Muth v. Educators Security Ins. Co.

• Decision Date: 19 January 1981
• Citation: 114 Cal.App.3d 749,170 Cal.Rptr. 849
• Court: California Court of Appeals Court of Appeals
• Parties: Paul L. MUTH et al., Plaintiffs and Appellants, v. EDUCATORS SECURITY INSURANCE COMPANY et al., Defendants and Respondents. Civ. 45675.

Page 849

170 Cal.Rptr. 849

114 Cal.App.3d 749

Paul L. MUTH et al., Plaintiffs and Appellants, v. EDUCATORS SECURITY INSURANCE COMPANY et al., Defendants and Respondents.

Civ. 45675.

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

Jan. 19, 1981.

Burnett & Burnett, John M. Burnett, San Jose, for plaintiffs and appellants.

Chickering & Gregory, Kerry C. Smith, Thomas J. Mellon, Jr., Dennis V. Swanson, San Francisco, for defendant and respondent Pioneer Ins. Co.

ELKINGTON, Associate Justice.

The instant appeal is from an "order discharging an attachment." It is taken on a clerk's and partial reporter's transcripts of the pertinent proceedings and evidence of the superior court. We relate certain of the proceedings, and uncontroverted evidence, as found in those records.

On or about December 6, 1971, plaintiffs Paul L. Muth and Genevieve S. Muth, his wife, deeded to defendant Educators Security Insurance Company, a Nebraska corporation, certain unimproved real property in Tehama County, California, which for reasons as will soon appear we shall refer to as Parcel A. As consideration therefor, that defendant executed and delivered to plaintiffs its promissory note for $411,750, payable in installments of $50,000 on the first day of each year commencing January 1, 1982. Interest on the unpaid balance at 7 percent was payable "semi-annually on January 1st and July 1st of each calendar year commencing with January 1, 1972."

The promissory note also contained a provision that: "If any payment of interest or principal is not made as it comes due, the holder of this note at any time thereafter, may, at his option, elect to declare the entire balance of this note remaining unpaid, to become and be immediately due and payable."

Sometime in 1972, defendant Educators Security Insurance Company merged with defendant Pioneer Insurance Company (hereafter Pioneer), also a Nebraska corporation, which thereby took title to Parcel A, and assumed all of Educators Security Insurance Company's obligations, including principal and interest of plaintiffs' promissory note. Such interest payments were made by one or the other of the defendants to and including January 1, 1975. They were, without express complaint or objection, sometimes tardily made.

On or about March 20, 1975, the Nebraska Director of Insurance found Pioneer to be in a financially "hazardous condition." Pursuant to statutes of Nebraska he took over the management and assets of that company. He then appointed a conservator of Pioneer to act under his direction. The conservator thereafter paid the interest due July 1, 1975, on the promissory note.

On or about January 16, 1976, plaintiffs received a letter, dated January 13, 1976, from Pioneer's conservator which, as relevant, advised them in this manner (the emphasis is ours):

"Enclosed please find the check of Pioneer Insurance Company in the amount of $14,411.25 representing the payment of interest on a certain promissory note. This payment should not be deemed or construed as an acknowledgment of the validity of the obligation or as a waiver of any defense to the obligation that may be available to the Pioneer Insurance Company.

"This letter is to further document our telephone conversations advising you and your counsel, John Burnett, that the Director of Insurance for the State of Nebraska has appointed me as Conservator, under Nebraska law, of the Pioneer Insurance Company and that an agreement for the reinsurance of the life insurance policies of the company is currently being negotiated. As a part of this reinsurance agreement, a change in the ownership of the assets currently held by the Pioneer Insurance Company will occur. After this change of ownership occurs, you will be contacted by representatives of either the Department of Insurance or by representatives of the purchaser."

As stated in the letter, the interest check (16 days late) was enclosed.

Plaintiffs, through their attorney, rejected and returned the untimely interest check by a letter, dated January 26, 1976, to the conservator which stated, as relevant:

"Due to the fact that the letter accompanying said check contained the statement, 'This payment should not be deemed or construed as an acknowledgment of the validity of the obligation or as a waiver of any defense to the obligation that may be available to the Pioneer Insurance Company;' and due to the fact that after receiving said letter and check we and our counsel have been informed by a Texas lawyer speaking from the office of the Nebraska Insurance Commissioner, who refuses to reveal the names of his clients, that your company is proposing to sell all your lands in California to some unknown company, and the further contents of said letter, we decline to accept said check and hereby give notice that we elect to demand, and do demand, immediate payment of the entire principal of said note; and we wish to further advise you that we are forthwith taking appropriate action, in the proper Courts, to enforce your obligations to us."

