Court Opinion

ID: 9586330
Source: CourtListenerOpinion
Date Created: 2023-08-21 23:09:33.265361+00
Date Added: 2024-06-11T17:28:33.938471
License: Public Domain

SULLIVAN, J.
I dissent.
The sole issue before us on this appeal is whether the evidence is sufficient to support the trial court’s finding1 that the Assignment was intended by the parties to make defendant Beulah F. Phillips’ real property security for her indebtedness to the plaintiff bank.2 It is beyond dispute that this crucial finding has ample support in the record and that the trial court’s resultant conclusion that the Assignment was an equitable mortgage must be sustained.3 I can find no merit in the majority’s elaborate disquisition which attempts to avoid a straightforward confrontation with the issue before us and to elude the settled principles of appellate review.
Our inquiry as to the sufficiency of the evidence in this case centers upon *25that facet of the parol evidence rule which deals with the admissibility of extrinsic evidence to interpret an integration. I start, therefore, with the principles recently enunciated by this court in Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33 [69 Cal.Rptr. 561, 442 P.2d 641] and Delta Dynamics, Inc. v. Arioto (1968) 69 CaJ.2d 525 [72 Cal.Rptr. 785, 446 P.2d 785]. In Thomas Drayage, we said: “The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. [Citations.]” (69 Cal.2d at p. 37.) “Although extrinsic evidence is not admissible to add to, detract from, or vary the terms of a written contract, these terms must first be determined before it can be decided whether or not extrinsic evidence is being offered for a prohibited purpose. The fact that the terms of an instrument appear clear to a judge does not preclude the possibility that the parties chose the language of the instrument to express different terms.” {Id. at p. 39.) “Accordingly, rational interpretation requires at least a preliminary consideration of all credible evidence offered to prove the intention of the parties. [Citations.] Such evidence includes testimony as to the ‘circumstances surrounding the making of the agreement . . . including the object, nature and subject matter of the writing . . .’so that the court can ‘place itself in the same situation in which the parties found themselves at the time of contracting.’ [Citations.] If the court decides, after considering this evidence, that the language of a contract, in the light of all the circumstances, ‘is fairly susceptible of either one of the two interpretations contended for . . .’ [citations], extrinsic evidence relevant to prove either of such meanings is admissible.” (Fns. omitted.) {Id. at pp. 39-40.) (See, also, Delta Dynamics, Inc. v. Arioto, supra, 69 Cal.2d 525, 528.)
The case at bench was tried and judgment entered well before we announced the above-quoted principles in Thomas Drayage. Hence, the trial court did not have the opportunity of following the procedure prescribed by Thomas Drayage, that is by first considering provisionally all credible evidence offered to prove the intention of the parties and then deciding whether the offered evidence was relevant to prove a meaning of which the language of the Assignment was reasonably susceptible. Indeed, all of the extrinsic evidence offered by plaintiff bank was admitted without any objection by defendants.
Putting this last circumstance to one side, the majority contend that the extrinsic evidence is entirely irrelevant and therefore furnishes no support whatsoever to the judgment below. To expose the utter lack of merit in this contention we need only make the same determination with respect *26to the extrinsic evidence that would now be required of a trial court under Thomas Drayage. Thus, we must determine on the basis of “all credible evidence offered to prove the intention of the parties” whether the Assignment “in the light of all the circumstances” is fairly susceptible of the interpretation urged by plaintiff and accepted by the trial court. (69 Cal.2d at pp. 39-40.) Under Thomas Drayage we must consider the extrinsic evidence as well as the Assignment itself in making this determination.4 This indispensable task, the majority ignore.
I thus turn to the extrinsic evidence. Ross, plaintiff’s president, testified as to the circumstances under which the loan, secured by the Assignment, was made. He stated that defendant Charles Herron, a joint venturer with defendant Mrs. Phillips (see fn. 2, ante), telephoned him and said that the joint venture needed an immediate loan in order to close an escrow covering the purchase by the joint venture of real property on which it planned to construct the second of its apartment units. According to Ross, Herron suggested that the loan be unsecured, but Ross refused to make a loan on that basis. Ross further testified that soon thereafter both Herron and Mrs. Phillips telephoned him again, reiterating the urgency of the loan. After some discussion and Ross’ repeated demand for collateral; it was agreed that Mrs. Phillips would put up her house as collateral for the loan.
