Opinion
No. 16752
6-28-1956
Carlo FIRATO, Salino Firato, his wife, and Raymond Firato, Plaintiffs and Appellants. v. L. B. TUTTLE et al., Defendants. Harold D. Edelen, Northwestern Mutual Life Insurance Co., a corporation, Chester A. Berry and Mabel Berry, his wife, Defendants and Respondents.*
Bressani & Hansen, San Jose, for appellants. Royal E. Handlos, San Francisco, for respondents Harold D. Edelen and Northwestern Mut. Life Ins. Co. Jones, Griswold & Henley, San Jose, for respondents Berry.
Carlo FIRATO, Salino Firato, his wife, and Raymond Firato, Plaintiffs and Appellants.
v.
L. B. TUTTLE et al., Defendants.
Harold D. Edelen, Northwestern Mutual Life Insurance Co., a corporation, Chester A. Berry and Mabel Berry, his wife, Defendants and Respondents.*
June 28, 1956.
Rehearing Denied July 27, 1956.
Hearing Granted Aug. 27, 1956.
Bressani & Hansen, San Jose, for appellants.
Royal E. Handlos, San Francisco, for respondents Harold D. Edelen and Northwestern Mut. Life Ins. Co.
Jones, Griswold & Henley, San Jose, for respondents Berry.
AGEE, Justice pro tem.
This is an appeal from a judgment against plaintiffs entered upon failure to amend their first amended complaint after the sustaining of the demurrers thereto of those defendants who are the respondents herein. Although the demurrers are general and special, and the order sustaining them does not state the ground or grounds thereof, our decision herein is confined to the sustaining of the general demurrers. The allegations of the amended complaint follow.
On June 20, 1947, L. B. Tuttle and Beulah L. Tuttle, his wife, owned the real property involved herein. On said date, Carlo Firato and Salino Firato, his wife, loaned to them the sum of $8,500 and took back a promissory note secured by a deed of trust on said property wherein one Gladys E. McCormick was named trustee. The deed of trust was recorded on the same date and the terms thereof are expressly incorporated in the complaint by reference. (For the convenience of this court and pursuant to stipulation, a copy of the deed of trust has been included in the record.)
On July 1, 1949, the Tuttles deeded the property to Pietrina Sardina. On this same date, Gladys E. McCormick, as said trustee, without authority and without said note having been fully paid, or anything paid thereon on said date, executed a deed of reconveyance of the property. This deed of reconveyance and the deed from the Tuttles to Sardina were recorded on the same date, July 1, 1949.
On March 24, 1950, Sardina conveyed the property to Orville B. Stanger and Virgie R. Stanger, his wife. On the same date, the Stangers executed a deed of trust on the property to respondent Howard D. Edelen, as trustee, to secure payment of $8,400 loaned to them by respondent Northwestern Mutual Life Insurance Co. On October 21, 1953, the Stangers conveyed the property to respondents Chester A. Berry and Mabel Berry, his wife.
On April 8, 1954, appellant Raymond Firato was substituted in the place of Gladys E. McCormick, as trustee under the Firato deed of trust.
The relief prayed for is that the deed of reconveyance be cancelled and that appellants' deed of trust be declared superior to the respondent insurance company's deed of trust. The four respondents on this appeal are the Berrys, the insurance company and the trustee under its deed of trust.
Appellants do not contend that respondents are not bona fide purchasers and encumbrancers. They state 'the issue' to be as follows: 'Is Civil Code Section 870 limited to application only against non-bona fide purchasers and encumbrancers?' (Appellants apparently concede that if this section does not apply to the instant situation, then respondents would be protected by the record title.) Section 870 of the Civil Code provides: 'Where a trust in relation to real property is expressed in the instrument creating the estate every transfer or other act of the Trustees, in contravention of the trust, is absolutely void.' Appellants point to clause 'Fifth' of their deed of trust, which provides in substance that the trustee can reconvey the trust property only if the loan secured by the deed of trust is paid in full or the beneficiary thereunder requests such reconveyance. Appellants contend that, under the facts as alleged, the reconveyance in question is absolutely void under said section 870.
