Filed 4/11/13 Kuehnel v. PHH Mortgage CA4/3




                        NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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


              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     FOURTH APPELLATE DISTRICT

                                                DIVISION THREE


ERIKA KUEHNEL,

     Plaintiff and Appellant,                                          G046510

                   v.                                                  (Super. Ct. No. 30-2010-00407237)

PHH MORTGAGE,                                                          OPINION

     Defendant and Respondent.



                   Appeal from a judgment of the Superior Court of Orange County, Glenda
Sanders, Judge. Reversed.
                   Law Offices of Quintana | Reynard, Lincoln B. Quintana and John S.
Reynard for Plaintiff and Appellant.
                   Wright, Finlay & Zak, Charles C. McKenna and Peter M. Watson for
Defendant and Respondent.
                                          *                  *                  *
                  This case comes to us from a demurrer to a second amended complaint,
sustained without leave to amend.1 Demurrers favor the complainaint. All facts stated in
the complaint must be assumed true, even if those facts are counterintuitive. Moreover
the plaintiff receives the benefit of all reasonable inferences from those facts. (E.g.,
Mosby v. Liberty Mutual Ins. Co. (2003) 110 Cal.App.4th 995, 999.) There is indeed
much in the second amended complaint in this case which is both counterintuitive and, as
the trial judge correctly noted, vague. There are obvious gaps and unanswered questions.
It is as if the second amended complaint had come into the court like Richard III,
unfinished, sent before its time, and scarce half made up.
                  Be that as it may, the defendant mortgage company did not engage in what
a leading treatise on civil procedure notes to be the dubious effort of forcing the plaintiff
borrower to answer the unanswered questions by a series of demurrers for uncertainty. 2
Rather, the mortgage company went for a quick coup de grace, a demurrer based on the
theory the forbearance agreement signed by the borrower unambiguously provided for a



         1
                    Technically, the appeal is premature. The notice of appeal was filed February 14, 2012,
designating the appeal is from an order or judgment filed “12/16/11.” The 12/16/11 document, however, was no
judgment, but simply a minute order reflecting the defendant’s demurrer to the plaintiff’s second amended
complaint had been sustained without leave to amend as to all causes of action. Minute orders sustaining demurrers
without leave to amend, as distinct from formal judgments of dismissal, are, of course, nonappealable. (Sisemore v.
Master Financial, Inc. (2007) 151 Cal.App.4th 1386, 1396.) However, we may take judicial notice of trial court
records showing that on April 5, 2012 (after completion of the formal record on appeal), a formal judgment of
dismissal was filed. Accordingly, we exercise our discretion to deem the premature notice of appeal filed in
February to be from the later appealable judgment filed in April. (See Cal. Rules of Court, rule 8.104(d)(2) [“The
reviewing court may treat a notice of appeal filed after the superior court has announced its intended ruling, but
before it has rendered judgment, as filed immediately after entry of judgment.”].)
          2
                    As the Rutter Group Civil Procedure Treatise notes, demurrers for uncertainty are disfavored, and
“will be sustained only where the complaint is so bad that the defendant cannot reasonably respond; i.e., he or she
cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against
him or her.” (Rylaarsdam et al., Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2012) ¶ 7:85,
p. 7(I)-39.)
                    The treatise goes on to say what most lawyers already know, namely that judges don’t like
demurrers for uncertainty: “[J]udges usually make short shrift of demurrers for uncertainty. They expect counsel to
clear up any ambiguities through discovery, or stipulations, rather than by demurrer.” (Rylaarsdam et al., Cal.
Practice Guide: Civil Procedure Before Trial (The Rutter Group 2012) ¶ 7:85, p. 7(I)-39.) What is implicit in this
comment is that a defendant cannot go from a complaint containing some ambiguities directly to demurrer for
failure to state a cause of action without doing something short of a demurrer for uncertainty to clear up those
ambiguities first.

