Opinion
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 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 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.'
This instrument, which was marked for identification but denied admission in evidence on defendants' objection, is dated January 16, 1961 and contains plaintiff's proposal to lease $100,000 worth of equipment on the terms set forth in the first paragraph of the lease commitment letter, and Harper's approval thereof dated February 23, 1961.
'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. Despite the reference Harper was given the guaranty form and a supplementary agreement to be executed by the duPonts. Later that same day Harp er 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. 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.
'For and in consideration of the mutual covenants and promises hereinafter set forth, the parties hereto agree as follows:
These provisions read: '2. The liability of the undersigned Guarantors hereunder shall not exceed at any one time the total sum of $135,120,00. Notwithstanding the foregoing limitation, Lessor may permit the total amount of Lessee's indebtedness and obligations to Lessor to exceed the Guarantor's aforesaid maximum liability hereunder. No payment or payments made by or on behalf of the Guarantors to the Lessor shall reduce, or be construed to reduce, the continuing liability of the Guarantors in the maximum amount above set forth unless actual written notice to that effect is received by the Lessor at or prior to the time of such payment or payments.
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.'
Subsequently, plaintiff offered copies of the minutes of its management credit committee for January 18, February 21 and February 24, 1961, which reflect that on the first occasion an application for $100,000 was approved subject to certain conditions which, on February 21st, were modified to those contained in the lease commitment letter; and that on February 24th the minutes recite: 'Our present commitment for $100,000 is covered in Management Credit Committee Minutes dated 2/21/61 and should have been for $150,000. The additional $50,000 is subject to the same provisions * * *.' On defendants' objection the minutes were marked for identification only. In connection with the settlement of findings, defendants through newly substituted counsel moved for the admission of these minutes and the lease payment proposal (see fn. 1). This motion was denied.
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
According to the testimony of plaintiff's secretary and of its house counsel this schedule was executed to secure some evidence of the indebtedness of Cal-West to lessor because it had advanced money for the purchase of the equipment, and to secure compensation for the use of the money advanced.
This witness also testified that the lessor was prepared to submit a final schedule, in accordance with the terms of the lease commitment letter as modified, had the bankruptcy of lessee not intervened. That testimony and similar testimony from Cal-West's president was stricken by the court on motion of the defendants.
On March 27, 1961, the lessee returned to lessor as 'accepted' a copy of a letter dated On March 30, 1961, the lessor advised the lessee that the commitment (which originally was to expire April 15, 1961 by the terms of the letters of February 23 and March 9, 1961) 'has been extended until June 15, 1961. This commitment is approved at the same rate and terms as our commitment letter dated February 23, 1961.' A copy of this letter was returned as accepted by lessee on April 19, 1961.
Meanwhile, on April 5, 1961 lessor and lessee executed 'Schedule No. 2' on the same type of form as was utilized for 'Schedule No. 1' (see fn. 5). The equipment leased was described as 'Advance Payment to be used for progress payments to vendors.' The term was fixed to expire on June 5, 1961. The rent was stated to be $102,000 payable in one installment June 5, 1961. The insertions in the remainder of the form followed that of the earlier schedule except for the figure $100,000 in the stipulated loss value, and except for the date of execution.
The following day, lessor's bank issued a letter of credit in favor of the supplier of the equipment in the sum of $100,000. This letter of credit was obtained by lessor at the request of lessee. The schedule was purportedly executed for the same reasons as the first schedule--to evidence an indebtedness from Cal-West to lessor, and to secure compensation for the use of the money which it was contemplated would be advanced under the letter of credit. In fact, no drafts, were drawn on the letter of credit, because the invoices submitted in support of the supplier's claim failed to reflect credit for the $50,000 which had been paid.
The schedules were executed prior to the time the supplier had acquired and forwarded the property to the lessee for the lessor's account, and lessor admittedly had no title to any of the property which was the subject of the original purchase order prior to April 5th. The lessor produced numerous invoices issued by the supplier on April 20, 1961, which were endorsed by lessee's contractor on May 15 and approved by Harper on May 31, 1961. They were received in evidence, without objection, to show that about $100,000 worth of equipment had been received prior to guarantors' purported revocation of the guaranty. Harper also testified that almost all of the restaurant and bar equipment to be used on the ferryboat restaurant had been delivered to Cal-West prior to the purported revocation.
Lessor did not furnish to guarantors copies of the schedules or copies of the letters which respectively increased the amount of the commitment to $150,000, and extended the duration of the commitment to June 15, 1961. DuPont testified he received no communication from lessor from the time he executed the guaranty, until its demand for payment hereinafter noted, received in the middle of June.
In the latter part of May, the attorney for the guarantors advised the lessor that the lessee was having financial difficulties, and urged it to terminate the transaction. Lessor in turn demanded that guarantors put up some collateral or pay it some money. Around the same time lessor received from guarantors a notice of revocation of continuing guaranty and notice to proceed against principal, dated May 22, 1961. This instrument recites that guarantors 'hereby revoke, in respect to future transactions, that certain guaranty dated February 23, 1961, * * *' It also states: 'You will please further take notice that the undersigned are unwilling to be bound any longer as guarantors of the performance of the terms of the said lease; that the undersigned are informed and believe that a Writ of Attachment has been levied upon the property of CAL WEST AVIATION, INC., including the equipment subject to the said lease in violation of paragraph 18 of the said lease; that the undersigned are informed On June 9, 1961, the lessee filed its voluntary petition for an arrangement under Chapter XI of the Bankruptcy Act. Thereafter, on or about November 1, 1961, a trustee was appointed on the approval of an amended petition for reorganization under Chapter X. Said proceedings were still pending on May 25, 1965 when findings were signed and filed in this action.
No payments were made to lessor by lessee or by anyone on its behalf, other than the sum of $500, which apparently was paid in connection with the obligation assumed in Schedule 1.
By letter dated June 16, 1961, lessor demanded that the guarantors pay $51,000 'Rent' which was allegedly due under the terms of the lease (see Schedule 1) on June 8, 1961. The letter further states: 'Upon our payment to the manufacturer of this remaining amount, [approximately $100,000], Cal-West will thereupon become obligated to us under the lease for a similar amount. If Cal-West is unable to meet this obligation we shall naturally call upon you to make the payment to us pursuant to the terms of your guaranty.' Demand was also made for a financial statement and the deposit of $100,000 collateral pursuant to the terms of the Supplementary Agreement.
On June 20, 1961, the lessee, while still a debtor in possession, approved the supplier's invoice for a total of $136,429.96, showing a balance of $86,429.96 after credit for $50,000 paid. Thereafter, the supplier brought suit for the balance. Lessor, on July 28, 1961, filed an answer denying liability, but subsequently on January 19, 1962 paid $81,322.87 to the supplier in satisfaction of the full balance due for the invoiced equipment, after credit for certain goods which were repurchased by the claimant.
On February 28, 1962, lessor filed its application for reclamation of personal property and creditor's claim in the bankruptcy proceedings. By this application it sought an order directing the trustees of the estate of the debtor to surrender possession of the invoiced equipment, and allowance of its unliquidated claim 'for breach of the Lease Commitment and Lease * * * which cannot be liquidated until Applicant has relet or sold the property subject to the Lease.' By answer and counterclaim dated March 22, 1962, the trustee asserted that the property in question was purchased by and belonged to the lessee-debtor on or before June 8, 1961; that lessor had converted the property by exercising dominion and control over it; that lessor was liable to the trustee for the reasonable rental value of the hangars in which lessor was storing the equipment; and that its claim should be limited to that of a general creditor for the amounts advanced to purchase the property.
The problems of the use of a lease to finance an equipment purchase transcend those of this case. (See Hiller, Security Aspects of Chattel Leases in Bankruptcy (1966) 34 Fordham L.Rev. 439; and for tax incidents, Note, Federal Income Tax Treatment of Equipment Lease-Or-Purchase Agreements (1964) 44 Boston L.Rev. 103; and cf. Commercial Code, §§ 1201, subd. (37) and 9102, subd. (2).)
On April 30, 1962, lessor filed this action for declaratory relief. In addition to seeking a declaration of its rights to recover from guarantors on their guaranty and of its right to collateral security under the supplementary agreement, lessor sought a determination of its rights and obligations with respect to pursuing and exhausting the The dispute in the bankruptcy court was taken off calendar, among other reasons, in order to permit the lessor to secure an adjudication in this action of its right to proceed in the bankruptcy matter without prejudicing its rights under the guaranty.
On June 20, 1962 in the bankruptcy proceedings, the trustee was authorized to sell the ferryboat. The rights of lessor under its chattel mortgage and those of conflicting lien claimants were reserved for future determination in connection with the disposition of the proceeds of sale.
On May 10, 1963, the bankruptcy court authorized sale of the invoiced property for $40,000, subject to adjustment. Of the proceeds, certain amounts were ordered disbursed to the trustees and lessor, respectively, for costs of storage and insurance, and the balance was ordered held subject to the claims which had been made against the property.
The testimony supported the court's finding, incorporated in the judgment, that to July 16, 1963, lessor had expended $13,646.49 for insurance, personal property taxes, storage charges, and attorneys' fees in connection with preserving the property and asserting its rights in the bankruptcy proceedings. Similarly, testimony was produced to support the costs and attorneys' fees of $14,180.61 allowed in the instant action to the date of judgment.
