California Anti - Deficiency Case Law
Spangler v Memel
CCP 580 b
TSpangler v. Memel, 7 Cal. 3d 603
OPINION
In this action to foreclose a deed of trust, cross-defendants Sherwin
L. Memel, Robert A. Memel and Sol Kossoff appeal from a judgment
entered in favor of cross-complainant, May Spangler, and against said
cross-defendants in the sum of $ 44,684.25 together with interest and
costs.
In 1956 Ralf and May Spangler purchased a lot on Sunset
Boulevard in Los Angeles for $ 43,000. The property was improved with a
single-family, two-story residence, which Ralf converted into an office
for his advertising business. The property which was zoned for
commercial use, appreciated in value in view of the possibility of
erecting a commercial office building upon the site.
In 1960
Ralf and May decided to try to realize the property's potential for
commercial development by listing it for sale with Hubert Boisvert, a
licensed real estate broker. In 1961 Ralf quitclaimed all his interest
in the property to May, who thereby became the sole owner of the
property. However, Ralf continued to act with full authority as her
agent in selling the property.
In the summer of 1961, Mr.
Arnold, a salesman for Mr. Boisvert, the real estate broker, contacted
Sherwin Memel and informed him the property was available. Throughout
the month of August, negotiations were carried on between, on the one
hand, Messrs. Arnold and Boisvert, acting for the Spanglers and, on the
other, Sherwin and Robert Memel, acting for Memel-Kossoff Ventures, a
partnership. On August 24, 1961, agreement was reached and escrow
opened to consummate the sale of the property to Memel-Kossoff Ventures
for $ 90,000 on the following terms; $ 26,100 in cash, plus a
promissory note for $ 63,900 secured by a purchase money deed of trust,
which was to be subordinated to construction loans up to the amount of
$ 2 million.
Ralf Spangler, on behalf of his wife May, insisted
that Robert Memel, Sherwin Memel, Sol Kossoff and Leon Kossoff, the
four general partners of Memel-Kossoff Ventures, in return for Mrs.
Spangler's agreement to subordinate her prior lien to lenders of
construction money, each individually waive their protection from
deficiency judgments and each give a written personal guaranty of joint
and several liability for the payment of the $ 63,900 promissory note.
Ralf so insisted in order to protect his wife against the hazard that
her purchase money trust deed might become valueless in the event the
holder of a future prior encumbrance securing a construction loan
should foreclose. This agreement was embodied in the escrow
instructions, and during escrow each partner signed a written personal
guaranty and waiver of the anti-deficiency statutes. n1
FOOTNOTES
n1
The guaranty reads as follows: "In connection with the Deed of Trust
and Note in the amount of $ 63,900.00 executed by the undersigned
Memel-Kossoff Ventures, a Partnership, we the undersigned do
specifically, jointly and severally personally guarantee payment of the
above described note and deed of trust as per their terms; and we the
undersigned do hereby waive all provisions of Law to the contrary and
specifically agree that we and each of us will be personally liable for
any deficiency amount of money which may remain unpaid in the event of
foreclosure and sale thereunder. Such Trust Deed shall be personally
signed by Robert A. Memel, Sherwin L. Memel, Sol Kossoff and Leon
Kossoff."
Memel-Kossoff Ventures transferred the property
to MKS Investment Co. (MKS), a partnership consisting of the four
general partners plus Irving Shapiro, an architect. MKS negotiated a
construction loan with Union Bank in the amount of $ 408,000 in order
to construct an office building upon the property. MKS gave Union Bank
a promissory note in the amount of $ 408,000, secured by a first deed
of trust in that amount. Union Bank, as a condition to this loan,
required May Spangler to execute a specific subordination agreement
recognizing the priority of Union Bank's lien, in lieu of the automatic
subordination clause contained in the original trust deed. This
agreement was executed on November 29, 1962.
