FIRST INTERSTATE BANK OF CALIFORNIA v. ANDERSON (1992)

Defendants John and Edith Anderson appeal from the summary judgment entered in favor of First Interstate Bank (hereafter Bank).  (Code Civ.Proc., § 437c.)   Bank's complaint was on a promissory note and on John Anderson's guaranty, and it prayed for judicial foreclosure of the deed of trust securing Anderson's guaranty.   Bank obtained a pre-judgment attachment on real property that was not security for the debt, and one issue on appeal is the propriety and the legal effect of that conduct.   The other issue is whether the trial court implicitly decided the one-action rule defense  Code Civ.Proc., § 726) ¹ by granting the attachment order, and whether that decision has res judicata effect.   For reasons stated below we will affirm the judgment.

FACTS

The Fat City Cattle Company (hereafter Fat City) for many years operated a cattle feed lot near Gonzales in Monterey County, California.   Fat City fed and fattened cattle on a large scale, and at the peak of its operation fed up to 80,000 head of cattle at a time.   Fat City made its money selling cattle feed to customers who fed their cattle at the feed lot.

John Anderson, a wealthy landowner in the Sacramento Valley, bought all the shares of Fat City in the late 1970s.   He remained the sole shareholder and chairman of the board of the corporation.   When Anderson bought the company, it was in financial trouble and owed a lot of money to Bank.   After Anderson bought Fat City, it continued to operate by borrowing money from Bank on lines of credit.   Officers of the corporation simply signed promissory notes in favor of Bank, and took the funds.

Anderson signed a guaranty for Bank in May of 1985.   At that time Fat City owed Bank almost $6 million.   Five months later Anderson and his wife executed and delivered to Bank deeds of trust on three parcels of real property in Monterey County, as security for Anderson's guaranty of Fat City's debts.

Fat City was not profitable and sometime in 1985 Anderson decided not to put any more money in it and to wind down the business.   Bank had notified Anderson it would not renew its several lines of credit to Fat City.   Bank insisted Fat City employ one Shannon to assist in the orderly liquidation of the company.   Fat City's equipment was auctioned off, and the sale proceeds applied to the debt.   After applying all the proceeds from the liquidation of the corporation to the debt, Fat City still owed Bank over $3 million.

Bank demanded that Anderson pay on his unconditional guaranty.   At first Anderson said he would honor the guaranty, but then he refused to pay Fat City's debts.

Bank then filed this action for judicial foreclosure and on Anderson's guaranty.   Bank applied for a temporary protective order under the Attachment Law.  (§§ 483.010 et seq.)   Bank argued attachment against Anderson's non-security real property in Yolo County was appropriate because the security for the debt, the Monterey property, was worth less than $150,000 and  the debt exceeded $3 million.   In addition, the guaranty signed by Anderson contained broad language waiving the guarantor's rights to insist that the Bank proceed against certain security or collateral first.   The trial court found Anderson had waived the protection of the provisions of the Attachment Law, and ordered the issuance of an attachment in the amount of $1 million.   The writ was issued and executed in Yolo County against Anderson's real estate which was already heavily encumbered.   No appeal was taken from the attachment order.

Bank filed a motion for summary judgment.   To narrow the issues before the trial court hearing the motion, the parties stipulated that:  1) summary judgment could be entered against the Andersons on the guaranty for $2,541,892.57 plus interest, 2) summary judgment on the judicial foreclosure action could be entered against the Monterey properties, 3) defendants waived their factual defenses, and 4) defendants waived their legal defenses except for section 726.   In reply to defendants' opposition, Bank argued that Anderson had waived the protection of section 726 in the guaranty.   The trial court granted Bank's motion for summary judgment, and defendants appeal.

DISCUSSION

Two issues were initially raised on appeal:  1) whether Bank's obtaining of the pre-judgment attachment writ in a judicial foreclosure action violated section 726, and 2) if there was a violation, what sanctions were appropriate.   We requested and received further briefing on whether the trial court implicitly decided the issue of the section 726 defense at the attachment hearing, and whether the court was then bound by its earlier order when it ruled on the summary judgment motion.   We conclude the trial court did decide the section 726 issue in granting the right to attach order.   Because that order became final after no appeal was taken, appellants' attack on the propriety of the attachment comes too late.

