In lender liability and wrongful foreclosure lawsuits, plaintiffs will often add a cause of action to cancel written instruments. Typically, this cause of action seeks to cancel a written instrument such as a deed of trust, notice of default, notice of trustee’s sale, or trustee’s deed upon sale. A cause of action for cancellation is rooted in California Civil Code § 3412 which states:
A written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.
One such consideration regarding a cancellation claim that is not specifically stated in the statute is the tender requirement. The tender requirement is a judicially constructed requirement in the cancellation of written instrument cases. California courts have decided that a cause of action for cancellation under Civil Code § 3412 is a cause of action for rescission. For example, in a breach of contract action, a cause for rescission seeks to cancel the contract and restore the contracting parties to their pre-contractual positions. A cancellation claim under Civil Code § 3412 operates to do the same by asking the court to rescind a certain written instrument. It places the parties in the position they were in before the instrument was made, as if it had never been made. An example of section 3412 is when a borrower seeks to cancel a notice of default, the borrower is asking to be restored to the position it was in before the notice of default.
Causes of action for rescission and cancellation are equitable in nature and may be subject to equitable conditions including reimbursement (or tender) for the reasonable value of benefits conferred, or in a lender’s case, the debt obligations owed by the borrower. Thus, a plaintiff must generally allege or offer of tender of the amounts borrowed as a prerequisite to maintaining a cancellation claim. Id.
It is a common defense strategy to demur to a plaintiff’s complaint when the cancellation cause of action lacks any factual pleading regarding an offer or a present ability to tender the debt owed by the plaintiff or borrower. But how successful are these demurrers to a cancellation cause of action based on a failure to adequately plead tender? While they can be successful, the tender requirement is a low pleading standard. The tender requirement is not absolute and is not required to cancel a written instrument that is void and not merely voidable.
If a plaintiff has alleged sufficient facts to plead that a written instrument is void, then it is likely the court will overrule any demurrer based on a failure to plead tender. However, even where a plaintiff has pleaded a written instrument is merely voidable, the court may still appropriately overrule a demurrer if a plaintiff has pleaded excusal of tender. Excusal from tender can be based on an allegation of fraud or other wrongful conduct by the lender. The idea behind allowing a pleading of excusal is that a borrower should not have to tender the debts owed if a lender has engaged in wrongdoing, or where it would be inequitable to require tender. A court may also overrule a demurrer to a cancellation claim, where the court finds the plaintiff has alleged it sufficiently attempted to do equity by restoring to the defendant everything of value. Therefore, even the mere offer to pay a debt obligation at some point preceding the lawsuit may be a sufficient allegation “to do equity” and overcome a demurrer to a cancellation claim under section 3412.
In sum, this is just one aspect for analysis in determining strategy at the initial pleading stages against cancellation of written instrument claims. Contact the litigation team at Geraci for any further questions or legal assistance.
