Opinion
10-18-1956
W. E. WILLIAMS, Plaintiff and Respondent, v. Glen E. REED, Robert M. Cairns, Kenneth W. Arvidson, Thomas F. J. Carroll, Jr., Defendants and Appellants. * Civ. 16862.
W. E. WILLIAMS, Plaintiff and Respondent,
v.
Glen E. REED, Robert M. Cairns, Kenneth W. Arvidson, Thomas F. J. Carroll, Jr., Defendants and Appellants. *
Oct. 18, 1956.
Rehearing Denied Nov. 16, 1956.
Hearing Granted Dec. 12, 1956.
Devine, J. pro tem., dissented.
Athearn, Chandler & Hoffman, F. G. Athearn, Leigh Athearn, San Francisco, for appellant Cairns.
Roscoe E. Jordan, Oakland, for appellant Carroll.
Carlson, Collins, Gordon & Bold, Martinez, for appellant Arvidson.
Herron & Winn, John Wynne Herron, San Francisco, for respondent.
PER CURIAM.
In April, 1951, plaintiff sued to enforce payment of two negotiable promissory notes and to foreclose a chattel mortgage given to secure them. Both notes were dated June 14, 1950, formulated in the singular, (I promise) and signed by all defendants, Arvidson, Carroll, Reed and Cairns, as makers. One note was for $30,000 due April 14, 1950, the other for $10,000 due December 14, 1950. Both provided for the payment of 5% interest and of costs and attorney's fees in case of suit. The chattel mortgage was executed by defendant Reed on the same date as the notes it secured.
In the action Reed defaulted and judgment was entered as to him and foreclosure of the chattel mortgage decreed. The other defendants answered in two separate pleadings one of defendant Cairns one of defendants Arvidson and Carroll. As for the purpose of the appeal there is no essential difference between the answers they will be considered together. They contained the following defenses on the ground of which said defendants moved for a summary judgment, to wit, that an agreement made on October 12, 1950 between plaintiff, Reed and Reed's wife regarding the debts and mortgage constituted a novation, which released the cosigners of the notes, that the fact that plaintiff had brought suit on said agreement and had obtained judgment constituted an election which estopped plaintiff from proceeding on the notes and that plaintiff by his prior action had waived the chattel mortgage to the prejudice of the defendants and had thereby lost his rights against them. The answers contained also allegations to the effect that the answering defendants were accommodation makers for Reed, who received the consideration, a loan of $30,000, that the note of $10,000 was given as a bonus for the loan and lacked consideration and that the transaction as a whole was usurious. The trial court dismissed the action summarily as to all defendants except Reed. Plaintiff appealed from the summary judgment of dismissal, which was reversed by the other division of this court, Williams v. Reed. 113 Cal.App.2d 195, 248 P.2d 147.
In the opinion, herein further called the prior opinion, Mr. Justice Wood stated and analyzed the contents of the agreement of October 12, 1950 at length. It can be summarized as follows: Williams agreed to accept payment of $35,000 plus interest on or before October 28, 1950 in full settlement of both notes. Until said date action on the notes and on the chattel mortgage woudl be withheld. Reed agreed to pay the $35,000 within said time, and confessed judgment accordingly. Reed and his wife waived all defenses and remedies against the contract, the notes, the chattel mortgage, the judgment and its exeuction on their personal property including that subject to the chattel mortgage. Mrs. Reed agreed that the chattel mortgage be deemed to have been executed by her as well as by her husband. Reed warranted that the chattel mortgage was the paramount lien on all chattels subject to the mortgage.
