Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co.
| Decision Date | 20 January 1977 |
| Citation | 135 Cal.Rptr. 802,66 Cal.App.3d 101 |
| Court | California Court of Appeals Court of Appeals |
| Parties | GLENDALE FEDERAL SAVINGS AND LOAN ASSN., etc., Plaintiff and Appellant, v. MARINA VIEW HEIGHTS DEVELOPMENT CO., INC., et al., Defendants and Appellants. GLENDALE FEDERAL SAVINGS AND LOAN ASSN., etc., Plaintiff and Appellant, v. Morris MISBIN and William E. Holmes, Defendants and Appellants. Civ. 13481. |
These consolidated appeals involve a dispute between a lending institution (hereafter Glendale) and a corporate land developer (hereafter Marina View) and its principals (Morris Misbin and William E. Holmes) over their respective rights and obligations under certain loan and guarantee agreements. The developers defaulted, the lending institution commenced nonjudicial foreclosure proceedings, and this litigation ensued.
At this point we shall set forth only the basic facts common to all of the appeals. Additional facts pertinent to the specific issues raised by the parties will be reviewed in subsequent portions of this opinion as we deal with those issues.
The properties which are the subject of the loan transactions are located south of the San Diego Freeway in the City of San Juan Capistrano and are known as the 'Reed Ranch' (approximately 1,220 acres), 'Window Hill' (approximately 85 acres), and 'Krum Ranch' (approximately 420 acres). At the time loan negotiations between the parties commenced, Marina View was the owner of Reed Ranch and Window Hill and Glendale was the owner of Krum Ranch. Krum Ranch which Glendale had acquired by deed in lieu of foreclosure from a former developer was partially developed with a golf course and condominiums. Except for some basic grading on Window Hill, Reed Ranch and Window Hill were unimproved. 1 Krum Ranch and Reed Ranch were abutting properties with a large area of unstable earth overlapping their common boundary.
In early 1967 Marina View approached Glendale for a two million dollar loan for the development of Window Hill. Glendale declined to make the loan but negotiations continued culminating in a single transaction whereby Glendale agreed to sell Krum Ranch to Marina View on credit, to lend Marina View funds to grade and install offsite improvements on Window Hill, and to provide Marina View with funds to perform earth stabilization work along the common boundary of Reed Ranch and Krum Ranch. Marina View proposed that the transaction be handled by two separate loan agreements and trust deeds, one on Krum Ranch and the other on Reed Ranch and Window Hill, but Glendale insisted on a single note and trust deed covering all three parcels.
On June 9, 1967, the parties entered into a written agreement which included the following pertinent terms:
(1) Marina View agreed to buy the Krum Ranch for $6,767,000.
(2) Glendale agreed to lend Marina View $8,767,000 to finance the acquisition of Krum Ranch and to provide funds for the improvement of Window Hill with grading and offsite improvements.
(3) The loan was to be secured by a first trust deed on the three parcels.
(4) Glendale agreed to act as escrow holder and to make the following advances and disbursements on the close of escrow: (a) Advance $7,140,000 to be disbursed as follows: $6,767,000 to Glendale for the purchase price of Krum Ranch, $360,000 to Glendale for prepaid interest and $13,000 for closing costs; (b) Advance $1,627,000 to Marina View 'primarily for the purpose of completing the offsite improvements on the Window Hill property' to be disbursed as follows: $1,620,000 to be transmitted to Marina View at close of escrow, $7,000 to be held by Glendale for closing costs incident to this part of the loan.
(5) Marina View agreed that within 18 months after the close of the escrow it would complete the grading and construction of offsites on Window Hill.
(6) The agreement called for the personal guaranties of Misbin and Holmes that the improvements on Window Hill would be completed.
(7) Marina View agreed to undertake geological and engineering studies for the correction of the unstable soil condition (estimated to cover approximately 400 acres) along the common boundary of Krum Ranch and Reed Ranch, the studies to include costs estimates of the remedial work necessary to make the land suitable for residential construction. The studies were to be completed and transmitted to Glendale within 12 months of the close of escrow.
