Kissen v. Runyon
Filed 2/27/12 Kissen v. Runyon CA4/3
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH
APPELLATE DISTRICT
DIVISION
THREE
STEVEN KISSEN,
Plaintiff and Appellant,
v.
GORDON RUNYON,
Defendant and Respondent.
G044778
(Super. Ct. No. 30-2010-00348548)
O P I N I O N
Appeal from a judgment
and postjudgment order of the Superior
Court of Orange
County, David T. McEachen, Judge. Affirmed.
Christopher L. Diener
for Plaintiff and Appellant.
Strickroth & Parker
and Michael J. Strickroth for Defendant and Respondent.
Steven
Kissen (Kissen) appeals from the judgment and attorney fee order entered in
favor of his former business partner Gordon Runyon (Runyon). Kissen’s complaint sought damages for breach of oral contract, contribution,
equitable indemnity, and subrogation with respect to his repayment of a
$500,000 promissory note that contained an attorney fee provision. Kissen, Runyon, Janet Kline, and Diana Jianas
were the principal shareholders in the now bankrupt company, Bermuda Triangle
Ventures, Inc. (BTV). Kissen settled his
claims against Jianas, and dropped his claims against Kline and BTV due to
their insolvency. Kissen, and the
remaining shareholder, Runyon agreed to a bench trial that lasted eight
hours. The court entered judgment in
Runyon’s favor, and later awarded him costs and attorney fees. On appeal, Kissen only challenges the court’s
verdict with respect to the contribution claim and the attorney fee award.
I
The following facts were
undisputed: Kissen, Runyon, and others
were investors and owners of BTV, selling private label wines pursuant to
license agreements. Kissen was the
president and Runyon was the secretary.
In 2007, Kissen, Runyon, Kline, and Jianas agreed the business needed
additional funds and they obtained a $500,000 loan through Vineyard Bank. The loan was secured by the residences owned
by two family trusts: (1) the Steven C.
Kissen and Karen E. Kissen revocable trust (the Kissen Trust); and (2) the
Jianas family trust. The term of the
loan was six months, due on January
20, 2008, and it was later extended to July 20, 2008.
In January 2008, Kissen
and his wife divorced and sold their residence as part of the community
property distribution. At the close of
escrow, $506,240.41 of the sale was directed to Vineyard Bank to completely pay
back the principal and interest owed on the business loan.
The court determined the
following facts were demonstrated at trial, and included these findings in its
judgment:[1] It determined Kissen paid off BTV’s loan
without notifying any of the other shareholders. As a result of his payment, on February 28,
2008, “BTV’s [b]oard of [d]irectors agreed to compensate Kissen for all debts
owed via the award of 950 shares of BTV stock, bringing [his] total ownership
to 55 [percent] of BTV’s stock and 1,100 total shares.”
Runyon and Kline
testified Kissen was paid back through the grant of increased stock in
BTV. Runyon and Kline also received more
stock to compensate them for various sums of money they had loaned or invested
in the company. Runyon and Kline
testified that because many of the shareholders had loaned BTV money, the board
of directors resolved “to extinguish all debts owed by the corporation to their
individual investors, including Kissen.
Both Runyon and Kline testified they agreed with information contained
within the February 28, 2008, minutes and that the minutes were accurate where
it stated the transfer of ownership was intended to wipe out all debts owed by
BTV to each individual owner.”
At trial, Kissen claimed
the debt to stock conversion was not intended to extinguish BTV, Runyon, Kline,
and Jianas’ debts to him for the Vineyard Bank loan. His witness, Malcolm McCassy (BTV’s general
manager) testified BTV converted only $718,000 in Kissen’s favor at the
February board meeting. Kissen testified
that while the loan was outstanding, it was considered a long term liability,
as designated on the December 31,
2007 balance sheet. He could
not “articulate why BTV’s balance sheet from March 31, 2008, was not amended in such a manner to
include Kissen as a ‘long term liability.’”
The court determined all
Kissen’s claims lacked merit. With
respect to his first cause of action for breach of oral contract, the court
determined Kissen failed to present any evidence an agreement existed between
him and Runyon. The court noted Kissen
testified he paid off the loan to extend the due date, however the evidence
showed the loan had already been extended.
