Commercial Discount Co. v. Wilson

CRAIL, J. The defendant appeals from a money judgment in favor of plaintiff (respondent) in an action brought to recover on a written guaranty. E. M. Stanton, for whose benefit the guaranty was given, was engaged in the retail sale of automobiles. The guaranty provides that, as an inducement to the plaintiff to purchase automobile “retail contracts” and “flooring contracts” from said Stanton, the defendant agrees to fully indemnify plaintiff against any and all loss which plaintiff may sustain by reason of such contracts or any of them immediately upon demand and as soon as said loss has been suffered, provided, however, that as to the retail contracts, before plaintiff shall look to de[711]fendant to make payment under the guaranty, plaintiff will charge said losses to a certain reserve fund which plaintiff will set up in accordance with its understanding with said Stanton and that as and when said reserve fund becomes exhausted defendant agrees to pay any and all further losses to plaintiff upon demand. Business was conducted with Stanton as contemplated in the guaranty, but as time went on Stanton defaulted on the contracts. Thereupon the plaintiff took possession of all the stock remaining on Stanton’s “floor” and proceeded to close out Stanton’s business using reasonable diligence according to the ■ usage of the trade to salvage the losses through recourse against the security and also against the vendees in the retail contracts; and, Stanton being insolvent, the plaintiff then sued the defendant for the amount of its losses, the reserve fund having been exhausted. In the complaint the plaintiff alleged that in the business in which the parties were engaged the terms “flooring contracts” and “retail contracts” had well-defined meanings which were well known to the defendant.

Appellant’s first contention is that the defendant’s guaranty was a guaranty of collection rather than a guaranty of payment and, since the complaint failed to allege an effort to enforce collection from the contract purchasers on the retail contracts or reasons for not doing so, it failed to state a cause of action. This contention is made in spite of the fact that the complaint did make such allegations as to Stanton against whose losses the guaranty was given. In this connection appellant contends that the purchasers on the retail contracts were the “principal debtors” within the meaning of section 2801 of the Civil Code. We do not think so. Stanton’s obligation is the one that appellant guaranteed. If the guaranty is construed as coming within the provisions of section 2800 of the Civil Code, as appellant contends, then it is an undertaking of collectibility from Stanton. Stanton is the debtor whose solvency the guaranty imports and Stanton is the “principal debtor” within the meaning of section 2801 of the Civil Code. As between plaintiff and appellant Stanton was the principal debtor even on the retail contracts. On each assignment of these contracts Stanton became by express terms primarily liable to plaintiff. The parties in entering into the