1L Law Source

Heading: Tahoe National Bank v. Phillips, 4 C.3d 11; 92 Cal.Rpt. 704, handout.

Facts: - D Phillips needed a loan of $34,000 in order to advance on a real estate development project.

On April 20, 1965 a promissory note was signed with Tahoe National Bank.
Also signed was "Assignment of Rents and Agreement not to Sell or Encumber Real Property"
Document provided that as a security for the loan, D assigned to plaintiff all rent due from the realty described and agreed not to encumber or convey that property.
The property described was the D’s residence.
On December 6, 1965 defendant recorded a declaration of homestead on the property.
The loan was secured within 2 hours of asking the bank for it, as the money was needed quickly.
The loan officer determined that there was not enough time in which to prepare a trust deed, so instead he selected a form for an assignment of rents and agreement against conveyances.

Procedure: D Phillips appealed from a judgement entitling bank to foreclose on her property of the El Dorado Superior Court. And there was also a judgement for $93,000

Issue: Was an instrument entitled "Assignment of Rents and Agreement Not to Sell or Encumber Real Property" intended to be an equitable mortgage? Is the document reasonably susceptible to a construction as a mortgage?

Rule: The writer of a contract is responsible for the language used. In this case because the bank wrote the contract, they are responsible for ensuring clarity.

Holding: The language of the assignment cannot be interpreted as a mortgage. D’s failure to object to extrinsic evidence at trial does not bar her from arguing it on appeal.

Rationale: There is nothing in the title of the document or within the text to indicate foreclosure. Since any alleged ambiguities appear in a standardized contract drafted and selected by the bank, which occupies the superior bargaining position, those ambiguities must be interpreted by the bank. The admission of extrinsic evidence is irrelevant as a matter of substantive law.

Policy/Notes: Homestead does not protect houses against voluntary lien (like a home mortgage). Dissent: homestead acts to keep value from bank. Hurts the bank the same as if the home was given to a third party. Two step process to determine legal relevance: 1. Look at all credible evidence including document, surrounding circumstance, testimonies, alleged agreement. 2. Admit and consider all credible evidence in deciding how it should be construed.

Extrinsic evidence = parole evidence? Not exactly. Extrinsic evidence (outside of the document) is broader than parole evidence (stuff said at the signing of the contract).

When can parole evidence be used to interpret what a document means?