Bayer v. Hoagland

This is an action brought to foreclose a deed of trust. The trial court refused to permit plaintiff to introduce any evidence, upon the ground that the complaint did not state a cause of action. Plaintiff was given an opportunity to amend his complaint, but he did not do so, and judgment was entered for defendant. Prom this judgment the appeal is taken.

The complaint alleges the execution of a promissory note for $4,000, and a deed of trust for the payment of the same (a copy of each of said instruments is attached to the complaint) ; that plaintiffs had expended the sum of $27 for insurance upon the premises described in the trust deed, and that the trustees had refused to pay the same, as provided in said trust deed; that the trustors had failed to pay two installments of $38 each, due under the terms of the promissory note in connection with which the trust deed was executed; that that trust deed was intended, and agreed by the parties to be and operate simply as a first lien or a first mortgage upon said premises, and as security for the payment of the debt; that plaintiff had requested the trustee to foreclose said trust deed, in the nature of a first lien or a first mortgage, and to sell said real estate and apply the proceeds thereof in payment of the amount due plaintiffs, and said trustee refused to do so unless it was first paid the sum of $150 on account of its fees and disbursements; that plaintiffs elect that the balance of principal and interest be immediately due and payable. Judgment is prayed that said deed of trust be adjudged to operate simply as a first lien or mortgage and as security for the payment of the debt due plaintiffs; that a commissioner be appointed to sell the premises, and that defendants be foreclosed of all equity of redemption.

It is not contended by appellant that the trust deed contains any unusual features or provisions, nor do we find that it does. We shall proceed upon the premise that said instrument is the usual form, to wit, a conveyance, absolute in form, to a trustee, for the purpose of securing a debt, with a power of sale upon default.

There is no doubt that a deed of trust such as the one we have before us may be foreclosed where some special reason exists which will justify a court of equity in exercising its peculiar powers. Instances of this character are where there are accounts to be settled or where the trustee fails or refuses to act or repudiates his trust or is guilty of a breach of trust. (Curtin v. Krohn, 4 Cal. App. 131 [ 87 Pac. 243 ].) The cases of Smith v. Davis, 90 Cal. 25 [ 25 Am. St. Rep. 92 , 27 Pac. 26 ], and Davies v. New York Concert Co., 41 Hun (N. Y.), 492, are of this character.

It is contended by appellant that the complaint does come within the foregoing rule, in that it is alleged that the trustee refused to sell the property upon his demand to do so. The parties stipulated at the trial that the said demand was oral. The trust deed provides that it shall be in writing. The answer, however, denies that there was any default under the deed of trust. Under such circumstances a demand to sell would have been unavailing, and a demand and refusal would not be a condition precedent to the right of plaintiff to commence the action. (Cox v. Delmas, 99 Cal. 104 [ 33 Pac. 836 ].) While it will thus be seen that the matter of the demand upon the trustee to proceed under the deed of trust becomes immaterial because of the position taken by it in the answer, we are inclined to the view that something more was required to be done by plaintiff before the trustee could be called upon to take any steps toward the sale of the property. The trust deed contains the following provision: “Four: Should a breach or default be made in the performance of any obligation for

Section 2924 of the Civil Code provides: “Where, by a mortgage created after July 27, 1917, of an estate in real property, other than an estate at will or for years, less than two, or in any transfer in trust made after July 27, 1917, of a like estate to secure the performance of an obligation, a power of sale is conferred upon the mortgagee, trustee, or any other person, to be exercised after a breach of the obligation for which such mortgage or transfer is a security, such power shall not be exercised, except where such mortgage or transfer is made pursuant to an order, judgment, or decree of a court of record, or to secure the payment of bonds or other evidences of indebtedness authorized or permitted to be issued by the commissioner of corporations, or is made by a public utility subject to the provisions of the public utilities act until (a) the trustee, mortgagee or beneficiary shall first record, in the office of the recorder of the county wherein the mortgaged or trust property or some part thereof is situated, a notice of such breach and of his election to sell or cause to be sold such property to satisfy the obligation; (b) not less than three months shall thereafter elapse; and (c) the mortgagee, trustee or other person authorized to make the sale shall give notice of the time and place thereof, in the manner and for a time not less than that required by law for sales of real property upon execution.” The trust deed, as authorized by said section, provides that the holder of the note (i. e., the beneficiary)

