Riddle v. Lushing

This is an action on a guaranty of a promissory note, which note was secured by a deed of trust that was given to secure the payment of the purchase price of real property. In a nonjury trial, judgment was for defendants. Plaintiffs appeal from the judgment.

Appellants contend, among other things, that the court erred in determining that judgment for plaintiffs is barred by section 580b of the Code of Civil Procedure (which provides there shall be no deficiency judgment after sale of real property under a trust deed given to secure payment of purchase price).

Defendants Alfred Lushing and Sidney Lushing were co-partners doing business under the fictitious name of Midland Investment Co. On August 15, 1956, they, as copartners, purchased from plaintiffs certain real property in Los Angeles, and plaintiffs conveyed the property by a deed in which the grantee named was Midland Investment Co. (the partnership name). On the same day (August 15, 1956), as part of the purchase price of the property, defendants, as copartners, gave to plaintiffs a promissory note, in the amount of $25,000, and a deed of trust on the property to secure the note. The note and deed of trust were signed: “Midland Investment Co.

On November 2, 1956, plaintiffs and defendants signed an agreement which provided that in consideration for the extension of the time for payment of another note, which had been executed by Midland Investment Co., the parties agreed that the interest rate on the $25,000 note, above referred to, be raised from 5 per cent to 6 per cent per annum. The agreement was signed: “Midland Investment Co. Alfred Lushing as Individuals Alfred Lushing Sidney Lushing. ’ ’ The agreement was “Approved and Accepted” by the plaintiffs.

The note which was secured by the trust deed was not paid on its due date, August 27, 1959. On October 15, 1959, plaintiffs commenced this action on the guaranty above quoted.

On May 13, 1960 (after the commencement of the action), plaintiffs caused the real property to be sold by the trustee under a power of sale contained in the trust deed of trust. On July 1, 1960, plaintiffs filed a supplement to the complaint, wherein they alleged that the property was sold by the trustee on May 13, 1960, for $20,125; that the net amount received was $19,436.43; and that the “balance of account” on said note was $5,563.57, plus interest.

The court found that the real property described in the trust deed was purchased by “Midland Investment Co.” from plaintiffs and that the $25,000 note was delivered to plaintiffs as a part of the purchase price of the property, and that the trust deed was given to plaintiffs to secure payment of part of said purchase price; and that after the filing of the complaint herein, the trustee under the trust deed sold said property, and received from the sale the net amount of $19,436.43.

The court concluded that plaintiffs were not entitled to judgment against defendants for the following reasons: Such judgment is barred by section 580b of the Code of Civil Procedure. The partnership, Midland Investment Co., “does not constitute a separate and distinct entity from the defendants,” who are the sole partners therein. In legal contemplation the defendants were the purchasers and coowners of the property purchased. In the absence of section 580b, the defendants, as

Section 580b of the Code of Civil Procedure provides: “No deficiency judgment shall lie in any event after any sale of real property . . . under a deed of trust . . . given to secure “payment of the balance of the purchase price of real property.”

Appellants argue that said section, above quoted, is not applicable herein for the reason that the action is on the guaranty. They argue further that if, for the purpose of the transaction, the partnership is regarded as “a separate entity, apart from the individual liability of the guarantors,” there can be no doubt that they would be entitled to a judgment for the balance due on the note; that the guaranty is valid, under section 15015 of the Corporations Code, as a separate obligation of each partner to perform a partnership contract; that it appears that the parties intended that there should be individual liability of the defendants, as guarantors, in addition to the liability of the partnership, and that they intended that the individual liability of defendants, as guarantors, was to be additional security for the note; and that the intention of the parties, as shown by the note and guaranty, should prevail.

In Brown v. Jensen, 41 Cal.2d 193 , 198 [ 259 P.2d 425 ], it was said: “ [T]he purpose of section 580b [of the Code of Civil Procedure] is that ‘. . . for a purchase money mortgage or deed of trust the security alone can be looked to for recovery of the debt. ’ ”

In Freedland v. Greco, 45 Cal.2d 462 , 467 [ 289 P.2d 463 ], it was held that the provisions of section 580b may not be waived in advance by the debtor.

In the case of In re Wilton-Maxfield Management Co., 117 F.2d 913 , the purchaser of real property caused the seller to convey the property to a “dummy” for the purchaser. The dummy executed a note and deed of trust, covering the property, as a security for part of the purchase price, and the real purchaser, Wilton, signed a guaranty of payment of the note. It was said therein, at page 915: “Section 580b was not rendered inapplicable by the fact that Wilton, instead of signing the note as a maker, signed a guaranty thereof. For § 580b was designed, not merely to protect note-makers, but to protect purchasers of real property. Wilton, being such a purchaser, was entitled to the benefits of the section, despite the fact that it (Wilton) guaranteed, instead of merely promising, payment of the balance of the purchase price.”

Section 15006, subdivision (1), of the Corporations Code provides: “A partnership is an association of two or more

In Rudnick v. Delfino, 140 Cal.App.2d 260 , 266 [ 294 P.2d 983 ], it was said: “A partnership in the eyes of the law is not a legal entity even though it may be sued under the firm name, by reason of the provisions of section 388 of the Code of Civil Procedure. ’ ’

The partnership, Midland Investment Co., is not a legal entity, and the defendants, as the only partners therein, were the purchasers of the property, and they were jointly liable for the balance of the purchase price. “Any estate in real property may be acquired in the partnership name. ...” (Corp. Code, § 15008, subd. (3).) Defendants, as the only partners, acquired title by the deed (in the partnership name) as coowners, holding as tenants in partnership. (See Corp. Code, § 15025, subd. (1), supra.) It is conceded that the note and trust deed were given as part of the purchase price of the property. The court could find, under the evidence, that the note, trust deed, and guaranty were parts of one transaction. Under the circumstances here, the signing of the guaranty did not change the nature of the transaction and render section 580b inapplicable to defendants.

The court did not err in determining that judgment for plaintiffs is barred by said section 580b.

Appellants contend further that the court erred in determining that judgment for plaintiffs is barred also by said sections 580d and 580a. Section 580d provides, in substance, that there shall be no deficiency judgment upon a note secured by a trust deed when the property has been sold by the trustee under power of sale contained in the trust deed. Section 580a, referred to in the above contention, provides, in substance, that whenever a money judgment is sought for the balance due upon an obligation secured by a trust deed, following a sale under the power of sale in the trust deed, the plaintiff shall set forth in his complaint the amount of the

The judgment is affirmed.

Fourt, J., and Lillie, J., concurred.

Appellants’ petition for a hearing by the Supreme Court was denied July 18, 1962.