Valley Bank v. Larson

663 P.2d 653, 104 Idaho 772, 1983 Ida. LEXIS 444

• Court: Idaho Supreme Court
• Decided: April 1, 1983
• Docket: 14103
• Status: Published

Opinions

BAKES, Justice.

Dale Larson, who is not a party to this action, executed the three promissory notes involved in this action in favor of Valley Bank, the plaintiff respondent. First, on or about May 5, 1977, Mr. and Mrs. Dale Larson executed a thirty year promissory note in the principal sum of $66,000 plus interest to respondent, granting respondent a first deed of trust to their family residence as security. Second, on May 30, 1978, Mr. and Mrs. Dale Larson executed a 180-day promissory note in the principal sum of $30,000, with interest thereon and granted as security for this debt a second deed of trust to their home. As additional security for this note, respondent demanded and received the personal and unconditional guaranty of Louis Larson, the defendant appellant, through a guaranty agreement executed on May 30, 1978. Third, on November 9,1978, Dale Larson executed a promissory note to respondent in the principal amount of $17,-652.04, providing security in the form of various contract rights and chattel papers generated in connection with his business.

Dale Larson was unable to make the required monthly payments on the promissory notes secured by the first and second deeds of trust. Having once extended the due date of the $30,000 note, respondent Valley Bank, with appellant’s written permission, renewed the second promissory note on January 15, 1979, in the principal sum of $30,-000 plus 12% interest per annum.

When Mr. and Mrs. Dale Larson remained unable to make their payments, respondent commenced foreclosure proceedings on the first and second deeds of trust. The foreclosure sale was held September 14, 1979, at which time respondent bank purchased the Dale Larson residence for $71,-188.54. Although respondent subsequently sold the property for $73,400, the proceeds of the trustee’s sale were insufficient to extinguish the obligations owed by Dale Larson to the respondent, thus creating a deficiency alleged by respondent to be the sum of $33,258.53, together with interest, attorney fees and costs. Plaintiff respondent did not file an action against Dale Larson for a deficiency judgment within three months of the foreclosure sale as required by I.C. § 45-1512. In a letter dated January 14, 1980, respondent demanded payment from appellant on the $30,000 note, together with all accrued interest. On March 5, 1980, respondent filed this deficiency action against appellant, as guarantor of the obligations owed by Dale Larson to respondent.

In a series of summary judgments, the trial court rejected all of appellant’s defenses and, on March 12, 1981, determined that no issues of material fact existed in regard to damages. The trial court entered summary judgment in favor of the plaintiff respondent in the principal amount of $30,-000, together with interest in the amount of $3,947.31, and costs.

On appeal, appellant urges that the trial court erred in entering three separate summary or partial summary judgments in favor of the respondent, Valley Bank. The first summary judgment entered by the trial court relates to the applicability of Idaho’s anti-deficiency judgment statute, I.C. § 45-1512, to Valley Bank’s claim for deficiency against the appellant. In part relevant to this issue, I.C. § 45-1512 provides:

“45-1512. MONEY JUDGMENT — ACTION SEEKING BALANCE DUE ON OBLIGATION. — At any time within 3 months after any sale under a deed of trust, as hereinbefore provided, a money judgment may be sought for the balance due upon the obligation for which such deed of trust was given as security... . ”

It is undisputed that respondent Valley Bank allowed the three month period prescribed in I.C. § 45-1512 to elapse and is barred from filing a deficiency judgment action against Dale Larson, the principal debtor. Appellant argues that as guarantor of the debt, he is entitled to the protections afforded to the principal debtor by I.C. § 45-1512, and that since Valley Bank failed to institute a deficiency action against Dale Larson within three months of the date of foreclosure, Valley Bank is now prohibited from bringing a deficiency action against him.

