Gonzalez v. Stone

Filed 6/21/07 Gonzalez v. Stone CA2/6

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

Roy L. Stone and Robert Stone appeal following a court trial resulting in a judgment in favor of respondents Urbano and Elisa Gonzalez. The Gonzalezes do not speak or read English. To help their son, Ricardo Gonzalez (Ricardo), purchase a home from the Stones, the Gonzalezes pledged their home as partial security for a loan. Ricardo failed to make timely payments to the Stones, and the Stones initiated nonjudicial foreclosure proceedings. The Gonzalezes lost their home. The trial court awarded damages to the Gonzalezes after concluding that the loan transactions were invalid under Civil Code section 1632.[1] Although section 1632 does not apply to the loan, the judgment is supported by another legal theory. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

In 1979, the Gonzalezes purchased their home at 436 B Street in Fillmore. The Stones built a home at 619 Clay Street in Fillmore and listed it for sale. Ricardo agreed to buy the Clay Street property from the Stones for $222,000. The Stones agreed to finance $162,000 of the sales price. Ricardo did not have money for a down payment. The Gonzalezes agreed to pledge their B Street property so that Ricardo could purchase the Clay Street property. On May 2, 2000, Ricardo and the Gonzalezes signed a note for $222,000, payable to the Stones. The note states: "For value received, Ricardo. . . ("payor/trustor") . . . promise[s] to pay to [the Stones] . . . the principal sum of [$222,000]." The note also states that it is secured by a $162,000 deed of trust on the Clay Street property and a $60,000 deed of trust on the B Street property. The B Street deed of trust states that it is for the purpose of securing a "promissory note. . . in the principal sum of $60,000," and further states that it is "ONE OF TWO DEEDS OF TRUST . . . TO SECURE ONE NOTE IN THE AMOUNT OF $222,000."

After Ricardo defaulted on his loan payments, his Clay Street property sold for $200,200, in a nonjudicial foreclosure proceeding, on February, 4, 2002. On February 21, in a separate nonjudicial foreclosure proceeding, B & B Investments purchased the Gonzalezes' B Street property for $55,645.25. B & B Investments listed the B Street property for sale with realtor Maria Zendejas at $239,900 on April 17, 2002. Zendejas received an offer of $239,900 on "[p]retty much . . . the same day" that she posted a sale sign on the property. It sold for $236,400, in a sale that closed on April 23.

The Gonzalezes filed an action against the Stones and the trustee, seeking damages as a result of the foreclosure of the B Street property, and alleging breach of contract and negligence claims. They alleged that the B Street property sold for an amount that was disproportionately low in relation to its fair market value and cited "procedural errors in the foreclosure proceeding," including the entry of an incorrect amount of debt secured by the B Street property on the notice of default, and an incorrect amount owed on the notice of trustee's sale. Their trial brief also described irregularities, as follows: "[T]he sale was consummated with no notice or improper or insufficient notice" and, "[e]ven if there was notice, it was in English and not Spanish so [the Gonzalezes] would not have been able to understand that they were about to lose their house." The Gonzalezes asserted that such irregularities, coupled with the disproportionately low sales price, "create[d] a sale" for which "[the Stones] must pay [the Gonzalezes] their lost equity and damages." They represented that Urbano Gonzalez would "testify that, had he known of the impending foreclosure, he could have borrowed $60,000 . . . and avoided the loss of his residence."

On the first day of trial, the Gonzalezes dismissed all causes of action against the trustee and proceeded against the Stones. Robert Stone appeared in pro. per., and Roy Stone did not appear for trial. At trial, the court limited testimony to issues surrounding the foreclosures, after expressing its opinion that the Stones' actions had violated the antideficiency laws. When Robert Stone explained that the loan agreement was negotiated entirely in English, and that the Gonzalezes understood their rights, the court said, "The critical issue is whether . . . the creditor [was] entitled, under the law, to foreclose on the 'B' Street property. [] . . . [] [W]hether or not someone who spoke Spanish provided Mr. Gonzalez with information with respect to the subject of possible refinance is essentially irrelevant."

