Opinion
No. 75-832
Decided April 14, 1977.
Guarantor of portion of promissory note appealed judgment entered against him, and plaintiff appealed denial of hearing on attorney's fees.
Affirmed
1. GUARANTY — Subordination Agreement — Not Affect — Promissory Note — Substantive Provisions — Guarantor — Liable — Promise — Principal Obligor — Unpaid Creditors. In action on guaranty, although subordination agreement incorporated in note executed by corporation in favor of plaintiff made corporation's obligation to plaintiff subordinate to other creditor's of corporation, that agreement did not affect the substantive obligations of the note, and accordingly, guarantor was properly found liable to plaintiff even though the corporation had outstanding obligations to other creditors that it was unable to pay.
2. BILLS AND NOTES — Attorney's Fees — No Evidence — No Offer of Proof — Refused To Reopen — Not Abuse of Discretion. Where prior to court making findings of fact and conclusions of law, plaintiff in action on promissory note offered no evidence of attorney's fees he had incurred in collecting the note, and his motion to alter or amend judgment was not accompanied by an affidavit or other offer of proof as to attorney's fees, and did not allege that the fees were newly discovered evidence, the trial court did not abuse its discretion in not reopening the case so that plaintiff could establish attorney's fees.
3. APPEAL AND ERROR — Attorney's Fees — Prosecution of Appeal — Issue Properly Raised — Cause Remanded — Trial Court Determination. Since plaintiff in action on promissory note properly raised issue of attorney's fees incurred in the prosecution of appeal by defendant, the cause will be remanded to the trial court for a determination of those fees and for entry of judgment thereon.
Appeal from the District Court of the City and County of Denver, Honorable Joseph N. Lilly, Judge.
Kelly/Haglund Garnsey, Norman D. Haglund, for plaintiff-appellee.
Roath Brega, P.C., Roger P. Thomasch, for defendant-appellant.
The defendant, Dennis Marlow, appeals a judgment of the trial court finding him liable as guarantor of one-third of a promissory note executed by Stratford Securities, Inc., and made payable to the plaintiff, Steven Chios. Chios cross-appeals, challenging the trial court's refusal to grant a post-judgment hearing on attorney's fees. We affirm and remand for further proceedings.
On January 15, 1973, Chios loaned $10,000 to Stratford Securities, Inc., a broker-dealer subject to the rules and regulations of the Securities and Exchange Commission. The indebtedness is evidenced by a promissory note, which incorporates a subordination agreement between Stratford and Chios, as required by 17 C.F.R. § 240.15 c3-1 of the General Rules and Regulations of the Securities Exchange Commission.
The subordination agreement provides that Chios' right to ". . . receives payment or return of the cash loaned shall be subordinated to the claims of all present and future creditors" of Stratford. By the terms of both the promissory note and the subordination agreement, the $10,000 was loaned until February 15, 1974. Two officers of Stratford, and Marlow, a 20% stockholder and employee of Stratford, severally guaranteed the payment of one-third of the note. It is undisputed that California law governs the interpretation of these documents.
Marlow contends that the trial court erred in holding him liable on his guarantee, arguing that the note is not enforceable against Stratford because creditors of Stratford remain unpaid, that therefore the note is not due, and the guarantors cannot be held answerable for the debt. This argument misapprehends the nature and purpose of subordination.
The terms of the subordination agreement do not materially alter the substantive provisions of the note. The subordination of Chios' claim against Stratford to those of other creditors does not affect the loan agreement of the parties, but merely assigns to this debt a status inferior to the claims of other creditors. See Middlebrook-Anderson Co. v. Southwest Savings Loan Ass'n, 18 Cal. App. 3rd 1023, 96 Cal. Rptr. 338 (1971). Subordination does not delay the maturation of the debt; it simply places Chios in line behind creditors with higher priorities before he is entitled to payment from Stratford on the defaulted obligation.
The note was due and payable February 15, 1974, and Chios has yet to receive any payment of interest or principal. Consequently, Stratford is in default. Marlow cannot personally benefit from Stratford's inability to pay its debts. Bank of America National Trust Savings Ass'n v. McRae, 81 Cal. App. 2d 1, 183 P.2d 385 (1947). The guarantee does not posit any conditions precedent to the liability of the guarantor, and it is therefore unconditioned. West Cal. Civ. Code § 2806 (West 1974). In guaranteeing a subordinated note, Marlow undertook the increased risk that Chios would not be paid by Stratford. He may not now claim that Chois must first wait until Stratford's resources have been exhausted before looking to Marlow for payment. Bank of America National Trust Savings Ass'n v. McRae, supra.
[1] In addition, the provisions of 17 C.F.R. § 240.15 c3-1 are designed to protect the claims of creditors and customers of the broker, not the broker itself or those who undertake the responsibility of guaranteeing the broker's obligations. We therefore affirm the trial court's determination that Marlow is liable on his guarantee.
[2] We also agree with the trial court that Chios is not entitled to recover his attorney's fees in prosecuting this action. Prior to the time the court made its findings of fact and conclusions of law, Chios offered no evidence of the attorney's fees he had incurred in collecting this note. Waterman v. Sullivan, 156 Colo. 195, 397 P.2d 739 (1964). Chios' Motion to Alter or Amend Judgment was not accompanied by an affidavit or other offer of proof as to attorney's fees, and did not allege that the fees were newly discovered evidence unavailable at the time of trial.
The cases cited by Chios do not stand for the proposition that a party who neglects to present evidence at trial on a material element of his claim has a right to a post-judgment hearing on that issue. Rather, they either enunciate the principle that a decision to reopen the case is vested in the discretion of the trial court or are distinguishable beyond persuasive value. There was ample opportunity for Chios to present any evidence he may have had to establish his reasonable attorney's fees, and we are not prepared to say the trial court abused its discretion in refusing to re-open the case. Stevens v. Liberty Loan Corp., 161 Colo. 312, 421 P.2d 732 (1966); Stratton v. Murray, 25 Colo. App. 395, 138 P. 1015 (1914). Chios' argument that the trial court felt its ruling was compelled as a matter of law by the Stevens case is contravened by Chios' own Memorandum in Support of his Motion to Alter or Amend Judgment and the authorities therein which apprised the trial court of the discretionary nature of the ruling.
[3] Nevertheless, Chios has properly raised the issue of attorney's fees incurred in the prosecution of this appeal, and the case must be remanded to the trial court for a determination of this amount and for the entry of judgment thereon. Zambruk v. Perlmutter 3rd Generation Builders, Inc., 32 Colo. App. 276, 510 P.2d 472 (1973).
The judgment of the trial court is therefore affirmed in all respects and the case is remanded for a determination of the reasonable attorney's fees incurred pursuant to this appeal.
JUDGE PIERCE and JUDGE VAN CISE concur.