## Facts

- Alfred H. Borchard and Mabel Borchard owned real property in Sacramento, California.
- The Borchards borrowed money from Mary Phleger, gave her a $2,000 promissory note, and executed a first deed of trust on the property to secure the note; the deed of trust also provided that it would secure optional future advances.
- Later, the Borchards executed a second (junior) deed of trust in favor of A. B. Atkinson to secure a $1,000 note.
- The Borchards defaulted on the junior obligation, and the trustees under Atkinson’s deed of trust foreclosed; at the foreclosure sale (February 5, 1917), Atkinson purchased the property and became the owner, subject to the lien of the first deed of trust.
- After Atkinson’s purchase, Luise Borchard (Alfred’s mother) bought the $2,000 note and the first deed of trust from Phleger (June 13, 1917).
- Luise then lent additional sums to the Borchards and claimed these were “advances” secured by the first deed of trust under its future-advances clause.
- Through her attorney (who was aware of the earlier junior foreclosure and Atkinson’s purchase), Luise had actual notice of Atkinson’s ownership and the prior proceedings when the later sums were allegedly advanced.
- The trustees under the first deed of trust (including Henry F. Foote) conducted a foreclosure sale (July 7, 1917), at which Luise purchased the property for a bid about $600 more than the original $2,000 debt (plus expenses).
- The trustees’ deed recited that the sale consideration had been paid to the trustees in “gold coin of the United States.”
- Atkinson sued the trustees to recover the surplus proceeds from the senior foreclosure sale; the trial court awarded Atkinson $572 (net surplus) plus costs.
- Luise and the trustees appealed, arguing the “surplus” belonged to Luise as repayment of the later advances and disputing that the trustees had received the excess amount as cash.

## Issues

1. Whether the purchaser at a foreclosure sale under a junior deed of trust (who becomes owner subject to the senior deed of trust) is entitled to the surplus generated by a later foreclosure sale under the senior deed of trust after the senior debt and proper expenses are paid.
2. Whether optional future advances claimed under a senior deed of trust can be treated as secured against an intervening owner’s rights when the senior beneficiary (or assignee) made the advances with actual notice of the intervening interest.
3. Whether trustees may deny receiving the bid price stated in their trustee’s deed to avoid paying an asserted foreclosure surplus.

## Decision

- The judgment for Atkinson was affirmed.
- Atkinson, as owner of the property subject to the senior lien, stood in the position of the trustors as to any surplus from the senior foreclosure and was entitled to the excess after satisfaction of the senior debt and sale expenses.
- Luise’s claimed additional advances could not take priority over Atkinson’s intervening rights where the advances were optional and made with actual notice of Atkinson’s ownership and interest (and the proof of the advances was not sufficient to defeat Atkinson’s claim to the surplus).
- The trustees were bound by the trustee’s deed recital that they received the purchase price in money (gold coin) and could not deny receipt to defeat liability for the surplus.

## Legal Principles

- A trustee under a deed of trust acts in a fiduciary capacity in conducting a foreclosure sale and must account for the proceeds, including paying any surplus remaining after the secured debt and allowable expenses are satisfied.
- The surplus from a foreclosure sale belongs to the trustor or to those who have succeeded to the trustor’s interest in the property (including a purchaser at a foreclosure sale under a junior deed of trust).
- Under a future-advances clause, optional advances made after the senior beneficiary has actual notice of an intervening lien or ownership interest do not obtain priority over that intervening interest; (priority treatment may differ where advances are mandatory rather than optional).
- Notice possessed by an attorney acting within the scope of the representation is imputed to the client for purposes of determining actual notice.
- Trustees may be estopped by material recitals in their trustee’s deed regarding consideration received and may not contradict those recitals to avoid paying a surplus.

## Conclusion

In *Atkinson v. Foote*, the court held that trustees under a senior deed of trust must pay the foreclosure surplus to Atkinson, who had acquired the equity in the property by purchasing at the junior foreclosure sale, and it rejected Luise Borchard’s effort to absorb the surplus with later optional advances made with actual notice of Atkinson’s intervening rights; the trustees also could not escape responsibility by disputing their deed’s recital that the purchase price was paid to them.


Atkinson v. Foote, 44 Cal. App. 149 (1919)