breach of contract cause of action, characterizing the cause of action as alleging that Pico Rivera breached the Guaranty by failing to credit toward the amount Aguila owed the amounts received from the foreclosure sale of the property and from Pico Rivera’s claim against First American, alleging that after the credit bid of $5,105,000, no more than $1,011,346.01 remained due on the loan which totaled, at that time, $6,116,346.01. They assert that the cause of action does not allege any provision of the Guaranty that Pico Rivera breached, and is therefore inadequately alleged, citing Murphy v. Hartford Acc. & Indem. Co. (1960) 177 Cal.App.2d 538, 543, for the proposition that in order for an action to be based upon an instrument in writing, the writing must express the obligation sued upon.
Defendants contend that the courts interpret contracts by looking to their plain meaning, interpreting the language in context, and that a judge may only determine what is in terms or substance contained in the contract, and may not insert what has been omitted or omit what has been inserted, citing Hartford Casualty Ins. Co. v. Swift Distribution, Inc. (2014) 59 Cal.4th 277, 288, and Code of Civil Procedure section 1858.
Pico Rivera and MCSB also contend that the cause of action fails because Pico Rivera did not receive any money from the foreclosure sale, instead taking title to the property, which did not relieve Aguila of his obligations under the Guaranty, contending that the FAC does not allege any provision of the Guaranty which provides to the contrary. They contend further that Pico Rivera was not required by law to credit any amount to Aguila’s obligation under the Guaranty when it took title to the property but received no money in the foreclosure sale, referring to the argument made to that effect with respect to the third cause of action. Defendants cite White v. Seitzman (1964) 230 Cal.App.2d 756, for the proposition that a mortgage debt is fully extinguished by foreclosure and sale for the full amount, and thus a guarantee of that debt is also extinguished because there was nothing remaining on which the guarantee could operate, but distinguishes White on the ground that it involved a foreclosure and sale of the property for actual money, not the taking of the property by a credit bid. Defendants therefore conclude that Aguila’s obligations under the Guaranty were not extinguished by the credit bid purchase of the property in the foreclosure sale.
Defendants argue further that nothing in the Guaranty required Pico Rivera to credit Aguila with any amount received in settlement of a claim against First American, defendants contend that the FAC does not cite any provision of the Guaranty that states or implies otherwise. In support of the argument, defendants refer to Section 5 of the Guaranty, which defendant represent provided that that Aguila authorized Pico Rivera, without affecting his liability under the Guaranty, to modify the underlying documents (5.1), to assign the Guaranty (5.2), to modify the security for the loan that plaintiff guaranteed (5.3), to accept or discharge additional guarantors (5.4), to sell all or part of any security for the loan (5.5), and to apply any payments or recovery from any source to the borrower’s obligations on the loan, in such manner, order, and priority as Pico Rivera may elect, whether or not the obligations were guaranteed by the Guaranty (5.6). Defendants assert that Section 5.6 cannot be read in isolation from the rest of Section 5, and cannot be interpreted to require Pico Rivera to apply the damage it recovers from the breach of another party’s duty, to Aguila’s obligations under the Guaranty, as a matter of basic contract-interpretation law. Defendants inferred from ¶ 19 of the FAC that Aguila contends that Pico Rivera is permitted to do any of the things articulated in 5.1 through 5.5, but is required to apply payments from any source to TAI’s obligations on the loan and to the amount Aguila is required to pay under the Guaranty. Defendants contend that First American’s contractual obligations to Pico Rivera under the title policy are entirely independent from Aguila’s obligations under the Guaranty. Defendants contend further that in the absence of any provision in the Guaranty supporting Aguila’s contention, Section 7.2.5—in which Aguila waived any right or defense he may now or hereafter have based on Pico Rivera’s full or partial release of any party who may be obligated to Pico Rivera—affirmatively defeats the claim. The include he is not entitled to a credit from the settlement of a title insurance claim, toward his personal obligation to Pico Rivera.
