McMannus v. Temple Estate Co.

California Court of Appeal Nov 29, 1935 No. Civ. 9907Published

Before: Roth

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Holding. The court held that a material alteration to a deed of trust, which granted priority to new loans over the debt guaranteed by the appellant without the guarantor's consent, exonerates the guarantor from liability.

Issues

Whether the amendment to the deed of trust constituted a material alteration of the guarantor's obligation.
Whether a guarantor is exonerated when the underlying obligation is materially altered without their consent, regardless of whether the alteration is beneficial or injurious.

Disposition. reversed

Quotations verified verbatim against the opinion

“There can be no question that the amendment to the deed of trust, which gave priority to the new loans made over the $12,000 note guaranteed by appellant, was a material alteration. Such an alteration exonerates the guarantor.”

“It is settled, however, that the parties to an obligation cannot materially alter its definite terms without a guarantor’s consent, even though such parties in good faith believe it is to the guarantor’s advantage to make the alteration.”

ROTH, J.,

pro tem.

Respondent, as assignee of Baash-Ross Tool Company and as plaintiff, brought suit on a promissory note in the principal sum of $12,000 and a guaranty thereof. The note was executed by defendant Temple Estate Company, a corporation, hereinafter referred to as estate, and recited on its face that it “is secured by a declaration of trust covering real and personal property”. The declaration of trust in question named a number of beneficiaries, all of whom were creditors of the estate, respondent’s assignor being one of them. The other three defendants, of whom appellant Dupuy is one, executed a guaranty of the note. Appellant Dupuy alone was served. The action, the judgment rendered in favor of respondent herein, and the appeal therefrom has to do, therefore, with appellant alone.

It is shown without dispute that after the execution of the note, and of the trust deed given as security therefor, as well as the guaranty in which appellant participated, that an alteration was made in the trust deed by the written agreement of the trustor, trustee and beneficiaries of the declaration of trust, without the knowledge or consent of appellant. The alterations were made in the form of a written agreement to the declaration of trust which recited that because of unpaid, delinquent and accruing taxes, assessments and interest and trustor’s inability to provide funds for the payment of the same, it would be necessary to raise approximately $6,000 to maintain in good standing the property covered by the declaration of trust. The amendment then provides for a loan of the amount required by the beneficiaries to the trustor in certain proportions, such several amounts to be evidenced by several notes executed by trustor in favor of the several beneficiaries, and secured by liens on the various parcels of property already in the trust. It was further stipu

[421]

lated in the amendment that such several liens were to be prior and senior to the lien which had theretofore been created by the trust as security for the $12,000 note first mentioned.

The original deed of trust provided that “The Trustor, Temple Estate Company, shall have the right and power to borrow money and to secure the payment of any such loan together with interest thereon by a lien upon the trust property

McMannus v. Temple Estate Co.

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ROTH, J.,

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