Union Bank v. Wendland

54 Cal. App. 3d 393, 126 Cal. Rptr. 549, 1976 Cal. App. LEXIS 1143

• Court: California Court of Appeal
• Decided: January 16, 1976
• Docket: Civ. 33621
• Status: Published

Opinions

Opinion

MOLINARI, P. J.

Defendant appeals from a judgment in favor of plaintiff (hereinafter “Union Bank”) in an action upon a promissory note. The issues presented are whether the trial court erred in finding that said promissory note was not intended by the parties to be secured by a first deed of trust executed by defendant; whether the cause of action to recover upon said note was barred by the antideficiency provisions of section 580d;¹ whether the trial court erred in denying defendant’s motion for leave to amend his answer to conform to proof; and whether plaintiff’s interest under a second deed of trust executed by him as security for said note was discharged by merger and a judgment upon said note was therefore prohibited by section 580d.

In 1966 defendant purchased a parcel of real property improved with a residence (“the residence”) for the sum of $26,500. On September 1, 1967, defendant and his wife borrowed $28*000 from The Stanford Bank. As evidence of this indebtedness they executed a promissory note (“the first note”) and as a security for its payment they executed a deed of trust (“the first deed of trust”) which granted the residence to a trustee with power of sale. Subsequently, defendant borrowed $6,000 (“the second note”) from The Stanford Bank for the purpose of remodeling the residence. On March 13, 1969, defendant borrowed $10,973.40 from The Stanford Bank. As evidence of this indebtedness defendant, as the sole maker, executed a promissory note (“the third note”) and as security for its payment a deed of trust (“the second deed of trust”) was executed by both defendant and his wife pursuant to the terms of which the residence was granted to a trustee with power of sale. The proceeds of the latter loan were used by defendant to pay and discharge the second note and the balance was applied to payments due under the terms of the first note.

On March 26, 1971, The Stanford Bank merged into Union Bank. Thereafter, defendant and his wife having defaulted in the payments due under the first note, the residence was sold by the trustee under the power of sale granted under the first deed of trust and the residence was purchased by Union Bank. The residence was subsequently sold by Union Bank for $20,000.

On January 25, 1972, Union Bank filed a complaint against defendant on the third note. The complaint alleged that defendant was in default on the payments due on the note and prayed for judgment in the sum of $9,584.92 principal and accrued interest, and for reasonable attorneys’ fees.

Defendant answered the complaint denying that he was indebted on the third note in the sum of $9,584.92, or in any amount, or at all. As an affirmative defense he alleged that the complaint did riot state facts sufficient to constitute a cause of action in that the complaint sought, a deficiency judgment “and therefore is barred by the provisions of Section 580b of the Code of Civil Procedure ....”

The matter came on for trial without a jury. Following the submission of the case defendant moved for an order vacating the order of submission and also moved for leave to amend his answer to conform to proof. The amendment proffered alleged that plaintiff’s cause of action was barred by the provisions of section 580d. The record does not disclose whether the court ruled upon the motion to set aside the submission. The motion was apparently denied because the court made its order denying defendant’s motion for leave to amend to conform to proof and proceeded to make its memorandum decision upon which findings of fact and conclusions of law were subsequently made.

The trial court found that the third note was secured by the second deed of trust on the residence; that the second deed of trust was valueless because the residence had been sold to satisfy the indebtedness due under the first note secured by the first deed of trust; that at the time the residence was sold pursuant to the first deed of trust it had a fair market value of $25,000; that the amount of indebtedness on the first note was in excess of $32,000; that Union Bank purchased the residence at the sale under the first deed of trust for $17,000; that the second deed of trust was not given to Union Bank to secure repayment of a loan which was used to pay all or part of the purchase price of the property it secured; that the' third note was not intended by the parties to be secured by the first deed of trust; that defendant had defaulted on the third note; that the amount due thereon for principal and interest is $8,921.90, plus interest at the rate of 7 percent from June 10, 1971; and that Union Bank has incurred reasonable attorneys’ fees in the amount of $3,000. Judgment was-entered accordingly.

Before proceeding to discuss the issues presented on appeal we observe that defendant’s affirmative defense, as tendered by the pleadings, was that the first deed of trust was a purchase money transaction and therefore section 580b barred any deficiency judgment.² The theory of this defense was that the amount represented by the third note, which is the subject of the instant action, constituted an additional sum advanced pursuant to the terms of the first deed of trust and was secured by the first deed of trust. Accordingly, it was urged that, since a deficiency judgment could not be obtained upon a sale of the residence under the first deed of trust, no recovery could be had upon a suit on the third note.

