Alexander v. Angel

• Citation: 236 P.2d 561,37 Cal.2d 856
• Court: United States State Supreme Court (California)
• Decision Date: 26 October 1951
• Parties: ALEXANDER et al. v. ANGEL et al. S. F. 18210.

Page 561

236 P.2d 561

37 Cal.2d 856

ALEXANDER et al. v. ANGEL et al.

S. F. 18210.

Supreme Court of California, in Bank.

Oct. 26, 1951.

Nathan Goldwater and John L. McVey, Oakland, for appellants.

Donahue, Richards, Rowell & Gallagher and George W. Hauer, all of Oakland, for respondent.

SPENCE, Justice.

Plaintiffs Alexander brought this action to foreclose a chattel mortgage given as security for $4,300, the amount of two promissory notes. Defendant Angel admitted execution of the notes in his answer but as an affirmative defense and also by cross-complaint, he alleged his conveyance of the property to Robert J. Haws and Zada M. Haws and their (the Haws') entry into a separate agreement with plaintiffs whereby they, as his vendees, assumed his obligation and he was released from all liability therefor in effect, a pleading of novation. Both plaintiffs and the Haws were named as cross-defendants, and in his cross-complaint, defendant and cross-complainant Angel sought a declaration of the rights and duties of all the parties concerned in the respective transactions. Cross-defendants Haws failed to file an answer and their default was entered; but Mr. Haws did participate in the trial as a witness. The trial court made findings sustaining defendant and cross-complainant Angel's claim of a novation and from the judgment accordingly entered in his favor, plaintiffs Alexander appeal.

As ground for reversal, appellants contend that the evidence was insufficient to support the findings on the contested issue of a novation. But the record appears to present the usual case of opposing evidentiary considerations, and so applicable is 'the time honored rule that all substantial conflicts must be resolved in favor of the respondent, and all legitimate and reasonable inferences indulged in to uphold the findings if possible.' Richter v. Walker, 36 Cal.2d 634, 636, 640, 226 P.2d 593, 596; emphasis added. Accordingly, appellants cannot prevail.

On January 2, 1947, appellants Alexander sold a fountain lunch and restaurant to respondent Angel. The latter on that date executed in favor of appellants two promissory notes secured by a chattel mortgage on the business fixtures. The notes were for $2,150 each, due one year and two years, respectively, after the date of execution January 2, 1948, and January 2, 1949; and neither bore interest. In September, 1947, and prior to the maturity date of either of the notes, respondent entered into negotiations for the sale of his business to cross-defendants Haws. Shortly before consummation of the sale and on October 28, 1947, the Alexanders and the Haws executed a written agreement, which read as follows:

'In consideration of the forbearance of Charles N Alexander and Katherine J. Alexander in asserting their right to payment of the sum of $2150, due and payable January 2, 1948, pursuant to that certain promissory note, made and executed by John B. Angel on January 2, 1947, and payment of the sum of $2150, due and payable on January 1, 1949 * * * both of which notes are secured by a chateel mortgage on fixtures and equipment now located in that certain storeroom commonly known and designated as 3421 Fruitvale Avenue, Oakland, we, the undersigned, purchasers and assignees of Angel's Fountain Lunch, formerly known as the Dimond Pastime, located at 3421 Fruitvale Avenue, Oakland, California, hereby agree to make monthly payments in the sum of $150 to include interest at the rate of six (6) percent per annum. We hereby agree to make said payments on the 28 day of each month commencing on the 28 day of October, 1947, until the full amount of the principal of $4300 is paid.

'In event, however, said payments as aforesaid are not made in the manner as hereinbefore provided, then Charles N. Alexander and/or Katherine J. Alexander * * * may, at their option, declare the full amount to be due and payable. In such event said payments are not made, we, the undersigned, hereby agree to pay all court costs made necessary in the collection of these notes and such attorney fees as the court may determine.'

The Haws made eight payments to appellants, amounting to $636.06, the first ($127.50) on October 28, 1947, and the last on November 24, 1948. No demand was made on respondent for payment until January, 1949, at the time the second note became due, when a formal demand was made on both notes before appellants instituted this action.

