*1 No. 31478. Mar. [L.A. 1983.] al., Plaintiffs,
JESSUP et v. FARMS Cross-defendants and Respondents, BALDWIN, Defendant, EILEEN and Appellant. Cross-complainant
Counsel Defendant, V. for Milo and Cross-complainant Appellant. Olson Hill, & and C. Dennis Loomis Wynne, Meisinger, Louis M. Troop Meisinger Plaintiffs, for Cross-defendants and Respondents.
Opinion REYNOSO, J. awarding from a respon- Baldwin appeals judgment Eileen Farms, a its individual partners, dents—Jessup general partnership, made on an members family—contribution obliga- payments which tion for was a co-obligor; performance ordering specific securities in Holstein favor of of a contract for the respondents purchase Ranch, Heifer Inc. for an (HHR); and denying cross-complaint appellant’s lien on stock transferred equitable respondents. HHR, issue we in which consider whether made primary stock, the trial owned were properly apportioned
court four Civil Code section among We examine outstanding obligations. Three, subdivision which provides part unspecified pertinent be first date. Par- with the earliest maturity ticularly, renew the inquire whether a instrument can subsequent date of earlier note so that both can be to mature simulta- said This case thus a narrow construction. A neously. statutory presents question issue subsidiary from hus- involving of stock respondents’ purchase appellant’s band us to requires examine the record to evidence determine if substantial sup- trial court bona fide ports were judgment purchasers notice without of an in favor of alleged interest unperfected security appellant. In HHR executed which it was promissory note for principal *5 obligor. Appellant Three respondents signed co-obligors. note as subse- notes executed quent by HHR were but not signed by appellant. respondents Prior to HHR made in excess of due on the payments the amount did but to which of the specify payments outstanding should applied. After 1975 made additional for which respondents payments they sought Further, contribution from had ex- appellant. ecuted property settlement which her her in- husband agreement assigned Later, HHR terest in stock ato lien in subject her favor. purported this from respondents acquired stock to an husband appellant’s pursuant option contract. makes two (1) contentions on should
Appellant payments HHR’s appeal: have been first to the 1972 note applied thereby extinguishing to the time which the made trial court contribution, awarded she has an on the HHR lien stock equitable transferred her husband to respondents. below,
For reasons we discussed conclude that the 1972 note had the that, earliest date renewal instruments and irrespective subsequent therefore, HHR’s first should have been ex- unspecified of the trial court tinguish obligation. Accordingly, reverse that part ordering to make contribution to With judgment respondents. respect contention, second we conclude that evidence appellant’s sup- substantial the trial court’s fide were bona of the ports ruling purchasers stock;
Baldwin we therefore affirm that of the part ordering judgment specific performance contract and option dismissing appellant’s cross-complaint for an equitable lien.
I Facts Summary of
Appellant’s two contentions make a detailed necessary discussion some- what facts. complex The principal matters relevant to evidentiary this appeal, however, were substantially as the undisputed the various parties stipulated transactions which Farms Jessup obtained of all the stock in HHR ownership and made payments on debts incurred in its We summarize the operation. events and transactions central to this appeal.
In husband, Baldwin,1 early appellant and her then Wayne codefendant Idaho, both residents of HHR, owned 100 of the stock in an Idaho percent cor- Glendale, On poration. California, February Jessup Farms pur- chased 200 shares HHR stock directly Concurrently from the corporation. transaction, with this stock entered into a stock separate, written parties pur- chase agreement whereby Baldwins to sell and agreed Farms Jessup agreed $105,000.2 an buy additional 150 shares HHR stock for so 350 shares acquired by HHR, Farms with the represented the stock percent then Baldwins owning as husband and wife. remaining percent Since 1969 HHR had been incurring substantial indebtedness to Fresno- Madera Production lender, Credit (PCA), Association in con- agricultural nection with the purchase, care and of HHR May livestock. On feeding 1972, HHR executed in favor of PCA a note in the amount of promissory *6 $5,135,571. This (entitled note “Renewal Note”) constituted a Promissory 1Wayne party Baldwin is not a appeal. judgment to this trial a The court entered default 4, 1977, against him. On April he voluntary petition bankruptcy filed a in in the States United District Court for the Northern District of California. 2The document evidencing agreement parties latter was lost. The therefore executed (entitled 10, new “Agreement Stock") document Corporate August for Sale and of on Purchase 1971. This document recites that it in on agreement is identical form and content to the entered 16, 1970, February original and agreement date of the to be the date of effective purchase. stock $105,000 to Pursuant the terms of purchase agreement, purchase price the 1971 stock of $10,500 payable was in 10 annual of annum on plus percent per installments each interest at 7 the unpaid principal. To of payment purchase price, secure the deferred the 150 shares of (each shares) HHR stock were in placed divided into certificates which were representing 15 escrow at the of Nampa, provided Bank Idaho in Idaho. The that one certificate would terms $10,500 by upon released escrow payment of each Farms made install- Jessup installment. 31, 1973, payments up ment to December and 45 were to it from escrow. At shares released trial, shares, time of there in and representing remained escrow share 105 HHR certificates interest, $63,000, $25,750, unpaid there remained an balance in the sum of and for principal, $88,725. aggregate amount of renewal certain indebtedness to PCA a commitment existing by plus $2,485,029.67. make additional in advances note was ex sum ecuted HER and by by and Mr. Baldwin in their individual appellant capacities. PCA also demanded that the as the note in of their status sole sign light Jessups3 which, noted, partners Farms time owned 50 Jessup percent as at the itself, however, EER. The partnership was not as on obligor named a primary the note. The documents and the trial found4 court provide that the Baldwins and were as with EER Jessups liable individually co-obligors on the 1972 note. The was due documents the note specifically provide or, demand if made, 6, no demand was There no demand May 1973. being PCA, $3,218,804 as of the due by date on the note a balance of remained unpaid. time,
At about this her husband and divorce appellant separated pro- were initiated. On ceedings June after one month the 1972 due, became the Baldwins executed settlement property agreement whereby Mr. Baldwin assigned his interest in the 1971 stock appellant agree- purchase with (See ment Farms. ante.) fn. Concomitantly, agreed to her convey stock, husband her interest in the of EER remaining percent held (the stock), Baldwins community Baldwin in property exchange $267,000 sum of to be Mr. over Baldwin It paid years. period was further that the agreed 350 shares of stock to Mr. Baldwin transferred Baldwin as his were separate property to a lien favor of subject $267,000 secure and Mr. Baldwin would obligation, place the stock escrow to secure his agree- settlement performance property ment. This property settlement the final into agreement incorporated decree of divorce executed in Idaho on March at 1974. Appellant stipulated trial, however, that her ex-husband never his performed pledge the Baldwin escrow, stock and it in place and that her interest alleged security stock was never otherwise to the method sanctioned perfected pursuant the Idaho Instead, Uniform Commercial Code. a certificate representing Baldwin stock was executed in blank left in the possession appellant’s attorney.
