Opinion
Opinion on pages 221 to 229 omitted
HEARING GRANTED
[82 Cal.Rptr. 593] Paul E. Gervais, South Lake Tahoe, for defendant-appellant.
Beverly & Riley, South Lake Tahoe, for plaintiff-respondent.
REGAN, Associate Justice.
Defendant appeals from that portion of a judgment foreclosing an equitable mortgage on certain real property in the County of El Dorado.
The defendant, along with other codefendants, participated in a joint venture and engaged in several credit transactions with the plaintiff, Tahoe National Bank, and became obligated to plaintiff for various sums as a result of overdrafts and loans made to the joint venture.
Not parties to this appeal.
On April 20, 1965, defendant executed and delivered to plaintiff a document entitled "Assignment of Rents and Agreement Not to Sell or Encumber Real Property."
"ASSIGNMENT OF RENTS AND AGREEMENT NOT TO SELL OR ENCUMBER REAL PROPERTY
[82 Cal.Rptr. 594]The agreement specifically authorized the bank to record the instrument, and it was recorded on May 27, 1965. On that same date, defendant gave to plaintiff her single-payment promissory note in the amount of $34,000. The note provided that payment was to be made on demand or not later than May 25, 1965.
"$34,000.00 Stateline California, April 20, 1965. No. OT-516
The defendant, Mrs. Phillips, testified that the original $34,000 note was unsecured. It was stipulated by counsel that defendant owned one-half of the subject house in fee and held the other one-half in trust for certain beneficiaries.
Plaintiff pleaded that the parties intended to create a security interest in the property. This defendant denied, asserting the "Assignment of Rents and Agreement Not to Sell or Encumber Real Property" was her agreement to assign to plaintiff any rent realized from the real property and her agreement not to encumber or dispose of it without plaintiff's consent.
The question presented is not what meaning appears from the face of the instruments alone, but whether the pleaded meaning is one to which the instrument is reasonably susceptible. In Coast Bank v. Minderhout (1964) 61 Cal.2d 311, 315, 38 Cal.Rptr. 505, 507, 392 P.2d 265, 267, the court states:
"In the present case, however, plaintiff pleaded and defendants admitted by demurring and failing to answer that the parties intended to create a security interest in the property. Accordingly, the question presented is not what meaning appears from the face of the instrument alone, but whether the pleaded meaning is one to which the instrument is reasonably susceptible. (Richards v. Farmers' & Merchants' Bank, 7 Cal.App. 387, 395, 94 P. 393; see 2 Witkin, California Procedure, pp. 1231-1232.) It is essentially the question that would be presented had defendants denied that the parties intended to create a security interest and plaintiff had offered extrinsic evidence to prove that they did. Such evidence would be admissible to interpret the instrument, but not to give it a meaning to which it is not reasonably susceptible."
In Minderhout, supra, the court further states (at pp. 313-314, 38 Cal.Rptr. at p. 506, 392 P.2d at p. 266):
[82 Cal.Rptr. 595]" '[E]very express executory agreement in writing, whereby the contracting party sufficiently indicates an intention to make some particular property, real or personal, or fund, therein described or identified, a security for a debt or other obligation * * * purchasers or encumbrancers with notice.' [Citation.] Thus, a promise to give a mortgage or a trust deed on particular property as security for a debt will be specifically enforced by granting an equitable mortgage. [Citations.] An agreement that particular property is security for a debt also gives rise to an equitable mortgage even though it does not constitute a legal mortgage. [Citations.] If a mortgage or trust deed is defectively executed, for example, an equitable mortgage will be recognized. [Citations.] Specific mention of a security interest is unnecessary if it otherwise appears that the parties intended to create such an interest."
Albert R. Ross, President of Tahoe National Bank, was the bank officer who negotiated the foregoing transaction. Ross, who had been in the banking business for 16 years, testified the note and encumbrance agreement were executed simultaneously and were really one transaction, Ross regarding the agreement as in actuality a mortgage instrument against defendant's house in lieu of a deed of trust.
During these negotiations defendant proposed, and Ross accepted, that defendant's fee ownership in her house be put up as collateral, and to support this an FHA commitment which had been ordered was delivered to Ross to establish value. The FHA appraisal was $34,400, and $34,000 was paid to defendant in return for the note and agreement. Ross considered the agreement as security or collateral, and testified that the two documents went together. Ross denied the agreement was signed merely to maintain defendant's net worth situation in the area. Although Ross wanted a deed of trust to secure the loan, at the insistence of a Mr. Herron and defendant, he agreed to handle the transaction the way he did since Herron and defendant stated they needed the money within two hours to close a real estate deal.