Procedural Background
The principal contentions advanced by guarantors at the trial were that they guaranteed the rentals under the lease, that no lease ever came into existence, and that an agreement to guarantee the rent did not cover Cal-West's agreement, incorporated in the schedules, to pay the purchase price of the equipment.
Following the trial in July 1963, and extensive briefing, the trial judge released a tentative memorandum of decision for comment. Thereafter, on May 15, 1964 he released his final memorandum of decision which seriatim disposed of the ten issues posed by the pretrial order.
Proceedings then commenced for the settlement of findings and the form of judgment. After objections to plaintiff's proposals and a request for special findings had been filed on their behalf, the guarantors substituted their present attorneys, who in turn filed amended objections and a new request, and a supplemental memorandum which for the first time present the three contentions advanced on this appeal.
Defendants by amendment to amended answer, which was filed by leave of court at the time of trial, alleged that they had been exonerated by the increase in the amount of the commitment and the change in the time for performance by the lessee. Whether these allegations referred to the schedules attached to the lease or the letters modifying the lease commitment letter is not clear.
Further briefing ensued and on May 25, 1965, over a year after his first decision, the trial judge filed his second memorandum of decision in which he approved lessor's proposed findings. They were signed and filed the same day. Judgment was signed and filed July 30, 1965 and entered August 2nd. Defendants thereupon interposed their motion for new trial, and following the denial of that motion filed this appeal.
The Alleged Alteration of the Principal Contract
'A surety is exonerated, except so far as he may be indemnified by the principal, if by any act of the creditor, without the consent of the surety the original obligation of the principal is altered in any respect, or the remedies or rights of the creditor against the principal, in respect thereto, in any way impaired or suspended.' (Civ.Code, § 2819; County of Glenn v. Jones (1905) 146 Cal. 518, 520-521, 80 P. 695; Driscoll v. Winters (1898) 122 Cal. 65, 66-67, 54 P. 387; Hill & Morton, Inc. v. Coughlan (1963) 214 Cal.App.2d 545, 548-549, 29 Cal.Rptr. 550; Boteler v. Conway (1936) 13 Cal.App.2d 79, 82-83, 56 P.2d 587; McManus v. Temple Estate Co.
Johnson v. Quinby Nissen v. EhrenpfortThe determination of whether or not there has been a material alteration of the obligation must of necessity depend on comparison of that obligation with the altered obligation. The obligation assumed by guarantors was to pay 'all rents and other sums reserved in that certain lease, including all schedules now or at any time hereafter made a part thereof * * * dated February 23, 1961 between Lessor and [Cal-West]' (fn. 3 and text, supra). Guarantors do not now contend, as they did at the trial, that there was then existing no obligation to guarantee. They concede that their guaranty applies to the obligation created by the executed lease form (fn. 2, supra) as supplemented by the accepted lease commitment letter, the material terms of which have been set forth in the statement of facts. In other words, they undertook to guarantee the total rental, $135,120, which was applicable to the lease of $100,000 of equipment over the period contemplated in the commitment letter.
However, the trial court found: '6. By executing said Guaranty, defendants intended and agreed to guaranty USLC against economic loss arising out of its performance of the matters set forth in Exhibits 1 and 2 (including amendments, modification, changes and supplements thereto) up to the limit of $135,120 set forth in the Guaranty.'
There is absolutely no warrant for the phrase 'economic loss' or the parenthetical clause insofar as they imply that guarantors were to guarantee obligations incurred by reason of the purchase of equipment at a cost in excess of $100,000, or lessee's promises to make payments prior to the time contemplated in the lease commitment letter. There is no reference in that letter to any obligation to repay the lessor for the purchase price of the goods other than through the monthly payments, as set forth in the first paragraph of the letter, which were to be inserted in a payment schedule. In provides: '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 [concedely the same as those in the first paragraph of the commitment letter (see fn. 1, supra)]. Upon your acceptance of this schedule we will then remit payment to the vendor for the equipment.'
The lease form itself (see fn. 2, supra) leaves for future insertion in a schedule: (1) a particular description of the equipment leased, (2) the date the term of the lease is to end, and (3) the amount and times for the payment of rent. It does expressly provide that the term of the lease shall commence when lessor confirms the lessee's purchase order to the supplier. When construed, as they must be, with the lease commitment letter, these provisions fail to reveal an undertaking by the principal, the lessee, to obligate himself for a greater sum, or at a different time or rate of payment from that set out in the letter.
The provisions in the guaranty which define the guarantors' anticipatory consent to practices in the relationship between the lessor-creditor and the lessee-principal which might otherwise exonerate the guarantors as sureties (see fn. 3, supra), do not constitute promises to guarantee whatever other obligations the principal might assume as a result of those practices. They are merely waivers of suretyship defenses. With this obligation in mind, attention may be directed to the further obligations assumed by the principal. The court found: '7. On February 23, 1961, Cal-West, acting by and through its agent thereunto duly authorized, executed its purchase order for the restaurant and kitchen equipment referred to in Exhibit 1. A copy of said purchase order is in evidence as Exhibit 8.'
Authorization to 'change the amount, time of manner of payment of rent or other sums reserved in the Lease' must be limited to the lease described in the guaranty, which by reference to the lease form and accompanying letter is for $100,000 of equipment at a total rent reserved of $135,120. It is not authorization to change the subject matter of the lease or the gross rent.
This finding is partially incorrect. 'Exhibit 1' the lease commitment letter, refers to '$100,000 to cover leasing of restaurant and kitchen equipment.' 'Exhibit 8 is a purchase order for $150,000 of equipment.' Obviously it contains $50,000 of equipment not referred to in the lease commitment letter.
The following day, lessor issued its confirming purchase order for not to exceed $150,000 of equipment. The court found: '12. USLC issued its said purchase order in consideration of, and reliance on, said Guaranty and Supplementary Agreement of Defendants and in consideration of the agreements of Cal-West.' Any implication that the lessor was entitled to rely on the guaranty and supplemental agreement with respect to the excess $50,000 of equipment is erroneous for the reasons set forth above.
The trial court, however, additionally found: '13. Upon issuance of USLC's purchase order and the acceptance thereof, the Guaranty of defendants became irrevocable as to any liabilities thereby incurred by USLC up to the limit of $135,120.00 set forth in the guaranty.' (Emphasis added.) This finding is completely erroneous. Guarantors did not guarantee the lessor's 'liabilities' to the supplier in an unlimited sum. They guaranteed the lessee's liability in connection with $100,000 worth of equipment pursuant to the terms of the original letter and lease.
It may be assumed that the purchase order transaction created an obligation on the part of the lessee to reimburse the lessor, not only for the $100,000 which was guaranteed, but also for the additional $50,000. This obligation was subsequently evidenced by the letter of March 9th and the acceptance endorsed thereon. By the terms of that letter the lessor was to obtain repayment according to the same formula adopted for the $100,000. The letter further recites that the additional commitment 'is subject to the same terms and conditions stated in the February 23 letter.' If this language is deemed to mean that the duPonts were to execute a guaranty for the additional rents due under the formula for additional sums advanced for equipment purchases, no such guaranty was ever secured, and the condition was waived by lessor.
The creation of this additional obligation did not, however, release the guarantors. The guaranty provides: 'Lessor may permit the total amount of Lessee's indebtedness and obligations to Lessor to exceed the Guarantors' aforesaid maximum liability hereunder.'
'The logical corollary to this statute [Civ.Code, § 2819, supra] is the exception above noted; i. e., where the surety consents to an alteration of the original obligation of the principal, or the impairment or suspension of any of the creditor's rights or remedies against the principal, the surety is not exonerated.' Bloom v. Bender (1957) 48 Cal.2d 793, 800, 313 P.2d 568, 572; accord: Katz v. Haskell (1961) 196 Cal.App.2d 144, 151-152, 16 Cal.Rptr. 453; and American Trust Co. v. Jones (1933) 130 Cal.App. 651, 655, 20 P.2d 346; Rest., Security, § 128, comment c; Stearns, op. cit., § 6.13, p. 129; and cf. where no such consent, Johnson v. Quinby, supra, 62 Cal.App. 137, 142-143, 216 P. 397; and Stearns, op. cit., § 6.10, p. 126.) Guarantors have not questioned this principle as applied to the mere increase in lessor's liability to lessee.
The thrust of guarantors' argument is leveled at the execution of the schedules. The trial court found: '15. The execution of said Schedule No. 1 and the making of the progress payment to the vendor was authorized by the Guaranty executed by defendants and was not a material alteration of the obligations of Cal-West to USLC. With respect to the letter of March 9, 1961, which was accepted March 27, 1961, the court declared: '18. Upon delivery of said written acceptance Cal-West and USLC intended: (a) * * * (b) to confirm that the rights and obligations set forth in Exhibits 1 and 2 were subsisting and that the matters set forth in [Schedule 1] were subject thereto all as set out in Finding No. 16 above.'
Similar findings (Nos. 20, 21 and 23(b)) were made with respect to Schedule No. 2 and the letter of March 30, 1961 accepted April 19, 1961 which extended the commitment to June 15th. The court further found: 'No final schedule to the lease was executed only because of the intervening bankruptcy of Cal-West.' (No. 32, portion.)
