Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a Judgment of the Superior Court of Los Angeles County. Super. Ct. No. YC045610, Bob T. Hight, Judge.
Gregory Grantham for Appellants Bohumir Marik and Anna Slintak.
Brewer & Brewer and Templeton Briggs for Respondent Buckeye Retirement Co., L.L.C., Ltd.
ZELON, J.
Bohumir Marik and Anna Slintak appeal judgment on their cross-complaint to enjoin Buckeye Retirement Co. LLC, Ltd.’s non-judicial foreclosure sale of Marik’s property located in Redondo Beach. The trial court ruled that the trust deed was a valid encumbrance and that Union Bank v. Gradsky (1968) 265 Cal.App.2d 40 (Gradsky) did not apply to bar the foreclosure because the trust deed was additional security, rather than a guaranty. On appeal, Marik argues that (1) the trust deed constituted a guaranty and was therefore not subject to foreclosure under Gradsky; (2) the indebtedness was paid in full by a prior foreclosure on another property; and (3) the trust deed was invalid because there was no meeting of the minds concerning the amount of the loan the trust deed secured. We affirm.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Some of the facts in this section are taken from our opinion in the prior appeal of this matter which reversed summary judgment in favor of Marik. (Slintak v. Buckeye Retirement Co., L.L.C., Ltd. v. Juniper Park Villa LP (2006) 139 Cal.App.4th 575.) (Marik I.)
1. The Partnership and the October 23, 1989 Loan Documents.
In October 1989, Kenneth Chen, Marik and others entered into a partnership for the purpose of developing residential real estate in Fontana, California by building 19 single-family homes. The partnership, known as Juniper Park Villas, was formed between Charles Tsang, general partner, Kenneth Chen, Marik, and two other individuals and entities. Chen anticipated that they would need $1.5 million financing to complete the project, although ultimately Metro North State Bank (MNSB), the bank providing the financing, was unwilling to lend more than $850,000.
To secure its loan, MNSB obtained from Juniper Park Villas a deed of trust dated October 23, 1989 on the Fontana property (Fontana Trust Deed) to secure the sum of $850,000. The partnership executed a loan agreement (Loan Agreement) and a promissory note (Juniper Note) in the amount of $850,000.
The Loan Agreement, which referenced the $850,000 Juniper Note, also recited that “Indebtedness shall mean and include any and all (i) indebtedness, obligations and liabilities of Borrower to Bank now in existence and which may be incurred or purportedly incurred hereafter under or pursuant to the terms of this Agreement, including such amounts as may be evidenced by the Note and all lawful interest and other charges. . . .”
As additional collateral for the Juniper Note, MNSB requested and obtained a trust deed on property that a partnership known as Redondo Blacksmith, Inc. (RBI) owned at 350 North Pacific Coast Highway in Redondo Beach, California (Redondo Beach Trust Deed). Marik was the sole partner of RBI, and signed the trust deed on its behalf setting forth a loan amount of $1.5 million. An RBI corporate resolution dated October 6, 1989 authorized $400,000 of indebtedness. The Loan Agreement states that the Juniper Note is secured by both the Fontana property and the Redondo Beach property.
2. The 1992 Foreclosure of the Fontana Trust Deed.
On May 15, 1992, MNSB recorded a Notice of Default and Election to Sell on the Fontana property under the Fontana Trust Deed, stating that the amount due on the $850,000 Juniper Note was $790,184.15. MNSB assigned the Juniper Note to MNSB Properties, Inc. (MNSB Properties), a wholly-owned subsidiary of MNSB, and on October 22, 1992, MNSB Properties submitted a credit bid at MNSB Properties’ trustee’s sale. Although the amount due on the Juniper Note was in excess of $790,000, the Trustee’s Deed from the sale states that MNSB Properties acquired title to the Fontana property for $250,000 and that $250,000 was the amount of the unpaid debt.
The original October 25, 1990 due date of the Juniper Note was extended three times. On October 28, 1992, after the foreclosure of the Fontana Trust Deed, MSNB recorded a Notice of Default on the Redondo property under the Redondo Beach Trust Deed. For reasons set forth in Marik I, this trustee’s sale never took place.
3. Buckeye Acquires the Juniper Note and the Redondo Beach Trust Deed and Commences Foreclosure; Marik Cross-Complains to Enjoin Foreclosure.
Pursuant to a series of transactions, in 2001, Buckeye acquired the Juniper Note and Redondo Beach Trust Deed.
Those transactions are set forth in detail in Marik I.
