Opinion
3-30-1955
Morton FREEDLAND and Charles L. Drake, Plaintiffs and Respondents, v. Domenick R. GRECO, Defendant and Appellant. Civ. 20568.
Edmund F. Barker, Montebello, for appellant. John M. Dvorin, Los Angeles, for respondents.
Morton FREEDLAND and Charles L. Drake, Plaintiffs and Respondents,
v.
Domenick R. GRECO, Defendant and Appellant.
March 30, 1955.
Hearing Granted May 25, 1955.
Edmund F. Barker, Montebello, for appellant.
John M. Dvorin, Los Angeles, for respondents.
McCOMB, Justice.
Defendant appeals from a judgment foreclosing a chattel mortgage and providing for a personal and deficiency judgment against him as mortgagor.
The single question for decision is this:
Where there is but one obligation owing to a creditor which is secured by a chattel mortgage representing the balance of the purchase price of personal property sold by the creditor to the debtor and by a trust deed which constituted additional security for the debt, and the trust deed is foreclosed under the power of sale contained therein, leaving a deficiency, and the chattel mortgage is foreclosed to satisfy said deficiency, may provision be made for a deficiency judgment in the latter action?
This question must be answered in the affirmative. The Honorable Allen W. Ashburn, the trial judge, prepared and filed an exhaustive and splendid opinion which fully sets forth the facts, appellant's contentions, and the applicable law thereto. Since we have reached the same conclusions as the learned trial judge, no useful purpose would be served by rephrasing the opinion of Judge Ashburn. Therefore we adopt the same with minor modifications as the opinion of this court. It reads as follows:
'Plaintiffs sue to foreclose a chattel mortgage and pray deficiency judgment in the event the proceeds of sale are not enough to pay the debt in full. It appears that plaintiffs sold to defendant the furniture, fixtures, etc., pertaining to a liquor store, all personal property, and that part of the purchase price was represented by a note and chattel mortgage of August 14, 1951, in the amount of $7,000; that defendant also gave plaintiffs 'as additional security' a second trust deed upon certain real property. Though there was but one debt of $7,000 (later reduced by agreement to $6,449.53) there were in fact two notes of even date delivered to plaintiffs. One of them * * * recites that it is secured by a mortgage of chattels and the other * * * that it is secured by deed of trust. The chattel mortgage note also contains this, 'This note is given in addition to the Deed of Trust in like amount as additional security to Mortgagees and Trustees.' The holder of a first trust deed upon the realty started foreclosure under power of sale and plaintiffs herein, as holders of the second lien, cured the default by paying sums aggregating $945.28 and the sale under the first line was called off. But plaintiffs proceeded to foreclose their trust deed by trustee's sale, bid in the property for $2,000 and, after deducting costs, a net credit of $1,685.63 was made upon the indebtedness. There had been previous credits and the amount now due on the debt is $5,515.84, with interest.
'Defendant does not resist foreclosure but asserts that plaintiffs are entitled to no deficiency judgment, a question which requires present solution so that a proper form of judgment may be entered. It was stipulated that, although the chattel mortgage represents the balance of the purchase price of personal property sold to defendant, the trust deed does not stand in that category and merely constitutes additional security for the debt.
'The attorney for the defendant contends that plaintiffs had an election to proceed under the one security or the other and that, having selected the trust deed for prior foreclosure, they precluded themselves from obtaining any deficiency judgment under the chattel mortgage. Reliance is placed upon Section 580d, Code of Civil Procedure, the first paragraph of which says: "No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property hereafter executed in any case in which the real property has been sold by the mortgagee or trustee under power of sale contained in such mortgage or deed of trust.'
'Counsel for defendant insists there was but one note and hence that Section 580d is squarely applicable, but, as shown, there were two notes, one representing the balance of the purchase price (chattel mortgage) and the other given as additional security for the debt (trust deed). It will be noted that the exact terms of Section 580d limit its application to the note secured by the trust deed.