After hearing evidence, the trial court took the case under submission. It subsequently issued a minute order that read: "The Court is persuaded that the transactions that are the subject of this dispute are the type that Civil Code Section 1632 required be reduced to writing in Spanish. No evidence was admitted at trial supporting the proposition that the transactions were reduced to writing in Spanish. Civil Code Section 1632 provides that rescission is the appropriate remedy." The court ordered the parties to submit briefs regarding the proper application of section 1632, subdivision (k).

The trial court issued a statement of decision. It found that the Stones required Ricardo to provide a guarantor for the loan; the Gonzalezes consented to guarantee the loan and pledged their home as security; Ricardo defaulted on the loan; the Stones initiated foreclosure proceedings on the Clay Street and B Street properties; and the Gonzalezes lost their home (the B Street property) to the Stones. The Stones submitted objections to the court's statement of decision and (proposed) findings of fact. The court entered a judgment incorporating its statement of decision, including its findings relating to the Gonzalezes' guarantor status. The court ruled that the loan transactions were invalid under section 1632, because the Stones did not provide the Gonzalezes with loan documents in Spanish. It found that the fair market value of the B Street property was $239,000 and awarded damages of $185,545 to the Gonzalezes, after deducting their "original encumbrances of $53,455."

DISCUSSION

The Stones argue that section 1632 does not apply to the subject loan. We agree. The application of a statute is a question of law. We apply a de novo standard of review to questions of law. (Argaman v. Ratan (1999) 73 Cal.App.4th 1173, 1176.) Section 1632, subdivision (b) provides that "[a]ny person engaged in a trade or business who negotiates primarily in Spanish, . . . orally or in writing, in the course of entering into any of the following, shall deliver to the other party to the contract or agreement and prior to the execution thereof, a translation of the contract or agreement in the language in which the contract or agreement was negotiated, which includes a translation of every term and condition in that contract or agreement: [] . . . [] (2) A loan or extension of credit secured other than by real property, or unsecured, for use primarily for personal, family or household purposes." (Italics added.)

Section 1632 does not apply to the subject loan because it was negotiated entirely in English between the Stones and Ricardo and also because it was secured by real property. (See  1632, subd. (b)(2), (4).) The trial court noted that section 1632 "can apply to transactions secured by real property." While section 1632 does specify certain real property transactions to which it applies, the subject loan was not among the specified transactions (loans negotiated by real estate brokers or commercial lenders).

A trial court's order will not be reversed simply because its comments indicate the decision was based on a misunderstanding or misapplication of the law or unsound legal reasoning, and the ruling will be affirmed if it can be supported by any legal theory. (See Rappleyea v. Campbell (1994) 8 Cal.4th 975, 980-981.) We therefore consider whether any legal theory supports the judgment for the Gonzalezes.

The Gonzalezes argue that California's antideficiency laws support the judgment. The Stones contend that the antideficiency laws do not restrict the ability of a creditor to exhaust multiple items of collateral in a series of nonjudicial foreclosure proceedings. We agree. "[T]he provisions are not implicated when a creditor merely exercises the right to exhaust all of the real property pledged to secure an obligation. Specifically, a creditor may proceed seriatim in foreclosing against multiple items of collateral without commencing a judicial action to determine the fair market value of each item sold, and crediting that amount to the debt, before proceeding with foreclosure sales of any additional collateral." (Dreyfuss v. Union Bank of California (2000) 24 Cal.4th 400, 406.)

The Gonzalezes also argue that the Stones' second foreclosure was improper because it violated the "complete bar against any deficiency judgment when the mortgagee or beneficiary has elected to foreclose by power of sale rather than judicially." (Underscoring omitted.) We reject this argument. The Stones did not seek or obtain any "judgment" after they foreclosed upon the Clay Street property. "'A "deficiency judgment" is a personal judgment against a debtor for a recovery of the secured debt measured by the difference between the debt and the net proceeds received from the foreclosure sale.'" (Dreyfuss v. Union Bank of California, supra,24 Cal.4th at p. 407.) In a related argument, the Gonzalezes assert that "the functional equivalent of a deficiency judgment" should be barred in this case. We must reject that argument because our Supreme Court rejected an equivalent argument in Dreyfuss. (Id. at pp. 410-411.)

