Court Opinion

ID: 4880174
Source: CourtListenerOpinion
Date Created: 2021-08-30 21:05:32.695487+00
Date Added: 2024-06-11T08:01:20.364329
License: Public Domain

Filed 8/30/21 Westwood Montserrat v. AGK Sierra de Montserrat CA3
                                           NOT TO BE PUBLISHED
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 This opinion has not been certified for publication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
                                      THIRD APPELLATE DISTRICT
                                                        (Placer)
                                                            ----

 WESTWOOD MONTSERRAT, LTD.,                                                                    C088569

                    Plaintiff,                                                  (Super. Ct. No. SCV0029131)

               v.

 AGK SIERRA DE MONTSERRAT, LP, et al.,

                    Defendants;

 AGCPII VILLA SALERNO MEMBER, LLC, as
 Assignee, etc.;

                    Defendant and Appellant;

 DEBORAH A. WESTWOOOD, Individually and as
 Trustee, etc.,

                    Third Party Claimant and Respondent.

         AGCPII Villa Salerno Member, LLC (AGCPII) is the assignee of a money
judgment against Westwood Montserrat, Ltd. (Westwood Montserrat), an entity formed

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to develop a planned residential community in Placer County.1 (Westwood Montserrat,
Ltd. v. AGK Sierra de Montserrat, L.P. (Sept. 23, 2016, C080395 [nonpub. opn.].)
AGCPII obtained a writ of execution and levied upon a parcel within the planned
residential community known as “Lot 26” (sometimes hereinafter referred to as the
property). Deborah Westwood asserted a third-party claim of superior right to the
property under a construction deed of trust that was erroneously reconveyed and then
reinstated by means of an instrument entitled “Rescission of Substitution of Trustee and
Full Reconveyance” (the rescission instrument).2 (Code Civ. Proc., § 720.110, et seq.)3
The trial court granted Deborah’s third-party claim.
         AGCPII appeals, arguing (1) the notice of levy has priority over the construction
deed of trust because the notice was recorded before the rescission instrument, and (2)
AGCPII acquired an interest in the property free and clear of Deborah’s interest as good
faith encumbrancer for value. We reject both contentions and affirm.
                                     I. BACKGROUND
         This appeal is the latest installment in a decade-long battle over Sierra de
Montserrat, a planned residential community in Loomis, California. (Westwood
Montserrat, Ltd. v. AGK Sierra de Montserrat, L.P., supra, C080395.) The story begins,
for our purposes, with Westwood Montserrat’s demand for arbitration against AGK
Sierra de Montserrat, L.P., Sierra de Montserrat Owners Association, and Robert C. and
Jennielyn B. Kincade (together, the Kincades). (Ibid.) The arbitrator found Sierra de
Montserrat Owners Association and the Kincades to be prevailing parties for purposes of
an attorney fees provision in the declaration of covenants, conditions, restrictions, and

1   Westwood Montserrat is not a party to this appeal.
2   For clarity, we refer to Deborah by her first name.
3   Undesignated statutory references are to the Code of Civil Procedure.

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easements for the planned residential community, and ordered Westwood Montserrat to
pay their attorney fees and costs.4 (Ibid.) The trial court confirmed the arbitration award
and entered judgments for Sierra de Montserrat Owners Association and the Kincades in
the amounts of $176,539 and $124,764, respectively. (Ibid.) The trial court subsequently
awarded an additional $3,250 in attorneys’ fees to the Kincades, bringing the total
amount of the judgment in their favor to $128,014. We affirmed the judgment.
(Westwood Montserrat, Ltd. v. AGK Sierra de Montserrat, L.P., supra, C080395.)
       The Kincades recorded an abstract of judgment against Westwood Montserrat in
Placer County. They later assigned the judgment to AGCPII. AGCPII obtained a writ of
execution against Westwood Montserrat in the amount of $128,014. The Placer County
Sheriff recorded a notice of levy on the property on February 1, 2018.
       Deborah filed a third-party claim on April 17, 2018. (§ 720.110.) The third-party
claim asserted that Deborah had an interest in the property as one of four secured parties
under a construction deed of trust recorded on August 27, 2007.5 Deborah averred that
the construction deed of trust secured a loan to Westwood Montserrat in the amount of
$2,505,000, the balance of which remained outstanding. Deborah further averred that the
construction deed of trust encumbered Lot 26, among other things.
       AGCPII responded with a petition for a hearing on the third-party claim on June
28, 2018. (§ 720.310.) AGCPII’s petition pointed to an instrument entitled,
“Substitution of Trustee and Full Reconveyance” recorded on September 28, 2016.
AGCPII observed that Deborah and the other secured parties released their interest in the

