Valinda Builders, Inc. v. Bissner
| Decision Date | 09 October 1964 |
| Citation | 40 Cal.Rptr. 735,230 Cal.App.2d 106 |
| Court | California Court of Appeals Court of Appeals |
| Parties | VALINDA BUILDERS, INC., Plaintiff and Respondent, v. Harold J. BISSNER, Defendant and Appellant. VALINDA BUILDERS, INC., Plaintiff and Respondent, v. Edward D. LOWNES, Defendant and Appellant. Civ. 27225. |
Barrick, Poole & Olson, A. William Olson, Jr., Pasadena, for appellant Bissner.
Hill, Farrer & Burrill, Robert Nibley and J. Douglas Browne, Los Angeles, for appellant Lownes.
Gray & Maddox, by Gary Cooper, Beverly Hills, for respondent.
These are consolidated appeals of Harold J. Bissner and Edward D. Lownes from a judgment against them for the unpaid balance of the purchase price of real property and a trust deed note given as security for the same. The suit is not on the contract of purchase, as such, or the note, but upon a provision of the contract of sale by which defendants guaranteed faithful performance of the contract and payment of the purchase money note of $67,775. The judgment is upon this alleged guaranty.
July 8, 1954, Valinda Builders, Inc., a corporation, sold to Bissner and Lownes 17.68 acres of vacant land for $4,500 per acre. The scheme was the somewhat common one in which a subdivider pays the owner a part of the purchase price and gives a note and trust deed on the land for the balance, money is borrowed for development of the land and the construction of houses, and the seller's trust deed is subordinated to the security of the construction loans. Defendants later organized a corporation, 'Trend Homes, Inc.' to take title, and Trend executed the note and trust deed to Valinda. The corporation had a paid-in capital of $200; defendants and their wives were the only stockholders, directors and officers. Money was borrowed, security for the loans was given by Trend, to which Valinda's trust deed was subordinated, houses were built upon the 53 lots of the subdivision and were sold. The money received was used in payment of claims having priority, and only $6,801.98 was paid as interest upon Valinda's note. No proceedings were had for sale of the property under Valinda's deed of trust and no action was brought to foreclose it.
The primary and, we believe, the decisive contention of defendants is that they were the purchasers of the property, the note and trust deed in question were given as part payment of the purchase price and that Valinda could not look beyond the security for payment of the debt. This contention, we think, must be sustained.
The note and trust deed were to be given by Bissner and Lownes but were given instead by Trend, which took title and proceeded with the project as the owner. The contract of sale provided that defendants guaranteed performance of the contract of purchase and payment of the purchase money note and the ultimate question is whether this was a guarantee of the obligation of another, Trend, or merely a promise of defendants to pay what they already owed, and in no sense a contract of guaranty. If defendants, throughout, were the purchasers of the land, and if Trend was merely an instrumentality through which defendants operated, Valinda was limited by section 580b, Code of Civil Procedure, to application of the security to the debt, and defendants had no personal liability. 1
Resort must be had to the contract of sale to know the relationship of defendants to the enterprise. That they were the purchasers, and agreed personally to pay the purchase price, is not questioned. They made numerous promises, among which were the following: they were to provide drawings and estimates for lending institutions which would qualify for Veterans Administration and F.H.A. loans and obtain approval and commitments within 120 days; they were to deposit in escrow sufficient money to cover the cost of street improvements, adequate to obtain approval of the Real Estate Commissioner; they were to deposit $5,300 to be applied on the purchase of the land and their joint and several promissory notes and trust deed due in 15 months for $4,500 per acre for the exact ascertained acreage, the same to be subordinated to any construction loans obtained by defendants.
The agreement provided: 'Bissner and Lownes guarantee the full performance of the terms of this agreement and of said Note and Deed of Trust and agree to protect, indemnify and hold harmless Valinda of and from any claim, demands, liabilities or indebtedness whatsoever of any sort or nature by reason of this agreement or by reason of the construction of said houses on said property; and in particular covenant, guarantee and agree that the same will be kept free and clear of any mechanic's liens materialmen's liens or any other liens caused by or arising out of any activity in connection with the construction on said property.' Trend took title through the escrow and Valinda received $5,300 and the $67,775 note and trust deed.
The enterprise was a failure. Large sums were borrowed, to which the Valinda security was subordinated. Defendants advanced substantial sums. Proceeds from sales were applied upon debts having priority. Eventually, the outstanding contracts on the sales of lots were assigned by Trend to Valinda, as well as the capital stock of Trend. The amount of the agreed value of the contracts was applied upon accounts owing to Valinda; no money remained available for application on the note.
The agreement provided in part: 'It is the intention of the parties that Bissner and Lownes, or a partnership or corporation through which they may decide to operate, will construct upon each and all of said lots as expeditiously as possible single family residences which will qualify for GI and/or FHA loans * * *.' It was also provided: 'It is understood and agreed that any houses constructed by Bissner and Lownes, or the partership or corporation through which they may decide to operate, on any of said lots shall be constructed in accordance with said plans and specifications as approved by Valinda,' etc.; also 'The sale of any and all of said houses shall be made by Bissner and Lownes, and/or any partnership or corporation through which they may operate,' etc.
The agreement did not provide that a corporation would be formed to take title and give the note and trust deed or that the note of defendants for the balance of the purchase price would be assumed by a partnership or corporation. There was no agreement that if a corporation were formed to take title Bissner and Lownes would be released from their agreement to buy and pay for the property. Upon the contrary, their agreement was not that a corporation to be formed would promise to pay the balance of the purchase and that they, defendants, would guarantee payment of the promise of the corporation, but merely that in any event they, personally, would carry out the agreement and pay the purchase money.
Defendants argue that it is beyond question that they were, throughout, the purchasers of the land and that Trend was a mere instrumentality for their operations. The argument of plaintiff upon this phase of the case is that the court found that Bissner and Lownes were guarantors of performance of the agreement and that Trend was not the agent or instrumentality or alter ego of the individual defendants, and it is contended that these findings are conclusive upon appeal. We cannot agree.
There was no evidence that Trend was anything other than an instrumentality used by the individuals or that defendants were ever removed from their status and obligations of purchasers.
Section 2787 of the Civil Code defines a surety or guarantor as one who promises to answer for the debt, default or miscarriage of another, or hypothecates property as security therefor. The only debt in existence at the time of the contract was the promise of defendants to pay for the property. There was nothing in the agreement to suggest, nor is it contended that there was a plan that defendants would be supplanted as purchasers by any independent, responsible entity. Manifestly, the alleged guaranty of defendants was no more than a promise to pay their own debt, and the only other debt that...
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