Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC317506, Teresa Sanchez-Gordon, Judge. Affirmed.
Law Offices of Thomas J. Weiss, Thomas J. Weiss and Hy
rum K. Hunt for Plaintiffs and Appellants.
Loeb & Loeb, Andrew S. Clare and Lawrence B. Gutcho for Defendants and Respondents.
OPINION
Judge of the Los Angeles Superior Court assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
INTRODUCTION
Plaintiffs Northeast 315 Fruit Company (NE 315), Southwest 320 Fruit Company (SW 320), Sherwood 209 Fruit Company (Sherwood), Lester Saslow, Bernard Rothman, Beatrice Rothman, Gary Hollander and Marcia Hollander appeal from a judgment based on a jury verdict rendered in favor of defendants Roll International Corporation, Paramount Citrus Exchange (Paramount Exchange), Citrus Finance (Citrus), and Citrus Ranches. Plaintiffs contend that the trial court erred in its interpretation of statutory and contract provisions and erroneously instructed the jury based upon its interpretation. We disagree and affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiffs were the owners of three citrus ranches in the San Joaquin Valley. For some years, plaintiffs operated their ranches with financing from Dole Citrus (Dole) for their agricultural operations, and Dole provided packing and marketing services to them. Dole sold its financing and packing/marketing operations in 2000 to Paramount Exchange. The notes and deeds of trust securing the debts owed by plaintiffs to Dole were assigned to Citrus. In part II, Assignment of Rents, of each deed of trust, plaintiffs made an absolute assignment to Citrus of the rents from plaintiffs’ real property interests which secured their obligations owed to Citrus.
In each deed of trust, section 2.1 provides: “Trustor hereby irrevocably, absolutely, presently and unconditionally assigns to Beneficiary all rents, royalties, issues, profits, revenue, income and proceeds of the Property, whether now due, past due or to become due, including all prepaid rents and security deposits (some or all collectively, as the context may require, “Rents”). This is an absolute assignment, not an assignment for security only.”
Plaintiffs entered into new picking, packing, and marketing agreements with Paramount Citrus Packing Company (Paramount Packing). Paramount Packing is not a named defendant in the instant case.
Plaintiffs defaulted on their notes. Citrus served default notices on plaintiffs, and a few days later, initiated judicial foreclosure proceedings, obtaining the appointment of a receiver on December 19, 2001.
In the foreclosure proceedings, the notice of the foreclosure sale stated the amount of the outstanding balance on the secured obligation owed by each of the plaintiffs, excluding costs and fees. Before the foreclosure sale was to be held, plaintiffs filed bankruptcy and the sale was stayed by the bankruptcy court. The bankruptcy court lifted the stay in mid-December 2002.
Exact dollar amounts are not required to reach our conclusion herein regarding the interpretation of the statute and contracts at issue. They may be helpful, however, in better understanding contentions and claims made by the parties on appeal. The approximate outstanding balance of the secured obligation, excluding costs and fees, which was shown on the notice of sale for each property was, respectively, $2,700,000 for NE 315, $1,725,000 for SW 320, and $735,000 for Sherwood. The approximate amount of defendants’ successful credit bid for each property at the foreclosure sale was, respectively, $925,000 for NE 315, $300,000 for SW 320, and $150,000 for Sherwood. At the time of the foreclosure sale, the receiver held rents in the approximate amounts of $153,000 for NE 315, $300,000 for SW 320, and $80,000 for Sherwood. After the foreclosure sale, Citrus received approximately $497,000 as rents in the form of crop proceeds for SW 320.
A nonjudicial foreclosure sale was completed on December 30, 2002. Citrus acquired plaintiffs’ property by credit bids substantially less than the debt stated on the notice of sale for each property. At the time of the foreclosure sale, the receiver held rents in the form of crop proceeds for each property. After the foreclosure sale and termination of the receivership, the receiver paid these amounts to Citrus.
About a month after the foreclosure sale, in the ordinary course of business, Paramount Packing completed post-marketing settlement of the crop pool, to determine the crop proceeds dollar amount owed to SW 320 and the other growers. The crop pool included the SW 320 crop, which had been harvested prior to foreclosure. Paramount Packing then issued payments. On behalf of Paramount Packing on January 24, 2003, David Krause (Krause) submitted checks to Citrus totaling approximately $497,000 for the proceeds of the sale of the SW 320 crop.