On June one week after execution of the settlement property agree- husband, ment transferring the Baldwin to her EER appellant’s interest stock *7 executed in favor of PCA a second renewal note in the amount of promissory signed by Marquirite Jessup, Roger 3The note was Roger V. Webster M. W. Jessup, Jessup, Reed, and Jessup, general Editha J. all of partners Jessup whom were Farms. HHR; unsuccessfully 4Appellant argued that she by at trial that the 1972 note was executed shareholder; therefore, that, only signed merely surety, co-obligor, as a and she was and not properly on the note. The trial court the appellant principal obligor found that was a since 1972 expressly severally note states on its face that shall liable on the debt and appellant jointly and nothing specifies any capacity obligor. in the note than terms the that she executed it in other Code, (See (e).) U. Com. Cal. subd. § $6,282,838. This note on the the interest incorporated unpaid principal plus ($3,268,753.26) note, 1972 note as well as new advances. The 1973 addition advances, to the evidencing obligation created the new by expressly provides of, that it is not in the given satisfaction but for the only purpose renewing terms, on the unpaid note, balance on note. This second its matured by 6, 1974, made; if no May demand face was it also states on its specifically the date of the was The was thus note 1973. 1973 note May first executed one month and sixteen after the days 1972 note matured. HER, The 1973 was note executed the and Mr. Baldwin. by Ap- Jessups, however, did not pellant, execute the note in her individual capacity she did it in although sign her as treasurer EER. This is consistent capacity with the at in- parties’ stipulation trial that and Baldwins had entered Jessups to an oral apportionment agreement whereby agreed any personal from the liability PCA in accor- arising indebtedness would be apportioned Thus, dance with their stock in EBR. under- respective ownership appellant refused to standably 1973 note as an as she no owned sign obligor longer stock in EBR her (having conveyed interest the remaining percent EER stock to Mr. Baldwin It settlement pursuant agreement). property recalled, however, will be (by that at the time the note was executed Baldwins), and both stock Jessups Farms owned 50 of the EER percent and the Baldwins owned the execution the 1972 The remaining percent. note is thus also consistent with the stipulated agreement. apportionment 10, 1974, demand, note,
On EER executed a third January payable $42,000. favor of PCA in the amount of note executed by Jessups, This was but was not her or ex-husband Baldwin. record signed Wayne does not disclose Mr. Baldwin was not the third note. why sign required note, execution ex-
Subsequent of the 1973 until after continuing note, ecution of the third EER As had made numerous to PCA. payments noted, earlier at time the note was executed an balance unpaid $3,268,753.26 was continuing still due on the 1972 note. As a of EER’s result un- substantial EBR able sum in excess of the PCA a payments, pay balance paid obligor. of the 1972 as an only signed PCA, however, no EER’s to the total indebtedness and made applied ac- running allocation specific outstanding obligations. kept due, what count which showed total and EER had designated manner should be with outstanding respect prom- re- EER, amount notes. a substantial issory Despite large payments mained of BER’s total to PCA. indebtedness EER,
Therefore, March demand on PCA made written in- due on the total and the Baldwins for on the balance Jessups, *8 PCA’s HER how to debtedness. demand letter made to on specific suggestions its assets order to its indebtedness to PCA. The Baldwins liquidate paid pay to nothing orderly the demand letter. EER response Although began liq- assets, uidation of its it too was unable to with the demand. comply Thereafter, Farms to out interest Jessup Wayne devised Baldwin’s plan buy in EER. Accordingly, (the on March final day entry following counsel, divorce), decree of Mr. Baldwin and each represented respondents, executed a written agreement Baldwin a to granting 60-day acquire option Farms’ Jessup interest in the EER if debts. The stock he all BER’s paid March 19 option agreement further Baldwin’s failure to provided Wayne exercise the would entitled option to Baldwin stock. An escrow account was with PCA. opened certificates Appellant’s attorney deposited the Baldwin representing stock in the PCA consummation escrow facilitate of the March agreement. Baldwin failed to exercise Subsequently, Wayne the option agreement thereby Farms entitling remaining per- Jessup Baldwin, cent of the EER stock without for it. Mr. having anything pay however, refused At the respondents’ request deliver stock certificates. time of trial the Baldwin stock remained PCA. possession 8, 1974,
On EER May executed a fourth note in favor promissory $336,474. Farms, This final note was all the signed by partners except but Roger Jessup, neither of the the note. Baldwins signed
On December 1974, PCA wrote a second letter demanding demand pay- ment of the total indebtedness of EER. The de- Baldwins PCA’s again ignored mand. however, and, Respondents, decided to their interest in EER protect January they made $1.1 the first of three million.5 payments totaling These were motivated apparently concern that their respondents’ assets, personal their interests in the be including would vulnerable partnership, to loss. These latter payments, combined with earlier EER’s were payments, sufficient to extinguish first two notes. PCA at trial that the acknowledged full, 1972 and 1973 notes were and it released paid affirmatively all discharged from further signatories liability.
