Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County No. 04CC06282, Daniel J. Didier, Judge.
Lawrence E. Hanna for Defendant and Appellant.
Brewer & Brewer and Templeton Briggs for Plaintiff and Respondent.
OPINION
SILLS, P. J.
I
Normally, the guarantor of a loan is exonerated from the obligation if the lender alters the terms of the deal with the principal debtor. (Civ. Code, § 2819.) This case centers on whether the guarantor of a loan can waive, prior to such an alteration, rights he or she would otherwise have pursuant to be section 2819 of the Civil Code, to be exonerated. Numerous published decisions, including one from our Supreme Court, say the answer is yes. (See Bloom v. Bender (1957) 48 Cal.2d. 793; State Bd. of Equalization v. Carleton (1990) 223 Cal.App.3d 1607; American Security Bank v. Clarno (1984) 151 Cal.App.3d 874; Union Bank v. Ross (1976) 54 Cal.App.3d 290; American City Bank v. Tourtelot (1978) 86 Cal.App.3d 585; Southern Cal. First Nat. Bank v. Olsen (1974) 41 Cal.App.3d 234; Common Wealth Ins. Systems, Inc. v. Kersten (1974) 40 Cal.App.3d 1014.)
All further references to section 2819 will be to the Civil Code. Section 2819 provides: “A surety is exonerated, except so far as he or she may be indemnified by the principal, if by any act of the creditor, without the consent of the surety the original obligation of the principal is altered in any respect, or the remedies or rights of the creditor against the principal, In respect thereto, in any way impaired or suspended. However, nothing in this section shall be construed to supersede subdivision (b) of Section 2822.”
The guarantor here has done nothing, either in his opening brief or in oral argument, to distinguish these cases. We therefore are compelled to affirm the judgment.
II
Plaintiff (D.A.N. Joint Venture III (“DAN”) is an investment corporation that buys and sells pools of loans. DAN purchased a $1 million loan originally made by Allied Bank to the Stent-Cil Corporation, guaranteed by (among others) defendant Miguel Champalanne. The loan (mostly) wasn’t paid, and DAN sued Champalanne on the guarantee. DAN obtained a summary judgment against Champalanne, but, in 2006, this court reversed that judgment given an absence in the moving papers of any evidence authenticating Champalanne’s signature on the guarantee. The case went to trial, including the presentation of testimony of a document expert to the effect that, yes, the guarantee really was signed by Champalanne. The court found in favor of DAN, and, in early January 2008, entered judgment against Champalanne for, with interest, about $1.1 million.
The next month Champalanne filed a notice of appeal from the judgment. By September 2008 the case was fully briefed -- and the briefing (conspicuously) raises no issue about the evidence to support the authentication of his signature; the issue is, in fact, expressly waived on page three of the opening briefing. However, by the end of October 2008 Champalanne had filed for bankruptcy. This court accordingly stayed all proceedings.
In December 2009, however, this court received notification that the automatic stay imposed by the filing of bankruptcy proceedings had been “lifted for the purposes of allowing the appeal, Case No. G039905 pending in the Fourth Appellate District of the Court of Appeals of the State of California, to proceed to its conclusion.” This court then set the matter for its February 2010 calendar.
III
Champalanne’s opening brief is correct that the basic facts are “primarily undisputed.”
Champalanne signed a loan guarantee in September 2002, guaranteeing a $1 million loan to Stent-Cil Corporation, a manufacturer of laser tube cutting machines used to make the stents that keep coronary arteries open. Each machine would sell for about $350,000.
The loan that Champalanne (and others) was guaranteeing had these restrictions on the borrower: The corporation could not sell or lease any of the five machines that constituted the collateral for the loan, and it also required a full 20 percent of the proceeds of the loan to be held in a cash account by the borrower. The balance was all due in June 2003.
About the time of the September guarantee (the record is indefinite as to precisely when), there was a coup at Stent-Cil Corporation. Champalanne was ousted from his position as president. Thereafter, for some reason (perhaps even as a matter of cause and effect), Allied Bank, as a matter of actual practice (no paperwork is cited to us) relaxed some of the restrictions on the loan: The corporation now was allowed to sell the five machines pledged as collateral, and the amount of the loan that had to be kept in the bank was reduced to 10 percent. The due date was extended, though the record is not clear as to precisely when. There is no evidence that Champalanne himself agreed to any of these relaxations.