At the time of the prior appeal it appeared that judgment on the contract had been obtained but that nothing had been paid on it and it did not appear that any steps to enforce the judgment by levy of execution or otherwise had been taken. The district court held that from the agreement of October 12, 1950, without further evidence, no intention to substitute said agreement for the notes appeared and that even if there had been a substitution as to Reed such would not necessarily have released Reed's comakers. That the co-markers of notes as here involved were presumed to be jointly and severally liable, Civil Code, §§ 1660, 3098 subd. (7) and that then not bringing of action against one, but only satisfaction in some form could constitute a bar as to the others. That section 726 of the Code of Civil Procedure recognizing for a debt secured by mortgage one form of action only and prescribing the requirements for a deficiency judgment was not applicable to the prior action of plaintiff because it was not brought on the secured notes but on the separate agreement with the Reeds. The reversal of the summary judgment was stated to be without prejudice as to any issue of fact thereafter to be tried. The Supreme Court denied a hearing.
In the further proceedings the cause of action relating to the note of $10,000 was dismissed on plaintiff's motion. After trial the court found in substance that from the note of $30,000 only $687 had been paid, which amount was received from the foreclosure sale of the chattel mortgage, that each of the defendants received valuable consideration for the making of the note and were not accommodation parties, that with respect to the note of $30,000 no usury was involved as the note of $10,000 given was a separate transaction, that the defendants approved the execution of the agreement of October 12, 1950, that the execution of said agreement did not cause a novation, or a merger of the obligation of defendants under the note, that the same applies to the complaint and judgment in the prior action, that the liability of defendants was in no way extinguished and that the present action did not violate section 726 of the Code of Civil Procedure. Judgment was for plaintiff and the three defendants appeal.
Only Cairns filed briefs on appeal. Arvidson and Carroll joined in said briefs, although it is the position of Cairns, that he did not become a comaker of the notes under the same circumstances as Arvidson and Carroll. He urges on appeal that the finding that he received consideration and was not an accommodation maker is not supported by the evidence, that as an accommodation maker he may interpose the defenses that by obtaining a judgment on the agreement of October 12, 1950, procuring a writ of execution and recording an abstract of judgment respondent made a binding election which precluded him from further action on the notes and the chattel mortgage also as to appellants, especially when section 726 of the Code of Civil Procedure is considered and that the alteration of the obligation of Reed by the agreement of October 12, 1950 to which appellant Cairns did not consent exonerated him. He urges that the finding of his consent is contrary to the evidence. Finally, he predicates error on the allowing of interest, and the finding of absence of usury from the note of $30,000, because the evidence shows that the two notes were a single transaction.
The evidence shows that Arvidson, Carroll, and Cairns were all in business relations with Reed. Reed professed to be able to assist each of them in organizing the various projects in which each was interested in the form of a foundation to be directed by a corporation of which the defendant would be a director. The character of a foundation would make possible the obtaining of large funds from organizations like the Rockefeller foundation and the defendant would obtain profit by means of his directorate of the managing corporation or still more indirectly. There would also be an important advantage with respect to taxes. Reed himself pretended to be a large scale operator in this manner, but to be temporarily short of money, which he proposed to obtain by a fantastic real property transaction. Thirty thousand dollars would enable him in a very short time to buy and sell a farm with great profit. He, therefore, could give a bonus for a short term loan. Arvidson and Carroll, who knew the plaintiff Williams, a florist with some savings, induced Williams to loan the thirty thousand dollars for the real property transaction. There is evidence, both from testimony of Williams and in a deposition of Reed, indicating that in a conference with Reed, Arvidson and Carroll, Williams was given to understand that the profits of the real estate transaction would not go to Reed alone but also to the foundations to be formed for Arvidson and Carroll. The financial interest of Arvidson and Carroll, who were known to Williams, whereas Reed was not, played a part in Williams' decision to make the loan. The first payment (of $5,000) made by Williams was in a check to Arvidson. These circumstances justify under the law to be stated hereafter the finding that Arvidson and Carroll were not accommodation makers, who were lending their names only to Reed, but were themselves beneficially interested in the loan.