'It was held in Mortgage Guarantee Co. v. Sampsell, 51 Cal.App.2d 180, 183 , that Section 580b, Code of Civil Procedure (which deals with purchase money mortgages and trust deeds, and precludes deficiency judgment), does not prevent the creditor from foreclosing an additional security such as a chattel mortgage or an assignment of rents. In other words, that there is no such automatic or preclusive election as defendant asserts at bar. In that case there was a purchase money trust deed upon an apartment house and a purchase money chattel mortgage upon the furnishings, both securing a single note. The property was sold under the trust deed and later the chattel mortgage was foreclosed. After applying the proceeds of both sales to the debt there was an unpaid balance of $43,790.16. Both the trust deed and the chattel mortgage contained a clause assigning rents as further security, a receiver had been placed in charge, and the controversy arose over conflicting claims to rents in the hands of the receiver. The trial court ordered the same paid to the holder of the note. Section 580b, Code of Civil Procedure, provides in its first paragraph: "No deficiency judgment shall lie in any event after any sale of real property for failure of the purchaser to complete his contract of sale, or under a deed of trust, or mortgage, given to secure payment of the balance of the purchase price of real property.'
'Appellant, who stood in the shoes of the debtor, contended 'that the order of the court instructing the receiver to pay to the beneficiary the rents in his hands, is in effect the obtaining of a deficiency judgment which is barred by the provisions of Section 580b, Code of Civil Procedure.' The contention is also phrased thus at page 183 [of 51 Cal.App.2d, at page 354 of 124 P.2d]: "Appellant contends that the order of the court requiring the referee to pay over the rents to the respondent is a money judgment and therefore, a deficiency judgment. Moreover, appellant contends that Section 726, Code of Civil Procedure, precludes the recovery of the rents, because the mortgagee had elected to follow another form of action to recover his debt, namely, a sale under the power of sale in the deed of trust.'
'After reviewing Hatch v. Security-First National Bank, 19 Cal.2d 254 , the District Court of Appeal held at page 186 [of 51 Cal.App.2d at page 356 of 124 P.2d]: "Therefore, there is nothing to prevent the creditor from proceeding to foreclose upon any additional security which he may have, which in the Hatch case, was a pledge of personal property by the estate and a deed of trust upon additional property of the heirs, and which in the case at bar was a chattel mortgage and the assignment of rentals.'
'It also held that the creditor was entitled to rents collected after the appointment of the receiver but not before; that the order for payment of rents to the respondent-creditor was not a deficiency judgment within Section 580b; and added: "Therefore, in no event would the sale under the deed of trust of the real property therein described, prevent the creditor from proceeding to foreclose his chattel mortgage and to obtain the rentals which in the deed of trust were assigned to him for security.'
'The ruling clearly is to the effect that foreclosure of the trust deed does not preclude realization upon additional security such as a chattel mortgage given for the same debt. It was probably this ruling that led to the addition of a second paragraph to 580b in 1949. It says: "Where both a chattel mortgage and a deed of trust or mortgage have been given to secure payment of the balance of the combined purchase price of both real and personal property, no deficiency judgment shall lie at any time under any one thereof.'
'This seems a clear reversal of the policy of the Sampsell case where both the trust deed and the chattel mortgage were purchase money instruments securing a single note.
'Ramsey v. Furlott, 14 Cal.App.2d 145, 147 [57 P.2d 1007, 1008], is quoted in the Sampsell case, as follows: 'It is well settled that such a sale, under the powers given by a deed of trust, will not bar a subsequent action to recover the remainder of the indebtedness.' But the report of the Ramsey case, which was decided in 1936, does not affirmatively disclose whether the amended form of Section 726 was under consideration.
'In Hatch v. Security-First National Bank, 19 Cal.2d 254 , the creditor bank held (1) a trust deed upon realty executed by the executors of the will of a decedent, (2) a pledge of personal property belonging to the estate, and (3) a trust deed upon certain realty belonging to the three heirs individually. These securities were foreclosed in the order just mentioned and the properties bid in by the creditor, leaving an unpaid balance of the debt amounting to $45,969.78. The creditor made no claim of personal liability. But the heirs brought an action to quiet title and the trial court, adopting their theory, 'concluded that the pledge sale on February 28, 1939, and the sale under the individuals' deed of trust, held on March 28, 1939, were invalid. In each case it was determined that title to the property involved remained in the original owner thereof. This holding was based solely upon the finding that, after the trustee's sale of the real property belonging to the estate of Hulda F. Schmidt under the trust deed of April 15, 1935, neither of the defendants took any steps pursuant to Code of Civil Procedure, Sections 580a, 725a and 726, for the purpose of determining the existence of an actual deficiency.' ([19 Cal.2d at] pages 257-258 [120 P.2d at page 871.]) The Supreme Court upheld appellant's contention that those sections are not applicable where no deficiency judgment is sought. The heirs contended that 'Unless the creditor proceeds under section 580a to establish the existence of an unpaid balance after resorting to his security, * * * it will be presumed that he has realized enough to satisfy the debt in full.' ([19 Cal.2d at] page 259 [120 P.2d at page 872.]) Also: 'Plaintiffs argue that section 580a should be interpreted so as to require the creditor to obtain a judicial determination of the unpaid balance remaining after sale under a deed of trust or mortgage before resorting to any additional security which he may hold.' ([19 Cal.2d at] page 261 [120 P.2d at page 873.])
