Note Terms Prevail Over Deed of Trust

Terms of Promissory Note prevail over conflicting terms of Deed of Trust. U.S. Bank National Association, etc. v. Yashouafar et al. 141217-U.-S.-Bank-N-A-v-Yashouafar The terms of a promissory note conflicted with the terms of a deed of trust. The note stated that a prepayment fee was not due until the indebtedness was prepaid. The deed stated that the prepayment fee was due immediately upon acceleration of the note. The deed provided that the terms of the note controlled over those of the deed. The court held that under the clear and explicit terms of the note and deed of trust, as interpreted to give effect to the mutual intention of the parties (California Civil Code sections 1636, 1638, 1639 and 1644), no prepayment fee was due until the actual prepayment of the note’s indebtedness. The court found that the Bank should not have used the date of acceleration of the note in calculating the prepayment fee and that the fee was not due until the note’s indebtedness was prepaid. The terms of the note controlled over those of the deed of trust because the deed provided that they would. If this provision had not been included in the deed of trust, the court may have determined that the prepayment fee would have been due immediately upon acceleration of the note.   Share...

Guarantor Waiver of Defenses

Guarantor wavier of defenses does not apply to equitable defenses. California Bank & Trust v. Del Ponti et al.:141209-California-Bank-v-Del-Ponti Waiver of defenses is standard in guarantee forms used in bank financing. California Civil Code section 2856 allows a Guarantor to waive defenses in general language. The court, in a case of first impression, held that the statute does not allow waiver of unlawful contracts or any provision that is contrary to public policy. The statute should be read narrowly so defenses outside of the identified categories, including equitable defenses, are not waived by language purporting to waive all defenses. A party is not allowed to benefit from its own fraud or willful misconduct. In this case, the court found that the Bank had willfully breached the loan agreement thereby causing the borrower’s default. Therefore, it would be inequitable and against public policy to enforce the blanket waiver in the guarantee.   Share...