After these making demands on each of payments, made written the Baldwins for contribution. to seek contribution from Respondents purported appellant only insofar as she had to be bound agreed apportionment which, noted, agreement liability the notes provided apportioned according parties’ interest in EER stock. respective Respon- ownership dents were unable obtain nor contribution from either of the Baldwins were able to enforce the March with Mr. Baldwin. agreement 1975—$100,000; 5Respondents January January made three as follows: 1975—$50,000; 16, 1976-$950,000. August *9 Below Proceedings 4, 1977, in seeking
On filed an amended February complaint respondents (1) to nothing three causes of action a declaration that owed appellant offset her by the stock of because that balance was purchase agreement 1975, January of made after contribution to for the duty (2) and that Farms full owner of the shares is entitled possession; Jessup claim ex- amount which contribution money judgment by respondents’ ceeded the amount owed to the stock agreement under purchase 1971; the March 19 and Mr. Baldwin of option specific performance by HHR stock owner of all and a declaration that Farms is agreement, legal held by of the certificates described and entitled to agreement possession those shares. representing than a rather surety, answer denied that as liability alleged Appellant’s execution she was from liability by released principal obligor, respondents’ Mr. note; which that as assignee the 1973 note altered the 1972 assertedly of the stock agreement Baldwin she was entitled the proceeds purchase 1971; to be a shareholder and that her terminated when she ceased liability ex- was HHR on June settlement agreement date the property recover from respondents ecuted. Appellant by cross-complaint sought Mr. to her by assigned balance due on the stock agreement purchase Baldwin Baldwin, claim to the and to obtain a determination that respondents’ to the and subordinate stock under the March 19 agreement subject option in her agreement. lien favor under the settlement property trial, subdivision After a court the court held that Civil Code section on the Three, to PCA allocation of the amounts paid controlled with respect (see notes; the 1972 obligor principal promissory of the same notes were all ante)-, and that the and both 1974 fn. all court Accordingly, applied within the of section 1479.6 meaning “class” provides: 6Section 1479 act, another, by way performance, does an obligations “Where a debtor under several perfor- obligations, such more of such part, equally applicable or in which is to two or whole applied must be as follows: mance perfor- “One—If, debtor that such or desire of the performance, at the time of the intention to the be manifested obligation, applied particular be to the extinction of mance should creditor, applied. be so must made, creditor, after such reasonable time within a application “Two—If no be then such of which was performance any obligation, may apply it toward the extinction performance, if similar except that performance; debtor at the time of such due to him from the must, trustee, directed otherwise he unless individually him both and as a were due to debtor, equal proportion; obligations in to the extinction of all such apply performance debtor. consent of without the [the] made the creditor cannot be rescinded application once herein, perfor- prescribed within the time party application neither makes such “Three—If order; and, be if there following obligations in the to the extinction of mance must class, ratably: class, in that extinction of all particular of a more than one ratably against *10 contribute to respon- further to liabilities. The court ordered appellant various allocable to the 1972 of of one-half the amount respondents’ payments dents note, her under the stock purchase agreement the amount owed less $127,838.82. Code, 1432.) The court also (See of for a total of Civ. § of delivery possession was entitled to immediate ruled that Farms Jessup under the terms which remained escrow the 105 shares HHR stock the stock 1971. agreement purchase It with prejudice. the court dismissed
Finally, appellant’s cross-complaint Baldwin Farms value of the that was a fide for Jessup found bona purchaser PCA, was entitled to specific stock held in escrow and that by consequently thus The court Mr. of the by Baldwin March 19 performance option agreement. without notice ap- found that Farms the Baldwin stock Jessup purchased settle- interest in the stock created pellant’s unperfected security by property nor an legal equitable ment held neither agreement. Concluding appellant stock, lien on the the court to deliver to immediately Jessup ordered PCA stock, Baldwin of HHR stock. Farms the 350 shares representing remaining result, As respondents acquired ownership possession percent all issued and HHR stock. outstanding
II Appellant’s contention that she is not liable contribution court—
On the trial renews her appeal, appellant claim—rejected made because in excess of due on the were payments the amount the time were awarded to made the for which prior payments contribution, Thus, she not make contribution. obligated any appellant to have been argues, made HHR 1975 should payments January which was a first for she applied extinguish obligation so that in contribution she should have been held liable co-obligor, In made 1975. January Farms and after payments respondent Jessup the four of this contention argument: makes two-fold support of Civil notes were not of “class” within the promissory meaning same that all Code section and that this section purportedly requires debt,” will conclude that first to the “oldest here the note. We ratably court erred Farms trial the HHR and allocating order- several the PCA and in indebtedness among obligations comprising performance. due “1. Of interest at the time due at that time. principal “2. Of maturity. in date obligation “3. Of the earliest undertaking. by a obligation not secured lien or collateral “4. Of undertaking.” obligation by a lien or collateral “5. Of an secured ing make contribution for the but not reasons set respondents, forth by appellant.
