Lloyd Corp. v. O'Connor

• Decision Date: 27 January 1971
• Citation: 91 Adv.Sh. 1591,258 Or. 33,479 P.2d 744
• Parties: LLOYD CORPORATION, a California corporation, Respondent, v. Paul O'CONNOR, Appellant.
• Court: Oregon Supreme Court

Page 744

479 P.2d 744

258 Or. 33

LLOYD CORPORATION, a California corporation, Respondent, v. Paul O'CONNOR, Appellant.

Supreme Court of Oregon, Department 2.

Argued and Submitted Oct. 30, 1970.

Decided Jan. 27, 1971.

Anthony Pelay, Jr., Portland, argued the cause and filed a brief for appellant.

Robert J. Miller, Portland, argued the cause for respondent. With him on the brief were Black, Kendall, Tremaine, Boothe & Higgins, Portland.

Before O'CONNELL, C.J., and DENECKE, TONGUE, and BRYSON, JJ.

BRYSON, Justice.

This is an action at law on a written guarantee of lease to recover rents and charges. Plaintiff, lessor, entered into a written lease with Karafune Tempura, Ltd., an Oregon corporation. The lessee agreed to pay a stipulated rental together with other charges. The defendant and some 17 other individuals executed a 'Guaranty of Lease' guaranteeing the performance of the lease by the lessee, including the payment of rentals and other charges. The defendant guaranteed payment in an amount equal to 5.88 per cent of the total rent and charges.

Subsequent to the execution of the lease, and during lessee's occupancy, certain written supplements and amendments were made to the lease on three occasions. The lessee was evicted and leasehold improvements were made to accommodate new tenants. The costs of these improvements were charged to lessee pursuant to the terms of the lease. Sixteen of the guarantors paid under the terms of the guaranty of lease. This action is to recover 5.88 per cent of the total net rent and charges after crediting rent received from the new tenants.

The trial court, sitting without a jury, made findings of fact and granted judgment to plaintiff.

The defendant, in his appeal, contends:

(a) That the defendants was a gratuitous guarantor of the lease and, therefore, not liable;

(b) That the defendant was discharged as a guarantor because of amendments and supplements to the lease after the execution of the lease and the guarantee of the lease without his consent;

(c) That the plaintiff received payment for all sums due it by defendant, and defendant should not be charged with plaintiff's costs in remodeling to secure new tenants.

Defendant contends that the giving of consideration for a guaranty is not sufficient, as a matter of law, to make him a compensated guarantor. He asserts that in order to be a compensated guarantor, one must be in the surety business. The only authority cited for this proposition is In re Landwehr's Estate, 286 Mich. 698, 282 N.W. 873 (1938). The case does not support defendant's contention. On the contrary, it states: '* * * the rule as to paid sureties applies to personal sureties who have received consideration for their engagement.' In re Landwehr's Estate, Supra at 705, 282 N.W. at 876. In that case the guarantor did not receive compensation for his guaranty but was held to be a compensated guarantor merely because of his position as a director of his corporate principal.

Oregon has recognized the distinction between a compensated and a gratuitous guarantor but has treated a personal guarantor, not in the surety business and serving for compensation, as a compensated guarantor. Marshall-Wells Co. v. Tenney et al., 118 Or. 373, 244 P. 84, 45 A.L.R. 1382 (1926).

The evidence discloses that each guarantor of the lease, including defendant, received an additional thirty-five shares of stock in the corporate lessee. The minutes of the corporation show that this stock was given to each guarantor of the lease as consideration for his executing the guarantee of lease. The evidence also discloses that the defendant was a stockholder, director and corporate secretary of the lessee, Karafune Tempura, Ltd.

In a law action tried by the court without a jury, the court's findings have the force and effect of a jury verdict and must be affirmed on appeal if supported by any substantial evidence. Constitution of Oregon, Article VII, § 3; ORS 17.435; Fabre v. Halvorson, 250 Or. 238, 239, 441 P.2d 640 (1968); Kuzmanich v. United Fire and Casualty, 242 Or. 529, 531, 410 P.2d 812 (1966).

The evidence amply supports the finding of the court that defendant was a compensated guarantor.

The trial court further found that 'the parties to the lease did not make any material changes to the lease agreement after the lease agreement was executed.'

As a compensated guarantor, only a material change in the principal contract (the lease agreement) without his consent could serve to discharge defendant of his obligations under the guaranty agreement. Marshall-Wells Co. v. Tenney et al., Supra.

The defendant relies primarily on a change in the lease which allowed the lessee, Karafune Tempura, Ltd., a Japanese-style restaurant, to serve typical American food in addition to Japanese-style food. This was accomplished by deleting from the original lease the language, 'no typical American food will be offered for sale in or from the demised premises at any time during the life of this lease.' This was deleted at the request of the lessee, and the defendant knew that the request was made by letter. The other supplements or amendments in the lease to Karafune Tempura, Ltd., were minor matters in the description of the premises made during construction.

In other words, any changes made in the lease were not such changes as a 'careful and prudent person undertaking the risk would have regarded as substantially increasing the chances of loss.' Young v. American Bonding Company, 228 Pa. 373, 380, 381, 77 A. 623, 626 (1910).

Restatement, Security § 128, Modification of Principal's Duty, sets forth the rule as follows:

'Where, without the surety's consent, the principal and the creditor modify their contract otherwise than by extension of time of payment

'(a) the surety, other than a Compensated surety, is discharged unless the...