4 As between Westwood Montserrat Ltd. and AGK Sierra de Montserrat L.P., the
arbitrator found there was no prevailing party and ordered each of them to bear their own
attorneys’ fees and costs. (Westwood Montserrat, Ltd. v. AGK Sierra de Montserrat,
L.P., supra, C080395.)
5The other beneficiaries were Westwood Homes, Inc., Curtis A. Westwood, and the
Lucille Westwood Limited Partnership.

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property to Westwood Montserrat by means of the full reconveyance, which was
recorded before the notice of levy. AGCPII further observed that the rescission
instrument had been recorded on May 18, 2018, after the notice of levy. AGCPII
asserted that the rescission instrument was invalid and “a fraud on the court.”
       In response to the petition, Deborah presented evidence that the construction deed
of trust originally encumbered six parcels in the planned residential community,
including Lot 26. Deborah submitted declarations from herself and an escrow officer
with Stewart Title Guaranty Company averring that Westwood Montserrat sold four of
the parcels in a series of transactions over a period of months. For each transaction, the
escrow officer prepared a substitution of trustee and deed of partial reconveyance, which
was presented to Deborah and the other secured parties for signature. These partial
reconveyances allowed Westwood Montserrat to sell the parcels free and clear of the
construction deed of trust. (5 Miller & Starr, Cal. Real Estate (4th ed. 2015) § 13:150; 8
Miller & Starr, Cal. Real Estate (4th ed. 2015) §29:35.)
       Things changed in September 2016, when Westwood Montserrat entered into an
agreement to sell Lot 25, the next to last parcel in the planned residential community.
Although the same escrow officer handled the transaction, she departed from the practice
she had employed for each of the previous transactions. Rather than prepare a
substitution of trustee and deed of partial reconveyance, the escrow officer mistakenly
prepared a substitution of trustee and deed of full reconveyance. The escrow officer
presented the erroneous instrument to Deborah and the other secured parties for signature
without realizing her mistake. Deborah and the other secured parties executed the
substitution of trustee and deed of full reconveyance, without realizing the deed would
release both Lot 25 and Lot 26 from the construction deed of trust. Deborah and the
escrow officer each averred that they discovered the mistake on May 11, 2018, after
Deborah filed her third-party claim. They further averred that they attempted to correct

