Opinion
NOT TO BE PUBLISHED
APPEAL from orders of the Superior Court of Los Angeles County, No. BC426661, Mary H. Strobel, Judge.
Reeder Lu, Christopher S. Reeder, Beverly Y. Lu, Matthew Eanet, and Maureen G. Johnson for Defendants and Appellants.
Loeb & Loeb, Lance N. Jurich, Benjamin King, and Mark D. Campbell for Plaintiff and Respondent.
SUZUKAWA, J.
In this action for breach of guaranty agreements, defendants appeal from pretrial right to attach orders and orders for issuance of writs of attachment. (Code Civ. Proc., §§ 483.010 et seq., 904.1, subd. (a)(5).) Defendants seek reversal of the orders on the grounds that plaintiff did not establish the probable validity of its claim (§§ 481.190, 484.090) and defendants were wrongfully denied a full evidentiary hearing. Finding no error, we affirm.
All further undesignated statutory references are to the Code of Civil Procedure.
BACKGROUND
In August 2004, plaintiff East West Bank (the Bank) agreed to lend up to $1.75 million to Nationwide-Toledo Real Estate Investment, LLC (Nationwide), for the purchase of a shopping mall in Ohio (the property). As security for the loan, Nationwide provided a mortgage to the property and commercial guarantee agreements signed by Nationwide’s principals, defendants Soleyman Kahen and Jack Kashani. In addition to the guaranty agreements, the loan documents included a $1.75 million business loan agreement, a $1.75 million promissory note secured by a mortgage to the property, and a commercial security agreement.
Defendants are managing members of entities that hold a managing interest in Nationwide.
After receiving several extensions, Nationwide fell into default on the note. On July 27, 2009, the Bank demanded payment in full of $1,665,459.09 from defendants and Nationwide.
While the note was in default, defendants asked the Bank to approve a short sale of the property (a sale for less than the balance due on the note) for $700,000. Defendants refused, however, to sign additional agreements (forbearance agreements) reaffirming their obligation for any deficiency after the short sale.
Although defendants did not sign the forbearance agreements, the Bank agreed to the short sale. The Bank forwarded a payoff statement to the escrow company in October 2009, which stated that the Bank would record a full reconveyance of its lien upon receipt of $358,716.88 in net proceeds from the short sale, while reserving “all rights under the loan documents to collect the remaining balance of $1,333,049.24 due on the loan.”
Following the short sale, the Bank received the net proceeds and recorded a satisfaction and release of the mortgage on October 26, 2009. When defendants refused to pay the deficiency, the Bank sued defendants for breach of the guaranty agreements in November 2009. According to the complaint, defendants owe the outstanding principal balance of $1,263,732.54.
THE RIGHT TO ATTACH ORDERS
In December 2009, the Bank applied for the right to attach orders and orders for writs of attachment that are at issue on appeal. In support of the application, the Bank submitted the loan documents, including the guaranty agreements, and the declaration of Flora Ling, the Bank’s senior vice president, which outlined the history of the note and the mortgage.
Because the resolution of this appeal turns on the interpretation of the guaranty agreements, we set forth the relevant provisions that were before the trial court.
Each defendant is a guarantor of Nationwide’s $1.75 million promissory note, including all principal, interest, late charges, loan fees, loan charges, collection costs, and expenses relating to the note or any collateral to the note, including attorney fees.
The guaranty agreements shall remain in effect “until all indebtedness shall have been fully and finally paid and satisfied and all of Guarantor’s other obligations under this Guaranty shall have been performed in full.”
The guaranty agreements constitute separate and independent contracts that the Bank may enforce against each defendant without first proceeding against any collateral or any other person, including Nationwide.
“Guarantor further understands and agrees that this Guaranty is a separate and independent contract between Guarantor and Lender, given for full and ample consideration, and is enforceable on its own terms.” “GUARANTOR’S WAIVERS. Except as prohibited by applicable law, Guarantor waives any right to require Lender to... (B) proceed against any person, including Borrower, before proceeding against Guarantor; (C) proceed against any collateral for the indebtedness, including Borrower’s collateral, before proceeding against Guarantor.”
Defendants waive all rights or defenses arising from (1) the cessation of the indebtedness for reasons other than payment in full, (2) the release of either the borrower or the indebtedness, and (3) the loss or release of collateral.
