Union Bank v. Winnebago Industries, Inc.
| Decision Date | 24 November 1975 |
| Docket Number | No. 74--2784,74--2784 |
| Citation | 528 F.2d 95 |
| Parties | UNION BANK, a California Corporation, Plaintiff-Appellee, v. WINNEBAGO INDUSTRIES, INC., an Iowa Corporation, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Before WRIGHT and WALLACE, Circuit Judges, and POWELL, * District Judge.
Union Bank, a California corporation, filed suit in the Los Angeles County Superior Court against Winnebago Industries, Inc. (Winnebago), an Iowa corporation, on a contract claim. Based upon diversity of citizenship, Winnebago removed the action to federal district court pursuant to 28 U.S.C. § 1441. The district court thereafter granted a motion for summary judgment for Union Bank and, in addition, awarded attorney's fees based upon a finding of bad faith by Winnebago. We affirm the granting of the summary judgment; we reverse the award of attorney's fees.
Winnebago is a manufacturer and wholesale distributor of recreational motor vehicles. It sells these vehicles through franchised retail dealers who often finance their inventory by 'flooring' arrangements with lending institutions. A flooring arrangement is an extension of credit between a bank and a dealer. The dealer orders and receives vehicles from the manufacturer; the manufacturer's invoice is paid directly by the bank and the dealer repays this amount plus interest to the bank upon reselling the vehicle at retail.
Prior to 1972, Winnebago experienced increasing sales of its recretional vehicles and sought to induce financial institutions to enter into flooring arrangements with Winnebago's retail dealerships. Accordingly, it prepared a form document entitled 'Repurchase Agreement' in which Winnebago promised to repurchase certain vehicles from the financial institution at a specified price if the dealer defaulted under the flooring arrangement. The only express conditions precedent in the contract were the dealer's default and the bank's notice and demand for repurchase.
In September, 1972, Winnebago executed a standard repurchase agreement in favor of Union Bank. 1 This agreement was part of a flooring arrangement between Union Bank and Winnebago World of Lomita, a franchised retail dealer of Winnebago's recreational motor vehicles. On November 30, 1973, Union Bank notified Winnebago that the dealer had defaulted under the terms of the flooring agreement and demanded that Winnebago repurchase the vehicles floored by the bank. Winnebago responded on December 6, conditioning its repurchase under the contract on the bank's prior submission of proof of the dealer's default, an accounting of monies previously received by the bank and assignment of the bank's rights and remedies against the dealer and against individuals who had personally guaranteed the corporate dealer's indebtedness. Union Bank rejected these conditions, filed a suit for the amount alleged to be due under the repurchase agreement and proceeded to liquidate the vehicle inventory, holding Winnebago liable for any deficiency between the specified repurchase price and the proceeds of liquidation.
In the civil action the bank moved for summary judgment. In opposition, Winnebago contended that Union Bank must first proceed directly against Winnebago World of Lomita, the retail dealer, for any deficiency owed the bank. The district court granted summary judgment for the bank. Upon a motion to reconsider, Winnebago offered affidavits alleging an intention on the part of its counsel and contracting officer to create a guaranty relationship in the drafting and execution of its standard form repurchase agreement. The court rejected the motion for reconsideration and amended findings of fact and conclusions of law were filed after the hearing.
Winnebago contends that pursuant to the repurchase agreement, it was a guarantor or surety. See Cal.Civ.Code, § 2787. If so, Winnebago would be entitled to the protections afforded by several California statutory provisions. For example, it may require the creditor to proceed against the principal, 'or to pursue any other remedy in his power which the surety cannot himself pursue.' Cal.Civ.Code § 2845. It would also be entitled to the benefit of every security for the performance of the principal obligation held by the creditor. Cal.Civ.Code § 2849. Thus, Winnebago contends that the bank's refusal to proceed first against the principal debtor, Winnebago World of Lomita, or to assign other personal guarantees of the corporate principal's obligation, acted to exonerate Winnebago's duty to repurchase the vehicles under its contract with Union Bank. See Cal.Civ.Code §§ 2819, 2845.
The district court determined that Winnebago's contract was not a guaranty but simply a promise to repurchase the vehicles upon the dealer's default, 'enforceable according to its terms without reference to principles of guarantee or suretyship.' In this the district court was correct.
The express terms of the agreement are clear pertaining to the parties' duties and bear no intimation of any guaranty or surety relationship. Winnebago urges, however, that the agreement is ambiguous when viewed in light of the tripartite financing arrangement described above and that we are bound to consider such contextual background evidence, citing Pacific Gas & Electric Co. v. G. W. Thomas Drayage & Rigging Co., Inc., 69 Cal.2d 33, 69 Cal.Rptr. 561, 442 P.2d 641 (1968). Under Pacific Gas, extrinsic evidence may be offered to explain a contract if the evidence is relevant to prove a meaning of which the terms of the instrument are reasonably susceptible. 69 Cal.2d at 37, 40, 69 Cal.Rptr. at 564, 566, 442 P.2d at 644, 646. However, even when the repurchase agreement is construed in the context of the financial setting described by Winnebago, a guaranty construction is not reasonably susceptible.
The manifest purpose of the repurchase agreement was to induce additional extensions of credit to Winnebago's retail dealers, enabling them to increase their inventories of Winnebago recreational vehicles. Further, the agreement affords the lending institution a quick and relatively easy method for disposing of the floored inventory at a specified price. If the bank chooses to exercise this option, the dealer is benefited by decreasing any potential amount due the bank upon liquidation of the inventory after default--thus providing additional encouragement to the dealer to expand his inventory of vehicles. In fact, clause 8 of the agreement provides that if Winnebago fails to repurchase after demand, Winnebago will pay any deficiency between repurchase price and net proceeds from the bank's public or private sale. See footnote 1, ante. Winnebago cannot now complain that the bank is unfairly shifting a portion of the loan deficiency from the dealer to Winnebago since that result is contemplated by the agreement and was part of the inducement for the extension of credit.
Furthermore, the agreement does not...
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