Boswell v. Reid

• Decision Date: 31 January 1962
• Court: California Court of Appeals Court of Appeals
• Parties: John P. BOSWELL, Plaintiff and Respondent, v. Bill REID, Defendant and Appellant. Civ. 10103.

Page 29

19 Cal.Rptr. 29

199 Cal.App.2d 705

John P. BOSWELL, Plaintiff and Respondent, v. Bill REID, Defendant and Appellant.

Civ. 10103.

District Court of Appeal, Third District, California.

Jan. 31, 1962.

Richard A. Case, Sacramento, for appellant.

John M. Welsh, Sacramento, for respondent.

SPARKS, Judge pro tem.

Defendant Reid appeals from a judgment entered against him in an action on an unsecured promissory note and from the order denying his motion for new trial. The note was dated October 21, 1954, and made payable on or before December 21 of the same year, to Fair Oaks Investment & Mortgage Company in the face amount of $18,705.45. Contention is made that the findings of fact and conclusions of law are not supported by the evidence and that the judgment is against the law. It is also asserted that the trial court erred in its rulings on admissibility of the evidence to the prejudice of the substantial rights of the defendant, and that in any event the judgment was excessive.

The litigation arose as an aftermath of an unsuccessful attempt to develop a housing project in the City of Lincoln, California. The proposed construction was of some magnitude, consisting of 38 houses to be located on a tract known as 'Western Addition' in the said City of Lincoln. Perhaps the complex factual background best can be described by enumerating the persons involved in the project. First, there was the defendant, Willard W. Reid, who was the owner of the land, or at least stood in that capacity for the purpose of the transaction, being named as grantee in a deed describing the 38 lots. Thomas Kane was a real estate broker who was acting as Reid's agent in the project. Both Reid and Kane were desirous of moving the development forward, but to do so required financial backing. Through Kane's efforts, Reid was put in touch with Fair Oaks Investment & Mortgage Company, a copartnership consisting of John T. Marko and Charles Hicks, herein called 'Fair Oaks.' In order to obtain financial commitments for the project, Fair Oaks acted as a sort of entrepreneur between the owner of the land, Reid, and lending agencies. It appeared that the keystone for such financial support depended upon obtaining advance commitments from Federal National Mortgage Association, herein called 'FNMA.' The possession of such commitments would assure the ultimate purchase by FNMA of qualified 'Take-out loans' and would clear the way for the preliminary financing of construction and for interim loans by other lending agencies. Home Investment Company of Long Beach, herein called 'Home Investment,' had entered into an 'advance contract to purchase' with FNMA, by the terms of which FNMA committed itself and agreed to purchase mortgages of the type described, not to exceed the sum of $1,404,636.15.

To obtain the required number of FNMA commitments for the Reid project, Fair Oaks negotiated with John P. Boswell, plaintiff and respondent herein. Boswell was the beneficial owner under Home Investment of a $380,000 portion of the said FNMA advance purchase contract, and contact was made with him by Fair Oaks to purchase 38 FNMA rights of $9,450 each for the Reid project in Lincoln. For a consideration of $17,500, and with the consent of Home Investment, Boswell agreed to assign to Fair Oaks, or its nominee, the said rights. Accordingly, on October 21, 1954, an escrow was set up in the Capital City Title Company of Sacramento, herein called 'Title Company,' and certain documents were deposited therein with written instructions as to the terms and conditions of delivery. Defendant Reid deposited a check in the sum of $5,700, payable to the Title Company, and the promissory note, the subject of this action, payable to Fair Oaks Investment Company. Fair Oaks deposited in escrow a copy of an agreement with John P. Boswell, relative to the purchase of the $380,000 portion of FNMA rights, and its promissory note in the principal amount of $17,500, payable to John P. Boswell. By letter dated November 3, 1954, Boswell deposited with said Title Company an assignment of his $380,000 portion of the FNMA rights to Fair Oaks, or its nominee, with consent to the assignment and transfer executed by Home Investment, together with a copy of the advance contract purchase of the FNMA.

Defendant Reid's instructions for transfer of the check and note were '* * * when you have received for my account: 1. Evidence that 38 FNMA rights have been obtained ($9,450.00 each) and are available for Bill Reid project on 38 lots in City of Lincoln. 2. Agreement from Marko to obtain C.R.V.'s--interim financing, take out financing and process all closing (insurance excepted) and to handle all inspection at his expense. * * * Upon compliance pay out $5,700.00 and deliver note.'

