Filed 4/3/13 Tostado v. Rehabbers Financial CA2/1 

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS 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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 

SECOND APPELLATE DISTRICT 

DIVISION ONE 

TERESA TOSTADO et al., 

 Plaintiffs and Appellants, 

 v. 

REHABBERS FINANCIAL, INC., 

 Defendant and Respondent. 

 B240628 

 (Los Angeles County 

 Super. Ct. No. GC047462) 

 APPEAL from a judgment of the Superior Court of Los Angeles County, 

C. Edward Simpson, Judge. Affirmed in part and reversed in part. 

 The Business Legal Group and Russell M. Frandsen for Plaintiffs and Appellants 

Teresa Tostado and Roberto Tostado. 

 Bruce B. Paller for Defendant and Respondent Rehabbers Financial, Inc. 

—————————— 
2

 Plaintiffs Teresa Tostado and Robert Tostado obtained a loan from Rehabbers 

Financial, Inc., dba Aztec Financial (Aztec) to construct a home on a vacant lot for 

Teresa Tostado’s mother. Plaintiffs claim that Aztec failed to disclose to them several 

material terms of the loan and filed this action asserting claims for violations of the Truth 

in Lending Act (15 U.S.C. § 1601 et seq.) (TILA) and other California statutory and 

common law provisions. The trial court sustained Aztec’s demurrer on statute of 

limitations and substantive grounds. We reverse on plaintiffs’ claims for violations of the 

Rosenthal Fair Debt Collection Practices Act (Civ. Code, § 1788 et seq.) (Rosenthal Act) 

and Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) (UCL), breach of the 

implied covenant of good faith and fair dealing, and declaratory relief, and affirm on the 

remaining claims. 

FACTUAL BACKGROUND AND PROCEDURAL HISTORY 

1. Plaintiffs’ First Amended Complaint 

 Plaintiffs’ operative first amended complaint (complaint), filed December 20, 

2011, alleged that plaintiffs owned an unencumbered vacant lot in South Pasadena. In 

September 2006, plaintiffs and Aztec entered into a loan agreement for $475,000 secured 

by a deed of trust for the purpose of permitting plaintiffs to build a house on the lot for 

Teresa Tostado’s mother to live in.1

 Plaintiffs contended that Aztec deceived them about the nature of the loan in 

several respects. When plaintiffs entered into the loan with Aztec, they claim Aztec told 

them that they would pay only interest on loan amounts that were drawn down for 

construction. In addition, plaintiffs repeatedly told Aztec that the loan was to construct 

their residence, but in reality, the loan was a commercial loan: Aztec falsely and 

fraudulently included in the loan papers a document stating that the property was nonowner occupied investment property and told plaintiffs not to worry about the document 

 1 The loan documents were not attached to the complaint. A written contract may 

be pleaded “word for word” or generally according to “its legal intendment and effect.” 

(Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 

198–199.) 
3

because it was “‘just a document the lender needs.’” By so doing, Aztec intended to have 

plaintiff fraudulently waive their rights under TILA, which does not apply to commercial 

loans. Further, Aztec falsely told plaintiffs that it was charging them the lowest rate, 

telling plaintiffs that all construction loans were higher-interest rate loans. 

 On September 9, 2010, when Aztec filed a notice of default and election to sell, 

plaintiffs discovered that their loan was not subject to TILA.2 In the fall of 2009, Aztec 

began calling plaintiffs about payments due under the loan and stated that $620,000 was 

owed. Plaintiffs allege Aztec fraudulently added charges to the note and in October 

2011, claimed that $800,000 was now due. Aztec repeatedly called plaintiffs and 

threatened to foreclose. Plaintiffs believed Aztec had made a mathematical error in 

calculating the interest owed, and tried to contact Aztec to get an explanation for the 

charges, but never received any explanation. 

 Plaintiffs alleged that Aztec’s misrepresentations were discovered within the year 

before the filing of their complaint. 

 Plaintiffs first amended complaint alleged 11 claims for relief: violation of TILA; 

violations of the UCL; violations of the Fair Debt Collection Practices Act (15 U.S.C. 

§ 1692 et seq.) (FDCPA); violations of the Rosenthal Act; negligence; breach of 

fiduciary duty (Civ. Code, § 2923.1); fraud; breach of the covenant of good faith and fair 

dealing; negligent infliction of emotional distress; intentional infliction of emotional 

distress; and declaratory relief. 

 Plaintiffs sought an injunction, damages, disgorgement, attorneys’ fees and costs, 

punitive damages, and a declaration of the true amounts plaintiffs owed to Aztec. 