MKS used the $
408,000 to construct a three-story commercial office building on the
property. Despite diligent efforts by the partners to obtain tenants,
the building was never a commercial success. The project failed due to
higher costs than expected, because the building was noncompetitive in
attracting tenants as compared to other new buildings in the area, due
to the inability to obtain a take-out loan when the Union Bank loan
became due and because of the failure to sell the building. MKS was
unable to make payments upon the note.
On September 7, 1965,
Union Bank brought the present action to foreclose its first deed of
trust. It secured a judgment of foreclosure and subsequently purchased
the property at the ensuing foreclosure sale for $ 440,000. Since the $
440,000 price at the foreclosure sale was $ 45,943.08 less than the
amount of indebtedness, Union Bank recovered a deficiency judgment from
the individual partners of MKS. It thereafter entered a satisfaction of
judgment on February 16, 1969 and is no longer a party to the case in
any respect.
In February 1967, May Spangler, the seller of the
property and one of the defendants in the foreclosure action, having
had her subordinated purchase money deed of trust rendered valueless by
the bank's foreclosure, filed an amended cross-complaint (hereafter for
convenience "cross-complaint") against Memel-Kossoff Ventures, a
partnership; Sherwin Memel, Robert Memel, Leon Kossoff and Sol Kossoff,
individually and as partners, their wives; and Union Bank. The ensuing
procedural progress of the action, though quite complicated, is not
material to the resolution of this appeal and is, therefore, set forth
in the margin. n2 Ultimately, cross-complainant, May Spangler, alleged
a single cause of action against cross-defendants Sherwin Memel, Robert
Memel and Sol Kossoff, to enforce their written personal promises to
guarantee jointly and severally, payment of the promissory note of
Memel-Kossoff Ventures for $ 63,900 and to waive their protection under
the anti-deficiency statutes.
FOOTNOTES
n2 Apparently
demurrers were sustained to Mrs. Spangler's original cross-complaint,
though the record is silent. On February 7, 1967 she filed an amended
cross-complaint alleging four causes of action: (1) that plaintiff's
subordination agreement with Union Bank had become null and void since
Union Bank had extended MKS' time for payments and that, therefore, her
deed of trust became prior; (2) that the Memel brothers and Kossoff
brothers had fraudulently represented that their personal written
guaranties and waiver of anti-deficiency protection were valid and
enforceable, knowing them to be illegal and unenforceable, and thereby
induced plaintiff in reliance thereon to agree to subordinate her prior
lien; (3) that the Memel and Kossoff brothers were estopped to assert
their protection under the anti-deficiency statutes; and (4) that her
lien is senior to that of Union Bank. On February 17, 1967 a demurrer
was filed as to all four causes of action, claiming that none stated
facts sufficient to state a cause of action. On May 3, 1967 the trial
court sustained the demurrer as to the first, third and fourth causes
of action, but overruled the demurrer as to the second cause of action.
On May 19, 1967 the Memel and Kossoff brothers filed their answer to
the one remaining cause of action, the one claiming fraud.
Trial
commenced September 2, 1969 on the claim of fraudulent
misrepresentation by the Memel and Kossoff brothers. At the conclusion
of all the evidence, at the suggestion and with the approval of the
trial court, Mrs. Spangler amended her amended cross-complaint to state
a fifth cause of action seeking to enforce the written guaranties of
Sherwin Memel, Robert Memel and Sol Kossoff.
Leon Kossoff, the
fourth partner, died during the pendency of the action, no claim was
ever made against his estate, and so the action was dismissed as to
him. The trial court gave judgment in favor of the wives of the four
partners as against Mrs. Spangler. This portion of the judgment is not
appealed from.
After finding the facts to be as already
narrated, the trial court further found n3 that the Spanglers and
cross-defendants intended that the agreement by cross-complainant to
subordinate her prior lien in favor of construction money lenders be
given in consideration for and contemplation of the personal guaranty
from each partner, plus each partner's waiver of protection against
deficiency judgments. The trial court further found that the guaranty
and waiver of anti-deficiency protection in return for the
subordination clause was a separate obligation from the purchase of the
property.
