U.S. Leasing Corp. v. DuPont

• Decision Date: 27 October 1967
• Citation: 64 Cal.Rptr. 120
• Court: California Court of Appeals Court of Appeals
• Parties: UNITED STATES LEASING CORPORATION, a corporation, Plaintiff and Respondent, v. Michael H. duPONT and Yvonne Marle duPont, Defendants and Appellants. Civ. 23495.

Page 120

64 Cal.Rptr. 120

UNITED STATES LEASING CORPORATION, a corporation, Plaintiff and Respondent, v. Michael H. duPONT and Yvonne Marle duPont, Defendants and Appellants.

Civ. 23495.

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

Oct. 27, 1967.

As Amended Nov. 10, 1967.

As Modified on Denial of Rehearing Dec. 6, 1967.

Hill, Farrer & Burrill, Stanley E. Tobin, Jack R. White, Rex W. Kellough, Los Angeles, for appellants.

John H. Wallace, Oakland, for respondent.

SIMS, Associate Justice.

Defendants, guarantors, have appealed from a judgment entered in an action for declaratory relief instituted by plaintiff, a corporation that had agreed to lease equipment to a prospective restaurateur upon receiving defendants' guaranty of the lessee's payment of the rent and performance of the terms of the lease. The judgment declares that, subject to credit for funds received by plaintiff from the lessee's bankruptcy proceedings, the guarantors are jointly and severally liable to the lessor for the sums paid by it, with interest, for equipment ordered by the lessee; and in addition for sums expended by it in protecting and preserving the equipment and its rights thereto following the bankruptcy of the lessee, and for attorneys' fees and costs expended in this action to enforce the guaranty.

Defendants contend on appeal: (1) that following the execution and delivery of this guaranty there was a material alteration of the contract between the lessee and lessor which changed the nature of the transaction to the extent that they were discharged from liability, despite a provision of the guaranty which granted advance consent to changes or amendments to the terms of the lease; (2) that the guaranty was void because at the time it was executed the total value of the equipment involved was misrepresented at a sum only two-thirds of that actually contemplated by the lessee and lessor; and (3) that they were discharged by the failure of the lessor to secure the deposit which was required from the lessee under the terms of the original agreement.

The trial court has made findings adverse to defendants on most of the foregoing issues. They contend, however, that such findings are not sustained by the uncontradicted evidence in the case. Insofar as the findings are predicated upon the trial court's interpretation of contract documents executed by the parties to the transaction, and are not dependent upon conflicting extrinsic evidence, the defendants are entitled to an independent interpretation by this court. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866, 44 Cal.Rptr. 767, 402 P.2d 839.)

The Facts

Plaintiff, United States Leasing Corporation, is a California corporation engaged in the business of leasing personal property. It does not maintain an inventory, but purchases such property to fulfill the needs of the lessee, following commitments for a lease executed by itself and the prospective lessee.

Cal-West Aviation, Inc., a California corporation, through Howard S. Harper, its president, negotiated with plaintiff for the lease of restaurant and kitchen equipment to be used in the establishment of a restaurant on a ferryboat to be known as 'Harper's Ferry.'

Defendant and guarantor Michael H. duPont was a good friend of Harper. There is evidence to support the trial court's finding that duPont was an experienced and educated businessman, having conducted his own business and participated in others as a source of financing and as a guarantor. Defendant and guarantor Yvonne Marie duPont is the wife of Michael H. duPont.

On February 23, 1961, a letter (referred to by the parties and in this opinion as the lease commitment letter) addressed to Cal-west and signed by plaintiff was accepted by Harper on behalf of Cal-West. The first paragraph of the letter reads as follows: 'We are pleased to advise that our Credit Committee has approved a lease commitment for your company in the amount of $100,000.00 to cover leasing of restaurant and kitchen equipment, based on an 8-year term with 60 monthly payments of $2,102.00 each followed by 3 annual payments of $3,000.00, and a deposit of $10,510.00. Renewals after this basic lease period would then be $3,000.00 per year. There is no purchase option extended to you on the equipment covered by this commitment. This commitment will be effective until April 15, 1961, and the equipment covered by same must be delivered, accepted and placed on a lease schedule by that date.'

