Fischer v. First International Bank
California Court of Appeal
1 Cal. Rptr. 3d 162 (2003)
Karl and Pamela Fischer (plaintiffs) obtained two business loans from First International Bank (defendant), with the loan agreement clearly identifying Loan 1's collateral as a first lien on their commercial lots and Loan 2's collateral as a second lien on those lots plus a deed of trust on their house. The trust deed the Fischers signed for Loan 2, in bold capital letters, described itself as securing only Loan 2's note and 'indebtedness,' but that term was defined, through a cross-reference buried in 177 words of fine-print legalese, to sweep in essentially any debt the Fischers owed the bank -- functioning as a dragnet clause. After selling their house and paying off Loan 2, the Fischers were left with $125,000 in proceeds that the bank wanted to apply to Loan 1 instead. The Fischers sued; the trial court granted the bank summary judgment based on the trust deed's broad indebtedness definition.
Whether the legal effect of a security instrument's dragnet clause is uniform across jurisdictions, or instead differs from state to state depending on the objective factors establishing the parties' actual intent.