Challenge-Cook Bros., Inc. v. Lantz

• Decision Date: 30 November 1967
• Docket Number: CHALLENGE-COOK
• Citation: 256 Cal.App.2d 536,64 Cal.Rptr. 239
• Court: California Court of Appeals Court of Appeals
• Parties: BROS., INC., a California corporation, Plaintiff and Respondent, v. A. G. LANTZ, Defendant and Appellant. Civ. 24009.

Page 239

64 Cal.Rptr. 239

256 Cal.App.2d 536

CHALLENGE-COOK BROS., INC., a California corporation, Plaintiff and Respondent, v. A. G. LANTZ, Defendant and Appellant.

Civ. 24009.

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

Nov. 30, 1967.

Arvin O. Robb and Haskell M. Goodman, San Jose, for appellant.

Leslie J. Morgan, Oakland, for respondent.

SIMS, Associate Justice.

Defendant Lantz, who executed a guarantee of a lease under which plaintiff's assignor leased equipment to the lessee, has appealed from a judgment which awarded the plaintiff damages against the lessee, who defaulted, and Lantz.

The guarantor contends that there was no consideration for the guarantee; that repossession of the equipment following the lessee's default terminated the lease as a matter of law and limited the damages to the rentals accrued to that time; that the award of rental payments accruing after repossession, while the goods were retained, constitutes the enforcement of a penalty; and that the subsequent sale of the equipment constituted an election which barred the recovery of accrued rental payments, and limited plaintiff to the damages for which express provision was made in the event of resale. None of these objections is found tenable on the record in this case and the judgment must be affirmed.

On May 29, 1962, plaintiff's assignor and Hydro-Tech Western Corporation, signed a lease for a trencher with an 8-inch bucket line, 10-inch side cutters, and an extra 16-inch bucket line, for a term of 36 months commencing May 15, 1962, and ending May 14, 1965, at a monthly rental of $280.80. The total rental for the 36-month period was $9,720, plus $388.80 for reimbursement of state and local use taxes. The lessee deposited a $1,000 security deposit, and, on June 18, 1962, Lantz signed a written guarantee in which he guaranteed the lessee's performance under the lease.

The lessee made ten payments between June 13, 1962 and March 18, 1963, and defaulted in the payment due April 15, 1963. No further payments were made, despite demand on the lessee and the guarantor. On September 9, 1963, the plaintiff repossessed most of the equipment and incurred costs of $60.80.

Plaintiff commenced an action in the municipal court. In a first amended complaint filed June 16, 1964, it sought to recover accrued rental for the period from April 15, 1963 through September 15, 1963, in the sum of $1,684.80, expenses of repossession in the sum of $60.80, damages of $800 for withholding possession of the 16-inch bucket line, and reasonable attorney's fees.

On September 28, 1964, plaintiff sold the equipment for $6,000. On August 13, 1965, plaintiff filed its second amended complaint and a supplemental complaint in which it sought to recover $5,194.80, the rental payments for the period from April 15, 1963 through September 28, 1964, interest, costs of repossession and attorney's fees. Plaintiff's motion to file the foregoing and for transfer to the superior court was granted September 27, 1965.

The lessee defaulted, but Lantz, who had filed an answer to the original complaint in the municipal court, filed a new answer in the superior court to the supplemental complaint. He alleged that the lease terminated with the repossession on September 4, 1963. He acknowledged that $1,532 was then delinquent in rental payments, and alleged an offset for the $1,000 security deposit, leaving $532 due. He also alleged lack of consideration for his guarantee, and that the damages sought constituted a penalty or forfeiture.

At the trial February 3, 1966, plaintiff's finance manager authenticated the lease, the guarantee, the documentary evidence of plaintiff's succession to the rights of the lessor, and the invoice for the costs of repossession. He further testified concerning the rent due and the amount received for sale of the equipment. The defendant offered no testimony.

Consideration for the Guarantee

Lantz contends that the record shows that there was no consideration for his guarantee because the lease was executed almost three weeks before he signed the guarantee, and the first month's rent was already paid. He relies upon Civil Code, section 2792 which provides: 'Where a suretyship obligation is entered into at the same time with the original obligation, or with the acceptance of the latter by the creditor, and forms with that obligation a part of the consideration to him, no other consideration need exist. In all other cases there must be a consideration distinct from that of the original obligation.'

