Free Appendix - District Court of California - California

Case 5:07-cv-04808-JF

Document 60-5

Filed 07/25/2008

Page 1 of 46

EXHIBIT 11

1219457.1

Case 5:07-cv-04808-JF

Document 60-5

Filed 07/25/2008

Page 2 of 46

Wela
128 P.2d 9

Page I

20 Cal.2d 646, 128 P.2d 9

20 Cal.2d 646

HHarrison v. Adams
Cal.

look to the real part in interest.
æ Judgments § 523--Set-off--Effect of Assignment-Assignment for Collection.

R. E. HARRSON, Plaintiff; CHARLOTTE R. HARRSON, as Executrix, etc. (Substituted Plaintiff), Appellant,
v.

While an assignee for collection may maintain an
action in his own name, ajudgment debtor to whom a claim has been assigned for collection cannot have
the claim set off against the judgment, especially

HENRY J. ADAMS et aI., Respondents.
L. A. Nos. 17675, 17706.

Supreme Court of California
Aug. 3, 1942.

where before such assignment the judgment had been assigned for value. A contrary rule would violate the
rule forbidding a trstee from using trst propert for

a private purose, and also the rule requiring
HEADNOTES
il Appeal and Error § 1150--Presumptions-Suffciency of

mutuality of the paries. The insolvency of the
creditors does not justify violation of the rule of

mutuality.

Evidence.

On appeal on the judgment roll alone, a finding that
an assignment was made for a valuable consideration

SUMMARY
APPEALS from a judgment of the Superior Court of

is presumed to have the support of substantial
evidence.
il Set-off § 9, Il--Equitable Set-off--Insolvency.

San Diego County. Robert B. Burch, Judge.
Affrmed.

A court of equity wil compel a set-off when mutual
demands are held under such circumstances that one

of them should be applied against the other and only
the balance recovered. The insolvency of the part

Action by judgment debtor to compel the set-off of an amount due on a note against the judgment. Judgment for plaintiff on the note but denying the right to use the note as a set-off, affrmed.
COUNSEL Luce, Forward, Lee & Kunzel for Appellant. Dempster McKee for Respondents. EDMONDS, J.

against whom the relief is sought justifies invoking this principle.

Q) Judgments § 521, 523, 527--Set-off--Effect of Assignment.

A judgment debtor who has by assignment or
otherwise become the owner of a judgment or a claim against his judgment creditor may have his judgment

or claim offset against the judgment. Such set-off may be compelled even against an assignee of the
judgment who took without notice and for value.

The judgment from which the plaintiff has appealed must be reversed if a chose in action, which has been assigned for collection, may be used by the assignee as a set-off against the judgment creditor of the assignee. The record in L. A. 17675 shows a notice of

Set-off as between judgments, note, 121 A. L. R.
478. See, also, 15 Cal.Jur. 275; 31 Am. Jur. 370. W Judgments § 522, 523--Set-off--Requisites-MutualityEffect of Assignment. To authorize the offsetting of a judgment or claim

appeal from a portion of the judgment. Under a
second notice of appeal from the whole of the same judgment, a transcript was fied under L. A. 17706. The two appeals have been consolidated, and following the death of R. E. Harrison, the appellant,
the executrix of

against the judgment, the assignee must be the
beneficial owner of the claim or judgment. Moreover,

his estate, was substituted for him.

there must be mutuality, that is, the judgments must
be between the same parties in the same right. In determining whether demands are mutual, equity wil

In a previous action, Henry J. Adams obtained a
judgment against the plaintiff for $11,000. Harrison
appealed, making a cash deposit with the county

clerk to stay execution. Adams assigned the judgment

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

128

Case 5:07-cv-04808-JF
128 P.2d 9

Document 60-5

Filed 07/25/2008

Page 3 of 46
Page 2

20 Cal.2d 646, 128 P.2d 9

20 Cal.2d 646

to F. N. Meyers for the purpose of distributing its
proceeds in accordance with a contract for attorneys'

3439.1-3439.12.) But many years before, this court
held that a transfer of propert without consideration
by a person insolvent, or in contemplation of
insolvency, is void as to creditors regardless of the

fees. Harison was served with notice of this assignent.
Subsequently, Adams assigned his interest in the
judgment to Verda Adams, his wife, giving notice to

intent of the debtor. (Atkinson v. Western
DevelolJment Syndicate. 170 Cal. 503 f150 Pac.

3601.) (1) However, Harrison cannot successfully
challenge the assignment made to Verda Adams

Meyers of the assignment. However, Harrison had no notice of the second assignment until after the present action was commenced. Following these assignments, one Russell assigned to
Harrison, for the purpose of collection, Adams'

because his appeal is upon the judgment roll alone,
and the finding that it was made for a valuable

consideration must be presumed to have the support of substantial evidence to that effect.

promissory note for $3,800 which was then due and payable. Later, the judgment against Harrison was

(f) Concerning the rights of the appellant to the money on deposit as against the assignee of the
judgment for a valuable consideration, it is well

affrmed. Harrison then commenced the present
action, naming Adams and Meyers as defendants, to

settled that a court of equity wil compel a set-off
when mutual demands are held under such
circumstances that one of them should be applied

set off the amount due upon the note against the
judgment obtained by Adams. At the time of fiing it, Harrison secured an order restraining the clerk of the superior court from paying to Adams or Meyers any part of the money deposited by him in lieu of a bond on appeaL. Subsequently, *648 by stipulation, all of
the deposit was paid to Meyers except $4,600, which

against the other and only the balance recovered. The

insolvency of the part against whom the relief is
sought affords sufficient ground for invoking this equitable principle. (Machado v. Bonies. 170 Cal.
501 rl50 Pac. 351l; Coonan v. Loewenthal, 147 Cal.

is held pending the final determination of this action,

218 r81 Pac. 527.1 09 Am. St. Rep. 1281; *649Hobbs
v. Duff. 23 Cal. 596;Russell v. Conway. 11 Cal.

and Verda Adams was substituted for Meyers as a
part defendant.

91California Cotton Credit Corvo v. SUlJerior Court.
127 Cal. App. 472 rl5 P. (2d) 11081; City Investment

These facts are undisputed. In connection with them, the trial cour found that the assignment from Adams
to his wife was for a valuable consideration and that

Co. V. Pringle. 73 Cal. App. 782 (239 Pac. 3021; t1

v. Blake. 63 Cal. App. 362 (218 Pac. 7731.) (1) And a
judgment debtor who has, by assignment or

Adams was insolvent both before and after the
assignment. Judgment was rendered for Harrison

against Adams for the amount of principal and interest on the note, approximately $4,600, with costs, and for Verda Adams against Harrison for her costs, directing the clerk to pay to her the amount of
the deposit held by him.
Unquestionably the judgment against Henr J.

otherwise, become the owner of a judgment or claim against his judgment creditor, may go into the court in which the judgment against him was rendered and
have his judgment offset against the first judgment. (Machado v. Borges, supra;Coonan V. Loewenthal,

supra;Haskins V. Jordan. 123 Cal. 157 r55 Pac. 786);
McBride V. Fallon, 65 Cal. 301 r4 Pac. 171; Hobbs V.

Duff supra; Porter V. Liscom. 22 Cal. 430 r83 Am. Dec. 76); Russell V. Conway, SUlJra; Arp V. Blake,
supra; and see annotation in 121 A. L. R. 478-

Adams is proper, but, in view of Adams' insolvency,
the question vital to the success of Harrison in

542.)The fact that the demand of the plaintiff has not

realizing upon it is whether he can reach the interest of Verda Adams in the money held by the county clerk, or conversely, whether Verda Adams took her title subject to the rights of Harrison and Russell, his assignor, upon the note.
At the time of the assignments made by Adams,

been reduced to judgment is no obstacle to its
allowance as a set-off against a judgment. (Machado V. Borges, supra. )Such a set-off may be compelled even against an assignee of the judgment who took without notice and for value. (Machado v. Borges, supra; Coonan v. Loewenthal, supra; Haskins v.
Jordan, supra; McBride v. Fallon, supra; Porter V.

