*1 5, 1971.] 7857. In Fеb. No. Bank. [Sac. BANK, Plaintiff and
TAHOE NATIONAL Respondent, PHILLIPS, BEULAH F. Defendant Appellant.
Counsel
Paul E. Gervais for Defendant and Appellant.
Beverly & Melvin E. Riley Plaintiff and Beverly Respondent.
Opinion TOBRINER, F. from J. Defendant Beulah Phillips appeals judgment the El Dorado Court that holds County Superior entitled, of Rents and Not to Sell or Encumber “Assignment Agreement (hereinafter “the was intended Real referred to as assignment”) Property” to be an and decrees its foreclosure. equitable mortgage, bank, which
We conclude that this must be reversed. Plaintiff judgment chose more bargaining deliberately occupied powerful position and a to use a standardized form for the of rents providing assignment this as- covenant cannot to transform against conveyances, permitted *4 to the reasonable of signment mortgage contrary expectation into On borrower. we terms and examining purpose assignment, conclude it that is not of construction as a mort- reasonably susceptible at the gage bank, in instance of and thus that the trial court erred invoking evidence offered the bank to it to mortgage. be a prove Defendant and three co-venturers embarked on a real estate develop- 20, ment Lake Tahoe area. not About the venturers April needed only further owed due also sums on overdrafts capital plaintiff on their $34,000 defendant, accounts. Plaintiff who agreed to lend to return, transferred the funds to the venture’s account. In defendant gave note, plaintiff on or on demand single-payment promissory payable 20, 1965.1 May At the same and to time executed delivered plaintiff defendant an instrument entitled: of Rents and “Assignment Agreement Not to Sell or Encumber Real This document that Property.”2 provided $34,000.00 California, April Stateline as follows: reads note promissory 1The 20, 1965, May demand then on for value or if no “On Demand OT-516 No. 1965. pay to the order of the Tahoe National to received, undersigned promise(s) with Thirty Four Thousand and 00/100 Dollars Office, sum of Bank, Stateline payable per paid, from date until interest percent annum rate of at the 7% interest part and paid, principal, shall become a maturity punctually if and not at thereafter debt; principal and the interest as the should rate of interest bear same due, become principal sum of be and interest shаll when then whole paid not be charged account said Bank of may and to the immediately payable due and note, maker, option at of the holder thereof. or sureties on said principal either collect, should be commenced to enforce attorney to or suit be employed an Should the (s) to additional undersigned agree pay a reasonable sum of this Note the payment fees; Principal payable interest in lawful suit. and attorney’s as money also costs such signed by person, more one note be than the United States. Should this firm, obligations shall all and herein contained corporation, covenants and/or and/or obligations joint several covenants and of each purposes as and for all considered Valley, 18 1965 P.O. Box Tahoe Calif. signer Renewed Nov Address hereof. Bank, Stateline, Phillips Calif. . Unsecured Address Tahoe National . . Beulah F. Assignment Single Payment Note on Record.” Agreement “Assignment assignment of Rents and Not 2The as follows: reads Property security as a loan Sell or Encumber Real In consideration and for as loan defеndant security all rent due from the assigned plaintiff described therein and realty agreed not encumber or convey prop- The bank was erty. authorized to did record the instrument and so 27, 1965. May not the venture’s
The real described document was residence, but defendant’s which she owned one- apartment development, half in fee one-half as trustee under the trust of her testamentary deceased husband. This as of 1965. was unencumbered April On December of that defendant recorded declaration home- year stead on the property. bank, Ross, testified that venturers first
Mr. president plaintiff unsecured loan but that he refused to the loan without an issue requested collateral; defendant offered her residence then requested $34,400. collateral showed him FHA ven- appraisal and, hours, within two for reasons which are turers required money clear,3 Mr. Ross determined that the bank could not con- entirely (hereinafter ‘Bank’) purchased by called which loan made Tahoe National Bank *5 20, 1965, in of by promissory Phillips April is note favor Beulah F. dated evidence[d] ($34,000.00), Thirty undersigned, in Four and the amount of Thousand 00/100 them, (hereinafter ‘Borrower’) hereby and each agree sometimes called and of covenant property with Bank as is in follows: 1. The real referred to herein located Dorado, California, County of El is State of and described as follows: ‘Lot Tahoe Keys Unit Map Keys No. as said lot is shown on the Official of said Tahoe Unit #1, Dorado, County in County filed the office of the Recorder of of El of State California, assigns 11, 1959, C, May Map Map hereby on in Book No. 7. 2. Borrower moneys to Bank all due or to become due as to Borrower rental or otherwise property, reserving for or on account of right such real unto Borrower the to collect moneys any and retain described prior such to Borrower’s default under the terms of the loan above; permit any 3. Borrower not or any will create lien or encumbrance (other presently existing) than those to exist on said real and will not trans sell, fer, assign any dispose or in any manner said real or interest therein Bank; the prior without written consent Bank hereby permitted 4. authorized and to cause this instrumеnt to recorded places at such and in as time such Bank option may elect. agreement This expressly 5. intended for the benefit and protection Bank subsequent and all holders of the note described above. Borrower represents and warrants that Borrower owns the property. above-described real agreement 6. This shall remain in full force and effect until the loan described above shall have paid been in twenty-one full or years following until the death last undersigned, survivor of April whichever first occurs. Dated: (s) Phillips.” Beulah F. attorney inquired 3Defendant’s of Mr. Ross: just easy “[W]ouldn’t it have been as prepare deed assignment of trust on a as form an of rents?” Mr. Ross answered: “No, been, it would not have simply because of recording Valley from the Tahoe area into Placerville deed of the trust with an amendment or policy new title show ing position our if there had proper been a first deed of trust of record.” This answer of Mr. Ross is inconsistent with his assignment assertion that the was- intended mortgage to be a property. defendant’s If the requires protection bank limit; he deed within that time a trust consequently
veniently prepare of rents against instead a form for an assignment selected his and executed was The document by secretary conveyances. prepared parties. banks unsecured that his bank and other make Mr. Ross acknowledged debtor unencumbered assets loans to maintain agreements denied, however, that his of sufficient value He in county. purpose to insure that sign defendant the document issue was merely having bank; he main she would have unencumbered assets reachable by tained a mortgage that he took document it was actuality “knowing that house in lieu of deed of trust.” against testified
