U.S. Leasing Corp. v. duPont

• Decision Date: 21 August 1968
• Docket Number: S.F. 22270
• Citation: 70 Cal.Rptr. 393,444 P.2d 65,69 Cal.2d 275
• Parties: , 444 P.2d 65 UNITED STATES LEASING CORPORATION, Plaintiff and Respondent, v. Michael H. duPONT et al., Defendants and Appellants.
• Court: California Supreme Court

Page 393

70 Cal.Rptr. 393

69 Cal.2d 275, 444 P.2d 65

UNITED STATES LEASING CORPORATION, Plaintiff and Respondent, v. Michael H. duPONT et al., Defendants and Appellants.

S.F. 22270.

Supreme Court of California In Bank.

Aug. 21, 1968.

Rehearing Denied Sept. 18, 1968.

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

John D. Glynn, Los Angeles, amicus curiae on behalf of defendants and appellants.

John H. Wallace, Oakland, for plaintiff and respondent.

SULLIVAN, Justice.

Defendants appeal from a judgment entered in an action for declaratory relief brought to establish and enforce their liability under a written guaranty executed in connection with a lease of certain restaurant and kitchen equipment by plaintiff United States Leasing Corporation (USLC) to Cal-West Aviation, Inc. (Cal-West).

Plaintiff USLC is a corporation engaged in the business of purchasing personal property and leasing such property to others, maintaining to inventories of equipment other than property it has repossessed upon breaches of such leases. Cal-West is a corporation which embarked on a business venture to operate a ferryboat restaurant to be known as 'Harper's Ferry,' at San Carlos, California. Cal-West, through its president Howard S. Harper, negotiated with USLC for the lease of the required restaurant and kitchen equipment. Defendants are Michael H. duPont, a friend of Harper, and duPont's wife.

The case consists almost entirely of documentary evidence. On February 23, 1961, at its San Francisco office USLC executed and delivered to Cal-West a so-called 'lease commitment letter' which Harper then and there acknowledged in writing as 'accepted' by Cal-West. The letter provided generally that a commitment to cover a lease by Cal-West of restaurant and kitchen equipment had been approved by the credit committee of USLC in the amount of $100,000 at specified terms with periodic payments over an Eight-year period 'and a deposit of $10,510.00.' The letter further provided that the commitment would be effective until April 15, 1961, and that the equipment covered must be delivered, accepted and placed on a lease schedule by that date. It was also stated that the commitment was subject to several conditions, among others: ¹ (a) a continuing guaranty from defendants; (2) an agreement by defendants to pledge acceptable and marketable securities in the amount of USLC's exposure on its demand; and (3) submission of personal statements by defendants quarterly. Finally, the letter set forth the procedure for the execution of enclosed forms designed to carry out the agreement and put the lease into effect and described the purchase order and invoice procedures for the acquisition of the equipment. ²

Concurrently with Harper's acceptance of the lease commitment letter, USLC and Cal-West executed a document provided by USLC entitled 'Lease' which was also under date of February 23, 1961. The lease provided in part as follows: 'Lessor hereby leases to lessee, and lessee hereby leases and hires from lessor, all machinery, equipment and other property described in (a) the schedule executed by the parties concurrently herewith or hereafter and made a part hereof, and (b) any schedule or schedules hereafter executed by the parties hereto and made a part hereof.' It contained, inter alia, detailed provisions relating to use, inspection, repairs and loss and damage of the equipment; surrender, insurance and taxes; security, default and bankruptcy; lessor's remedies and right of reimbursement; interest and integration, some of which will be set forth in detail infra. None of the afore-mentioned schedules were either contained in, attached to or made a part of the lease.

Later that same day in Los Angeles, defendants were shown the lease commitment letter and the lease by Harper and they executed a 'Guaranty' form and a document entitled 'Supplementary Agreement' (carrying out condition (2) and agreeing to perform condition (3) in the letter, see text at fn. 1, ante), both forms also having been provided by USLC. The guaranty provides inter alia that defendants guarantee and promise, 'on demand (1) to pay (USLC) * * * all rents and all other sums reserved in that certain lease, including all schedules now or at any time hereafter made a part thereof. * * * dated February 23, 1961, * * * 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,' and that their liability shall not exceed at any one time the total sum of $135,120. ³