FOOTNOTES
n3 The trial court also found that
cross-defendants did not make any intentional or negligent
misrepresentations of fact or law, nor did they intentionally or
negligently conceal any material facts.
The court concluded:
(1) that because the guaranty was a separate obligation from the
partnership obligation within the meaning of section 15015, subdivision
(b) of the Corporations Code, Riddle v. Lushing (1962) 203 Cal. App. 2d
831 [21 Cal. Rptr. 902] was not controlling; n4 (2) that
cross-defendant partners were estopped from raising the defense of the
unenforceability of the guaranty as a proscribed deficiency judgment
because (a) cross-complainant, believing the guaranty to be
enforceable, detrimentally relied upon it; and (b) there is no public
policy against enforcing the promise of a partner separately made, even
if that promise is to waive protection against deficiency judgments and
(3) that cross-complainant was entitled to judgment against
cross-defendants in the sum of $ 44,684.25, together with interest and
costs. Judgment was entered accordingly. This appeal followed.
FOOTNOTES
n4
In Riddle v. Lushing, supra, 203 Cal. App. 2d 831, the court held that
since partners are jointly and severally liable for obligations of the
partnership, a personal guaranty by the partners individually of a
promissory note of the partnership secured by a deed of trust given to
secure the purchase price of property did not constitute additional
security and thus change the nature of the transaction so as to render
Code of Civil Procedure section 580b inapplicable on the basis that it
was a true guaranty not protected against a deficiency judgment. (See
Heckes v. Sapp (1964) 229 Cal. App. 2d 549 [40 Cal. Rptr. 485].)
The principal dispute engaged in by the parties revolves about
California's anti-deficiency statutes. Cross-defendants contend that
cross-complainant is actually attempting to obtain a deficiency
judgment in connection with a purchase money deed of trust, that any
such recovery is barred by section 580b of the Code of Civil Procedure
n5 as construed in Brown v. Jensen (1953) 41 Cal. 2d 193 [259 P.2d
425], and that cross-defendants' guaranty and waiver, being merely an
attempt to circumvent the above statute, is illegal and unenforceable.
Cross-complainant, on the contrary, urges that Roseleaf Corp. v.
Chierighino (1963) 59 Cal. 2d 35 [27 Cal. Rptr. 873, 378 P.2d 97] has
impliedly overruled Brown v. Jensen to the extent that section 580b
cannot be applied to sold-out junior lienors seeking recovery of the
purchase price. As will appear, we reject cross-complainant's dilution
of Brown v. Jensen and reaffirm its continued vitality. We hold,
however, that the application of Roseleaf to the facts of this case
compels the conclusion that section 580b is here inapplicable.
FOOTNOTES
n5
At the time of the transaction section 580b provided in pertinent part:
"No deficiency judgment shall lie in any event after any sale of real
property for failure of the purchaser to complete his contract of sale,
or under a deed of trust, or mortgage, given to secure payment of the
balance of the purchase price of real property."
Hereafter, unless otherwise stated, all section references are to the Code of Civil Procedure.
In Brown v. Jensen, supra, this court held that section 580b (see fn.
5, ante) which proscribes a deficiency judgment after any sale of real
property under a deed of trust or mortgage, given to the vendor to
secure payment of the balance of the purchase price, applies to a
junior lienor whose security has been rendered valueless by foreclosure
of a senior encumbrance. The plaintiff in that case sold real property
to the defendants, who as part of the purchase price executed a note in
favor of a savings and loan association secured by a first deed of
trust on the property and, also as part of the purchase price, a note
in favor of the plaintiff secured by a second deed of trust on the
property. The defendants defaulted on the first note and the savings
and loan association caused the property to be sold under the power of
sale contained in the first deed of trust, thus rendering valueless the
security under the plaintiff's second deed of trust.
