Balistreri v. Nevada Livestock Production Credit Assn.

• Decision Date: 03 October 1989
• Docket Number: No. A040433,A040433
• Citation: 262 Cal.Rptr. 862,214 Cal.App.3d 635
• Court: California Court of Appeals Court of Appeals
• Parties: August J. BALISTRERI, et al., Plaintiffs/Appellants, v. NEVADA LIVESTOCK PRODUCTION CREDIT ASSOCIATION, et al., Defendants/Respondents.

Page 862

262 Cal.Rptr. 862

214 Cal.App.3d 635

August J. BALISTRERI, et al., Plaintiffs/Appellants, v. NEVADA LIVESTOCK PRODUCTION CREDIT ASSOCIATION, et al., Defendants/Respondents.

No. A040433.

Court of Appeal, First District, Division 2, California.

Oct. 3, 1989.

Nancy L. Case, Lawrence M. Einhorn, Beyers, Costin & Case, Santa Rosa, for August J. Balistreri, et al.

Roger J. Illsley, Anderson, McDonald, Belden & Kelly, Santa Rosa, for Nevada Livestock Production Credit Ass'n, et al.

PETERSON, Associate Justice.

Appellants signed a deed of trust in favor of respondent, in order to help their son get a loan from respondent. Appellants believed that the deed of trust covered the house in Sebastopol which they owned together with their son, and where their son resided. Appellants' belief was consistent with the cover letter to the deed of trust which respondent sent to appellants, which described the deed of trust as covering "your Sebastopol residence for your son...." In fact the deed of trust described appellants' own residence in Petaluma as the real property which would become encumbered thereby. When respondent threatened to foreclose on appellants' home, appellants discovered the error; and they brought this action to quiet title and cancel the deed of trust based upon mistake of fact in its execution. The trial court found the facts as above stated; but the trial court concluded that relief was barred as a matter of law based upon the principle of neglect of legal duty, since appellants should have read the text of the deed of trust, not just the cover letter, and should have discovered the mistake in time. We reverse.

I. FACTS AND PROCEDURAL HISTORY

Appellants' son sought crop financing from respondent in March 1983 for an alfalfa farm in Diamond Valley, Nevada. The proceeds of the first and second cuttings would serve to repay the loan. Respondent, based in Nevada, required security for the loan; but none of the commercial properties owned by appellants' son had sufficient equity. Respondent considered using as security the Sebastopol home ¹ where appellants' son and daughter-in-law lived, and which was owned by appellants and their son; but respondent concluded that this was insufficient security because it was owned jointly by appellants and their son, and there were already too many loans in existence secured by that property.

At some point respondent and appellants' son discussed appellants' home in Petaluma also; and respondent's loan agent understood that there were two homes, one in Sebastopol owned by appellants and their son where the son resided, and one in Petaluma owned by appellants where they resided. However, respondent's loan agent also seems to have gotten the two homes confused. Respondent had access to title documents explicitly showing that appellants lived in and owned a house in Petaluma and also co-owned the house in Sebastopol; yet in internal documents to his loan board, respondent's loan agent identified the loan as being secured by the "father's residence in Sebastopol." He also prepared the deed of trust on appellants' home in Petaluma and gave it to appellants' son to have appellants execute.

Respondent's loan agent also prepared a cover letter to appellants which asked them to execute "a third Deed of Trust on your Sebastopol residence for your son....," even though in fact the deed of trust was for appellants' own residence in Petaluma, not the one they co-owned with their son in Sebastopol.

Appellants saw the cover letter from respondent which referred to the Sebastopol residence and executed the deed of trust, thinking that it pertained to the Sebastopol home where their son lived and which they co-owned with him, not their own home in Petaluma. They would not have executed the deed of trust if they had known that it referred to their own home.

At the time respondent dealt with appellants' son, the Nevada property the latter was to farm as a tenant was already encumbered by indebtedness owed respondent; and respondent was anxious to see appellants' son or other successor farmer take over the payments, because its owners who had previously been loaned money by respondent were essentially bankrupt. Oddly enough, although respondent routinely requires a written appraisal of a property used as security, it obtained none on the Petaluma home until December of 1983, when the loan secured by the deed of trust thereon was already in default.

