COOPER v. CANO

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Court of Appeal, Fourth District, Division 3, California.

Peter C. COOPER et al., Plaintiffs and Respondents, v. Susan CANO, Defendant and Appellant.

No. G019552.

Decided: May 27, 1999

Joel H. Freis, Beverly Hills, and David Smith Bates for Defendant and Appellant. Rutan & Tucker, Clifford E. Frieden and Matthew K. Ross, Costa Mesa, for Plaintiffs and Respondents.

O P I N I O N

In 1987, Susan Cano separated from her husband, restaurateur Larry Cano. Almost three years later, in September 1990, they entered into a marital settlement agreement.   Larry got the couple's large Newport Beach home, complete with tennis court and swimming pool.   In October 1990 Susan received a promissory note from Larry for $1.35 million secured by a deed of trust on the tennis court lot recorded that same month.   In May 1991 she gave Larry an interspousal grant deed.

Later that year, Larry wanted to raise money using the home as security.   As part of the transaction, in August 1991 Larry obtained a quitclaim deed from Susan covering both the house lot and the tennis court lot, despite already having an interspousal grant deed.   Susan would later claim that she did not know what she was signing at the time, though a trial judge would find otherwise.   However, it does not appear that she intended the quitclaim deed to release her deed of trust.   Larry told her that the document was “merely to help him get a loan and that it did not in any way affect the security of [her] deed of trust.”

Larry managed to sell the property some months later to the Coopers.   The escrow company did not pay off Susan, and Larry pocketed the proceeds of the sale without paying off his debt to her.   In 1993 the Coopers brought this quiet title action against Susan and Larry.   The trial judge entered a judgment in the Coopers' favor, and from that judgment Susan now appeals, contending that she still has a security interest in the house unaffected by the quitclaim deed.

The case is not without its disquieting aspects:  Both the Coopers and Susan are innocent parties, and quitclaim deeds are not the normal way by which deeds of trusts are extinguished.   That is done by recording a reconveyance.

The question of whether a quitclaim deed given to a trustor of a deed of trust by its beneficiary will release the trust deed is a question of first impression in California.   But there is a reason it is a case of first impression:  Normally people or institutions who are owed money will make sure that they are paid back first, in which case they are obligated to deliver the original note and deed of trust to the trustee, who then executes and records a reconveyance.  (See Civ.Code, § 2941;  see also 4 Miller & Starr, Cal. Real Estate (2d ed.1989) § 9:91, p. 282.)   A quitclaim deed is a very unconventional way of releasing a beneficiary's interest in a deed of trust.

Nevertheless, we affirm.   Susan may be an innocent party, but so are the Coopers, and the basic rules regarding the construction of recorded instruments-here quitclaim deeds-must be adhered to by the courts lest the stability of titles and liens be jeopardized.   Those basic rules were set forth in a 1919 case, MacFarland v. Walker (1919) 40 Cal.App. 508, 181 P. 248, which drolly observed that while all lawyers could easily state the rules, “no two lawyers on opposite sides of a controversy” could ever “agree to apply” them in the “same way.”  (Id. at p. 511, 181 P. 248.)   Ironically, MacFarland, though it does not directly deal with the impact of a beneficiary's quitclaim deed on a deed of trust held by the beneficiary, cites and distinguishes the one case cited by the parties which does, Barr v. Foster (1898) 25 Colo. 28, 52 P. 1101.

 MacFarland involved the problem we face here:  What happens when there is a quitclaim deed from a beneficiary who never intended to release rights which the beneficiary held in the property?   Answer:  The courts must look to the four corners of the instrument, and if the words used in it are unambiguous, the courts must give those words effect, regardless of the subjective intent of the grantor of the quitclaim deed.  (MacFarland, supra, 40 Cal.App. at pp. 511-512, 181 P. 248;  accord 2 Miller & Starr, supra, § 6:1, pp.   487-488 [“As an executed contract, a deed is subject to the rules of interpretation applicable to contracts in general․”].)  It is only when there is a “patent ambiguity” that parol evidence may be used to prove some otherwise nonapparent intended meaning.  (See ibid.;   see e.g., City of Manhattan Beach v. Superior Court (1996) 13 Cal.4th 232, 235, 52 Cal.Rptr.2d 82, 914 P.2d 160 [“Determining the nature” of a deed's scope “requires, in the first instance, careful examination of the language in the original conveyance.   If the intent of the parties is clear, that will control.   If not, extrinsic evidence may be considered to the extent it informs that intent.”].)