Allied Bank was subsequently sold, the loan was ultimately purchased by DAN, the loan was never paid even under any extended due date, and DAN brought this collection action.
IV
Section 2819 is founded on the old common law rule that a material alteration of the terms of a loan without the guarantor’s consent will exonerate the guarantor in its role as surety for the loan. (See Bloom v. Bender, supra, 48 Cal.2d at p. 800.) The rule, of course, is highly intuitive and founded on common sense: A person guaranteeing a loan would naturally assess his or her own risk based on the lender’s ability to satisfy the loan from the underlying debtor’s collateral -- the better the collateral, the less risk to the guarantor. Conversely, any action by the lender that makes it less likely the lender will satisfy the obligation from the security (or, alternatively, other debtors or guarantors) makes it more likely that the lender will try to satisfy the obligation from the guarantor, who will be on the hook, literally, for more than he or she bargained for.
However, it is well established that the guarantor’s right under section 2819 can be waived in advance of any alteration of the obligations imposed on the principal debtor. The most dispositive authority on the point is the California Supreme Court case of Bloom v. Bender, supra, 48 Cal.2d. 793, where the guarantee specifically provided that the “the liability of the guarantor ‘shall not be affected by... acceptance of any settlement or composition offered... [the debtor], either in liquidation, readjustment, receivership, bankruptcy or otherwise.’” (Id. at p. 801.) In Bloom, the high court clearly held that even a release of the primary debtor from liability did not operate to exonerate the guarantor.
Said the high court: “Moreover, if effective consent to the change in the obligation of the principal will prevent the otherwise resultant discharge of the surety, such consent may be given in advance of the alteration of the principal’s obligation as well as at or after the time of such act. [Citations.] The guarantee agreement here in question specifically provides that the liability of the guarantor ‘shall not be affected by... the acceptance of any settlement or composition offered by... [the debtor], either in liquidation, readjustment, receivership, bankruptcy or otherwise.’ The above quoted provision plainly gives advance consent to the release of Midwest by means of an arrangement such as the composition agreement which was executed.” (Bloom v. Bender, supra, 48 Cal.2d. at p. 801, italics added.)
Another example, a 1984 case by our colleagues in Division Two of this District, is American Security Bank v. Clarno, supra, 151 Cal.App.3d 874. There a guaranty provided that the guarantor consented to the substitution, exchange or release of any part of the collateral (id. at p. 880), and the court held the waiver did, indeed, operate to waive rights otherwise afforded the guarantors under section 2819 (id. at p. 882).
To the same effect are: State Bd. of Equalization v. Carleton, supra, 223 Cal.App.3d at p. 1610 [“A surety is not exonerated by a change in the contract between the principal and creditor, and made with the surety’s consent. Consent to such changes may be given in advance in the contract for the performance of the suretyship obligation.”]; American City Bank v. Tourtelot, supra, 86 Cal.App.3d at p. 591 [noting “as a general rule a guarantor will not be exonerated by a change in the terms of the underlying indebtedness if the change is made with the guarantor's consent, which consent may be given in advance”]; Southern Cal. First Nat. Bank v. Olsen, supra, 41 Cal.App.3d at p. 239, 240 [“A surety is not exonerated from liability by a change in the contract between the principal and the creditor which is made with his consent... and such consent may be given in advance of the alteration of the principal’s obligation as well as at or after the time of such act.”]; Union Bank v. Ross, supra, 54 Cal.App.3d at p. 294 [noting that guarantors had, in the guaranty, “waived their rights under Civil Code sections 2819 and 2845”]; Common Wealth Ins. Systems, Inc. v. Kersten, supra, 40 Cal.App.3d at p. 1029 [“A surety is not exonerated by a change in the contract between the principal and the creditor when he consented to the change.”]; see also Rutan v. Summit Sports, Inc. (1985) 173 Cal.App.3d 965, 973 [noting that guarantor could waive right to adequate financing statement under Commercial Code].)
The only question left, then, is whether, Champalanne waived his rights under section 2819. The answer is found in the guaranty itself: The language is, if anything, plainer than the one in Bloom. The second paragraph of the guarantee provides: “This guaranty shall automatically extend to cover all renewals, rearrangements and/or extensions of the above mentioned indebtedness and any part thereof, regardless of who may be the holder thereof and regardless of the form, terms, provision and security (or lack of security) therefor.” (Italics added.) The fifth paragraph provides in pertinent part: “The extensions of the time of payment or the renewal of a note or other obligation guaranteed hereby, or the extension of the time of performance or agreements or any other compromise, adjustment or indulgence with respect to any note or other obligation guaranteed hereby or any renewal, extension or rearrangement thereof may be granted to Borrower without notice to Guarantors.” (Italics added.)