Mrs. that she did intend to or believe Phillips sign she was of trust.” interest “like a or deed signing any security mortgage She added that since half she believed she owned her interest trustee that she lacked to execute a deed on the trust authority mortgage property. suit
Plaintiff various and over- brought against *6 reasonably in- assignment susceptible is not language 1. The of of plaintiff instance terpretation mortgage as a at the bank. of with contention that cannot assignment We defendant’s agree evidence, thus that extrinsic be construed as a and reasonably mortgage is irrelevant the document a mortgage, legally offered to prove by plaintiff deed, deed, recording of the trust executing prompt a a and policy of title before trust logically on execution of an instrument impose bank should the same conditions purpose a trust deed. intended to serve the of Ross, attorney inquired: of “The isn’t [sic] 4On Mr. defendant’s cross-examination banks, many long they money loan on as know that their it true that the banks will county a in the in which maintains worth borrower bank is certain situation my banking, banks doing “Speaking business?” own Ross answered: from with, yes.” that I associated have been
17 and cannot We shall examine the and support judgment. purpose terms of the assignment, and that it ais com explain type loans, used with unsecured monly that it contains no words of hypotheca tion, and that it includes inconsistent with a language We shall mortgage. if, out point contends, that as the bank word “security” assignment renders it the bank ambiguous, bears the responsibility that ambiguity. on hand Having instruments which unambiguously liens on impose realty, the bank cannot an select ambiguous then, and by evidence, it the effect form give unambiguous it eschewed. similar to the one are “used
Assignments
banks in
present
by many
small,
with
unsecured
conjunction
nominally
loans such as home im-
(California
loans.”
(Cont.
Real Estate
provement
Secured Transactions
1970)
(hereinafter
Ed.Bar
2.37
“CEB”).)6
cited as
§
They provide
with a
lender
measure of
loan;
unavailable
a
unsecured
totally
the creditor holds an
rents
a
assignment of
and
contractual guarantee
in which the debtor
has
will
remain unencumbered
equity
and
and
unconveyed,
thus available for
and execution should the
levy
Indeed,
creditor
reduce his debt
judgment.
bank com-
plaintiff
explain
meaning
admissibility
extrinsic evidence to
of a written
test
“The
plain
unambiguous on
appears
to the court to be
its
instrument is not whether
face,
meaning
prove
but whether
offered evidence is relevant to
to which the
(Pacific
reasonably susceptible.”
Gas &
Co.
language of the instrument
E.
v.
(1968)
Drayage
Cal.Rptr.
G.
641]; accord,
etc. Co.
69 Cal.2d
W. Thomas
442 P.2d
Dynamics,
Delta
Cal.Rptr.
Inc. Arioto
528 [72
785].)
object
evidenсe,
did not
at trial to the extrinsic
thus
posit
Defendant
cannot
however,
object,
receipt
error
the trial court. This failure to
does not bar
contending
appeal
her
that the extrinsic evidence
from
is irrelevant since the
assignment
2
being
reasonably susceptible
mortgage. (See
is not
part
construed as a
opinion.)
of this
against conveyances
6A covenant
and encumbrances is sometimes referred to as
(See
“negative
agreement.
Osborne,
(1951) §§43-44;
pledge”
Mortgages
G.
Weiss,
Fringes
Coogan,
Agree
Kripke, and
The Outer
9:
Article
Subordination
ments, Security
Money
Deposits, Negative Pledge Clauses,
Interests in
and Par
ticipation Agreements (1965)
229, 263-264;
79 Harv.L.Rev.
Comment
954-962;
CEB,
2.37.)
see
§
U.C.L.A. L.Rev.
As summarized in the article
Coogan, Kripke,
case
general
and Weiss: “The
law in
this area
rather thin and in
negative
dates
security
Osborne, supra,
depression.
purely
from the
It indicates
covenant creates no
264;
(79
the property
interest
described.”
*7
p.
at
see
Harv.L.Rev.
G.
44.) (See Kuppenheimer
at
(8th
1935)
§
B.
& Co. v. Mornin
Cir.
261,
75]; Kelly
78 F.2d
263-264
A.L.R.
v. Central
[101
Hanover Bank & Trust Co.
(D.N.Y.
497,
1935)
507,
11 F.Supp.
grounds (2d
1936)
revd. on other
Cir.
61;
Realty
(1959)
F.2d
Fisher v.
617,
Harbor
Co.
Thus but fall short of the legal require- a mortgage to labor the parties produce was used of The form a court equity.7 be rescued by and must ments differing interest with incidents to a security drafted produce carefully out in his dissent- Friedman of As Justice mortgage.8 pointed from that a is a bank which “Here prepared in the Court Appeal: ing opinion of forms form, one from its array selected a own particular printed bank had Doubtless the to the customer for signature. printed it handed deed, Now a few yellowed mortgages. even dusty, forms of trust perhaps selected, the to create it intended that the form printed bank claims by We conclude that plaintiff, a form it did not select.” legal effect of not to sell of rents and a for “assignment agreement selected form having terms of that is bound by agreement. or encumber real property,” no hint Its title gives turn now to the language assignment. We no a no of foreclosure. It contains language hypothecation, power of fore- lien a no discussion a or creating mortgage, provisions imposing 6, of the document (See supra.) cases cited in fn. The substance closure. borrower, of which to six covenants none by purport give comprises recordation the bank a lien on The covenants real respecting property. terms, con- bound are duration of the by its agreement, persons are consistent with an instrument sistent with a mortgage, they equally bank retains unem- to afford the borrower designed security however, covenant, third is inconsistent with cumbered assets. The hen It in a on real creating part property. provides (other lien or “borrower will not create or encumbrance any any permit real . on said . . without existing) than those to exist presently property 184, 694]; (1933) 218 Bank 7Compare Pitts Cal. Suisun Estate 7], Cal.App. P. Fiske CEB, Comment, discusses § 8See 2.37. 12 U.C.L.A. L.Rev. assignments present case: аre purpose employed the willing such as that in the “[L]enders long pay-off period a in instances to advance credit on basis of some may person or appears property who to have which be attached secured case However, transferred, difficulty. property debtor becomes in financial when picture immediately position credit shifts and wants to to accelerate the lender once; longer willing long maturity pay-off period— over he no take risk gladly a risk would he take if the remained ‘locked’ with the debtor.” though prohibits savings The comment adds: “Even Code banks and Financial liens, companies securing lending trust by taking from loans second their institutions using negative agreement have made the estate pledge real loans homeowners when specified already prior mortgage was encumbered theory negative trust deed on the pledge no interest was created agreement.”
