California Bank & Trust v. DelPonti

California Court of Appeal Dec 9, 2014 No. No. E053187Published

Before: Ramirez

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Holding. A guarantor's predefault waiver of defenses is limited to the specific legal and statutory defenses set forth in the agreement and does not encompass equitable defenses, such as unclean hands, when the lender has engaged in willful misconduct.

Issues

Whether a guarantor's predefault waiver of defenses precludes the assertion of equitable defenses against a lender who engaged in willful misconduct.
Whether Civil Code section 2856 permits a lender to enforce a waiver of defenses that would allow the lender to profit from its own fraudulent conduct.

Disposition. affirmed

Quotations verified verbatim against the opinion

“We therefore hold that a guarantor’s waiver of defenses is limited to legal and statutory defenses expressly set out in the agreement.”

“A waiver of statutory defenses is not deemed to waive all defenses, especially equitable defenses, such as unclean hands, where to enforce the guaranty would allow a lender to profit by its own fraudulent conduct.”

“Public policy requires us to read Civil Code section 2856 in a manner that prevents one party from capitalizing upon its own fraud or willful misconduct.”

Opinion

RAMIREZ, P. J. Five Comers Rialto, LLC (Five Corners), obtained a construction loan from Vineyard Bank (Bank) to develop a 70-unit town-home project (Project), with guaranties from Thomas DelPonti and David Wood, principals of Five Corners (Guarantors). Five Comers contracted with Advent, Inc. (Advent), a general contractor, to build the project in two phases. Everything went according to schedule for the first 18 months. However, when phase one of the Project was nearly complete, the Bank stopped [165]funding approved payment applications, preventing completion and sale of the phase one units, which, in turn, caused Five Comers to default on the loan.

The Bank reached an agreement with Five Comers, requiring Advent to finish phase one so the units could be sold at auction, and promising to pay the subcontractors if they discounted their bills and released any liens. Advent paid the subcontractors out of its own pocket in order to keep the project lien free, so the auction could proceed. However, the Bank foreclosed against Five Comers. Advent filed an unbonded stop notice. The Bank (through its assignee California Bank & Tmst), sued Five Comers and the Guarantors under various theories for the deficiency following a trustee’s sale of the deed of tmst, while Advent sued the developer and the Bank for restitution for the amounts it paid out of pocket.

The cases were consolidated and tried by the court.1 Advent amended its complaint to conform to proof to add causes of action for breach of the assigned contract and promissory estoppel. The court awarded judgment in favor of Advent on these causes of action. The court denied Advent judgment for enforcement of its stop notice claim. In the Bank’s action against the Guarantors, the court found that the Bank breached the loan contract, exonerating the Guarantors. The court awarded attorneys’ fees to Advent and the Guarantors.

The Bank appealed the judgments, challenging the order allowing Advent to amend its complaint to conform to proof, asserting that the trial court engaged in misconduct, and challenging the sufficiency of the evidence to support the judgment in favor of Advent and the Guarantors. Advent appealed the portion of the judgment denying enforcement of the stop notice. We affirm.

BACKGROUND*

California Bank & Trust v. DelPonti

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DISCUSSION

III.

DISPOSITION

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