In building contracts which provide that changes may be made in the plans and specifications, the surety is generally held to have consented in advance to alterations in the contract and its performance. (Roberts v. Security T. & S. Bank (1925) 196 Cal. 557, 567-568, 238 P. 673; W. P. Fuller & Co. v. Alturas S. Dist. (1915) 28 Cal.App. 609, 615-616, 153 P. 743; and Stearns, op. cit., § 6.8 at p. 121.) The corollary to this rule is indicated by the exception noted in Roberts where the opinion stated: 'The rule seems to be thoroughly well established that where alterations and changes are made pursuant to such agreement they are binding upon the surety unless they are so extensive and material as to amount to a departure from the original contract rather than a permissible modification of its details. [Citations.]' (196 Cal. at p. 567, 238 P. at p. 677; emphasis added; and see Victor S. M. Co. v. Scheffler (1882) 61 Cal. 530, 534; Barrett-Hicks Co. v. Glas. (1908) 9 Cal.App. 491, 499-500, 99 P. 856; Rest., Security, § 128, comment d; Stearns, supra.)
These authorities illustrate the general principle, advanced by guarantors--that anticipatory consent to alterations should not be construed to apply to changes in the obligation of the principal to the creditor which are so extensive as to be beyond the reasonable contemplation of the parties at the time the contract was made. No purpose would be served by further analysis of the plethora of authority from many jurisdictions which they have cited to the point.
In the instant case the guarantors' liability is fixed, in relation to the instruments executed on February 23, 1961, by the first three paragraphs of the guaranty. The fourth and fifth paragraphs do not enlarge the obligation which the guarantors have guaranteed. They merely contain provisions which waive suretyship rights which the guarantors might otherwise assert when the lessor-creditor seeks to enforce the guaranty. In most of the building contract cases the provision for alterations is found in the contractor-principal's contract with the owner-creditor. The question is not whether the surety is discharged, but whether the alteration is within the scope of the obligation the surety has agreed to perform.
The distinction is illustrated by W. P. Fuller & Co. v. Alturas S. Dist, supra, 28 Cal.App. 609, 153 P. 743. The court first applied the clause for modification contained in the building contract and stated: 'We should say that variations of minor importance and involving no expenditures It has already been noted that the trial court erred insofar as it has purported to find that the transactions between the lessor and lessee subsequent to February 23, 1961 enlarged the scope of the liability of the guarantors. There is no warrant for a finding that a promise to guarantee the payment of rent for $100,000 of equipment, according to a definite schedule over an eight-year term for a total liability of $135,120, includes within its scope a liability to indemnify the lessor-creditor for the lessee-principal's subsequent unconditional promises to pay $51,500 and $102,000, respectively, before the expiration of five months from the original transaction.
The guaranty authorizes the lessor to 'change the amount, time or manner of payment of rent or other sums reserved in the Lease.' The extent of the equipment to be leased and the rent reserved therefor were fixed as to guarantors by the lease commitment letter (see fn. 9, and text supra). It may be assumed that the quoted clause authorized changes and alterations in the manner in which this particular rent should be paid. Conceivably lessor and lessee could agree to accelerate the rental payments contemplated by the lease commitment letter, and guarantors would still be liable under their guaranty to the extent that the accelerated payments represented rental payments originally guaranteed by them. The obligations which the lessee-principal assumed were, however, not referred to or contemplated by the original transaction--the only one to which the guarantors were parties. They appear on their face to be a new and additional advance made by the lessor for the accommodation of the equipment which was to be the subject of the lease. The lessor demanded a new and independent consideration, $3,500 for the advances as made and proposed. The fact that these transactions were designated as 'schedules' rather than evidenced by promissory notes does not preclude analysis which penetrates the appearance of the payments masquerading as 'rent.' In short, the schedules contain independent and collateral obligations which were not embraced within the original agreement of the parties nor embraced within the guaranty of that transaction.
Guarantors insist that these schedules replaced and were an expression of the ultimate liability of the lessee. If so, since, as has been stated, they imposed a new and different obligation on lessee, the guarantors would be discharged, either because they should be considered as exonerated by a material alteration which was beyond the scope of the anticipatory consent, or stated in another way, because the lessor-creditor and lessee-principal had entered into a new agreement which was substituted The contentions of guarantors depend upon upsetting that portion of the findings in which the trial court found that the lessor and lessee intended that the schedules would be extinguished by a final schedule (see findings 16(b), 18, 21(b), 23 and 32, supra). Lessee's acceptance of the letters dated March 9 and March 30, 1961, and the testimony of lessor's officer, support the findings of the court as to the intentions of lessor and lessee between themselves.
It is also significant that the notice of revocation dated May 22, 1961 did not claim exoneration by virtue of the execution of the schedules. It only manifested a revocation 'in respect to future transactions.' The instrument display as awareness of the amounts due from lessee to lessor under the terms of the schedules, and demands that lessor collect those payments or face discharge of the guaranty. It is concluded that the execution of the schedules was not intended to displace the underlying obligation memorialized by the instruments executed on February 23rd. They evidenced new and collateral agreements between lessor and lessee to protect and compensate the former for the advances made and proposed.
Guarantors insist that in any event this collateral obligation imposed puts a burden on the lessee, without their consent, so as to constitute a material alteration in the relations contemplated by the parties, and that they should therefore be discharged. In the first place, the consent to additional advances from the lessor to the lessee would appear to embrace the advance of sums at a time earlier than contemplated with a right to be compensated therefor. Guarantors by their anticipatory consent, contracted that they would not seek exoneration under such circumstances.
In the second place, although the payments called for by the schedule impose a materially different obligation than the contemplated schedule of rents, they do not impose a materially different obligation than the lease imposed upon the lessee and its guarantors in the event of the lessee's default. The court properly found that the liability imposed by the schedules (presumably that in excess of $3,500), would have been absorbed under the original plan had not lessee's bankruptcy intervened. A comparison of the obligations of lessee under the schedules, and those it would bear in failing to meet its commitments under the lease (see fn. 2, supra, pars. 17, 18 and 19), reveals that in the latter event the lessee and (to the extent of $100,000 worth of equipment) its guarantors, would be liable for the rents reserved less such sums as might be realized from selling or releasing the equipment; and that under the schedules lessee would be liable for the purchase price of the equipment less what lessor could salvage from it. There is no showing that the latter figure would create an obligation in excess of the former.
It is assumed, without deciding, that the provisions of the lease which purport to give the lessor the right to accelerate all of the future rent payments and recover the gross rent from the lessee, and from the guarantors to the extent they had guaranteed payment of such rents, is unenforceable. (See Ricker v. Rombough (1953) 120 Cal.App.2d Supp. 912. 915-920, 261 P.2d 328.) A void penalty cannot be enforced against a guarantor. (Jack v. Sinsheimer (1899) 125 Cal. 563, 565-568, 58 P.130.) See discussion of 'Computation of Damage,' infra.
It is concluded that defendants were not exonerated or relieved of their original obligation by any subsequent transctions between the lessor and the lessee. The question of the propriety of the trial court's conclusions of law and the extent of the liability imposed upon defendants is reserved for future discussion.
The Alleged Constructive Fraud
Section 124 of the Restatement of Security provides in part as follows: '(1) The principle is recognized in California. (American National Bank of San Francisco v. Donnellan (1915) 170 Cal. 9, 21-23, 148 P. 188; Produce Clearings v. Butler (1964) 231 Cal.App.2d 494, 500, 42 Cal.Rptr. 114; and cf. Mahoney v. Founders' Ins. Co. (1961) 190 Cal.App.2d 430, 438-439, 12 Cal.Rptr. 114; and see also IV Williston, Contracts (rev. ed. 1936) § 1249, pp. 3575-3579; 50 Am.Jur., Suretyship, §§ 163-171, pp. 1011-1017; and Stearns, op. cit., §§ 7.13 and 7.15, pp. 213-215 and 217-221.)
Guarantors contend that the trial court erroneously failed to fine that there existed a prior undisclosed agreement between the lessor-creditor and lessee-principal to increase the commitment from $100,000 to $150,000; and that the failure to disclose this understanding to the guarantors entitled them, within the foregoing principle, to avoid the contract on the grounds of fraud and concealment.
This contention was not raised by the 12 separate defenses in guarantor's amended answer, or in the two additional defenses added thereto at the time of trial. It was not referred to in the contentions and issues set forth in the original pretrial order, or in the ten issues set forth in the order which modified the original pretrial order.
It was first raised after trial in the amended objections and request for special findings filed by guarantors' present attorneys and in the supplemental memorandum filed in support of their position.
Guarantors' proposed conclusion of law read: 'The Guaranty and Supplementary agreement are void and unenforceable against Defendants by reason of the fraudulent misrepresentations of Plaintiff and Cal-West as to the terms of the lease commitment they had agreed to, and the concealment of the true terms they had agreed to, which misrepresentations and concealment deceived Defendants and induced them to enter into said Guaranty and Supplementary Agreement.' The substance of the proposed findings of fact which were offered in support of this conclusion is apparent from the facts which are discussed herein.
The trial court overruled guarantors' objection and refused to adopt their proposed findings. It found that the written acceptance by the lessee on March 27, 1961, of the lessor's letter of March 9, 1961 manifested their intention '[t]o memorialize in writing a prior oral agreement that USLC would purchase equipment up to a total cost of $150,000 instead of $100,000 as provided in Exhibit 1 with the payments provided for in the first paragraph of Exhibit 1 to be increased in the proportion that $150,000 bears to $100,000. Said oral agreement was expressed in the purchase order of USLC wherein USLC agreed to pay up to $150,000 for the equipment ordered from the vendor.'
