Closset v. Portland Amusement Co. , 134 Or. 414 ( 1930 )

Plaintiff is the successor in interest of the original lessors of a building located at the southeast corner of First and Main streets in the city of Portland. The lease which was executed on January 22, 1922, let the premises to the appellant, Portland Amusement company, a corporation, as lessee for the period of 10 years, beginning June 21, 1924, at a monthly rental of $525. It was contemplated at the time the lease was entered into that a new corporation to be known as American Theatre Co. would be organized and special provision therefor was made in the lease. The corporation referred to was organized and it is a party defendant as assignee of the interest of the Portland Amusement Co. in the lease and the property. Appellants, I. Lesser Cohen and Alex Weinstein, were stockholders of both corporations, said Amusement Co. and American Theatre Co. They executed the lease in behalf of the Portland Amusement Co., subscribing their names as follows:

"Portland Amusement Co. Principal By Alex Weinstein President Attest: I. Lesser Cohen Secretary"

Simultaneous with the execution of said lease said appellants Alex Weinstein and I. Lesser Cohen executed a bond guaranteeing the payment of the rent. Their liability, however, on the bond was limited to $10,000 and provided for the liability of each in the sum of $5,000. According to the terms of the bond the liability of the sureties, appellants Weinstein and Cohen, was reduced $1,000 for every year of the term of the lease. Later and before lessee took possession of the premises under the lease mentioned above, appellants, Weinstein and Cohen, who owned all of the shares of the capital stock except two qualifying shares in the said corporation, American Theatre Co., sold and transferred to defendant Julius Sax all of said shares of the capital stock in said American Theater Co. Thereafter said Sax operated the theater described in said lease, dissolved said corporation American Theatre Co., but retained the name American Theatre and for sometime paid the rent. Said Sax later defaulted in the payment of the rent, and this action was instituted to collect the rent prescribed in said lease. This action was instituted August 10, 1927, and later a supplemental complaint was filed including the rent that had accumulated under the lease to the date the supplemental complaint was filed. The bond given by defendants Weinstein and Cohen, to assure payment of the rent, according to the provisions of the lease, was signed as follows, to wit:

"Portland Amusement Co. Principal By Alex Weinstein President

Attest: I Lesser Cohen Secretary Alex Weinstein (Seal) I. Lesser Cohen (Seal)

Sureties"

Said Weinstein and Cohen transferred their stock in said corporation American Theatre company in writing, which contains the following matter:

"And we hereby jointly and severally promise unto the said Julius Sax, and also unto the said American Theater company, that we personally undertake and agree to pay, satisfy and discharge any other valid legal indebtedness or obligation as of this date which at any time may be asserted and established against said company, other than those just above enumerated, and

"We hereby jointly and severally agree to indemnify the said Julius Sax or the said American Theater company for any payments or loss which they, or either of them, may legally be forced to pay or suffer on account of the existence of any indebtedness or obligation, excepting the lease upon the theater building, in addition to those just above referred to; provided always, that our liability upon any claim shall be conditioned upon our being notified * * * and that thereafter we be allowed to negotiate, contest or settle said claim at our discretion."

Said assignment of the capital stock is dated May 18, 1922, some two years before the lessee under said lease was entitled to possession of the premises. On the said 18th day of May defendants Weinstein and Cohen exacted from said Julius Sax for the consideration of $1 a covenant and promise in writing to pay the rent mentioned in said lease in case of default by the American Theatre Co., and all damages that might arise in consequence of the nonperformance of said covenants or either of them, and further:

"And I further promise and agree to indemnify the said I.L. Cohen and Alex Weinstein against any loss they may sustain by reason of their having become sureties for the faithful performance of the covenants and agreements of the said Portland Amusement company, named as lessee in said lease above mentioned and referred to, said obligations of the said I.L. Cohen and Alex Weinstein being evidenced by a certain contract of suretyship, a copy of which is hereto attached and marked Exhibit ``A.'"

