Filed 4/17/14 Mastantuono v. Creedside Financial CA2/6 

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS 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 SIX 

PASQUALE MASTANTUONO et al., 

 Plaintiffs, Cross-defendants and 

 Respondents, 

v. 

CREEKSIDE FINANCIAL, INC. et al., 

 Defendants, Cross-complainants 

 and Appellants. 

2d Civil No. B244966 

(Super. Ct. No. CV098199) 

(San Luis Obispo County) 

 Plaintiffs invested in a construction loan that was arranged and 

administered by a real estate broker. The loan went into default. Plaintiffs foreclosed 

and invested additional money to complete the project. Plaintiffs sued the broker for 

breach of fiduciary duty and other causes of action. Third parties claiming to be 

additional investors in the project cross-complained to quiet title to an interest in the 

land. 

 The trial court, sitting without a jury, found the defendant broker 

committed numerous breaches of fiduciary duties owed to plaintiffs and awarded 

damages. The court also found plaintiffs were the only investors, and quieted title in 

plaintiffs against cross-complainants. We affirm. 
2 

FACTS 

 Hubert La Prade is a licensed real estate broker and the sole shareholder 

and employee of Creekside Financial, Inc. (Creekside), a licensed real estate broker 

corporation. La Prade spoke to Pasquale and Karen Mastantuono about investing in a 

trust deed. La Prade told them he was collecting funds to finance the construction of a 

house on a parcel of property in Templeton. David Graves would be the homebuilder. 

 La Prade represented that the property would be worth over a million 

dollars when the house was completed. La Prade asked the Mastantuonos to invest 

$300,000. Pasquale Mastantuono asked La Prade if $500,000 "would do the whole 

thing." La Prade said it would. The loan was to be for the construction of the house, 

not for the purchase of the property. The Mastantuonos believed Graves already 

owned the property. The Mastantuonos gave La Prade a check for $500,000 made out 

to Creekside. 

 La Prade prepared a note and deed of trust for $700,000 in favor of the 

Mastantuonos and Creekside. The deed of trust showed the Mastantuonos holding a 

71.429 percent interest and Creekside holding a 28.571 percent interest. The 

Mastantuonos thought the loan was for $500,000, not $700,000. La Prade did not tell 

them that the loan was not fully funded or that he intended to bring in other investors. 

 The note bore interest at 12.5 percent. La Prade told the Mastantuonos 

that they would receive 12 percent interest. La Prade testified that the extra half 

percent was his loan servicing fee. Loan disclosure documents stated there would be 

no loan servicing fee. 

 A disclosure statement lists Graves's monthly income at $20,900 per 

month. Under expenses it states "N/A." The statement discloses no debt. La Prade 

testified he assumed Graves's income was $20,900 per month based on what other 

contractors were making. La Prade testified he was unaware of any debts owed by 

Graves. The evidence showed Graves had liabilities of $7 million. 

 The loan escrow closed with the Mastantuonos' $500,000 as the only 

funding for the $700,000 loan. Business and Professions Code section 10238, 
3 

subdivision (h)(4)(B) requires a construction loan to be fully funded prior to the 

recording of a deed of trust. 

 Unknown to the Mastantuonos, a simultaneous escrow had been opened 

to purchase the land. The purchase escrow was funded entirely with the proceeds of 

the Mastantuonos' loan. After the close of escrow, only $95,851 was available to 

complete the construction of the home. The estimated cost of completion was 

$612,000. 

 La Prade claims that after close of escrow he obtained other investors for 

the remaining $200,000 principal balance of the loan. He produced no credible 

documentary evidence to support the claim. The trial court found the $500,000 

invested by the Mastantuonos were the only funds invested in the loan. 

 The Mastantuonos received a few payments on the note. But La Prade 

made the payments out of the Mastantuonos' own funds. La Prade failed to notify 

them that the source of the payments was other than the maker of the note as required 

by Business and Professions Code section 10238, subdivision (k)(2). 

 La Prade had no formal system for disbursement of the draws under the 

construction loans. (Bus. & Prof. Code, § 10238, subd. (h)(4)(C).) He did not use a 

neutral third party escrow for disbursements (id. at subd. (h)(4)(A)); nor did he have 

the completed work independently verified prior to a disbursement (id. at subd. 

(h)(4)(D)). 

 Without notifying the Mastantuonos, La Prade disbursed all the 

construction loan funds to Graves before the project was complete. La Prade made the 

final disbursement so that Graves could apply the funds to a different project. La 

Prade trusted that Graves would return to the Mastantuonos' project once the other 

project was complete. 

 When all the funds had been disbursed, the Mastantuonos stopped 

receiving payments on the note. Pasquale Mastantuono began an investigation. He 

travelled from his home in Idaho to Templeton. He discovered that the home 

construction was not complete, most of his investment had been used to purchase the 
4 

land, all the construction funds had been disbursed, and that there were others claiming 

to be investors in the trust deed. 

 After Pasquale Mastantuono began his investigation, La Prade 

quitclaimed Creekside's interest in the trust deed to third parties who he claimed were 

additional investors. 