The farming venture in Nevada proved to be a failure, it seems, because the previous farmers had not planted enough alfalfa seeds, so the hay had too many weeds in it and was not really marketable as alfalfa. Appellants' son apparently sold the dry hay to dairies in California, but during the spring he did not remit any proceeds to respondent as he had agreed to do. When respondent contacted him, appellants' son would say that "the check is in the mail." After a month or so, respondent noticed that it never was. Respondent however took no steps to enforce its liens on the crop or proceeds, other than one contact with a farmer in Nevada. There was also evidence that appellants' son was somewhat less than forthright in his dealings with respondent; there was no evidence that appellants were involved in any of his alleged transgressions by way of ratification or otherwise.

That fall, with the loan in default, respondent wrote to appellants and contacted them by phone regarding the need to clear up the loan their son had taken out. Even at this point, respondent referred to the deed of trust appellants had signed as pledging "a third Deed of Trust on your Sebastopol residence for your son...." It was apparently not until late that fall that appellants realized from a phone call from respondent that their own home in Petaluma, not their son's home in Sebastopol, was the one described by and subject to the lien of the deed of trust.

Appellants brought this action seeking to cancel the deed of trust. The evidence summarized above was adduced at a court trial. At its conclusion the trial court stated it believed appellants' testimony that they had not known they were signing a deed of trust for their own home as opposed to their son's home. However, the trial court ruled that because appellants had not read the text of the deed of trust, which amounted as a matter of law to neglect of legal duty, they could not prevail. The trial court concluded: "This is a painful decision. I can only have the greatest sympathy for the parents in here, but it's clear under the law that this court cannot grant relief in this situation."

Appellants timely appealed.

II. DISCUSSION

We conclude appellants are legally entitled to relief in this situation because appellants and respondent made a mutual mistake of fact concerning the subject matter of the deed of trust. Respondent mistakenly believed appellants were granting a deed of trust on their own house in Petaluma. Appellants mistakenly believed, based upon respondent's representations in the cover letter to the deed of trust supported by respondent's subsequent communications, that they were granting a deed of trust on their son's house in Sebastopol which they co-owned. Nor is appellants' claim for relief barred by their failure to discover in time that the deed of trust described the Petaluma house, not the Sebastopol house, because it was the respondent's cover letter which reasonably caused that failure to discover by leading appellants to mistakenly believe to the contrary. Due to mutual mistake as to the deed of trust's subject matter, no contract between appellants and respondent was formed; and the deed of trust should be cancelled.

A. Mistake

The parties dispute here at some length their mutual ideas of the relevance of that famous old chestnut of a case dealing with a mutual mistake by the contracting parties, Raffles v. Wichelhaus (1864) 159 Eng.Rep. 375 (2 H. & C. 906), also known as the case of the Ship Peerless. It is fair to say this Peerless case has been more belabored than read. So there can be no mistake, we have peered into the dusty old English Reports again to learn the relevance of nineteenth century merchant practice to the difference between Sebastopol and Petaluma. In the Peerless case the parties contracted for "125 bales of Surat cotton, guaranteed middling fair merchant's Dhollorah" in the hold of the ship Peerless, then in Bombay harbor. (Id. at p. 375.)

However, the Peerless had a peer. Apparently unbeknownst to the contracting parties, there were in fact two ships of that name being loaded at piers in Bombay harbor; and the cryptic report of the case indicates the argument of counsel for the defendants was that, since each contracting party apparently believed the contract dealt with the goods aboard a different Peerless, there was no contract: "That being so, there was no consensus ad idem, and therefore no binding contract.... [p ] Per Curiam. [Pollock, C.B., Martin, B., and Pigott, B.] There must be judgment for the defendants." (Id. at p. 376.) The court did not state the basis of its decision, although it appears to have summarily accepted defendant's argument that no contract results in these circumstances. One commentator has opined that this case "is to the ordinary run of case law as the recently popular theatre of the absurd is to the ordinary run of theatre. Appropriately enough, even the report of the case is weird." (Gilmore, The Death of Contract (1974) p. 35.)

However, California courts have cottoned to this case. (See, e.g., French v. Construction Laborers Pension Trust (1975) 44 Cal.App.3d 479, 488, 118 Cal.Rptr. 731 [" 'Thus, both parties may have a different understanding as to the identity of the subject matter. In the famous case of Raffles v. Wichelhaus, 2 H. & C. 906, there was an agreement to buy goods arriving on the ship "Peerless," and there were two steamers of that name, each party having in mind a different ship. No...