Opinion
Rehearing Denied Sept. 6, 1962. See 24 Cal.Rptr. 801.
Hearing Granted Oct. 2, 1962.
Opinion vacated 27 Cal.Rptr. 873, 378 P.2d 97.
Ernest M. Silver, Los Angeles, Louis C. Hoyt, Beverly Hills, for appellant.
Brown & Altshuler, Beverly Hills, for respondent.
ASHBURN, Justice.
Appeal from a judgment which, for want of a better term, may be called a deficiency judgment.
Plaintiff Roseleaf Corporation was the owner of the Barker Hotel in Los Angeles, together with its furniture and furnishings and a liquor license for conduct of a bar therein. On or about August 30, 1955, it made a deal with the Chierighino family (consisting of Willy F. Chierighino, his brother Faustus and his parents Conrad and Antoinette), by which plaintiff was to trade the hotel, its furnishings and liquor license for certain properties owned by the Chierighinos. The original deal was that plaintiff was to reciver $25,000 in cash (to be raised through sale of some of the trust deeds hereinafter mentioned); also, (a) a note and purchase money first trust deed on the hotel in the sum of $110,000 and a chattel mortgage for the same amount upon the personal property other than the liquor license, which could not be pleaded as security (Bus. & Prof.Code § 24076); (b) converyances to plaintiff of certain real properties in Reverside, California, and Reno, Nevada; (c) assignment to plaintiff, with recourse, of seven specified second deeds of trust owned by the Chierighinos. Included in this group was a note made by Willy F. Chierighino for $4,400, secured by a second deed of trust on certain East 90th Street property which was owned by him; also a note made by Faustus Chierighino for $4,500, secured by second deed of trust on Elm Street property which he owned; (d) note for $24,500 in favor of plaintiff made by Conrad and Antoinette Chierighino and secured by first deed of trust upon Graham Avenue property owned by them; (e) note for $10,000 made by Conrad and The deal was evidenced by secrow instructions of August 30, 1955, which were amended on November 8, 1955; thereby items (c), (d) and (e), supra, were eliminated and in lieu thereof it was provided that each of the Chierighino properties should be conveyed to plaintiff, reconveyed by it to Willy Chierighino, who should execute in favor of plaintiff first and second trust deeds on the Graham Avenue property securing notes signed by him for $24,500 and $10,000, respectively; also a second trust deed on the East 90th Street property securing a note for $5,280 signed by Willy and a second trust deed on the Elm Street property securing a note for $4,500 signed by him. The escrow was closed upon this basis.
The first deed of trust upon the East 90th Street parcel became the property of one Estella King who foreclosed by public sale after default on or about August 21, 1956; Florence E. Alcott, as owner of the first trust deed upon the Elm Street property, foreclosed by a public sale on or about September 19, 1956; Abner Podrat, who had acquired the first trust deed on the Graham Avenue property, foreclosed by public sale on or about July 22, 1956. The second trust deeds were not protected at the sales and were rendered valueless thereby.
On July 11, 1957, plaintiff brought an action against the Chierighinos to recover the full amount of principal and interest upon each of the three second trust deed notes just mentioned, together with attorney's fees. The case was tried upon the first three counts of the fourth amended complaint, those having to do with the three notes, to the exclusion of all other counts. Summary judgments had been previously entered in favor of all defendants other than Willy Chierighino. Plaintiff recovered judgment upon these three notes against him in the total sum of $26,937.19 and Willy took the appeal therefrom which is now before us.