 2. Aztec’s Demurrer 

 Aztec demurred to all causes of action on the basis they were barred by the 

applicable statutes of limitations and they did not state a claim for relief. Aztec argued 

that the loan originated in September 2006, but plaintiffs attempted to rely on the 

discovery rule by alleging Aztec’s wrongdoings had only been discovered within the year 

 2 The record does not disclose whether a foreclosure took place. 
4

preceding the filing of the original complaint on June 1, 2011. However, plaintiffs did 

not show that they were unable to uncover Aztec’s wrongdoing earlier despite exercising 

due diligence. Further, Aztec argued plaintiffs lacked standing due to the October 12, 

2010 filing of their chapter 7 bankruptcy proceedings, and their claims were barred by 

judicial estoppel because they failed to list the lawsuit as an asset in their bankruptcy 

schedules. On the merits of plaintiffs’ claims, Aztec argued (1) plaintiffs’ claim under 

TILA was barred because TILA did not apply to commercial loans; (2) plaintiffs’ claim 

for negligence failed because a lender does not owe a borrower a duty of care; 

(3) plaintiffs’ claim for breach of fiduciary duty failed because a lender does not owe a 

borrower a duty of care; (4) plaintiffs’ claim for negligent infliction of emotional distress 

failed because Aztec had no duty to plaintiffs; (5) plaintiffs’ claim for intentional 

infliction of emotional distress failed because Aztec’s conduct was not extreme or 

outrageous; (6) plaintiffs’ claim for declaratory relief failed because it was duplicative of 

their other claims and plaintiffs had not tendered payment required on the defaulted loan. 

 3. Plaintiffs’ Opposition 

 Plaintiffs argued in opposition that they were willing to pay amounts owed to 

Aztec, but that their action sought a determination of the amounts they were obligated to 

pay; their loan was to build a single-family residence and thus subject to TILA; Aztec 

misrepresented the interest rate, claiming it was the best rate available when in fact it was 

not; plaintiffs did not discover Aztec had failed to comply with TILA until the notice of 

default was recorded on September 9, 2010; statutes of limitations did not apply to 

actions for offset or recoupment under TILA; Aztec relied on facts not set forth in the 

complaint as a basis for demurrer; and plaintiffs amended their schedules to list the 

lawsuit, and the claim reverted to them upon the granting of their discharge in 

bankruptcy.3 Plaintiffs asserted that Aztec’s torts were continuing, and commenced with 

the initial violations of TILA, fraud in the inducement in entering into the loan, 

 3 Plaintiffs received a bankruptcy discharge on April 6, 2011, prior to the filing of 

their initial complaint in this action. 
5

continuing efforts to collect illegal interest rates, the sending of “dunning notices,” 

sending of false loan statements, accruals of illegally imposed penalties, and the 

recordation of a notice of default and sale. 

 4. Plaintiffs’ Surreply 

Plaintiffs filed a surreply to Aztec’s reply to their opposition to its demurrer in 

which it reasserted that Aztec’s torts were continuing, plaintiffs did not discover Aztec’s 

wrongdoing with the exercise of reasonable diligence, the loan was for a residence, not a 

business, and Aztec falsely claimed they could not exercise their right of setoff and 

recoupment.4

 5. Hearing on Demurrer; Plaintiffs’ Posthearing Brief; Ruling 

 The transcript of the hearing held March 6, 2012 on the demurrer is not part of the 

record. However, plaintiffs filed a posthearing brief to address what they believed was 

Aztec’s misstatement of the law at the hearing regarding damages under TILA. Plaintiffs 

asserted that because double damages were available under title 15 United States Code 

section 1640(a)(2)(A)(i), plaintiffs were entitled to offset those damages against amounts 

Aztec claimed were owed. Further, such a claim for setoff would not be barred by the 

statute of limitations under title 15 United States Code section 1640(e). The trial court 

sustained the demurrer without leave to amend “for the reasons set forth in the moving 

papers.” On April 2, 2012, Aztec filed a notice of ruling. Plaintiffs appeal the order 

sustaining the demurrer.5

 4 Aztec’s reply is not part of the record. 

5 We treat the order as appealable, despite the absence of a judgment of dismissal. 

The general rule of appealability is that “[a]n order sustaining a demurrer without leave 

to amend is not appealable, and an appeal is proper only after entry of a dismissal on such 

an order.” (Sisemore v. Master Financial, Inc. (2007) 151 Cal.App.4th 1386, 1396.) 

