—Plaintiff Capell Associates, Inc. (Capell), an owner of land, sold part of it by contract of sale to S. J.
Capell filed two actions for declaratory relief and for money damages against all of the parties named above and a number of other defendants. The actions were consolidated for trial. Plaintiff obtained a judgment against Security for a sum which, with interest, exceeded $300,000. All other defendants were absolved.
A negligent breach of contract by Security as escrow holder in violating Capell’s instructions is admitted. However, on Security’s appeal we accept its contention that Capell suffered no compensatory loss caused by Security. We, therefore, reverse the trial court’s judgment and direct that it award Capell nominal damages only.
Capell’s appeal has not been supported by meaningful argument. Hence, this reviewing court cannot disturb the trial court’s findings and judgment that defendants (other than Security) did not proximately cause Capell any damage.
Statement of Facts
The key to the solution of the problem of this case is primarily the contract of sale dated November 16, 1959, between Capell as seller and Torre as buyer. We summarize pertinent provisions of the agreement. The property agreed to be sold was 20 acres, and descriptions in the record show that
The paragraph following contained a provision for partial releases and reconveyances of lots for payments on account of the purchase price on the basis of the release of one lot for each $2,700 paid. Lots covered by construction loans were to be released first. Security was named as exclusive escrow agent of the parties. A subdivision map was to be filed on or before February 29, 1960. Assignment of the contract by the buyer was permitted (and contemplated at the outset).
On May 9, 1960, Capell’s attorney sent to Security a copy of the agreement described, a duly executed grant deed to the property from Capell to Torre, a promissory note form, and a purchase money deed of trust form. The title company was
On May 12, 1960, Torre and Ehame did send to Security: (1) a signed promissory note for $221,400 in favor of Capell, and (2) an executed deed of trust with Capell as beneficiary. The note conformed to the duplicate which Capell’s attorney had furnished; the deed of trust (which, in fact, had been prepared by Security) did not. Its substantial difference was that it permitted automatic subordination of its lien to the subsequently recorded liens of blanket construction loan deeds of trust, whereas, as has been noted, the instructions called for a form of deed of trust permitting automatic subordination only to construction loan deeds of trust on individual lots. Nevertheless, on May 17, 1960, Security recorded the deed and immediately thereafter and on the same day recorded the executed deed of trust.* 1
In May Torre and Ehame conveyed the real property (theretofore granted by Capell) to Golf Club Estates, a corporation. The latter took subject to, and assumed, the $221,400 purchase money deed of trust. There was no consideration for the transfer which, as stated, had been contemplated by all parties at the outset.
On May 20, 1960, Savings and Loan loaned Golf Club
The deeds of trust, of course', were “blanket” on 20 and 22 lots respectively. For internal control purposes, however, Savings and Loan denominated the $270,200 loan on its books as “Building and Loan Agreement No. 6031,” and then broke this down to 22 subloans (carried as No. 6031-A through No. 6031-V), each such subloan representing funds allocated for construction on a single lot. The $269,600 loan, No. 6032, was similarly handled.
On November 25, 1960, a second lending transaction occurred. Savings and Loan loaned Golf Club Estates $133,300. But this time the procedure directed by Capell’s instructions was adopted, i.e., 11 separate notes secured by 11 deeds of trust, each covering one lot, were taken.
On February 20, 1961, Capell, according to the record, discovered the incident of the “blanket” deeds of trust under the first loan transaction. There were negotiations. Savings and Loan agreed to cancel the two original deeds of trust and substitute forty-two therefor, each covering a single lot. It, of course, required that Capell subordinate the lien of its purchase money deed of trust to the substituted deeds of trust to be taken. Capell refused.
On March 2, 1961, there was a third construction loan transaction. Savings and Loan loaned $332,050 to Golf Club Estates. The amount was evidenced by 29 separate promissory notes, each on a single lot. (These lots, of course, had not been covered by previous deeds of trust. The same is true of the lots securing the November 25, 1960, transaction. Thus, Savings and Loan, after the March 2, 1961, transaction, had deeds of trust on all 82 lots within the subdivision.)
