Western Coach Corp. v. Roscoe

• Decision Date: 28 July 1982
• Docket Number: No. 15826,15826
• Citation: 650 P.2d 449,133 Ariz. 147
• Parties: WESTERN COACH CORPORATION, an Arizona corporation, Plaintiff-Appellee, v. Marvin E. ROSCOE and Carole Roscoe, husband and wife; J. E. Roscoe and Florence Roscoe, husband and wife, Defendants-Appellants.
• Court: Arizona Supreme Court

Page 449

650 P.2d 449

133 Ariz. 147

WESTERN COACH CORPORATION, an Arizona corporation, Plaintiff-Appellee, v. Marvin E. ROSCOE and Carole Roscoe, husband and wife; J. E. Roscoe and Florence Roscoe, husband and wife, Defendants-Appellants.

No. 15826.

Supreme Court of Arizona, In Banc.

July 28, 1982.

Tanner, Jarvis & Owens by Stephen C. Birringer, Phoenix, for plaintiff-appellee.

Van O'Steen & Partners by William R. Mettler, Jr., Phoenix, for defendants-appellants.

FELDMAN, Justice.

The action arises out of a complaint filed by plaintiff-appellee, Western Coach Corporation (Western), against defendants-appellants, Marvin and Carole Roscoe (Roscoe, Jr.), and J. E. and Florence Roscoe (Roscoe, Sr.). Western sought recovery of sums allegedly paid by it as a result of the Roscoes' failure to perform their obligations under a contract for the purchase of a mobile home.

The case was tried before a jury, but at the end of defendants' case, the trial court directed a verdict in favor of the Roscoes. Western moved for a new trial, the motion was granted, and the Roscoes appeal from that order. We have jurisdiction pursuant to Rule 19(e), Rules of Civil Appellate Procedure, 17A A.R.S.

The transaction which gave rise to this case commenced with Roscoe, Jr.'s purchase of a mobile home from Western Coach by a retail installment contract dated July 8, 1971. The purchase price was $21,736. As part of the transaction, Roscoe, Sr. agreed to guarantee the buyer's performance. On the same day, Western assigned all the seller's rights under the contract. By various intermediate assignments, those rights were ultimately assigned to Delta Investment Company (Delta). As part of the transfer of the seller's rights, and unknown to the Roscoes, Western guaranteed Roscoe, Jr.'s performance to the assignee of the seller's interest.

Roscoe, Jr. eventually sold the mobile home to a party named Love, and Love then sold it to Chambers. On each occasion, as required by the contract, the holder of the seller's interest in the contract consented to the transfer of the buyer's interest, each new transferee of the buyer's interest assumed the obligation to perform, and each transferror agreed to remain liable as a "primary obligor." In 1977, Chambers defaulted on the payments, and Western repossessed the vehicle at Chambers' request. According to Western, when it repossessed the mobile home from Chambers it discovered that the vehicle had been vandalized, stripped of its furnishings and otherwise damaged. After taking possession, Western towed the mobile home to its sales lot, where it was repaired and refurbished. In addition, Western made the delinquent payments on the mobile home and paid back taxes which had accumulated on the home. After proper notice, Delta sold the vehicle at a public sale and the proceeds were applied to the balance owing on the purchase contract. Western then instituted this action against the Roscoes to recover the sums it claims to have expended on their behalf. ¹

The sums Western claims to have advanced for the Roscoes' benefit fall within the following categories:

1. Installment payments made by Western on behalf of Roscoe, Jr. to the holder of the seller's interest in the contract in which Roscoe, Jr. was the original buyer and Roscoe, Sr. was a guarantor.

2. Back taxes paid on the mobile home.

3. Cost of towing, moving and storing the mobile home after Chambers notified Western to retake possession.

4. Cost of refurbishing the mobile home and repairing the damage to it. 5. Attorney's fees and court costs of the action against roscoe.

The trial judge originally granted the motion for a directed verdict because he believed that Western had failed to present sufficient evidence to support either a claim for indemnification or one for unjust enrichment. Subsequently, as a result of further legal argument, the trial judge determined that he had erred by granting the Roscoes' motion. On appeal, the Roscoes contend that the original order granting the motion for a directed verdict was correct, so that the trial court erred when it subsequently set aside that order and granted Western's motion for a new trial. We disagree.

After reviewing the record, we find that the trial court's final determination was correct. The Roscoes were entitled to a directed verdict only if Western had failed to introduce sufficient evidence to sustain a verdict upon the theory of indemnification or upon that of unjust enrichment. Viewing the evidence, as we must, in a light most favorable to the plaintiff, Eaton Fruit Co. v. California Spray-Chemical Corp., 103 Ariz. 461, 463, 445 P.2d 437, 439 (1968), we find that the evidence adduced at trial was sufficient to sustain a verdict on Western's behalf.

