BANK OF SOUTHERN CALIFORNIA v. DOMBROW

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Court of Appeal, Fourth District, Division 1, California.

BANK OF SOUTHERN CALIFORNIA, Plaintiff and Appellant, v. Donald R. DOMBROW et al., Defendants and Respondents.

No. D019638.

Decided: November 09, 1995

Circuit, McKellogg, Kinney & Ross and R. Keith McKellogg, La Jolla, for Plaintiff and Appellant. Post, Kirby, Noonan & Sweat, Thomas W. Bettles and James J. Dalessio, San Diego, for Defendants and Respondents. Leland Mench, Roxanne Mench and Robert L. Weiland, in pro per., for Defendants and Respondents.

Following a nonjudicial trustee's sale, is the protection afforded to a debtor by the fair-market value provisions of Code of Civil Procedure section 580a 1 applicable to a guarantor?

We conclude the answer is yes under the circumstances presented here.

Bank of Southern California (Bank) was the holder of a note secured by a first trust deed and a separate note secured by a fourth trust deed, both encumbering the same real property.   Bank sued Donald Dombrow and others (collectively “guarantors”) to enforce commercial guaranties and collect the unpaid balance of the promissory note secured by the junior trust deed after conducting a private trustee's sale under power of sale in the senior trust deed.   The trial court entered judgment in favor of guarantors, finding (1) the debt owed to Bank had been satisfied in full when Bank foreclosed on the senior trust deed and (2) the guarantors had been exonerated.

Bank appeals, contending under the express terms of the written guaranty the guarantors waived (1) the defense of exoneration under the express terms of the written guaranty, and (2) any right to a section 580a fair-market value hearing.   Bank also contends guarantors were not entitled to a fair-market value hearing under section 580a because Bank was not seeking a deficiency judgment.   Rather, Bank argues it was merely enforcing guaranties of the junior note, and the trial court erred in ignoring Bank's status as a foreclosed-out junior lienholder trying to collect on a junior note.

As will be seen, we find that under Simon v. Superior Court (1992) 4 Cal.App.4th 63, 5 Cal.Rptr.2d 428, Bank, by virtue of its own actions, was not a foreclosed-out junior lienholder, and it was, in effect, seeking a deficiency judgment.   We also conclude that while the guaranties contained valid Gradsky (Union Bank v. Gradsky (1968) 265 Cal.App.2d 40, 71 Cal.Rptr. 64) waivers that would allow Bank to pursue a deficiency judgment against guarantors following the nonjudicial foreclosure sale, there was no valid waiver of a fair-market value hearing under section 580a.   Further, because the fair market value of the property was an amount exceeding the combined debt secured by the two trust deeds, the debt was satisfied in full;  in other words, there was no deficiency.2

FACTS

On May 10, 1988, Bank loaned $585,000 to the Village Corporation.   This note was secured by a first trust deed encumbering unimproved real property located in Oceanside.

On June 10, 1989, Bank loaned an additional $150,000 to Village Corporation.   This second note originally was secured by a trust deed encumbering a building and land located in El Cajon.   On January 24, 1990, Bank and Village Corporation agreed to reconvey the trust deed encumbering the El Cajon property and replace it with a trust deed encumbering the unimproved Oceanside property.   This trust deed securing the second note was fourth in priority.

Thus, Bank had two loans to Village Corporation, each secured by a trust deed encumbering the Oceanside property, one in first position and one in fourth position.

Payment of both notes was guaranteed, in written commercial guaranties, by the various guarantors.   Donald and Maxine Dombrow also executed a guaranty agreement in the amount of $950,000, designed to guarantee both notes to Village Corporation.

Each of the guaranties contained a section entitled “GUARANTOR'S WAIVERS” with the following language:

“GUARANTOR'S WAIVERS.   Except as prohibited by applicable law, Guarantor waives any right to require Lender:  (a) to make any presentment, protest, demand, or notice of any kind, including notice of any nonpayment of the Indebtedness or of any nonpayment related to any collateral, or notice of any action or nonaction on the part of Borrower, Lender, any surety, endorser, or other guarantor in connection with the Indebtedness or in connection with the creation of new or additional loans or obligations;  (b) to resort for payment or to proceed directly or at once against any person, including Borrower or any other guarantor;  (c) to proceed directly against or exhaust any collateral held by Lender from Borrower, any other guarantor, or any other person;  (d) to give notice of the terms, time, and place of any public or private sale of personal property security held by Lender from Borrower or to comply with any other applicable provisions of Section 9504 of the California Uniform Commercial Code;  (e) to pursue any other remedy within Lender's power;  or (f) to commit any act or omission of any kind, or at any time, with respect to any matter whatsoever.