At all times relevant to the facts in the instant case, Krause was employed by, but not an officer of, Paramount Packing. He also was president of defendants Paramount Exchange, Citrus and Citrus Ranches. The operations of all of these entities were integrated into a single management. Krause prepared and delivered the checks to Citrus instead of the receiver because he had previously received written notice from the receiver that the receiver had turned over possession of the SW 320 property to Citrus on January 1, 2003. The court did not officially discharge the receiver, however, until April 2003. If Paramount Packing had settled the crop pool before the foreclosure sale, Krause would have paid the $497,000 crop proceeds to the receiver, and then the receiver would have returned the proceeds to Citrus when he settled the accounts after the sale.
On June 2, 2004, plaintiffs filed suit against defendants for fraud, breach of fiduciary duty, breach of contract (including breach of the implied covenant of good faith and fair dealing), conversion and “declaratory relief to quiet title.” Plaintiffs alleged, in part, that after the receiver was appointed, in violation of applicable law, defendants failed to credit crop proceeds held by the receiver against the debts owed by NE 315, SW 320 and Sherwood and failed to credit approximately $500,000 in crop proceeds from SW 320, which defendants paid to themselves after the foreclosure sale. As a result, on the notices of default and notices of the foreclosure sale, defendants overstated the true amount of debt. The overstatement of debt was “intended by defendants to have the effect of making it more difficult or impossible for the plaintiffs either to repay the sums or to sell the property for sums sufficient to discharge the liens on the real property and the crops, and was intended to discourage or deter other bidders for the property at any foreclosure sale.” Defendants thus were the sole bidders at the foreclosure sale and obtained SW 320, NE 315, and Sherwood for credit bids well below the value of the property. Plaintiffs alleged that, as a result, they lost at least $4,000,000 in equity and $1,000,000 in avoidable tax liabilities.
Trial was by jury. In the course of the trial, defendants moved for an order which in effect would declare that defendants had no duty either to apply the crop proceeds held by the receiver or paid after the foreclosure sale to the debt, or to remit them to the plaintiffs, prior to the foreclosure sale. Prior to the case being submitted to the jury and after extensive briefing by the parties, the trial court made rulings as to the monies held by the receiver. The trial court stated: “Defendants’ motion to preclude plaintiffs from arguing that defendants acted improperly in failing to credit the amount collected by the receiver against the obligation prior to the foreclosure sale is granted. Plaintiffs are precluded from arguing to the jury that defendants acted improperly in failing to credit the amount collected by the receiver against the obligations prior to the foreclosure sale.” At defendants’ request, the trial court clarified that the ruling also applied to the $497,000 crop proceeds. As support for the ruling, the trial court cited and discussed Civil Code section 2938 and two cases interpreting it—MDFC Loan Corp. v. Greenbrier Plaza Partners (1994) 21 Cal.App.4th 1045 and Federal National Mortgage Assn. v. Bugna (1997) 57 Cal.App.4th 529 (hereinafter also Bugna). As to the status of funds held by a receiver, the trial court stated: “All monies paid to the receiver, either before or after the foreclosure sale, are disbursed only upon order of the court discharging the receiver. All monies held go to any obligation remaining after the sale, as the proceeds collected by the receiver are security for the obligation. Proceeds are released back to the debtor only when the obligation is fully satisfied.”
Based on its foregoing rulings, the trial court gave the following special instruction to the jury: “As a matter of law, a debt for purposes of a foreclosure sale is not required to be reduced by moneys held by a receiver. Had the $497,000 distributed by Paramount Citrus Packing Association been distributed to Citrus Finance in December of 2002, rather than in January 2003, Citrus Finance would have been obligated as a matter of law to deliver the $497,000 to the receiver. Accordingly both the moneys actually held by the receiver and the $497,000 turned over to Citrus Finance on January 24, 2003, cannot be considered as evidence of wrongdoing by the defendants.”
The jury returned a verdict in favor of defendants. On October 28, 2005, the trial court entered judgment after verdict that plaintiffs take nothing on their first four causes of action and that judgment is against plaintiffs on their fifth and final cause of action, that is, their claim for “declaratory relief to quiet title to the property.” The judgment also awarded costs and attorney’s fees to defendants.
DISCUSSION
Plaintiffs contend that Civil Code section 2938 and sections 6.3 and 6.6 of the deeds of trust for NE 315, SW 320 and Sherwood required defendants to credit the crop proceeds held by the receiver and the $497,000 collected by Paramount Packing as SW 320 crop proceeds against plaintiffs’ debts, thereby reducing the amount of the outstanding unpaid balance on the notice of sale and thus, the amount to be satisfied through the foreclosure sale. Plaintiffs claim that the trial court erred in ruling that, as a matter of law, defendants were not required to credit the amounts against the unpaid balance of plaintiffs’ obligation prior to the foreclosure sale and in instructing the jury accordingly. We agree with the trial court.