On January 14, 2003, Buckeye commenced this action for judicial foreclosure and breach of contract. On April 30, 2003, Slintak and Marik filed their cross-complaint; the operative first amended cross complaint asserted claims for declaratory relief, injunctive relief, and cancellation of the Redondo Beach Trust deed. On October 2, 2003, after defendants demurred to the complaint and two amended complaints, Buckeye dismissed the Second Amended Complaint without prejudice. The cross-complaint remained pending.
On October 10, 2003, Buckeye recorded a notice of default and election to sell under the Redondo Beach Trust Deed. The notice of default stated the amount due under the Juniper Note was $1,311,267.58, consisting of a principal balance of $520,185.14, plus interest from October 1, 1992 and other charges.
On February 27, 2004, the trial court issued a preliminary injunction enjoining Buckeye’s trustee’s sale, and on November 18, 2004, granted Marik’s summary judgment motion on the cross-complaint, finding the power of sale in the Redondo Beach Trust deed had expired under the Marketable Record Title Act, Civil Code section 882.020. On May 16, 2006, in Marik I, we reversed summary judgment.
4. The 2007 Trial on Marik’s Cross-Complaint After Remand.
On June 5, 2007, a bench trial on Marik’s cross-complaint commenced. The principal issues at trial were whether the Redondo Beach Trust Deed was valid because there were discrepancies in the loan documents (the Juniper Note and other loan documents were in the amount of $850,000, while the Redondo Beach Trust Deed was in the amount of $1.5 million), and whether the loan documents’ execution was procured by fraud. Marik also contended that the 1992 foreclosure on the Fontana Trust Deed exonerated his obligations under the Redondo Beach Trust Deed, and the three extensions of the Note released his obligations pursuant to Civil Code section 2819.
Marik and Chen were the only witnesses to testify.
Marik testified that RBI operated a furniture business selling wrought-iron furniture. In 1981, he became a real estate agent, and met Chen, who was very active in the real estate business. The two men began to put together development deals together. At times, Marik would find properties for Chen, and his compensation variously consisted of a commission or an interest in the project.
Marik disputed that he signed the Juniper Park Villas partnership agreement or the Redondo Beach Trust Deed; he claimed he did not know he was a partner. He also claimed he never saw the Loan Agreement or the Juniper Note, and that only a notary public was present at the document signing. He believed the encumbrance on the Redondo Beach property was only $100,000 because that was the remaining equity in the property. Marik relied on an unsigned copy of the Redondo Beach Trust Deed that stated the amount secured was $100,000. Furthermore, Marik believed the Redondo Beach Trust Deed would not be recorded, but would only be shown to MNSB to establish that Chen could provide additional security if needed.
Marik claimed he learned of the $1.5 million encumbrance when he tried to borrow against the property for earthquake improvements. Marik also denied knowing about the three extensions to the Juniper Note, and claimed to know nothing about the foreclosure on the Fontana Trust Deed.
Kenneth Chen testified that in 1989 he formed Juniper Park Villas with Charles Tsang, who was the general partner. Chen and Marik were limited partners. MNSB wanted additional collateral for the loan, and Chen agreed to give Marik 20 percent partnership interest in exchange for his collateral. The partnership ultimately borrowed $850,000 because MNSB was unwilling to lend it the full $1.5 million.
Chen testified he gave Marik a copy of the Juniper Park Villas partnership agreement prior to the Note and Trust Deed signing on October 23, 1989, and that Marik read and signed the Redondo Beach Trust Deed and related loan documents at a meeting with the other partners. Chen denied substituting any pages of the documents, and testified the Bank’s attorney gave the documents to Marik in front of a notary public. Chen explained that there was more than one copy of the Redondo Beach Trust Deed and the Juniper Note not only because the bank made some mistakes and had to change the documents, but because Marik changed his mind about how much money he was going to put in. The attorney for MNSB took the documents after the signing and recorded them.
Marik argued that there was no enforceable contract because the parties did not agree on the loan amount secured by the Redondo Beach Deed of Trust. Although the Redondo Beach Trust Deed referred to a $1.5 million note, there was no note for $1.5 million; furthermore, RBI was not a party to the Loan Agreement. Further, Marik argued that the 1992 foreclosure on the Fontana Trust Deed exonerated by operation of law the obligation of the Redondo Beach Trust Deed under Union Bank v. Gradsky, reasoning that the Redondo Beach Trust Deed was a guaranty, and Gradsky held a lender cannot seek to collect a deficiency against a surety after a non-judicial foreclosure sale.