“Guarantor also waives any and all rights or defenses arising by reason of (a) ‘one action’ or ‘anti-deficiency’ law (including without limitation Sections 580 and 726 of the California Code of Civil Procedure as from time to time amended) or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender's commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale;  (b) any election of remedies by Lender which destroys or otherwise adversely affects Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower for reimbursement, including without limitation, any loss of rights Guarantor may suffer by reason of any law limiting, qualifying, or discharging the Indebtedness;  (c) any disability or other defense of Borrower, of any other guarantor, or of any other person, or by reason of the cessation of Borrower's Liability from any cause whatsoever, other than payment in full in legal tender, of the Indebtedness (including without limitation any defense based on Section 580 and 726 of the California Code of Civil Procedure);  (d) any right to claim discharge of the Indebtedness on the basis of unjustified impairment of any Collateral for the Indebtedness;  or (e) any statute of limitations, if at any time any action or suit brought by Lender against Guarantor is commenced there is outstanding Indebtedness of Borrower to Lender which is not barred by any applicable statute of limitations.   If payment is made by Borrower, whether voluntary or otherwise, or by any third party, on the Indebtedness and thereafter Lender is forced to remit the amount of that payment to Borrower's trustee in bankruptcy or to any similar person under any federal or state bankruptcy law or law for the relief of debtors, the Indebtedness shall be considered unpaid for the purpose of enforcement of this Guaranty.

“Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount guaranteed under this Guaranty for any claim of set-off, counterclaim, counter demand, recoupment or similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor, or both.”

In December 1990, Village Corporation defaulted on both notes to Bank.   Thereafter, Village Corporation filed for protection under the United States Bankruptcy Act.

On May 14, 1991, Bank filed this action against guarantors to recover on the two notes.

After obtaining relief from the bankruptcy court stay, Bank, in August 1992, nonjudicially foreclosed its first trust deed and made a full credit bid of $818,802.02 at the trustee's sale, thereby acquiring title to the Oceanside property.   After the sale occurred, guarantors amended their answers to assert that they were exonerated because the principal obligations owed by Village Corporation to Bank were satisfied when Bank foreclosed on its first trust deed and acquired the Oceanside property.

At the time of trial, the total amount of principal and interest unpaid on the second note was $186,533.61.

At trial, Bank offered an expert appraiser who testified the value of the Oceanside property at the time of the trustee's sale pursuant to the first trust deed was $700,000.   The guarantors' appraiser valued the property at $1.2 million.3

The trial court found the value of the property was $1.2 million at the time of the foreclosure sale pursuant to the first trust deed.   Since this figure exceeded the amount owed to Bank under both the first and second notes, the trial court ruled the guarantors were exonerated when Bank acquired ownership of the property.   The trial court also ruled that under section 580a Bank was not entitled to a deficiency judgment against guarantors because it found the fair market value of the property exceeded the total indebtedness and there had been no waiver of the section 580a fair-market value deficiency limitation.

DISCUSSION

I. Introduction

We begin with an overview of California antideficiency statutory laws (see §§ 580a, 580b, 580d, 726), which are intended to limit or prohibit personal judgments against borrowers in cases where the sales proceeds of the real property securing the underlying debt are insufficient to fully discharge the debt.4

This statutory scheme was a legislative response to the disastrous effect of the Great Depression of the early 1930s on land values.   As the Supreme Court in Cornelison v. Kornbluth (1975) 15 Cal.3d 590, 600–602, 125 Cal.Rptr. 557, 542 P.2d 981, explained:

“Prior to 1933, a mortgagee of real property was required to exhaust his security before enforcing the debt or otherwise to waive all right to his security [citations].   However, having resorted to the security, whether by judicial sale or private nonjudicial sale, the mortgagee could obtain a deficiency judgment against the mortgagor for the difference between the amount of the indebtedness and the amount realized from the sale.   As a consequence during the great depression with its dearth of money and declining property values, a mortgagee was able to purchase the subject real property at the foreclosure sale at a depressed price far below its normal fair market value and thereafter to obtain a double recovery by holding the debtor for a large deficiency.  [Citations.]  In order to counteract this situation, California in 1933 enacted fair market value limitations applicable to both judicial foreclosure sales (§ 726) and private foreclosure sales (§ 580a) which limited the mortgagee's deficiency judgment after exhaustion of the security to the difference between the fair value of the property at the time of the sale (irrespective of the amount actually realized at the sale) and the outstanding debt for which the property was security.   Therefore, if, due to the depressed economic conditions, the property serving as security was sold for less than the fair value as determined under section 726 or section 580a, the mortgagee could not recover the amount of that difference in his action for a deficiency judgment.  [Citation.]

