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District Court of Appeal, Third District, California.

FLINT et al. v. RUTHERFORD et al.*

Civ. 8021.

Decided: July 02, 1952

Mazzera, Snyder & DeMartini, Stockton, Taylor & Taylor, Modesto, for appellant. Vernon F. Gant, Frank B. Collier, Modesto, for respondent.

Plaintiffs sought to enjoin the foreclosure and sale under a deed of trust of certain real property owned by Mrs. Flint, as her separate property; to have cancelled a promissory note for which the deed of trust was given as security; to obtain a reconveyance of the real property or in the alternative damages in the sum of $10,500. Judgment was entered in favor of defendants and plaintiffs' appeal followed.

A summary of the evidence shows that defendant John L. Frazier, in addition to owning and operating a retail lumber business, was also engaged in the development and sale of two subdivisions—the Frazier Tract, on which he owed a balance of approximately $8,000, and the Rutherford Tract, on which he owed a larger sum, and which was then in default. Plaintiff Earl N. Flint, Jr. was employed by said defendants as a subdivision salesman. Frazier desired to purchase a sawmill but did not have the necessary finances. Flint introduced him to the defendant Iris S. Kewin, who agreed to provide the financing for the purchase of the mill but only if she could obtain a first deed of trust upon the Frazier Tract. In order to raise the sum necessary to pay off the balance then owing on the Frazier Tract and to secure an additional $32,000 for the purchase of the mill Frazier entered into an oral contract with Flint whereby if Mrs. Flint would consent to the placing of a trust deed against the Flint home he (Frazier) would give Flint an interest in the sawmill. It appears that in pursuance of this plan two contracts were entered into. The first was a ‘Memorandum of Agreement between the parties hereto outside of Escrow’. The second contract, which is the only one here in issue and which we will refer to as the supplemental agreement, as did the trial court, was entered into between Kewin as the party of the first part and Frazier and Flint and their respective wives as parties of the second part. It provides in part as follows:

‘Whereas, the parties hereto desire to make provision for the application of all moneys received on account of said agreements of sale whether heretofore or hereafter entered into in payment and reduction of said note above mentioned;

‘Now, therefore, it is hereby mutually understood and agreed as follows:

‘1. That the parties of the second part shall deposit with * * * (the) Escrow Company * * * all agreements for the sale of any real property described in said deed of trust, and particularly all agreements with respect to the sale of any part or portion of the Frazier Home Tract. * * *

‘2. That all payments thereafter made on account of said agreements or the purchase price of any property therein described shall be paid to said * * * Escrow Company, and shall be by said company credited upon said note and deed of trust above mentioned, and shall be paid to the said Iris S. Kewin. That the foregoing provision shall apply to all agreements for the sale of any of said property whether now made or hereafter made, it being understood and agreed that with respect to future sales, all agreements immediately upon execution shall be delivered for collection to said * * * Escrow Company.

‘3. * * * the failure of the parties of the second part to deposit any and all agreements of sale with said * * * Escrow Company as hereinabove provided and/or to faithfully keep and perform all the other terms, covenants and conditions herein contained by them to be kept and performed, shall constitute a breach of the obligation or obligations for which said deed of trust and chattel mortgage are security, and in the event of such breach, first party shall have the immediate right to proceed with the sale of the property described in said deed of trust in accordance with the provisions thereof and/or to proceed with the foreclosure of said chattel mortgage in the manner provided by law or by the provisions of said mortgage.’

From the date of the execution of the agreement on November 24, 1947 until the first part of March 1949 all of the contracts of sale in said Frazier Tract and all of the purchase money payments made thereon were deposited with the Escrow Company and by it credited to Mrs. Kewin in accordance with the terms of the agreement. During all of this time there was on deposit with said Escrow Company sufficient funds to make the necessary monthly payments to the defendant Kewin. According to the president of the Escrow Company some time during the early part of March, 1949, defendants Frazier and Kewin instructed the Escrow Company not to credit the payments to the defendant Kewin in accordance with the original agreement but to accumulate the funds in the escrow. The evidence is uncontradicted that said instructions were without the knowledge or consent of the Flints.