19 that bank.” assumes written consent of This language apparently the prior encumbrance; is an its absolute itself not assignment prohibition a and in mortgage,9 would encumbrances is what be junior inappropriate be unlawful a in fact such a in mortgage might if prohibition appeared v. Min- Coast Bank (See alienation. an unreasonable restraint upon 505, 265].) 392 P.2d Cal.2d derhout Cal.Rptr. hand, would benefit as unsecured creditor the bank greatly On the other not her assets. assurance that defendant would encumber from out that it was “as given Plaintiff that the assignment points specifies loan,” a for right a that word “security” may signify security Minderhout, Code, 2924; supra, v. (see Civ. Coast Bank foreclosure § 311, 314). however, Cal.2d in the That preamble phrase, appears which, whole, a the un- read as a states that “as loan ... . . . covenant and with Bank as follows.” The dersigned hereby agree natural of this is that it the six covenants of language interpretation loan;10 borrower that that that word “secures” in the “security” not does create additional and duties not preamble rights specified the covenants.
Plaintiff that further contends term the provisions “security,” recordation, assignment real describing permitting render the thus assignment ambiguous, extrinsic evidence to requiring detеrmine whether it (See a lien on Coast places defendant’s property. Minderhout, v. Bank 315.)11 at If there ambiguity p. is, that Hetland, ambiguity may deliberate. Professor to referring to at case, similar issue assignments states “the present to instrument seems have been to designed by lenders afford group the lender the a secured or an unsecured at option being creditor time of the . (CEB, 2.38.) Thus, debtor’s default . . .” § although serves assignment (see supra), to unsecured loans primarily protect fn. may protect against 9A lender subsequent secured encumbrances the borrower may which capacity pay making diminish borrower’s the loan clause upon CEB, 4.55.) debt due property. (See alienation assign § Neither the ment nor the present note in the case provisions; contain “due-on-sale” pro note installments, vides for acceleration non-payment meaningless of interest .a pro since payable only maturity. vision interest was 10Although lien, “security” may term denote a also used it is broader sense; performance “whenever undertaking necessary of some secure or preservе the value of some agreement, asset or other possibly we could refer to the ” undertaking as given Leger, one that security.’ (Greve has ‘as been Ltd. 824].) Cal.Rptr. 415 P.2d promissory 11The note carried argues the mark “OT.” The bank meaning mark evidence, this cannot be ascertained without extrinsic and that such evidence shows that “OT” bank, means the secured by however, note is “other trusts.” can ambiguity by create an the device adding private designation the note a code unexplained which is to the borrower. *9 20 also lead a
it be used borrower who refuses may mortgage “[t]o give 2.25). (CEB, into he so” believing doing § contract, the Since in a standardized alleged ambiguities appear bank, drafted and selected which the bargaining by occupies superior those bank.12 must be position, ambiguities against interpreted The rule of serve drafter “does not resolving ambiguities against tie-breaker; as a mere it rests fundamental considerations of upon policy.” (Steven v. Fidelity Casualty 862, & (1962) Co. Cal. 58 871 [27 172, Rptr. 284].) Thus, 377 an whether determining instrument is reasonably to an by susceptible suggested interpretation evidence, extrinsic one faсtor for consideration the court is whether that interpretation would do violence to the docu construing principles ments against the who drafts and selects them. party case,
In the we conclude present a creditor to choose permit an allegedly form of ambiguous and then evi agreement, dence seek to it the effect give form, of a different and would unambiguous be to disregard the rules totally of adhesion respecting interpretation contracts, and to an create extreme on the danger overreaching part of creditors with The bank bear the superior bargaining must positions. for the responsibility creation and use of the it claims now assignment is ambiguous; it is (CEB, 2.38) only “poetic justice” if such § ambiguity is construed in favor of the borrower.13 cannot convert Legal alchemy an assignment into an equitable mortgage, violating customer’s reason able expectation bestowing bank riches of an hypothe cation of title. Minderhout,
We Coast Bank v. that in 61 Cal.2d recognize an we ordered foreclosure as of an similar equitable mortgagе case, we do not case assignment but consider that present in Coast Bank an clause controlling. The contained acceleration and stated that the loan was intended to described in improve characteristics indicative of a and both agreement—both mortgage assignment. absent Of is the significance differing greater present Bank, context Coast Bank case. In Coast the borrower present 12See, Gray e.g., (1966) Cal.Rptr. Insurance 65 Cal.2d 269 v. Zurich Co. [54 168]; Fidelity Casualty 419 v. Co. 862 P.2d 172, Steven & [27 284]; Motors, Henningsen Cal.Rptr. (1960) 32 377 P.2d v. Inc. NJ. Bloomfield 1]; Thoughts Kessler, A.2d 75 A.L.R.2d Contracts Adhesion—Some About Freedom Contract 629. Colum.L.Rev. Kogan 13Usually ambiguous instrument, who will be the lender chooses an Bergman (1966) 371], Cal.Rptr. Cal.App.2d case in was that rare ambiguous gave which borrower device. The creditor drafted court (244 an election to Cal.App.2d enforce the note a secured or an unsecured note. p. *10 had breached a covenant of the Such a prohibiting conveyance realty. breach confronts the court with a difficult a problem fashioning remedy. ineffective; An award of would damages maximum prove damages “[t]he the bank debt, could suffer breach from would be the amount of the same amount for which (CEB, it could a 2.38.) on the note.” get judgment § of the covenant Specific performance create an against conveyances might Minderhout, invalid restraint against (See alienation. Coast Bank supra, v. 61 Cal.2d at circumstances, Under these enforcement as an p. equitable which mortgage, to be to permits conveyed subject lien, is the alternative invalidation (See of the instrument. only Com ment, supra, 954, 966-967.) 12 U.C.L.A. L.Rev.