The pertinent clause in the first deed of trust, in relevant part, provides as follows: “1. That Trustor, for the purpose of securing (a) the payment of Trustor’s promissory note of even date herewith in the principal sum of $28,000.00 payable to Beneficiary, or order, and all extensions and renewals thereof, ...(c) the payment of all sums of money with interest which may be paid out or advanced by, or may otherwise be due to Trustee or Beneficiary under any provisions of this Deed of Trust, and (d) the payment of additional sums and interest thereon now or hereafter due or owing from Trustor (or any of them) to Beneficiary, hereby irrevocably grants, transfers and assigns to Trustee in trust with power of sale, that certain real property . . . .”

Th.e foregoing clause, sometimes referred to as a “dragnet” clause, has the effect of making the security instrument security for the debtor’s past, present and future obligations to a particular creditor. (See Lomanto v. Bank of America, 22 Cal.App.3d 663, 666, 669-670 [99 Cal.Rptr. 442]; Gates v. Crocker-Anglo Nat. Bk., 257 Cal.App.2d 857, 859-861 [65 Cal.Rptr. 536]; Langerman v. Puritan Dining Room Co., 21 Cal.App. 637, 642-644 [132 P. 617]; and see Cal. Real Estate Secured Transactions (Cont. Ed. Bar 1970) § 4.18, p. 152.) Future advance and “dragnet” clauses have long been held valid, in California. (See Tapia v. Demartini, 77 Cal. 383, 386 [19 P. 641]; Oaks v. Weingartner, 105 Cal.App.2d 598, 601, 602 [234 P.2d 194].)

As respects the creation of a lien, we observe that Civil Code section 2884 provides; “A lien may be created by contract, to take immediate effect, as security for the performance of obligations not then in existence.”

Section 580b is clearly inapplicable in the present case and the trial court so found. The first deed of trust was not given as security for the purchase money within the meaning of section 580b. Defendant testified that he purchased the subject real property in 1966. He was unclear as to how he financed the purchase of the property stating that it was financed through a loan from a savings and loan association and that he believed that the seller of the property financed part of the purchase price by way of a promissory note secured by a deed of trust. Defendant stated that the $28,000 he borrowed from The Stanford Bank on September 1, 1967, i.e., the first note, went to pay off the loan to the savings and loan association and that a balance of $4,000 that remained went into his business account.

The purpose of section 580b is to relieve the purchaser of real property from personal liability to any person who finances the purchase of said property and takes as security a trust deed or mortgage on the property purchased provided the financier intended the loan to be used to pay all or part of the purchase price. (Bargioni v. Hill, 59 Cal.2d 121, 123 [28 Cal.Rptr. 321, 378 P.2d 593]; Heckes v. Sapp, 229 Cal.App.2d 549, 552 [40 Cal.Rptr. 485].) In the instant case no part of the monies obtained pursuant to the loan evidenced by the first note was used for the purchase price of the residence, nor were any of the monies obtained pursuant to the loan evidenced by the third note used for this purpose. The former went to refinance the property, i.e., to pay off the purchase money loan received from the savings and loan association and to obtain additional funds for defendant’s business account; the latter to pay off the second note and the balance was applied to payments due under the terms of the first note.

Section 580b was drafted to protect purchasers under the standard purchase money mortgage transactions in which the vendor of real property retains an interest in the land sold to secure payment of part of the purchase price. (Spangler v. Memel, 7 Cal.3d 603, 610 [102 Cal.Rptr. 807, 498 P.2d 1055]; Roseleaf Corp. v. Chierighino, 59 Cal.2d 35, 41 [27 Cal.Rptr. 873, 378 P.2d 97].) “ ‘Variations on the standard are subject to section 580b only if they come within the purpose of that section.’ ” (Spangler v. Memel, supra; Roseleaf v. Chierighino, supra.) The loan transactions with The Stanford Bank are variations from the standard that do not come within the purpose of section 580b. Accordingly, when defendant refinanced the property through the September 1967 loan from The Stanford Bank he lost the purchase money protection afforded by section 580b.