The
plaintiff then brought an action on her promissory note to recover the
unpaid balance of the purchase price and in order to meet the "one form
of action" rule of section 726 alleged in the complaint that her
security had become valueless as a result of the sale under the first
deed of trust. This court held section 580b applicable since the second
deed of trust was a purchase money deed of trust, even though there had
been no sale of the property under that instrument. We reasoned: "The
section states that in no event shall there be a deficiency judgment,
that is, whether there is a sale under the power of sale or sale under
foreclosure, or no sale because the security has become valueless or is
exhausted." ( Brown v. Jensen, supra, 41 Cal. 2d 193, 198; original
italics. )
We have never overruled or modified this central
ruling that section 580b applies to a sold-out junior lienor holding
such security for the payment of the balance of the purchase price.
Indeed, as will become clear in the following discussion, all
subsequent decisions by this court on the applicability of section 580b
have assumed that this section by its terms applies to sold-out junior
lienors and have gone on to determine whether the particular purchase
money situation in question fell within the purposes of section 580b.
In
Roseleaf Corp. v. Chierighino, supra, 59 Cal. 2d 35, also involving a
junior lienor, we examined in depth the purposes and scope of the
anti-deficiency legislation (§§ 580a-580d, 726) and held that sections
580a and 580d by their terms did not apply to sold-out junior lienors.
n6 We assumed without argument or question that section 580b applied by
its terms to sold-out junior lienors. n7 Nevertheless we concluded that
section 580b automatically applied only to the standard purchase money
transaction and that with respect to variants from this standard
purchase money transaction, section 580b would apply only if the
factual circumstances came within the purposes of the section. "Section
580b was apparently drafted in contemplation of the standard purchase
money mortgage transaction, in which the vendor of real property
retains an interest in the land sold to secure payment of part of the
purchase price. Variations on the standard are subject to 580b only if
they come within the purpose of that section." ( Roseleaf Corp. v.
Chierighino, supra, 59 Cal. 2d 35, 41.)
FOOTNOTES
n6 "The
'one form of action' rule of section 726 does not apply to a sold-out
junior lienor [citations] . . . . [Par.] The fair-value limitations of
sections 580a and 726 likewise do not apply to a junior lienor, such as
Roseleaf, whose security has been rendered valueless by a senior sale."
( Id. at p. 39.) "Section 580a refers to a suit for the balance due on
an obligation secured by a mortgage or deed of trust 'following the
exercise of the power of sale in such deed of trust or mortgage.'
(Italics added.) [Citation.]" ( Id. at p. 40.) "This language [in
section 580d] is similar to that in sections 580a and 726. '[Such]
mortgage or deed of trust' refers to the instrument securing the note
sued upon. Thus section 580d does not appear to extend to a junior
lienor whose security has been sold out in a senior sale." ( Id. at p.
43.)
n7 There was no need for the court to determine whether
section 580b should apply to the factual situation in Roseleaf, unless
it in fact did apply by its language. Moreover, Brown v. Jensen, was
cited with approval.
In Bargioni v. Hill (1963) 59 Cal. 2d
121 [28 Cal. Rptr. 321, 378 P.2d 593], decided three weeks after
Roseleaf, we held section 580b applicable to a sold-out junior lienor,
a real-estate broker who partially financed the purchase of the
property by accepting for his commission the purchaser's promissory
note secured by a second deed of trust. In Kistler v. Vasi (1969) 71
Cal. 2d 261 [78 Cal. Rptr. 170, 455 P.2d 106] this court cited Brown v.
Jensen approvingly as reinforcing our determination in Bargioni.
Thus,
we reaffirm our ruling in Brown v. Jensen that section 580b by its
language applies to sold-out junior lienors holding a purchase money
mortgage or deed of trust. We point out, however, that as we said in
Roseleaf, such ruling applies automatically only to the standard
purchase money situation. We are of the view that if the transaction in
question is a variation on the standard purchase money mortgage or deed
of trust transaction, it should be examined so as to determine whether
it subserves the purposes of section 580b as explicated by us in
Roseleaf and Bargioni. We now address ourselves to this matter.