In the case defendant has present all terms of the performed assignment,14 with the result that defendant’s interest in the over the homestead realty, is available to exemption, bank’s on satisfy the note. If judgment this such is the fully result of the adequate, bank’s choice of the instrument. governing
2. object to extrinsic evidence at trial not bar does Defendant’s failure her contending on appeal that the instrument fairly susceptible is not from interpretation as mortgage.
We turn now to contention that plaintiff’s since did defendant not object at trial to plaintiff’s evidеnce intended to show that the assignment was a mortgage, she is from precluded arguing appeal assign- ment is not reasonably that construction. To susceptible support contention relies on plaintiff Pao Ch'en v. Gregoriou (1958) Lee 50 502, Cal.2d 506 135], P.2d in which [326 we held that “the admission of parol evidence to or add to a written vary instrument cannot be objected for the first time in the court.”15 appellate against 14The declaration of homestead did not defendant breach her covenant encumbering conveying property. right homestead is not an “[A] estate
land, but a privilege exemption mere from execution of such estate as the holder Sons, (Arighi (1940) 852, v. Rule & occupies.” 970]; Inc. 41 Cal.App.2d 855 [107 Grange (1951) 911, v. etc. Fire Holmes Ins. Assn. Cal.App.2d 102 917 [228 889].) (see conveyance Gerry (1891) It P.2d 94, is not a Ontario State Bank v. 91 Cal. 531]); (see P. 97 transfers no title or [27 interest Holmes v. Assn., Grange 911). supra, Cal.App.2d encumbrance, etc. Fire Ins. 102 within “[A]n meaning [against aof covenant ‘any right . . . had been defined as encumbrances] to or may persons interest in land which subsist in third to the diminution of the value ” tenant, of the estate to the consistently (Fraser with the passing of the fee.’ v. 509].) Bentel 161 Cal. filing P. declaration home rights stead creates no in third persons, and does not diminish the title of the de clarant; it cannot be encompassed within the definition of an encumbrance. Gregoriou, supra, to Pao Ch’en Lee 15Prior v. 12 California (and law) cases applying one federal case position California had taken the parol 1958, however, in the law of evidence since require Developments parol of Pao Ch'en Lee. decisions Recent modification approach that, cases, make clear in most extrinsic evidence must admitted provi determine in order that the court if that is relevant evidence sionally may to establish reasonably of the instrument to which it is interpretation Co., Drayage etc. (Pacific Gas & E. Co. V. G. W. Thomas susceptible. Dynamics, Delta Inc. 33, 40; Arioto Cal.2d Moreover, 785].) 446 P.2d CaLRptr. “[t]he *11 rule, evidence as is now is not a rule parol universally recognized, evidence but one of substantive law. evidence for It does exclude any exclusion, of the reasons value based on оrdinarily requiring probative of su6h evidence evidence or the of its admission. . . . Extrinsic policy admitted, ignored appeal and objection, should be on erroneously but without evidence could (Smith judgment. v. Bear support evidence not constitute substantial 1119]; Harding (1917) 79, v. Robinson 1956) (2d 84 A.L.R.2d 237 F.2d [60 Cir. 579, 808]; Pinsky (1955) 534, Cal.App.2d 589 v. Sloat 130 P. Cal. 540 [166 175 Corp. (1949) dictum); Zarape Factory v. Food etc. Plant (may 336, El P.2d 584] [279 608, 13]; Gulyas (1948) Cal.App.2d 87 Love v. Cal.App.2d 344 P.2d [203 90 422, (1947) (dictum); Cal.App.2d 80 432 v. Harshman P.2d 614 405] [197 Lifton 311, 62]; 222]; (1947) Mulrooney 314 P.2d Cal.App.2d v. 79 [180 Pietro P.2d [182 Gore v. 172]; 460, Bingaman Hanrahan-Wilcox (1938) Cal.App.2d 479 P.2d 29 [85 645 1241]; Middlecamp 642, Corp. (1937) Cal.App.2d 23 P.2d v. Jenison M. Co. [73 715, 1003]; (1921) (1929) Rottman v. Hevener Cal.App. 733 P. [280 v. Zumwalt 100 Banking Corp. (1910) 474, 329]; 13 International P. Dollar v. Cal.App. 54 Cal.App. 479 [202 499].) 331, 343 P. [109 dictum; these are none is contrary position, but most of cases took Thirteen 667, (in- (1926) (Jacoby 676 195] v. 198 Cal. P. [247 more recent than 1942. vited Wolff 70, Cyriacks (1921) (dictum); error); Mooney v. 185 Cal. 237 80 P. [195 922] (dictum); Mesnager 233, (1919) P. Le 535] v. Church 180 Cal. [180 McCombs 532, 1054]; (1899) P. Tebbs v. Weath- v. Hamilton 101 Cal. 539-540 [35 701, 58, 60; (1942) (1863) 53 Cal.App.2d Graham v. Smither erwax 23 Cal. (dictum); (1942) 500, Cal.App.2d v. 507 Palm Smither 52 706 P.2d 1024] [127 518, Finney (1930) (dictum); Cal.App. Bonner v. 110 521-522 [294 P.2d [126 428] 437, (1929) (dictum); Cal.App. P. 137] Tennant v. Wilde 98 441-442 [277 P. 466] 347, (1928) (dictum); Anthony Cal.App. 350 v. Crocker First Nat. Bank 95 [272 [257 689, (1927) 693 (dictum); Cal.App. Co. v. Tondro 83 Inner Shoe Tire P. 767] Polkinghorn 387, 936]; 211]; (1921) 54 390 