Defendant’s proper defense to plaintiff’s complaint under the antideficiency statutes, if any, was that afforded by section 580d, which provides in part: “No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property hereafter executed in any case in which the real property has been sold by the mortgagee or trustee under power of sale contained in such a mortgage or deed of trust. . . .” Defendant apparently recognized that the proper defense was under this section since he sought to amend his answer to conform to proof to allege that plaintiff’s cause of action was barred by the provisions of section 580d. He sought such an amendment after the case had been submitted for decision.³ As already indicated, one of the issues presented on appeal is whether the trial court abused its discretion in denying defendant’s motion for leave to amend to conform to proof.

The granting or refusal to amend an answer is largely within the discretion of the court. (Trower v. City and County, 157 Cal. 762, 769 [109 P. 617]; Jones v. Shears, 143 Cal.App.2d 360, 365-366 [299 P.2d 986].) “This is true of amendments for the purpose of setting up the statute of limitations, as well as other amendments.” (Trower v. City and County, supra; see St: Paul Title & Trust Co. v. Stensgaard, 162 Cal. 178, 180 [121 P. 731]; Stoops v. Pistachio, 70 Cal.App. 772, 776-777 [234 P. 423].) The discretionary power vested in the court extends to amendments to conform to proof. (Campagna v. Market St. Ry. Co., 24 Cal.2d 304, 308 [149 P.2d 281]; Valencia v. Shell Oil Co., supra, 23 Cal.2d 840, 848; Pitts v. Fletcher, 169 Cal.App.2d 858, 860 [338 P.2d 244].)

Amendments to conform to proof, if not prejudicial, are favored since their purpose is to do justice and avoid further useless litigation. (Groover v. Belmont, 114 Cal.App.2d 623, 627 [250 P.2d 66]; Crome v. Allen, 52 Cal.App.2d 137, 140 [125 P.2d 898]; see Lavely v. Nonemaker, 212 Cal. 380, 385 [298 P. 976].) The basic rule applicable to amendments to conform to proof is that the amended pleading must be based upon the same general set of facts as those upon which the cause of action or defense as originally pleaded was grounded. (Grudt v. City of Los Angeles, 2 Cal.3d 575, 583 [86 Cal.Rptr. 465, 468 P.2d 825]; Austin v. Massachusetts Bonding & Insurance Co., 56 Cal.2d 596, 600-601 [15 Cal.Rptr. 817, 364 P.2d 681]; Landis v. Superior Court, 232 Cal.App.2d 548, 555-556 [42 Cal.Rptr. 893].)

In the present case the proffered amendment to conform to proof was based upon the same general state of facts as those upon which the affirmative defense predicated upon the provisions of section 580b was grounded. All of these facts were before the court without objection. The whole theory of the defense was that plaintiff was not entitled to a deficiency judgment. The proffered amendment was for the evident purpose of pleading the only deficiency judgment statute that could possibly apply to the facts of this case and to conform to the evidence adduced.

I conclude that it was an abuse of discretion to deny defendant’s application for leave to amend to conform to proof. However, although the amendment was not permitted the evidence purporting to show that the action was barred by section 580d was offered by defendant and the issue whether the action was barred by the antideficiency provisions of that statute was clearly before the court and is determinative of the instant action. (See Hollypark Realty Co. v. MacLoane, 163 Cal.App.2d 549, 552 [329 P.2d 532]; Smith v. Smith, 115 Cal.App.2d 92, 99 [251 P.2d 720]; Moeller v. Packard, 86 Cal.App. 459, 460 [261 P. 315].) All of the evidence introduced in the lower court was such that it could be considered under section 580b and section 580d. The issue as to the applicability of section 580d was raised in the court below prior to the court’s decision. Since no new evidence was tendered plaintiff was not prejudiced when the court was asked to evaluate the evidence in the light of section 580d. Accordingly, since the issue was raised below and the substantial facts are not in dispute, the question is one of law and this court may properly consider whether the present action was barred by the provisions of section 580d.⁴ (See Hodge v. Hodge, supra, 257 Cal.App.2d 31, 38.)

Adverting to the question whether the trial court erred in finding that the third note was not intended by the parties to be secured by the first deed of trust, it is significant to note that no extrinsic evidence was offered on this issue. No witness testified concerning the intent of the parties; the only evidence upon this issue consisted of the instruments offered in evidence, i.e., the first note, the third note, the first deed of trust and the second deed of trust. Union Bank argues that the parties who signed the first deed of trust were not obligees under the third note and that the first and third loans were made for different purposes and that from these facts the trial court could properly infer and find that the parties did not intend the third note to be secured by the first deed of trust.

