Procedural Posture

Plaintiff first lender challenged a decision of the Superior Court of Los Angeles County (California), which dismissed its motion, following the sustaining of a demurrer to its original complaint filed by defendant second lender, and which held that under Cal. Civil Code § 2943, the borrower was exclusively responsible for the balance due. Plaintiff argued that § 2943 authorized recovery from defendant as agent for the borrower.

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Plaintiff first lender received a request for a payoff statement from defendant second lender and plaintiff's payoff statement inadvertently understated the amount required to retire the loan. Plaintiff realized the error and demanded the balance due from defendant. A representative of defendant said that he had noticed the error but paid the lesser amount so the borrower would have more working capital. Plaintiff filed suit and the trial court held that under Cal. Civil Code § 2943, the borrower, not defendant, was exclusively responsible for the balance due. Plaintiff appealed from a judgment of dismissal following sustaining of a demurrer to its original complaint filed by defendant. On appeal, the court affirmed the trial court's decision, ruling that the trial court did not abuse its discretion in ruling that the allegations as pled were insufficient because plaintiff failed to allege or request leave to amend that defendant had actual knowledge that the lower demand was in error. The court held that pursuant to § 2943, plaintiff could only look to the borrower for unpaid sums in the payoff of a secured loan where underpayment was an error in preparing a payoff statement.

Outcome

The court affirmed the trial court's dismissal, finding that the trial court did not abuse its discretion in ruling that the allegations as pled were insufficient because plaintiff first lender failed to allege that defendant second lender knew the lower demand was in error. The court held that plaintiff could only look to the borrower for unpaid sums in the payoff of a secured loan where underpayment was an error in preparing a payoff statement.