Triple A Management Co., Inc. v. Frisone

• Decision Date: 25 January 1999
• Docket Number: Nos. F027349,F028879,s. F027349
• Parties: , 99 Cal. Daily Op. Serv. 721, 99 Daily Journal D.A.R. 857 TRIPLE A MANAGEMENT COMPANY, Inc., Plaintiff and Respondent, v. Larry F. FRISONE, as Cotrustee, etc., et al., Defendants and Appellants; Stewart Title of Modesto, Defendant, Cross-complainant, Cross-defendant, and Appellant; Western Farm Credit Bank, Cross-complainant, Cross-defendant and Appellant. Larry F. Frisone, as Cotrustee, etc., et al., Plaintiffs and Appellants, v. Triple A Management Company, Inc., Defendant and Respondent; Western Farm Credit Bank, Defendant, Cross-complainant, Cross-defendant and Appellant; Stewart Title of Modesto, Cross-complainant, Cross-defendant and Respondent. Larry F. Frisone, as Cotrustee, etc., et al., Petitioners, The Superior Court of Fresno County, Respondent; Triple A. Management Company, Inc., Real Party in Interest.
• Court: California Court of Appeals Court of Appeals

Page 669

81 Cal.Rptr.2d 669

69 Cal.App.4th 520, 99 Cal. Daily Op. Serv. 721,

99 Daily Journal D.A.R. 857

TRIPLE A MANAGEMENT COMPANY, Inc., Plaintiff and Respondent, v. Larry F. FRISONE, as Cotrustee, etc., et al., Defendants and Appellants;

Stewart Title of Modesto, Defendant, Cross-complainant, Cross-defendant, and Appellant;

Western Farm Credit Bank, Cross-complainant, Cross-defendant and Appellant.

Larry F. Frisone, as Cotrustee, etc., et al., Plaintiffs and Appellants, v. Triple A Management Company, Inc., Defendant and Respondent;

Western Farm Credit Bank, Defendant, Cross-complainant, Cross-defendant and Appellant;

Stewart Title of Modesto, Cross-complainant, Cross-defendant and Respondent.

Larry F. Frisone, as Cotrustee, etc., et al., Petitioners,

The Superior Court of Fresno County, Respondent;

Triple A. Management Company, Inc., Real Party in Interest.

Nos. F027349, F028879.

Court of Appeal, Fifth District, California.

Jan. 25, 1999.

Certified for Partial Publication. ^*

Dietrich, Glasrud & Jones, Dietrich, Glasrud, Mallek & Aune, and Bruce A. Owdom, Fresno, for Plaintiffs and Appellants, Defendants and Appellants, and Petitioners.

Alborg, Veiluva & Cannata, Thomas E. Alborg and Michael J. Veiluva, Walnut Creek, for Defendant, Cross-complainant, Cross-defendant, Appellant and Petitioner.

Albert J. Berryman, Caswell, Bell, Hillison, Burnside & Greer, Robert K. Hillison and Robert A. Werth, Fresno, for Defendant, Cross-complainant, Cross-defendant and Appellant.

Wild, Carter & Tipton and Steven E. Paganetti, Fresno, for Plaintiff and Respondent, Defendant and Respondent, and Real Party in Interest.

VARTABEDIAN, J.

OPINION

The assignee of a security interest in a deed of trust unilaterally signed an agreement subordinating the deed of trust to a subsequent deed of trust. Thereafter, the assignor paid its secured debt and the earlier deed of trust was reconveyed to it. When the trustor of the subsequent deed of trust defaulted, the assignor asserted its lien had first priority. However, the beneficiary of the subsequent deed of trust contended, in reliance on the subordination agreement, that it had first priority. Among other findings, the trial court determined the subordination agreement was ineffective. It entered judgments and awarded attorney fees in accordance with this underlying finding. Various parties have appealed from different aspects of the judgment. We affirm the judgment in its entirety.

Facts and Procedural History

In 1988, Triple A Management Company, Inc. (hereafter Triple A) bought 140 acres near Kingsburg from Western Farm Credit Bank (hereafter Western). Western secured its purchase money loan of $504,000 to Triple A with a first deed of trust on the property. Triple A farmed the property.

Triple A agreed, in 1992, to sell 20.4 acres of the property to Greenwood Estates Associates (hereafter Greenwood) for $525,000. Greenwood promised to pay $100,000 as a down payment and to deliver a promissory note, secured by deed of trust on the property, in the amount of $425,000. As a condition of the sale, Triple A agreed to subordinate its security interest in favor of any future "development loan" not to exceed $1.6 million. Western agreed to release the 20.4 acres from its lien in return for assignment to it of the Greenwood promissory note and deed of trust as additional collateral for the original Triple A debt.

The parties opened an escrow at Stewart Title of Modesto (hereafter Stewart Title). We refer to this escrow as escrow 1, in keeping with the practice of the parties to this appeal. The escrow instructions directed Stewart Title "to prepare the necessary Assignment of Deed of Trust" so that Western's interest in the Greenwood debt could be recorded.

