U.S. Bank Nat. Assn. v. Lane CA1/1

Filed 2/26/13 U.S. Bank Nat. Assn. v. Lane CA1/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION ONE

U.S. BANK NATIONAL ASSOCIATION,
Plaintiff and Respondent,
A132059 & A132386
v.
JAMES LANE et al., (San Francisco City & County
Super. Ct. No. CGC05446170)
Defendants and Appellants.

INTRODUCTION
In ―All the President‘s Men,‖ Deep Throat advises investigative reporter Bob
Woodward to ―follow the money.‖ We do so in this case to resolve a labyrinthine
subprime loan scheme from the pre-2008 recession era.
U.S. Bank sued to collect a debt of $1 million after the property that was collateral
for the loan was sold free and clear of a lien. Due to an error in the legal description of
the property in the deed of trust, the lien had been erroneously recorded on a different
property. A jury found for U.S. Bank, and the debtors, coconservators of the Estate that
owned the property, appeal. They argue the undisputed evidence shows (1) the loan was
made to the prior conservator, in her individual capacity, and (2) U.S. Bank was not a
holder in due course. They also argue the ―one form of action rule‖ of Code of Civil
Procedure section 726 barred the action against them.
We find substantial evidence to support the jury‘s findings that U.S. Bank‘s
predecessor in interest entered into a contract with the prior conservator, in her
representative capacity, for a mortgage loan on an estate property. We also find

1
substantial evidence to support the jury‘s finding that U.S. Bank was a holder in due
course. Finally, we find the trial court properly denied defendants‘ motion for judgment
notwithstanding the verdict, because substantial evidence supports the conclusion that the
exception to Code of Civil Procedure section 726‘s one form of action rule applied here.
Therefore, we will affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
The Parties
Plaintiff and respondent U.S. Bank National Association, as Trustee for Credit
Suisse First Boston Adjustable Rate Mortgage Trust 2004-1 (U.S. Bank), is the holder of
a mortgage loan made to Alice Lane by loan originator First City Funding (FCF). The
promissory note was signed by Alice Lane and was purportedly secured by a deed of trust
on a property located at 2148 Pine Street in San Francisco, California. However, because
the recorded deed of trust was defective, when that property was subsequently sold, the
mortgage was not paid off. U.S. Bank then sued the defendants for collection of the debt.
Defendants and appellants are the current coconservators of the Elizabeth G.
Jamerson Estate (the Estate) and cotrustees of the Elizabeth G. Jamerson Revocable
Living Trust, James Lane (Lane) and Leonard Woolfolk (Woolfolk). During her lifetime,
Elizabeth Jamerson acquired several parcels of residential real estate in San Francisco,
California, including 2148 Pine Street. She had a stroke in 1991 and became
incapacitated. Elizabeth‘s daughter, Alice Lane, was appointed sole conservator of her
mother‘s estate in 1991 and served in that capacity until 2003, when Lane and Woolfolk
took over as coconservators.1 Elizabeth Jamerson died before trial. Alice Lane, along
with her older brother, Lafayette Jamerson, and her younger sister Geraldine Woolfolk,
are the beneficiaries of the Estate. Defendant James Lane is Alice‘s oldest son. Leonard
Woolfolk is Geraldine‘s oldest son.2

1
She was also conservator of her mother‘s person.
2
The jury returned verdicts in favor of Alice Lane and Lafayette Jamerson, and
they are not parties to this appeal. Geraldine Woolfolk was not involved in the litigation.

2
The Relationship Of Alice Lane And Lafayette Jamerson To The Estate
When Alice Lane became conservator of her mother‘s estate, the letters of
conservatorship gave her the power to borrow money and give security for the repayment
of debt on behalf of the Estate. Alice Lane understood that she was made conservator
instead of her brother to avoid a potential conflict of interest, since he was going to be the
contractor to the Estate. Nevertheless, Lafayette made all the decisions about loans and
filled out all of the loan applications. He was the keeper of the checkbook, but not the
signer. He would pay the bills out of his Jamerson Contractors account and get
reimbursement from the Estate account. Every payment out of the Jamerson Contractors
account was for the benefit of the Estate. ―All the money went into the conservatorship
coffers.‖ The loans were made for the Estate; it was not his intent that Alice would be
personally responsible for paying back the notes.
Barbara deVries was appointed temporary conservator by the court after Alice
Lane failed to file a court-ordered accounting. Ms. deVries served in that capacity from
June 16, 2003 to November 19, 2003 when Elizabeth‘s grandsons were appointed to
succeed her as temporary successor conservators of the Estate. Initially, Ms. deVries had
difficulty getting information from Alice Lane, Lafayette Jamerson, and the loan
servicers, but she eventually discovered that ―Ms. Lane had in effect ceded all
responsibility for management of the estate to her brother, Lafayette Jamerson,‖ and had
―signed off on loans arranged by Mr. Jamerson substantially increasing the debt on five
of the estate‘s seven properties‖ to the point that ―[t]he outstanding indebtedness on those
properties now exceeds the market value of the properties.‖
The parties agree that at the time Lane and Woolfolk took over as coconservators,
the Jamerson Estate was in dire financial shape: the rental properties were in poor
condition and unable to produce sufficient income to service the debt on them.3

3
Mark Lane, James Lane‘s brother, worked for Lafayette Jamerson doing
construction work on the Estate‘s properties for 10 years starting in 1991. During that
time, Lafayette made repairs, but renovations were slow because the City would not
approve the work done that was not to code. When Mark left his uncle‘s employ in 2001,

3
 On January 14, 2004, Lane and Woolfolk were appointed as permanent
coconservators. The appointment gave them the same powers to handle Estate affairs,
including making loans and disposing of property, as Alice Lane had previously enjoyed.
It was James Lane‘s practice to handwrite his name, but not the titles conservator or
trustee, when signing documents in his capacity as representative of the Estate.
Lafayette Jamerson’s Relationship With First City Funding
FCF was a small mortgage bank that funded its own loans through lines of credit
with other financial institutions, such as GMAC. FCF was started by the late Mitchell
Stewart and Nurit Petri, and specialized in making alternative or low documentation,
subprime loans, which it then sold to investors.4 The underwriting was done by Stewart
himself on an ad hoc basis, depending on the investors‘ guidelines. He did not follow
Freddie Mac or Fannie Mae underwriting requirements.
Beginning in 1999, Lafayette Jamerson initiated loans made through FCF on the
various rental properties owned by the Estate, including 2148 Pine Street. FCF would
FedEx the loan documents to his address (3200 Harrison Street) and he would then call
Alice Lane to have her sign them. This was his pattern of doing business with FCF.
Settlement statements for the various loans made on Estate properties show that
FCF charged the Estate very high loan origination and settlement fees. In addition,
sometimes there were payments to the lender that were made in the same amounts as the
cash to borrowers, and once there was a loan to Stewart himself, but Lafayette denied
making the arrangements for that loan. Lafayette did not complain to anybody at FCF
about the terms of the loans because ―[b]eing a Black American I‘m accustomed to
paying more than would be normal.‖ He agreed to huge interest reserves because ―that‘s

2148 Pine Street had one tenant who had been there since the late 1960‘s and the upstairs
was uninhabitable. All of the buildings were dilapidated, with leaking roofs and gutted
interiors. When Lane and Woolfolk took over, Mark worked for them, and renovations
moved quickly and were done properly.
4
―Subprime loans are typically loans where people have less than stellar credit
and usually less documentation, usually lower LTVs, and they‘re risk based price.‖