Both section parties assert that controls this case.7 For present purposes the relevant of section is subdivision Three portion which for the allocation of provides one unspecified payments applicable of several obligations. Subdivision Three provides that where several obliga tions are owed and neither the debtor nor creditor makes express application of a to a payment particular within the time prescribed, *11 “must be to the applied order; and, extinction of in the obligations following if there class, be more than one obligation a particular to the extinction all of of that class ratably: parties urge interests, 7Both that if section adversely respective 1479 is construed to their equity principles dictate that of prevail. each them has been “. . . of It held that where none the prescribed by situation, rules the statute apply cover or to particular applica [section 1479] tion of payment a will be Payment made on common law principles. will be [Citations.] justice (Pike v. (1971) the manner most consonant with equity. Cal.App.3d and . . . 18 Tuttle 746, Cal.Rptr. 403].) 753 The trial inapplicable, [96 court that even if is held section 1479 However, ratable in payments allocation of equitable. is fair and of the undisputed our review facts suggests this case that it be inequitable require appellant would to payments to contribute by debts incurred longer after she was no HHR. stockholder of right to contribution upon equi embodied Civil section 1432 principles Code “rests of ty (Blankenhorn-Hunter-Dulin justice.” 90, and (1926) natural Thayer Co. v. 199 Cal. 96 [247 1088, 797]; 551, P. 48 A.L.R. (1940) see Lacy also Jackson v. 37 P.2d Cal.App.2d 559 [100 313].) Under principles fundamental of equity, paid who no more than her person has his or just proportion codebtor, of the debt cannot secure from a even if the codebtor has contribution (Jackson, paid 560; 615, nothing. supra, p. Woolley (1964) at 224 Seijo Cal.App.2d see also v. Cal.Rptr. 762].) rule, 622 corrollary equality liability [36 As a that this court has held of among persons (Blankenhorn, respective whose equal inequitable. supra, situations are is at not 96.) p. Applying these principles present respective positions to the of case is manifest that the parties equal. were not Appellant sign co-obligor; did not 1973 note she therefore as a did personal liability not incur by for the new At the advances evidenced that note. time the note, executed, stock; appellant longer no owned all the entire venture was HHR she had in Thus, unperfected security interest in stock she to her ex-husband. transferred should have been liable only portion as to that with of the which were commensurate Moreover, her proportionate interest in from proceeds the venture. she of the part received no the first as the money corporation. spent was borrowed for the benefit of the HHR money borrowed on the 1972 and it back respondents—paid it—and not payments for which respondents seek Equitable appear would contribution. considerations by dictate that not be as required obligations contribute incurred circumstances, shareholders HHR. Under these no paid Farms more than what equity good paid. conscience it should have course, recognize, We that a trial court’s not be disturbed unless exercise discretion will (In it appears resulting miscarriage re injury sufficiently grave justice. to manifest a (1978) 495]; Newby Richard E. 21 Cal.3d Brown v. Cal.Rptr. 579 P.2d [146 However, Cal.App.2d 1018].) we are of although P.2d the view [103 requiring appellant unjust, ground to make contribution is we our decision palpably need not equitable Civil Code explain, proper application considerations. As we shall section compels Though the same result. this is a between two debtors—and not between dispute case, creditor applicable. determining and debtor—section 1479 is In either factor is allocation unspecified payments. present the creditor of Because the source of controver- A, sy sec- original subject payments by parties is the allocation PC with the agree tion 1479 controls this case. at the “1. Of the interest due time of performance.
“2. due at that time. Of principal maturity.
“3. earliest in date obligation Of undertaking. “4. a lien or collateral Of an secured obligation (Italics undertaking.” “5. or collateral Of an secured a lien ante, added; statute.) see fn. for full text accrued both each of the at embodies plus
Because issue principal of payments there is no interest and because regarding application question We here relevant. interest, 1 and are not between subsections principal consider, that the subject court held first, therefore whether the trial properly must notes are of the same so that the “class” promissory unspecified second, and, whether the all the apportioned ratably among obligations;8 *12 under subsec- in 1972 note can be considered earliest “obligation maturity” tion 3 in 1973 “renewal” note. light the same that notes not of the four were argues
Appellant promissory amount class each was time and for a different because executed at a different notes, because, each HHR was on all the although obligor the principal conten executed this a different set of We are unpersuaded co-obligors. obliga tion. in the statute that several Nothing suggestion supports appellant’s the same tions are same and for same class if executed on the date Moreover, amount. categories 4 and 5 establish although separate subsections for no distinction secured and unsecured these subsections draw obligations, be bound on based number of who upon security obligors may or the type the instrument. (1935) 6 Kelsey etc. v. relies Bank America Assn. Appellant heavily 617], the subject P.2d in of her contention that
Cal.App.2d support [44 case, however, only inap- notes That is not are of different classes. obligations sim- Kelsey but in dictum. The court in it refutes contention posite, appellant’s of an character held that a renewal note neither the underlying ply changed (Id., at which evidenced. nor debts obligation discharged separate in that 353.) that the underlying p. Although appellant emphasizes dif- and with case four each for different amounts *13 turn to contention of respondent’s that the trial court’s allocation the four ratably among notes must be either all notes share a because upheld “mutual classification as secured of the thus them same obligations,” making 5, class to subdivision Three because all matured on the pursuant or the notes same date them of Three 3. thereby making the same class under subdivision
No if the case the view that rata notes are supports allocation is pro compelled all secured under subsection 5. To would to anomalous results. so hold lead unsecured, all Because are either or obligations respondents’ secured under subsections 3 would analysis 1 to be rendered meaningless. Accepting statutory construction initial of whether would determination require only not; be always are secured or will obligations appor- thereafter payments tioned Even ratably contravention of the mandated statutorily priorities. debts, where several include secured and both unsecured obligations first three listed the unsecured debts will be given preference irrespective these statutory Clearly, date. priorities—interest, maturity and principal, course, 3, may 9Of there be within may subclasses subsection as there be notes with different maturity Any dates. maturity two or more instruments with the same would constitute date such a subclass.