Moreover, Kissen’s evidence the board had monthly meetings was
insufficient to support the alleged terms of an oral contract with Runyon.
The court held the
contribution claim failed because “all rights to contribution were extinguished
upon Kissen’s receipt of stock on [February
28, 2008]
. . . .
Civil Code section 1432[[2]] provides for a right to ‘contribution’ from
all joint parties where one party to a joint obligation pays more than his
share of the joint obligation. Kissen’s
right to contribution was extinguished upon his receipt of increased BTV
ownership.” The court mentioned Kissen
was unable to explain why the balance sheet immediately following the February
2008 meeting omitted him as a long term liability when he believed BTV (as a
co-maker of the loan) owed him a proportionate share. The court believed Runyon’s and Kline’s
testimony the stock Kissen received was to compensate Kissen for his repayment
of the loan and to eliminate all debt owed to Kissen. “By eliminating Kissen’s debt, the only party
with the ability to seek contribution was BTV; not Kissen.”
The court determined the
implied contractual indemnity claim failed because “Kissen presented no
evidence demonstrating anything more than a possibility of liability to
Vineyard as it pertained to the Vineyard loan.”
The court again referred to the fact Kissen’s argument he paid the loan
to extend the due date was not supported by the evidence. Without evidence of an incurring liability,
Kissen’s actions of paying the loan were those of a volunteer, and he,
therefore, could not seek indemnity from Runyon.
For the same reason, the
court determined Kissen’s surety claim failed.
It explained that to be equitably subrogated, Kissen needed to provide
evidence the payment was to protect a personal interest and not
volunteered. The court stated Kissen
voluntarily paid the loan five months before it was due. This fact prevented him (and the family
trust) from being subrogated into Vineyard’s status as a creditor.
Finally, the court found
merit with Runyon’s affirmative defense of accord and satisfaction. It stated, “Assuming Kissen met his burden to
demonstrate Runyon to be liable in any fashion, Kissen’s outstanding debt was
ultimately satisfied by Kissen’s acceptance of BTV’s awarding 950 shares of BTV
stock in exchange for his retirement of ‘all’ debts owed by BTV to Kissen. The question of whether the parties intended
to make a final settlement of an obligation is a pure question of fact. [Citation.]”
To support its
conclusion on this issue, the trial court delineated over a page of factual
findings regarding what occurred at the February 2008 board meeting when Kissen
was given the additional shares. It
stated, “On February 28, 2008, after learning that Kissen had in fact paid off
the Vineyard loan, the BTV [b]oard of [d]irectors resolved to convert all of
BTV’s debts to its respective shareholders into new ownership/equity. The minutes explicitly state that the
conversion was intended to extinguish ‘all’ debt owed to each individual
shareholder, including Kissen and Runyon.
[¶] Testimony received from both
Runyon and Kline supports this. [They]
testified that at no point in time did Kissen object to receiving any stock as
compensation for BTV’s debts owed to him.
Furthermore, both Runyon and Kline did not hear from Kissen regarding
these debts until October 5, 2009, when both received demand letters. Based on [their testimony] BTV intended that
Kissen be fully compensated via increase in BTV stock ownership in exchange for
retirement of all debts held. [Kissen’s
testimony] supports the proposition that the intent of the February 28, 2008
debt conversion was to retire all debt.”
Furthermore, the court
held Kissen’s cross-examination testimony supported the finding all debt was
extinguished at that February meeting, “[a]lthough Kissen continues to state
that he only converted approximately $700,000 of his debt into stock.” However, evidence from the minutes
“demonstrates that each share of BTV [stock] was worth approximately
$1,250.00. As a result of this debt
conversion, Kissen received 1,100 shares for his debt (a net increase of 950
BTV shares). The value of Kissen’s net
increase in stock ownership, based on the figures contained in the February 28,
2008 minutes, was worth approximately $1.19 million.” This evidence belied Kissen’s testimony he
was only compensated for about $700,000 of debt and not the additional $500,000
loan repayment.