California had not enacted the Uniform Fraudulent
Conveyance Act (Stats. 1939, p. 1667; Civ. Code §§

Liscom, supra; Cohen V. Bonnell. 14 Cal. App. (2d) 38 (57 P. (2d) 13261; Bank of America v. Pacific
Readv-Cut Homes. Inc" 122 Cal. App. 554 rlO P.

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

129

Case 5:07-cv-04808-JF
128 P.2d 9

Document 60-5

Filed 07/25/2008

Page 4 of 46
Page 3

20 Cal.2d 646, 128 P.2d 9

20 Cal.2d 646

(2d) 478); Arp v. Blake, supra.)

of the assignor (Weiner V. Luscombe. 19 Cal. App.
(2d) 668 (66 P. (2d) 1511; Elam v. Arzaga, supra;
Tobv V. Oreflon Pac. R. R. Co.. 98 Cal. 490 (33 Pac.

It has also been held that under section 368 of the

Code of Civil Procedure the debtor may set off
claims against the creditor which were acquired after the assignment of the judgment to a third person but prior to notice to the debtor ofthe assignment. (Arp v.
Blake, supra; and see McKennev v. Ellsworth. 165
Cal. 326 rI32 Pac. 751; St. Louis Nat. Bank v. Gay.

ll and a fiduciary relationship exists between

them. (Elam V. Arzaga, supra.)lf the assignee for
collection should attempt to set off the assigned

chose in action against his individual obligation, he

would be violating the elementary rule of the law of
trsts which forbids the trstee from using trst

101 Cal. 286 r35 Pac. 8761; McCabe v. Grey. 20 Cal. 509.) "Whatever may be the rule as to notice in other

states, however much or little the courts may have permitted themselves to be influenced by equitable
considerations in favor of the assignee, the fact

propert for his private or individual purposes. (Civ. Code, § 2229; Purdv V. Johnson. 174 Cal. 521 r163 Pac. 8931; Bermingham V. Wilcox. 120 CaL. 467 r52
Pac. 8221: and see Lev V. Drew. 4 CaL. (2d) 456 (50
P. (2d) 435. IOI A. L. R. 11441.) Also, a trstee, or

remains that in this state there is no room for the
exercise of discretion upon this question. The rule is one rigidly fixed by statute. ..." (Haskins v. Jordan,
supra. )

one bearing a similar fiduciary relationship, may not
set off a claim due the trst estate against his own

personal obligation. (Hobbs v. Duff supra; Estate of
Hildebrandt. 92 Cal. 433 (28 Pac. 4861; Flynn V.
Seale, supra; see annotation in 121 A. L. R. 478.

(:1) But the assignee must be the beneficial owner of
the claim or judgment in order to use it as a set-off against a judgment against him. (Jones v. Chalfant. 55 Cal. 505; see cases collected in note, i 21 A. L. R.

517. )And to allow a judgment debtor to set off a

claim assigned to him for collection would be
violative of the rule requiring the mutuality of

parties; it would, in effect, permit the collection of a
debt due to a third part, in this case, Russell, against

478, 523. )And mutuality is essential, that is, the
judgments must be between the same *650 parties in the same right. (Machado v. Borges, supra; Kaye v.
Metz. 186 Cal. 42 r198 Pac. 10471; Petersen v. Lvders. 139 Cal. App. 303 (33 P. (2d) 10301;
California Cotton Credit Corp. v. Superior Court,

whom no corresponding right of set-off exists on the
part of

the judgment creditor. *651

The respondent urges, however, that where an
equitable action for a set- off is being maintained

supra;Hobbs v. Duff SUDra; Flvnn v. Seale. 2 Cal. App. 665 (84 Pac. 263): and see cases collected in note, 121 A. L. R. 478, 514.)ln determining whether

because of the insolvency of the creditor, equity wil

allow a set-off, even though the demands be not mutual. But what equity exists in behalf of the
judgment debtor when he seeks to collect, not his

demands are mutual, equity wil look to the real parties in interest. Thus there may be a set-off of
judgments where the real and beneficial owner of one
of them is the debtor upon the other, although an

own claim, but a claim to which another is
beneficially entitled? In the present action, Harrison must account to Russell for two-thirds of any amount he receives upon the note of Adams. Harrison does
not own a separable interest in it and his beneficial

assignee for collection is the nominal owner of the
first judgment. (Heine Piano Co. V. Bloomer. 183
CaL. 398 rl91 Pac. 9001.

interest is contingent upon collection. If the money held by the county clerk in connection with the case

(~) An assignment for collection vests legal title in
the assignee which is suffcient to enable him to

of Adams V. Harrison were owned by Adams, it
might be subjected to the judgment rendered against

maintain an action in his own name, but the assignor
retains the equitable interest in the thing assigned.

Adams in the present action. But at the time the
action was commenced, the money in custodio legis

(National Reserve Co. V. MetroDolitan Trust Co.. 17 CaL. (2d) 827 rl12 P. (2d) 5981; Morrison V. Veach.

belonged to Verda Adams, and was therefore not

subject to the judgment obtained by Harison for the
benefit of Adams.

190 Cal. 507 r213 Pac. 9451; Bechtel V. Baglieto. 13
CaL. App. (2d) 495 (57 P. (2d) 1921; Elam V. Arzaga.

122 Cal. App. 742 (10 P. (2d) 805); Koepple V.
Morrison. 84 Cal. App. 137 (257 Pac. 5901.) Such an
assignee has been referred to as the trstee or agent

The appellant contends that since the court in Del
Monte Ranch Dairv V. Bernardo. 174 Cal. 757 rl64
Pac. 6281. held that an assignor for collection could

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

130

Case 5:07-cv-04808-JF
128 P.2d 9

Document 60-5

Filed 07/25/2008

Page 5 of 46
Page 4

20 Cal.2d 646, 128 P.2d 9

20 Cal.2d 646

not use the claim as a set-off after the assignment, the assignee must have that right or none exists. But that
conclusion could only apply where the assignee
claims the right to set off his assignor's demand

Gibson, C. J., Shenk, J., Curtis, J., Carter, J., and
Traynor, J., concurred.
Cal.

Harrison v. Adams
20 Cal.2d 646, 128 P.2d 9

against a debt owed by his assignor. In such a case to

allow an assignee to set off, for the benefit of his
assignor, the assignor's equitable right against the

assignor's creditor would be consistent with the rule that, in determining whether claims are mutual for the purpose of set-off, equity wil look to the real parties in interest. (Hobbs v. Duff. SUlJra; Heine Piano Co. v.
Bloomer, supra.)But the principles stated in the Del

END OF DOCUMENT

Monte Ranch case have no application to the present

action, where there is no claim that Russell, the
assignor for collection, has any right of set-off
against Adams.

The appellant cites Hammell v. SUlJerior Court. 217
Cal. 5 (17 P. (2d) 1011. as determinative of the right

of an assignee for collection to apply the assigned
chose as a set-off against his

personal obligation. In

that case counsel advanced the argument that,
inasmuch as the amounts sued for in the complaint

were made up of several claims assigned to the
plaintiff

for collection, the superior court did not have

jurisdiction because there were, in fact, separate

plaintiffs. In rejecting the contention, the court held

that, for the purposes of jurisdiction, since the
plaintiff had the capacity to sue in his own *652 name and the aggregate amount demanded fell within the jurisdiction of the court, no fuher inquiry would

be made into the character of the plaintiffs
ownership. That decision is of course inapplicable to

the present action where the character of the
ownership of the claim upon which set-off is sought
determines the rights of

the parties.

