Coles v. Glaser
2 Cal. App. 5th 384
| Cal. Ct. App. | 2016Background
- In 2005 Coles lent money to Cascade Acceptance Corp.; Barney Glaser and Fred Taylor guaranteed the loan.
- Coles sued Cascade, Glaser, and Taylor in 2009 for nonpayment; Cascade wired $308,783.85 to Coles and the parties signed a settlement agreement and mutual releases.
- A week later Cascade filed bankruptcy; the bankruptcy trustee successfully clawed back a large portion of the settlement payment as a preferential transfer.
- Coles surrendered cash and a promissory note to the trustee (the "clawback"), received limited bankruptcy distributions, and then sued Glaser and Taylor for breach of the settlement agreement to recover the shortfall.
- The trial court found Glaser and Taylor jointly liable as co-obligors under the settlement because the clawed-back portion was legally treated as never paid, and entered judgment for Coles.
- The Court of Appeal affirmed, holding a co-obligor’s duty is not discharged by a pre-bankruptcy payment later avoided as a preference.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Glaser and Taylor breached the settlement by failing to pay the full settlement amount after a bankruptcy clawback | Coles: settlement required joint payment by Cascade, Glaser, and Taylor; clawback means payment never occurred so defendants breached | Glaser/Taylor: Cascade paid the full amount and Coles released them; clawback by trustee is irrelevant to their liability | Held for Coles: clawed-back payment is treated as no payment; co-obligors remain liable for the shortfall |
| Whether guarantor/co-obligor liability differs so that a co-obligor is discharged when principal’s payment is later avoided | Coles: co-obligor liability is at least as strong as guarantor liability; avoidability revives obligation | Defendants: being co-signatories (not guarantors) cuts off liability once Cascade paid | Held for Coles: no meaningful distinction; courts treat avoided payments as failing to discharge either guarantors or co-obligors |
| Whether the release Coles gave bars his breach claim | Coles: release was given in exchange for payment that was voided, so defendants cannot invoke it after breaching | Defendants: the release discharged claims and precludes Coles’s suit | Held for Coles on breach claim: release does not bar recovery for breach; but the release remains part of the affirmed contract (Coles elected damages rather than rescission) |
| Whether Coles may both keep the release and recover damages for breach (i.e., rescission vs. affirmance) | Coles: may recover shortfall while keeping the release in effect for other matters | Defendants: release invalid or bars relief | Held: Coles elected to affirm the contract and recover damages; release remains effective to the extent not inconsistent with awarded damages |
Key Cases Cited
- Ghirardo v. Antonioli, 8 Cal.4th 791 (Cal. 1994) (de novo review of legal issues where facts undisputed)
- Taylor v. Nu Digital Marketing, Inc., 245 Cal.App.4th 283 (Cal. Ct. App.) (contract interpretation reviewed de novo absent extrinsic evidence)
- In re Chang, 163 F.3d 1138 (9th Cir.) (interpreting Bankruptcy Code provisions de novo)
- Wallace Hardware Co., Inc. v. Abrams, 223 F.3d 382 (6th Cir.) (avoided preferential payments do not discharge guarantor)
- Conner v. Conner, 76 Cal.App.4th 646 (Cal. Ct. App.) (guarantor remains liable where creditor surrendered payments as preferences)
- Union Bank v. Wolas, 502 U.S. 151 (U.S. 1991) (policies behind preference-avoidance: discourage race to courthouse; equalize creditor distribution)