McComish Cal.App. Caine v. P. [201 P. 507, 476].) (1919) Cal.App. 43 510 P. v. [185 Kaufman Appeal cases have followed that decision and Pao Ch’en Lee most Court Since argument appeal. on object parol at trial to evidence bars that that failure to held 794, 185]; (Crummer (1967) v. Cal.App.2d Cal.Rptr. 248 797 Martin v. Zalk [57 47, 422, Country Development (1964) Cal.App.2d Cal.Rptr. 427 Town & 230 [41 1347]; Drug (1963) Cal.App.2d Co. 218 Calabrese v. Rexall & Chemical 10 A.L.R.3d R.L.C., 665]; 774; Properties (1963) Inc. Cal.Rptr. Santa Clara Co. v. 780-781 [32 Soc., 840, 333]; Kreipl Philosophical Cal.Rptr. v. Research Cal.App.2d 217 850 [32 323]; 588, (1962) (1962) (1963) Cal.App.2d Cal.Rptr. 596 Wilson v. Anderson Inc. 212 [28 62, 105]; Cal.App.2d Cal.Rptr. Home Sav. & Loan Assn. La 208 64 Collins v. [25 817]; (1960) Cal.App.2d Cal.App.2d Cal.Rptr. 205 86 Cal.Rptr. Ferrara v. Sala 186 [22 Bailey 332, 179]; v. Cal.App.2d 268-269 Tsarnas [9 Youngblood 629].) Silvagni (1959) Cal.Rptr. Cal.App.2d 743 [343 Lee, 951], although permitted challenge P.2d decided after Pao Ch’en to the evidence appeal. is excluded because it cannot serve was, what the this prove determined as a being matter of law to be (Estate itself.” writing Gaines 1055].)16 264-265 Thus the Legislature, when it enacted the Evidence Code in excluded from subject (See Witkin, evidence. parol (2d Cal. Evidence 1966) ed. §714.)
If we law, treat the evidence rule as one we of substantive parol cannot that rule to the сonsistently subjugate objection principles Code, waiver codified in (Evid. the Evidence Code. To be § sure, a who has not party to the introduction of extrinsic objected evidence cannot if that complain evidence is considered of fact. trier But whether determining substantial evidence judgment, supports evidence inconsistent with to which the instrument any interpretation irrelevant;17 becomes reasonably as a matter of substantive law susceptible such evidence cannot serve to create or alter the under the obligations *12 instrument. Irrelevant evidence cannot (Kitchel v. judgment. support Aeree (1963) 119, 216 714].)18 124 Cal.App.2d [30 Cal.Rptr. defendant, trial,
We conclude that not cannot having objected evidence, to the trial court’s now take of extrinsic receipt exception 4]; Corbin, 16Accord: Hale v. Bohannon 38 Cal.2d 465 P.2d 3 [241 433; Contracts, 573; McCormick, Evidence, Witkin, (2d 1966) p. Evidence § Cal. ed. Twenty-three § 715. other parol California decisions hold the evidence rule to be one law, case, Pendergrass (1935) of substantive and one Bank America etc. Assn. v. 4 659], Cal.2d P.2d refers to it as both a rule of evidence and of sub stantive law. No decisions as only. treat the rule one of evidence 17Generally, urged points (See, in the trial court cannot be raised appeal. on e.g., that a 780].) Damiani Albert The contention judgment however, supported by evidence, is not substantial excep is obvious tion to the rule. Corbin, .analyzing Gregoriou, supra, 18Professor Pao Ch’en Lee v. states having that: “Evidence been admitted objection, without it was not error to legal admit But operation it. proved by of the facts such evidence is a matter for court, appellate just the consideration of the evidence. If the proved by in the case of facts other proved so agreed writing facts show parties that the as a complete ‘integration,’ and accurate prior substantive law of declares contracts negotiations agreements inconsistent longer are operative. no proved If the facts so agreement, prior agreements show no such Corbin, operation.” (3 have continued (1964 Supp.) Contracts p. Morgan Professor Edmund notes that: “The decisions are now overwhelmingly in accord with the doctrine fundamentally of the Restatement that the rule is a rule of substantive It specified law. declares parties legal conduct of be without effect respect conduct; with to their later inoperative vary earlier conduct is to add to or writing. the later any Consequently, evidence prove offered to the earlier conduct is irrelevant. And the one rule of evidence to exception which there is no is that irrele- vant evidence is (Morgan, inadmissible.” (1962 Basic ed.) Problems of Evidence 399; p. Williston, see also 4 (3d 1961) 961, 963.) Contracts §§ ed. such extrinsic conflicts with evidence argue that she may appeal to which the instrument reasonably interpretation susceptible. any 3. Conclusion.
Part 2 of the court of that judgment, only superior portion which from defendant held that the was an judgment assignment appeals, and ordered foreclosure. conclude that this deter mortgage We equitable error; mination cannot be is in construed as assignment reasonably instance of at the who drafted and seleсted it. mortgage party Part judgment defendant Beulah reversed. against Phillips J., McComb, Peters, J., Mosk, J., J., Burke, J., C. Wright, concurred. SULLIVAN, J. I dissent.