The crux of the matter is, of course, whether a sale of real property
for commercial development in which the vendor agrees to subordinate
his senior lien under the purchase money deed of trust to the liens of
lenders of the construction money for the commercial development is a
variation on the standard purchase money mortgage transaction. (
Roseleaf Corp. v. Chierighino, supra, 59 Cal. 2d at p. 41.) It seems
clear that it is. In the standard transaction the vendor usually sells
the property to a purchaser who is going to continue the same or
similar use of the property. The present security value of the
property, therefore, is a reliable indicator of its actual fair market
value. However, in the situation where the vendor agrees to subordinate
his lien to the purchaser's construction loan, the purchaser does not
intend to continue with the same use of the property but actually
intends a different use which contemplates considerable improvement of
it. In this latter situation, the present security value of the
property, therefore, is not a reliable indicator of the ultimate value
of the property; that value will be determined by the success of the
venture which contemplates a change in the use of the property.
In
Handy v. Gordon (1967) 65 Cal. 2d 578 [55 Cal. Rptr. 769, 422 P.2d 329,
26 A.L.R.3d 848] this court delineated the minimum terms necessary to
constitute an enforceable subordination clause in an agreement of
purchase and sale so that the vendor would not be "forced to rely
entirely on the buyer's good faith and ability as a developer to insure
that he will not lose both his land and the purchase price." ( Id. at
p. 581.) We there said: "Even if we were to assume that a contract of
sale contemplating subdivision by the vendee is sufficiently different
from the usual land sale contract to take it out of the operation of
the anti-deficiency legislation (Code Civ. Proc., § 580b; see Hetland,
Real Property, 53 Cal. L. Rev. 151, 161-162), the personal liability
alone of the vendee would not constitute sufficient protection to the
vendor to permit specific performance. [Citations.]" (Id. at p. 581.)
We,
therefore, conclude that the subordination clause situation is
sufficiently different from the standard purchase money mortgage
situation to remove it from automatic application of section 580b and
to require an analysis of this factual setting in light of the purposes
of section 580b in order to determine the applicability of that section.
In Roseleaf, we described the purposes of section 580b as follows:
"Section 580b places the risk of inadequate security on the purchase
money mortgagee. A vendor is thus discouraged from overvaluing the
security. Precarious land promotion schemes are discouraged, for the
security value of the land gives purchasers a clue as to its true
market value. [Citation.] If inadequacy of the security results, not
from overvaluing, but from a decline in property values during a
general or local depression, section 580b prevents the aggravation of
the downturn that would result if defaulting purchasers were burdened
with large personal liability. Section 580b thus serves as a
stabilizing factor in land sales." ( Roseleaf Corp. v. Chierighino,
supra, 59 Cal. 2d 35, 42.)
In Bargioni, we restated and
summarized the purposes of section 580b thusly: "The purposes are to
discourage land sales that are unsound because the land is overvalued
and, in the event of a depression in land values, to prevent the
aggravation of the downturn that would result if defaulting purchasers
lost the land and were burdened with personal liability." ( Bargioni v.
Hill, supra, 59 Cal. 2d 121, 123.)