The issue in the instant case is substantially the same as that in Mersfelder v. Spring, 139 Cal. 593, 73 P. 452, which is cited by appellants on another point. The cited case was an action to recover possession of real property where the only issue was the plaintiff's legal title. Plaintiff derived his title through a deed executed by the trustee under a deed of trust on said property. The trustee's deed recited default in payments, demand by the beneficiary to sell, publication of time and place of sale, and sale by the trustee. The deed of trust expressly provided that the recitals in such a deed of default and publication "shall be conclusive proof of such default and of the due publication of such notice". 139 Cal. at page 594, 73 P. at page 453. The only contention made by defendant was that it devolved upon plaintiff to prove that the conditions on which the trustee was authorized to sell had been complied with. At pages 594 and 595 of 139 Cal., at page 453 of 73 P., the Supreme Court stated defendant's position as follows: '* * * it is urged that, under section 870 of the Civil Code, the deed of the trustee of an express trust in contravention of its terms is absolutely void, the rule at common law being thus abolished, which, in cases involving the legal title only, was to the contrary [citations], and hence that in legal as well as in equitable cases the validity of the trustee's deed must, under our law, depend upon a compliance with the terms and directions of the deed, which are conditions precedent to his power to sell [citations]; that with regard to these the effect of the trustee's deed, or of his recitals therein, is the same as in the case of the acts of other agents [citations]; and hence that, in the absence of authority, given by the instrument to the trustee, to bind his principal by his recitals or acts, these conditions must be proved. [Citations.] * * * But, whatever may be the force of the argument as noted, these questions, though interesting, can arise only in cases where no authority is given by the deed to the trustee to bind his principal by his recital or by his deed, or, to use the language of the counsel, only 'in the absence of a stipulation in the trust deed making the trustee's deed evidence of its own validity.'' (Emphasis added.)
Clause 'Sixth' of the appellants' deed of trust provides, in part, as follows: 'In any deed executed under these trusts, the recital of amount of indebtedness, default, recording, application of Beneficiary, posting, publication, sale, purchase price, and of any other matters, shall be conclusive proof of such indebtedness, default, recording, application, posting, publication; sale purchase price, and all other matters recited, * * *' (Emphasis added.) The entire clause is very lengthy and deals almost entirely with foreclosure proceedings after default by the trustor. However, the quoted portion is the only reference in the deed of trust to a deed from the trustee and a deed of reconveyance must be held to be included within the phrase, 'In any deed executed under these trusts.'
The deed of reconveyance is described in the complaint as to date and recordation (including recorder's serial number) but it was not expressly incorporated therein. However, it is common knowledge that a deed of reconveyance, in a lending transaction of the type involved herein, customarily contains a recital that the indebtedness for which the deed of trust was given has been satisfied. Judicial notice may be taken of matters of common knowledge. In Gauchet v. McGinnis, 13 Cal.App.2d 7, 55 P.2d 1255, a contract to purchase real property was reformed to include a provision that the vendee execute a promissory note for the unpaid balance, secured by a deed of trust on the property. There was no pleading or testimony that the parties had ever discussed or agreed upon the execution of a promissory note. The court said, at pages 10 and 11 of 13 Cal.App.2d, at page 1257 of 55 P.2d: 'There is no merit in the contention that there is a fatal variance between the evidence or the pleadings and the findings and judgment with respect to the omission of the clause regarding the trust deed because Mrs. McGinnis did not specifically say that the trust deed was to be accompanied by a promissory note for the balance of the purchase price of the property which it was to secure. * * * A trust deed is understood to be substantially a mortgage on real property to secure an indebtedness, with the power of sale for default of the terms thereof. 25 Cal.Jur., p. 15, §§ 3-6. It is common knowledge that both a mortgage and a trust deed are customarily given to secure a promissory note representing the amount and terms of the indebtedness.' (Emphasis added.) See also Klett v. Security Acceptance Co., 38 Cal.2d 770, 780, 242 P.2d 873, and Quan v. Kraseman, 84 Cal.App.2d 550, 551, 191 P.2d 16. 'An appellate court may properly take notice of any matter of which the court of original jurisdiction may properly notice.' (10 Cal.Jur., 699.)
