Opinion
C081586
10-23-2017
CROSS PETROLEUM, Plaintiff and Respondent, v. RAJINDER SINGH BAL, Defendant and Appellant.
NOT TO BE PUBLISHED California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published,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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 167467)
The present appeal is the converse of plaintiff's prior appeal in this matter. Here, defendant Rajinder Singh Bal appeals from the final judgment in favor of plaintiff Cross Petroleum on defendant Bal's guaranty of a credit agreement between plaintiff Cross Petroleum and a gas station that Bal's former codefendants owned and operated (who are no longer parties to this action). In response to our previous opinion on the appeal of plaintiff Cross Petroleum, in which we reversed and remanded because we found the guaranty was not void for uncertainty (Cross Petroleum v. Bal (June 11, 2015, C075956) [nonpub. opn.] (Cross Petroleum)), the trial court rejected defendant Bal's claim of exoneration (which we had directed it to consider) without receiving any additional evidence (which we had given it discretion to admit on remand). It is now defendant Bal's turn to appeal.
Defendant Bal unaccountably assumes the mantle of "plaintiff" in his briefing.
Plaintiff Cross Petroleum curiously accepts the designation of "defendant," and entitles its respondent's brief, "Appellants' Opening Brief" (sic).
In this appeal, defendant Bal contends that the trial court erred in failing to shift the burden of proof to plaintiff Cross Petroleum on the issue of consent in connection with the exoneration defense, and that he was entitled to exoneration simply because he did not consent to a material change in his guaranty resulting from the terms of a subsequent agreement for fuel sales between plaintiff Cross Petroleum and Bal's former codefendants. We shall affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
Given the limited nature of our remittitur and the absence of any additional evidence on remand, we incorporate the facts relevant to this appeal from our prior nonpublished opinion. (Cross Petroleum, supra, C075956.)
Cross Petroleum had an affiliated company that was offering to sell the fixtures and lease the land at two Chevron stations in Redding in July 2005. Former codefendant Khalid Masood, president of former codefendant K.M. Western Investment Corporation (K.M. Western), had been investigating this business prospect. In July 2005, Masood and defendant Bal had a "meet and greet" with the credit manager for plaintiff Cross Petroleum and its affiliate. Defendant Bal gave a completed credit application that he had signed on behalf of K.M. Western to the credit manager. Masood and defendant Bal told the credit manager that while Masood had the experience operating gas stations, he had bad credit and defendant Bal was consequently introduced as the "money man." The credit manager did not discuss the provisions of the credit agreement with them. Nonetheless, defendant Bal was an experienced businessman who had previously executed a personal guaranty for a hotel he operated. Defendant Bal never had any further direct contact with the credit manager.
K.M. Western, an empty shell without assets, consented to entry of a default judgment against it. Masood was dismissed after discharging his obligation to plaintiff Cross Petroleum in bankruptcy. Plaintiff Cross Petroleum dismissed a deceased codefendant before trial, who had been the one operating the gas station. A remaining codefendant appeared in propria persona at trial, and was found liable as a joint venturer (but is presumably judgment-proof).
The credit application did not specify a credit limit, expected monthly purchases, or the type of product to which it would apply. Defendant Bal understood these figures could not be calculated at that point because it was unknown how much fuel or what type they would be needing for the gas stations. The application specified that billing would be semimonthly, with payment due in 10 days. Defendant Bal signed the application as secretary-treasurer of K.M. Western, and identified himself as the bookkeeping contact (although he was not in fact a corporate officer and did not have any function connected with corporate finances). As signatory, defendant Bal "personally guarantee[d] payment of the account notwithstanding the manner or capacity in which I sign my name below and further notwithstanding the status I may have as an officer[, etc.]."
Based on defendant Bal's excellent credit rating, plaintiff Cross Petroleum approved the credit application in mid-August 2005, initially assigning a $20,000 credit limit. Plaintiff Cross Petroleum then entered into the property transactions for the two Redding service stations with K.M. Western, and a fuel sales agreement that (inter alia) obligated K.M. Western to purchase a minimum of 800,000 gallons of fuel per month for 10 years. The fuel sales agreement also expressly incorporated by reference the previously executed guarantee of defendant Bal. Defendant Bal did not participate in these negotiations. At some subsequent point, the credit manager for plaintiff Cross Petroleum increased the credit limit to $40,000. When one of the service stations went into default in July 2009, it had an outstanding balance for unpaid fuel amounting to more than $75,000 (with interest). Liquidated damages under the fuel sales agreement's purchase minimum were more than $221,000.
In reversing the trial court's judgment in favor of defendant Bal, we explained that the guaranty in the credit application—as applied to the fuel sales agreement—was a continuing guarantee of all fuel debts that the gas stations incurred. Any "uncertainty" in such guarantees was inherent, and therefore it was enforceable. Defendant Bal, who was an experienced businessman, could have but did not place an upper limit on his personal continuing guarantee (which means the original credit limit and its subsequent increase are immaterial). However, we found that defendant Bal had pleaded and put into issue—just barely—the defense of exoneration. We thus remanded for the trial court to consider that issue on which it had not ruled.
These principles are demonstrated, for example, in Standard Oil Co. v. Houser (1950) 101 Cal.App.2d 480, 487-488 (guaranty of all goods sold to debtor on credit, which occurred before terms of fuel sales agreement negotiated and credit cards issued, and as a result those terms "of no concern" to guarantor), and Sopris v. Continental Mfg. Corp. (1935) 6 Cal.App.2d 416, 419 ("blanket" guarantee of all costs up to 50,000 units, which antedated subsequent sales contract).
