MERRITT v. STUYVESANT INSURANCE COMPANY

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Court of Appeal, Second District, Division 1, California.

Dewey MERRITT, Plaintiff and Appellant, v. The STUYVESANT INSURANCE COMPANY, a corporation, Respondent, J. A. Stafford Company, a corporation et al., Defendants.

Civ. 30910.

Decided: November 13, 1967

Wild, Christensen, Barnard & Wild, Magana, Olney, Levy, Cathcart & Gelfand and Ellis J. Horvitz, Los Angeles for appellant. Anderson, McPharlin & Conners, Peter R. Regal and Henry F. Walker, Los Angeles, for respondent.

Following the issuance of the remittitur affirming a money judgment in his favor, plaintiff Merritt moved for judgment against the Stuyvesant company as surety on its undertaking on appeal. (Code Civ.Proc., § 942.)1 Opposing papers were filed by Stuyvesant, and the motion was thereafter denied. From order of denial plaintiff appeals.

The undertaking was for the total sum of $181,883.90, substantially less than the total amount of the judgment ($455,697.61) secured against defendant Stafford company and others by Merritt and another plaintiff, Sterling Transit Co. (which was not a party to the instant motion) and, of course, considerably less than the statutory ‘one and one-half times the amount named in the judgment or order appealed from’ in the case of a corporate surety. Instead of levying execution against Stafford as he had the right to do in view of the above deficiency, Merritt sought other means to secure partial but immediate satisfaction of the judgment theretofore obtained.

Thus, on September 28, 1964, some four months after the filing of its corporate bond by Stuyvesant, an agreement was entered into between Merritt and Stafford which included the following written recitals: Merritt held a judgment against Stafford in the amount of $434,441.68 from which an appeal had been taken by Stafford's insurer; said insurer had failed to post an appeal bond to stay execution in an amount required by section 942, Code of Civil Procedure; Merritt intended to execute against the assets of Stafford which were represented to be approximately $40,000; any such levy would force Stafford out of business; Stafford desired to have Merritt refrain from levying execution and Merritt was willing to refrain from such levy, upon certain terms and conditions thereinafter expressly set forth. Among these terms and conditions were the assignment by Stafford to Merritt of all causes of action against any company or person arising from the latter's negligence or other tortious conduct contributing to the damages suffered by Stafford in the Merritt-Stafford litigation, the payment forthwith by Stafford to Merritt of the sum of $20,000 which was not to be credited to Stafford's indebtedness to Merritt under the Merritt-Stafford judgment or made reimbursable in the event of a reversal of such judgment, and the proviso that execution under the judgment against Stafford be stayed until the final determination or disposition of any cause of action assigned by Stafford to Merritt and, additionally, until the final outcome of the then pending appeal in the Merritt-Stafford proceeding.

Merritt's brief makes no mention of this separate agreement with Stafford, a copy of which is annexed to the declaration of Stuyvesant's counsel in opposition to the motion for judgment under section 942. Instead, as his first point, he relies on the general statement of law in the Harper case (fn. 1, supra), as well as the further statement therein that ‘In effect, the bond is a stipulation for judgment upon a certain contingency.’ (P. 496, 75 P.2d p.) Too, where there are stipulations in bond executed in accordance with the provisions of section 942 for entry of judgment upon nonpayment thereof, it has been said that such stipulations amount to ‘a consent on the part of the sureties that judgment may be entered against them * * *.’ (Duerr v. Sloan, 50 Cal.App. 512, 515, 195 P. 475, 476.) But the court in the cases just cited was not confronted with the problem presented here, namely, the effect of an undertaking concededly deficient in amount and thereafter unilaterally altered by Merritt, as judgment creditor, by the proviso in the agreement with Stafford that execution would not be sought or levied until the final disposition of any cause of action assigned to him thereunder.

Citing two early cases, Dore v. Covey, 13 Cal. 502, and Murdock v. Brooks, 38 Cal. 596, Merritt contends that the giving of the undertaking in less than the statutory amount does not vitiate it as a statutory stay bond; thus, such provisions (as to amount) being merely directory, the deficiency may be waived by the adverse party. Accordingly, it was held in Dore that if the adverse party considers the bond as having the full effect of a regularly executed instrument and takes no steps to enforce the judgment, the sureties are liable. As noted above, however, Merritt has never considered the subject bond as sufficient in amount, one recital of his agreement with Stafford expressly declaring that ‘said insurance carrier has failed and refused to post an appeal bond to stay execution in an amount required by Code of Civil Procedure, Section 942,’ while another recital states that ‘Merritt is presently entitled to and intends to levy execution against the assets of Stafford.’ An additional reason for the holding in Murdock is that the judgment debtor had the full benefit of a stay pending his appeal despite the deficiency on the face of the bond, whereas in the present proceeding the judgment debtor (Stafford) had to part with $20,000 in consideration for Merritt's agreement to stay execution against his net assets.2

