Turner v. Lytton Savings and Loan Association

Frederick Turner (plaintiff) sold a piece of undeveloped land to Mr. and Mrs. Caton, accepting a promissory note and deed of trust as part of the purchase price. The Catons also secured a construction loan from Lytton Savings and Loan Association (Lytton) (defendant) and executed a deed of trust in favor of Lytton. Turner, Lytton, and the Catons all agreed that Lytton’s deed of trust would be the first deed of trust and that Turner’s would be the second deed of trust. The terms of the construction loan and first deed of trust provided that Lytton would be obligated to disburse the face value of the loan in installments over the course of the construction. If the Catons breached the agreement during this time, Lytton had the right to declare a default and stop making loan disbursements. The Catons breached the agreement, and Lytton declared a default and stopped making disbursements. The Catons and Lytton then resolved the issue, and Lytton voluntarily agreed to continue the disbursements until the full face value of the loan had been made. Turner filed a lawsuit, seeking a declaratory judgment that loan disbursements made after the declaration of default would not have security priority over his second deed of trust. The trial court ruled in favor of Lytton, holding that the entire face value of the loan was secured by the first deed of trust and had priority over Turner’s interest. Turner appealed.