According to Ross, the Assignment form was used rather than an ordinary deed of trust form because the latter could not have been prepared, recorded and covered by an appropriate title insurance policy within the two-hour period left before the escrow was to be closed. He testified that based on the FHA appraisal of the property, Mrs. Phillips’ statements, and their previous relationship, he “took the agreement [not] to encumber knowing it was in actuality a mortgage instrument against the house in lieu of the deed of trust.”
Ross’ testimony, though partially contradicted by defendant, was strong evidence that the parties intended that the Assignment would make her property security for the loan. Ross’ testimony amply supports the conclusion that the Assignment was reasonably susceptible, in light of the intention of the parties and all the circumstances, of the interpretation shown by the extrinsic evidence and accepted by the trial court.
Moreover, the provisions of the Assignment itself show, as we held in Coast Bank v. Minderhout (1964) 61 Cal.2d 311 [38 Cal.Rptr. 505, 392 P.2d 265], that the Assignment could reasonably have been interpreted as creating a security interest and giving rise to an equitable mortgage.
*27In Coast Bank the defendant appealed from a judgment of foreclosure after he had failed to answer the complaint. At issue was whether an instrument nearly identical to the Assignment5 had created an equitable mortgage. *28As this court unanimously held: “An agreement that particular property is security for a debt also gives rise to an equitable mortgage even though it does not constitute a legal mortgage.” (Coast Bank v. Minderhout, supra, 61 Cal.2d 311, 314.) “Specific mention of a security interest is unnecessary if it otherwise appears that the parties intended to create such an interest.” (Id. atp. 314.) “In the present case, however, plaintiff pleaded and defendants admitted by demurring and failing to answer that the parties intended to create a security interest in the property. Accordingly, the question presented is not what meaning appears from the face of the instrument *29alone, but whether the pleaded meaning is one to which the instrument is reasonably susceptible. [Citations.] It is essentially the question that would be presented had defendants denied that the parties intended to create a security interest and plaintiff had offered extrinsic evidence to prove that they did. Such evidence would be admissible to interpret the instrument, but not to give it a meaning to which it is not reasonably susceptible. [Citations.] [Par.] The instrument restricts the rights of the Enrights [defendants] in dealing with their property for plaintiff’s benefit; it describes itself as ‘For use with Property Improvement Loan,’ it specifically sets forth the property it covers, and it authorizes plaintiff to record it. These provisions afford some indication that the parties intended to create a security interest and are clearly sufficient to support the pleaded meaning.” (Coast Bank v. Minderhout, supra, 61 Cal.2d 311, 315.)
Of the four factors mentioned by the court in Coast Bank as indicating that the parties intended the instrument to create a security interest, only the second is absent in the case now before us. In addition, the Assignment contains an assignment of rents, a provision typically found in deeds of trust. It is beyond dispute that the Assignment could reasonably have been interpreted as creating a security interest and giving rise to an equitable mortgage. Therefore, the extrinsic evidence had probative value supportive of the finding and conclusion of the trial court.
Despite this compelling similarity between the Coast Bank instrument and the Assignment in the instant case (see fn. 5, ante) the majority simply close their eyes to the rationale of this court in Coast Bank and conclude that the Assignment cannot be interpreted as creating a security interest. It seems beyond argument that if the document in one case could be interpreted as creating a security interest, the strikingly similar document in the other case should be susceptible of the same interpretation. It is indeed a strange and ironic process of ratiocination by which the majority opinion professes to regard Coast Bank as precedent, gives no intimation of overruling it, but nevertheless declines to pay it any respect.
The basic error which infects the majority’s treatment of the crucial question before us lies in the fact that the majority preoccupy themselves with only the language of the Assignment itself. But as Thomas Drayage makes clear, the court should consider “all credible evidence offered to prove the intention of the parties. [Citation.] Such evidence includes testimony as to the ‘circumstances surrounding the making of the agreement ... including the object, nature and subject matter of the writing . . .’ so that the court can ‘place itself in the same situation in which the parties found themselves at the time of contracting.’ [Citations.]” (Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co., supra, 69 Cal.2d 33, 39-40.)
*30Not only do the majority adopt this restrictive approach to the problem at hand; they actually misconceive the scope of our review in dealing with it. Our first task is not to interpret the Assignment; it is rather to determine whether the extrinsic evidence in the record shows a meaning to which the Assignment is reasonably susceptible.