It will be noted that plaintiffs' election to accelerate payment of the promissory note was not based upon the January 1, 1976, interest payment's tardy tender.

On January 26, 1976, plaintiffs filed the instant action on the promissory note seeking judgment for its principal amount and accumulated interest. The complaint recited "that they elect to declare the entire balance of this note remaining unpaid to become and be immediately due and payable," because the January 1, 1976, interest had not been timely paid "as required by the terms of said promissory note, ..." The January 26, 1976, letter's stated reason for election to accelerate the note's payment was not alleged. And the complaint prayed only for the promissory note's principal sum "together with compound interest"; it did not expressly seek judgment for the accrued, and accruing, interest.

Later on the day of the action's commencement, January 26, 1976, plaintiffs caused a writ of attachment issued therein to be levied upon Pioneer's Tehama County property consisting not only of Parcel A but also of a nearby parcel to which we shall hereafter refer as Parcel B.

A principal issue of the trial was whether plaintiffs were legally empowered "to declare the entire balance of (the promissory) note remaining unpaid, to become and be immediately due and payable" by virtue of (1) the January 16, 1976, tardy interest payment, or (2) the conservator's announcement that its payment "should not be deemed or construed as an acknowledgment of the validity of the obligation or as a waiver of any defense to the obligation that may be available ...."

By findings of fact and conclusions of law the trial court held against plaintiffs on those issues. We are furnished with no record of the trial's oral proceedings and testimony; we therefore presume, for the purpose of this appeal only, that such findings and conclusions were supported by substantial evidence and were otherwise in accordance with law. "Error is never presumed, but must be affirmatively shown." (Carpenter v. Pacific Mut. Life Ins. Co. (1937) 10 Cal.2d 307, 326, 74 P.2d 761 (affd. sub nom. Neblett v. Carpenter (1938) 305 U.S. 297, 59 S.Ct. 170, 83 L.Ed. 182).)

Upon the above-noted judicial determinations it followed that plaintiffs' complaint, when filed, stated no existing cause of action. The trial court accordingly directed that: "Judgment should be entered that plaintiffs take nothing by reason of their complaint against Educators Security Insurance Company (and) ... Pioneer Insurance Company."

However, before entry of judgment plaintiffs were permitted, over Pioneer's objection, to file a supplemental complaint praying "that in addition to the relief requested in the original Complaint, they be granted judgment for the installments (of interest) due on said note and unpaid after January 1, 1976, up to the date of trial."

Thereafter, and prior to any determination on the supplemental complaint, Pioneer moved the trial court for an order discharging the earlier attachment on Parcels A and B of the Tehama County land. The motion's basis, in effect, was that the court having found that at the times of the action's commencement and of the levy of attachment, plaintiffs had no subsisting cause of action the attachment was thus "improperly or irregularly issued." (See Code Civ.Proc., § 556.) On the motion the court ruled that: "(T)his court has determined that plaintiffs had no claim when the order for the writ of attachment was obtained, the order granting the right to issue the writ made on January 26, 1976 should be set aside, the attachment discharged and the property levied upon should be released. Defendant's motion is therefore granted."

Plaintiffs' appeal is taken from that order.

We observe no error. The record furnished us establishes none and, as noted, we presume that had a record of the trial's testimony and other oral proceedings been lodged with this court, it would have supported the order discharging the attachment. The order will accordingly be affirmed.

But our inquiry is not ended.

It will be remembered that plaintiffs' action and attachment proceedings appeared to have been triggered by the conservator's letter of January 13, 1976, on behalf of the Nebraska Director of Insurance, announcing a probable "change of ownership" of Pioneer's assets without mention of an assumption of Pioneer's obligations by the new ownership entity.

During the superior court proceedings on Pioneer's motion to discharge the attachment, plaintiffs' attorney, under penalty of perjury, filed his declaration with numerous attached incorporated documents. The evidentiary allegations of the declaration were apparently uncontroverted in the trial court, and they are unchallenged on the appeal. No specific relief was therein sought, except that it was stated, "To grant the Motion prayed for by Defendants, will leave these...