Defendants argue further that Aguila released any claims he has against Pico Rivera and MCSB, when he executed the Settlement Agreement and Mutual Release in Case No. 18CV04958. The terms of the release are broad, and include the release of all claims which Aguila or TAI have against Pico Rivera and MCSB (§1(e)); releases them from “any and all claims, causes of action, rights, obligations, debts, liabilities, accounts, liens, damages, losses and expenses of any kind and nature whatsoever, whether known or unknown, foreseen or unforeseen, patent or latent, suspected or unsuspected, contingent or unliquidated, which each of them previously had, currently has or may have, arising from, accrued under, relating to or based upon any cause, matter or reason whatsoever ....” (§2(a)); waives the provisions of Civil Code section 1542 (§2(b)); includes a covenant not to sue on any claim, demand, action, suit or proceeding arising out of or in connection with the matters. . . released herein (§3); includes an acknowledgment that he had the opportunity to consult with an attorney to explain the terms of the agreement and the consequences of his signing it (§6); and includes a recitation that the parties have not been influenced, in entering into the agreement, by any promise, representation, or inducement, other than as contained in the agreement (§6(h). He therefore released the claims set forth in his FAC.
Aguila has opposed the demurrer, contending that he has adequately alleged causes of action for both breach of contract and breach of the covenant of good faith and fair dealing. As part of this contention, Aguila first argues that Pico Rivera was required to apply its credit bid as a credit towards the amount he owed under his Guaranty and the Judgment. While Pico Rivera argued it had no such obligation because it made a credit bid and did not receive cash from the sale, this ignores that making a successful credit bid is the equivalent of paying the amount of the bid in cash, thereby reducing the amount of the outstanding indebtedness by that amount. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1238.) A credit bid reduces the amount of the outstanding indebtedness by the amount of the credit bid. (Pacific Inland Bank v. Ainsworth (1995) 41 Cal.App.4th 277, 281.)
Aguila argues further that Pico Rivera was obligated to further reduce the amount of his indebtedness by the amount it was paid by First American. In arguing that it was not required to do so, Pico Rivera cites to Section 7.2.5 of the Guaranty, in which Aguila, as Guarantor, waived any right or defense he may have based upon full or partial release of any party. However, that does not absolve Pico Rivera of its obligation to apply payments received to reduce the indebtedness, or to attempt to obtain double recovery. (Bank of America NA v. Stonehaven Manor, LLC (2010) 186 Cal.App.4th 719, 725, citing Walter E. Heller Western, Inc. v. Bloxham (1985) 176 Cal.App.3d 266, 274.) Aguila contends that Pico Rivera is arguing it is entitled to a double recovery, in recovering the same amount from both First American and from Aguila.
With respect to demurring defendants’ claim that Aguila had released his claims against them, Aguila argues that the General Release within the Settlement Agreement cannot release Pico Rivera from liability for willful and fraudulent acts in attempting to obtain double recovery by failing to credit its credit bid and the First American payment against the amounts owed by Aguila, citing Civil Code section 1668, and Tunkl v. Regents of University of California (1963) 60 Cal.2d 92, 101. He asserts that a release of defendants from liability for purposefully failing to credit the amounts as required by law would not be a voluntary shifting of risk, but an unenforceable attempt by defendants to obtain complete immunity for their intentional violation of law and policy prohibiting lenders from obtaining double recoveries. (Walter E. Heller Western, Inc. v. Bloxham (1985) 176 Cal.App.3d 266, 274.) Aguila asserts that his FAC alleges the Settlement Agreement was obtained through fraud, and a release obtained through fraud is invalid. (Butler Am. LLC v. Aviation Assurance Co. (2020) 55 Cal.App.5th 136, 144.) Finally, Aguila argues that the Settlement Agreement was entered into on November 15, 2020, and the First American payment was made on December 28, 2021, over a year later. To be effective to release a party from liability for future wrongful acts, release language must be clear, explicit and comprehensible in each of its essential details. (Madison v. Superior Court (1988) 203 Cal.App.3d 589, 598.) Here, nothing in the agreement releases Pico Rivera from future wrongful acts.
Finally, Aguila argues that the failure to credit the amounts paid was a breach of the Guaranty Agreement. While Pico Rivera argues there is no specific provision of the Guaranty Agreement requiring it to credit its credit bid or the First American payment to the amounts owed by Aguila, public policy prohibits lenders from obtaining double recovery. At the very least, the failure to properly credit amounts received to that owed by Aguila pursuant to the Guaranty constitute a breach of the covenant of good faith and fair dealing, and therefore a breach of the Guaranty, citing Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244 [“A breach of the implied covenant of good faith is a breach of the contract [citation], and ‘breach of a specific provision of the contract is not . . . necessary’ to a claim for breach of the implied covenant of good faith and fair dealing.”]. While Section 5.6 permits Pico Rivera to apply payments received “in such manner, order and priority” as it may elect, it does not permit Pico Rivera to simply not apply the payments in any manner to the amount owed.