4
what the market was doing.‖ Asked if he couldn‘t get another loan, he said: ―If I
changed my color I would.‖
Lafayette never told anyone at FCF Alice was personally obligated on the loans.
He told FCF the loans were for the Estate; that‘s why he faxed them the conservatorship
papers. No one at FCF ever told him they intended Alice Lane to be personally
responsible for the loans. His understanding was that FCF intended to make the loans to
the Estate.
The Subject Loan
In 2003, Lafayette Jamerson arranged for two loans on 2148 Pine Street, and two
loans on 2140 Pine Street. In each case, one loan was for $1 million, and a new second
mortgage was for $280,000. The cash to borrower from each of those transactions was
$168,789.71, and $168,700.52 respectively, plus $86,334.
Alice Lane signed a deed of trust ―as conservator of the [E]state‖ on the property
at 2148 Pine Street on April 4, 2003 as security for a promissory note of $1 million,
signed by her the same day. She understood that the deed of trust was a mortgage for the
Estate on 2148 Pine Street. At the time she signed the deed of trust, she understood that
it was for the Estate and not for herself, personally. In fact, that was true for every single
document that was put before her in connection with any of the loans on the rental
properties.
She also signed a second deed of trust, dated April 4, 2003 on 2148 Pine Street, to
secure an additional indebtedness of $278,000; an adjustable rate note for $1 million at an
interest rate of 5.875 on behalf of the Estate; an interest only addendum to the adjustable
rate promissory note; and a balloon payment addendum to the note for 2148 Pine Street.
It was Alice Lane‘s custom, when she was signing on behalf of the Estate, to simply sign
―Alice Lane.‖ It was not her practice to write out ―as conservator.‖ When she signed
anything personally, she also signed ―Alice Lane.‖ She never put any of the money from
any of the loans she signed into any of her personal accounts. She made sure all of the
money went to the Estate, and as far as she knew, it did.

5
 The deed of trust on 2148 Pine Street recorded at the request of the Chicago Title
Company by the San Francisco Assessor Recorder is dated April 4, 2003 and names the
borrower as ―Alice R. Lane, as conservator of the Estate of Elizabeth G. Jamerson, a
Conservatee.‖ It is signed ―Alice R. Lane.‖ The property is described in ―Exhibit ‗A‘ ‖
as ―Lot 011, Block 0652.‖ However, Lot 011, Block 0652 actually describes 2140 Pine
Street. This property secured a different loan for $1 million, also made on April 4, 2003,
to borrower ―Alice R. Lane.‖
The preliminary title report prepared as of March 19, 2003 by Chicago Title
Company regarding 2148 Pine Street correctly described the property in ―Schedule A‖ as
Lot 012, Block 0652. However, it describes the title as vested in ―Alice R. Lane, a single
women [sic].‖ An unrecorded deed of trust similarly describes the borrower as ―Alice R.
Lane, a single woman.‖ It was signed by Alice R. Lane.5 6
Ruth Anderson was an escrow officer for FCF from 2003 to 2006. She is Nurit
Petri‘s sister and Mitchell Stewart‘s sister-in-law. As an escrow officer, she handled
recordable documents, sent them to the title company, estimated the closing statements,
disbursed the loan proceeds, and prepared final statements. She was the escrow officer
on four different Alice Lane escrow transactions, including 2148 Pine Street. She was
the first person to receive a copy of the preliminary title report, and the copies of the
preliminary title report she received did have a vesting in Alice Lane as conservator of
the Estate. She did not remember seeing a preliminary report from Chicago Title
Company at the time with vesting in ―Alice Lane, a single women [sic].‖ The first time

5
Anne Tramble, FCF‘s chief operating officer, did not know and could not
explain why the two deeds of trust and two preliminary title reports were different. She
had ―no clue‖ why a facsimile face sheet from ―Ruth‖ at FCF to ―Robin‖ or ―Derell‖ at
Chicago Title Company regarding the ―Alice Lane conservatorship‖ requested that
Chicago Title Company ―not show Item Number 9 re: authority of conservatorship.‖
6
The preliminary title report and unrecorded deed of trust vesting title in ―Alice R.
Lane, a single woman,‖ were in Wells Fargo Bank‘s original file, as stated in a Bailee
Letter to U.S. Bank‘s attorneys.

6
she saw it was at her deposition. She had no idea why there were two preliminary title
reports with different vesting information.
FCF Sells the Subject Loan
In addition to charging its borrowers large fees, FCF was in the business of
reselling loans it originated to large mortgage companies which would, in turn, bundle
them with other loans and sell them to securities companies for ultimate sale to public
and private investors. Anne Tramble was in charge of ―shipping‖ the loan to the investor,
which means putting the documents in a certain order, and sending the file to a certain
place for the investor‘s review.7 After the investor reviewed it, FCF would get a list of
documents or items from the investor that FCF needed to produce ―in order to make the
loan of investment quality to them.‖ Typically, the investor engaged a third party to
review the collateral file package (i.e., the note, deed of trust, allonge, corporate
assignments, and preliminary title report or final title policy).
FCF entered into a seller‘s purchase and interim servicing agreement with DLJ
Mortgage Capital, Inc. (DLJ)8 pursuant to which DLJ bought loans that FCF originated.
DLJ purchased four Alice Lane loans, including the subject loan, on June 6, 2003. It
purchased a second loan to Alice Lane on 2148 Pine Street for $280,000 on June 13,
2003.
Bruce Kaiserman, president and managing director of CSFB, as well as vice
president and board member for DLJ and executive vice president of Select Portfolio
Servicing, Inc., reviewed the Alice Lane loan at the time DLJ purchased the loan from
FCF and he ―didn‘t see any issues or problems‖ with it. La Salle Bank, the document
custodian for DLJ from 2001 to the present, already had the legal file in its possession
before the purchase transaction was completed. The legal file contained the bogus note,
mortgage, assignment, endorsement and evidence of title vesting title in the name of
Alice R. Lane, a single woman.

7
She supervised staff, but ―did not touch these documents‖ personally.
8
DLJ Mortgage Capital, Inc. is an investment bank which was acquired by Credit
Suisse First Boston Mortgage Securities Corporation (CSFB), another investment bank.

7
DLJ Sells The Loan To CSFB
Pursuant to an assignment and assumption agreement dated September 1, 2004,
DLJ sold 4,000 loans, including the Alice Lane loans, with an aggregate purchase price
of more than $1 billion, 250 million, to CSFB for $10. The subject loan to Alice Lane for
$1 million on the property at 2148 Pine Street was subsequently assigned from CSFB to a
trust and ultimately securitized in a transaction that closed at the end of September 2004.
That trust is The Adjustable Rate Mortgage Trust 2004-1 (plaintiff here). U.S. Bank was
the trustee of the 2004-1 Trust.
CSFB Deposits The Loan In The 2004-1 Trust
The 2004-1 Trust is a real estate mortgage conduit established under the Internal
Revenue Code to eliminate corporate level tax for the benefit of investors. Other parties
to the transaction included a handful of loan servicers. The 2004-1Trust closed on
September 29, 2004.
U.S. Bank‘s trust department provides trustees services for trusts organized by
CSFB. Charles Pedersen, a vice president in U.S. Bank‘s corporate trust department and
account manager in charge of U.S. Bank‘s portfolio of structured finance bond issues
(such as mortgage backed securities), personally administered the 2004-1 Trust involved
in this lawsuit.
When U.S. Bank agrees to act as trustee it signs a pooling and servicing agreement
for managing the trust. On the closing date, Pedersen gets reports from the various loan
custodians that tell him how many loan files they are holding and the dollar amounts of
those loans. La Salle Bank sent U.S. Bank a certification that it was holding 2,885 loan
files with a principle balance of $798,054,938.60. These loan files include the original
promissory notes. Pedersen confirmed that the subject loan to Alice Lane on 2148 Pine
Street was listed in U.S. Bank‘s electronic data file for the 2004-1 Trust. As part of La
Salle Bank‘s certification, one William Dohr represented that ― ‗[w]ith respect to these
mortgage loans, such mortgage note has been reviewed by . . .‘ [La Salle Bank] ‗and
appears regular on its face and relates to such mortgage loan.‘ ‖

