Woodworth v. Redwood Empire Sav. & Loan Assn.

• Decision Date: 23 December 1971
• Citation: 99 Cal.Rptr. 373,22 Cal.App.3d 347
• Court: California Court of Appeals Court of Appeals
• Parties: Ben M. WOODWORTH, Plaintiff and Appellant, v. REDWOOD EMPIRE SAVINGS & LOAN ASSOCIATION et al., Defendants and Respondents. Civ. 28085.

Page 373

99 Cal.Rptr. 373

22 Cal.App.3d 347

Ben M. WOODWORTH, Plaintiff and Appellant, v. REDWOOD EMPIRE SAVINGS & LOAN ASSOCIATION et al., Defendants and Respondents.

Civ. 28085.

Court of Appeal, First District, Division 2, California.

Dec. 23, 1971.

Hearing Denied Feb. 16, 1972.

Leonard & Dole, Stuart Dole, Burd, Hunt & Friedman, Peter Hunt, San Francisco, for plaintiff and appellant.

Anderson, McDonald & Belden, Santa Rosa, for defendants and respondents, Redwood Empire Title Company, Redwood Savings and Loan Association, et al.

DeMeo, DeMeo, Foster, Waner & Hood, Santa Rosa, for defendant and respondent, Sonoma Title Guaranty Company.

TAYLOR, Presiding Justice.

Plaintiff, Ben M. Woodworth (hereafter Woodworth) lost his interest in a parcel of real property known as the Linda Del Mar Subdivision Number One in Petaluma comprising approximately 42 acres subdivided into 199 lots, upon foreclosure of construction loans by the savings and loan association respondents. Woodworth sought declaratory and other relief from the savings and loan respondents, as well as Sonoma County Title, the original escrow agent, and Redwood Empire Title, the successor trustee of the deeds of trust (hereafter title company respondents). On this appeal ¹ from the judgment in favor of the savings and loan respondents and the two title companies, Woodworth asserts that: 1) the trial court erred to his prejudice and surprise by permitting a belated amendment of the pleadings and the pretrial conference order to include the affirmative defense of estoppel; ² 2) the lien created by his previously recorded deed of trust was not validly subordinated to the liens created by the deeds of trust of the savings and loan respondents, as the automatic subordination clause of his deed of trust was void for vagueness; 3) even if the automatic subordination clause was valid and enforceable, the trial court erred in concluding that he was estopped from asserting either that the loans secured by any deed of trust were obtained from a source not specified in the automatic subordination clause, or that the funds were not disbursed according to requirements of the subordination clause; 4) the savings and loan respondents were not entitled to lien priority and extinguishment of his interest by the foreclosures, but acquired only an equitable lien for the amount of their construction loans; and 5) he established his cause of action for negligence against the title company respondents and is entitled to damages, as well as his attorney's fees in this action. For the reasons set forth more fully below, we have concluded that the judgment must be affirmed.

Viewing the record most strongly in favor of the judgment, the following chronology of the facts appears. About 1951 or 1952, Woodworth purchased a 38.5 acre parcel in Sonoma County for $59,000 and a contiguous 4.3 acre parcel. Woodworth commenced the preparation of plans and took the necessary steps to subdivide and sell the property, including the filing of various applications with appropriate government agencies, the employment of an engineer to survey the property, and prepare a subdivision map, and the employment of an attorney, Mr. Dole, to represent him before the Public Utilities Commission. From 1952 to July 1959, Woodworth appeared in 44 hearings before various governmental bodies in support of his various applications for permits to subdivide his real property. During this period, Woodworth was a licensed real estate salesman and actively, but unsuccessfully, attempted to sell his real property to third persons.

In July 1959, Woodworth discussed the subdividing and sale of his property with Charles Jess, a real estate subdivider (hereafter Jess) from Southern California, whom Woodworth had not previously met. After about three weeks of negotiations, Woodworth and Jess orally agreed: that Woodworth would sell his real property to a newly created corporation, Atwater Investment Company (hereafter Atwater), which would issue all of its stock to Woodworth and Jess. Woodworth was to receive Atwater's promissory note for $133,000 and would serve as a director of Atwater. Atwater was to subdivide the property, construct homes and sell the homes and lots. Woodworth was induced to enter the oral agreement in anticipation and expectation of his right as a director to participate in the management of Atwater and his opportunity as a shareholder to derive a greater individual profit than he would have received as a result of a direct cash sale of his property to Atwater.