Finally, says the appellant, it makes no difference to the judgment creditor whether the assignee is one for
collection or holds both the legal and the equitable

title; his only concern is that he should receive a full
release from the debt. Such a holding would ignore

the fundamental basis of equitable set-off, which is the right to balance mutual demands between the parties to the action, by allowing a stranger to collect
his claim through a nominal part. Moreover, in the present case, this stranger is asserting rights against a
bona fide purchaser for value.

The judgment is affrmed.

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.
131

Case 5:07-cv-04808-JF

Document 60-5

Filed 07/25/2008

Page 6 of 46

EXHIBIT 12

1219457.1

Case 5:07-cv-04808-JF

Document 60-5

Filed 07/25/2008

Page 7 of 46

Wela
269 P.2d 609

42 Cal.2d 752, 269 P.2d 609
42 Cal.2d 752

Page 1

P"Hauger v. Gates
Cal.

CARSON J. HAUGER et ai', Appellants,
v.

æ Setoff and Counterclaim § l6--Requisites-Liquidation. Code Civ. Proc., § 440, relating to compensation of

CHARLES E. GATES et aI., Respondents.
Sac. No. 6326.

cross- demands, does not require that cross-demands
be liquidated.
~ Trust Deeds § 50, 55--ForeclosureSale Under

Supreme Court of California
Apr. 30, 1954.

Power. Provisions of Code Civ. Proc., §§ 438, 440, relating
to right of setoff and counterclaim, are equally
applicable to a foreclosure action under trust deed

HEADNOTES
(( Trust Deeds § 77--Sale Under Power--Attack on

and to an extrajudicial sale thereunder.

Sale--Grounds.

See CaI.Jur., Trust Deeds, §§ 52, 57; Am.Jur.,
Mortgages, §§ 529,647 et seq.
(1Equity § 46--Laches. A court of equity will consider all the surrounding

Where grantors of realty and beneficiaries of
subsequent trst deed were, by reason of their failure to deliver certain personal propert to which grantees
and trstors of trst deed were entitled under

circumstances where defense of laches is interposed.
(I Trust Deeds § 82(1 )--Sale Under Power--Attack
on Sale--Laches.

agreement of sale, indebted to trstors in a greater
sum than amount of unpaid installments owing by

them on their promissory note, and where these
cross-demands existed at time notice of default was
declared and sale under trst deed was held, trstors

Trustors of trst deed are not barred by laches from

may have sale of realty under trst deed set aside on ground that they were entitled under Code Civ. Proc.,
§ 440, to a setoff or counterclaim in an amount

raising issue of right of setoff or cross-demands in action to set aside extrajudicial sale made under trst
deed, although their most prompt procedure would have been by way of an action seeking to enjoin
trstee's sale, where delay was not unduly prolonged

exceeding amount due on note, and hence were not in

default at time of sale.
See CaI.Jur., Trust Deeds, § 73; Am.Jur., Mortgages, § 709 et seq.
il Pleading § 84--Demurer--As Admission. Allegations of a complaint must be accepted as tre

and did not cause any detriment to the parties
involved because the sale was made to a purchaser who allegedly was acting for beneficiaries of trst deed and was not a purchaser in good faith or for
value.

for purposes of demurrer.
SUMMARY
Q) Setoff and Counterclaim § 8--Compensation of

Cross-demands. Statement in Code Civ. Proc., § 440, that coexisting

APPEAL from a judgment of the Superior Court of

cross-demands shall be "compensated so far as they equal each other" necessarily means that each of the claimants is paid to extent that their claims may be
balanced in amount.
See CaI.Jur., Setoff

Sonoma County. Hilliard Comstock, Judge.
Reversed.

Action to set aside an extrajudicial sale made under a

and Counterclaim,§ 29.

trst deed. Judgment for defendants after sustaining
demurrers to second amended complaint without leave to amend, reversed.
COUNSEL Joseph E. Isaacs, Alan H. Critcher, Donald M. Haet and Louis Garcia for Appellants.

W Setoff and Counterclaim § 8--Compensation of Cross-demands.
Right of setoff under Code Civ. Proc., § 440, relating

to compensation of cross-demands, is available
without necessity of bringing an independent action

setting forth related dealings between the parties.

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

132

Case 5:07-cv-04808-JF
269 P.2d 609

Document 60-5

Filed 07/25/2008

Page 8 of 46
Page 2

42 Cal.2d 752, 269 P.2d 609 42 Cal.2d 752

Edward T. Koford and Bryce Swartfager for
Respondents. SPENCE, J.

defendant Chalmers, who allegedly had full
knowledge of the above-recited facts and was "not a purchaser in good faith or for value" but holds the
propert "in trst" for defendants Gates. The propert

Plaintiffs brought this action to set aside an extrajudicial sale made under a deed of trst.
Defendants' demurrers to plaintiffs' second amended
complaint were sustained without leave to amend.

was sold for $5,025 to defendant Chalmers, and the

From the judgment accordingly entered for
defendants, plaintiffs appeaL. They maintain that the allegations of their second amended complaint were
suffcient to state a cause of action for the setting

deed therefor was accordingly made and recorded. The Exchange Bank of Santa Rosa holds a first deed
of

trst on the propert, calling for monthly payments

of $65. Defendants have made certain of these
payments to the bank and in the event the sale is set aside, plaintiffs are wiling to pay to defendants Gates and "all other defendants ... who may be entitled thereto such sums as may in right, justice and equity be owing from ... plaintiffs to defendants."
Plaintiffs' theory of relief rests upon the proposition
that a trstor under a deed of trst is entitled to offset

aside of the sale, as such allegations showed that

plaintiffs were entitled to a setoff or counterclaim in an amount exceeding the amount due on the note, and that therefore they were not in default on their

obligation. (Code Civ. Proc., § 440.)We have
concluded that their position is well taken.

As alleged, plaintiff Carson J. Hauger agreed to
purchase from defendants Charles E. Gates and his

wife for $16,000 certain real propert in the county
of Sonoma, together with the improvements thereon

money owing to him by the beneficiary against the amount secured by the deed of trst; and that where there was not in fact any indebtedness due from the
trstor to the beneficiary under the note secured by

the deed of trst, the sale thereunder may be set
aside. Section 440 of the Code of Civil Procedure

and certain specified ranch equipment. Pursuant to
the agreement, defendants Gates executed and

delivered to plaintiffs a deed to the realty; and
plaintiffs executed and delivered a promissory note
and second deed of trst as security for the unpaid
portion of the purchase price.*754 In the deed of

provides: "When cross-demands have existed
between persons under such circumstances that if one

had brought an action against the other, a
counterclaim could have been set up, the two

trst

demands shall be deemed compensated so far as they
equal each other, and neither can be deprived of the

plaintiffs were the first parties-trstors, defendant

Sonoma County Abstract Bureau was second parttrstee, and defendants Gates were third partiesbeneficiaries.

benefits thereof by the assignment or death of the
other." *755
(1) Under this section plaintiffs had a setoff which
they were entitled to assert. The cross-demands

Plaintiffs failed to make certain payments under the
deed of trst and defendants Gates failed to make the

agreed delivery of certain personal propert.
Thereafter and on December Ii, 1950, defendants

between plaintiffs and defendants Gates existed at the

time the notice of default was declared and the sale
under the deed of trst was held. By reason of their

Gates and the Sonoma County Abstract Bureau recorded a notice of breach and election to sell under the deed of trst. Plaintiffs claim that they were not then indebted to defendants Gates because the latter, in breach of their contract, had failed to deliver to

failure to deliver certain personal propert to which plaintiffs were entitled under the agreement of sale,

defendants Gates were indebted to plaintiffs in a
greater sum than the amount of the unpaid

plaintiffs the agreed personal propert, valued at $987.50, which sum exceeded the amount of the
installments then due under the promissory note and
deed of trst; that plaintiffs repeatedly told

installments owing by plaintiffs on their promissory note. (l-) These allegations of plaintiffs' complaint
must be accepted as tre for the purposes of

demurer, and accordingly plaintiffs were not in
default at the time of the sale. (1) Section 440 is

defendants Gates that they would pay the overdue
installments if the Gateses would return the personal
propert but the latter refused. On April 12, 1951, the
propert was sold by the Sonoma County Abstract Bureau, the trustee under the deed of trst, to

explicit in stating that the coexisting cross-demands
shall be "compensated so far as they equal each

other," which necessarily means that each of the
claimants is paid to the extent that their claims may
be balanced in amount.