“In certain situations, however, the Legislature deemed even this partial deficiency too oppressive.   Accordingly, in 1933 it enacted section 580b ․ which barred deficiency judgments altogether on purchase money mortgages.

“․

“Although both judicial foreclosure sales and private nonjudicial foreclosure sales provided for identical deficiency judgments in nonpurchase money situations subsequent to the 1933 enactment of the fair value limitations, one significant difference remained, namely property sold through judicial foreclosure was subject to the statutory right of redemption (§ 725a), while property sold by private foreclosure sale was not redeemable.   By virtue of sections 725a and 701, the judgment debtor, his successor in interest or a junior lienor could redeem the property at any time during one year after the sale, frequently by tendering the sale price.   The effect of this right of redemption was to remove any incentive on the part of the mortgagee to enter a low bid at the sale (since the property could be redeemed for that amount) and to encourage the making of a bid approximating the fair market value of the security.   However, since real property purchased at a private foreclosure sale was not subject to redemption, the mortgagee by electing this remedy, could gain irredeemable title to the property by a bid substantially below the fair value and still collect a deficiency judgment for the difference between the fair value of the security and the outstanding indebtedness.

“In 1940 the Legislature placed the two remedies, judicial foreclosure sale and private nonjudicial foreclosure sale on a parity by enacting section 580d․  Section 580d bars ‘any deficiency judgment’ following a private foreclosure sale.  ‘It seems clear ․ that section 580d was enacted to put judicial enforcement on a parity with private enforcement.   This result could be accomplished by giving the debtor a right to redeem after a sale under the power.   The right to redeem, like proscription of a deficiency judgment, has the effect of making the security satisfy a realistic share of the debt․  By choosing instead to bar a deficiency judgment after private sale, the Legislature achieved its purpose without denying the creditor his election of remedies.   If the creditor wishes a deficiency judgment, his sale is subject to statutory redemption rights.   If he wishes a sale resulting in nonredeemable title, he must forego the right to a deficiency judgment.   In either case the debtor is protected.’  [Citation.]”  (Fns. omitted.)

This case, however, is not the typical deficiency case for two reasons.   First, Bank claims a status as a sold-out junior lienholder, contending it is not seeking a deficiency judgment but rather is merely bringing an action against guarantors of the junior note.   Under this theory, section 580a's fair-market value provision is inapplicable because it applies only to deficiency judgments.   The second wrinkle is that the defendants here are guarantors, not debtors;  hence, this case presents the issue of whether the protection afforded to a debtor by the fair-market value provisions of section 580a should apply to a guarantor.

II. Bank Is Not a Sold–Out Junior Lienholder

Bank contends it is a foreclosed-out junior lienholder with respect to its junior note to Village Corporation.   The contention is without merit.

 Notwithstanding section 580d's prohibition against deficiency judgments, when a senior creditor elects to foreclose on its real property security by nonjudicial sale, a nonselling junior creditor is not barred from bringing an action directly on the note after the senior foreclosure.   (Roseleaf Corp. v. Chierighino (1963) 59 Cal.2d 35, 43–44, 27 Cal.Rptr. 873, 378 P.2d 97.)  “The junior's right to recover should not be controlled by the whim of the senior․”  (Id. at p. 44, 27 Cal.Rptr. 873, 378 P.2d 97.)

In Roseleaf Corp. v. Chierighino, supra, 59 Cal.2d 35, 27 Cal.Rptr. 873, 378 P.2d 97, Roseleaf held second trust deeds on several parcels of real property owned by Chierighino.   The holder of the first trust deeds on these parcels foreclosed under a power of sale, rendering Roseleaf's second trust deeds valueless.   The Supreme Court affirmed a deficiency judgment for Roseleaf in the full amount unpaid on the notes.

The Roseleaf court also found section 580a inapplicable to nonselling junior lienholders.  (Id. at p. 41, 27 Cal.Rptr. 873, 378 P.2d 97.)   The court explained:

“Fair value provisions are designed to prevent creditors from buying in at their own sales at deflated prices and realizing double recoveries by holding debtors for large deficiencies.  [Citations.]

“․

“The position of a junior lienor whose security is lost through a senior sale is different from that of a selling senior lienor.   A selling senior can make certain that the security brings an amount equal to his claim against the debtor or the fair market value, whichever is less, simply by bidding in for that amount.   He need not invest any additional funds.   The junior lienor, however, is in no better position to protect himself than is the debtor.   Either would have to invest additional funds to redeem or buy in at the sale.   Equitable considerations favor placing this burden on the debtor, not only because it is his default that provokes the senior sale, but also because he has the benefit of his bargain with the junior lienor who, unlike the selling senior, might otherwise end up with nothing.”  (Id. at pp. 40–41, 27 Cal.Rptr. 873, 378 P.2d 97.)