8
 The 2004-1 Trust receives the collateral (i.e., the individual mortgage loans)
through the certification of the custodians. In this case, the trust received the collateral
from CSFB. Once the trust has the ―collateral file in hand,‖ U.S. Bank authorizes the
―Depository Trust Company to go ahead and release the securities in exchange for that
collateral.‖
Before Pedersen authorizes the trust to close, he makes sure that the number of
loans La Salle Bank says it has corresponds to what the trust is supposed to be getting.
He did that with the 2004-1 Trust, and it was an exact match. Pedersen then
communicates his readiness to close to the closing office, and they put together ―all the
signature pages with the documents.‖ When the closing office finishes its work, they call
him and get him on a conference call with the Depository Trust Company. ―[T]he
Depository Trust Company will go through a listing of the securities that are being issued
to the public and I will verify with them that I have the information I need to authorize
them to release those securities.‖ Pedersen authorized the Depository Trust Company to
issue the securities certificates and close the trust on September 29, 2004. The closing
date is the actual formation date of the 2004-1 Trust.
U.S. Bank is the nominal trustee, meaning that all the underlying collateral is
assigned in its name, although the various servicers actually handle the individual loans.
Prior to closing, it is required and fairly typical for a custodian bank to send U.S. Bank an
exceptions report after it has reviewed the mortgage file. An exceptions report indicates
certain documents in the trustee custodial file are not being held in the prescribed form.
For example, holding a copy instead of an original is an exception. In this case, U.S.
Bank received an exceptions report with respect to the Alice Lane loan on 2148 Pine
Street. It showed there was a certified copy of the deed of trust in the file, not an original.
There is a lag time between the time a document is sent to the county recorder‘s office
until the time the original document, now recorded, is returned to the custodian. The lag
time can be from six months to two years. Virtually every loan has this exception
initially.

9
 In addition, there was a preliminary title report rather than the actual title policy.
Typically, title policies take three to six months to show up in the custodian‘s file. This
exception also applies to virtually every loan in the trust.9 Normally, Pedersen does not
go back and check on individual loans, unless there is a lawsuit. The day-to-day
administration of a loan is not handled by U.S. Bank as nominal trustee.
Pedersen was not privy to information about what was done in the way of any due
diligence review of the Alice Lane loans. ―You‘d have to ask the buyer, the DLJ,
whoever bought the loan.‖ At the time of trial, there was no title insurance policy in the
trustee mortgage file, nor was there an original of the deed of trust. Both the preliminary
title report and the deed of trust showed title vesting in Alice R. Lane, a single woman.
Other than in connection with the litigation, Pedersen had never come across any
information indicating that the owner of the property was someone other than Alice R.
Lane, a single woman.
Pedersen learned for the first time during cross-examination that there were two
original notes and two original allonges10 with different dates. Both referred to loans of
$1 million to the same borrower, Alice R. Lane, for 2148 Pine Street. The deed of trust
in the trustee mortgage file is different from the deed of trust that is attached to U.S.
Bank‘s first amended complaint in that the property described in the document attached
to the first amended complaint is Lot 011, whereas the property described in the deed of
trust in the mortgage file is Lot 012. Also, the deed of trust attached to the first amended
complaint, unlike the deed of trust in the trustee mortgage file, refers to the borrower as
Alice R. Lane, as conservator for the Jamerson Estate. In addition, one deed of trust had
two riders, and the other had three riders. Pedersen had not seen copies of either deed of

9
Anne Tramble confirmed that trailing documents such as a recorded deed of trust
and the final title policy are not available at the time the loan is sold. FCF rarely sent the
trailing documents to their investors, who complained ―vehemently.‖
10
An allonge is an attachment to a legal document. An allonge occurs when there
is not enough space on the original document to have signatures. It is meant to be an
endorsement by a maker of a note.

10
trust prior to these proceedings and was at a loss to explain why U.S. Bank, as trustee for
the 2004-1 Trust, had a different deed of trust from the one sued upon.
DLJ’s Due Diligence Review
Kaiserman maintained that DLJ did a due diligence review of FCF before agreeing
to do business with FCF. Further, every loan that FCF sold to DLJ was sent to a
company called Lydian Data (Lydian) for review of the files to insure that each of the
loans met the underwriting criteria.11 One of DLJ‘s underwriting guidelines is that it will
only purchase mortgages made to natural persons, with title in the property vesting in the
name of the individual borrower. All of the Alice Lane loans were in the name of Alice
Lane as an individual borrower. DLJ would not have purchased the loans otherwise. He
first learned the properties associated with the Alice Lane loans were owned by the
Jamerson Trust after the lawsuit was filed.
Kaiserman did acknowledge that as early as January 14, 2003, CSFB was
informed of fraud allegations against FCF involving altered credit reports, falsified
appraisals, altered title commitments and inflated balances of mortgages to be satisfied.
CSFB investigated the matter and concluded that the allegations were likely a litigation
strategy in a lawsuit involving FCF and GMAC, and ―did not believe that the reasons
were . . . fraud-based or appraisal-related.‖ Kaiserman admitted DLJ negotiated a
settlement agreement with FCF related to DLJ‘s requests that FCF repurchase loans that
had defaulted within the first few months. At least as of March 25, 2004, DLJ and CSFB
knew the four Alice Lane loans, including the one on 2148 Pine Street, were among the
loans that had defaulted.
The Disposition Of 2148 And 2140 Pine Street
In a report to the court dated June 2004, coconservators Lane and Woolfolk
proposed to ―stop the cash drain on the Estate‖ in part by selling some properties and

11
Anne Tramble confirmed Lydian did CSFB‘s ―front end due diligence‖ for
them. Lydian requested by fax that FCF send them documentation. Her understanding
was that Lydian ―reviewed the files [for CSFB] to make sure that what we‘ve said that we
were sending them is what we sent them.‖

11
thereby eliminating $16,101.40 in monthly mortgage payments. To avoid possible
capital gains taxes, they proposed ―utilize[ing] the 1031 Exchange program allowed by
the IRS‖ which ―entails taking any proceeds, or gain on sale, and reinvesting the proceeds
in a like property or like properties.‖ Under this plan, the properties at 2140 and 2148
Pine Street were among those slated for sale. On June 17, 2004, James Lane signed a
coconservator‘s report that listed the Estate‘s then current assets and mortgages,
including a mortgage of $1 million on 2148 Pine Street and a monthly mortgage payment
of $6,031.77.
As of December 1, 2004, Wells Fargo Bank (dba America‘s Servicing Company)
became the loan servicer of the $1 million loan secured by 2148 Pine Street pursuant to a
pooling and servicing agreement with respect to the 2004-1 Trust. At that time, the loan
was not current. The prior loan servicer was Select Portfolio Servicing, Inc. which
forwarded to Wells Fargo funds it had received prior to the transfer, as well as
correspondence it had received from Alice Lane.12 Wells Fargo also received a copy of a
letter dated October 20, 2004 from Select Portfolio Servicing, Inc. to Alice Lane
informing her that she was in default on the note and deed of trust secured by 2148 Pine
Street due to her failure to make the mortgage payments for September and October
2004. Wells Fargo also received a fax from Alice Lane informing the servicer that loan
payments were being made by the new coconservators, Lane and Woolfolk, and attaching