In their reply, defendants contend the opposition conflated the parties contractual obligations under the Guaranty and Settlement Agreement with his obligations under the Stipulated Judgment, which extinguished the parties’ obligations under the earlier agreements. They contend that it is the judgment which defines the parties rights and obligations, and whether Pico Rivera should have credited Aguila under the Guaranty is irrelevant to Aguila’s obligations under the Guaranty, since it was merged into the Stipulated Judgment.
In specifically arguing that Aguila has not pleaded, and cannot adequately plead, a cause of action for breach of contract or breach of the implied covenant of good faith and fair dealing, defendants again contend that the Guaranty no longer exists, and Pico Rivera’s purported breaches of the Guaranty do not constitute breaches of the Stipulated Judgment. Defendants contend Aguila is not entitled to a credit against the Stipulated Judgment for the amount of Pico Rivera’s credit bid, again because the parties’ obligations under the Guaranty were extinguished and replaced by their obligations under the Stipulated Judgment, and that Aguila’s obligations under the Stipulated Judgment is to pay Pico Rivera the stipulated amount.
In specifically arguing that Aguila is not entitled to a credit against the Stipulated Judgment for the amount of the settlement of the title policy claim, defendants contend that Aguila’s argument was based upon the obligations of the parties under the Guaranty, but again notes that those obligations were extinguished when the Stipulated Judgment was entered, and their obligations are now determined solely by the Stipulated Judgment. Aguila has not cited any authority to support the argument that a party’s purported breach of its obligations under a contract is a basis for challenging the effectiveness of a judgment resolving a dispute over that contract. In its introductory comments, the reply also states that the payment from First American was based upon a missed easement, and had nothing to do with Aguila’s obligation under the Guaranty or the Stipulated Judgment.
Defendants contend that Civil Code section 1668, asserted by Aguila in arguing that the waiver and release provisions of the Settlement Agreement do not insulate defendants from liability for the causes of action in this action, is irrelevant. They contend that Aguila asks the court to determine, at the pleading stage, that the Settlement Agreement violates Section 1668, which the FAC does not allege. Defendants further characterize as “absurd” Aguila’s construction of the language of the Settlement Agreement that states that Plaintiff releases claims that he “currently has or may have” means claims that he currently may have, and asserts that they do not know what “currently may have” means.
(1) Contention that Pico Rivera had no obligation to credit the amount of its foreclosure sale credit bid for the secured property against the amount owed by Aguila on the Guaranty.
Aguila’s complaint alleges that Pico Rivera was obligated to credit the amount of its credit bid made in the foreclosure sale, to the amount that Aguila owed pursuant to the Guaranty Agreement, but that it failed to do so, and thereafter fraudulently induced Aguila to enter into the Settlement Agreement under which he agreed to a stipulated judgment against him in Case No. 18CV04958 in the amount of $3,867,113.84 to settle his obligations under the Guaranty, and amount which he contends was far in excess of the amount he owed after Pico Rivera had failed to credit the amount of its credit bid.
In demurring to the cause of action, defendants argued that there was no obligation to credit the amount of the credit bid against the amount owed by Aguila under the Guaranty, largely since the amount of the credit bid was for less than the amount due on the loan, and because Pico Rivera received no money in the foreclosure sale, and the foreclosure sale therefore did not extinguish the debt such that there was nothing remaining on which the guarantee could operate, citing White v. Seitzman (1964) 230 Cal.App.2d 756.
In opposition, Aguila cites authorities establishing that a credit bid is the equivalent of the bidding lender agreeing to pay the amount of the bid in chase, which thereby reduces the amount of the outstanding indebtedness by that amount.
In reply, defendants for the first time raised the issue of the merger of the obligations under the Guaranty Agreement and Settlement Agreement into the Stipulated Judgment, contending that the terms of the Stipulated Judgment now supersedes those agreements and sets forth the only obligations of the parties to each other, and that Aguila’s obligation under the Stipulated Judgment is to pay the full amount of that judgment.