This writing is duly signed by said Julius Sax in the presence of two witnesses. Said lease and bond given by Weinstein and Cohen as surety for defendant amusement company referred to each other and are a part of the same transaction. The covenant exacted from defendant Sax by Weinstein and Cohen was taken to indemnify said Weinstein and Cohen against loss by reason of their suretyship in favor of plaintiff and his predecessors in interest. Judgment was rendered in favor of plaintiff against the defendants separately, and for that reason three appeals were taken to this court. The judgments were for the full amount demanded. Appellants assign three errors: First, the trial court erred in denying appellants' motion to require plaintiff to elect against which defendants he chose to proceed; second, the trial court erred in refusing to find that the lease involved was not assigned to Sax; third, that plaintiff acquiesced in the transfer of the premises to defendant Sax, accepted him as his tenant, and thereby released appellants Weinstein and Cohen as sureties. Appellants urge that plaintiff could not proceed against the defendants in one action because their liabilities are different and a different judgment was demanded against defendants Weinstein and Cohen from the judgment demanded against the other defendants. It is further argued that defendants Portland Amusement Co. and American Theatre Co. were liable as lessee and assignee while defendants Cohen and Weinstein, if liable at all, were liable on their bond guaranteeing the payment of the rent. There is no claim that defendant American Theatre Co. is not liable by the terms of the lease because the lease itself provides for its assignment to said American Theatre Co. Appellants state this assignment of error as follows:

"Where distinct causes of action are stated against separate defendants, the plaintiff should be required to elect and adhere to a consistent cause of action leading to a single judgment. Whether the procedure be under common law or code pleadings, the basic requirement that issues be clear-cut obtains."

Plaintiff seeks to recover the rent due according to the terms of the written lease. That constituted both his right of action and his cause of action. Defendants made a timely motion to require plaintiff to elect which of the defendants he would proceed against. But plaintiff had only one cause of action. All of defendants were liable to him for the rent due with this exception, that defendants Cohen and Weinstein's liability personally was measured by their bond rather than by the lease. The two instruments were made at the same time, refer to each other and each constitutes a part of the same transaction. They must, therefore, be construed together. Their liability is based on the same obligation.

Defendants Cohen and Weinstein constituted both Portland Amusement Co. and American Theatre Co., defendant corporations. They owned all the stock of each except two qualifying shares. They executed the lease and the assignment of said lease to American Theatre Co. They also transferred all of their stock in American Theatre Co. to defendant Sax by a written transfer containing a warranty against obligations of the defendant American Theatre Co. They also executed a bond limited to an aggregate liability of $10,000 which bond contained a provision that each, said Cohen and Weinstein, was liable for $5,000 and no more. They now seek to avoid that liability: First, on the ground that they should not have been sued in the same action with the lessee, its assignee and defendant Sax; second, on the claim that plaintiff had accepted defendant Sax as his tenant and thereby released defendants Cohen and Weinstein as sureties.

"Persons severally liable upon the same obligation or instrument, including the parties to bills of exchange and promissory notes may, all or any of them, be included in the same action, at the option of the plaintiff": Or. L., § 37.

All of the defendants are sued on the same obligation, to wit, the promise to pay rent. Defendants Portland Amusement Co., Alex Weinstein and I.L. Cohen all signed the bond. Defendant American Theatre Co. accepted the assignment of the lease with all of its obligation and thereby bound itself by that instrument and the bond.

Defendant Julius Sax defaulted and has not appealed; consequently we are not concerned with him or his liability. The other defendants have no cause for complaint because defendant Sax was joined as a party defendant. It has been frequently held that misjoinder of parties does not refer to too many parties but too few: Tieman v. Sachs, 52 Or. 560, 564 (98 P. 163); Lowellv. Pendleton Auto Co., 123 Or. 383, 392 (261 P. 415). The defendants appealing are in no way compromised or injured by joining Sax as a party defendant.

The liability of all of the appealing defendants grew out of the same instruments evidencing the same agreement. The test of the joinder of parties is stated thus by the late Mr. Justice BURNETT:

"The canon laid down by the case last cited [Swank v. Moisan,85 Or. 662] is in substance that to require an election it must be impossible for both causes of action simultaneously to be true": Askay v. Maloney, 92 Or. 566, 573 (179 P. 899).

There is only one cause of action in the instant case. There was only one obligation incurred. The fact that the amount for which certain of the defendants are liable differs from the amount for which other defendants are liable is not sufficient ground to compel an election. The liability of all of the defendants appealing as alleged in the complaint is not only possible but is actually true.

It seems to the writer that it would be a useless requirement to compel the plaintiff to elect when the cause of action can be tried against all of the defendants at one time and in one case. The fact that different judgments must be entered is no objection to proceeding against all the defendants in one action: Or. L., § 180.

