## Facts

- Karl and Pamela Fischer financed construction of a commercial project with a First International Bank (FIB) construction loan.
- In 1998, the Fischers and FIB negotiated two new loans: (1) a $730,000 take-out loan to pay off the construction loan, secured by a first deed of trust on the commercial property; and (2) a $325,000 equipment loan, secured by a second deed of trust on the commercial property and a deed of trust on the Fischers’ residence.
- The negotiated terms were set out in a detailed written letter agreement that identified the collateral for each loan and did not state that the loans would be cross-collateralized.
- At closing for the equipment loan, the Fischers signed a standard-form deed of trust on their residence that, through a cross-referenced fine-print definition of “indebtedness,” purported to secure essentially any obligations the Fischers owed the bank (a dragnet clause).
- In 1999, the Fischers sold their residence. After the equipment loan was paid off, approximately $125,000 in sale proceeds remained.
- FIB applied (or sought to apply) the remaining proceeds to the take-out loan based on the residence deed of trust’s dragnet clause.
- The Fischers sued FIB for breach of contract and related claims and also sued the escrow company, Investors Title Company (ITC), arising from the closing.
- The trial court granted summary judgment for FIB and ITC; it later granted the Fischers a new trial as to ITC.
- The Fischers appealed the summary judgment for FIB, and ITC appealed the new-trial order.

## Issues

1. Whether a lender may enforce a boilerplate dragnet clause in a deed of trust securing one loan to cross-collateralize a separate loan when a specific written loan agreement allocates collateral for each loan and omits cross-collateralization.
2. Whether the trial court had jurisdiction under Cal. Civ. Proc. Code § 660 to grant a new trial as to ITC after the statutory time limit, and the proper appellate disposition if it did not.

## Decision

- The Court of Appeal reversed summary judgment for FIB.
- On these facts, the bank could not enforce the residence deed of trust’s dragnet clause to secure the other loan where the negotiated written agreement expressly specified the collateral for each loan without cross-collateralization.
- The Court of Appeal reversed the order granting a new trial as to ITC as void for lack of jurisdiction under § 660.
- The Court of Appeal remanded with directions that the trial court, using its inherent authority, reconsider the summary judgment in favor of ITC consistent with the appellate analysis.

## Legal Principles

- Dragnet clauses in deeds of trust are strictly construed, particularly when contained in standard-form boilerplate and when their asserted effect is not consistent with the parties’ negotiated agreement and reasonable expectations.
- A specific, negotiated written agreement that allocates collateral for separate loans and omits cross-collateralization may control over a general dragnet clause invoked to expand collateral beyond the agreement’s stated terms.
- Ambiguous or concealed provisions in lender-drafted instruments are construed against the drafter when used to alter the parties’ expressed bargain.
- Under Cal. Civ. Proc. Code § 660, a trial court loses jurisdiction to rule on a motion for new trial if it does not act within the statutory 60-day period; a late new-trial order is void.

## Conclusion

The court held that a bank could not use a fine-print dragnet clause to treat a residence as collateral for a different loan in conflict with a detailed written loan agreement specifying separate collateral, and it also held that a new-trial order entered outside the § 660 deadline was void, requiring reversal and remand for further proceedings.


Fischer v. First Int’l Bank, 1 Cal. Rptr. 3d 162 (Cal. Ct. App. 2003)