The Court cannot sustain the demurrer to the breach of contract cause of action based upon defendants’ contention that they had no obligation to credit the amount of the credit bid to Aguila’s obligations, for several reasons. First, with respect to the issue regarding the merger of any obligations under the Guaranty Agreement or Settlement Agreement into the Stipulated Judgment, that issue was raised for the first time in defendants’ reply papers, and is not properly before the Court at this time. The Court cannot and will not sustain a demurrer on grounds not expressly articulated in the initial demurrer.
Second, the Court cannot find as a matter of law on demurrer that defendants’ failure to net any money out of its credit bid at the foreclosure sale acts in any way to eliminate any duty they had to credit the amount of the bid toward the amount due on Aguila’s guarantee of TAI’s obligations under the Loan. The authorities set forth by Aguila clearly show that a credit bid is the functional equivalent of a sale of the property in that amount. Further, in making the credit bid in the amount it did, Pico Rivera legally established the value of the property, and obtained title to the property itself. Pico Rivera was therefore enriched in the amount of its credit bid by receiving property valued at that amount. It cannot contend both that it was entitled to obtain title to the property and still recover from Aguila on the guaranty the full amount of the loan which was due at that time. Doing so would constitute a double recovery—Aguila guaranteed the amount of TAI’s indebtedness; he did not guarantee the amount of the indebtedness plus the amount of the credit bid.
Certainly, the Settlement Agreement and Mutual Release underlying the Stipulated Judgment notes that the amount of the Stipulated Judgment which the parties agreed would be entered in Case No. 18CV04958, totaled $3,867,113.84, and that total expressly included attorneys’ fees. Clearly, some amounts had to have been credited against the total indebtedness—which exceeded $6 million at the time of the foreclosure sale—in order for the judgment amount to be $3,867,113.84. This is particularly true if the stipulated amount included some amount of attorneys’ fees. However, given that defendants argue herein that they had no obligation to credit the amount of their credit bid against the amounts owed by Aguila under the terms of the Guaranty, whether or not the total amount of their credit bid was ever properly accounted for remains uncertain. Ultimately, this is an issue which will need to be resolved by the trial court in Case No. 18CV04958, should Aguila comply with the procedures set forth in Code of Civil procedure section 724.050. (See Analysis, Section II.B.(1), supra.)
For purposes of the current demurrer, however, the argument, in and of itself, simply has no impact on the validity and/or viability of Aguila’s action against defendants. Therefore, to the extent the demurrer is based upon this contention, it is overruled.
(2) Contention that Pico Rivera had no obligation to credit the amount received from First American against the amount owed by Aguila on the Guaranty.
Aguila’s FAC also alleged that Pico Rivera was obligated to, but did not, credit to the amount he owed under the Guaranty Agreement, the amount of the payment made to Pico Rivera by First American. Defendants’ demurrer to the FAC also included their contention that they had no obligation to credit the payment from First American, since noting in the Guaranty required them to do so, and that First American’s contractual obligations to Pico Rivera were independent from Aguila’s obligations under the Guaranty, and that the Guaranty at Section 7.2.5 affirmatively defeats the claim, in waiving any right or defense based upon Pico Rivera’s full or partial release of any party who may be obligated to Pico Rivera.
In opposition to the demurrer, Aguila again asserts Pico Rivera was obligated to reduce the amount of his indebtedness by the amount it was paid by First American, and asserts that Section 7.2.5 of the Guaranty did not absolve Pico Rivera of that obligation, nor did it authorize Pico Rivera to obtain a double recovery.
In reply, defendants again contended that Aguila’s argument was based on the obligations of the parties under the Guaranty, but those obligations were extinguished by the Stipulated Judgment, and their obligations are now determined solely by the Stipulated Judgment. Defendants further noted—for the first time, and contrary to the allegations of the FAC—that the payment from First American was for a missed easement, and had nothing to do with Aguila’s obligations under either the Stipulated Judgment or the Guaranty.
With respect to defendants’ contention that all of the parties’ obligations under the Guaranty Agreement and the Settlement Agreement were merged into and superseded by the Stipulated Judgment, their contention that they had no obligation to credit the amount received form First American against the amount owed by Aguila on the Guaranty suffers from the same defects as did their contention that they had no obligation to credit the amount of their credit bid. This is an issue raised for the first time in defendants’ reply papers, is not properly before the Court, and which the Court therefore cannot and will not consider in resolving the demurrer.