In MacFarland the court held that a quitclaim deed given by the beneficiary of a deed of trust who also had mineral rights to the property in question extinguished the reserved mineral rights, even if the beneficiary of the trust deed never subjectively intended to give them up.  (See MacFarland, supra, 40 Cal.App. at pp. 511-512, 181 P. 248.)   The dispositive question in MacFarland was whether the language on the face of the quitclaim deed covered the mineral rights.   The court held that it did.  (More on the exact language involved in a moment.) 1

 MacFarland dovetails with what our Supreme Court would later hold in Beach v. Faust (1935) 2 Cal.2d 290, 40 P.2d 822, regarding grantees who receive from grantors who themselves obtained title from a quitclaim deed:  Such grantees are protected by the recording statutes because of the nature of quitclaim deeds.   In Beach, the original owner of an interest in a particular piece of property filed for bankruptcy, but did not tell the trustee in bankruptcy and did not include the interest in a schedule of assets, and no copy of the decree of the bankruptcy court was recorded.   The original owner then received $100 from one Slocum, and gave Slocum a quitclaim deed to the property;  Slocum later sold the property to Faust.   After that, though, the bankruptcy trustee discovered the original owner's interest in the property, and he sold it to Beach.   The Supreme Court reversed a judgment in favor of Beach against Faust, holding that Faust-who after all bought the property from one who only claimed through a quitclaim deed-was protected by the recording laws as a bona fide purchaser.  (Id. at pp. 292-293, 40 P.2d 822.)  “It has long been the accepted rule in this state that real estate, or an interest in real estate, can be aliened or assigned by a quitclaim deed,” the court observed, and added, “[s]uch a deed is good as against even an unrecorded grant, bargain and sale deed.”  (Id. at p. 293, 40 P.2d 822.)

In the present case, the quitclaim deed is a fairly prosaic form instrument.   The closest thing to a recital are the words “Transfer of Community Rights by Non-Title Spouse,” which appear in the upper right hand corner just under the documentary transfer tax declaration.2  Then comes the title, “Quitclaim Deed,” in the center of the top part of the page, and then follow, essentially two sentences:  “For a valuable consideration, receipt of which is hereby acknowledged, Susan Cano, a married woman does hereby remise, release and forever quitclaim to Larry J. Cano, a married man as his sole and separate property the real property in the City of Newport Beach County of Orange, State of California,” described in an attached legal description, “Property Address:  45 Belcourt Drive North, Newport Beach, California 92660.”   The next and final sentence reads:  “It is the express intent of the grantor, being the spouse of the grantee to convey all right, title and interest of the grantor, community or otherwise, in and to the herein described property to the grantee as his sole and separate property.”

 The operative words are plain enough.   The words “right, title and interest” certainly suggest that any rights in addition to some kind of ownership interest were intended to be conveyed.   It really cannot be denied that a deed of trust is, in substance, both a “right” and an “interest” in real property.   While we need not go into a disquisition on the nuances between the “lien theory” and “title theory” as they bear on the nature of deeds of trust (see e.g., 3 Witkin, Sum. of Cal. Law (9th ed.1987), Security Transactions in Real Property, § 6, pp. 518-519;  Hetland, Secured Real Estate Transactions (Cont. Ed. Bar 1974) § 3:15, p. 80 [“Under the deed of trust title passes from the trustor to the trustee, but it is a title for security only and has none of the incidents of ownership.”]; 3  4 Miller & Starr, supra, § 9:2, pp. 8-12), the references to “right” and “interest” could not reasonably be read to exclude a deed of trust.   After all, if a lien is merely the right to have property sold to pay off a debt one is owed (cf.   Code Civ. Proc., § 1180), then a deed which specifically refers to the release of “rights” necessarily also includes liens.

The only possible wiggle room in the document on which to predicate an ambiguity is in the words “Transfer of Community Rights by Non-Title Spouse” appearing in the right hand corner under the documentary transfer tax declaration.   As we have indicated, these words are the closest thing that the quitclaim deed has to a set of recitals, though they really function more as a label.   However, regardless of any ambiguity that one might tease out of this label (for example, the idea that because it refers to “community rights” it therefore shows an intent not to cover any separate property), the rule remains that when the operative words of a deed are clear, that ends the discussion.  (See MacFarland, supra, 40 Cal.App. at p. 512, 181 P. 248 [“It is only when the operative words of grant are doubtful that recourse may be had to its recitals to assist in the construction․ [W]here the words of grant are clear, the recitals cannot be resorted to for the purpose of imparting an ambiguity to the entire instrument by which clear words of grant may be limited in their effect.”].)  In the case before us the operative words are unambiguous.  “Right, title and interest” literally cover the proverbial kitchen sink, as well as a right to have that sink (and the property it is attached to) sold to pay off a debt.

It is true that an error in the property description attached to her deed of trust and Larry's interspousal grant deed meant that she still, technically, had an interest in the non-tennis court portion of the property.4  That fact gives credence to Susan's position that she never intended the quitclaim deed to cover the deed of trust;  it was simply to do what the interspousal transfer deed failed to do.5  However, that still does not affect the plain import of the quitclaim deed and the absence of any ambiguity in it.