On March 1, 1961, the first group of construction loans became delinquent. Golf Club Estates had not made a single payment of either interest or principal on any of the loans. The loans would have become delinquent earlier but for the fact that Savings and Loan had applied some of the “loan
Commencing on June 6, 1961, Savings and Loan filed notices of default under all of its deeds of trust. Ultimately all of the 82 lote were sold at four trustee’s sales. In the case of each of these sales, each lot was offered for sale and could be bid for and purchased separately. Capell did not appear at or bid for any of the lots at any of said sales. Savings and Loan bid at each sale an amount equal to the unpaid principal of the construction loan allocated to the particular lot offered plus costs.
The two consolidated actions, insofar as they sought relief against Security, are based upon the same act, the recordation by Security of the wrong deed of trust. Both prayed for $221,400 damages plus interest, $221,400 being the amount of Capell’s unpaid purchase price. The theory of one cause of action was a tort liability for negligence, the other liability for breach of contract. The trial court found in favor of Capell on both theories and assessed damages in the full amount prayed for.
The Question Is One op Causation
Security cannot, and does not, claim that it was not at fault in recording the wrong deed of trust. It does not question that if it is liable at all for compensatory damages suffered it is liable both under the theory of negligence and of breach of its contract as escrow holder.
(Amen
v.
Merced County Title Co.
(1962)
The trial court found that Security’s act was the proximate cause of Capell’s loss of his property. Security argues that cannot be because if the authorized purchase money deed of trust had been recorded, the lender would merely have taken 42 promissory notes secured by 42 deeds of trust on separate lots, the same amount of money would have been loaned and borrowed, on the same terms, applied to the same purposes (all of which were authorized under Capell’s instructions) and the same result—disastrous as it turned out to be—would have obtained.
We cannot negate that argument. Everything in the record to which our attention has been directed points to the fact that that is precisely what Savings and Loan would have done. Nothing in fact or reason indicates anything to the contrary. Savings and Loan treated the loans in every respect as though 42 separate deeds of trust had been taken instead of two. Each lot carried a separate subloan number; each sub-loan had its own loan-in-process account card; initial loan balances, subsequent accruals and disbursements were entered on the separate cards with net balances maintained individually; separate appraisals were made on each lot to determine loan amounts; separate physical inspections were accomplished as to each lot to determine what loan progress disbursements were proper; fees and charges were not arbitrarily prorated but were made on a lot-by-lot valuation basis. As stated, when the lots were sold they were offered for bid and sale separately.
We have stated above that in the agreement, of November 16, 1959, between Capell and T.orre, lies the key. to..Capell’s loss. Analysis will demonstrate this. The agreement had been
(1) Capell agreed to give priority to “construction” loans up to $1,230,000. ($15,000 per lot for 82 lots.) Note that the total principal of all construction loans actually made was less than that ($1,005,150).
(2) It waived all control over the ratio between houses completed and houses sold. It retained no right to stop or slow down construction if the houses did not sell. Indeed, we must conclude that Capell wanted construction to proceed as rapidly as possible. We assume this both from its waiver of control and from the fact that its “risk” investment bore no interest.
(3) It placed no conditions upon the terms of repayment of construction loans. Interest on each loan was to be at the rate of 8 percent per annum up to $15,000 per lot. Date of maturity was not controlled nor was there any condition against the “bookkeeping” application of loan “payments” to unpaid accrued interest; nor against the lending of additional sums secured by priority deeds of trust in the event of the delinquency of earlier loans. There was no provision contempi a ting ‘ ‘ take out ’ ’ loans.
(4) Capell exacted no obligation upon the buyer to put any of his own money into the enterprise after the subdivision map was filed.
(5) It furnished a loose definition of “construction.” Loans were to be for dwelling houses and usual improvements, for streets and other off-site improvements, but Capell also instructed Security that it was not to question expenditures. The purchase money deed of trust stated that the “full face amount” of each construction loan “shall conclusively be deemed to have been used for or applied to construction purposes.” (Italics ours.)
Capell states theoretical instances of the superiority of the
The controlling reason that no payments could be made was that no houses were sold. The cause of this, accerding to the record, was overbuilding in the area in 1960 plus an unexpected cutback in employment at Aerojet-General Corporation. During the period involved in this litigation there was never any market recovery. All houses remained unsold.
