Withers v. Bousfield

Plaintiff brought this suit upon a contract guaranteeing the payment of a certain promissory note for one hundred and fifty thousand dollars, executed February 21, 1913, by Brook-Wood Acres, Inc., payable on demand to the plaintiff or order. Judgment was entered in favor of plaintiff, and defendants Robert S. Bousfield and Jennie E. Bousfield alone appeal. The corporation maker of the note was not made a party.

On the twenty-first day of February, 1913, plaintiff and the Brook-Wood Acres, Inc., a corporation, entered into a contract whereby plaintiff sold and the corporation bought that certain real property located in the county of Contra Costa, known as Brook-Wood Acres, the purchase price being the sum of one hundred and fifty thousand dollars, together with interest thereon at the rate of six per cent per annum, from October 31, 1913, until paid. Concurrently with the execution of the contract, and as a part of the transaction, Withers and his wife executed, and delivered to L. G. Burpee and E. N. Walter, as joint tenants, and not as tenants in common, and to the survivors of them, their heirs and assigns, a grant, bargain, and sale deed of the property.

Under the terms of the agreement, eighty per cent of the selling price of the various parcels of land, as sold, and all moneys otherwise paid to Burpee and Walter under the contract, were by them to be forthwith deposited in bank to the credit of plaintiff, the vendor of the whole tract under the contract of sale, and all such moneys were payable to him upon demand, excepting that Burpee and Walter could retain from the final payment, made by any purchaser, sufficient money to release the parcel purchased from the lien of two mortgages covering the entire tract, and which were provided for in the agreement. The remaining twenty per cent of the purchase price belonged to the Brook-Wood Acres, Inc., the buyer of the whole tract under the contract of sale.

By its terms, the agreement declared that it was intended to, and did, secure the payment by the corporation to plaintiff of the selling price of Brook-Wood Acres, with interest, and all moneys which might be or become payable to him under the agreement, including any advances made by him in connection with the improvement or sale of the property, with interest thereon, and was also intended to secure the payment to Burpee and Walter of their charges and expenses, and all moneys, with interest thereon, advanced by them for the payment of expenses under the agreement, all of which expenses and charges were to be paid by the corporation.

After providing with particularity the conditions under which the corporation should be deemed in default under the agreement, such as failure to sell portions of the tract at selling prices aggregating certain specified sums, and amounting to a certain designated number of acres, by dates specified, and failure to pay to Burpee and Walter, either

Concurrently, also, with the execution of the agreement of sale, the Brook-Wood Acres, Inc., executed to plaintiff, and deposited with Burpee and Walter, its promissory note for the principal sum of one hundred and fifty thousand dollars, representing the purchase price to be paid Withers for the land. The note contained the following paragraph:

“Payment of this note is secured by a certain agreement of even date herewith entered into between Brook-Wood Acres, Inc., and with W. S. Withers, relating to the sale by W. S. Withers to Brook-Wood Acres, Inc. of certain real property of W. S. Withers in Contra Costa County, California, known as Brook-Wood Acres. The personal liability of Brook-Wood Acres, Inc., under this note aside from the security above mentioned, or after realizing upon such security, shall not exceed and is hereby limited to the sum of twenty-five thousand dollars ($25,000).”

The note was executed for the corporation by its president and secretary, and the seal of the corporation attached. It was signed by each of the defendants, who each in turn acknowledged and signed, before a notary public, a joint and several guaranty of payment of the note, waiving presentation, demand, notice of nonpayment, and protest. The liability of the guarantors was, by the terms of the instrument, limited to the sum of twenty-five thousand dollars,

In the event of any default upon the part of the corporation, so the agreement provides, but apparently not before,

The grant, bargain, and sale deed of Brook-Wood Acres, executed by plaintiff and wife to Burpee and Walter, and the tri-party agreement, executed by plaintiff as first party, the corporation, Brook-Wood Acres, Inc., the second party, and Burpee and Walter as the third parties, were intended to be effective, and must be considered and regarded, as parts of one contract. (Younger v. Moore, supra; San Diego Construction Co. v. Mannix, 175 Cal. 548 , [ 166 Pac. 325 ].) So construed, the transaction between the parties loses its complexity and amounts to nothing more nor less than the execution by the corporation, to plaintiff, of an ordinary deed of trust, to secure the payment of the note for one hundred and fifty thousand dollars, given as the purchase price of Brook-Wood Acres, the payment of the note being further secured to the extent of their limited liability, by the contract of guaranty executed by the guarantors, who are the defendants in this action. While Burpee and

