Opinion
A. Joseph Sherwood and Richard D. Dreyfus, Beverly Hills, for appellant.
Bolton, Groff & Dunne and Gene E. Groff, Los Angeles, for respondent.
LILLIE, Associate Justice.
In July of 1962 defendants Sheridan sold a single family residence in Beverly Hills to defendants Leeds, the sale being conditioned upon the acquisition of a loan in the sum of $85,000 payable through escrows by Leeds to the Sheridans. Plaintiff made the loan, taking from Leeds a first trust deed on the premises as security therefor; the instrument contained a provision that the Leeds, as trustors, would keep the property in good condition and repair, and assigned to plaintiff any award of damages in connection with any condemnation for public use or injury thereto. Subsequent to the sale, the land subsided and settled. The house becoming uninhabitable, it was abandoned by the Leeds who thereafter, in January of 1963, commenced an action for damages against the Sheridans. The suit was subsequently settled upon payment to the Leeds of cash in a sum unknown to plaintiff. Count two of the present action asked that plaintiff be awarded judgment against Leeds in the amount of such cash fund, the same to be held subject to the lien of plaintiff's trust deed; the first count sought damages from the Sheridans only, it being
In November of 1964, prior to the institution of the present action in December of 1965, plaintiff sought leave to intervene in the Leeds v. Sheridan proceeding, asking in its proposed complaint in intervention for restitution of the sum loaned by it to Leeds. Such motion having been denied, one of the grounds urged in support of the demurrer was that plaintiff was collaterally estopped under the doctrine of res judicata from advancing the same claim in the present action, particularly since it failed to appeal from the appealable order denying intervention. (Braun v. Brown, 13 Cal.2d 130, 133, 87 P.2d 1009.) In Bernhard v. Bank of America, 19 Cal.2d 807, 122 P.2d 892, it is pointed out that the plea of res judicata is inapplicable unless there was a final judgment on the merits in the prior adjudication and the party against whom the plea is asserted was a party thereto. No final judgment was ever rendered in the Leeds-Sheridan proceeding, the case having been settled during its trial; nor did plaintiff here ever become a party thereto, its motion to intervene having been denied. For these reasons the trial court, while sustaining the demurrer on other grounds, correctly ruled that the instant challenge to plaintiff's pleading was not sustainable.
While still other claims are asserted respecting the insufficiency of the pleading to state a cause of action, we consider the specific basis for the ruling below as reflected in the court's minute order. It was contended by Leeds, and the court agreed, that plaintiff's sole remedy was to foreclose on the security (Code Civ.Proc., § 580b), it being noted that judicial foreclosure had previously been sought by plaintiff in an action which was later abandoned by a voluntary dismissal on plaintiff's part. The trial court also distinguished the case of Los Angeles T. & S. Bk. v. Bortenstein, 47 Cal.App. 421, 190 P.850, which, according to plaintiff, upholds the right of a mortgagee to maintain an action based on acts, analogous to those asserted here, which impair the security in question. For reasons hereinafter appearing, we conclude that the cited case is properly distinguishable, that the restrictive provisions of section 580b were correctly applied and that the order must accordingly be affirmed.
Said section (as then effective) provided in pertinent part that 'No deficiency judgment shall lie in any event after any sale of real property for failure of the purchaser to complete his contract of sale, or under a deed of trust, or mortgage, given to secure payment of the balance of the purchase price of real property.
It is declared in Brown v. Jensen, 41 Cal.2d 193, 259 P.2d 425, that under section 726, Code of Civil Procedure, there can be but one action for the recovery of a debt secured by a trust deed, namely, one of foreclosure. Certain exceptions to the above principle are then mentioned, including situations where the security has been rendered valueless through no fault of the beneficiary under the trust deed; an action on the note will then lie because the events which caused the security to become valueless were not contemplated at the time the money was loaned and the trust deed given. Section 580b, as the court then noted, covers a special type of security transaction, to wit, a purchase money trust deed; a party taking such a trust deed knows the value of his security and assumes the risk that it may become It is also held in Brown v. Jensen, supra, 41 Cal.2d 193, 259 P.2d 425, that section 580b was enacted in the interests of the general public: 'These provisions [Code Civ.Proc., §§ 580-580d, 726] indicate a considered course on the part of the Legislature to limit strictly the right to recover deficiency judgments, that is, to recover on the debt more than the value of the security.' (P. 197, 259 P.2d p. 426.) Accordingly, it was subsequently held in Freedland v. Greco, 45 Cal.2d 462, 466, 289 P.2d 463, that the provisions of those statutes may not be waived in advance. Thus, the further question is presented as to whether the provisions of the instrument here litigated are within the prohibition of the law enunciated in the above decisions. After the customary provision that any fire insurance loss would be payable to plaintiff as beneficiary to apply on the indebtedness, it is provided that as and for the protection of the security of the trust deed, the trustor (Leeds) agrees 'To keep said property in good condition and repair * * * to complete or restore promptly and in good and workmanlike manner any building which may be constructed, damaged or destroyed thereon. * * *' As pointed out by Leeds, such language is so broad in scope that it would make actionable any injury to the premises whether caused by the trustor or otherwise; be that as it may, it will suffice to mention that plaintiff's pleading contains no allegation that the security was damaged by reason of any act of the Leeds.