12
Alice Lane testified that on December 14, 2004, she signed a letter which was
faxed to America‘s Servicing Company. In it, she acknowledged that she had received
information that certain loans, including the loans for 2148 and 2140 Pine Street, had
been transferred from the previous loan servicer to America‘s Servicing Company as of
December 1, 2004. She wrote to inform the new servicer that she was ―the signer on the
loan but the properties are owned by my mother.‖ She attached letters of conservatorship
for Lane and Woolfolk, the new coconservators, and gave her permission to have the
servicer speak with them about the loans. She also indicated several payments on the
loans had been sent to the previous servicer in early December that should have been
forwarded, and she attached to the fax transmission copies of checks signed by Woolfolk
as proof of payment, mailing and delivery. According to James Lane, the reason for
faxing this information to the new loan servicer was ―to try to find out what was going on
with the loans, because we couldn‘t get any information from our uncle.‖

12
copies of checks totaling $12,063.54. Wells Fargo subsequently received payments of
$25,702.53 and $14,439.30 in January 2005. Later payments were returned for
insufficient funds. After the last payment was reversed, Wells Fargo received no more
payments.
At that point, the loan was considered to be in default and a breach letter was sent
informing the borrower that the bank would proceed with foreclosure if the default was
not cured. When no further payments were made for 60 days, Wells Fargo would have
instructed Loanstar Mortgage Services, L.L.C. (Loanstar), to ―pull title to determine
appropriate ownership‖ in connection with filing a notice of default. A notice of default
was filed on Wells Fargo‘s behalf by sub entity Loanstar with the assessor‘s office on
April 29, 2005. Unlike the deed of trust in Wells Fargo‘s file, which identified the owner
of 2148 Pine Street as Alice R. Lane, a single woman, the notice of default identified the
owner of 2148 Pine Street as Alice R. Lane, conservator for the Jamerson Estate.
After the notice of default is recorded, there is a waiting period of 90 days to see if
there is a response to the notice of default. If no response is received, the bank proceeds
into foreclosure. In this case, after the 90-day period had expired without the receipt of
any funds, Wells Fargo proceeded with foreclosure. However, ―[u]nder the foreclosure
action, it was determined that the deed of trust had not been recorded.‖ Wells Fargo was
also informed by the Estate that the property was possibly being sold. No foreclosure
occurred and the loan secured by 2148 Pine Street was never repaid. Subsequently, a
demand for payment was made through local counsel, but no response was received. The
total pay-off amount through February 28, 2010 was $1,327,400.78.
On June 9, 2005, the Estate relinquished the property at 2148 Pine Street to an
Internal Revenue Code section 1031 exchange escrow account with Investment Property
Exchange Services, Inc., and had 45 days to identify a replacement property. On June 12,
2005, Woolfolk was informed by someone at the escrow company handling the sale of
2148 Pine Street that there was no million-dollar deed of trust securing the loan that had
been made in connection with 2148 Pine Street and that 2140 Pine Street had two
million-dollar deeds of trust on its title. Woolfolk signed the Seller‘s Escrow Instructions

13
on June 13, 2005. The property at 2148 Pine Street sold for $1,250,003.24. According to
the Seller‘s Final Closing Statement, there was no pay-off for a $1 million loan. Instead,
the net proceeds of $809,187.75 went into an Internal Revenue Code section 1031
investment property exchange account for the benefit of the Estate. Those proceeds, as
well as some other assets, were used to purchase a rental property in Tulsa, Oklahoma for
$5 million, with a $1,325,000 down payment.
In the meantime, the property at 2140 Pine Street went into foreclosure and was
sold at a trustee‘s sale on August 22, 2005. The trustee was Loanstar, apparently the
same sub entity used by Wells Fargo Bank to attempt foreclosure on the property at 2148
Pine Street.
The Litigation
On October 28, 2005, U.S. Bank, as trustee for the Trust 2004-1, filed suit against
coconservators Lane and Woolfolk in their representative capacities, and Alice Lane, in
both her individual and representative capacities, for collection of the note. The
complaint alleged various equitable theories of recovery, as well as breach of contract
against Alice Lane. A first amended complaint added a breach of contract claim against
the Estate and its coconservators.
Defendants cross-complained for damages, restitution and rescission against U.S.
Bank, FCF, an FCF appraiser, an FCF loan broker, Lafayette Jamerson, and others,
alleging conspiracy to commit mortgage fraud, elder abuse, and unfair business practices
by virtue of subprime, predatory and racially targeted lending and fraudulent loan
applications, appraisals and loan documentation.
Trial by jury commenced February 3, 2010. On April 9, 2010, the jury returned a
general verdict and special findings, as follows: (1) on U.S. Bank‘s breach of contract
claim against the Estate, the jury found for U.S. Bank and awarded it $980,864.14; (2) on
U.S. Bank‘s breach of contract claim against Alice Lane, the jury found for Alice Lane.
On U.S. Bank‘s claim to be a holder in due course, the jury‘s special findings were
that: (1) a valid allonge was attached to the promissory note when it left the hands of
FCF and thereafter; (2) U.S. Bank obtained the promissory note for value; (3) when U.S.

14
Bank obtained the promissory note it was free from apparent evidence of forgery or
alteration, and did not appear so irregular and incomplete as to call into question its
authenticity; (4) U.S. Bank obtained the note in good faith; (5) U.S. Bank obtained the
promissory note without notice that it was overdue; (6) U.S. Bank obtained the
promissory note without notice that it had been altered; and (7) U.S. Bank obtained the
promissory note without notice that any party had a defense to payment.
With respect to the Estate‘s claim for conspiracy to commit fraud, the jury found
that FCF and Out of BK.Com had participated in a conspiracy to defraud the Estate, but
that Lafayette Jamerson, the appraiser, the loan broker, and U.S. Bank had not. The jury
found by clear and convincing evidence that FCF and Out of BK.Com acted with
oppression, fraud or malice.13 The jury also found the cross-defendants had established a
defense to the conspiracy claim by proving that the conspiracy was no longer ongoing by
April 20, 2004, and that the Estate proved that it did not discover the facts constituting
the conspiracy until after April 20, 2004, and could not have discovered those facts
sooner.
With respect to the Estate‘s claims for conspiracy to commit financial elder abuse,
the jury found FCF and Out of BK.Com had participated in such a conspiracy, but that
Lafayette Jamerson and the two employees had not; by clear and convincing evidence,
that FCF and Out of BK.Com acted with oppression, fraud, malice or recklessness; that
Lafayette Jamerson had established a defense to the elder abuse claim by proving that the
conspiracy was no longer ongoing by April 20, 2004; and the Estate proved it did not
discover the conspiracy to commit elder abuse until after April 20, 2004, and could not
have done so sooner. The jury awarded the Estate damages in the amount of
$755,825.72.
Judgment in favor of Alice Lane against U.S. Bank was entered on June 7, 2010.
Judgment in favor of U.S. Bank against the Jamerson Estate, and in favor of the Jameson
Estate against FCF and Out of BK.Com, was entered on February 14, 2011. Defendants‘

13
Out of BK.Com was another company started by Mitchell Stewart and Nurit
Petri. It operated out of the same offices as FCF and had the same employees.

15
motions for new trial (as to U.S. Bank and Lafayette Jamerson) and judgment
notwithstanding the verdict (JNOV) were denied by order filed April 20, 2011.
Defendants timely appeal the judgment and the denial of the JNOV motion. This
court ordered consolidation of the appeals.
DISCUSSION
Substantial Evidence Supports The Jury’s Implied Finding That FCF Entered Into A
Contract With Alice Lane, In Her Representative Capacity As Conservator Of The
Jamerson Estate.

