Opinion
As Modified Aug. 21, 1963.
For Opinion on Hearing, see 38 Cal.Rptr. 505, 392 P.2d 265.
F. W. Audrain and Abraham Resias, Los Angeles, for appellant.
Baker, Farnham & Began, Long Beach, for respondent.
LILLIE, Justice.
Plaintiff Bank sued the present owners of certain real property to establish an equitable mortgage and foreclose the same; a general demurrer was overruled. Time to answer having expired default was entered and a decree ordering foreclosure and sale was made. Defendants appeal therefrom contending that the complaint fails to state a cause of action in that the agreement upon which suit is predicated creates an unlawful restraint on alienation of property, and is void.
The following facts are alleged in the complaint. On January 18, 1957, the Enrights, then fee owners of the real property, executed to plaintiff Bank an instrument designated 'Agreement Not to Encumber or Transfer Property,' which was immediately recorded. It provides: 'In consideration of any loan or advance made by Bank * * * to the undersigned (Enrights) * * * the undersigned * * * jointly and severally promise and agree that until all such loans and advances and all other indebtednesses or liabilities to the Bank shall have been paid in full, or until 21 years following the death of the last survivor of the undersigned, whichever shall first occur, they will pay all taxes, assessments and charges of every kind, imposed or levied, * * * upon the hereinafter described real property * * * and will not, without the consent in writing of Bank, first had and obtained, create or permit any lien or other encumbrances * * * to exist on said property, and will not transfer, sell, hypothecate, assign or in any manner whatever dispose of said real property, or any interest therein or any portion thereof, which real property is situated * * * (description).' At the time this document was executed and thereafter, during the period to November 12, 1957, plaintiff Bank loaned the Enrights various sums of money; to satisfy the unpaid balance due on these loans, plaintiff Bank, on November 12, 1957, advanced to them the additional sum of $6,868.20 for which the Enrights gave their promissory note payable in monthly installments. On November 21, 1958, the Enrights conveyed the land to defendants; in the meantime they failed to make all payments on the note. On May 15, 1960, the maturity date, there was due on the note from the Enrights the principal sum of $3,100.70 plus interest of 8%. Plaintiff Bank demanded payment of defendants; upon their refusal the within action was filed. The lower court decreed defendants' land to be subject to an equitable mortgage to the extent of $3,100.70 plus interest, foreclosed the same, and ordered a sale of the premises.
A conveyance of a fee simple is one of the whole estate, and the right of alienation is an inherent part of such estate; thus, a restraint against alienation is repugnant to and inconsistent with absolute title. (Title Guarantee & Trust Co. v. Garrott, 42 Cal.App. 152, 183 P. 470; Bonnell v. McLaughlin, 173 Cal. 213, 159 P. 590; Wharton v. Mollinet, 103 Cal.App.2d 710, 229 P.2d 861; Hart v. Gould, 119 Cal.App.2d 231, 259 P.2d 49.) Conditions and covenants restraining alienation are most commonly found in conveyances; by statute such conditions 'when repugnant to the Hunt v. Wright,
Prey v. Stanley, Wharton v. Mollinet,In the instant case, as in Prey v. Stanley, 110 Cal. 423, 42 P. 908, the restriction is not contained as a condition in the instrument by which the estate passed to the Enrights, but occurs in the form of a covenant on their part in a separate contract, which was intended to operate as a qualification or limitation of their absolute title in the property. The Enrights, the then fee owners of the land described therein, executed 'Agreement Not to Encumber or Transfer Property,' the sole subject of which was their promise that, until all loans to the Bank are paid in full or until 21 years following the death of their last survivor, whichever shall first occur, they will not without the consent of the Bank encumber or transfer the property. This is contrary to the policies expressed in section 711, Civil Code, and is void. (Prey v. Stanley, 110 Cal. 423, 42 P. 908; Wharton v. Millinet, 103 Cal.App.2d 710, 229 P.2d 861.) In the Prey case, supra, the covenant, wherein she agreed not to sell the land without her son's consent, was made by Mary to her son (who had furnished the purchase money for the property and given it to her) after she had acquired title to the property. Holding the covenant to be void, the court said 110 Cal. at page 427, 42 P. at page 909: 'The parties to the contract of February 23, 1892, seem to have made the mistake of leaving the absolute title in Mrs. Stanley, and at the same time attempting to destroy an inseparable incident of such title. They could not thus create a mongrel estate unknown to the law, and the attempt was abortive. (Citations.)'
