KLEIN, P. J.
Defendant and appellant Thris Van Taylor (Taylor) appeals an order denying his motion to vacate a default judgment obtained by plaintiff and respondent One United Bank (United) on its complaint for breach of promissory note and judicial foreclosure.
Taylor had two promissory notes with United in different amounts, one relating to real property in Miramar, Florida, the other pertaining to real property in Van Nuys, California. In this action, United mistakenly sued on the wrong promissory note, in the principal sum of $343,500, instead of on the pertinent note, which was in the principal sum of $444,000. Given the amount of the note being sued upon, Taylor allowed his default to be taken. Taylor was not concerned about a potential deficiency judgment because the real property which was the subject of the action for judicial foreclosure, the Vans Nuys property, had a fair market value of $375,000.
However, on the default proveup, the trial court awarded damages to United based on the unpled promissory note in the amount of $444,000, rather than pursuant to the $343,500 note which had been pled in the complaint.
Because United's complaint failed to give Taylor proper notice of the amount of damages being sought, the trial court erred in refusing to vacate the default judgment. The order is reversed with directions to vacate the default judgment as well as the entry of Taylor's default.
On January 26, 2009, United, a Massachusetts chartered trust company, filed suit against Taylor in the Los Angeles Superior Court for breach of a promissory note and judicial foreclosure. The complaint alleged that on or about November 22, 2005, Taylor and United entered into a promissory note whereby Taylor borrowed and promised to pay United the principal sum of $343,000, and that Taylor was now indebted to United in the sum of $449,275.34.
A copy of the note was attached to the complaint as Exhibit 1 and was incorporated therein by reference. Said note was dated November 23, 2005, was for the principal sum of $343,500, and referred to Loan No. 1002298403, with a property address of 3470 S.W. 145 Avenue, Miramar, Florida.
The complaint alleged said promissory note was secured by a deed of trust on the real property located at 6936-6938 Encino Avenue in Van Nuys, California. The deed of trust, which was attached as Exhibit 2 to the complaint, referred to an indebtedness of $444,000. However, the promissory note which was pled and which was appended to the complaint was the Florida note in the amount of $343,500.
The complaint alleged Taylor had breached the terms of the promissory note attached as Exhibit 1 to the complaint. The complaint sought a judicial foreclosure on the deed of trust and a deficiency judgment in an amount according to proof, less the fair value of the real property as determined by the court following sale of the property.
On January 29, 2009, Taylor was personally served with the summon and complaint, in Inglewood, California.
Taylor did not file an answer. On March 16, 2009, the clerk entered his default.
On April 2, 2009, United filed a request for entry of a default judgment in the total amount of $470,494.09, including the demand of the complaint, interest, costs and attorney fees.
United's default proveup was supported by the declaration of Yan Feng, an assistant vice president/asset manager at United. The Florida note was appended to the Feng declaration as Exhibit 1. The Feng declaration requested a default judgment of foreclosure be entered in favor of United and against Taylor for judicial foreclosure of the Van Nuys real property, based on Taylor's breach of the promissory note attached as Exhibit 1 to the Feng declaration.
Although the Feng declaration attached as Exhibit 1 a copy of the $343,500 Florida note, i.e., the note being sued upon, Feng requested damages in the principal sum of $431,545 plus accrued interest of $20,310. Thus, Feng's calculation of damages was based on the unpled note on the Van Nuys property, not the $343,500 Florida note.
On June 15, 2009, pursuant to United's application on the default proveup, the trial court entered a default judgment of judicial foreclosure in the sum of $464,229.05 and ordered sale of the Van Nuys real property to satisfy the judgment.
On July 30, 2009, the trial court issued a writ of sale. On October 29, 2009, United purchased the Van Nuys property for $350,000 at a sheriff's sale.
On December 2, 2009, United filed a motion for fair value hearing and determination of deficiency (Code Civ. Proc., § 726, subd. (b)) on the ground that the proceeds from the foreclosure sale were insufficient to satisfy the judgment of foreclosure entered on June 15, 2009. According to United, the appraised fair market value of the property was $375,000.00. Based thereon, United sought a deficiency of $89,229.05, plus interest, costs of sale and postjudgment attorney fees.
On January 25, 2010,
Taylor pointed out that United's complaint asserted his breach of a promissory note, attached as Exhibit 1 to the complaint, in the principal amount of $343,500; however, on the default proveup, United apparently used the amount of a different promissory note, in the amount of $444,000, referenced in the deed of trust on the Van Nuys property.
