## Facts

- The Sawyers sold a 32-acre parcel in La Jolla, California, to F.C. Financial (a First City subsidiary) for $1,180,000: $510,000 cash plus a $670,000 note secured by a deed of trust.
- As part of the transaction, F.C. Financial obtained a $1.8 million development loan from Toronto Dominion Bank, secured by a first deed of trust and guaranteed by First City.
- The Sawyers contractually subordinated their deed of trust to the bank’s first deed of trust and expressly waived any deficiency judgment on their note, leaving foreclosure of their junior deed of trust as their sole recourse.
- In early 1975, F.C. Financial stopped making payments to the bank; the bank commenced nonjudicial foreclosure and purchased the property at the trustee’s sale for $650,000 in September 1975.
- The property was later transferred to a third party for approximately $800,000.
- In earlier related litigation (“Sawyer I”), a final judgment addressed the validity of the bank’s foreclosure and the priority of the bank’s lien.
- In this later action (“Sawyer II”), the Sawyers sued First City, related entities, and the bank alleging fraud, conspiracy, breach of duty, and related theories premised on the structuring, foreclosure, and resale of the property.
- The trial court granted summary judgment for all defendants, and the Sawyers appealed.

## Issues

1. Whether the prior judgment in the related foreclosure litigation barred the Sawyers’ claims under res judicata and collateral estoppel.
2. Whether a subordinating seller who waived deficiency remedies may recover from the senior lender and developer in tort or equity for loss of a junior security interest following nonjudicial foreclosure.
3. Whether the Sawyers’ theories impermissibly sought deficiency-like relief or otherwise conflicted with California’s nonjudicial foreclosure and antideficiency policies.
4. Whether any triable issue of material fact existed to defeat summary judgment.

## Decision

- The Court of Appeal affirmed summary judgment for all defendants.
- The court held that the prior related judgment precluded relitigation of issues concerning the foreclosure’s validity and lien priority.
- The court held that the Sawyers’ subordination and express deficiency waiver foreclosed attempts to obtain damages functionally equivalent to a deficiency by repackaging claims as fraud, conspiracy, or breach of duty.
- The court concluded that, given preclusion and the governing statutory and contractual limits, no triable issues of material fact remained.

## Legal Principles

- Claim preclusion bars later claims arising from the same primary right that were, or could have been, litigated in a prior final judgment between the parties or their privies.
- Issue preclusion bars relitigation of issues actually litigated and necessarily decided in prior litigation, including issues central to the validity and priority of a foreclosure.
- A seller who subordinates a purchase-money security interest to a senior development loan and waives deficiency remedies assumes the risk that a lawful senior nonjudicial foreclosure will extinguish the junior lien.
- Parties may not obtain deficiency-like recovery by restating foreclosure-related grievances as tort or equitable claims when such relief would conflict with California’s nonjudicial foreclosure structure and antideficiency policy.
- Summary judgment is proper where, as a matter of law, preclusion doctrines and enforceable contractual waivers defeat the asserted causes of action and the record shows no material factual dispute.

## Conclusion

The court affirmed summary judgment because the Sawyers’ later claims were largely barred by preclusion from prior foreclosure litigation and, in any event, their voluntary subordination and deficiency waiver prevented them from seeking tort damages that would effectively replace the extinguished junior security interest after a lawful nonjudicial foreclosure.


Sawyer v. First City Fin. Corp., Ltd., 124 Cal. App. 3d 390, 177 Cal. Rptr. 398 (Ct. App. 1981)