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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 

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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,

v.

PHH MORTGAGE,

 Defendant and Respondent.

 G046510

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

 O P I N I O N 

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.

* * *
2

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.
3

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.” 
4

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.
5

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.”
6

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 
7

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.” 
8

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 
9

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 
10

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.