Opinion
Hurwitz, Hurwitz, & Remer and Peter Korican, Newport Beach, for plaintiffs and appellants.
Jordon, Dodge & Loveridge and Henry Hill, Santa Ana, for defendants and respondents.
OPINION
LAZAR, Associate Justice pro tem.
Assigned by the Chairman of the Judicial Council
Plaintiffs appeal from a judgment entered against them after an order granting defendants' motion for summary judgment. The judgment must be affirmed for its propriety is established without reference to any triable issue of fact.
FACTS
Plaintiffs, as real estate brokers, negotiated an exchange of real properties between defendants on the one hand and Agajanian Investment Corporation and Santa Anita Investments, Inc. (Agajanian) on the other. Defendants' property was a triplex apartment building valued at $188,000; the Agajanian property was two unimproved lots valued at $350,000. The Exchange Agreement executed by defendants and Agajanian under date of June 24, 1965, provided that defendants execute a first deed of trust in the amount of $144,500 payable to Agajanian and a second deed of trust in the amount of $17,500 payable to plaintiffs. Each was to be payable in two annual installments with interest at 6%. The agreement further provided each party should pay a 5% commission to plaintiffs, but elsewhere provided defendants were "o pay $10,000 cash for commissions."
Escrow instructions dated June 25, 1965, were executed to implement the Exchange Agreement. With respect to commissions the escrow instructions read as follows:
"First Party [Defendants] agrees to pay _____ See Separate Instruction as commission for procuring this exchange.
"Second Party [Agajanian] agrees to pay Art C. Kistler and George Taber $17,500 by second deed of trust and note as set out hereinabove as commission for procuring this exchange."
The separate instructions therein referred to do not appear, unless the provision in the Exchange Agreement for the payment of $10,000 cash is the reference. Both the first and second deeds of trust were, by the escrow instructions, to be placed against only one of the unimproved lots purchased by defendants; the other lot was to be unencumbered. Plaintiffs appear not to have signed the "Exchange Escrow Instructions" but they were incorporated by reference as a part of the declaration of June 5, 1965 by plaintiff George Taber in support of a motion for summary judgment on behalf of plaintiffs but which was used as a counter-declaration upon the hearing of defendants' motion.
The transaction was completed precisely as required by the agreements mentioned. Defendants paid to plaintiffs $10,000 in cash. Defendants executed the first and second deeds of trust; the former in favor of Agajanian, the latter in favor of plaintiffs. Thereafter the first deed of trust was defaulted and the property sold. Plaintiffs did not purchase at the foreclosure sale and the note secured by the second deed of trust became unsecured. Plaintiffs made demand for accelerated payment of the note as they were entitled to do and DISCUSSION
Question: Is the second deed of trust made by defendants to plaintiffs a purchase price security within the meaning of Section 580b of the Code of Civil Procedure so as to exempt defendants from any personal obligation to plaintiffs?
The portion of Section 580b with which we are concerned reads as follows:
"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."
In this case the security for plaintiffs' note was unimproved property. The protection given a purchaser against a "lender" applicable to an occupied dwelling purchase money security transaction is not involved.
Plaintiffs rely upon Bargioni v. Hill, 59 Cal.2d 121, 28 Cal.Rptr. 321, 378 P.2d 593, in contending that they must be considered as lenders in relation to defendants and therefore outside the proscription of Section 580b as amended in 1963 after the ruling in Bargioni. In that case, in which two brokers were involved, buyer and seller entered into a written agreement for the purchase of a motel. The price was stated at $310,000 and the seller was to pay the commissions of both brokers in the total amount of $10,000. Thereafter the agreement was modified by reducing the price to $300,000 and the buyer assumed payment of the brokers' commissions. Buyer gave each of the brokers a note for $5,000 secured by a junior trust deed. That given to plaintiff Bargioni was against the purchased real property. The senior encumbrance was foreclosed, thereby eliminating the security for the junior trust deed. The trial court awarded plaintiff Barioni judgment for the amount of the note. The Supreme Court reversed upon the ground the judgment was prohibited by the terms of Section 580b as it then read.
The applicable portion of Code of Civil Procedure, section 580b as it read before the 1963 amendment is as follows: "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 secure payment of the balance of the purchase price of real property."
The particular language of Bargioni which appears to lend support to plaintiffs' position is found 59 Cal.2d at pages 123-124, 28 Cal.Rptr. at page 322, where the court said:
"Thus, in accepting defendant's note in payment of the commission, plaintiff extended credit that otherwise would have been extended by the seller. That credit was necessary to the consummation of the sale. The only reasonable inference that can be drawn from this evidence is that plaintiff intended to and did partially finance the purchase."