Persisting in this erroneous approach to the problem, the majority argue that the Assignment is ambiguous and that the bank as the allegedly more sophisticated party, having selected the Assignment from one of its own standardized forms, should not now be allowed to take advantage of its ambiguities. This argument is completely irrelevant to the question before us and reflects the majority’s basic misunderstanding of the rule established in Thomas Drayage. The real question is not whether a document is ambiguous, but rather whether in the light of all the evidence the document is reasonably susceptible of more than one meaning, including the meaning shown by the extrinsic evidence. “Extrinsic evidence has often been admitted in such cases on the stated ground that the contract was ambiguous [citation]. This statement of the rule is harmless if it is kept in mind that the ambiguity may be exposed by extrinsic evidence that reveals more than one possible meaning.” (Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co., supra, 69 Cal.2d 33, 40, fn. 8.)
The rule that an instrument is to be interpreted against the drafter and the cases relied upon by the majority in invoking it (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263 [54 Cal.Rptr. 104, 419 P.2d 168]; Steven v. Fidelity & Casualty Co. (1962) 58 Cal.2d 862 [27 Cal.Rptr. 172, 377 P.2d 284]) are inapposite. The citation of those cases by the majority graphically illustrates their misconception of the issue in this case. Gray and Stevens apply to the construction of a contract when no extrinsic evidence has been introduced to show the actual intent of the parties. We are concerned here only with the question of whether the extrinsic evidence of this case supports the trial court’s finding that the parties intended Mrs. Phillips’ property to be security for the loan. The rule enunciated in Gray and Stevens is irrelevant to that consideration.
The majority also argue that the third covenant of the Assignment is inconsistent with an instrument creating a lien upon real property. They, therefore, conclude that the Assignment is not reasonably susceptible of the interpretation that it created a security interest. But an identical covenant appealed in the instrument involved in the Coast Bank case (see fn. 2, supra) and we there held unanimously that despite such provision the instrument in that case was reasonably susceptible of the interpretation that it created a security interest.
The majority attempt to attenuate the impact of the use of the word *31“security” in the preamble of the Assignment. To be sure, the mere use of that word is not an overwhelming indication that the parties intended the instrument to create a lien on real property. Similarly, use of the subtitle “For use with Property Improvement Loan” in the Coast Bank instrument was not an overwhelming indication of the similar conclusion reached in that case. However, the standard of reasonable susceptibility is one easily met. (Coast Bank v. Minderhout, supra, 61 Cal.2d 311; Delta Dynamics, Inc. v. Arioto, supra, 69 Cal.2d 525; Hulse v. Juillard Fancy Food Co. (1964) 61 Cal.2d 571 [39 Cal.Rptr. 529, 394 P.2d 65].)
The attempt by the majority to distinguish Coast Bank on its facts is equally unpersuasive. They first observe that in Coast Bank the agreement provided for an acceleration of the note in the event of a breach of the agreement. (Ante at p. 20.) While it is true that the agreement in Coast Bank contained an acceleration clause whereas the Assignment before us does not, the court in Coast Bank did not find the acceleration clause to be a significant, much less essentiál, circumstance in concluding that the agreement created a lien on real property. The absence of such a clause in the instant case is also without significance.
Secondly, much is sought to be made of the fact that the agreement in Coast Bank contained the subtitle “For use with Property Improvement Loan,” (ante at p. 20), whereas the Assignment before us does not. But despite its subtitle, the agreement in the Coast Bank case secured all previous and future debts owed to the bank. Here, the Assignment did not contain the subtitle, but it did state that it was “security for a loan” and the proceeds of that loan were used in purchasing other real estate. When the titles of the two agreements are considered side by side (see fn. 5, ante) and read in a common-sense manner, the point raised by the majority indeed seems trivial at best.
Finally, we are urged to distinguish Coast Bank on the basis that the defendant in that case breached the agreement by conveying the property. (Ante at pp. 20-21.) However, in the instant case, defendant has also breached the Assignment by declaring a homestead on her property. A declaration of homestead is neither a conveyance nor an encumbrance for other purposes (see ante at p. 21, fn. 14), but it does exempt the property from execution or forced sale. (Civ. Code, § 1240.) Since the purpose of an agreement not to encumber is, as the majority acknowledge, to acquire a “guarantee that property in which the debtor has an equity will remain unencumbered and unconveyed, and thus available for levy and execution should the creditor reduce his debt to judgment,” (italics added) (ante at p. 17) a declaration of homestead on such property effectively frustrates the clear purpose of the agreement. Therefore, in this situation *32a declaration of homestead must be deemed tantamount to an encumbrance or other disposition of the property and thus a breach of the agreement.