However, “‘when the trial court has sustained a demurrer to all of the complaint’s causes 

of action, appellate courts may deem the order to incorporate a judgment of dismissal, 

since all that remains to make the order appealable is the formality of the entry of a 

dismissal order or judgment.’” Here, we accordingly deem the order on the demurrer to 
6

DISCUSSION 

I. Standard of Review

 “[T]he function of a demurrer is to test the sufficiency of a pleading as a matter of 

law,” and “we apply the de novo standard of review in an appeal following the sustaining 

of a demurrer without leave to amend.” (California Logistics, Inc. v. State of California

(2008) 161 Cal.App.4th 242, 247; Holiday Matinee, Inc. v. Rambus, Inc. (2004) 118 

Cal.App.4th 1413, 1420.) A complaint “is sufficient if it alleges ultimate rather than 

evidentiary facts,” but the plaintiff must set forth the essential facts of his or her case 

“‘“‘with reasonable precision and with particularity sufficient to acquaint [the] defendant 

with the nature, source, and extent’”’” of the plaintiff’s claim. Legal conclusions are 

insufficient. (Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550 & 551, fn. 5.) “We 

assume the truth of the allegations in the complaint, but do not assume the truth of 

contentions, deductions, or conclusions of law.” The trial court errs in sustaining a 

demurrer “if the plaintiff has stated a cause of action under any possible legal theory, and 

it is an abuse of discretion for the court to sustain a demurrer without leave to amend if 

the plaintiff has shown there is a reasonable possibility a defect can be cured by 

amendment.” (California Logistics, Inc., at p. 247.) 

 “Where a complaint shows on its face that the action is barred by the statute of 

limitations, a general demurrer for failure to state a cause of action will lie. [Citations.]” 

(Kendrick v. City of Eureka (2000) 82 Cal.App.4th 364, 367–368.) The running of the 

statute must appear “clearly and affirmatively” from the dates alleged; it is not enough 

that the complaint may be time-barred. (Marshall v. Gibson, Dunn & Crutcher (1995) 37 

Cal.App.4th 1397, 1403.) To survive a demurrer on statute of limitations grounds where 

the facts pleaded disclose the action is time-barred, the plaintiff must plead facts showing 

that the statute does not apply based on the discovery rule. (CAMSI IV v. Hunter 

Technology Corp. (1991) 230 Cal.App.3d 1525, 1536.) In particular, the plaintiff must 

 

incorporate a judgment of dismissal and will review the order. (Melton v. Boustred

(2010) 183 Cal.App.4th 521, 527–528, fn.1.) 
7

plead “the time and manner of discovery” and “the inability to have made earlier 

discovery despite reasonable diligence.” (Id. at p. 1536.) 

 Generally, a limitations period begins to run “‘upon the occurrence of the last fact 

essential to the cause of action.’” (DeRose v. Carswell (1987) 196 Cal.App.3d 1011, 

1017.) However, where a tort involves a continuing wrong, the statute of limitations 

does not begin to run until the date of the last injury or when the tortious acts cease. 

(Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1192.) 

II. Plaintiffs’ Claims 

 The statutes of limitations applicable to plaintiffs’ claims range from one to four 

years. We conclude that certain of plaintiffs’ claims are time-barred, certain others fail to 

state a cause of action under the substantive law, and the trial court erred in reversing 

plaintiffs’ claims for violation of the Rosenthal Act and UCL, and breach of the implied 

covenant of good faith and fair dealing and declaratory relief. 

A. TILA 

 Plaintiffs’ first cause of action alleged that Aztec breached TILA by failing to 

provide required disclosures in writing, failed to deliver required timely notices, failed to 

disclose all finance charge details, failed to disclose the annual percentage rate, failed to 

provide a good faith estimate or a consumer handbook on adjustable rate mortgages 

before the loan application. (15 U.S.C. §§ 1602(u), 1638(a), (b); 12 C.F.R. 

§§ 226.5(a)(1), 226.19(a)(1), (b)(1), 226.22(a)(4) (2012).) Plaintiffs sought expungement 

of the notice of default and other negative credit reports. 

Claims under TILA for damages are subject to a one-year statute of limitations (15 

U.S.C. § 1640(e).) There is disagreement whether the period of limitations commences 

on the date the credit contract is executed (Wachtel v. West (6th Cir. 1973) 476 F.2d 

1062, 1065), or at the time the plaintiff discovered, or should have discovered, the acts 

constituting the violation (NLRB v. Don Burgess Construction Corp. (9th Cir. 1979) 596 

F.2d 378, 382). “[T]he doctrine of equitable tolling, may, in the appropriate 

circumstances, suspend the limitations period until the borrower discovers or had 
8

reasonable opportunity to discover the fraud or nondisclosures that form the basis of the 

TILA action.” (King v. State of Cal. (9th Cir. 1986) 784 F.2d 910, 915.) King

emphasized that in determining whether or not a limitations period should be tolled, a 

court should assess “whether tolling the statute [would] effectuate the congressional 

purpose of the Truth-in-Lending Act.” (Ibid.) “‘[T]he doctrine of equitable tolling may, 

in the appropriate circumstances, suspend the limitations period until the borrower 

discovers or had reasonable opportunity to discover the fraud or nondisclosures that form 

the basis of the TILA claim.’ [Citation.] Equitable tolling is ‘appropriate where the 

plaintiff is actively misled by the defendant about the cause of action or is prevented in 

some extraordinary way from asserting his [or her] rights.’ [Citation.]” (Deaville v. 