[1] Because the trust agreement provides that upon payment to plaintiff of the entire selling price, with interest, and all other indebtedness of the maker of the note, 'connected with the sale of the tract—in short, upon full performance of the terms of the agreement—the trustees shall convey to Brook-Wood Acres, Inc., all unsold portions of Brook-Wood Acres, and all portions sold but for which deeds have not issued, and, likewise, were, in the event of a failure of title at the inception of the deal, to reconvey the property to plaintiff, the appellants contend that the trust is void under sections 847 and 857 of the Civil Code. They rely upon Estate of Fair, 132 Cal. 525 , [ 84 Am. St. Rep. 70 , 60 Pac. 442 , 64 Pac. 1000 ]; Id., 136 Cal. 79 , [ 68 Pac. 306 ], as authority to the effect that a trust to convey is void, and that the statute concerning trusts was a legislative pronouncement of the public policy of the state. Invoking the rule that courts will not directly enforce any obligation arising out of a contract illegal by reason of being against public policy, by carrying it into effect, or indirectly by awarding damages or compensation for a breach of it, appellants first seek to avoid the liability of their contract of guaranty by an assertion of the infirmity of the trust. We fail to see any right resting in the appellants to attack the trust, if any of the alleged weaknesses therein exist. The guarantors became liable, on default of the corporation to pay its note, to the extent of their independent contract of guaranty. They were not parties to the trust in any manner. (Kinsel v. Ballou, 151 Cal. 754 , 761, [ 91 Pac. 620 ].) They had no interest in the real property involved in, or in the outcome of, that transaction, other than to expect that whatever sums were realized from the sales of the property, either to purchasers or at trustees’ sales, on default made by the maker of the note, would be applied in reduction of the amount due on the note.

[2] Assuming, however, but not deciding under the facts of this particular case, that the conveyance in trust is invalid, in so far as it purports to authorize the trustees to convey the property to the corporation, on fulfillment of the terms of the contract of sale, the invalidity should not be held to affect the valid provisions of the trust. The

[3] For another reason appellants’ attack on the transaction resulting in the trust should not be allowed to prevail. As before pointed out, the deed of February 21, 1913, from plaintiff and wife to Burpee and Walter, and the trust agreement of the same date between the same parties, and accepted by Burpee and Walter, must be considered as parts of a single transaction, and so construed. Primarily, the trust expressed was intended solely by way of security for the indebtedness of Brook-Wood Aeres, Inc., with interest, expenses of protecting the property, and compensation of the trustees. If, as is urged, the resulting trust was invalid, as being for some purpose not authorized by section 857 of the Civil Code, defining the purposes for which express trusts in relation to real property may be created, and we were thereby compelled to hold it was not a valid deed of trust, the rights of the parties could be preserved by holding the instruments to constitute an equitable mortgage (Younger v. Moore, supra), with power of

[4] Appellants urge a further objection that the trust in the present ease is but a dry and passive trust. They are mistaken. The agreement declares that it is intended to secure, and shall secure, the payment by the purchaser to the seller of his selling price of the property, with interest, and all other moneys which may become due or payable under the contract. The trustees are given various active duties to perform in the execution of the trust. These are: Upon failure of title of Brook-Wood Acres to reeonvey the premises to plaintiff; upon demand of the corporation (provided it was not in default) to enter into contracts for the sale of, or sell for cash, various portions of the tract at the prices, and upon the terms in the contract specified; to receive the selling price therefor and apply the same on the purchase price of the entire tract; to approve the form of sales contracts agreed to by the other parties to the agreement; upon performance by any purchaser of his contract to convey to him the subdivision so purchased by him; to execute upon request of Brook-Wood Acres, Inc., such maps for recordation as might be from time to time approved by the other parties to the contract; in the event of any default by Brook-Wood Acres, Inc., to deliver the note of the corporation to Withers, after having indorsed as payments thereon all moneys received by them on the purchase price of the tract; at any time after delivery of the note, or any default of the corporation, upon demand of Withers to sell all unsold portions of the tract, at public auction, in the manner set forth in the agreement, and apply the proceeds of such sale, as directed therein; to assign to Brook-Wood Acres, Inc., any unsold outstanding contracts of sale upon payment to Withers, or themselves, of all moneys due; and upon payment of all the purchase price of the tract, and all moneys due under the agreement, to convey the remaining portions of Brook-Wood Acres to the corporation.

