Wong v. Beneficial Sav. & Loan Assn.

• Decision Date: 16 March 1976
• Citation: 128 Cal.Rptr. 338,56 Cal.App.3d 286
• Court: California Court of Appeals Court of Appeals
• Parties: Gene D. WONG et al., Plaintiffs and Appellants, v. BENEFICIAL SAVINGS AND LOAN ASSOCIATION et al., Defendants and Respondents. Civ. 14841.

Page 338

128 Cal.Rptr. 338

56 Cal.App.3d 286

Gene D. WONG et al., Plaintiffs and Appellants, v. BENEFICIAL SAVINGS AND LOAN ASSOCIATION et al., Defendants and Respondents.

Civ. 14841.

Court of Appeal, Third District, California.

March 16, 1976.

Seymour Berger, and Brennan, Harrison & Yun, Evans, Jackson & Kennedy, Sacramento, for plaintiffs-appellants.

Angell, Adams & Holmes, San Francisco, for defendants-respondents.

PARAS, Associate Justice.

This case involves the so-called 'dragnet' or 'other indebtedness' clause sometimes used in deeds of trust and other security agreements. Plaintiffs (Mr. and Mrs. Wong) appeal from a judgment after the trial court found defendants not liable for damages for their alleged wrongful refusal to accept plaintiffs' tender of an amount sufficient to redeem four out of eight concurrently executed deeds of trust.

In 1963, Mrs. Margaret Roerden constructed eight four-plex apartment buildings on land she owned in Rancho Cordova, a suburb of Sacramento. Financing was provided by Beneficial Savings and Loan Association which later merged into Fidelity Savings and Loan Association (both hereinafter referred to as 'defendant'). For the purpose of taking advantage of the 80 percent loan limitation of Financial Code section 7153, rather than to be restricted to the 70 percent limitation of section 7152, ¹ the property was subdivided into eight parcels. Mrs. Roerden executed eight promissory notes secured by eight separate deeds of trust covering the eight individual parcels. Each deed of trust contained a 'dragnet' clause. Each note was for an identical $28,000, despite the fact that the value of the improvements varied. The apartment complex's swimming pool was located on one parcel, and its parking lot was located on two others. Four of the eight parcels fronted on the adjacent public street. The legal descriptions included grants or reservations of nonexclusive easements for ingress and egress to and from the rear parcels, but there was no express easement regarding access to or use of the common parking lot and swimming pool. On or about November 17, 1964, Mrs. Roerden sold the property to a partnership consisting of plaintiff Gene Wong, George Takehara and William Ausseresses (and their respective spouses) for $266,734.44. The partners assumed the eight loans and deeds of trust in the then aggregate sum of $221,356.32, as well as a Wells Fargo Bank furniture loan of $18,056.56.

Mr. Ausseresses negotiated the purchase and loan assumption for the partners. Plaintiffs did not directly participate. Mr. Ausseresses also handled payments on the property for the partners after the purchase. Financial problems were encountered, and in June 1965, the other partners transferred their interests to Mr. and Mrs. Wong.

On July 1, 1965, plaintiffs received eight notices of default and elections to sell under the deeds of trust. At approximately the same time, defendant took possession of the apartments and began collecting the rents under the assignment of rents provision of the deeds of trust. Discussions about curing the default were unproductive; and on October 11, 1965, defendant published seven notices of trustee's sale set for November 16, 1965 and an eighth notice of trustee's sale (for parcel No. 8) set for November 29, 1965. No tender of the arrearages was made before the expiration of the 90 days provided in Civil Code section 2924c. However, on November 11, 1965, plaintiff Mr. Wong and his counsel appeared at defendant's office and tendered three certified checks, each in the sum of $30,000, to pay the entire indebtedness on three of the front parcels. This tender was refused on the ground that the eight parcels constituted a single unit. The tender and refusal were repeated at defendant's counsel's office in San Francisco.

One of the attorneys for defendant who was present at the meeting at which the tender took place testified as follows:

'As I recall, Mr. Cofod, Mr. Angell or myself, stated that we weren't in a position to accept reinstatement at that time, but we had no authority from our client to do so, that the three months statutory period had expired and that he had no right to reinstate as a matter of law, and there was some discussion also about the three front lots and the fact that they contained or two of them contained the parking lots that were used by all the lots in the complex and that one of the front lots also contained a swimming pool, which was used by all the tenants in all eight buildings and that we weren't authorized to accept a reinstatement of part of them or less than all eight lots.'