                                                          2
payment of $12,685.89 on November 1, 2009, and the borrower had failed to allege she
made that payment.
              We reverse for two reasons. First, the text of the forbearance agreement did
not unambiguously provide for payment of $12,685.89 on November 1, 2009. When
scrutinized, the text of the agreement is larded with ambiguity. (The trial judge, more
charitable than we, simply observed it was “hardly a model of clarity.”) As we show
below, the text was reasonably susceptible of the interpretation the payment might have
been spread out “over time.” Second, the reasonableness of the possibility of the
payment being spread out over time is corroborated by the factual allegations of the
second amended complaint, which alleges that prior to November 1, 2009, the mortgage
company sent the borrower a payment coupon book, including payments to begin on the
very date of the ostensible $12,685.89 payment. That action – at least on the limited facts
before us – could readily lead a reasonable borrower to conclude the coupons reflected
that the $12,685.89 – otherwise due on November 1, 2009 – might be spread out over
time. Thus, the demurrer was not well taken.
                                          FACTS
              As described above, the plaintiff is entitled to all reasonable inferences
from the facts stated in the complaint. The trial court could also properly take judicial
notice of various real estate documents recorded by the lender. With these rules in mind,
we provide our exposition of the second amended complaint against which the successful
demurrer was asserted. All quotations are from the second amended complaint. We also
explicitly identify where we draw reasonable inferences from the quoted facts:
              In 2004, PHH Mortgage Services lent Erika Kuehnel and Justin Kerfoot
$656,000 secured by a 30-year mortgage on their residence in Costa Mesa. In 2009, PHH
Mortgage “erroneously marked the loan as delinquent,” claiming the May and June
payments had not been received in “bank-to-bank payment methods.”


                                             3
              The reasonable inference from these words is that Kuehnel somehow had
funds transferred to PHH, but the lender did not credit them against what was due under
the loan. That inference is further supported by the allegation that Kuehnel then
“contacted” PHH in “anticipation of a payment reset.” PHH “stated that Plaintiff was
current and recommended that Plaintiff enter into a forbearance agreement . . . that
relieved Plaintiff of payment obligations for July, August, September and October 2009.”
(Italics added.) Noteworthy here are the allegations that PHH told Kuehnel that he was
current and that the recommended relief of “payment obligations” would be for four
months.
              On July 11, 2009, Kuehnel signed a written agreement proffered by PHH
concerning a “temporary hardship forbearance plan.” For the moment we need only note
the agreement had a line stating, “Amount Due Next Payment Date: $12,685.89.” The
next payment date was in November.
              In October 2009, PHH sent payment coupons for payments that were to
begin November 2009, running through September 2010. Kuehnel “tendered payment of
the coupon amount each month in that period.” PHH simply refused to credit those
payments toward Kuehnel’s loan.
              Also in October 2009, PHH demanded $24,045.32 (the second amended
complaint does not say how the demand was conveyed) on the theory that Kuehnel had
not made the May 2009 payment, and was in fact “6 months past due on the loan.” The
assertion of a missed May 2009 payment would also be made in a letter from PHH dated
December 4, 2009.
              Thereafter, an agent of PHH filed a notice of default in January 2010,
claiming $34,103.96 was due. The same agent recorded a notice of sale in April 2010.
Foreclosure sale of the property was eventually postponed to September 14, 2010.




                                            4
                                             THE LITIGATION
                  On September 13, 2010, the day before the scheduled foreclosure, Kuehnel
filed her original complaint in this action.3 A year later, in September 2011, Kuehnel
filed a second amended complaint, listing various causes of action centered on the
question of whether the forbearance agreement absolutely required a payment of
$12,685.89 on November 1, 2009, or was susceptible of a reading in which Kuehnel
would be able to repay that amount “over time.” PHH filed a demurrer to that pleading,
contending each cause of action was meritless on the facts alleged, and the allegations
supporting it were vague, ambiguous and uncertain.4
                  In December 2011, the trial judge sustained the demurrer without leave to
amend. The judge noted what we have noted as well – the allegations in the complaint
were indeed vague – but did not otherwise specify how they were vague. On the merits,
the judge read the forbearance agreement to require the payment of $12,685.89 on
November 1, 2009 as a condition precedent of any other benefits of the agreement, and,
since Kuehnel had already had two chances to plead, felt it was clear by the time of the
second amended complaint that she was not going to be able to allege she made that
payment.5
                  In early January 2012, Kuehnel brought a motion for reconsideration, based
on recently taken deposition testimony of PHH’s “person most knowledgeable” about
Kuehnel’s loan who, Kuehnel argued, allegedly admitted that PHH believed her




