Rodabaugh v. Kauffman

Plaintiff recovered judgment against defendants Kauffman, Goldschmidt Bros., a copartnership, and Max and Herman H. Goldschmidt, individually, upon a promissory note for $5,000 executed by defendant Kauffman and upon the written guaranty of Goldschmidt Bros., a copartnership, and Max Goldschmidt, executed by Max Goldschmidt as one of the partners and individually. Plaintiff also recovered judgment against defendant American Steel Pipe Tank Company for $1,550, the balance found due on its written guaranty of payment to the extent of $2,500, which guaranty was executed on the same day but immediately following the execution of the note and as a part of the same transaction. Max Goldschmidt defaulted, and the defendant Kauffman, the defendants Goldschmidt Bros., and Herman H. Goldschmidt and the defendant American Steel Pipe Tank Company separately appeal from the judgment against them.

The facts are that on September 15, 1916, the defendant Kauffman executed his promissory note in favor of E. Milton Greene, of whose estate plaintiff is the executor; that at the same time Max Goldschmidt made an unconditional guaranty of payment, by indorsement on the back thereof, on behalf of the partnership and himself individually, signing the indorsement: "Goldschmidt Bros. by Max Goldschmidt. Max Goldschmidt"; that $2,500 was then due the American Steel Pipe Tank Company from the Valencia Groves Company, a corporation which some of the defendants were promoting, and in consideration of the payment of said sum to it the American Steel Pipe Tank Company guaranteed payment of the note to the extent of $2,500. This written guaranty read in part as follows: "Provided the security is not changed without notice to undersigned, we, the undersigned, guarantee payment of $2500.00 of the $5000.00 note and the debt secured thereby. . . . When $2500.00 of said note is paid this guarantee is null and void; but it remains in force during all renewals of said indebtedness and until at least $2500.00 of said debt is paid."

The trial court found that the note was duly executed by Kauffman for a valuable consideration; that, as a part of the same transaction, Max Goldschmidt executed the written guaranty on behalf of himself and the partnership; that Herman H. Goldschmidt had no knowledge of the making of the guaranty at the time; that Max Goldschmidt had authority to sign the guaranty but was not expressly authorized to do so by Herman; that at the same time the American Steel Pipe Tank Company, for a valuable consideration, executed and delivered its guaranty in the sum of $2,500; that but $950 had been paid on said note; that Herman and Max Goldschmidt were both individually interested in the Valencia Groves Company, a corporation, and part owners thereof, and "that the financing of said Valencia Groves Company, a corporation, was a part of the said copartnership business, and that the note sued upon herein, and the guaranteeing of the payment thereof by said copartnership, was a part of the business of said copartnership."

[1] The appeal of Kauffman rests entirely upon the claim that he did not receive any consideration for the note. The argument is that the money was borrowed to pay obligations of the Valencia Groves Company, a corporation, of which he was president, director, and manager, and that none of the money received by him from the payee of the note was retained by him for his own use. The money was actually paid to him and the consideration then passed. The payee was not concerned with what use Kauffman made of the money after he received it. Then, too, the writing itself carries the presumption of consideration which is evidence to be weighed against this defendant's testimony. With this conflict, the finding of the trial court that a consideration passed should not be disturbed. (Moore v. Gould, 151 Cal. 723, 726, [91 P. 616].)[2] But Kauffman is not relieved from liability because he intended to use the money for the corporation. He did not purport to act for the corporation or to bind it upon the note. It was his individual act purporting to bind him alone, and even if he had proved a lack of personal interest in the loan he was nevertheless personally bound by the writing. (Hall v.Jameson, 151 Cal. 606, 611, [121 Am. St. Rep. 137, 12 L. R. A. (N. S.) 1190, 91 P. 518]; Knoch v. Haizlip, 163 Cal. 146, 151, [124 P. 998]; Hobson v. Hassett, 76 Cal. 203, 205, [9 Am. St. Rep. 193, 18 P. 320].)

[3] The appeal of the partnership and Herman Goldschmidt really presents but two questions: (1) The sufficiency of finding No. 15 to support the judgment against them; and (2) the sufficiency of the evidence to support that finding.

(1) The material portions of this finding are quoted above. It is to the effect that the two Goldschmidt brothers, who alone constituted the partnership, were individually interested in the Valencia Groves Company and that the financing of said corporation, including the execution of the guaranty in suit, was a part of the business of said partnership. Now, it may be stated as a general rule that one partner "has no authority to guarantee negotiable paper in the firm name, or to make contracts of guaranty or suretyship, without authority specially given him for the purpose, or implied from the common course of the business of the firm, or from the previous course of dealing between the parties, unless the act of such partner is afterward ratified by his copartners." (20 Ruling Case Law, p. 899.) [4] The trial court found that, though Max had general authority to sign the partnership name on the back of the note, he was not expressly authorized by Herman to do so. The effect of this finding is that the authority to make the guaranty was implied "from the common course of the business of the firm." These findings, taken together, are sufficient to support the judgment.

