ORDER ON MOTION FOR SUMMARY JUDGMENT
.This case is one in a series testing the scope of California’s anti-deficiency statutes (Code of Civil Procedure §§ 580a-580d and 726). It presents the novel question whether § 580d, which prohibits a deficiency judgment after non-judicial foreclosure of real property, applies to a guarantor who is also a general partner of a partnership primary debtor if the loan is “non-recourse.” The court holds the “non-recourse” provision does not prevent operation of the anti-deficiency stаtute, and grants summary judgment for defendant.
I. BACKGROUND
In 1988, Plaintiff Westinghouse Credit Corporation loaned $18 million to three related partnerships to purchase real property. The loan was made “non-recourse” to the partnerships and their general partners. One general partner, defendant Barton, signed a personal guaranty for $3,750,-000. The other general partner did not sign any guaranty.
The partnerships defaulted on the loan, plaintiff obtained $13,850,000 from a nonjudicial foreclosure sale, and then plaintiff sued dеfendant on his guaranty. Defendant claimed protection under California’s anti-deficiency statute, Code of Civil Procedure § 580d.
The parties present cross-motions for summary judgment which raise one controlling issue: whether the “non-recourse” nature of the loan separates defendant from his normal status as a principal obli-gor with the partnership, and makes it possible for him to be a true guarantor outside the protection of the anti-deficiency statutes.
II. DISCUSSION
California Code of Civil Procedure §§ 580a-580d and 726 are referred to as California’s anti-deficiency statutes. These provisions limit a lender’s right to recover a deficiency judgment. C.C.P. § 580d provides in relevant part:
*1045 Nо judgment shall be rendered for any deficiency upon a note secured by a deed of trust of mortgage upon real property ... hereafter executed in any case in which the real property ... has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.
“The legislature сlearly intended to protect the debtor from personal liability following a non-judicial sale of the security. No liability, direct or indirect, should be imposed upon the dеbtor following a nonjudicial sale of the security.”
Union Bank v. Gradsky,
Although various novel efforts have been made through the years to avoid the operation of the anti-deficienсy statutes, the courts have liberally construed the statutes to reject various devices to evade the statutes.
See, e.g., Union Bank v. Dorn,
The anti-deficiency statutes cаme out of the depression in an effort to protect debtors from losing property at a depressed foreclosure price, and also incurring a large dеficiency judgment for the balance.
Simon,
“It seems clear ... that § 580d was enacted to put judicial enforcement on a parity with private enforcement.... The right to redeem, like proscription of a deficiency judgment has the effect of making the security satisfy a realistic share of thе debt. By choosing ... to bar a deficiency judgment after private sale, the legislature achieved its purpose without denying the creditor his election of remedies.”
Roseleaf Corp. v. Chierighino,
As а result, deficiency judgments are permitted only following judicial foreclosure, where the debtor can exercise the right of redemption. Upon a non-judicial salе, with no right of redemption, the creditor is deprived of a deficiency judgment.
Union Bank v. Gradsky,
While the anti-deficiency statutes prevent a deficiency judgment against a primary obligor оr debtor, there is no such prohibition on recovery against a true guarantor of the loan.
See Bauman v. Castle,
It is well established that where a principal obligor purports to take on additional liability as a guarantor, nothing is added to the primary obligation. The correct inquiry [is], ... are the supposed guarantors nothing more than the principal obli-gors under another name? As stated in Union Bank v. Brummell,269 Cal. App.2d 836 , 838 [75 Cal.Rptr. 234 ] (1969), the legislative purpose of the anti-deficiency law may not be subverted by attempting to separate the primary obli-gor’s interests by making a related entity a debtor while relegating the true prinсipal obligors to the position of guarantors.
Torrey Pines Bank v. Hoffman,
Under this theory, general partners who guarantee the loan of their partnership are protected under the аnti-deficiency statutes.
Union Bank v. Dorn,
The сase at bar, however, presents a factor that is apparently not present in another reported anti-deficiency case: the partnership obligation at issue was made “non-recourse.” Plaintiff argues that, by making the debt non-recourse, the general partner was relieved of principal liability on the debt and, no longer being a principal obligor with anti-deficiency protection, he could validly take on the separate unprotected obligation of a guarantor.
Thе court holds this device to avoid the anti-deficiency statutes is ineffective, and defendant has the protection of those statutes. The legal effect of the anti-deficiency law is already to make loans “non-recourse” to general partners after non-judicial foreclosure. The formal non-recourse provision adds nothing to that protection. The theory of Union Bank v. Dorn still applies.
Commonwealth Mortgage Assurance Co. v. Superior Court,
Plаintiff argues that the guaranty was not an effort to evade the anti-deficiency statutes, but was for the legitimate business purpose of protecting one of the partners who did not sign the guaranty from liability under the loan. While a partner can give an enforceable guarantee as a legitimate business purpose in some kinds of land purсhase transactions
(See,
for example,
Paradise Land and Cattle Co. v. McWilliams,
III. DISPOSITION
Defendant is protected by California’s anti-deficiency statute, Code of Civil Procedure § 580d, despite his nominal standing as a guarantor. Accordingly, summary judgment is granted in favor of defendant and against plaintiff. If defendant believes he is entitled to recover attorney fees, he may apply for fees when submitting his cost bill, and plaintiff may file such opposition as it deems appropriate.
Notes
. A similar inquiry about "guarantors” of other types of business entity debtors has centered around whether the "guarantor” is really the alter ego of the business, and thus really a principal obligor.
See, e.g., Heckes v. Sapp,