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

133

Case 5:07-cv-04808-JF
269 P.2d 609

Document 60-5

Filed 07/25/2008

Page 9 of 46
Page 3

42 Cal.2d 752, 269 P.2d 609 42 Cal.2d 752

allow" for rescission of a sale. (Schneider v. Henlev.

Plaintiffs and defendants Gates were aware of the
cross-demands prior to the sale proceedings;

61 Cal.App. 758. 763 (215 P. 10361. However, the

cited case has no relevancy to the problem here, for
plaintiffs do not seek to rescind their purchase

plaintiffs had informed defendants Gates that they

would pay the installments on their note if the
Gateses in turn would deliver the personal propert
as theretofore agreed; and then, without regard for the consequences of their own breach of contract and the

agreement but rather they stand on their contract and

their rights thereunder. (1) A court of equity wil
consider all the surrounding circumstances where the
defense of laches is interposed. (10 Cal.ur., § 62, p.

damages thereby caused to plaintiffs, defendants
Gates proceeded with the sale. (~) Section 440 makes

523.) (~) It may be conceded that plaintiffs' most

prompt procedure would have been by way of an
action seeking to enjoin the trstee's sale. But the fact

it clear that plaintiffs' right of setoff was available
without the necessity of bringing an independent

action setting forth the related dealings between the
parties. (See Walters v. Bank of America. 9 Cal.2d

46, 54-55 (69 P.2d 839); Wiliams v. Pratt. 10
Ca1.App. 625. 632 (103 P. 1511) And the fact that

that they failed to so proceed does not bar them from resort to the present action for an adjudication of their rights. The delay was not unduly prolonged and does not appear to have caused any detriment to the parties
involved as the sale was made to defendant

plaintiffs' demand is an unliquidated claim for damages for breach of the contract of sale with the Gateses does not affect their right to the setoff. (~)
Section 440 does not require that the cross-demands be liquidated. (Sunrise Produce Co. v. Malovich. 101
Cal.ApP.2d 520. 525 (225 P.2d 9731.
(2) It would not be reasonable, as contended by

Chalmers, who allegedly "was acting for and on
behalf of defendants (Gates) ... and ... was not a purchaser in good faith or for value."
For the reasons stated, we conclude that plaintiffs'
second amended complaint stated a cause of action,

and that the trial court erred in sustaining defendants' demurrers without leave to amend.
The judgment is reversed.

defendants, to interpret section 440 of the Code of
Civil Procedure so as to permit the right of setoff in a
foreclosure action under a deed of trst and yet to

deny such right where the foreclosure was attempted by extrajudicial sale thereunder. On the contrary, it would appear that the provisions of said section are
equally applicable in relation to either type of

Shenk, J., Edmonds, J., Carter, J., Traynor, J., and
Schauer, J., concurred. *757
Cal. Hauger v. Gates

proceeding. Section 438 of the Code of Civil
Procedure provides that "the right to maintain a

42 Cal.2d 752, 269 P.2d 609 END OF DOCUMENT

counterclaim shall not be affected by the fact that either plaintiffs or defendant's claim *756 is secured

by mortgage or otherwise, nor by the fact that the
action is brought, or the counterclaim maintained, for

the foreclosure of such security." It therefore appears
that the choice of remedy under a deed of trst is an

extraneous factor, not going to the merits of the

claimed right to a setoff.

Defendants argue that plaintiffs should be barred by

laches from now raising the disputed issue in an
effort to set aside the sale. Defendants point out that plaintiffs did not fie the present action until 70 days

after the sale; that four months prior to the sale
plaintiffs, by the recording of the notice of default,
were put on notice regarding the forthcoming sale;
and that a period of "thirt days is about the utmost

length of time which the courts are disposed to

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

134

Case 5:07-cv-04808-JF

Document 60-5

Filed 07/25/2008

Page 10 of 46

EXHIBIT 13

1219457.1

Case 5:07-cv-04808-JF

Document 60-5

Filed 07/25/2008

Page 11 of 46

We1a
259 Cal.App.2d 356

Page I

259 Cal.App.2d 356, 66 Cal.Rptr. 384 259 Cal.App.2d 356

CMcDaniel v. City and County of San Francisco Cal.App.l.Dist. SAMUEL A. McDANIEL, Plaintiff and Appellant,
v.

Owing and Unpaid-- Retirement Fund
Corporations. A city employee's retirement fund contributions were

æ Garnishment § 5(1), 31--Propert Subject--Debts

ContributionsProceedings Against Public

CITY AND COUNTY OF SAN FRANCISCO et aI.,
Defendants and Respondents.

Civ. No. 23813.
Court of Appeal, First District, Division 3, California.
Feb. 23, 1968.

"owing and unpaid" to him within the meaning of Code Civ. Proc., S 7\0, where the city charter made
an employee's contributions refundable to him if for any reason he ceased to be a city employee before his pension was due, where the employee was suspended from employment and thereafter made a written
demand for the refund of his accumulated

HEADNOTES

contributions, and where, though the employee had

(J, il Mandamus § 98-- Trial--Questions
InvolvedSetoff and Counterclaim § 8--AvailabiIity-Compensation of Cross-demands.

an appeal pending regarding his status as an
employee a few days before a portion of the funds

standing to his credit were transferred to the court to

An amount by which a city employee's retirement
account was deficient was, as a cross-demand, entitled to be set off by the city against the

satisfy the claim of the judgment creditor, the
employee neglected to revoke his demand for the
refund or to notify the retirement system as to his

employee's claim for back wages under a civil service commission order reinstating the employee following his suspension, where the amount claimed as a setoff,
having been levied upon by the employee's judgment

change of intention or his appeal until after the
transfer of funds to the court in the collection

procedure.
See CaI.Jur.2d, Rev., Attachment and Garnishment, § 15; Am.Jur.2d. Attachment and Garnishment, & 85

creditor, under Code Civ. Proc.. S 710, was, in alI
fairess to other employees, due and owing the

et seq.

retirement fud by the employee.
il Mandamus § 5--Conditions Affecting Issuance. One of the essential conditions for the issuance of the

~, QQ Garnishment § 5(1), 31--Propert Subject-Debts Owing and Unpaid--Retirement Fund
ContributionsProceedings Against Public

Corporations.

writ of mandate is a showing on the part of the
applicant that he has a clear legal right to the
performance of

Neither a city nor its auditor could be held liable on
the ground that a portion of a city employee's

the act the writ would compeL.

retirement fund contributions due and owing the
employee were paid to the court by the auditor pursuant to a judgment creditor's levy, under Code
Civ. Proc., S 7\0, without notice to the employee,

See CaI.Jur.2d, Mandamus, § 13; Am.Jur.,
Mandamus (1st ed § 37). Q) Mandamus § 10--Conditions Affecting Issuance-Equitable Principles.

