Black v. Sullivan

• Decision Date: 28 May 1975
• Citation: 48 Cal.App.3d 557,122 Cal.Rptr. 119
• Court: California Court of Appeals Court of Appeals
• Parties: , 17 UCC Rep.Serv. 512 Robert J. BLACK et al., Plaintiffs and Appellants, v. Jere N. SULLIVAN, Individually, and as Executor, etc., et al., Defendants and Respondents. Civ. 2085.

Page 119

122 Cal.Rptr. 119

48 Cal.App.3d 557, 17 UCC Rep.Serv. 512

Robert J. BLACK et al., Plaintiffs and Appellants, v. Jere N. SULLIVAN, Individually, and as Executor, etc., et al., Defendants and Respondents.

Civ. 2085.

Court of Appeal, Fifth District, California.

May 28, 1975.

Hearing Denied July 23, 1975.

Conron, James & Kirkorian, Calvin H. Conron, Jr., Bakersfield, Jules S. Rensen, Beverly Hills, for plaintiffs and appellants

Vizzard, Baker, Sullivan, McFarland & Long, Jere N. Sullivan, King, Eyherabide, Anspach, Newell & Friedman, Oliver U. Robinson and Robert J. Anspach, Bakersfield, for defendants and respondents.

OPINION

GEO. A. BROWN, Presiding Justice.

In essence, this is a suit for money damages commenced under the provisions of Civil Code section 2943 ¹ by the debtor- trustor against the beneficiary-payee of a note secured by a deed of trust and against the assignees for security of the note and deed of trust.

Plaintiffs, Robert J. Black and Joycelyn E. Black (hereinafter 'Blacks'), the debtors-trustors, appeal from a summary judgment in favor of the defendants, Jere N. Sullivan, as Executor of the Estate of Francis O. Sullivan (hereinafter 'F. O. Sullivan'), Jere N. Sullivan, individually (hereinafter 'Jere'), and Vizzard, Baker, Sullivan & McFarland, a copartnership (hereinafter 'Law Firm'), all of whom, except Jere individually, were assignees for security of the note and deed of trust. A motion for summary judgment filed by the defendants Harold and Miriam Schnaidt (hereinafter 'Schnaidts'), who were the beneficiaries under the deed of trust, was denied. That order is nonappealable and therefore is not before us.

On November 19, 1964, Schnaidts sold certain rural real property in the Mojave-Tehachapi area of Kern County to Jack and Jeannette Kalpakoff. As part of the purchase price, Kalpakoffs executed a promissory note in favor of Schnaidts for the sum of $144,000, secured by a deed of trust on the real property. On December 31, 1964, Blacks purchased the real property from Kalpakoffs and assumed the note and deed of trust in favor of Schnaidts.

Between November 20, 1964, the July 19, 1968, F. O. Sullivan ² made three separate loans totaling $86,000 to Schnaidts, each of which was secured by a separate assignment of Schnaidts' beneficial interest in the Black-Schnaidt deed of trust 'solely for the purpose of securing the payment' of the Schnaidt-F. O. Sullivan obligations.

On March 12, 1968, Schnaidts assigned their beneficial interest in the Black-Schnaidt deed of trust 'solely for the purpose of securing legal and/or attorney's fees due and owing and to become due and owing by (Schnaidts) to said Vizzard, Baker, Sullivan & McFarland (Attorneys at Law) for a period of ten years from date.' ³

All payments on the Black-Schnaidt deed of trust were made by Blacks to Schnaidts, none having been made to any of the assignees for security.

On December 22, 1970, Blacks opened an escrow for the sale of said real property for $392,000, with a closing date of March 3, 1971.

Pursuant to the requirements of Civil Code section 2943 (see fn. 1, Supra), the escrow officer on January 5 and again on January 29 requested a beneficiary statement of Schnaidts. It is undisputed that Schnaidts did not comply with the code section, primarily because the information furnished to the escrow officer did not show the unpaid balance on the Black-Schnaidt deed of trust. On February 24, at the request of Schnaidts, the escrow officer made a written request for a beneficiary statement from Jere, as attorney for F. O. Sullivan, because 'the interest of Mr. & Mrs. Schnaidt has been assigned to Francis O. Sullivan. . . .' By letter dated March 3, 1971, Jere, on behalf of the Law Firm as attorneys for both Schnaidts and F. O. Sullivan, ⁴ furnished some information to the escrow officer, but again it was incomplete, primarily because the unpaid balance on the Black-Schnaidt deed of trust was not shown.

