3. [§ 126] Merger.

, 4 Witkin, Summary 11th Sec Trans--Real § 126 (2021)

4 Witkin, Summary 11th Sec Trans--Real § 126 (2021)

Witkin | May 2021 Update

Summary of California Law, Eleventh Edition

B. E. Witkin and Publisher’s Editorial Staff

Chapter VIII. Security Transactions in Real Property

VI. Extension, Renewal, and Discharge of Mortgage and Deed of Trust

B. Discharge.

3. [§ 126] Merger.

Correlation Table | Tables and Index

(1) In General. A mortgage (or deed of trust) may also be discharged by merger. Suppose A mortgages to B, then sells to B.
B now has the entire legal and equitable interest in the property, and ordinarily the lien of the mortgage will be merged with
the title. (Anglo-Californian Bank, Ltd. v. Field (1908) 154 C. 513, 514, 98 P. 267; Jensen v. Burton (1931) 117 C.A. 66, 69,
3 P.2d 324; see Mortgage Guarantee Co. v. Lee (1943) 61 C.A.2d 367, 375, 143 P.2d 98 [no merger unless entire legal and
equitable estate is in one person]; Strike v. Trans-West Discount Corp. (1979) 92 C.A.3d 735, 743, 155 C.R. 132 [merger is
question of intent; none found]; Ostayan v. Serrano Reconveyance Co. (2000) 77 C.A.4th 1411, 1420, 92 C.R.2d 577 [lender
that held first and second trust deeds on same property and consolidated billing on two loans was not precluded by merger
doctrine from foreclosing only on second trust deed]; National Enterprises v. Woods (2001) 94 C.A.4th 1217, 1228, 1229, 115
C.R.2d 37 [following Ostayan; merger would be contrary to terms of loan documents, and first and second deeds of trust were
equal estates not subject to merger doctrine]; Rest.3d, Property (Mortgages) § 8.5; 5 Miller & Starr 4th, § 13:53 et seq.)

If this rule were invariable, it would sometimes result in injustice to a purchasing first mortgagee. Suppose A, after giving the
mortgage to B, gives a second mortgage to C, and then sells to B. If B's lien is merged in B's title, C becomes the first mortgagee,
and B must pay C's claim before satisfying B's own prior lien. If the value of the land is less than the amount of both liens, B
will suffer a loss. Because of this possibility, it will be presumed that the first mortgagee intends to keep his or her mortgage
alive after the sale, even after the instrument has been cancelled; and equity will prevent a merger when necessary to protect
the interests of the mortgagee. (Sheldon v. La Brea Materials Co. (1932) 216 C. 686, 691, 15 P.2d 1098.)

(2) Application of Rule. In Hines v. Ward (1898) 121 C. 115, 53 P. 427, an insolvent mortgagor deeded the property to the
mortgagee in satisfaction of the mortgage. The mortgagor represented that there was no other lien, and the mortgagee consented
to cancellation of the instrument. There was, in fact, a judgment lien of a third party. Held, the discharged mortgage would be
kept alive in equity and made prior to the intervening lien. (121 C. 118.)

In 6424 Corporation v. Commercial Exchange Property, Ltd. (1985) 171 C.A.3d 1221, 217 C.R. 803, real property was subject
to a leasehold estate that was encumbered in favor of defendant mortgagees. In 1980, K acquired both the lessee's interest and
the fee estate. In 1982, the property was sold to W who executed a mortgage on the fee. This mortgage was assigned to plaintiff,
who contended that K's concurrent ownership of the fee and leasehold merged the leasehold with the fee and extinguished
defendants' mortgages. Held, there was no merger; the doctrine will not be applied where it would prejudice the rights of third
parties. A concurring justice observed that, because plaintiff mortgagee had not acquired legal title to the leasehold, “the factual
prerequisites to even a consideration of the doctrine of merger have yet to occur.” (171 C.A.3d 1224.) (See Marion Drive, LLC
v. Saladino (2006) 136 C.A.4th 1432, 1438, 39 C.R.3d 695 [although bondholder and title owner of property purchased at tax
sale ultimately became same company, merger doctrine did not apply to give lender priority over bondholder to excess fund

© 2022 Thomson Reuters. No claim to original U.S. Government Works. 1

3. [§ 126] Merger., 4 Witkin, Summary 11th Sec Trans--Real § 126 (2021)

from tax sale; right to recover excess fund vested at date of tax sale, and bond and property had different owners at that time];
Decon Group v. Prudential Mortg. Capital Co., LLC (2014) 227 C.A.4th 665, 671, 174 C.R.3d 205 [no-merger rule applies when
senior lienholder accepts deed in lieu of foreclosure, retaining power to foreclose; hence, when senior lienholder foreclosed,
junior mechanics lien was eliminated].)

However, in Wilson v. McLaughlin (1937) 20 C.A.2d 608, 67 P.2d 710, the trustor gave six promissory notes totaling $30,000,
secured by a deed of trust. The beneficiary died, leaving the notes in equal shares to her two daughters, one of whom was the
trustor's wife. The trustor granted the property to his wife, who expressly assumed the debt. Plaintiff, the other daughter, then
sued the trustor's wife to quiet title to the notes and security. Held, plaintiff should prevail. The trustor's wife, as owner of one-
half the notes, was a beneficiary under the trust deed. On the grant and her assumption of the debt, she became owner of the
property and principal debtor as well. Her interest as beneficiary thereupon merged with her title, and there were no equitable
circumstances to prevent merger, for under her assumption agreement, she was liable for the entire debt. (20 C.A.2d 611.)

Westlaw. © 2021 Thomson Reuters. No Claim to Orig. U.S. Govt. Works.

End of Document © 2022 Thomson Reuters. No claim to original U.S. Government

Works.

© 2022 Thomson Reuters. No claim to original U.S. Government Works. 2