First we analyze what the trial court actually decided when it granted the right to attach order.   An attachment may be issued on a claim for money based on contract when the certain amount of the claim is $500 or more.  (§ 483.010, subd. (a).)  An attachment may not be issued on a claim which is secured by an interest in real property unless the security has become valueless or has decreased in value through no fault of the creditor.  (§ 483.010, subd. (b).)  On Bank's form complaint seeking a right to attach order, it checked the box for a claim which is “not secured within the meaning of CCP 483.010.”   At the hearing Bank admitted that its $3 million debt was vastly under-secured by property worth only $150,000, and argued that the attachment procedure should be available to it anyway.   Bank argued  that Anderson had waived the protection of the Attachment Law in his personal guaranty.   Appellants argued that attachment was not available according to the statute, and that the inadequacy of the security Bank took was irrelevant.   Appellants contended that a waiver of the protection of the attachment statutes would be void as against public policy.

The court granted Bank's petition and issued a writ of attachment in the amount of $1 million.   The trial court stated in its minute order that appellants “waived the protection of CCP § 483.010(b) and further that the surety [security] has become valueless.”

Implicit in the trial court's ruling is a finding that attachment did not offend the security first principle of the one action rule.   This finding is clearly logical under the statutory scheme.   If, for instance, Bank had sought attachment of an amount to compensate for the decrease in value of the real property, it is clear that the writ of attachment could coexist with the obligation to exhaust the security first.   In this sense attachment when the security has become valueless or has decreased in value is an exception to the security first rule, and attachment statutes have been read into section 726.  (Bernhardt, Cal. Mortgage and Deed of Trust Practice (Cont.Ed.Bar 1990) § 4.7, p. 191.)

We think a finding that section 726 was not violated is also implied by the finding that appellants waived their rights under the Attachment Law.   The trial court refers to section 483.010, subdivision (b), which limits attachment in secured transactions to those in which the value of the security has been compromised.   To say that Anderson waived the protection of the Attachment Law is to say he waived his right under section 726 to insist that Bank go after the real property security first.   The “protection” of the attachment statutes is that they exclude debts secured by real property, except under the circumstances discussed.   We conclude that the issue of the section 726 defense was implicitly decided by the trial court when it granted the right to attach order.

The order granting attachment, made on November 22, 1988, was appealable.  (§ 904.1, subd. (e) [appeal may be taken from “an order discharging or refusing to discharge an attachment or granting a right to attach order”].)  Appellants did not appeal the order granting a right to attach.   Instead they sought to relitigate the propriety of the attachment in response to Bank's summary judgment motion.   At that point appellants argued the attachment violated the security-first principle of the one-form-of-action rule, and they make the same argument on appeal.

 We think appellants seek review of the attachment too late.   The powers of the reviewing court are described in section 906, and include reviewing the  final decision, intermediate rulings and proceedings, and the like.   However, “[t]he provisions of this section do not authorize the reviewing court to review any decision or order from which an appeal might have been taken.”  (Ibid.)  When no appeal is taken directly from an erroneous refusal to discharge an attachment, the issue cannot be considered on a subsequent appeal.  (Title G. & T. Co. v. Stahler (1936) 15 Cal.App.2d 239, 241, 59 P.2d 515.)   In the same manner, an order granting a right to attach must be challenged by direct appeal, and if allowed to become final operates with res judicata effect, even if the order was erroneous.  (Cf. Peck v. Hagan (1989) 215 Cal.App.3d 602, 609, 263 Cal.Rptr. 198.)

 Once the trial court granted the right to attach order, and the order became final, it operated prospectively with res judicata effect.  (Peck v. Hagan, supra, 215 Cal.App.3d at p. 607, 263 Cal.Rptr. 198.)   If the elements of res judicata were satisfied, the trial court would have been bound by its earlier order when ruling on the summary judgment motion.   There were identical issues:  whether attachment was appropriate or whether Bank had to exhaust the real property security first.   There was identity of parties, and there was a final order on the merits.  (Id. at p. 608, 263 Cal.Rptr. 198.)   All the elements for res judicata were satisfied.   Thus, the attachment order is not subject to collateral attack in this subsequent appeal.  (Id. at pp. 608–609, 263 Cal.Rptr. 198.)

We believe the trial court erred in granting the right to attach order.   Bank may have taken woefully inadequate security but the security had not become valueless or decreased in value.   Our reading of the Attachment Law leads to the conclusion that its protections cannot be waived (see legis. committee com.—Senate, 1974 Addition, and 1976 Amendment com. following § 483.010 in West's Ann.Code Civ.Proc., 1992 pocket part), just as a waiver of section 726 rights as a condition of obtaining a loan is void.  (Civ.Code, § 2953.)   Nonetheless, the right to attach order has res judicata effect, and appellants' attack on it in this subsequent appeal comes too late.

The judgment is affirmed.   Costs are awarded to Respondent.

FOOTNOTES

1.   Statutory references are to the Code of Civil Procedure unless otherwise indicated.

COTTLE, Associate Justice.

AGLIANO, P.J., and ELIA, J., concur.