The statement that the persons who signed the first deed of trust were not obligees under the third note is not accurate. Defendant is an obligee under both the first and third notes, and a party to both deeds of trust. His wife, although not a party to the third note, is a party to the first note and to both deeds of trust. It should be observed here that under the terms of the first deed of trust both defendant and his wife agreed that the property granted, transferred and assigned to the trustee thereunder was security not only for the payment of the first note but for “the payment of additional sums and interest thereon now or hereafter due or owing from Trustor (or any of them) to Beneficiary, . . .”⁵ (Italics added.)

The question whether a second obligation is a future advance under a prior deed of trust containing a dragnet clause where the security for both obligations is the same property is one of first impression in this state. The California courts have been called upon to make a determination as to whether the second obligation was a future advance where the security for the first obligation was different from that securing the second obligation. Thus in Moran v. Gardemeyer, 82 Cal. 96 [23 P. 6], the debtor obtained a loan from the creditor which was secured by a mortgage on real estate. The debtor then obtained a second loan from the creditor. As security for this loan the debtor endorsed over to the creditor a note the debtor was holding from a third party. The second loan was held not to be a future advance under the mortgage. (At p. 101.) In a companion case, Moran v. Gardemeyer, 82 Cal. 102 [23 P. 8], the second note recited that it was secured by a crop mortgage. It did not refer to the real estate mortgage under which the creditor desired to secure the second note under a dragnet clause. The Supreme Court held that if the second note had said nothing about security it could have been secured by the real estate mortgage, but since it referred to other security, it was not secured by the real estate mortgage. (At pp. 103-104.)

Similarly, in Provident etc. Assn. v. Shaffer, 2 Cal.App. 216 [83 P. 274], an indebtedness was secured by a mortgage on real property. The secured creditor later advanced $300 above the original loan to pay a materialman for goods supplied to benefit the real property secured by the mortgage. It was held that the $300 was not secured by the mortgage. (At p. 218.)

In Freedland v. Greco, 45 Cal.2d 462 [289 P.2d 463], the borrower gave the creditor two notes each for $7,000. These represented a single obligation in the sum of $7,000. One note was secured by a deed of trust on realty and the other by a chattel mortgage on equipment. The creditor foreclosed on the deed of trust under a power of sale and credited the sum of $740.35 realized on the sale to the trust deed note. The creditor then brought an action to foreclose the chattel mortgage and for a deficiency judgment. The sum of $440.50 was realized on the sale of the equipment and a deficiency judgment was rendered for $6,671.96 (plus $360 attorney’s fees). The reviewing court held that the creditor was entitled to foreclose the chattel mortgage but had no right to a deficiency judgment. (At p. 466.) The court stated: “It is unreasonable to say that the Legislature intended that section 580d could be circumvented by such a manifestly evasive device. In such a situation the legislative intent must have been that the two notes are, in legal contemplation and under section 580d, one, secured by a trust deed.” (At p. 467.) The court observed that by giving two notes for the same debt the debtor was, in legal effect, waiving the protection of section 580d, and that such a waiver amounted to a waiver in advance which was contrary to the public policy behind the antideficiency statutes. (At pp. 467-468.)

The case of Brown v. Jensen, 41 Cal.2d 193 [259 P.2d 425], is somewhat factually similar to the instant case except that two notes were executed for the same obligation and were executed at the same time. The borrower, as part of the purchase price for real property, executed a note for $11,300 in favor of a savings and loan association, secured by a first deed of trust on the property,• and at the same time, and also as a part of the purchase price, a second note was executed by the borrower in favor of the savings and loan association, secured by a second deed of trust on the property. The property was foreclosed under the first deed of trust pursuant to which the security became valueless because it had become exhausted by the sale under the first deed of trust. An action for a deficiency judgment was thereafter brought on the second note. The court held that since both trust deeds were purchase money trust deeds no action could be brought on the second note because any recovery thereon would be a deficiency judgment prohibited by section 580b. (At pp. 195-198.)

