The opinion of the court was delivered by: Hull , J.
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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
Plaintiffs Charles and Tracy Boggs purchased a 962-acre ranch (the property) from Tom Gifford, financing the lion's share of the purchase by assuming Gifford's promissory note (the Hawkins note) and deed of trust in favor of defendants Delmar and Leanna Hawkins. Gifford financed the remaining portion of the purchase by taking a second note (the Gifford note) and deed of trust. Plaintiffs later sought to obtain bank financing in order to complete construction of a house on the property. Because the bank would only agree to hold a second deed of trust, plaintiffs sought to pay off the Hawkins note. Defendants agreed to early payoff on the condition that plaintiffs pay the remaining principal on the note, plus a prepayment penalty equal to the prospective interest that would otherwise have accrued under the note. Plaintiffs paid the prepayment penalty under protest and then sued defendants, seeking return of the interest paid and reasonable attorneys fees and costs.
The trial court concluded the penalty amount demanded by defendants on that portion of the property which the court deemed to be residential exceeded the maximum allowable prepayment penalty permitted by Civil Code section 2954.9 (further unspecified section references are to the Civil Code) and entered judgment in plaintiffs' favor accordingly. The court subsequently awarded plaintiffs their costs of suit.
On appeal, plaintiffs seek reimbursement of the entire prepayment penalty paid, contending: (1) none of the documents evidencing their agreement with defendants prohibited them from prepaying the Hawkins note; (2) the controlling agreement was the agreement whereby they assumed the Hawkins note (the assumption agreement), which neither prohibited prepayment of the Hawkins note nor provided for imposition of a prepayment penalty and, as such, defendants' imposition of a prepayment penalty was a violation of the implied covenant of good faith and fair dealing; (3) section 2954.9 entitles plaintiffs to restitution of the entire prepayment penalty they paid to defendants; (4) section 2954.9 prohibited the trial court from charging the statutory maximum prepayment penalty in the absence of a written agreement to the contrary; and (5) plaintiffs are entitled to recover their attorneys fees as the prevailing parties pursuant to section 1717.
Defendants' cross-appeal, arguing plaintiffs are not entitled to reimbursement of all or any portion of the monies paid as penalty for prepayment of the Hawkins note. Defendants contend: (1) section 2954.9 does not apply here where the loan, at the time of its execution, is not secured by residential property; (2) plaintiffs failed to produce evidence to overcome the presumption that the trial court's judgment is correct; (3) defendants did not violate the covenant of good faith and fair dealing; (4) the parties agreed, by novation, that the Hawkins note would not be paid off early; and (4) plaintiffs are not entitled to recover their attorneys fees.
As we will explain, plaintiffs have conceded their first two contentions are without merit by virtue of the settled statement. Plaintiffs' remaining three contentions fail because the trial court erroneously found section 2954.9 applied to the transaction at issue. In so concluding, we address each of defendants'claims. We therefore reverse the judgment granting plaintiffs partial relief.
The parties stipulated to use of a settled statement of the facts established at trial as set forth in the following portions of the trial court's statement of decision. The parties further stipulated that the following facts are "accurate and undisputed":
"Defendants entered into a Land Conservation Contract (Williamson Act) [(Gov. Code, § 51200 et seq.)] with Lassen County for Defendants' ranch parcels in Bieber, California, in February of 1991. In exchange for favorable tax treatment, the land's zoning classification changed from agricultural to a more restrictive zoning classification allowing the land only to be used for agricultural purposes from [that] time forward.
"Defendants sold 962 acres of that Bieber ranchland to Tom Gifford in August of 2002. Mr. Gifford financed the purchase partly through obtaining seller financing from Defendants. Mr. Gifford gave Defendants a Note for $650,000 [the Hawkins note] and a Deed of Trust against the ranch in order to secure payment. The [Hawkins note] provided for interest accruing at 7% per year and required annual payments of $61,355.40 due on or about October 15 of each year, with the balance to be paid on October 15, 2012.