         3
                   While the record is not wholly clear on the point, the briefing on appeal appears to indicate
foreclosure proceedings have been in abeyance since the day Kuehnel filed her original complaint.
         4
                   The causes of action are: (1) breach of contract; (2) bad faith; (3) wrongful foreclosure; (4)
violation of the Rosenthal Fair Debt Collection Practices Act; (5) negligent misrepresentation; (6) negligence; and
(7) accounting.
         5
                   The applicable language from the minute order: “The forebearance plan attached by plaintiff
specifies that plaintiff would make an initial payment of $12,685.99. Any other benefits under the agreement were
conditioned upon timely receipt of this initial payment yet plaintiff still has not asserted she complied with this
requirement.”

                                                         5
obligation was confined to the payment coupons sent her in October. The motion was
denied in early February 2012.
                                       DISCUSSION
              The core issue on appeal is whether the forbearance agreement
unambiguously required Kuehnel to make a lump sum payment of $12,685.89 on or
before November 1, 2009, or whether it is reasonably susceptible of an interpretation
which would allow Kuehnel to pay the $12,685.89 over time. A few basic principles of
contract interpretation are germane to the case before us: Contracts must be viewed in
light of the circumstances surrounding their formation, their purposes, and the nature of
the parties. (See Frittelli, Inc. v. 350 North Canon Drive, LP (2011) 202 Cal.App.4th 35,
50.) When language is explicit and clear, it governs. (See Palmer v. Truck Ins.
Exchange (1999) 21 Cal.4th 1109, 1115.) On the other hand, if the text of a contract is
ambiguous or uncertain, its terms must be construed in the sense the promisor believed at
the time of the making of the contract the promisee understood them. (Civ. Code,
§ 1649.) And if there’s still uncertainty after application of these basic rules, the
language must be construed “most strongly” against the party who drafted the contract.
(Civ. Code, § 1654.) Ambiguity requires two or more interpretations of language, each
of which is reasonable and unstrained. (Shell Oil Co. v. Winterthur Swiss Ins. Co. (1993)
12 Cal.App.4th 715, 737.) Language must be construed in context; there is no ambiguity
in the abstract. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1265.)
A. The Text
              There is much about the text of the forbearance contract which raises
unanswered questions. But the key ambiguity concerns the juxtaposition of a statement
“Amount Due Next Payment Date: $12,685.89” against a line that soon follows it,
“Payments that are deferred may be paid on your next payment due date or repaid over a
period of time.” (Italics added.) One cannot dismiss this sentence as merely holding out
a possibility based on some contingency (e.g., if the borrower qualifies for some
                                              6
assistance program), because, on its face, the sentence is a straight-on declarative
sentence describing the terms of the plan, and holding out to the reader two possibilities –
either paying deferred payments on the “next payment due date” or repaying them “over
a period of time.” There is nothing definitive in the agreement establishing the reference
to deferred payments does not include the $12,685.89 itself.
               Indeed, the textual context of the repaid-over-period-of-time clause
confirms the linkage between the $12,685.89 clause and the repaid-over-period-of-time
clause. Underneath the $12,685.89 line is a sentence, bracketed in double asterisks –
presumably to get the reader’s attention – that invites the reader to “continue reading to
learn more about homeowner assistance plans that may reduce the next payment
amount.” An ordinary reader could easily assume the “next payment amount” refers to
the $12,685.89.
               The trial judge assumed one could stop reading with the typographical
break line separating the bottom four paragraphs from the rest of the body of the
document. We cannot agree. The sentence set off in asterisks contains no language at all
suggesting the terms of the plan are finished. By way of overview, the words in those
four paragraphs seem to state, on their face, that they are describing the terms of the plan
the borrower has entered into, as distinct from offering something on top of the existing
plan in the way infomercials do (“but wait, there’s more; if you call within the next 10
minutes . . .).”
               Indeed, the very first of those four paragraphs contains language so broad it
could even include the complete forgiveness of four months of payments. While we do
not read it that way, it certainly does nothing to contraindicate an interpretation giving the
borrower the chance to repay the aggregate total of four months of payments over time:
“Under the terms of this plan, you will not be required to make your monthly mortgage
payments for the period of time detailed above. In addition, you will not be assessed late
[sic] for the duration of the forbearance.”