However, there is no such evidence supporting the finding that Cairns was not an accommodation maker. The evidence shows that he had declared that he was unable to assist Reed in finding a lender, that he was not present when Reed made his representations to Williams, that he was only asked to sign by Williams and Arvidson because Williams thought the security of the other signatures and the chattel mortgage insufficient for a loan of $30,000, and that in their presence, Cairns before signing, asked Reed by telephone whether he could be sure that the note gave Reed time enough to pay back. Reed did not declare that he had promised Cairns any part of the profit on the real estate transaction for Cairns' foundation, as he had stated with respect to Arvidson and Carroll. The only interest which it is contended that Cairns may have had in the loan is, that the fact that Reed would be freed from his own financial difficulties would better enable him to work on the organization of Cairns' foundation and corporation. As the circumstances under which Cairns became a comaker of the notes are undisputed the question whether Cairns under these circumstances was an accommodation maker is one of law.
The essential characteristic of accommodation is the loan of credit (name) to another person, who receives or has received the consideration and is to provide for the bill or note when it falls due. Civ.Code, sec. 3110; 11 C.J.S., Bills and Notes, §§ 737, 741, 742; Gardiner v. Holcomb, 82 Cal.App. 342, 353, 255 P. 523; Brown v. Volz, 90 Cal.App.2d 793, 799, 204 P.2d 110. There can be no doubt that Cairns' action conformed to said test. However, even when there is a loan of credit to another person, the one lending his name may have such an interest in the underlying transaction as to constitute consideration going to him personally and to prevent him from being an accommodation party. 11 C.J.S., Bills and Notes, § 742, p. 297; Gardiner v. Holcomb, supra; In re Estate of Chamberlain, 44 Cal.App.2d 193, 201, 112 P.2d 53, 934. So it was held in Gardiner v. Holcomb, supra, that a director and large stockholder of a corporation who signed a renewal note for an obligation for which notes of the corporation endorsed by all its directors were collateral, was not an accommodation maker, but that the wife of another director and stockholder who with that director also signed the renewal note, but who did not own stock was an accommodation maker for the directors. In Re Estate of Chamberlain, supra, 44 Cal.App.2d at page 199 et seq., 112 P.2d at page 56, it was held, reversing the trial court, that a widow who together with her son signed a note to replace one given by her deceased husband and the son, for a loan taken up by the son, was not an accommodation maker, where mother and son were administrators and heirs of the estate of the father and the signing was part of an agreement with the son with respect to the estate favorable to the mother. In Warren Nat. Bank, Warren, Pa. v. Suerken, 45 Cal.App. 736, 188 P. 613, it was held in reversing the trial court that a daughter who was an heir at law of her deceased father and one of the organizers of the family corporation that was taking over his business was not an accommodation party to notes given to prevent the Bank from enforcing against the estate notes it held from the deceased. In Irwin v. Colburn, 56 Cal.App. 41, 204 P. 551 it was held that a canning company who endorsed notes for rent of one who was to raise tomatoes on the rented land and sell the tomatoes to the canning company was not an accommodation endorser. Many other examples are found in 11 C.J.S., Bills and Notes, § 742, P. 297. In none of the cases known to us in which it was held that the contended accommodation party had received consideration was his relation to the underlying transaction so indirect and remote as in this case. Cairns would not receive any advantage from the loan itself but only from the peace of mind of Reed which was expected to result from the loan. Not every motive for the loan of credit which is not purely altruistic can be considered consideration or value received from the transaction. The wife of the director in Gardiner v. Holcomb, supra, may well have had a selfish interest in the position of her husband but it was nevertheless held in reversing the court below that she was an accommodation party because she had no direct interest as stockholder or as signer of the collateral notes. We hold that the interest of Cairns was too indirect to justify the finding that Cairns was not an accommodation maker but received value.