Standard Of Review
Defendants Lane and Woolfolk assert this court should independently review the
contract judgment against them de novo, rather than apply the substantial evidence rule,
because, on the question whether FCF intended to contract with Alice Lane in her
individual or representative capacity, the evidence adduced at the jury trial indisputably
proved FCF intended to loan Alice Lane $1 million in her individual capacity.
Defendants cite California Assn. of Medical Products Suppliers v. Maxwell-Jolly (2011)
199 Cal.App.4th 286 (Maxwell-Jolly) in support of the proposition that we should ignore
the substantial evidence rule on appeal from a judgment rendered after a jury trial. We
find the cited case is inapposite and does not support independent review in this case.14
We will, therefore, review the jury‘s express and implied findings of fact under the
14
Maxwell-Jolly, supra, involved an appeal from a trial court‘s denial of a writ of
mandate. The trial court had reviewed a trade group‘s challenge to administrative
regulations promulgated by the California Department of Health Care Services. (Id. at
p. 291.) In that context the Court of Appeal stated: ―In reviewing [a petition for writ of
mandate] under Code of Civil Procedure section 1085, a trial court‘s role generally is to
‗determine whether the agency‘s action was arbitrary, capricious, or without evidentiary
support, and/or whether it failed to conform to the law.‘ . . . [¶] In reviewing the trial
court‘s ruling, ‗ ― ‗the appellate court may make its own determination when the case
involves resolution of questions of law where the facts are undisputed.‘ ‖ ‘ [Citation.]
Also, ‗[w]hen administrative agency action is judicially reviewable under a substantial
evidence standard, the rule for the reviewing trial court and appellate court is the same.‘
(Agricultural Labor Relations Bd. v. Exeter Packers, Inc. (1986) 184 Cal.App.3d 483,
492 [evaluating whether substantial evidence supported the conclusion that regulations
were reasonably necessary under the APA].)‖ (Maxwell-Jolly, supra, 199 Cal.App.4th at
pp. 302–303.)

16
familiar substantial evidence rule. Under that deferential standard, our review begins and
ends with a determination as to whether there is any substantial evidence, contradicted or
uncontradicted, to support the findings below. We view the evidence in the light most
favorable to the prevailing party, giving it the benefit of every reasonable inference and
resolving all conflicts in its favor. And, we are not at liberty to reweigh the evidence or
judge the credibility of witnesses. (Tesoro del Valle Master Homeowners Assn. v. Griffin
(2011) 200 Cal.App.4th 619, 634, and cases cited therein.)
The evidence before the jury was theoretically susceptible of conflicting
inferences on the question whether Alice Lane signed the loan documents in her
individual or representative capacity. On the one hand, the unrecorded deed of trust
vested title in Alice Lane as a single woman, and she signed everything simply as Alice
R. Lane. On the other hand, the letters of conservatorship gave Alice Lane ―[t]he power
to borrow money and give security for the repayment thereof‖ without further order of
the court. The evidence showed Alice Lane used her power as sole conservator to sign
for loans that encumbered the Estate, but that it was her older brother who arranged for
numerous loans on the various properties owned by the Estate through FCF, which he
then presented to Alice Lane for her signature as conservator. This evidence gave rise to
the reasonable inference that when Alice Lane signed and authorized the subject loan, she
was acting in conformity with her usual practice and was once again acting in her
representative capacity. And, of course, Alice Lane testified she signed the promissory
notes and deeds of trust at issue in her capacity as conservator of the Estate and not in her
individual capacity. She testified when she signed for the Estate, she always signed as
Alice R. Lane, without adding conservator. Finally, the recorded deed of trust identified
the borrower as ―Alice R. Lane, as Conservator‖ of the Jamerson Estate.
Defendants maintain, however, that the alternate set of loan documents showing
Alice R. Lane, a single woman, demonstrate indisputably there was ―no intent on FCF’s
part to contract with the Jamerson Estate,‖ and ―the controlling intent here is FCF‘s.‖
We disagree. Both Ruth Anderson and Ann Tramble disavowed any knowledge of how
there came to be two sets of documentation, one for Alice Lane as conservator and one

17
for Alice Lane as a single woman. But there was evidence someone named Ruth at FCF
faxed the letters of conservatorship to the title company with a facsimile cover sheet
asking the title company to mask the conservatorship in the preliminary title report. Ruth
Anderson, FCF‘s escrow officer, testified that all the title reports she received and
processed on FCF‘s behalf indicated that Alice Lane as conservator was the borrower, not
Alice Lane, as a single woman. And, it is undisputed that FCF obtained and recorded a
deed of trust against a property owned by the Jamerson Estate, not by Alice Lane
personally. Viewed as a whole, the evidence amply supported the inference that FCF
intended to encumber Estate property, and did so by contracting with Alice Lane in her
capacity as the conservator for the Estate, and that the phony ―Alice R. Lane, a single
woman‖ documents, which found their way into the collateral files of La Salle Bank,
DLJ, Lydian, CSFB and ultimately U.S. Bank and Wells Fargo, were concocted by
someone at FCF for the purpose of meeting DLJ/CSFB‘s underwriting requirement that
the borrower be an individual.
Furthermore, the jury was separately instructed about contract formation.15
Defendants do not argue on appeal these instructions were in any way faulty. Based on
the instructions and the evidence before it, the jury was entitled to find credible Alice

15
With respect to the Jamerson Estate and Alice Lane, the jury was instructed that
the 2004-1 Trust claimed each of them ―entered into a contract, called a promissory note,
for a mortgage loan with First City Funding.‖ The instruction informed the jury that
contract formation requires, among other things, that ―the parties agreed to the terms of
the contract,‖ and that if all of the elements of contract formation were not proved, ―a
contract was not created.‖ The jury was also instructed that ―[a]n agent is one who
represents another, called the principal, in dealings with third persons. Such
representation is called agency.‖ In addition, the jury was specifically instructed that the
2004-1 Trust ―claims that Alice Lane, as Conservator, was acting within the scope of her
authority and was an agent of the Defendant Jamerson Estate at all relevant times.‖ The
jury was also instructed that ―When Alice Lane signed the promissory note for the 2003
Subject Loan as ‗Alice Lane‘ while she was Conservator of the Jamerson Estate, her
signature was a valid signature on behalf of the Jamerson Estate. And, ―[w]hen Alice
Lane signed the promissory note for the 2003 Subject Loan as ‗Alice Lane‘ without
specifying her capacity as Conservator for the Jamerson Estate, her signature was also a
valid signature for Alice Lane personally.‖

18
Lane‘s testimony that she signed the loan papers in her representative capacity; to infer
reasonably that when Alice Lane signed the promissory note at issue, she was acting
solely as an agent for the Jamerson Estate; and to further infer that when FCF contracted
with Alice Lane, it understood that she was acting as an agent on the conservatorship‘s
behalf and agreed to lend $1 million to the conservatorship, and not to Alice Lane
personally. Substantial evidence supports the jury‘s general and special verdicts
reflective of that conclusion.
In light of our resolution of defendants‘ contract formation claim, we need not
discuss in detail defendants‘ argument there was insufficient evidence to support the
jury‘s implied finding the Jamerson Estate ratified the contract after the fact. However,
our conclusion would be the same as above, in any event. The jury was correctly
instructed with respect to the elements of ratification. There was ample evidence
adduced at trial from which the jury could infer that each of the elements was met: the
Estate accepted the loan proceeds, made payments on the loan and, at best, was silent
about being a party to the loan after it knew or should have known the owner of the loan
believed the Jamerson Estate was a party to the loan. Substantial evidence supports the
jury‘s general verdict.
Substantial Evidence Supports The Jury’s Determination That U.S. Bank Was A Holder
In Due Course.
Defendants argue that because CSFB knew FCF‘s loans to Alice Lane were in
default at least as of March 25, 2004, that knowledge should be imputed to U.S. Bank.
―As a matter of law and public policy, [CSFB] should not be permitted to launder this
note by the artifice of depositing it in trust so as to manufacturer a holder in due course,‖
i.e., U.S. Bank. Defendants again argue that de novo review obtains, citing Maxwell-
Jolly, supra, 199 Cal.App.4th at page 303. For the following reasons, we reject that
contention and apply the substantial evidence rule.
The jury was instructed in accordance with Commercial Code section 3302 on the
requirements of a holder in due course and defendants do not challenge the correctness of

