Roseleaf Corporation, a Corporation, Plaintiff and Respondent v. Willy, F. Chierighino, Defendant and Appellant

Decision Date08 August 1962
CourtCalifornia Court of Appeals Court of Appeals
PartiesROSELEAF CORPORATION, a corporation, Plaintiff and Respondent, v. Willy, F. CHIERIGHINO, Defendant and Appellant. Civ. 25693.

Ernest M. Silver, Los Angeles, Louis C. Hoyt, Beverly Hills, for appellant.

Brown & Altshuler, Beverly Hills, for respondent.

ASHBURN, Justice.

Appeal from a judgment which, for want of a better term, may be called a deficiency judgment.

Plaintiff Roseleaf Corporation was the owner of the Barker Hotel in Los Angeles, together with its furniture and furnishings and a liquor license for conduct of a bar therein. On or about August 30, 1955, it made a deal with the Chierighino family (consisting of Willy F. Chierighino, his brother Faustus and his parents Conrad and Antoinette), by which plaintiff was to trade the hotel, its furnishings and liquor license for certain properties owned by the Chierighinos. The original deal was that plaintiff was to reciver $25,000 in cash (to be raised through sale of some of the trust deeds hereinafter mentioned); also, (a) a note and purchase money first trust deed on the hotel in the sum of $110,000 and a chattel mortgage for the same amount upon the personal property other than the liquor license, which could not be pleaded as security (Bus. & Prof.Code § 24076); (b) converyances to plaintiff of certain real properties in Reverside, California, and Reno, Nevada; (c) assignment to plaintiff, with recourse, of seven specified second deeds of trust owned by the Chierighinos. Included in this group was a note made by Willy F. Chierighino for $4,400, secured by a second deed of trust on certain East 90th Street property which was owned by him; also a note made by Faustus Chierighino for $4,500, secured by second deed of trust on Elm Street property which he owned; (d) note for $24,500 in favor of plaintiff made by Conrad and Antoinette Chierighino and secured by first deed of trust upon Graham Avenue property owned by them; (e) note for $10,000 made by Conrad and Antoinette in favor of plaintiff secured by second deed of trust upon said Graham Avenue property.

The deal was evidenced by secrow instructions of August 30, 1955, which were amended on November 8, 1955; thereby items (c), (d) and (e), supra, were eliminated and in lieu thereof it was provided that each of the Chierighino properties should be conveyed to plaintiff, reconveyed by it to Willy Chierighino, who should execute in favor of plaintiff first and second trust deeds on the Graham Avenue property securing notes signed by him for $24,500 and $10,000, respectively; also a second trust deed on the East 90th Street property securing a note for $5,280 signed by Willy and a second trust deed on the Elm Street property securing a note for $4,500 signed by him. The escrow was closed upon this basis.

The first deed of trust upon the East 90th Street parcel became the property of one Estella King who foreclosed by public sale after default on or about August 21, 1956; Florence E. Alcott, as owner of the first trust deed upon the Elm Street property, foreclosed by a public sale on or about September 19, 1956; Abner Podrat, who had acquired the first trust deed on the Graham Avenue property, foreclosed by public sale on or about July 22, 1956. The second trust deeds were not protected at the sales and were rendered valueless thereby.

On July 11, 1957, plaintiff brought an action against the Chierighinos to recover the full amount of principal and interest upon each of the three second trust deed notes just mentioned, together with attorney's fees. The case was tried upon the first three counts of the fourth amended complaint, those having to do with the three notes, to the exclusion of all other counts. Summary judgments had been previously entered in favor of all defendants other than Willy Chierighino. Plaintiff recovered judgment upon these three notes against him in the total sum of $26,937.19 and Willy took the appeal therefrom which is now before us.

The right to sue upon a second mortgage or trust deed note after foreclosure and sale of a prior similar lien and (subject to the deficiency judgment statutes) to recover the full amount of the mortgage or trust deed note thus rendered valueless is well established. Brown v. Jensen, 41 Cal.2d 193, 259 P.2d 425, was an action to recover upon a second trust deed note after foreclosure of a first trust deed note resulting in the second beoming worthless; both trust deeds and their notes were purchase money obligations. Action was brought to recover upon the note secured by the second trust deed. The question of plaintiff's right to recover turned primarily upon whether recovery by the plaintiff would be a deficiency judgment within the terms of § 580b, Code of Civil Procedure (quoted in footnote 2, infra). The court said, at page 195, 259 P.2d at page 426, speaking of § 726, Code of Civil Procedure: 'It has been held under that section that where the security has been exhausted or rendered valueless through no fault of the mortgagee, or beneficiary under a trust deed, an action may be brought on the debt on the theory that the limitation to the single action of foreclosure refers to the time the action is brought rather than when the trust deed was made, and that if the security is lost or has become valueless at the time the action is commenced, the debt is no longer secured. [Citations.] That rule has been applied in favor of a second mortgagee, the security being considered lost or valueless as to him, where a first mortgagee forecloses his mortgage and the property is sold for no more than the senior debt and a deed has been given.' At page 197, at page 426 of 259 P.2d: '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.' Also: 'It is true that the section speaks of a deficiency judgment after sale of the security but that means after an actual sale or a situation where a sale would be an idle act, where, as here, the security has been exhausted. The deficiency judgment which cannot be obtained is still a deficiency judgment even though it may consist of the whole debt because a deficiency is nothing more than the difference between the security and the debt * * *.' (Emphasis added.) The present action is thus shown to be one for recovery of a deficiency judgment within the meaning of the moratorium statutes.

Sections 580a, 580b, and 580d, Code of Civil Procedure, have narrowed the field for deficiency judgments to such an extent that it is now an exceptional instance in which one may be recovered.

Section 580a, 1 enacted in 1933, limits the permissible deficiency judgment to the difference between the amount of the obligation and the fair market value of the property sold; this was an adoption of the same rule which was incorporated in § 726, Code of Civil Procedure, by a 1933 amendment. Section 580b 2 (enacted in 1933 and amended in 1935 and 1949) precludes and deficiency judgment upon a deed of trust or mortgage 'given to secure payment of the balance of the purchase price of real property' and, where both a chattel mortgage and a deed of trust or a mortgage have been given to secure payment 'of the balance of the combined purchase price of both real and personal property' likewise forbids a deficiency judgment.

But § 580d (enacted as § 580c in 1939 and converted into 580d in the same language in 1940) extends beyond purchase money mortgages or trust deeds and provides: '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 a mortgage or deed of trust. The provisions of this section shall not apply to any deed of trust, mortgage or other lien given to secure the payment of bonds or other evidence of indebtedness authorized or permitted to be issued by the Commissioner of Corporations, or which is made by a public utility subject to the provisions of the Public Utilities Act.'

All its requirements are present at bar. We have here there first trust deed notes made after the date of the act, eact secured by a deed of trust the lien of which is attached to real property, and that realty has been sold by the note holder under a power of sale contained in the specific instrument. This section governs the case at bar, not 580a or 580b. Discussion at the trial and in this court of the question whether these were purchase money trust deeds is beside the controlling point.

Brown v. Jensen, supra, 41 Cal.2d 193, at page 196, 259 P.2d 425, at page 426, says concerning §§ 580a and 580d: '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 secuitry. 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. * * * Section 580d covers precisely that situation in all trust deeds, whether purchase money or otherwise.' (Emphasis added; except the word 'all' which is italicized by the court.)

Freedland v. Greco, 45...

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