THOMAS v. VALLEY BANK OF NEVADA

By the Court, MOWBRAY, J.:

The issue presented on this appeal is whether the protections of the anti-deficiency legislation, NRS 40.451 et seq., apply to guarantors. Appellant asks us to reconsider our decision in Manufacturers Traders Trust v. Dist. Ct., 94 Nev. 551, 583 P.2d 444 (1978) in which we held that they do not.

Respondent, Valley Bank of Nevada (Bank) loaned C.H. Thomas Investments Inc. (Corporation) $165,000.00 for the purchase and development of certain real property. Corporation gave Bank its note for the amount of the loan, secured by a trust deed covering the property. Appellant, Charles H. Thomas, (Guarantor) signed a separate agreement with Bank guaranteeing payment of the note.

Corporation defaulted and Bank foreclosed on the security, purchasing the property at the foreclosure sale for $100,000.00.

Bank then sought a deficiency judgment against Corporation for approximately $34,000.00, the difference between Bank's bid for the security and the amount of the principal debt. In the same action Bank sued Thomas on his contract of guaranty for the same amount.

The district court, relying upon our decision in Manufacturers Traders Trust v. Dist. Ct., supra, ruled that Thomas, as guarantor, was not entitled to the protection of the anti-deficiency statutes. The district court entered judgment against Thomas for the difference between the price paid for the security at the foreclosure sale and the total amount of the debt. The court refused to enter judgment against the principal obligor, the Corporation. Thomas, the guarantor, appeals.

We hold that the anti-deficiency statutes, NRS 40.451 et seq., do not apply to the obligations of guarantors. The language of the statutes in question confines their applicability to debts "secured by a mortgage or deed of trust," NRS 40.451. The guarantor's contract is not a secured obligation, and the protection of NRS 40.459, which limits the amount of a deficiency judgment to the difference between the fair market value of the security at the time of sale and the total amount of the debt, does not apply to the contract of guaranty. First National Bank of Nevada v. Barengo, 91 Nev. 396, 536 P.2d 487 (1975); Randono v. Turk, 86 Nev. 123, 466 P.2d 218 (1970); Short v. Sinai, 50 Nev. 346, 259 P. 417 (1927); see also Coombs v. Heers, 366 F. Supp. 851 (D. Nev. 1973).

The definition of a debt in NRS 40.451 declares that only the principal obligation, which is secured by the property mortgaged or subject to a deed of trust, is covered by the anti-deficiency statute. It has always been the law of this state that a contract of guaranty is not a secured obligation, even if the primary obligation is secured. Randono v. Turk, supra. The anti-deficiency statute is designed to protect obligors who give security as collateral. Since the guarantor has no interest in the security, there is no need to seek a deficiency judgment, under the statute, against him; his liability as guarantor is defined by his independent contract with the creditor.

The consistent law of this state, that a contract of guaranty is an obligation quite separate from the primary debt, does not leave the guarantor without protection in a case of this sort. The measure of the guarantor's liability is determined by his own contract of guaranty. If the primary debt is secured, we discern no impediment to a guaranty providing for liability only to the extent that a deficiency judgment would be obtainable against the primary debtor. The most obvious protection for the guarantor would be to attend the foreclosure sale of the security and bid up the price to its fair market value: by that means he would ensure that his liability under the contract of guaranty would be precisely coextensive with the potential liability of the primary debtor under the anti-deficiency statute.

Considerable confusion is apparent in the arguments of the parties which rely upon California law. The fundamental principle of the guaranty law of Nevada is the distinction between guarantors, whose obligations are wholly separate from the principal obligation guaranteed, and sureties, who are co-obligors with the principal debtor. This distinction between guarantors and sureties has been abolished by statute in California, Cal. Civ. Code § 2787, but it remains in force in Nevada. Short v. Sinai, supra. Although a surety's liability is measured by that of the principal, this Court has never held that a guarantor's liability must be thus limited. See Bank of Nevada v. Friedman, 82 Nev. 417, 420 P.2d 1 (1966) (guarantor held liable even though statute of limitations had run against principal obligor).

Accordingly, we reaffirm our holding in Manufacturers Traders Trust v. Dist. Ct., supra, and we therefore affirm.

MANOUKIAN, J., and GRIFFIN, D.J., concur.