Neither the parties nor the trial court saw any need for additional evidence. Without elaboration, the court found defendant Bal (as to whom it reiterated its former finding of a lack of credibility) had not introduced sufficient evidence in support of the exoneration defense, and accordingly entered judgment against defendant Bal.
DISCUSSION
1.0 Burden of proof
On appeal, defendant Bal claims the trial court incorrectly placed the full burden of proving exoneration on him. Defendant argues that once he established a change from the credit agreement in the terms of the fuel sales agreement that occurred without his consent, the burden shifted to plaintiff Cross Petroleum to establish his consent.
Exoneration is an affirmative defense. (Alexandrou v. Alexander (1974) 37 Cal.App.3d 306, 315.) As such, the burden of proof is on a defendant. (Evid. Code, § 500; see Morris v. Williams (1967) 67 Cal.2d 733, 760.)
Defendant Bal cites two cases to support his contention. (Tuohy v. Woods (1898) 122 Cal. 665, 667 ["When a surety has shown that the contract as to which he became surety has been changed, he has then shown that there has been an attempt to make him liable on a new and different contract; and the burden is then upon the other party to show that [he] consented"]; accord, Barrett-Hicks Co. v. Glas (1908) 9 Cal.App. 491, 497-498.) These are inapposite. The former involved a promissory note on which the debtor received an unconsented extension of time to pay; the latter involved changes to the specifications in a guaranteed building contract. As such, these cases involve a fixed guaranty of specified terms in a particular contract that were altered, requiring the opposing party to bear the burden of proof on the issue of consent.
Defendant Bal did not guarantee a specific contract or obligation. His continuing guaranty was for payment of all future purchases of fuel. Defendant Bal understood the type of product and the quantities of gasoline necessarily would be determined later based upon consumer demand. The burden thus remained on defendant Bal to establish that the contractual terms entered into between K.M. Western and plaintiff Cross Petroleum were outside the scope of terms that are "common in similar contracts at the place [of performance]" or otherwise so materially different from what he could reasonably have anticipated in contracts for petroleum in the Redding market. (Civ. Code § 2799; see id., § 2819; see also Central Building, LLC v. Cooper (2005) 127 Cal.App.4th 1053, 1060-1061 & fn. 8.) We therefore reject this argument.
2.0 Exoneration
We turn to the sufficiency of the evidence to support a defense of exoneration. Defendant Bal argues that he was entitled to exoneration if he could show a material change occurred from the terms of the original credit agreement, and this change occurred without his consent. Plaintiff Cross Petroleum argues that defendant Bal did not produce any evidence to support exoneration because the credit agreement and the fuel sales agreement were unremarkable standard agreements that plaintiff Cross Petroleum used in the ordinary course of business in the Redding area.
As Cross Petroleum, supra, C075956 explained, a continuing guaranty is inherently uncertain, and as a result exoneration will apply only where the nature of subsequently arising material terms is so contrary to ordinary business norms or was a modification that a guarantor could not have reasonably anticipated. While defendant Bal is fixated on a lack of his consent to the terms of the fuel sales agreement, we have now reiterated that this is not a relevant consideration absent a demonstration that the terms were outside ordinary business norms or his reasonable expectations in this context. In this same vein, defendant Bal misses the point that even a material change is not per se outside ordinary business norms or his personal expectations. Defendant Bal guaranteed payment of fuel deliveries within the ordinary course of business at the gas stations, something one might want to explore with a business partner before agreeing to execute a guaranty in the partner's behalf; it is thus his burden to establish that something was out of the ordinary in the manner in which the fuel transactions were structured.
We thus disregard his lengthy claim that the trial court committed reversible error in finding that he consented to the changes that the fuel sales agreement effected (a finding, we note, that is nonexistent). --------
In Cross Petroleum, supra, C075956, we specifically focused defendant Bal on the need to point to the record for evidence that satisfies the above criteria. In response, defendant Bal asserts there are "four" material changes (discussing only three, however) resulting from the terms of the fuel sales agreement: accelerating payment to net cash at time of delivery rather than 10 days after invoice date; a limitation on damages that precluded either party from recovering indirect, special, incidental, punitive, or consequential damages; and the minimum monthly purchase obligation of 800,000 gallons for 10 years.
Declaring these terms in the fuel sales agreement to be "material" ipse dixit does not make them so. Defendant Bal does not present any cogent analysis of the manner in which the acceleration of payment terms for the debtor materially increased his liability for the amounts due (as would be the case if plaintiff Cross Petroleum changed the terms to allow the debtor to accrue significant debt with delayed payments). Nor, for that matter, does a mutual preclusion of damages beyond breach of contract seem to have any relevance in any action involving his guaranty of a contract (as would be the case if the subsequent agreement provided for the recovery of such extracontractual damages). Finally, it is specious for defendant Bal to suggest that his guaranty liability under the original credit agreement was limited to "one load of fuel, no more." He was guaranteeing credit for fuel purchases for the ordinary course of business at the gas stations over the course of their operations. Defendant Bal does not point to any evidence that the minimum purchase requirement in the fuel sales agreement would be materially in excess of the ordinary operation of the business (or such businesses in the community), such that it overtaxed the financial resources of the debtor; we certainly could not take judicial notice that this is true.
In any event, defendant Bal has once again failed to explain how any of these changes are out of the ordinary for fuel contracts in the community or contrary to the reasonable expectations of a guarantor of fuel deliveries, given the evidence that these are form agreements customarily used in the course of the operations of plaintiff Cross Petroleum in the community. Absent that, his purported lack of consent is irrelevant. Therefore, we find defendant failed to produce sufficient evidence that he was entitled to exoneration.
DISPOSITION
The judgment is affirmed. Plaintiff and respondent Cross Petroleum shall recover its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)
BUTZ, Acting P. J. We concur: MURRAY, J. HOCH, J.