Union Bank v. Anderson
| Decision Date | 25 July 1991 |
| Docket Number | No. F012652,F012652 |
| Citation | 283 Cal.Rptr. 823,232 Cal.App.3d 941 |
| Parties | UNION BANK, Plaintiff and Respondent, v. John B. ANDERSON, et al., Defendants and Appellants. |
| Court | California Court of Appeals Court of Appeals |
Plaintiff/respondent Union Bank secured a summary judgment against defendants/appellants John B. Anderson, Yolo Petroleum, Henry H. Stone, and H.H. Stone & Sons. 1 Defendants filed timely appeals.
On October 20, 1988, Union filed its First Amended Complaint for Foreclosure of Deeds of Trust. The First Cause of Action alleged that Anderson and Stone defaulted on a January 5, 1976, promissory note in favor of Buttes Gas & Oil Co. (the Buttes Note) which was later acquired by Union. The Second Cause of Action alleged that the Andersons, the Stones, and other individual defendants not parties to this appeal breached a written guarantee of the Buttes Note. The Third Cause of Action alleged that the Andersons and Stones defaulted on a January 7, 1983, promissory note in favor of Union (the Union Note).
On November 18, 1988, the Stones filed their answer to the First Amended Complaint, including 13 affirmative defenses. On November 21, 1988, the Andersons filed their answer to the First Amended Complaint, including six affirmative defenses. On May 12, 1989, a stipulation was filed that the Stones "have no liability under the Third Cause of Action of the First Amended Complaint."
On May 15, 1989, Union filed its notice of motion for summary judgment or, alternatively, summary adjudication of issues, together with supporting materials. The Defendants filed written opposition to the motion. The motion was heard on June 12, 1989, and June 15, 1989.
On June 15, 1989, the court granted summary judgment against Anderson and Stone on the First Cause of Action, Yolo and the Stone Partnership on the Second Cause of Action, and the Andersons on the Third Cause of Action. On June 27, 1989, the court filed its written order granting summary judgment. [[-]]
Purchase of SHF, Inc.
Before 1976, Buttes Gas & Oil Co. (Buttes) owned all the stock of Sam Hamburg Farms, Inc. (SHF, Inc.). SHF, Inc., a Los Banos area farming entity, owned approximately 6200 acres of real property in Merced and Fresno Counties. It also leased land and owned farm equipment and motor vehicles. In 1975, Anderson and Stone negotiated with Buttes about buying SHF, Inc.'s 6200 acres. Their purpose was to buy the land as an investment, farm it, then break it up and sell it.
Anderson, Stone, their agent, William Maddocks, and Buttes's President John Boreta agreed that the parties initially contemplated a purchase of SHF, Inc.'s land, not its stock. However, as of mid-1975, the parties had decided to structure the transaction as a stock purchase, to comply with Federal Bureau of Reclamation requirements. In July 1975, an attorney representing Anderson and Stone wrote the Department of the Interior that the transaction was strictly a stock acquisition.
On January 2, 1976, Anderson and Stone executed a written "Stock Purchase Agreement" to buy all the stock of SHF, Inc. Anderson and his children acquired 90 percent of the stock; Stone and his children acquired the remaining 10 percent. The corporate assets included the land, buildings, equipment, growing crops, and other assets. On January 5, 1976, Anderson and Stone executed a promissory note for $2,650,000 (Buttes Note), representing part of the purchase price. The Buttes Note was payable annually in 10 equal installments of $250,000 each and one final installment of $150,000, commencing January 5, 1977, with interest of 9 1/2 percent per year.
On January 5, 1976, SHF, Inc. executed a written guarantee of payment under the Buttes Note. Also, on January 5, 1976, SHF, Inc. executed two second trust deeds on the SHF, Inc. real property to secure payment of the Buttes Note. The property was subject to two first trust deeds securing a March 15, 1972, promissory note in the amount of $2,900,000 in favor of Connecticut Mutual. Despite the form of the transaction, the principals considered this to be a purchase-money transaction.