'To this the court replied: 'The language of section 580a does not indicate that the legislature had any intention of thus protecting property which is only secondarily liable as security for the principal obligation. By its express terms, the statute is concerned only with actions to recover deficieincy judgments after the security is exhausted and plaintiffs have cited no convincing authority in support of their position.' ([19 Cal.2d at] page 261 [120 P.2d at page 873.])
'The court concluded [19 Cal.2d] at page 262 : 'Under the facts of the present cases, since the defendant has at no time attempted to secure a deficiency judgment against anyone, it is clear that section 580a is not applicable. It imposes no requirement which would invalidate the pledge sale or the sale under the individuals' deed of trust. It has already been pointed out that sections 725a and 726 have no application to the facts of this case (supra). Since the judgments in these cases are based solely upon the finding that defendant failed to proceed under these sections of the Code of Civil Procedure, it follows that each of the judgments appealed from is erroneous.'
'Again we have a definite ruling that foreclosure by sale under a trust deed does not constitute an election to forego enforcement of additional security for the debt, but no specific ruling upon the point involved in the case at bar.
'Brown v. Jensen, 41 Cal.2d 193 , was an action upon a promissory note secured by a second trust deed. Both the first and the second trust deeds upon the property were purchase money obligations. The first was foreclosed, the property bought in by its holder and the second lien thus destroyed, hence the action on the note. The Supreme Court held that it could not be maintained because forbidden by Section 580b, Code of Civil Procedure,--this notwithstanding the fact that there had been no sale under the second trust deed. The essence of the ruling is found in these passages from pages 197 and 198 [of 41 Cal.2d, from page 427 of 259 P.2d]: "The question is, therefore, did plaintiff take a purchase money trust deed on the property when it was purchased? If she did, then section 580b is applicable and she may look only to the security. That is the clear import of the wording of section 580b. The one taking such a trust deed knows the value of his security and assumes the risk that it may become inadequate. Especially does he know the risk where he takes, as was done here, a second trust deed.' ([41 Cal.2d at] page 197 [259 P.2d at page 427.]) 'Indeed the purpose of section 580b is that '* * * for a purchase money mortgage or deed of trust the security alone can be looked to for recovery of the debt.' (Mortgage Guarantee Co. v. Sampsell, 51 Cal.App.2d 180, 185 [124 P.2d 353, (355)].) The section states that in no event shall there be a deficiency judgment, that is, whether there is a sale under the power of sale or sale under foreclosure, or no sale because the security has become valueless or is exhausted. The purpose of the 'after sale' reference in the section is that the security be exhausted and that result follows after a sale under the first trust deed.' ([41 Cal.2d at] page 198 ; emphasis by court.)
