BARNES, Circuit Judge.
This is a civil suit brought by the government against a World War II veteran to recover a sum of money on a Loan Guarantee the veteran-defendant had executed in connection with a loan obtained from the Porterville Mutual Building & Loan Association, with which the defendant purchased a home. The method of computing the amount claimed, $1,453.64, plus interest, is set forth in the margin.
Appellant insists that in reality there was no "loss" to the government,
Appellant offered to prove below that because the Veterans Administrator acquired the property from the Building & Loan Association for a total price of $7,047.50 and sold it for a net of $6,631.88, it had suffered a loss of $415.62 only. This offer was refused and, error is claimed in that refusal.
The amount mentioned, $415.62, argues appellant, is the true amount of the government's loss, and the government should not be allowed to profit under an act designed to give relief "to members of the Armed Forces of limited means who honorably served their country during World War II." Appellant further urges that the Regulation with respect to indemnity (38 C.F.R. § 4323(e)) is inconsistent with the Act itself, and that this action is one for a deficiency judgment and hence void under § 580b of the West's Ann.Code of Civil Procedure of the State of California.
As the government aptly replies to this position:
There was a finding below that the facts of this case establish that defendant herein was sued on his independent contract of indemnity and not for any deficiency judgment. We need not determine whether West's Ann. California Code of Civil Procedure, § 580b does or does not apply. Cf. In re Wilton-Maxfield Management Co., 9 Cir., 1941, 117 F.2d 913; Bank of America Nat. Trust & Savings Ass'n v. Hunter, 1937, 8 Cal.2d 592, 67 P.2d 99, and Security-First National Bank of Los Angeles v. Chapman, 1940, 41 Cal.App.2d 219, 106 P.2d 431, cited
We rely on the general proposition that the subject matter of this litigation arises under the federal law and cannot be impaired by a state statute. Cf. Wissner v. Wissner, 1950, 338 U.S. 655, 659, 70 S.Ct. 398, 94 L.Ed. 424; Royal Indemnity Co. v. United States, 1941, 313 U.S. 289, 61 S.Ct. 995, 85 L. Ed. 1361; Pack v. United States, 9 Cir., 1949, 176 F.2d 770, 771.
Appellant's counsel refuses secondly to realize that in determining the government's loss occasioned by the actions of his client in defaulting his loan, there must be somewhere a line of demarcation — a time when the government can seek from the indemnitor what its loss has been fairly established to be by a definite and uniform rule, free from the vagaries of rising and falling real estate markets.
Under settled principles of indemnity law, the guarantor's loss is fixed at the time of the trustee's sale. The subsequent events on which defendant here relies can neither decrease nor increase the extent of his obligation to indemnify.
Suppose the Building & Loan Association had held the property after the trustee's sale and sold it one or five years later at a huge profit. Would the defendant have any right to the profits? Obviously not; nor any liability were there a sale at a loss.
Defendant argues, however, that in computing the government's loss, the following additional facts must be considered: The lender, instead of exercising its option of retaining the house and remitting to the Veterans Administration the unused portion of the $3,375.00, chose to tender the house itself to the Veterans Administration which the Veterans Administration was obliged to accept at the established upset price of $5,500 (38 C.F.R. § 36.4320(b)). Since the lender already had in its possession the $1,921.36 which was to be credited to the Veterans Administration as the balance of its payment of $3,375.00, the Veterans Administration then made payment to the holder of the balance of the $5,500.00 (together with certain further incidental costs). Defendant, pointing out that the Veterans Administration thus acquired the house for a total cost of $7,047.50, sought to prove that the Veterans Administration sold the house for a net price of $6,631.88, thereby suffering a loss on the whole transaction of only $415.62, instead of $1,453.64 as found by the district court. The district court rejected defendant's offer to prove these additional facts, as not material to a determination of his liability of indemnity.
Again we follow apt language in appellee's brief. It is a settled principle of mortgage law that the value of the mortgagor's equity in the mortgaged property is fixed by the amount bid at the foreclosure sale, and accordingly that, in the absence of fraud, a mortgagor has no right to compel a mortgagee to account to him for any profit made upon a subsequent resale of the premises. General Auto Truck Co. v. Rust, 1936, 66 App.D.C. 392, 88 F.2d 774; Ramsden v. Keene Five Cents Savings Bank, 8 Cir., 1912, 198 F. 807; Pennsylvania Ave. Federal Savings & Loan Ass'n v. Fedder, 1938, 175 Md. 127, 199 A. 785, 117 A.L.R. 858; Gehlert v. Smiley, Mo. 1938, 114 S.W.2d 1029; South Amboy Trust Co. v. McMichael Holdings, Inc., 1947, 141 N.J.Eq. 12, 56 A.2d 437. The deficiency on a mortgage is determined by the foreclosure sale and is not reduced by an advantageous resale. Berman v. One Forty-Five Belmont Ave.
The liability of the guarantor of the mortgage is likewise fixed by the foreclosure sale, and he too has no right to a reduction of his liability to the mortgagee for a deficiency on foreclosure if the mortgagee makes a profit on reselling the property, 24 Am.Jur., Guaranty § 123, p. 955. And by the same token, the liability of the mortgagor to his guarantor for any deficiency obviously also is fixed by the amount received at the foreclosure sale; a fortiori where a guarantor subsequently acquires the mortgage property, he has no obligation to account to the mortgagor for any profit made in reselling it. Pennsylvania Ave. Federal Savings & Loan Association v. Fedder, supra; United States v. Jones, D.C.M.D. Ga.1957, 155 F.Supp. 52.
In the Jones case, supra, the court disposed of precisely such a contention with the following language:
Finding no error, the judgment of the district court is affirmed.
In January 1948 the Building & Loan Association claimed one-half the principal, or $3,375.00. This was paid by the Veterans Administrator. The Building & Loan Association proceeded to publish and record its Notice of Election to Sell the real property securing the loan. The Veterans Administrator had the property appraised at $6,171.00 as "liquidation" value, "not reasonable value"; fixed an "upset price" of $5,500.00; and authorized the trustee's sale, subject to such upset price. The property was bid in by the Building & Loan Association for $5,500.
After crediting the $3,375.00 received from the government, the Building & Loan Association's balance due from the defendant was $3,578.64. After crediting the sale of $5,500.00, the excess of $1,921.36 was turned over by the Association to the Veterans Administrator who applied it against the $3,375.00 he had paid for the defendant, leaving a loss of $1,453.64 for which this suit was filed, together with interest at 4% from May 18, 1948.
This recital follows the Findings of the district court which also found these various steps were taken pursuant to the Servicemen's Readjustment Act of 1944, as amended, and the Code of Federal Regulations, 1946 Supplement, Title 38, Sections 36.4230 to 36.4323, inclusive; and Sec. 4323(e). The present appeal is on an Agreed Statement (pursuant to Rule 76, Federal Rules of Civil Procedure, 28 U.S.C.) which adopts the district court's Findings.