The first three causes of action in Blacks' second amended complaint seek compensatory damages based on the alleged willful failure of F. O. Sullivan and the Law Firm to prepare and deliver a written statement pursuant to section 2943 after demands on January 5, 1971 (first cause of action), January 29, 1971 (second cause of action) and February 24, 1971 (third cause of action). In addition to other incidental damages, it is alleged that as a proximate result of such failure the buyers in the escrow for the sale of the property for $392,000 refused to complete the sale. The fourth cause of action is based on the same facts as the first three causes of action and, in addition to compensatory damages, seeks punitive damages in the sum of $100,000. In the fifth cause of action, Blacks allege a conspiracy among the several defendants (including Schnaidts) to interfere with an prevent the closing of the escrow and the sale of the property by willfully failing to prepare and deliver the statement required by section 2943. ⁵

The sixth cause of action incorporates by reference the allegations of the first four causes of action and seeks general damages in the sum of $100,000 for the alleged intentional causing of emotional distress.

For the reasons to be stated, we have concluded that F. O. Sullivan and the Law Firm, as assignees for security only, and Jere individually as a matter of law had no obligation to furnish the statements required by section 2943; accordingly, the summary judgment in their favor as to the first, second, third, fourth and sixth causes of action must be affirmed. It is also concluded that issues of fact are present in the verified averments of the fifth cause of action and papers submitted in opposition to the motion and the summary judgment in favor of the defendants as to that cause of action must be reversed.

The liability of Jere individually under the allegations of the first, second, third, fourth and sixth causes of action may be quickly disposed of. Since Blacks do not contend and the papers they have submitted in opposition to the motion do not support that Jere is either a beneficiary of the Black-Schnaidt deed of trust or an assignee of the beneficiary, no liability could be incurred by him as to those causes of action under the explicit terms of section 2943.

For the reasons about to be explained, we have concluded that, as assignees for security only, F. O. Sullivan and the Law Firm had no responsibility to comply with section 2943 upon demand by Blacks.

Section 2943 defines the person obligated to submit such a statement as a 'beneficiary of a deed of trust, or his assignees.' The assignments to F. O. Sullivan and the Law Firm constituted a transfer of Schnaidts' 'beneficial interest' under the deed of trust, together with 'all rights accrued or to accure under said deed of trust . . . solely for the purpose of collateral security' for a separate obligation owed by Schnaidts to the assignees. The assignees agreed to not transfer or encumber said note and deed of trust and to reassign it to Schnaidts upon payment of the obligation owed by Schnaidts to the assignees. Thus it is clear that the assignees did not assume the burdens, liabilities or obligations accompanying performance of the Black-Schnaidt deed of trust but only received the benefits or rights thereunder.

It has long been the law in California, reaffirmed by the Uniform Commercial Code, that an assignment for security transfers the rights but not the obligations inherent in the assigned contract. In Stone v. Owens (1894) 105 Cal. 292, 38 P. 726, the Supreme Court held that an assignee of a contract who received the contract as collateral security for money loaned did not accept the benefit of the original contract other than as pledgee and did not become a party to the original contract or obligate himself to perform the work which the pledged contract required to be performed by the pledgor. (105 Cal. at pp. 297--298, 38 P. 726.) That case is still viable law.

An assignment for security purposes of a promissory note secured by a deed of trust on real property is subject to the provisions of division 9 of the Commercial Code. (Com.Code, § 9102, subd. 3; Bank of California v. Leone (1974) 37 Cal.App.3d 444, 448, 112 Cal.Rptr. 394; Riebe v. Budget Financial Corp. (1968) 264 Cal.App.2d 576, 583, 70 Cal.Rptr. 654; Stewart, Trust Deed Collateral Loans and the California Commercial Code (1974) 2 West.St.L.R.; 3 Cal. Commercial Law, Div. 9 (Cont.Ed. Bar) § 1.23, pp. 18--20.)

Under the Commercial Code, an assignment for security purposes of a promissory note and deed of trust as collateral to secure an independent debt does not result in a delegation of duties to perform under the promissory note and deed of trust offered as collateral. Commercial Code sections 2210, subdivision 4, and 9317, respectively provide:

'(4) An assignment of 'the contract' or of 'all my rights under the contract' or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. . . .' (Com.Code, § 2210, subd. 4; emphasis added.)

'The mere existence of a security interest or authority given to the debtor to dispose of or use collateral does not impose contract or tort liability upon the secured party for the debtor's acts or omissions.' (Com.Code, § 9317.)

Subdivision 4 of Commercial Code section 2210, Supra, lays down a general rule of construction distinguishing between a normal commercial assignment which substitutes the assignee for the assignor both as to rights and duties and a financing assignment in which only the assignor's rights are transferred. (Comment, Com.Code, § 2210.)

It is evident by virtue of the above two sections that in a 'financing assignment' the 'assignee'...