In re Kelly, 46164.

• Decision Date: 18 August 1949
• Docket Number: No. 46164.,46164.
• Citation: 85 F. Supp. 316
• Court: U.S. District Court — Southern District of California
• Parties: In re KELLY.

85 F. Supp. 316

In re KELLY.

No. 46164.

United States District Court S. D. California, C. D.

August 18, 1949.

Hugo A. Steinmeyer and Alfred T. Twigg, by Alfred T. Twigg, Los Angeles, Cal., for the Bank of America National Trust & Savings Ass'n.

Craig, Weller and Laugharn, by Hubert F. Laugharn, Los Angeles, Cal., for the trustees.

Rogers & Rogers, by Burton L. Rogers, Ventura, Cal., for Mrs. Lois Bottomfield.

YANKWICH, District Judge.

The petition of Bank of America National Trust and Savings Association to review the order of the Referee dated June 1, 1949, limiting the right of the bank to the proceeds of the sale of certain real estate to the sum of $10,000, heretofore argued and submitted, is now decided as follows:

The said order of the Referee is reversed, with direction to the Referee to entertain such further proceedings as may seem meet in the premises — failing which, the bank's lien upon the funds to the full extent of the advance is to be allowed.

Comment

Where the Referee hears different versions of a transaction and draws his inferences from them, or where he draws inferences from contradictions in the testimony of one witness, his findings based thereon are entitled to full weight. See memorandum decision, In re Great Western Biscuit Co., D.C., 85 F.Supp. 314; Yankwich, Findings, 1948, 8 F.R.D. 271, 288.

However, when his conclusion is based upon an inference drawn from undisputed facts or upon his interpretation of an instrument, it is not binding on review. See my opinion in Re Alberti, D.C.1941, 41 F.Supp. 380.

The Referee here found, in substance, that the Bottomfield subordination agreement was obtained upon the representation that the trust deed of the bank dated December 3, 1946 covered the note of the same date in the sum of $10,000, and no more.

I find no testimony in the record to support these findings.

Lois Bottomfield was not a witness at the hearing. Burton L. Rogers, her attorney, attempted to testify to a conversation had with Walter Quam, Assistant Cashier at the Ventura Branch of the Bank, but an objection was sustained by the Referee upon the ground that it was an attempt "to alter or modify the terms of a written instrument."

It would seem that the witness intended to testify to a mere negative, i. e., that he was not informed of the actual extent of the indebtedness. However, if the intention was to show a positive representation, the testimony would be admissible.

It is true, as stated by the Referee, that preliminary negotiations cannot modify a written instrument. However, a mistake or fraud which induces another to execute an instrument is ground for relief in equity. See my recent opinion, sitting in the Circuit Court, U. S. v. Jones, 9 Cir., 176 F.2d 278; Cal.Civil Code, secs. 1577, 3399, 3400, 3401; Central Mfrs. Mut. Ins. Co. v. Jim Dandy Markets, D.C.Cal.1948, 77 F.Supp. 171.

And Mrs. Bottomfield should be permitted to show, if she can, that a representation was made to her or her attorney, as her agent, that the subordination was to be for only the face of the bank's note.

Indeed, the Referee having allowed the witness Quam to answer in the negative a question to the effect that the subordination was to be only to the extent of $10,000, the attorney should have been allowed to contradict this statement or give his version of the conversation.

I believe the difficulty arose from the fact that the attorney was a witness in the case and did not have anyone propound questions to him. Such a situation often gives rise to rulings which would not have been made had the examination proceeded in the usual manner.

The upshot of the matter is that the only testimony in the record relating to any representation is negative. We quote from the examination of Mr. Quam:

"Q. You have no recollection of advising me that the balance, the amount on that note was $10,000, and the subordination agreement was to be that Mrs. Bottomfield's note, a deed of trust, would be subordinate to the extent of $10,000? A. No. The thing was, Mr. Kelly had an estimate on a cost plus basis on the building. His cost exceeded the estimate substantially.

"Q. The building was completed when this deed of trust was made, is that right? A. That is right. It couldn't be recorded before, but it was necessary to extend Mr. Kelly more credit in order to bring the building to completion."

There remains in the record, as a basis for the findings of the Referee, the written instruments and the inferences which he drew from them. On this point, I am of the view that the Referee did not interpret correctly the instrument of subordination, Exhibit 7. That instrument subordinated the Bottomfield deed of trust to that of the bank.

The reference at the end of the instrument to the amount of the note was merely descriptive of the nature of the deed of trust and the primary note. It did not limit the security to the amount of the note. For...