'In the course of its discussion the court also had this to say at page 196 [of 41 Cal.2d, at page 426 of 259 P.2d]: 'Defendants pleaded section 580b of the Code of Civil Procedure, and as seen the facts here show that plaintiff's second trust deed is clearly a purchase money trust deed. It is urged, however, that inasmuch as there has not been a sale by plaintiff under her trust deed within the wording of section 580b, supra, it does not apply. It is further urged that it does not apply because the security has become valueless by reason of the sale under Federal's first trust deed, and the case is not one involving a 'deficiency' as there cannot be a deficiency if there is no security to sell because it presupposes a partial satisfaction [of] the debt by a sale which exhausts the security.' And at page 196 [of 41 Cal.2d, at page 426 of 259 P.2d]: 'In order to solve this question there must be a further examination of the Code sections. There are other restrictions besides section 726, supra, and 580b, supra. Section 580a applies the fair market value test of section 726 to sales made without court assistance under a power of sale contained in a trust deed. Section 580d goes further and provides that no judgment shall be rendered for any deficiency on a note secured by a trust deed where the property has been sold under the power of sale (as distinguished from a sale in a foreclosure action) contained in the trust deed. These provisions indicate a considered course on the part of the Legislature to limit strictly the right to recover deficiency judgments, that is, to recover on the debt more than the value of the security. Next comes section 580b, supra, here involved, which deals with a special type of security transaction, a trust deed, given to secure to the vendor of property the purchase price agreed to be paid by the vendee. That section is necessarily intended to provide a protection for the trustor because if it were intended to cover only the situation where there has been an actual sale of the security under the power of sale in the trust deed, it would be superfluous. Section 580d covers precisely that situation in all trust deeds, whether purchase money or otherwise.'
'This reference to Section 580d is of little assistance for it is but a paraphrase of the statute and has no relation to the exact contention now under consideration. 'But it is a familiar rule that expressions used in judicial opinions are always to be construed and limited by reference to the matters under consideration, and that they cannot be safely applied in their largest and most universal sense to dissimilar cases.' (City of Pasadena v. Stimson, 91 Cal. 250 [27 P. 604, 606.])
'Bank of America, etc., Ass'n v. Hunter, 8 Cal.2d 592, 598, [67 P.2d 99, 102], points to the correct solution of our problem. It is there said that Section 580a, Code of Civil Procedure, and statutes in pari materia, e. g., Section 337, Code of Civil Procedure as amended in 1933, 'have to do solely with actions for recovery of deficiency judgments on the principal obligation after sale under trust deed or mortgage, as distinguished from a garantor's obligation such as is here involved,' and have no 'application to an action of this character based on the independent obligation of a guarantor.' This case is quoted with approval in Hatch v. Security-First National Bank, supra, [19 Cal.2d] 261 .
'The effect of the decisions other than Brown v. Jensen seems to be that the deficiency provisions of the code are directed to a shortage upon the note secured by the particular trust deed or mortgage and they do not affect the enforcement of any additional security for the same debt or recovery of the unpaid balance. While Brown v. Jensen casts some doubt on this proposition, if it is correctly analyzed, seems not opposed, for the court does not there deal with enforcement of collateral securities. It cites and quotes with apparent approval the ruling in Mortgage Guarantee Co. v. Sampsell and deals only with a situation growing out of first and second purchase money trust deeds upon the same property.
'The difference in phraseology of 580b (th one involved in Brown v. Jensen) and 580d seems quite significant. The former provides that there shall be no deficiency judgment 'in any event after any sale of real property * * * under a deed of trust, or mortgage, given to secure payment of the balance of the purchase price of real property.' While Section 580d says that there shall be no deficiency judgment 'upon a note secured by a deed of trust or mortgage upon real property * * * in any case in which the real property has been sold by the mortgagee or trustee under power of sale contained in such a mortgage or deed of trust.' By its language and its apparent intent, Section 580d points to a deficiency upon the single note secured by the real estate trust deed or mortgage. (Emphasis added.)
'Moreover, the Legislature when it brought chattel mortgages within the scheme of the deficiency statutes did so in language which excludes the present situation, for the second paragraph of Section 580b is limited by the condition that both a chattel mortgage and a deed of trust or mortgage on realty shall have been given 'to secure payment of the balance of the combined purchase price of both real and personal property.' There was no purchase of realty involved in the situation at bar. This amendment to Section 580b leaves pre-existing law in effect as to chattel mortgages where the conditions of the amendment have not been fulfilled and that connotes a right to a deficiency judgment after a foreclosure sale which does not yield enough to pay the debt in full. (Emphasis added.)
'The essence of the matter at bar is a single obligation represented by two notes, one secured by a purchase money chattel mortgage and the other by additional security in the form of a trust deed. The trust deed has been exhausted and its proceeds applied to the debt. Plaintiff now seeks foreclosure of the chattel mortgage and if necessary a deficiency judgment upon the note secured thereby. The Court concludes that the plaintiff is entitled to this, that the exact language as well as the purpose and spirit of Section 580d support the conclusion. Judgment is ordered for plaintiff for the sum of $5,515.84 with interest, which judgment will provide for foreclosure sale, application of the proceeds to the debt, and an appropriate provision for deficiency judgment in the event the sale does not yield enough to liquidate the obligation.
