Opinion Superseded 64 Cal.Rptr. 120. Hill, Farrer & Burrill, Stanley E. Tobin, Jack R. White, 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 had 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, 4r Cal.Rptr. 767, 402 P.2d 839.)
Plaintiff, United States Leasing Corporation, is a California corporation engaged in the business of leasing personal property. It does not maintain an inventory, but purchases such property to fulfill the needs of the lessee, following commitments for a lease executed by itself and the prospective lessee.
Cal-West Aviation, Inc., a California corporation, through Howard S. Harper, its president, negotiated with plaintiff for the lease of restaurant and kitchen equipment to be used in the establishment of a restaurant on a ferryboat to be known as "Harper's Ferry."
Defendant and guarantor Michael H. duPont was a good friend of Harper. There is evidence to support the trial court's finding that duPont was an experienced and educated businessman, having conducted his own business and participated in others as a source of financing and as a guarantor. Defendant and guarantor Yvonne Marie duPont is the wife of Michael H. duPont.
On February 23, 1961, a letter (referred to by the parties and in this opinion as the lease commitment letter) addressed to Cal-West and signed by plaintiff was accepted by Harper on behalf of Cal-West. The first paragraph of the letter reads as follows: "We are pleased to advise that our Credit Committee has approved a lease commitment for your company in the amount of $100,000.00 to cover leasing of restaurant and kitchen equipment, based on an 8-year term with 60 monthly payments of $2,102.00 each followed by 3 annual payments of $3,000.00, and a deposit of $10,510.00. Renewals 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 acceptd 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 provision of this instrument which are material to this controversy are those relating to the subject matter, term, rent, security for payment, remedies of the lessor upon the default or bankruptcy of the lessee, the lessor's right to reimbursement for attorneys' 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 to Harper was given the guaranty form and supplementary agreement to be executed by the duPonts. Later that same day Harper Further provisions limit the guarantor's 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 promies 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 Guarantors' 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 date 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 call for total "Rent" of $51,500 payable in installments of $500 each on March 8, April 8 and May 8, 1961, with a final payment of $50,000 on June 8th.
The form and content are as follows:
According to the testimony of plaintiff's secretary and of its house counsel this
On March 27, 1961, the lessee returned to lessor as "accepted" a copy of a letter dated March 9, 1961 which advised the lessee that "an additional commitment in the amount of $50,000.00 has been approved based upon the same rate as the original $100,000.00 * * *. [and] subject to the same terms and conditions stated in the February 23 letter."
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 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 to 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 $100,00 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 and believe that CAL-WEST AVIATION, INC., has property from which the rent now due and hereinafter to fall due may be collected and you are therefore notified and required to proceed to collect the rent now due and on or about June 5, 1961 to collect the rent in the approximate amount of $102,000.00 which will become due on or about that date if it is not already due by reason of a breach of the lease or otherwise, and upon your failure so to do, the undersigned will consider themselves discharged as guarantors therefor."
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 it 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 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 hangers 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 problem 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 (1966) 52 Va.L.Rev. 1336; and Note (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 security represented by the property purchased.
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 the 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 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 field 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; McMannus v. Temple Estate Co. (1935), 10 Cal.App.2d 419, 421, 51 P.2d 1124; Johnson v. Quinby (1923), 62 Cal.App. 137, 139, 216 P. 397; Nissen v. Ehrenpfort (1919), 42 Cal.App. 593, 595, 183 P. 956; Restat., Security, § 128; Stearns Law of Suretyship (5th Ed., Elder, 1951) § 6.2, p. 107.)
The 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 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, modifications, 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 least 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. It 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 [concededly 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.
Authorization to "change the amount, time or 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.
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."
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 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 lessee's liability to lessor.
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. 16. At the time of execution of said Schedule No. 1 by Cal-West and USLC it was intended by each of them that: (a) The additional rentals therein provided to be paid prior to June 8, 1961, be additional compensation to USLC for its services in acquiring the equipment by progress payments rather than by one payment after receipt of the equipment by the lessee; (b) The obligation to pay rent of $50,000 on June 8, 1961 therein provided would be extinguished by the execution of a final schedule in conformity with the procedures set forth under Invoice Procedure in Exhibit 1 and upon the terms 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 Trust & Savings Bank (1925), 196 Cal. 557, 567-568, 238 P. 673; W.P. Fuller & Co. v. Alturas School 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 were the opinion states: "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 Sewing Machine 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 School 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 which would make the aggregate contract price of the building greatly exceed that of the price stipulated would be authorized by the terms of the contract without notice to or the consent of the sureties. The changes complained of do not appear to have involved such an extra expenditure in the erection of the building as to justify the conclusion that, in making them, the school district exceeded the bounds of a reasonable exercise of the right which it reserved to itself." (Id., p. 616, 153 P. p. 746.) As an alternative ground of decision the opinion noted that 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 lessee to insure the acquisition 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 designed 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 lessor. 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 for their original agreement, and which was beyond the scope of the obligation originally guaranteed.