[6] Respondent makes a timely suggestion in opposition to the right of appellants to assert the alleged invalidity of the trust. Section 857 of the Civil Code was amended at the session of the legislature in 1913 (Stats. 1913, p. 438), by including, among authorized trusts in real property, a trust to convey. Long after this amendment became effective, to wit, on December 15, 1914, in connection with certain extensions of time and other modifications of the contract, plaintiff and Brook-Wood Acres, Inc., executed a document in which they re-executed the original contract of February 21, 1913, as modified in the documents of later date, and each respectively agreed to perform the provisions of the original instrument. This agreement, after reciting the due execution of the original contract of February 21, 1913, the modification thereof under dates of July 15, 1913, and December 30, 1913, and the taking of contracts, under the provisions of the main contract for the purchase of various portions of Brook-Wood Acres, contains the following clause: “Now, therefore, this agreement, Witnesseth: That the said main contract and the terms and provisions thereof shall be and are hereby modified as hereinafter set forth, but not otherwise, and each party hereto upon his part agrees to perform the terms and provisions of this agreement and of said main contract and modifying agreements as modified by this agreement, and in that behalf, it is hereby by the parties

After the making of the contract of sale, on July 15, 1913, the Brook-Wood Acres, Inc., being in default in the aggregate amount of its sales, as required by the agreement, Withers, by separate agreement, executed by himself and the corporation, waived the default and extended the time until January 1, 1914, for procuring selling contracts aggregating fifty thousand dollars, making sales aggregating two hundred acres of land and paying the aggregate sum of two thousand five hundred dollars. The new agreement was conditioned that no other condition of the contract of sale should be waived, and that the time for performance of any other provision of the contract should not be extended or affected; also, that this new agreement should only become effective when consent to the execution thereof

Thereafter, on July 29, 1913, another agreement was made and signed by plaintiff Withers as the first party, Brook-Wood Acres, Inc., the second party, and all of the defendants as third parties, wherein, after reciting the agreement of sale, February 21, 1913, and the extension agreement of July 15, 1913, the corporation and the defendants agreed that plaintiff might at any time waive or modify all or any of the provisions of the agreement of sale of February 21, 1913, and that any departure from said agreement by Withers should not in any way waive, release, or modify the liability of the corporation or of the defendants under the promissory note executed and referred to in the agreement of February 21, 1913, or under the guarantee of said note by the defendants.

On December 15, 1914, plaintiff and Brook-Wood Acres, Inc., entered into an agreement in writing, modifying the agreement of the main contract of February 21, 1913, and requiring a balance to be struck as of January 1, 1915, which said balance should constitute the unpaid portion of the purchase price of the land, and providing for the payment thereof. This agreement provided that it should not be binding until the written consent to and request for its execution, annexed thereto, was executed by the guarantors of the note referred to in the main contract. It further provided that the limitation of personal liability of twenty-five thousand dollars of the corporation was waived by it to the end that it became obligated the full amount of the unpaid purchase price. Concurrent with the execution of this agreement, and as part of the same transaction, each of the guarantors, including the defendants, in writing consented to and requested the execution thereof, and in

On the same day, December 15, 1914, each of the defendants other than E. C. Mills and Mabel Corse Mills signed an instrument in writing, by which, after reciting the contract of February 21, 1913, and the guarantee of the note by them, together with the recital of the various extensions, they jointly and severally guaranteed the full payment of the note for one hundred and fifty thousand dollars, waiving presentment, demand for payment, notice of nonpayment, and protest, it being the declared intention thereof, according to the document, among other things, to guarantee said note unqualifiedly and to waive the twenty-five thousand dollar limitation upon the liability of the guarantors and each of them.

Various contracts had from time to time been made by the parties under the provisions of the agreement of sale, and on the twenty-sixth day of January, 1915, plaintiff and Brook-Wood Acres, Inc., agreed that there was due and unpaid from the company to plaintiff, under the agreement and the various contracts, the sum of $130,000.54, together with interest thereon at the rate of six per cent, from and beginning with the fifteenth day of January, 1915, and provided for designated credits upon the happening of certain contingencies.

On February 25, 1915, the Berkeley Bank of Savings and Trust Company was designated by Withers and the Brook-Wood Acres, Inc., as third party to the agreement in place of Burpee and Walter. The latter, by deed, joined in by the wife of each, conveyed the property to the Berkeley Bank of Savings and Trust Company, and delivered the promissory note to the bank.

Further defaults being made by Brook-Wood Acres, Inc., plaintiff brought this action against defendants on April 5, 1915, on their guarantee. No demand was made upon defendants before bringing the action, neither was the property sold by the trustee prior to that time. Pending trial, however, the Berkeley Bank of Savings and Trust Company duly sold the property upon the demand of the plaintiff, under the terms of the agreement of sale. The net pro

Upon the filing of the complaint, the defendants Bousfield, Yer Mehr, and Dodge filed their answers denying any liability under the guarantee, and alleging that there was no consideration for the same. The cross-complaint admitted the execution of the instrument of the fifteenth day of December, 1914, waiving provisions ■ of the guarantee, limiting their liability thereunder to twenty-five thousand dollars, but alleging that the defendants never agreed that said guarantee should be an unrestricted guarantee of the full payment of the note, but that said waiver only guaranteed the deficiency, if any, up to one hundred and fifty thousand dollars, which should remain to satisfy the balance of the purchase price of the real property, which was the subject of the agreement of sale, after the same had been sold, and the proceeds divided according to that contract.