Unless otherwise stated, all further section references are to the Civil Code.
The texts of sections of the deeds of trust referenced herein are identical. Hereinafter, any reference to the sections or the deeds will be in the singular.
Section 2924f sets forth content requirements for a notice of sale in foreclosure proceedings initiated pursuant to a deed of trust. Subdivision (b)(1) of section 2924f provides: “The notice of sale shall contain a statement of the total amount of the unpaid balance of the obligation secured by the property to be sold . . . at the time of the initial publication of the notice of sale . . . .”
In effect, plaintiffs pose the following questions: When did the creditor, i.e., Citrus, obtain rights in the rents, i.e., crop proceeds? When did the debtor, i.e., NE 315, SW 320 or Sherwood, get credit against its outstanding debt for the rents? Answers to the questions depend upon the interpretation of section 2938 and the assignment of rents agreement, particularly, sections 6.3 and 6.6, set forth in the deed of trust encumbering plaintiffs’ real property.
Standard of Review
On appeal, the interpretation of a statute presents a pure question of law. (MDFC Loan Corporation v. Greenbrier Plaza Partners, supra, 21 Cal.App.4th at p. 1050.) The interpretation of written contracts such as the deeds of trust also raises an issue of law where, as in the instant case, no extrinsic evidence has been offered or admitted on the issue. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865; Stratton v. First Nat. Life Ins. Co. (1989) 210 Cal.App.3d 1071, 1084.) We review questions of law de novo. (Florio v. Lau (1998) 68 Cal.App.4th 637, 641.)
Rules for Interpretation
In order to interpret section 2938, we first consider the actual language of the statute. (Mercer v. Department of Motor Vehicles (1991) 53 Cal.3d 753, 763.) We look at the plain meaning of the words. (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735.) The plain meaning of a single word or phrase, however, is an insufficient basis for interpretation of a statute. (Ibid.) Rather, “the words must be construed in context, and provisions relating to the same subject matter must be harmonized to the extent possible.” (Ibid.)
The principles of contract interpretation are similar to those for statutory interpretation. Section 1636 provides that the interpretation of contracts is governed by the mutual intention of the parties at the time the contract is formed. Such intention is to be inferred, if possible, from the written provisions of the contract alone (§ 1639), provided the language is “clear and explicit.” (§ 1638.) The words used will be interpreted in their “ordinary and popular sense,” unless “used by the parties in a technical sense or unless a special meaning is given to them by usage.” (§ 1644.) Section 1641 requires that, to interpret a contract, the provisions of the contract are to be taken together as a whole, “each clause helping to interpret the other.” (Ibid.) “Thus, if the meaning a layperson would ascribe to contract language is not ambiguous, then that meaning should be applied. . . . [¶] . . . ‘“[L]anguage in a contract must be construed in the context of that instrument as a whole, and in the circumstances of that case . . . .”’ [Citation.]” (Nissel v. Certain Underwriters at Lloyd’s of London (1998) 62 Cal.App.4th 1103, 1110-1111, italics omitted.)
Accrual of Citrus’s Rights to Rents
Plaintiffs contend that Citrus had a right to the crop proceeds held by the receiver at the time the receiver collected them and to the $497,000 crop proceeds at the time of the crop sale, that is, a right to the crop proceeds at issue prior to the foreclosure sale. As explained more fully below, based upon the interpretation of section 2938 and deed of trust sections 6.3 and 6.6, Citrus did have some type of rights in the crop proceeds at those times, but the nature of rights to rents which a creditor like Citrus obtains pursuant to an assignment of rents changes in relation to certain procedural events under both section 2938 and the deed of trust provisions. Pursuant to section 2938, subdivision (a), a creditor first obtains rights with respect to rents when the debtor signs and delivers to the creditor a written assignment of rents of real property encumbered by a loan made by the creditor. The creditor’s rights at that time are in the form of a security interest held by the creditor in all existing and future rents of the real property. Section 2938, subdivision (b), provides that when the creditor records the assignment, the creditor’s security interest becomes perfected. That is, the creditor then has priority rights over all other third-party creditors of the debtor to receive the rents in the event the debtor defaults. (See In re GOCO Realty Fund I (Bankr. N.D.Cal. 1993) 151 B.R. 241, 247-248.)
