Earle v. Sunnyside Land Co.

On January 5, 1891, Leland Stanford conveyed to James P. McCarthy a tract of land containing 589.03 acres, situate in the outskirts of the city of San Francisco. In consideration of the transfer McCarthy gave Stanford four promissory notes, two for fifty thousand dollars each and two for one hundred and twelve thousand five hundred dollars each, and secured the payment of the notes by a mortgage of the land conveyed.

On the first day of April, 1891, McCarthy conveyed to the Sunnyside Land Company about two hundred acres of said tract, the portion so conveyed being known hs “The Sunny-side.” The consideration for this conveyance was the agreement of the Sunnyside Land Company to pay four hundred thousand dollars, one hundred thousand dollars of which was paid in cash and three hundred thousand dollars was secured

On January 3, 1893, there was due and payable to Stanford $81,523.24 on account of one of the notes given by McCarthy. Stanford demanded payment of the amount due, and neither McCarthy nor Fitzhugh nor the Sunnyside Land Company was able to make payment. Under these circumstances the Title Insurance and Trust Company, and certain other persons interested, agreed to advance $31,523.24, and the Title Insurance and Trust Company, at the request of the Sunnyside Land Company, McCarthy, and Fitzhugh, induced Wells, Fargo & Company to advance fifty thousand dollars, making the $81,523.24 required to discharge the Stanford indebtedness. At the time of the advance of the fifty thousand dollars by Wells, Fargo & Company, an agreement was entered into by the Sunnyside Land Company, as party of the first part, Wells, Fargo & Company as party of the second part, California Title Insurance and Trust Company as party of the third part, McCarthy and Fitzhugh as parties of the fourth part, and the Stanford Addition Land Company (successor in interest of McCarthy and Fitzhugh in part of the lands purchased by McCarthy) as party of the fifth part. This instrument provided that in consideration of the advance by Wells, Fargo & Company, the Sunnyside Land Company agreed to pay Wells, Fargo & Company or order the sum of fifty thousand dollars within three months, with interest at the rate of ten per cent per annum, and further agreed that the said fifty thousand dollars should be used to discharge the lien of the Stanford mortgage as to “The Sunnyside,” and that Wells, Fargo & Company should be subrogated to the rights of Stanford under the said mortgage, and should have the first lien upon said real property, and upon all property and proceeds of the securities and evidences of debt received by

Thereafter sales were made of lands belonging to the Sunnyside Land. Company in accordance with the provisions of Trust No. One, and from the proceeds of these sales payments were made to Wells, Fargo & Company until, on March 29, 1897, the balance due was reduced from fifty thousand dollars to fifteen thousand nine hundred dollars. At that time Wells, Fargo & Company was insisting upon payment, and threatening a foreclosure under its agreement of January 3, 1893, and in order to prevent such foreclosure suit, at the request of the Sunnyside Land Company, the California Title Insurance and Trust Company paid Wells, Fargo & Company said fifteen thousand nine hundred dollars, and took from Wells, Fargo &. Company an assignment of the indebtedness due under the agreement of January 3, 1893. This indebtedness was then evidenced by a new note of the Sunny-, side Land Company to Wells, Fargo & Company. On October 12, 1899, the California Title Insurance and Trust Company executed an instrument transferring and assigning to the Anglo-Californian Bank, Limited, said claim (and note) for fifteen thousand nine hundred dollars, together with the security agreement of January 3, 1893, and on the 8th of November, 1899, the Anglo-Californian Bank transferred this claim, note, and agreement to John B. Earle, the plaintiff in this action.

The plaintiff instituted this action on November 13, 1899, alleging substantially the foregoing facts, and sought to recover the sum of fifteen thousand nine hundred dollars with interest, and to foreclose his lien on so much of “The Sunny-side” as had not been sold to bona fide purchasers. The complaint named as defendants the Sunnyside Land Company, California Title Insurance and Trust Company, and a number of other persons who are alleged to claim some interest in the land. All of these other parties derive whatever interest they may have from McCarthy and Fitzhugh.