Between March 1, 1949 and June 23, 1949, the moneys paid into the Escrow Company under said agreement were accumulated in accordance with said instructions and nothing was paid to Kewin. On the latter date there was approximately $5,085.99 on hand. At that time there was due to Mrs. Kewin the sum of $3,750, representing three monthly payments on the principal of the note together with interest.

At or about the date last mentioned defendants Frazier, Kewin and Rutherford executed certain agreement between themselves and opened another escrow with the Escrow Company. As a part of this transaction Kewin assigned her note for $40,000, together with its security, to Rutherford. Rutherford credited Frazier with the sum of $8,474.75, being the balance due on the note to Kewin as a credit to Frazier on the debt owed by him on the Rutherford Tract. The original deed of trust on the Frazier Tract and the chattel mortgage were released. A new note was executed by Frazier to Mrs. Kewin in the sum of the balance then owing on the original note and he also gave her a new trust deed on the Frazier Tract. The accumulated fund in the original escrow was transferred to the new escrow, $3,000 thereof being paid direct to Kewin on the new note and the balance to Frazier on his account. In other words, these subsequent transactions resulted in Kewin holding the Frazier note for the amount of the balance on the original note secured by a deed of trust on the Frazier Tract and the sum of $3,000 cash. Rutherford held the original $40,000 note which, as stated, had a balance due thereon of $8,474.75, which was secured by plaintiffs' home. On June 24, 1950 Rutherford filed notice of default under said original note and trust deed and instituted an action to foreclose the same against the Flint property.

At the conclusion of the hearing the trial court found generally in favor of the defendants. The portions of the particular findings pertinent to the contentions made by appellants are: That on March 17, 1949, defendants Fraziers and Kewin agreed that since plaintiffs had paid nothing the balance should be paid by the plaintiffs; that the November 26, 1947 agreement does not make the proceeds of the sale of the subdivision lots the primary security, with the real property of the plaintiffs only secondarily liable; that the November 26, 1947 agreement was made for the benefit of Kewin and does not prohibit her from waiving any of the provisions thereof; that she could release one or more of the joint debtors or any of the security; and that default occurred because plaintiffs have refused to pay their proportional part of the indebtedness.

Appellants' principal contention is that the so-called supplemental contract is plain and unambiguous and simply requires that all payments on the note come first from the sales of lots located in the Frazier Tract before any of the security be resorted to. That he cannot lose this right without his consent, which it is uncontradicted, he had not given.

The respondents' position is that the November 26, 1947 agreement was collateral security for Kewin, therefore she could release such part of it as she wished and she could release one joint debtor without extinguishing the obligation of the other.

While it is true that the Frazier subdivision, as well as the Flint home, were made subject to the terms of the note and trust deed, nevertheless it is also true that by the provisions of the supplemental agreement the subdivision sales contracts were made the primary source of repayment of the loan. Although the effect of such provisions were to insure that all sales contracts for lots would be deposited with, and the payments thereon paid through the escrow, thereby making Kewin's position as mortgagee more advantageous, that is not to say that the contract as a whole was for her sole benefit. The same provision likewise benefitted the Flints, since the note could not be in default as long as the moneys paid into the escrow by reason of the sales contracts were sufficient to cover the payments thereunder.

It is basic contract law ‘that the terms of a contract duly entered into cannot be changed except with the concurrence of all the parties thereto. Newhall Co. v. Hogue-Kellogg Co., 56 Cal.App. 90, 97, 204 P. 562, 565; See also Ehrman v. Rosenthal, 117 Cal. 491, 49 P. 460.

It necessarily follows that the subsequent agreement between the Fraziers, Kewin and Rutherford (which the uncontradicted evidence shows was without the knowledge or consent of the Flints) was an attempt to abrogate the provisions of the original contract providing that payments on the note should be made out of the proceeds of the sales of the property covered by the trust deed. Therefore under the rules above stated such change in the terms thereof was ineffectual in the absence of concurrence therewith by the Flints.

While the release of the mortgages and reconveyance of the property as contemplated by the last agreement were, of course, within the power of the mortgagees, they had neither the power nor the right to do so in derogation of the rights of appellant as set forth in the supplemental agreement without the consent of the Flints.

The judgment is reversed.

PEEK, Justice.

ADAMS, P. J., and SCHOTTKY, J. pro tem., concur.