"The practice, however, of allowing or disallowing a motion of the kind, [requiring plaintiff to elect] is a matter largely within the sound discretion of the trial court": Harvey v.Southern Pac. Co., 46 Or. 505, 512 (80 P. 1061).

Other jurisdictions having similar codes of practice permit plaintiff to proceed against all persons liable on the same instrument or obligation in one action. We think the language used in a Minnesota case is very pertinent and is sufficient reason for sustaining the trial court's ruling denying the motion requiring plaintiff to elect in the instant case.

"If judgment goes against all the parties and is paid by a guarantor, he may keep the judgment alive, and enforce it against the principal debtor, under section 7915, G.S. 1913. The one action against both principal and guarantor is not only commended by its simple common sense. It is authorized by statute":Midland Nat. Bank v. Security Elevator Co. (161 Minn. 30,200 N.W. 851).

The statute of Minnesota, section 7683, G.S. 1913, is identical with said Oregon law, section 37. The opinion in Midland Nat.Bank v. Security Elevator Co., above, cites other opinions in Minnesota and says:

"It is wholly immaterial so far as principle is concerned, and we are concerned with principle and not with technicality, that the obligation of principal debtor and guarantor are not expressed by the same instrument. It makes no difference how many separate and differing writings there may be so long as there is identity of obligation. No other result is permitted by our statute, section 7683, G.S. 1913, whereby persons severally liable upon the ``same obligation' may be joined in the same action at the option of the plaintiff."

The trial court did not abuse its discretion by denying the motion to require plaintiff to elect.

The second alleged error presented by defendants is based on the refusal of the trial court to find that the lease involved was not assigned to Sax. Plaintiff alleged that the lease was assigned to Sax. Defendants argue that since the lease was not assigned and plaintiff accepted Sax, as its lessee, defendants Weinstein and Cohen, who were sureties, were thereby released from liability on the bond. The situation is this: Defendants Weinstein and Cohen were the owners of Portland Amusement Co., the original lessee. They also organized the defendant corporation American Theatre Co. to which said lease was assigned as provided in the lease. They then sold and transferred their stock in American Theatre Co. which had succeeded to the privileges, rights and responsibilities of the original lessee, to defendant Sax. There was no occasion to assign the leases because defendants Weinstein and Cohen simply sold and transferred their stock thereby investing the title of all the stock in said Sax, who became sole owner thereof with the exception of two qualifying shares. When Sax thereafter dissolved said corporation American Theatre Co., he became the owner of the property theretofore owned by the corporation by virtue of being the owner of substantially all the stock: Smyth v. Kenwood Land Co., 97 Or. 19,34-35 (190 P. 962). Sax, therefore, became owner of the lease subject to all of its obligations by succession through the assignment of defendant corporations.

Plaintiff collected the rent for a number of months from Sax. Plaintiff's testimony was to the effect that one of the defendants stuck his head through plaintiff's office door and directed him to collect the rent from Sax, which he did. There is no evidence of a discharge of defendants Weinstein and Cohen. There is no evidence of a novation. Plaintiff testified that he knew nothing of the transfer of the stock of American Theatre Co. from Weinstein and Cohen to Sax, and supposed that Sax was an officer of said corporation, American Theatre company.

We must find, therefore, that defendants Weinstein and Cohen are not released as surety on the undertaking. If sureties could by such manipulation as took place in the transactions leading up to the case at bar release themselves from their obligations as sureties, then one would never be safe in accepting sureties on a bond. It is very little trouble to organize a corporation and sell stock as said defendants did in the instant case.

If it was error at all for the trial court to refuse to make a special finding on whether or not the lease was assigned to defendant Sax, it was not reversible error. The conclusion reached by the trial court and the judgment entered in the circuit court found against defendants on that point. That conclusion is correct in law. Sax became the owner of the lease by virtue of being the owner of the stock of American Theatre Co. As such owner he accepted the lease with all of its obligations as well as its benefits. He became owner of the lease by succession. Plaintiff did not release the sureties by accepting rent from defendant Sax under the conditions. Plaintiff testified, and we must accept his testimony as true, that he knew nothing about the sale of the stock by Weinstein and Cohen to Sax nor of the dissolution of the corporation. Plaintiff did nothing to place the sureties in any worse position than they were in by reason of their bond. Sureties can not so release themselves from their obligations and undertakings by their own acts and conduct without the consent of the assured.

The judgment of the lower court is affirmed.

McBRIDE, RAND and ROSSMAN, JJ., concur.