Kelley v. Upshaw

• Decision Date: 07 July 1952
• Citation: 246 P.2d 23,39 Cal.2d 179
• Court: California Supreme Court
• Parties: KELLEY v. UPSHAW et al. L. A. 22187.

Page 23

246 P.2d 23

39 Cal.2d 179

KELLEY v. UPSHAW et al.

L. A. 22187.

Supreme Court of California, in Bank.

July 7, 1952.

John M. Davenport, Los Angeles, for appellant.

Sampson & Dryden and Jacob Swartz, Los Angeles, for respondent.

EDMONDS, Justice.

Alexander R. Kelley loaned William A. and Othelia A. Upshaw $17,900. Thereafter, he entered into an agreement executed by the Upshaws and Cody W. Howarth which conditionally reduced the amount of the indebtedness and extended the time of payment. The appeal of Howarth presents for consideration questions concerning the rights of the respective parties under the extension agreement.

The complaint charged that in 1947, the Upshaws and Howarth jointly and severally became indebted to Kelley for $17,600 which they promised in writing to pay. They paid $4,402.74 upon their obligation, but refused upon demand to pay the balance due.

As a second cause of action, Kelley alleged that in 1947 he loaned the Upshaws $17,900. They executed and delivered to him a promissory note payable in installments of $200 per week, with interest at the rate of six per cent. The note provided that, in the event of default in any payment, the entire amount of principal and interest should become due.

Later, Kelley pleaded, after the note was in default, he agreed in writing to extend the time for payment and to forbear to sue. In consideration of the extension the defendants executed a contract promising to pay Kelley $8,800 by June 1, 1948. If the payment was not made, then they agreed to pay $17,600, the full amount unpaid upon the note, with interest. Kelley alleged his compliance with the agreement and the failure of the defendants to make the required payment. He acknowledged having received $4,402.74 in reduction of the principal of the extension agreement and claimed that $13,197.26, plus interest, is due and owing to him from the Upshaws and Howarth.

In a third count of the complaint against the Upshaws only, kelley re-alleged the terms of the promissory note and their failure to pay any part of it except $4,702.74.

By their joint answer, the Upshaws and Howarth denied the allegations of the first cause of action except as to the payment of $4,402.74. As to the second cause of action, they admitted having paid that amount and pleaded the execution by the parties of the extension agreement. They alleged that in October, 1948, the parties terminated and rescinded this agreement and entered into a new contract. Later, they said, Kelley, for consideration, gave John T. Goodwin a 30-day option in writing to purchase the promissory note for $2,500. Thereafter, within the option period, Kelley refused to accept payment of that sum. Except as to the payment of $4,402.74, the answer denied the allegations of the second and third causes of action.

For a separate defense, it was alleged that, if February, 1949, Kelley agreed in writing with Goodwin to cancel the amount due from the defendants upon payment within 30 days of $2,500. Before the expiration of the option period, according to the answer, Kelley told Goodwin, Howarth and the Upshaws he would not accept that amount as full payment of the debt. A further allegation was that Goodwin, the Upshaws and Howarth were then, and are now, ready and able to pay Kelley $2,500, which he refuses to accept.

The answer also asserted, as a third defense, that the promissory note sued upon is secured by a chattel mortgage which Kelley has not foreclosed. By another defense the Upshaws and Howarth charged that the promissory note was given pursuant to an agreement by which Kelly loaned William Upshaw money at a rate in excess of 12 per cent per annum interest. According to the pleading, William Upshaw received only $15,000 as consideration for the note, Kelley retaining $2,900 as interest on the loan. The final separate defense was that the complaint does not state facts sufficient to constitute a cause of action.

By the extension agreement, William Upshaw and Howarth agreed to pay $1,200 forthwith and $50 per week, with interest, until the note was paid. The agreement stated the amount of $17,600 as being due upon the note, but provided that if $8,800, plus interest, was paid on or before June 1, 1948, that sum would be accepted in full payment of the principal. In the event of default, the contract reads, the entire balance of the note, plus interest, 'shall be due and shall he paid on the weekly basis of Fifty ($50.00) Dollars per week, plus interest.'