Before awarding damages to the Gonzalezes, the trial court found that the Gonzalezes were guarantors. In Union Bank v. Gradsky (1968) 265 Cal.App.2d 40, 46-47, the court recognized that a guarantor has equitable rights vis--vis a creditor who conducts foreclosure proceedings in a manner that destroys the subrogation rights of the guarantor. (See also Com. Code,  3419, subds. (a), (c), (e).) After oral argument, we ordered supplemental briefing on two issues: (1) Were the Gonzalezes' rights of subrogation defeated by the power of sale or the manner in which the Stones or their agents exercised that power? (2) What remedies, if any, are available to the Gonzalezes vis--vis the Stones or the trustor?

In Gradsky, a third-party borrower obtained a construction loan from Union Bank, which was secured by a note and a deed of trust. Gradsky, the contractor, executed a written guaranty of the borrower's obligation. The borrower defaulted. Union Bank pursued a nonjudicial foreclosure against the borrower which yielded less money than her outstanding obligation to the bank. Union Bank sought a deficiency judgment against Gradsky, the guarantor. (Union Bank v. Gradsky, supra, 265 Cal.App.2d at pp. 41-42.) The court held that while Code of Civil Procedure section 580d did not bar the deficiency judgment against Gradsky, the principles of estoppel barred the judgment in favor of the bank because it destroyed Gradsky's subrogation rights against the borrower by selling the borrower's property first. (Id. at pp. 46-48)[2]

The Stones argue that Gradsky does not apply here because the Gonzalezes were "principal obligors," unlike the "true guarantor" in Gradsky. We disagree. The question of a party's status as a principal obligor or a guarantor (or accommodation party) is ordinarily a question of fact. (See Stauffer v. Ti Hang Lung & Co. (1938) 29 Cal.App.2d 121, 122; see also Western H. Lbr. Co. v. Superior F. Mfrs. (1936) 18 Cal.App.2d 287, 289.) The court below found that the Stones required Ricardo to provide a guarantor for the loan and that the Gonzalezes consented to guarantee the loan and pledged their home as security. Those findings are conclusive on appeal if they have substantial support in record. (Stauffer, at p. 122.)

Several factors indicate that the Gonzalezes were guarantors. The opening provisions of the note clearly designate Ricardo as the "payor/trustor." (There is a reference in the note to "[t]he undersigned payors," and the signatures of the Gonzalezes and Ricardo are at the end of the note.) Ricardo received consideration for the noteloan proceeds to finance his purchase of the Clay Street property from the Stones. Ricardo alone took title to that property. The Gonzalezes received no consideration for their guaranty of the note. Substantial evidence supports the trial court's finding that the Gonzalezes were guarantors.

The Stones also claim that even if the Gonzalezes were guarantors, or accommodation parties, they were bound on the note and security instruments to the same extent as their "co-maker" (Ricardo) because they signed the note and security instrument. In making this claim, the Stones rely on Caito v. United California Bank (1978) 20 Cal.3d 694, an inapposite case. Caito argued that he was not a principal obligor on a note payable to Bank of America and secured by a deed of trust in an action against United California Bank (UCB), a "subsequent . . . encumbrancer[]" for value. (Id. at p. 702.) In that context, the court concluded that "UCB [as a subsequent encumbrancer for value] had a right to rely on the record [the written terms of the note and deed of trust]." (Ibid.) In contrast, the Stones were the original lenders, who negotiated and structured the terms of sale of their property to Ricardo, as well as those in the loan, the note, and the deeds of trust. Unlike a subsequent encumbrancer, the Stones did not need to "rely on the record" to understand the parties' rights and obligations.

