Shiver v. Liberty Building-Loan Assn. , 16 Cal. 2d 296 ( 1940 )

EDMONDS, J.

The decisive question in this case concerns the validity of a $300 note secured by a second deed of trust exacted of the appellant by the respondent Liberty Building-Loan Assn, as a condition of its assent to the refinancing of a mortgage debt by the Home Owners’ Loan Corporation.

The record shows that in 1934 the appellant sought the help of the Home Owners’ Loan Corporation. He then owed the building and loan association a balance of $2,228 upon a note secured by a deed of trust upon his home. This obligation was finally refinanced. The appellant executed a deed of trust to the government agency to secure a note, the proceeds of which was paid to the association in the form of bonds. The association also received a note for $300 executed by the appellant and secured by a second deed of trust upon the property.

The appellant thereafter defaulted in making payments upon the $300 note and upon the institution of proceedings to foreclose the deed of trust securing it, he filed the present action asking that the sale of the property be restrained, that the $300 note and second trust deed be declared void, and that his title to the property be quieted against that encumbrance.

Upon trial of the cause the appellant testified that although his signature appeared on the note and trust deed, he had no remembrance of signing either of them and had refused at all times during the refinancing negotiations to agree to give the building and loan association any consideration in addition to the bonds. In conflict with this testimony was evidence offered on behalf of the association indicating that it had always insisted upon a second deed of trust as a condition of its assent to the refunding and that it had never made any attempt to conceal its demand. The secretary and manager of the association testified to several conversations with the appellant in which he stated that it would not agree to the proposed refinancing unless it received a secured note for $300. He also said that he had discussed the matter with the Home Owners’ Loan Corporation. “I made an effort,” he said, “to find out whether it was agreeable to them or not. I was in the office of the Home Owners’ and discussed it with the individual that was handling it at the time, and he said: ‘Send in your instructions to escrow, providing for a second trust deed of $300.00.’ I have no letters. That was just a conversation with one of the officials or clerks in the Home Loan office handling the matter at that time. That was the manner in which they handled those things at that time—they gave me certain papers to sign and in reference to the second trust deeds, you had to put your instruction into the escrow company, and it was understood with one of the officers in the Home Owners’ Loan Corporation that we would sign those papers and then put our instructions in the escrow company regarding the second. ’ ’

According to his testimony, some time later the association received from a title company escrow instructions with the request that they be executed and returned, together with the papers necessary to consummate the refinancing. There was enclosed what is termed a “consent'to take bonds” in the form of a letter addressed to Home Owners’ Loan Corporation. This letter, which was signed by the association and returned to the escrow holder with other instruments, recites that if the indebtedness of the appellant was refinanced by the corporation, it would accept “in full settlement . . . the sum of $1,579 face value of the bonds of Home Owners’ Loan Corporation, to be adjusted with not exceeding $25 cash and thereupon . . . release all . . . claim . . . against said property”. However, the escrow instructions show a demand for the note and deed of trust now in controversy as part payment of the note it then held.

No express approval of these instructions by the Home Owners ’ Loan Corporation appears, but a representative testified that its files contain nothing to indicate it had refused to permit a second deed of trust on the property. He explained also that under some circumstances the corporation consented to á requirement by the creditor for a second trust deed.

Upon this evidence the trial court found that prior to the date of the “consent to take bonds”, the association “agreed to accept the bonds of the Home Owners’ Loan Corporation at face value and cash not to exceed $24.99 and a note for $300 ... to be secured by a deed of trust on said real property, in full satisfaction of the indebtedness then due and owing ...” It also found that no unfair advantage had been taken of the appellant by the association and that he was not induced to sign the note for $300 because of any false or fraudulent representations made by it. A further finding was that the note and deed of trust were not delivered without the consent of the Home Owners’ Loan Corporation.

The principal contention of the appellant is that the written consent of the association to take bonds constitutes an accord and satisfaction, a release and a novation. On the other hand, the association insists that the instrument relied upon by the appellant does not express the whole contract and that, as found by the trial court, this was to accept bonds, $25 in cash, and a secured note for $300 in satisfaction of the original indebtedness to it.

As a matter of substantive law, where the parties to an agreement adopt a writing as the final and complete expression of that agreement an integration results; the act of embodying those terms in the writing becomes the contract. Under such circumstances, extrinsic evidence to vary the terms of the written instrument is excluded, because the writing is the contract itself. This rule applies when there is a writing which has been accepted as the final memorial of the agreement of the parties. (Estate of Gaines, 15 Cal. (2d) 255 [100 Pac. (2d) 1055], Rest., Contracts, sec. 230.) But in the present case there was no integration intended by the parties to the “consent to take bonds”. It was only one of several instruments sent to the escrow holder as the basis for refinancing the property. Also, when it was necessary for the escrow holder to secure the consent of the association to take bonds bearing interest at a rate different from that originally offered by the Home Owners’ Loan Corporation, the association agreed to the reduction but with the statement ‘' it is understood that this does not change the instructions covering the second deed of trust”. Parol evidence was therefore admissible to prove that the appellant agreed to give the association a note secured by a second deed of trust as a part of the consideration for its release of the indebtedness owed by him.

But even if the contract was integrated, parol evidence was admissible to show the true consideration, and the association was not bound by the recitals of consideration in the writing. It is elementary that the truth of the recital in a written instrument concerning the consideration is not conclusive, but that extrinsic evidence may be received to show the true consideration. (Johnston v. Courtial, 216 Cal. 506 [14 Pac. (2d) 771].) Upon that theory the finding of the trial court was that the consideration included the $300 note and deed of trust and there is substantial evidence to support it.

These conclusions and the decision in McAllister v. Drapeau, 14 Cal. (2d) 102 [92 Pac. (2d) 911, 125 A. L. R 800], are not inconsistent if the facts of each case are kept clearly, in mind. In the McAllister case, which concerned a similar written consent executed by a creditor, the trial court found that the execution and delivery of the note secured by a second deed of trust was made “under threat of foreclosure”. It also found that the Home Owners’ Loan Corporation had no knowledge that these instruments had been required by the creditor and executed by the debtor. Under these circumstances the holding that the consent to take bonds was an accord and satisfaction is somewhat inconsistent with the trial court’s finding that the note sued upon had been executed under duress. But the further finding that the creditor did not inform the Home Owners’ Loan Corporation that it was requiring the debtor to execute a note secured by a deed of trust compelled the affirmance of the judgment in favor of the debtor.

As stated in the McAllister case, a note and deed of trust required by a creditor in addition to bonds of the Home Owners’ Loan Corporation, if executed with its knowledge or consent, are valid and enforceable. However, where such instruments are secretly or fraudulently exacted by the creditor, they are void. This holding follows the weight of authority. (28 Cal. Law Rev. 232; 13 So. Cal. Law Rev. 162; 52 Harv. Law Rev. 842; note 110 A. L. R. 250, and 121 A. L. R. 119.) The Home Owners’ Loan Corporation, under its regulations, will refuse as a matter of policy to refund a first mortgage in any ease where the creditor demands a second, unless it appears that the financial arrangements and the financial ability of the debtor are such that he will have a reasonable opportunity to pay off both encumbrances. It is essential, therefore, in order that the corporation may ascertain the facts in a given case, that a full disclosure be made to it of the amount and terms of a proposed second lien, and whether it is reasonably probable that the home owner will be able to fulfill his obligations.

According to the findings of the trial court in the present ease the creditor made this disclosure and the rule applied in the McAllister case is not available to the appellant.

The judgment is affirmed.

Shenk, J., York, J., pro tem., and Spence, J., pro tem., concurred.