With respect to Arvidson and Carroll, who were correctly found not to be accommodation makers, the prior opinion in this case clearly indicates that they were not released by the acts of Williams, even if there acts prevented further action on the notes against Reed himself. (It is now conceded that the agreement of October 12, 1950 did not constitute a novation but it is contended that the judgment obtained on said agreement, the issue of execution, and the recording constituted a binding election, as destructive of the cause of action on the original notes as a novation.) It was pointed out in said opinion, 113 Cal.App.2d at page 202, 248 P.2d at page 152 that even with respect to joint debtors, § 1543 of the Civil Code provides that the release of one "does not extinguish the obligations of any of the others, unless they are mere guarantors; nor does it affect their right to contribution from him." In Elizalde v. Murphy, 146 Cal. 168, 171, 79 P. 866, 867, it is said: 'The provisions of this section are universal, and include all releases, whether resulting from operation of law, or by virtue of a statutory provision, or by the direct act of the party with whom or for whose benefit the obligation was entered into.' See also section 3200 of the Civil Code which in its enumeration of manners in which a negotiable instrument is discharged does not mention any manner which could have caused discharge in the situation before us. As stated also in the prior opinion, citing Grundel v. Union Iron Works, 127 Cal. 438, 442, 59 P. 826, 47 L.R.A. 467, "Nothing short of satisfaction * * * constitutes a bar" to an action against the remaining joint and several obligors (113 Cal.App.2d at page 204, 248 P.2d at page 154) and section 726 of the Code of Civil Procedure does not prevent the present action, as the prior action was not brought on the notes but on Reed's separate agreement of October 12, 1950 (113 Cal.App.2d at page 205, 248 P.2d at page 154). The liability of Arvidson and Carroll on the notes must be upheld.
The liability of Cairns presents a more complicated problem if it is accepted that he was an accommodation maker. This problem was not considered in the prior opinion because there was in that respect a triable issue of fact (113 Cal.App.2d 200, note 1, 248 P.2d at page 151). An accommodation maker is on the face of the instrument a primary party, absolutely required to pay the same. Section 3266a, of the Civil Code; Schaeffie v. Nolan, 155 Cal.App.2d 651, 657, 252 P.2d 732, 35 A.L.R.2d 1027. He is liable as such to a holder for value, notwithstanding such holder knew him to be an accommodation party, Section 3110 of the Civil Code, and is considered liable in that manner also as to the payee. California Nat. Bank of San Diego v. Ginty, 108 Cal. 148, 151, 41 P. 38; 8 Cal.Jur.2d 423. However, in his relation to the accommodated party he is a surety and is entitled to reimbursement from him. This dual relation causes a problem when a payee or holder in due course with knowledge of the accommodation character of a primary party does acts which may prejudice said party and would constitute a defense if said party was simply a surety. This question, which has caused much disagreement among courts and legal writers, has been treated at length but not generally solved in Mortgage Guarantee Co. v. Chotiner, 8 Cal.2d 110, 64 P.2d 138, 108 A. L.R. 1080. The court states that the majority of jurisdictions in which the question has been decided adheres to the rule that suretyship defenses cannot be set up by an accommodation maker of a negotiable note. Although our Supreme Court is critical of the majority reasoning, based on the absence of surety defenses from the enumeration of the manners in which a negotiable instrument and therefore, as urged, also the persons primarily liable on it can be discharged, Uniform Law, § 119, Section 3200 of the Civil Code, which restriction is said to show the actual intentto deprive any party primarily liable from the protection of said defenses, the court adopts said majority rule in the interest of uniformity insofar as the defense of the granting of a binding extension of time to the principal debtor without consent to the accommodation maker is concerned, which defense the court considers as a more technical one, not likely to result in real injury. The court, however, expressly limits its ruling to the defense of extension of time. It states that the jurisdictions which with respect to that specific defense follow the majority rule sometimes deviate when a less technical defense, like that of release of security is presented, but at the same time the court points out that the reasoning based on an express legislative intent to abrogate the surety defenses of accommodation parties does not leave much room for distinction. The law, as stated in the above case has not been further developed in California. However, as the Supreme Court in the principal case indicates that it does not consider the rule refusing surety defenses to an accommodation maker as intrinsically sound, but accepts it with respect to the one defense of extension of time only in the interest of uniformity, following the great weight of authority, the rule excluding such defenses should in this jurisdiction only be followed with respect to those specific defenses which are excluded by a clear weight of authority. In general, this is not the case with other defenses than the one of extension of time. Britton Bills and Notes, 1121 et seq.; See Annotation, 2 A.L.R.2d 260.