(2) There was evidence that for many years prior to this transaction the partners had both used the credit of the firm in real estate transactions in which one or both were interested. There was also evidence that this particular transaction had its origin in the profits of the sale of real property known as the Baldwin Park which Max purchased with funds of the firm on the advice of Herman that "it looked A-No. 1 as an investment for the firm." Then it appears that the Valencia Groves transaction was entered into for the benefit of the firm as an investment of its funds, and was so carried on the books of the firm until May, 1917, a few weeks before the financial difficulties arose and the partnership was dissolved. At that time the account was transferred on the books to Max Goldschmidt. It does not appear that either of the partners were stockholders in the Valencia Groves Company. Apparently the agreement was that the money would be advanced to Kauffman for the benefit of the corporation which he controlled upon the understanding that the profits would be equally divided. It was not necessary to show a partnership relation between Kauffman and the Goldschmidts in this particular transaction. The evidence discloses a joint adventure between Kauffman and the partnership of Goldschmidt Bros. If the transaction had been a financial success, fifty per cent of the profits would have gone into the treasury of Goldschmidt Bros. to offset the account carried on the books as a partnership investment. What adjustments of these accounts would thereafter be made could not alter the fact that the transaction was from its inception financed by partnership funds and on partnership credit. For a year or more this course of dealing was maintained — the partnership advancing its funds to both Kauffman and the corporation for the purpose of the development of the corporation property. The evidence that the partnership engaged in the business of financing the land company as an investment enterprise supports the finding that it was partnership business.

There was also evidence that in this particular transaction Max was the ostensible agent of the partnership and of Herman individually; that Max had been authorized to act for Herman in the entire transaction and that, as the partnership agreed to advance all funds necessary for the development of the property, the guaranty of this note to raise funds for development purposes was within the authority so conferred.[5] This evidence supports the finding that Max was authorized to sign the paper and that the entire transaction was a partnership affair.

Stress is placed on the testimony that before Herman indorsed the notes for interest on a bank loan to the Valencia Groves Company he demanded that Max and Kauffman agree to give him one-third of the profits of the land transaction. From this it is argued that he had theretofore no thought of participating in the profits and that, as his demand was refused, he was not at any time interested. But as the agreement in evidence was that Kauffman and the Goldschmidts were to divide the profits fifty-fifty, Herman's share would have been one-quarter; so no significance can be attached to his demand for one-third or in Kauffman's refusal to grant his request.

Appellant American Steel Pipe Tank Company urges three grounds for reversal of the judgment against it: (1) That it cannot be sued on its guaranty in the same action as that against the maker of the note; (2) that it is relieved from liability by a modification of the original undertaking; (3) that, if Goldschmidt Bros. are not bound as a partnership, this appellant is not bound because its guaranty was conditioned on the guaranty of the partnership. None of the propositions has any substantial merit.

[6] (1) If the guaranty is on the same instrument, the guarantor is properly joined as a party with the maker of the note. (Sec. 383, Code Civ. Proc.; Melander v. Western Nat.Bank, 21 Cal.App. 462, 471, [132 P. 265]; Titus v. Woods,45 Cal.App. 541, 188 P. 68.) Here, though the guaranty was executed upon a separate paper, it was a part of the same transaction, demanded by the payee and agreed to by the guarantor before the note was executed. [7] The appellant was a guarantor of payment and as such became liable on default of the principal without demand or notice. (Sec. 2807, Civ. Code.) It could have been sued separately or joined with the maker of the note at the option of respondent.

[8] (2) The appellant guaranteed payment to the extent of $2,500, the guaranty to remain in force "during all renewals of said indebtedness and until at least $2,500 of said debt is paid." The provisional agreement to extend time of payment if $2,000 was paid within twenty days, an agreement which was never carried out, did not modify the original undertaking or in any way impair or suspend the rights of the creditor. So far as the rights of a guarantor are concerned there is no essential difference between an extension of the time of payment of the old note and a renewal. (First Nat. Bank v.Spalding, 177 Cal. 217, 222, [170 P. 407].)

(3) Without holding that this appellant's guaranty was conditioned upon the proviso that the partnership had made a valid and enforceable guaranty of the original obligation, it is sufficient to say that, it having been held in this case that the partnership is bound, this point is not available to this appellant. Other points suggested by counsel do not require consideration.

The judgment on each appeal is affirmed.

Langdon, P. J., and Sturtevant, J., concurred.

A petition for a rehearing of this cause was denied by the district court of appeal on August 26, 1921, and a petition to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on September 22, 1921.

All the Justices concurred, except Shaw, J., who was absent.