Nomellini Const. Co. v. Modesto Sav. & Loan Ass'n

• Decision Date: 24 July 1969
• Citation: 79 Cal.Rptr. 717,275 Cal.App.2d 114
• Court: California Court of Appeals Court of Appeals
• Parties: NOMELLINI CONSTRUCTION COMPANY, Plaintiff and Appellant, v. MODESTO SAVINGS AND LOAN ASSOCIATION, Modesto Holding Company, Robert E. Reeser, Marvin H. Hellbaum and Clara Hellbaum, his wife, Defendants and Respondents. Civ. 12035.

Page 717

79 Cal.Rptr. 717

275 Cal.App.2d 114

NOMELLINI CONSTRUCTION COMPANY, Plaintiff and Appellant, v. MODESTO SAVINGS AND LOAN ASSOCIATION, Modesto Holding Company, Robert E. Reeser, Marvin H. Hellbaum and Clara Hellbaum, his wife, Defendants and Respondents.

Civ. 12035.

Court of Appeal, Third District, California.

July 24, 1969.

Louis T. Arbios, Forrest E. Macomber, A. Grant Macomber, Stockton, for plaintiff-appellant.

Ronald E. Bates, Modesto, for Modesto Savings & Loan & Modesto Holding Co.

Horace C. Cecchettini, Sacramento, for Reeser & Hellbaum.

PIERCE, Presiding Justice.

A summary judgment was entered against plaintiff from which it appeals.

Plaintiff is the holder of a note secured by a Third trust deed on described real property, also a judgment lien junior to that. The owners defaulted on this, and all prior, secured obligations. The trustee named in the First trust deed duly noticed a breach and thereafter noticed a (nonjudicial) sale of the obligations secured by that trust deed. The sale was held at the time and date prescribed in the notice. That notice specified that the sale would be to the highest bidder For cash. The highest bidders for cash at the sale were defendants Reeser and Hellbaum. The bid $68,000. Plaintiff submitted a twofold bid: $65,000 plus a cancellation up to $10,000 on account of the obligation secured by the third trust deed and the judgment lien. The trustee accepted the Reeser and Hellbaum bid and rejected plaintiff's bid.

On this appeal plaintiff claims its bid should have been accepted as the highest bid. In granting summary judgment the trial court held that the trustee had correctly applied the law and had followed the provisions of the first trust deed.

The notice of trustee's sale providing for sale 'at public auction to the highest bidder for cash.'

We hold that the trial court properly granted a summary judgment for defendant. There was no justiciable issue. A bid by a junior lienholder for part cash, part credit--when the cash portion is lower than another cash bid--is a bid lower than the latter and does not comply with the cash bid requirement of the notice of sale.

Superficially, it might appear that whenever a situation exists such as that asserted by plaintiff here it would be to the best interests of all concerned with the titles and liens that a bidder be permitted to do what plaintiff did here. The effect of the transaction would be--if the assertion plaintiff now makes as to the extent of its junior lien rights is accurate--to pay off the obligation of the senior lienholders in full and to give to the original owner of the property the greatest credit on All obligations secured by liens--including those junior to the lien being foreclosed. That postulation overlooks several factors: (1) it 'tears up' the contract which the parties entered into--the trust deed--which requires a sale at public auction for cash; (2) from the standpoint of the trustee that is a most important provision. If he had to determine and weigh the validity and dollar value of credit bids (facing personal liability if his appraisal was wrong) his would be an onerous burden; (3) a public auction at which credit bids must be so determined and weighed would 'chill the sale' so far as cash bidders are concerned and thus defeat the purpose of a public auction.

Some of these reasons are mentioned in California Continuing Education of the Bar (1960), California Land Security and Development, in the chapter Multiple Security Interests, §§ 15.4, 15.5 and 15.6. Therein it is pointed out that where the sale is held pursuant to a power of sale in a trust deed (Civ.Code, § 2924) and the bid is made by a junior lienholder who proposes to use the claimed balance of the junior paper as a part of the bid, the bid should be rejected by the trustee. (Id. § 15.4) A bid by the beneficiary of a first trust deed on a sale noticed by such beneficiary is distinguished. There the three months' notice of breach and intent to sell will give the landownertrustor an opportunity to challenge the correctness of the amount claimed. When a junior lienholder shows up at the sale and makes a credit bid, the landowner has no such opportunity. The claimed balance of the obligation due may not be the true balance. The trustee faces a dilemma--personal liability should the accepted credit bid be challenged subsequently. (Id. § 15.5.)

We review the cases cited by Nomellini. They do not support its argued position. In Central Sav. Bank of Oakland v. Lake (1927) 201 Cal. 438, 257 P. 521, the beneficiary of a First trust deed caused a sale to be held and bought in the property for the amount of the obligation due it. No cash was paid. The claim was made that the sale was void for that reason. It was held that the rule was well settled that when the holder of a first lien deed of trust bids in the property he need not tender cash which would only immediately be returned to him. We have explained above the reasons distinguishing such a bid from a credit bid made by a junior lienholder. As was said in Witter v. Bank of Milpitas (1928) 204 Cal. 570, at page 580, 269 P. 614, at p. 619: '(T)he deed contained no language that commanded the trustees to require that the bank carry to the sale a sack of cash, make its bid, obtain its deed, pay in cash, and then demand back the cash and credit it as a payment on the notes. Having determined their duty to make a sale, the trustees had the right to conduct it as they did. The idle act of carrying around the sack of cash is not mentioned in the contract and 'the law neither does nor requires idle acts.' (Civ.Code, § 3532.)'

Kleckner v. Bank of America (1950) 97 Cal.App.2d 30, 217 P.2d 28 (hear. den.) was a multiple lien case. There were three trust deeds, the first to the Bank of America, the second to one Wetherbee and the third to plaintiff Kleckner. There the sale was by the...