19
those instructions.16 Nor do they appear to dispute there was no evidence ―that U.S. Bank
itself had actual knowledge it was receiving fraudulent, overdue mortgages to hold in
trust.‖ Instead, defendants claim essentially that CSFB‘s guilty knowledge should be
imputed to U.S. Bank because of its ―close connection‖ with CSFB. Defendants
acknowledge they ―have found no authority‖ that so holds, and so they urge us to rely on
―sound public policy‖ to ―hold that good faith, for purposes of acquiring holder in due
course status, cannot exist when one who knows an instrument is fraudulent and overdue
conveys that instrument in a less than arm‘s length transaction.‖ Defendants‘ public
policy argument is better addressed to the Legislature and could result in the proverbial
slippery slope under the circumstances of this case.
Defendants also argue U.S. Bank did not qualify as a holder in due course because
it received duplicate original promissory notes. They argue, without citing to any
authority, that the duplicate promissory notes were ―so irregular . . . as to call into
question [their] authenticity,‖ apparently as a matter of law. (Com. Code, § 3302, subd.
(a)(1).) We disagree because the apparent authenticity of the promissory note here was a
question of fact for the jury. The jury was specifically asked: ―When plaintiff 2004-1
Trust obtained the promissory note was it free from apparent evidence of forgery or
alteration, and did it appear so regular and complete so as not to call into question its

16
The jury was instructed: ―The 2004-1 Trust claims that, regarding the
promissory note for the 2003 Subject Loan, it is a ‗holder in due course‘ of the note. To
prove that it is a ‗holder in due course‘ the 2004-1 Trust must prove all of the following:
[¶] 1. That the promissory note when issued or when transferred to the 2004-1 Trust did
not bear such apparent evidence of forgery or alteration or was not otherwise so irregular
or incomplete as to call into question its authenticity, and, [¶] 2. That the 2004-1 Trust
took the promissory note [¶] a. For value; [¶] b. In good faith; [¶] c. Without notice that it
was overdue or had been dishonored; [¶] d. Without notice that the promissory note
contained an unauthorized signature or had been altered; and, [¶] e. Without notice that
any party to the promissory note had a defense to payment of the note or a claim in
recoupment; and, [¶] 3. That a valid allonge was affixed to the promissory note when the
promissory note left the hands of First City Funding and thereafter. [¶] If you find that
2004-1 Trust has proven these elements as to any defendant, then the only defenses you
may consider are fraud in the inducement and duress in signing the note. Otherwise you
must consider all of defendants‘ defenses.‖ The jury found each of these elements true.

20
authenticity?‖ The jury answered that question affirmatively, and that answer was amply
supported by the testimony of Bruce Kaiserman and Charles Pedersen who looked at the
duplicate promissory notes and were not alarmed by them. The evidence adduced at trial
supported the inference there were two sets of loan documents, but only one set―the one
identifying the borrower as Alice Lane, a single woman—was sent on to DLJ and others
in the investor chain of possession, and that the documentation sent to them was
sufficiently ordinary looking that it fooled everyone, duplicate promissory notes
notwithstanding.
Defendants argue that U.S. Bank does not qualify as a holder in due course
because the name ―Alice R. Lane,‖ and the phrase ―A Single Woman,‖ are misaligned on
the unrecorded version of the deed of trust included in the loan documents that FCF sold
to CSFB and that CSFB deposited in the trust. According to defendants, the
misalignment proves the name and the description ―must have been placed on this
document at different times,‖ thereby demonstrating an apparent forgery, alteration or
other irregularity as to call into question the document‘s authenticity. The existence of
duplicate promissory notes, as well as typographical errors in spelling and spacing, were
brought out at trial, but did not persuade the jury these minor irregularities were sufficient
to render the bogus promissory note apparently inauthentic. The jury‘s conclusion is
supported by substantial evidence.
Finally, defendants argue U.S. Bank is not a holder in due course because the
allonge included in one of the duplicate promissory notes had ―no staple holes at all, nor
any other indicia that it was ever attached to anything.‖ However, one of the duplicate
original promissory notes did have an allonge stapled to it. Defendants note they
repeatedly and strenuously objected to the introduction of the duplicate promissory note.
However, their objections were overruled, and they do not argue on appeal that the
court‘s ruling was in error. The promissory note with the allonge stapled to it was
admitted into evidence for the jury‘s consideration. The jury was specifically asked:
―Was a valid allonge attached to the promissory note when it left the hands of First City
Funding and thereafter?‖ The jury answered that question in the affirmative. Evidence

21
admitted at trial which the jury found credible supported that finding. The fact there was
contradictory evidence does not make it insubstantial. In sum, substantial evidence
supports the jury‘s findings that U.S. Bank qualified as a holder in due course.
Code Of Civil Procedure Section 726 Did Not Bar U.S. Bank’s Lawsuit
Defendants argue U.S. Bank should not have been allowed to proceed on its
contract claim against defendants because U.S. Bank could have corrected the error in the
recording of the deed of trust against the wrong property and, if it had done so, it would
have been required to foreclose against the deed of trust and sell the encumbered property
to satisfy the debt. Defendants unsuccessfully made this same argument in a motion for
JNOV. Once again, defendants argue that the standard of review is de novo, claiming the
facts are undisputed. We disagree under the applicable standard of review.
― ‗Well-settled standards govern judgments notwithstanding the verdict: ―When
presented with a motion for JNOV, the trial court cannot weigh the evidence [citation], or
judge the credibility of witnesses. [Citation.] If the evidence is conflicting or if several
reasonable inferences may be drawn, the motion for judgment notwithstanding the verdict
should be denied. [Citations.] A motion for judgment notwithstanding the verdict of a
jury may properly be granted only if it appears from the evidence, viewed in the light
most favorable to the party securing the verdict, that there is no substantial evidence to
support the verdict. If there is any substantial evidence, or reasonable inferences to be
drawn therefrom in support of the verdict, the motion should be denied. [Citation.]
[Citation.] The same standard of review applies to the appellate court in reviewing the
trial court‘s granting [or denying] of the motion. [Citations.] Accordingly, the evidence
. . . must be viewed in the light most favorable to the jury‘s verdict, resolving all conflicts
and drawing all inferences in favor of that verdict.‖ [Citation.]‘ (Osborn v. Irwin
Memorial Blood Bank (1992) 5 Cal.App.4th 234, 258–259[.])‖ (Ajaxo Inc. v. E*Trade
Group Inc. (2005) 135 Cal.App.4th 21, 49.)
Defendants‘ argument, that U.S. Bank is barred from suing and recovering on the
promissory note by the ―one form of action rule,‖ is based on Code of Civil Procedure
section 726, subdivision (a). That section states in relevant part: ―There can be but one