One of the joint venturers.
The $34,000 note was marked "OT." Ross testified that in their bank's practice this meant the note was secured by "other trusts." Also, the note contains in Ross' handwriting the words "Assignment on Record." Ross testified that he inscribed these words on the note at the time of the execution of the note.
Ross also testified that as a small bank, they used only one printed form of note marked "unsecured." They then employed symbols to designate how the note was secured.
On April 21, 1965, a day after the foregoing transaction, Ross prepared a memorandum concerning this transaction for the bank's file. With regard to this memorandum, Ross testified as follows:
"This was memorandum under date of 4-21-65, subject: Borrower-Depositor, requested a loan of $34,000.00 in order to accomplish purchase of multiple lots for twenty-two unit apartment project being financed by the Sacramento Savings & Loan on permanent and Wells Fargo on interim construction. Loan granted this date, secured by an agreement not to encumber on property, fee simple in the Keys at seven percent and to mature on 5-20-65. For further financial details refer to file of Angers, Cole, Herron and Phillips."
The "Assignment of Rents and Agreement Not to Sell or Encumber Real Property" begins as follows: "In consideration and as security for a loan made or purchased by TAHOE NATIONAL BANK * * * which loan is evidenced by a promissory note in favor of * * *." (Emphasis added.) The document then specifies the $34,000 loan made to defendant on April 20, 1965.
[82 Cal.Rptr. 596]On August 27, 1965, the bank sent a letter of demand for payment to the joint ventures seeking payment for various items. The April 20, 1965, note executed by defendant was referred to as follows:
"OT note executed by Beulah Phillips 34,000.00"
On November 17, 1965, a $50,000 unsecured note was executed by defendant; this note consolidated the past due indebtedness of $34,000.
Two days later, on November 19, 1965, a second letter of demand was sent by the bank to the joint venturers. In this letter the $50,000 loan was referred to as follows:
"Herron & Phillips (partially secured by mortgage) 50,000.00"
Defendant raises two issues, i.e., the admissibility of extrinsic evidence and the sufficiency of the evidence. She objects to the testimony of Mr. Ross as regards both the agreement and the note. However, it is difficult for us to see how one document can be examined without reference to the other, for they appear to be inextricably entwined. This evidence came in without objection. It is the general rule that questions not raised in the trial court will not be considered on appeal. (Edward Sidebotham & Son v. Chandler (1960) 183 Cal.App.2d 823, 830, 7 Cal.Rptr. 216; see Everly Enterprises, Inc. v. Altman (1960) 54 Cal.2d 761, 765, 8 Cal.Rptr. 455, 356 P.2d 199; Algeri v. Tonini (1958) 159 Cal.App.2d 828, 832, 324 P.2d 724.)
Even if this were not the rule, we are convinced that the extrinsic evidence was properly admitted. The April 20, 1965, note for $34,000, the one sued on and which plaintiff claimed was secured by a mortgage, does state that it is an "unsecured single payment note." However, in the top right hand corner appears the symbol "OT-516" and at the bottom the words "Assignment on Record." Both are written in ink. There is nothing on the face of the note to explain or clarify what these phrases mean.
The parol evidence rule, with certain exceptions, prohibits the introduction of any extrinsic evidence, either oral or written, to vary or add to the terms of an integrated written instrument. (Witkin, Cal.Evidence (2d ed. 1966) Documentary Evidence, § 714, p. 660.) One of the exceptions to the rule is where the language appearing on the face of the document is ambiguous. (Witkin, supra, § 732, pp. 677-678.) Thus, where an ambiguity exists, parol evidence is admissible to interpret and explain. (Wells v. Wells (1946) 74 Cal.App.2d 449, 457, 169 P.2d 23.) In Roberts v. Reynolds (1963) 212 Cal.App.2d 818, 825, 28 Cal.Rptr. 261, 266, the court states:
"Since the language of the agreement does not preclude the construction for which the plaintiffs contend, extrinsic evidence bearing upon the issue of the true meaning thereof was admissible. The applicable rule is succinctly expressed in Reid v. Overland Machined Products, 44 Cal.2d 203, at page 210, 10 Cal.Rptr. 819, at page 823, 359 P.2d 251, at page 255, as follows: 'When the language used in the contract is fairly susceptible to the construction claimed by one of the parties, extrinsic evidence may be considered, not to vary or modify the terms of the agreement, but to aid the court in ascertaining its true meaning.' To exclude such evidence in the present case would be to ignore the admonition of Dean Wigmore that: 'Once freed from the primitive formalism which views the document as a self-contained and self-operative formula, we can fully appreciate the modern principle that the words of a document are never anything but indices to extrinsic things, and that therefore all the circumstances must be considered which go to make clear the sense of the words,--that is, their associations with things.' (9 Wigmore on Evidence (3d ed.) § 2470, p. 227.)"