Guarantors attack this finding and assert that the evidence requires a finding that the agreement for the $150,000 commitment antedated the execution of the guaranty which allegedly was predicated upon the representation in the lease commitment letter that a commitment for $100,000 (not $150,000) had been approved.
The evidence they rely on is the purchase order executed by lessee's agent on February 23rd for $150,000 and the lessor's speedy confirmation thereof on the following day. The dispatch with which the increase was requested and approved is a circumstance which might justify the inference that such a commitment was prearranged, but it does not require that conclusion as a matter of law.
Guarantors assert that observations of lessor's counsel, both on and off the record, Cross-examination of lessor's officers did not reveal a prior commitment. It was represented by guarantors that they had never had any dealings with or even heard of lessor prior to the day they signed the guaranty. An attempt was made to show that dePont had a telephone conversation with a person to whom Harper placed a telephone call. The testimony was cut short because of a lack of proper foundation. The court's suggestion that Harper be called to testify to whom the call was made went unheeded; nor was he ever called to testify as to what his arrangements were with the lessor. No mention was made of this issue in guarantors' purported notice of revocation of the guaranty which was given with knowledge of the increased commitment.
On this state of the record it was not error for the trial court to refuse to admit the minutes in evidence. Nor does the evidence even if it were so augmented, require a finding as a matter of law that there was a concealed prearrangement between lessor and lessee to increase the commitment.
Furthermore, it may be noted that the facts misrepresented or concealed are generally those which go to the existing credit standing of the principal debtor. In American National Bank of San Francisco v. Donnellan, supra, the creditor's agent solicited and obtained the guaranty upon the representation that the debtor was doing a safe and lucrative business, when in fact he and his company already owed the creditor more than the amount of the guaranty. (170 Cal. at p. 18, 148 P. 188; and see Goodwin v. Abilene State Bank (Tex.Civ.App.1927) 294 S.W. 883.) In Produce Clearings v. Butler, the creditor was present when the debtor-partners secured the signature of the guarantor and concealed from him that the debtors had previously assigned the creditor fictitious accounts (231 Cal.App.2d at p. 500, 42 Cal.Rptr. 114).
In the instant case the failure to disclose the proposed additional advance would not represent a concealment or fraudulent representation of the then credit standing of the lessee. If there had been a prior agreement to lease more equipment, it would only have been for a valuable consideration, the supplying of that additional equipment. There is merit to the lessor's argument that the guarantors' consent to the creation of an obligation in excess of that which was guaranteed demonstrates that the question of the total amount to be invested in equipment was not a material consideration to the guarantors. (See Bank of America, etc., Assn. v. Sage (1936) 13 Cal.App.2d 171, 175-176, 56 P.2d 565; and Lean v. Geagan (1912) 20 Cal.App. 260, 262-264, 128 P. 792.)
It is concluded that the guarantors are not entitled to avoid the guaranty on the grounds of fraud or concealment, and that no error was committed by the trial court on this issue.
The Failure of Lessor to Secure a Deposit
Guarantors asset that the release of the security referred to in the lease commitment letter--$10,510, the equivalent of five months' rent under the original commitment--or the misrepresentation that it had been deposited either exonerates the guarantors or voids the guaranty. This issue, as that last discussed, was first raised in connection with the settlement of the findings. Guarantors' requested findings and conclusion that the deposit was not paid, that they did not consent to the failure of lessor to require or receive the deposit, and that the failure of lessor to require the deposit was a material alteration which exonerated the guarantors were rejected. The only finding responsive to this issue is the finding that no payment had been made by lessee except $500.
Guarantors interpret the provisions of the lease commitment letter and the lease (see par. 16, fn. 2, supra), as a representation that the deposit had been made. The lease form recites, 'Lessee has pledged and deposited with Lessor the amount set forth in the schedule.' This recital, however, must be construed in the light of all the provisions of the two documents. There was no schedule attached to the lease. The schedule contemplated was that referred to in the letter, which provided that the schedule was to be issued upon approval of an invoice and contemporaneously with payment for the goods. The agreement embodied in the two instruments was executory in nature.
Moreover, if the original transaction be deemed to embody a misrepresentation as to the fact of the receipt of collateral security it would be governed by the considerations discussed above in connection with the increase in lessee's liability. The materiality of the representation has to be weighed in the light of the terms of the guaranty. Guarantors are faced with the following provisions; '4. Guarantors authorize Lessor, without notice or demand, and without affecting their liability hereunder, from time to time, to: * * * (f) take and hold security for * * * the performance of the Lease, and * * * waive and release any such security; * * * 5. Guarantors waive any right to require Lessor to: * * * (b) proceed against or exhaust any security held from Lessee; * * * and waive any benefit of, and any right to, to participate in any security now or hereafter held by Lessor.' No ground for rescission is shown because of fraud or misrepresentation in connection with the deposit.
Guarantors also appear to rely on the principle set forth as follows in section 132 of the Restatement of Security: 'Where the creditor has security from the principal and knows of the surety's obligation, the surety's obligation is reduced protanto if the creditor (a) surrenders or releases the security, or (b) wilfully or negligently harms it, or (c) fails to take reasonable action to preserve its value at a time when the surety does not have an opportunity to take such action.' (See also Stearns, op. cit., § 6.46, p. 183.)
In Pacific Coast Eng. Co. v. Detroit F. & S. Co. (1931) 214 Cal. 384, 5 P.2d 888, the court reviewed the effect of an advance payment to a subcontractor upon the liability of his bondsman, and discharged the surety under the following rule: 'if the premature payment made by the obligee without the knowledge or consent of the surety is one upon which the plaintiff [creditor] is relying and is dependent for a recovery against the surety, then the payment has materially altered the principal's obligation, the injury to the surety is established, and the surety is exonerated by virtue of the provisions of section 2819 of the Civil Code.' (214 Cal. at p. 395, 5 P.2d at p. 892.)
Guarantors' reliance on either of the foregoing principles fails to reckon with the anticipatory consent conferred by the provisions of the guaranty itself. The provisions which have been set out above clearly demonstrate that the guarantors were not to be discharged or exonerated either wholly or pro tanto if the security were waived by the lessor. (See Ganahl v. Weir (1900) 130 Cal. 237, 240, 62 P. 512; American Guaranty Corp. of Cal. v. Stoody (1964) 230 Cal.App.2d 390, 394-395, 41 Cal.Rptr. 69; and Borsook v. Continental Cas. Co. (1951) 107 Cal.App.2d 21, 24, 236 P.2d 383.) The trial court properly rejected guarantors' contentions in respect to the lessor's failure to secure the contemplated deposit.
Computation of Damage
A rehearing was granted in this case because each party, in petitioning for a rehearing, not only requested a reconsideration of the principles enunciated in respect to the existence and extent of the guaranty, but also requested a determination of certain collateral issues which were rendered significant by the decision. Rehearing was limited to an exposition of the legal principles applicable to the following issues: (1) damage for the breach of the original guaranteed lease agreement; (2) matters to be considered as credits or offsets to such damages; (3) the time from which the compilation of interest should commence on the sum found due from guarantors to lessor; and (4) lessor's right to attorneys' fees and costs. These matters are resolved as noted below.
The trial court concluded: 'Plaintiff is entitled to a decree herein declaring that each of defendants is obligated to plaintiff on said Guaranty for sums disbursed by plaintiff for purchase by it of the restaurant and kitchen equipment described in the findings above together with interest thereon at seven (7%) per cent per annum, reasonable attorneys' fees in prosecuting this action and its other costs and expenses herein and for expenses incurred by plaintiff in the bankruptcy proceedings of Cal-West and that the Guaranty is otherwise valid and enforceable in accordance with its terms.'
Guarantors have attacked these conclusions as well as the findings which have been reviewed. It has been noted herein that a guaranty of lease for $100,000 of equipment cannot be inflated into a guaranty of a lease for $150,000 of equipment, even though the provisions of the guaranty waive any right to discharge because of the increase in the obligation. Nor can guarantors' basic liability, exclusive of such interest as may be allowable and reasonable attorneys' fees and costs and expenses incurred in the enforcement of the guaranty (see par. 6, fn. 3, supra), exceed $135,120. (See Murphy v. Hellman Commercial, etc., Bk. (1919) 43 Cal.App. 579, 587, 185 P. 485.)
The liability of the guarantors must be measured by that of their principal, the lessee. (Civ.Code, § 2809.) The parties agree that the basic transaction was a lease, not a sale or a security transaction. (See Associates Discount Corp. v. Tobb Co. (1966) 241 Cal.App.2d 541, 549, 50 Cal.Rptr. 738; Automobile, etc., Co. v. Salladay (1921) 55 Cal.App. 219, 227, 203 P. 163; Wellman v. Conrroy (1920) 50 Cal.App. 141, 145-150, 194 P. 728; and Harron, Rickard & McCone v. Cutting (1912) 19 Cal.App. 780, 781-782, 127 P. 827.) At this point all semblance of agreement terminates.