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 its 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 displays an 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.)
It is concluded that defendants were not exonerated or relieved of their original obligation by any subsequent transactions 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) Where before the surety has undertaken his obligation the creditor knows facts unknown to the surety that materially increase the risk beyond that which the creditor has reason to believe the surety intends to assume, and the creditor also has reason to believe that these facts are unknown to the surety and has a reasonable opportunity to communicate them to the surety, failure of the creditor to notify the surety of such facts is a defense to the surety."
The principle is recognized in California. (American National Bank v. Donnellan Produce Clearings v. ButlerMahoney v. Founders' Ins. Co.
Guarantors contend that the trial court erroneously failed to find 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 guarantors' 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, demonstrate that there was such a prearranged agreement. On the record, when called upon to explain the discrepancy in the two figures, it was asserted on behalf of lessor that the difference was immaterial because guarantors had agreed the liability of lessee to lessor could be increased. It was then stated that it was an internal error in the organization because of time. It is further charged that off the record it 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 duPont 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 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. Ass'n 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 assert 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 misrepresentations that it had been deposited either exonerates the guarantors or voids the guaranty.
This issue, like 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 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 pro tanto 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 Engineering Co. v. Detroit Fidelity & Surety 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. v. Stoody (1964), 230 Cal.App.2d 390, 394-395, 41 Cal.Rptr. 69; and Borsook v. Continental Casualty The trial court properly rejected guarantors' contentions in respect to the lessor's failure to secure the contemplated deposit.
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, even though the provisions of the guaranty waive any right to discharge because of the increase in the obligation. Nor can guarantors' liability, exclusive of reasonable attorneys' fees and costs and expenses incurred in the enforcement of the guaranty (see par. 6, fn. 3, supra), exceed $135,120.
An examination of the present declaratory judgment in the light of the conclusions set forth herein reveals the following:
Paragraph (a). 1. The judgment erroneously allows the lessor the total sums advanced under the schedules with interest from the time of respective payments of $50,000 and $81,322.87. Guarantors did not guarantee lessee's obligations which were occasioned by the commitment to lease over $100,000 of equipment. The original obligation matured at the time lessees accepted the goods and failed to execute a schedule and pay rent, in accordance with the provisions of the first paragraph of the lease commitment letter. The damages would appear to be the then present value of the lease payments on $100,000 worth of equipment, less the salvage obtainable from sale or releasing of that equipment. The nature of the transaction suggests that the parties considered the present value of that portion of the equipment rental that was guaranteed as $100,000 at the onset of the lease.
2. The judgment awards the sums expended by plaintiff for the protection and preservation of the equipment and costs and attorneys' fees in the bankruptcy proceedings. Ordinarily these sums would merely be a credit against the recovery in those proceedings, and not a guaranteed obligation. The lease, however, imposes a liability for the costs of the enforcement of lessor's rights (see par. 20, supra, fn. 2). It is, therefore, a liability covered by the guaranty. It should be restricted, however, to that portion of the costs and expenses which may properly be allocated to the recovery of the $100,000 which is guaranteed, and in no event can the aggregate of this and the preceding item exceed $135,120.
3. The trial court properly allowed costs and attorneys' fees incurred in enforcing the guaranty under the terms of the guaranty itself.
Paragraph (b). The court properly declared that credit should be allowed for the funds received from the bankrupt lessee's estate from the proceeds of the sales of equipment, or as a creditor's dividend or distribution. These funds, insofar as they have not already been so applied by the bankruptcy court, should be applied to reduce the costs and expenses incurred in connection with the bankruptcy. The American Guaranty Corp. v. Stoody,
Paragraph (c). That portion of the judgment which declared that the guaranty was not conditioned upon the validity of the chattel mortgage has not been attacked.
Paragraph (d). The declared right of lessor to enter into compromise agreements with the lesser's trustee was not attacked, and would appear to be proper until such time as guarantors pay off lessor and establish their right to be subrogated to lessor's rights to the extent of their payment.
Paragraph (e). The election granted lessor to proceed against the security without prejudice to its rights under the guaranty has not been attacked.
The order for deposit of security is warranted by the provisions of the supplementary agreement to the extent it is commensurate with guarantors' liability as computed under the terms of this decision.
The reservation of continuing jurisdiction by the court was proper, and may be used on remand, in connection with the views herein expressed, to bring the action to a close if collateral matters have since been adjudicated, or it may be preserved to await such event.
The judgment is reversed with instructions to revise the findings of fact and conclusions of law, and the judgment in accordance with the views expressed in this opinion. The costs of appeal are to be borne as they have fallen on the respective parties.
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 thereof. 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 items 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 lessor 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 pat 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 provisions of this lease required to be observed, kept or performed y 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 the 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 an 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 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 $51,500.00 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--50,000.00
Unless 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 $_________
H. SPECIAL CONDITIONS:
APPROVED AND AGREED TO this 7th day of March, 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."