'The amount of the deficiency judgment, if any, upon this chattel mortgage is not limited by the provisions of Section 726, Code of Civil Procedure. The deficiency provisions of that section are confined to real estate foreclosures. As it now stands there is no specific authorization in Section 726 for a deficiency upon a chattel mortgage note.
'In 10 Cal.Jur., 2d sec. 88, page 395, it says: 'But though the statute prescribes the method by which the plaintiff, on foreclosure of a real property mortgage, and subject to certain limitations, may recover from a defendant personally liable a balance remaining due after a sale of the mortgaged property under a foreclosure decree, no similar statutory provisions is made with respect to chattel mortgages. The amendment by which this procedure was established as to mortgages of real property eliminated a prior statutory provision applying generally to foreclosures under which, if it appeared from the sheriff's return or from the commissioner's report that the proceeds of a sale were insufficient, and a balance still remained due, a judgment must then be docketed by the clerk for such balance against the defendants personally liable for the debt. Since that amendment there appears to be no direct authority as to the procedure to be followed by a chattel mortgagee in recovering a deficiency. One case seems to indicate, however, that the chattel mortgagee could properly apply to the court in which the foreclosure proceedings were had for a deficiency judgment againt a defendant personally liable.'
'This omission appears to have been a legislative inadvertence. The attention of the law makers was directed to the emergency confronting home owners as a result of the prevailing financial chaos. 'The evil which led to the enactment of this legislation became pronounced during the recent period of economic depression when creditors were frequently able to bid in the debtor's real property at a nominal figure and also to hold the debtor personally liable for a large proportion of the original debt. (See [1934] 22 Cal.L.Rev. 170, 181.)' (Hatch v. Security-First National Bank, 19 Cal.2d 254, 259 [120 P.2d 869, 872]. Emphasis added.) 'These enactments were a part of a legislative plan to lighten the burdens of trust deed debtors as evidenced by numerous changes made in the laws at the same session of the Legislature.' (Reynolds v. Jensen, 14 Cal.App.2d 558, 559 [58 P.2d 687, 688]. Emphasis added.)
'The amendments to 726 made in 1933 and 1937 authorize deficiency judgments in real estate foreclosures but restrict the amount to the difference between the debt and the fair market value of the property. Never before the 1933 amendment of Section 726 had there been any distinction between chattel and real mortgages in this matter of deficiency judgment after foreclosure. That right was always recognized by the courts; but it was introduced into the statutes in 1860. (See 18 Cal.Jur. sec. 724, page 491.) It came to us a part of the recognized practice in equity. (Rollins v. Forbes, 10 Cal. 299, 300; Rowland v. Leiby, 14 Cal. , 157; Cormerais v. Genella, 22 Cal. 116, 127.) It was definitely held in the Hatch case that the provisions of Section 580a, Code of Civil Procedure, do not operate to satisfy the principal obligation, and the court in Mortgage Guarantee Co. v. Sampsell, 51 Cal.App.2d 180, 185 [124 P.2d 353, 355], says: 'But our statutes do not even purport to wipe out the debt, but only to apply in the contingency that a deficiency judgment is sought,' and cites the Hatch case to that effect. In view of the situation thus prevailing on real estate loans, it would be quite unreasonable to suppose that the Legislature intended, without using express language such as that incorporated in 580b and 580d, to abolish entirely personal liability upon a chattel mortgage note or to eliminate the deficiency judgment upon chattel mortgage foreclosure while retaining it in a limited way with respect to real estate mortgages and trust deeds.
'It seems to be the law of this state that a manifest legislative inadvertence in amending a statute may be treated as such and the statute construed as if the inadvertence had not occurred--as if the provision of the statute had not been mistakenly omitted in the process of amendment. (See Pond v. Maddox, 38 Cal. 572, 574; Opinion of Attorney General in 19 [Op. Atty. Gen.] 107; City of Los Angeles v. Lelande, 11 Cal.App. 302, 306 ; 23 Cal.Jur. sec. 116, page 738.) This appears to be contrary to the general rule (50 Am.Jur. sec. 234, p. 221; 82 C.J.S. [Statutes], § 328, page 635; 59 C.J. sec. 576, p. 974.)