22
form of action for the recovery of any debt or the enforcement of any right secured by
mortgage upon real property . . . which action shall be in accordance with the provisions
of this chapter. In the action the court may, by its judgment, direct the sale of the
encumbered real property . . . .‖
Defendants do not dispute that the subject loan ―was apparently supposed to be
secured by 2148 Pine Street.‖ And they agree the deed of trust recorded as security for
the subject loan ―contained an apparent error.‖ Defendants posit that because of the
error, the subject loan became ―attached to the 2140 Pine Street [property].‖ Defendants
reason from this premise that 2140 Pine Street was thus encumbered by two loans
(totaling $2 million) that were co-equal in priority, leaving 2148 Pine Street
unencumbered. (First Bank v. East West Bank (2011) 199 Cal.App.4th 1309, 1315.)
Defendants assert: ―There was no evidence that U.S. Bank took any action to stop
the sale of 2148 Pine Street, or any action to reform the deed of trust securing this loan.‖
Thus, when U.S. Bank foreclosed on 2140 Pine Street to satisfy Loan 03-5570, U.S. Bank
deliberately ―wipe[d] out its co-equal security on [the subject] Loan.‖ The nub of this
argument appears to be that, having thus voluntarily divested itself of 2140 Pine Street,
the asserted security, by its own act or neglect, U.S. Bank waived the right to proceed on
the note. (Pacific Valley Bank v. Schwenke (1987) 189 Cal.App.3d 134, 140–141;
Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 48.)
Defendants‘ argument flies in the face of the facts and the law. Civil Code section
1624, subdivision (a)(6) requires that the security interest in a deed of trust be stated in
writing with sufficient clarity to identify it. (4 Miller & Starr, Cal. Real Estate (3d ed.
2003) Deeds of Trust, § 10:17, p. 70.) The property description can be in an incorporated
document, as it was here. But the reference to the document must be clear and
unequivocal. (Calvi v. Bittner (1961) 198 Cal.App.2d 312, 316; Saterstrom v. Glick
Bros. Sash etc. Co. (1931) 118 Cal.App. 379, 381 (Saterstrom).) ― ‗ ―To be valid on its
face, a deed must contain such a description of the real property thereby intended to be
conveyed as will enable the property to be readily located by reference to the
description.‖ [I]f the writing itself does ―not furnish the means whereby the description

23
may be made sufficiently definite and certain readily to locate the property, then the
instrument must be held void, since the imperfections of the description cannot be
supplied through evidence extrinsic to the writing itself without running up against the
positive mandate of the rule that a conveyance of real property must be in writing.‖ ‘
[Citation.]‖ (Saterstrom, supra, at pp. 380–381.)
The recorded deed of trust identified 2148 Pine Street by street address and 2140
Pine Street by legal description, rendering the reference less than clear and unequivocal.
If the disconnect in the deed of trust between the street address and the legal description
of the property was sufficient to defeat the creation of a perfected security interest in
2148 Pine Street, logic dictates that the same disconnect likewise defeated the creation of
a perfected security interest in 2140 Pine Street. In this case, despite the ambiguity in the
deed of trust, it was erroneously recorded against the property identified in the legal
description. Contrary to defendants‘ assertion, the subject loan did not become ―attached
to‖ 2140 Pine Street by virtue of the defect in the deed of trust any more than it became
―attached to‖ 2148 Pine Street by virtue of the same defect. Instead, the defect in the
deed of trust gave rise to an equitable mortgage in 2148 Pine Street, as we discuss below.
The evidence adduced at trial established the parties intended to secure the subject
loan with a deed of trust on 2148 Pine Street, and never intended to secure that loan with
a deed of trust on 2140 Pine Street. Defendants acknowledge placing the legal
description of 2140 Pine Street in the deed of trust for 2148 Pine Street was a mistake.
The law is clear, ― ‗ ―[a] promise to give a mortgage or a trust deed on particular property
as security for a debt will be specifically enforced by granting an equitable mortgage.
[Citations.] An agreement that particular property is security for a debt also gives rise to
an equitable mortgage even though it does not constitute a legal mortgage. [Citations.] If
a mortgage or trust deed is defectively executed, for example, an equitable mortgage will
be recognized. [Citations.] Specific mention of a security interest is unnecessary if it
otherwise appears that the parties intended to create such an interest. [Citations.]‖
[Citation.]‘ ‖ (Clayton Development Co. v. Falvey (1988) 206 Cal.App.3d 438, 444–445
(Clayton).)

24
 Clayton provides a similar fact pattern, and the court‘s analysis of the issues raised
by such facts is instructive. In that case, the purchaser, Falvey, decided to buy a
condominium as an investment property. He executed a first deed of trust to secure a
note in favor of Pacific Federal Savings and Loan (Pacific Federal), and a second deed of
trust to secure an additional note in favor of Clayton Development Company, the vendor.
However, because the vendor‘s agent ―gave the escrow company an incorrect legal
description the second trust deed actually encumbered a condominium unit other than
Falvey‘s. Clayton and Falvey did not know of the mistake.‖ (Clayton, supra, 206
Cal.App.3d at p. 442.) Falvey subsequently defaulted on the notes to Pacific Federal and
Clayton. When the mistake was finally discovered, Falvey was asked to execute a new
deed of trust containing the correct legal description, but did not do so. Clayton then
sued Falvey on the note. Some months later, Pacific Federal foreclosed on the property.
(Ibid.) In the lawsuit, Falvey asserted the Code of Civil Procedure sections 726 and
580b17 as affirmative defenses. In a motion for summary judgment, Falvey argued that
―the second deed‘s mistaken legal description created an equitable mortgage favoring
Clayton with the result that direct action on the second note was barred under section
726‘s one-action rule and section 580b‘s antideficiency provision.‖ (Clayton, supra, at
p. 443.) The Court of Appeal agreed, and affirmed the trial court‘s grant of summary
judgment.
The court found that the parties clearly ―intended their deal to be a secured
transaction. Indeed, Clayton concedes ‗[t]he debt was to have been secured by a 2nd

17
Code of Civil Procedure section 580b provides in relevant part:
―(a) No deficiency judgment shall lie in any event for the following:
[¶] (1) After a sale of real property or an estate for years therein for failure of the
purchaser to complete his or her contract of sale.
[¶] (2) Under a deed of trust or mortgage given to the vendor to secure payment of
the balance of the purchase price of that real property or estate for years therein.
[¶] (3) Under a deed of trust or mortgage on a dwelling for not more than four
families given to a lender to secure repayment of a loan which was in fact used to pay all
or part of the purchase price of that dwelling, occupied entirely or in part by the
purchaser.‖

25
trust deed on real property sold to Defendants by Plaintiff.‘ Falvey executed a trust deed
intended and believed by all parties to encumber the property purchased. The trust
deed‘s description of the property was faulty. However, given the parties‘ undisputed
intent, the erroneous trust deed constituted a security interest in the property and an
equitable mortgage was created.‖ (Clayton, supra, 206 Cal.App.3d at p. 444, citing
Kaiser Industries Corp. v. Taylor, supra, 17 Cal.App.3d at pp. 350–353.) The court
rejected Clayton‘s argument that since the deed of trust was defective, Falvey merely
held unsecured notes that were not subject to Code of Civil Procedure section 580b,
which refers only to security transactions. (Clayton, supra, at p. 444, fn. 3.)
Recognizing that both ―[Code of Civil Procedure sections] 580b and 726 are part
of a statutory scheme protecting defaulting borrowers from being disadvantaged by
lenders,‖ and that an equitable mortgage is a form of security interest, the court held that
―[b]oth statutes should be read as applying to equitable, as well as legal, mortgages. . . .
If in fact an equitable mortgage exists, the creditor has no choice of remedy. [Citation.]
Construing section 580b as not embracing equitable mortgages would undermine the
purpose of the antideficiency statutes by permitting the creditor an election between
either enforcing an equitable lien and being treated as a secured creditor or circumventing
the antideficiency statutes and suing on the underlying note if such better suited the
creditor‘s needs. Such construction here would result in Clayton receiving an unmerited
windfall simply because Clayton‘s predecessor‘s agent fortuitously misdescribed the
property to be encumbered. Accordingly, we hold section 580b bars a deficiency
judgment where, as here, an equitable mortgage exists securing payment of the balance of
a real property purchase money note favoring the vendor.‖ (Clayton, supra, 206
Cal.App.3d at p. 445.)
Although the Clayton court did not decide to what extent Code of Civil Procedure
section 726 also applied to the facts before it, the court recognized there was an exception
to the general rule that ―when the parties intend a secured transaction and an equitable
mortgage is created, the creditor is required to follow the procedure specified in section
726 and foreclose on that security. [Citation.] Where the debtor successfully raises