We think that the words penned in on the note constitute a sufficient ambiguity and the case falls within the principle set forth above in Roberts. We therefore hold that the extrinsic evidence was admissible to explain the nature of the note. (See, Masterson v. Sine (1968) 68 Cal.2d 222, 65 Cal.Rptr. 545, 436 P.2d 561; Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. [82 Cal.Rptr. 597](1968) 69 Cal.2d 33, 69 Cal.Rptr. 561, 442 P.2d 641; Delta Dynamics, Inc. v. Arioto (1968) 69 Cal.2d 525, 72 Cal.Rptr. 785, 446 P.2d 785; see also, Coast Bank v Minderhout, supra, 61 Cal.2d at p. 315, 38 Cal.Rptr. 505, 392 P.2d 265.)
However, defendant contends that a reading of the "Assignment of Rents and Agreement Not to Sell or Encumber Real Property" is clear and unambiguous on its face, and that a reading of the "four corners" of the document reveals that it is not a security instrument. But the document itself states that it is security for a loan and then specifies the exact loan. We thus believe that this language is fairly susceptible to the construction claimed by plaintiff, and thus it was proper for the trial court to consider extrinsic evidence. (See Roberts v. Reynolds, supra, 212 Cal.App.2d 818, 825, 28 Cal.Rptr. 261.)
Defendant also contends the evidence was insufficient to support the judgment.
The rules relating to sufficiency of the evidence are well settled and were recently restated in Green Trees Enterprises, Inc. v. Palm Springs Alpine Estates, Inc. (1967) 66 Cal.2d 782, 784-785, 787, 59 Cal.Rptr. 141, 427 P.2d 805.
" * * * When a finding of fact is attacked on the ground that there is no substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether there is any substantial evidence, contradicted or uncontradicted, which will support the finding of fact. [Citations.]
"When two or more inferences can reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for those of the trial court. [Citations.]"
* * *
* * *
"A trier of fact may accept such witnesses as he wishes and reject others, and an appellate court may consider only whether there is substantial evidence to support his findings, not whether it feels in the reading of the cold record that it would disagree. [Citations.]"
It is true that defendant stated that the note was unsecured. Nevertheless, it is clear from the entire record that there is substantial evidence to support the judgment of the trial court. (Cf.Coast Bank v. Minderhout, supra, 61 Cal.2d 311, 38 Cal.Rptr. 505, 392 P.2d 265.)
The judgment is affirmed.
JANES, J., concurs in the judgment.
FRIEDMAN, Acting Presiding Justice (dissenting).
I dissent. Possibly this case is governed by Coast Bank v. Minderhout, 61 Cal.2d 311, 38 Cal.Rptr. 505, 392 P.265, but I would hope otherwise. In Minderhout the landowner did not deny the parties' intention to create a security interest in the real estate. For the purpose of the Minderhout proceeding, that intention was admitted (61 Cal.2d at p. 315, 38 Cal.Rptr. 505, 392 P.2d 265). Here the complaint alleges and the answer denies that the "Assignment of Rents and Agreement Not to Sell or Encumber Real Property" was intended as partial security for the note. Doubtless the agreement was intended as security. It assigned future rent to the lender and provided some assurance that the borrower would continue as owner. Starkly eminent, however, is the absence of any pleaded averment or admission that the instrument was intended to provide the lender a security interest in the real estate itself.
This case has a second divergence from Minderhout. There the borrowers sold the property to third parties, in distinct violation of their agreement not to sell. An equitable mortgage became the law's only means of salvaging the value of the recorded, written agreement. Here, in contrast, the borrowers continue to hold the real estate. Here, the lender receives a judicial beneficence transcending the terms of the written agreement.
[82 Cal.Rptr. 598]As California law now stands, "reasonable susceptibility" to a meaning unexpressed in the written contract signals a battle of witnesses in which afterthoughts parade as forethoughts. (Delta Dynamics, Inc. v. Arioto, 69 Cal.2d 525, 528, 72 Cal.Rptr. 785, 446 P.2d 785; Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co., 69 Cal.2d 33, 40, 69 Cal.Rptr. 561, 442 P.2d 641.) Conceding that to be the state of the law, I do not regard the present instrument as reasonably susceptible--even at all susceptible--to the creation of a mortgage lien. Here is a bank which prepared its own printed form, selected a particular one from its array of forms and handed it to the customer for signature. Doubtless the bank had printed forms of trust deed, perhaps even a few dusty, yellowed mortgages. Now the bank claims that by the printed form it selected, it intended to create the legal effect of a form it did not select. If there was ever a desanctification of the written word, this is it.