Anderson and Stone defaulted on the Buttes Note by failing to make principal payments due on January 5, 1984, 1985, and 1986. They also failed to pay all required interest. Union acquired the Buttes Note on August 30, 1985.
[[-]]
Are There Triable Issues of Material Fact Concerning Whether the Deficiency Judgment Bar of Code of Civil Procedure section 580b Applies to the Buttes Note?
The Buttes Note, in the amount of $2,650,000, was executed by Anderson and Stone in favor of Buttes Gas & Oil Co. as part of the transaction involving the "Stock Purchase Agreement" of January 2, 1976.
Anderson's sole argument as it relates to the first cause of action is that said action to recover on the Buttes Note is barred by Code of Civil Procedure section 580b. 7 Stone also raises the antideficiency bar as one of several possible defenses to the first cause of action.
Section 580b was a part of the legislation in the field of secured transactions in real property spawned by the depression of the 1930's. (Cornelison v. Kornbluth (1975) 15 Cal.3d 590, 600, 125 Cal.Rptr. 557, 542 P.2d 981; Note (1975) 12 Cal.Western L.Rev. 142.) At the time pertinent herein it stated, in relevant 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 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."
It is without question that section 580b bars deficiency judgments altogether on standard purchase money transactions. (Boyle v. Sweeney (1989) 207 Cal.App.3d 998, 1001, 255 Cal.Rptr. 153.) An acknowledged purpose of this section is to discourage vendors from overvaluing the security. Precarious land promotion schemes are discouraged as the security value of real property gives purchasers a clue as to its true market value. The primary purpose of this statute has been stated as follows: where inadequacy of the security results from a decline in property values during a general or local depression, the deficiency bar prevents the aggravation of the downturn that would result if defaulting purchasers lost the land and were also burdened with personal liability. (Cornelison v. Kornbluth, supra, 15 Cal.3d at 601, 125 Cal.Rptr. 557, 542 P.2d 981; Roseleaf Corp. v. Chierighino (1963) 59 Cal.2d 35, 42, 27 Cal.Rptr. 873, 378 P.2d 97; Bargioni v. Hill (1963) 59 Cal.2d 121, 123, 28 Cal.Rptr. 321, 378 P.2d 593.) (Kerrigan v. Maloof (1950) 98 Cal.App.2d 605, 616, 221 P.2d 153.)
" " as explicated in Roseleaf and Bargioni. (Spangler v. Memel (1972) 7 Cal.3d 603, 610-611, 102 Cal.Rptr. 807, 498 P.2d 1055, quoting Roseleaf Corp. v. Chierighino, supra, 59 Cal.2d at 41, 27 Cal.Rptr. 873, 378 P.2d 97; Boyle v. Sweeney, supra, 207 Cal.App.3d at 1001, 255 Cal.Rptr. 153.)
It appears both Anderson and Stone acknowledge the instant transaction could only fall within section 580b protection as a variation on the standard purchase money transaction. The question presented is whether a sale of all of the stock of an existing farming corporation, whose tangible assets consisted of real property, buildings, equipment, growing crops and other assets, secured by a note and attendant subordinate deeds of trust executed by the shareholders of the corporation on the corporation's real property, constitutes a variation on the standard purchase money transaction? Anderson maintains "[equitable] ownership of the real property was transferred" and that "[i]n their analysis of CCP § 580b, the courts have repeatedly disregarded the form of the transaction to determine its true substance." Stone agrees and maintains "[t]he transaction was a real property purchase money transaction."
Anderson relies on Valinda Builders, Inc. v. Bissner (1964) 230 Cal.App.2d 106, 40 Cal.Rptr. 735. There the two defendant-subdividers purchased a tract of land from Valinda, paying part of the purchase price and giving a note and deed of trust on the land for the balance. Valinda's trust deed was then subordinated to the security of a construction loan secured for the development of the land and construction of houses. Defendants later organized a corporation, Trend Homes, Inc., to take title; Trend executed a note and trust deed to Valinda. Trend was a nominal close corporation ...
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