Quite obviously, we think, the Supreme Court relied upon the contract of the parties in reaching its conclusion as to the relationship of the parties and the meaning of the transaction between them. It is appropriate that we consider the contract of the parties to the instant case to determine whether the two cases and reasoning applicable to them are in fact parallel. The written agreements establish the relationship of the parties here. The declarations of the parties affirm the nature of the transaction and raise no triable issue of fact which might lend to lead to a different construction of the agreements and a different legal consequence of the transaction.
The Exchange Agreement provided (by simple arithmetic computation) for a The escrow instructions made detailed provisions for the two deeds of trust mentioned in the Exchange Agreement in conformity with the terms specified in the latter document. No provision for commission payments was contained in the escrow instructions other than those heretofore mentioned, to wit, a reference to "separate instructions" for the commission to be paid by defendants and that Agajanian "agrees to pay [plaintiffs] $17,500 by second deed of trust and note as set out hereinabove." We may assume that the so-called "separate instructions" encompassed defendants' agreement to pay $10,000 cash in satisfaction of the commission payable for the exchange of defendants' property, a payment which was accomplished.
We conclude the written contract may be construed only as agreement that each of the parties would pay the commission obligation emanating from his side of the transaction. The wording of the escrow instructions in detailing how Agajanian would satisfy his liability, i.e., by the second deed of trust and note for $17,500 is conclusive on the subject. Concession is found in the declaration of plaintiff George Taber of June 5, 1967, wherein he says in part:
"Plaintiffs were entitled to commissions for their part as real estate brokers in said exchange transaction, both from the Defendants and from [Agajanian]. Plaintiffs were paid their commissions by Defendants in cash and agreed to accept as their commission from [Agajanian] said $17,500.00 Promissory Note secured by a Deed of Trust and executed in Plaintiffs' favor by Defendants."
The fact that nothing is present to indicate defendants agreed to pay or to assume any liability for plaintiffs' commission as such is the highly significant factor differentiating the instant case from Bargioni. The latter case very clearly rested upon the uncontroverted evidentiary fact that the buyer had assumed and agreed to pay the broker's commission for which seller would otherwise be liable. This is pointed out by Professor Hetland in his analytical study entitled "Deficiency Judgment Limitations in California" (51 Cal.L.Rev. 1, 2, fn. 5).
We may test the difference between the two cases in very simple manner if we assume a mutual cancellation of each transaction for reasons not defeating he brokers' right to commission. In Bargioni the broker in the position equivalent to that of plaintiffs would appear to have had a cause of action against the buyer for the commission owing by the seller. In the instant case plaintiffs' cause of action could have been only against Agajanian. If, as we believe, the responsibility for Agajanian's commission payment lay with him, then it follows that any arrangement for deferred payment of that obligation by accepting the deferred payment of someone else was at most an extension of credit to Agajanian. It must be kept in mind that Bargioni was decided at a time when the prime question was whether a purchase money obligation was involved and it is highly doubtful the opinion was intended to provide a universal definition of "lender" under an amendment of the statutes not yet adopted. The language of the Supreme Court should not be carried beyond the facts of the case before it absent a factual Plaintiffs attempt to establish the identify of Barioni and this case by a table showing the parallel operation of the mechanics of completing each transaction. It is true that an identity of actions took place, but the point is that the case is not to be determined by the mechanics of concluding the transaction but rather by the legal relationship giving rise to those mechanics. The factual situation permits no conclusion but the one that defendants were accommodating Agajanian by dividing the equity differential into two notes secured by the same property and that plaintiffs accommodated Agajanian by taking the smaller and junior note in settlement of their commission claim against him. The arrangement must be construed as a shortcutting of the actual substance of the transaction which would have been effected by a note payable to Agajanian and by him assigned to plaintiffs.
In the article heretofore mentioned (51 Cal.L.Rev. 1) Professor Hetland suggests that Roseleaf Corp. v. Chierighino, 59 Cal.2d 35, 17 Cal.Rptr. 873, 378 P.2d 97 and Bargioni v. Hill, supra, 59 Cal.2d 121, 28 Cal.Rptr. 322, 378 P.2d 593, are directional cases in the law of deficiency judgments subsequent to purchase money security transactions. In the same article he also says:
"Section 580b may not be waived at the time of the purchase; nor may it be waived by indirection. Two noes representing the same consideration will not be protected from section 580b any more than they have been from sections 580d and 726. Refinancing 'gimmicks' aimed at an illusory change from the purchase money format will still fall under the statute's bar. Roseleaf did not sanction an avoidance device; it merely refused to extend section 580b beyond the secured transaction to which the statute is limited by its language. Anything not part of the secured transaction and anything beyond the statute's purpose are outside of section 580b. There are legitimate credit arrangements even for a purchase price that are beyond section 580b, and thus do not avoid it at all. The Roseleaf transaction was one of these." (51 Cal.L.Rev. at p. 17.)
