Plaintiffs are the owners in fee of certain real property upon which they executed a deed of trust, in favor of defendant Bank of America as beneficiary, to secure payment of a construction loan made by the bank to them for the purpose of financing the erection of a residence on the property. The residence was built and completed with the proceeds of the construction loan, but was demolished as the result of a natural disaster. In this action, thereafter commenced against the bank and the trustee under the deed of trust (defendant Continental Auxiliary Company), plaintiffs sought a declaratory judgment to the effect that Code of Civil Procedure section [37 Cal.App.3d 433] 580b barred the bank from recovering a deficiency judgment in the event of their default and a Judicial foreclosure and sale under the deed of trust. 2
After a nonjury trial, the court found in favor of plaitiffs and entered a declaratory judgment substantially as prayed. Defendants appeal from the declaratory judgment.
Prunty v. Bank of America, 112 Cal.Rptr. 370, 37 Cal.App.3d 430 (Cal.App. 1 Dist., 1974)
Sunday, March 29, 2009
Set off under California's one action rule
this case may be interesting.
Note that bank of America did take money out of its borrowers account.
However, it looks like that could be a pretty expensive set off in this case.
Our Supreme Court, however, has long since put this issue to rest. McKean v. German-Am. Savings Bank (1897) 118 Cal. 334, 50 P. 656 held a bank setoff against a general deposit account 5 is an "action" within the meaning of section 22 for the purpose of applying the one-form-of-action rule of section 726. (Id., at pp. 340-341, 50 P. 656, accord, Gnarini v. Swiss American Bank (1912) 162 Cal. 181, 184, 121 P. 726; Woodruff v. California Republic Bank (1977) 75 Cal.App.3d 108, 110, 141 Cal.Rptr. 915.) It is now established law that where "the obligation of the depositor is represented by a note secured by a mortgage [or deed of trust], C.C.P. 726 prevents the bank from satisfying it by exercising its setoff; it must exhaust the security. [Citations.]" (2 Witkin, Summary of Cal. Law (8th ed. 1973) Negotiable Instruments, § 129, p. 1387.) "Where a bank has security for the indebtedness of a depositor, the reason for the rule which gives a bank the right to appropriate deposits for the payment of the depositor's matured indebtedness does not apply, and the [152 Cal.App.3d 772] ordinary presumption that it is the depositor's intent to have his indebtedness discharged from his deposit does not exist. The rule is, therefore, that a mortgagee [or beneficiary] bank must first look to the mortgaged [or encumbered] premises as constituting a primary fund out of which the debt secured by the mortgage [or deed of trust] must be paid, and that mortgage [or deed of trust] security must be exhausted before it can apply in reduction or cancellation of the debt any money on deposit with it belonging to the debtor." (9 Cal.Jur.3d, Banks and Other Financial Institutions, § 132, pp. 346-347, fns. omitted.)
Bank of America v. Daily, 152 Cal.App.3d 767, 199 Cal.Rptr. 557 (Cal.App. 4 Dist., 1984)
Note that bank of America did take money out of its borrowers account.
However, it looks like that could be a pretty expensive set off in this case.
Our Supreme Court, however, has long since put this issue to rest. McKean v. German-Am. Savings Bank (1897) 118 Cal. 334, 50 P. 656 held a bank setoff against a general deposit account 5 is an "action" within the meaning of section 22 for the purpose of applying the one-form-of-action rule of section 726. (Id., at pp. 340-341, 50 P. 656, accord, Gnarini v. Swiss American Bank (1912) 162 Cal. 181, 184, 121 P. 726; Woodruff v. California Republic Bank (1977) 75 Cal.App.3d 108, 110, 141 Cal.Rptr. 915.) It is now established law that where "the obligation of the depositor is represented by a note secured by a mortgage [or deed of trust], C.C.P. 726 prevents the bank from satisfying it by exercising its setoff; it must exhaust the security. [Citations.]" (2 Witkin, Summary of Cal. Law (8th ed. 1973) Negotiable Instruments, § 129, p. 1387.) "Where a bank has security for the indebtedness of a depositor, the reason for the rule which gives a bank the right to appropriate deposits for the payment of the depositor's matured indebtedness does not apply, and the [152 Cal.App.3d 772] ordinary presumption that it is the depositor's intent to have his indebtedness discharged from his deposit does not exist. The rule is, therefore, that a mortgagee [or beneficiary] bank must first look to the mortgaged [or encumbered] premises as constituting a primary fund out of which the debt secured by the mortgage [or deed of trust] must be paid, and that mortgage [or deed of trust] security must be exhausted before it can apply in reduction or cancellation of the debt any money on deposit with it belonging to the debtor." (9 Cal.Jur.3d, Banks and Other Financial Institutions, § 132, pp. 346-347, fns. omitted.)
Bank of America v. Daily, 152 Cal.App.3d 767, 199 Cal.Rptr. 557 (Cal.App. 4 Dist., 1984)
Subscribe to:
Posts (Atom)
Posts