Section 2938 provides: “(a) A written assignment of an interest in leases, rents, issues, or profits of real property made in connection with an obligation secured by real property . . . shall, upon execution and delivery by the assignor, be effective to create a present security interest in existing and future leases, rents, issues, or profits of that real property. . . .
The creditor has no rights in any specific rents, however, until the creditor initiates one of the enforcement actions permitted pursuant to section 2938, subdivision (c), after an event of default occurs. (Bugna, supra, 57 Cal.App.4th at pp. 534, 538.) One such enforcement action is the appointment of a receiver. (§ 2938, subd. (c).) The specific dollar amount of rents the creditor may become entitled to receive begins accruing when the creditor initiates an enforcement action, regardless of when the default occurred (Bugna, supra, 57 Cal.App.4th at pp. 534, 538) or whether the rents are collected by the debtor or through the enforcement mechanism chosen by the creditor (MDFC Loan Corp. v. Greenbrier Plaza Partners, supra, 21 Cal.App.4th at pp. 1049-1050).
When and what dollar amount of the rents that the creditor ultimately becomes entitled actually to receive, however, may vary depending upon the procedural steps required to complete the chosen enforcement mechanism. In general, if the creditor chooses to enforce the assignment by appointment of a receiver through a judicial foreclosure proceeding, as Citrus did in this case, when and what dollar amount of the rents that the creditor actually receives is not determined until the court orders a specific amount to be disbursed to the creditor. (Miller v. Fidelity etc. Co. of Maryland (1935) 3 Cal.App.2d 580, 583-584.) Generally, the amount of the disbursement depends upon how much of the outstanding debt was satisfied by the completion of the foreclosure sale. That portion of the rents necessary to pay the difference between the sale proceeds and the debt amount is disbursed to the creditor. (Passanisi v. Merit-McBride Realtors, Inc. (1987) 190 Cal.App.3d 1496, 1504; Nomellini Constr. Co. v. Modesto S. & L. Assn. (1969) 275 Cal.App.2d 114, 118.) If any portion of the rents from the debtor’s real property remains, it is disbursed to the debtor. (Eastland S. & L. Assn. v. Thornhill & Bruce, Inc. (1968) 260 Cal.App.2d 259, 262.) A nonjudicial foreclosure sale involves the same pattern of determination and distribution of dollar amounts of rents. (4 Miller & Starr, Cal. Real Estate, supra, § 10:52, pp. 164-165.)
Citrus first initiated a judicial foreclosure action in order to have a receiver appointed. The foreclosure sale herein, however, was accomplished through a nonjudicial foreclosure process. This fact does not affect our analysis of the issues. Section 2938, subdivision (e), provides that no enforcement action authorized by subdivision (c) or no application of rents following such action shall “limit any rights available to the assignee with respect to its security” with one exception not applicable here. That is, an assignee of rents has two separate liens to secure the same debt—a lien on the real property and a lien on the rents. (4 Miller & Starr, Cal. Real Estate (3d ed. 2003) § 10:52, p. 163.) Accordingly, a receiver may be appointed in a judicial foreclosure action even though the assignee proceeds with a nonjudicial foreclosure on the real property pursuant to a power of sale such as provided in the deed of trust executed by plaintiffs herein. (Ibid.)
In the instant case, in accordance with deed of trust sections 6.5 and 6.6, the procedure followed the same pattern. After the foreclosure sale, the addition of the crop proceeds to the credit bid that constituted the sale proceeds failed to satisfy the debt amount plaintiffs owed Citrus. Accordingly, the court ordered the receiver to disburse the crop proceeds collected by the receiver to Citrus, and no proceeds were left over to be paid to plaintiffs. (Passanisi v. Merit-McBride Realtors, Inc., supra, 190 Cal.App.3d at p. 1504; Nomellini Constr. Co. v. Modesto S. & L. Assn., supra, 275 Cal.App.2d at p. 118.)
Deed of trust section 6.5 provides that foreclosure sale proceeds be applied in the following priority: “(a) First, to pay . . . the expenses of sale, costs of any action and any other sums . . . under Section 5.10; (b) Second, to pay . . . any sums expended or advanced by Beneficiary or Trustee under . . . this Deed of Trust which t[h]en remain unpaid; (c) Third, to pay all other Secured Obligations in any order and proportions as Beneficiary in its sole discretion may choose; and (d) Fourth, to remit the remainder, if any to the person . . . entitled to it.”