While its escrow with Triple A was pending, Greenwood agreed to sell the 20.4-acre parcel to Mark Sullivan. ¹ The purchase price of $990,000 was to be paid by Sullivan's assumption of the Greenwood promissory note to Triple A, his execution of a new note to Greenwood in the amount of $340,000 secured by a third deed of trust on the property, and by payment of $350,000 cash obtained from a new loan. ² Sullivan was to obtain the cash from the Frisones, private investment lenders who operated through several family trusts. The parties opened escrow for the resale of the 20.4 acres; that escrow was also with Stewart Title. Among the seller's escrow instructions was one directing that title would vest in Sullivan subject to "Deed of Trust to be of record at close of escrow in favor of [Triple A] and collaterally assigned to [Western] securing a loan in the amount of $425,000.00 shall be subordinated to the loan in favor of [Frisones]." The Frisones' escrow instructions directed Stewart to release the loan funds only when Frisones' deed of trust would be the first priority lien on the property and when Stewart had issued a lender's title insurance policy insuring Frisones' first lien status. We will refer to this escrow as escrow 2, as do the parties.

After a time, both escrows were assigned to the same escrow agent at Stewart Title, Carol Wheeler.

On July 6, 1993, Greenwood signed the note and deed of trust called for in escrow 1 (both the note and the deed of trust are dated June 14, 1993). Triple A signed a security agreement granting Western a security interest in the Greenwood note and deed of trust, and on August 3, 1993, Triple A executed a recordable assignment of the Greenwood deed of trust. We set forth the operative portions of that assignment verbatim. The assignment is on a preprinted form and was prepared by Stewart Title; preprinted portions are rendered in normal typeface, portions inserted by typewriter are indicated in italics, and handwritten portions are rendered in boldface.

"COLLATERAL

"ASSIGNMENT OF DEED OF TRUST

"FOR VALUE RECEIVED, the undersigned hereby grants, assigns and transfers to WESTERN FARM CREDIT BANK, a California corporation, all beneficial interest under that certain Deed of Trust dated June 14, 1993, executed by TRIPLE A MANAGEMENT COMPANY, INC., a California corporation, Trustor, to STEWART TITLE OF MODESTO, a California corporation, Trustee, and recorded as Instrument No. concurrently herewith, 1993, in Book ___, Page ___, of Official Records in the Office of the County Recorder of Fresno County, State of California;

"TOGETHER with the note or notes therein described or referred to, the money due and to become due thereon with interest, and all rights accrued or to accrue under said Deed of Trust." ³

Documents from escrow 1 were recorded on August 17, 1993. Among those recorded were the Greenwood deed of trust and the Triple A assignment of that deed of trust to Western.

As escrow 1 moved forward, Greenwood attempted to obtain Triple A's agreement to subordinate the Greenwood deed of trust to the proposed lien of the Frisones, although it is not clear exactly the level of detail of Greenwood's request. Triple A categorically refused to subordinate its interest because it did not want to reopen negotiations with Western.

After Triple A refused to subordinate its interest to the Frisones, Stewart Title prepared a subordination agreement using its standard preprinted form for signature by Western. ⁴ This document, dated August 4, 1993, was signed by O'Dell on behalf of Western on August 18, 1993, and recorded on August 23, 1993. The subordination agreement describes Western as the "present owner and holder of the [Greenwood] deed of trust and note" and states that the Frisones are expressly relying on the subordination in funding their loan to Sullivan. O'Dell testified that Greenwood's principal, Roger Rule, represented to him Triple A had agreed to the subordination. O'Dell also said Wheeler of Stewart Title told him the subordination was that required by the original Greenwood/Triple A agreement. Nevertheless, the subordination agreement itself provides in boldface uppercase letters: "Notice: This subordination agreement contains a provision which allows the person obligated on your real property security to obtain a loan a portion of which may be expended for other purposes than improvement of the land." In addition, O'Dell signed a representation that he had read and approved the estimated closing statement for escrow 2, which had been delivered to him with the subordination agreement. The closing statement clearly disclosed the new loan was for the purchase of the property. O'Dell testified at trial that he merely glanced at the documents before he signed them, on the assumption that Triple A would carefully scrutinize the subordination agreement he assumed would be presented to it.

On August 18, 1993, Sullivan executed a promissory note and deed of trust in favor of the Frisones and a note and deed of trust in favor of Greenwood. Western's subordination agreement was recorded and escrow 2 closed on August 23, 1993. Stewart Title issued to the Frisones a lender's title insurance policy insuring that, as of August 23, 1993, the Frisones' deed of trust enjoyed first priority among the deeds of trust recorded against the property.

After making one quarterly interest payment on the Greenwood-Triple A note, Sullivan defaulted on that loan. Western recorded a substitution of trustee and notice of default in September of 1994; in these documents Western asserted it was "the present Beneficiary" under the Greenwood deed of trust. In 1995, Triple A satisfied its original debt to Western; Western's assignee reconveyed to Triple A the Greenwood note and deed of trust.

On March 21, 1994, Triple A filed an action against the Frisones and Sullivan for a declaration that its lien on the 20.4 acres was superior to the Frisones' lien. Its amended complaint also alleged causes of action for negligence and breach of fiduciary duty against Stewart Title and Western. The Frisones filed an action for declaration of the priority of their deed of trust on January 4, 1995. The complaint...