Here, Bank's claimed status as a foreclosed-out junior lienholder overlooks two facts:  (1) Bank was the holder of the senior and junior notes, and (2) it acquired the security by its own act of foreclosing on the senior lien.   Therefore, Bank's status is markedly different than that of the sold-out junior lienholder in Roseleaf Corp. v. Chierighino.

Bank's status is similar to that of Bank of America in Simon v. Superior Court, supra, 4 Cal.App.4th 63, 5 Cal.Rptr.2d 428, in which Bank of America made two different loans secured by separate trust deeds encumbering the same real property and foreclosed under its senior trust deed's power of sale.   In Simon v. Superior Court, supra, 4 Cal.App.4th at page 72, 5 Cal.Rptr.2d 428, the Court of Appeal held Bank of America was not a sold-out junior lienholder under such circumstances.

“Bank erroneously equates itself in the case at bench to the junior lienor in Roseleaf.   In doing so, it ignores the fact that, unlike Roseleaf, it held both the senior and junior liens;  it seeks to cast itself as the ‘sold-out junior lienor’ Roseleaf discussed simply because it exhausted the security for its junior lien by its own action in foreclosing its senior lien at private sale.

“Thus, the factors which influenced the Roseleaf court are not present in the instant case.   Bank was not a third party sold-out junior lienholder as was the case in Roseleaf.   As the holder of both the first and second liens, Bank was fully able to protect its secured position.   It was not required to protect its junior lien from its own foreclosure of the senior lien by the investment of additional funds.   Its position of dual lienholder eliminated any possibility that Bank, after foreclosure and sale of liened property under its first lien, might end up with no interest in the secured property, the principal rationale of the court's decision in Roseleaf․  In fact, Bank purchased the Simon residence on foreclosing its first lien by a credit bid without putting up any additional funds whatsoever.”  (Ibid., italics in original.)

Similarly, here because Bank exhausted the security for its junior lien by its own action in foreclosing its senior lien at private sale, it was not a “sold-out junior lienor” with no interest in secured property.  (Simon v. Superior Court, supra, 4 Cal.App.4th at pp. 70–74, 5 Cal.Rptr.2d 428.)

Bank argues Simon is inapplicable because it did not involve guarantors.   However, the critical point in this issue is not whether we are dealing with a guarantor or a debtor, but whether the creditor is foreclosed out with no interest in the security.

We reject Bank's argument it is a sold-out junior lienholder that is merely enforcing the guaranties on its junior lien.   In our view, by virtue of its action in wiping out the junior lien, Bank's two notes have merged, and, in effect, Bank was seeking a deficiency judgment.   In other words, Bank had the ability to protect its junior security interest;  by making the election it did, Bank is not entitled to the rights of a sold-out junior lienholder.

III. Guarantors and Anti–Deficiency Laws

A guarantor is one who promises to answer for the debt or perform the obligation of another when the person ultimately liable fails to pay or perform.  (Civ.Code, § 2787.)  Civil Code section 2787 also reflects the Legislature's decision in 1939 to abolish the distinction between sureties and guarantors.

While California's antideficiency statutes clearly afford protections to borrowers, courts generally have held they are not directly applicable to guarantors.   However, the authority holding the antideficiency statutes do not apply to guarantors either predates the 1939 abolition of the distinction between guarantors and sureties or is based on the pre–1939 authority.  (See, e.g., Bank of America Etc. Assn. v. Hunter (1937) 8 Cal.2d 592, 67 P.2d 99;  Mariners Sav. & Loan Assn. v. Neil (1971) 22 Cal.App.3d 232, 99 Cal.Rptr. 238.) 5

In any event, for more than a quarter of a century following the decision in Union Bank v. Gradsky, supra, 265 Cal.App.2d 40, 71 Cal.Rptr. 64, California courts have acknowledged at least one antideficiency protection for guarantors.

In Union Bank v. Gradsky, supra, 265 Cal.App.2d 40, 71 Cal.Rptr. 64, the Court of Appeal held section 580d indirectly applies to guarantors under an estoppel theory.

