Heckes v. Sapp
229 Cal. App. 2d 549 (Cal. Ct. App. 1964)
SCHOTTKY, J.
Appellants appeal from a judgment entered against them in an action they brought against respondents as guarantors of a promissory note secured by a deed of trust on real property executed by Jonathan Manor, Inc., to appellants...
A summary of the evidence included in the partial stipulation of facts is as follows: Jonathan Manor, Inc., purchased real property consisting of 50 lots, from appellants in 1959 by making a sizeable down payment and executing a promissory note in the face amount of the remainder of the purchase price. The note was secured by a deed of trust covering the 50 lots sold to Jonathan Manor, Inc. Respondents signed the note as individual guarantors. At the time the promissory note and deed of trust were executed, defendants were the principal officers and directors of Jonathan Manor, Inc., and the sole shareholders of its issued and outstanding stock.
Subsequent to the purchase and after 15 lots secured by the deed of trust had been released from the lien upon payments made pursuant to the note, the holders of a senior deed of trust foreclosed and sold the remaining 35 lots by exercise of the power of sale contained therein. As a result of this sale appellants' security was rendered worthless. After Jonathan Manor, Inc., defaulted on the note, appellants instituted this action to procure a judgment against respondents for the entire unpaid balance. Respondents' sole defense was that section 580b of the Code of Civil Procedure barred a judgment against them.
Appellants contend that section 580b of the Code of Civil Procedure does not protect a guarantor against a deficiency judgment. Section 580b provides, in part, that "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." "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 section 580b only if they come within the purpose of that section." (Roseleaf Corp. v. Chierighino, 59 Cal.2d 35, 41 [27 Cal.Rptr. 873, 378 P.2d 97].) Therefore, in order to determine the liability of a guarantor for a deficiency judgment, it is necessary to examine the purpose of section 580b of the Code of Civil Procedure.
In Roseleaf Corp. v. Chierighino, supra, the court reviewed the various purposes ascribed to section 580b by earlier cases and discarded them. The court then clarified the real purposes. In Bargioni v. Hill, 59 Cal.2d 121 [28 Cal.Rptr. 321, 378 P.2d 593], the court summarized the conclusions of Roseleaf Corp. v. Chierighino, supra, by stating at page 123: "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."
The conjunctive "and" between the overvaluation and depression purposes is of critical importance. Preventing overvaluation is subsidiary to the depression purpose. "Standing alone, the first purpose, preventing overvaluation, would lead to the opposite result under the Roseleaf facts; would compel that an unsecured note for part of the purchase price be uncollectible under section 580b; would bar an action against a guarantor of a purchase money instrument; and would compel an inquiry into the total consideration rather than into the secured consideration. Yet the statute does none of this." [Citations Omitted.] The major purpose, then, of section 580b is to prevent aggravation of the downturn in depression times.
The purposes of section 580b as set forth in the Roseleaf and Bargioni cases dictate the conclusion that a guarantor is not shielded from a deficiency judgment by section 580b. ". . . These purposes are served by relieving the purchaser of personal liability to any person who finances the purchase and takes as security a trust deed or mortgage on the property purchased, provided the financier intended the loan to be used to pay all or part of the purchase price." [Citations Omitted.] Consequently, the scope of protection afforded by section 580b must be confined to the purchaser-debtor's obligation which is secured by the purchased property. ". . . The guarantor's obligation is not within this delineation. It is not secured by the purchased security and is not the debtor's obligation." Therefore, the guarantor's obligation is not a variation of the standard purchase money mortgage transaction within the purposes of section 580b, and the guarantor should not be protected against a deficiency judgment.
A guaranty is simply additional security for the obligor's debt. "There seems to be no better argument in favor of protecting the guarantor than there is for protecting other property." [Citation Omitted.]...
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For the reasons hereinbefore stated and in view of the authorities hereinbefore cited, we have concluded that the court erred in decreeing that appellants were not entitled to recover from respondents the balance due on the promissory note. Appellants are, of course, entitled to recover attorneys' fees for services rendered in the trial court and upon the appeal.
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