The court determined
McCassy’s testimony did not support Kissen’s claim that only $700,000 was
converted from debt to BTV stock. It
noted McCassy prepared exhibit No. 18 in January 2008, which accurately
depicted the sums converted by BTV from debt into stock. However, McCassy was unable to explain why
the exhibit prepared in January 2008, contained entries from late February
2008. He was unable to explain why
Kissen’s February 1, 2008 payment to Vineyard Bank was omitted from the
exhibit. McCassy could not explain why
Runyon received 90 more shares than Kline received on February 2008, despite
Runyon loaning BTV approximately $21,000 less than Kline when the exhibit was
prepared.
In conclusion, the court
held, “Based on information presented by Kissen, regarding the February 28,
2008, debt conversion, when accounting for all net gains/loss in BTV ownership
by all shareholders, that fact extinguished all debts owed to Kissen by
BTV. Testimony and evidence demonstrates
that as of February 28, 2008, BTV’s board of directors offered 950 shares of
BTV, at a value of $1.19 million to Kissen, in exchange for Kissen’s agreement
to accept the shares in lieu of all debts held over BTV, and its
shareholders/directors (including Runyon).
Kissen’s acceptance of this offer, constituted a full and complete
satisfaction of all debts BTV owed Kissen, and precludes any recovery in this
matter.”
In the final written
judgment, the court ruled in favor of Runyon on every cause of action and
awarded him costs. A few weeks later,
Runyon moved to be named the prevailing party and for $25,780 in attorney fees. Kissen opposed the motion and also filed a
motion to tax Runyon’s memorandum of costs.
At the hearing, the parties submitted to the tentative ruling, which the
trial court deemed to be the final ruling.
The order stated, “Runyon was clearly the prevailing party on all claims
asserted [by] Kissen. (
[“Thus when a defendant defeats recovery by the plaintiff on the only contract
claim in the action, the defendant is the party prevailing on the contract
under section 1717 as a matter of law”].)
[Kissen’s] contention that the court resolved this matter simply based
on the affirmative defense of accord and satisfaction misstates the
record. The court specifically found in
favor of . . . Runyon on
.
. . Kissen’s four causes of action for affirmative relief in addition to
finding for [Runyon] on the affirmative defense of accord and satisfaction
[citation to final judgment]. Also . . .
Kissen sought attorney[] fees pursuant to an agreement against all defendants
so . . . Runyon is entitled to seek attorney[] fees based on this same
agreement. [Citing to
25 Cal.3d 124 (Reynolds Metal)].”
II
The Contribution Cause of Action
On appeal, Kissen only
challenges the trial court’s ruling on his contribution cause of action. Kissen’s brief devotes three pages to his
first argument that the evidence establishes, as a matter of law, that Kissen
was entitled to contribution for Runyon’s pro rata share of the amount paid on
the Vineyard Bank promissory note. He is
wrong.
“[S]ection 1432
provides: ‘Except as provided in
[s]ection 877 [effect of release, dismissal, or covenant not to sue] of the
Code of Civil Procedure, a party to a joint, or joint and several obligation
who satisfies more than his share of the claim against all, may require a
proportionate contribution from all the parties joined with him.’ [¶]
[S]ection 2848 authorizes a surety to pursue a contribution action
against cosureties. [¶] ‘A claim for contribution . . . stems from a
legally recognized right forged from principles of equity and natural
justice. [Citations.] The right of contribution, although
necessarily related to some former transaction or obligation, exists as an
entirely separate contract implied by law.
[Citation.] In situations where
two or more parties are jointly liable on an obligation and one of them makes
payment of more than his share, the one paying possesses a new obligation
against the others for their proportion of what he has paid for them. [Citation.]’
[Citation.]” (
153 Cal.App.4th 675, 683-684, fn. omitted (Morgan
Creek).)
“‘Equitable contribution
is . . . the right to recover, not from the party primarily liable for the loss, but from a co-obligor who shares
such liability with the party seeking contribution. [Fn. noting the right is codified in . . .
section 1432.] . . . Equitable
contribution permits reimbursement to the [party] that paid on the loss for the
excess it paid over its proportionate share of the obligation, on the theory
that the debt it paid was equally and
concurrently owed by [others] and
should be shared by them
pro
rata in proportion to their respective coverage of the [insurance] risk. The purpose of this rule of equity is to
accomplish substantial justice by equalizing the common burden shared by
[co-obligors], and to prevent one [obligor] from profiting at the expense of
others. [Citations.]’ [Citation.]”
