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Procedural Posture

Procedural Posture

By: SMITH THOMPSON

Plaintiff guarantors challenged the order of the Superior Court of Los Angeles County (California), which denied plaintiff guarantors recovery of proceeds from the sale of guarantors’ stock pledged to and sold by defendant lending banks in partial satisfaction of guaranty on defaulted debt. One of defendant banks appealed the order that awarded fees and costs to plaintiffs.

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Overview

Plaintiff guarantors pledged their stock shares to defendant banks as part of a series of loans from defendant banks to debtor, which had pledged real property as partial security for the debt. After default, defendant banks sold plaintiff guarantors’ shares, and later sold by nonjudicial foreclosure plaintiff guarantors’ corporate real property. Plaintiffs sought to recover the proceeds from the sale of their shares, claiming that defendant banks were estopped to retain the proceeds under Cal. Civ. Proc. Code § 580(d), which barred the recovery of deficiencies following a nonjudicial foreclosure. The trial court ordered only the return to plaintiffs of shares still held by the banks after the foreclosure. The court affirmed the judgment and held that the antideficiency statutes were to be used defensively to bar the recovery from guarantors of deficiencies after the nonjudicial foreclosure of secured real property. They were not to be used offensively for the return of amounts properly recovered by the creditor before a nonjudicial foreclosure. The court also held that the trial court had discretion to determine who was the prevailing party in order to assess fees and costs.

Outcome

The court affirmed the judgment and held that the antideficiency statutes were not to be used offensively for the return of amounts properly recovered by defendant banks before a nonjudicial foreclosure. The court also held that the trial court had discretion to determine that plaintiff guarantors were the prevailing party for purposes of assessing fees and costs due to plaintiffs’ recovery of a remaining block of stock held by defendant.

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