## Facts

- Guardian Savings and Loan Association, a Texas savings and loan, partnered with developer Michael D. Barker on commercial real estate projects in San Francisco.
- The parties’ transactions involved cross-purchases of two properties: a development site at 100 First Street and Delta Dental’s existing headquarters at 1235 Mission Street.
- As part of the financing structure, the developers acquired the 1235 Mission property using two promissory notes payable to Guardian, secured by a deed of trust on the 1235 Mission property.
- The loan documents contained a Texas choice-of-law clause selecting Texas law to govern the obligations.
- The notes matured and were not paid, and Guardian filed a California judicial foreclosure action seeking foreclosure and a deficiency judgment.
- The trial court applied Texas law, granted summary adjudication for Guardian, entered a foreclosure judgment, found MD Associates and Barker personally liable, and awarded a deficiency judgment.
- The developers appealed, arguing California anti-deficiency policy should defeat the Texas choice-of-law clause and disputing personal liability.

## Issues

1. Whether California should enforce a contractual Texas choice-of-law clause where Texas law permits a deficiency judgment that would arguably be limited or barred under California anti-deficiency rules for obligations secured by California real property.
2. Whether MD Associates and Barker were personally liable for the secured indebtedness under the transaction documents.

## Decision

- The Court of Appeal largely affirmed the judgment, including enforcement of the Texas choice-of-law clause and the resulting availability of a deficiency judgment.
- The court affirmed the determination that MD Associates and Barker were personally liable on the indebtedness.
- The court reversed as to a minor defendant and remanded for limited modification consistent with that reversal.

## Legal Principles

- California generally enforces contractual choice-of-law clauses when the chosen state has a substantial relationship to the parties or transaction, or another reasonable basis supports the selection.
- A contractual choice-of-law clause will not be enforced if applying the chosen law would contravene a fundamental policy of California and California has a materially greater interest in the issue.
- California anti-deficiency protections are aimed primarily at specific categories of purchase-money transactions; in negotiated commercial real estate finance involving sophisticated parties and multi-state contacts, those policies may not override an agreed out-of-state governing-law clause.
- Where the chosen law applies and permits deficiency judgments following foreclosure, a lender may obtain a deficiency judgment in a California foreclosure action.
- Personal liability on real-estate secured debt depends on the language of the notes and related instruments and the obligor status assumed in those documents.

## Conclusion

The court enforced the parties’ Texas governing-law clause despite California anti-deficiency policy arguments, upheld a post-foreclosure deficiency judgment under Texas law, and affirmed that MD Associates and Barker were personally liable under the loan documents, subject only to a limited modification on remand concerning a minor defendant.


Guardian Savings & Loan Ass’n v. MD Assocs., 64 Cal. App. 4th 309, 75 Cal. Rptr. 2d 151 (Ct. App. 1st Dist. 1998)