Guarantors first contend that lessor is barred from any recovery against lessee, and so against guarantors, because it repossessed and ultimately sold the equipment which was the subject of the lease, and thereby rendered it impossible to furnish the lessee, or the guarantors, the consideration for which the rent was to be paid. They rely on principles enunciated in connection with leases of real property which purport to limit the remedies of the landlord following breach by the tenant. In Treff v. Gulko (1932) 214 Cal. 591, 7 P.2d 697, the court adopted that portion of the opinion of the District Court of Appeal which read as follows: 'The rule is well settled that upon the surrender of leased premises by a lessee before the expiration of the term provided for by the lease, the owner of the premises has three remedies: First, he may do nothing and sue the lessee as each instalment of rent becomes due, or for the whole thereof when it becomes due; second, he may treat the lease as terminated and retake possession of the premises and use the same for his own purposes as the exclusive owner thereof; or, third, he may retake possession of the premises for the tenant's account and hold the tenant in damages for the difference between the rentals provided for in the lease and what in good faith he was able to procure from a reletting. De Hart v. Allen
Phillips-Hollman, Inc. v. Peerless Stages Bradbury v. Higginson Welcome v. Hess Respini v. Porta In re Bell Dorcich v. Time Oil Co. Syrett v. StricklandSupport for the guarantors' position is found in Welcome v. Hess, supra, 90 Cal. at p. 514, 27 P. 369; Dorcich v. Time Oil Co., supra, 103 Cal.App.2d at pp. 683-688, 230 P.2d 10; Bernard v. Renard (1917) 175 Cal. 230 at pp. 233-234, 165 P. 694, 3 A.L.R. 1076; and Boral v. Caldwell (1963) 223 Cal.App.2d 157 at pp. 162-163, 35 Cal.Rptr. 689. See also Harvey, Termination of a Lease, 54 Cal.L.Rev. (1966) 1141 at pp. 1154-1156. In each of these cases it was found that the lessor's exercise of dominion over the premises, which had been abandoned by the lessee, relieved the lessee of any further obligation under the lease. Welcome and Barnard are similar to this case, because in each of those cases the lessor had undertaken the construction of improvements for the lessee, yet was denied compensation for that outlay. A similar result was reached with respect to a lease of personal property in Automobile, etc., Co. v. Sallady, supra, wherein the opinion states: 'It needs no citation of authorities to show that a lessor cannot collect rent for the use of a chattel after he has repossessed himself of the chattel and terminated the lease. He cannot, at least in the absence of an express covenant to the contrary, withhold the chattel and still collect rent money for its use. If the respondents were not entitled to collect rent for this eleven months' period, it follows that they cannot assign the nonpayment thereof as a basis for a forfeiture. Our attention has not been drawn to any California case wherein personal property was involved which fully covers this principle. No difference, however, in this regard can be discovered between leases involving real property and those involving chattels. Each party is estopped to claim both the possession of the leased property and compensation for its use. Each, when he voluntarily terminates the lease, and, by regaining the property places it out of the power of the lessee to use it, terminates the lease for all purposes.' (55 Cal.App. at p. 222, 203 P. at p. 165.)
There are several reasons why the foregoing strict doctrine should not be applied to the circumstances which exist in this case. In the first place, although the lessor stored and locked up the delivered equipment, it all times recognized that the lessee's estate in bankruptcy had a claim to the equipment under the agreement between the parties. It petitioned to have the goods released, and the ultimate sale was conducted with the consent of the bankruptcy court.
Secondly, it is well recognized that contract provisions may give the lessor greater rights. If the property, the subject of the lease, is re-leased for the account of the lessee, the lessor ordinarily has to wait until the end of the term to recover damages (De Hart v. Allen, supra, 26 Cal.2d 829, 833, 161 P.2d 453; Treff v. Gulko, supra, 214 Cal. 591, 594 and 599, 7 P.2d 697; and see Harvey, op.cit., at p. 1157), but if the provisions of the lease authorize it, he may recover deficiencies arising on re-leasing on the same periodic basis as the original rent would fall due. (Phillips-Hollman, Inc. v. Peerless Stages, supra, 210 Cal. 253, 259-262, 291 P. 178; and see Treff v. Gulko, supra, 214 Cal. 591, 594, 7 P.2d 697.)
In Bradbury v. Higginson, supra, the court recognized that if there had been proper allegations of damage, which were found to be lacking, there might be recovery of damages on the theory of anticipatory breach--'[t]hat is to say, that the defendant's [lessee's] repudiation of the obligations of his lease gave the plaintiff Moore v. Investment Properties Corporation
Boral v. Caldwell,In the third place, it has been held that a provision for the acceleration of future rent payments may be enforced in connection with a lease of personal property when the property is left in the possession of the lessee. 'Upon default in the payment of rent under a lease providing for payment of rental in installments, the lessor may rest upon his lease and sue the lessee to recover each installment, or the whole thereof, when it becomes due. (Bradbury v. Higginson, 162 Cal. 602, 604, 123 P. 797; Salvation Army v. Daily Telegram, 125 Cal.App. 743, 745, 14 P.2d 123.) Defendant's contentions that the court applied the wrong measure of damages, and that awarding the unpaid balance due under the lease constituted an award of liquidated damages, are without merit. Plaintiff rested upon the lease. The remaining installments payable thereunder became due upon acceleration. Thus, the total unpaid stipulated rent was due at that time. Defendant remained in possession of the equipment. No contention is made to the contary. No liquidated damage issue was involved.' (Associates Discount Corp. v. Tobb Co., supra, 241 Cal.App.2d 541, 548-549, 50 Cal.Rptr. 738, 743.)
Finally, it is noted that there is a distinction between a lease of personal property, which will depreciate and were out in use, which is movable, and which in many cases can be duplicated, and real property which is fixed and does not depreciate ex cept Gold Min. & Water Co. v. Swinerton
Guarantors assert that if the lessee was not relieved of his obligations under the lease, the damages should be computed by a comparison of the rent ($135,120) reserved for the $100,000 worth of equipment with the reasonable value of the use of that equipment over the term of the lease.
Guarantors propose: 'The total rent reserved for the portion of the leased equipment covered by appellants' guaranty was $135,120. From this amount must be deducted whatever sum the trial court determines to be the reasonable rental value of the equipment for the lease term, based upon evidence of such value. The excess, if any, of such rental reserved over rental value would then be discounted down to its present value or worth at the time of the termination, June 20, 1961. In other words, the Court must find this present value by ascertaining the amount which, drawing simple interest at 7%, would produce the excess rent reserved over rental value at the end of eight years.'
Lessor has not risked all on one theory of recovery. It contends that guarantors acquiesced in the method by which the lower court determined the damages, and cannot now suggest a different method. (See Wolfsen v. Hathaway (1948) 32 Cal.2d 632, 646-647, 198 P.2d 1 [overruled on other grounds Flores v. Arroyo (1961) 56 Cal.2d 492, 497, 15 Cal.Rptr. 87, 364 P.2d 263]; and Durkee v. Chino Land and Water Co. (1907) 151 Cal. 561, 569-571, 91 P. 389.) The record fails to show that guarantors, who were bitterly contesting the issue of their liability, ever adopted or acquiesced, within the principle of the foregoing cases, in the method selected by the court for the computation of damages.
Lessor further relies on the general principles of Civil Code section 3300, which section reads: 'For the breach of an obligation arising from contract, the measure of damages, except where otherwise expressly provided by this Code, is the amount which will compensate the party aggrieved for all the detriment proximately course of things, would be likely to result therefrom.' These provisions, and not those set forth in section 3302, govern the question of damages under a forfeited lease. (Respini v. Porta, supra, 89 Cal. 464, 466, 26 P. 467; cf. Knight v. Marks (1920) 183 Cal. 354, 357, 191 P. 531.)
Civil Code section 3302 provides: 'The detriment caused by the breach of an obligation to pay money only, is deemed to be the amount due by the terms of the obligation, with interest thereon.'
Lessor insists that a liberal rule should be applied in determining the amount (California Lettuce Growers v. Union Sugar Co. (1955) 45 Cal.2d 474, 486, 289 P.2d 785, 49 A.L.R.2d 496), and that the damages should cover not only the loss caused, but the gains prevented by lessee's breach (1 Rest., Contracts, § 329, pp. 503-504), or the value of the performance to the promisee (V Williston, Contracts (rev.ed. 1937) § 1339, p. 3765). It notes that Automobile, etc., Co. v. Salladay, supra, authorizes recovery of the leased personal property upon breach by the lessee (55 Cal.App. at p. 222, 203 P. 163), and that Associates Discount Corp. v. Tobb Co., supra, countenances present recovery of the accelerated rent payments on the lessee's default (241 Cal.App.2d at pp. 549-550, 50 Cal.Rptr. 738), but it also acknowledges that, in the former case, recovery of payments 'Ordinarily, provisions for liquidated damages will not lie for failure to pay rent as provided in the lease. (Rez v. Summers, 34 Cal.App. 527, 529, 168 P. 156; Webster v. Garrette, 10 Cal.App.2d 610, 615, 52 P.2d 550; Jack v. Sinsheimer, 125 Cal. 563, 566, 58 P. 130; Knight v. Marks, 183 Cal. 354, 357, 191 P. 531.) This is so because in such a case there is no presumption that the amount of damages which may result from a tenant's breach of a covenant to pay rent is impossible or extremely difficult to fix.' (McCarthy v. Tally (1956) 46 Cal.2d 577, 583, 297 P.2d 981, 985; see Civ.Code, §§ 1670-1671; Fox Chicago R. Corp. v. Zukor's Dresses (1942) 50 Cal.App.2d 129, 133, 122 P.2d 705; and Annotation (1937) 106 A.L.R. 292.)