Further, it appears to the Court that the parties have been talking at cross-purposes with respect to the issue of whether the amount paid to Pico Rivera by First American should have been credited to Aguila’s obligations under the Guaranty. The FAC alleged on information and belief that the policy obtained by Pico Rivera from First American was to insure the priority of the Deed of Trust, subject to excluded encumbrances identified in the policy, was in an amount not to exceed the outstanding amount of the amount of the loan, and the purpose of which was to protect Pico Rivera against losses up to the outstanding amount of the Loan arising from the failure of Pico Rivera to be able to be fully repaid on the loan, and was therefore directly connected to the status of the loan and the amount of the loan which was outstanding. (FAC @ ¶¶ 14-15.) The FAC further alleged that the amount of the payment by First American was equivalent to the amount of the balance due on the loan after subtraction of the amount of the credit bid (¶¶ 16, 19), concluding—albeit somewhat obliquely—that the amount of First American’s payment represented the amount which remained due on Aguila’s obligations in guaranteeing the loan, and therefore should have been credited toward those obligations.
Defendants’ demurrer simply asserted that the obligation by Aguila and the obligation by First American were separate obligations based on separate duties, and that Aguila cannot obtain a credit on First American’s discharge of its obligation. The contention was initially confusing to the Court, because it did not seem to correspond to the allegations of the FAC. However, defendants’ reply papers appeared to provide some clarity with respect to their true contention, which is that that the payment Pico Rivera obtained from First American was for a missed easement that had nothing to do with Aguila’s obligations under either the Stipulated Judgment or the Guaranty.
That may well be true. However, a demurrer cannot be sustained based upon information outside the four corners of the complaint or matters with respect to which judicial notice may be taken. In ruling on the demurrer, the Court is obligated to accept as true the allegations of the FAC. Here, the allegations support the conclusion that the amount of the policy was obtained for the purpose of protecting Pico Rivera against losses to the outstanding amount of the loan, arising from failure of Pico Rivera to be able to get fully repaid on the loan, and that the payment made on that policy therefore legally had to be credited toward the amount of Aguila’s obligation on the loan—the full amount of which was all that he had guaranteed. Based upon the allegations of the complaint, the Court cannot find that the obligations of Aguila and of First American were based upon separate and unrelated duties, such that Aguila would not be entitled to a credit of that amount against the stipulated judgment against him, as a matter of law. To the extent the demurrer is based upon this issue, it must therefore be overruled.
(3) Contention that Aguila released any claims he had against Pico Rivera and MCSB, when he executed the Settlement Agreement.
As noted above, defendants’ demurrer argued further that Aguila had released any claims he had against Pico Rivera and MCSB when he executed the Settlement Agreement. In doing so, defendants merely cited to or quoted provisions of the Settlement Agreement, including Sections 1(e) [that Aguila releases all claims he may have against Pico Rivera and MCSB], 2(a) [agreement to release Pico Rivera, MCSB, and other affiliated persons and entities from all claims (etc.), known or unknown (etc.) “which each of them previously had, currently has or may have, arising from, accrued under, related to or based upon any cause, matter or reason whatsoever”], 2(b) [Civ. Code, § 1542 waiver], 3 [covenant not to sue with respect to “any claim, demand, action, suit or proceeding arising out of or in connection with the matters” released], 6(g) [right to consult with attorney], and 6(h) [in entering into the agreement, parties have not been influenced by any promise, representation, or inducement other than as expressly contained in the agreement].
In opposition, Aguila argues that the release provisions of the Settlement Agreement cannot release Pico Rivera from liability for its willful or fraudulent attempts to obtain double recovery by failing to credit the amounts received from the amounts he owed. He contends he alleged the settlement agreement was obtained through fraud, and a release obtained through fraud is invalid, citing Civil Code section 1668. He argued further that the First American payment was made more than a year after execution of the Settlement Agreement, and the terms of the release were not sufficient to release the future acts of Pico Rivera or MCSB in failing to credit that amount against the amount which Aguila owed under the Guaranty.
In reply, defendants contend that Aguila is asking the court to determine at the pleading stage that the Settlement Agreement violated Section 1668, without alleging it in the FAC. They further characterize as “absurd” Aguila’s construction of the language of the Release, among other claims.
