Case Name: Fowler, et al. v. Deutsche Bank National Trust Company, et al.
Case No.: 16-CV-292241

Cross-complainant Deutsche Bank National Trust (“Deutsche”) moves for summary judgment, or in the alternative, summary adjudication, in its favor and against cross-defendants B. Reid Settlemier and Redwood Property Investors II, LLC (collectively, “Redwood”) and John Turner and Tiffany Fowler (collectively, “Cross-Defendants”)

After full consideration of the evidence, separate statements and authorities submitted by the parties, the Court makes the following rulings:

Deutsche’s request for judicial notice is GRANTED. (Evid. Code, § 452, subds. (c) and (h); see Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265 [“[t]he official act of recordation and the common use of a notary public in the execution of such documents assure their reliability, and the maintenance of the documents in the recorder’s office makes their existence and text capable of ready confirmation, thereby placing such documents beyond reasonable dispute”]; see also People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2.)

Deutsche’s motion for summary judgment is GRANTED. With respect to the second cause of action for quiet title, the Court finds that Deutsche has sufficiently demonstrated its title to the property located at 609 Lakehaven Terrace in Sunnyvale (the “Property”) that was most recently purchased at a trustee’s sale by Redwood. The Court is persuaded that the Deed of Trust (“DOT”) originally executed between Zaida Ugalde and Downey Savings and Loan Association (“Downey”) is currently owned by Deutsche, which acquired it through the purchase of various assets from Downey. (Deutsche’s Separate Statement of Undisputed Material Facts in Support of Motion for Summary Judgment/Adjudication (“UMF”) Nos. 3-6, 8.) The Court is further persuaded that the Downey DOT is valid and was effectively recorded in the chain of title in July 2005, well before Redwood recorded its own interest in the Property. A document is considered to be “in the chain of title” when it can be located by a proper examination of public records. (Triple A Management Co., Inc. v. Frisone (1999) 69 Cal.App.4th 520, 530-532; Hochstein v. Romero (1990) 219 Cal.App.3d 447, 452.) Although the legal description in the deed contained the incorrect lot number, it did, as Deutsche points out, contain the proper parcel number, address, and grantor and grantee for the Property. Consequently, the actual property that was the subject of the deed of trust was clearly identifiable and, because it contained the correct grantor and grantee information, could have been located by a proper examination of public records.

In its opposition, Redwood fails to raise a triable issue of material fact with regard to whether or not it was a bona fide purchaser of the Property, particularly in connection with the element of its lack of knowledge or notice of the Downey DOT. While Redwood proffers evidence that it did not have actual notice of the deed, it fails to establish that it lacked constructive notice given the document’s valid recording and inclusion of sufficient information to place it in the chain of title.

Typically, a recorded document imparts constructive notice to subsequent purchasers and precludes them from acquiring the property as bona fide purchasers without notice, because the law conclusively presumes that a party acquiring property has notice of the contents of a properly recorded document reflecting such property. (Civ. Code, §§ 1213, 1214; Anderson v. Willson (1920) 48 Cal.App.289, 293.) In order to give constructive notice, the instrument at issue must contain a description of the real property sufficient to identify it (Scott v. Warden (1931) 111 Cal.App. 587, 597) or it must refer to another recorded document that contains an adequate description (Krause v. Marine Trust & Savings Bank (1928) 93 Cal.App. 681, 684). Minor imperfections in the description do not defeat the notice given by recordation of the instrument as long as the property is clearly identifiable and the instrument provides enough information that an examination of public records or the referenced documents will provide the subsequent party with knowledge of the correct description of property. (McLean v. Ladewig (1934) 2 Cal.App.2d 21, 25-26.) No particular form of description is required in a deed; the property may be identified by an address or even by its descriptive name. (Brudvig v. Renner (1959) 172 Cal.App.2d 522, 524.) Here, as stated above, there was sufficient information in the Downey DOT for Redwood to be able to be able to locate it in a search of public records. While it is true that not all documents found in the official records of the county recorder will necessarily constitute constructive notice, Redwood fails to submit evidence which establishes that the Downey DOT falls into the category of recorded documents that do not impart such notice. (See 4 Miller & Starr, Cal. Real Estate (4th ed. 2017) Recording and Priorities, § 10:60.) Consequently, having failed to demonstrate the existence of a triable issue as to its alleged status as a bona fide purchaser, summary adjudication of this claim in Deutsche’s favor is proper.