Thereafter, Woodworth employed and was represented and advised by independent legal counsel (Mr. Moskowitz) in the negotiations and preparation of subsequent written agreements embodying the terms of the oral agreement. After numerous conferences between Mr. Moskowitz and Mr. Nielsen, legal counsel representing Jess and Atwater, the parties on August 19, 1959, signed two written agreements: the first, an 'Agreement for Sale of Real Property,' was signed by Woodworth individually and by Jess as president of Atwater; the second, a letter from Woodworth to Atwater was signed by Woodworth and by Jess individually and as president of Atwater.

Pursuant to the August 19, 1959 agreements: 1) Woodworth on August 28, 1959, executed and delivered a deed conveying his real property to Atwater; 2) Atwater executed and delivered its promissory note, secured by a deed of trust. The deed of trust contained the 'automatic subordination clause' (set forth below) ³ subordinating Woodworth's interest as seller to the liens of construction loans made by specified kinds of lending institutions; 3) on August 27, 1959, the original directors of Atwater met and authorized the application for a permit to issue stock in the amount of $700 to Jess and $300 to Woodworth, and authorized Jess, as president, to execute any and all documents on behalf of Atwater to complete the purchase of Woodworth's land pursuant to the agreements of August 19, 1959; and 4) on August 29, 1959, the original directors of Atwater met and elected Woodworth a director, vice president and assistant secretary of the corporation. At the same time, Jess, as president, and Woodworth, as vice president, were authorized to execute any documents necessary, convenient or proper for the development of the real property. The minutes of the August 29 meeting were approved by Woodworth as evidence by his signature.

In their initial discussion, Jess assured Woodworth that he (Jess) had the funds needed to finance the off-site improvements required by the City of Petaluma as a condition of the subdivision permit. The subsequent discussions revealed that Atwater would have to borrow the money for the off-site improvements. Woodworth understood that these loans would be secured by a lien against the land that would be prior in right to the lien of his deed of trust from Atwater.

In July or early August, while Woodworth was in Moskowitz's office with Jess and his attorney, Mr. Seltzer, Moskowitz (who suspected that Jess had no money), had Jess call up the purported financiers in San Diego. Woodworth and Moskowitz clearly understood from the telephone conversation that 'there wasn't any money, these people had no idea of loaning Jess that money, and Jess didn't have it.' Immediately after the conclusion of the telephone conversation, Jess and Seltzer indicated that they knew of an outfit in San Jose. The following day, Jess and Nielsen indicated that they were working out a deal with Porter Trust Deed Investment Company (hereafter Porter) for the money for the off-site improvements, and that the loans would cost 'an awful lot of money,' 10 percent interest and points.

Shortly after the execution of the agreements, Woodworth further learned that Porter would obtain the money for the off-site improvements, coming from a great many small investors. Thus, in August 1959, Woodworth realized that 'a subordination agreement was to be given to anyone who furnished funds for the off-site improvements or development of the tract, and I was to give another subordination on my first deed of trust to anyone that furnished the construction loans, which would be the savings and loan companies.'

Jess arranged for Atwater to borrow the off-site improvement money totaling about $538,000 from Porter, repayments in accordance with 380 individual promissory notes from Atwater to Porter, each note secured by a deed of trust covering a particular lot. Woodworth knew and understood that 200 were first deeds of trust securing a promissory note in the amount of $1,875 prior in right to the deed of trust securing Woodworth's promissory note from Atwater; the remaining 180 were second deeds of trust securing promissory notes in the amount of $904. Woodworth was prepared to make any agreement or arrangement, whether or not consistent with the conditions of his subordination clause, in order to obtain the necessary financing of the subdivision and avoid losing the sale to Atwater.

Respondent, Sonoma Title, was employed by Woodworth and Atwater to act as the escrow agent to carry out the agreements of August 19, 1959, and the financing agreement between Atwater and Porter. Attorneys Moskowitz and Dole, on behalf of Woodworth, gave written instructions to Sonoma Title as to: 1) the procedure for recording the deed from Woodworth to Atwater and the deed of trust from Atwater to Woodworth; 2) the disbursements of loan proceeds; and 3) the recordation of the various deeds of trust from Atwater to Porter securing the repayment of the off-site improvements.

A letter dated September 18, 1959, from Moskowitz to Sonoma Title, indicated that each of the Porter deeds of trust would be prior in right to Woodworth's deed of trust from Atwater. On October 16, 1959, moskowitz, on behalf of Woodworth, advised Porter by letter as to the exact recording and disbursement procedure, and indicated that each deed of trust securing...