(Morgan Creek, supra, 153
Cal.App.4th at p. 684.)
On appeal, Kissen
asserts there is no dispute Kissen, Runyon, Jinias, Kline, and BTV executed the
Vineyard Bank note as co-makers, jointly promising to pay the bank $500,000
plus interest. The “promise to pay” was
joint and several and it is presumed each was liable for his or her own
proportionate share (one-fifth or $100,000 each). Based on this premise, Kissen argues that
when he paid off the note in its entirety, he satisfied more than his one-fifth
share and he was entitled to obtain a proportionate contribution from those jointly
liable with him. Recognizing two of the
five co-makers were insolvent at the time of trial, Kissen argued that under
California law, the others must contribute as if the insolvent person had not
participated. Thus, Kissen, Runyon, and
Jinias were each responsible for one-third of the note, or $167,710.47. Kissen concludes, as a matter of law, he was entitled to a contribution from Runyon
for
one-third
of the amount paid on the note.
This argument fails
because it completely ignores the court’s ruling “all rights to contribution
were extinguished upon Kissen’s receipt of stock on [February 28, 2008] . . .
. Kissen’s right to contribution was
extinguished upon his receipt of increased BTV ownership.” In other words, the court concluded Kissen obtained
more than a proportionate contribution from those jointly liable to him. Specifically, BTV contributed the entire loan
amount to Kissen in the form of shares in the company. Kissen accepted the shares. In the end, BTV paid more than its share of the
obligation. As aptly noted by the trial
court, by BTV paying Kissen the entire sum, “the only party with the ability to
seek contribution was BTV; not Kissen.”
Kissen does not address
this key portion of the trial court’s ruling finding the cause of action
invalid. He mistakenly asserts the “sole
articulated basis” for denying the contribution claim was the trial court’s
finding of an accord and satisfaction (and he devoted the remainder of his
brief to attack the court’s ruling on this affirmative defense). He is wrong.
The judgment contains two reasons for ruling in Runyon’s favor. Indeed, the trial court clarified in its
later ruling on attorney fees, “[Kissen’s] contention that the court resolved
this matter simply based on the affirmative defense of accord and satisfaction
. Runyon on . . . Kissen’s four causes of action for affirmative relief in
addition to finding for [Runyon] on the affirmative defense of accord and
satisfaction [citation to final judgment].”
(Italics added.)
We conclude the trial
court’s ruling on the affirmative defense was secondary to it ruling on the
merits of the contribution claim. In
essence, it can be viewed as dicta.
Accordingly, we deem Kissen’s complete failure to address the heart of
the trial court’s ruling on the merits as a waiver for purposes of appellate
review. An appellant must affirmatively
demonstrate error through reasoned argument and discussion of legal
authority. (See Guthrey v. State of California (1998) 63 Cal.App.4th 1108,
1115-1116; Kim v. Sumitomo Bank
(1993) 17 Cal.App.4th 974, 979.)
Kissen’s assertion the contribution claim must be decided as a matter of
law in his favor, forgetting about the strong contrary evidence and court
findings, borders on the frivolous.
The trial court’s ruling
on the contribution claim is affirmed.
We need not address Kissen’s alternative appellate challenge to the
trial court’s findings on accord and satisfaction. The judgment is affirmed.
Attorney Fees
The court awarded Runyon
his request for $25,780 in attorney fees.
Kissen challenges this order on several grounds: (1) the court applied the wrong legal
standard to the question of fee reciprocity; (2) the scope of the fee provision
does not cover lawsuit between the note’s co-makers; (3) the assignment of the
Kissen Trust’s subrogation rights to Kissen rendered the note null and
void. We conclude each of these
contentions lack merit.
i. Statutory Background &
General Legal Principles
Except where a contract
or statute provides otherwise, each party to a lawsuit must pay its own
attorney fees. (Code Civ. Proc., §
1021.) Section 1717, subdivision (a),
provides in part: “In any action on a
contract, where the contract specifically provides that attorney’s fees and
costs, which are incurred to enforce that contract, shall be awarded either to
one of the parties or to the prevailing party, then the party who is determined
to be the party prevailing on the contract, whether he or she is the party
specified in the contract or not, shall be entitled to reasonable attorney’s
fees in addition to other costs. . . .”