“The creditor's recovery is not directly barred by section 580d of the Code of Civil Procedure.   It is barred by applying the principles of estoppel.   The estoppel is raised as a matter of law to prevent the creditor from recovering from the guarantor after the creditor has exercised an election of remedies which destroys the guarantor's subrogation rights against the principal debtor.   The destruction of the guarantor's subrogation rights follows from the combination of the creditor's election to subject the security to nonjudicial sale and the operation of section 580d, which prevents both the creditor and the guarantor from obtaining any deficiency judgment against the debtor after nonjudicial sale of the security.”  (Id. at p. 41, 71 Cal.Rptr. 64.)

The Court of Appeal also recognized that there can be a waiver by the guarantor of this defense based upon the creditor's election to pursue the remedy of nonjudicial foreclosure on the security.  (Id. at p. 48, 71 Cal.Rptr. 64.)   Following Union Bank v. Gradsky, supra, lenders have routinely included Gradsky waivers in their standard form guaranty contracts, and such waivers generally have been upheld.

A threshold question confronting us is whether there is a valid Gradsky waiver.   Without one, Bank would not be entitled to pursue a deficiency judgment against the guarantors.   Alternatively, if there is a valid Gradsky waiver, Bank could pursue a deficiency judgment against guarantors and the issue of determining the amount of the deficiency would be presented.

Here, we conclude a fair reading of the “GUARANTOR'S WAIVERS” section of the guaranties indicates there is an adequate Gradsky waiver.   The second paragraph of the waiver section mentions antideficiency laws in general and specifically discusses laws “which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender's commencement or completion of any foreclosure action․”  It also specifically discusses the waiver of “any election of remedies by Lender which destroys ․ Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower for reimbursement․”  This language encompasses the antideficiency protection afforded to guarantors by Union Bank v. Gradsky, supra, 265 Cal.App.2d 40, 71 Cal.Rptr. 64.6

 Because there is a valid Gradsky waiver, Bank had the right to seek a deficiency judgment against guarantors.   However, the Gradsky waiver does not establish the amount of the deficiency, which brings us to section 580a.

Initially, we note that no previous court has held section 580a applicable to guarantors;  in fact, earlier cases have held guarantors do not have rights under section 580a.   Bank, however, does not urge that the statute cannot apply to guarantors.   Instead, Bank urges us to reject guarantors' right to fair-market value protection under section 580a on a waiver theory.   Given the dearth of modern authority in this area, we shall address the applicability of section 580a to this case before we take up the guarantors' purported waiver.7  As will be seen, we conclude the fair-market value protection of section 580a should apply to protect guarantors in an action to collect the balance of an unpaid debt remaining after a trustee's sale.

To some extent, section 580a has become almost a forgotten statute.   In the 1930s, section 580a, which was enacted in 1933, limited the size of a money judgment following private nonjudicial foreclosure sales.   However, after the 1939 enactment of section 580d, which altogether barred recovery of deficiency judgments against a borrower following the exercise of a power of sale, section 580a was preempted in most situations.   Nonetheless, the Legislature has never repealed section 580a;  rather, the statute has been amended four times.  (Stats.1968, ch. 450, § 2, p. 1070;  Stats.1970, ch. 1282, § 1, p. 2320;  Stats.1982, ch. 1535, § 1, p. 5965;  Stats.1988, ch. 1199, § 6, pp. 3878–3879.)

Further, while, as observed in part II, ante, the fair-market value provisions of section 580a do not apply to a sold-out junior lienholder who had not foreclosed on its own trust deed (Roseleaf Corp. v. Chierighino, supra, 59 Cal.2d at pp. 39–41, 27 Cal.Rptr. 873, 378 P.2d 97), section 580a has been held to apply to sold-out junior lienholders who had purchased their former security by bidding at a trustee's sale conducted under a senior trust deed.  (Bank of Hemet v. United States (9th Cir.1981) 643 F.2d 661;  Walter E. Heller Western, Inc. v. Bloxham (1985) 176 Cal.App.3d 266, 221 Cal.Rptr. 425.)

In Bank of Hemet v. United States, supra, 643 F.2d 661, the bank was the holder of a non-purchase-money second trust deed on a residence to secure a loan of $47,854.42;  a third party held the first trust deed in the amount of $33,134.64.   The United States government held tax liens junior to the bank.   The bank bought the property at the senior's nonjudicial foreclosure sale by bidding two dollars more than the senior lien.   The government sought to exercise its statutory right to redeem the property from the bank and tendered what the bank considered an insufficient amount.   The Ninth Circuit concluded the redemption price was dependent on the bank's right to a deficiency judgment, and applied a section 580a analysis.

“This case is ․ distinguishable from Roseleaf in that here the junior lienholder did bid on and purchase the property․  In brief, the Bank was not a sold-out junior lienholder as was the case in Roseleaf.