Deed of trust section 6.6 provides in relevant part that “Beneficiary shall apply any and all Rents collected by it . . . in the following manner: (a) First, to pay . . . the costs and expenses of operation and collection that may be incurred by Trustee, Beneficiary or any receiver; (b) Second, to pay all other Secured Obligations in any order and proportions as Beneficiary in its sole discretion may choose; and (c) Third, to remit the remainder, if any, to the person . . . entitled to it. [¶] Beneficiary shall have no liability for any funds which it does not actually receive.”
Under sections 6.5 and 6.6 as well as other sections of the deed of trust, Citrus’s rights in the crop proceeds evolved in a manner that parallels section 2938 discussed above. In addition to granting a security interest in plaintiffs’ real property, deed of trust section 2.1 expressly makes an absolute assignment of the rents from the real property to Citrus, the beneficiary, in accordance with section 2938, subdivision (a) requirements. Deed of trust section 2.2 provides that the trustor, i.e., NE 315, SW 320 or Sherwood, as applicable, has the right to collect and retain the rents so long as no default occurs. Similar to section 2938, subdivision (c), deed of trust section 2.3 provides that, in the event of default, the beneficiary has the right to collect all rents. Similar to the specification of permissible enforcement actions given in section 2938, subdivision (c), deed of trust section 6.3 lists remedies the beneficiary may pursue in the event of default, including appointment of a receiver and conducting a foreclosure sale.
Deed of trust section 2.2 provides that “Beneficiary hereby confers upon Trustor a license . . . to collect and retain the Rents . . . so long as no Event of Default . . . shall exist and be continuing . . . .”
Deed of trust section 2.3 provides that “[s]ubject to the License granted to Trustor under Section 2.2, Beneficiary has the right . . . to collect any and all Rents. . . . Beneficiary shall apply all Rents collected by it in the manner provided under Section 6.6 . . . .”
Citrus therefore had rights in the crop proceeds as soon as the parties executed the deeds of trust. Those rights were inchoate and began coming to fruition when Citrus initiated some enforcement mechanism or remedy. (Bugna, supra, 57 Cal.App.4th at p. 538.)
Circumstances Requiring Citrus to Credit Plaintiffs with Proceeds to Reduce Debt
With the nature of a creditor’s rights evolving as the applicable procedural process moves forward, the issue becomes when does the creditor have the type of rights to the rents that triggers the creditor’s duty to credit those proceeds to reduce the debtor’s outstanding balance. Plaintiffs contend that the crop proceeds held by the receiver and the $497,000 proceeds for crops harvested later, but sold prior to the foreclosure sale, should have been applied to reduce their debt and correspondingly, the foreclosure sale price, before the foreclosure sale was completed. Based upon the factors discussed below, we disagree.
The plain language of the distribution provisions in section 2938 and deed of trust section 6.6 indicates that a creditor like Citrus cannot definitively determine the amount of the rents to be credited against the debt until after enforcement is otherwise completed. (Mercer v. Department of Motor Vehicles, supra, 53 Cal.3d at p. 763.) Section 2938, subdivision (c), provides that “[m]oneys received by the assignee [as rents] . . . shall be applied by the assignee to the debt or otherwise in accordance with the assignment or . . . deed of trust . . . .” “Money” is defined in ordinary use as “something generally accepted as . . . a means of payment: as a: officially coined or stamped metal currency . . . c: paper money.” (Webster’s Collegiate Dict. (10th ed. 1995) p. 750.) To “receive” is defined in ordinary use as “to come into possession of.” (Id. at p. 975.) Considering the actual language of the statute (Mercer, supra, at p. 763) and giving the words used their ordinary meaning (Lungren v. Deukmejian, supra, 45 Cal.3d at p. 735), the statute requires a creditor to apply only such rents dollars, i.e., “moneys,” which the creditor has in its own possession to reduce the debtor’s debt.
The result in Bugna, supra, 57 Cal.App.4th 529, illustrates that, applying section 2938, a creditor may not actually receive all of the rents collected by a receiver during a foreclosure proceeding, even if the result is that the debt is not fully satisfied. Bugna was in an involuntary bankruptcy, and a bankruptcy trustee was in charge of his apartment building secured by a deed of trust, which included an absolute assignment of rents to the creditor, FNMA. (Id. at pp. 531-532.) When the bankruptcy court ordered the bankruptcy trustee to abandon the property and its rents, FNMA had a receiver appointed and the bankruptcy trustee turned the rents he had collected over to the receiver. (Id. at p. 533.) The property was sold in a nonjudicial foreclosure, leaving an outstanding balance on the loan. (Ibid.) The trial court then ordered the receiver to disburse all of the rents held by the receiver to FNMA. (Id. at p. 534.) Bugna appealed, claiming that FNMA was not entitled to the portion of rents collected by the bankruptcy trustee prior to the appointment of the receiver. The appellate court held that an absolute assignment of rents is not self-executing and an enforcement action is required to bring the inchoate interest created by the assignment to fruition. (Id. at p. 538.) Applying section 2938, the court concluded that, accordingly, even though the secured debt was not fully satisfied, FNMA was entitled only to the rents collected after it initiated enforcement by having a receiver appointed. (Ibid.)