Capital One Bank (W.D.La. 2006) 425 F.Supp.2d 744, 752; see also Baker v. Beech 

Aircraft Corp. (1974) 39 Cal.App.3d 315, 323.) 

 TILA “specifically exempts from its scope extensions of credit for business or 

commercial purposes.” (Poe v. First Nat. Bank of DeKalb Cty. (5th Cir. 1979) 597 F.2d 

895, 896.) TILA applies to transactions in which “the party to whom credit is offered or 

extended is a natural person, and the money, property, or services which are the subject 

of the transaction are primarily for personal, family, or household purposes.” (15 U.S.C. 

§ 1602(h).) In evaluating whether a certain loan was made for commercial purposes, the 

emphasis is on the purpose of the transaction and not the categorization of the properties 

used to secure the loan. “Whether an investment loan is for a personal or a business 

purpose requires a case by case analysis.” (Thorns v. Sundance Properties (9th Cir. 

1984) 726 F.2d 1417, 1419.) 

 Here, even assuming TILA applied to plaintiffs’ loan (although Aztec allegedly 

fraudulently made the loan as a commercial loan), plaintiffs’ claims are time-barred. 

Plaintiffs should have discovered, by reading their loan documents and reviewing Aztec’s 

disclosures, Aztec’s violation of TILA prior to the foreclosure in September 2010. Thus, 

they cannot rely on the discovery doctrine to delay the running of the statute, which 

commenced with the origination of the loan in September 2006. 
9

 Further, they cannot rely on a recoupment claim under TILA to avoid the bar of 

the statute of limitations. Generally, “a defendant’s right to plead ‘recoupment,’ a 

‘“defense arising out of some feature of the transaction upon which the plaintiff’s action 

is grounded,”’ [citation] survives the expiration” of the limitations period. (Beach v. 

Ocwen Fed. Bank) (1998) 523 U.S. 410, 415 [118 S.Ct. 1408, 140 L.Ed.2d 566].) To 

avoid dismissal at this stage, plaintiffs must show that “(1) the TILA violation and the 

debt are products of the same transaction, (2) the debtor asserts the claim as a defense, 

and (3) the main action is timely.” (Moor v. Travelers Ins. Co. (5th Cir. 1986) 784 F.2d 

632, 634.) TILA (15 U.S.C. § 1640(e)) makes recoupment available only as a defense in 

“an action to collect [a] debt.” 

 Here, plaintiffs cannot use a recoupment claim to escape the bar of the statute. 

Although plaintiffs’ TILA claim satisfies the first prong of the test as it is related to the 

mortgage debt, the action here fails the second prong because plaintiffs attempt to use a 

recoupment claim affirmatively, and not as a defense, and thus exceed the scope of TILA. 

B. UCL 

 Plaintiffs’ second cause of action alleged that Aztec violated the UCL by inserting 

into the loan documents the provision that the loan was for a nonowner occupied 

investment property, and Aztec made untrue or misleading statements and falsified the 

loan documents. Plaintiffs alleged that Aztec violated TILA, FDCPA, the Rosenthal Act, 

and the Mortgage Brokers and Bankers Fiduciary Duty Law, which predicates satisfy the 

UCL. 

 “[U]nfair competition shall mean and include any unlawful, unfair or fraudulent 

business act or practice and unfair, deceptive, untrue or misleading advertising . . . .” 

(Bus. & Prof. Code, § 17200.) “The UCL defines unfair competition as ‘any unlawful, 

unfair or fraudulent business act or practice.’ [Citation.] Therefore, under the statute 

‘there are three varieties of unfair competition: practices which are unlawful, unfair or 

fraudulent.’” (In re Tobacco II Cases (2009) 46 Cal.4th 298, 311.) For unfair business 

practices actions under the unlawful prong, “‘an action based on Business and 
10

Professions Code [section] 17200 to redress an unlawful business practice “borrows” 

violations of other laws and treats these violations, when committed pursuant to business 

activity, as unlawful practices independently actionable under section 17200 et seq. and 

subject to the distinct remedies provided thereunder.’” (Farmers Ins. Exchange v. 

Superior Court (1992) 2 Cal.4th 377, 383.) The focus of the UCL is “on the defendant’s 

conduct, rather than the plaintiff’s damages, in service of the statute’s larger purpose of 

protecting the general public against unscrupulous business practices.” (In re Tobacco 

Cases II, at p. 312.) The remedies available under the UCL are limited to injunctive, 

restitutionary and related relief (Bus. & Prof. Code, § 17203; State of California v. Altus 

Finance (2005) 36 Cal.4th 1284, 1303.) However, restitutionary or injunctive relief is 

not mandatory; rather, equitable considerations may guide the court’s discretion in 

fashioning a remedy for a UCL violation. (Cortez v. Purolator Air Filtration Products 

Co. (2000) 23 Cal.4th 163, 180.) The statute of limitations on UCL claims is four years 

from the date of accrual. (Bus. & Prof. Code, § 17208.) 