Adverting to a case of another jurisdiction, i.e., Second Nat. Bank of Warren v. Boyle, 155 Ohio St. 482 [44 Ohio Op. 440, 99 N.E.2d 474], cognizance is taken of the rationale that a dragnet clause constitutes a continuing offer by the borrower to secure future loans under the security. (At p. 486.) Accordingly, it was there held that in order to determine whether the lender accepts the offer when a second loan is made, his intent must be ascertained, and there can be no such intent when he takes different security instead. (At pp. 487-489.)

Professor Bernhardt observes that the “California courts have rather consistently tended to prefer a construction that is more faithful to the parties’ actual expectations than to the literal wording of the [dragnet] clause.” (Cont. Ed. Bar, supra, § 4.22, p. 157.) Accordingly, he points out that in the absence of an expressed intention of the parties, two tests have been evolved by which the intention of the parties is to be ascertained, i.e., the “relationship of loans” test, and the “reliance on the security” test. (Cont. Ed. Bar, supra, §§ 4.23 and 4.24, pp. 157-160.)

The “relationship of the loans” test is concerned with the relationship of the two loans to each other in ascertaining the intent of the parties. If there is little or no connection between the loans or the loans are so different in nature an inference can be drawn that the parties did not intend the second loan to fall under the security of the first loan. (Cont. Ed. Bar, supra, § 4.23, p. 158; see Moran v. Gardemeyer, supra, 82 Cal. 96.) Bernhardt observes that “If the first loan is made to enable the borrower to erect improvements on his real estate and the purpose of the second loan is only to finance more improvements on the real estate, it is not hard to tie the two loans together under one deed of trust.” (Cont. Ed. Bar, supra.)

Under the “reliance on the security” test the inquiry is whether the second loan was made in reliance on the original security. Accordingly,, when a different security is taken for the second loan an intent cannot be inferred that parties relied on the security for the first loan. The rationale here involved is that the dragnet clause in the first security instrument constitutes a continuing offer by the borrower to secure further loans under the security of the first security instrument and that when the lender accepts a different security he does not accept the offer. (Cont. Ed. Bar, supra, § 4.24, pp. 159-160; see Moran v. Gardemeyer, supra, 82 Cal. 96; Second Nat. Bank of Warren v. Boyle, supra, 155 Ohio St. 482 [44 Ohio Op. 440, 99 N.E.2d 474].)

I conclude, therefore, that under either of these tests the trial court was required to find that the parties intended that the third loan was protected by the original real estate security and that the inference drawn by the court that the third note was not intended by the parties to be secured by the first deed of trust is wholly irreconcilable with the evidence. (See Fibreboard Paper Products Corp. v. East Bay Union of Machinists, 227 Cal.App.2d 675, 696-697 [39 Cal.Rptr. 64]; Larson v. Solbakken, 221 Cal.App.2d 410, 416 [34 Cal.Rptr. 450].) The $10,975.40 borrowed on the third note was used to pay off the $6,000 (the second note) borrowed for the purpose of remodeling the residence and the balance was applied to payments due under the terms of the first note. There was clearly a relationship between the loans,.and, significantly, it is inescapable that the parties intended the same real estate security to be the security for the original note and the note in question. I perceive that absent the execution of the second deed of trust the third note would have been included within the real estate security of the first deed of trust because of the relationship of the loan. The execution of the second deed of trust was superfluous.

There can be no question that The Stanford Bank relied on the real estate security in making the third loan. This is not a situation where a different security was taken. The same real estate was the security for both the third note and the first note. Accordingly, defendant’s continuing offer in the dragnet clause of the first deed of trust to secure further loans under the real estate security therein conveyed was accepted by The Stanford Bank when it specifically agreed to take.the same security under the second deed of trust. In sum, The Stanford Bank unequivocally relied on defendant’s residence as security for the third note. Having relied on the same security provided for in the first deed of trust there was no need or necessity for the execution of a second deed of trust.