With regard to the first cause of action for reformation, there is no dispute that the Downey DOT, when it was executed and recorded in July 2005, contained the incorrect lot number for the Property based on an inadvertent mistake. However, Redwood contends that the DOT should not be reformed because to do so would prejudice its rights to the Property. As Redwood notes, the statutory authority which provides for reformation due to fraud or mutual mistake of the parties also provides that the revision of the contract is to go “so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value.” (Civ. Code, § 3399.) Redwood contends that as a bona fide purchaser, it would be gravely prejudiced if the Court allowed Deutsche to reform the DOT and retroactively impart notice to Redwood, an innocent third party.

This argument is easily disposed of based on Redwood’s failure to establish the existence of a triable issue of material fact with regards to whether or not it is a bona fide purchaser. Because it has not established that it is an “innocent party” who purchased the Property in good faith without notice of any kind, prejudice to Redwood is a nonissue.

Redwood also contends that Deutsche is precluded from reforming the deed of trust by the applicable statute of limitations. An action for reformation is subject to the three-year statute of limitations for actions for relief on the ground of fraud or mistake provided by Code of Civil Procedure section 338, subdivision (d). The cause of action is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake. (Code Civ. Proc., § 338, subd. (d).) “Literally interpreted, this language would give the plaintiff an unlimited period to sue if [it] could establish ignorance of the facts. But courts have read into the statute a duty to exercise diligence to discover the facts …. Under this rule constructive and presumed notice or knowledge are equivalent to knowledge. So, when the plaintiff has notice or information of circumstances to put a reasonable person on inquiry, or has the opportunity to obtain knowledge from sources open to [its] investigation (such as public records or corporation books), the statute commences to run.” (Parsons v. Tickner (1995) 31 Cal.App.4th 1513, 1525 [internal citations omitted].)

Redwood argues that because the Downey DOT was a known document to Downey and Deutsche and the legal description of the Property was readily visible on it, the action is clearly time-barred. This conclusion, however, oversimplifies the aforementioned standard for determining when a cause of action for reformation based on fraud or mistake accrues. As explained in one case, although a plaintiff generally has a duty to show diligence and investigation based on sources of information available to him or her:

where no duty is imposed by law upon a person to make inquiry, and where under the circumstances a “prudent man” would not be put upon inquiry, the mere fact that means of knowledge are open to a plaintiff, and he has not availed himself of them, does not debar him from relief when thereafter he shall make actual discovery. The circumstances must be such that the inquiry becomes a duty, and the failure to make it a negligent omission.

(Tarke v. Bingham (1898) 123 Cal. 163, 166 [emphasis added].)

In other words, although the DOT containing the error was available to Downey and Deutsche at all times, there must have been something to put them on inquiry of the error such that they had an obligation to then go investigate it, i.e., review the contents of the DOT. Redwood submits nothing which suggests that anything occurred more than three years prior to the filing of the reformation claim to excite Downey or Deutsche’s suspicion, or put them on inquiry of the error in the DOT. Thus, Redwood has failed to raise a triable issue of material fact concerning when the reformation claim accrued and therefore whether or not it is time-barred. As with the bona fide purchaser doctrine, the statute of limitations is an affirmative defense. (Minton v. Cavaney (1961) 56 Cal.2d 576, 581.) Thus, Deutsche has no burden to negate this defense, i.e., demonstrate that its claim is timely. It is Redwood’s burden to demonstrate that the statute of limitations has run and because it has not and this is the final argument that it asserts in opposition to this claim, summary adjudication of this claim in Deutsche’s favor is appropriate.

Finally, with respect to Deutsche’s remaining claim for declaratory relief, based on the foregoing analysis of Deutsche’s other claims, Deutsche’s request for summary adjudication of this claim, which is essentially duplicative of the preceding causes of action, is granted. It follows that summary judgment of Deutsche’s cross-complaint in its favor is appropriate.