As specified in the purchase order procedure set forth in the lease commitment letter (see fn. 2, ante), USLC received a copy of Cal-West's purchase order for $150,000 ⁴ dated February 23, executed by a construction company as agent for Cal-West, and issued its own confirming purchase order, undertaking to pay the supplier named in Cal-West's order only upon USLC's receiving title to the equipment designated therein, and upon Cal-West's receipt and acceptance of the equipment, approval of the supplier's invoice therefor, and instructions to USLC to pay the invoice. ⁵ Notwithstanding the foregoing provisions relating to the time of payment, on March 7, at the request of Cal-West, USLC made a progress payment in the sum of $50,000 to the supplier. Upon payment of the $50,000, USLC secured from Cal-West 'Schedule No. 1' to the lease, calling for a total 'rent' of $51,500 over a period of Three months. However under the heading 'Equipment leased' on the form, evidently designed to be used in conjunction with the lease form, appeared the following: 'Advance Payment to be used for progress payments to vendor.' The secretary and counsel of USLC testified that this schedule was executed in order to secure some evidence of the immediate indebtedness of Cal-West and to provide for additional compensation to USLC for the use of its money advanced prior to the time contemplated in the lease commitment letter. No copy of this document was furnished to defendants. Cal-West paid USLC $500 immediately due under the schedule.

On March 9 USLC advised Harper by letter that an additional commitment to Cal-West in the amount of $50,000 has been approved based on the same rate, terms and conditions as in the February 23 lease commitment letter. (See fn. 4 ante.) This letter was returned 'accepted' by Harper for Cal-West on March 27. No copy of this document was furnished to defendants.

By letter dated March 20, and returned accepted on April 19, the commitment (represented by the letters of February 23 and March 9) was extended from April 15 until June 15, 1961. No copy of the letter of extension was furnished to defendants.

On April 5, 'Schedule No. 2' was executed, purportedly for the same reasons as Schedule No. 1 had been. It was substantially identical with Schedule No. 1 except that a 'rent' of $102,000 was called for in one payment due in Two months. No copy of Schedule No. 2 was furnished to defendants. No cash was immediately advanced by USLC but a letter of credit for $100,000 was issued to the supplier by USLC's bank. No draft was ever written against it. ⁶ As of April 5, the supplier had not yet acquired and shipped to Cal-West the equipment covered in the purchase orders; therefore, according to the conditions set forth in USLC's purchase order, USLC had not yet become obligated to pay the supplier's invoice. However, about $100,000 worth of equipment was described in the supplier's invoices dated April 20. On May 15, Cal-West's contractor received and approved these invoices. On May 31, Harper executed and delivered to USLC a statement of his receipt and acceptance of the equipment, his approval of each invoice and his request that USLC pay the supplier.

Sometime in late May defendants' attorney orally notified USLC that Cal-West was having financial difficulty, and urged termination of the transaction. ⁷ USLC in turn orally requested defendants to put up some collateral or cash. ⁸ Defendants delivered to USLC a written 'Notice of Revocation of Continuing Guaranty and Notice to Proceed Against Principal' dated May 22, 1961.

On June 6 Cal-West was in default under Schedule No. 2 and on June 9 it was in default under Schedule No. 1, for an amount in the aggregate of $153,000. On June 9 Cal-West filed a petition for an arrangement under chapter XI of the Bankruptcy Act. Only the $500, which had been paid when Schedule No. 1 was executed, had been received by USLC.

On June 16 USLC demanded of defendants in writing the sum of $51,000 'rent' claimed by it to be past due under the lease (i.e., under Schedule No. 1). The demand also stated that upon USLC's payment of an additional $100,000 to the supplier, Cal-West and consequently defendants would become obligated under the lease (i.e., under Schedule No. 2) for such additional amount, and demanded of them a financial statement and a deposit of $100,000 collateral. (See fns. 8, ante, 20, infra.)

On June 20, Cal-West, now a debtor in possession (see Bankruptcy Act, 11 U.S.C.A. § 742), approved the supplier's invoice for a total of $136,429.96, 'Less Advance Payment' of $50,000, or for a balance of $86,429.96 then due the supplier from USLC (see fn. 6, ante) and requested USLC to pay the supplier such amount. About the same date USLC padlocked certain of Cal-West's aircraft hangars where it had been storing the equipment pending installation in the restaurant.

On February 28, 1962, USLC filed an 'Application for Reclamation of Personal Property and Creditor's Claim' in the bankruptcy proceedings, which had been transferred into a proceeding for reorganization under chapter X of the Bankruptcy Act. By such application USLC sought surrender of the subject equipment by the trustees of the estate of...