The Court cannot find, as a matter of law on the information currently properly before it on this demurrer, that any or all of Aguila’s claims alleged in his FAC were definitively released by his execution of the Settlement Agreement and Mutual Release in November 2020, for a number of reasons, and will therefore overrule the demurrer to the extent it is based upon the terms of the release provisions.
First, as noted by defendants’ reply, we are currently at the pleading stage. Contrary to the contention made in their reply, however, Aguila is not asking this Court to find that the Settlement Agreement violated Section 1668, in merely opposing defendants’ demurrer. Rather, he has raised its provisions in support of the factual allegations made in his FAC that the Settlement Agreement was procured by fraud, and cannot release defendants from their own fraud, in an attempt to show that his claims are not absolutely precluded by the terms of the release, that the action should not be dismissed at the demurrer stage on that ground, and that the issue is one which is preserved for later adjudication in this action. The Court cannot find that Aguila’s failure to specifically allege the application of Section 1668 renders his claim insufficiently alleged.
Second, in demurring on the basis of the release provisions, defendants did nothing other than quote or reference their provisions, and made no attempt to explain why all of Aguila’s claims against them are necessarily encompassed by the release provisions. The Settlement Agreement and Mutual Release cannot be viewed in a vacuum, and must be interpreted in the context of the disputes that it was intended to resolve. Under the Guaranty, Aguila was guaranteeing the obligations of TAI to Pico Rivera, arising from the Loan, and his obligations did not exceed any obligations of TAI on the loan. Specifically, this action contends that in failing to credit the amount of the credit bid toward TAI’s obligations on the loan, Pico Rivera attempted to obtain from Aguila far more than he was obligated to provide pursuant to the Guaranty, i.e., in permitting Pico Rivera to obtain both title to the property, and additionally the value of the property it had obtained, plus the additional $1 million + which remained due on the loan after the foreclosure sale was conducted, when all that the Guaranty obligated Aguila to provide was the amount due under the loan (plus, e.g., attendant expenses involved in enforcing the Guaranty). Without more, and without a specific legal analysis of why all of these claims would be covered by the terms of the release, the Court cannot find that defendants have met their burden on demurrer of establishing that Aguila’s claims are barred as a matter of law by the terms of the release he executed. Rather, this is an issue for determination through adjudication of this action.
Third, the manner in which the language of Section 2 of the Settlement Agreement and Mutual Release is drafted—specifically in failing to use an Oxford Comma (stating that each party releases the other and its affiliates “from any and all claims . . . which each of them previously had, currently has or may have. . . .”, rather than “which each of them previously had, currently has [,] or may have]—renders its provisions potentially ambiguous and subject to multiple interpretations with respect to whether acts or omissions of the parties arising from the matters which are the subject of the release which occur after execution of the Settlement Agreement (such as the alleged failure to credit the payment from First American, made a year after the execution of the agreement, toward the amount owed by Aguila), are in fact covered by the release.
For all of these reasons, the Court finds that defendants have failed to meet their burden of establishing that Aguila’s claims against them were necessarily encompassed by the release terms within the Settlement Agreement and are therefore barred, as a matter of law. Consequently, to the extent the demurrer is based upon this argument, it is overruled.
(4) Defendant’s contention that Aguila waived any right to offset, in executing the Guaranty.
Defendants’ demurrer included an abbreviated section contending that Aguila had waived any claims he had against Pico Rivera and MCSB, “such as ‘offset’,” that might apply. The section contains no authorities, and refers only to the Guaranty at §§ 4., 5.5, 5.6, 6, and 6.2.1. Those sections provide:
4. Cessation of Liability. Guarantor(s)' liability under this Guaranty shall not in any way be affected by the cessation of Borrower's liability for any reason other than full performance of all the obligations under the Underlying Documents, including, without limitation, any and all obligations to indemnify Lender.
5. Authorization of Lender. Guarantor(s) authorize Lender, without notice or demand and without affecting its liability under this Guaranty, and without consent of Guarantor(s) or prior notice to Guarantor(s), from time to time to:
* * *
5.5. Order of Sale. Direct the order and manner of any sale of all or any part of security now or later held under the Underlying Documents or this Guaranty, and also bid at any such sale lo the extent allowed by law; and
5.6. Application of Proceeds. Apply any payments or recovery from Borrower, Guarantor(s), or any source, and any proceeds of any security, to Borrower’s obligations under the Underlying Documents in such manner, order, and priority as Lender may elect, whether or not those obligations are guaranteed by this Guaranty or secured at the time of such application.