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the error by preparing and executing the rescission instrument, which purports to cancel
the reconveyance of Lot 26. The rescission instrument was recorded on May 18, 2018.
       AGCPII filed a reply brief in support of the petition, arguing that the rescission
instrument was untimely. AGCPII also asserted that the rescission instrument would be
prejudicial to AGCPII “as it had no notice of [Deborah’s] Deed of Trust at the time of
filing its Writ of Execution, and the recording of its Notice of Levy because the
September 2016 Full Reconveyance of Lot 26 extinguished any interest she could have in
the property.”
       The parties appeared for argument on the petition on August 21, 2018. The trial
court continued the hearing due to the press of business but granted AGCPII’s request for
leave to file supplemental briefs on the issue of lien priority. AGCPII’s opening
supplemental brief argued that AGCPII was entitled to priority as a good faith
encumbrancer without notice. Deborah responded that AGCPII was a judgment creditor,
not a good faith encumbrancer for value, and as such, was not entitled to priority.
AGCPII argued in reply that, even as a judgment creditor, AGCPII acted in good faith
and relied on the state of title at the time of recording the notice of levy. AGCPII also
argued that the rescission instrument, if valid, would cause prejudice to AGCPII by
interfering with its ability to collect on the judgment.
       The trial court held a hearing on the petition on October 9, 2018. Following
argument, the trial court took the matter under submission. The trial court then entered
the order appealed from. As relevant here, the order states: “A deed of reconveyance
may be rescinded under certain circumstances. In this case, it is clear that the parties who
executed the full reconveyance, as well as the drafter of the document, intended the
document to be a partial reconveyance based on the sale of one of the lots, while Lot 26
remained the final piece of real property securing the deed of trust. Assignee has no
evidence to the contrary. The right to rescind must be acted upon diligently, and is
unavailable if during the delay, ‘the rights of third parties have intervened so as to render

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rescission impracticable or inequitable.’ [(]Shumaker v. Foster (1954) 129 Cal.App.2d
216, 221.[)] In this case, [Deborah] acted without delay once she learned of the error,
and rescission has not been rendered impracticable or inequitable based on assignee’s
recordation of the notice of levy.” Accordingly, the trial court found Deborah’s third-
party claim to be valid and indicated that Lot 26 should be released from the levy. This
appeal timely followed.6
                                     II. DISCUSSION
       “Detailed statutory provisions govern the manner and extent to which civil
judgments are enforceable.” (Imperial Bank v. Pim Electric, Inc. (1995) 33 Cal.App.4th
540, 546.) “The most common method of enforcing a money judgment is to levy on the
judgment debtor’s property under a writ of execution.” (Ahart, Cal. Practice Guide:
Enforcing Judgments and Debts (The Rutter Group 2021) ¶ 6:300.) “A writ of execution
is a court process directed to the levying officer (i.e., sheriff, marshal or constable) of the
county where the levy is to be made . . . . The writ requires the levying officer to enforce
the money judgment in the manner prescribed by law.” (Id. at ¶ 6:311.)
       Under section 720.110, subdivision (a), “A third person claiming ownership . . . of
property may make a third-party claim under this chapter in any of the following cases if
the interest claimed is superior to the creditor’s lien on the property: [¶] (a) Where real

6 It is appropriate to briefly mention certain events that transpired after the hearing on the
petition, but before the filing of AGCPII’s notice of appeal. We have previously taken
judicial notice of recorded documents showing that Deborah and the other secured
creditors foreclosed on Lot 26 under the construction deed of trust on October 15, 2018.
Deborah and the other secured parties transferred their interest in the property to a third-
party purchaser on November 20, 2018. ACGPII filed the instant notice of appeal on
December 18, 2018, nearly a month later. The property was sold again, by one third-
party purchaser to another, during the pendency of this appeal.

  Deborah argues these transactions moot ACGPII’s appeal. We have previously rejected
Deborah’s motion to dismiss on grounds of mootness and decline to reconsider our
earlier ruling.