In Bradbury v. Higginson, supra, the court rejected 'the theory that the repudiation of the lease by the lessee operated at once to mature all the rent reserved in the lease and to enable the lessor to recover, not only the installments already accrued, but those to accrue in the future.' (162 Cal. at p. 608, 123 P. at p. 800; and see Respini v. Porta, supra, 89 Cal. 464, 466, 26 P. 967; and Syrett v. Strickland, supra, 86 Cal.App. 623, 626, 261 P. 484.)
In Ricker v. Rombough (1953) 120 Cal.App.2d Supp. 912, 261 P.2d 328, the court reviewed cases from other jurisdictions and the decisions of this state and concluded 'that a provision in a lease of real property for rent acceleration upon breach of a covenant to pay rent is unenforceable and void as being either an agreement for liquidated damages when the damages are readily ascertainable or a penalty. This is particularly true in this case for the reason that the lease here under consideration expressly declares the rent acceleration clause to be 'in addition to any other remedies which lessor may have upon such default, failure or neglect.' Under this lease, upon any default of the lessee, the lessor has the right to terminate the lease and re-enter the premises and at the same time sue for all of the unpaid rent reserved for the entire term of the lease. Such a provision has no relation whatever to the actual damages which may be sustained and is the clearest kind of a penalty. The validity of a liquidated damage clause is to be determined at the time the lease is entered into. [Citation.]' (120, Cal.App.2d Supp. at p. 919, 262 P.2d at p. 331; and see Annotation (1940) 128 A.L.R. 300; and (1936) 104 A.L.R. 223.) The appellate department also disposed of the contentions, reiterated here, by lessor, that the provision for acceleration was justified by analogy to provisions upheld in promissory notes, or that it was warranted because the parties at the outset could have agreed to prepayment of all rent (id., pp. 919-920, 261 P.2d 328). The opinion is persuasive. The acceleration clause found in the lease form in this case (see par. 17, subd. (a), fn. 2, supra), should not be enforced in the absence of pleading and proof that the actual damages were 'from the nature of the case, * * * impracticable or extremely difficult to fix.' (Civ.Code, § 1671; see Electrical Prod. Corp. v. Williams (1953) 117 Cal.App.2d Supp. 813, 817, 256 P.2d 403.)
The Williams case, last cited, involved the lease of an electrical display sign which provided for acceleration of payments, and termination of the agreement upon breach by the user. It was agreed that twenty-five per cent of the rentals for the unexpired term would be credited for the owner's unexpended costs of maintenance and possible salvage, and that the balance of the accelerated payments would represent liquidated damages. In addition to reversing the case for a determination of whether it was a proper case for liquidated damages, the court observed: 'There are no such complications in the instant case in the computation of actual damages as in these two Better Food Markets, Inc. v. American Dist. Tel. Co.,
Atkinson v. Pacific Fire Extinguisher Co.,The following formula is appropriate to this case: 'To arrive at the actual damages in these [three] cases, the unpaid balances should be used as a basis; from that there should be deducted * * * any savings * * * brought about by the breach. Under the contract, the resulting amount would be paid in monthly installments in the future. To pay it in a lump sum upon breach would give lessor more than it bargained for, since, * * * money due in the future is not worth the same sum paid presently. The amounts so computed should then be commuted to a cash basis as of the date of payment. Interest on due but unpaid installments should offset commutation for the future, * * *. From it all should be deducted the present net value of salvage realized, * * *.' (Electrical Products Consolidated v. Sweet (10th Cir. 1936) 83 F.2d 6, 10.)
Demand was made upon the guarantors on June 16, 1961. It erroneously was for the sum of $51,000, but it served to fix the default of the lessee. The question of whether a tender of $2,102 for a monthly payment would have relieved the default is academic because no such tender was made and issue was joined as to the validity of the guaranty. Technically, the breach
Democa v. Barasch Trumpler v. Cotton Burns v. Massachusetts, etc., Ins. Co.The acceptance of the foregoing formula implies a rejection of that suggested by guarantors (see fn. 15, supra). It does not, however, signify that the rule suggested by guarantors is inappropriate in all cases. Under the facts of this case it may be assumed that the lessee, the guarantors, or the lessee's trustee in bankruptcy would have tendered the rent for the equipment, and taken possession of it, if the value of its use, other than in connection with the abortive restaurant project, was equal to or exceeded the amount of the rent. Since no such tender, nor any other attempt to redeem, was ever made by guarantors, they should not now be permitted to show some theoretical value in derogation of what was actually obtained for the equipment at the sale.
Credits or Offsets
The formula approved contemplates that guarantors will be credited with the salvage value realized by the lessor. The salvage value applicable to the guaranteed portion of the rent is not the entire price received upon the sale of the equipment, prorated in the proportion the guaranteed rent for $100,000 of equipment bears to the total rent for all of the goods ($131,322.87) actually furnished. That sum must be adjusted by deducting what would have been the fair market value, if any, of the equipment at the end of the term of the lease. Lessee, and guarantors in their stead, are only entitled to credit for the salvage value of the use of the equipment for the term of the lease.
The sums expended by the lessee in enforcing its rights against the equipment are only material if gross sale price is used in the computation referred to in the last paragraph. It is assumed that there would first be deducted from the sums received for all of the equipment the expenses incurred for its storage, and any taxes and insurance.
The lease provides that 'Lessee shall pay lessor all costs and expenses, including attorneys' fees, incurred by lessor in exercising any of its rights or remedies hereunder * * *' (fn. 2, par. '20'). The guarantors' liability became fixed at the time of default. Lessor could have rested on the guaranty and left the guarantors to their subrogated rights in the equipment. By proceeding against the equipment, lessor did not waive its rights against the guarantors, but it cannot charge the guarantors for more than a pro rata share of the expense, as determined in accordance with the relationship between that portion of the lessee's obligation which was guaranteed and the total obligation of lessee, or for any expenses unrelated to a reduction of that portion of lessee's total obligation for which guarantors are liable.
Guarantors concede that because of the waiver of other security clauses in the lease and guaranty agreements, the lessor is entitled to first apply the proceeds of the sale of the ferryboat, which was the subject of a chattel mortgage, to so much of lessee's obligation as in not embraced within the guaranty. They claim, however, credit for the $500 apparently paid to lessor by lessee. This sum was paid for the use of lessor's funds pursuant to the agreement whereby payments were made to the supplier prior to delivery of the goods. Lessor furnished the consideration for this payment by advancing the funds, and guarantors are not entitled to have the sum deducted from the damages accruing from the subsequent breach by lessee.
If lessor has received, or receives, any other funds from the lessee's estate in bankruptcy, they should be credited on the obligation in accordance with the principles enunciated above in connection with the proceeds of the sale of the equipment.
Interest
In the Sweet case, supra, (83 F.2d 6, 10) the court allowed the lessor, as against the lessee, interest on each installment of rent to the time of payment, and discounted the installments falling due thereafter. In order to distinguish the liability of guarantors and lessee, the guarantors' liability in this case is fixed at the time of default. (See Bloom v. Bender, supra, 48 Cal.2d 793, 799, 313 P.2d 568; Rodabaugh v. Kauffman (1921) 53 Cal.App. 676, 682, 200 P. 747.) The sum, as so computed, should be the aggregate of such sums which, with interest at the legal rate of seven per cent(7%), would produce, at their respective due dates, the several installments of rent called for by the lease agreement. (See Aetna Life Ins. Co. v. Geher (9th Cir. 1931) 50 F.2d 657, 659-660 and Wood v. Wrigley (1953) 119 Cal.App.2d 90, 97, 258 P.2d 1040; but cf. Noble v. Tweedy (1949) 90 Cal.App.2d 738, 749-748, 203 P.2d 778; and see Annotation (1963) 105 A.L.R. 234; and (1934) 90 A.L.R. 1318.)
More particularly guarantors rely on the theory that lessor's recovery should be the difference between the rents reserved, and the reasonable rental value of the use of the equipment during the term of the lease. (See Boral v. Caldwell, supra, 223 Cal.App.2d 157, 165, 35 Cal.Rptr. 689; Handley v. Guasco (1958) 165 Cal.App.2d 703, 711-714, 332 P.2d 354; Noble v. Tweedy, supra, 90 Cal.App.2d 738, 743, 203 P.2d 778; and Peterson v. Larquier, supra, 84 Cal.App. 174, 179, 257 P. 873.) It is established that where damages are dependent on the reasonable rental value of property, they are unliquidated and will not bear interest. (Rose v. Hecht, supra, 94 Cal.App.2d 662, 666, 211 P.2d 347; Stockton Morris Plan Co. v. Carpenter, supra, 18 Cal.App.2d 205, 213-214, 63 P.2d 859; Samuels v. Singer, supra, 1 Cal.App.2d 545, 555, 36 P.2d 1098, 37 P.2d 1050; and Peterson v. Larquier, supra, 84 Cal.App. 174, 179-180, 257 P. 873.) It has herein been determined, however, that this measure of damages is not proper under the circumstances of this case. Guarantors' assertions are, therefore, not pertinent.