“Guarantor also waives any and all rights or defenses arising by reason of... (I) the cessation from any cause whatsoever, other than payment in full, of the indebtedness;... (K) any act of omission or commission by Lender which directly or indirectly results in or contributes to the discharge of Borrower or any other guarantor or surety, or the indebtedness, or the loss or release of any collateral by operation of law or otherwise.”
The Bank is authorized to release any security, without notice or demand, without lessening defendants’ liability under the guaranty agreements, and without the substitution of new collateral.
“Guarantor authorizes Lender, without notice or demand and without lessening Guarantor’s liability under this Guaranty, ... (C) to take and hold security for the payment of this Guaranty or the Indebtedness, and exchange, enforce, waive, subordinate, fail or decide not to perfect, and release any such security, with or without the substitution of new collateral....”
Defendants waive all rights and defenses that may exist because the note is secured by real property. The Bank may collect from defendants without first foreclosing on any real or personal property. If the real property collateral is sold through foreclosure, defendants will remain liable for the balance due on the note.
“Guarantor waives all rights and defenses that Guarantor may have because Borrower’s obligation is secured by real property. This means among other things: (1) Lender may collect from Guarantor without first foreclosing on any real or personal property collateral pledged by Borrower. (2) If Lender forecloses on any real property collateral pledged by Borrower: (a) the amount of Borrower’s obligation may be reduced only by the price for which the collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price. (b) Lender may collect from Guarantor even if Lender, by foreclosing on the real property collateral, has destroyed any right Guarantor may have to collect from Borrower. This is an unconditional and irrevocable waiver of any rights and defenses Guarantor may have because Borrower’s obligation is secured by real property.”
In opposition, defendants argued that the Bank could not establish a prima facie case in light of the short sale and release of the mortgage, which, in their view, released the note and guaranty agreements: “Specifically, [the Bank] previously released and discharged all further payment obligations by accepting the proceeds of a ‘short sale’ of the property secured by the loan at issue in this litigation. Following the short sale, [the Bank] knowingly and intentionally caused to be... recorded a Satisfaction of Mortgage which, when read together with the loan documents, demonstrates that [the Bank] deemed the Loan to have been fully satisfied and discharged. [¶] Because the [Bank] accepted the proceeds from the short sale as payment in full of underlying loan, there is nothing more for [defendants] to ‘guaranty.’ As a result, [the Bank] cannot prevail on its claims in this case and thus no writs of attachment should issue.”
The Bank argued in reply that it was authorized by the guaranty agreements to release the security and any other person, including Nationwide, without lessening defendants’ separate and independent obligations as guarantors. The Bank cited defendants’ waiver of all rights and defenses arising from the fact that the note is secured by real property. The Bank pointed out that although the promissory note was secured by an interest in real property, the guaranty agreements were not.
The Bank cited United Central Bank v. Superior Court (2009) 179 Cal.App.4th 212, 215-216 (United Central Bank), and River Bank America v. Diller (1995) 38 Cal.App.4th 1400, 1415-1419, in its reply papers. Although the Bank did not analyze the cited pages of either case, the court in United Central Bank stated that a “guaranty is a separate and independent obligation from that of the principal debt, ” and while a writ of attachment may not issue on a claim secured by an interest in real property (§ 483.010, subd. (b)), “a writ of attachment may issue on a guaranty, regardless of whether the principal loan is secured, so long as the guarantor has waived the right to require the creditor to proceed first against the security given for the primary obligation. (See Engelman v. Bookasta (1968) 264 Cal.App.2d 915, 917-918 [where guarantor waives rights arising from existence of security given by debtor, guarantor’s obligation is unsecured and creditor can obtain attachment order against guarantor]....)” (United Central Bank, supra, 179 Cal.App.4th at pp. 215-216.) In River Bank, the courtheld that, under the standard established by the Supreme Court in Bloom v. Bender (1957) 48 Cal.2d 793, the guaranty agreements contained a valid waiver of statutory defenses under Civil Code section 2809, even though section 2809 was not mentioned in the agreements. (River Bank America, supra, 38 Cal.App.4th at pp. 1415-1419.)
At the hearing on the Bank’s application, the trial court first addressed defendants’ request for a full evidentiary hearing. The request, which consisted of a single sentence in defendants’ opposition papers (“Alternatively, Defendants respectfully request that this Court schedule an evidentiary hearing so that Defendants may present their defenses before the issuance of writs of attachment”), was not supported by an offer of proof. The trial court denied the request, stating that a full evidentiary hearing was unnecessary because “the paperwork is pretty clear and the interpretation of contracts is before the Court. Nothing has been claimed to be exempt. It looks like there’s probable recovery by the plaintiff.”
