Rockwood v. Brown International Investment Co.

SPENCE, J. Plaintiffs brought this action seeking the cancellation of a promissory note for $400, the deed of trust on their home securing said note, and a second promissory note for $360, which was unsecured. The trial court entered its judgment in favor of plaintiffs and against defendant International Investment Company. Said defendant appeals from said judgment.

In 1933, plaintiffs were in default on a note secured by a first deed of trust and also on a note secured by a second deed of trust on their home. Said notes and deeds of trust were held by said defendant. The president of the defendant company then sought to negotiate a loan from the Home Owners’ Loan Corporation on behalf of plaintiffs. These negotiations continued over a long period of time, during which defendant executed the required consent to take Home Owners’ Loan Corporation bonds, which consent provided “and the undersigned hereby consents, if said refunding can be consummated, to accept in full settlement of the claim, of the undersigned, the sum of $1232 face value of the bonds . . . and thereupon to release all claim of the undersigned against said property.” The above-mentioned consent was executed on September 11, 1934, and was the fourth and final consent signed by said defendant during the prolonged negotiations. The Home Owners’ Loan Corporation transaction was consummated in September, 1934, pursuant to said last-mentioned consent. The several consents had been executed by defendant by reason of the refusal of the Home Owners’ Loan Corporation to agree to loan the amount covered by any consent previously executed. On May 1, 1934, being the day following the execution of the third of said consents by said defendant, a note in the sum of $760 and a deed of trust on said property to secure the same were procured by said defendant from plaintiffs. This deed of trust was not recorded until October 10, 1934, being approximately one month after the closing of the Home Owners’ Loan Corporation transaction. The Home Owners’ Loan Corporation loan files showed no consent by the Home Owners’ Loan Corporation to the taking by defendant of said $760 note and deed of trust or any reference thereto and there was testimony to show that [243]said files would have made reference thereto if the Home Owners’ Loan Corporation had had any knowledge thereof. Said deed of trust was not put through the Home Owners’ Loan Corporation loan escrow nor was it mentioned therein.

On December 4, 1934, said defendant wrote a letter to the Home Owners’ Loan Corporation and made a general inquiry as to whether their rules permitted the taking of a second deed of trust in a case where the Home Owners’ Loan Corporation loan was insufficient to pay the entire original obligation. While this letter was not answered until January 9, 1935, said defendant apparently learned in the meantime that the $760 note and deed of trust was greater in amount than the Home Owners’ Loan Corporation would have approved. It appears from the appraisal that a $400 note and second deed of trust would have been the maximum which the Home Owners’ Loan Corporation would have approved under any circumstances and then only provided that the terms were such as to give to the home owner a reasonable opportunity to meet his obligations.