Nickerman v. Ryan

The defendant produced a copy of a trustee’s deed which showed that the property the subject of plaintiff’s deed of trust had been sold under a prior deed of trust on June 27, 1969. He also introduced copies of briefs filed in the divorce proceedings which reflected the parties’ original demands in connection with the disposition of their community property, and copies of papers filed in March 1968 in connection with a motion for modification of a support order.

The plaintiff testified that, following the divorce, problems arose in connection with the management of the income producing properties

He further testified that later on one occasion the plaintiff’s court proceedings to enforce support payments caused a seizure of funds with which he expected to relieve a default in payment of taxes on the motel. At the time the motel was foreclosed by sale, he offered plaintiff, through her then attorney, assistance in retaining the motel if she could relieve the defaults. On cross-examination the defendant acknowledged that some written notes, which appear to be additions of several values, were made by him at or about the time of the negotiations or before.

I

f we examine solely the agreement itself it is clear that we must reject the defendant’s contention that there was a simple sale of the plaintiff’s one-half interest in the motel for a $25,000 purchase price, secured by the one-half interest conveyed and the one-half interest which had vested in the defendant through the divorce decree. “The interpretation of a written instrument, even though it involves what might properly be called questions of fact (see Thayer, Preliminary Treatise on Evidence, pp. 202-204), is essentially a judicial function to be exercised according to the generally accepted canons of interpretation so that the purposes of the instrument may be given effect. (See Civ. Code, §§ 1635-1661; Code Civ. Proc., §§ 1856-1866.) ... It is therefore solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence.” (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861 , 865 [ 44 Cal.Rptr. 767 , 402 P.2d 839 ], See State of California v. San Luis Obispo Sportsman’s Assn. (1978) 22 Cal.3d 440 , 451 [ 149 Cal.Rptr. 482 , 584 P.2d 1088 ].)

The agreement sets forth a nonseverable exchange of plaintiff’s interest in the apartments and the motel in return for $25,000, the defendant’s interest in the home and the cabin and the defendant’s assumption of the

The court, however, properly admitted evidence under principles recognized in Parsons v. Bristol Development Co., supra, 62 Cal.2d at page 865, and developed and applied in Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33 [ 69 Cal.Rptr. 561 , 442 P.2d 641 , 40 A.L.R.3d 1373 ], There the court concluded: “Accordingly, rational interpretation requires at least a preliminary consideration of all credible evidence offered to prove the intention of the parties. [Citations.] Such evidence includes testimony as to the ‘circumstances surrounding the making of the agreement . . . including the object, nature and subject matter of the writing . . .’ so that the court can ‘place itself in the same situation in which the parties found themselves at the time of contracting.’ [Citations.] If the court decides, after considering this evidence, that the language of a contract, in the light of all the circumstances, ‘is fairly susceptible of either one of the two interpretations contended for . . .’ [citations], extrinsic evidence relevant to prove either .of such meanings is admissible.” (69 Cal.2d at pp. 39-40, fns. omitted.)

The test here, therefore, is whether the trial court’s finding and interpretation of the agreement is supported by substantial evidence. (In re Marriage of Fonstein (1976) 17 Cal.3d 738 , 746-747 [ 131 Cal.Rptr. 873 , 552 P.2d 1169 ]; Parsons v. Bristol Development Co., supra, 62 Cal.2d 861 , 865; Hynum v. First Nat. Bank of San Diego (1968) 267 Cal.App.2d 540 , 541-544 [ 73 Cal.Rptr. 507 ].) In order to upset the finding of the trial court we would have to rule that the trial court was bound to follow the defendant’s version of the agreement as a matter of law. This we are not prepared to do. It is true that the plaintiff at no time participated in the negotiations, and that, in the absence of any testimony from her father, the defendant’s testimony concerning the manner in which the negotiators arrived at an agreement stands uncontradicted. Nevertheless the agreement itself is the final expression of the intention of the parties. We cannot say as a matter of law that the plaintiff would have executed an agreement embodying the home and cabin on the one hand, and debts and apartments on the other, leaving the motel for further negotiation.