Both parties are critical of Savings and Loan’s lending policies but are confronted with the following finding by the court: “The purposes for which the loans by Sacramento Savings And Loam, Association were made and the use made of the proceeds of siich loans did not proximateVy cause plaintiff damage.” (Italics ours.) No showing has been made to us that substantial evidence does not support that finding. We are bound by it.
Since no other cause is suggested, a depressed market (with concomitant nonsale of houses) remains the sole proximate cause of Capell’s loss. The construction loans coincided with, but were not a contributing cause of, the loss by Capell of its ‘1 equity ’ ’ in the subdivision.
In
Karras
v.
Title Ins. & Guar. Co.
(1953)
Collins
v.
Home Savings & Loan Assn.
(1962)
The subdivision was a failure. There was a foreclosure. Houses had been sold to individuals. On page 93 of 205 Cal. App.2d, the court recites that the trial court had held: “ 1 [I] t is more equitable to grant a recovery to plaintiffs in damages for such amount [the purchase money balance], instead of setting aside the trust deed sales and involving the said lot purchasers. ’ ”
The holding in the appellate court in Collins was that the second subordination agreement was ambiguous. Parol evidence established that the seller had only intended to subordinate to construction loans as indicated above. In affirming the trial court the Court of Appeal mentions the blanket deeds of trust. Their existence played no significant part in the holding.
The distinguishing differences between Collins and the ease before us are obvious. This is not a controversy between lien-holders over the priority of liens. Here the trial court expressly negated unauthorized application of construction loans as a cause of Capell’s loss. In Collins the misapplication was not only unauthorized, it was fraudulent.
Capell argues, and Security concedes, that Capell had the right to condition the delivery of its deed upon any requirement that it deemed desirable; that therefore the substitution of a provision in the purchase money deed of trust permitting blanket construction loan deeds of trust made recordation of Capell’s deed improper and gave Capell a right of action. (See e.g.,
Greenzweight
v.
Title Guar. & Trust Co.
(1934)
Capell has appealed from the judgment in favor of the defendants other than Security “to preserve its legal claim for damages against them” in the event of reversal of the judgment against Security. As stated above, the trial court found that Capell suffered no loss as the proximate result of any acts by said defendants. Capell’s brief on its “contingent” appeal states: “Plaintiff concurs in and supports the trial court’s judgment herein. The Court's findings against plaintiff and in favor of the defendants other than Security are consistent with its finding in favor of plaintiff and against Security as the proximate cause of its damage.” Capell declares, however, in its brief that certain funds were diverted, or more accurately withheld, by Savings and Loan to satisfy unpaid interest and other sums were expended for “land draws, fees and expenses.” We are given no transcript references or specific argument which could possibly justify this court in a holding that the trial court’s findings and judgment in favor of the lender, borrower or other defendants were improper. Moreover, as we have noted above, the purchase money deed of trust form submitted by Capell expressly provided that, as regards the construction loans to which its lien was to be subordinated, the full face amount of each promissory note would conclusively be deemed to have been used as applied to construction purposes. Such a carte blanche instruction by Capell reasonably could lead to the conclusion that Capell wanted Savings and Loan to disburse the full amount of the authorized $1,230,000.
Capell is not entitled to compensatory damages. There was a breach of contract, therefore it is entitled to nominal damages. (Civ. Code, §3360;
Sweet
v.
Johnson
(1959)
Judgment in favor of Capell and against Security is
Judgment in favor of all other defendants and against Capell is affirmed.
Friedman, J., and Regan, J., concurred.
A petition for a rehearing was denied May 1, 1968, and the petition of the plaintiff and appellant for a hearing by the Supreme Court was denied May 29, 1968.
Notes
Pertinent language in. the recorded deed of trust provides: “. . . agrees that there may hereafter be placed and recorded on the within described property a Deed of Trust or Deeds of Trust to secure a loan or loans for the purpose of the construction of residences on any lot or lots in said subdivision. Provided that no default is of record under the terms of this note secured hereby and provided that no more than one (1) such deed of trust be recorded on each subdivided lot and further provided that such construction loans be made by a bona fide lender not to exceed in the principal the sum of $15,000.00, with interest not to be in excess of 8% per annum. Said construction loan deed of trust, or deeds of trust, when made shall automatically become and remain prior and superior to the lien of this deed of trust without any further agreement of the parties.”