The record is silent as to the circumstances under which the lease and guarantee were executed. Plaintiff relies upon the presumption of consideration which arises from the fact a contract is in writing, ¹ and the principle that the burden of showing a want of consideration is on the guarantor as the person seeking to invalidate it. ²

In Rusk v. Johnston (1937) 18 Cal.App.2d 408, 63 P.2d 1167, the court stated: 'The real conflict in the case centered around the question: Was the guaranty either given or promised before the note transaction was completed, or was it afterward? The trial court found, among other things, that the guaranty 'was executed and delivered without any consideration.' Under the circumstances this finding was one of an ultimate fact, not a conclusion of law. See Bank of Italy v. Wetzel (1927) 82 Cal.App. 240, 255 P. 254; First-Trust, etc., Bank of Chicago v. Meredith (1936) 5 Cal.2d 214, 53 P.2d 958. What was said to the contrary in Drovers' National Bank v. Browne (1928) 88 Cal.App. 716, 264 P. 265 did not have the approval of the Supreme Court at the time and is not consistent with its comments in First-Trust, etc., Bank of Chicago v. Meredith, supra, and in its denial of a hearing in Rivera v. Cappa (1916) 29 Cal.App. 496, 156 P. 1016. 1017. Want of consideration for the guaranty was properly pleaded. There is no contention that any consideration was given for the guaranty other than that to be found in the transaction in which the note and trust deed were given, to which the guaranty refers. There is substantial evidence that the guaranty was not requested nor given until after the note was executed and the consideration for the note passed. In the premises no consideration for the guaranty can be found. Section 2792, Civ.Code; Bank of Italy v. Wetzel, supra.' (18 Cal.App.2d at p. 409, 63 P.2d at p. 1167. See also Leonard v. Gallagher (1965) 235 Cal.App.2d 362, 374, 45 Cal.Rptr. 211; and cf. Gardena Valley Airport, Inc. v. All American Sports Enterprises, Inc. (1964) 230 Cal.App.2d 478, 483, 41 Cal.Rptr. 93; Fidelity & Deposit Co. of Maryland v. Whitson (1960) 187 Cal.App.2d 751, 755, 10 Cal.Rptr. 6; Miller v. Smith (1960) 179 Cal.App.2d 114, 116--117, 3 Cal.Rptr. 492; and Pierce v. Wright (1953) 117 Cal.App.2d 718, 722--723, 256 P.2d 1049.)

On a silent record it cannot be presumed that the facts are as related in Rusk v. Johnston. If the guarantee agreement in this case was requested and given orally, contemporaneously with the agreement to lease, the proviso although unenforcible as the promise to answer for the debt of another, until reduced to writing, was given for a consideration which in turn supports the subsequently executed written agreement. (See Gardena Valley Airport, Inc. v. All American Sports Enterprises, Inc., supra, 230 Cal.App.2d 478, 483, 41 Cal.Rptr. 93; Fidelity & Deposit Co. of Maryland v. Whitson, supra, 187 Cal.App.2d 751, 755, 10 Cal.Rptr. 6; Miller v. Smith, supra, 179 Cal.App.2d 114, 116--117, 3 Cal.Rptr. 492; and Pierce v. Wright, supra, 117 Cal.App.2d 718, 722--723, 256 P.2d 1049.)

The defendant failed to meet the burden of coming forward with evidence in support of his defense. The court's conclusion that the guarantee was supported by consideration cannot be overturned.

Effect of Repossession

Paragraph 11 of the lease provides, in the event of default, 'Lessor, at its election shall have any of the following remedies, or any other remedy given by law, without barring the latter election of any other remedy * * *:

'(a) * * *, without taking possession * * * require strict performance of all Lessee's obligations * * * as the same accrue; or

'(b) * * * repossess * * * and * * * terminate this agreement * * * without notice; or

'(c) * * * repossess * * *, with or without notice * * * and sue for the rentals due hereunder as they accrue, without notice; or

'(d) * * * repossess * * * and without terminating * * * hold (the equipment) until Lessee shall have complied with all his obligations * * *; or

'(e) * * * repossess * * *, with or without notice * * * relet the same for the account of Lessee * * *; or

'(f) * * * sell all or any part of the equipment * * *, with or without notice. * * *' Lessee shall be liable for the difference between $10,000 plus cost of sale, plus 25 percent of sales price as overhead, minus the total amount realized on the sale, and minus the amount of rentals paid. ³

The court found that the lease gave the lessor each of the six alternative remedies; and 'that at any time between September 4, 1963 and September 28, 1964, when the equipment was sold, the defendants could have regained possession of said equipment by paying all delinquent rentals that accrued; * * *.' It concluded that 'the lease was not terminated on September 4, 1964 (sic), when plaintiff repossessed said equipment,' and that 'the plaintiff's act in repossessing and holding said equipment from September 4, 1963 until September 28, 1964, when said equipment was sold, was within the terms of said Lease, did not constitute a termination thereof, and that the rental accrued during said period does not constitute a penalty or forfeiture in violation of law.'

The guarantor attacks these conclusions. He contends that under the doctrine of election of remedies, the lessee's obligations under the lease were terminated when the lessor took possession of the leased equipment. (See...