6. General Waivers. Guarantor(s) waive all rights and defenses that Guarantor(s) may have because Borrower’s debt is secured by real property. This means, among other things:
* * *
6.2. Rights If Lender Forecloses on Security. If Lender forecloses on any real property collateral pledged by Borrower:
6.2. l. The amount of the debt may he reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price.
Aguila’s opposition papers did not address the argument, but that failure has no impact on the Court’s analysis. The Court does not read these provisions as permitting Pico Rivera to retain additional amounts it received from sources other than Aguila to compensate it for TAI’s default in its obligations on the loan, without permitting any offset against the amounts owed by Aguila on the Guaranty. The complete failure by defendants to analyze and explain their contention, or provide any authority to support their interpretation of the terms of the Guaranty in this manner, requires the conclusion that defendants have failed to meet their burden on demurrer on this contention. To the extent the demurrer is based upon this argument, it is overruled.
(5) Contention that the FAC fails to allege any provision of the Guaranty which was breached.
The elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff. (Oasis West Realty LLC v. Goldman (2011) 51 Cal.4th 811, 821.)
Aguila’s first cause of action alleges that TAI obtained a loan from Pico Rivera, secured by real property, and that he had executed a personal guarantee of TAI’s payment obligations to Pico Rivera. He then essentially alleges that defendants breached the Guaranty Agreement by willfully failing to credit against the amounts he was obligated to pay under the terms of that agreement, the amounts which defendants received from other sources which compensated them for the amounts TAI had not paid, in an attempt to obtain a double recovery of the payments which had been due from TAI under the Loan.
Defendants’ demurrer contends that the cause of action fails because it does not allege any provision of the Guaranty that Pico Rivera breached, citing Murphy v. Hartford Acc. & Indem. Co. (1960) 177 Cal.App.2d 539, 543, for the proposition that the specific provision allegedly breached must be alleged in the complaint. The demurrer further contends that there is no breach of contract claim because it received no money from the foreclosure sale, and only took title to the property.
Taking the latter claim first, the Court has already largely addressed it above, and found that the fact that defendant made a credit bid was the legal equivalent to receiving the monetary amount of the credit bid, and that a defendant making a credit bid is not entitled to both title to the property, and to receive from a Guarantor the full amount of that credit bid as well as the remaining amount due under the loan which had been guaranteed, because to do so would constitute a double recovery.
However, with respect to the first claim, Aguila’s opposition to the demurrer does not dispute that the complaint must allege the provision of the written contract which was breached. Rather, Aguila argues that even if there is no specific provision in the Guaranty requiring that Pico Rivera properly account for the amounts claimed to be owed thereunder, and fails to properly credit the amounts received, such acts at the very least constitute a breach of the covenant of good faith and fair dealing and therefore a breach of the Guaranty, citing Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.
The Thrifty Payless court did, in fact, state that a breach of the implied covenant of good faith and fair dealing is a breach of the contract, and that a breach of a specific provision of the contract is not necessary to a claim for breach of the implied covenant of good faith and fair dealing. (Thrifty Payless, Inc. v. The Americana at Brand, LLC, supra.) Those comments, however, do not support the maintenance of a breach of contract cause of action where the pleading does not allege the provision(s) of the contract which was or were breached.
Aguila goes on to discuss Section 5.6 of the Guaranty, and how it does not support defendants’ interpretation of the Guaranty that they were not obligated to apply any amounts they received to the amount he owed under the Guaranty. It may well be that Aguila will ultimately be able to construct a viable cause of action for direct breach of contract. (See, e.g., Thrifty Payless, supra, 218 Cal.App.4th at pp. 1236, 1244, involving a Tenant’s action against a landlord for breach of a commercial lease for property within a shopping center, which obligated the tenant to pay its pro rata share of property taxes, insurance, and common area maintenance, without setting forth any formulas, figures, or percentages regarding its share of the expenses. The Court found that plaintiff had alleged a valid breach of contract cause of action where it had alleged that the landlord breached those contractual provisions by improperly exercising its discretion in allocating costs between retail and nonretail spaces, and failing to allocate additional rent obligations to the nonretail portions of the shopping center.) However, his current FAC does not do so.