On November 15, 1965, plaintiffs filed suit to enjoin the sale of the three parcels for which they had tendered payment, and obtained an ex parte temporary restraining order. The trustee's sale of the other four parcels was not held and defendant stipulated to an indefinite continuation of the restraining order. On November 23, 1965, plaintiffs tendered an additional $30,000 certified check to redeem parcel No. 8 (the last front parcel), which tendered was refused. The noticed sale of parcel No. 8 also did not take place.

During the course of subsequent negotiations, plaintiffs rejected an offer of defendant to consolidate the eight loans and deeds of trust into a single loan and deed of trust upon payment of $13,598.29; they also rejected an offer by defendant to accept plaintiffs' tender for the four front parcels upon condition that plaintiffs give defendant an easement for use of the parking lot and swimming pool by tenants of the four rear parcels.

Meanwhile, plaintiffs defaulted on the furniture loan with Wells fargo, and Wells Fargo obtained a judgment against them.

On May 22, 1969, the injunction suit was dismissed without prejudice; the present suit was filed on October 16, 1967 (or December 12, 1967, according to defendant). ² On July 1, 1969, a trustee's sale was conducted, and the eight parcels were all sold to defendant. Plaintiffs were not specifically notified of this sale. On December 31, 1969, defendant sold the property to a third person for the sum of $270,000, and recorded a single deed of trust covering the eight parcels. On April 23, 1970, plaintiffs filed their third amended complaint in this action, seeking (1) damages for defendant's wrongful refusal of the tender on the first three parcels, which allegedly deprived the plaintiffs of their right of redemption under Civil Code section 2903; (2) identical damages as to the fourth parcel; (3) an accounting of rents and expenses on the four parcels from the time defendant began collecting rents; and (4) damages for defendant's failure to notify plaintiffs of the trustee's sale, including damages for conversion of the furniture.

The case came to trial on February 10, 1971. Inter alia, plaintiffs testified that when they assumed the loans, they were unaware of the dragnet clause in the deeds of trust. The Sacramento County Planning Director testified that the rear lots, if treated separately, would violate zoning ordinances requiring minimum lot width, street frontage, and off-street parking facilities.

On March 31, 1971, the court filed its memorandum of intended decision, ruling that plaintiffs had no right to redeem the four parcels because of the dragnet clause, that plaintiffs had no right to notice of the trustee's sales, and that plaintiffs had failed to prove any damages from the alleged conversion. But the court did rule that plaintiffs had a right to an accounting. The court appointed a Sacramento attorney, Eugene Anderson, as a special referee under Code of Civil Procedure section 639, to make proposed findings regarding the accounting.

On February 22, 1974, plaintiffs settled the accounting cause of action for $17,280. Judgment for defendant was entered on April 10, 1974, as to the remaining causes of action.

I

Plaintiffs' major contention on appeal is that the dragnet clause in the deeds of trust should not have been enforced against them so as to prevent the division of the apartment complex. The clause in question states that the deed of trust is:

'FOR THE PURPOSE OF SECURING: (1) Payment of the sum of $28,000.00 with interest thereon according to the terms of a promissory note or notes of even date herewith, made by Trustor, payable to the order of the Beneficiary, and extensions or renewals thereof; (2) payment of such additional amounts as may be hereafter loaned by Beneficiary or its successor to the Trustor or any of them, or any successor in interest of the Trustor, with interest thereon, And any other indebtedness or obligation of the Trustor, or any of them, and any present or future demands of any kind or nature which the Beneficiary or its successor may have against the Trustor, or any of them, whether created directly, or acquired by assignment, whether absolute or contingent, whether due or not, whether otherwise secured or not, or whether existing at the time of the execution of this instrument, or arising thereafter; (3) performance of each agreement of Trustor herein contained; and (4) payment of all sums to be made by Trustor pursuant to the terms hereof.' (Emphasis in original.)

The literal effect of this clause is to make each deed of trust security for all eight loans (and conversely, to secure each loan with all eight deeds of trust). Clauses such as this are often termed 'dragnet' or 'anaconda,' 'as by their broad and general terms they enwrap the unsuspecting debtor in the folds of indebtedness embraced and secured in the mortgage Which he did not contemplate . . ..' (Emphasis added.) (Berger v. Fuller (1929)180 Ark. 372, 377, 21 S.W.2d 419, 421; see Capocasa v. First Nat. Bank (1967) 36 Wis.2d 714, 722, 154 N.W.2d 271, 275.)

California Real Estate Secured Transactions (Cont.Ed.Bar (1970) p. 135), in a chapter by Roger H. Bernhardt, contains a comprehensive discussion of future advance and dragnet clauses at sections 4.18--4.30. We quote...