653 a fun violates of section 1479 anomalous results indicate that this interpretation be should damental “. . . that legislation of construction: principle statutory to its violence so as to without doing construed harmonize its various elements (1981) Cal.3d or Inc. 29 (Wells v. Marina language spirit.” City Properties, 781, 217].) 632 P.2d Cal.Rptr. [176 of such the total unacceptability one court recognized
As early Fed. 1894) 65 (N.D.Cal. In The Katie O’Neil construction. statutory held that subsec section 147910 court had occasion to the district interpret are either the obligations in a case where (date tion 3 of must maturity) govern where the in cases unsecured, 4 and 5 govern and that subsections secured or O’Neil Katie With unsecured obligations. is between secured and comparison ef will best give construction statutory as a we adopt point departure, v. Foundation (See Legal all fect to section 1479. provisions Pacific Cal.Rptr. Ins. Bd. 29 Cal.3d Appeals Unemployment [172 harmony internal which produce 624 P.2d [statutory interpretations 244] are preferred].) and accord to each word significance phrase oft-cited It is to effectuate the readily subsections 4 and seek apparent that courts will proposition discharge first apply unspecified the most v. Clarke (See, secured Murdock precariously e.g., obligations. Associates, (1891) 88 Cal. Inc. v. Monte 601]; P. Walter Broderick & [26 679]; Vista Eisendrath v. Lodge (1967) 253 Cal.App.2d Cal.Rptr. [61 13]; Bank America Bank America (1953) 118 P.2d Cal.App.2d [258 etc. Assn. v. Kelsey, 346.) unsecured supra, favoring This Cal.App.2d policy not, however, over as to obligations secured ones should so implemented defeat the statutorily expressed giving application policy priority interest, and, sums with the first to then to to notes unspecified finally, principal earliest date. first three Section that these 1479 expressly provides classes of take categories over the more precedence general unsecured and secured debts.11 itself, terms,
That statute if does not construed to effectuate its therefore sup- *14 the view that all secured rata port obligations application require pro a construction that virtue of secured. payments simply by being Rejecting would render the that subdivision statute we therefore conclude meaningless, Three’s rata “more of a class” than one pro provisions obligation particular subsection, where there is more than one within a apply obligation particular time Katie O ’Neil was decided section already 10At the 1479 had been amended to read as it (See Amends., 1873-1874, 612, 239.) present. does at Code ch. p. 1 1Katie O ’Neil correctly recognized maturity that a an earlier date than an secured note with (subsec. 4), note not priority unsecured note would have under subsection 3 over the unsecured withstanding policy giving the priority. less secure instruments
654 that such a provided “class” retains its payment as enumerated priority scheme; i.e., statutory subsections 1 5 through in order of descending priority. Thus, where notes at dates, issue have different section re- maturity that quires date, to the notes with the earlier maturity order, Where, of whether irrespective however, secured or unsecured. or two more obligations date, have the same maturity section mandates ratable allocation them among all such (assuming are obligations either secured or unsecured).12 case, construction
Applying can never present respondents theless if can prevail establish that notes promissory had simultaneous that, dates so maturity under subsection are a “class” obligations subject (See to ratable allocation.13 Star Mill and v. (1906) Lumber Co. Porter P. Cal.App. rata allocation of lien [pro [88 mechanic payments among 497] claims on the maturing date].) same
Although due, that the conceding 1972 note states on its that is face if no made, 6, 1973, demand be on May respondents (1) nonetheless that ex- argue ecution of note, the 1973 note “renewed” the due (2) date of the first that note, turn, the 1973 6, 1974, became due to its May due date because of PCA’s first written demand. Because demanded of the entire debt, respondents assert that the first three notes were thus due simultaneously on March concede, date PCA’s first demand. Respondents however, that the demand, fourth executed after the first did not become due until sum, PCA made its second written demand on December 1974. In respondents argue payments should have been allocated the first among these, three notes since had the they allege, maturity same date.14 where, 12It seems clear that play subsections 4 and 5 into there is come under subsection more than one maturity debt with an identical one date and at least one such debt is secured and Thus, matter, is practical unsecured. as a only subsections 4 and 5 are relevant where there are secured and unsecured money pay with the maturity enough same date and case, all. them In such a payments would be first allocated the unsecured debt. 13Although statutory interpretation our to nevertheless of section allows allocation, argue that promissory notes subject are the same class and to ratable forth, infra, analytical accepted distinctions set practical significance. are not without Had secured, argument the subject being notes constituted one class virtue of automatically would have question been need entitled ratable allocation without to reach and, such, discharge. whether the was earliest entitled matured, chronology 14Based on subject respondents argue their of when the *15 Cal.App.3d facts involved 13 need Cal.Rptr. 98 we [91 Pfefer respondents’ request payments not entertain to since among reallocate first three notes event, conclude, obligated any we hold that not to make contribution. In post, that the not have the same three notes did maturity first date.
655 have been hand, should on the other contends that payments Appellant, relies debt—the note. Appellant first to earliest item of 1972 applied be first must which that payments statements in two cases misleading suggest etc. (Hollywood item of debt” to the of “the earliest extinguishment applied Baskin, 415, 665]) or 430 P.2d (1953) John Inc. 121 Co. v. Cal.App.2d [263 298, (1919) 45 (Los Cal.App. “the oldest debt” T. & S. Bk. v. Forve Angeles Porter, 4 v. 438]). supra, 300 P. Star Mill and Lumber Co. (Compare [187 1479) is not that (section at 473-474 . . the rule Cal.App. pp. given [“. date, but to ‘the obligation is to to the earliest obligation applied face 1479 on its ”].) earliest in date of Suffice it to state that section maturity.’ erroneous contention that the statute compels application repudiates appellant’s maturity to the Three 3 of the oldest debt first: subdivision speaks payments in were date of the and not of the order in which the obligations Trust either curred. The and Los Hollywood Angeles statements Wholesale dicta; or are mere to of earliest appear contemplate obligations maturity rule, Accord extent that those cases are contrary disapproved. suggest 1479, consistent with the we reiterate the settled of section ingly, provisions in maturity, rule that should be earliest first obligation (1954) 122 (Smith v. though necessarily oldest obligation. Renz 535, 160]; (1939) 538 P.2d 30 Bradner v. Woods Cal.App.2d Cal.App.2d [265 69]; 681 (1936) P.2d Ross v. McDougal Cal.App.2d [87 [55 574].) P.2d maturity the “nominal
We now turn to contention that respondents’ of the renewal date” of 1972 note was renewed virtue of the provisions Code section 1973 note. on California Uniform Commercial Relying law, as a matter (l)(b),15 subdivision assert that the 1973 note—until renewed the date of the maturity underlying obligation—the the two that because such time as the renewal note itself matured. They argue trial court be deemed to have simultaneously, properly notes must matured note, and thus declined to allocate extinguishment found that liable in contribution. correctly 3802 on the contention with to the effect of section Respondents’ respect ad- which no California case has previously transactions raises issue present dressed, i.e., underly- date of an whether a new instrument renews the maturity at all does so case to date that discusses section ing obligation. there is will we conclude that although a context not here relevant.16 As appear, of the statute precludes no decisional our authority directly point, reading mandates that the section 3802 the result reaching sought by respondents—that as a matter of law. date of the be renewed underlying obligation statutory are to the Commercial Code unless otherwise indicated. 15All further references (1978) Canal-Randolph Anaheim Inc. v. Wilkoski Cal.App.3d Cal.Rptr. [144 16In (b), 474], apply suspend did not Appeal held that section subdivision the Court plaintiff-landlord. where defendant-tenant tendered a rent check pay rent *16 Section 3802 provides pertinent part:
“(1) Unless otherwise where an agreed instrument is taken for an underlying obligation . .