(8) Glendale agreed to lend up to two and a half million dollars to correct the soil condition.
(9) Misbin and Holmes were required to execute 'personal guaranties of the completion of such improvements (slide stabilization) and payments therefor. . . .'
(10) Marina View agreed that within 12 months of the close of escrow it would develop and transmit to Glendale a tentative master plan for the development of all of the properties covered by the trust deed.
(11) Marina View agreed to construct condominium units on a portion of the Krum Ranch which had been prepared for such use and Glendale agreed to make further advances or new loans for such purposes.
(12) Marina View agreed to operate and maintain the existing golf course and club house located on Krum Ranch.
On June 15, 1967, the escrow closed and the deed of trust securing Marina View's indebtedness to Glendale was recorded. 2
At the close of escrow the net sum of $1,233,570.45 was disbursed to Marina View in cash from the $1,654,689.72 loan proceeds for the improvements to be made on Window Hill. 3
In 1968 Marina View made preparations to proceed with the slide stabilization project by submitting to Glendale engineering studies for the project, with a cost estimate of approximately four and a half million dollars, and by obtaining county approval for the first 268 acres of the project. In October 1968 Glendale made a two and a half million dollar loan to Marina View for the project as a secured advance under the original trust deed. The loan was evidenced by a document entitled 'Building Loan Agreement' for the construction of improvements consisting primarily of 'grading and offsite improvements.' Misbin and Holmes executed a document entitled 'Building Contract Guaranty Agreement' which provided that in consideration of the loan, they individually guaranteed that Marina View would furnish all labor and materials 'necessary for the construction of said building or buildings, and will fully complete the construction of same promptly and in accordance with . . . the terms and conditions' of the 'Building Loan Agreement.'
Contemporaneously with the slide stabilization loan, Glendale made a new loan of $963,200 for the construction of condominiums on Krum Ranch. The loan was accomplished by releasing from the security of the original trust deed that portion of Krum Ranch on which the condominiums were to be built and by securing the new loan by a separate trust deed on the released property. 4
The slide stabilization and the condominium construction loan transactions were closed on October 22, 1968. Thereafter Marina View commenced work on the slide area, drawing on the two and a half million dollar loan fund by vouchers in favor of the general contractor for that project. 5
By December 1968 (the expiration date of the 18 months for the completion of grading and offsite improvements on Window Hill), Marina View had expended not more than $609,930 for grading on Window Hill but had performed no additional work. A minimum of $623,000 of the loan proceeds earmarked for improvement work on Window Hill had been diverted by Marina View and Misbin and Holmes to other uses and purposes.
In the ensuing months, Marina View failed to pay the installments of principal and interest due on the notes secured by the trust deeds, failed to pay the real property taxes, failed to construct offsite improvements on Window Hill, and failed to complete the slide stabilization project. Glendale withheld institution of foreclosure proceedings in order to give Marina View the opportunity to make other financial arrangements to cure its defaults but it was unable to do so.
In June 1970 Glendale recorded a notice of default on both the original trust deed and the trust deed securing the condominium construction loan and filed an action for injunction and for the appointment of a receiver to operate the golf course and club house on the Krum Ranch pending foreclosure. Marina View answered and cross-complained for rescission of the loan agreements on the ground of fraud and for a judicial declaration that the rights and obligations of the parties were fixed by an oral agreement entered into before the execution of the loan agreements.
Glendale thereafter filed a separate action against Misbin and Holmes for damages for breach of the completion guarantee agreements with respect to the Window Hill improvements and the slide stabilization project. Misbin and Holmes answered and cross-complained for rescission and declaratory relief on essentially the same grounds alleged by Marina View in its cross-complaint in the first action.
In January 1971 Glendale filed in its first action a 'cross-complaint' for damages for fraud against Misbin and Holmes alleging in substance: At the time the loan transaction was entered into, Misbin and Holmes falsely represented that Marina View intended to comply with all of the terms and conditions of the loan agreements; Misbin and Holmes never intended to have Marina View repay the loan...
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