The trial court then turned to the issue of the Bank’s probable success on the merits. The trial court concluded that the loan documents supported the Bank’s claim that defendants’ obligations under the guaranty agreements were not extinguished by the short sale and release of the mortgage. Based on its determination that the loan documents supported the Bank’s claim against defendants, the trial court issued the right to attach orders and orders for writs of attachment from which this appeal was taken. (§ 904.1, subd. (a)(5).)
DISCUSSION
On appeal, defendants challenge the trial court’s determination of probable validity and denial of a full evidentiary hearing. We conclude the contentions lack merit.
I. Probable Validity of the Bank’s Claim
In order to obtain a right to attach order and order for issuance of writs of attachment, a plaintiff must establish the probable validity of its claim. (§ 484.090, subd. (a)(2).) “A claim has ‘probable validity’ where it is more likely than not that the plaintiff will obtain a judgment against the defendant on that claim.” (§ 481.190.)
Defendants contend that, as a result of the short sale and release of the mortgage, the Bank is unable to establish the probable validity of its claim against defendants because, as guarantors, defendants’ obligations “must be neither larger in amount nor in other respects more burdensome than that of the principal.” (Civ. Code, § 2809.) Defendants argue that because “the liability of a surety is commensurate with that of the principal, where the principal is not liable on the obligation, neither is the guarantor. (See Bloom v. Bender, supra, 48 Cal.2d 793, 803; Atowich v. Zimmer (1933) 218 Cal. 763, 769; Garfield v. Ford [(1923)] 191 Cal. 69, 71; Glassell v. Coleman (1892) 94 Cal. 260, 268.)” (U.S. Leasing Corp. v. duPont (1968) 69 Cal.2d 275, 290.)
Defendants rely upon Civil Code section 2819, which states in relevant part that “[a] surety is exonerated... if by any act of the creditor, without the consent of the surety the original obligation of the principal is altered in any respect, or the remedies or rights of the creditor against the principal, in respect thereto, in any way impaired or suspended.” Defendants contend they were exonerated because the Bank, by consenting to the short sale and releasing the mortgage, materially altered Nationwide’s obligation without defendants’ written consent. (Citing R. P. Richards, Inc. v. Chartered Construction Corp. (2000) 83 Cal.App.4th 146, 157 [unlike an obligation that has merely been changed, altered, or modified, an obligation that has been released ceases to exist and cannot be enforced against the principal and cannot support a surety’s right of reimbursement against the principal].)
Defendants argue that because the guaranty agreements do not refer “to a short sale or contemplate in any way that the Property could be disposed of in that manner, ” there was no waiver of any statutory defenses with regard to a short sale. Defendants contend that where, as here, the only remedies mentioned in the purchase money guaranty agreements are judicial and nonjudicial foreclosure, the “well-settled expectation” is “that the guarantor at most is liable for the deficiency upon foreclosure. See Pacific Valley Bank [v. Schwenke (1987)] 189 Cal.App.3d [134, ] 140 (obligor ‘does not make an absolute promise to pay the entire obligation, but rather makes only a conditional promise to pay a deficiency that remains if a judicial sale of the encumbered property does not satisfy the debt’).”
The difficulty we have with defendants’ position is that, based on our review of the guaranty agreements: (1) defendants’ obligations are separate and independent from the note (United Central Bank, supra, 179 Cal.App.4th at p. 215 [a guaranty is a separate and independent obligation from that of the principal debt]); (2) the Bank was authorized to proceed against defendants without first proceeding against any other person (including Nationwide) or collateral (including the mortgaged property); and (3) defendants waived all rights or defenses arising from the cessation of the indebtedness for reasons other than payment in full, the release of either the borrower or the indebtedness, and the loss or release of collateral.
In our view, the above provisions support a prima facie case that defendants had agreed to remain liable notwithstanding a short sale and release of the mortgage. Although the term “short sale” does not appear on the face of the guaranty agreements, the possibility of a short sale was contemplated when defendants agreed to remain liable notwithstanding the release of the property, the borrower, and the note for reasons other than payment in full. “[A] surety is not discharged by release of the principal where ‘the surety consents to remain liable notwithstanding the release.’ (Rest., Security, § 122; see also 72 C.J.S. 686, § 223; Spencer on Suretyship (1913), p. 337, § 240.)” (Bloom v. Bender, supra, 48 Cal.2d at p. 800.)
