## Facts

- May H. Spangler owned commercial property and agreed to sell it to a general partnership formed to develop the site.
- The $90,000 sale price included $26,100 cash and a $63,900 purchase-money promissory note secured by a deed of trust.
- The deed of trust was to be subordinated to future construction financing up to $2,000,000.
- As a condition of subordination, Spangler required each general partner to execute a written personal guaranty and an express waiver of anti-deficiency protections, intending to protect her if senior lenders later foreclosed.
- The partnership obtained construction loans, built an office building, and then defaulted.
- Senior construction lenders foreclosed and acquired the property, extinguishing Spangler’s junior purchase-money deed of trust and leaving her without collateral.
- Spangler sought a personal money judgment against the partners on the note and their guaranties.

## Issues

1. Whether Code of Civil Procedure § 580b barred a personal judgment on a purchase-money obligation when the seller voluntarily subordinated her purchase-money deed of trust to construction financing and the security was eliminated by foreclosure of senior liens.
2. Whether the partners’ personal guaranties and express waivers of anti-deficiency protections were unenforceable as an impermissible contractual avoidance of § 580b.

## Decision

- The court affirmed judgment for Spangler against the individual partners.
- Section 580b did not bar recovery on the note and guaranties under these commercial, subordinated-financing facts.
- The partners’ guaranties and waivers were enforceable as part of an arm’s-length allocation of risk tied to the seller’s agreement to subordinate.

## Legal Principles

- Section 580b’s policies (placing risk of inadequate purchase-money security on the lender and discouraging overvaluation) are directed primarily at the standard purchase-money transaction; its application depends on the transaction’s economic substance.
- When a seller knowingly subordinates purchase-money security to substantial construction financing in a commercial development deal, and conditions subordination on personal guaranties, § 580b may not bar a personal judgment after senior-lien foreclosure eliminates the seller’s collateral.
- Courts may enforce bargained-for risk shifting in sophisticated commercial transactions and will not automatically treat guaranties and related waivers as void where they function as consideration for subordination rather than as a device to evade § 580b in a typical purchase-money setting.

## Conclusion

The court held that § 580b did not preclude a personal judgment for the seller where the seller subordinated to construction financing in a commercial development transaction and obtained partner guaranties as part of the agreed risk allocation, and it enforced those guaranties despite the subsequent senior foreclosure.


Spangler v. Memel, 7 Cal. 3d 603, 498 P.2d 1055 (Cal. 1972)