Goodman v. Severin

• Decision Date: 22 July 1969
• Citation: 79 Cal.Rptr. 555,274 Cal.App.2d 885
• Court: California Court of Appeals Court of Appeals
• Parties: Frank R. GOODMAN and Richard C. Farrer, Cross-Complaints and Respondents, v. Nels G. SEVERIN, Cross-Defendant and Appellant. Civ. 33547.

Page 555

79 Cal.Rptr. 555

274 Cal.App.2d 885

Frank R. GOODMAN and Richard C. Farrer, Cross-Complaints and Respondents, v. Nels G. SEVERIN, Cross-Defendant and Appellant.

Civ. 33547.

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

July 22, 1969.

Irsfeld, Irsfeld & Younger and Charles W. Stoll, Hollywood, for appellant.

Burnstein & Abramovitz, Robert C. Burnstein and Sandra J. Shapiro, Oakland, for respondents.

LILLIE, Associate Justice.

Respondents were given a money judgment against appellant, less a designated credit in the latter's favor, as damages for appellant's breach of an agreement which assertedly obligated him to purchase stock pledged by respondents to Bank of California (plaintiff in the main action) for a price sufficient to exonerate respondents' indebtedness to plaintiff bank upon demand of him to do so. The judgment also provided that appellant pay reasonable attorney's fees incurred by respondents in defending the main action initiated against them by plaintiff bank. The principal issue on this appeal from the judgment is the legal effect of the agreement, dated August 5, 1963, including the legal consequences flowing from appellant's breach; more specifically, whether the agreement was one of guaranty (as contended by appellant) or of indemnity as determined by the court below. Subsidiary thereto is the further contention that due to its asserted ambiguity the trial court erred in refusing to admit extrinsic evidence to interpret the instrument which would have established the contractual relationship thereunder claimed by appellant, namely, that of guarantor and principals.

The events leading up to the filing of the main action by Bank of California and the cross-demands here adjudicated are hereinafter summarized: In November of 1961 respondents owned a 7.25% Interest in Palomar Mortgage Company, consisting of approximately 108,000 shares, and were officers of that corporation; appellant owned approximately 27.2% Of Palomar's outstanding stock, being president and chairman of its executive committee. In the summer of 1963 respondents were indebted to Central Valley National Bank on a personal note, secured by a pledge of all their Palomar stock, in a sum approximating $500,000.00 which respondents, by sales of some of the pledged stock and other payments, had reduced to approximately $481,000.00. When Central Valley called the balance of the loan in June of 1963, respondents were unable to meet such demand. Since the market value of the pledged stock was then sufficient to discharge respondents' loan entirely, they were advised by Central Valley of its intention to sell such collateral unless payment of the full balance of respondents' indebtedness was made by August 5, 1963.

The problem was then brought to the attention of appellant who was concerned over the effect of a forced (and large) sale of stock upon his own Palomar holdings and that of other shareholders. Efforts by appellant to obtain a loan for respondents from other banks proved futile in the absence of a guarantee from appellant which he refused to give 'as a matter of long standing practice.' A loan (subject to the main action) was eventually obtained from Bank of California for respondents by one Samuelson, a partner in the accounting firm employed by Palomar. In the principal sum of $500,000, the loan was secured by 105,160 shares of Palomar stock, the written guarantees of respondents' spouses and appellant's agreement dated August 1, 1963, whereby he undertook to purchase the pledged stock at a price ($525,800.00) sufficient to discharge respondents' obligation in full if they defaulted. The above principal sum loaned by plaintiff was then disbursed to Central Valley who retained the balance still owed by respondents and remitted the remainder ($18,964.74) to respondents.

Thereafter respondents' attorney prepared the agreement herein which, as earlier stated, was construed contrary to appellant's asserted interpretation and resulted in this appeal. Appellant executed the document thus presented on August 5 after deleting a goodly portion thereof, initialing the parts stricken. As will appear, appellant argues that such deletions rendered the document ambiguous and thus made necessary the admission of extrinsic evidence in aid of its meaning; it is also claimed that appellant's deletions removed all language which would otherwise make the agreement one of indemnity. Be that as it may, as unaltered, the agreement provided Inter alia that appellant would 'purchase said stock for at least the then unpaid balance of the principal owed by (respondents) to Bank together with the accrued interest thereon and other appropriate and reasonable costs owed by (them).' Likewise undeleted was a recital that appellant was 'desirous to protect the value of his aforesaid stock, as well as the interests of all other shareholders of said mortgage company, and to secure his position as the owner of approximately 27.2% Of the outstanding common stock of Palomar Mortgage.'

