Court Confirms Prejudgment Interest

Pro Value Properties, Inc. v. Quality Loan Service Corp. (2009) 170 Cal.App.4th 579

The Second District Court of Appeal confirmed that, pursuant to California Constitution , Article XV, Section 1, prejudgment interest on non-contract claims is seven percent (7%) per annum. If the claim is based upon a contract and the interest rate is specified in the contract, then the interest rate is as specified, unless it violates the usury laws. If the claim is based upon a contract and the interst rate is not specified, or the interest rate is specified but it violates the usury laws, then the interest rate defaults to the ten percent (10%) per annum interest rate specified in Civil Code section 3289.

This case arises from a situation in which Defendant Quality Loan Service (QLS) instituted a non-judicial foreclosure proceeding at the request of the beneficiary of a deed of trust, FV-1. QLS, in accordance with its filed Notice of Default and Notice of Trustee Sale, proceeded to sell the property at a trustee's sale and issued a Trustee's Deed of Sale to the purchaser at the trustee sale, Pro Value Properties, Inc. (PRO). Unfortunately, prior to the trustee sale, QLS was not the trustee under FV-1's deed of trust, nor was a Substitution of Trustee executed to substitute QLS as the trustee under the deed of trust. Upon discovering the error and determining that the Trustee's Deed of Sale was void, QLS tendered the entire purchase price, plus seven percent interest to PRO, who refused the tender and claimed that it was the rightful owner of the property. The trial court found that QLS and PRO had a contract, albeit a void contract, and determined that QLS' tender was insufficient because it included seven percent instead of ten percent interest.

The appellate court stated that QLS failed to comply with its statutory duties (ministerial acts as set forth by Civil Code section 2924 et seq.) and this statutory violation resulted in a void sale. Further, as there was no contract between QLS and PRO, whether void or otherwise, the ten percent provision of Civil Code section 3289 did not apply. Therefore, the seven percent interest tendered by QLS was the appropriate interest rate and QLS' obligations to PRO were fulfilled when it tendered the entire purchase price, plus seven percent interest.