The next provision is the principal one at issue: 'Any award of damages in connection with any condemnation for public use of or injury to said property or any part thereof is hereby assigned and shall be paid to beneficiary who may apply or release such moneys received by him in the same manner as above provided for disposition of fire or other insurance.' It has been held that the condemnation of mortgaged property in effect substitutes a money award for the security of the land mortgaged; the mortgagee is therefore entitled to as much of the award as is necessary to satisfy the debt. (See Sacramento etc. Drainage Dist. v. Truslow, 125 Cal.App.2d 478, 496 [270 P.2d 928, 271 P.2d 930].) Too, 'Where a part of mortgaged land has been taken for public use and the amount realized on foreclosure and sale of the rest is insufficient to meet the mortgage debt, the lien of the mortgage extends to and embraces so much of the damages awarded as is needed to make good the deficiency, since that sum stands in lieu of the land taken.' (33 Cal.Jur.2d, Mortgages, § 234, p. 620.) Again, in Pomona College v. Dunn. 7 Cal.App.2d 227, 46 P.2d 270, the court noted that 'the right of a mortgagee in a proper case to subject an award made to the land owner as compensation for a part of the mortgaged premises taken through the medium of eminent domain proceedings to the lien of his mortgage is not open to doubt. Under the familiar doctrine of equitable conversion, the award is considered as land and the mortgagee is entitled so to regard it and to have recourse to it in satisfaction of the mortgage lien.' (P. 232, 46 P.2d p. 273.) This brings us to the Bortenstein case (Los Angeles T. & S. Bk. v. Bortenstein, 47 Cal.App. 421, 190 P. 850) relied on by plaintiff for its position at bar: 'It is a well-recognized rule of equity, based upon the doctrine of equitable conversion, that when land is taken for public use, the money awarded for such land remains, and is to be considered, as land in respect to all rights and interests relating thereto. The money, in such cases, is deemed to represent the land, and is applied in equity to discharge Lavenson v. Standard Soap Co.,
Examination of the facts in Bortenstein further points up its distinguishability. The land in question was once owned by one Clarke and his wife; they mortgaged it to plaintiff bank and thereafter conveyed it to Bortenstein subject to the mortgage. Later the land was damaged by flood, and Bortenstein, as owner, sued the city of Los Angeles for damages, recovering judgment for $12,500. By its decree in foreclosure the court, among other things, ordered that the property be sold and, in the event the proceeds of such sale be insufficient to satisfy the mortgage debt, any sums owing to Bortenstein by the city be paid to plaintiff in satisfaction of such deficiency. The court reasoned that 'though no part of the mortgaged property was actually appropriated by the city, the property, by reason of the city's tortious acts, was partially destroyed or extinguished. The money awarded for this injury is an equitable fund for the satisfaction of plaintiff's lien on the mortgaged property, just as much as if it had been money paid by the city for land taken or damaged in condemnation proceedings. It is a substitute for the land, or for that part thereof destroyed or damaged by the flood.' (Los Angeles T. & S. Bk. v. Bortenstein, 47 Cal.App. 421, 424, 190 P. 850, 851.) In the present case, however, the tortious acts assertedly establishing the equitable fund were predicated on fraud and concealment; indeed such concession is made in plaintiff's proposed complaint in intervention wherein it is alleged that 'Because of the fraudulent concealment of the aforesaid facts, American has been damaged in the sum of $85,000 in that the security has become valueless.' True, the fifth count of the Leeds complaint against the Sheridans purports to state a cause of action based on the negligent construction of the subject dwelling purchased, which claimed tortious acts are more germane to the theory of recovery in Bortenstein. But we must decide this controversy within the limits bargained for by the contracting parties, specifically the provisions which assign to plaintiff any recovery of damages 'in connection with any condemnation for public use or injury to said property or any part thereof * * *.'
It is an established rule that any ambiguity in a written document, such as that appearing here, must be construed most strongly against the draftsman thereof, in this case the plaintiff. The rule is also settled that 'when a contract is ambiguous, a construction given it by the acts and conduct of parties with knowledge of its terms, before any controversy has arisen as to its meaning, it entitled to great weight, and will, when reasonable, be adopted and enforced by the court.' (Universal Sales Corp. v. Cal., etc., Mfg. Co., 20 Cal.2d 751, 761, 128 P.2d 665, 672.) We have in mind plaintiff's concession that its proposed claims in intervention against Leeds sounded in fraud; and we also take note, once again, of plaintiff's prior action in foreclosure which it later abandoned unilaterally. Presumably there was then no question about the lack of applicability of the present provisions to the subject controversy. In our view the format of such provisions evidences an intention that they be confined to condemnation proceedings. Under Article I, section 14, our constitution provides that 'Private property shall not be taken or damaged for public use without just compensation having first been made to, or paid into court * * *.' We recognize no perceivable difference between 'damaging' of property as used in section 14 and 'injury' to property as found in the For the foregoing reasons, the order is affirmed.
WOOD, P. J., and FOURT, J., concur.
'Where both a chattel mortgage and a deed of trust or mortgage have been given to secure payment of the balance of the combined purchase price of both real and personal property, no deficiency judgment shall lie at any time under any one thereof.'