Gates v. Crocker-Anglo Nat'l Bank

SHOEMAKER, P. J.

Plaintiffs Thomas and Joanne Gates (hereafter Gates) brought this action against defendants Croeker-Anglo National Bank (now Croeker-Citizens National

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Bank), The Anglo Safe Deposit Company and Peter and Patricia Abell (hereafter Abell) to obtain a judicial declartion that plaintiffs were the owners of and entitled to immediate possession of certain funds obtained through the sale of a parcel of real property. The trial court rendered a judgment •awarding the funds in question to defendant bank, and plaintiffs have appealed therefrom.

Gates and Abell were tenants in common of a parcel of real property located in San Jose, Santa Clara County, California. On March 27, 1962, they executed to defendant bank a promissory note in the principal amount of $60,000, and a deed of trust of said real property securing the same. The purpose of the loan was to refinance a prior secured indebtedness which was entirely the obligation of Abell. The deed of trust provided that it was given to secure “the payment of all other moneys and indebtedness now and hereafter due or owing from Trustor or any of them to Beneficiary. ...”

As of March 27, 1962, the date of the execution of the aforementioned note and deed of trust, Abell was indebted to defendant bank on an unsecured personal note in the sum of $20,500. This obligation was, at that time, overdue and in default.

Gates had no knowledge or notice of Abell’s pre-existing unsecured debt to defendant bank, and defendant bank had never at any time discussed the transaction or the prior indebtedness of Abell with Gates.

Upon the sale of the real property, the balance due on the note specifically secured by the deed of trust was paid in full to defendant bank. There remained on hand from the proceeds of the sale about $28,000, of which defendant bank claimed to be entitled to receive approximately $25,000 in payment of the unsecured obligation of Abell by reason of the “dragnet” clause in the deed of trust.

The trial court found that plaintiffs had no knowledge of Abell’s pre-existing indebtedness to defendant bank until the bank made a demand for payment of said indebtedness out of the proceeds of the sale of the San Jose real property; that plaintiffs never talked to the bank or any of its officials before executing the $60,000 deed of trust. The court concluded as a matter of law that the “dragnet” clause in the deed of trust was a valid contractual provision and that defendant bank had no duty to disclose to plaintiffs the antecedent debt of Abell, since there was no showing that the bank had knowledge of the fact that plaintiffs were unaware of said debt.