Champalanne proffers no argument to refute the effect of the consents given in the guarantee or their enforceability under Bloom (or any of the other cases).
V
Judged by the subheadings in the opening brief, there is only one other issue: Champalanne notes that DAN has possession of one remaining stent producing machines, and asserts that the judgment should at least be reduced by the value of that machine. In addition, he notes that one of his fellow officers, Janis Mecklenburg, paid DAN $100,000 and asserts that that amount should be credited to the amount owing on the loan.
The former contention is disposed of by the fourth paragraph of the guarantee, in which Champalanne waived the right to have the Lender make first recourse to the collateral. The paragraph in part provides: “... and it shall not be necessary for the Lender, in order to enforce such payment by the Guarantors, to first institute a suit, or exhaust its remedies against Borrower, or others liable on such indebtedness or to enforce its rights against any security which shall have been given the Lender to secure such indebtedness.” (Italics added.) Civil Code section 2856, subdivision (c) is quite clear that a guarantor may waive the right to have a lender first proceed against the collateral. We would simply add that there was substantial evidence, from DAN’s custodian of records, that the lone machine, lacking software, was worthless.
Subdivisions (a) through (c)(1) of the statute provide:
The latter contention is disposed of by the lack of any cited evidence that Mecklenburg’s $100,000 settlement was not simply applied, at the time, to outstanding interest.
VI
The judgment is affirmed. Respondent is to recover costs on appeal.
WE CONCUR: ARONSON, J. FYBEL, J.
Civil Code section 2822, subdivision (b), mentioned as an exception to section 2819, provides in full: “(b) For purposes of this section and Section 2819, an agreement by a creditor to accept from the principal debtor a sum less than the balance owed on the original obligation, without the prior consent of the surety and without any other change to the underlying agreement between the creditor and principal debtor, shall not exonerate the surety for the lesser sum agreed upon by the creditor and principal debtor.”
“(a) Any guarantor or other surety, including a guarantor of a note or other obligation secured by real property or an estate for years, may waive any or all of the following:
“(1) The guarantor or other surety's rights of subrogation, reimbursement, indemnification, and contribution and any other rights and defenses that are or may become available to the guarantor or other surety by reason of Sections 2787 to 2855, inclusive.
“(2) Any rights or defenses the guarantor or other surety may have in respect of his or her obligations as a guarantor or other surety by reason of any election of remedies by the creditor.
“(3) Any rights or defenses the guarantor or other surety may have because the principal's note or other obligation is secured by real property or an estate for years. These rights or defenses include, but are not limited to, any rights or defenses that are based upon, directly or indirectly, the application of Section 580a, 580b, 580d, or 726 of the Code of Civil Procedure to the principal's note or other obligation.
“(b) A contractual provision that expresses an intent to waive any or all of the rights and defenses described in subdivision (a) shall be effective to waive these rights and defenses without regard to the inclusion of any particular language or phrases in the contract to waive any rights and defenses or any references to statutory provisions or judicial decisions.
“(c) Without limiting any rights of the creditor or any guarantor or other surety to use any other language to express an intent to waive any or all of the rights and defenses described in paragraphs (2) and (3) of subdivision (a), the following provisions in a contract shall effectively waive all rights and defenses described in paragraphs (2) and (3) of subdivision (a):
“The guarantor waives all rights and defenses that the guarantor may have because the debtor's debt is secured by real property. This means, among other things:
“(1) The creditor may collect from the guarantor without first foreclosing on any real or personal property collateral pledged by the debtor.” (Italics added.)
In fact, section 2856 was a response to this court’s decision in Cathay Bank v. Lee (1993) 14 Cal.App.4th 1533, which, as characterized by WRI Opportunity Loans II, LLC v. Cooper (2007) 154 Cal.App.4th 525, 544, “imposed stringent requirements on a guarantor’s waiver of a defense arising from the principal’s rights under the antideficiency statutes.” (See also River Bank America v. Diller (1995) 38 Cal.App.4th 1400, 1419 [“it is clear the Legislature enacted section 2856 to ameliorate the strict rule laid down in Cathay Bank”].)