Where the damages may be calculated, interest should be allowed. (Coleman Engineering Co. v. North American Aviation, Inc. (1966) 65 Cal.2d 396, 407-408, 55 Cal.Rptr. 1, 420 P.2d 713; Engelberg v. Sebastiani (1929) 207 Cal. 727, 729, 279 P. 795; Ansco Const. Co. v. Ocean View Estates (1959) 169 Cal.App.2d 235, 238-239, 337 P.2d 146; Chase v. National Indemnity Co. (1954) 129 Cal.App. Hansen v. Covell,
McCowen v. Pew, Lineman v. Schmid, Burgermeister Brewing Corp. v. BowmanGuarantors further contend that lessor is barred from recovering interest because his original demand--predicated upon the $150,00 schedules--was excessive. (See Mabrey v. McCormick, supra, 205 Cal. 667, 669, 272 P. 289; Conderback, Inc. v. Standard Oil Co., supra, 239 Cal.App.2d 664, 690-691, 48 Cal.Rptr. 901; and Indemnity Ins. Co. of North America v. Watson, supra, 128 Cal.App. 10, 21-22, 16 P.2d 760.) This overlooks the fact that plaintiffs' action was for declaratory relief. In Coleman Engineering Co., supra, the court said: 'The mere fact that there is a slight difference between the amount of damages claimed and the amount awarded does not preclude an award of prejudgment interest (Koyer v. Detroit Fire & Marine Ins. Co., 9 Cal.2d 336, 345, 70 P.2d 927), and the erroneous omission of a few matters from the account or erroneous calculation of the costs do not mean that the damages are not capable of being made certain by calculation.' (65 Cal.2d at pp. 408-409, 55 Cal.Rptr. at p. 10, 420 P.2d at p. 722.)
Guarantors, upon being notified of their principal's, the lessee's, breach, could have discharged their liability for interest if they had tendered either the rent payments, the subject of their guaranty, as they became due, or the commuted value of such rents. (Rose v. Hecht, supra, 94 Cal.App.2d 662, 664-666, 211 P.2d 347.) They took neither course, but chose to deny liability on their guaranty. Under these circumstances, they should recompense lessor for the delay in recovering his damages. To deny the lessor interest would be to deny him the damages to which he is entitled under the provisions of section 3300 of the Civil Code.
'It is settled that when a plaintiff sues for a liquidated sum and the defendant establishes an offsetting claim based upon defective workmanship or defective performance of the same contract by the plaintiff, the amount of the former is to be offset against the latter as of the due date of the original debt and only the balance bears interest. (Hansen v. Covell, 218 Cal. 622, 629, 24 P.2d 772, 89 A.L.R. 670.)' (Burgermeister Brewing Corp. v. Bowman, supra, 227 Cal.App.2d 274, 285, 38 Cal.Rptr. 597, 604.) The offset here, however, is not based upon defective workmanship or defective performance, but is attributable to sums received which are properly allocable to partial payment of guarantors' obligation. Interest should be computed on the whole of the commuted rent from the date of demand on the guarantors until such time as the appropriate portion of the amount received from the sale of the equipment was either received by or subject to the dominion and control of the lessor, and, thereafter, to date of judgment, on the balance of the original sum. (See Ansco Const. Co. v. Ocean View Estates, supra, 169 Cal.App.2d 235, 239, 337 P.2d 146.) Attorneys' Fees and Costs
The attorneys' fees and costs expended by lessor, in other than the instant action, are, as noted above, only cognizable under equitable principles. They are limited to those sums expended for the benefit of the guarantors, in that they produced funds which served to reduce the guarantors' obligation to lessor.
The status of fees and costs in this action is determined by the provision of the guaranty agreement (see fn. 3, par.'6'), and by general law. The trial court awarded $14,180.61 as reasonable attorneys' fees and expenses incurred in the prosecution of this action to the time of the judgment. In Cirimele v. Shinazy (1955) 134 Cal.App.2d 50, 285 P.2d 311, 52 A.L.R.2d 860, the court distinguished between legal services actually rendered, and those reasonably necessary. The opinion states: 'The 'reasonable attorney fee' for which the lease provides in case suit is brought for recovery of rent is not necessarily guaged by the legal services actually rendered. It is limited to reasonable compensation for legal services that are reasonably necessary under the circumstances of a case.' (134 Cal.App.2d at p. 52, 285 P.2d at p. 312.) Presumably the greater portion of these fees and expenses were incurred in establishing that guarantors could not evade liability on the guaranty. Some part, however, is attributable to the erroneous conclusion that guarantors were liable for the purchase price of the equipment. The attorneys' fees, and so much of the costs included in the foregoing award as do not go to the prevailing party as a matter of course (see Wilkinson & Co. v. McKinley (1948) 84 Cal.App.2d 100, 106-107, 190 P.2d 35), should be reappraised in the light of this decision, and be limited to those incurred in connection with the prosecution of lessor's legitimate claims.
Similar considerations apply in regard to this appeal. The lessor, under the terms of the guaranty, is entitled to attorneys' fees incurred on appeal in enforcing the guaranty. If the judgment had been affirmed he would have been granted an allowance by this court, (See Coronet Credit Corp. v. West Thrift Co. (1966) 244 Cal.App.2d 631, 649, 53 Cal.Rptr. 433, and cases cited.) The greater portion of the work on appeal was directed to resisting guarantors' attack on the validity and enforceability of the guaranty agreement. On remand, the trial court may make an appropriate allowance in connection with its reconsideration of the fees to be allowed for the trial and any subsequent proceedings. By this procedure each side will have an opportunity to be heard on the matter.
Since each party has prevailed on a material point, and it appearing that the interests of justice require it, each should bear its, or their, own costs on this appeal. (Cal. Rules of Court, rule 26; and see Estate of Simmons (1966) 64 Cal.2d 217, 223, 49 Cal.Rptr. 369, 411 P.2d 97.)
The judgment is affirmed insofar as it declares that defendants and appellants are jointly and severally liable on their guaranty; the judgment is otherwise reversed and set aside, and the case is remanded with directions to the trial court to take such further proceedings as may be necessary to recompute the liability under the guaranty in accordance with the views expressed herein. Neither party to recover costs on appeal.
MOLINARI, P. J., and ELKINGTON, J., concur.
'1. Lease. 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. All said machinery, equipment and other property described in all said schedules is hereinafter collectively called 'equipment'; and all said schedules are hereinafter collectively called 'schedule'.
'2. Term. The term of this lease respecting each item of equipment commences upon whichever of the following dates is earlier:
'(a) The date lessor confirms to the seller of said item of equipment the lessee's purchase order for said item or;
'(b) The date said item of equipment is delivered to lessee.
'The term of this lease ends on the date designated in the schedule.
'3. Rent. The rent for any and every item of equipment described in the schedule shall be the amount designated in the schedule. Lessee shall pay lessor said rent in advance, in the amounts and at the times set forth in the schedule, at the office of lessor, 580 California Street, San Francisco. California, or to such other person and/or at such other place as lessor may from time to time designate in writing. * * *
'16. Security. As security for the prompt and full payment of the rent, and the faithful and timely performance of all provisions of this lease, and any extension or renewal thereof, on its part to be performed, lessee has pledged and deposited with lessor the amount set forth in the schedule. In the event any default shall be made in the performance of any of the covenants on the part of lessee herein contained with respect to any item or items of equipment lessor shall have the right, but shall not be obligated, to apply said security to the curing of such default. Any such application by lessors shall not be a defense to any action by lessor arising out of said default; and, upon demand, lessee shall restore said security to the full amount set forth in the schedule. Upon the expiration, or earlier termination, of this lease, or any extension or renewal thereof, provided lessee has paid all of the rent herein called for and fully performed all of the other provisions of this lease on its part to be performed, lessor will return to lessee any then remaining balance of said security.
'17. Default. If lessee, with regard to any item or items of equipment fails to pay any rent or other amount herein provided within ten (10) days after same is due and payable, or if lessee with regard to any item or items of equipment fails to observe, keep or perform any other provision of this lease required to be observed, kept or performed by lessee, lessor shall have the right to exercise any one or more of the following remedies:
'(a) To declare the entire amount of rent hereunder immediately due and payable as to any or all items of equipment, without notice or demand to lessee.
'(b) To sue for and recover all rents, and other payments, then accrued or thereafter accruing, with respect to any or all items of equipment.
'(c) To take possession of any or all items of equipment, without demand or notice, wherever same may be located, without any court order or other process of law. Lessee hereby waives any and all damages occasioned by such taking of possession. Any said taking of possession shall not constitute a termination of this lease as to any or all items of equipment unless lessor expressly so notifies lessee in writing.
'(d) To terminate this lease as to any or all items of equipment.
'(e) To pursue any other remedy at law or in equity.
'Notwithstanding any said repossession, or any other action which lessor may take, lessee shall be and remain liable for the full performance of all obligations on the part of lessee to be performed under this lease.
'All such remedies are cumulative, and may be exercised concurrently or separately.