“(b). the is the is due or if obligation suspended tanto until instrument pro it on is demand until payable its If the instrument is dishonored presentment. may action be maintained on either the or . . .” obligation',. instrument the (Italics added.)17 3 of official comment
Paragraph the to Uniform Commercial Code section (which 3-802 is identical 3802) to our “It reads: is said commonly § ’ or check other negotiable instrument is ‘conditional this it By is nor- payment. meant that mally the taking instrument is a surrender of the to sue on the right due, until the obligation instrument is but if the instrument not is due paid the to sue presentment on the right (l)(b) is ‘revived.’ Subsection obligation states this result in terms of (23 of the obligation. ...” West’s suspension (1973 ed.) 503, Com. Code (1970 U. p. Deering’s ed.) Ann. Cal. Com. Code 391; see also p. (1974) Notes, 104, 10 Cal.Jur.3d 117-118.) Bills and pp. §
At the we observe that the section 3802 is outset when applicable parties do not otherwise Here agree.18 we are with an presented contrary express pro- “ vision—the 1973 note states on its face that the note agree that is parties [t]his executed, . . of, . not in the but of renewing unpaid purpose note, balances” on the 1972 which is having identified as specifically maturity 6, date of May 1973. Because the of section 3802 is condi- expressly operation tioned there no to the being agreement then con- contrary, may properly clude that execution of the upon new instrument the ex- parties unequivocally an intent renew pressed date underlying obligation. Moreover, terms, the 1972 than a by its matured more month already fact, execution of the 1973 note. In could suit on brought have 6,1973. May as of is settled when It that an “matures” obligation (Bur- the holder of the note has an action to force legal right bring payment. (a), 3802, (1), quote inap 17Subsection omitted from the above of section subdivision is PCA, here, (a) plicable this case because sets out an ex lender is not a bank. Subsection drawer, that “if a bank is ception suspension rule in provides acceptor that it maker or the instrument and no against underlying obligor[,]” there is recourse on the instrument but, rather, taking underlying instrument does not suspension pro result tanto ...”(§ added.) discharged. (l)(a); “pro tanto subd. italics 18In McDowell v. Miller 1977) following (Mo.App. per 557 S.W.2d court makes the agreed. simple combination three otherwise . tinent comment: “Does this words [‘Unless .’] plainly Happily question . . . receive says? mean what seems to an affirmative answer—at 7; defined]; (At usually.” p. generally [“agreement” fn. cf. least see Subd. § Code, definition].) Civ. § [narrower *17 823].) Co., P.2d 106 (1934) 138 Cal.App. [31 & Inc. rill v. Robert Marsh is, if it but even Thus, 3802 is applicable, that section it does not appear already a note that cannot, to “unmature” we shall serve explain, as section matured. in- obviously note the the 1973
We of course that recognize signing parties evidenced indebtedness of the original tended an extension time in which pay whether, the to section The then is pursuant the 1972 note. question but also af- obligation note only monetary renewal not the suspends underlying date thereof. maturity fects the terms of the the underlying note—specifically, held, fac- albeit in a which has We have discovered one out-of-state decision context, Uniform Com- of dissimilar that under the Delaware tually counterpart Code, dishonored instrument (5A 3-802) Del. a mercial Code section 3-802 § v. (See Moore does the obligation. not due date of the change underlying 298, 301.) Further- 1979) Indem. Ins. 408 A.2d Travelers Co. (Del.Super. 346, which, more, Bank America Assn. Kelsey, supra, Cal.App.3d etc. v. of noted, underlying changes as earlier held that a renewal note neither evidences, is which it of the nor the debts obligation discharges character $4,000 note and this bank Kelsey, In held unsecured helpful regard. $1,600 made, $7,000. the remain- *18 aas signed co-obligor.20 Because section 3802 that the mere fact that a provides lender executes a renewal subsequent instrument does not constitute an ex- of the tinguishment indebtedness, original the 1972 its obligation (including terms) remained a viable instrument which continued to be held PCA. It is' by therefore clear that the who parties executed the note did not intend to 1973 discharge original indebtedness since the note is entitled “Re expressly Note,” newal Promissory and it the balance due on the specifically incorporates 1972 note. Accordingly, the same under appellant’s obligation remained note; 1973 “it is in substance and in fact same indebtedness evidenced aby new (Bank promise.” Austin v. 1977) Barnett 549 S.W.2d (Tex.Civ.App. 428, 430.) case,
In note, was due with its present payment the 1972 respect terms, on May since no demand made. Assum prior was payment ing to section 3802 pursuant date of the first note was maturity suspend note, ed by execution of the 1973 this latter note was “dishonored” as also was not demand. de paid upon At time was not payment presented upon mand, “revived,” the underlying thus PCA—the obligation providing holder of both notes—with the or on to sue either on the new instrument option the first note.21 of the note re Consequently, original maturity date mained unaltered either (1) an to case law as a result of the fact that ac pursuant tion was maintainable HHR’s failure to with the demand upon comply Co., Inc., (Burrill v. Robert Marsh & or 106), at supra, p. Cal.App. to the pursuant “revival” of section 3802 for termination of the provisions suspension underlying obligation. sum,
In we are of the view that the to the the in- parties expressed 1973 note tent to retain note; original maturity underlying date that the note; and, character of the 1972 note is the renewal preserved notwithstanding that even if the alternatively, maturity date was to section pursuant suspended 3802, HHR’s failure to underlying with PCA’s demand revived the comply event, obligation, the due date. including In execution of the 1973 Thus, no maturity effect on the ultimately maturity date of the first note. emphasizing 20It bears was liable to the extent that the new note evidenced approximate $3 million balance due on the note. legislative 21Section 3802 evidences a provide intent to the holder of a renewal note taken for underlying obligation awith choice of remedies. or, if suspended pursuant unmodified remained original date on demand first written of PCA’s the time was revived from to section the first made 1974, which, we the date respondents preceded March agree, We cannot were awarded contribution. three for which had identical therefore, first three notes that the with assertion respondents’ to de- entitled PC A was its first demand at the time of Although dates. maturity re- nonetheless notes, each note conclude that on all three mand date. tained its respective date of maturity” the “earliest hold that the note was