The writ of mandate is an equitable remedy, and wil not always issue as a matter of right.
~ Mandamus § 9--Conditions Affecting Issuance-Discretion.
The decision whether to grant or deny a writ of

with the result that the court paid out the funds to the creditor before the employee could assert a claim of

exemption, since .L imposes no duty on the
auditor or controller to notify the debtor that his

funds have been levied upon, and to hold the city
liable would defeat the purpose of

that section.

mandate lies within the sound discretion of the court, and one of the chief considerations in the exercise of
that discretion is the effect of the court's order in

Q) Garnishment § 31--Proceedings Against Public Corporations.
The purpose of providing a special garnishment

promoting the ends of justice.

procedure in the superior court where governmental units are involved (Code Civ. Proc.. & 710) is clearly

to shift to the court the burden of adjudicating any

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

135

Case 5:07-cv-04808-JF
259 Cal.App.2d 356 259 Cal.App.2d 356, 66 Cal.Rptr. 384 259 Cal.App.2d 356

Document 60-5

Filed 07/25/2008

Page 12 of 46
Page 2

claims of exemption which may arise and to insulate the governmental units from liability for wrongful
payments to garnishing creditors.

justification for the circumstances which gave rise to
the petition for the writ.

SUMMARY

(I Garnishment § 24( i), 31--Duties and Liabilities
of GarnisheeProceedings Against Public Corporations. Though, under some circumstances, a garnishee, who

APPEAL from a judgment of the Superior Court of
the City and County of San Francisco. Joseph

knows that the propert levied on is subject to a
claim of exemption and that the judgment debtor is
ignorant of the levy, has a duty, whenever

Karesh, Judge. Affrmed.

practicable, to notify the debtor of the garnishment, so that the latter may have the opportnity to claim

his exemption if he desires, such rule is not
applicable where the garnishee is a governmental unit

Proceeding in mandamus to compel a city to pay an employee's claim for back wages without setoff of an amount owed by the employee to the retirement system. Judgment denying writ affrmed.
COUNSEL

or a public offcer and Code Civ. Proc.. & 710, is
involved.

McMuray & Tepper and Lloyd E. McMurray for
Plaintiff and Appellant. Thomas M. O'Connor, City Attorney, and Donald J. Garibaldi, Deputy City Attorney, for Defendants and Respondents. *359 SALSMAN, J.
This is an appeal from a judgment denying

(2 Mandamus § 89--Pleading--AnswerSetoff and
Counterclaim § 42(1)-- Pleading.

In a mandamus proceeding by a city employee to
compel a city to pay the employee's back wages

without setoff of an amount allegedly owed by the employee to the retirement fund, the pleading by the
city of the setoff in its answer rather than in a

separate pleading, either by cross-complaint or

counterclaim, was proper, where, all the facts surrounding the setoff being fully and clearly set
forth, the employee was fully informed, where,

appellant's petition for a writ of mandate, dissolving the alternative writ, and adjudging appellant indebted to the retirement fund of the City and County of San Francisco in the amount of$4,708.92.

though he demurred generally to the answer, he made no reference to the claimed defect in the answer, and
where, the matter being fully heard under the

The facts are not in dispute. Appellant is a cable car gripman on the San Francisco Municipal Railway, a

civil service position. For a long time prior to the
events in this case, his former wife Zereldia

pleadings presented, whatever objection might have been urged against the pleading vanished at the close
of

McDaniel had regularly attached his earnings
pursuant to a judgment for child support. These

the evidence.

attachments were made under the procedure
described in Code of

Civil Procedure, section 710.

(( Mandamus § 98-- Trial--Questions
InvolvedSetoff and Counterclaim § 8-- A vailability-Compensation of Cross-demands.
reinstated employee's back wages, as ordered by the

On April 23, 1964, appellant had been employed by
the Municipal Railway for 16 1/2 years and had

In a mandamus proceeding to compel a city to pay a
civil service commission, without setoff of an amount allegedly owed by the employee to the retirement

accumulated $8,238.86 in the city retirement fund.
Beginning with that date, the following events

occured:
(I) April 23, appellant was suspended from his

system, the setoff was not a collateral matter, unrelated to the employee's right to have the city comply with the order of the commission, and the

employment for a violation of Municipal Railway
rules.

claim was properly asserted by the city and considered by the trial court in arriving at its
judgment denying the writ, since a defendant's

answer to a petition for the writ of mandate should
set up any matter of defense relied upon as

(2) May 26, he requested a refund of his retirement contributions. The form filled out and signed by him stated: "My service with the City and County of San
Francisco terminated 4-23-64. I hereby request

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

136

Case 5:07-cv-04808-JF
259 Cal.App.2d 356

Document 60-5

Filed 07/25/2008

Page 13 of 46
Page 3

259 Cal.App.2d 356, 66 Cal.Rptr. 384 259 Cal.App.2d 356

refund of the accumulated contributions standing to my credit in the retirement fund."
(4) June 8, appellant's former wife fied an abstract of judgment and affdavit with the controller's offce

danger some of the funds might be paid over under the levy unless speedy action was taken. At the same time appellant notified the Retirement System of his
appeaL.

under Code of Civil Procedure, section 710. The affidavit asserted that $4,872.68 was due her under
the judgment.
(5) June 19, the city's Retirement System, pursuant to
appellant's request, submitted to the controller a

(Ii) March 22, 1965, the Civil Service Commission ordered appellant reinstated with back pay from the
date of his dismissal, less amounts earned while

discharged.

refund roll for the sum of $8,238.86, payable to

(Ii) The respondent city did not pay the back wages ordered by the Civil Service Commission. It asserts
that appellant is deficient in his retirement fund

appellant.

(6) June 23, appellant's appeal was fied with the
Civil Service Commission.

contributions because of the money withdrawn by appellant and seized by his creditor, and that this amount should be set off against the amount of back
wages found due under the Commission's order.

(7) June 25, the controller, in response to the abstract of judgment and affidavit fied with him, prepared a
warrant in the sum of $4,708.92, FNI payable to the

On the facts recited, the trial court found that
appellant was indebted to the city's retirement fund in the amount of$4,708.92 and that the city was entitled

superior cour, and deposited the warrant with the

cour. The controller did not notify appellant that a
par of the refund of his retirement contributions was

to set off this amount against any back wages due him. Accordingly, the cour denied the writ. We
conclude that the trial court's judgment is correct, and therefore affrm.
(l) One of the essential conditions for issuance of

being paid into court pursuant to the attachment.
FNI The amount of

the warrant was $163.76
the

less than the amount demanded in the levy

because that amount had already been paid into court from other funds due appellant.
(8) June 29, appellant called at the offces of the

writ of mandate is a showing on the part of the
applicant that he has a clear legal right to the
performance of the act the writ would compeL.

(Consumers Salt Co. v. Rif!f!ins. 208 Cal. 537. 543
(282 P. 9541; 32 Cal.ur.2d, Mandamus, § 6, p. 122; 3
Witkin, Cal. Procedure (1954) Extraordinary Writs, §

Retirement *360 System. There he learned that a portion of his retirement refund had been sent to the superior court. A warrant for the remainder of his contributions was tendered to him, but he refused to accept it. He informed the clerk in the offce that he

40, p. 2520.) (() Moreover, the writ is an equitable

remedy, and wil not always issue as. a matter of
right. (Sutro Heif!hts Land Co. v. Merced frr. Dist..
211 CaL. 670. 704-705 (296 P. i 0881; *361 Wallace v.

