Ralph C. Sutro Co. v. Paramount Plastering, Inc.

• Decision Date: 21 May 1963
• Citation: 31 Cal.Rptr. 174,216 Cal.App.2d 433
• Parties: RALPH C. SUTRO CO., a corporation, Plaintiff and Respondent, v. PARAMOUNT PLASTERING, INC., a corporation, et al., Defendants and Respondents, Western Investment and Title Co., Defendant and Appellant. Civ. 26312.
• Court: California Court of Appeals Court of Appeals

Page 174

31 Cal.Rptr. 174

216 Cal.App.2d 433

RALPH C. SUTRO CO., a corporation, Plaintiff and Respondent, v. PARAMOUNT PLASTERING, INC., a corporation, et al., Defendants and Respondents Western Investment and Title Co., Defendant and Appellant.

Civ. 26312.

District Court of Appeal, Second District, Division 3, California.

May 21, 1963.

Rehearing Denied June 11, 1963.

Hearing Denied July 17, 1963.

Jay J. Stein, Beverly Hills, and Robert Haves, Los Angeles, for appellant.

James R. Smith, Anaheim, for respondents.

SHINN, Presiding Justice.

Plaintiff, Ralph C. Sutro Company, brought suit in interpleader. The interpleaded fund of $10,910.39 represents the balance of moneys held by plaintiff pursuant to a construction loan agreement between plaintiff and Hindry Properties, Inc. Western Investment and Title Company (Witco), claims the interpleaded fund under contractual rights and is opposed by the remainder of the defendants, respondents herein, all of whom rendered services or delivered materials on behalf of said construction. The trial court, after deducting Sutro's costs and attorney's fees, ordered the fund distributed on a pro rata basis to respondents. Witco appeals.

The facts pertinent to a decision herein are as follows: On November 15, 1957, plaintiff, Sutro Co., entered into a loan agreement with Hindry Properties, Inc., whereby Hindry as the owner of certain property was to borrow $60,000 from or through Sutro for the construction of a 15-unit two-story apartment building thereon. The loan agreement further provided that the loan proceeds were to be used exclusively for the express purpose of paying bills and claims for labor and materials with respect to the construction. On the same date Hindry Properties, Inc. executed a deed of trust and note in the same amount pursuant to such loan agreement. The deed of trust was recorded on January 20, 1958, and thereafter construction commenced upon said apartment building. On March 5, 1958, Sutro Co. sold and assigned the note and trust deed to a third party who, in turn, sold and assigned same to the appellant Witco on May 26, 1959, for the sum of $61,947.90. Notice of default and intention to sell under the trust deed had been recorded by the trustee, Title Insurance and Trust Company, on February 19, 1959. On June 25, 1959, Witco purchased the property at the foreclosure sale for the sum of $53,600.00. At that date the total indebtedness on the property was shown to be $63,223.06. The question raised by this appeal is whether the trial court was justified in finding that the interpleaded amount constituted a trust fund held for the benefit of respondents and that said respondents have a claim and lien in equity against said fund to the exclusion of appellant Witco. We find that it was.

It is stipulated that the respondents' services, the claims for which being duly recorded, were fully performed previous to the foreclosure sale on June 25, 1959, and the trial court found that they were completed prior to the commencement of said foreclosure proceedings on February 19, 1959. The loan agreement provided for payment in seven installments with the last to be drawn and paid when Hindry had established that all costs of labor and material and other expenses had been fully paid. In this Hindry had defaulted. In spite of attempts by the appellant to distinguish the cases on the facts the reasoning in the Whiting-Mead Co. v. West Coast etc. Co., 66 Cal.App.2d 460, 152 P.2d 629, is dispositive of this case. In that case the court in interpreting a similar construction loan agreement, determined that it created a trust for the benefit of the lender, whose interest was its right under the agreement to have on the property a completed structure, built according to certain plans and specifications, thus providing the agreed security for the loan. Another beneficiary was the borrower whose right, as in the instant case, was to have expended for his benefit, whether paid directly to him or not, the borrowed funds reflected in his promissory note, in constructing the improvements. The agreement provided for payment only upon a showing by the borrower that all claims for labor and materials had been paid. The borrower defaulted in this last requirement. The court found, inter alia, that the lender having a completed structure, and its trust deed having priority over the claims of suppliers of labors and materials, the purpose of the trust with respect to the lender was accomplished. The lender had no right to the remaining funds. There, as in the present case, it was the duty of the trustee to apply the remaining funds to the unpaid claims for labor and materials used in the construction. Witco's claim, being derivative upon the rights of the lender, Sutro Co., therefore must also fail.

Appellant argues against the existence of the trust and refers to the provision in the loan agreement that the Sutro Co. was not responsible for the application of the...