130 P. 881 | Cal. | 1913
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *3 The defendant, Phelps, appeals from the judgment. *4
The plaintiffs began the action to foreclose certain alleged liens upon the lot in controversy for materials furnished in the erection of a building thereon. No objection is made to the judgment with respect to these liens. The sole controversy is between the appellant, Phelps, and the defendant, Emil Firth, and the question presented is whether the principal sum of the mortgage lien held by Mrs. Phelps upon the lot is three thousand dollars, or only $1,940.67. The note described in the mortgage was for three thousand dollars, but it was given for future advances and the mortgagors received only $1,940.67 therefor. The facts are somewhat complicated and it is necessary to state them at length.
The defendant, Firth, owned the lot prior to any of the transactions involved in the case. He executed a deed of the lot to the defendant Damon Sherwood, the purchase price being one thousand eight hundred dollars. The deed was dated September 3, 1908. Under the same date, Sherwood and wife executed a deed of trust upon the lot to the Title Insurance and Trust Company, as trustee, to secure the payment of the said purchase price, in four installments, for which Sherwood executed four notes to Firth. Sherwood desired to build a house on the lot and for that purpose to borrow money by a first mortgage thereon. He arranged to borrow this money from one L.E. Jones. To accomplish the purpose, it was necessary that the deed of trust in some manner recognize the proposed mortgage as a paramount lien. For this purpose the following recital was inserted therein: "This trust deed is given to secure the purchase price of said property, but is second and subsequent to the lien of a mortgage for the sum of three thousand (3,000.00) dollars in favor of L.E. Jones." On October 8, 1908, Sherwood and wife executed to Jones the mortgage on the lot purporting to secure a note of the same date from Sherwood to Jones for three thousand dollars, payable three years after date. The mortgage also provided that in case of foreclosure the mortgagors would pay the attorneys' fees of the plaintiff in the suit and that upon default in payment of the interest or of any installment of the principal, the holder of the note should have the option to declare the whole sum due immediately. The deed of trust, although dated September 3, 1908, was not fully executed by delivery until October 13, 1908, on which day both the *5 mortgage and the deed of trust were placed on record. It was agreed between Sherwood and Jones that the money borrowed on the mortgage should not be immediately paid to Sherwood, but should be paid over from time to time in smaller sums as needed for the proposed building. Firth was cognizant of this agreement. Sherwood thereupon proceeded to erect a building on the lot and Jones advanced him therefor sums amounting to $1,940.67, and no more. The building was completed on January 19, 1909. On November 4, 1908, Jones sold, assigned, and indorsed the said note and mortgage to the appellant, A.R. Phelps, for three thousand dollars, which she then paid to him.
At the time Sherwood and wife made the note and mortgage to Jones, they also signed and delivered to Jones a written statement declaring that said mortgage "has been given for value received, and that there are no offsets to the same." This document, and also the aforesaid recital in the deed of trust, were shown to Mrs. Phelps by Jones, at and prior to her purchase of the note and mortgage from Jones. She took the assignment and paid the three thousand dollars to Jones without any notice or knowledge of the agreement between Jones and Sherwood, or of the fact that Sherwood had not received the full amount named in the note, and she relied on said recital of the deed of trust and said statement of the Sherwoods. She made no inquiry, personally, of the Sherwoods, or of Firth, or of the trustee, in regard to the matter.
Default was made in the payment of the purchase price due to Firth, secured by the deed of trust, and thereupon the trustee, in pursuance of the power of sale contained therein, duly sold said lot to enforce payment. Firth was the purchaser at the sale and on May 22, 1909, the trustee, in pursuance thereof, executed a deed conveying the lot to him.
It appears to be settled by the decisions of this court that where a note is secured by a mortgage on land, both being executed at the same time, or as parts of one transaction, the note, although negotiable in form, is not negotiable in law, where the purchaser takes it with knowledge of the existence of the mortgage. (Meyer v. Weber,
The note being non-negotiable on its face, the result is that Mrs. Phelps, although she paid Jones the full face of the note as the price thereof, is not entitled to the protection which the law gives to an indorsee of a negotiable note, in good faith, for value and before maturity. (Civ. Code, secs. 3122, 3123, 3124.) Firth, as successor in interest of Sherwood, the mortgagor, may therefore avail himself of the defense of partial want of consideration, arising out of the fact that Jones did not loan more than $1,940.67 on the note, unless he is estopped to do so by the conduct of Sherwood, or by some other circumstance not depending upon the law of negotiable instruments.
The note, as signed by Sherwood, recited that it was given for value received. It is not claimed that this representation would constitute an estoppel and prevent Sherwood, or Firth as his successor, from asserting want of consideration as a defense to the note in the hands of the indorsee. It would constitute primafacie evidence of a valuable consideration sufficient to support the promise to pay, although, since the contract is in writing, such consideration would be presumed without the aid of the recital. (Civ. Code, sec.