We therefore 3, and that Three subdivision Code section within the Civil meaning first been credited have should made HER properly not erred by apportioning the trial court the 1972 note. Ead *19 notes, been completely would have the four the 1972 note among sought for which they to extinguished prior respondents’ post-1975 We on this issue. contribution. conclude that reversal is warranted “Baldwin stock” contention that an lien on the she had Appellant’s equitable entitled to ownership are not next contends that Appellant respondents (the Jessup of EER stock obtained by of the Baldwin stock last 350 shares Farms) proper had lien on that stock pursuant because she an equitable in court erred Therefore, the trial argues, settlement agreement. appellant ty her al without notice of that Farms was a bona fide finding Jessup purchaser interest. We leged security disagree. facts, in the a interest security
As noted in our recitation of retained appellant agree- to settlement stock she transferred her husband to property pursuant argues nonetheless ment. this interest was never Although perfected, appellant when ob- security that had notice of her interest Jessup Farms respondent Wayne. acknowledges tained the Baldwin stock from her ex-husband Appellant denied receiv- on this issue each witnesses testifying respondents Farms’ ac- information interest security Jessup ing any concerning The the March 19 trial agreement. the Baldwin stock quisition pursuant evidence, found, the Baldwin obtained court on this that respondents disputed interest. security without notice or claimed knowledge stock on the Thus, lien second has equitable contention—that she appellant’s more than nothing not stock and that are bona fide purchasers—is respondents court’s conclu- the trial sufficiency an attack on the of the evidence support enforceable, and that is sions that the March contract option specifically and clear of appellant’s pur- should take the Baldwin stock free are findings sup- We that the trial court’s interest. conclude security ported by substantial evidence. ported
The critical issue here is whether Farms or individual respondents, Jessup are Jessups, chargeable with constructive notice of the claimed in- security In terest. this regard, a appellant reliance letter places great passage from counsel for HHR an Idaho A Mr. Baldwin. attorney representing copy of this letter was sent one of the senior and to the accountant of partners Farms. Appellant that the of the letter one of the argues receipt Jessups compels conclusion that were notice of her claimed security interest. The letter itself belies this contention. herself, crucial as underscored passage, a statement
HHR’s that “. . attorney .it my instruction as well as those of Webster A., Jessup, president and Burke C.P. corporation, Dambley, corporation that the contract rescinded agreement not here was not redemption [a relevant] to be considered until properly signed Eileen unconditionally signed by Baldwin, who has a community interest in property Wayne’s stock one-half (Italics most, ...” corporation, added.) This at passage, indicates at the time the letter was received the still were under the Jessups operating stock, assumption held community interest fact property probably always assumed. This letter does therefore us to persuade disturb the trial court’s since it no findings way the conclusion that supports *20 the notice, had constructive, actual or Jessups had transferred her appellant community property interest in the stock to Mr. Baldwin to a pursuant property settlement agreement and had taken in in the stock exchange security interest to secure performance of Mr. Baldwin’s other under the agreement.
Even if we were to draw some inference favorable to from this item, single the evidentiary quoted at best creates a conflict passage evidence. The fact that it is to. draw inference other than that possible some drawn the trier by (1972) of fact of no (Forte v. 25 consequence. Nolfi 656, 667 of Cal.App.3d 455].) Where fact are Cal.Rptr. findings [102 on a civil challenged we are but often over- by “elementary, bound appeal, law, looked of principle that ... and of court power appellate begins evidence, ends with a determination as to con- whether there is substantial uncontradicted,” tradicted or below. v. support (Crawford findings 427, Southern Co. 3 (1935) Cal.2d 183].) P.2d We must [45 Pacific therefore view the evidence the light most favorable to party, the prevailing it the benefit of giving reasonable inference conflicts in every and all resolving its favor in accordance with the standard review adhered to so long (Ibid.; 546, court. Bandle v. Commercial Bk. Los Cal. Angeles (1918) 44]; P. Aceves (1979) see also v. Pale 24 Cal.3d Regal Brewing Co. [174 619]; 595 P.2d 24 Cal.3d v. Olin Cal.Rptr. [156 Munoz Witkin, 1143]; (2d 596 P.2d ed. Cal.Rptr. Cal. Procedure [156 1971) 4239-4240.) pp. §§ review, conclude that this familiar standard of appellate
Applying evidence—notably in this case are substantial challenged findings supported no and their accountant testimony of some Jessups into the entering op- claimed interest knowledge security appellant’s binding are ap- court’s findings contract with Mr. Baldwin. The trial tion conclusion, all after hearing reached we cannot disturb its accordingly, peal; evidence, of appellant’s constructive notice had no ownership absolute Farms Jessup interest.22 judgment giving unperfected and of the Baldwin stock must upheld. possession HI reasons, judgment
For aforementioned we reverse that portion Farms. That Eileen Baldwin make contribution to ordering contract judgment ordering option portion specific performance and cross- between Baldwin Wayne denying appellant’s to that for an lien on contract the stock transferred complaint equitable pursuant is affirmed.
Each shall bear its own costs on party appeal.