With respect to the remedies available to the Gonzalezes, the Stones assert that the Gonzalezes' "security . . . is reachable" by the Stones; and that even if the Gonzalezes are guarantors of the note, the antideficiency statutes do not protect them because "'[a] guaranty is simply additional security for the obligor's debt." The Stones base such assertions on the invalid premise that the Gonzalezes "were jointly liable [with Ricardo] on the full amount of the loan." Substantial evidence supports the trial court's contrary finding that the Gonzalezes were guarantors.

The Stones contend that Gradsky is "also distinguishable because the Gradsky creditor sought a deficiency judgment against the guarantor [while the Stones] never sought a deficiency judgment against anyone [but] merely foreclosed non-judicially on the remainder of their security which happened to be [the Gonzalezes'] home." (Emphasis omitted.) Nonetheless, the Stones exercised their power of sale of Ricardo's property in a manner that destroyed the Gonzalezes' subrogation rights. The deed of trust signed by the Gonzalezes does not include any waiver of their subrogation rights. (See, e.g.,  2856; Cathay Bank v. Lee (1993) 14 Cal.App.4th 1533, 1542.) We reject the Stones' suggestion that the equitable principles recognized in Gradsky are limited to cases where the creditor seeks a deficiency judgment.

The Gonzalezes acted as guarantors of Ricardo's obligation for a $222,000 loan and signed a note secured by a $162,000 deed of trust on Rircardo's property and a $60,000 deed of trust on the Gonzalezes' property. Ricardo's property sold for $200,200, on February 4, 2002, when the Stones exercised their power of sale. In exercising that power, the Stones destroyed any subrogation rights the Gonzalezes may have had against Ricardo. On February 21, the Stones' agent sold the Gonzalezes' property for $55,645.25 to a buyer in a nonjudicial foreclosure proceeding. That buyer sold it for $236,400 in a sale that closed on April 23, 2002. The trial court properly awarded damages of $185,545 to the Gonzalezes.

The Stones also challenge the costs that the trial court awarded to the Gonzalezes for the depositions of other defendants. The Gonzalezes contend those depositions were necessary to pursue litigation against the Stones, because Roy Stone never appeared for his deposition, and Robert Stone appeared but failed to bring all documents necessary to answer questions. Under the circumstances, the court properly awarded the challenged costs to the Gonzalezes.

The judgment is affirmed. Costs are awarded to the Gonzalezes.

NOT TO BE PUBLISHED.

COFFEE, J.

We concur:

GILBERT, P.J.

PERREN, J.

Kent M. Kellegrew, Judge

Superior Court County of Ventura

______________________________

Lascher & Lascher, Wendy C. Lascher, Aris E. Karakalos for Defendants and Appellants Roy L. Stone and Robert Stone.

Lawbreeze, A Law Corporation, Vicki L. Fullington for Plaintiffs and Respondents Urbano Gonzalez and Elisa Gonzalez.

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Analysis and review provided by San Diego County Property line attorney.

[1]All statutory references are to the Civil Code unless otherwise stated.

[2]The Gradsky court considered "the rights [the guarantor] would have acquired from the [lender] had [the guarantor] paid [the borrower's] debt to the [lender] before the [lender] resorted to the security. [] [The guarantor] would have thereby acquired all of the rights which the [lender] had against [the borrower] upon the application of familiar principles of subrogation: One who is neither an intermeddler nor a volunteer and who pays the obligation of another, for which the other is primarily liable, is equitably subrogated to all of the rights and to the security formerly held by the obligee against the principal obligor. [Citations.] Therefore, [the guarantor] would have obtained by subrogation the right to pursue either judicial or nonjudicial sale of the security. If he elected the former, he could have obtained a deficiency judgment against [the borrower]. However, [the guarantor] could stand no better against [the borrower] than could the [lender] with respect to the rights he acquired by subrogation. If [the guarantor] elected the second remedy, section 580d of the Code of Civil Procedure would have barred his obtaining a deficiency judgment against [the Borrower]. (Union Bank v. Gradsky, supra, 265 Cal.App.2d at pp. 44-45.)