Hence, while neither of these two early cases is helpful to Merritt's claim that a deficiency in the amount of the undertaking is no defense to the surety on its undertaking, later decisions construing section 942 are even more adverse to his proposition. In Fidelity & Casualty Co. of New York v. Superior Court, 139 Cal.App. 615, 43 P.2d 736, a money judgment was rendered against certain defendants in the sum of $45,656.50 and $65.75 costs, and thereafter an order fixing stay bond on appeal was rendered; after reciting that defendant had cash available for satisfaction of the judgment amounting to $13,139.08 as well as certain shares of stock, the amount of such bond was fixed in the sum of $25,000 and the cash and stocks made subject to any final judgment. The undertaking, after reference to the amount of the judgment and costs, provided that the surety would pay all damages and costs awarded against the defendants on appeal no exceeding $25,000. Judgment was subsequently affirmed, and the remittitur duly filed in the trial court. The assignee of the judgment creditor thereupon moved for judgment against the surety, which motion was granted. The matter reached the appellate court on a writ of review. The surety contended that the judgment against it was void for failure to comply with section 942, Code of Civil Procedure, requiring that the instrument declare that the surety is bound in double the amount of the judgment, and if affirmed, the amount of money directed to be paid thereby. This contention was sustained, the court observing that the bond provided only for costs and damages and made no provision for payment of the judgment. This was not a ‘substantial compliance with the provisions of the Code’ as enjoined in De Garmo v. Superior Court, 1 Cal.2d 83, 33 P.2d 411, which in turn quoted from an earlier case to the same effect. The court concluded: ‘Inasmuch as the undertaking under consideration neither contained a provision that the surety would be bound ‘in double the amount named in the judgment’ nor a provision that the surety ‘will pay the amount directed to be paid by the judgment’ as affirmed, it necessarily follows that the writ prayed for must be granted.' (P. 619 of 139 Cal.App., p. 737 of 34 P.2d) The material portions of the subject undertaking are set forth below.3 As will readily appear, there is no mention of the word ‘judgment’ nor the amount thereof. True, reference is made to section 942 and to the fact that the undertaking is given pursuant thereto; but the amount thereafter designated is not the amount of the judgment, being only 40% thereof. Under the circumstances we cannot say that there has been the ‘substantial compliance’ with the code requirements which the above decisions compel; in view of such departure, the surety cannot be held liable. (See 4 Cal.Jur.2d, Appeal and Error, § 713, p. 619.)

If the above considerations do not warrant the conclusion that Merritt's motion was properly denied, the order appealed from is sustainable on still another ground. As hereinbefore noted, the Merritt-Stafford agreement provided (among other things) not only that execution would not issue upon affirmance of the judgment obtained by the former against the latter, but Merritt agreed ‘to stay further execution under the aforementioned judgment against STAFFORD until the final determination or other disposition of any cause or causes of action herein assigned by STAFFORD to MERRITT * * *.’ Since there seems to be no question that the above agreement entered into without Stuyvesant's knowledge and consent, the situation is governed by section 2819, Civil Code, which provides that ‘A surety is exonerated, except so far as he may be indemnified by the principal, if by any act of the creditor, without the consent of the surety the original obligation of the principal is altered in any respect, or the remedies or rights of the creditor against the principal, in respect thereto, in any way impaired or suspended.’ It is now firmly established that an extension of time by the creditor to the principal constitutes a material change in the parties' status within the meaning of section 2819. (Mortgage Finance Corp. v. Howard, 210 Cal.App.2d 569, 572, 26 Cal.Rptr. 917.) In Braun v. Crew, 183 Cal. 728, 192 P. 531, cited in the case just mentioned, the court stated that ‘the surety is entitled to stand on the strict setter of the contract upon which he is liable, and that any change therein made without his consent, by which the contract is altered so as to impair or suspend the right of the creditor to proceed to enforce payment, fully releases the surety.’ (P. 733, 192 P. p. 533.) In light of the language used by Merritt and Stafford, one can envision a suspension of the former's right to proceed against the latter which would cover not only a period of months, but, indeed, years.

We find no substance in Merritt's additional claim that the surety should be estoppel to deny liability under the bond. To constitute estoppel there must be a change in position in reliance on another's acts or conduct. (Traders & General Ins. Co. v. Pacific Emp. Ins. Co., 130 Cal.App.2d 158, 164, 278 P.2d 493.) If Merritt had considered the undertaking sufficient to stay execution, there would be some substance to this contention; instead, however, the action he took was based on the proposition that the bond was ineffective to stay execution.

Finally, the several authorities cited by Merritt do not involve the factual situation here presented; especially is this true of the Merritt-Stafford agreement by which the obligation of the surety was materially altered.

The order is affirmed.

FOOTNOTES

1.  The subject appeal bond makes express reference to section 942 which has thus been interpreted: ‘By signing an undertaking upon appeal, a surety consents that judgment may be entered against him on motion for the amount of the judgment as affirmed [citation], and he becomes a party to the action for the limited purpose of giving the court jurisdiction to render and enforce a judgment against him [citation].’ (Chas. F. Harper Co. v. DeWitt etc. Co., 10 Cal.2d 467, 469, 75 P.2d 65, 66.)

2.  It has been observed that ‘liability of sureties is incurred only where the undertaking given is appropriate to stay the particular judgment appealed from and where the appellant is one who by giving such a bond can effect a stay of execution. Otherwise, no stay is secured and want of consideration arises as a defense.’ (4 Cal.Jur.2d, Appel and Error, § 714, p. 620.)

3.  ‘Title of Court and Cause—Undertaking Under Section 942 C.C.P.—WHEREAS, the above named plaintiffs and Cross Defendant desires to give an undertaking for Appeal Bond as provided by Section 942 C.C.P., NOW, THEREFORE, the undersigned Surety, does hereby obligate itself, jointly and severally, to Defendants and Cross Complainants under said statutory obligations in the sum of One Hundred Eighty One Thousand Eight Hundred Eighty Three Dollars and 90/100 ($181,883.90) Dollars.IN TESTIMONY WHEREOF, the said Surety has caused its corporate name and seal to be hereunto affixed by its duly authorized officer at Los Angeles, California, on the 21st day of May 1964.THE STUYVESANT INSURANCE COMPANY By /s/ Raul Atler, Attorney-in-fact.'

LILLIE, Justice.

WOOD, P. J., and FOURT, J., concur.