Professor Hetland also
"There is no economic justification for breaking a single price into two notes, securing one by a first trust deed, and the other by a second, on the same property. If the creditor's purpose is to have separately transferable obligations with or without the same priority, his purpose is the same as it would be with participation or series notes secured by a single encumbrance upon the property. A junior and senior lien on the same property to secure parts of the same loan for the benefit of the same creditor amount to participation notes except to the extent the changes in form might avoid the antideficiency provisions. The separate junior and senior lien device has no independent purpose; it is designed solely to evade the deficiency limitation. The creditor's impediments under this patent evasion device would be identical to those barring a deficiency under a single note and single purchase money trust deed. The economic and remedial identity of the transactions would mean that in each there is but one 'debt'--or 'a purchase price.' " (51 Cal.L.Rev. at pp. 21-22.)
Neither the authorities cited by plaintiffs nor the contract of the defendants and their vendor warrant differentiation in the classification or treatment to be accorded the two notes executed by defendants in the instant transaction. Within the meaning of Section 580b the note and deed of trust held by plaintiffs were "given to the vendor to secure payment of the balance of the purchase price of real property." Plaintiffs next contend that they are entitled to sue upon the note for the reason the deed of trust has become worthless because of sale of the real property under a senior encumbrance; in other words, plaintiffs have become unsecured creditors. Defendants point out and plaintiffs concede that Brown v. Jensen, 41 Cal.2d 193, 259 P.2d 425, squarely in point, holds to the contrary of plaintiffs' contention. Plaintiffs argue, however, that the Supreme Court has reversed its position by virtue of Roseleaf Corp. v. Chierighino, supra, 59 Cal.2d 35, 27 Cal.Rptr. 873, 378 P.2d 97.
In Brown v. Jensen, supra, 41 Cal.2d 193, 259 P.2d 425, the purchaser gave a first deed of trust to a lending institution. The seller took back a second deed of trust for the balance of the purchase price. The first deed of trust was foreclosed by exercise of the power of sale, which eliminated the security of the second. The seller sued on the note, alleging her deed of trust had become valueless. The court held the suit could not be maintained for the reason the seller was attempting to obtain a deficiency judgment in its broad sense, i.e., the difference between the amount realized on the security and the whole debt; if nothing is realizable from the security, then the deficiency and debt are the same in amount.
Roseleaf, supra, involved suit upon three promissory notes given by the purchaser to the seller for the balance of the purchase price of real property which were secured by second deeds of trust upon property other than that sold. The first deeds of trust on such other properties were foreclosed leaving the second deeds of trust valueless in the hands of the seller. With reference to Section 580b the Supreme Court said the section
" * * * was apparently drafted in contemplation of the standard purchase money mortgage transaction, in which the vendor * * * 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" (Roseleaf Corp. v. Chierighino, supra, 59 Cal.2d at page 41, 27 Cal.Rptr. at page 876.)
The court then found the purpose of the section to be to place'
" * * * 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 general or local depression, section 580b prevents the aggravation of the downturn that would result if defaulting purchasers were burdened with large personal liability. Section 580b thus serves as a stabilizing factor in land sales." (Roseleaf Corp. v. Chierighino, supra, at page 42, 27 Cal.Rptr. at page 877.)
Since it did not appear that default had occurred with respect to the note secured by the property sold, the court concluded it could not be said that the property sold had been overvalued or that the purchaser would lose the property and yet remain liable for the purchase price; that under the circumstances application of section 580b would in fact mean the purchaser would obtain the property bought by them for less than the agreed price.
We find nothing in Roseleaf which compels the conclusion that Brown v. Jensen, 41 Cal.2d 193, 259 P.2d 425, does not continue to state the law applicable to the case at bench. As stated in Younker v. Reseda Manor, 255 A.C.A. 525, at paged 532-533, 63 Cal.Rptr 197, at page 203:
"But the Supreme Court has not overruled Brown v. Jensen. It stands as the expression of law on this subject."
Roseleaf responded to the facts of that case and the determination of the court that the factual situation was not embraced within the purposes of Section 580b is far from giving support to esoteric analysis We should not overlook Bargioni v. Hill, supra, 59 Cal.2d 121, 28 Cal.Rptr. 321, 378 P.2d 593, decided by the Supreme Court within weeks of Roseleaf which in effect reaffirmed Brown v. Jensen, supra, by refusing to allow recovery on a note secured by a valueless junior deed of trust on the purchased property. Since the Supreme Court gave no greater effect to Roseleaf than is contained within its factual structure when it had available to Bargioni the vehicle with which to do so, we hold that Brown v. Jensen is applicable and must be followed.
The conclusions expressed make it unnecessary to consider at length defendants' contention the judgment should be affirmed on the basis of their right to rescind by reason of mistake. It is sufficient to state the summary judgment could not have been sustained on that ground.
The judgment is affirmed.
GERALD BROWN, P.J., and COUGHLIN, J., concur.