Stein v. Simpson

• Decision Date: 04 May 1951
• Citation: 37 Cal.2d 79,230 P.2d 816
• Court: California Supreme Court
• Parties: STEIN et al. v. SIMPSON et al. L. A. 21335.

Page 816

230 P.2d 816

37 Cal.2d 79

STEIN et al. v. SIMPSON et al.

L. A. 21335.

Supreme Court of California, in Bank.

May 4, 1951.

Joseph D. Taylor and John W. Hill, Los Angeles, for appellant.

Cobb & Utley and Ernest R. Utley, all of Los Angeles, for respondent.

CARTER, Justice.

This is an appeal from a judgment quieting plaintiffs' title to real property on the condition that they pay defendant Simpson $12,000, less costs, within 30 days from notice of entry of the judgment. Simpson claims the amount payable should be $28,911.87.

From the unchallenged findings of fact the following appears. Plaintiffs were the owners of property having a value of over $50,000. It was encumbered by a first trust deed securing a debt owed to Hollywood State Bank amounting to $18,000. Simpson loaned $20,000 to plaintiffs and demanded and received therefor two notes, each for $22,000, the additional $2,000 on each being a bonus demanded by Simpson. The notes called for interest at 7%. One of the notes was secured by a second trust deed on the property and the other by a chattel mortgage on the furniture. At Simpson's request the notes were made payable to a third party Simons (an employee of Simpson) who was to and did assign them to Simpson. (That was an attempt to avoid a claim of usury.) Each of the notes was payable in monthly installments of $2,000 from August 24, 1946, to January 24, 1947, when the balance became due. The $2,000 bonus was usurious interest charged by Simpson. Plaintiffs paid $8,000 on the notes, reducing the principal to $12,000, in accordance with the notes and a subsequent understanding in which additional interest amounting to $240 was to be paid. Various proper tenders of the balance due were made by plaintiffs or their agent to simpson or his agent and refused. Simpson gave notice of default and election to sell, and the sale of the property under the trust deed was scheduled for July 23, 1947. It was continued from time to time at Simpson's request to September 10, 1947, at 10 A.M. An hour before the sale, plaintiffs offered to pay the full amount which Simpson claimed was then due, and Realty Title Co., Simpson's agent for collection from plaintiffs, and trustee under the trust deed, advised plaintiffs that $16,641.13 was all that was required. Thereupon, and still before the sale, plaintiffs made a cash tender to Simpson of $17,000. The tender was refused, Simpson stating that he was interested in acquiring the property, not the money. The sale proceeded, Simpson bidding $36,000 and plaintiffs' agent, Bassett, $50,000. Bassett having only $17,000 in cash with him, the title company, at Simpson's request, declared 'all bids off' and started a new sale. The title company then announced that Simpson had paid the plaintiffs' debt to the Hollywood State Bank under the first trust deed in the sum of $17,380.85, and hence the sale would be for the amount represented by both trust deeds. Simpson had paid the bank the amount due on the first trust deed the morning of the sale. Bassett's request for a 24-hour postponement of the sale to obtain funds to cover his $50,000 bid was refused at Simpson's direction. The sale proceeded, Bassett bidding $17,000 and Simpson $18,000. The property was sold to Simpson. The court found the sale invalid; that the amount owed by plaintiffs to Simpson under said notes and trust deeds was $12,000 and that amount is due without interest.

The foregoing facts are undisputed, and with the other facts found, depict a shocking and unconscionable course of conduct by Simpson.

The court also found: 'That in the payment to the Hollywood State Bank of the sum of $17,380.85 in satisfaction of its first trust deed, Simpson did not secure from the bank an assignment of said indebtedness, and his aforesaid satisfaction of said bank's note and trust deed was not disclosed to plaintiff's either at the time of their aforesaid redemption tender on said date or prior to the time Bassett had bid the sum of $50,000.00 for said property.

'That the Trustee's sale under Simpson's second trust deed advertised said property for sale subject to the Hollywood State Bank's first trust deed; that no one had demanded of Simpson the payment of said first trust deed and there was no reason appearing which would have then required Simpson to have paid and satisfied the bank's first trust deed in order that Simpson's interest might be protected; that Simpson had no property interest to protect at the time which would have required payment of the indebtedness due the bank and in paying and satisfying the bank's first trust deed, Simpson was a volunteer and Simpson's act and conduct in paying and satisfying the bank's first trust deed was only for the reason of springing a surprise upon plaintiffs and to enable him to acquire the property in question for himself at said Trustee's sale and at a price far below the real value of said property.' Simpson does not question the factual matters in the finding last quoted, but asserts that the finding that he was a volunteer and had no interest to protect, is a conclusion of law.

