Spangler v. Memel

• Decision Date: 18 July 1972
• Citation: Spangler v. Memel, 7 Cal.3d 603, 102 Cal.Rptr. 807, 498 P.2d 1055 (Cal. 1972)
• Parties: , 498 P.2d 1055 May H. SPANGLER, Cross-Complainant and Respondent, v. Sherwin L. MEMEL et al., Cross-Defendants and Appellants. L.A. 29979. in Bank
• Court: California Supreme Court

Page 807

102 Cal.Rptr. 807

7 Cal.3d 603, 498 P.2d 1055

May H. SPANGLER, Cross-Complainant and Respondent, v.Sherwin L. MEMEL et al., Cross-Defendants and Appellants.

L.A. 29979.

Supreme Court of California,

in Bank.

July 18, 1972.

Richards, Watson & Dreyfuss, James J. Cook and Harry L. Gershon, Los Angeles, for cross-defendants and appellants.

George R. Maury, Los Angeles, James C. Maupin and Ball, Hunt, Hart, Brown & Baerwitz, Beverly Hills, for cross-complainant and respondent.

SULLIVAN, Associate Justice.

In this action to foreclose a deed of trust, cross-defendantsSherwin 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 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 $2,000,000.

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.¹

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 de fendants 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.²Ultimately, cross-complainant, May Spangler, alleged a single cause of action against cross-defendantsSherwin 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.

After finding the facts to be as already narrated, the trial court further found ³ 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.

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; ⁴(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.

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 Procedure⁵ 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(1962)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.

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...