The court below held that the aforesaid statement given to Jones by the Sherwoods and exhibited by Jones to Mrs. Phelps to induce her to purchase the note, created an estoppel in her favor against the Sherwoods alone, preventing them from *8 denying that the note was good for the full amount thereof. It did not appear that Firth had any knowledge of the Sherwood statement, or of the exhibition thereof to Mrs. Phelps, or of the fact that she was induced to purchase thereby. Hence, it was held to work no estoppel against him.
The principal thing relied on by the appellant to create an estoppel against Firth is the recital in the deed of trust that said deed was subject to "the lien of a mortgage in the sum of three thousand dollars," in favor of Jones. Firth had knowledge of this deed. It does not appear that he signed it, but he was the beneficiary named therein, and the recital was inserted with his consent for the purpose of making the mortgage to Jones paramount to the interest held by the trustee for his benefit. The evidence shows, however, that all the parties to this deed understood that no money was loaned on the mortgage at the time of its execution and that it was to be advanced subsequently, as needed for the proposed building. Hence, we must conclude that it was not the actual intention of the immediate parties to the transaction, including Firth, that the mortgage should be a valid lien at any time for a sum larger than had been advanced thereon at such time by Jones.
The code declares that the recital of a fact in a written instrument, except the recital of a consideration, is conclusive between the parties thereto, or their successors in interest by a subsequent title. Also that when a party has by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission, be permitted to falsify it. (Code Civ. Proc., sec. 1962, subds. 2 and 3.) Firth unquestionably had an interest in or under the deed, whether he signed it or not. By the conveyance from the trustee he became the successor in interest of Sherwood by a subsequent title. That conveyance placed him in the same position, with respect to this recital, as he would have occupied if Sherwood had conveyed the lot to him after the mortgage to Jones was recorded. So far as the mortgage lien was concerned or affected by the recital, he is bound by it as fully as if he was a party to the deed in which it was inserted. *9
The purpose of the recital, so far as Firth, Sherwood, and Jones were concerned, was to assure Jones that the deed of trust would be subject to the mortgage lien for whatever sums he should loan thereon. If he had continued to hold the mortgage it may be assumed that he could not have enforced it for more than the sum actually loaned by him. But Mrs. Phelps had no knowledge of the agreement that the money was to be loaned subsequently in installments as required. That agreement was not referred to in the mortgage nor placed on record and it cannot be invoked by Firth against her.
The respondent argues that the rule of caveat emptor applies to one who is about to purchase a non-negotiable obligation for the payment of money and that such buyer is bound at his peril to inquire into the defenses of the debtor and can occupy no better position than does the original creditor. This doctrine is well established but it does not obviate the estoppel here involved. Under the provisions of section 1962 of the Code of Civil Procedure, above recited, and under the facts we have stated, Firth occupies the position of the mortgagor, and is bound by the recital. He, therefore, comes within the third subdivision of that section, that of a person who has by his own declaration led another to believe a particular thing true, and to act upon that belief. Mrs. Phelps saw the recital and acted upon the belief it inspired, and he cannot be permitted to falsify it for his own benefit and to her detriment in the matter in which she acted. She was bound to inquire into the matter, or abide the consequences. She did inquire and she found this recital which she rightly presumed was made with the knowledge and consent of Firth. She was justified in accepting it as true and in purchasing the note and mortgage in reliance on the information it contained. Under the principle declared in the aforesaid provision of the code, Firth is estopped to deny the truth of the thing of which it informed her. The authorities are in accordance with the code upon this proposition. Where a person accepts a mortgage which recites that it is subject to another mortgage on the same property, the rule is that he is estopped thereby and is not allowed to defeat or impair the other mortgage by denying its priority or validity at the time he took it to the amount of it as recited in his own mortgage. (Old National Bank v. Heckman,
Where the recital is of such a nature that it shows an intent to declare that the second mortgage is to be taken subject only to so much of the sum named in the first mortgage as may be justly owing thereon, the second mortgagee is not estopped from showing that the first mortgage is good only for a part of its face value. (Bennett v. Bates,
It appears that before buying the note she had seen the lot and the house in process of erection thereon. It is argued that this is sufficient to impute to her knowledge of the fact that the mortgage was made to secure money for use in the erection of the building, and of the fact that it would not be loaned until required for payment of the cost thereof. We see no force in this argument. There is not, so far as we are advised, any custom of making loans in that manner sufficiently established to make it the usual course of business or to require a prudent person to inquire, in such a case, as to facts concerning such loan, upon becoming aware that a house was being constructed on the lot.
Another consideration leads us to the conclusion that Firth's interest should be deemed subject to the entire mortgage in the hands of Mrs. Phelps. "Where one of two innocent persons must suffer by the act of a third, he by whose negligence it happened must be the sufferer." (Civ. Code, sec.
The respondent contends that the facts involved in Briggs v.Crawford,
The judgment is reversed.
Angellotti, J., Sloss, J., Henshaw, J., Melvin, J., and Lorigan, J., concurred.