Similar to the “moneys received” limitation on a creditor’s duty to apply rents to reduce a debt under section 2938, deed of trust section 6.6 requires the creditor to apply only the rents it has “actually received” to reduce the debtor’s outstanding balance on its debt. Inferring the parties’ intent from the written provision of the deed of trust (§ 1639) and the clear and explicit meaning of the words used, in their ordinary and popular sense (§§ 1638, 1644), the deed of trust requires a creditor to apply rents it has actually come into possession of to reduce the debtor’s outstanding balance.
Taken as a whole, the prioritized three-step rents distribution process in deed of trust section 6.6 also supports an interpretation that when a beneficiary undertakes an enforcement action, none of the rents are applied to the secured obligation until the enforcement process is complete, other than distribution of rents and excess sale proceeds, if any. (§ 1641; Nissel v. Certain Underwriters at Lloyd’s of London, supra, 62 Cal.App.4th at pp. 1110-1111.) Under deed of trust section 6.6(a), the first distribution of rents is to pay the costs and expenses of operation and collection of rents that may be incurred by the creditor or any receiver. Applying any of the rents to reduce the outstanding balance on the original debt is not first priority, but rather second priority according to deed of trust section 6.6(b). The amount of the first priority payment, the costs and expenses of operation and collection of rents, cannot be determined until essentially the end of the enforcement process, which in this case is after the foreclosure sale. Only after determining the amount of the first priority payment will the creditor be able to calculate the specific dollar amount of collected rents that must be applied to reduce the debt. Also, the creditor will not know the specific dollar amount of rents it has “actually received” until the end of the enforcement process.
In the instant case, when plaintiffs defaulted on their notes, Citrus chose to enforce the assignment of rents by initiating judicial foreclosure to obtain the appointment of a receiver. (§ 2938, subd. (c)(1).) Appointment of the receiver did not automatically give Citrus the right to immediate possession of all of the rents received by the receiver. (See, e.g., Bugna, supra, 57 Cal.App.4th at p. 538.) It simply established a procedure to safeguard the collection and retention of the rents until the court determined the dollar amount of rents, if any, which Citrus was entitled to receive and directed the receiver to release that amount into the possession and control of Citrus. (Cal. Rules of Court, rule 3.1179(a); Miller v. Fidelity & Deposit Co. of Maryland, supra, 3 Cal.App.2d at pp. 583-584.) Citrus had no assurance that it would receive all, or any, of the collected rents unless and until the trial court ordered the receiver to pay a specific amount of them over to Citrus. (Miller, supra, at pp. 583-584.) The receiver was an agent of the court, not of Citrus. (Cal. Rules of Court, rule 3.1179(a).) By law, the receiver was required to retain possession and control over funds received and had no power to disburse them to Citrus without court authorization. (Miller, supra, at pp. 583-584.) For the foregoing reasons, Citrus was not entitled to actual possession of a specific dollar amount of the rents collected by the receiver until the receiver disbursed that amount to Citrus pursuant to the trial court’s order.
California Rules of Court, rule 3.1179(a) states: “The receiver is the agent of the court and not of any party, and as such: [¶] (1) Is neutral; [¶] (2) Acts for the benefit of all who may have an interest in the receivership property; and [¶] (3) Holds assets for the court and not for the plaintiff or the defendant.”
Another factor supports an interpretation that the creditor is required to reduce a debt only to the extent the creditor is in actual possession of the rents. The purpose of an absolute assignment of rents is to protect the creditor’s security interest. A creditor has no guarantee, however, that it will receive the full amount of the outstanding secured debt as proceeds from the foreclosure sale or that all rents collected by the receiver will be disbursed to it after the sale. In Bugna, for example, at the time of the foreclosure sale, the receiver held the rents he had collected and about $350,000 in rents the bankruptcy trustee had collected prior to appointment of the receiver. After the foreclosure sale, the sale proceeds were $1.3 million less than the debt Bugna owed. The total amount of rents held by the receiver was insufficient to make up all of the shortfall. Even so, FNMA did not receive the total amount of rents. Although the trial court originally ordered the full amount held by the receiver to be disbursed to FNMA, on appeal, the reviewing court held that FNMA was not entitled to the $350,000 collected prior to appointment of the receiver. (Bugna, supra, 57 Cal.App.4th at p. 538.)