This provision was enacted to “establish mutuality of remedy where [a]
contractual provision makes recovery of attorney’s fees available for only one
party [citations] . . . and to prevent oppressive use of one-sided [attorney
fee] provisions. [Citation.]” (Reynolds
Metals, supra, 25 Cal.3d at p. 128.)[3]
The second paragraph of
section 1717, subdivision (a), provides, “Where a contract provides for
attorney’s fees, as set forth above, that provision shall be construed as
applying to the entire contract, unless each party was represented by counsel
in the negotiation and execution of the contract, and the fact of that representation
is specified in the contract.” This
paragraph was added by the Legislature to overturn an earlier court decision
limiting the scope of an attorney fee provision in a contract. (Harbor
View Hills Community Assn. v. Torley (1992) 5 Cal.App.4th 343, 348 (
“limit an award of attorney fees to certain actions or specific provisions of
the contract” unless the contract specifies that each party was represented in
the negotiation and execution of the contract.
(Ibid.) “[S]ection 1717 has been broadened to include
all contract actions which include provisions for attorney’s fees.” (Sears
v. Baccaglio (1998) 60 Cal.App.4th 1136, 1148.) In this case, representation was not
specified in the contract, and therefore, the attorney fee provision must be
construed as applying “to the entire contract[.]” (§ 1717, subd. (a).)
Our
standard of review is as follows: “On
review of an award of attorney fees after trial, the normal standard of review
is abuse of discretion. However, de novo
review of such a trial court order is warranted where the determination of
whether the criteria for an award of attorney fees and costs . . . have been
satisfied amounts to statutory construction and a question of law. [Citations.]
[¶] Stated another way, to
determine whether an award of attorney fees is warranted under a contractual
attorney fees provision, the reviewing court will examine the applicable
statutes and provisions of the contract.
Where extrinsic evidence has not been offered to interpret the
[contract], and the facts are not in dispute, such review is conducted de
novo. [Citation.] Thus, it is a discretionary trial court
decision on the propriety or amount of statutory attorney fees to be awarded,
but a determination of the legal basis for an attorney fee award is a question
of law to be reviewed de novo.
[Citation.]” (
97 Cal.App.4th 132, 142.)
The Court’s Decision on Fee Reciprocity
In granting Runyon’s
motion for attorney fees, the court noted in its minute order, “Kissen sought
attorney[] fees pursuant to an agreement against all defendants so
.
. . Runyon is entitled to seek attorney[] fees based on this same
agreement.” Kissen asserts the court
improperly determined Runyon was entitled to reciprocal attorney fees “not on
Kissen’s actual right to recover attorneys’ fees as a hypothetical ‘prevailing
party,’ but on his alleged right to
do so.” Kissen correctly cites to case
authority holding, one may recover attorney fees pursuant to section 1717 if
one “would have been liable” for such fees had the opposing party
prevailed. (Reynolds Metals, supra, 25 Cal.3d
at
p. 129.)
Kissen argues Runyon
cannot recover attorney fees because he could not have recovered attorney fees
against Runyon. Not so. Attorney fee provisions were contained in
both the promissory note and the business loan agreement. The fee provisions contained similar
language, stating if the lender incurred legal expenses in connection with the
note or loan agreement, then the borrower would be responsible for the related
legal expenses.[4]
The original claim for
attorney fees was contained in Kissen’s fourth cause of action for surety
subrogation. In the complaint, Kissen
alleged, “48. By virtue of executing the
[l]oan [a]greement and related documents, the Kissen Trust undertook and acted
in the capacity of a surety or guarantor of all of the obligations due Vineyard
[Bank] from [d]efendants and each of them, under the [n]ote and [l]oan [a]greement. [¶]
49. The Kissen Trust satisfied
the joint and several principal obligations of the [d]efendants and each of
them, by repaying all sums due Vineyard [Bank] on the [n]ote; on or about
February 4, 2008[,] the principal balance of $500,000, plus accrued interest in
the amount of $6,135.41, a total of $506,135.41 was paid over to Vineyard
[Bank] by the Kissen Trust, to retire the Vineyard [Bank] loan. [¶]
50. The principals, BTV, Runyon,
Kline[,] and Jianas, and each of them, are bound to reimburse the Kissen Trust
for what it has disbursed, including necessary costs and expenses. . . .