But even assuming arguendo that defendant did not breach the Assignment, that fact, coming as it did, long after the execution of the document can throw little, if any, light on the reasonableness of its interpretation. The breach of the Assignment is relevant on the issue whether an equitable mortgage should be declared as an exercise of the discretion of a court of equity; it is not relevant on the issue whether the Assignment is reasonably susceptible to the interpretation given it by the trial court.
In sum, the majority’s labored attempts to distinguish Coast Bank—a well-considered and unanimous opinion of this court—are totally ineffective. It remains compelling authority for the proposition that the Assignment in this case was reasonably susceptible of the interpretation shown by the extrinsic evidence. The conclusion is ineluctable that the extrinsic evidence admitted below was not violative of the parol evidence rule.
The remaining inquiry is practically routine: whether, considering the extrinsic evidence and all other evidence in the case, the finding and conclusion of the trial court were adequately supported. As we recently stated in Pierpont Inn, Inc. v. State of California (1969) 70 Cal.2d 282, 294 [74 Cal.Rptr. 521, 449 P. 2d 737]: “However, in truth a realistic interpretation of these documents ‘turns upon the credibility of extrinsic evidence’ [citation], and where, as here, such evidence is in conflict, the findings made by the trier of the fact are binding upon appellate review.” (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865 [44 Cal.Rptr. 767, 402 P.2d 839]; Estate of Plait (1942) 21 Cal.2d 343, 352 [131 P.2d 825].)
Here, as already pointed out, Ross testified that “[b]ased on further discussion and asking for a collateral, it was proposed and accepted [by both parties] that the house . . . would be put up as collateral. . . .” and that he took the Assignment “knowing it was in actuality a mortgage instrument against the house.”
Defendant’s testimony, on the other hand, was that she did not intend to sign, nor did she believe she was signing, any type of security interest on her property. She stated that at the time the Assignment was executed she believed that she lacked the power to create a security interest in the entire parcel, since she owned an undivided one-half interest individually and the other one-half as trustee under a testamentary trust. Clearly, the extrinsic evidence was in conflict. The trial court chose to believe Ross rather than defendant.
The majority now choose to ignore an elementary principle of appellate review which forbids this court to weigh the evidence or determine the *33credibility of the witnesses. Like it or not, the majority are bound by the trial court’s determination of these matters. “It is not our province to weigh the evidence nor to determine the credibility of the witnesses, but only to decide whether the evidence, as matter of law, supports the findings.” (Southern Cal. Co. v. Amalgamated Assn. (1921) 186 Cal. 604, 618 [200 P. 1].)
Ross’ testimony amply supports the trial court’s finding that both parties intended and agreed that Mrs. Phillips’ property was to be security for the loan. To this finding, the trial court properly applied the controlling principle of law—that “[a]n agreement that particular property is security for a debt also gives rise to an equitable mortgage even though it does not constitute a legal mortgage” (Coast Bank v. Minderhout, supra, 61 Cal.2d 311, 314)—to reach the unimpeachable conclusion that the Assignment created an equitable mortgage. Thus, the finding and the conclusion are amply supported by Ross’ testimony. Having found substantial evidence in support of the findings our function as an appellate court ends and we must affirm the judgment. (Primm v. Primm (1956) 46 Cal.2d 690, 693 [299 P.2d 231]; Estate of Bristol (1943) 23 Cal.2d 221, 223 [143 P.2d 689].)
I would affirm the judgment.

The trial court found: “That on April 20, 1965, when defendant Beulah F. Phillips made and delivered to plaintiff the document entitled ‘Assignment of Rents and Agreement not to Sell or Encumber Real Property (See finding No. 6), it was the intent of the parties that said instrument was to make the interest of defendant Beulah F. Phillips in real property therein described, security for the indebtedness of defendant Beulah F. Phillips to plaintiff consisting of a promissory note in the sum of Thirty Four Thousand Dollars ($34,000.00).”
The court concluded: “That the entitled document ‘Assignment of Rents and Agreement not to Sell or Encumber Real Property’ is an equitable mortgage under which plaintiff is entitled to a judgment of foreclosure as follows: . . .”

