519 F.2d 508 (9th Cir. 1975), 73-3533, Investment Service Co. v. Allied Equities Corp.

Docket Nº:73-3533.
Citation:519 F.2d 508
Party Name:INVESTMENT SERVICE CO., an Oregon Corporation, Plaintiff-Appellee, v. ALLIED EQUITIES CORPORATION, a Nevada Corporation, Defendant-Appellant.
Case Date:July 18, 1975
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 508

519 F.2d 508 (9th Cir. 1975)

INVESTMENT SERVICE CO., an Oregon Corporation, Plaintiff-Appellee,

v.

ALLIED EQUITIES CORPORATION, a Nevada Corporation,

Defendant-Appellant.

No. 73-3533.

United States Court of Appeals, Ninth Circuit

July 18, 1975

Page 509

Michael J. Esler (argued), Portland, Or., for defendant-appellant.

Richard M. Botteri (argued), Portland, Or., for plaintiff-appellee.

OPINION

Before WRIGHT and WALLACE, Circuit Judges, and WILLIAMS, [*] District Judge.

DAVID W. WILLIAMS, District Judge:

This is a diversity action to recover $250,000 and interest from the guarantor of a loan. The loan was taken out by Gem Building Components, Ltd., and following Gem's default on the note, the appellee, assignee of the note, filed suit against the appellant, guarantor. The note was dated November 30, 1970 and carried interest at 8% until April 3rd, 1972 and 10% thereafter "until paid." 1 Appellant pled an affirmative defense to the claim, alleging that the guarantee was void by reason of appellee's failure to advise appellant of facts known by appellee and not known by appellant concerning Gem's adverse financial condition when the guarantees were made.

At trial the parties stipulated that the jury could assume that plaintiff (appellee) had made out a prima facie case and could then go on to consider defendant's (appellant's) affirmative defense.

The parties have agreed that Oregon law governs in this case and that Oregon law defers to the Restatement of the Law of Security, Section 124(1) of which provides:

"Where before the surety has undertaken his obligation, the creditor knows facts unknown to the surety that materially increase the risk beyond that which the creditor has reason to believe the surety intends to assume, and the creditor also has reason to believe that these facts are unknown to the surety and has a reasonable opportunity to communicate them to the surety, failure of the creditor to notify the surety of such facts is a defense to the surety."

Special interrogatories were submitted to the jury and it returned the following answers:

1. Did the United States National Bank of Oregon have knowledge of facts concerning the financial condition of Gem Building Components, Ltd., which were unknown to Allied Equities on:

November 17, 1970

Yes X No

January 27, 1971

Yes X No

if both answers above are "no" then you may stop.

2. If Allied was not aware of all the facts concerning the condition of Gem which were known to the Bank, did it fail to exercise reasonable care in discovery of those facts on or before:

November 17, 1970

Yes X No

January 27, 1971

Yes X No

3. Would knowledge of such facts, if any, of Gem's financial condition have materially increased the risk of Gem's not paying its notes guaranteed by the defendant to the Bank beyond that which Allied Equities would...

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