 Here, as discussed below, plaintiffs have stated a claim for violation of the 

Rosenthal Act upon which they can base their UCL claim. As a result, the trial court 

erred in sustaining the demurrer to this cause of action. 

C. FDCPA 

 Plaintiffs’ fourth cause of action6 alleged that Aztec violated the FDCPA by using 

unfair and unconscionable means to collect its debt, including sending deceptive letters 

and making phone calls to plaintiffs, making false reports to credit agencies, and 

increasing the amount of the mortgage.

The term “debt collector” is defined in title 15 United States Code section 

1692a(6) as follows: “The term ‘debt collector’ means any person who uses any 

instrumentality of interstate commerce or the mails in any business the principal purpose 

of which is the collection of any debts, or who regularly collects or attempts to collect, 

directly or indirectly, debts owed or due or asserted to be owed or due another.” The 

 6 The complaint omitted a third cause of action. 
11

courts which have looked at the definition of “debt collector” have uniformly held that 

the FCDPA does not apply to a bank acting to collect a debt owed to itself. (See 

Thomasson v. Bank One, Louisiana, N.A. (E.D.La. 2001) 137 F.Supp.2d 721, 724 [in 

collecting on its own debts, a bank does not meet the criteria of a ‘debt collector’ 

pursuant to the FDCPA “because as a bank it primarily loans money to consumers rather 

than collects outstanding debts”].) Here, plaintiffs’ complaint alleges that Aztec was 

attempting to collect a debt on its own behalf; under the FDCPA, Aztec is not a debt 

collector. Therefore, the claim fails as a matter of law. 

D. Rosenthal Act 

 Plaintiffs’ fifth cause of action alleged that Aztec violated the Rosenthal Act by 

using unfair and unconscionable means to collect its debt, including sending deceptive 

letters and making phone calls to plaintiffs, making false reports to credit agencies, and 

increasing the amount of the mortgage. 

 The Rosenthal Act “was enacted ‘to prohibit debt collectors from engaging in 

unfair or deceptive acts or practices in the collection of consumer debts, and to require 

debtors to act fairly in entering into and honoring such debts. [Citation.] . . . A debt 

collector violates the act when it engages in harassment, threats, the use of profane 

language, false simulation of the judicial process, or when it cloaks its true nature as a 

licensed collection agency in an effort to collect a consumer debt.” (Sipe v. Countrywide 

Bank (E.D.Cal. 2010) 690 F.Supp.2d 1141, 1151.) The Rosenthal Act defines a debt 

collector as “any person who, in the ordinary course of business, regularly, on behalf of 

himself or herself or others, engages in debt collection.” (Civ. Code, § 1788.2, subd. (c).) 

The statute of limitations on a Rosenthal Act claim is one year. (Civ. Code, § 1788.30, 

subd. (f).) 

 Here, plaintiffs alleged that Aztec was a “debt collector” within the meaning of the 

Rosenthal Act and that Aztec commenced harassing them about their debt in or about fall 

2009, and that the calls continued. Although not specifically pleaded, we can assume for 

the sake of demurrer that Aztec’s calls continued at least until the commencement of 
12

foreclosure in September 2010; under the continuing tort doctrine, the statute did not run 

until this time, which is less than a year before the filing of plaintiffs’ initial complaint in 

June 2011. Thus, the trial court erred in sustaining a demurrer to this claim. We note 

that the trial court in ruling on the demurrer only reached the statute of limitations issue 

with respect to this claim, and did not address the merits. 

E. Negligence 

Plaintiffs’ sixth cause of action for negligence alleged that Aztec had a duty to 

perform acts as a lender in a manner not to cause plaintiffs harm, and breached those 

duties by failing to make required disclosures, taking fees to which it was not entitled, 

wrongfully making negative reports about plaintiffs’ credit, and taking payments to 

which it was not entitled. 

 A financial institution owes no duty of care to a borrower when the transaction 

does not exceed the scope of the mere lending of money. (Nymark v. Heart Fed. Savings 

& Loan Assn. (1991) 231 Cal.App.3d 1089, 1096–1097.) Here, plaintiffs have not 

alleged any conduct by Aztec that goes beyond the scope of lending money to plaintiffs. 

Thus, plaintiffs’ claim for negligence fails. 