The sole issue before us on this is whether evidence is suf- appeal ficient to the trial court’s that the finding1 was intended support Assignment make parties defendant Beulah F. real Phillips’ for her indebtedness to the bank.2 It is that this plaintiff beyond dispute crucial has finding the record ample trial court’s support resultant conclusion that the was an must Assignment equitable mortgage I sustained.3 can find no merit elaborate majority’s disquisition which to avoid a attempts confrontation with the issue straightforward before us and to elude the settled review. principles appellate
Our as to the inquiry of the evidence in this case centers sufficiency 20, 1965, April defendant court found: “That on when Beulah F. 1The trial Phillips ‘Assignment delivered to the document plaintiff made and entitled of Rents (See finding 6), Agreement Property to Real and not Sell or Encumber No. it was the intent that said was to make of parties of the instrument the interest defendant Beulah Phillips described, F. in real therein for the indebtedness of defend Phillips рlaintiff consisting promissory ant Beulah to of a note in F. the sum of Thirty ($34,000.00).” Four Thousand Dollars ‘Assignment The court concluded: “That the entitled document of Rents and Agreement Property’ mortgage not to Sell or Encumber Real equitable is an under judgment plaintiff which is entitled to a of foreclosure as follows: . . .” (see 1, ante), 2As Phillips’ the court fn. Mrs. was found indebtedness evidenced promissory $34,000. a April note dated in the signed 1965 sum of The note was by Thereafter, Phillips “Assignment and hand-printed Beulah F. bore the notation on Record.” Phillips and Mrs. her associates incurred an additional indebtedness to the bank and on November 1965 all seven of them executed plaintiff and delivered to $50,000. signatures renewal note in the sum of Their appear typed under the name Cole, “Angers, & Phillips.” Herron note hand-printed This also bore the notation “Assignment on Record.” 3It although defendants, should be noted that plaintiff judgment against obtained all only Phillips Hereafter, defendant Beulah F. appealed. indicated, has unless otherwise our reference to “defendant” is intended to mean appellant Phillips. defendant of rule which the аdmissibility evidence deals with facet of parol start, therefore, with the I integration. evidence to extrinsic interpret v. G. W. Gas & E. Co. this enunciated court recently principles Pacific 561, Drayage etc. 69 Cal.2d Cal.Rptr. Co. Thomas CaJ.2d Inc. v. Dynamics, Delta Arioto 641] we “The test Drayage, In Thomas said: 446 P.2d 785]. Cal.Rptr. aof written meaning extrinsic to of evidence admissibility explain to the court to be unambigu- instrument is not whether plain appears face, relevant to the offered evidence is whether prove ous reasonably to which the instrument is susceptible. meaning language 37.) evidence is not (69 Cal.2d at “Although p. [Citations.]” contract, from, to, of a written to add detract the terms admissible vary decided whether or first determined before it can be these terms must fact evidence is offered for a The not extrinsic being prohibited purpose. that the terms an instrument clear to a does appear judge preclude that the chose the of the parties language possibility 39.) different at rational terms.” express p. “Accordingly, interpreta- {Id. tion at least a all requires considerаtion of credible evidence preliminary of the prove offered intention Such evidence parties. [Citations.] includes testimony as to the ‘circumstances of the surrounding making . . . nature and object, matter of the including subject . . .’so that the court can itself in same situation in writing ‘place which the found themselves at the time of parties contracting.’ [Citations.] decides, evidence, If the court after this considering language contract, circumstances, of all light ‘is fairly susceptible [citations], either one two contended . .’ for . extrin- interpretations sic relevant evidence either of such (Fns. admissible.” prove meanings omitted.) 39-40.) also, Arioto, (See, Delta Dynamics, Inc. pp. {Id. case at bench was tried and well judgment entered before we announced the Drayage. Hence, above-quoted Thomas principles did trial court not have the opportunity following procedure pre- *14 scribed Thomas by Drayage, first by considering all provisionally evidence credible offered to the intention and then prove parties whether the deciding offered evidencе was relevant to a prove meaning which the of the language Assignment was Indeed, reasonably susceptible. all of the extrinsic evidence offered was by bank admitted plaintiff without any objection by defendants. this
Putting side, last circumstance to one contend majority extrinsic evidence is irrelevant and entirely therefore furnishes no support whatsoever to the below. judgment To the utter lack of merit in expose this contention we need make the same only determination with respect
to the extrinsic evidence that would now be trial court under of a required Thus, Drayage. Thomas we must determine of “all credible on the basis evidence offered to the intention of the whether the prove Assign- parties” ment “in the of all the light circumstances” is of the fairly susceptible interpretation urged (69 the trial court. by plaintiff by accepted 39-40.) Drayage Under Thomas pp. we must consider as evidence well as the Assignment itself this determination.4 making task, This indispensable ignore. majority
I thus turn to Ross, the extrinsic evidence. testified plaintiff’s president, as to the circumstances loan, under whiсh the secured by Assignment, was made. He stated Herron, that defendant Charles venturer with joint (see defendant Mrs. ante), fn. Phillips him and said that telephoned venture joint needed an immediate loan in order to close an escrow covering purchase by joint venture of real on which it planned construct the second Ross, units. apartment According Herron suggested unsecured, that the loan be but Ross refused to make a loan on that basis. Ross further testified that soon thereafter both Herron and Mrs. Phillips him again, telephoned of the loan. reiterating urgency After some discussion and collateral; Ross’ demand for repeated it was that Mrs. agreed would her house as Phillips collateral for the loan. put up Ross, According form was used Assignment rather than an deed of trust ordinary form because the latter could not have been prepared, recorded and covered by title insurance appropriate within the policy two-hour left before the escrow period was to be closed. He testified that based on the FHA of the appraisal statements, Mrs. proрerty, Phillips’ their previous he “took the relationship, to encumber [not] it was in knowing actuality mortgage the house in lieu against of the deed of trust.”