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property has been levied upon under a writ of attachment or a writ of execution.” The
purpose of this third-party claim procedure is “to give a quick and effectual remedy to
third parties whose property has been levied upon by mistake.” (Regency Outdoor
Advertising, Inc. v. Carolina Lanes, Inc. (1995) 31 Cal.App.4th 1323, 1329.)
       After filing a claim with the levying officer setting forth an interest in property (§
720.120), “either the creditor or the third person may petition the court for a hearing to
determine the validity of the third-party claim and the property disposition of the property
that is the subject of the claim.” (§ 720.310, subd. (a); see Oxford Street Properties, LLC
v. Rehabilitation Associates, LLC (2012) 206 Cal.App.4th 296, 307 (Oxford Street).)
       “At a hearing on a third-party claim, the third person has the burden of proof.” (§
720.360; see Oxford Street, supra, 206 Cal.App.4th at p. 307.) The third party must
prove its interest in the property by a preponderance of the evidence. (Whitehouse v. Six
Corp. (1995) 40 Cal.App.4th 527, 535 (Whitehouse).) “Once the third party establishes
its entitlement to the property, the burden shifts to the creditor . . . to establish that its
claim is superior.” (Oxford Street, supra, at p. 307; see also Whitehouse, supra, at p. 535
[where third party showed ownership of attached property, burden shifted to creditor to
show debtor fraudulently transferred interest in property to third party].)
       We review an order regarding lien priority de novo. (Wells Fargo Bank v. Neilsen
(2009) 178 Cal.App.4th 602, 608; see also Pou Chen Corp. v. MTS Products (2010) 183
Cal.App.4th 188, 192 [finding that de novo review applied to the determination of the
relative priority between judgment creditor’s attorneys’ fee liens and judgment debtor’s
equitable offset based on purchase of judgment against creditor].) However, we review
the trial court’s factual findings for substantial evidence. (Oxford Street, supra, 206
Cal.App.4th at p. 307.) “Under that standard, we consider whether there is any evidence,
contradicted or uncontradicted, which will support the trial court’s finding.” (Ibid.) As
always, it is “ ‘appellant’s burden to affirmatively show error.’ ” (Multani v. Witkin &
Neal (2013) 215 Cal.App.4th 1428, 1457; see Jameson v. Desta (2018) 5 Cal.5th 594,

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609 [“a trial court judgment is ordinarily presumed to be correct and the burden is on an
appellant to demonstrate . . . that the trial court committed an error that justifies
reversal”].)
A.     Validity of the Rescission Instrument
       AGCPII does not seriously challenge the trial court’s determination that the
rescission instrument was valid. Nevertheless, we begin with an overview of the rules
governing rescission, as AGCPII’s other contentions turn on the validity of the rescission
instrument.
       “Rescission is a remedy that disaffirms the contract.” (Greenwald & Bank, Cal.
Practice Guide: Real Property Transactions (The Rutter Group 2020) ¶ 11:460; see also
Civ. Code, § 1688 [“A contract is extinguished by its rescission”].) “The remedy
assumes the contract was properly formed, but effectively extinguishes the contract ab
initio as though it never came into existence; and its terms cease to be enforceable.”
(Greenwald & Bank, Cal. Practice Guide: Real Property Transactions (The Rutter Group
2020) ¶ 11:460, second italics added; see also NMSBPCSLDHB v. County of Fresno
(2007) 152 Cal.App.4th 954, 959-960 [the very definition of rescission is to “ ‘restore the
parties to their former position’ ”].)
       A party may rescind a contract if his or her consent was given by mistake. (Civ.
Code, § 1689, subd. (b)(1).) “ ‘ “Rescission for mistake . . . is a remedy by means of
which a party may be relieved of the burdens and may procure restitutionary redress
respecting a contract which was defective at its inception because consent was not freely
or knowingly given.” ’ ” (Sharabianlou v. Karp (2010) 181 Cal.App.4th 1133, 1145.)
       Rescission may be an appropriate remedy for an improvidently made or recorded
deed. (Schultz v. County of Contra Costa (1984) 157 Cal.App.3d 242, 247.) “However,
when ‘ “the rights of others have intervened and circumstances have so far changed that
rescission may not be decreed without injury to those parties and their rights, rescission
will be denied and the complaining party left to his other remedies.” ’ ” (Gill v. Rich