The surety defenses proposed by appellant combine alteration of the original agreement without consent of the surety and discharge of the main creditor by election to pursue an inconsistent cause of action of judgment and execution. The first of these two contentions is not well taken. Appellant Cairns Concedes that the agreement of October 12, 1950 did not constitute a novation but was a mere executory accord so that when Reed failed to live up to, it, plaintiff could have brought action on the notes against all parties. Plaintiff does not contend that appellant Cairns became a surety on the accord agreement and brings his action against him solely on the note for $30,000. The only way in which the executory agreement affected the note was by an extension of time, which defense, as we have seen, is not available to an accommodation maker. It is, therefore, irrelevant whether Cairns consented to the agreement, which, if executed would have led to the discharge of the notes without any payment by himself, or not.
However, there is merit in the contention that when plaintiff based his prior action against Reed on the accord and not on the notes and pursued said action to judgment, he made an election which prevented plaintiff from thereafter bringing action against Reed on the notes. Evidently, plaintiff was entitled to recover, either on the accord or on the original obligation, but not on both. (Restatement, Contracts, § 417; 6 Williston on Contracts, Revised Ed. 5207). The liability of the surety normally ceases with the liability of the principal, except where the liability of the principal ends because of his personal disability, § 2810 of the Civil Code; Anderson v. Shaffer, 98 Cal.App. 457, 460, 277 P. 185; See Restatement, Security, § 122. There is here no contention or evidence that Cairns consented to the institution of the prior action and agreed to remain liable as a surety notwithstanding the fact that Reed was released from his obligation on the notes. From the standpoint of suretyship the defense is good. The defense is technical and finds little support in equity considering that Reed defaulted and was held liable in the action on the note and Cairns was not actually prejudiced. However, sureties are favored and strictly protected in our law. 23 Cal.Jur. 1023; Suretyship, § 24. In section 2821 of the Civil Code it is expressly provided that if a surety is exonerated by an agreement altering the original obligation of the debtor or impairing the remedy of a creditor, the recission of said agreement does not restore the liability of the surety. No more can it be said, that, if Cairns was exonerated by the judgment against Reed on the accord, the fact that Reed defaulted in the action on the note could reinstate Cairns as a surety. In contrast to the rule with respect to extension of time, the defense of release of the principal is as a rule considered available to an accommodation maker. 11 C.J.B., Bills and Notes, § 752, p. 323; Britton on Bills and Notes, p. 1123. It must also be noted that we are here concerned with the suretyship relation between the immediate parties to the instrument in which normally all defenses of the general law are available as if there were no negotiable instrument. (Brannan's Negotiable Instrument Law, 7th Ed. 1125). We are constrained to hold that Cairns was exonerated.
We also agree with appellants in that the evidence shows without any possible doubt that the two notes of $30,000 and $10,000 were given as one transaction for the single consideration of a loan of $30,000. (The actual amount of the loan was $29,995, but the minimal difference of $5 can be disregarded.) Williams himself considered the note of $10,000 as a bonus for the loan. Reed thought that finder fee sounded better. The finding that there were two separate transactions is contrary to the evidence. There is no doubt that said transaction in its entirety violated paragraph 2 of the Usury Law, Deering's Gen.Laws, Act 3757, West's Ann.Civ.Code, § 1916-2 which prohibits the receipt in any form of any greater value for a loan than the rate of interest there provided for and in case of such violation declares void any agreement to pay interest in any sum. Williams' argument that the bonus note was voluntarily offered and that he dismissed the action on it cannot avail him. When the transaction clearly violates the above prohibition, the intent of both or either of the parties is immaterial, Martin v. Kuchler, 212 Cal. 536, 539, 299 P. 52 and so is the circumstance that not the lender but the borrower took the initiative to the transaction, Martin v. Ajax Construction Co., 124 Cal.App.2d 425, 431, 269 P.2d 132. It was error to provide for the payment of any interest.
