Mortgage Finance Corp. v. Howard

• Decision Date: 10 December 1962
• Citation: 210 Cal.App.2d 569,26 Cal.Rptr. 917
• Court: California Court of Appeals Court of Appeals
• Parties: MORTGAGE FINANCE CORPORATION, a California corporation, Plaintiff and Respondent, v. John D. HOWARD, J. Morgan Greene, Robert L. Pohle, Dorothy M. Pohle, James S. Kraft and Lura I. Kraft, Defendants and Appellants. Civ. 26549.

Page 917

26 Cal.Rptr. 917

210 Cal.App.2d 569

MORTGAGE FINANCE CORPORATION, a California corporation, Plaintiff and Respondent, v. John D. HOWARD, J. Morgan Greene, Robert L. Pohle, Dorothy M. Pohle, James S. Kraft and Lura I. Kraft, Defendants and Appellants.

Civ. 26549.

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

Dec. 10, 1962.

John L. Mace, Los Angeles, for appellants.

Hastings, Blanchard & Hastings and Robert G. Blanchard, Los Angeles, for respondent.

LILLIE, Justice.

Defendants appeal from a judgment for plaintiff in its action to recover the unpaid principal balance of a promissory note guaranteed by them. They contend that as a matter of law the trial court should have reached a contrary determination.

The material facts are without dispute. On December 26, 1959, Pohl-Der Incorporated, a California corporation, executed and delivered to plaintiff its promissory note in the principal amount of $75,000, principal payable in monthly installments of $1,000 commencing October 26, 1960. The note matured as to any remaining unpaid principal on December 26, 1964. On August 12, 1960, defendants guaranteed payment of the principal of Pohl-Der's note; the guaranty agreement is set forth below. ¹

On February 26, 1961, the principal installment then due was not paid. The maker's default having continued for fifteen days, on March 14, plaintiff demanded of all defendants immediate payment of the unpaid principal balance of the note. The following day (March 15) Pohl-Der tendered, and plaintiff accepted, the delinquent February installment. On April 14, 1961, there then being no default in the payment of monthly installments, plaintiff instituted the present action to recover the entire balance of principal, alleged to be $71,000. The trial court found against the answer's affirmative defense that by the acceptance from Pohl-Der of the sum of $1,000, as above related, plaintiff waived any default under the contract of guaranty; it further found that the interim acceptance of $6,000 in monthly installments from defendants Howard and Greene, as successors in interest to Pohl-Der, ² was likewise not a waiver of plaintiff's rights in the circumstances.

The distinction between sureties and guarantors having been abolished (Civ.Code, § 2787), the problem is one in the field of suretyship and governed by the statutes found under 'Title 13, Suretyship.' (Civ.Code, § 2787 et seq.) The principal argument revolves around the applicability of one or all of the statutes now to be quoted. Section 2809 provides that 'The obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; and if in its terms it exceeds it, it is reducible in proportion to the principal obligation.' By section 2819 it is provided that 'A surety is exonerated, except 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.' Finally, section 2822 declares that 'The acceptance, by a creditor, of anything in partial satisfaction of an obligation, reduces the obligation of a surety thereof, in the same measure as that of the principal, but does not otherwise affect it.'

The foregoing enactments restate collectively the common-law rule that the liability of a surety is, as a general rule, co-extensive with that of the principal. It must be neither larger in amount nor in other respects more burdensome than that of the principal. The decisive question here is whether the extension of time for payment placed the principal in a more favored position than that of defendants-sureties; in other words, whether a material change in the status of the parties, without the consent of the sureties, was thereby accomplished. 'It is too well settled both by code enactment and by judicial determination to need any citations, that where there is a material change of the status of the parties to a bond, affecting their substantial rights, without the knowledge of consent of the surety, the surety is relieved from any obligation thereunder. [Citations.]' (People v. Fidelity, etc., Co. of Maryland, 28 Cal.App.2d 325, 332, 82 P.2d 495, 498.)

Decisional law supports defendants' claim that an extension of time by the creditor to the principal constitutes a material change in the parties status. (Braun v. Crew, 183 Cal. 728, 192 P. 531; Brock v. Western Nat. Indem. Co., 132 Cal.App.2d 10, 281 P.2d 571; Occidental Life Ins. Co. v. McCracken, 19 CalApp.2d 239, 65 P.2d 130.) The result reached in Braun is rationalized with the declaration that 'the surety is entitled to stand on the strict letter of the contract upon which he is liable, and that any change therein made without his consent by which the contract is altered so as to impair or suspend the right of the creditor to proceed to enforce payment, fully releases the surety.' (183 Cal. at p. 733, 192 P. at p. 533.) The cases also hold that the question of the extent, if any, which the surety (or guarantor) sustains therefrom cannot be inquired into. 'We are not required and under the law are not permitted to speculate whether the alteration benefits or injures the guarantor. It is enough that it is a material alteration of the terms of the guaranty. [Citations.]' (McMannus v. Temple Estate Co., 10 Cal.App.2d 419, 421-422, 51 P.2d 1124, 1125.)

Plaintiff, however, relies on Bloom v. Bender, 48 Cal.2d 793, 313 P.2d 568, where it was determined that the requirements of section 2809 are fully met if the surety's obligation, when undertaken, does not exceed the obligation of the principal, even though the parties' subsequent conduct may in some fashion relieve the principal from a part of his burden. But the provisions in the contract in Bloom are...