"On or about April 8, 2006, Plaintiffs entered into a contract to purchase the 962 acre ranch from Mr. Gifford. As part of the financing of that transaction, Plaintiffs assumed [the Hawkins note] and Deed of Trust to Defendants. Defendants agreed to do so on the condition that the note not be paid off early. Plaintiffs agreed in writing to Defendants' request that the note not be paid off early. In addition, as part of the sale, Mr. Gifford agreed to also take a note [the Gifford note] and deed of trust for a portion of the purchase price. Plaintiffs agreed not to pay off [the Gifford note] early. In conjunction with the purchase of the property, Plaintiffs and Defendants executed an Addendum, April 12, 2006. The Addendum provided that [the Hawkins note] could not be paid off early, and annual payments could not be made in advance of the yearly due date, without Defendants' consent.
"Plaintiffs' purchase of the ranch from Mr. Gifford closed on May 9, 2006. Plaintiffs began building a house on the ranch in the spring of 2007. During 2007, Plaintiffs received loan approval from Tri-Counties Bank for the construction of that house, however, the Bank would only agree to hold a second deed of trust on the ranch, but not a third. Plaintiffs contacted Mr. Gifford regarding paying [the Gifford note] off early, but Mr. Gifford would not agree to an early payoff.
"Plaintiffs contacted Defendants on November 8, 2007, as their house was nearing completion, and inquired about paying off [the Hawkins note]. Defendants did not want their note paid off early, but eventually conceded that they would agree to the early pay off if all of the interest that would have accrued over the remaining term of the note were paid in full. Plaintiffs objected, and Plaintiffs['] counsel wrote a letter to Defendants informing them he believed the demand to be illegal.
"Nevertheless, when Defendants held firm, Plaintiffs authorized the payment under protest and the re-finance closed in December of 2007. Plaintiffs made payment on December 31, 2007. Within one week Defendants received payment on the remaining principal amount of [the Hawkins note], $574,608.23, as well as an amount equal to the prospective interest that would have accrued had the note run its course, $197,779.05.
"Plaintiffs filed suit in this matter on January 18, 2008, alleging four separate causes of action: usury, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and money had and received. Plaintiffs sought compensatory damages, treble damages for violation of the usury laws, disgorgement of all interest paid, disgorgement of unjust enrichment, prejudgment interest, reasonable attorney's fees, and costs of suit. Defendants filed their answer on March 18, 2008, raising a number of affirmative defenses therein, and seeking no relief for Plaintiffs as well as attorney's fees and costs incurred in defense of suit."
"Plaintiffs have expended substantial resources to transform a portion of their property into their residence. At the time of purchase, both parties believed the property to be within the Williamson Act, and for good reason--except for two dilapidated houses deemed uninhabitable, the property was almost entirely devoid of any semblance or sign of a residence. Since purchase, Plaintiffs have rehabilitated an existing house on the property and constructed a second house which is more luxury home than farmhouse. Plaintiffs have also adapted significant portions of their property to residential use--roads, a bridge leading to a newly formed twenty acre-plus lake, water wells, lighting, fences, trees, and remarkably extensive ornamental and wildlife-attracting landscaping. It is undeniable that these portions of Plaintiffs' 962 acre property are in fact owner-occupied residential property which falls within the protections of [section] 2954.9. It is equally undeniable that portions of the property, such as the adjacent agricultural land and the remote northeastern section of land, are not owner-occupied residential property within the meaning of [section] 2954.9. The Court finds that 220 of Plaintiffs' 962 acres are owner-occupied residential property."
The trial court concluded plaintiffs failed to sustain their burden with respect to their causes of action for usury, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. As for the cause of action for money had and received, however, the court found plaintiffs demonstrated 220 acres of the 962-acre property were residential and therefore subject to the protections of section 2954.9, and that the payment demanded by defendants violated section 2954.9 by exceeding the maximum allowable prepayment penalty. The court ordered defendants to return to plaintiffs the amount of $34,824.73, with each party to bear their own fees and costs. The court later amended the amount of the award to plaintiffs to $40,027.44.
Plaintiffs filed a motion to modify the statement of decision, arguing that, pursuant to section 2954.9, defendants were not entitled to any prepayment penalty on the residential parcels in the absence of an agreement between the parties to the contrary. Plaintiffs sought restitution of the excessive sums paid to defendants on 709.10 of the 962 acres, as well as an award of costs of suit. Defendants opposed the motion on the ...