The trial court specifically found that 'at the time of the execution of the written agreement of October 28, 1947, it was the intent of all the parties thereto, said parties being the plaintiffs and cross-defendants Charles N. Alexander and Katherine J. Alexander, and Robert J. Haws and Zada M. Haws, cross-defendants, to entirely extinguish and abrogate the agreements of January 2, 1947, between the Alexanders and John B. Angel, and to substitute in the place of such agreements of January 2, 1947, the said agreement of October 28, 1947; that * * * further * * * at the time of said agreement of October 28, 1947, it was the intent of the parties to said agreement to substitute a new debtor, namely, Robert J. Haws, in the place and stead of the old debtor, John B. Angel, defendant and cross-complainant herein; that * * *further * * * at (said) time * * * it was the intent of the parties * * * to release defendant and cross-complainant John B. Angel of any and all liability to the plaintiffs and cross-defendants herein, under the agreements of January 2, 1947; that * * * the said intention of the parties to the said agreement of October 28, 1947, is evidenced by the language of and by the actions of the said parties subsequent to the execution of the said agreement.' Consistent with such determination of the rights and duties of the parties here in dispute, the trial court concluded that the effect of the agreement of October 28, 1947, between the Alexanders and the Haws was 'a novation, so as to substitute the obligations of (the Haws), thereby assumed by them, for the obligation of John B. Angel which arose by virtue of the agreements of January 2, 1947,' between Angel and the Alexanders; that 'the effect of such novation was the substitution of a new debtor, namely, (the Haws), in the place and stead of the old debtor, namely, John B. Angel,' that 'as a result of the said novation * * * Angel (was) not indebted to the * * * Alexanders * * * in any sum at all.' Accordingly, judgment was entered denying the Alexanders recovery from Angel.

A 'novation is the substitution of a new obligation for an existing one.' Civ.Code, sec. 1530. One of the ways a novation may be consummated is 'by the substitution of a new debtor in place of the old one, with intent to release the latter.' Civ.Code, sec. 1531. Novation must be pleaded either expressly or 'by unequivocal implication,' and the burden of proof is 'upon the party asserting its existence.' Colley v. Chowchilla Nat. Bank, 200 Cal. 760, 770, 225 P. 188, 192, 52 A.L.R. 569; also 66 C.J.S., Novation, § 25a, page 712; § 26b, page 714. The 'question whether a novation has taken place is always one of intention', Producers' Fruit Co. v. Goddard, 75 Cal.App. 737, 755, 243 P. 686, 693, with the controlling factor being the intent of the obligee to effect a release of the original obligor on his obligation under the original agreement. Ayoob v. Ayoob, 74 Cal.App.2d 236, 251, 168 P.2d 462. While the evidence in support of a novation must be 'clear and convincing', Columbia Casualty Co. v. Lewis, 14 Cal.App.2d 64, 72, 57 P.2d 1010, 1013, the 'whole question is one of fact and depends upon all the facts and circumstances of the particular case', Manfre v. Sharp, 210 Cal. 479, 481, 292 P. 465, 466, with the weight and sufficiency of the proof being matters for the determination of the trier of the facts under the general rules applicable to civil actions. 66 C.J.S. Novation, § 26d, page 716; § 27a, page 718; Producers' Fruit Co. v. Goddard, supra, 75 Cal.App. 737, 755, 243 P. 686. In line with these observations and the further principle above noted that 'all legitimate and reasonable inferences (must be) indulged in to uphold the findings if possible', Richter v. Walker, supra, 36 Cal.2d 634, 640, 226 P.2d 593, 596, it mut be concluded that the record contains ample evidence in support of the trial court's finding of a novation here.

First, there is the matter of the purport of the greement between the Alexanders and the Haws in extinguishment of the original obligation of respondent Angel to the Alexanders. Except for similarity in the stated amount of the indebtedness, $4,300, the respective obligations reflect differentiating features: (1) the Haws' agreement provided for monthly payments of $150 commencing on the date of its execution, October 28, 1947, until the principal was paid an entirely different method of payment from that provided in the original notes respectively due on January 2, 1948, and January 2, 1949, each in the sum of $2,150; (2) the Haws' agreement provided for interest payments, while the notes had no such provision; and (3) the Haws' agreement contained an acceleration clause in the event of nonpayment of any of the monthly amounts, again a provision not contained in the notes. These distinguishing factors indicate not merely the assumption of a pre-existing obligation but the consummation of an entirely new agreement in relation to a mortgage debt, new as to parties and new as to obligation.

Such drastic changes in a mortgage debt assumed by purchasers from the mortgagor would require the latter's consent in order to prevent his exoneration from liability as surety on the obligation. Civ.Code, sec. 2819; Braun v. Crew, 183 Cal. 728, 731, 192 P. 531. So significant here is the fact that upon the execution of the Haws' agreement, prepared by appellants' counsel, appellants admittedly made no attempt to consent to the material changes made in the consent to the material changes made in the...