Ross’ testimony, though defendant, contradicted partially was strong evidence that the intended that the parties would Assignment make her the loan. Ross’ testimony conclu- amply supports sion that the Assignment was of the reasonably light intention susceptible, of the circumstances, all the parties of the shown interpretation extrinsic evidence and the trial court. accepted by
Moreover,
show,
itself
Assignment
as we held in
provisions
Bank v. Minderhout
Bank) prior without the interest therein property, exist said real Bank; transfer, sell, hypothecate, will not as- written consent of sign, any dispose or in manner whatever property, any of said real interest thereof, any portion therein or
As this court held: “An unanimously agreement is particular property a debt also rise security gives to an even equitable mortgage though Minderhout, (Coast Bank does not constitute a legal mortgage.” 314.) mention of a interest “Specific security unnecessary if it otherwise intended to create such an interest.” appears parties (Id. case, however, “In the and defend- atp. present plaintiff pleaded ants admitted and to answer that the by demurring intended failing parties to create a interest property. Accordingly, question not what from the presented is face of the meaning appears which real is situated 1. The real referred to herein Obispo County, Dorado, Luis County San is located in California. of El California, . [Description . . State of omitted.] and is described [Description as follows: omitted.] agreed “It is further and understood that if default be perfor- made in the hereof, any mance of of the terms any by Instrument executed Borrower herewith, in connection pay- or in the any ment of indebtedness or liabilities Bank, now or owing hereafter Bank election, may, at its in addition to all rights other remedies and which it law, may have declare the entire remaining unpaid principal and interest any obligations or indebtedness then remaining unpaid to the Bank due and payable forthwith. agreed “It is further hereby understood 4. Bank is authorized per- may, discretion, that Bank in its and is mitted to cause this instrument to be
hereby Borrower, authorized recorded at such time and places in such cause this instrument to be recorded at option may Bank at its elect. such time and places in such as Bank may, discretion, in its elect.” hereby assigns 2. Borrower to Bank all moneys due toor become due to Bor-
rower as rental or otherwise for or on property, reserving account of such real right unto Borrower the to collect and any moneys retain prior such Borrower’s default under the terms of above; the loan described 5. This expressly intended for the benefit protection of Bank and subsequent all holders of the note described above. Borrower represents warrants and that Borrower owns the above-described property.” real *17 is alone, the instrument whether the is one to which pleaded meaning that would It is the question reasonably essentially susceptible. [Citations.] a intended to create be had defendants denied that the parties presented had evidence to that interest and offered extrinsic security prove plaintiff instrument, admissible the did. Such evidence would be to they interpret but not it a to which it is not give reasonably meaning susceptible. of the The instrument restricts [Citations.] rights Enrights [Par.] benefit; in it describes with their dealing [defendants] plaintiff’s Loan,’ forth itself as ‘For use with it sets Property Improvement specifically covers, and it to record it. These authorizes plaintiff provi- sions afford some intended to create a security indication that parties interest and (Coast are sufficient to clearly meaning.” support pleaded Minderhout, Bank v. supra, 61 Cal.2d
Of the four mentioned factors the court in Coast Bank as indicating that the interest, intended the instrument to create a parties only security addition, the second is absent in the case now before us. In the Assignment rents, contains an assignment of found deeds of provision typically trust. It is beyond could have been dispute Assignment reasonably as interpreted rise to creating interest security giving equitable Therefore, mortgage. the extrinsic evidence had value probative supportive of the finding conclusion of the trial court. this
Despite between the Coast Bank compelling similarity and the Assignment (see ante) instant case fn. the majority simply close their to the eyes rationale of Bank this court in Coast and conclude Assignment cannot as a security interest. interpreted creating It seems beyond argument if the document in one case could be inter- as preted interest, creating similar document in the strikingly other case should be of the same It indeed a susceptible interpretation. and ironic which the strange process ratiocination by majority opinion Coast professes Bank regard as no intimation over- gives precedent, it, but ruling nevertheless declines to it any respect. pay treatment basic error which infects the crucial majority’s ques- us in the fact that the themselves with tion before lies majority preoccupy Drayage itself. But as Thomas makes Assignment the language only clear, the court should consider “all credible evidence offered to prove intention of the Such evidence includes testimony parties. [Citation.] to the ‘circumstances ... in- making surrounding nature and matter of the . . .’ so that object, subject writing cluding which the the court can itself in the same situation in found ‘place parties at the & E. Co. v. (Pacific themselves time of Gas contracting.’ [Citations.]” Co., Drayage 39-40.) G. W. Thomas etc. to the do the this restrictive
Not only majority problem approach adopt hand; with it. dealing misconceive of our review actually they scope rather to determine Our first task is it is interpret Assignment; to which whether the evidence in record shows a meaning the Assignment reasonably susceptible. *18 this the in erroneous to the
Persisting majority argue problem, approach is that thе that the bank as the more Assignment ambiguous allegedly selected the from one of its own sophisticated party, having Assignment forms, standardized should not now be allowed take of advantage This is irrelevant the before ambiguities. argument completely question us and the reflects basic the rule established of majority’s misunderstanding in Drayage. Thomas The is real not whether a document is question ambigu- ous, but rather whether in of all the the evidence the document is light of more than one the reasonably susceptible including meaning meaning, shown the extrinsic evidence. “Extrinsic evidence has often been ad- mitted in such cases on the stated that was ground the contract ambiguous This statement of is [citation]. the rule harmless if it in mind that kept bemay extrinsic evidence that reveals ambiguity more than exposed by one Gas (Pacific & E. Co. v. Thomas possible meaning.” Drayage G. W. Co., supra, 33, 40, etc. 8.) fn.
The rule that an instrument be is to the drafter and the interpreted against cases relied upon by in v. Zurich (Gray it Insurance majority invoking Co. (1966) 65 Cal.2d 168]; 419 P.2d Steven v. Cal.Rptr. [54 Fidelity & Casualty Co. Cal.2d 862 Cal.Rptr. 284]) are citation The of those inapрosite. cases by majority illustrates their
graphically Gray the issue this case. misconception and Stevens to the construction of when apply a contract no extrinsic evidence has been introduced to show the actual intent We parties. are concerned here with only of whether the extrinsic question evidence of this case the trial court’s supports that the intended Mrs. finding parties to be Phillips’ for the loan. security Gray The rule enunciated in and Stevens is irrelevant to that consideration.
The also that the third covenant of the majority argue Assignment with an instrument a lien inconsistent real creating They, property. therefore, conclude that the is not Assignment reasonably susceptible that it created a interest. But an identical covenant interpretation security (see case in the Coast Bank fn. in the instrument involved appealed supra) held such and we there unanimously provision despite instrument in case was reasonably susceptible interpretation that it created interest.