"... didn't want the money, because my case was
being appealed, and chances are I would get

reinstated by the railway, and I wanted the money to remain in the Retirement System."
(9) June 30, the superior court ordered the funds in its

Board of Education. 63 Cal.App.2d 61 L 617 (147 P.2d 81.) (1) The decision whether to grant or deny the writ lies within the sound discretion of the court, and one of the chief considerations in the exercise of
that discretion is the effect of the court's order in

possession paid over to the attaching creditor. This
payment was made without appellant's knowledge.
(10) July 8, appellant's attorneys notified the

promoting the ends of justice. (See Bartholomae Oil

Com. v. Superior Court. 18 CaL.2d 726, 730 (117
P.2d 6741. and cases cited.) When these fundamental

rules are applied to the facts of this case it is clear
Retirement System of the rescission of his request to
withdraw his retirement funds. His attorneys
requested prompt action and noted that a levy had

that appellant does not make the clear and
unequivocal showing of a right to the writ

contemplated by the law, and that grant of the writ
would not accomplish substantial justice.

been made upon the controller, and that there was

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

137

Case 5:07-cv-04808-JF
259 Cal.App.2d 356

Document 60-5

Filed 07/25/2008

Page 14 of 46
Page 4

259 Cal.App.2d 356, 66 Cal.Rptr. 384
259 Cal.App.2d 356

Code of Civil Procedure. section 710 establishes a procedure for enforcing money judgments against a debtor to whom money is owed by the state or a
political subdivision thereof. Insofar as applicable

here, the statute alIows the judgment creditor to fie
an abstract of judgment with the city auditor, together
with an affdavit stating the amount due, and

Appellant's reliance upon Credit Bureau of San Dief!o. Inc. v. Gettv. 61 Cal.ApP.2d Supp. 823 (142 P.2d 1051 is misplaced. In that case a court deposited bail money with the county treasurer. A creditor of the defendant for whom it was deposited attempted to reach it under Code of Civil Procedure, section 710. The court pointed out that the bail money was not

thereupon makes it the duty of the auditor to forward to the cour which issued the abstract of judgment an amount suffcient to pay the claim, or a part thereof
equal to no more than one-half of the debtor's salary

money owing by any city or county within the

meaning of the statute and that it could not be
reached by the statutory procedure. In Credit Bureau of San Diego, Inc. the funds, although in possession of the county, were subject to disposition by the court
and not by the board of supervisors. Here, however,

or wages owing by the city to the debtor for personal
services rendered within 30 days of

the levy.

all money in the Retirement System is under the

().) One of appellant's prime contentions is that the retirement contributions paid into court by the auditor were not monies "owing and unpaid" to him within

control of the city, although the fund is administered
by the system as an agency of the city government.

As we have already pointed out, the charter itself
makes an employee's contributions refundable to him
if for any reason he ceases to be a city employee

the meaning of section 710, because petitioner was
not entitled to have his retirement contributions paid
to him while the appeal from his discharge was

pending. We find no merit in this ground of appeaL.
In our opinion, appellant's retirement contributions

before his pension is due. Thus, the monies requested by appellant after his discharge and before his appeal were clearly monies "due and owing" by the city to
the employee.

were "owing and unpaid" from the time of his
discharge on May 21, or, at the very latest, ITom May 26, when he demanded a refund of his contributions
in writing. The city had received his contributions

(6a) Nevertheless appellant argues that the city
breached a statutory duty to notify him that his wife had levied upon his funds. The sum of his argument is that if he had been notified in time he could have taken steps to revoke his claim for a refund before the

over a period of years and was bound to account to him for them if for any reason his pension rights did
not matue. (S.F. Charter § l65.2(F).) This was an

auditor sent the money to the court, or claim an
exemption under Code of Civil Procedure, section
690. (See, e.g., Code Civ. Proc.. & 690.23.) Perhaps

existing and unsatisfied legal liability on the part of
the city. (See Devartment of Water & Power v. Invo
Chemical Co.. 16 Cal.2d 744. 751 (108 P.2d 410L.

appellant could have successfully contested the
claims of his wife and the rights of his children if he had been forewarned. But appellant set the machinery in operation to obtain his money. This began on May
26, when he demanded a refund of his contributions. The creditor's levy arrived on June 8th, but it was not
until June 19th, when the Retirement System

and cases cited.) It is tre that two days before the
controlIer paid the funds into court, appellant

appealed his discharge. But he did not revoke his
demand for a refund of his retirement money or

notify the *362 Retirement System. A few days after the auditor's payment he called at the offce of the Retirement System and learned that some of his funds had been paid over to the court for his wife. At that time he oralIy notified the clerk in the offce that
he was rescinding his request for repayment of his

submitted *363 its roll to the auditor, that the latter
was aware of

the funds due appellant. Two days later,

without any word from appellant, the auditor
complied. with the court's order and forwarded the funds to the court. The auditor called the court's
attention to possible exemptions appellant might

retirement funds. But by that time the funds were
beyond the control of the city and were in the hands of the court. Appellant cannot fault the city because it complied with his written demand for the return of
his money, and at the same time complied with the

claim, and in this respect went further than the law expressly requires. Thereafter the matter was in the
hands of the court. Neither the city nor the auditor

law by paying a portion of it over to the court
pursuant to a lawful levy.

can be held liable because the court paid out the
funds to the creditor before appellant could assert a
claim of exemption.

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

138

Case 5:07-cv-04808-JF
259 Cal.App.2d 356

Document 60-5

Filed 07/25/2008

Page 15 of 46
Page 5

259 Cal.App.2d 356, 66 Cal.Rptr. 384 259 Cal.App.2d 356

Although section 710 provides a summary adversary proceeding in the superior court for one whose funds
are attached while in the hands of a governmental

pleading, but no harm has been done by that omission. AlI of the facts surrounding the claim are fully and clearly set forth in the answer. Appellant was fully informed. He knew exactly what to expect

unit (see Code Civ. Proc.. & 690.26), it imposes no duty on the auditor or controller to notify the debtor
of the garnishment. The Legislature could have

at the hearing. He could not have been better
informed by a separate pleading. Aside from a brief
reference to the subject in his memorandum of points

inserted such a requirement in the detailed provisions for proceeding under section 710 if it had so desired,
and it may do so at any time. As drafted, however, it

and authorities accompanying his general demurrer to the answer, he made no reference in the trial court to

is significant that the statute merely requires that the controlIer or auditor forward the fuds to the cour,
withholding only a wage exemption (Code Civ.
Proc.. & 710, subd. 2). (1) The purpose of

the claimed defect in the answer. The matter was thereafter fully presented on its merits. Whatever
objection might have been urged against the pleading
of the setoff vanished at the close of the evidence,

providing a

because the matter was fully heard under the
pleadings presented.

special garnishment procedure in the superior court where governmental units are involved is clearly to
shift to the court the burden of adjudicating any

claims of exemption which may arise and to insulate the governmental units from liability for wrongful payments to garnishing creditors. (6b) To hold the city and county liable in this case would thus defeat
the purpose of section 710. Whether the garnishing

(lQ) Appellant contends further that, in this
off the amount of his retirement account deficiency

mandamus proceeding, the city is not entitled to set
against his claim for back wages, because that matter is purely collateral, unrelated to his right to have the
city comply with the order of the Civil Service

judgment creditor or any other person has a duty to notify the judgment debtor of the proceedings in the superior cour is a question not properly before us on
this appeaL.

Commission, and thus may not be considered in this

case. We do not agree.

