Deeds Of Trust, Fee Clause Interpretation, Indemnity: After Paying Off Loan Demand, Non-Prevailing Borrower On Economic Duress/Implied Covenant Claims Correctly Assessed With Contractual Fees Of $2,856,956.82 And Costs Of $38,184.54

Contractual Clauses, Including One In A Deed Of Trust, Were Fee Provisions.

            Modern litigation can be expensive.  It can even be more expensive where there is a fee-shifting basis in contractual documents.  Borrower learned that hard lesson in The Palace at Washington Square, LLC v. Mechanics Bank, Case Nos. A164195/A164799 (1^st Dist., Div. 3 Mar. 17, 2023) (unpublished).

            After honoring a loan payoff demand, borrower sued lender for economic duress and breach of the implied covenant of good faith and fair dealing.  Borrower lost those claims, with the referee later awarding lender $2,856,956.82 in attorney’s fees and $38,184.54 in costs under various promissory note, loan agreement, and deed of trust provisions.  Borrower’s appeal did not change the result.

            The trust deed provision entitled “Indemnification” did cover third-party exposure, but also had broad language showing that it also applied to actions between borrower and lender involving the loan documents and deed of trust.  That took it outside case law (see our category “Indemnity”) where only a third-party indemnity clause was involved.  (Baldwin Builders v. Coast Plastering Corp., 125 Cal.App.4^th 1339, 1344-1345 (2005); Continental Heller Corp. v. Amtech Mechanical Services, Inc., 53 Cal.App.4^th 500, 508 (1997).) 

            Then, borrower argued that the deed of trust did not allow for a fees award because, based on opinions such as Hart v. Clear Recon. Corp., 27 Cal.App.5^th 322, 325, 327 (2018) and Chacker v. JPMorgan Chase Bank, N.A., 27 Cal.App.5^th 351, 356-358 (2018), the fees were to be added instead to the debt secured by the deed of trust.  The appellate panel disagreed, because there was no such language in the deed of trust, bolstered by a further provision indicated that borrower’s obligations survived repayment of the secured obligations and satisfaction of the deed of trust.