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indebtedness. Before the settlement agreement had been
negotiated, AAL had begun the process of foreclosure on the Deed
of Trust.
At the time AAL agreed to accept a deed to the Fitch
Property in lieu of foreclosure, the balance due on the secured
Note substantially exceeded the fair market value of the Fitch
Property, so that if foreclosure had proceeded, AAL could have
pursued a deficiency judgment of a substantial amount against the
partners, who were personally liable on the Note. See Ghirardo
v. Antonioli, 924 P.2d 996 (Cal. 1996). Thus, to protect
themselves against the possibility of a deficiency judgment, the
partners required the Covenant Not to Sue. Notwithstanding
petitioners’ assertion that the Covenant Not to Sue became
immediately effective on December 15, 1993, the day it was
signed, by its terms the Covenant Not to Sue was conditioned
upon, among other things, the conveyance of the Fitch Property to
AAL. This could only take place upon satisfaction of the terms
of the escrow.
The escrow instructions, dated December 9, 1993, refer,
among other things, to a Settlement Agreement dated November 30,
1993, and the fact that “Borrower [the Partnership] has tendered
to you [the Title Company] in escrow the Grant Deed (the ‘Deed’)
from Borrower to Lender.” (Emphasis added.) Reference is also
made to the delivery to the Title Company of “an executed copy of
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Last modified: May 25, 2011