I

n examining the applicability of the provisions of section 580b on the agreement, as so construed, we start with Brown v. Jensen, supra. There the court distinguished between the restraints of section 726, which permitted an action on the note when the security was rendered valueless because sold out under a prior lien, and section 580b. With respect to section 580b the court ruled: “With purchase money trust deeds, however, the character of the transaction must necessarily be determined at the time the trust deed is executed. Its nature is then fixed for all time and as so fixed no deficiency judgment may be obtained regardless of whether the security later becomes valueless.” (41 Cal.2d at p. 197.) The court further observed: “The one taking such a [purchase money] trust deed knows the value of his security and assumes the risk that it may become inadequate. Especially does he know the risk where he takes, as was done here, a second trust deed.” (Ibid.)

In Roseleaf Corp. v. Chierighino (1963) 59 Cal.2d 35 [ 27 Cal.Rptr. 873 , 378 P.2d 97 ], the court reexamined the policies on which section 580b was predicated. It held that the provisions of that section did not preclude recovery on a secured note given for the purchase price of real property when the security, which had been lost by sale under a prior encumbrance, was on collateral real property not the subject of the sale. (59 Cal.2d at pp. 41-43. See also Scott v. Fidelity Dev. Co. (1974) 39 Cal.App.3d 131 , 135 [ 113 Cal.Rptr. 855 ].) The court observed: “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.” (Id., p. 41. Accord, Spangler v. Memel, supra, 7 Cal.3d 603 , 611.)

The purpose of the section, to serve as a touchstone for evaluating variations on the ordinaiy purchase and sale of real property, was expostulated as follows: “Section 580b places the risk of inadequate security on the purchase money mortgagee. A vendor is thus discouraged from overvaluing the security. Precarious land promotion schemes are discouraged, for the security value of the land gives purchasers a clue as to its true market value. [Citations.] If inadequacy of the security results, not from overvaluing, but from a decline in property values during a

In Deficiency Judgments in California: The Supreme Court Tries Again (1975) UCLA L.Rev. 753, Acting Professor Leipziger urges that since the subordinating seller was protected in Spangler v. Memel, the same principle should apply to any vendor of commercial property, whether the senior encumbrance secured a construction loan or not, and that the provisions of section 580b applicable to a vendor should be confined to the sale of residential property, as the provisions applying to a third-party lender of the purchase price have been since the 1963 amendment of section 580b. (Cf. Kistler v. Vasi (1969) 71 Cal.2d 261 , 263-264 [ 78 Cal.Rptr. 170 , 455 P.2d 106 ], with Bargioni v. Hill, supra, 59 Cal.2d 121 , 123. See 22 UCLA L.Rev. at pages 771-778.) We, however, cannot lightly disregard the mandate of Spangler v. Memel, and must continue our analysis to determine whether the transaction in this case fell within the purposes of section 580b.

An exchange of properties may result in a situation giving rise to the application of section 580b. (See Christopherson v. Allen (1961) 190 Cal.App.2d 848 [ 12 Cal.Rptr. 658 ].) There the court did, however, uphold the recovery on additional unsecured notes after there had been a partial recovery of the purchase price on secured notes by foreclosure. The transaction here was not, however, an ordinary exchange with a balance to be paid in cash. The parties here as tenants in common wanted to vest in the defendant the management and control of the commercial properties. The plaintiff wanted to be free of that burden. It would be ironic to hold that the plaintiff who entered into the transaction to be free of the vicissitudes of the commercial enterprises, and so surrendered her joint right of control, should find that her fair share of the joint property was lost because of the sole management of the defendant who assumed the risks of the motel and apartment business. She is deserving of the

In Spangler the court also stated: “The second purpose delineated in Roseleaf, namely to prevent aggravation of a depression in land values by not burdening purchasers with loss of the property plus personal liability, has little applicability to a sold-out junior lienor in the subordination clause context. If section 580b is applied to prevent the deficiency judgment, then the subordinating sold-out junior lienor loses both the land and the purchase price. If section 580b is not applied then the purchaser is subjected to the same burden. Neither party has the land in this context; the sole question is who shall bear the cost of the unpaid portion of the purchase price.” (7 Cal.3d at p. 614.) Here also it would be unfair to place the risk of the business venture, from which she was withdrawing, upon the plaintiff.