F. Breach of Fiduciary Duty 

 Plaintiffs’ seventh cause of action for breach of fiduciary duty alleged that Aztec 

owed a fiduciary duty to plaintiffs under Civil Code section 2923.1, which imposes a 

duty on mortgage brokers, and that Aztec breached that duty by obtaining a mortgage for 

plaintiffs that had unfavorable terms and which they ultimately could not afford, by 

securing for itself a secret profit, by falsely documenting the nature of the loan by 

surreptitiously inserting a statement that the loan was nonresidential when in fact it was 

residential, and charging a commercial rate of interest for a residential loan. 

A lender owes no fiduciary duty of care to a borrower in an arm’s length financial 

transaction. (Ragland v. U.S. Bank National Assn. (2012) 209 Cal.App.4th 182, 206.) 

However, Civil Code section 2923.1, subdivision (a), provides: “[a] mortgage broker 

providing mortgage brokerage services to a borrower is the fiduciary of the borrower.” A 
13

mortgage loan broker is customarily a person “retained by a borrower to act as the 

borrower’s agent in negotiating an acceptable loan.” (Wyatt v. Union Mortgage Co. 

(1979) 24 Cal.3d 773, 782, italics omitted; see also Civ. Code, § 2923.1, subd. (b) 

[“‘Mortgage broker’ means a licensed person who provides mortgage brokerage 

services. . . .’ . . . ‘Mortgage brokerage services’ means arranging or attempting to 

arrange, as exclusive agent for the borrower or as dual agent for the borrower and lender, 

for compensation or in expectation of compensation, paid directly or indirectly, a 

residential mortgage loan made by an unaffiliated third party”].) 

 Here, Aztec owed no fiduciary duty to plaintiffs as their lender. Further, plaintiffs 

have not pleaded that Aztec acted as a mortgage broker in procuring their loan, and thus 

Civil Code section 2923.1 does not apply to their loan. The trial court property sustained 

Aztec’s demurrer on this cause of action. 

G. Fraud 

 Plaintiffs’ eighth cause of action for fraud alleged that Aztec misrepresented 

material facts, including that the interest rate on the loan was the lowest rate available, 

that interest would accrue only from the date of disbursement of funds, and by inserting 

documents specifying that the loan was nonresidential. Plaintiffs alleged the 

representations were false when made, were made with the intent that plaintiffs rely 

thereon, and that plaintiffs relied on them to their detriment. 

 “‘The elements of fraud, which give rise to the tort action for deceit, are 

(a) misrepresentation (false representation, concealment, or nondisclosure); 

(b) knowledge of falsity (or “scienter”); (c) intent to defraud, i.e., to induce reliance; 

(d) justifiable reliance; and (e) resulting damage.’” (Lazar v. Superior Court (1996) 12 

Cal.4th 631, 638.) 

 A necessary element of the defense of fraud in the execution is reasonable 

reliance. That is, when a plaintiff asserts that the defendant misrepresented the nature of 

the contract, the contract is not considered void due to the fraud if the plaintiff had a 

reasonable opportunity to discover the true terms of the contract. The contract is only 
14

considered void when the plaintiffs’ failure to discover the true nature of the document 

executed was without negligence on the plaintiff’s part. (Rosenthal v. Great Western 

Financial Securities Corp. (1996) 14 Cal.4th 394, 419–420.) This issue usually arises 

when the plaintiff failed to read the terms of the contract, relying instead on the 

defendant’s representation as to the effect of the contract. It is not reasonable to fail to 

read a contract; this is true even if the plaintiff relied on the defendant’s assertion that it 

was not necessary to read the contract. (Id. at pp. 423–424.) Reasonable diligence 

requires a party to read a contract before signing it. (Brookwood v. Bank of America

(1996) 45 Cal.App.4th 1667, 1674.) This presumes, however, that the parties were 

dealing at arm’s length. When the parties are in a fiduciary relationship, the same degree 

of diligence is not required of the nonfiduciary party. (Stafford v. Shultz (1954) 42 

Cal.2d 767, 777.) If the defendant is in a fiduciary relationship with the plaintiff which 

requires the defendant to explain the terms of a contract between them, the plaintiffs’ 

failure to read the contract could be reasonable. (Lynch v. Cruttenden & Co. (1993) 18 

Cal.App.4th 802, 808–809.) In such a situation, the defendant fiduciary’s failure to 

perform its duty would constitute constructive fraud (Van de Kamp v. Bank of America 

(1988) 204 Cal.App.3d 819, 854), the plaintiff’s failure to read the contract would be 

justifiable (Twomey v. Mitchum, Jones & Templeton, Inc. (1968) 262 Cal.App.2d 690, 

715), and constructive fraud in the execution would be established. 

 A cause of action for fraud is governed by a three-year statute of limitations. 