I am persuaded that under the circumstances of this case the second deed of trust merged into the first deed of trust. The estates in the two deeds of trust united in one and the same person, i.e., The Stanford Bank, since the bank had a commensurate and coextensive interest in each with no intervening interest in another. (Estate of Washburn, 11 Cal.App. 735, 746 [106 P. 415].) A “merger” occurs when a greater estate and a lesser coincide in the same person in one and the same right without any intermediate estate. (Linforth v. Montgomery, 195 Cal. 49, 56 [231 P. 735]; Shaffer v. McCloskey, 101 Cal. 576, 580 [36 P. 196]; Wilson v. Kipp, 94 Cal.App.2d 426, 429 [210 P.2d 908]; Shaw v. McCardle, 92 Cal.App.2d 616, 618 [207 P.2d 645].) Here the second deed of trust was the lesser estate. It was annihilated or merged in the greater estate, i.e., the first deed of trust, without any intermediate estate intervening. The question is one of intent, actual or presumed, of the person in whom the interests are united. (Linforth v. Montgomery, supra; Shaffer v. McCloskey, supra.) As already indicated, the inference required as a matter of law is that The Stanford Bank intended a merger of the two instruments. To permit Union Bank to avoid the effect of section 580d by what amounts to a method of paper shuffling, i.e., the execution of the second deed of trust with the same security on which The Stanford Bank relied as security in making the original loan, is to countenance an evasive device and to permit a circumvention of the antideficiency statutes.⁶

The antideficiency statutes-indicate a legislative intent to limit strictly the right to recover deficiency judgments. The cases construing section 580b, dealing with purchase money mortgages and deeds of trust, make it clear that the purpose of that antideficiency statute is to discourage the overvaluing of the security, and that the risk of inadequate security because of overvaluation is placed on the purchase money mortgagee. (See Roseleaf Corp. v. Chierighino, supra, 59 Cal.2d 35, 42-43; Bargioni v. Hill, supra, 59 Cal.2d 121, 123; Prunty v. Bank of America, 37 Cal.App.3d 430, 438-442 [112 Cal.Rptr. 370].) This purpose is, in my opinion, equally within the intendment of section 580d. Accordingly, if property given as security under a deed of trust securing an original obligation is overvalued, or if, as a result of a combination of the original obligation and a future advance it is overvalued, so as to render the security inadequate, the risk should be that of the lender.

Here defendant transferred his residence to the trustee for The Stanford Bank as security for the first note and for future advances. The Stanford Bank knew or should have known the value of,the residence it received as security. When it designated the residence as security for the third' note it clearly evidenced an intention that the residence was to secure the first as well as the third note. Had its intention been otherwise it would have demanded a different security for the third note.

The judgment is reversed and the court is directed to enter a judgment for the defendant.

1 Unless otherwise indicated all statutory references are to the Code of Civil Procedure.

2 Code of Civil Procedure section 580b provides, in pertinent part, that “No deficiency judgment shall lie in any event after any sale of real property .. . under a deed of trust... given to the vendor to secure payment of the balance of the purchase price of real property,...”

3 Amendments to conform to proof may be allowed after the case is submitted for decision. (Valencia v. Shell Oil Co., 23 Cal.2d 840. 848 [147 P.2d 558]; Foster v. Keating. 120 Cal.App.2d 435. 444 [261 P.2d 529]; Richards v. Tavares, 105 Cal.App. 261. 269 [287 P.2d 552]; see Hodge v. Hodge. 257 Cal.App.2d 31. 37 [64 Cal.Rptr. 587]: Vick v. Grosser. 169 Cal,App.2d 692. 698-699 [338 P.2d 223].)

4 Were this question not one of law it would be necessary to remand the case with directions that defendant’s amendment to conform to proof be granted and for findings of fact upon the issues tendered by the amended answer since the practical effect of the trial court’s ruling under these circumstances would have been to put defendant out of court with respect to the only real controversy in the case.

5 Defendant and his wife are specifically designated as the “Trustor” in the first deed of trust.

6 Professor Bernhardt suggests that the use by a bank of two separate notes secured by two separate deeds of trust on the same property, rather than employing a “dragnet clause.” may be impermissible undercurrent banking regulations. (Cont. Ed. Bar. supra, § 4.18. p. 152.) Note should also be taken of Financial Code section 1235. enacted in 1973. which was not in existence when the instant notes were executed. That statute provides as follows: “A commercial bank holding a first lien on real property may take, or purchase and hold, or loan upon another and immediately junior lien but all such loans shall not exceed in the aggregate 90 percent of the sound market value of the property as determined by proper appraisal. A commercial bank may loan not to exceed the face value of a deed of trust or mortgage which constitutes a first lien upon real property, but in no event shall any such loan exceed 90 percent of the sound market value of the property covered by said mortgage or deed of trust as determined by proper appraisal.”