The cross-complaint of the California Title Insurance and Trust Company alleges that at the time of filing the cross-complaint there remained unpaid and due from the Sunnyside Land Company to the cross-complainant, as trustee on account of the principal sum secured to be paid by said Trust No. One, the sum of $111,198.63, together with the sum of $36,552.17 for interest. It alleges further that the said Sunnyside Land Company “has at all times failed and neglected to use reasonable, or any diligence in placing the lands herein designated as ‘The Sunnyside’ upon the market, and making sales thereof in subdivisions of lots or blocks, as said lots and blocks are delineated and designated upon such map of Sunnyside or any other subdivisions or at all.” The cross-complaint asks for a decree that the property be sold to pay the amounts due the cross-complainant under the trust-deed.

The answers of the Sunnyside Land Company to the complaint and the cross-complaint raise no material issue that need here be considered beyond the denial of the allegation of the cross-complaint that the land company had failed and neglected to use reasonable or any diligence in making sales of the lands.

After a trial the court made its findings of fact, in which it found, among other things, that “said Sunnyside Land Company has at all times since the execution of said Trust No. One failed and neglected to use reasonable or any diligence, in placing the lands herein designated as ‘The Sunny-side’ upon the market and in making sales thereof in subdivisions of lots or blocks, as said lots and blocks are delineated and designated upon the said map of ‘ Sunnyside, ’ or any

Upon the findings the court made its decree, in which it decreed that there was due the plaintiff from the' Sunnyside Land Company upon the promissory note of March 26, 1897, . for principal, interest, and attorneys’ fees the sum of $21,-608.64, which, with plaintiff’s costs, constituted a first lien upon the lands described in the complaint; that there was due the California Title Insurance and Trust Company, as trustee, from the Sunnyside Land Company for principal and interest secured to be paid by the instrument known as Trust No. One, the sum of $165,627.71, which constituted a valid lien upon said lands and premises; that said lands, or so much thereof as might be sufficient to raise the sums declared to be due the plaintiff and cross-complainant, together with interest thereon and costs subsequently accruing,' be sold at public auction in the manner prescribed by the law on foreclosure of mortgages by a commissioner appointed by the court, and that the commissioner, after the expiration of the time for redemption, execute a deed or deeds to the purchaser or purchasers at said sale, and that the commissioner out of the proceeds of said sale, after retaining his commissions and disbursements, pay first to the cross-complainant, California Title Insurance and Trust Company, the amount sufficient to redeem the said lands from all tax-sales to the statesecond, that said commissioner out of said proceeds pay to the plaintiff the sums declared to be due to said plaintiff, and, third, that said commissioner pay to the cross-complainant, California Title Insurance and Trust Company, the balance of the sums declared to be due to it as trustee from said Sunnyside Land Company under said Trust No. One. Any surplus remaining is directed to be paid to the defendant, the Sunnyside- Land Company. The decree then goes on to designate the amounts due to the California Title Insurance and Trust Company

The Sunnyside Land Company made a motion for a new trial, which was denied, and now appeals from the judgment and from the order denying its motion for a new trial.

While the transactions which gave rise to this controversy are somewhat involved and complicated, the questions to be considered upon these appeals are neither numerous nor dificult. The principal contention of the Sunnyside Land Company is based upon the provision found in Trust No. One to the effect that the sum secured to be paid is to be paid only from the proceeds of sales made by said land company of the lands covered by the trust-deed, and that the other parties to the instrument will not require the payment thereof from any other source. From this provision it is argued that the respondents—:i. e. the plaintiff and the California Title Insurance and Trust Company—agreed to look for their payment only to the proceeds of such sales to be made by the Sunnyside Land Company, and that they have no right to seek or enforce payment in any other way. But we think that this argument is based upon too narrow a construction of the provisions of paragraph 5 of the trust-deed. That paragraph provides in addition to the agreement that the payment of the sums due is not to be required from any other source than sales of lands, the undertaking that the Sunny-side Land Company is to use reasonable diligence in placing said lands upon the market and in making sales thereof, such sales to be by it made at such prices and upon such terms as it may deem beneficial and profitable, but at prices not less per block than those designated in a schedule attached to the deed. These provisions are all to be read together, and it certainly could not have been the intention of the parties that the Sunnyside Land Company should, by violating its agreement to use reasonable diligence in making sales, have the power to indefinitely or perpetually postpone the right of the creditors to obtain payment of their claims out of the land which was by the deed of trust made security, and the-

In nearly all of these cases the literal reading of the contract was merely that the payment should be made upon the sale of certain property or the performance of some act by the defendant. The court, however, in each instance had no difficulty in reading into the contract an obligation on the

It is true that this case differs from those cited in that here, under the express provisions of Trust No. One, a personal liability could not be imposed upon the Sunnyside Land Company. Nor was it attempted to impose such liability. But by the instrument in question the “deed and assignment of trust” was made a “first lien security” in favor of the Title Insurance and Trust Company for the repayment of all advances, and was also made to secure the payment to McCarthy and Fitzhugh, through the title company, of the purchase price not yet received by them. The payment of these sums being thus secured by the land, we are satisfied that upon the failure of the land company to use the required diligence to make sales, a court of equity was authorized to subject the security to the payment of the claims of the plaintiffs and the cross-complainant by some appropriate method, such as the method here adopted.