The parties below both alleged that no questions of material fact existed in relation to this issue and moved for summary judgment. The trial court, in its Memorandum and Order dated May 28,1980, concluded that “[t]he Trust Deed Statutes protect the principal debtor, but the guarantor may not claim the protection because his obligation is independent of the principal debtor’s.” The trial court’s conclusion is well supported by the case law of other jurisdictions. See, e.g., Bank of America Natl. Trust & Savings Ass’n v. Hunter, 8 Cal.2d 592, 67 P.2d 99 (Cal.1937) (statutory three month limitation for initiation of deficiency actions did not bar action against guarantor based on independent obligation); Thomas v. Valley Bank of Nevada, 629 P.2d 1205 (Nev.1981) (anti-deficiency statutes do not apply to obligations of guarantors); Manufacturers & Traders v. Eighth Judicial Dist., 94 Nev. 551, 583 P.2d 444 (Nev.1978) (guarantors not protected by anti-deficiency judgment statutes); First Natl. Bank of Nevada v. Barengo, 91 Nev. 396, 536 P.2d 487 (Nev.1975); see also, Hatch v. Security First Natl. Bank of Los Angeles, 120 P.2d 869 (Cal.1942); Bank of Nevada v. Friedman, 82 Nev. 417, 420 P.2d 1 (Nev.1966); but see Apache Lanes, Inc. v. Natl. Educators Life Ins. Co., 529 P.2d 984 (Okl.1974). See generally, Annot., 49 A.L.R.3d 557 (1973). However, even if the protections afforded to a principal debtor by I.C. § 45-1512 inure to the benefit of the guarantor of the debts, which we do not here decide, the trial court also determined that the defendant appellant expressly waived any right he may have possessed to “require the creditor to proceed in any specific manner on default of the principal debtor.” We agree.

A guarantor may legally contract to waive a defense provided by anti- leficiency judgment statute. See Riverside Natl. Bank v. Manolakis, 613 P.2d 438, 441 (Okl.1980). In Riverside, the Supreme Court of Oklahoma determined that the guarantor had waived “certain statutory defenses,” including the defense that the creditor had not filed a deficiency judgment motion against the principal debtor within ninety days of the foreclosure sale, found in Okla. Stat. Tit. 12, § 686 (1971). Id. at 442. This defense had previously been extended to guarantors in Apache Lanes, Inc. v. Natl. Educators Life Ins. Co., 529 P.2d 984 (Okl.1974) (debt deemed satisfied when deficiency recovery not timely sought). Nevertheless, in Riverside the Oklahoma Supreme Court rejected the notion “that the benefits of a Section 686 discharge automatically avail to a guarantor,” 613 P.2d at 440, and restricted its holding in Apache Lanes. Id. The Oklahoma court stated essentially that the extent of a guarantor’s liability is determined by the precise terms of the guaranty contract. The court directed its attention to the guaranty involved and determined that the guarantor had expressly waived his statutory defense. 613 P.2d at 442;¹ see also Mariners Savings & Loan Ass’n v. Neil, 22 Cal.App.3d 232, 99 Cal.Rptr. 238 (1971) (court held that where a contract of guaranty contained explicit waivers of defenses based on anti-deficiency judgment statutes, among other waivers, defendant guarantor was not entitled to invoke protective shield of deficiency judgment statutes); Union Bank v. Gradsky, 265 Cal.App.2d 40, 71 Cal.Rptr. 64 (1968) (guarantor could by express contract either waive or be estopped from raising defense to creditor’s action to recover a deficiency).

Similarly, this Court recently held that a guarantor “had contractually waived his defense of release of the principal debt- or.” McGill v. Idaho Bank & Trust Co., 102 Idaho 494, 499, 632 P.2d 683, 688 (1981). In McGill, the creditor released the principal debtor from liability without the consent or knowledge of the guarantor’s successor in interest. This release would normally have discharged the guarantor. See, e.g., Knight v. Cheek, 369 A.2d 601, 603 (D.C.App.1977). The question presented in McGill, however, was whether the guaranty provision in the assignment of a conditional sales security agreement effectively waived the guarantor’s defense of release.² This Court determined that the language of guaranty was “all embracing” and effectively provided for waiver, even in the absence of a provision that explicitly authorized the release of the principal debtor without the knowledge and consent of the guarantor. 102 Idaho at 499, 632 P.2d at 688. Focusing our attention on the explicit language contained in the guaranty agreement executed by the appellant in this action, we find that the guaranty specifically provides:

