Krueger v. Bank of America
| Decision Date | 21 July 1983 |
| Citation | 193 Cal.Rptr. 322,145 Cal.App.3d 204 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Robert W. KRUEGER and Marjorie E. Krueger, Plaintiffs, Cross-Defendants, Appellants, v. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, Defendant, Cross-Complainant Cross-Appellant, Respondent. Security Pacific National Bank, Cross-Complainant, Respondent. Civ. 66797. |
Hughes Hubbard & Reed, William T. Bisset, D. Christopher Wells, Jr., Los Angeles, for plaintiffs, cross-defendants, appellants; John R. Hetland, Berkeley, of counsel.
Ullar Vitsut, Charles A. Druten, Los Angeles, for defendant, cross-complainant, cross-appellant, respondent, Bank of America.
Sheppard, Mullin, Richter & Hampton, William M. Burke, Los Angeles, Vincent K. Schubert, Irvine, for cross-complainant, respondent Security Pacific National Bank; and Roger Bernhardt, of counsel.
Plaintiffs Robert and Marjorie Krueger (Kruegers) brought this action seeking a judicial determination of their rights and liabilities under certain continuing guarantees executed and delivered to defendants Bank of America National Trust & Savings Association (Bank of America) and Security Pacific National Bank (Security Pacific) (sometimes collectively referred to as "the Banks"). In separate causes of action alleging, inter alia, conversion, breach of contract and breach of fiduciary duty, the Kruegers further sought the return in full of their pledged collateral, constituting approximately 290,000 shares of common stock, held by both financial institutions. The Banks cross-complained for the remaining amounts owing under the guarantees.
Following a trial without jury, judgment was entered exonerating the Kruegers from further liability on the guarantees and awarding them $137,000 in costs and fees. Except for a partial return of the pledged assets, all other relief was denied. The Banks took nothing by their cross-complaints.
The Kruegers appeal from that portion of the judgment denying them complete recovery of the pledged stock. Bank of America cross-appeals solely from the order awarding fees and costs.
Before proceeding to a discussion of the facts, we note here that the appeal before us is based upon only the clerk's transcript and, as such, is considered to be upon the judgment roll alone. Kopf v. Milam (1963) 60 Cal.2d 600, 601, 35 Cal.Rptr. 614, 387 P.2d 390; Estate of Larson (1949) 92 Cal.App.2d 267, 269, 206 P.2d 852.) The trial court's findings of fact and conclusions of law therefore are presumed to be supported by substantial evidence and are binding upon us, unless the judgment is not supported by the findings or reversible error appears on the face of the record. (Aruba Bonaire Curacao Trust Co. v. United California Bank (1973) 32 Cal.App.3d 281, 283, 107 Cal.Rptr. 924; Bristow v. Morelli (1969) 270 Cal.App.2d 894, 896, 898, 76 Cal.Rptr. 203; White v. Jones (1955) 136 Cal.App.2d 567, 569, 288 P.2d 913.) Accordingly, our summary of the facts is taken from these findings and conclusions.
During the late 1960's, as part of an investment scheme, Robert Krueger became a director and major stockholder of General Resource Development (GRD), a corporation devoted to the development of real property in San Luis Obispo County. Beginning in 1970, GRD sought financing for its "Oak Shores" project from Security Pacific and, in slightly less than one year, had obtained loans in excess of $1.8 million. To induce the making of these loans, the Kruegers executed a "General Continuing Guarantee," 1 dated April 25, 1970, in which they guaranteed the payment of all of GRD's indebtedness to Security Pacific not to exceed the principal sum of $2,200,000. As security for this guaranty, the Kruegers pledged 196,500 shares of common stock of Planning Research Corporation (PRC).
In 1971, a similar agreement was reached with Bank of America for loans eventually totalling over $2 million. As a guarantee, the Kruegers again pledged another 100,000 shares of PRC stock. In May 1972, upon Bank of America's demand and as security for GRD's obligations, GRD delivered to the Bank a deed of trust covering approximately 300 parcels of real property in the Oak Shores development. The following month, GRD granted Bank of America a security interest in all of its assets then in the bank's possession.
By mid 1972, the project had faltered and GRD's financial difficulties were manifest. Following extensive negotiations, the parties agreed to restructure the various loans in an attempt to stabilize a rapidly deteriorating situation. In September 1972, the Banks, GRD, the Kruegers, Argonaut Insurance Company, which had issued performance and payment bonds for the Oak Shores project, and several other investors entered into a 24-page "Loan Agreement" (the September 1972 agreement), under the terms of which the Banks and Argonaut 2 advanced GRD an additional $900,000.
GRD's obligation to repay both the old and new loans was secured by the deed of trust previously delivered to Bank of America, a second deed of trust covering the same lots, and a separate deed of trust on property owned by GRD adjacent to the Oak Shores development. The Banks were also granted a security interest in machinery and equipment and in certain options to purchase real property owned by GRD. The agreement further provided that after February 28, 1974, all loans would be payable upon demand. Bank of America was designated as the representative of all creditors.