“The crucial issue is whether this difference requires that section 580a be applied to the Bank.   We hold that it does.   It follows that its right to a deficiency judgment may be limited․  Not to apply section 580a to the Bank under facts of this case would create the distinct possibility of an excess recovery․

“Application of section 580a requires the imposition of a gloss thereon due to the fact that ‘the entire amount of the indebtedness due at the time of sale’ must include both senior and junior lienholders' debt when the junior lienholder chooses to bid on and purchase the property at the sale initiated by the senior lienholder.   Only to the extent the combined debts exceed the fair market value of the property should a deficiency judgment be permitted.   In addition, in no event should the deficiency judgment exceed the amount by which the combined debts are greater than the amount for which the property was sold.

“Utilization of section 580a so glossed with respect to the facts of this case may appear to constitute an improper creation of California law by a federal court.   We believe the appearance is contrary to the facts.   The unmistakable policy of California is to prevent excess recoveries by secured creditors.   To refuse to apply this policy, together with its implications and refinements, to the facts of this case because such facts fit section 580a's language somewhat awkwardly and because of the result reached by the California court in Roseleaf would amount to rejection of the spirit of California's law in favor of its letter.   We decline to do this.”  (Bank of Hemet v. United States, supra, 643 F.2d at p. 669.)

In Walter E. Heller Western, Inc. v. Bloxham, supra, 176 Cal.App.3d 266, 221 Cal.Rptr. 425, the plaintiff was the holder of a subordinated trust deed and purchased the secured property at the senior's nonjudicial foreclosure sale by bidding two dollars over the amount of the senior lien.   After the sale, the plaintiff filed an action on its note, which had been wiped out by the foreclosure sale, and sought a deficiency for the full amount due.   The Court of Appeal held plaintiff was distinguishable from the sold-out junior lienholder in Roseleaf Corp. v. Chierighino, supra.

“The junior in Roseleaf did not purchase at the senior's sale.   To apply the fair value limitations to that junior would result in the amount of his deficiency being limited by the amount of someone else's bid, a factor over which he has no control.   However, once a junior chooses to purchase, it is equitable to apply the fair value limitations to him.   Any loss to him as creditor by his own underbidding is gained by him as purchaser for a bargain price.  [Citation.]  ‘To so limit the deficiency judgment right is consistent with the general purpose of section 580a, viz., to protect against a lienor buying in the property at a deflated price, obtaining a deficiency judgment, and achieving a recovery in excess of the debt by reselling the property at a profit․  [¶]․  The unmistakable policy of California is to prevent excess recoveries by secured creditors.’  (Bank of Hemet v. United States, supra, 643 F.2d at p. 669.)”  (Walter E. Heller Western, Inc. v. Bloxham, supra, 176 Cal.App.3d at pp. 273–274, 221 Cal.Rptr. 425.)

In addition to these two cases, there are other reasons to apply the fair-market value protection of section 580a to a guarantor in an action to collect the balance of an unpaid debt remaining after a trustee's sale.   Because a nonjudicial foreclosure sale is nonredeemable, the guarantor should at least be granted a fair-market value hearing to preclude a creditor from purchasing the real property at its own foreclosure sale for a low price and then holding the guarantor personally liable on the remaining amount owing on the obligation.   Moreover, a distinction between the language of section 580d and the language of section 580a is in keeping with granting guarantors a fair-market value hearing.   While section 580d refers to a “note secured by a deed of trust,” section 580a refers to “an obligation for the payment of which a deed of trust ․ was given.”   The broader language of section 580a supports a broader application.

We realize that no previous published opinion has held section 580a applicable to guarantors and that some earlier cases have held that it is not.  (See fn. 5, ante, and accompanying text.)   However, given that these earlier decisions were based upon antiquated law and the strong public policy of this state is to prevent excess recoveries by secured creditors, we conclude section 580a should afford a guarantor the protection of a fair-market value hearing if the creditor elects to foreclose nonjudicially and subsequently brings a suit against the guarantor for a deficiency judgment.

 The question remains whether guarantors here waived their rights to a fair-value market hearing under section 580a, as Bank urges they did.

The trial court found there was no waiver.   Under our de novo review, we reach the same conclusion.

Bank claims the following language constitutes the waiver:

“Guarantor also waives any and all rights or defenses arising by reason of (a) any ‘one action’ or ‘anti-deficiency law’ (including without limitation Sections 580 and 726 of the California Code of Civil Procedure as from time to time amended) or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender's commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale․”

Bank is mistaken.

As discussed above, the language in this paragraph constitutes a Gradsky waiver and establishes Bank's right to seek a deficiency judgment.   The language does not in any fashion address the amount of any deficiency judgment;  nor can it be read as a waiver by the guarantors of their rights to limit the size of any deficiency judgment.

