Steiner Lumber Co. of Contra Costa, Inc. v. Stegge

[647]

SHOEMAKER, J.

John Stegge and Virginia Stegge, his wife, were the owners as community property of all of the stock of the Stegge Development Co. The stock stood in the name of John Stegge, who was the president of the company and actively engaged in its operation. The company was developing a subdivision known as Glenwood, located in Marin County.

On January 29, 1957, the company owed plaintiff Steiner Lumber Company of Contra Costa, Inc., a sum in excess of $88,000 for materials delivered to 95 lots in the subdivision. The company did not have sufficient funds to pay this debt. It was having a very difficult time in continuing its operation and both parties were desirous of providing for the payment of the debt, and at the same time furnishing a means whereby funds might be obtained so that the corporate business could continue. Therefore, they entered into a written contract whereby plaintiff subordinated its mechanic’s lien rights to enable Stegge Development to secure construction loans and to close certain escrmvs on lots within the subdivision. In consideration of plaintiff’s act of subordination, Stegge Development assigned plaintiff the right to receive $28,000 from the escrows when they were closed, and also agreed, in paragraph 2 of the contract, to pay the remainder of its debt in three installments: $25,000 on February 15, 1957; $25,000 on April 1, 1957; and $10,000 on May 1, 1957. It was also provided by paragraph 3 of the contract that in the event any of the designated escrows were not closed by December 31, 1957, then the entire amount of the unpaid debt should immediately become due and payable. Appended to the contract, and in consideration of plaintiff’s subordination therein, defendants John and Virginia Stegge agreed, jointly and severally, to perform paragraphs 2 and 3 in the event that Stegge Development should fail to do so. Thereafter, the corporate affairs went from bad to worse, and finally proceedings under the Bankruptcy Act were commenced.

On July 31, 1957, plaintiff and others, as a step in the rehabilitation of the company, signed a written contract called “Consent to Sales of Real Property,’’ wherein it was agreed that sales of certain lots within the Glenwood subdivision, free of any liens held by them, could be made, the proceeds of said sales, however, to be subject to the liens held by the respective parties and to be impounded subject only to distribution