[¶] [¶] 52. The [n]ote, under the heading of Attorneys’
fees: Expenses; permits the [l]ender to hire counsel to collect on the [n]ote if
the borrower(s) do not pay. It further
requires the borrower(s) to pay the [l]ender’s attorney fees and legal
expenses. [Kissen] is incurring and will
continue to incur considerable attorney[] fees expenses in prosecuting this
collection action against BTV, Runyon, Kline, and Jianas.” Kissen alleged attorney fees were authorized
by section 2848 [the surety acquires the right of the creditor upon
satisfying the obligation of the principal].)
The court ruled Kissen’s
surety claim failed based on its factual determination the Kissen Trust
voluntarily paid the loan five months before it was due. In its ruling, the court explained that for
Kissen (presumably as trustee of the family trust) to be equitably subrogated
he needed to provide evidence the payment was to protect a personal interest
and the payment was not volunteered. In
other words, the court’s factual finding Kissen’s trust voluntarily paid the
note prevented him (or the trust) from being subrogated into Vineyard Bank’s
status as a creditor. However, if
theoretically Kissen had managed to prove he did not act as a volunteer and
prevailed under the subrogation theory, he would have been entitled to attorney
fees having acquired the full rights of the creditor. We conclude the court properly applied the
section 1717 mutuality of remedy for attorney fee claims.
iii. The Scope of the Attorney
Fee Provision
Kissen maintains the
applicability of the attorney fee provision is limited to the context of
enforcement of a promissory note. He points out it is an agreement between a
lender and a borrower, which in this case referred to all five comakers
collectively and in the singular.
Moreover, the note specified all obligations were joint and
several. Kissen asserts the note
permitted the lender to recover fees against the borrower, but “does not
reflect an intention to permit one comaker to recover his attorney[] fees in a
suit against another co-maker.” He
maintains that if the parties had intended to create such a right, they would
have written the attorney fee provision more broadly or created a separate
fee-shifting agreement.
In essence,
Kissen contends the attorney fee provision would only be reciprocal under
section 1717 if the lawsuit related to a typical lender/borrower enforcement of
the note or loan agreement. This is no
longer the law. The Legislature amended
section 1717 in 1983 to overturn several cases limiting recovery of attorney
fees to a particular type of claim. (
complete mutuality of remedy where a contractual provision makes recovery of
attorney fees available to one party.” (
As we discussed above, absent exceptions not applicable in this case,
parties may not limit recovery of attorney fees to a particular type of claim,
such as a collection action. “Where a
contract provides for attorney’s fees . . . that provision shall be construed
as applying to the entire contract .
. . .” (§ 1717, subd. (a), italics
added.) As mentioned previously, if
Kissen prevailed under his subrogation theory, he would have been entitled to
collect attorney fees standing in the shoes of the lender in his action against
all comakers, including Runyon. We find
no problem with the scope of the attorney fee provision covering Runyon’s
fees.
Rights to Kissen
alleged his family trust paid off the Vineyard Bank loan as a guarantor of the
debt, thereby subrogating to Vineyard Banks’s rights and remedies pursuant to
section 2848. Kissen asserts, “those
rights, according to the complaint, were then judicially assigned to Kissen, by
virtue of the final judgment of dissolution of marriage, dated February 11,
2010.” Kissen maintains he alleged in
the complaint that he was personally entitled to enforce the note (and the
attorney fee provision) against Runyon and other comakers. On appeal, Kissen now argues he was wrong and
he actually had no right whatsoever to enforce the attorney fee provision after
he was judicially assigned the debt.