The appellant lays much stress upon the provision in paragraph 5 of the deed of trust that sales are to be made by it at such prices and upon such terms as it may deem beneficial and profitable, but at prices not less per block than those designated in the schedule. The provision for minimum prices is no doubt inserted for the protection of the parties other than the Sunnyside Land Company. It is a restriction upon the right of the land company to fix prices according to its pleasure. But it is not the only restriction on this right. The clause giving the right to fix prices must be read in connection with the covenant to use reasonable diligence to make sales, and in the light of the general purpose of the trust agreement. The object which the parties had in view was that the lands should be disposed of to the ends—1. That the cl alms against the lands should be discharged; and 2. That the land .company should realize a profit either in money or in lands remaining unsold after payment of the indebtedness. It was

In this discussion we have treated the plaintiff’s case and that of the California Title Insurance and Trust Company as standing on the same grounds—viz. that both are based on claims secured by the terms of Trust No. One. But, so far as the plaintiff is concerned, the relief granted by the decree finds other support. The plaintiff is the assignee of the agreement of January 3, 1893, under which Wells, Fargo & Company made an advance of fifty thousand dollars. In this agreement the Sunnyside Land Company stipulated that Wells, Fargo & Company should be subrogated to the rights of Stanford under the original mortgage. The plaintiff, as the holder of a part of the indebtedness, and assignee of the agreement, succeeded to this right of subrogation, and is, by virtue of it, entitled to a decree of foreclosure. His rights are in no wise affected by the fact that the Wells, Fargo & Company note passed through the hands of the California Title Insurance and Trust Company. There was nothing in the relations of trust created by “Trust No. One” which prevented the title company from advancing the money required to pay off Wells, Fargo & Company, and taking the security which had been held by Wells, Fargo & Company. The advance was made to prevent a threatened foreclosure, and in making it the title company was not required to surrender any part of the security for the claim assigned to it.

It is argued by the appellant that the instrument known as Trust No. One attempts to create a trust for purposes not authorized by section 857 of the Civil Code, and that for that reason the entire instrument is void. We do not think it necessary in this case to determine whether the instrument in question was a valid trust-deed so as to convey the legal title to the California Title Insurance and Trust Company. If it was not a valid trust-deed, there can be no difficulty in sustaining the instrument as an equitable mortgage or lien. As this court has said, in Higgins v. Manson, 126 Cal. 467 , [ 77 Am. St. Rep. 192 , 58 Pac. 907 ], quoting the rule as stated in Howard v. Iron etc. Co., 62 Minn. 298 , [ 64 N. W. 896 ], “Every express agreement in writing whereby the party

We cannot agree with the contention of the appellant that the judgment should have directed that the sales be made at figures not less than the minimum prices set forth in the trust agreement. This provision for minimum sales was, as we have said, inserted for the benefit of the creditors. Furthermore, it was a part and parcel of the general scheme for the sale of the lands by the Sunnyside Land Company itself. When, by reason of its neglect to perform its duty, the Sunnyside Land Company produced a condition which authorized a court of equity to take the security into its hands for the purpose of realizing the sums for which it was liable, the provision for minimum prices fell with the provision authorizing the land company to make the sales, and the court was authorized to direct a sale in any just and equitable manner. We see no objection to the manner that is here adopted.

The point is made that the judgment does not follow the findings in that it authorizes payment to the California Title Insurance and Trust Company of amounts due to it individually, in addition to the sum of $165,627.71, payable to it as

We find no prejudicial error in any rulings made by the court upon the admission or rejection of evidence, nor is any other point made by the appellants that requires notice.

The judgment and order appealed from are affirmed.

Angellotti, J,, Shaw, J., McFarland, J., and Lorigan, J., concurred.