The
the use of the word
attempt
attenuate
majority
impaсt
sure,
use of
the mere
To
Assignment.
“security”
preamble
intended
an
indication
parties
that word is not
overwhelming
use of the subtitle
real
Similarly,
to create a lien on
property.
Coast Bank instrument
Loan” in the
use with
“For
Improvement
Property
reached in
conclusion
indication of
similar
was not
overwhelming
is one
However,
easily
reasonable
that case.
the standard of
susceptibility
Minderhout,
311;
Dynamics,
Delta
(Coast
supra,
Bank v.
61 Cal.2d
met.
Arioto,
Co.
Fancy
Juillard
Food
Inc.
Hulse v.
525;
65].)
(1964)
equally unpersuasive. They for an acceleration of in the event of a breach provided the note Coast (Ante agreement. is true that While p. *19 Bank contained before us an acceleration clause whereas the Assignment not, to be does the court in Coast Bank did not find the acceleration clause significant, essentiál, a much less in that the circumstance concluding agree- ment created a lien on such a clause in the real The absence of property. instant cаse is also without significance. much
Secondly, is to be in made the fact that the sought agreement Bank Coast contained the subtitle “For use with Property Improvement Loan,” (ante 20), at whereas the before us does But not. p. Assignment subtitle, the in Coast despite agreement the Bank case secured all previous Here, future debts owed the to bank. the did not contain Assignment subtitle, but it did state that it was a loan” and the for “security of that loan were proceeds used in real other estate. When purchasing titles of the two 5, ante) are agreements (see considered side side fn. by and read a manner, in common-sense raised in- by the point majority deed seems trivial at best. Bank the basis that the we are Coast
Finally, distinguish urged defendant in that case breached the agreement by conveying property. However, case, has also (Ante 20-21.) at in instant defendant pp. homestead on her breached Assignment by declaring property. nor an encumbrance for A declaration of homestead is neither a conveyance (see 14), ante at fn. it does exempt other purpоses p. Code, (Civ. sale. Since from execution or forced §
property is, acknowledge, the majority of an not to encumber purpose in which the debtor has an “guarantee equity property acquire levy and and thus available will remain unencumbered and unconveyed, added) (italics execution the creditor his debt to should reduce judgment,” (ante 17) effectively homestead on such declaration of p. Therefore, in this situation the clear of the agreement. frustrates purpose a declaration of homestead tantamount to an encumbrance must be deemed or other and thus a breach of the disposition agreement. But even that defendant did not breach the assuming arguendo Assign- fact, ment, did, as it after the execution of the document coming long little, can throw if on the reasonableness of its any, light interpretation. The breach of the Assignment is relevant on the issue whether equitable should be declared as an exercise of mortgage the discretion of a court of it is not relevant equity; on the issue whether the Assignment reasonably to the susceptible the trial court. given interpretation sum, In labored Coast Bank—a majority’s attempts distinguish well-considered and unanimous of this court—are ineffective. opinion totally It remains for the compelling authority proposition Assignment this case was reasonably susceptible shown interpretation extrinsic evidence. The conclusion is ineluctable that the extrinsic evidence admitted below was not violative of the evidence rule. parol whether, remaining inquiry routine: practically considering evidence all case, other evidence in the and con- finding clusion of the trial court were As we adequately stated supported. recently Inn, Pierpont Inc. v. State of California “However, 449 P.2d Cal.Rptr. in truth a realistic 737]: interpreta- tion of these documents ‘turns extrinsic evidence’ credibility *20 [citation], where, here, conflict, such evidence is in made findings trier the fact are binding upon (Parsons review.” appellate Bristol Development (1965) Co. 861, 62 Cal.2d 767, 865 [44 Cal.Rptr. 839]; 402 P.2d Estate Plait (1942) 21 Cal.2d 825].) P.2d [131 Here, out, as already Ross testified pointed on further “[b]ased discussion and collateral, fоr a asking it was proposed [by accepted both that the house . . . parties] would be as collateral. . . .” and put up that he took the Assignment it was in “knowing instru- actuality mortgage ment against the house.”
Defendant’s hand, testimony, the other was that she did not intend to sign, nor did she believe she was signing, any interest on type security her She stated property. that at the time the was Assignment executed she believed that she lacked the to create a power security interest in the entire since she owned parcel, an undivided one-half interest individually the other one-half as trustee under a trust. testamentary extrin- Clearly, sic evidence was in conflict. The trial court chose to believe Ross rather than defendant. now choose to an majority ignore elementary principle appellate
review which forbids this court to the evidence or determine weigh not, Like it are bound of the witnesses. the majority credibility “It is not our weigh trial court’s determination of these matters. province witnesses, but of the only the evidence nor to determine the credibility law, evidence, the findings.” as mattеr of decide whether the supports (1921) 186 Cal. (Southern Amalgamated Cal. Co. v. Assn. 1].) P. that both
Ross’ the trial court’s testimony finding amply parties supports intended and that Mrs. was to be agreed Phillips’ property the trial court the controlling loan. To this finding, properly applied prin- of law—that is security ciple “[a]n particular does not for a debt also rise an even gives equitable mortgage though Minderhout, (Coast constitute a Bank v. 61 Cal.2d legal mortgage” 311, 314)—to reach the conclusion that the Assignment unimpeachable Thus, and the are created conclusion mortgage. equitable finding Ross’ found substantial evidence in amply supported by testimony. Having our function as an court ends and we must findings support appellate (Primm affirm v. Primm judgment. 693 [299 231]; P.2d Estate 689].) Bristol I would affirm the judgment. venture on notes and, action, drafts in its fifth cause of asked foreclosure assignment as an court ven- entered equitable mortgage. judgment against turers, $92,386 costs, interest, jointly and attor- severally, plus fees. It further found that the ney’s was assignment mortgage equitable $34,000 debt, of the securing and decreed its foreclosure. Mrs. alone her Phillips challenges only appealed; appeal portion judgment finding to be an assignment equitable mortgage foreclosure. ordering