“We hereby agree you may enforce this guaranty independent of any action against debtor or foreclosure of security given by debtor and we expressly waive any right to require you to (a) proceed against debtor, (b) proceed against, foreclose, or exhaust any security of debtor, or (c) pursue any other remedy in your power whatsoever. Until you are fully paid by debtor we shall have no right of subrogation nor right to share in the security of debtor. We further agree that you may, without notice to us, pledge, sell or assign any and all indebtedness covered by this guaranty, and that this guaranty shall continue in effect for the benefit of the purchaser or holder of the indebtedness so guaranteed.”

The above language of waiver is clear and unambiguous, and we follow the rule that “where the language in the guaranty agreement is unequivocal, the agreement must be interpreted as a matter of law according to the language employed therein.” McGill v. Idaho Bank & Trust Co., 102 Idaho at 498, 632 P.2d at 687; see Industrial Investment Corp. v. Rocca, 100 Idaho 228, 596 P.2d 100 (1979); Commercial Credit Corp. v. Chisholm Bros. Farm Equip. Co., 96 Idaho 194, 525 P.2d 976 (1974). Appellant expressly waived any right to require respondent to proceed against Dale Larson, the principal obligor, or to pursue any other available remedy. Even construed in favor of the guarantor, see J.R. Watkins v. Clark, 65 Idaho 504, 511,147 P.2d 348, 351 (1944), this language is broad enough to include waiver of a defense that respondent failed to seek recovery for the deficiency from Dale Larson within the three month time period prescribed by I.C. § 45-1512. A contrary interpretation would lead to the illogical conclusion that even though respondent was not required to proceed against Dale Larson as a prerequisite to an action against the appellant, respondent was nevertheless required to file an action against Dale Larson within three months of the date of foreclosure sale to preserve the appellant guarantor’s liability on any deficiency. Therefore, we hold that appellant expressly waived any defense that he was protected from a deficiency action under I.C. § 45-1512, which he may otherwise have been entitled to assert.

Next, appellant alleges that respondent misapplied funds paid to respondent by Dale Larson, thereby releasing appellant from liability on his guaranty. In an affidavit filed in opposition to respondent’s motion for summary judgment on appellant’s remaining defenses, Dale Larson alleged, in part:

“The Thirty Thousand Dollars and No Cents ($30,000.00) note upon which LOUIS LARSON was sued by VALLEY BANK was money borrowed to do a job in Rawlins, Wyoming, for a federal project. The name of the job was Highland Hills Project. VALLEY BANK would not loan the money without a guarantee from LOUIS LARSON and, at the time the note was signed and the guarantee was obtained, it was agreed that the money would be used for the Highland Hills Project and that all proceeds from the Highland Hills Project • would be applied to pay off this note. For this purpose, VALLEY BANK took, an assignment on the proceeds from the Highland Hills Project. There were, in fact, more than enough proceeds owing from the Highland Hills Project to pay off the Thirty Thousand Dollars and No Cents ($30,000.00) note but VALLEY BANK wrongfully applied those proceeds to other notes, leaving the Thirty Thousand Dollars and No Cents ($30,000.00) note unpaid.”

Paul Edwards, a co-worker of Dale Larson’s, filed a similar affidavit. Additionally, appellant’s attorney attached to his affidavit in opposition to the motion for summary judgment copies of check stubs from the Highland Hills Project showing that Federal Projects Construction, Inc., paid the total sum of $32,000.00, but they do not show to whom it was paid.

The affidavits of Larson and Edwards do not allege that the agreement was reduced to writing, nor does the record contain a written agreement embodying the terms of the alleged agreement. Furthermore, the record does not contain any evidence that Valley Bank ever actually received any of the proceeds from the Highland Hills Project. The affidavit of Joe Campbell, the vice-president/manager of Valley Bank, the Pocatello, Idaho, branch, stated that he had reviewed the check stubs attached to the attorney’s affidavit and that:

“[Yjour affiant is unable to determine that those amounts were in fact paid to Valley Bank and has in fact reviewed Valley Bank’s records and cannot find specific allocation of those amounts and cannot find any specific correlation between the amounts indicated in those checks and payments on any accounts of Dale Larson at Valley Bank.”