'18. Bankruptcy. Neither this lease nor any interest therein is assignable or transferable by operation of law. If any proceeding under the Bankruptcy Act, as amended, is commenced by or against the lessee, or if the lessee is adjudged insolvent, or if the lessee makes any assignment for the benefit of his creditors, or if a writ of attachment or execution is levied on any item or items of the equipment and is not released or satisfied within ten (10) days thereafter, or if a receiver is appointed in any proceeding or action to which the lessee is a party with authority to take possession or control of any item or items of the equipment, lessor shall have and may exercise any one or more of the remedies set forth in paragraph 17 hereof; and this lease shall, at the option of lessor, without notice, immediately terminate and shall not be treated as an asset of lessee after the exercise of said option.
'19. Concurrent Remedies. No right or remedy herein conferred upon or reserved to lessor is exclusive of any other right or remedy herein or by law or equity provided or permitted; but each shall be cumulative of every other right or remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise, and may be enforced concurrently therewith or from time to time.
'20. Lessor's Expenses. Lessee shall pay lessor all costs and expenses, including attorneys' fees, incurred by lessor in exercising any of its rights or remedies hereunder or enforcing any of the terms, conditions, or provisions hereof * * *
'25. Interest. Should lessee fail to pay any part of the rent herein reserved or any other sum required by lessee to be paid to lessor, within ten (10) days after the due date thereof, lessee shall pay unto the lessor interest on such delinquent payment from the expiration of said ten (10) days until paid at the rate of seven per cent (7%) per annum. * * *
'28. Entire Agreement. This instrument constitutes the entire agreement between lessor and lessee; and it shall not be amended, altered or changed except by a written agreement signed by the parties hereto.'
'3. This guaranty is a continuing one and shall terminate only upon full payment of all rents and all other sums reserved in the Lease and the performance of all of the terms, covenants and conditions therein required to be kept, observed or performed by the Lessee, including such payment and performance under schedules made a part of said Lease after liquidation of all obligations under the Lease and all earlier schedules thereto.
'4. Guarantors authorize Lessor, without notice or demand, and without affecting their liability hereunder, from time to time to: (a) change the amount, time or manner of payment of rent or other sums reserved in the Lease; (b) change any of the terms, covenants, conditions or provisions of the Lease; (c) amend, modify, change or supplement the Lease; (d) assign the Lease or the rents and other sums payable thereunder; (e) consent to the Lessee's assignment of the Lease or to the sublease of all, or any portion, of the property covered by the lease; (f) take and hold security for the payment of this guaranty or the performance of the Lease, and exchange, enforce, waive and release any such security; (g) apply such security and direct the order or manner of sale thereof as Lessor in its discretion may determine; and (h) release or substitute any one or more of the Guarantors. Lessor may without notice assign this guaranty in whole or in part. Guarantors shall not assign this guaranty without the prior written consent of Lessor.
'5. Guarantors waive any right to require Lessor to: (a) proceed against Lessee; (b) proceed against or exhaust any security held from Lessee; (c) pursue any other remedy in Lessor's power whatsoever; or (d) notify Guarantors of any default by Lessee in the payment of any rent or other sums reserved in the Lease or in the performance of any term, covenant or condition therein required to be kept, observed or performed by Lessee. Guarantors waive any defense arising by reason of any disability or other defense of Lessee or by reason of the cessation from any cause whatsoever of the liability of Lessee. Until the payment of all rents and all other sums reserved in the Lease and the performance of all of the terms, covenants and conditions therein required to be kept, observed or performed by the Lessee, Guarantors shall have no right of subrogation, and waive any right to enforce any remedy which Lessor now has or may hereafter have against Lessee, and waive any benefit of, and any right to participate in any security now or hereafter held by Lessor. Guarantors waive all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this guaranty.
'6. Guarantors agree to pay a reasonable attorney's fee and all other costs and expenses which may be incurred by Lessor in the enforcement of this guaranty.'
'SCHEDULE
Schedule No. 1
A. EQUIPMENT LEASED:
Advance Payment to be used for progress payments to vendor.
B. TERM: Unless sooner terminated as set forth in the lease, the term of this lease respecting each item of equipment listed on this schedule expires on June 8, 1961
C. RENT: As rent for said equipment, lessee shall pay lessor the sum of $51,000.00 Except as otherwise provided in the lease or in this schedule said rent shall be payable in 4 installments, commencing on March 8, 1961 as follows:
March 8, 1961 $ 500.00 April 8, 1961 500.00 May 8, 1961 500.00 June 8, 1961 50,000.00Unless sooner paid, all said rent shall be payable in any event on or before the expiration or sooner termination of this lease.
D. LOCATION: The above described equipment shall be located at Shafer Construction, Inc. c/o Cal-West Aviation, Inc., San Carlos Airport, P. O. Box 636. San Carlos, California and shall not be removed therefrom without the prior written consent of lessor.
E. DEPOSIT: $ None, pursuant to paragraph 16 of the lease of which this schedule is a part.
* * * [Printed terms also stricken]
G. STIPULATED LOSS VALUE: Amount to be paid pursuant to paragraph 9 of said lease for each unit lost, stolen, destroyed or damaged beyond repair during each year of the term thereof:
1st Yr. $50,000.00 2nd Yr. $_________ __________ 3rd Yr. $_________ 4th Yr. $_________ 5th Yr. $_________ 6th Yr. $_________ 7th Yr. $_________ Thereafter $_________1st Yr. $50,000.00 2nd Yr. $_____ 3rd Yr. $_____ 4th Yr. $_____ 5th Yr. $_____ 6th Yr. $_____ 7th Yr. $_____ Thereafter $_____
H. SPECIAL CONDITIONS:
[Blank]
APPROVED AND AGREED TO this 7th day of Match, 1961, as a schedule to that certain lease dated the 23rd day of February, 1961, by and between the parties hereto, and made a part hereof.
UNITED STATES LEASING CORPORATION
CAL-WEST AVIATION, INC.'
Section 1671 provides: 'The parties to a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.'
'The rights of the lessor under such agreement shall be cumulative to all other rights or remedies now or hereafter given to the lessor by law or by the terms of the lease; provided, however, that the election of the lessor to exercise the remedy hereinabove permitted shall be binding upon him and exclude recourse thereafter to any other remedy for rental or charges equivalent to rental or damages for breach of the covenant to pay such rent or charges accruing subsequent to the time of such termination. The parties to such lease may further agree therein that unless the remedy provided by this section is exercised by the lessor within a specified time the right thereto shall be barred.'
17. a In connection with their motion for a new trial the guarantors filed the affidavit of Michael H. duPont in which he alleged that on May 18, 1961 he conferred with representatives of lessor and requested that he be allowed to assume the monthly rental payments of $2.102; that this request was rejected and demand was made that he pay the amounts set forth in the 'schedules' to the lease; that he refused to make any payment under these schedules and thereafter he caused the revocation of the guaranty dated May 22, 1961 to be mailed to lessor; and that in letters dated May 31, 1961 and June 16, 1961, lessor insisted on payment pursuant to the terms of the 'schedules.' In an affidavit filed on behalf of lessor it is denied that duPont made an offer to pay anything or to assume any monthly payments.
'On the basis of the foregoing the guarantors contended, in support of their motion for new trial, that they were surprised when lessor in final argument asserted that if guarantors were 'ready, willing and able to pay the rentals specified in the Lease Commitment,' a schedule calling for such rentals would have been substituted for those executed by the lessee. Guarantors allege that at the trial they failed to produce evidence of their offer to perform the terms which were originally contemplated, because they did not realize that lessor would urge a position--guarantors' failure to offer such performance--which was so contrary to the true facts.
'Although guarantors may have made such a offer, one searches in vain to find any assertion, earlier in the litigation, of the right to take over the equipment in return for performance of the originally contemplated lease schedule. In its original complaint, filed April 20, 1962, and in its amended complaint filed September 12, 1962, the lessor sought a declaration of its rights. In the latter, the prayer recites: 'plaintiff prays that the Court declare its rights against the defendants in the following respects: (a) That * * * defendants are obligated on said Guaranty to plaintiff * * *: (i) For rentals payable under either the agreement and amendment thereto, copies of which are attached as Exhibits A and G, or under the 'interim schedules', copies of which are attached hereto as Exhibits F and I, up to total of $135,120; * * *' In their amended answer to the amended complaint, the guarantors, in addition to generally denying any liability under the lease or the guaranty, raised twelve separate defenses, and concluded with a prayer that they be dismissed, or be declared to be exonerated. In none of these defenses was it contended that guarantors had offered to pay or tendered the amounts called for by the original lease commitment agreement
'No testimony was adduced at the trial to show an offer or tender. In fact at the trial duPont testified that following February 23, 1961, the first communication he received from the lessor was the demand of June 16th. No matter what may have transpired before May 22, 1961, it was clear on that date, from guarantors' letter to lessor, that they were revoking their liability as to any future transactions and insisting that lessor otherwise 'collect the rent in the approximate sum of $102,000.00 which will become due on or about [June 5, 1961] if it is not already due by reason of a breach of the lease or otherwise * * *.' In other words, it was recognized at that time that under the lease the rental payments would be accelerated by virtue of the goods being subject to an attachment. The subsequent bankruptcy proceedings on June 9, 1961 gave further cause for acceleration of the rents. The guarantors, however, at no time after May 18, 1961--if they did then--offered to perform all or and part of the obligations set forth in the original lease commitment letter. The excess demands of the lessor do not excuse the guarantors' failure to make such tender if they wished to be relieved of the obligation to pay interest.'