Buckeye argued the foreclosure was not barred by Gradsky because the Redondo Beach Trust deed was not a guaranty, but additional security for the same debt and therefore successive foreclosure actions to collect on additional security were permissible. Further, the loan documents defined “indebtedness” broadly, the Juniper Note was only part of the indebtedness as defined in the Loan Agreement, and the Loan Agreement controlled.
The trial court found Chen’s testimony to be more credible, and entered judgment for Buckeye. The court issued a Statement of Decision in which it found that: (1) The prior non-judicial foreclosure on the Fontana Trust Deed did not exonerate Marik’s obligations under Gradsky because there was no separate guaranty; (2) the Redondo Beach Trust Deed provided for the initial borrowing as well as additional borrowing; (3) the disparity in dollar amounts between the Redondo Beach Trust Deed and the Juniper Note did not render the Trust Deed unenforceable because “indebtedness” was defined with reference to the Loan Agreement, which set forth a loan amount of $850,000.
DISCUSSION
I. GRADSKY DOES NOT PROHIBIT THE NON-JUDICIAL FORECLOSURE OF ADDITIONAL SECURITY.
Marik argues that the Redondo Beach Trust Deed was a guaranty, and that under Gradsky, Buckeye was estopped from non-judicially foreclosing on the Redondo Beach property because its predecessor had previously foreclosed on the Fontana property in a non-judicial proceeding. We conclude that Marik’s attempts to classify the Redondo Beach Trust Deed as a guaranty in order to enjoy the protections of Gradsky fail. Gradsky, which held that a creditor cannot recover the unpaid balance on a note (deficiency) from a guarantor following the creditor’s non-judicial foreclosure sale of the security, does not apply here because Marik is not a guarantor, and therefore the successive trustee’s sales here do not constitute an attempt to collect a deficiency.
A. Rules Regarding Deficiency Judgments.
A deficiency judgment is a personal judgment against a debtor for the difference between the fair market value of the property held as security and the outstanding indebtedness, plus interest and costs of sale. (Code Civ. Proc., § 726, subd. (b); Hatch v. Security First National Bank (1942) 19 Cal.2d 254, 261.) Under section 580d, a creditor is precluded from obtaining a deficiency judgment after a non-judicial foreclosure. However, although section 580d prohibits a deficiency judgment after a nonjudicial foreclosure sale, it does not prohibit a creditor who holds multiple security for a single debt from holding a second, separate foreclosure sale on a security omitted from the first sale. The section bars only a deficiency judgment following a trustee sale; the sale of additional security is not considered the equivalent of a deficiency judgment. (Western Security Bank v. Superior Court (1997) 15 Cal.4th 232, 252 [a creditor that calls on additional security does not violate the prohibition against deficiency judgments]; Freedland v. Greco (1955) 45 Cal.2d 462, 466.)
Code of Civil Procedure section 580d provides in relevant part that “No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property . . . hereafter executed in any case in which the real property . . . has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.”
B. Rules Regarding Guarantors.
“The suretyship relation . . . arises where two persons are under obligation to the same obligee, who is entitled to but one performance, as between the two who are bound, and one of them should ultimately bear the burden of the obligation. The obligor ultimately responsible for the debt is the principal and the other is the surety.” (Everts v. Matteson (1942) 21 Cal.2d 437, 447.) Civil Code section 2787 defines both a guarantor and a surety as “one who promises to answer for the debt, default or miscarriage of another or who hypothecates property as security therefor.” A suretyship may result from different types of promises: “A surety . . . is one who promises to answer for the debt, default, or miscarriage of another, or hypothecates property as security therefor.” (Civ. Code, § 2787.) Those promises may be made in an express agreement or may be implied by law. (Braun v. Crew (1920) 183 Cal. 728, 731.)
A guarantor may provide security to the creditor by executing a deed of trust on the guarantor’s property. (Security Pacific National Bank v. Wozab (1990) 51 Cal.3d 991, 996, fn.1 [guarantor’s deed of trust secured guaranty]; Union Bank v. Anderson (1991) 232 Cal.App.3d 941, 944-945 [guarantor guaranteed principal’s note and also executed deeds of trust securing same note].). A guarantor who is forced to satisfy the beneficiary’s claim has reimbursement and subrogation rights against both the trustor and the security, but those rights are also subject to the antideficiency rules.
In Gradsky, the court held that a creditor cannot recover the unpaid balance on a note from a guarantor following the creditor’s non-judicial foreclosure sale of the security. (Gradsky, supra, 265 Cal.App.2d at p. 41.) In reaching this result, Gradsky found that principles of estoppel, rather than the provisions of Code of Civil Procedure section 580d, prohibited such a deficiency action. Gradsky reasoned that the creditor could not recover from the guarantor after it had elected its remedy of non-judicial foreclosure because such election destroyed the guarantor’s subrogation rights. (Ibid.)