As the court found (see fn. 1, ante), Mrs. Phillips’ indebtedness was evidenced by a promissory note dated April 20, 1965 in the sum of $34,000. The note was signed by Beulah F. Phillips and bore the hand-printed notation “Assignment on Record.” Thereafter, Mrs. Phillips and her associates incurred an additional indebtedness to the bank and on November 17, 1965 all seven of them executed and delivered to plaintiff a renewal note in the sum of $50,000. Their signatures appear under the typed name “Angers, Cole, Herron & Phillips.” This note also bore the hand-printed notation “Assignment on Record.”

It should be noted that although plaintiff obtained judgment against all defendants, only defendant Beulah F. Phillips has appealed. Hereafter, unless otherwise indicated, our reference to “defendant” is intended to mean defendant and appellant Phillips.

The provisions of the promissory note (see fn. 11 of the majority opinion) are not relevant to this determination since we are concerned with extrinsic evidence admissible to construe the Assignment, not the promissory note.

The provisions of the two instruments are set forth side by side for comparison. The order of the provisions of the Assignment has been changed to facilitate the comparison but the original paragraph numbers have been retained.
Coast Bank Instrument “Assignment Not To Encumber Or Transfer Property “(For use with Property Improvement Loan)
“In consideration of any loan or advance made by Bank of Belmont Shore (hereinafter referred to as ‘Bank’) tó the undersigned, either jointly or severally, the undersigned (hereinafter referred to as ‘Borrower’ whether one or more), jointly and severally promise and agree
that until all such loans and advances and all other indebtedness or liabilities to the Bank shall have been paid in full, or until 21 years following the death of the last survivor of the undersigned, whichever shall first occur,
they will pay all taxes, assessments and charges of every kind, imposed or levied, or which may be imposed or levied upon the hereinafter described real property prior to the time when any of such taxes, assessments or charges shall become delinquent
and will not, without the consent in writing of Bank, first had and obtained, create or permit any lien or other encumbrances (other than those presently existing and/ or securing the payment of loans and advances made to them by Bank) to exist on said real property, and will not transfer, sell, hypothecate, assign, or in any manner whatever dispose of said real property, or any interest therein or any portion thereof,
Tahoe National Bank Instrument “Assignment Of Rents and Agreement Not To Sell Or Encumber Real Property
“In consideration and as security for a loan made or purchased by Tahoe National Bank (hereinafter called ‘Bank’) which loan is evidenced by a promissory note in favor of Beulah F. Phillips dated April 20, 1965, in the amount of Thirty Four Thousand and 00/100 ($34,000.00), the undersigned and each of them, (hereinafter sometimes called ‘Borrower’) hereby covenant and agree with Bank as follows:
6. This agreement shall remain in full force and effect until the loan described above shall have been paid in full or until twenty-one (21) years following the death of the last survivor of the undersigned, whichever first occurs.
3. Borrower will not create or permit any lien or any encumbrance (other than those presently existing) to exist on said real property and will not transfer, sell, assign or in any manner dispose of said real property or any interest therein without the prior written consent of Bank;
*28which real property is situated in San Luis Obispo County, California. . . . [Description omitted.]
“It is further agreed and understood that if default be made in the performance of any of the terms hereof, or of any Instrument executed by Borrower in connection herewith, or in the payment of any indebtedness or liabilities now or hereafter owing to Bank, Bank may, at its election, in addition to all other remedies and rights which it may have by law, declare the entire remaining unpaid principal and interest of any obligations or indebtedness then remaining unpaid to the Bank due and payable forthwith.
“It is further agreed and understood that Bank may, in its discretion, and is hereby authorized by Borrower, to cause this instrument to be recorded at such time and in such places as Bank may, in its discretion, elect.”
1. The real property referred to herein is located in County of El Dorado, State of California, and is described as follows: [Description omitted.]
4. Bank is hereby authorized and permitted to cause this instrument to be recorded at such time and in such places as Bank at its option may elect.
2. Borrower hereby assigns to Bank all moneys due or to become due to Borrower as rental or otherwise for or on account of such real property, reserving unto Borrower the right to collect and retain any such moneys prior to Borrower’s default under the terms of the loan described above;
5. This agreement is expressly intended for the benefit and protection of Bank and all subsequent holders of the note described above. Borrower warrants and represents that Borrower owns the above-described real property.”