The defendant finds support for the application of the deficiency statute in Gates v. Schuster (1964) 227 Cal.App.2d 287 [ 38 Cal.Rptr. 644 ]. There as in this case there was a transfer of more than the single parcel of land which was given as security for the purchase price. The vendor contended that section 580b was not applicable because the transaction involved both real and personal property. The court observed: “The contract provided solely for a note secured by a trust deed on certain real property. The real property was a portion of what was bought and sold by the parties for one indivisible price. There was no provision for security covering the items of personal property. Considering defendants’ default, the plaintiffs have achieved in this action precisely that for which they

In that case, unlike this case, there was no attempt to settle the affairs of persons holding property in some form of joint ownership. We find that Comstock v. Fiorella (1968) 260 Cal.App.2d 262 [ 67 Cal.Rptr. 104 ], points the way to the disposition of this case. There a note was given in satisfaction of the difference resulting when partnership property was distributed on dissolution. One partner took all of the property and gave a note, secured by deed of trust on the real property, to the other for the agreed value of his one-half interest. The court found that the transaction did not create a “purchase money security.” The decision noted that on dissolution the partners were entitled to an accounting and final settlement by action or by agreement. So here the parties were entitled to an action of partition, or they could agree, as they did, on their respective rights. The Comstock court continued: “The agreement, however, retains the character and legal effect of an accounting and distribution and does not constitute a sale and purchase of the partnership’s real property. The interest of a partner in the firm assets is the share to which he is entitled after claims against the firm and accounts between the partners are settled; it. is an equitable interest enforceable by an action for an accounting, [citations].” (260 Cal.App.2d at p. 265.) So here there was a settlement of the parties’ joint affairs in the ownership and management of the apartments and motel, and their remaining property and debts.

In Miller & Starr, Current Law of Real Estate (1975) the authors comment on Comstock v. Fiorella, supra, as follows: “The decision is curious since it would appear that upon the partnership dissolution each was entitled to his respective interest in the property as .tenants in common and, in effect, the plaintiff ‘sold’ his prospective tenancy in common interest to the defendant in consideration for the note. As a matter of equity, therefore, each partner is looking only to the former partnership asset, and it would be inequitable to make one partner liable for the recovery of the other partner’s partnership interest.” (Id., § 3.148, fn. 4, p. 588.) In our opinion the comment overlooks the fact that the purchasing partner is to enjoy the use of the asset and business, a risk which the selling partner apparently sought to shed by the agreement to dissolve. As we have noted above, this is the very type of situation which Spangler v. Memel states should not be included within section 580b. If the transferee does not wish to take the business risks at the price bargained for, he should have insisted on legal partition or dissolution.

Defendant relies on the principle that transfers between spouses or ex-spouses by agreement may give rise to taxable gain which is recognized for income tax purposes. (See United States v. Davis (1962) 370 U.S. 65 [ 8 L.Ed.2d 335 , 82 S.Ct. 1190 ]; and Jean C. Carrieres (1975) 64 T.C. 959 .) That consequence cannot throw any light on the question of whether or not the transaction is or is not such a variation on the standard purchase money deed of trust as to not serve the purposes of section 580b as explicated by the courts.

The judgment is affirmed.

Racanelli, P. J., and Elkington, J., concurred.

A petition for a rehearing was denied June 29, 1979, and appellant’s petition for a hearing by the Supreme Court was denied August 8, 1979. Mosk, J., was of the opinion that the petition should be granted.