 The Mastantuonos unilaterally foreclosed on the trust deed. They 

prevailed at the foreclosure sale with a full credit bid of $820,312.60. 

 The Mastantuonos completed construction of the house with their own 

funds at a cost of $141,089. They listed the property for sale at $729,000. They sold it 

for $650,000, realizing net proceeds of $600,619.68. The proceeds were placed in a 

trust account pending the outcome of this action. 

 The Mastantuonos sued La Prade, Creekside and the parties who claimed 

to be additional investors. Among the causes of action were breach of fiduciary duty 

and quiet title. The defendants cross-complained for conversion, partition and 

declaratory relief. 

 The trial court found for the Mastantuonos on the complaint and crosscomplaint. The court found the Mastantuonos were the only investors in the trust 

deed, and had a 100 percent interest in it. The court also found La Prade breached 

fiduciary duties he owed to the Mastantuonos. The court found the Mastantuonos 

would not have invested had La Prade disclosed the facts. The court awarded the 

Mastantuonos damages against La Prade and Creekside in the amount of $765,506.47, 

based on the benefit-of-the-bargain. 

 The court found that La Prade's misconduct would support an award of 

punitive damages. But the Mastantuonos did not introduce any evidence of La Prade's 

financial condition. Without such evidence, the court could not award punitive 

damages. 

 The court quieted title in the Mastantuonos against the other alleged 

investors. 
5 

DISCUSSION 

I. 

 La Prade contends the evidence was insufficient to support the judgment. 

 La Prade's contention is based on a view of the evidence most favorable 

to him. But we take a different view of the evidence. In viewing the evidence, we 

look only to the evidence supporting the prevailing party. (GHK Associates v. Mayer 

Group, Inc. (1990) 224 Cal.App.3d 856, 872.) We discard evidence unfavorable to the 

prevailing party as not having sufficient verity to be accepted by the trier of fact. 

(Ibid.) Where the trial court or jury has drawn reasonable inferences from the 

evidence, we have no power to draw different inferences, even though different 

inferences may also be reasonable. (9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, 

§ 376, pp. 434-435.) The trier of fact is not required to believe even uncontradicted 

testimony. (Sprague v. Equifax, Inc. (1985) 166 Cal.App.3d 1012, 1028.) 

 Here the trial court based its judgment on breach of fiduciary duties. 

La Prade does not contest he was the Mastantuonos' fiduciary. 

 A real estate broker's fiduciary duty to his clients requires the highest 

good faith and undivided service and loyalty. (Field v. Century 21 Klowden-Forness 

Realty (1998) 63 Cal.App.4th 18, 25.) He is hired for his knowledge and skill. (Ibid.) 

He has a duty to disclose all material facts that would affect his principal's decision to 

enter into the transaction. (Ibid.) His duty to disclose material facts includes a duty to 

research and investigate in order to learn those facts. (Ibid.) His duty is not limited to 

simply disclosing facts; he also has a duty to counsel and advise his principal 

regarding the propriety and ramifications of the decision. (Ibid.) 

 La Prade's argument assumes the burden of proof was on the 

Mastantuonos. But once a fiduciary relationship is established, the burden shifts to the 

agent to show that he acted with the utmost good faith and that he made a full 

disclosure of all the material facts prior to the transaction. (Jorgensen v. Beach "N' 

Bay Realty (1981) 125 Cal.App.3d 155, 162.) 
6 

 Here every phase of the transaction was tainted by La Prade's breach of a 

fiduciary duty. Naming a few will suffice. La Prade failed to disclose that: the loan 

would not be fully funded; over 80 percent of the loan funds would be used to 

purchase the land; the remaining balance would be far from adequate to complete 

construction; Creekside would be receiving a half percent administrative fee in spite of 

La Prade's representation there would be no such fee; interest payments received by 

the Mastantuonos were from their own money; there would be no formal system for 

draws; and that money would be disbursed from the construction loan fund to 

complete a different project in which the Mastantuonos had no interest. 

 In addition, La Prade failed to investigate and disclose Graves's financial 

condition; conveyed an interest in the loan adverse to the Mastantuonos; and 

committed multiple violations of the Business and Professions Code. 

 La Prade points to documents he provided to the Mastantuonos. The 

documents include a preliminary title report showing the land was owned by a person 

other than Graves and loan documents showing the principal to be $700,000. La Prade 

neglects to mention that the documents were provided after the Mastantuonos invested. 

He also neglects to mention misleading documents such as the crucial document that 

misrepresented Graves's financial condition. 

 What is clear is that the Mastantuonos did not understand the transaction 

until after default, when Pasquale Mastantuono undertook an investigation on his own. 

La Prade fails to cite any credible evidence that he ever discussed with the 

Mastantuonos the true nature of the transaction or the risks they were undertaking. 

 It is true the trial court found that the Mastantuonos should have been 

more diligent in reading the documents. But where there is a fiduciary relationship, 

failure of a client to read documents does not excuse a breach of duty. (See Mazuran 

v. Stefanich (1928) 95 Cal.App. 327, 331-332 [client's failure to read retainer 

agreement prepared by his attorney excused].) 