Simpson's contention is that he was not a volunteer; that he had an interest to protect, and that, therefore, he is entitled to have repaid to him the amount he paid the bank ($17,380.85) in addition to the $12,000. His claim is that 'he who seeks equity must do equity' (10 Cal.Jur. 508), hence plaintiffs, who are seeking equity, must pay the amount he paid the bank.

It is true that the maxim applies, and a plaintiff may be required to do equity in some cases, though defendant could not have obtained such equity by independent action or as the acting party. Dool v. First National Bank, 207 Cal. 347, 278 P. 233; Holland v. Hotchkiss, 162 Cal. 366, 123 P. 258, L.R.A.1915C, 492; Pomeroy's Equity Juris., (5th ed.) § 386a. It is also true, however, that in the application of that maxim the court does not create substantive rights under the guise of doing equity, that is, it does not confer rights when the one who invokes it has none, Rosenberg v. Lawrence, 10 Cal.2d 590, 75 P.2d 1082; Lande v. Jurisich, 59 Cal.App.2d 613, 139 P.2d 657 or as has been stated: 'With respect to the terms which may be imposed upon the party as a condition to his obtaining the relief in accordance with the rule, that is, the 'equity' which he must do, it is undoubtedly true, as said by Vice-Chancellor Wigram, that the court obtains no authority from this principle to impose any arbitrary conditions not warranted by the settled doctrines of equity jurisprudence; the court cannot deprive a plaintiff of his full equitable rights, under the pretense of awarding to the defendant something to which he has no equitable right, something which equity jurisprudence does not recognize. The principle only requires the plaintiff to do 'equity.' According to its true meaning, therefore, the terms imposed upon the plaintiff, as the condition of his obtaining the relief, must consist of the awarding or securing to the defendant something to which he is justly entitled by the principles and doctrines of equity, although not perhaps by those of the common law, something over which he has a distinctively equitable right.' Pomeroy's Equity Jurisprudence (5th ed.), § 386.

The right which Simpson claims he is entitled to have plaintiffs accord him here, in claiming equity, is that of subrogation. 'The principle upon which the right of subrogation is founded applied in all cases in which one person, not a volunteer, pays a debt for which another is primarily answerable, and which, in equity and good conscience, should have been discharged by the latter.' 23 Cal.Jur., p. 918. And the rule has found express application with reference to payment by a junior lien holder of a senior lien on the same property. 'Every person, having an interest in property subject to a lien, has the right to redeem it from the lien, at any time after the claim is due, and before his right of redemption is foreclosed, and, by such redemption, becomes subrogated to all the benefits of the lien, as against all owners of other interests in the property, except in so far as he was bound to make such redemption for their benefit.' Civ.Code, § 2903. 'One who has a lien inferior to another, upon the same property, has a right:

'1. To redeem the property in the same manner as its owner might, from the superior lien; and,

'2. To be subrogated to all the benefits of the superior lien, when necessary for the protection of his interests, upon satisfying the claim secured thereby.' Civ.Code, § 2904. It is the general rule that where the holder of a junior lien on property pays the debt secured by a senior lien to protect his interest, he thereby becomes subrogated to the rights of the senior lien holder as against the owner of the property, even though he takes no assignment of the senior lien. Diehl v. Hanrahan, 68 Cal.App.2d 32, 155 P.2d 853; Swain v. Stockton Savings etc. Soc., 78 Cal. 600, 21 P. 365; 50 Am.Jur., Subrogation, §§ 23, 103.

As appears from the rule of subrogation, the one invoking it must not have, in making the payment, been a volunteer an officious intermeddler, or affirmatively he must have had some interest to protect. See authorities cited supra; Guy v. Du Uprey, 16 Cal. 195; McMillan v. O'Brien, 219 Cal. 775, 29 P.2d 183, 91 A.L.R. 383; Richards v. Griffith, 92 Cal. 493, 28 P. 484; Bowman v. Sears, 63 Cal.App. 235, 218 P. 489; 23 Cal. Jur., 919; Rest., Restitution, § 162; 50 Am.Jur., Subrogation, § 21; Pomeroy's Equity Juris. (5th ed.), § 1212.

Simpson does not dispute that at the time he paid the bank's trust deed his security-trust deed interest in the property was extinguished by reason of plaintiffs' tenders of payment. Thus it would appear he had no interest in the property when he paid the bank. He asserts, however, that he must have had an interest in the property, otherwise the court would not the required plaintiffs to pay...