(Code Civ. Proc., § 338, subd. (d).) The action accrues when the aggrieved party 

discovers the facts constituting the fraud. (Ibid.) “The courts interpret discovery in [the] 

context [of fraud] to mean not when the plaintiff became aware of the specific wrong 

alleged, but when the plaintiff suspected or should have suspected that an injury was 

caused by wrongdoing. The statute of limitations begins to run when the plaintiff has 

information [that] would put a reasonable person on inquiry. A plaintiff need not be 

aware of the specific facts necessary to establish a claim since they can be developed in 

pretrial discovery. Wrong and wrongdoing in this context are understood in their lay and 
15

not legal senses. [Citation.] [¶] . . . ‘“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 [her] investigation (such as public 

records or corporation books), the statute commences to run.” [Citation.]’” (Kline v. 

Turner (2001) 87 Cal.App.4th 1369, 1374.) 

 Here, plaintiffs cannot state a claim for fraud based upon the asserted execution of 

the loan documents based on nondisclosures of the loan’s characterization as a 

commercial loan, the interest rate charged, or the accrual date of interest because those 

terms were presumably contained in the loan documents plaintiffs failed to attach to their 

complaint. Further, as Aztec owed no fiduciary duty, plaintiffs cannot rely on such a 

duty to excuse their failure to read the loan documents. 

H. Breach of the Implied Covenant of Good Faith and Fair Dealing 

 Plaintiffs’ ninth cause of action for breach of the implied covenant of good faith 

and fair dealing alleged that Aztec had a duty to pay at least as much regard to plaintiffs’ 

financial interests as its own; Aztec had a duty to comply with the laws of California; and 

Aztec had a duty to act fairly towards plaintiffs in connection with the loan. Plaintiffs 

alleged that Aztec breached that duty by failure to disclose to plaintiffs the true nature of 

the loan, failing to give plaintiffs required disclosures, and demanding that plaintiffs pay 

more interest than they were required to pay. 

 A cause of action for breach of the implied covenant of good faith and fair dealing 

is premised on the breach of a specific contractual obligation. (Racine & Laramie, Ltd. v. 

Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031–1032 [the purpose 

of the implied covenant is to “‘prevent a contracting party from engaging in conduct 

which . . . frustrates the other party’s rights to the benefits of the contract’”].) “Every 

contract contains an implied covenant of good faith and fair dealing providing that no 

party to the contract will do anything that would deprive another party of the benefits of 

the contract. [Citations.] The implied covenant protects the reasonable expectations of 
16

the contracting parties based on their mutual promises. [Citations.] The scope of 

conduct prohibited by the implied covenant depends on the purposes and express terms 

of the contract. [Citation.] Although breach of the implied covenant often is pleaded as a 

separate count, a breach of the implied covenant is necessarily a breach of contract.” 

(Digerati Holdings, LLC v. Young Money Entertainment, LLC (2011) 194 Cal.App.4th 

873, 885.) The claim is controlled by the four-year statute of limitations applying to 

contracts. (Krieger v. Nick Alexander Imports, Inc. (1991) 234 Cal.App.3d 205, 220–

221.) 

 Here, plaintiffs essentially allege that Aztec breached the loan contract by 

charging more interest and principal than legally was due and by failing to comply with 

applicable laws. The complaint alleges that Aztec first breached the loan in fall 2009 by 

making calls to collect what it asserted was owed to it and which plaintiffs assert Aztec 

was not owed. At that time, the statute of limitations would have begun to run. The 

complaint filed in June 2011 was therefore timely on plaintiffs’ claim for breach of the 

implied covenant of good faith and fair dealing. We note that the trial court in ruling on 

the demurrer only reached the statute of limitations issue with respect to this claim, and 

did not address the merits. 

I. Negligent Infliction Of Emotional Distress 

 Plaintiffs’ 10th cause of action for negligent infliction of emotional distress 

alleged that as a result of Aztec’s negligence, plaintiffs had suffered from severe 

emotional distress. 

 Negligent infliction of emotional distress is not an independent tort; it is the tort of 

negligence. (Burgess v. Superior Court (1992) 2 Cal.4th 1064, 1072.) Damages for 

emotional distress are recoverable only if the defendant has breached a duty to the 

plaintiff. “[T]his independent duty may be imposed by law, be assumed by the 

defendant, or exist by virtue of a special relationship” between the parties. (Potter v. 

Firestone Tire & Rubber Co. (1993) 6 Cal.4th 965, 984–985.) 
17

 Here, as plaintiffs cannot state a claim for negligence, they cannot state a claim for 

negligent infliction of emotional distress. Thus, the trial court did not err in sustaining 

Aztec’s demurrer without leave to amend. 

J. Intentional Infliction Of Emotional Distress 

 Plaintiffs’ 11th cause of action for intentional infliction of emotional distress 

alleged that as a result of Aztec’s conduct, plaintiffs had suffered from severe emotional 

distress. 