Thus we emphasized in both
Roseleaf and Bargioni that the first clear purpose of the statute is to
prevent overvaluation in those situations where "the security value of
the land gives purchasers a clue as to its true market value," by
placing the risk of inadequate security on the purchase money
mortgagee. In the standard purchase money mortgage transaction
involving a junior lienor, the purchaser generally speaking has not
been able to meet the value placed on the land by the vendor by giving
the latter a normal cash down payment and obtaining from a third party
lender a loan for the balance of the purchase price using the property
as security. Obviously such a loan could not be obtained since the
amount of the loan would exceed the security value. Instead, it usually
happens that the purchaser will finance the balance of the purchase
price by obtaining a third party loan equal to the security value,
secured by a first deed of trust on the property, and by also giving
the vendor a promissory note for the difference between the purchase
price (less any down payment) and the security value, said note being
secured by a second deed of trust on the property. We reasoned in
Roseleaf that in such situation, the inability of the purchaser to
obtain the purchase price from a lender using the land as security,
should warn the vendor that he is perhaps overvaluing the land, and
that he insists, at his peril, upon his premium price secured by a
second trust deed.
However, where the agreement of sale
contains a subordination clause, a markedly different situation is
presented. Because of the unique character and effect of that clause,
the security value of the land at the time of the agreement gives
neither vendor nor purchaser any clue as to its true market value. In
the typical subordination clause situation, the vendor is selling the
property for commercial development; for example, in the instant case,
defendants purchased the land for the purpose of constructing and
operating a commercial office building. The market value of the land
depends upon the likelihood of the success of the commercial
development; the success of the commercial development depends upon the
obtaining of loans to construct it; the securing of these loans depends
upon the ability of the purchaser to give the lender a senior security
interest. Consequently a vendor, who wishes to receive a purchase price
reflecting the commercial potential of the project must be willing to
subordinate his security interest to that of the construction lender.
If
in such situation section 580b is applied to prevent the vendor from
suing on his promissory note, after the development has failed and the
senior lienor has caused the property to be sold, the risk of the
failure of the commercial development is thrust upon the vendor. In
fact, however, the success of the commercial development depends upon
the competence, diligence and good faith of the developing purchaser.
It would seem proper, therefore, that the purchaser not the vendor bear
the risk of failure, particularly since in the event of default, the
junior lienor vendor will lose both the land and the purchase price.
In
this factual context, the security value of the property at the time of
the sale, which in Roseleaf we found to be at once an indicator of
market value and a significant factor in deterring overvaluation by the
vendor, gives no clue to market value, since the sale contemplates
radical improved and changed use of the property. Effective prevention
of overvaluation in a sale of property for commercial development
utilizing a subordination clause lies in forcing the
purchaser-developer to make realistic assessments of the likelihood of
the project's success and in inducing him to exert his highest efforts
in carrying it out. We think this can be accomplished by placing the
risk of failure upon the purchaser-developer where it in reality
belongs, by permitting the sold-out junior lienor vendor to recover a
deficiency judgment in an action on his promissory note. We are of the
opinion that the purpose of preventing overvaluation in this context is
best subserved by not applying section 580b.
Another facet of
the difference between the sold-out junior lienor in the subordination
clause context and the standard purchase money situation deserves
comment. In the subordination clause context, the amount of the
construction loan is usually extremely large. This is illustrated by
the case at bench where the subordination clause provided that the
vendor would agree to subordinate for construction loans up to $ 2
million, and a loan of $ 408,000 was actually obtained. It is clear
that the typical vendor in this context cannot possibly raise the
astronomical sums needed to buy in at the senior sale and thereby
protect his junior security interest. The only possible protection
available to the vendor other than careful and sometimes fortuitous
choice of purchasers, is to allow a deficiency judgment against the
commercial developer. n8
FOOTNOTES
n8 In 1963 the
Legislature amended the pertinent portion of section 580b (additions by
amendment are underscored). "No deficiency judgment shall lie in any
event after any sale of real property for failure of the purchaser to
complete his contract of sale, or under a deed of trust, or mortgage,
given to the vendor to secure payment of the balance of the purchase
price of real property, or under a deed of trust, or mortgage, on a
dwelling for not more than four families given to a lender to secure
repayment of a loan which was in fact used to pay all or part of the
purchase price of such dwelling occupied, entirely or in part, by the
purchaser."