The Court notes, once again, that defendants’ reply raised the issue of the merging of the obligations under the Guaranty and Settlement Agreement into the Stipulated Judgment. Once again, the Court declines to address the issue, which was impermissibly raised for the first time in defendants’ reply.
As a result, the Court will sustain the demurrer to the first cause of action for breach of contract, with leave to amend. Any such further amended complaint shall be filed no later than February 23, 2024.
IV. Second cause of action for breach of the implied covenant of good faith and fair dealing.
The implied covenant of good faith and fair dealing is implied by law in every contract. (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1369.) The covenant is read into contracts and functions as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which, while not technically transgressing the express covenants, frustrates the other party’s rights to the benefit of the contract. (Racine & Laramie, Ltd. v. Dept. of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031-1032.) The covenant also requires each party to do everything the contract presupposes the party will do to accomplish the agreement’s purposes. (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.) A breach of the implied covenant of good faith is a breach of the contract (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1393), and a breach of a specific provision of the contract is not necessary to a claim for breach of the implied covenant of good faith and fair dealing (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 373 & fn. 12).
Defendants have demurred to Aguila’s second cause of action for breach of the implied covenant of good faith and fair dealing, contending that the doctrine exists only to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made, citing Guz v. Bechtel at., Inc. (2000) 24 Cal.4th 317, 349, and contends that the cause of action necessarily fails because the FAC “does not identify a single provision of the Guaranty—i.e., the ‘agreement actually made’—that PRFMI allegedly breached.” (Opposition at p. 19, lines 6-13). The demurrer proceeds to acknowledge that a breach of a specific provision of the contract is not a necessary prerequisite to a cause of action for breach of the implied covenant, but argues that where the conduct alleged to breach the implied covenant is identical to the conduct alleged to have breached the contract, the cause of action is superfluous, citing Bionghi v. Metropolitan Water Dist. Of So. California (1999) 70 Cal.App.4th 1358, 1370.
As noted above, Aguila opposed the demurrer, contending that even if the FAC does not allege the breach of a specific provision of the contract requiring defendants to properly credit amounts received against the amounts owed by Aguila, at the very least the allegations constitute a breach of the implied covenant. The Court agrees.
Defendants first argued that the complaint does not allege a specific provision breached, and therefore does not state a cause of action for breach of contract, and then proceeds to argue that it does not allege a cause of action for breach of the implied covenant of good faith and fair dealing, because the conduct alleged to breach the contract is the same conduct alleged to breach the implied covenant. However, as noted above, the entire purpose of reading the implied covenant into contracts is to prevent a contracting party from engaging in conduct which, while not technically transgressing the express covenants, frustrates the other party’s rights to the benefit of the contract. That is the essence of what Aguila’s FAC alleges—that the Guaranty obligated him only to fulfill TAI’s payment obligations, and that defendants have frustrated his rights to the benefit of that contract by failing to credit to the amounts he owes under the Guaranty, amounts which defendants received from other sources which already compensated them for the TAI’s breach of its payment obligations.
There remains much to determine—at least some of which is properly determined in the course of a Code of Civil Procedure section 724.050 motion which is properly made in Case No. 18CV04958 (e.g.¸ how the settlement amount agreed to by the parties in the Settlement Agreement and ultimately entered as a Stipulated Judgment against Aguila was derived, and whether it properly accounted for Pico Rivera’s credit bid). [Note: The Court notes that Section 724.050 permits a judgment debtor to recover both attorneys fees incurred in seeking acknowledgement of satisfaction of judgment, as well as all damages sustained because of the judgment creditor’s failure to properly credit amounts against the judgment and acknowledge satisfaction of judgment. Pursuant to subdivision (e), entitlement to such consequential damages may either be determined in the proceeding on the motion, or “in an action.” To the extent all such damages, if any, are ascertained in that case, there may be nothing left for this Court to determine.] However, the allegations of Aguila’s current FAC are sufficient to allege a cause of action for breach of the implied covenant of good faith and fair dealing. Consequently, the Court will overrule the demurrer to the cause of action for breach of the implied covenant of good faith and fair dealing.