Problem.Guaranties
A. Guarantor signs a guarantee that it will pay the amount due on a debtor's promissory note in the event the debtor does not pay. The debtor's note is secured by a non-purchase money deed of trust on property owned by the debtor. Upon the debtor's default under the note, the creditor sues the guarantor directly on the guarantee prior to foreclosing the deed of trust. (Why? Perhaps the debtor has filed a bankruptcy petition and the creditor is at least temporarily stayed from taking any action against the debtor or the real property. See Commentary.Automatic stay.) May the guarantor successfully assert Cal. Code Civ. Pro. 726 (the security first rule) as an affirmative defense to the action? In considering this question, does it matter that some judicial opinions refer to guarantees as "additional security" and other opinions refer to guarantees as "separate contracts?" See Loeb v. Christie. Do either Cal. Civ. Code 2809 or 2845 offer the guarantor an alternative affirmative defense?
B. Desiring to move from the garage in which its business first operated, a new dot.com company (a limited liability company [LLC]) agreed to purchase some real property on which to build its new headquarters. The vendor took back a note secured by a junior deed of trust on the property sold and also obtained unsecured guarantees from siblings Ira Net and Erin Net, the founding members of the LLC. When the company failed and defaulted on its payments for the real property, the vendor was sold out at a senior foreclosure sale. May the vendor recover on the guarantees? See Heckes v. Sapp. If liable on the guarantees, may Ira and Erin seek reimbursement from the LLC (under the unlikely assumption that it still has any assets to satisfy a claim)?
C. A non-purchase money note is secured by a deed of trust on parcel #1, and a deed of trust on parcel #2. The creditor also had guarantor sign a guarantee.
1. The guarantor has just received a copy of the Notice of Default and comes to you for advice. What would be the best possible sequence of events you could hope for to give your client the most protection? (These events may be completely beyond your control.)
2. Assume the creditor files a judicial foreclosure action on the two parcels but does not mention the guarantor in the lawsuit. Might the debtor somehow get the guarantor before the court?
3. Assume the judicial foreclosure sale of the two parcels does not satisfy the debt but because of the debtor's poor financial situation either a deficiency judgment is not requested (an unlikely event) or it is entered but not collected. The creditor then remembers the guarantor and sues him. Will the guarantor have any defenses to this action?
4. Assume the creditor non-judicially forecloses on the two parcels and then sues the guarantor for the balance due. Does the guarantor have any defenses?
D. A purchase money note is secured by a deed of trust on parcel #1 and a deed of trust on parcel #2. The creditor also had a guarantor sign a guarantee. The creditor non-judicially forecloses on the two parcels and then sues the guarantor for the balance due. Does the guarantor have any defenses? What if the guarantor in the above situation can prove that the foreclosing creditor underbid at the foreclosure sales of the parcels? (These bids were the high bids and the creditor now owns the parcels.) Does the guarantor have any means of challenging the selling prices of the parcels?
E. Assume the note is secured by a second deed of trust on a parcel and that the creditor also had a guarantor sign a guarantee and give a deed of trust on a parcel owned by the guarantor as security. The creditor is sold out when the senior on the parcel given by the debtor as security forecloses. The creditor then non-judicially forecloses on the parcel given by the guarantor as security for the guarantee. Assuming the sale does not satisfy the debt, can the creditor now sue the guarantor for the balance due?
F. Assume a wife signs a purchase-money note which is secured by a deed of trust on her separate property. Her husband guarantees her note. The property is foreclosed, and then the creditor sues the husband for the balance due. Will the suit be successful? What additional facts might be important?
G. Assume a creditor holds a non-purchase money note secured by a deed of trust on the debtor's property. The creditor also has a guarantee secured by a deed of trust on the guarantor's property. If the creditor non-judicially forecloses the deed of trust on the debtor's property, can it then foreclose the deed of trust on the guarantor's property?
H. Assume a creditor loans money to a corporation and secures the loan by a security interest in the corporation's airplanes. The creditor also had the sole shareholder give a personal guarantee secured by a deed of trust on her residence.
1. If the creditor begins foreclosure proceedings on the deed of trust, can the guarantor force the creditor to reach the airplanes first?
2. Assume the creditor was allowed to proceed with its foreclosure on the deed of trust and that it elected a nonjudicial foreclosure. Could the creditor later foreclose the security interest? After foreclosing the security interest could it request a deficiency judgment?
3. If the creditor foreclosed on the security interest and got a deficiency, could it then foreclose on the deed of trust?
4. If the creditor foreclosed on the security interest and failed to give the guarantor notice of the sale, could the guarantor argue that the guarantee was now void?
I. Assume a non-purchase money note is secured by a deed of trust on the debtor's property. The creditor also obtains a guarantee which is secured by a cashier's check. If the creditor is sold-out by a senior foreclosure sale of the debtor's property, can the creditor cash the cashier's check and then seek a deficiency against both the debtor and the guarantor?