Black Bull Enterprises, Inc. v. Hall

• Decision Date: 19 June 1991
• Citation: 813 P.2d 571,107 Or.App. 754
• Parties: BLACK BULL ENTERPRISES, INC., an Oregon corporation, Appellant, v. Mildred V. HALL, Respondent. A8906-03174; CA A64150.
• Court: Oregon Court of Appeals

Page 571

813 P.2d 571

107 Or.App. 754

BLACK BULL ENTERPRISES, INC., an Oregon corporation, Appellant, v. Mildred V. HALL, Respondent.

A8906-03174; CA A64150.

Court of Appeals of Oregon.

Argued and Submitted March 29, 1991.

Decided June 19, 1991.

Douglas G. Combs, Portland, argued the cause for appellant. With him on the briefs was Case & Dusterhoff, Portland.

John E. Uffelman, Beaverton, argued the cause for respondent. With him on the brief was John E. Uffelman, P.C.

Before BUTTLER, P.J., and ROSSMAN and DE MUNIZ, JJ. DE MUNIZ, Judge.

Plaintiff appeals a judgment for defendant in this action to recover on a promissory note on which defendant was a guarantor. We affirm.

In 1983, plaintiff agreed to sell its shares in Grand Development Company back to Grand Development Company. The sale enabled Schwartz to gain control of the company. Schwartz was president of Grand Development and is the husband of defendant's daughter. The terms of the sale required Grand Development, through Schwartz as president, to execute a promissory note personally guaranteed by him, his wife and defendant. The note was not paid and, in 1987, Schwartz and his wife declared bankruptcy. Plaintiff then brought this action.

Defendant pled affirmative defenses, one of which was a release by modification of the terms of the underlying agreement. A surety is discharged if, without consent, any modification of the contractual relationship between the principal and the creditor materially increases risk. Lloyd Corporation v. O'Connor, 258 Or. 33, 479 P.2d 744 (1971); Jackson County Federal Savings v. Urban Planning, 95 Or.App. 598, 771 P.2d 629, rev. den. 308 Or. 197, 777 P.2d 410 (1989). A material change is one that a careful and prudent person would regard as substantially increasing the chance of loss. Fassett v. Deschutes Enterprises, 69 Or.App. 426, 686 P.2d 1034, rev. den. 298 Or. 150, 690 P.2d 506 (1984).

In its oral findings, the trial court held that a May, 1985, letter ¹ constituted a novation between plaintiff and the purchaser of the stock and that defendant did not consent to the new agreement. Therefore, defendant was discharged from her obligation. Plaintiff's assignment of error is that the evidence does not support the trial court's finding or its legal conclusion. Plaintiff contends that the letter changed no terms, granted no extension of time as to the ultimate due date of the note and was not executed by all of the guarantors. It argues that all the evidence showed was that plaintiff and Grand Development attempted to negotiate an extension to the terms of the agreement but that no agreement was reached. It contends that, throughout the negotiations, it insisted that the guarantors agree and that the letter constituted a "forbearance agreement," which did not prejudice defendant and did not excuse her from performance.

Defendant argues that she was a gratuitous guarantor and, as such, is entitled to have the terms of her undertaking strictly performed. Marshall-Wells Co. v. Tenney, et al, 118 Or. 373, 244 P. 84 (1926). She argues that the evidence supports the finding that the underlying agreement was modified and that her risk was increased thereby.

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