A foreclosure sale is a process which allows the creditor to attempt to sell the property for a sales price at least equal to the amount of the debt. (See, e.g., § 2924f.) As we previously discussed, if the creditor receives the full sales price, that is, if the debt is fully satisfied, then at that time, any rents collected by a receiver are to be disbursed to the debtor. (Passanisi v. Merit-McBride Realtors, Inc., supra, 190 Cal.App.3d at p. 1504; Nomellini Constr. Co. v. Modesto S. & L. Assn., supra, 275 Cal.App.2d at p. 118.) If the sale proceeds are less than the debt, then the rents are applied to make up the difference. (Eastland S. & L. Assn. v. Thornhill & Bruce, Inc., supra, 260 Cal.App.2d at pp. 261-262.)
If section 2938, subdivision (c), had required FNMA to credit Bugna’s outstanding balance in the total amount of rents held by the receiver and to reduce the sale price by that amount prior to the foreclosure sale, then FNMA would have lost the opportunity to recover at least $350,000 of the outstanding debt from a third-party purchaser. Certainly there is no guarantee that a creditor like FNMA will receive the full foreclosure sale price. A purpose, however, of section 2938 and the deed of trust is to provide the means to secure the full amount of the debt by creating a lien on rents from the real property as a backup to the creditor’s foreclosure rights on the property. (See 4 Miller & Starr, Cal. Real Estate, supra, § 10:52, pp. 164-165.) That purpose would be thwarted if the foreclosure sale price were required to be reduced by the rents held by the receiver prior to the sale without a corresponding court order transferring possession of them to the creditor. Even then, the creditor could find itself in FNMA’s negative balance position if, as happened in Bugna, an appeals court later determined that the creditor was not entitled to receive the full amount ordered transferred by the trial court.
For the reasons discussed above, we conclude that defendants had no duty under section 2938 to reduce plaintiffs’ outstanding balance and, likewise, lower the foreclosure sale price by an amount equal to the amount of rents held by the receiver prior to the completion of the foreclosure sale.
As to the $497,000 crop proceeds from SW 320, Citrus’s president testified that, if Citrus had received them prior to the foreclosure sale, then he would have been obligated to deposit them with the receiver. If the $497,000 had been part of the rents held by the receiver at the time of the foreclosure sale, as we previously concluded, defendants would have had no duty to apply them to reduce plaintiffs’ outstanding debt prior to the foreclosure sale, under either section 2938 or deed of trust sections 6.3 and 6.6.
The facts show that Citrus did not receive the $497,000 payment, however, until January 24, 2003, almost a month after the foreclosure sale. The letter from the receiver announcing the termination of his receivership effective January 1, 2003 constitutes substantial evidence in the record that Citrus’s president reasonably believed that he had no duty to deposit the subsequently received $497,000 with the receiver.
Support is lacking for plaintiffs’ contention that Citrus collected the $497,000 before the foreclosure sale, and Citrus’s failure to credit the $497,000 against their debt on SW 320 prior to the sale is in violation of section 2938 and also is inequitable, in that a fruit packer owes a fiduciary duty to the grower by law. (Fisher v. Machado (1996) 50 Cal.App.4th 1069.) The facts show that SW 320 had a packing agreement with Paramount Packing, not with Citrus. The packing agreement does not mention Citrus as a party and identifies only Paramount Packing as the party with which plaintiffs contracted for packing and marketing services. This suggests that Paramount Packing is a discrete business entity having authority to contract.
Plaintiffs’ claim that Paramount Packing is not a business entity distinct from Citrus was not raised or litigated in the trial court and cannot now be raised on appeal. (Brown v. Boren (1999) 74 Cal.App.4th 1303, 1316.) Plaintiffs have offered no applicable legal authority supported by citation to relevant facts in the record upon which receipt and possession of the crop proceeds by Paramount Packing could be deemed to be receipt and possession of the proceeds by Citrus. Additionally, as previously noted, Paramount Packing is not a named defendant in the instant action. Hence, on appeal, we have no jurisdiction to address any claim by plaintiffs against Paramount Packing.