 In the MacFarland case, the recital was far more specific than the one here.   There, the recital specifically stated that the quitclaim was intended to relieve the property of a certain mortgage.  (See MacFarland, supra, 40 Cal.App. at p. 510, 181 P. 248.) 6  Here, no such specific intent is indicated;  at best there is a gossamer thread of implication that by saying “community” in the label under the tax declaration there was no intention to release a separate interest represented by the deed of trust.   If the recital was not enough in MacFarland to override plain operative words, the recital (or, better, “label”) here is certainly not enough.   The import of MacFarland is unmistakable:  Expressio unius est exclusio alterius cannot be a canon bearing on the construction of recitals to quitclaim deeds.   To hold that a quitclaim deed does not include rights in a given property not otherwise mentioned is inconsistent with the very nature of a quitclaim.   The basic idea of a quitclaim deed is that it transfers “ ‘whatever present right or interest the grantor has in the property.’ ”  (City of Manhattan Beach, supra, 13 Cal.4th at p. 239, 52 Cal.Rptr.2d 82, 914 P.2d 160, quoting Westlake v. Silva (1942) 49 Cal.App.2d 476, 478, 121 P.2d 872, our emphasis.)

Finally, we must address the century-old Colorado Supreme Court opinion on which Susan relies, Barr v. Foster, supra, 25 Colo. 28, 52 P. 1101.   Susan seizes on language in the opinion indicating that the “intent” of the parties should control, with the implication that a quitclaim grantor's subjective intent not to release deed of trust can trump otherwise plain words in the deed itself.7

In dicta, the Barr court was clearly of the opinion that a quitclaim can extinguish a mortgage:  “[I]t will be conceded that a quitclaim deed executed by a mortgagee to a mortgagor, conveying the mortgaged premises, will operate as a release of the mortgage․”  (Id. at p. 1102.)   However, the case actually held that the particular quitclaim deed in question did not release a deed of trust because on the face of the deed there was language indicating that it was “solely” given for another purpose:  “It is manifest from the terms of the quitclaim deed that it was given solely for the purpose of conveying any interest that Barr and Barrick might have in the land growing out of a certain contract between them and Thomas Arthur Young, made long prior to the giving of the trust deed.”  (Id. at pp. 1102-1103.)   To extract from the Barr decision a per se rule that undisclosed subjective intent may trump plain language is to seriously overread the opinion.

 The balance of Susan's arguments are quibbles.   Just because the Coopers' title insurer may be behind their lawsuit is no reason to reject the basic legal rules in favor of an equity of subjective intent.   Subrogation is not a license to disregard the most basic rules on which stable property titles depend.   And it is meaningless that the statement of tentative decision said the Coopers had “no notice” while the actual statement of decision said they had “constructive notice” of Susan's deed of trust;  the fact remains that an ordinary person searching title would think that the deed of trust had been released in light of the actual language used in the quitclaim deed.   Likewise any negligence on the part of a title insurer really is irrelevant in this case, because the quitclaim deed is the dispositive fact.8

The judgment is affirmed.

FOOTNOTES

1.   The last two and one-half pages of the MacFarland opinion are devoted to demonstrating that the “external” circumstances “surrounding” the making of the quitclaim deed also demonstrated that, yes, the quitclaim deed was intended to release the mineral rights in question.  (See MacFarland, supra, 40 Cal.App. at pp. 512-515, 181 P. 248.)   The court addressed the issue under the basic rule of contract interpretation that a contract may be explained by the “circumstances” under which it was made.  (See Civ.Code, § 1647.)   However, having found that the “operative” words of the quitclaim deed were “entirely unambiguous” (MacFarland, supra, 40 Cal.App. at p. 511, 181 P. 248), there was no need for the MacFarland court to reach the issue, except to explain the effect of a recital which was arguably “repugnant” to the operative language.   While the court said it did not need to reach the question because the operative language was clear (see id. at p. 512, 181 P. 248), it went ahead and did it anyway.

2.   In the original quitclaim deed many of the words are all capitals.   Our quotations change the capitalization to make the words easier to read.

3.   Professor Hetland also appeared as an expert witness at trial on behalf of the Coopers.

4.   Errors in attached legal descriptions in both documents meant that Susan's deed of trust only covered the tennis court parcel while her interspousal grant deed only applied to the same parcel.   The quitclaim deed did not make the same error, and covered both parcels.

5.   Because we hold that the quitclaim deed released the deed of trust, we do not reach the issue, alluded to but otherwise inadequately briefed by the parties in any event, of whether the interspousal transfer deed or some operation of the doctrine of merger might have accomplished the same thing.

6.   For what is it worth, the original parties in MacFarland obviously believed that a quitclaim deed could release a mortgage.

7.   Here is the passage relied on by Susan:“In the first cause of action the plaintiff predicates the right to have the trust deed canceled upon the ground that the quitclaim deed executed by Barr and Barrick on July 2, 1890, operated as a release and discharge of it.   While it will be conceded that a quitclaim deed executed by a mortgagee to a mortgagor, conveying the mortgaged premises, will operate as a release of the mortgage, if it was so intended, yet, when a contrary intent appears from the terms of the deed itself, no such result will follow.   The intent of the parties, when it can be ascertained, will prevail.”  (Barr, supra, 52 P. at p. 1102.)

8.   We therefore deny Susan's motion to augment the record or otherwise take judicial notice of an action in which a title insurer has filed against her for judicial foreclosure.

SILLS, P.J.

CROSBY, J., and RYLAARSDAM, J., concur.

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