The supporting declaration of Taylor stated in pertinent part: "2. I was served with the Complaint in this action on or about January 2009. Based on the allegations contained in the Complaint and the exhibits attached to the Complaint, I determined that my exposure on [United's] claim for breach of the promissory note . . . embodied in Exhibit 1 to the Complaint was limited to the amount of the Note sued upon, $343,500.00, less payments made against the Note plus interest. [¶] 3. I further determined that the amount of any deficiency judgment to which [United] might be entitled to on its claim for judicial foreclosure would be computed based on the difference between the fair market value of the real property located at 6936-6938 Encino Avenue, Van Nuys, CA 91406 (the California Property) at the time of the foreclosure sale and the amount owed on the Note sued upon, $343,500.00 . . . . [¶] 4. Knowing that the value of the California Property exceeded the amount of the Note, I determined that I had no exposure to a deficiency judgment in any amount. Thus, I did not file an answer to the Complaint and allowed my default to be taken." (Final italics added.)
United's opposition papers were supported by the declaration of Attorney Stephen Jenkins, who had handled the litigation from the inception. Jenkins stated:
In opposing the motion to vacate the judgment, United argued the judgment was not void because the trial court had jurisdiction to enter the default judgment; Taylor was not entitled to relief because he had notice of the damages sought by United; the complaint was sufficiently pled to give Taylor notice of United's request for damages; Taylor could not use his decision not to participate in the judicial process as a shield from the consequences thereof; entry of judgment based upon a mistaken note was harmless error; vacating the judgment would be a nugatory act because Taylor's default had been entered; and Taylor failed to attach a proposed responsive pleading which rendered his motion deficient as a matter of law.
On March 25, 2010, the trial court heard and denied Taylor's motion to vacate the default judgment.
At the hearing on the motion, Taylor's counsel argued to the court, "Now that the court knows that it was the incorrect note and a new note has been presented to the court, I just don't understand how that judgment can stand based on those facts."
The trial court observed that irrespective of Exhibit 1 to the complaint (the Florida promissory note), Exhibit 2 to the complaint (the Van Nuys deed of trust) referred to a promissory note in the sum of $444,000, which was consistent with the allegations of the complaint. The trial court stated, "As long as the amount prayed for is supported by some evidence, they're going to get the judgment, and as long as you have notice of it."
Taylor's counsel responded, "but the note attached to the complaint, the actual note that's being sued on, is a claim for breach of promissory note. This note is for $343,500. That's part of the complaint. It's within the four corners of the complaint."
The trial court concluded, "I understand the arguments. I think [Taylor] took a calculated risk" in not responding to the complaint.
Following the denial of Taylor's motion to vacate the default judgment, there were further proceedings with respect to the determination of the amount of the deficiency judgment.
On May 10, 2010, after receiving Taylor's objection to a deficiency judgment in any amount, the trial court granted United's request for a deficiency of $89,229.05, as United had requested, on the sum of $464,229.05. In addition, the trial court awarded United interest from the date of judgment to the date of fair value hearing in the sum of $23,639, costs of sale totaling $1,388 and postjudgment attorney fees of $9,900.
On June 7, 2010, Taylor filed notice of appeal. We construe the notice of appeal, which refers to the default judgment (entered June 15, 2009) as referring to the order denying the motion to vacate the default judgment (which motion was heard and denied on March 25, 2010).
Taylor contends: the default judgment is void on its face because the State of California does not have jurisdiction over the Florida real property that was sued upon in the complaint; the judgment for judicial foreclosure is void on its face as the deed of trust has no existence without the note; the judgment is void because he was denied due process in that the notice of default was not verified and mailed to him; even if the trial court had jurisdiction, it abused its discretion and committed reversible error by proceeding with the void default and default judgment after United amended its complaint; and the trial court abused its discretion and committed reversible error in denying his motion to vacate and set aside the default and default judgment of judicial foreclosure.
Code of Civil Procedure section 580 states in pertinent part at subdivision (a): "The relief granted to the plaintiff, if there is no answer, cannot exceed that demanded in the complaint, in the statement required by Section 425.11, or in the statement provided for by Section 425.115; but in any other case, the court may grant the plaintiff any relief consistent with the case made by the complaint and embraced within the issue." (Italics added.)