The right to sue upon a second mortgage or trust deed note after foreclosure and sale of a prior similar lien and (subject to the deficiency judgment statutes) to recover the full amount of the mortgage or trust deed note thus rendered valueless is well established. Brown v. Jensen, 41 Cal.2d 193, 259 P.2d 425, was an action to recover upon a second trust deed note after foreclosure of a first trust deed note resulting in the second beoming worthless; both trust deeds and their notes were purchase money obligations. Action was brought to recover upon the note secured by the second trust deed. The question of plaintiff's right to recover turned primarily upon whether recovery by the plaintiff would be a deficiency judgment within the terms of § 580b, Code of Civil Procedure (quoted in footnote 2, infra). The court said, at page 195, 259 P.2d at page 426, speaking of § 726, Code of Civil Procedure: 'It has been held under that section that where the security has been exhausted or rendered valueless through no fault of the mortgagee, or beneficiary under a trust deed, an action may be brought on the debt on the theory that the limitation to the single action of foreclosure refers to the time the action is brought rather than when the trust deed was made, and that if the security is lost or has become valueless at the time the action is commenced, the debt is no longer secured. [Citations.] That rule has been applied in favor of a second mortgagee, the security being considered lost or valueless as to him, where a first mortgagee forecloses his mortgage and the property is sold for no more than the senior debt and a deed has been given.' At page 197, at page 426 of 259 P.2d: 'Next comes section 580b, supra, here involved, which deals with a special type of security transaction, a trust deed, given to secure to the vendor of property the purchase price agreed to Sections 580a, 580b, and 580d, Code of Civil Procedure, have narrowed the field for deficiency judgments to such an extent that it is now an exceptional instance in which one may be recovered.
Section 580a, enacted in 1933, limits the permissible deficiency judgment to the difference between the amount of the obligation and the fair market value of the property sold; this was an adoption of the same rule which was incorporated in § 726, Code of Civil Procedure, by a 1933 amendment. Section 580b (enacted in 1933 and amended in 1935 and 1949) precludes and deficiency judgment upon a deed of trust or mortgage 'given to secure payment of the balance of the purchase price of real property' and, where both a chattel mortgage and a deed of trust or a mortgage have been given to secure payment 'of the balance of the combined purchase price of both real and personal property' likewise forbids a deficiency judgment.
Code Civ.Proc., § 580a: '* * * The court may render judgment for not more than the amount by which the entire amount of the indebtedness due at the time of sale exceeded the fair market value of the real property or interest therein sold at the time of sale with interest, thereon from the date of the sale; provided, however, that in no event shall the amount of said judgment, exclusive of interest after the date of the sale, exceed the difference between the amount for which the property was sold and the entire amount of the indebtedness secured by said deed of trust or mortgage. * * *'
Code Civ.Proc., § 580b: 'No deficiency judgment shall lie in any event after any sale of real property for failure of the purchaser to complete his contract of sale, or under a deed of trust, or mortgage, given to secure payment of the balance of the purchase price of real property.
But § 580d (enacted as § 580c in 1939 and converted into 580d in the same language in 1940) extends beyond purchase money mortgages or trust deeds and provides: '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 such a mortgage or deed of trust. The provisions of this section shall not apply to any deed of trust, mortgage or other lien given to secure the payment of bonds or other evidence of indebtedness authorized or permitted to be issued by the Commissioner of Corporations, or which is made by a public utility subject to the provisions of the Public Utilities Act.'
All its requirements are present at bar. We have here there first trust deed notes made after the date of the act, eact secured by a deed of trust the lien of which is attached to real property, and that realty has been sold by the note holder under a power of sale contained in the specific instrument. Brown v. Jensen, supra, 41 Cal.2d 193, at page 196, 259 P.2d 425, at page 426, says concerning §§ 580a and 580d: 'These provisions indicate a considered course on the part of the Legislature to limit strictly the right to recover deficiency judgments, that is, to recover on the debt more than the value of the secuitry. Next comes section 580b, supra, here involved, which deals with a special type of security transaction, a trust deed, given to secure to the vendor of property the purchase price agreed to be paid by the vendee. * * * Section 580d covers precisely that situation in all trust deeds, whether purchase money or otherwise.' (Emphasis added; except the word 'all' which is italicized by the court.)
Freedland v. Greco, 45 Cal.2d 462, ast 465, 289 P.2d 463, at 464 referring to § 580d: 'If, in the instant case, there had been only one note, secured by a chattel mortgage as well as a trust deed, which represented the debt of defendant to plaintiffs, it is clear that plaintiffs would not entitled to a deficiency judgment under the plain wording of section 580d, supra. It would be a note 'secured by a deed of trust upon real property' upon which there could not be a judgment for 'any' deficiency.' (Emphasis added.)