                                              7
              B. Surrounding Circumstances
              Having chosen to demur, PHH necessarily is stuck with Kuehnel’s version
of the circumstances surrounding the formation of the agreement as stated in the second
amended complaint.
              Several allegations are salient: One, Kuehnel was current at the time of the
agreement. One reasonable inference is that the agreement was not necessarily a loan
modification precipitated by recent unemployment or other inability of the borrower to
make payments, but an accounting mechanism to straighten out PHH’s error in failing to
credit Kuehnel’s May and June 2009 payments.
              Two, plaintiff alleges PHH’s accountings were in error in two major
respects: First, it had failed to correctly credit Kuehnel’s May and June 2009 payments.
Second, in October 2009 – even before the putative November 1, 2009 payment was due
– it erroneously claimed Kuehnel was behind some $24,045.32 on her mortgage. The
$24,045.32 figure makes absolutely no sense at all given any of the facts alleged in the
complaint or otherwise to be derived from the judicially noticed recorded documents, but
it does give rise to a reasonable inference that PHH’s accounting of Kuehnel’s loan had,
even before November 1, 2009, become riddled with errors and was in dire need of
straightening out.
              Three, and most importantly, prior to the putative November 1, 2009
payment, PHH sent payment coupons for payments which were to begin November 2009,
running through September 2010, and Kuehnel thereafter “tendered payment of the
coupon amount each month in that period,” but PHH refused to credit those payments
toward Kuehnel’s loan. The fact PHH sent Kuehnel a coupon book before November 1
gives rise to a reasonable inference that some amounts already deferred (or even
increased, as mentioned in the third paragraph) had been amortized into the coupon book.
We note, in this regard, that because this case comes to us on demurrer, PHH has not yet
had the opportunity to present any evidence concerning the nature and amount of the
                                             8
coupon payments which might allow a court to exclude the possibility the payments
included the repayment of the $12,685.89 “over time.”
C. Summary
              Having examined both the text of the agreement and surrounding
circumstances, we are forced to reverse. This is a textbook case illustrating why
ambiguous agreements need the explication of parol evidence to understand the intent of
the parties. (E.g., L.B. Research & Education Foundation v. UCLA Foundation (2005)
130 Cal.App.4th 171, 179 [“We emphasize that our decision about whether this contract
is in fact ambiguous might, given an appeal at a different stage in this case, be enhanced
by the consideration of extrinsic evidence . . ., which might in the end bring us to a
different conclusion . . . .”].) The bare text of the agreement is riddled with ambiguity
and thus was reasonably susceptible of the conclusion Kuehnel had the option of paying
the $12,685.89 either in a lump sum on November 1, 2009, or as part of a plan
represented by the payment coupons sent her in October.
              Of course, this is the story on demurrer. No court has yet heard PHH’s side
of the story. It is certainly possible that PHH’s real intention was only to defer three
payments – or was it four? the agreement is that poorly drafted – until November 1,
2009. But the text of the agreement and circumstances we know now are virtually
impenetrable, so we cannot, at this stage, say the agreement required a November 1, 2009
payment of $12,685.89, which if not made, would constitute a default.
              In light of our determination, it is premature to address the various causes
of action which may, or may not, be contingent on the issue of whether the payment of
$12,685.89 on November 1, 2009, was absolutely required. Moreover, in light of the
prematurity of the appeal from the minute order sustaining the demurrer, there is also no
need to address the question of whether Kuehnel’s later motion for reconsideration was
timely, or made on new facts or law, except to observe that that evidence presented on the
motion – at least Kuehnel’s version of it – further supports the notion the payment
                                              9
booklet could be reasonably interpreted by Kuehnel to provide for the option of paying
the $12,685.89 over time.
                                      DISPOSITION
              The judgment is reversed. The case now returns to square one; all causes
of action remain potentially viable at this point. Our determination, however, is
essentially interlocutory. PHH may yet prevail. Accordingly, we do not award appellate
costs now, but accord the trial judge discretion to award the appellate costs of this
proceeding at the conclusion of the litigation. (Boicourt v. Amex Assurance Co. (2000)
78 Cal.App.4th 1390, 1404.)




                                                  BEDSWORTH, ACTING P. J.
WE CONCUR:



ARONSON, J.



THOMPSON, J.




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