 To recover on a claim for intentional infliction of emotional distress, the plaintiff 

must demonstrate (1) outrageous conduct by the defendant, (2) directed at the plaintiff 

with the intent of causing extreme emotional distress, (3) actually and proximately 

causing emotional distress to the plaintiff, and (4) plaintiff’s severe or extreme emotional 

distress. (Trerice v. Blue Cross of California (1989) 209 Cal.App.3d 878, 883.) 

Outrageous conduct is conduct which exceeds the bounds of that usually tolerated in 

civilized society. Such conduct must be directed at the plaintiff or occur in the plaintiff’s 

presence. (Christensen v. Superior Court (1991) 54 Cal.3d 868, 903.) The statute of 

limitations for an intentional infliction of emotional distress claim is two years. (Code 

Civ. Proc., § 335.1.) The claim accrues when the tortfeasor’s conduct first causes 

emotional distress. (Kiseskey v. Carpenters’ Trust for So. California (1983) 144 

Cal.App.3d 222, 232 [tort complete when effect of defendant’s conduct results in severe 

emotional distress].) 

 Plaintiffs’ complaint does not allege when they suffered severe emotional distress, 

but does allege that the intentional infliction of emotional distress was caused by all of 

Aztec’s conduct. Assuming that Aztec’s attempts to collect its loan in fall 2009 started 

the clock ticking on allegedly extreme and outrageous conduct, the two-year statute 

would not bar plaintiffs’ claim. However, recovery on this theory requires a showing of 

“‘outrageous’” conduct which is “‘so extreme as to exceed all bounds of that usually 

tolerated in a civilized community.’” “An assertion of legal rights in pursuit of one’s 

own economic interests does not qualify as ‘outrageous’ under this standard.” (Yu v. 
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Signet Bank/Virginia (1999) 69 Cal.App.4th 1377, 1397–1398.) Thus, Aztec’s attempts 

to collect its loan would not support a claim for emotional distress. 

K. Declaratory Relief 

 Plaintiffs’ twelfth cause of action for declaratory relief sought a declaration of the 

rights and duties of the parties under the loan documents, a declaration that plaintiffs did 

not owe Aztec the amounts it claimed, and a declaration of the amounts plaintiffs owed to 

Aztec. 

 Code of Civil Procedure section 1060 provides in relevant part: “Any person 

interested under a written instrument . . . , or under a contract, or who desires a 

declaration of his or her rights or duties with respect to another . . . may, in cases of 

actual controversy relating to the legal rights and duties of the respective parties, bring an 

original action . . . for a declaration of his or her rights and duties in the premises, 

including a determination of any question of construction or validity arising under the 

instrument or contract.” Declaratory relief operates prospectively, serving to set 

controversies at rest before obligations are repudiated, rights are invaded or wrongs are 

committed. Thus the remedy is to be used to advance preventive justice, to declare rather 

than execute rights. (Baxter Healthcare Corp. v. Denton (2004) 120 Cal.App.4th 333, 

360.) Resort to declaratory relief therefore is appropriate to attain judicial clarification of 

the parties’ rights and obligations under the applicable law. (Id. at p. 362.) 

 The limitations period for declaratory relief claims depends on “the right or 

obligation sought to be enforced, and the [statute of limitations’] application generally 

follows its application to actions for damages or injunction on the same rights and 

obligations.” (Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 

809, 821.) “A four-year statute of limitations applies to obligations or liabilities founded 

upon an instrument in writing.” (Code Civ. Proc., § 337, subd. (1); Ginsberg v. Gamson 

(2012) 205 Cal.App.4th 873, 883.) The limitations period does not begin to run until a 

breach occurs. (Romano v. Rockwell Internat., Inc. (1996) 14 Cal.4th 479, 489.) A party 

may seek declaratory relief before there has been an actual breach of an obligation; in 
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such cases the limitations period still does not begin to run until the breach occurs. 

(Maguire v. Hibernia S. & L. Soc. (1944) 23 Cal.2d 719, 734.) 

 Here, plaintiffs dispute the amounts owed under the loan documents, meaning a 

four-year statute applies to their contract claims. According to the allegations of the 

complaint, the dispute arose sometime time in the fall of 2009 when Aztec began to call 

about the loan. Thus, plaintiffs’ claim for declaratory relief is not time-barred. 

DISPOSITION 

 The judgment is reversed on plaintiffs’ claims for violations of the Rosenthal Fair 

Debt Collection Practices Act (Civ. Code, § 1788 et seq.), violation of the Unfair 

Competition Law (Bus. & Prof. Code, § 17200 et seq.), and plaintiffs’ claims for breach 

of the implied covenant of good faith and fair dealing and for declaratory relief. In all 

other respects, the judgment is affirmed. The parties are to bear their own costs on 

appeal. 

 NOT TO BE PUBLISHED. 

 JOHNSON, J. 

We concur: 

 ROTHSCHILD, Acting, P. J. 

 CHANEY, J.