Campbell v. Sutton

The plaintiff, as assignee of the Bank of America National Trust and Savings Association, brought an action to collect a note dated October 19, 1936, in the amount of $775, and to foreclose a crop and chattel 'mortgage of March 30, 1935, which mortgage secured said promissory note but had become worthless. A demurrer to the complaint was overruled and defendants answered, alleging in effect that the note sued upon was executed by mistake; that there was no consideration therefor in that it had been given in renewal of certain notes which had been paid and discharged through the proceeds of a loan made to defendants by the Federal Land Bank, and therefore such note was against public policy.

At the conclusion of the hearing the court found that defendants were indebted to plaintiff in the sum of $975.78. It is from such judgment that defendants now appeal.

The record discloses that the note in question was a renewal of two previous notes dated March 18, 1933, in the

The Land Bank, in its “notice of approval of loan,” informed the defendants, “your application . . . has been approved in the amount of . . . $3,800.00. ...” The notice also stated “. . . within six months from the date your loan is closed, furnish the Commissioner an itemized statement of purposes for which your loan funds have been used. Tour acceptance of this loan is an agreement to that effect.” On the reverse side of said notice appeared what was entitled “acceptance notice” which was dated approximately one month after the notice of approval, and contained the following: “I accept -the loan and agree to conditions as above. (Signed) Adelaide M. Sutton—Thos. Sutton.”

Also as a part of said notice of approval appeared the following: “Please give us the following information concerning all creditors, secured and unsecured, whose loans are to be paid by the funds received from this loan. ...” The defendants appealed to Mr. Raffetto, assistant cashier of the Sonora Branch of the Bank of America, to assist in filling out this information. This he did but listing the Bank of America as a secured creditor in the amount of $3,500, and unsecured as to the $575 and $200 notes. On the reverse side of said notice of approval appeared the notation: “Approved on condition that you are able to arrange a scale down of all liens against this farm to an amount not to exceed $3,800. This will call for cooperation on the part of your creditors, and in view of the importance of this scale-down, it is required that releases or other definite evidence be furnished from your creditors as an indication that the indebtedness has been irrevocably compromised. ’ ’ The notice of acceptance was returned to the Land Bank together with a letter which had been dictated by said assistant cashier of the Bank of America to his stenographer and signed by the defendants, which letter in part, stated: “. . . Our debts are listed on

By affirmatively alleging that the note sued upon was in contravention of the act and therefore without consideration and against public policy, defendants assumed the burden of proving such allegations by a preponderance of the evidence. (Secs. 1869 and 1981, Code Civ. Proc.; Rancho Santa Margarita v. Vail, 11 Cal.2d 501 [ 81 P.2d 533 ].)

Defendants earnestly insisted at the trial of the action, and in their appeal to this court renew their contention that as the proceeds of the Land Bank loan paid to the Bank of America were intended to include the two notes of $575 and $200 in the scale down agreement, the said $775 note subsequently taken in renewal thereof was in contravention of said agreement and contrary to public policy and the intent of the Emergency Farm Mortgage Act; that unless the two notes in question were included in the refinancing there was nothing to scale down, and defendants would be in the same financial straits as before, in direct opposition to the primary purpose of the act, but that in any event even under the construction placed upon the wording of the preliminary negotiations by the Bank of America, and the notice of approval by the Land Bank, inasmuch as growing crops are a part of the land, said crop mortgage was a lien against the land and therefore was included with the note and trust deed as the indebtedness to be paid off by the loan from the Land Bank.

With defendants’ last contention we cannot agree. It has been consistently held that growing crops are personal

However, the first point raised by defendants does present a contentious problem. Plaintiff’s answer „to defendants’ argument is that the agreement was to scale down only the secured loan of $3,575, and that the note sued upon as well as the two notes for which it was a renewal, at all times have been considered as unsecured. The apparent reason for plaintiff’s insistence that such loans were unsecured was the wording of the approval of the loan by the Land Bank that “liens against this farm” were to be refinanced, and any indebtedness which did not constitute a lien against the land was not included in the $3,800 loan. Therefore such renewal note could not be against the expressed public policy of the act.

The plaintiff’s sole witness was Mr. Odgers, the business manager of the branch, who admittedly knew nothing of the facts surrounding the transaction in question. His testimony was limited to an identification of the notes in controversy. No further evidence was offered by plaintiff.

Counsel for defendants likewise failed to call Mr. Raffetto, the assistant cashier, who was the only employee of the bank conversant with the facts surrounding the transaction. He also failed to call a representative of the Land Bank. No evidence was introduced to show that the Land Bank, before turning over the $3,800, required evidence that the notes in question had been paid or other surrender required. Although the “notice of approval” stated that definite evidence was to be furnished from the creditor as an indication that the indebtedness had been irrevocably compromised defendants made no attempt at such a showing or that they had ever secured such evidence. The notice of approval also required the Buttons to furnish the Land Bank, within six months, an itemized statement of the purposes for which the loan funds were used but the record is void of evidence that such a statement was ever made.

At the conclusion of the hearing the trial court specifically found that it was not true that the said $775 was without consideration nor was it true that it had been paid or discharged by the $3,800 loan of the Land Bank. Such findings are supported by the evidence, and therefore will not be disturbed on appeal without a clear showing to the contrary.

The cases cited by defendants in substantiation of their contention that the renewal note was against public policy are of little assistance to them under the facts herein presented. Each case so cited contains facts showing that the second note was obtained either by coercion, fraud, secrecy or other circumstances disclosing deliberate evasions of the purpose and intent of the act, and therefore was against public policy. In the present, case no such showing has been made by the defendants.

This court is entirely in agreement with the cases so cited by defendants and in particular with the holding of the District Court of Appeal in the recent ease of Morrison v. Landers, 56 Cal.App.2d 607 [ 133 P.2d 34 ], The court therein stated that the act in question (H.O.L.C.) was intended solely for the benefit of home owners who were in financial difficulties; that no one else was eligible for its benefits; that any benefit to creditors was purely incidental, and that if any creditor could exact a second lien the effect would be to confer upon him, rather than the debtor, the benefits of the act. There is also a very obvious result which is mentioned in the case of McAllister v. Drapeau, 14 Cal.2d 102 [ 92 P.2d 911 , 125 A.L.R. 800 ], and likewise cited by defendants, that if a creditor could legally exact a second lien, then in the event of the failure of the debtor to meet his obligations on both liens, the creditor could obtain the property subject only to a long term amortized obligation at an extremely low rate of interest, and in this way successfully circumvent the very

That there is evidence to support the findings of the trial court cannot be denied, and this court is therefore without power to substitute its deductions for those of the trial court. (Morrison v. Landers, supra.) Whether, as contended by defendants, the Land Bank made the loan on account of and in reliance upon their representations (or the Bank of America) that the debt to be scaled down was that represented by all of the three notes or whether the Land Bank knew that only the debt secured by the trust deed was being satisfied, were questions of fact for the trial court. Had that court found that the Land Bank made the loan on the understanding and condition that all three of the notes were being satisfied, it might well have held for defendants, and this court could not have said there was not evidence to sustain it. But the trial court did not so hold, and we cannot say that its conclusion to the contrary was without support.

The judgment is affirmed.

Thompson, J., and Adams, P. J., concurred.