26
section 726 as an affirmative defense, the creditor must exhaust the security before he
may obtain a money judgment against the debtor for any deficiency. [Citation.]
However, where the security has been exhausted or rendered valueless through no fault
of the creditor, the creditor may bring action on the debt ‘[o]n the theory that the
limitation to the single action of foreclosure refers to the time the action is brought rather
than when the trust deed was made, and that if the security is lost or has become
valueless at the time the action is commenced, the debt is no longer secured.
[Citations.]‘ ‖ (Clayton, supra, 206 Cal.App.3d at pp. 445–446, italics added.) The court
noted that in the case before it, ―the security became valueless only after Clayton
commenced its action on the note,‖ but it declined to decide ―[w]hether under these
circumstances section 726 might not be an obstacle to Clayton‘s proceeding with its
action on the note.‖ (Clayton, supra, at p. 446; see also Brown v. Jensen (1953) 41
Cal.2d 193, 197; Security-First Nat. Bank v. Chapman (1939) 31 Cal.App.2d 182, 194;
Pacific Valley Bank v. Schwenke, supra, 189 Cal.App.3d at pp. 140–141; Bank of
America v. Graves (1996) 51 Cal.App.4th 607, 611.)
Defendants acknowledge the exception to the one form of action rule set forth
above. They maintain, however, the exception does not apply here because ―U.S. Bank
was aware [of the] error well before the intended security, 2148 Pine Street, was sold.‖
They point to evidence that Loanstar, a sub entity of Wells Fargo, filed a notice of default
on the subject loan on April 29, 2005, and that Loanstar ―pulled title‖ before doing so and
learned of the property‘s true ownership. They infer that in that process, U.S. Bank must
have learned through its agents ―that there was no security interest encumbering 2148
Pine.‖ We disagree.
The Clayton rationale teaches that the legal misdescription of the property known
as 2148 Pine Street in the deed of trust created an equitable mortgage in 2148 Pine Street,
because the evidence overwhelmingly proved that FCF and the Jamerson Estate intended
to create a security interest in that property for the subject loan of $1 million, and there is
no evidence that the parties ever intended to encumber 2140 Pine Street with a second
million-dollar loan. ―The trust deed‘s description of the property was faulty. However,

27
given the parties‘ undisputed intent, the erroneous trust deed constituted a security
interest in the property and an equitable mortgage was created.‖ (Clayton, supra, 206
Cal.App.3d at p. 444.)
First Bank v. East West Bank, supra, 199 Cal.App.4th 1309, cited by defendants
for the proposition that the two liens recorded on a single property at the same time have
equal priority, does not compel a different result. In that case, the borrower and the two
lenders intended both deeds of trust would be secured by the same property. (Id. at pp.
1311–1312.) Here, the parties never intended to create two security interests (worth $2
million) in 2140 Pine Street. They intended to create and, through the implication of an
equitable mortgage did create, a security interest in 2148 Pine Street.
In this case, unlike Clayton, the facts adduced at trial established the equitable lien
holder, U.S. Bank, never had the chance to foreclose on property intended as security
because the borrower sold the property before it could do so. Alice Lane testified that on
December 14, 2004, she signed a letter which was faxed to America‘s Servicing
Company. In it, she acknowledged she received information that the loan on 2148 Pine
Street had been transferred to a new loan servicer, America‘s Servicing Company, as of
December 1, 2004, and she informed the new servicer of the change in conservators, and
also stated that several loan payments had been sent to the previous servicer in early
December. She attached to the fax transmission copies of checks signed by Woolfolk as
proof of payment, mailing and delivery. Erin Hirzel Roesch, an employee of Wells
Fargo, which serviced the subject loan under the name of America‘s Servicing Company,
acknowledged receiving Alice Lane‘s fax. Wells Fargo subsequently received more
payments on the loan in January 2005, but later payments were returned for insufficient
funds, after which Wells Fargo received no more payments.
At that point, the loan was considered to be in default and a breach letter was sent
informing the borrower that the bank would proceed with foreclosure if the default was
not cured. When no further payments were made for 60 days, a notice of default was
entered on Wells Fargo‘s behalf by sub entity Loanstar.

28
 At some point, Roesch was told the property might be sold. A notice of default on
the subject loan was recorded on April 29, 2005. Roesch testified that after the notice of
default is recorded, there is a waiting period of 90 days to see if there is a response to the
notice of default. If no response is received, the bank proceeds into foreclosure. In this
case, Roesch testified, Wells Fargo waited for the 90-day period to expire, and then
proceeded with the foreclosure. Only then was it determined that the deed of trust held in
their files (i.e., the deed of trust naming the borrower as Alice R. Lane, a single woman)
had never been recorded.
But by July 28, 2005 (i.e., 90 days after April 29th), 2148 Pine Street had long
since been sold and the proceeds disbursed. On June 9, 2005, the Estate had relinquished
the property at 2148 Pine Street to an Internal Revenue Code section 1031 Exchange
escrow account with Investment Property Exchange Services, Inc. On June 13, Woolfolk
signed the seller‘s escrow instructions, knowing that no lien had been recorded against
2148 Pine Street. According to the Seller‘s Final Closing Statement, there was no pay-
off for a $1 million loan. By June 30 or July 1, 2005, the net proceeds of $809,187.75
had gone into an Internal Revenue Code section 1031 investment property exchange
account for the benefit of the Estate.
Although U.S. Bank did not try to stop the sale, the foregoing facts and the
inferences therefrom provide substantial evidence in support of the conclusion that it
would have been futile for U.S. Bank to pursue reformation of the deed or foreclosure of
the property, even if it could have done so. Even though Alice Lane had told Roesch that
2148 Pine Street was owned by her mother‘s conservatorship estate, that assertion was
not confirmed until Loanstar ―pulled title‖ for the purpose of filing the notice of default
on April 29, 2005. But, so far as this record shows, at that point Wells Fargo had not yet
discerned the recorded deed (naming the borrower as Alice Lane as Conservator of the
Estate) had been recorded against a different property. The implication of Roesche‘s
testimony was U.S. Bank did not learn that the deed of trust in its files (naming Alice
Lane as an individual borrower) had never been recorded, because U.S. Bank did not
look into its file until 90 more days had passed. By that time, it was too late. To the

29
extent that the evidence of ―pulling title‖ may have provided a conflicting inference, we
are bound by the substantial evidence rule to credit the reasonable inferences that favor
the judgment.
U.S. Bank was not required to seek reformation of the deed after the sale of the
property. It did not commence suit until October 2005, well after the sale of the property.
Substantial evidence supports the trial court‘s implied finding that foreclosure would
have been an idle act because the security had already become worthless, through no fault
of the lender, and therefore the exception to Code of Civil Procedure section 726‘s ―one
form of action‖ rule applied. U.S. Bank‘s suit to collect the debt was not barred, and the
motion for JNOV was properly denied. (Brown v. Jensen, supra, 41 Cal.2d at p. 197.)
DISPOSITION
The judgment is affirmed.

______________________
Marchiano, P.J.

We concur:

______________________
Margulies, J.

______________________
Dondero, J.

30