The letter recites that the commitment is subject to the following conditions: (1) a continuing guaranty from the duPonts; (2) an agreement by the duPonts to pledge marketable securities upon demand; (3) submission of personal statements by the duPonts quarterly; (4) receipt of a chattel mortgage on the ferryboat; (5) the acceptability to the lessor of the selected equipment; and (6) absence of any material adverse change in the financial condition of the lessee or of the guarantors prior to the culmination of the transaction. The letter refers to the following enclosures: (a) lease in triplicate, dated February 23, 1961; (b) Board of Directors Resolution forms in duplicate; (c) Lease Payment Proposal in duplicate ¹ and (d) Guaranty in triplicate. It details the requisites for execution of the foregoing and advises the addressee that lessor would furnish forms for the collateral agreement of the duPonts and for the chattel mortgage. The letter continues: 'PURCHASE ORDER PROCEDURE When the required documents, properly executed, have been returned, you may then issue your order to the vendor, sending a copy of the order to this office. Your order should include the following: 'This order is placed subject to your receipt of a confirming purchase order from United States Leasing Corporation. Please bill United States Leasing Corporation in quadruplicate and show consignee.' We will then, in turn, issue our confirming purchase order to the vendor and send a copy of same to you for your records.'

'INVOICE PROCEDURE Upon receipt of the invoice from the vendor, we will send same to you for your approval and acceptance. Upon return of the accepted and approved invoice we will then issue a payment schedule based on the figures contained in the Lease Payment Proposal. Upon your acceptance of this schedule we will then remit payment to the vendor for the equipment.'

At the same time the parties executed an instrument denominated 'Lease.' The provisions of this instrument which are material to this controversy are those relating to the subject matter, them, rent, security for payment, remedies of the lessor upon the default or bankruptcy of the lessee, the lessor's right to reimbursement for attorney's fees and expenses, and its right to interest, and provisions relating to integration of the agreement. These provisions are set forth below. ² Despite the reference to schedules in the lease, no schedules were executed or made a part of the lease at that time.

Harper was given the guaranty form and a supplementary agreement to be executed by the duPonts. Later that same day Harp er exhibited the commitment letter to the duPonts and secured their execution of the guaranty and the supplementary agreement. According to duPont this was the first knowledge he ever had of the transaction, and he received no money or property for executing the guaranty and agreement. By the latter agreement the duPonts agreed to perform the second and third conditions of the lease commitment letter. The guaranty provides: '1. For valuable consideration the receipt whereof is hereby acknowledged, the undersigned (hereinafter called 'Guarantors') hereby jointly and severally unconditionally guarantee and promise, on demand (1) to pay UNITED STATES LEASING CORPORATION, a California corporation (hereinafter called 'Lessor'), in lawful money of the United States, all rents and all other sums reserved in that certain lease, including all schedules now or at any time hereafter made a part thereof, (hereinafter called 'Lease') dated February 23, 1961, between lessor and CAL-WEST AVIATION, INC. a California corporation (hereinafter called 'Lessee') as lessee, in the amounts, at the times and in the manner set forth in the Lease, and (2) to perform, at the time and in the manner set forth in the Lease, all of the terms, covenants and conditions therein required to be kept, observed or performed by the Lessee.'

Further provisions limit the guarantors' liability to the sum of $135,120, provide for continuance of the guaranty, authorize the lessor to change and amend the lease, waive certain suretyship defenses, and subject the guarantors to liability for attorneys' fees and costs. ³

Lessor received a purchase order for $150,000 worth of equipment dated February 23, 1961, executed by a construction company acting as agent for the lessee. It also received the chattel mortgage and the corporate resolution which it had requested in the lease commitment letter. On February 24, 1961 it issued its purchase order in which it undertook to pay the suppliers named in Cal-West's order not to exceed $150,000 upon receiving title to the equipment designated in the lessee's order.

At the trial, counsel for plaintiff explained the discrepancy between the $100,000 in the lease commitment letter and the $150,000 of the purchase order as 'an internal error in the organization, * * * Because of time.' ⁴

On March 7, 1961, at the request of the lessee, the lessor paid $50,000 to the supplier, and either prior thereto or contemporaneously therewith prepared and secured the execution by the lessee of an instrument designated as 'Schedule No. 1' to the lease dated February 23, 1961.

This instrument, on lessor's form, designates 'Equipment Leased' as 'Advance Payment to be used for progress payments to vendor.' It fixes a term to expire on June 8, 1961, and calls for total 'Rent' of $51,500 payable in installments of $500 each on March 8, April 8...