We therefore conclude that the guaranty agreements support the probable validity of the Bank’s claim against defendants notwithstanding the short sale and release of the mortgage. “[A] writ of attachment may issue on a guaranty, regardless of whether the principal loan is secured, so long as the guarantor has waived the right to require the creditor to proceed first against the security given for the primary obligation. [Citations.]” (United Central Bank, supra, 179 Cal.App.4th at p. 215.)
Defendants raise several arguments that are addressed below, which do not undermine the Bank’s prima facie case.
A. Defendants Did Not Sign New Forbearance Agreements
Defendants contend that because they did not sign new forbearance agreements that reaffirmed their obligations notwithstanding the short sale and release of the mortgage, the Bank did not establish the probable validity of its claim. We are not persuaded.
Defendants’ contention assumes that the short sale resulted in a material change of the underlying obligation for which a new written consent was required. As previously discussed, however, the possibility of a short sale was contemplated by the provisions in the original guaranty agreements, which stated that defendants would remain liable notwithstanding the release of the property, the borrower, or the note for reasons other than payment in full.
The fact that defendants had consented in writing to extend the loan maturity date on several earlier occasions does not compel a different result. The guaranty agreements state that a waiver of the Bank’s rights cannot be established by the parties’ course of conduct. This lends support to the Bank’s position that, notwithstanding the parties’ course of conduct, defendants’ written consent to the short sale was not necessary to enforce the original guaranty agreements.
Defendants also contend that “the trial judge glossed over the distinction between a foreclosure sale and a short sale.” Defendants point out that after a foreclosure sale, “the debt continues to exist [but] is unenforceable against the debtor because of the anti-deficiency statutes, ” while after “a short sale, ... the underlying debt is typically canceled or forgiven. [Fn. omitted.] Absent a waiver, the guarantor’s liability therefore is extinguished.” For the reasons set forth above, we conclude that the lack of defendants’ written consent to the short sale does not detract from the Bank’s probability of success.
B. The Bank Used a Different Satisfaction and Release Form
Defendants contend that the Bank did not use the “Template for the Satisfaction and Release of Mortgage” that was attached to the mortgage, which stated: “To be used only when obligations have been paid in full.” As we understand the contention, it is that the Bank’s use of a different satisfaction and release form, which omitted the quoted language regarding payment in full, either constituted a material change or suggests there was a material change for which defendants’ written consent was required. We disagree.
As previously discussed, the guaranty agreements authorized the Bank to release any persons, including the borrower, and any security without requiring payment in full of the note and without lessening defendants’ obligations under the guaranty agreements. In this context, the use of a different satisfaction and release form (one that omitted any reference to payment in full of the note) was not a material change that affected the Bank’s probability of success.
C. The Guaranty Agreements Do Not Mention Civil Code Section 2819
Defendants contend that they did not expressly waive their rights under Civil Code section 2819 (“A surety is exonerated, except so far as he or she may be indemnified by the principal, if by any act of the creditor, without the consent of the surety the original obligation of the principal is altered in any respect, or the remedies or rights of the creditor against the principal, in respect thereto, in any way impaired or suspended.”).
Assuming that this issue was preserved for appellate review, we conclude that because no particular language is required to effect a waiver of surety defenses (see Civ. Code, § 2856), the lack of an express reference to Civil Code section 2819 does not undermine the probable validity of the Bank’s claim. As previously discussed, the waivers contained in the guaranty agreements plainly stated that defendants’ liability would not be altered by the release of any other person, including the borrower, or the loss or release of any collateral by operation of law or otherwise.
The Bank argues that defendants waived the issue by failing to raise it below. Given that the issue involves a question of law based on undisputed facts, we will exercise our discretion to address the issue. (See Phillips v. TLC Plumbing, Inc. (2009) 172 Cal.App.4th 1133, 1141.)