Freedland v. Greco, though proceeding upon a different factual basis, is interesting in its application to this case. In that instance the plaintiff had sold a liquor business including stock in trade, equipment and a lease. It is to be noted parenthetically that the sale included only personal property (see, 30 Cal.Jur.2d § 5, p. 130, re leaseholds). The purchaser gave two $7,000 notes, one secured by a chattel mortgage on the equipment and the other secured by a trust deed on real property owned by him. The property was sold under that trust deed and the proceeds credited upon the note, leaving a substantial unpaid balance. An action was brought to foreclose the chattel mortgage and recover any deficiency judgment left after sale under that mortgage; it was not an action to recover the deficiency resulting from a trust deed foreclosure sale. When the action came before the Supreme Court it called attention, at page 465 of 45 Cal.2d at page 464, of 289 P.2d to the fact that: 'It was stipulated that the 'chattel mortgage represented the balance of the purchase price of the personal property sold to the defendant, but that the trust deed did not stand in that category, but merely constituted additional security for the debt.'' Defendant relied upon § 580d to defeat the claim for a deficiency; he did not question that both the real and personal property security might be exhausted and the chattel mortgage foreclosed. Moreover, there was no contention 'that either the mortgage or trust deed was a purchase money security and thus controlled by section 580b of the Code of Civil Procedure,' said the court at page 465, at page 464 of 289 P.2d. Referring to § 580d the court used the language first above quoted and continued, on page 466, on page 465 of 289 P.2d as follows: 'There is no limitation in that section that a note must be secured solely by a trust deed. Thus, if the note is secured by a trust deed on real property the section applies even though it may also be secured by other security. Also, in accordance with the section the real property given as security for the note has been sold under the power of sale contained in the deed of trust. It has been held in such a situation (one note secured by both trust deed and other security) that after a sale under the power of sale in the trust deed, the creditor may exhaust the additional security and need not follow the procedure following a sale under a trust deed prescribed by section 580a of the Code of Civil Procedure * * *. The Hatch and Mortgage Guarantee cases, however, in arriving at that conclusion stress, and are based on, the proposition that the pursuit of additional security is not deficiency judgment, the implication being that if it were the creditor could not prevail. We take it, It is to be noted that the case was not a law action to recover the deficiency left after sale under the real estate trust deed, but was an action to foreclose a chattel mortgage upon personalty, which is not within the terms of § 580d. The trial judge and the district court of appeal held (Freedland v. Greco, Cal.App., 281 P.2d 633) that the chattel mortgage could be foreclosed and a deficiency judgment entered if the sale did not cover the debt. After reviewing Mortgage Guarantee Co. v. Sampsell, 51 Cal.App.2d 180, 124 P.2d 353; Hatch v. Security-First National Bank, 19 Cal.2d 254, 120 P.2d 869; and Brown v. Jensen, supra, 41 Cal.2d 193, 259 P.2d 425 (the same cases mentioned in the Supreme Court decision), the district court of appeal said, 281 P.2d at page 639: 'The effect of the decisions other than Brown v. Jensen seems to be that the deficiency provisions of the code are directed to a shortage upon the note secured by the particular trust deed or mortgage and they do not affect the enforcement of any additional security for the same debt or recovery of the unpaid balance." At page 640 of 281 P.2d: "The essence of the matter at bar is a single obligation represented by two notes, one secured by a purchase money chattel mortgage and the other by additional security in the form of a trust deed. The trust deed has been exhausted and its proceeds applied to the debt. Plaintiff now seeks foreclosure of the chattel mortgage and if necessary a deficiency judgment upon the note secured thereby. The Court concludes that the plaintiff is entitled to this, that the exact language as well as the purpose and spirit of Section 580d support the conclusion." The Supreme Court, because of the "considered course on the part of the Legislature to limit strictly the right to recover deficiency judgments, that is, to recover on the debt more than the value of the security" (45 Cal.2d p. 467, 289 P.2d p. 465), and '[t]aking into consideration the policies and purposes of the act' (p. 467, 289 P.2d p. 466), applied § 580d to a case which did not square with the specifications of the statute and thereby accomplished what it deemed to be substantial justice in the premises.
