## Facts

- Wendland and his wife bought a residence and later borrowed $28,000 from the bank, evidenced by a first promissory note secured by a first deed of trust containing a future-advances (dragnet) clause.
- Wendland later obtained a $6,000 remodeling loan (second note).
- Wendland then borrowed $10,973.40 (third note); to secure it, Wendland and his wife executed a second deed of trust on the same property.
- Proceeds of the third loan paid off the second note, and the remainder was applied to amounts due under the first note.
- After a bank merger, Wendland defaulted on the first note; the property was sold at a nonjudicial trustee’s sale under the first deed of trust, and the bank acquired the property and later resold it.
- The bank sued Wendland for the unpaid balance, interest, and attorney’s fees on the third note; the trial court entered judgment for the bank.

## Issues

1. Whether the third note was intended to be secured by the first deed of trust under its dragnet clause.
2. Whether California Code of Civil Procedure § 580d barred an action on the third note after nonjudicial foreclosure under the first deed of trust.
3. Whether the trial court abused its discretion by denying leave to amend the answer to conform to proof.
4. Whether the bank’s acquisition of the property caused a merger that extinguished the second deed of trust securing the third note, making any judgment on the third note an impermissible deficiency.

## Decision

- The judgment for the bank was affirmed.
- Substantial evidence supported the trial court’s finding that the parties did not intend the third note to be secured by the first deed of trust despite the dragnet clause.
- Because the third note was not secured by the deed of trust foreclosed, § 580d did not bar a personal judgment on the third note.
- Denial of leave to amend was not reversible error.
- No merger occurred that extinguished the second deed of trust in a manner that would trigger § 580d to bar recovery on the third note.

## Legal Principles

- Dragnet (future-advances) clauses are generally valid, but whether a later obligation is covered depends on the parties’ intent as shown by the instruments and surrounding transactions.
- California Code of Civil Procedure § 580d bars a deficiency judgment only on an obligation secured by the deed of trust or mortgage that was sold under a power of sale.
- Merger of a lien interest into fee title is not automatic; it depends on intent and equitable considerations, and courts may prevent merger to avoid an inequitable result.
- Denial of leave to amend pleadings is reviewed for abuse of discretion; reversal requires a showing of prejudicial error.

## Conclusion

The court held that the third note was treated as a separately secured obligation and was not within the first deed of trust’s dragnet clause; therefore, the nonjudicial foreclosure under the first deed did not invoke § 580d to bar a personal judgment on the third note, and no merger theory required a different result.


Union Bank v. Wendland, 54 Cal. App. 3d 393 (Cal. Ct. App. 1976)