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(2005) 128 Cal.App.4th 1254, 1265; see also Shumaker v. Foster, supra, 129 Cal.App.2d
at p. 221 [“It is elementary that one claiming the right to rescind must act diligently and
that his right to rescission is lost if during a period of unexcused delay, the rights of third
parties have intervened so as to render rescission impractical or inequitable”].) Thus,
“ ‘there can be no rescission where the rights of third parties would be prejudiced.’ ”
(Gill v. Rich, supra, at p. 1265.)
       As detailed above, Deborah presented evidence that the full reconveyance was the
product of a mistake, and thus subject to rescission. Rescission, here, would extinguish
the full reconveyance and restore the secured parties to their former positions, as
beneficiaries to a construction deed of trust covering Lot 26. (NMSBPCSLDHB v.
County of Fresno, supra, 152 Cal.App.4th at pp. 959-960.) Deborah thus carried her
burden of establishing an entitlement to the property. (Oxford Street, supra, 206
Cal.App.4th at p. 307; Whitehouse, supra, 40 Cal.App.4th at p. 535.)
       The burden then shifted to AGCPII to establish a superior interest in the property.
(Oxford Street, supra, 206 Cal.App.4th at p. 307; Whitehouse, supra, 40 Cal.App.4th at p.
535.) This AGCPII failed to do. As the trial court observed, AGCPII offered no
evidence that the full reconveyance reflected the actual intent of the secured parties with
respect to Lot 26. Although AGCPII suggested that rescission would interfere with its
ability to collect on the judgment, there was no evidence that AGCPII changed position
as a result of the full reconveyance, and AGCPII made no attempt to argue that the
balance of equities should preclude rescission.7 (Cf. Duley v. Westinghouse Electric
Corp. (1979) 97 Cal.App.3d 430, 432 [affirming an order “cancelling” an erroneously

7 We assume that AGCPII incurred costs in obtaining a writ of execution against
Westwood Montserrat and instructing the Placer County Sheriff to record a notice of levy
on the property, but AGCPII submitted no evidence of any such costs, and we decline to
speculate on whether they could have been material enough to shift the balance of
equities in AGCPII’s favor.

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recorded full reconveyance and concluding that the secured parties would otherwise be
deprived of the security for their loan, while a judgment creditor enforcing an after-
recorded abstract of judgment would reap a windfall].) The trial court thus implicitly
concluded that AGCPII failed to carry its burden of showing that the rights of third
parties had intervened or circumstances had so changed as to make rescission impractical
or inequitable. (Shumaker v. Foster, supra, 129 Cal.App.2d at p. 221.) AGCPII does not
directly challenge the trial court’s findings or conclusions. We therefore accept the trial
court’s determination that the full reconveyance was properly rescinded. Having done so,
we can now turn to AGCPII’s core contentions.
B.     First in Time, First in Right
       AGCPII argues the notice of levy was recorded before the rescission instrument,
and therefore, AGCPII has priority under the “first in time, first in right” rule. (See Civ.
Code, § 2897.) As Deborah observes, AGCPII’s argument fails to reckon with the legal
effect of the rescission instrument.
       “California follows the ‘first in time, first in right’ system of lien priorities.”
(Thaler v. Household Finance Corp. (2000) 80 Cal.App.4th 1093, 1099; see Civ. Code, §
2897 [“Other things being equal, different liens upon the same property have priority
according to the time of their creation, except in cases of bottomry and respondentia”].)
“With respect to real property, a conveyance recorded first generally has priority over any
later-recorded conveyance.” (Thaler v. Household Finance Corp., supra, at p. 1099.)
       There is no denying that the notice of levy was recorded before the rescission
instrument. But the effect of the rescission instrument was to extinguish the full
reconveyance and restore the secured parties to the status quo ante. (NMSBPCSLDHB v.
County of Fresno, supra, 152 Cal.App.4th at pp. 959-960.) “Rescission extinguishes a
contract, rendering it void ab initio, as if it never existed.” (DuBeck v. California
Physicians’ Service (2015) 234 Cal.App.4th 1254, 1264.) This means that the full
reconveyance never existed in the eyes of the law. With the full reconveyance out of the

