Security-First National Bank v. Earp

TRAYNOR, J. — Defendants, Mr. and Mrs. D. M. Wash-burn, were indebted to plaintiff, the Security First National Bank of Los Angeles, in the amount of $3,000. The debt was secured by a mortgage on certain real property owned by defendants. In 1933 defendants, together with certain other persons, executed a joint and several promissory note for $32,750, payable to plaintiff with interest at seven per cent. This note was secured by a deed of trust on other real property. In 1939 this trust deed was foreclosed and the proceeds of the sale were applied to the debt, leaving an unpaid balance of $7,850.70.

In 1935 the $3000 mortgage, outstanding for about 10 years, fell due. In response to a communication from plaintiff, Wash-burn went to the bank to arrange for a renewal. According to Washburn’s testimony he had the following conversation with an employee of the bank: “He wanted to know if I could make any payment at that time on the principal. I told him no, I didn’t see how I could, I said, ‘Couldn’t you extend it, this mortgage for another year?’ and he said, ‘Well, no, I don’t know as we can. Some payment should be made on the principal.’ I said, ‘Well, I am not able to do that right at this time, but I know another bank, and also a building and loan company, that might, that I would like to see, to see if they would extend or would take this property for $3000 straight loan, or lend $3000 straight loan on it.’ And this man I was [776]talking to then said, ‘Well, let me see a little bit further. ’ And he went away from this desk and away from this counter, and I don’t know where he went, but he came back in a few minutes — asked me to wait a few minutes — and said that if I and Mrs. Washburn would come in tomorrow, that they would extend this mortgage for another year, which we did, and what I signed the following day.” Question: “You came in the next day?” Answer: “Yes. And what I signed the following day with Mrs. Washburn I assumed it was the extension of the mortgage for a year, which in so many words I had been told it was.”

Defendants thus signed a renewal note for $3,000 at 7% interest secured by what they believed to be the same mortgage extended for another year. Actually, however, the new encumbrance was a trust deed and contained a provision, not present in the previous mortgage, that it was given to secure the payment of all obligations, present and future, which were then owing or might thereafter become owing from defendants to plaintiff. This clause, couched in legal terminology, was in a printed form in comparatively small print. Defendants, relying upon the representation of plaintiff’s employee that they were signing a renewal of the old mortgage, did not read the new encumbrance and were therefore unaware that it was a trust deed containing the foregoing provision.