 “Waiver is the intentional relinquishment of a known right.”  (11 Witkin, Summary of Cal.Law (9th ed. 1990) Equity, § 178, pp. 860–861, italics in original.)   Put another way, waiver requires a voluntary act, knowingly done, with sufficient awareness of the relevant circumstances and likely consequences.  (Roberts v. Superior Court (1973) 9 Cal.3d 330, 343, 107 Cal.Rptr. 309, 508 P.2d 309.)   The burden is on the party claiming a waiver of a right to prove it by clear and convincing evidence that does not leave the matter to speculation.  (City of Ukiah v. Fones (1966) 64 Cal.2d 104, 107–108, 48 Cal.Rptr. 865, 410 P.2d 369.)

 As to the possibility that the language “any and all rights ․ arising by reason of ․ any ․ ‘anti-deficiency law’ ” includes the right to a fair-market value hearing under section 580a, this particular language is so general as to be meaningless.   In Indusco Management Corp. v. Robertson (1974) 40 Cal.App.3d 456, 459, 114 Cal.Rptr. 47, the guarantor waived “ ‘all suretyship defenses and defenses in the nature thereof.’ ”   The Court of Appeal determined this language could not “fairly be construed to be a specific waiver of the guarantor's defense.”  (Id. at pp. 461–462, 114 Cal.Rptr. 47, fn. omitted.)   Similarly, we find the very general nature of this language is insufficiently specific.   To be effective, a waiver must be knowingly made with an awareness of what is being waived.

 Here, the “any and all rights” language is simply too broad.   It does not provide the guarantor with any actual awareness of the right to a fair-market value hearing to determine the size of a deficiency judgment after a trustee's sale.   To adopt the expansive reading urged by Bank would do an injustice to principles of waiver.   Moreover, given the lack of clarity, the doubt should be resolved against the waiver.  (City of Ukiah v. Fones, supra, 64 Cal.2d at pp. 107–108, 48 Cal.Rptr. 865, 410 P.2d 369.)  “This is particularly apropos in cases in which the right in question is one that is ‘favored’ in the law․”  (Id. at p. 108, 48 Cal.Rptr. 865, 410 P.2d 369.)

We also reject Bank's arguments that the reference to section 580 encompasses section 580a.   There simply is no basis to read it as such.   (See fn. 6, ante.)

In summary, we find guarantors are entitled to the fair-market value protection of section 580a, and none of the language relied upon by Bank can be fairly viewed as an attempt by the Bank to have the guarantors waive their right to a fair-market value hearing.   Bank's attempts to rewrite the language of the guaranty contracts to include such a waiver cannot succeed.8

The appraisal evidence presented at trial by the parties' experts was comparable to the evidence that would be produced at a fair-market value hearing under section 580a.   The procedure, of course, was not in keeping with section 580a, which provides that a probate referee, appointed by the court, present an appraisal.   Neither side has raised this issue on appeal and therefore any objection to the unorthodox procedure is waived.   The trial court found the fair market value of the property exceeded the total indebtedness guaranteed by guarantors, and this factual finding is supported by substantial evidence.   No purpose would be served by having another hearing with a probate referee's appraisal.

Under the terms of the guaranties, guarantors are entitled to their attorney fees on appeal.  (Civ.Code, § 1717.)   The case is remanded to the trial court to determine the appropriate fees to be awarded.

DISPOSITION

Affirmed.  The case is remanded to the trial court to determine the amount of attorney fees on appeal.

FOOTNOTES

1.   Code of Civil Procedure section 580a, which applies to nonjudicial foreclosure sales, requires the creditor to file a complaint for deficiency within three months after the sale and imposes a fair-market value hearing requirement and limitation on the size of the deficiency judgment.   It limits the amount of the deficiency judgment to the amount by which the unpaid debt exceeds the fair market value of the security but not more than the amount by which the unpaid debt exceeds the sale price of the security.All further statutory references are to the Code of Civil Procedure unless otherwise specified.

2.   We need not address the defense of exoneration and whether it was waived in light of our findings on Bank's status vis-à-vis the junior note and the applicability of section 580a, which are dispositive.

3.   At oral argument, the parties conceded the procedure followed here of having opposing experts was not strictly in keeping with the procedures set forth in section 580a for a fair-market value hearing.   (See fn. 4, post.)