Kissen relies on legal
authority holding the assignment of a joint and several debt to one of the
co-obligors extinguishes the debt and no action can be maintained on the
original debt. He concludes the
assignment amounted to a payment, rendering evidence of that debt (the note) “
effect).” (Great Western Bank v. Kong (2001) 90 Cal.App.4th 28, 32-33
[enforcement of judgment by assignee against his partners] (
(1996) 50 Cal.App.4th 1687 (Quality Wash
Group), are particularly
instructive on this point.
We conclude Kissen’s
entire argument is based on the faulty premise Kissen’s complaint contained
allegations Vineyard Bank’s rights to enforce the note were judicially assigned
to him. The complaint simply stated the
Kissen Trust paid off the obligation to Vineyard Bank. And as discussed above in more detail, the
fourth cause of action (surety) did not allege there was an assignment of any
rights to Kissen individually. To the
contrary, Kissen alleged the Kissen Trust “undertook and acted in the capacity
of a surety or guarantor of all of the obligations due Vineyard” Bank under the
note and loan agreement. The complaint
alleged the guarantor, the Kissen Trust, repaid all sums due and the
co-obligators were “bound to reimburse the Kissen Trust for what it . . . disbursed”
and for costs incurred to pursue a lender’s collection action, including
attorney fees.
The
cases cited by Kissen are inapt as they consider whether a few
co-obligors who settle with a creditor and become assignees
of a deficiency judgment can enforce that judgment against nonsettling
co-obligors. (Great Western Bank, supra,
90 Cal.App.4th at p. 30.)
In Great Western, the court
held, “[T]he assignee partners do not acquire the assignor’s rights with
respect to the judgment. Rather, the
assignment of a joint and several debt to one or more of the co-obligors
extinguishes that debt.” (
The court explained the assignment of a joint and several debt to a
co-obligor extinguishes that debt because the assignment amounts to payment,
and the evidence of the debt, i.e., the note or judgment, becomes of no further
effect. (Id. at p. 32.) This rule
only applies where the co-obligors share primary liability. (Id. at
pp. 32-33.) In this case, it was never
alleged the Kissen Trust and Kissen (individually) shared primary liability with
the other co-makers. Rather, the Kissen
Trust was a guarantor, whose liability was second to the co-obligors. There is no question, “[T]he surety or
guarantor can maintain an action on the original obligation against the party
primarily liable for its payment.” (
Similarly
Quality Wash Group, supra, 50
Cal.App.4th 1687, addressed the liability of primary, and not secondary,
obligors. In that case, the court
stated, “It was undisputed that Quality’s liability under the Allan note was
primary. Thus, contrary to the court’s
finding that Quality was a holder in due course of the Allan note, Quality’s
payment of the note extinguished the liability of any other co-obligor under
the note, rendering the note functus
officio (of no further effect). Consequently, no action could be maintained on
the note itself. [Citations.] Quality’s remedy, if any, against the Hallaks
as co-obligors with joint and several liability would not be an action on the
note but rather one for contribution.
[Citations.]” (
In
conclusion, Kissen did not allege in his complaint a judicial assignment of the
Kissen Trust’s rights under the note to Kissen individually, to render the note
and the loan agreement void. To the
contrary, to support the surety claim, Kissen alleged the family trust was
still the guarantor of the debt and maintained it retained the right to bring a
collection action against the comakers of the loan. This claim failed on the merits for other
reasons. Nevertheless, the court could
rely on Kissen’s subrogation claim he stood in the shoes of the Kissen Trust as
creating a reciprocal right to the prevailing party (Runyon) to recover
attorney fees under section 1717.
III
The judgment is
affirmed. Respondent shall recover his
costs on appeal.
O’LEARY,
P. J.
WE CONCUR:
RYLAARSDAM, J.
IKOLA, J.
[1] We note the judgment
refers to each party and code sections using all capital letters. Throughout this opinion, and in all our
quotations from this judgment, we have changed these proper names to the format
designated in the California Style Manual.
(Cal. Style Manual (4th ed. 2000) § 4:8, p. 124.)
[2] All further statutory
references are to Civil Code, unless otherwise indicated.