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picture, the construction deed of trust was “first in time,” and thus, ahead of the notice of
levy. The “first in time, first in right” rule thus favors Deborah, not AGCPII. We
therefore reject AGCPII’s contention that the “first in time, first in right” rule requires
reversal.
C.     Good Faith Encumbrancer for Value
       AGCPII next argues that the notice of levy should be entitled to priority because
AGCPII relied on record title at the time the notice was recorded and had no way of
knowing that the full reconveyance was erroneous. AGCPII places heavy emphasis on
First Fidelity Thrift & Loan Assn. v. Alliance Bank (1998) 60 Cal.App.4th 1433 (First
Fidelity), arguing that the present case is “the same.” Not so. First Fidelity, though
superficially similar, is factually distinguishable and analytically inapposite.
       First Fidelity was concerned with a question of priority between (1) First
Fidelity’s deed of trust, which was first in time and first recorded, but erroneously
reconveyed as a result of First Fidelity’s error, and (2) Alliance’s deed of trust, which
was second in time but first of record as a result of First Fidelity’s mistake, of which
Alliance had no knowledge. (First Fidelity, supra, 60 Cal.App.4th at pp. 1436-1440.)
The First Fidelity court affirmed the long-standing principle that, “[a] good faith
encumbrancer for value who first records takes its interest in the real property free and
clear of unrecorded interests.” (Id. at p. 1440.) The court found Alliance met its initial
burden on summary judgment to show that it had no knowledge that First Fidelity had a
claim (i.e., that First Fidelity had reconveyed in error). (Id. at p. 1442.) The burden thus
shifted to First Fidelity to present evidence raising a triable issue of fact that Alliance did
have notice. (Ibid.) First Fidelity attempted to meet this evidence by presenting evidence
that Alliance was aware of First Fidelity’s encumbrance against the commercial property,
but failed to contact First Fidelity to confirm the reconveyance. (Id. at pp. 1443-1444.)
The court concluded that Alliance had no duty to investigate to determine whether the
reconveyance had been in error. (Id. at pp. 1444-1445.)

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       Like First Fidelity, the present case involves an erroneous reconveyance and a
subsequent lienor without notice. But the similarities end there. Unlike the subsequent
lienor in First Fidelity, nothing suggests that AGCPII is a good faith encumbrancer for
value. Rather, the record reveals that AGCPII has a judgment lien as an assignee of the
Kincades.8 Though AGCPII may have acted in good faith and without notice of the
erroneous reconveyance, there is no basis for concluding that AGCPII has any status
other than judgment creditor. A judgment creditor cannot be a good faith encumbrancer
for value. (City of Torrance v. Castner (1975) 46 Cal.App.3d 76, 80 [“It is the rule in
California that a judgment creditor is not entitled to the protection as a bona fide
purchaser for value, but, rather, stands in the shoes of the judgment debtor and obtains by
his judgment lien only that interest in the property which the judgment debtor actually
possesses”]; Fulkerson v. Stiles (1909) 156 Cal. 703, 705 [“A judgment plaintiff has a
mere general lien upon the real property of the judgment defendant. Such lien is an
incumbrance, but the original judgment plaintiff is not ordinarily an incumbrancer for a
valuable consideration”].) As a judgment creditor, AGCPII can draw no comfort from
First Fidelity or the protections afforded to good faith encumbrancers for value.
AGCPII’s reliance on First Fidelity is unavailing.

8 AGCPII argues that it acquired the status of a good faith encumbrancer for value by
paying valuable consideration for the assignment of the judgment. But nothing in the
record discloses what, if any, consideration AGCPII paid for the assignment, and
AGCPII does not explain how, as an assignee, it could have acquired greater rights to the
property than the Kincades. (Northam v. Gordon (1863) 23 Cal. 255 [assignee of
judgment “stands in no better position” than the assignor].) AGCPII’s undeveloped
arguments fail to demonstrate error.

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                                  III. DISPOSITION
       The judgment is affirmed. Deborah Westwood is entitled to costs on appeal. (Cal.
Rules of Court, rule 8.278(a)(1) & (2).)

                                                      /S/

                                                RENNER, J.

We concur:

/S/

HULL, Acting P. J.

/S/

MAURO, J.

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