Childs v. Hunt

California Court of Appeal Jun 29, 1970 No. Civ. 33872Published

Before: Fleming

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Holding. The court held that a promissory note given to cover interest on secured loans constituted a novation, creating a new, unsecured obligation that was not subject to the anti-deficiency protections of Code of Civil Procedure sections 580b and 580d.

Issues

Whether a promissory note executed to cover interest on secured loans was itself secured by real property.
Whether the anti-deficiency protections of Code of Civil Procedure sections 580b and 580d apply to the guarantor of the subject note.

Disposition. affirmed

Quotations verified verbatim against the opinion

“We conclude a novation had been effected under which a new obligation was substituted for part of an old obligation with intent to extinguish the substituted part of the old obligation.”

“It follows that Childs was entitled to bring suit on the guarantee without regard to the limitations which apply to actions for deficiencies on notes secured by real property.”

[278]

Opinion

FLEMING, J.

Action on a promissory note by K. D. Childs, payee, against Stocker-LaBrea Properties, Inc., maker, and Wesley J. Hunt, guarantor of one-half the principal amount of the note. Childs secured judgment for $10,748.25 (one-half the principal amount of the note) against Hunt as guarantor but not against Stocker-LaBrea as maker, and judgment was entered in favor of the latter. The sole appeal is by Hunt, who contends the judgment is one for a deficiency on an obligation secured by real property and hence barred by sections 580b and 580d of the Code of Civil Procedure.

On 8 January 1964 Childs lent $251,000 and $199,000 to Stocker-LaBrea for a period of two years in connection with his sale of stock and real property to Stocker-LaBrea, each loan being evidenced by a note secured by a deed of trust on the real property sold.

On 15 July 1964 interest of $14,175 became due on the secured notes, and Stocker-LaBrea executed a promissory note for that amount in favor of Childs. Hunt and another signed this note as guarantors, each guaranteeing payment of one-half the principal amount.

On 15 October 1964 another interest installment became due on the secured notes, this time for $6,750. On 23 November 1964 Stocker-LaBrea executed a promissory note for that amount in favor of Childs. Again Hunt guaranteed payment of one-half the principal amount.

The next interest installment on the secured notes, again for $6,750, became due on 15 January 1965 and was paid in cash by Stocker-LaBrea on 24 February 1965. That same day, in exchange for Childs’ cancellation of the $14,175 and $6,750 notes, Stocker-LaBrea executed a new six-month note for $21,496.50, representing the amounts due on the $14,175 note. ($14,175 principal plus $425.25 interest), the amounts due on the $6,750 note ($6,750 principal plus $101.25 interest), and interest of $45 on the interest installment due 15 January 1965 and paid 24 February 1965. Again Hunt guaranteed payment of one-half the principal amount. This note is the subject of the present action (the subject note).

Stocker-LaBrea subsequently defaulted on the two secured notes and on the subject note. The real property security was sold to Childs at a nonjudicial sale for the amount owed on the $199,000 note, a figure which did not include the amount represented by the subject note. Thereafter this action was brought.

Childs v. Hunt

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FLEMING, J.

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