BLOOM v. BENDER

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District Court of Appeal, Fourth District, California.

Samuel S. BLOOM, Plaintiff and Respondent, v. Bess BENDER, an individual, et al., Defendant and Appellant.*

Civ. 5528.

Decided: January 17, 1957

Simon, Brown & Arnold, Palm Springs, for appellant. Milton D. Klein, Los Angeles, for respondent.

This appeal is taken on a clerk's transcript alone. The trial court found that on April 18, 1947, the defendant, Bess Bender, executed an instrument addressed to Crompton-Richmond Co., Inc. by which she guaranteed ‘the prompt payment’ at maturity of all amounts owing to it by Midwest Sportswear Manufacturing Co., Inc., and agreed that the liability assumed should ‘not be affected by any forbearance’ by it, or ‘by the giving of any extension of time or by any other modification’ of any account or obligation or ‘by the acceptance of any settlement, or composition * * * either in liquidation, readjustment, receivership, bankruptcy or otherwise,’ that notice was not required of the different purchases, nor of any failure to meet all payments as they matured and that ‘immediately upon a notice of default in the payment * * * of any bill’ she would pay the amount thereof; that the instrument in question constituted a continuing guarantee; that after April 18, 1947, up to November 30, 1949, Midwest Sportswear Manufacturing Co., Inc. became indebted to Crompton-Richmond Co., Inc. on an open book account in the sum of $5,031.03; that on April 16, 1951, Crompton-Richmond Co., Inc. signed a document entitled ‘Release’ which provided that it agreed ‘to accept its pro rata and proportionate dividend’ under an assignment for the benefit of creditors previously executed by Midwest Sportswear Manufacturing Co., Inc. ‘as an accord and satisfaction of and release, discharge and acquittance of * * * all claims, demands, obligations and liabilities' existing in its favor as against said manufacturing company, and thereafter accepted $321.99 under the terms of said ‘Release’; that this document did not release the defendant from liability under the ‘agreement of guaranty’; that the plaintiff is the assignee of Crompton-Richmond Co., Inc. and claims $4,709.04 from defendant; that any cause of action which Crompton-Richmond Co., Inc. had against Midwest Sportswear Manufacturing Co., Inc. was barred by the statute of limitations; and that the defendant left the State of California on October 1, 1951, tolling the statute of limitations on the contract of guaranty until her return on November 1, 1952.

The trial court rendered judgment in favor of the plaintiff in the sum of $4,709.04 principal, together with interest at 7% per annum from November 30, 1949, from which judgment the defendant appeals.

It is contended that the judgment should be reversed because the running of the statute of limitations against the obligation on the principal barred any action against the guarantor; that the obligation of the guarantor under the contract of guaranty also is barred by the statute of limitations; that the guarantee failed to give notice of default as required by the contract; that the obligation of the guarantor, as determined by the trial court, exceeded the obligation of the principal, contrary to the provisions of Section 2809 of the Civil Code; and that the release of the principal terminated the guaranty.

In 1939, the legislature abolished the distinction between guarantors and sureties by the adoption of Section 2787 of the Civil Code, which provides that, ‘The distinction between sureties and guarantors is hereby abolished. * * * Guaranties of collection and continuing guaranties are forms of suretyship obligations, and except in so far as necessary in order to give effect to provisions specially relating thereto, shall be subject to all provisions of law relating to suretyships in general.’ Prior to this time the bar of the statute of limitations against an action on the obligation of the principal foreclosed recovery from the guarantor, Anderson v. Shaffer, 98 Cal.App. 457, 277 P. 185; Santa Ana Sugar Co. v. Smith, 116 Cal.App. 422, 2 P.2d 866, but did not prevent recovery from a surety. Gaffigan v. Lawton, 1 Cal.2d 722, 37 P.2d 79; Gill v. Johnson, 8 Cal.App.2d 369, 48 P.2d 139. The provisions of Civil Code Section 2787, which abolished the distinction between sureties and guarantors, Ingalls v. Bell, 43 Cal.App.2d 356, 365, 110 P.2d 1068, specifically subjected contracts of guaranty ‘to all provisions of law relating to suretyships.’ As a consequence, and contrary to the contention of defendant, the fact that the cause of action of Crompton-Richmond Co., Inc., on the obligation of Midwest Sportswear Manufacturing Co., Inc., was barred by the statute of limitations, did not bar the action against defendant on the contract guaranteeing payment of that obligation.