Respondent now argues that '[a]n examination of Section 580(d) clearly reveals that the statute was intended to apply only to the situation where the property in question was sold under the power of sale provided for in the very deed of trust which secured the note which a deficiency is being sought' and '[w]hen referring to 'such deed of trust', the statute clearly refers to the particular deed of trust being foreclosed. To read into the statute a prohibition that any power of sale exercised by the holder of a senior encumbrancer precludes the owner of the junior encumbrancer from bringing an action on his note when his note is not a purchase money note, distorts entirely the express language of the statute.' This is the same thought which was expressed by the district court of appeal in Freedland v. Greco, supra, 281 P.2d 633, at 639: "While Section 580d says that there shall be no deficiency judgment 'upon a note secured by a deed of trust or mortgage upon real property * * * in any case in which the real property has been sold by the mortgagee or trustee under power of sale contained in such a mortgage or deed of trust.' By its language and its apparent intent, Section 580d points to a deficiency upon the single note secured by the real estate trust deed or mortgage. (Emphasis added.)" But this view was rejected by the Supreme Court.
The case before us falls squarely within the terms of § 580d with respect to each of the notes and trust deeds involved in the action, and it appears that the awarding of a deficiency judgment was erroneous.
The question canvassed at the trial, whether these are purchase money trust deeds, is wholly immaterial. The attempt in the fourth amended complaint to make it so does not change the situation. As a matter of law it does not matter whether they are or are not purchase money obligations. Respondent lays much emphasis upon the finding that '[t]his procedure for conveyance to plaintiff and reconveyance by plaintiff to defendant Willy F. Chierighino was requested by defendant Willy F. Chierighino as a tax accommodation to defendants and was not intended by the parties as a bona fide sale and purchase of said property.' This finding bears only on the question of whether the three trust deeds were purchase money obligations. The court did not purport to hold that the notes or the trust deeds are invalid, and there was no such claim made. Plaintiff stands upon the three notes as the bases of its suit and thereby concedes their validity. It cannot accept the benefit of the bargain and shrug off its burden. If the notes are good, so are the simultaneously executed trust deeds. Whether they were part of bona fide sales of the respective parcels is not determinative. If perchance the conveyances and reconveyances were to be disregarded, these trust deeds would merely be substitutes for the original ones that were to be transferred to plaintiff and they clearly would be purchase money obligations governed by § 580b, which would allow no deficiency judgment.
Pertinent here is the following quotation from our opinion in American Automobile Ins. Co. v. Seaboard Surety Co., 155 Cal.App.2d 192, 200, 318 P.2d 84, 89: 'If it be said that the views herein expressed depart from the theory upon which the case was tried the answer is that the rule confining the parties upon appeal to the theory pursued below does not apply to a question which is one of law only (Panopulos v. Maderis, 47 Cal.2d 337, 341, 303 P.2d 738), and that an appellate court is never bound by concessions of counsel as to the applicable law (Desny v. Wilder, 46 Cal.2d 715, 729, 299 P.2d 257) or by the interpretation of documents made by the trial court upon the basis of the terms of the written instrument without the aid of other evidence (In re Estate of Platt, 21 Cal.2d 343, 352, 131 P.2d 825; Continental Cas. Co. v. Phoenix Constr. Co., supra, 46 Cal.2d 423, 429-430, 296 P.2d 801, [57 A.L.R.2d 914]).' Commeford v. Baker, 127 Cal.App.2d 111, 116, 273 P.2d 321, 324: 'The courts render judgment on the basis of the law as applied to the established facts, and if these warrant a judgment for the [defendant], relief may not justly be denied for the sole reason that the case was made under an erroneous theory.'
The judgment is reversed with instructions to the lower court to enter judgment in favor of defendant Willy F. Chierighino.
FOX, P.J., and HERNDON, J., concur.
'Where both a chattel mortgage and a deed of trust or mortgage have been given to secure payment of the balance of the combined purchase price of both real and personal property, no deficiency judgment shall lie at any time under any one thereof.'