Fair Oaks' instructions were:

'Provided that there has been delivered into your escrow No. 108681, the sum of $5,700.00, from Bill Reid, and a promissory note dated October 21, 1954, in the amount of $18,705.45, including interest to maturity, date of December 21, 1954, payable to Fair Oaks Investment & Mortgage Company, executed by Bill Reid, you are authorized to deliver the enclosed $17,500.00 note to John P. Boswell, and request the return to you of acknowledgement of the purchase of the $380,000.00 FNMA rights and that the said FNMA rights shall be picked up, upon the completion of the proposed construction in the tract consisting of thirty-eight (38) dwellings in the City of Lincoln, State of California.

'It is acknowledged that the escrow instructions left with you by Bill Reid provided that Fair Oaks Investment & Mortgage Company is to obtain C.R.V.'s, interim financing, take-out financing, and is to process all closing (fire insurance excepted) and to arrange for all construction progress inspections, which upon receipt by Fair Oaks Investment & Mortgage Company of the said sum of $5,700.00, and the said promissory note in the amount of $18,705.45, it is agreed shall be undertaken by Fair Oaks Investment & Mortgage Company, interim financing points and interim interest to be paid by developer.'

Instructions of plaintiff John P. Boswell as to the delivery of $380,000 of FNMA rights to Fair Oaks were:

'This transfer is being made for the express and exclusive allocation of these FNMA rights consisting of 38 lots in blocks 21, 22, 27 and 28 in Western Addition No. Two, City of Lincoln, California. The letter assigning said rights is, of course, being delivered conditionally to your obtaining the required Deed of Trust, securing the Note of Bill Reid in the amount of $18,705.45, and is not to be effective until receipt by you of the required Deed of Trust. It is also subject to all the terms and conditions of this escrow.

'We also require that if any Trust Deed, Mortgage or Lien is recorded upon said 38 lots other than the interim construction loan Trust Deed, our Trust Deed in the amount of $18,705.45, shall be immediately recorded even though the date is prior to December 21, 1954.

'You are hereby also informed that under the terms of this escrow, no portion of the $18,705.45 Note, when paid into your escrow, is to be released to the Fair Oaks Investment & Mortgage Co., until the amount of our Note $17,500.00 has been paid. In other words, inasmuch as Mr. Reid's Note is the principal security for the payment of our Note from Fair Oaks Investment & Mortgage Co., in the amount of $17,500.00, no portion of the principal sum of $18,705.45, is to be released until the entire Note in the amount of $17,500.00 has been paid to us. It is also understood and agreed that our Note in the amount of $17,500.00, payable by Fair Oaks Investment & Mortgage Co., Charles A. Hicks, individually and John T. Marko, individually is to be paid as soon as founs are received from Mr. Reid in payment of his Note of $18,705.45, and you shall not be required to wait for the due date of our Note, March 26, 1955, before making this payment of $17,500.00 to us.'

The special condition inserted by Boswell that a trust deed be furnished securing the Reid note was subsequently waived by Boswell, and the FNMA rights were to be delivered upon receipt of the $17,500 note of Fair Oaks. On November 5, 1954, the manager of the Title Company considered the escrow in a position to be closed and delivered to Fair Oaks the Title Company's check for $5,700. He then deposited for collection Reid's check, payable to the Title Company, in the same amount. It was dishonored upon presentation. The $17,500 note of Fair Oaks was then delivered to and accepted by Boswell. Under instructions from Fair Oaks the Reid note for $18,705.45 was retained by the Title Company. This note was not paid on or before December 21, 1954, or at any subsequent date.

On January 7, 1955, defendant Reid and his wife entered into a contract with George W. Reed for the construction of 38 dwellings upon the real property, at a price of $262,200, which contract was placed in escrow with Title Company, together with other documents. On February 8, 1955, Wells Fargo Bank wrote a letter to Charles Hicks of Fair Oaks Investment & Mortgage Company confirming that it would carry interim construction loans on 25 lots in Lincoln, California, for Bill Reid.

No houses were ever built on the lots; in fact construction thereon was not even begun and the project failed. On January 16, 1956, action was filed by Boswell against Hicks and Marko on the promissory note made by them. Judgment was recovered in the sum of $17,500, plus $2,000 attorney's fees. Execution was then levied by Boswell on the Reid note, and at a sale held thereon, Boswell purchased said note. When the complaint in the instant action was filed on October 22, 1958, Boswell was the owner and holder of said note. Findings of fact and conclusions of law were entered in favor of the plaintiff as to all of the allegations of the complaint, and against defendant on each and all of his denials and affirmative...