By way of cross-complaint, which defendants Bousfield subsequently filed, it was alleged that the instrument of December 15, 1914, by which defendants Bousfield, Dodge, and Yer Mehr jointly and severally guaranteed the full payment of the note for one hundred and fifty thousand dollars, waiving presentment, and unqualifiedly waiving the twenty-five thousand dollar limitation upon the liability of the parties (already referred to) was intended to mean, and its legal consequences were intended to be, that said defendants waived the limitation of twenty-five thousand dollars, contained in the guarantee for said note, and that they were to be liable for the deficiency, if any, up to one hundred and fifty thousand dollars, which should remain of the said purchase price after the real property, described in the agreement of sale, had been sold, and the proceeds applied according to the terms thereof, but through the mutual mistake of the defendants and the plaintiff, and the Brook-Wood Acres, corporation, said instrument failed to express that intention in so many words, and prayed that the instrument be. reformed accordingly.

The court found in favor of plaintiff and against the defendants on all points, and, after crediting the net proceeds of the sale of the property made by the substituted trustee, the Berkeley Bank of Savings and Trust Company,

Appellants contend that the main agreement, the contract of February 21, 1913, was not a contract of purchase and sale of real property, and that the note for one hundred and fifty thousand dollars was not a note for the purchase price of the land, but that in reality it was executed and deposited with the trustees as a penalty; that the recital in the preamble of the contract “that the said first party (plaintiff) has sold to the said second party (Brook-Wood Acres Company, Inc.), and the said second party has bought from the said first party, all upon the terms and conditions, and in the manner hereinafter set forth, and purchase price thereof to be payable as hereinafter set forth, that certain real property, etc.,” is palpably untrue. This contention cannot be supported by a logical analysis of the note, the deed and the agreement, when read together. In view of the plain and unambiguous statement in the agreement, we are satisfied, as a matter of fact, that the note represented the purchase price paid for Brook-Wood Acres.

We prefer to accept the view of respondent that the parties to the contract intended to be and were bound by its recitals. (Code Civ. Proc., sec. 1962, subd. 2.) From all the surrounding circumstances attending the transaction, we are led .to conclude that no other contract relative to the sale of the land was contemplated, and that the note for the one hundred and fifty thousand dollars was executed by the corporation and delivered to the trustees, as the evidence of, and for the purchase price of, the tract. The main agreement of February 21, 1913, in paragraph 29 thereof, refers to the note “for the principal sum of one hundred and fifty thousand dollars ($150,000.00), representing the purchase price to be paid for said Brook-Wood Acres; the payment of which note has been guaranteed, jointly and severally by” the defendants. Concurrently with the execution of the ratification agreement of December 15, 1914, and as part of the same transaction, the appellants, and the other guarantors, consented to and

[7] A guaranty is a promise to answer for the debt of another person, and it may be enforced, upon default of the principal, without any previous .demand or notice. By its various transitions the contract of guaranty in this case became an absolute undertaking to pay the whole debt of Brook-Wood Acres, Inc., if the company did not, and no mere delay of plaintiff to proceed against the maker of the note, or to enforce any other remedy, can be availed of by the guarantors as a defense. (First Nat. Bank v. Babcock, 94 Cal. 96 , 104, [ 28 Am. St. Rep. 94 , 29 Pac. 415 ]; Carver v. Steele, 116 Cal. 116 , [ 58 Am. St. Rep. 156 , 47 Pac. 1007 ].) This is not an action for the collection of the Brook-Wood Acres, Inc., debt as such. It is an action upon an independent contract of the defendants. There is no privity, or mutuality, or joint liability between the principal debtor and its guarantors. (Adams v. Wallace, 119 Cal. 67 , 71, [ 51 Pac. 14 ].) Moreover, the defendants, including appellants, made an independent contract upon which they became liable without regard to the sale of the property, under the terms of the trust, as against the principal debtor. (Kinsel v. Ballou, 151 Cal. 754 , 762, [ 91 Pac. 620 ]; Adams v. Wallace, supra.)

[8] This case presents no different aspect from the foregoing, and numerous other cases, decided hy the courts of last resort of this state, in which it has been held that regardless of the necessity for exhausting the security given, before resorting to the personal liability of the maker of a note, nevertheless an indorser or guarantor may be sued

[9] It was proper for the court to allow the attorney fee included in the judgment.

The judgment is affirmed.

Richards, J., and Kerrigan, J., concurred.

A petition to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on September 18, 1919.

All the Justices concurred.