First Credit Union, an Ariz. Corp. v. Courtney

• Decision Date: 12 September 2013
• Docket Number: No. 2 CA–CV 2013–0005.,2 CA–CV 2013–0005.
• Citation: 309 P.3d 929,233 Ariz. 105,669 Ariz. Adv. Rep. 18
• Parties: FIRST CREDIT UNION, an Arizona corporation, Plaintiff/Appellee, v. Craig R. COURTNEY and Janine C. Courtney, a married couple, Defendants/Appellants.
• Court: Arizona Court of Appeals

233 Ariz. 105

309 P.3d 929

669 Ariz. Adv. Rep. 18

FIRST CREDIT UNION, an Arizona corporation, Plaintiff/Appellee,

v.Craig R. COURTNEY and Janine C. Courtney, a married couple, Defendants/Appellants.

No. 2 CA–CV 2013–0005.

Court of Appeals of Arizona, Division 2, Department A.

Sept. 12, 2013.

Lewis and Roca LLP By D. Douglas Metcalf and Jeffrey L. Sklar, Tucson, Attorneys for Plaintiff/Appellee.

Stubbs & Schubart, P.C. By G. Lawrence Schubart, Tucson, Attorneys for Defendants/Appellants.

HOWARD, Chief Judge.

¶ 1 Appellants Craig and Janine Courtney (“the Courtneys”) appeal from the trial court's grant of partial summary judgment and from its entry of a deficiency judgment against them. On appeal, they argue the court erred by not dismissing First Credit Union's (“First Credit”) complaint as premature, by not finding that an anti-deficiency statute barred a deficiency judgment, and by entering a deficiency judgment against them when the underlying indebtedness had been extinguished. Because we find no error, we affirm.

Factual and Procedural History

¶ 2 The parties largely agree on the underlying facts but dispute their legal effect. In December 2006, Orange Grove I, L.L.C. (“Borrower”) entered into a construction loan agreement with First Credit for the principal amount of $3.56 million. Borrower executed a promissory note and a deed of trust in First Credit's favor, secured by real property in northwest Tucson known as the Appian Estates at Casas Adobes (“Appian Estates”). First Credit also required the Courtneys to sign a “Commercial Guaranty” that made them personally liable for the “Indebtedness.” The Commercial Guaranty contained numerous waivers of legal defenses to its enforcement.

¶ 3 In May 2009, Borrower and First Credit executed a “Change in Terms Agreement” that provided additional security for the loan, stipulated to a lower principal amount due, and granted an extension of time for payment of the loan. The Courtneys also signed the agreement. The new security consisted of a residential home on less than 2.5 acres of land, also in northwest Tucson, which the parties refer to as the “Citrine Property.” The Citrine Property was subject to preexisting liens totaling about $52,000.

¶ 4 Borrower subsequently defaulted on the construction loan. First Credit then requested a trustee's sale of the Appian Estates property. At the sale held on February 16, 2011, First Credit acquired the Appian Estates property for a credit bid of $2.4 million. Nine days later, on February 25, 2011, First Credit sued the Courtneys, based on the Commercial Guaranty, for a deficiency judgment on the loan. It chose to forgo suing Borrower or requesting a sale of the Citrine Property.

¶ 5 The trial court granted partial summary judgment to First Credit on the issue of liability and proceeded to trial on the fair market value of the Appian Estates property and the amount of any deficiency. At trial, the Courtneys raised additional defenses to liability based on A.R.S. § 33–814. First Credit responded, contending the Courtneys had misinterpreted the statute and had, in any event, waived defenses based on § 33–814.

¶ 6 After taking the case under advisement, the trial court found that the waivers in the guaranty precluded the Courtneys' liability defenses. The court also found that the fair market value of the property was less than its sale price, and therefore based the deficiency award on the difference between the sale price and the debt. It entered a deficiency judgment in favor of First Credit in the amount of $1,355,039.28 plus interest at the rate of eighteen percent per year, which was the amount agreed upon in the Change in Terms Agreement. The court also awarded First Credit attorney fees of $95,342.25. The Courtneys appeal. We have jurisdiction pursuant to A.R.S. §§ 12–120.21(A)(1) and 12–2101(A)(1).

¶ 7 We will uphold the trial court if it is legally correct for any reason. Gen. Elec. Capital Corp. v. Osterkamp, 172 Ariz. 191, 193, 836 P.2d 404, 406 (App.1992). Although the trial court decided this case based on the validity of the waivers in the Guaranty, the parties fully briefed below and here the Courtneys' proposed interpretation of § 33–814. We resolve this case by interpreting § 33–814 and the Guaranty without deciding whether, in general, a guarantor can waive protections afforded under that statute.¹

Prematurity

¶ 8 The Courtneys initially argue First Credit brought its action for deficiency prematurely because it did not subject the Citrine Property to a trustee sale. They rely on § 33–814(B), which gives the creditor ninety days after the sale of the final piece of trust property to bring its action. The Courtneys also rely on “general legal principles” that they claim make First Credit's action for deficiency premature as merely speculative. First Credit responds that the waivers contained in the guaranty agreement preclude this defense and that § 33–814(C) allowed it to sue without foreclosing on the Citrine Property.