While under the covenant the Enrights, upon payment of the indebtedness, had the right to convey the property, and they could at any time convey it with the written consent of the Bank, California does not recognize the validity of partial or qualified restraints, reasonable or not; all restraints on alienation, total and partial, whether limited or unlimited in time, are equally void under section 711. (Title Guaranty & Trust Co. v. Garrott, 42 Cal.App. 152, 183 P. 470; Hart v. Gould, 119 Cal.App.2d 231, 259 P.2d 49; Wharton v. Mollinet, 103 Cal.App.2d 710, 229 P.2d 861; Los Angeles Inv. Co. v. Gary, 181 Cal. 680, 186 P. 596, 9 A.L.R. 115.)
Respondent argues that the parties intended to make the property described in the covenant security for the payment of an indebtedness; and that by analogy to the ordinary trust deed the agreement, as a security transaction, is not void as imposing an unlawful restraint on alienation. Such argument is without merit for in neither a mortgage nor the ordinary deed of trust is the owner of the land restrained from conveying title. It is too well established for citation of authority that no title passes by a mortgage; the mortgagee acquires only a lien on the property. Title remains with the mortgagor until foreclosure during which time he is free to convey the land in fee. While in a deed of trust title passes to the trustee vesting him with 'the entire estate' in the property (Bayer v. Hoagland, 95 Cal.App. 403, 273 P. 58; Anglo-California Trust Co. v. Oakland Bateman v. Burr,
Koch v. Briggs, Sacramento Bank v. Alcorn, Bank of Italy National Trust & Savings Ass'n v. Bentley, Wilson v. McLaughlin, Sacramento Bank v. Alcorn, Zolezzi v. Michelis,The fact that at the time defendants acquired title the Agreement was of record is of no importance, for the instrument, void ab initio, derives no validity from the fact that it was recorded; record thereof is not constructive notice of its contents or recordation. (City of Los Angeles v. Morgan, 105 Cal.App.2d 726, 234 P.2d 319.) And actual notice of the Agreement is immaterial for a void instrument executed contrary to statute or public policy cannot serve as a foundation of any action either in law or equity.
The restraint contained in Agreement Not to Encumber or Transfer Property, void on its face, is not only ineffective to preclude the Enrights from conveying the land, but fails to operate to subject defendants' land to the indebtedness of the Enrights. To now subject the property to the operation of the Agreement as an equitable mortgage would be to give effect to a covenant which is void. Obviously prepared by respondent Bank and presented to the Enrights for their signature, the Agreement in its entirety provides that in consideration of any loan by the Bank the Enrights will not, until it is paid in full, without its written consent, sell the property. The sole subject of the Agreement is the promise not to convey, and whatever lien the Bank intended to create is based entirely upon the unlawful restraint against alienation; thus there is no question of separability which might permit a valid lien to exist on the property. If a lien is enforced, it can only be predicated upon the void covenant. Nevertheless, respondent argues that any agreement in writing, however, informal, made by an owner for a valuable consideration by which an intent be shown that land be security for the payment of money by him, creates a claim or mortgage enforceable in equity. While the general doctrine that equity will create a lien on property where this is necessary to accomplish justice is extended to situations involving defective mortgages (Bank of Suisun v. Fiske, 65 Cal.App. 771, 225 P. 7; Stockel v. Elich, 112 Cal.App. 588, 297 P. 595; Burns v. Peters, 5 Cal.2d 619, 55 P.2d 1182) and to any case where the parties attempt to make property security for an obligation (McColgan v. Bank of California Assn., 208 Cal. 329, 281 P. 381, 65 A.L.R. 1075; Nau v. Santa Ana Sugar Co., 79 Cal.App. 685, 250 P. 705; Estate of Pitts, 218 Cal. 184, 22 P.2d 694), it certainly does not extend to an attempt to secure property which must take its vitality from an instrument void as against statute or public policy. The Supreme Court made this clear in Tiedje v. Aluminum Taper Milling Co., 46 Cal.2d 450, at pages 453, 454, 296 P.2d 554, at page 556: 'A contract made contrary to public policy or against the express mandate of a statute may not serve as the foundation of any action, either in law or in equity, Hooper v. Barranti, 81 Cal.App.2d 570, 574, 184 P.2d 688, and the parties will be left, therefore, where they are found when they come to a court for relief. Brooks v. Brooks, 63 Cal.App.2d 671, 676, 147 P.2d 417. These principles are not applied to secure justice between Franklin v. Nat C. Goldstone Agency,
In view of the foregoing, we deem it unnecessary to further discuss respondent's contention that the agreement creates a claim or mortgage which can be enforced in equity, or appellant's argument that the agreement, constituting but a negative covenant not to encumber or transfer property, cannot create an equitable mortgage inasmuch as the creation of a lien is an affirmative act.
For the foregoing reasons the judgment is reversed.
WOOD, P.J., and FOURT, J., concur.