Hill & Morton, Inc. v. Coughlan

• Decision Date: 28 March 1963
• Citation: 29 Cal.Rptr. 550,214 Cal.App.2d 545
• Court: California Court of Appeals Court of Appeals
• Parties: HILL & MORTON, INC., Plaintiff and Respondent, v. J. M. COUGHLAN, Defendant and Appellant. Civ. 20933.

Page 550

29 Cal.Rptr. 550

214 Cal.App.2d 545

HILL & MORTON, INC., Plaintiff and Respondent, v. J. M. COUGHLAN, Defendant and Appellant.

Civ. 20933.

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

March 28, 1963.

Hy Schwartz, Los Angeles, for appellant.

Eugene K. Lawlor, Oakland, for respondent.

BRAY, Presiding Justice.

Defendant Coughlan, one of three defendants against whom judgment was rendered, appeals from said judgment. The other defendants have not appealed.

QUESTION PRESENTED.

Was the agreement between Hill and North materially altered, thus exonerating Coughlan?

RECORD.

October 31, 1956, plaintiff, a wholesale lumber dealer in Oakland, entered into a written agreement with defendant North Lumber, Inc. (hereinafter referred to as North), a retail lumber dealer in San Diego, defendant Sam Cohen individually and as president of North, and defendant Coughlan individually and as secretary of North, by which plaintiff agreed to supply North with lumber, subject to a maximum limit of lumber shipped and unpaid for at any one time in the sum of $20,000. '[A] method of payment' was that North would invoice all its customers for lumber supplied to them, supplying plaintiff with copies of the invoices. Each invoice would bear a notation that it was assigned to plaintiff and that payment was to be made to plaintiff. Plaintiff reserved the right to reject any assigned account and return it to North. In the event that the invoices contained items other than lumber, plaintiff was to retain only the payments for lumber and transmit the balance to North. Defendants Cohen and Coughlan, individually and jointly guaranteed faithful performance of the agreement by North, waiving demand on North and notice of nonperformance by North. The agreement was to continue in force until cancelled, plaintiff having the right to cancel at any time. A chattel mortgage on certain North property, subsequently executed, was provided as additional security.

The agreement was put in operation in the fall of 1956. In October or November, 1957, defendant Coughlan resigned from North and became completely disassociated with the management or direction of its affairs. In April, 1958, plaintiff decided that the method of handling the North account was too cumbersome. Mashek, plaintiff's president, testified that he entered into an oral agreement with Cohen to change from assignment procedure to a simple open book account. Chen agreed to pay for the lumber shipments within 30 days and agreed that the guaranty arrangements and chattel mortgage would be retained by plaintiff. Cohen denied making this arrangement, but did not protest when the payment procedure was changed. Defendant Coughlan had no knowledge of the new arrangement.

After April, 1958, the account was frequently delinquent. From time to time plaintiff agreed to accept and accepted postdated checks, but no other express agreement extending time of payment of invoices was ever made. Cohen testified that the postdated checks were given as payment for invoices more than 30 days old. Mashek's testimony, while vague, is to the same effect. Thus, when invoice payments were overdue, plaintiff would accept postdated checks. In early 1959, a group of these checks totaling $27,000 was dishonored.

As of May 1, 1959, North owed plaintiff $70,571.83. June 1, 1959, plaintiff brought this action to foreclose the chattel mortgage and to enforce the guaranties of payment by Cohen and Coughlan. The court gave plaintiff judgment against North for $70,571.83 plus interest from May 1, 1959, and $2,500 attorney's fees, and ordered the chattel mortgage foreclosed. It further decreed that plaintiff should recover from Cohen and Coughlan, joinly and severally, any deficiency not exceeding the $20,000 limit set in the agreement, that might result upon sale or foreclosure.

The trial court found as to the fact of the change of method of payment from that mentioned in the contract and found that plaintiff had accepted postdated checks. However, it further found that Hill and North at no time entered into an agreement different from that set forth in the contract. This determination, as will hereinafter appear, was based upon the court's construction of the contract as not limiting the method of payment.

THE AGREEMENT WAS MATERIALLY ALTERED.

The obligation sued on, guaranteeing faithful performance, is in actuality a guaranty of payment. (See Somers v. United States F. & G. Co. (1923), 191 Cal. 542, 217 P. 746) and as relating to future liabilities of the principal, North, under successive transactions, it is a contract of continuing guaranty. (See Berg Metals Corp. v. Wilson (1959), 170 Cal.App.2d 559, 568, 569, 339 P.2d 869.) There is no distinction between sureties and guarantors; a continuing guaranty is a form of suretyship obligation and is subject to all provisions of law relating to suretyship. (Civ.Code, § 2787.)

Section 2819, Civil Code, provides: 'A surety is exonerated, exept so far as he may be indemnified by the principal, if by any act of the creditor, without the consent of the surety the original obligation of the principal is altered in any respect, or the remedies or rights of the creditor against the principal, in respect thereto, in any way impaired or suspended.'

Defendant contends he was exonerated (1) because the contract between plaintiff and North was altered in a material respect without his consent, and (2) because plaintiff extended North's time of payment. An alteration in any material respect without consent of the surety exonerates the surety. 'Where a contract and a guaranty of performance thereunder are entered into at the same time, they are properly read and interpreted as an entire contract. Where the main contract is altered without the consent of the guarantor and in respects so material as to change the substantial rights of the parties thereto and...