Sontag v. Springer

GRIFFIN, J. Appellants’ amended complaint sets forth in substance that appellant M. B. Sontag, in January, 1932, gave respondent A. E. Stringer his promissory note in the sum of $4,000, and as security for the payment thereof Sontag assigned and delivered to Stringer a promissory note for $10,000 and trust deed which he, Sontag, held. The collateral note becoming in default, Stringer caused a trustee’s sale to be held of the trust deed securing said collateral note, and Stringer himself purchased the property for approximately $5,000. The complaint further alleges that in causing said trustee’s sale to be held and in purchasing said property Stringer was acting as trustee for Sontag and other appellants ; that Stringer now repudiates any such trust relationship; that the property was and is of the value of $50,000. Appellants ask that the court declare that said property is held by Stringer in trust for appellants, that it be conveyed to them, that an accounting of the rents, issues and profits be had from the date Stringer took over the property, and for such other and further relief to which appellants may be entitled. The court sustained defendants’ demurrer to plaintiffs’ amended complaint with leave to amend in ten days. After due service of notice of such ruling plaintiffs failed to file an amended complaint. Judgment for defendant followed. From this judgment plaintiffs appeal.

Appellants argue that the court erred in sustaining respondents’ demurrer to the amended complaint for the reason that when a pledgee holding as collateral security a note secured by a trust deed forecloses the trust deed under the power of sale granted therein and himself buys the property, then only the equity is foreclosed, and the pledgee thereafter holds the property merely as security for his debt, citing Farmers’ Sav. Bank v. Lesky, 6 Fed. (2d) 539; Gilbert v. Thayer, 104 N. Y. 200 [10 N. E. 148]; Blood v. Shepard, 69 Kan. 752 [77 Pac. 565] ; Hicks v. Dowdy, 202 Ala. 535 [81 So. 37]; Lincoln Safe Dep. Co. v. Yeast, 117 Neb. 344 [220 N. W. 573], which in effect hold that the pledgee, upon foreclosure and purchase of the collateral security, holds the property purchased subject to the pledge agreement, and that the land is substituted for the trust deed as collateral security for the pledge and that the trustor or mortgagor’s equity is foreclosed by such sale, but not the pledgor’s equity, and that the latter’s rights can [665]be affected only by a pledgee’s sale held in accordance with the law governing such sales.

In Wright v. Ross, 36 Cal. 414, (1868) in a three to two decision, the Supreme Court of this state decided the point raised in line with the above-cited eases but on a rehearing in a three to two vote, the decision was changed and the court held that the pledgee had the right to purchase, the property for his own account and was not accountable for it to the pledgor, but was only accountable for the surplus, if any, over the amount of the pledge.