Although respondents' note was thereafter reduced by the release and sale of certain shares of the pledged stock, on February 6, 1964, respondents defaulted on an interest payment. Subsequently Bank of California demanded that appellant purchase the remaining pledged stock still unsold, pursuant to the August 1 agreement, in payment of principal due from respondents ($455,609.17) and accrued interest ($22,704.51). Appellant failed to do so; upon such failure, Bank of California conducted a pledge sale at which all parties were in attendance. Appellant bid $2.25 per share, the highest bid there made for all of respondents' shares, which the Bank accepted. The net proceeds ($221,040.00) were credited to respondents' note, first to interest and then to principal, reducing the principal balance to $257,273.70.

Thereafter, Bank of California commenced the main action against respondents and their spouses on respondents' note, appellant being joined as a defendant under the agreement of August 1, 1963, to purchase the pledged stock. On motion for summary judgment, plaintiff was given judgment in the amount prayed for ($257,273.70) plus interest and attorneys' fees; as against appellant, a stipulated judgment was rendered for the above principal balance due under respondents' note plus interest. Subsequently the cause proceeded to final disposition on the cross-demands discussed above. Since respondents in the interim had paid $250,000.00 to plaintiff bank on account of its judgment, their cross-complaint sought reimbursement from appellant in that amount. From the reimbursement thus awarded, in addition to interest and attorneys' fees, the trial court gave appellant a credit of $11,391.50 representing the value of stock and cash dividends which respondents failed to deposit with plaintiff bank pursuant to the agreement of August 5.

As noted at the outset, appellant's principal contention asserts that the trial court erroneously found against his claim that he was merely a guarantor of respondents' obligation to plaintiff bank. As executed, the subject agreement reads in pertinent part as follows (italics being added): '* * * WHEREAS, FARRER (both respondents being so designated) is presently the owner of 105,160 shares of the common stock of Palomar Mortgage Company; and,

'WHEREAS, SEVERIN is the owner of 404,481 shares of common stock of said mortgage company and is the President of said company as well as the Chairman of the Board of Directors of said company; and,

'WHEREAS, FARRER proposes to borrow from the Bank of California, hereinafter called Bank, the sum of Five Hundred Thousand Dollars ($500,000.00) and to execute his promissory note therefor and to pledge his aforemented stock as security for said loan; and,

'WHEREAS, said BANK will make said loan only upon the condition that SEVERIN will, if called upon by said Bank, purchase the aforesaid stock of FARRER pledged to said Bank to secure said loan; and,

'WHEREAS, SEVERIN has agreed that he shall so purchase; and,

'WHEREAS, the value of the aforesaid stock owned by SEVERIN, as well as the stock owned be all other shareholders of the aforesaid mortgage company, will be impaired in the event that the stock of FARRER which is being pledged as aforesaid is sold to the public of to any other person than SEVERIN; and,

'WHEREAS, SEVERIN desires to protect the value of his aforesaid stock, as well as the interests of all other shareholders of said mortgage company, and to secure his position as the owner of approximately 27.2% Of the outstanding common stock of Palomar Mortgage.

'NOW, THEREFORE, IT IS AGREED AS FOLLOWS:

'Severin hereby acknowledges that he in familiar with the terms of that certain promissory note dated August 1, 1963 payable to the Bank of California, or its order, in the principal sum of $500,000.00 executed by Richard C. Farrer and Frank R. Goodman, a copy of which is marked Exhibit A and attached hereto as if the same were again set forth in full herein as well as the agreement described as a 'General Pledge Agreement' executed by the aforesaid Farrer and Goodman, a copy of which is attached hereto and marked Exhibit B. In consideration of the loan made by the Bank of California to Farrer, the mutual promises herein contained, the sum of $10.00, receipt of which is hereby acknowledged and for other valuable and sufficient consideration, Severin hereby agrees that in the event said Bank exercises its rights under the agreement heretofore entered into by and between Severin and the Bank in connection with his purchase of the stock of Farrer pledged to secure of loan as aforesaid, He shall within the time specified in said agreement perform faithfully thereunder and shall purchase said stock for at least the then unpaid balance of the principal owed by Farrer to Bank together with the accrued interest thereon and other appropriate and reasonable costs owed by Farrer to...