4.   Sections 580a and 580d are the relevant statutes in this case.Section 580a reads:  “Whenever a money judgment is sought for the balance due upon an obligation for the payment of which a deed of trust or mortgage with power of sale upon real property or any interest therein was given as security, following the exercise of the power of sale in such deed of trust or mortgage, the plaintiff shall set forth in his or her complaint the entire amount of the indebtedness which was secured by the deed of trust or mortgage at the time of sale, the amount for which the real property or interest therein was sold and the fair market value thereof at the date of sale and the date of that sale.   Upon the application of either party made at least 10 days before the time of trial the court shall, and upon its own motion the court at any time may, appoint one of the probate referees provided for by law to appraise the property or the interest therein sold as of the time of sale.   The referee shall file his or her appraisal with the clerk and that appraisal shall be admissible in evidence.   The referee shall take and subscribe an oath to be attached to the appraisal that he or she has truly, honestly and impartially appraised the property to the best of his or her knowledge and ability.   Any referee so appointed may be called and examined as a witness by any party or by the court itself.   The court must fix the compensation of the referee in an amount as determined by the court to be reasonable, but those fees shall not exceed similar fees for similar services in the community where the services are rendered, which may be taxed and allowed in like manner as other costs.   Before rendering any judgment the court shall find the fair market value of the real property, or interest therein sold, at the time of sale.   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 the judgment, exclusive of interest after the date of sale, exceed the difference between the amount for which the property was sold and the entire amount of the indebtedness secured by the deed of trust or mortgage.   Any such action must be brought within three months of the time of sale under the deed of trust or mortgage.   No judgment shall be rendered in any such action until the real property or interest therein has first been sold pursuant to the terms of the deed of trust or mortgage, unless the real property or interest therein has become valueless.”Section 580d reads:  “No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property or an estate for years therein hereafter executed in any case in which the real property or estate for years therein has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.   [¶] This section does not apply to any deed of trust, mortgage or other lien given to secure the payment of bonds or other evidences of indebtedness authorized or permitted to be issued by the Commissioner of Corporations, or which is made by a public utility subject to the Public Utilities Act (Part 1 (commencing with Section 201) of Division 1 of the Public Utilities Code).”

5.   The rationale of the pre–1939 cases is that a guaranty creates an entirely separate and independent obligation from that of the primary obligor.  (See Loeb v. Christie (1936) 6 Cal.2d 416, 418–419, 57 P.2d 1303.)   However, the continued viability of the earlier cases' rationale is questionable with the extensive 1939 amendments to the Civil Code provisions on suretyship that, among other things, abolished the distinction between sureties and guarantors.  (Stats.1939, ch. 453, §§ 1–34, pp. 1795–1800.)   Since 1939, Civil Code sections 2809 and 2845, respectively, provide that a surety's (or a guarantor's) obligation must not be more burdensome than that of the principal obligor, and a surety (or guarantor) has the right to require the creditor to exhaust his or her remedies against the debtor and any security before pursuing the surety (or guarantor).   A pre–1939 guarantor had no right to require a creditor to first proceed against the encumbered property.

6.   We reach this conclusion notwithstanding the patently wrong references to Code of Civil Procedure section 580 in the second paragraph of “GUARANTOR'S WAIVERS.”  Section 580 deals with an unrelated subject matter—relief available on default judgments.  Sections 580a, 580b, 580c and 580d, along with section 726, make up California's antideficiency statutes.   Rather than section 580, the second paragraph of “GUARANTOR'S WAIVERS” more accurately should have referenced section 580d.   We shall read it as such.

7.   We note that Bank's waiver argument implicitly acknowledges the applicability of section 580a to guarantors.   We also find noteworthy that Civil Code section 2856, which spells out what rights and defenses a guarantor may waive, includes a reference to section 580a.   (Civ.Code, § 2856, subd. (a).)  Civil Code section 2856 was enacted in 1994, which was after the guaranties here were executed.  (Stats.1994, ch. 1204, § 1, p. 6114.)   However, the Legislature, in a statement of legislative intent, stated that subdivision (a) and (b) of section 2856 “do not represent a change in, but are merely declarative of, existing law.”  (Stats.1994, ch. 1204, § 2, p. 6114.)

8.   Because we affirm there was no guarantor waiver of the section 580a fair-market value deficiency limitation in this case, we need not and do not determine whether the fair-market value limitation can be waived by a guarantor.   It is clear that a guarantor can waive its estoppel rights to defeat a deficiency claim even though the principal debtor is not liable for a deficiency because of section 580d (see Union Bank v. Gradsky, supra, 265 Cal.App.2d 40, 71 Cal.Rptr. 64).   However, it is less clear that public policy sanctions a waiver of a limitation on the amount of the deficiency that would result in the creditor's demanding and receiving payment in excess of the amount of the debt.

HALLER, Associate Justice.

BENKE, Acting P.J., and McDONALD, J., concur.