Here, the Redondo Beach Trust Deed is not a guaranty. Aside from the fact that RBI is ostensibly a third-party to the loan transaction, nothing else in the record supports the finding that RBI was acting as a guarantor in providing the Redondo Beach Trust Deed. The Loan Agreement makes no mention of RBI as a guarantor, while it explicitly refers to a guaranty given by Tsang. On the contrary, the substance of the transaction indicates that it was that of a limited partner (Marik) making a contribution to the partnership in the form of property (a security interest) for which Marik received an enhanced partnership share (20 percent).
Pursuant to Corporations Code section 15611, subdivision (g), Revised Limited Partnership Act (RLPA), applicable to the Juniper Park Villa because it was formed in 1989, a partner’s “contribution” consists of “any money, property or services rendered, or a promissory note or other binding obligation to contribute money or property, or to render services as permitted in this chapter, which a partner contributes to a limited partnership as capital in that partner’s capacity as a partner pursuant to an agreement between the partners, including an agreement as to value.”
At oral argument, appellant cited two cases in support of his argument that Marik’s trust deed constituted a guaranty. Those cases are distinguishable.
Because the Redondo Beach Trust Deed did not constitute a guaranty, the protections of Gradsky do not apply to the transaction. Instead, the Redondo Beach Trust Deed was additional security for the Juniper Note, and therefore Buckeye can conduct successive non-judicial foreclosure sales of the security interests in order to satisfy the obligations under the Juniper Note.
II. THE TRIAL COURT’S INTERPRETATION OF THE LOAN DOCUMENTS IS SUPPORTED BY SUBSTANTIAL EVIDENCE.
Marik contends that the trial court erred in concluding that the definition of “indebtedness” in the Redondo Beach Trust Deed included any amount of loan or loans agreed upon by Juniper Park Villas and MNSB based on the definition of “indebtedness” in the Loan Agreement. He contends “indebtedness” only refers to obligations of the trustor (Juniper Park Villas) and does not include RBI. We disagree.
The fundamental rule of contract interpretation is to give effect to the mutual intention of the parties. Such intent is to be inferred, if possible from the written provisions of the contract; and the language of the contract should be interpreted in a manner to make it lawful, operative, definite, reasonable, and capable of being enforced, if it can be done without violating the parties’ intent. (Civ. Code, § 1643; ASP Properties Group v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1269.) Further, Civil Code section 1642 provides: “[s]everal contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together.” (See also Freedland v. Greco, supra, 45 Cal.2d at p. 462.)
We generally apply a de novo standard of review to the interpretation of contracts, which is in the first instance a judicial function. However, where a contract is ambiguous, extrinsic evidence may be considered to ascertain a meaning to which the contract’s language is reasonably susceptible. (ASP Properties Group v. Fard, Inc., supra, 133 Cal.App.4th at p. 1266.) A contract is ambiguous if it is susceptible of more than one interpretation (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18), and the question of ambiguity is a question of law. (Bay Cities Paving & Grading, Inc. v. Lawyers’ Mutual Ins. Co. (1993) 5 Cal.4th 854, 867.) Thus, the trial court engages in a two-step process; if the trial court determines a contract is ambiguous, a party may introduce extrinsic evidence to aid the interpretation of the contract. (Pacific Gas & Electric Co. v. Zuckerman (1987) 189 Cal.App.3d 1113, 1140-1141.) Therefore, where the interpretation of a contract turns on the credibility of conflicting extrinsic evidence, it is for the trier of fact to determine the meaning of language in the contract. (Morey v. Vannucci (1998) 64 Cal.App.4th 904, 912-913.) Where the interpretation of the contract depends upon credibility, we must accept any reasonable interpretation of the contract adopted by the trial court. (ASP Properties Group v. Fard, Inc., supra, 133 Cal.App.4th at p. 1267.)
Here, the court referred to the loan documents as a group because they pertained to the same transaction. In order to resolve the ambiguity concerning the amount of the obligation, and hence the amount the Redondo Beach Trust Deed secured, the court evaluated the parties’ testimony concerning their understanding of the loan documents’ terms. The court was within its powers as factfinder to credit Chen’s testimony to conclude that the parties intended the documents to reflect the ultimate $850,000 loan, rather than the originally contemplated $1.5 million, and that the figure in the Redondo Beach Trust Deed was intended to be $850,000.
