Borgonovo v. Henderson

182 Cal. App. 2d 220, 6 Cal. Rptr. 236, 1960 Cal. App. LEXIS 2100
CourtCalifornia Court of Appeal
DecidedJune 28, 1960
DocketCiv. 18620
StatusPublished
Cited by11 cases

This text of 182 Cal. App. 2d 220 (Borgonovo v. Henderson) is published on Counsel Stack Legal Research, covering California Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Borgonovo v. Henderson, 182 Cal. App. 2d 220, 6 Cal. Rptr. 236, 1960 Cal. App. LEXIS 2100 (Cal. Ct. App. 1960).

Opinion

TOBRINER, J.

This case arises out of the debacle left by an operator, who constructed and sold motels, and whose defaults have caused loss to those with whom he dealt. We fix only the division and participation of the losses among the innocents, a determination which must rest upon an application of the legal rules to the facts. Appellants appeal from a judgment which declares that respondent Pacific Commercial Builders is a holder in due course of their promissory note and that appellants have no right of setoff or recoupment against the note. We have concluded, however, that, since appellants deposited the note in escrow upon instructions not to negotiate it until the payee complied with a condition precedent, and since the condition was not met, the payee’s assignment of the note to respondent Pacific Commercial Builders conveyed no interest, and it did not become a holder in due course because of failure of delivery of the note. As to the claims of two *223 suppliers of furniture, furnishings and equipment to the motel, we do not believe the evidence substantiates the judgment against appellants.

The sequence of events begins with a contract of appellants and one of the two sham corporations which Henderson made use of in these transactions, Western Host, Incorporated, executed in November, 1954. Henderson promised appellants a long term lease upon certain real property in Palo Alto, California, and the erection of a motel upon such property, complete with furniture, furnishings and equipment. Appellants were to pay for this property the total amount of $165,100: $45,000 in cash, a construction loan of $65,000 and a promissory note of appellants to Western Host, Incorporated, of $55,100. The latter gives rise to the chief subject matter of this action. The property was to be free of all liens other than a first deed of trust for the construction loan of $65,000 and a second deed of trust to secure the payment of appellants’ $55,100 promissory note.

Henderson’s representations were false; he neither paid, nor intended to pay, the suppliers of the furniture, furnishings and equipment. He made such representations to induce appellants to enter into the agreement. In these transactions Henderson fraudulently made use of the above sham corporation, Western Host, Incorporated, and a second such corporation, Great Western Hotels, Inc.

Appellants met the above described cash payment by conveying to Henderson a piece of real property, the Biber Building, in San Carlos, California, which they owned. The net value of the Biber Building exceeded the required down payment by $4,022.14. Henderson agreed to refund to appellants the difference.

On July 20,1955, Henderson entered into an agreement with Pacific Commercial Builders, hereafter called “Builders,” to construct the motel. Prior to that time Henderson had requested Builders to build the motel for the sum of $15,000 plus actual costs of construction. Henderson represented to Builders (1) that a construction loan would be secured on the realty in the sum of $65,000, (2) that Henderson would put up an additional $18,000, (3) that appellants had agreed to execute the promissory note of $55,100, secured by a deed of trust on the leasehold interest, and (4) that Henderson would transfer the note and deed of trust to Builders to finance the construction.

Henderson, however, did not tell appellants that he agreed *224 to transfer the note and deed of trust to Builders nor did appellants themselves make any representation to Builders as to the note or deed of trust. But Builders, relying upon Henderson’s representations, entered into a contract with Western Host, Incorporated, agreeing to construct the motel for $15,000 plus actual costs incurred. The agreement provided that the $55,100 note and the deed of trust were to be transferred to Builders.

Appellants executed their promissory note dated July 6, 1955, in the sum of $55,100 payable to Western Host, Incorporated, one of the two sham Henderson corporations. The note was secured by a deed of trust on the leasehold. Appellants delivered the note and deed of trust to respondent California Pacific Title Insurance Company as escrow holder. Appellants’ instructions read, “Record above deed of trust & hold said deed of trust & note at your office until such time as you hold for Mario Francis Borgonovo et ux the sum of $4022.14—to be received by you from Western Host Incorporated—to be released upon our demand. At that time you are authorized to release the deed of trust & note to Western Host Incorporated.” Builders likewise placed in the escrow their agreement with Western Host, Incorporated, “to become effective when the construction loan was obtained and the conditions of said loan were complied with.”

The title company did not receive the $4,022.14 described in the instructions in the escrow. Nevertheless while these documents were in the title company’s possession, Western Host, Incorporated, endorsed the back of the promissory note to Builders, executing an assignment to Builders of the note and deed of trust. Western Host, Incorporated, placed the assignment in the escrow. The note and deed of trust remained with the title company until offered in evidence at the trial. On August 18, 1955, the parties obtained the construction loan; the title insurance company recorded the second deed of trust and the assignment of the deed of trust and promissory note.

In accordance with its agreement with Western Host, Incorporated, Builders constructed the motel. Builders expended more than the amount of the construction loan and the payments by Western Host, Incorporated, and Henderson. Builders did not receive the $15,000 to which it was entitled under the contract or the amounts expended by it in excess of the construction loan and of the monies advanced by Western Host, Incorporated, and Henderson.

*225 On January 16,1956, Builders assigned, for a valuable consideration, its interest in the promissory note and deed of trust to respondent Walker. Upon the completion of the motel in June, 1956, appellants commenced operations. Shortly thereafter various suppliers, including respondents Carabao Special Products Company and Hayes Manufacturing Company, demanded payment from appellants for the various furniture, furnishings and equipment that these suppliers had sold to Great Western Hotels, Inc., and for which they had not been paid.

The judgment from which appellants appeal provided that Henderson and Western Host, Incorporated, are indebted to appellants for $59,474.91, $11,077.19 of such monies “by reason of the failure of . . . [Henderson] to pay the suppliers of the furniture, furnishings and equipment. ...” The judgment also provided that appellants were liable to Hayes Manufacturing Company and Carabao Special Products Company for $725.12 and $1,459.51 respectively, plus interest and costs of suit. It further stated that “By reason of . . . California Pacific Title Insurance Company having recorded the assignment of the $55,100.00 promissory note and deed of trust securing said note to defendant Pacific Commercial Builders, said promissory note was constructively delivered to . . . Pacific Commercial Builders [who] . . . thereby became a holder in due course of said promissory note. . . . Theodore S. Walker, as the assignee of . . . Pacific Commercial Builders, is entitled to all of the rights of . . .

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Bluebook (online)
182 Cal. App. 2d 220, 6 Cal. Rptr. 236, 1960 Cal. App. LEXIS 2100, Counsel Stack Legal Research, https://law.counselstack.com/opinion/borgonovo-v-henderson-calctapp-1960.