¶ 9 We review issues of contractual and statutory interpretation de novo. See Tenet Healthsystem TGH, Inc. v. Silver, 203 Ariz. 217, ¶ 5, 52 P.3d 786, 788 (App.2002). We interpret statutes to fulfill the intent of the legislature. Zamora v. Reinstein, 185 Ariz. 272, 275, 915 P.2d 1227, 1230 (1996). We look first to the plain language of the statute because it provides the most reliable measure of a statute's meaning. See City of Tucson v. Clear Channel Outdoor, Inc., 218 Ariz. 172, ¶ 6, 181 P.3d 219, 225 (App.2008). When the statutory language “is clear and unambiguous,” we look no further and “assum[e] the legislature has said what it means.” Id. To the extent, however, that a guaranty agreement contains ambiguity, we generally construe it in favor of the guarantor. Silver, 203 Ariz. 217, ¶ 7, 52 P.3d at 789. As with all contracts, our primary goal is to give effect to the entire contract. Provident Nat'l Assur. Co. v. Sbrocca, 180 Ariz. 464, 465, 885 P.2d 152, 153 (App.1994).

¶ 10 Section 33–814(C) provides as follows: “The obligation of a person who is not a trustor to pay ... the balance due on a contract secured by a trust deed may be enforced, if the person has so agreed, in an action regardless of whether a trustee's sale is held.” That statute, therefore, does not require First Credit to foreclose the lien against the Citrine Property at all. Thus, § 33–814(B)'s ninety-day provision, which the Courtneys claim makes this action premature, cannot have been intended by the legislature to postpone any action until after a non-judicial foreclosure of that property. Rather, § 33–814(B) is a limitation provision that requires any deficiency action be brought within ninety days of the trustee's sale of the last piece of the trust property.²

¶ 11 Furthermore, the Courtneys have not advanced any reason § 33–814(C) should not apply when a portion of the collateral has been sold and a portion remains. In setting its time limitation, § 33–814(B) contemplates that a lender may not, in fact, sell all of its collateral:

If a trustee's sale is a sale ... pursuant to one of two or more trust deeds securing the same obligation, the ninety day time limitations of subsection A of this section shall begin on ... the date of the trustee's sale of the last of the trust property to be sold.

Subsection (B) places no limitation on subsection (C) or any of the statute's other provisions. The plain language of the statute does not support the Courtneys' position.

¶ 12 Additionally, § 33–814(C) specifically allows the guarantor to agree that the creditor may collect the debt without selling the collateral. This right to waive defenses is consistent with the common law principles cited by the Courtneys. At common law, through a set of doctrines known as “suretyship defenses,” a guarantor was protected against certain unilateral actions by the principal parties to a contract that could change a guarantor's rights or obligations. Data Sales Co. v. Diamond Z Mfg., 205 Ariz. 594, ¶ 15, 74 P.3d 268, 272 (App.2003).³ Those protections included a guarantor's right to require the creditor to exhaust all collateral securing the debt obligation before pursuing the guarantor. See Ft. Lowell–NSS Ltd. P'ship v. Kelly, 166 Ariz. 96, 102, 800 P.2d 962, 968 (1990) (court follows Restatement absent contrary Arizona law); Restatement (Third) of Suretyship & Guaranty §§ 37(1), 42(2)(b) (1996) (acts by creditor increasing guarantor's potential cost of performance reduce guarantor's liability; release of collateral by creditor reduces guarantor's liability). However, the common law is also “well settled that surety rights can be waived by contract.” Data Sales, 205 Ariz. 594, ¶ 16, 74 P.3d at 272. Thus, the “nature and extent of a guarantor's liability depends upon the terms of the guaranty contract” and “we must give effect to its clear and unambiguous terms.” Silver, 203 Ariz. 217, ¶ 7, 52 P.3d at 788–89.

¶ 13 In relevant part, the guaranty contract here expressly provides that “Guarantor waives any right to require [First Credit] ... to proceed directly against or exhaust any collateral held by [First Credit] from Borrower ... [or] to pursue any other remedy within [First Credit]'s power.” This contractual provision is clear and unambiguous and by its plain language waives the Courtneys' defense. Therefore, under § 33–814(C), the Courtneys agreed to allow First Credit to sue without exhausting any collateral, including the Citrine Property, and the statute explicitly permits First Credit to do so. And because of the Courtneys' agreement, applying the common law principles yields the same result. See Data Sales, 205 Ariz. 594, ¶ 16, 74 P.3d at 272. The Courtneys' agreement is valid and binding on them. § 33–814(C); see also Data Sales, 205 Ariz. 594, ¶ 16, 74 P.3d at 272;Silver, 203 Ariz. 217, ¶ 17, 52 P.3d at 788–89. Accordingly, First Credit's action is not premature.

¶ 14 The Courtneys also argue that First...