Further, although, as Marik argues, the “indebtedness” referenced in the loan documents is that between MNSB (beneficiary) and Juniper Park Villas, rather than RBI, this fact does not mean that the trial erred in concluding the Redondo Beach Trust Deed secured an $850,000 loan. Chen’s testimony established a set of agreements pursuant to which the partnership borrowed $850,000 and Marik gave additional security for the loan with a trust deed on the Redondo Beach property.
III. MARIK CANNOT RAISE THE ISSUE OF WHETHER THE RECITALS IN THE TRUSTEE’S DEED FROM THE FONTANA SALE CONCLUSIVELY ESTABLISH THE NOTE WAS “PAID IN FULL.”
Marik argues that the Trustee’s Deed from the Fontana property recites that the amount of the unpaid debt was $250,000, the amount paid for the property by the grantee was $250,000, and such recitals are conclusive and establish the Juniper Note was extinguished. Buckeye contends that Marik has never asserted this defense below and is estopped from doing so now, and in any event, the amount stated in the trustee’s deed was a clerical error, as established by the notice of default, which sought an indebtedness of in excess of $790,000 and referred to the Juniper Note in the amount of $850,000. We find the issue is not cognizable on appeal because Marik failed to raise it in the trial court.
The Redondo Beach Trust Deed and Fontana Trust Deed contain provisions at paragraph 7.4 relating to foreclosure through the Trust Deed’s power of sale. Subparagraph (a) provides in relevant part that after a trustee’s sale, the “Trustee shall deliver to such purchaser its deed conveying said property so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof.”
In general, issues may not be raised on appeal that were not raised in the trial court. (People ex rel. Department of Transportation v. Superior Court (2003) 105 Cal.App.4th 39, 46.) An exception to this general rule is that a new theory pertaining only to questions of law applied to undisputed facts may be raised for the first time on appeal. In that situation, there is no unfairness to the opposing party, because they are not deprived of an opportunity to litigate facts relevant to the issue. (Yeap v. Leake (1997) 60 Cal.App.4th 591, 599, fn.6.)
Here, however, due to Marik’s failure to raise the issue in the trial court, Buckeye was not given an opportunity to litigate the issue of whether the dollar amount in the trustee’s deed relating to the amount due was binding, or whether it could be set aside on the grounds of mistake. The litigation of this issue would necessarily involve the introduction of extrinsic evidence to establish mistake, and would entail the trial court’s consideration of whether the trustee’s deed could be reformed to reflect the allegedly correct amount due under the Juniper Note. (Shupe v. Nelson (1967) 254 Cal.App.2d 693, 700 [reformation of deed to correct mistake].)
DISPOSITION
The judgment of the superior court is affirmed. Respondent is to recover its costs on appeal.
We concur: WOODS, Acting P. J. JACKSON, J.
In Mead v. Sanwa Bank (1998) 61 Cal.App.4th 561, the owners of a parcel of undeveloped land signed a long-term ground lease with a developer who intended to improve the property with a commercial building. The developer borrowed money from a bank, and to facilitate the development, although they did not sign the promissory note, the owners gave the lending bank a trust deed on the property. After the developer defaulted, the bank sought to foreclose on the trust deed; the owners requested the bank exhaust all remedies against the developer prior to foreclosure. (Id. at pp. 564-565.) The trial court sustained the bank’s demurrer to the owner’s complaint for breach of fiduciary duty and other claims, and the Court of Appeal held the owners had pleaded sufficient facts to show they were sureties, in spite of the recitals of the deed of trust that they were trustors. In contrast here, the facts demonstrate the partnership, of which Marik was a limited partner, signed the note; MNSB looked to Marik’s trust deed as additional security for the loan, not as a guaranty of the principal obligation; and the loan documents expressly provided that it was the general partners who were providing guaranties.
Krueger v. Bank of America (1983) 145 Cal.App.3d 204 involved an attempt to use Gradsky offensively. There, as part of an investment to develop real property, the plaintiffs executed a “General Continuing Guaranty” in which they guaranteed the indebtedness of their corporation to the bank; as security, they pledged stock to secure loans totaling over $2 million. The corporation gave the bank trust deeds on the property, and agreed to give the plaintiffs notice of any sale of the pledged stock prior to sale. (Id. at pp. 207-208.) After the corporation’s financial condition deteriorated, the bank sold the stock without prior notice before it foreclosed on the deeds of trust. (Id. at p. 209.) The Court of Appeal refused to apply Gradsky offensively. (Id. at p. 211.) More importantly, Krueger, unlike our case, involved an express guaranty of personal property which was executed before the deed of trust.