I. DEFAULTED PAYMENTS--REIMBURSEMENT AND CONTRIBUTION

A. Roscoe, Jr.

The Roscoe, Jrs. were the principal obligors for performance of the buyers' obligations of the contract. Western was a guarantor of their performance. Western's suit against the Roscoe, Jrs. for reimbursement of payments made under the retail installment contract was based on the theory that a guarantor who has paid his principal's debt is entitled to reimbursement from the principal. This is a correct statement of the law. See Dykes v. Clem Lumber Co., 58 Ariz. 176, 180, 118 P.2d 454, 455 (1941); Western Coach Corp. v. Rexrode, 130 Ariz. 93, 96, 634 P.2d 20, 23 (App.1981). See generally 38 Am.Jur.2d Guaranty § 127 (1968).

The trial judge apparently believed that in order to recover under this theory Western had to prove that the Roscoe, Jrs. had agreed that Western would act as guarantor. This element, however, is not necessary in order to establish a right to subrogation. The principal is liable to the guarantor even though the contract of guaranty was executed at the request of the creditor and without the knowledge of the debtor. See Western Coach Corp. v. Rexrode, 130 Ariz. at 97, 634 P.2d at 24; 38 Am.Jur.2d Guaranty § 127 at 1136-37 (1968). Therefore, when Western introduced evidence at trial to prove that it was a guarantor and had paid its principals' obligation, it was entitled to have its reimbursement claim submitted to the jury for decision. Accordingly, it was error for the trial judge to direct a verdict in appellants' favor on this issue. The subsequent grant of a new trial was legally correct.

B. Roscoe, Sr.

Western's suit against the Roscoe, Srs. was based upon the theory that as co-guarantors ² under the retail installment contract, the Roscoe, Srs. were liable to contribute a pro rata share of the amount that Western was required to pay under the installment contract. This is a correct theory of law.

Where two or more persons [e.g., Western and Roscoe, Srs.] have bound themselves as coguarantors, each of them, as between themselves, is required to bear a ratable proportion of the amount for which they are liable under the contract of guaranty. In the event one has paid more than his share of the sum, he is entitled to demand contribution from the other or others and may maintain suit to enforce the right.

38 Am.Jur.2d Guaranty § 128 at 1137 (1968) (footnotes omitted). See also Restatement of Security § 149 (1941). To establish its right to contribution under this theory, Western produced evidence to show its status as guarantor, Roscoe, Srs.' status as guarantors, and that Western had made payments under the installment contract in an amount greater than its pro rata share. Thus, there was sufficient evidence in the record to establish a prima facie right to contribution from Roscoe, Sr. to Western. Again, therefore, the trial judge erred when he originally directed a verdict in favor of Roscoe, Sr., and the subsequent grant of a new trial was correct.

C. Roscoe, Jr. and Sr.--novation issue.

Appellants contend that the evidence presented at trial establishes that a novation occurred when the mobile home was sold to the Loves, thus releasing both the Roscoe, Jrs. and their guarantors from liability under the installment contract. Therefore, appellants argue, when Western made the default payments to the bank it acted gratuitously and is not entitled to reimbursement.

We recognize that if a novation had in fact occurred, both the Roscoe, Jrs. and their guarantors would have been released from liability under the retail installment contract: "Novation may be defined as 'the substitution by mutual agreement of one debtor or of one creditor for another, whereby the old debt is extinguished, or the substitution of a new debt or obligation for an existing one which is thereby extinguished.' " Steele v. Vanderslice, 90 Ariz. 277, 284, 367 P.2d 636, 640 (1961). However, to constitute a valid novation, there must be an extinguishment of a previously valid obligation and an agreement of all parties to a new, valid contract. Dunbar v. Steiert, 31 Ariz. 403, 404, 253 P. 1113, 1114 (1927); United Security Corp. v. Anderson Aviation Sales Co., 23 Ariz.App. 273, 275, 532 P.2d 545, 547 (1975). The novation agreement may be express or implied. Dunbar v. Steiert, 31 Ariz. at 405, 253 P. at 1114. In this case, there was clearly a factual question whether the Roscoe, Jrs. had been released from their obligations under the retail installment contract when they sold the mobile home to the Loves. Mrs. Roscoe, Jr. testified at trial that it was her understanding that their obligation was extinguished when the Loves agreed to assume the payments under the contract. On the other hand, Max Morgan, President of Western, testified that he had explained to the Roscoes that even though they sold the mobile home to the Loves, they remained liable. In addition, Western introduced into evidence the consignment agreement whereby the Roscoe, Jrs. gave Western the power to sell the mobile home on their behalf, and the assumption agreement pursuant to which the Roscoes sold the mobile home to the Loves. Both of these documents contain clauses which state that nothing...