Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Tulare County No. VCU232660, Paul A. Vortmann, Judge.
Williams, Jordan, Brodersen & Pritchett and Steven R. Williams for Defendant and Appellant.
No appearance for Plaintiff and Respondent.
OPINION
DAWSON, J.
Defendant Charles Rice contends the trial court committed reversible error when it found that he was liable as a comaker of a promissory note and rejected his contention that he was a surety. Rice asserts that the other comaker of the promissory note assumed the obligation and, by operation of law, Rice’s status changed from being a principal to being a surety. Furthermore, Rice argues he was exonerated from liability because the plaintiff and the other comaker altered the interest rate on the loan.
We conclude that the trial court’s implicit findings of fact concerning the absence of a surety relationship are adequately supported by the evidence. Consequently, Rice has failed to demonstrate the trial court erred in determining he was not a surety. Therefore, the judgment will be affirmed.
FACTS
In 2001, Rice opened a used car dealership in Dinuba. The business was named Global Enterprises and Rice was its owner. In connection with the business, Rice borrowed money from Wayne Gilbreath. By the middle of 2002, Rice and Mario Plasencia had entered a letter of intent for Plasencia to purchase the business from Rice.
In July 2002, before the sale had been completed, Rice and Mario Plasencia signed a promissory note stating they and Global Enterprises were borrowing $40,000 more from Wayne Gilbreath, making a total amount borrowed of $120,000. The promissory note was handwritten by Rice. The note’s interest rate was 9 percent, which generated a monthly interest payment of $900. According to Rice’s testimony, the borrowed money was to be used as the flooring line of credit for the business.
The sale of Global Enterprises was completed on December 30, 2002, with Plasencia agreeing to make payments to Rice totaling $260,000. In the middle of July 2003, after certain approvals were obtained from the Department of Motor Vehicles, the name of the business was changed to Mario’s Auto Sales. In testifying about the written agreement between himself and Plasencia for the sale of the business (a document that Rice did not attempt to have admitted into evidence), Rice identified no provision in that document involving a change in Rice’s obligations or role under the promissory note.
During the trial, Rice was asked whether, after the sale, he and Wayne Gilbreath discussed the promissory note and the possibility of Rice being relieved of the obligation to repay the note. Rice answered:
“Well, from the time we signed the note, it was the understanding that that money was for the inventory, and that whenever Mario completed our agreement that we had entered into and signed the documents, then he was to be responsible for all of the debt that was incurred through Global Enterprises.”
Rice testified that he worked for Plasencia from January through July of 2003, but left after the name change to Mario’s Auto Sales. At that time, he had a conversation with Wayne Gilbreath during which he told Gilbreath “I’m out” and Gilbreath responded, “Yeah, you’re out.” The conversation was not so detailed as to explicitly address Rice’s obligation to make payments under the promissory note. Rice testified that his understanding of the conversation with Wayne Gilbreath was just what they had agreed to when the note was signed—“that the note was for Mario to be able to stay in business and use that money to buy inventory.” With regard to the understanding, Rice testified that he and Wayne Gilbreath did not have an explicit oral agreement that the terms of the promissory note would change.
The trial court might have found that Rice’s version of the “understanding” was based on his subjective beliefs, not the conduct and expressions of the parties. “Under California law, the subjective, unexpressed beliefs of the parties do not serve as the basis for whether or not a contract is formed. Instead, the mutual assent necessary to form a contract is determined under an objective standard applied to the outward manifestations or expressions of the parties.” (Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th 129, 150.)
Rosalie Gilbreath testified that monthly payments of $900 were received under the note through June 2008. In addition, a $10,000 payment of principal was made in 2006 and another $10,000 payment of principal was made in 2007. When asked if, during 2007, she usually came to the car lot to pick up the monthly payment, Rosalie Gilbreath answered, “Yes, I c[a]me every month and picked it up.”
Wayne Gilbreath died in February 2008. After the June 2008 payment, Rosalie Gilbreath received no other payments under the note.
PROCEEDINGS
In May 2009, Rosalie Gilbreath filed a verified complaint for breach of contract against Global Enterprises, Charles Rice and Mario Plasencia. The complaint alleged that Wayne Gilbreath died on February 18, 2008, and that Rosalie Gilbreath was appointed the administrator of his estate.
