Court Opinion

ID: 9724638
Source: CourtListenerOpinion
Date Created: 2023-08-26 11:05:40.617851+00
Date Added: 2024-06-11T18:25:03.430627
License: Public Domain

SIMS, J.
I respectfully dissent.
I agree with the conclusion that the record supports the trial court’s finding that the first deed of trust, which was given to secure a loan of $28,000 effected September I, 1967, was not a deed of trust given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of the property. The property had been acquired October 21, 1965, partially with a loan from First Savings and *411Loan Association. Although the balance of that loan was paid off with a portion of the 1967 loan, part of the proceeds were used for other purposes. In any event the advance by plaintiff’s predecessor in 1967 could in no way contribute to an inflationary purchase in 1965. Section 580b of the Code of Civil Procedure is not applicable to either the obligation secured by the first deed of trust or to the additional $10,973.40 secured by the second deed of trust executed March 13, 1969.
The resolution of this controversy must depend on the propriety of the following finding of the trial court: “7. The March 13, 1969, note was not intended by the parties to be secured by the First Deed of Trust.” Defendant’s motion to amend his answer to conform to proof to set up the provisions of section 580d of the Code of Civil Procedure was based on the evidence which was adduced at the trial, as distinguished from an earlier motion to vacate the order of submittal to offer newly discovered evidence on the theory that the first deed of trust secured a purchase money loan under section 580b, which motion was denied. Consequently, if the finding of the court was sustained by the evidence, the trial court properly denied the motion to amend the answer.
Professor Bernhardt suggests, “The creditor cannot have it both ways: He cannot decide to claim that the other debt is secured if the security is ample enough to cover both debts or alternatively claim that it is unsecured when the security is inadequate. Whether or not the second debt is secured should depend on the mutual intent of both the creditor and the debtor, properly manifested in the deed of trust, and perhaps also on the creditor’s intent, properly manifested in the second note. But that question cannot be made to turn on the creditor’s election of remedy, manifested long after the documents are completed.” (Cal. Real Estate Secured Transactions (Cont. Ed. Bar 1970) § 4.26, p. 161.)
Turning to the clause involved in the first deed of trust dated September 1, 1967, it provides: “1. That Trustor, for the purpose of securing (a) the payment of Trustor’s promissory note of even date herewith in the principal sum of $28,000.00 payable to Beneficiary, or order, and all extensions and renewals thereof, (b) performance of each agreement of Trustor incorporated by reference or herein contained, (c) the payment of all sums of money with interest which may be paid out or advanced by, or may otherwise be due to Trustee or Beneficiary under any provision of this Deed of Trust, and (d) the payment of additional sums and interest thereon now or hereafter due or owing from Trustor (or any of them) to Beneficiary, hereby irrevocably grants, transfers and *412assigns to Trustee in trust with power of sale, that certain real property in [describing specific property in the City of Palo Alto].” Subdivision “(d)” is valid, and, as between the parties, carries with it the right of the creditor to make future advances on the security of the property which is the subject of the deed of trust. (See Tapia v. Demartini (1888) 77 Cal. 383, 386-388 [19 P. 641]; Lomanto v. Bank of America (1972) 22 Cal.App.3d 663, 668 [99 Cal.Rptr. 442]; Pike v. Tuttle (1971) 18 Cal.App.3d 746, 751 [96 Cal.Rptr. 403]; Oaks v. Weingartner (1951) 105 Cal.App.2d 598, 601-602, 642-647 [234 P.2d 194]; Kesling v. Bank of America National Trust & Sav. Ass’n (9th Cir. 1971) 449 F.2d 770, 771; and Second Nat. Bank of Warren v. Boyle (1951) 155 Ohio St. 482, 485 [44 Ohio Op. 440, 99 N.E.2d 474, 476]; and Cal. Real Estate Secured Transactions, supra, §§ 4.18-4.19, pp. 152-154. Cf. Gates v. Crocker-Anglo Nat. Bk. (1968) 257 Cal.App.2d 857, 859-861 [65 Cal.Rptr. 536] [preexisting unsecured obligation of one of two co-tenants in common]; Lomanto v. Bank of America, supra, 22 Cal.App.3d 663, 670 [subsequent obligation of one of two co-tenants]; and Provident etc. Assn. v. Shaffer (1905) 2 Cal.App. 216, 217-218 [83 P. 274] [payment to materialman on unauthorized signature of one of two mortgagors].)
In Second Nat. Bank of Warren v. Boyle, supra, the situation following the creation of the original security was analyzed as follows: “Obviously, where there is no obligation to make future advances, a mortgage, purporting'to secure such future advances, cannot secure such advances until the advances have been made. Until then, so far as such advances are concerned, there is nothing for the mortgage to secure; and the provisions of such a mortgage merely represent an expression of the intention of the mortgagor and mortgagee that the mortgage shall operate as a security for the obligations of the mortgagor with respect to such advances, if and when such obligations arise. At most, those provisions represent an offer by the mortgagor to provide the security of the mortgage for such advances if and when they are made. [Citation.] If such offer is accepted by the mortgagee in making a subsequent advance, then the necessity of executing and recording a new mortgage to secure such advance may be avoided. [Citation.] The making of a loan to the mortgagor, in reliance upon that offer, may, in and of itself, indicate an acceptance of that offer. [Citations.]” (155 Ohio St. at p. 486 [99 N.E.2d at p. 476].) So in Moran v. Gardemeyer (1889) 82 Cal. 102 [23 P. 8], it was recognized, “If the note had been silent on the subject of security, under the well-established rule in regard to mortgages given to secure future indebtedness, we should have been constrained to hold that it was *413secured by the mortgage in suit to the extent of the limitation therein prescribed.” (82 Cal. at p. 103.)