'Though we reach the same result, the following process of reasoning seems to this court more satisfying. We recognize the fact of inadvertence in omitting from the statute the provision for deficiency judgment on chattel mortgage foreclosure, but that inadvertence spells lack of intent to abolish the right or the time-honored remedy. The practice has always been to adjudicate the personal liability for the debt, order a sale of the security to satisfy the same and entry of deficiency judgment in the event the proceeds of sale were insufficient. It is still necessary under Section 726 to foreclose in order to realize upon a chattel mortgage, and the first paragraph of that section continues to recognize the propriety of adjudication of the amount of personal liability and sale of the property to satisfy the same.
'Section 726, Code of Civil Procedure, reads in part: 'There can be but one form of action for the recovery of any debt, or the enforcement of any right secured by mortgage upon real or personal property, which action must be in accordance with the provisions of this chapter. In such action the court may, by its judgment, direct the sale of the encumbered property (or so much thereof as may be necessary), and the application of the proceeds of the sale to the payment of the costs of court, and the expenses of the sale, and the amount due plaintiff, including, where the mortgage provides for the payment of attorney's fees, such sum for such fees as the court shall find reasonable, not exceeding the amount named in the mortgage.'
'This paragraph was not substantially changed in the process of 1933 or subsequent amendments and there is tacit in it a recognition of continued liability for any deficiency after sale. The amendments of 1933 and 1937 were obviously intended merely to limit the amount of the deficiency judgment in the case of a real estate mortgage or trust deed. True, the third paragraph as it now stands specifically authorizes a deficiency in such foreclosures unless waived but the history of the statute shows that the purpose was limitation of amount of deficiency and not the restatement of an existing right to deficiency. While this section in its firest paragraph continues to recognize implicitly the continued existence of a right to deficiency judgment upon a chattel mortgage note, we are left without a statutory guide as to procedure in the event of insufficient funds from the sale of the chattels. The right to recover the debt has not been abolished. There is merely no prescribed remedy.
'Section 187, Code of Civil Procedure, fills this gap. It provides: 'When jurisdiction is, by the Constitution or this Code, or by any other statute, conferred on a Court or judicial officer, all the means necessary to carry it into effect are also given; and in the exercise of this jurisdiction, if the course of proceeding be not specifically pointed out by this Code or the statute, any suitable process or mode of proceeding may be adopted which may appear most conformable to the spirit of this Code.'
'The Court finds the former practice to be the one properly applied at bar and awards judgment accordingly; that is to say, judgment in favor of the plaintiff for $5,515.84 and interest, with provision for foreclosure sale and entry of deficiency judgment in the event of insufficient proceeds of sale.'
Affirmed.
MOORE, P. J., and FOX, J., concur. --------------- * Opinion vacated 289 P.2d 463. 1 'Citing First Nat. Bank v. Turnbull, 99 Cal.App.2d 764 , which is quite inconclusive.' 2 'The 1933 Legislature, in its efforts to relieve distressed debtors, passed or amended each of the following: Code of Civil Procedure, sections 725a, 726, 580a, 580b, 337; Civil Code, sections 2924, 2924b, 2924c, 2924 1/2. Most of these sections were re-enacted in 1935 to remove any ambiguity created by the language of Civil Code, § 2924 1/2. See note following section 580a in Deering's 1953 Code of Civil Procedure.' 3 'Section 726 was amended in 1933 and again in 1937. The 1933 amendment implied a limitation of deficiency judgments to real estate mortgages and trust deeds, and the 1937 amendment, which revamped the procedure for obtaining a deficiency, used clearer language in this respect. The inadvertence above mentioned pervades both enactments.' 4 'The opinion in Brown v. Jensen, 41 Cal.2d 193, says at page 195 [259 P.2d 425, at page 426] that one of the conditions prescribed by Section 726 'is that any deficiency judgment is limited to the difference between the fair market value of the property and the amount for which the property was sold', which appears to be an inadvertence on the part of the court.' 5 'The words 'form of' were introduced into the first sentence of Section 726 by another 1933 amendment. For present purposes it is deemed of no consequence.'