Code of Civil Procedure. section 1109, relating to
extraordinary writs, makes the provisions of part 2 of
that code applicable to writ proceedings. Part 2

on We recognize that, under some circumstances, it
has been held that a garnishee, who knows that the
propert levied on is subject to a claim of exemption

and that the judgment debtor is ignorant of the levy,

has a duty, whenever practicable, to notify the debtor

of the garnishment, so that the latter may have the

opportnity to claim his exemption if he desires.
(AJmew v. Cronin. 148 CaI.App.2d 117. 126 (306

includes provisions relating to pleadings in civil actions, and such provisions are therefore fully applicable to writ proceedings unless other rules are specifically made applicable. A respondent's answer to a petition for the writ of mandate should set up any matter of defense relied upon as justification for the

P.2d 5271; Hinf! v. Lee. 37 Cal.App. 313. 317-318 (174 P. 3561; Harris v. Balk. 198 U.S. 215.217 r49
L.Ed. 1023. 1024.25 S.Ct. 625).) But we do not think
that rule is applicable where the garnishee is a

circumstances which gave rise to the petition for
mandate. (Rittersbacher v. Board of SUlJervisors. 220 Cal. 535. 542 (32 P.2d 1351; Bank of Italv v. Johnson.

200 CaI. 1. 28 (251 P. 7841; Felice v. City of
Inglewood. 84 CaI.App.2d 263 (190 P.2d 3171.) Here the city properly asserted its claim to a setoff, and the

governmental unit or a public offcer and section 710
is involved. *364

trial court properly considered it in arriving at its
judgment.

(2) AppelIant argues that the alIeged setoff has not
been properly pleaded. The essence of his objection

is that it should have been presented in a separate
pleading, either by cross-complaint or counterclaim.
(See 2 Witkin, CaI. Procedure (I954) Pleading, §

Cl.h) The doctrine of setoff is described in Code of

566, p. 1570.) The record shows it was merely

included as a par of a paragraph in the answer to the

petition for the writ. Perhaps it would have been
better to describe respondents' setoff in a separate

Civil Procedure, section 440. It reads: "When crossdemands have *365 existed between persons under such circumstances that, if one had brought an action against the other, a counterclaim could have been set up, the two demands shall be deemed compensated,
so far as they equal each other, and neither can be

deprived of the benefit thereof by the assignment or

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

139

Case 5:07-cv-04808-JF
259 Cal.App.2d 356

Document 60-5

Filed 07/25/2008

Page 16 of 46
Page 6

259 Cal.App.2d 356, 66 Cal.Rptr. 384 259 Cal.App.2d 356

death of the other." Thus, when cross-demands exist between parties, their claims are paid to the extent
they are equal. (Jones v. Mortimer. 28 Cal.2d 627.

633 (170 P.2d 8931; Sunrise Produce Co. v.
Malovich. 101 Cal.App.2d 520 (225 P.2d 9731.

Pursuant to this rule it has been held that an employer
may set off his employee's debt against the

employee's claim for wages due. (Patterson v.
Henderson Tire & Rubber Co.. 112 Cal.App. 48 (296

P. 3041. A municipal corporation has the same right as any other creditor to claim a setoff (Corbett v. Widber. 123 Cal. 154. 156 (55 P. 7641; United States

v. Munsev Trust Co.. 332 U.S. 234 r9l L.Ed. 2022, 67 S.Ct. 15991), and it has been held that it would be
a breach of duty for a public officer to pay an

obligation due an individual when the individual owed a like sum to the public body. (See State ex rei'

Pratt v. Seattle. 73 Wash. 396 rr 32 P. 451.) Appellant's ultimate pension rights do not depend
upon his contributions to the retirement fund. His full pension may be paid even though his contribution
account is deficient. But in fairness to all other

members of the Retirement System who are required to contribute their full share to the fund, as well as to the city's taxpayers who underwrite and guarantee the
fund's deficiencies, the city should be allowed to set

off against appellant's claim for back wages the
amount by which his retirement account is deficient.

The judgment is affrmed.
Draper, P. J., and Bray, J., FN* concurred. *366

FN* Retired Presiding Justice of the Cour of Appeal sitting under assignment by the
Chairman of

the Judicial CounciL.

Cal.App.I.Dist. McDaniel v. City and County of San Francisco 259 Cal.App.2d 356, 66 Cal.Rptr. 384
END OF DOCUMENT

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

140

Case 5:07-cv-04808-JF

Document 60-5

Filed 07/25/2008

Page 17 of 46

EXHIBIT 14

1219457.1

Case 5:07-cv-04808-JF
, .

Document 60-5

Filed 07/25/2008

Page 18 of 46

,~

il II'

¡1

if.
(~.

¡i
I i i

Miller & Starr California Real Estate
3rd Edition
By Harry D. Miller and Members of the Firm of
Miller, Starr & Regalia,

a Professional Law Corporation

Chapter 10
DEEDS OF, TRUST AND MORTGAGES

ji !. " ':
¡

¡:

L
I!

J '. ,'
t . 1 ,',

THOMSON
VVEST
For Customer Assistance Call 1-800-328-4880

*

141

---'--Case 5:07-cv-04808-JF Document 60-5 Filed 07/25/2008 Page 19 of 46
§ 10:10

;Â
W

DEEDS OF TRUST

copy of the notices of default and sale.9 In order to be sure, therefore, a copy of the document of substitution should be mailed to the origi-

nal trustee, the trustor, and all other persons who have filed a

request for special notice.10 The statute provides that if the substitution occurs after the notice of sale, the foreclosure sale is void unless

rf

a new notice of sale is given in the manner prescribed by the statute.11 Therefore, a new notice of sale must be given if the substitution occurs after the notice of sale.

A court's power to substitute a trustee is limited. As a general rule, because there is a trustee named in the deed öf trust, the

court does not have the power to substitute for the trustee.12
However, 'if the trustee refuses to act13 or there is a vacancy in the position of trustee, the court probably can exercise its equitable pow-

ers and appoint a trustee.14 .
3.

DEBT OR OBLIGATION SECURED

§ 10:10

Requirement of some debt or obligation

Research References

West's Key Number Digest, Mortgages ~114
I i

i

No lien without an underlying obligation. The deed of trust
must secure some debt or obligation; the lien does not attach prior to
the creation of the underlying debt or obligation. Because the security instrument is merely incident to and measured by the perfor-

G ~ ,ii,! ~
r:

\
i ,
I i

mance of the obligation,1 there can be no lien of a mortgage or trust
2
deed without an underlying and enforceable debt or obligation.

. Case Example: A mortgage securing a construction loan was
recorded before the claims of mechanics' liens attached to the prop-

erty, but the promissory note was not delivered to the lender until
9§ 10:8 (substitution of trustee; statu-

14Prob. Code, § 15660.
See also Prob. Code, §§ 17000,
17002, 17005.

tory procedure).

Comment: The statute was
f
¡

amended in 1982 after the contrary deci-

.~

sion in U., S. Hertz, Inc. v, Niobrara
, Farms, 41 Gal. App. 3d 68, 83-85, 116

(Section 10:10)

1§ 10:2 (lien versus title theories).

2Alliance Mortgage Co. v. Róthwell,

, Ca1. Rptr. 44 (3d Dist. 1974). 10 Ca1. 4th 1226, 1235, 44 Ca1. Rptr. 2d 10§ 10:8 (substitution of trustee; statu- 352, 900 P.2d 601 (1995); Goodfellow v.
tory procedure).

Goodfellow, 219 Cal. 548, 554, 27 P.2d

11Civ. Code, § 2934a, subd. (c).
I

l

12Mutual Building & Loan Ass'n of Pasadena v. Wiborg, 59 Cal. App. 2å
325, 331, 139 P.2d 73 (2d Dist. 1943).

I."
t,
'.'1 . '."~.,

13Baumann v. Harrison, 46 Cal. App.
2d 84, 93, 115 P.2d 530 (4th Dist. 1941).

898 (1933); Fleming v. Kagan, 189 Cal. App. 2d 791,796, 11 Ca1. Rptr. 737 (2d Dist. 1961); Turner v. Gosden, 121 Cal. App. 20, 22, 8 P.2d 505 (1st Dist. 1932). Forms References: See Am. Jur. Legal Forms 2d, Mortgages and Trust
Deeds §§ 179:221 to 179:229.
41

Ii il.' .'