Nevertheless, the appellant asserts that the allegations contained in the affidavits give rise to material issues of fact, precluding the trial court’s entry of summary judgment on this issue.

The trial court “[a]ssum[ed] for the moment there was an agreement to the effect that the funds from the Highland Hills Project would be applied to the note secured by Louis Larson’s guaranty,”³ but found that “there is no indication whatsoever that such agreement survived renewal of the note and guaranty.” We agree.

The record contains a series of letters relevant to this question. When the original note became due and Dale Larson was unable to pay it, he entered into negotiations with Valley Bank to renew the note. Valley Bank conditioned the renewal of the $30,000.00 note on the express approval of “Louis W. Larson, the Guarantor,” in a letter to Dale Larson dated December 21, 1978. This letter also stated that “[a] copy of this letter will be sent to your Father in order that he understands his liability in this matter.” Valley Bank sent a letter bearing the same date to Louis Larson, in which Valley Bank indicated its willingness to renew the $30,000.00 note “if he [Dale] can pay the interest to date and gain your approval as the Guarantor.” This letter further stated: “Please contact me by mail letting me [the then vice-president] know if you are willing to go along with Dale on the renewal.” The next letter contained in the record is dated January 4,1979, is addressed to Valley Bank and is signed by Louis W. Larson. The letter states: “Having read your letter and talked to Pale, I am willing to go along with your decisions. It is to be hoped that you will give him what time he needs to get the money. Thank you.”

There is no mention of the purported agreement that Valley Bank was to apply certain proceeds to the $30,000.00 note in the correspondence between Valley Bank and Louis Larson immediately prior to the renewal of the $30,000.00 note. No other evidence was presented that the purported agreement survived the renewal of the $30,-000.00 note, or that Valley Bank ever actually received any proceeds from the Highland Hills Project. In the absence of such evidence, the record does not establish a triable issue of fact on the question of whether the respondent was released from his obligations under the guaranty contract. We therefore affirm the trial court’s entry of summary judgment on this issue.

Finally, appellant alleges that the trial court erred in ruling as a matter of law that the guaranty agreement extended to the $17,652.04 note executed by Dale Larson in favor of Valley Bank on November 9, 1978. This question arises in relation to the trial court’s determination of the amount of deficiency that respondent Valley Bank is entitled to recover from the appellant, as guarantor of Dale Larson’s obligations. In its Memorandum and Order dated March 12, 1981, the trial court determined that Dale Larson’s total indebtedness to Valley Bank existing at foreclosure amounted to $120,646.71, inclusive of the principal and interest due on the $17,652.04 note. For the reasons discussed below, however, we reach no conclusion as to whether the guaranty extended to the $17,652.04 promissory note.

The guaranty contained the following limitation on the extent of appellant’s liability. “PROVIDED, however, we shall not be called upon by virtue of this Guaranty to pay more than $30,000.00 in the aggregate, together with all accrued interest.” Acknowledging that limitation, the trial court limited its award to $30,000 plus interest to March 10, 1981, for a total award of $33,-947.31.