D. Violation of Public Policy
Defendants contend for the first time on appeal that “[a]llowing advance waivers for disposal of a purchase-money secured property via short sales - without some procedural safeguard such as a fair-value assessment or, at minimum, a predetermined reasonable agreed-upon floor - would... violate [the] long-standing well-established policy” of preventing excess recoveries by secured creditors. In support of this contention, defendants cite our opinion in WRI Opportunity Loans II, LLC v. Cooper (2007) 154 Cal.App.4th 525, which concluded for reasons of public policy that the guarantors’ waiver of statutory or other defenses was ineffective as to their usury defense. (Id. at p. 544.) Defendants’ reliance on WRI is misplaced. In this case, the Bank did not establish the price of the short sale. Defendants secured a buyer who was willing to purchase the property for $700,000 and presented the offer to the Bank, which accepted. Given that defendants asked the Bank to agree to the short sale, the record does not suggest that the Bank violated public policy by consenting to that request.
II. Denial of a Full Evidentiary Hearing
Defendants contend that they were wrongfully denied a full evidentiary hearing to determine issues of fact including “the intent of the parties, the meaning of the guaranties, and the course-of-conduct relating to the necessity for written consent for [defendants] to remain liable on the guaranties following the short sale.” (Capitalization omitted.) The contention lacks merit.
Although defendants argue that the trial court abused its discretion by failing to take live testimony, they do not explain what the excluded testimony would have shown. “‘“Before an appellate court can knowledgeably rule upon an evidentiary issue presented, it must have an adequate record before it to determine if an error was made.” [Citation.]’ (People v. Rodrigues (1994) 8 Cal.4th 1060, 1176.) ‘The offer of proof exists for the benefit of the appellate court. The offer of proof serves to inform the appellate court of the nature of the evidence that the trial court refused to receive in evidence.... The function of an offer of proof is to lay an adequate record for appellate review....’ (1 Wigmore on Evidence, § 20a (Tillers rev. ed. 1983), p. 858.)” (Nienhouse v. Superior Court (1996) 42 Cal.App.4th 83, 93-94.)
Without explaining what the omitted testimony would show, defendants merely state, for example, that “even if the Guaranties arguably could be given the strained and expansive interpretation that [the Bank] urges, evidence should be taken on whether the subsequent oral representations and course of conduct reasonably resulted in the belief by [defendants] that execution of the forbearance agreements was necessary for their continued liability under the Guaranties. This especially is so given [that the Bank] apparently believed that the forbearance agreements were necessary. [Internal record references omitted.] [¶] As set forth above, [the Bank] simply did not satisfy its burden of establishing the validity of its claim. [The Bank] did not even bother to address [the Bank’s] attempt to obtain the forbearance agreements reaffirming the Guaranties, either in its papers or at the hearing. [Internal record references omitted.] A full evidentiary hearing is warranted to address this issue, the parties’ clear course-of-conduct relating to obtaining consent from [defendants] for changes, and the fundamental issue of what the parties understood was encompassed by the Guaranties at the time of loan-signing.”
Without an offer of proof, it is impossible to assess the impact of the excluded evidence on the result of the hearing. Accordingly, defendants failed to meet their burden of showing that the denial of a full evidentiary hearing was a prejudicial abuse of discretion.
DISPOSITION
The orders are affirmed. The Bank is awarded its costs.
We concur: EPSTEIN, P.J., WILLHITE, J.
Under “section 483.010, a prejudgment attachment may issue only if the claim sued upon is (1) a claim for money based upon a contract, express or implied; (2) of a fixed or readily ascertainable amount not less than $500; (3) either unsecured or secured by personal property, not real property (including fixtures); and (4) commercial in nature. (See Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2007) ¶ 9:858, p. 9(II)-69 (rev. # 1 2007).) The plaintiff must establish ‘the probable validity of the claim upon which the attachment is based.’ (Code Civ. Proc., § 484.090, subd. (a)(2); see also Bank of America v. Salinas Nissan, Inc. (1989) 207 Cal.App.3d 260, 271.) ‘A claim has “probable validity” where it is more likely than not that the plaintiff will obtain a judgment against the defendant on that claim.’ (§ 481.190; see also Loeb & Loeb v. Beverly Glen Music, Inc. (1985) 166 Cal.App.3d 1110, 1120; see Kemp Bros. Construction, Inc. v. Titan Electric Corp. (2007) 146 Cal.App.4th 1474, 1476.) A defendant who opposes a right to attach order must give notice of his objection, ‘accompanied by an affidavit supporting any factual issues raised and points and authorities supporting any legal issues raised.’ (§ 484.060, subd. (a).) The defendant may make a claim of exemption with respect to his property in the opposition. (§ 484.070.)” (Goldstein v. Barak Construction (2008) 164 Cal.App.4th 845, 852.)