The defendant testified that he obtained a loan for $6,000, deposited in his account on that day, which sum was supposed to be enough to finish the home improvements. On April 21, 1969, he drew a check to the bank from that account for $592.21, representing two payments, received April 24, 1969, of $204.66 on the first, paying it up to April 29, 1969, and one payment of $182.89 on the second home improvement loan. About $4,500 or $5,000 was actually used for remodeling.
The record fails to reflect when the original home improvement loan was made, or upon what terms the original $6,000 was advanced to the defendant. It may be assumed in the absence of evidence of a contrary intent, and in line with the rules enunciated above, that the bank could have claimed that the additional advance was secured by the first deed of trust dated September 1, 1967. On March 13, 1969, the status of the balance of that loan, apparently $4,973.40, was particularized. At that time the defendant sought an additional advance of $6,000. The bank demanded and secured a second mortgage. In doing so, it and the borrower each manifested an intent that the second loan which was expressly referred to in the second deed of trust, was no.t to be considered as a further advance under the first deed of trust. (See Moran v. Gardemeyer, supra, 82 Cal. 102, 103-104.) The finding of the trial court is sustained on the record.
The defendant had secured a final decree of divorce in January 1969. The bank could not be sure that the dragnet clause would bind any interest the former wife might have in the property without her express consent. (See Lomanto v. Bank of America, supra, 22 Cal.App.3d 663, 670; ánd Provident etc. Assn. v. Shaffer, supra, 2 Cal.App. 216, 217-218.) Moreover, the bank was entitled to memorialize any further advance to avoid conflict with any intervening claim of liens. It was not obligated to make any further advances, and the defendant was free to shop for further funds and give a second mortgage to any lender he desired, with a resulting liability for any deficiency that might result if future foreclosure of the first deed of trust failed to leave any surplus. Under these conditions there was nothing unconscionable in the bank’s seeking further assurance by way of a second mortgage. Under the rule promulgáted by the majority opinion the creditor would be at a disadvantage in dealing with his own financial institution because it could only lend on terms which are more unfavorable to it, than would *414be terms that would automatically enure to a new lender on the security of a second mortgage. The bank was not called upon to appraise and oversee the improvements, and in so doing prevent inflationary or improper construction. (Cf. Prunty v. Bank of America (1974) 37 Cal.App.3d 430, 441 [112 Cal.Rptr. 370].) There is nothing in the record to show that the defendant was ever -obligated to put the proceeds into improvement of the residence which served as security for the two deeds of trust. In fact it is doubtful that even half of the $12,000 advanced ever was used for such purposes.
In Pike v. Tuttle, supra, where there was an intervening lien, the creditor was allowed to recover the balance due. under a future advance which was in fact made on the security provided by a “dragnet clause,” because the property had been foreclosed by the intervening lienholder. The court said, “To relieve Tuttle of the burden of payment of a just debt by presuming that as to him the payments were applied to discharge that debt, when he gave Pike no such direction and when it would have been impossible for Pike himself to do so, would be patently inconsistent and would lend our approval to the perpetration of an injustice.” (18 Cal.App.3d at p. 753.) Here the security was exhausted by the sale under the first deed of trust at a loss to the creditor. There was no attempt to minimize the amount bid below what the evidence showed was the fair market value. As between the borrower and the lender, the loss should fall on the borrower. He should not receive a windfall because he secured new funds from one who was also the holder of the first deed of trust.
Freedland v. Greco (1955) 45 Cal.2d 462 [289 P.2d 463], is not applicable to the situation here. There the creditor held two separate notes for what was but a single obligation. The court properly held that after selling the real property, the creditor could not recover a deficiency by suit in the second note. It stated, “. . . in order to avoid thwarting the purpose of section 580d by a subterfuge, we must construe that section as embracing a situation such as we have here. If we do not so construe the section the debtor would, in legal effect, waive in advance the protection afforded by being required to give two notes for the same debt, even though the instruments contained no such waiver.” (45 Cal.2d at p. 468, italics added. See also Union Bank v. Brummell (1969) 269 Cal.App.2d 836, 838.) Here the lender made separate advances to the borrower. The lender did not lump them all under the “dragnet clause” of the first deed *415of trust. As could any other financial institution1 it demanded and received additional security for the further advances. When that security was rendered valueless it, as any other second encumbrancer, should be entitled to recover what it advanced. (See Bargioni v. Hill (1963) 59 Cal.2d 121, 122 [28 Cal.Rptr. 321, 378 P.2d 593]; and Roseleaf Corp. v. Chierighino (1963) 59 Cal.2d 35, 43-44 [27 Cal.Rptr. 873, 378 P.2d 97].)
I would affirm the judgment.
A petition for a rehearing was denied February 10, 1976. Sims, J., was of the opinion that the petition should be granted. Respondent’s petition for a hearing by the Supreme Court was denied March 10, 1976.

 The provisions of section 1235 of the Financial Code, as added by Statutes 1973. chapter 963; section 43. page 1817. were not in effect at the time of this transaction. Since the matter was not raised below. I express no opinion as to whether the transaction violated the provisions of section 1227 of the Financial Code as they read March 13. 1969. or. if so. what effect such violation would have on the obligation of the borrower.