A brief review of the obligations of Dale Larson to Valley Bank involved in this dispute reveals the following series of transactions. Dale Larson executed a promissory note in the amount of $66,000 to Valley Bank on May 5,1977. This note was secured by a first deed of trust on Dale Larson’s residence. Dale Larson also executed a $30,000 promissory note in favor of Valley Bank on May 29, 1978. As security for this note, Valley Bank demanded and received a second deed of trust on Dale’s residence and the personal and unconditional guaranty of the appellant. This note, with appellant’s written permission, was once extended and subsequently renewed. The first and second deeds of trust were foreclosed on September 14, 1979. The total amount owed on the first promissory note on the date of foreclosure was $70,-160.43. The evidence in the record shows that the proceeds generated at the foreclosure sale, $71,188.54, resulted in satisfaction only of the first deed of trust and the costs incurred at the foreclosure sale. It is uncontroverted that no payments were ever made on the principal or interest due on the renewed $30,000 note, and that the proceeds from the foreclosure sale on the deeds of trust were insufficient to satisfy any part of the indebtedness outstanding on the second promissory note. Thus, the record establishes that the principal obligor’s indebtedness at the time the deficiency action was filed amounted to at least the entire principal and interest outstanding on the renewed $30,000 note.

' Appellant executed an express guaranty, guaranteeing the indebtedness of Dale Larson to Valley Bank as security for the second or $30,000 promissory note. By way of a partial summary judgment, the trial court discounted appellant’s defenses of failure of consideration and acceptance, and appellant raises no issue concerning the validity of the guaranty on appeal. The record contains appellant’s written andiexpress promise to guaranty the debt of Dale Larson to Valley Bank, up to the extent of the explicit $30,000 together with accrued interest limitation contained in the guaranty. Since the deficiency remaining after the foreclosure sale exceeded the $30,000 limitation on the appellant’s liability, no genuine issue of material fact exists as to the amount respondent is entitled to recover in its deficiency action against the appellant, and we affirm the trial court’s award and entry of summary judgment on the issue of damages.

The judgment of the trial court is affirmed. Costs to respondent. Respondent’s request for attorney fees on appeal is denied.

DONALDSON, C.J., and WALTERS, J. Pro Tem., concur.

1 . The guaranty in Riverside contained language that the guarantor’s liability “would not be ‘affected or impaired’ by any ‘failure, neglect or omission’ of the bank to protect, in any manner, the collection of the indebtedness or the security given therefor.” 613 P.2d at 442.

2 . The language of guaranty in the assignment in McGill provided that the guarantor:

“ ‘[H]ereby guarantees due and punctual payment of all sums due or to become due thereunder . ... ’

“ ‘The undersigned hereby waives (a) the right, if any, to the benefit of, or to direct the application of any security hypothecated to the Bank, until all indebtedness of the Buyer to the Bank, howsoever arising, shall have been paid; (b) the right to require the Bank to proceed against the Buyer, or to pursue any other remedy in the Bank’s power, and agrees that the Bank may proceed against any of the undersigned directly and independently of the Buyer, and that the cessation of the liability of the Buyer, for any reason other than full payment, or the acceptance, release or substitution of security, or any impairment or suspension of the Bank’s remedies or rights against the Buyer, shall not in anywise affect the liability of any of the undersigned hereunder.’ ”

3 . The allegation of a separate (apparently oral) agreement presents legal problems as well as lack of factual support. The affidavits do not assert that the alleged agreement was written, nor does the record contain any evidence that establishes the existence of such an agreement. The original $30,000.00 promissory note, the renewal $30,000.00 note, and the guaranty are integrated and unambiguous agreements. Parol evidence of prior or contemporaneous oral agreements is inadmissible to alter, contradict or vary the terms of an unambiguous, written agreement. Green v. K.S. Webster & Sons, 77 Idaho 281, 291 P.2d 864 (1955); Paurley v. Harris, 75 Idaho 112, 268 P.2d 351 (1954). The affidavits presented by appellant contained evidence that would have altered the unconditional terms of the express guaranty agreement and would have been inadmissible under the parol evidence rule. Affidavits offered in support of or opposition to motions for summary judgment, “shall be made on personal knowledge,” and “shall set forth such facts as would be admissible in evidence ..I.R.C.P. 56(e). Affidavits that are not based on such evidence must be disregarded, see Tapper Chevrolet Co. v. Hansen, 95 Idaho 436, 439, 510 P.2d 1091, 1094 (1973). Therefore, the respondent’s asserted defense, which was based solely upon an alleged agreement to apply the payments from the Highland Hills Project in a certain way, was probably legally insufficient as well as factually unsupported.