In summary, neither section 2938 nor deed of trust section 6.6 expressly provides or supports the interpretation claimed by plaintiffs, that is, receipt of rents by a receiver or receipt of rents by a third-party independent contractor such as Paramount Packing shall be deemed possession of the rents by a creditor such as Citrus, pursuant to which such creditor would have a duty to apply them to reduce the outstanding balance of a debtor such as NE 215, SW 320 or Sherwood. Plaintiffs have not cited any authority which supports such an interpretation. Rather, we conclude that the debt reduction provisions in the statute and the deed of trust require a creditor to apply only the specific dollar amount of rents in the creditor’s actual possession and to which the creditor is otherwise entitled by law.
The trial court thus properly interpreted both section 2938 and the deed of trust to determine that defendants had no duty to apply to plaintiffs’ debt prior to the foreclosure sale either the crop proceeds deposited with the receiver or the $497,000 in crop proceeds not paid to Citrus until after the foreclosure sale. The jury instruction given with regard to the funds held by the receiver and the $497,000 in crop proceeds is consistent with the determination, and the trial court did not err in giving the instruction.
The judgment is affirmed.
I concur:
MALLANO, Acting P. J..
I concur in the judgment but not with the majority’s reasoning.
A.
The facts are not as complex as the majority opinion suggests. Defendants provided financing and packing services to plaintiffs for their citrus ranches. As security for their indebtedness, plaintiffs gave defendants deeds of trusts on their ranches. The deeds of trusts included assignments of rents and profits and provided for the appointment of a receiver in the event of default. In December 2001, plaintiffs defaulted. Defendants initiated foreclosure proceedings and obtained the appointment of a receiver, and the receiver thereafter collected the proceeds generated by the ranches. In December 2002, the ranches were sold to the defendants for credit bids, after which the proceeds held by the receiver were turned over to defendants. Plaintiffs’ position is that, by reason of Civil Code section 2938 and the terms of the deeds of trust, the cure prices listed in the notices of sale should have been reduced by the amounts collected by the receiver. Plaintiffs are wrong.
All section references are to the Civil Code.
B.
Upon plaintiffs’ defaults, defendants had a choice of four methods for enforcing the assignments. They could (and did) obtain the appointment of a receiver (§ 2938, subd. (c)(1)); they could have (but did not) take possession of the rents, issues, and profits (§ 2938, subd. (c)(2)); and they could have (but did not) deliver written demands to plaintiffs as provided in subdivisions (c)(3) and (d) or, alternatively, in subdivision (c)(4) of section 2938. (See Greenwald & Asimow, Cal. Practice Guide: Real Property Transactions (The Rutter Group 2006) ¶ 6:433.2, p. 6-82.1.)
Assuming the lenders would have had a duty to reduce the cure prices by the amount of the proceeds they themselves actually possessed had they proceeded under subdivision (c)(1) of section 2938, the lenders’ decision to enforce the assignment of rents provisions through the appointment of a receiver meant two things -- the lenders did not have possession (actual or otherwise) of the money collected by the receiver, and the receiver was obligated to hold the money until after the foreclosure sale was completed (Miller v. Fidelity & Deposit Co. (1935) 3 Cal.App.2d 580).
For this reason, I agree that the judgment should be affirmed.
VOGEL, J.
“(b) An assignment of an interest in leases, rents, issues, or profits of real property may be recorded in the records of the county recorder in which the underlying real property is located . . . . [T]he interest granted by the assignment shall be deemed fully perfected as of the time of recordation . . . .
“(c) Upon default of the assignor under the obligation secured by the assignment of leases, rents, issues, and profits, the assignee shall be entitled to enforce the assignment in accordance with this section. On and after the date the assignee takes one or more of the enforcement steps described in this subdivision, the assignee shall be entitled to collect and receive all rents, issues, and profits that have accrued but remain unpaid and uncollected by the assignor or its agent or for the assignor’s benefit on that date, and all rents, issues, and profits that accrue on or after the date. The assignment shall be enforced by one or more of the following: [¶] (1) The appointment of a receiver. [¶] (2) Obtaining possession of the rents, issues, or profits. [¶] . . . [¶]
“Moneys received by the assignee pursuant to this subdivision . . . shall be applied by the assignee to the debt or otherwise in accordance with the assignment . . . provided, however, that neither the application nor the failure to so apply the rents, issues, or profits shall result in a loss of any lien or security interest which the assignee may have in the underlying real property or any other collateral . . . .”