(£: West, a Thomson business, 11/2003

.':'.~.?:.~J;~?:;tn~~~31.0.:rr~.:/8.',~a~...~2~J;~.;.;~~-.,:~:T.':~r...:r.;'ir.S_;~i.r:~~r;ò~~.h~.;'.T.,~~-F~?r~.:!;~~B~:'~:~l::':'/j7;:.:-;:~'~rr.,..~~--" '" """ ," ." . -. ," ..,... .".,,, ~

- - -',- - -'-' - .' '::- .'. .:..- . -'- - -:", ----" - --' ': -' . ',-' " - - -, . -' - , - ,,:;':~::l~~::~T7'~::;:-:.t;.:::?:,~:~?~:~~~

"

", .".",'.":".".".".',

142

Case 5:07-cv-04808-JF

Document 60-5

Filed 07/25/2008

Page 20 of 46

EXHIBIT 15

1219457.1

Case 5:07-cv-04808-JF
Wéla

Document 60-5

Filed 07/25/2008

Page 21 of 46

6 Cal.App.3d 395 6 Cal.App.3d 395, 86 Cal.Rptr. 33 6 Cal.App.3d 395

Page i

~Moving Picture Mach. Operators Union Local No.
162 v. Glasgow Theaters, Inc.

On appeal by both parties, the trial court's judgment

was affrmed. The Court of Appeal rejected a
contention by defendant that the evidence pertaining

CaI.App.I.Dist.
MOVING PICTURE MACHINE UNION LOCAL NO. 162, Plaintiff

OPERATORS and Appellant,
v.

to the settlement negotiations should have been

inadmissible and that there was therefore no

evidentiary support for the award. The court also
found that there was no accord and satisfaction between the parties, since the agreement of the attorneys was subsequently repudiated by defendant, and no satisfaction of the agreement was ever made.

GLASGOW THEATERS, INC., Defendant and Appellant Civ. No. 26201.

Court of Appeal, First District, Division I, California.
April 8, 1970.

In addition, the court held that the trial court was
justified in declining to grant the union the full relief
requested by them based upon the August 15, 1963,

SUMMARY

retroactivity date, since the agreement upon which
the union based its claim contained a material

Defendant, an operator of a motion picture theater, employed a number of projectionists who were members of plaintiff union. Plaintiff claimed that defendant was obligated to make certain payments to a pension fund for the benefit of plaintiffs members,
with payments retroactive to August 15, 1963, pursuant to a collective bargaining agreement. Defendant maintained its obligation to make

alteration in that the commencement of the period of
coverage had been changed by handwritten notation from 1965 to 1963. (Opinion by Molinari, P. J., with

Sims and Elkington, 11., concuring.)
HEADNOTES

Classified to California Digest of Offcial Reports
il Evidence § 190--Admissions--Offers to

payments commenced on August 15, 1965.
Negotiations to settle the dispute were entered into by

the parties, resulting in an agreement fixing a
compromise date of August 15, 1964, but the

agreement was subsequently repudiated by
defendant. Plaintiff fied an action, seeking recovery

in the sum of $1,854 based upon an alleged
participation agreement whereby defendant had
agreed to make pension fund payments commencing

Compromise. It is error to admit evidence that a person has offered or promised to furnish money, as well as any conduct or statement made in negotiation thereof (Evid. Code.

~ 1152), and this rule not only excludes offers to
compromise but also excludes all negotiations in
relation thereto unless they are otherwise admissible.

August 15, 1963. A second cause of action attempted
to state an accord and satisfaction between the parties

(See Cal.Jur.2d, Rev., Evidence, § 304; Am.Jur.2d.
Evidence. & 629.)

in the sum of $1 ,486. A third cause of action sought a
declaration of rights as to defendant's obligation to

il Evidence § 190--Admissions--Offers to

Compromise.
The rule which excludes offers of compromise in

make pension payments. After the fiing of the

complaint, defendant's attorney wrote a letter to
counsel for plaintiff admitting that defendant owed

evidence does not apply to statements which are in
nowise connected with any attempt of compromise or
of statements of fact independent of an offer of

the sum of $1,209 and was prepared to pay this
amount in full satisfaction of the matter sued upon in
the complaint, but this offer was rejected by plaintiff.

compromise.

The trial court found that defendant was indebted to plaintiff for $1,209 for the period from August 15,
1964, to August 15, 1967, on the basis of admitted

Q) Evidence § 190--Admissions--Offers to
Compromise. Evidence relative to the issue whether there has been

liability in that sum. (Superior Court of the City and County of San Francisco, Raymond J. Arata, Judge.)

an accord and satisfaction is not subject to the
objection that it violates the rule which excludes

offers of compromise.

~ 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

143

Case 5:07-cv-04808-JF
6 Cal.App.3d 395 6 Cal.App.3d 395, 86 Cal.Rptr. 33 6 Cal.App.3d 395

Document 60-5

Filed 07/25/2008

Page 22 of 46
Page 2

~ Evidence § 190--Admissions--Offers to
Compromise. Statements of a part against whom a claim is made,
that he is wiling to settle the claim, when not connected with an offer of compromise, may be

For the principle of accord and satisfaction to apply there must be a bona fide dispute between the parties; it is also necessary to show satisfaction as well as an accord since an accord without satisfaction does not extinguish the original obligation.

proved as an admission against interest.

Q. Accord and Satisfaction § 4--Payment.

Where a dispute is as to the amount due and an

æ Evidence § 190--Admissions--Offers to
Compromise.
The intention of a part is dispositive when

accord has been reached as to the amount to be paid, the original obligation is not extinguished until the agreement to pay is performed.
(( Attorneys at Law § 64--Authority to Bind

considering whether a person's statement amounts to

an ordinary admission or constitutes an offer of compromise. If the proposal is tentative, and any
statements made in connection with it hypothetical,

or if the offer was made to "buy peace" and in
contemplation of mutual concessions, it is as to such
point a mere offer of compromise; but if the intention

Client--Compromise. An attorney does not, without specific authorization, possess the power or authority to bind his client to a compromise settlement.
(. Attorneys at Law § 61--Authority to Bind Client.

is apparent to admit liability and to seek to buy or secure release against a liability recognized as such,
or if the part making the proposal apparently

The rules governing the attorney-client relation are

intenåed to make no concession but to exact all that

he deemed himself entitled to, the proposal is an
ordinary admission against interest and not an
attempt to compromise.

founded on the rules governing the relation of principal and agent, and notwithstanding the lack of express or apparent authority in the attorney, his act is binding on the client if the latter ratifies it or
accepts the benefits of

the attorney's acts.

~ Accord and Satisfaction § I--Definition.
The phrase "accord and satisfaction" means the

il Accord and Satisfaction § l2--Satisfaction.
In an action by a union against a theater for payments
allegedly owed by the theater to the union's pension
fund in accordance with an alleged agreement

substitution of a new agreement for and in
satisfaction of a preexisting agreement between the
same parties.

(See Cal.Jur.2d, Accord and Satisfaction, § 7 et seq.;
Am.Jur.2d. Accord and Satisfaction. & 1.)

between them, negotiations between attorneys for the parties did not reach a settlement by way of accord and satisfaction, where, though an accord was entered

(1 Accord and Satisfaction § 2--Accord. In an accord and satisfaction, the "accord" is the agreement whereby one of the two parties having a right of action against the other upon a claim arising out of an existing agreement agrees to accept from
the other part something in satisfaction of such right

into by the attorneys and was ratified by their
respective clients, the accord was never executed, and
where, accordingly, a satisfaction