We have before us, then, the bare proposition: Can a beneficiary, under an ordinary deed of trust, upon default on the part of the trustor, proceed in equity to foreclose that instrument in the same manner as though it were a mortgage? The nature of a deed of trust, and the distinction between it and a mortgage, were pointed out in the early case of Koch v. Briggs, 14 Cal. 256 [ 73 Am. Dec. 651 ], where the court, per Field, C. J., said: “It (the trust deed) has no feature in common with a mortgage, except, that it was executed to secure an indebtedness. . . . Where there is a mortgage, there is a right, after condition broken, to a foreclosure on the part of the mortgagee, and a right of redemption on the part of the mortgagor. . . . These two rights are mutual and reciprocal. When the one cannot be enforced, the existence of the other is denied, and when either is wanting, the instrument, whatever its resemblance in other respects, is not a mortgage. In reference to the deed in question, no suit for foreclosure, as in cases of mortgage in England, would lie for there could be no forfeiture of the estate to enforce, and of course no equity as against such forfeiture to foreclose. Nor would a suit lie for a foreclosure under our system—that is, for a decree adjudging a sale of the premises and the application of the proceeds of the payment of the debt, as such suit could only be based upon the contract of the parties, and the contract here is only that, upon the happening of a certain event, the trustee should sell. Equity could not adjudge a sale, as in case of a mortgage, without disregarding the express contract of the parties, and making a new and different one. ’ ’

The foregoing decision has never been questioned in this state. It has been cited numerous times with approval. In the case of Herbert Kraft Co. v. Bryan, 140 Cal. 73 [ 73 Pac. 745 ], the reference is as follows: “There are one or two other

We do not agree with appellant when he states that the case of Cormerais v. Genella, 22 Cal. 116 , upholds his position. That ease held that a mortgage with power of sale could be foreclosed in a court of equity, and that the power of sale is a cumulatiAi'e remedy. The distinction lies in the fact that a mortgage with power of sale does not vest the title in a trustee, while under a trust deed the legal title actually passes to the trustee. (Powell v. Patison, 100 Cal. 234 [ 34 Pac. 676 ], and cases cited, supra.) Where a foreclosure is allowed in other jurisdictions, it will be found that a different view relating to the effect of deeds of trust prevails. In many they are construed as mortgages with power to convey, and nothing else, and foreclosure is permitted. The cases relied upon by appellant and arising in other states are all based upon the theory that a deed of trust creates a lien and does not actually pass title. Under those conditions the lien may be foreclosed, the remedy being cumulative. It is true that, in this state a deed of trust has been loosely referred to as, in effect, a mortgage with power to sell. The supreme court has construed this language as follows: “In Hodgkins v. Wright,

It is earnestly contended by appellant that what was said by the court in the Koch case on the question of the foreclosure of a deed of trust was not necessary to the decision. That is a debatable question. Conceding that such matter was not authoritative, we believe we have shown that the doctrine laid down in said case has been engrafted into our system of jurisprudence so many times by judicial interpretation that it is now a firmly established rule of property. It is, as we believe, a natural outcome of, and corollary to the “title” theory as applied to deeds of trust in this state.

Appellant relies upon the ease of Bell Silver & Copper Min. Co. v. First Nat. Bank of Butte, 156 U. S. 475 [ 39 L. Ed. 497 [ 15 Sup. Ct. Rep. 440 , see, also, Rose’s U. S. Notes]. The opinion in that case is by Justice Field, who also wrote the opinion in the case of Koch v. Briggs, supra. The former case arose in the territory of Montana. The defendant had executed an instrument purporting to convey title to its properties, to secure the payment of certain bonds. The grantees were certain parties called trustees. It was provided that upon default in performance on the part of the trustor, the trustees should proceed to sell the

Appellant urges that the allegation in the complaint that the deed of trust was intended as a mortgage would give the court jurisdiction to proceed and would come to his aid in stating a cause of action. He points out that a complaint setting up a deed with this allegation, states a cause of action, and that the same rule should apply to a deed of trust. No authorities are cited. We are unable to agree with this contention. In an action to have a deed declared a mortgage, there is an absolute conveyance of title, with no mention made of any indebtedness or security, and consequently, no right reserved in the grantor to a defeasance. In law the grantee is the owner in fee. Equity is appealed to, so that the deed may be proved to be only part of the transaction, and evidence aliunde may be introduced to show an agreement that the deed was intended merely by way of security, and that, there was a defeasance. Such suits have been brought in this state under the provisions of section 744 of the Code of Civil Procedure. It has been held that said section does not apply to deeds of trust. (Bateman v. Burr, 57 Cal. 480 .) Furthermore, the primary object of such suits is to establish a defeasance. In the instant case the copy of the trust deed attached to the complaint preserves, by analogy, the defeasance of the mortgage. It provides that upon payment of the indebtedness the trustee shall reconvey the estate granted. This is a condition defeating the title of the grantee. (18 C. J. 457.) Under these circumstances equity will not interpose, as the terms of the instrument in question preclude it from doing so. If the terms of the instrument do not embrace the true agreement made by the parties, through mistake or fraud, a remedy by way of reformation might

The judgment is affirmed.

Finch, P. J., and Hart, J., concurred.

A petition for a rehearing of this cause was denied by the district court of appeal on January 11, 1929, and a petition by appellant to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on February 7, 1929.

All the Justices concurred.