As part of the September 1972 agreement, the Kruegers reaffirmed their guarantees to both Banks. In a separately executed letter, dated September 7, 1972, the parties agreed that Security Pacific and Bank of America would give the Kruegers written notice prior to the sale of any of the pledged PRC stock. Such notice was for the purpose of providing the Kruegers with an opportunity to arrange, if desired, their own sale of the stock.
Subsequent to the signing of the September 1972 agreement, the obligations of GRD to the Banks were modified to provide a one month deferral of interest payments and the use of lot sale proceeds to purchase additional real property rather than pay the Banks. Although the Kruegers did not contemporaneously consent to these changes in GRD's obligations, the modifications fell within the terms of the guarantees and loan agreements. In 1972 and 1973, however, GRD sold $85,000 worth of its equipment with the Banks' consent and authorization but without official notice to the Kruegers.
By 1974, GRD's financial condition had worsened causing it to default on its loans. On March 11, 1975, both Banks made demand upon GRD for repayment of its debts. In a series of transactions between May 30, 1975 and June 2, 1975, Bank of America sold the 100,000 shares of PRC stock pledged to it by the Kruegers, and between June 4, 1975 and June 12, 1975, Security Pacific sold all but 15,500 of its 196,500 shares. These sales, conducted over the New York Stock Exchange, were accomplished without notice to the Kruegers in breach of the 1972 agreement. 3 The proceeds from each sale, totalling almost $1.3 million, were eventually credited against GRD's outstanding loans.
In late January 1976, the Banks notified the Kruegers by written letter that a nonjudicial foreclosure on the real property would be conducted on March 4, 1976, and that if they failed to take action to protect their interests prior to the sale, they could lose their right to seek reimbursement from GRD for the loss resulting from the sale of the PRC stock. Although in the same notice both Banks tendered their loans to the Kruegers for purchase, they knew that the Kruegers were without sufficient funds to undertake such a transaction.
On February 28, 1976, the Kruegers, after seeking legal advise, objected to the planned sale and warned that they were prepared "to take appropriate steps to recover damages from ... [the Banks] to the extent ... [their] past and future actions jeopardize our rights in any manner." Nonetheless the foreclosure occurred as scheduled pursuant to the power of sale provisions contained in each deed of trust encumbering GRD's property. Although the sale was credited against GRD's obligations, there remained a balance of approximately $3.5 million due on the loans.
Based upon the evidence before it, the trial court found two independent grounds for exonerating the Kruegers from further liability on their guarantees and for returning to them the 15,500 shares retained by Security Pacific. 4 The court first determined that the Banks' failure to give the Kruegers advance notice of the sale of the pledged collateral constituted a breach of the September 1972 agreement and precluded any further recovery on the guarantees. The court further held that the Banks were estopped from asserting a deficiency claim because of their election to conduct a nonjudicial foreclosure sale of GRD's property thereby destroying the Kruegers' statutory rights (see Civ.Code, §§ 2847-2848) to subrogation and reimbursement.
On appeal the Kruegers contend that the Banks must reimburse them for all 296,500 pledged shares converted and that pursuant to Civil Code section 3336 such shares must be valued at their highest fair market value between the date of conversion and the date of judgment. 5
The Kruegers' argument that the Banks are "estopped" from retaining the proceeds of the sale of the PRC stock is based on the reasoning of the court in Union Bank v. Gradsky (1968) 265 Cal.App.2d 40, 71 Cal.Rptr. 64. In that case, plaintiff bank made a construction loan to a property owner which was secured by a first trust deed on the property. As additional security for the loan, defendant general contractor guaranteed the property owner's note. When the note went unpaid, the bank caused the security to be sold at a trustee's sale, and bid in the...
To continue reading
Request your trial
-
Coppola v. Superior Court
...the debtor-in-possession or bankruptcy trustee, not the creditor, who made the choice of such a sale. (Cf. Krueger v. Bank of America (1983) 145 Cal.App.3d 204, 211, 193 Cal.Rptr. 322.) (4) Posture of Present In the present case the sale "free and clear of liens" was held at the instance of......
-
Acree v. General Motors Acceptance Corp.
...victory given the high percentage of CPI policies that are cancelled before the end of their term. In any event, the plaintiffs in Krueger v. Bank of America were deemed to be a prevailing party for Civil Code section 1717 purposes even though they failed to "on virtually all causes of acti......
-
Moore v. Regents of University of California
...compensation for the time and money properly expended in pursuit of the property." (Emphasis added. See Krueger v. Bank of America (1983) 145 Cal.App.3d 204, 215, 193 Cal.Rptr. 322.) As previously noted, I cannot accept the majority's characterization of plaintiff's diseased spleen as "prop......
-
Harvard Investment Co. v. Gap Stores, Inc.
...well within its discretion when the judge determined that Harvard was the only prevailing party. (See Kruger v. Bank of America (1983) 145 Cal.App.3d 204, 217, 193 Cal.Rptr. 322); also, that its determination was consistent with the current version of section 1717.9 See, e.g., Ecco-Phoenix ......