Howarth appeared as his own counsel at the trial. Undisputed evidence shows the execution of the promissory note and of the first extension agreement. There is testimony tending to prove that Kelley offered in writing to assign the chattel mortgage for $2,500. J. Clifford Argue, Goodwin's attorney, testified that he drafted the instrument, which was signed by Kelley alone. A copy of the instrument, 'to the best of his knowledge', was admitted into evidence.

Argue described the document as being 'in the nature of an option executed by Mr. Kelley wherein he granted to John Goodwin an option to purchase the chattel mortgage then existing against the equipment at Coast Enameling for ,2500 cash. He gave him thirty-days' time in which to raise the $2500, and that was the option; that was the agreement.'

The record also includes an assignment of the chattel mortgage by Kelley to Howarth in September, 1947. It recites receipt of a consideration of $8,800.

Kelley testified that, at the time he signed the alleged option, 'there was no money given to me.' He further said that, on a visit to Argue's law office a few hours later, his wife took the instrument away from Argue and destroyed it. The same day, Kelley told Goodwin that he had destroyed the document and did not intend to abide by its terms.

The testimony as to whether $2,500 ever was tendered to Kelley under his agreement with Goodwin is in direct conflict. Howarth said that five days after the instrument was executed, he offered to pay Kelley the money. He further stated that Goodwin acted as his agent in the transaction. Kelley denied that Howarth or any one else had tendered payment to him.

Following trial, and after entry of a minute order in which judgment was ordered against the defendants and Kelley's counsel directed to prepare findings, Howarth retained an attorney. Thereafter, his attorney filed objections to Kelley's proposed findings of fact and conclusions of law. In them, for the first time, Howarth took the position that he can be liable for no more that accrued installments of principal and interest under the extension agreement as of the date of judgment. There was, he claimed, no provision for acceleration of installment payments and no basis for a finding that the balance of the amount of the note, with interest, was due.

The findings of fact signed by the trial judge stated: The promissory note was in default at the time the parties signed the extension agreement providing for the payment of $8,800 by June 1, 1948. This agreement was in default. Four thousand, four hundred and two dollars and seventy-four cents had been paid on the note subsequent to the execution of the extension agreement, therefore, Howarth owed Kelley $13,197.20, plus interest, payable at the rate of $50 principal per week commencing December 1, 1947. As of June 30, 1950, there was $6,700 due from Howarth to Kelley, less $4,402.74 paid subsequent to December 1, or a total of $2,297.26, plus interest.

Other findings were: Kelley offered to give Goodwin a 30-day option 'to purchase the right, title and interest, if any, of plaintiff, in those certain fixtures and assets of a business being conducted by defendants Howarth and Upshaw' for $2,500. Goodwin neither accepted the offer nor obligated himself to make any payment. Kelly rescinded the offer by taking possession of the memorandum and advising Goodwin that it was revoked. At no time did anyone on Goodwin's behalf tender Kelley $2,500. Although the note was secured by a chattel mortgage, Kelley 'released and assigned' it to Howarth. The assignment and release was part of the consideration for the extension agreement and thereafter the obligation of the defendants was unsecured. The promissory note was not executed pursuant to an agreement for a loan at a rate of interest in excess of 12 percent per annum.

As conclusions of law, the court held that Kelley was entitled to judgment against Howarth for $13,197.20 principal and $2,694.16 interest, payable as follows: $2,297.26 principal and $2,694.16 interest payable forthwith, the balance of $10,899.94 to be paid at the rate of $50 per week, plus interest, commencing July 1, 1950. The judgment provided 'that execution shall issue as against said defendant Cody W. Howarth only in accordance herewith.'

Howarth contends that the trial court erred in awarding judgment against him for the full amount of principal and interest provided in the extension agreement. He further argues that certain findings of fact are inconsistent and not supported by evidence.

If it be assumed that Kelley was entitled to judgment against him, Howarth says, the judgment should have been limited to the principal amount of the contract installments due at the time the action was filed, with interest only on that amount. The extension agreement, he argues, contains no provision for acceleration in the event of default in payment of weekly installments. Therefore, he states, Kelley may not recover for future installments which had not become an indebtedness at the time of suit.

Kelley, on the other hand, contends that, by the express terms of the contract, the entire amount of unpaid principal and interest was due and owing on June 1, 1948. He relies upon the provision of the agreement that, if $8,800 plus interest was not paid by June 1, the entire balance of the note, with interest, 'shall be due and shall be paid on the weekly basis of Fifty ($50.00) Dollars...