In admitting evidence of intent dehors the printed contract, the trial court overlooked a sharp feature of the transaction. This is not a case where the economic underdog is faced with the unexpected impact of a contract of adhesion. (Cf. Masterson v. Sine, 68 Cal.2d 222, 227, 65 Cal.Rptr. 545, 436 P.2d 561; see also Gray v. Zurich Ins. Co., 65 Cal.2d 263, 269-271, 280, 54 Cal.Rptr. 104, 419 P.2d 168; Tobriner and Grodin, The Individual and the Public Service Enterprise in the New Industrial State, 55 Cal.L.Rev. 1247, 1272, 1278.) Rather, the more powerful bargainer is attempting to stretch the terms of its own standardized contract in order to attain something outside the realm of its customer's expectations. Usually the courts knock out clauses which would permit a bank or other public service institution to defeat its customer's reasonable expectations. (Tobriner and Grodin, op. cit. supra, 55 Cal.L.Rev. at p. 1277.) The trial court reversed the process, engrafting on the contract a clause having that very effect.
I would reverse the judgment.
"In consideration and as security for a loan made or purchased by TAHOE NATIONAL BANK (hereinafter called 'Bank') which loan is evidence by a promissory note in favor of Beulah F. Phillips dated April 20, 1965, in the amount of Thirty Four Thousand and 00/100 - - - Dollars ($34,000.00), the undersigned, and each of them, (hereinafter sometimes called 'Borrower') hereby covenant and agree with Bank as follows:
"1. The real property referred to herein is located in ___, County of El Dorado, State of California, and is described as follows:
"Lot 270, Tahoe Keys Unit No. 1, as said lot is shown on the Official Map of said Tahoe Keys Unit # 1, filed in the office of the County Recorder of the County of El Dorado, State of California, on May 11, 1959, in Map Book C, Map No. 7.
"2. Borrower hereby assigns to Bank all moneys due or to become due to Borrower as rental or otherwise for or on account of such real property, reserving unto Borrower the right to collect and retain any such moneys prior to Borrower's default under the terms of the loan described above;
"3. Borrower will not create or permit any lien or any encumbrance (other than those presently existing) to exist on said real property and will not transfer, sell, assign or in any manner dispose of said real property or any interest therein without the prior written consent of Bank;
"4. Bank is hereby authorized and permitted to cause this instrument to be recorded at such time and in such places as Bank at its option may elect.
"5. This agreement is expressly intended for the benefit and protection of Bank and all subsequent holders of the note described above. Borrower warrants and represents that Borrower owns the above-described real property.
"6. This agreement shall remain in full force and effect until the loan described above shall have been paid in full or until twenty-one (21) years following the death of the last survivor of the undersigned, whichever first occurs.
"Dated: April 20 1965 (s) Beulah F. Phillips
...... (6)27
"ON DEMAND or if no demand then on May 20, 1965, for value received, the undersigned promise(s) to pay to the order of the TAHOE NATIONAL BANK, Stateline Office, the sum of Thirty Four Thousand and 00/100 - - - Dollars with interest at the rate of 7% per cent per annum from date until paid, interest payable at maturity and if not punctually paid, it shall become a part of the principal, and thereafter bear the same rate of interest as the principal debt; and should the interest not be paid when due, then the whole sum of principal and interest shall become immediately due and payable and may be charged to the account in said Bank of either the principal maker, or sureties on said note, at the option of the holder thereof.
"Should an attorney be employed to collect, or should suit be commenced to enforce the payment of this Note the undersigned agree(s) to pay a reasonable sum additional as attorney's fees; also costs of such suit. Principal and interest payable in lawful money of the United States.
"Should this note be signed by more than one person, and/or firm, and/or corporation, all corporation, all covenants and obligations herein contained shall be considered for all purposes as joint and several covenants and obligations of each signer hereof.
"RENEWED
"NOV 18 1965
ADDRESS P.O. Box 2612, Tahoe Valley, Calif. Beulah F. Phillips
ADDRESS ___
ADDRESS TAHOE NATIONAL BANK
State line, CAlif.
N6A UNSECURED SINGLE PAYMENT NOTE Assignment on Record"