The next question for determination is whether the action on the guaranty itself was barred by the statute of limitations. Pursuant to stipulation, the trial court found that between April 18, 1947 and November 30, 1949, Midwest Sportswear Manufacturing Co., Inc. became indebted to Crompton-Richmond Co., Inc. in the sum of $5,031.03 on an open book account for goods purchased. There is no evidence establishing the date of purchase of any of these goods. This action was commenced June 10, 1954. Defendant relies on the four-year statute of limitations. Code Civ.Proc., Sec. 337. The running of the statute was tolled during the thirteen months when defendant was absent from the State of California, Code Civ.Proc., Sec. 351. As a consequence plaintiff's cause of action would not be barred unless it accrued prior to May 11, 1949. Even assuming that defendant's liability as a guarantor accrued when goods were furnished to her principal, Brock v. Western Nat. Indem. Co., 132 Cal.App.2d 10, 16, 281 P.2d 571, there is no proof that the goods representing the balance now due on the account were not delivered between May 11, 1949 and November 30, 1949. The burden of proving facts warranting an application of the statute of limitations was upon the defendant. Wise v. Williams, 72 Cal. 544, 548, 14 P. 204. Failure of such proof required an adverse finding.

The defendant's contention that notice to her of the principal's default was a condition precedent to liability is without merit. Neither the agreement in question nor the law required such notice. Civ.Code, Sec. 2807. The defendant guaranteed the ‘prompt payment’ of all amounts owed by her principal; agreed that the guarantee is not required to give notice of any failure on the part of the principal to meet all payments as they matured; and promised that ‘immediately’ upon notice of default in the payment of any bill by the principal to pay the same ‘without question’. To give meaning to all of the terms of this contract it is necessary to interpret it as providing that notice of default on the part of the principal need not be given to the guarantor, but if given she would pay the amount due ‘immediately’ and ‘without question.’

The final contention of the defendant concerns the effect of the guarantee's release of the principal upon the obligation of the guarantor under her agreement. The guarantee accepted $321.99 under the principal's assignment for the benefit of creditors, in full settlement of its claims. The contract of guaranty in this case stated: ‘The liability hereby assumed shall not be affected by * * * the acceptance of any settlement or composition offered by the customer, either in liquidation, readjustment, receivership, bankruptcy or otherwise.’ Plaintiff contends that the langauge of the contract is clear and constitutes a consent to the acceptance of the $321.99 in the assignment. However, whether the defendant consented to the acceptance of this settlement or composition is not decisive of the issue under consideration. The guarantor's liability may not be determined exclusively by the written provisions of the contract of guaranty. The law applicable thereto also must be considered. Section 2809 of the Civil Code provides: ‘The obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; and if in its terms it exceeds it, it is reducible in proportion to the principal obligation.’ (Italics ours.) As heretofore noted guaranties are subject to all provisions of law relating to suretyships. Civ.Code, Sec. 2787. ‘[T]he liability of a guarantor is limited in amount to that which could be recovered from the principal.’ Lewin v. Hanford, 35 Cal.App. 36, 38, 169 P. 242, 243. A judgment entered against a principal is the measure of the maximum liability of the guarantor. State Athletic Comm. of California v. Massachusetts Bonding, etc., Co., 46 Cal.App.2d 823, 827, 117 P.2d 75. In Goatman v. Pacific Ready-cut Homes, Inc., 112 Cal.App. 397, 402, 297 P. 68, 70, the court said: ‘It requires but little citation to support the rule that, where the principal is discharged, the surety likewise escapes liability.’ The discharge of the surety in such a case is effected by operation of law. Holden v. Mensinger, 175 Cal. 300, 304, 165 P. 950. The language of a contract of guaranty purporting to impose an obligation on the guarantor which is greater than that of the principal is limited by the plain mandate of the statute. The law is a part of the contract. Hub Hardware Co. v. Aetna Acc., etc., Co., 178 Cal. 264, 173 P. 81; Bell v. Minor, 88 Cal.App.2d 879, 881, 199 P.2d 718; Hales v. Snowden, 19 Cal.App.2d 366, 369, 65 P.2d 847. As a consequence, the promise of the defendant, that the liability assumed by her ‘shall not be affected by * * * the acceptance of any settlement or composition offered by the’ principal, contains an implied exception of those settlements or compositions which discharge the obligation of the principal, and an implied limitation on the amount of the guarantor's liability in those instances where the settlement or composition reduces the amount of the principal's obligation, although it does not effect a discharge thereof. A principal has the right to set up a release from liability as a defense to an action on the original obligation. A promise in a contract of guaranty which deprives the guarantor of this right certainly creates an obligation ‘more burdensome than that of the principal’, and to that extent is ineffective.

It is our opinion that the provision of the contract of guaranty in this case which attempts to hold the defendant liable for the amount of the principal's original obligation, after the plaintiff's assignor and the principal discharged that obligation, is rendered ineffective by the statute.

The judgment appealed from is reversed, with instructions to the trial court to enter judgment in favor of the defendant.

COUGHLIN, Justice pro tem.

BARNARD, P. J., and GRIFFIN, J., concur.

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