Section "580, and related sections 585, 586, 425.10 and 425.11, aim to ensure that a defendant who declines to contest an action does not thereby subject himself to open-ended liability. Reasoning that a default judgment that exceeds the demand would effectively deny a fair hearing to the defaulting party, the Courts of Appeal have consistently read the code to mean that a default judgment greater than the amount specifically demanded is void as beyond the court's jurisdiction. [Citations.]" (Greenup v. Rodman (1986) 42 Cal.3d 822, 826.)
The Supreme Court "affirmed that strict construction of section 580 in Becker v. S.P.V. Construction Co. (1980) 27 Cal.3d 489 [165 Cal.Rptr. 825, 612 P.2d 915]. [Becker] held that the primary purpose of the section is to guarantee defaulting parties adequate notice of the maximum judgment that may be assessed against them. . . . `The notice requirement of section 580 was designed to insure fundamental fairness.'" (Greenup v. Rodman, supra, 42 Cal.3d at p. 826.)
In sum, the "only issues that may be litigated in a default proceeding are those presented by the complaint." (Burtnett v. King (1949) 33 Cal.2d 805, 810.) A defendant "`had the right to assume that the judgment which would follow a default on [his] part would embrace only the issues presented by the complaint and the relief therein prayed. . . .'" (Id. at p. 808.) The "essence of the policy underlying section 580 of the Code of Civil Procedure, supra, is that in default cases, defendant must be given notice of what judgment may be taken against him — a policy underlying all precepts of jurisprudence and protected by our constitutions. If a judgment other than that which is demanded is taken against him, he has been deprived of his day in court — a right to a hearing on the matter adjudicated." (Ibid.)
The complaint alleged that on or about November 22, 2005, Taylor and United entered into a promissory note whereby Taylor borrowed and promised to pay United "the principal sum of $343,000," and that Taylor was now indebted on said note in the sum of $449,273.34. A copy of the note was attached to the complaint as Exhibit 1 and was incorporated therein by reference. Said note, with a Florida property address, was for the principal sum of $343,500. "[F]acts appearing in exhibits attached to the complaint will also be accepted as true and, if contrary to the allegations in the pleading, will be given precedence." (Dodd v. Citizens Bank of Costa Mesa (1990) 222 Cal.App.3d 1624, 1627, italics added.)
Although the complaint and Exhibit 1 thereto pled a promissory note in the sum of $343,500, United pursued a default proveup pursuant to the unpled Van Nuys promissory note, with a principal balance of $431,545 plus $20,310 in accrued interest. Clearly, United's complaint failed to give Taylor adequate notice of the maximum amount of damages being sought by United.
The Van Nuys note, not the Florida note, should have been pled in the operative complaint for judicial foreclosure of the Van Nuys property — it was Taylor's alleged breach of the Van Nuys promissory note which would be a basis for judicial foreclosure of the Van Nuys property. United proffered a copy of the Van Nuys note for the first time in its opposition to Taylor's motion to vacate the default judgment. United made no attempt to amend its pleading to allege the correct note. It merely presented the Van Nuys note in resisting Taylor's motion to vacate. " `It is well established law that where, after the default of a defendant has been entered, the complaint is amended in matters of substance as distinguished from mere matters of form, the amendment opens the default and unless the amended pleading be served on the defaulting defendant, no judgment can be entered on the default.' [Citation.]" (Jackson v. Bank of America (1986) 188 Cal.App.3d 375, 390.)
The Van Nuys note is clearly a substantive amendment which should be pled and which would open the default. Here, in response to the showing made by United in its opposition to the motion to vacate the default judgment, the trial court (1) should have vacated both the default judgment and the entry of default and (2) granted United leave to amend its complaint. Taylor then would be entitled to file a responsive pleading in the action.
United contends in the event this court were to overturn the default judgment, such a reversal should not impact the title to the Van Nuys property, which United purchased at a sheriff's sale on October 29, 2009.
The impact of an appellate reversal on the rights of any third parties is beyond the scope of the issues presented by this appeal and we do not address it.
The March 25, 2010 order denying Taylor's motion to vacate the default judgment is reversed with directions to vacate both the entry of default and the default judgment, and to grant United leave to amend its complaint. Taylor shall recover his costs on appeal.
CROSKEY, J. and KITCHING, J., concurs.