The complaint alleged that the three defendants borrowed $120,000 from Wayne Gilbreath in July 2002 and paid on the loan through the middle of 2008, when payments ceased. The complaint requested judgment for the remaining balance of money due under the promissory note, including interest.
Rice was the only defendant to answer the complaint. Rice also filed a cross-complaint for indemnification against Plasencia. Neither Rosalie Gilbreath nor Rice was able to serve Plasencia, and he did not appear in the lawsuit.
A one-day bench trial was held on May 3, 2010. Plaintiff’s case consisted of five exhibits and the testimony of Rosalie Gilbreath and Rice. The defense called one witness, Angelica Plasencia, the former wife of Mario Plasencia.
No statement of decision was requested by the parties, but the trial court issued a written “Intended Decision” on June 21, 2010. The trial court explicitly found that Rice was a comaker of the note and not a surety.
On July 26, 2010, the court filed a judgment after court trial in favor of Rosalie Gilbreath and against Rice in the total amount of $112,472.25.
Rice filed a timely notice of appeal. In January 2011, counsel for Rosalie Gilbreath filed a notice with this court stating her wish to waive her right to file an appellate brief and her understanding that, pursuant to California Rules of Court, rule 8.220(a)(2), this court could decide the appeal on the record below, the opening brief, and any oral argument by appellant.
DISCUSSION
Rice contends the trial court erred in ruling that he was not a surety. In Rice’s view, the proper application of the law of suretyship to the undisputed facts of this case leads to the conclusion that Rice was a surety (not a principal debtor) and that his obligation as a surety was exonerated when the interest rate on the promissory note was changed without his consent. (See Civ. Code, § 2819 [exoneration of surety if original obligation is altered].)
I. Applicable Principles of Law Regarding Creation of a Suretyship
Under California law, there are a variety of ways in which a person may become a surety for the obligation of another. In this case, we are concerned with how a comaker of a promissory note transforms his status from being one of the principal obligors under the note to being a surety. This particular situation is addressed in part by Civil Code section 2832, which provides in full:
“One who appears to be a principal, whether by the terms of a written instrument or otherwise, may show that he is in fact a surety, except as against persons who have acted on the faith of his apparent character of principal. It is not necessary for him to show that the creditor accepted him as surety.”
In Mead v. Sanwa Bank California (1998) 61 Cal.App.4th 561, the Court of Appeal interpreted this provision to mean: “If a creditor knows that its obligors have agreed between themselves that one will be the principal and the other will be the surety, the latter is bound to the creditor as a surety only, even though he or she appears from the written instruments to be a principal.” (Id. at p. 571.)
We accept the foregoing as an accurate statement of California law. Consequently, Rice was required to prove two essential facts to establish that he was a surety. The first fact is that he and Mario Plasencia agreed between themselves that Rice would be the surety and Plasencia would be the principal debtor. Stated in statutory terms, Rice was required to “show that he is in fact a surety.” (Civ. Code, § 2832.)
The second fact is that Wayne or Rosalie Gilbreath knew about the suretyship agreement between the comakers of the promissory note. The knowledge requirement, which is not explicit in Civil Code section 2832, is consistent with the principles set forth in the Restatement of Security (1941) and the Restatement Third of Suretyship and Guaranty (1996). Section 114 of the Restatement of Security provides that “where a principal becomes a surety, the creditor is affected by the incidents of suretyship from the time he has knowledge of it.” (Id. at p. 299; see Rest.3d Suretyship and Guaranty, § 32, subd. (3)(a), p. 136.) This requirement concerning the creditor’s knowledge is reiterated in comment a to section 114 of the Restatement of Security: “Where the creditor deals with two persons as principals although one … later becomes a surety …, the creditor is not bound by the incidents of suretyship until he has knowledge that the supposed principal is or has become a surety. (See § 83.)” (Id. at p. 300.)
We regard this edition as instructive because it was published around the time of the 1939 amendment to Civil Code section 2832. (Stats. 1939, ch. 453, § 28, p. 1799.) That amendment, which overruled decisional law requiring that a payee of a note consent to the suretyship relationship created by the co-obligors, is described in Mead v. Sanwa Bank California, supra, 61 Cal.App.4th at pages 569-571.