In Kistler v. Vasi, supra, 71 Cal. 2d 261, this
court recognized that the Legislature by this amendment singled out
commercial development purchasers for different treatment with respect
to nonvendor purchase money lenders. It is consistent with the spirit
of that amendment to treat the commercial development of property
differently in determining the applicability of section 580b.
The second purpose delineated in Roseleaf, namely to prevent
aggravation of a depression in land values by not burdening purchasers
with loss of the property plus personal liability, has little
applicability to a sold-out junior lienor in the subordination clause
context. If section 580b is applied to prevent the deficiency judgment,
then the subordinating sold-out junior lienor loses both the land and
the purchase price. If section 580b is not applied then the purchaser
is subjected to the same burden. Neither party has the land in this
context; the sole question is who shall bear the cost of the unpaid
portion of the purchase price.
We, therefore, conclude that when
in the sale of real property for commercial development, the vendor
pursuant to the agreement of sale, subordinates his purchase money lien
to the lien securing the purchaser-developer's construction loan and
thereafter, upon the default of the purchaser-developer, loses his
security interest after sale or foreclosure under the senior lien,
section 580b should not be applied to bar recovery by the junior vendor
lienor of the unpaid balance of the purchase price of the property. n9
FOOTNOTES
n9
In Raub v. Lee (1960) 181 Cal. App. 2d 529 [5 Cal. Rptr. 444] the Court
of Appeal applied section 580b under the authority of Brown v. Jensen
to a sold-out junior lienor who had subordinated his senior security
interest to a construction lender. This case was decided prior to
Roseleaf. Raub v. Lee, to the extent that it is inconsistent with the
views expressed herein, is disapproved. However, we note that in Raub
the purchaser did not purchase for the purpose of commercial
development, but rather for the purpose of building a single residence
for himself, obtained the construction loan and insisted upon
subordination for that purpose. Therefore, the facts in Raub remove
that case from the holding in the instant case, since there was no
purchase for commercial development.
Our attention has been
directed to two other cases, both subsequent to Roseleaf, where the
Courts of Appeal have applied section 580b to bar recovery by a
sold-out junior lienor vendor who had subordinated his security
interest to a construction loan. ( Valinda Builders, Inc. v. Bissner
(1964) 230 Cal. App. 2d 106 [40 Cal. Rptr. 735] and Kincaid v. Gomez
(1969) 274 Cal. App. 2d 839 [79 Cal. Rptr. 539].) However, in both
cases the actions were not upon the promissory note, but upon
guaranties of payment of the promissory note. The courts in both cases
concluded that the guarantors were not legitimate guarantors within the
meaning of Roberts v. Graves (1969) 269 Cal. App. 2d 410 [75 Cal. Rptr.
130] and Heckes v. Sapp, supra, 229 Cal. App. 2d 549, but were
purchasers and, therefore, entitled to protection against a deficiency
judgment under section 580b. However, neither opinion contains any
language concerning the applicability of section 580b to the factual
situation presented in the light of Roseleaf.
In the case
at bench, cross-complainant sold her property to cross-defendants for
commercial development, subordinated her purchase money deed of trust
to the deed of trust given by the purchaser-developer to the Union Bank
to secure a construction loan, and thereafter became a sold-out junior
lienor upon the bank's foreclosure following cross-defendants' default.
Therefore, section 580b should not be applied to bar
cross-complainant's recovery from cross-defendants of the balance due
on the promissory note and the judgment of the trial court should be
upheld on this basis. In view of this conclusion we need not consider
the other contentions raised by the parties. n10
FOOTNOTES
n10
The other contentions raised by the parties are predicated on the
assumption that section 580b applies to the case at bench and involve
interpretations of certain exceptions to the application of that
section. Among these contentions are various arguments that the
guaranties of the individual partners are true guaranties so as to
bring them outside the operation of section 580b. (See fn. 4, ante, and
accompanying text.) Since we have concluded that section 580b does not
apply, we need not consider possible exceptions to its applicability.
The judgment is affirmed.
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