 La Prade argues the trial court failed to consider that this was a high-risk 

"hard money" loan. Certainly, every construction loan bears a higher risk to the lender 
7 

than a conventional purchase money loan. But this is not the typical construction loan. 

The same factors cited above showing a breach of fiduciary duty, show that the failure 

of this loan was a near certainty. No reasonable investor who was adequately 

informed of the facts would have invested in this loan. 

 La Prade argues that the Mastantuonos failed to prove there were no 

other investors. But as a fiduciary, the burden of proof is on La Prade. (Jorgensen v. 

Beach 'N' Bay Realty, supra, 125 Cal.App.3d at p. 162.) The court found that the 

Mastantuonos fully documented their investment. But for other alleged investors there 

are no copies of checks, no evidence of checks paid to lenders, no fully executed 

escrow documents, no settlement statements, and no assignments of Creekside's 

alleged interest in the note and deed of trust. La Prade argues that the evidence of 

other investors was uncontradicted. But La Prade confuses uncontradicted with 

credible. The trier of fact can reject even uncontradicted evidence as not credible. 

(Sprague v. Equifax, Inc., supra, 166 Cal.App.3d at p. 128.) Here the court found 

there was no credible evidence that anyone other than the Mastantuonos invested in 

the loan. 

 La Prade argues the Mastantuonos' losses were caused by a downturn in 

the real estate market, not by any fault of his. But La Prade cites no authority that 

requires the trial court to accept his view of causation. In any event, even if a market 

downturn could be considered an independent superseding cause, a superseding cause 

will not relieve a defendant from liability if it was foreseeable. (See Akins v. County of 

Sonoma (1967) 67 Cal.2d 185, 199.) Market downturns occur too frequently to be 

deemed unforeseeable. 

 Moreover, after loan funds were expended to purchase the land, only 

$95,851 remained to complete a project with an estimated cost of $612,000; La Prade 

failed to properly supervise construction draws; he made interest payments to the 

Mastantuonos with their own money; he even disbursed construction loan funds so that 

Graves could apply them to a different project. The trial court could reasonably 

conclude the loan was bound to fail even in a good real estate market. 
8 

II. 

 La Prade contends the Mastantuonos' full credit bid at the foreclosure 

sale prevents any award of damages. 

 A full credit bid will not preclude an action for fraud against a fiduciary 

if the plaintiffs can demonstrate that their full credit bid was a proximate result of 

defendant's fraud, and that in the absence of such fraud they would not, in all 

reasonable probability, have made the bid. (Alliance Mortgage Co. v. Rothwell (1995) 

10 Cal.4th 1226, 1246-1247.) 

 Here La Prade did not raise the defense of the full credit bid in his 

pleadings or at trial. He raised it for the first time in his motion for a new trial. That 

the trustees deed was introduced in evidence at trial is not sufficient to raise the issue. 

The Mastantuonos were deprived of the opportunity to show reliance at trial. Under 

the circumstances, La Prade has waived the issue. (See Richmond v. Dart Industries, 

Inc. (1987) 196 Cal.App.3d 869, 879.) 

III. 

 La Prade contends the trial court erred in awarding damages. He claims 

the proper measure of damages is the difference between "the actual value of the 

property at the time of the representation compared to the value as represented by [La 

Prade]." (Citing 6 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 1710, p. 

1238.) 

 The measure of damages for breach of fiduciary duty is all loss 

proximately caused by the breach, including loss of the benefit-of-the-bargain. 

(Fragale v. Faulkner (2003) 110 Cal.App.4th 229, 238.) In this case, damages 

measured by the difference between the property as represented and the actual value 

would not be adequate to compensate the Mastantuonos for their losses. The trial 

court property determined their losses to be the principal amount of the loan plus 

interest, plus their costs for completing the home and foreclosing. 

 La Prade complains that the trial court made no findings on evidence that 

the house could have been completed for approximately half of what the Mastantuonos 
9 

spent and in less time. But it is obvious that the trial court simply did not find that 

evidence credible. 

 La Prade also complains that the trial court made no finding on the 

Mastantuonos' decision to foreclose nonjudicially, thus precluding a deficiency 

judgment as mitigation of damages. But Graves was insolvent. He filed for 

bankruptcy with net liabilities of $7 million. Pursuing a judicial foreclosure and a 

deficiency judgment would have been a waste of money here with no reasonable 

possibility of mitigating damages. 

 The judgment is affirmed. Costs are awarded to the Mastantuonos. 

 NOT TO BE PUBLISHED. 

 GILBERT, P. J. 

We concur: 

 YEGAN, J. 

 PERREN, J. 
Dodie A. Hartman, Judge 

Superior Court County of San Luis Obispo 

______________________________ 

 Christian E. Iversen for Defendants, Cross-complainants and Appellants. 

 John F. Hodges, Conley Wyatt Anderson for Plaintiffs, Cross-defendants 

and Respondents.