Appellants cite Phelps v. American Mtg. Co., 6 Cal.2d 604, 59 P.2d 95, but this case is not in point. The demurrer of defendant Mortgage Guarantee Company to the complaint had been sustained without leave to amend. The judgment thereupon entered against plaintiff was reversed, the Supreme Court saying at page 608 of 6 Cal.2d, at page 97 of 59 P.2d: 'There is, however, support for our conclusion that the facts alleged constitute a cause of action to cancel the unauthorized deed of reconveyance and release and to quiet or establish the plaintiffs' prior rights as lienholders under the $125,000 deed of trust as against the adverse claims of subsequent purchasers and encumbrancers which are without right, i. e., as against such purchasers and encumbrancers taking with knowledge of the unauthorized and voidable nature of the deed of reconveyance, or who have paid no consideration.' (Emphasis added.) The complaint in the cited case specifically alleged that the defendant Mortgage Guarantee Company had knowledge of the unauthorized character of the reconveyance. At the trial which followed, however, the court found that the Mortgage Guarantee Company was an encumbrancer for value, without notice that the reconveyance had been obtained by fraud. Judgment in its favor was affirmed on appeal. Phelps v. American Mortgage Co., 40 Cal.App.2d 361, 104 P.2d 880. Mortgage Guarantee Company had loaned $80,000, secured by a deed of trust on the property, in reliance upon the trustee's reconveyance of the earlier deed of trust. This reconveyance had been obtained by fraudulent means and the issue to be decided was whether the Mortgage Guarantee deed of trust was subordinate to the deed of trust so reconveyed or to any claims arising thereunder. The court said, 40 Cal.App.2d at page 373, 104 P.2d at page 887: 'As already pointed out, Mortgage Guarantee Company, and respondents who claim through that company, are bona fide purchasers. Although it is the law that a transfer by a trustee in contravention of the express provisions of the trust is void (Civ.Code, sec. 870), that rule has no application to the factual situation here presented. Where circumstances creating an estoppel are present, as here, a purchaser taking title without notice of the breach of trust secures an unimpeachable title. 65 Cor.Jur. p. 774, sec. 644: 65 Cor.Jur. p. 776, sec. 647; 27 R.C.L. p. 694, sec. 458.'
In the cited case, appellants were the holders of promissory notes secured by a deed of trust on real property They endorsed the notes in blank and delivered them to the payee, American Mortgage Company, for collection. Without receiving any payment on the notes this company fraudulently delivered them to the trustee under the deed of trust and requested a reconveyance.
In the instant case the maxim codified in section 3543 of the Civil Code applies. This section provides: 'Where one of two innocent persons must suffer by the act of a third, he, by whose negligence it happened, must be the sufferer.' As Justice Peters said, in the second Phelps case, supra, 40 Cal.App.2d at page 366, 104 P.2d at page 883: 'It is to be noted that the Civil Code section uses the term 'negligence'. It is appellants' theory that they are not chargeable with negligence, but only with misplaced confidence in a trusted agent, and that misplaced confidence is not negligence. * * * Such misplaced confidence must be held to be negligence within the meaning of the maxim above referred to.'
The deed of trust in the instant case stipulated that the recitals in any deed executed by the trustee were conclusive proof thereof. Here we know, as a matter of common knowledge, that the deed of reconveyance recited payment of the indebtedness. Appellants do not dispute the fact that respondents are good faith purchasers and encumbrancers who relied upon the recordation of such reconveyance. We hold that the respondents are therefore protected. This conclusion makes it unnecessary to pass upon the question as to whether section 870 of the Civil Code is applicable to deeds of trust on real property which are given to secure the payment of money.
The judgment is affirmed.
PETERS, P. J., and FRED B. WOOD, J., concur.
Hearing granted; SHENK and SCHAUER, JJ., not participating. --------------- * Opinion vacated 308 P.2d 333.