With respect to defendant and appellant Cairns, the judgment is reversed with direction to the trial court to deny all recovery against him; with respect to defendants and appellants Arvidson and Carroll, the judgment is reversed insofar as it awards plaintiff recovery of interest with direction to the trial court to amend the judgment so as to exclude the recovery of any and all interest. In all other respects the judgment is affirmed, defendants and appellants Arvidson and Carroll to bear their own costs on appeal.
Appellant Cairns to recover his costs on appeal.
DEVINE, Justice pro tem.
I dissent.
I concur in affirming the judgment against defendants Arvidson and Carroll, and in the elimination of interest because of usury, but I dissent from the decision which releases defendant Cairns from the effect of his signing as comaker a promissory note for $30,000 on the proposition that he is an accommodation party, and that as such he is discharged by a suretyship defense.
In the first place, it does not seem to me that it should be held as a matter of law and contrary to the finding and conclusion of the trial court, that Cairns was an accommodation maker. In deciding the question whether or not one who signs a promissory note is an accommodation party, the test, according to section 3110 of the Civil Code, is whether or not he signed 'without receiving value therefor, and for the purpose of lending his name to some other person.' It is presumed that the payee became a party for value. Section 3105, Civil Code. Value in the negotiable instruments law is any consideration sufficient to support a simple contract. Section 3106, Civil Code. Therefore, the inquiry is pushed back to the query whether or not the evidence contrary to the presumption is so overwhelming as to make the trial court's conclusion an arbitrary one. I do not find the evidence to be so, but rather I regard it as supporting the presumption. Cairns did not lend his name to Reed primarily for Reed's benefit; he signed the note in anticipation of profit. The evidence to that effect is this: Reed, a confidence man who later was sentenced to prison, persuaded Cairns to sign the note by which Williams handed Cairns a check for $24,995 to Arvidson, upon the proposition that Cairns would form an agricultural foundation to revitalize soils, and that he, Reed, would assist and would obtain money for the foundation from philanthropic organizations with which he had contacts. Cairns testified that he expected to gain from the project by selling to growers chemicals with which to revitalize their soil. He testified that he hoped to sell an overhead irrigation system to Reed. Reed told Cairns that he needed $30,000 to cover personal expenses, and that he was not in any mental condition to contact the prospective benefactors of the Cairns Agricultural Foundation, which had been formed in anticipation of Reed's promised contacts with the great foundations, from the Rockefeller down, until his own pressing financial problems were solved. Cairns' hopes for profit (perhaps accompanied with a certain humanitarian desire with regard to the foundation but not with regard to Reed) were the reasons for his signing the note, and the fact that the whole plan appears chimerical in retrospect does not do away with the fact that the loan to Reed by Williams was desired by Cairns because of the latter's hopes for gain.
It is said in the majority opinion that the possible benefit to Cairns was too indirect to prevent him from being other than an accommodation party; but what principle of law distinguishes benefits sufficiently direct and those which are too indirect and does so with sufficient clarity and force as to overcome the presumption that value was given, and to overcome, as well, the inferences drawn by the trial court? It would seem that the statutory definition of value, as given above, should apply. In Gardiner v. Holcomb, 82 Cal.App. 342, 353, 255 P. 523, 528, it is said: 'While a party's intent may be to aid a maker of a note by lending his credit, if he seeks to accomplish thereby legitimate objects of his own and not simply to aid the maker the act is not for accommodation.' In that case, the stockholder and officer of a corporation who signed the company's note was held not to be an accommodation maker, while his wife, who held no stock or office, was held to be an accommodation party. Husband and wife were considered in accordance with the general laws relating to spouses, as separate parties in contracting. In the present case, an advantage to Cairns himself was his motive for signing.
