Opinion ID: 580334
Heading Depth: 1
Heading Rank: 1

Heading: The Secured Guaranty

Text: 13 Enterprises argues that section 580b applies to its guaranty because section 580b applies to purchase-money obligations secured by the purchased property and because its guaranty is such an instrument. Enterprises is correct on the law, see Brown v. Jensen, 41 Cal.2d 193, 198, 259 P.2d 425 (1953), and correct on the fact that the guaranty in this case is an obligation secured by the purchased property. However, Enterprises cannot demonstrate that the guaranty is a purchase-money obligation. 14 In attempting to claim purchase-money status for the guaranty, Enterprises points to section 580b's language, and the rationale behind excluding guaranties from section 580b's reach. 15 Enterprises first argues that the guaranty comes directly under the language of section 580b. Enterprises insists that the guaranty represents an indebtedness for the balance of the purchase price under section 580b. This position is belied by the record. The guaranty states: 16 GUARANTY given by McWilliams Enterprises, Inc. ..., to induce the acceptance by Paradise Land & Cattle Company ... of a promisory note in the amount of $1,174,856.48 ... by Herb McWilliams and Donald McWilliams. 17 1. Obligation. In consideration of the loan made upon such note, the undersigned hereby unconditionally guarantees to Paradise ... that all sums stated therein to be payable on such note shall be promptly paid in full.... 18 Pursuant to the transaction, Herb and Don, but not Enterprises, signed the purchase-money note secured by the second deed of trust in the ranch. On the other hand, Enterprises, but not Herb and Don, signed the guaranty. The only purchase-money Enterprises contributed was in the form of land and cash. The purchase price of the Paradise ranch did not include any indebtedness by Enterprises; the guaranty did not purport to serve as part of the purchase price. Enterprises cannot now convert the guaranty into a purchase-money obligation merely by insisting that it is. 19 Enterprises' second contention in favor of direct section 580b application is that the rationale for placing guaranties beyond the reach of section 580b does not support the guaranty in this case. Guaranties are not covered by section 580b because they serve as additional security--security in addition to the security underlying the purchase-money obligation. Roberts v. Graves, 269 Cal.App.2d 410, 417, 75 Cal.Rptr. 130 (1969). 20 Enterprises claims that the security behind Herb and Don's note and that behind Enterprises' guaranty are the same: the ranch. This analysis, however, fails to consider the way in which Enterprises itself chose to set up the transaction. Under the deal, Herb and Don collectively took a 61.02% undivided interest in the ranch; Enterprises took a 19.23% undivided interest. Even though the deeds of trust associated with the note and with the guaranty referred to the Paradise ranch as a whole, this did not give the signatories any greater legal rights than they possessed. Entities can only encumber as security the property which they own. Hoppe v. Hoppe, 104 Cal. 94, 95, 37 P. 894 (1894). Because the security for the note and for the guaranty represented separate interests in the Paradise ranch, the guaranty did indeed provide additional security. 21 The district court did not err in finding that section 580b did not directly cover the guaranty.