Phelps v. American Mortgage Co.

SHENK, J.

The plaintiffs sued to have it declared that a certain deed of trust securing notes held by them is a first lien on the real property conveyed thereby, and to cancel a purported deed of reconveyance executed by the trustee named in said deed of trust, and for other appropriate relief. The defendant Mortgage Guarantee Company demurred generally and specially to the plaintiff’s fourth amended complaint. Its demurrer was sustained without leave to the plaintiffs to amend. The plaintiffs have appealed from the judgment entered in conformity with the order.

The complaint contains allegations of the following facts: On November 22, 1926, Arthur and Nellie Gilman, owners of the Nellman Apartments in Los Angeles, executed to American Mortgage Company 125 promissory notes in the principal sum of $1,000 each, bearing interest at eight per cent, and due November 22, 1931. They also executed a deed of trust on the Nellman Apartments to secure payment of the notes. Title Guarantee and Trust Company was named therein as the trustee, and American Mortgage Company was named as the beneficiary. It was the intention of the parties to execute said deed of trust as a first lien on said property and the deed of trust so recited.

On the same day, viz., November 22, 1926, the Gilmans also executed to American Mortgage Company their additional promissory note for $60,000, due November 22, 1929, with interest at eight per cent per annum, together with a second lien trust deed on the same property to secure repayment of the $60,000 loan.

[606]

Both trust deeds were filed for record on November 23, 1926. The first trust deed, given to secure the 125 $1,000 notes, was recorded in book 6545, at page 8, of the Official Records of Los Angeles County, while the second trust deed was recorded in a lower numbered book, viz., book 6461, at page 205, of the same records.

The plaintiffs became the owners and holders of 73 of the 125 notes, for value, prior to the first day of January, 1931, which was prior to maturity. The owners of the remaining notes, who were unknown to the plaintiffs, were sued fictitiously as defendants.

Title Guarantee and Trust Company, as trustee under the second trust deed, gave notice of default and sale pursuant to the terms thereof. It held a sale of the property accordingly and executed its trustee’s deed to American Mortgage Company, all without any actual notice to or knowledge on the part of the plaintiffs. American Mortgage Company of California is alleged to be the successor in interest of all properties of the American Mortgage Company, and that it received a deed to the Nellman Apartments from its predecessor with full knowledge of all the foregoing facts.