II. Rice’s Theories of Error
Rice contends that Plasencia’s purchase of the car dealership “changed Rice’s position from that of principal co-debtor, to a surety.” This contention is based on the factual assertion that “Plasencia assumed all responsibility for the payments of the debt.” Rice contends there is “a clear and long line of case law which supports the position that when two co-makers of a note change the relationship between themselves such that one assumes the debt of both, the other becomes a surety by operation of the law.”
To clarify his assertion that Plasencia assumed responsibility for paying the note, Rice asserts: “By making all payments, Plasencia effectively assumed the obligation under the note, and as such he became the principal obligor. Therefore, Rice became a surety by operation of law.” Elsewhere in his opening brief, Rice asserts “the facts show that Plasencia and Rice had impliedly agreed between themselves that Plasencia would be the Principal, and Rice the surety.”
III. Analysis
In view of the applicable principles of law and Rice’s theories of error, the first question we address is whether Rice established that he and Plasencia agreed (expressly or impliedly) between themselves that Rice would be the surety and Plasencia would be the principal debtor.
Under the applicable rules of appellate review, we are required to presume the trial court’s judgment is correct. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.) The California Supreme Court has explained the implementation of this presumption as follows: “‘All intendments and presumptions are indulged to support it on matters as to which the record is silent, and error must be affirmatively shown.’” (Ibid.)
Here, the trial court explicitly determined that Rice was not a surety. The trial court did not set forth detailed findings of fact underlying this determination. Consequently, under the applicable presumption, we are required to infer that the trial court implicitly found that Rice and Plasencia did not agree, expressly or impliedly, that Plasencia would be the sole principal obligor and Rice would become a surety. Because this implicit finding is a negative statement, it can be rephrased in terms of the absence of proof—that is, the trial court was not convinced that the evidence showed that a suretyship relationship had been expressly or impliedly agreed upon by Rice and Plasencia.
What evidence did Rice present to contradict this implicit finding of fact by the trial court? Initially, we note that no evidence of an express agreement, oral or written, was presented to the trial court. Rice does not contest this point and his opening brief relies on the existence of an implied agreement. Rice’s circumstantial evidence regarding the existence of an implied agreement included (1) Plasencia’s purchase of the car dealership, (2) Plasencia’s subsequent operation of the car dealership without Rice, and (3) Rosalie Gilbreath’s collection of monthly checks directly from Plasencia at the car dealership. In addition, Rice testified that after Plasencia’s purchase of Global Enterprises was finalized in July 2003, he went to Wayne Gilbreath and told him: “I’m out.” He also testified that Wayne Gilbreath verified that he, Rice, was out.
The existence of an implied agreement usually is a question of fact for the trial court. (Caron v. Andrew (1955) 133 Cal.App.2d 412, 416.) “‘Where evidence is conflicting, or where reasonable conflicting inferences may be drawn from the evidence which is not in conflict, a question of fact is presented for decision of the trial court.’” (Ibid.) Under this rule of law concerning reasonable conflicting inferences, Rice must show that only one set of inferences were reasonable and that set of inferences supports his position. His ability to make such a showing is hampered by our application of the rule that we must indulge all presumptions that support the judgment, which includes the presumption that the trial court found Rice’s testimony regarding the creation of the suretyship relationship lacked credibility. (Evid. Code, § 312 [trier of fact to determine credibility of witnesses]; Bradley v. Perrodin (2003) 106 Cal.App.4th 1153, 1166 [determining credibility of witnesses is exclusive province of trier of fact].)
We conclude that the evidence was not so overwhelming that the only reasonable inference was that Rice and Plasencia had impliedly agreed that Rice would act as a surety on the debt. Thus, we will uphold the trial court’s implicit findings of fact and its explicit determination that Rice was not a surety.
Based on the foregoing conclusion, we need not address whether the Gilbreaths knew of the alleged suretyship relationship or whether Rice’s liability was exonerated by the alleged change in interest rate.
DISPOSITION
The judgment after court trial is affirmed. The parties shall bear their own costs on appeal.
WE CONCUR: CORNELL, Acting P.J., GOMES, J.