Bird, J., Mosk, J., Broussard, J., C. concurred. KAUS, J. concur entirely concerning the court’s opinion appellant’s I claim to an lien in the I in the equitable “Baldwin stock.” also concur result me, far as claim for It seems to contribution is concerned. respondents’ however, that it would be reach this application better to result by mooted in 7 of footnote the court’s equitable principles—as opinion—than *21 sections 1479 of Civil Code 3802 of the California Uni- exegeses form which by Commercial Code are not called the facts this case. settle
Section 1479 of the Civil Code
obviously designed
help
disputes
is
sort;
case,
of the
it is a
between
and creditors.
though,
nothing
debtors
This
debtors,
by determining
claim for contribution
which
court settles
among
a
and the creditor would have
how
between the debtors
hypothetical dispute
us
be
why
governed
ended. Just
between the
before
should
equities
parties
been
the result
that
hard to see. It has
by
always
never arose is
dispute
creditor,
on-
that even as between
section 1479
recognized
provides
debtor and
In Murdock v. Clarke
for the
ly guidelines
application
principles.
equitable
601],
(1891)
Applying believe it is clear no called principles, contribution is for. I summarize reasons: my
1. The somewhat murky oral between “apportionment agreement” Baldwins and the to the effect Jessups would personal liability appor- tioned in accordance with stock in HHR absolves clearly ownership appellant. As of the time of the she no agreement owned stock HHR. That the agree- ment only between the Baldwins on one side and the Jessups other, se, but also between the Baldwins inter is evidenced the fact that Mr. Baldwin signed 1973 note in his individual but only capacity, appellant as treasurer of HHR.
2. Even without the as be- apportionment demands that agreement, equity tween and the appellant the latter be indebted- Jessups, liable on all primarily ness incurred after appellant divested herself of interest in HHR any legal her property settlement I agreement. in view of the trial court’s agree that findings is, must her individual on the There accept liability 1972 note. however, no equitable reason for between that note which failing distinguish at a signed time when was still a stockholder in HHR and when her given connection an officer and with HHR was that of the holder of an in her unperfected security interest husband’s stock.
3. The logical claim is that as between them- consequence respondents’ selves and could determine how much of each pay- unilaterally ment to PCA was to be credited to in- note. Each new debt to PCA *22 credit, curred HHR diluted that had no in determin- voice although appellant that such a debt should be ing incurred. would have Theoretically, respondents been in a to make the to be position portion credited to note diminish to the more vanishing device of point by simple borrowing money—at of course—and new price, loans to using proceeds repay is, course, done; the total indebtedness. There no fur- evidence that this was ther, the scheme assumes an unproven readiness of PCA to go part Nevertheless, money. lending mere of such a unilateral “water- possibility of respondents’ the inequity demonstrates contribution ing” appellant’s position.
Richardson, J., concurred. notes and HHR made on the four
Notes
involved notes promissory comprising the obligations 8The made a conclusion that the constituent trial court of law specify not but it did meaning were of the same class within the of section indebtedness they were all whether the notes to be virtue of the fact that it considered of the same class simultaneously and maturing them as secured Three 5 or it viewed under subdivision because thereby 3. of the same class under subdivision Three dates, ferent execution the court did rely not these incidental differences. Rather, it concluded that notes evidenced “two of obligations classes as defined . by section . (At .’’—those secured vis-a-vis unsecured. those 352.) debt, The court then p. allocated first to the unsecured with the Thus, secured which surplus being applied debt. the distinction led the court in Kelsey find two distinct classes of absent here obligations totally as Further, notes are all subject secured. Kelsey court stated passing no item of interest at the being involved time of this we are payment, “[there led second class mentioned in subdivision Three of which section (At 353; embraces due at that added.) time’. ...” ‘principal p. italics Thus, Kelsey stands for the clearly it does proposition—though specifical- so hold—that the ly “classes” referred to in are the five subdivision Three there listed. We are categories dictum subdivision persuaded by Kelsey Three, whole, read as a establishes 1 to 5 by its terms subsections constitute the “classes” of to be obligations given priority allocating purposes We conclude unspecified payments. that the most reasonable construction of and, the statute compels hold that the five interpretation accordingly, in subsections categories specified 1 to 5 constitute the classes of particular referred to Three.9 first of subdivision We paragraph therefore reject contention that the factual circumstances surround- appellant’s the execution of the notes are ing the “class” of the dispositive determining obligation. so construed the term Having “class” used section next
notes notes, trial court in ratably applying erred among all four instead the first three, thereby appellant’s decreasing respect contribution with note. Although change theory may be permitted appeal only question agreed where law on (Roberts 308]), v.
notes was secured After totalling payment which, $9,400 in the debt was into a note ing present consolidated single case, notes. of the prior renewal note taken designated payment of 1479 a second Court held that under Civil Code section Appeal $9,400 $5,000 of total of must be first to the unsecured portion clear, $2,400 It $4,000 debt—the still on the unsecured note. is owing therefore, of we look for of subdivision Three section 1479 purposes aof of the execution original character the underlying irrespective with date maturity renewal note. In our we are concerned case subsequent had already note. The are that the 1972 note facts underlying undisputed under Kelsey matured the time the note was executed. Because character of the cannot original 1972 note is fortiori 1973 note preserved, Ash (See Easton v. “unmature” Code section also Civil 1479. purposes note “cannot (1941) 18 Cal.2d of renewal P.2d [provisions [116 433] transaction.”].) bind instruments into a operate single inseparable (previous) case, Moreover, it is apparent section 3802 to facts this applying is obligation because the statute that the provides only underlying “suspended demand, or, until is if it tanto”19 until new instrument due is pro payable obliga suspension of the 3802 makes clear that previously quoted 19The comment section remains in long suspension so as the right obligation tion a surrender of the to sue on the means primarily regard, suspension effect. the comment further states that In (23 Com. running of West’s suspension of the the statute of limitations.” “intended to include Ash, 535.) Code, 503; pur supra, note that this supra, p. see also Easton p. v. Cal.2d at We date, since section maturity especially readily need to “renew” the pose can be achieved without suspension and not renewal. speaks terms Anderson, its (see 3 presentment (2d On the Uniform Commercial Code ed. 1971) 3-802:4, 141), it p. § follows that terms of the underlying obligation (here date) are also until the new is due. merely instrument suspended Thus, in spite note, the execution of the 1973 to PCA appellant’s obligation continued to be measured the terms instrument she