Assuming Cairns to be an accommodation maker in relation to Reed, it does not follow that the holder of the note is affected by that relationship. An accommodation maker is liable to a holder in due course. Section 3110, Civil Code. Even the fact that the holder might have known a defendant to be a guarantor in his relation to other defendants would not make him a mere guarantor as to the payee, where it appears from the note that he is a maker. Casner v. San Diego Trust & Savings Bank, 34 Cal.App.2d 524, 534, 94 P.2d 65.
Here, again, the case of Gardiner v. Holcomb, supra, is distinguishable. In that case, the holder of the note was not a party. It was a case in which contribution was sought. The case was described in Harris v. Holland, 107 Cal.App. 646, at page 654, 290 P. 903, at page 906, as holding only 'that, where three persons sign a note for the purpose of raising funds for a corporation and two of them are both stockholders and directors of that corporation and the third has no interest in it, if either of the first two are compelled to pay the note, they have no right to contribution form the third.'
To what extent the suretyship defenses other than that of extension of time apply to negotiable instruments in this state is a question left open to the Supreme Court in Mortgage Guarantee Co. v. Chotiner, 8 Cal.2d 110, 64 P.2d 138, 108 A.L.R. 1080.
In the present case, the defendant were comakers, who signed in the singular, and the presumption is that their liability was joint and several. Section 1660, Civil Code. It would seem that nothing short of satisfaction by Reed would constitute a bar to this proceeding. Williams v. Reed, 113 Cal.App.2d 195, 204, 248 P.2d 147. No satisfaction, of course, has been shown.
It is contended by appellant that he has been prejudiced by respondent's action in proceeding on the agreement in that the security has been lost, because by section 726 of the Code of Civil Procedure, there can be but one remedy on a debt secured by mortgage, and that by proceeding on the debt, the creditor waives the security. This argument, too, has been answered in the earlier decision 113 Cal.App.2d at page 205, 248 P.2d at page 154. Respondent, in proceeding originally on the agreement, did not lost his right to proceed on the notes, and, therefore, the mortgage security was not lost.
At the present stage of the cause, this is not merely legal reasoning. Actually, the chattel mortgage has been foreclosed in accordance with the complaint, which is one for foreclosure and deficiency judgment, and the property has been sold and the amount realized has been applied on the judgment, for the benefit of appellants as well as of the others. I do not see how appellant can be held to have been prejudiced by what he thinks might have happened in face of the fact that he actually received the benefit of the security.
If another reason is required on this point, it is this: the law is that a guarantor's liability (assuming Cairns to be a guarantor) may be enforced without first resorting to the mortgage security, Loeb v. Christie, 6 Cal.2d 416, 57 P.2d 1303, because the section is for the benefit of the mortgagor only. Martin v. Becker, 169 Cal. 301, 146 P. 665. Thus, if Cairns were a guarantor, he would have lost nothing that he was entitled to have. In fact, to avoid this, he argues towards the end of his brief that he was primarily liable, and that the rule of Loeb v. Christie, supra, which applies to guarantors, does not apply to him. Thus, he brings us back to the correct position, that he is not a mere guarantor at all.
The majority opinion states that Williams made an election which prevented him from bringing action against Reed on the notes. The fact is that he brought action against Reed on the notes and obtained judgment and brought action against Arvidson and Carroll on one of the notes and the majority opinion sustains the judgment (except as to interest) against the latter two against their appeal.
The majority opinion concedes that Cairns' defense finds little support in equity. I believe neither law nor equity compels the reversal of the judgment against Cairns, and that the judgment should be affirmed, modified, however, first, by elimination of interest and, second, by reduction of counsel fees to $6,000, which was the amount alleged to be the reasonable sum chargeable on the one valid note. --------------- * Opinion vacated 307 P.2d 353.