Court Opinion

ID: 6876846
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:09:02.006816+00
Date Added: 2024-06-11T16:05:30.609382
License: Public Domain

Munson, J.
Glacier Sales appeals a judgment of $13,210.09 based on a jury verdict in favor of Century 21 Products, Inc. Glacier argues the trial court erred (1) in submitting the question of the validity of an oral guaranty to the jury; (2) in refusing to give its proposed jury instruction on mitigation of damages; and (3) if the guaranty should be valid, in failing to discharge its obligation because Century 21 impaired its collateral.
The parties to this case are in the processed potato industry. Century 21 is a supplier of raw potatoes. Typically, Cen*795tury 21 purchases potatoes from farmers, washes, sorts, and grades them. The lower grades of potatoes are then sold to potato processors. Sun Russet Potatoes, Inc., was such a potato processor. Sun Russet’s primary product was hash browns. Glacier is a dealer in processed potatoes. Glacier would buy from various potato processors and sell to its customers. Although Glacier handles other fruits and vegetables, most of its sales are of frozen processed potatoes. While there was no formal agreement, Sun Russet sold most of its output to Glacier. By custom, most transactions in the industry are conducted by telephone, rather than in writing.
According to George Yoshino, president and principal shareholder of Century 21, Emmett Byrnes, vice president and director of Glacier, telephoned and asked Century 21 to sell potatoes to Sun Russet. Mr. Yoshino declined, stating Sun Russet had a bad credit history and had not paid for purchases from his prior employer. He stated Mr. Byrnes told him Glacier controlled Sun Russet’s accounts receivable and would guarantee Century 21 was paid. Century 21 then sold potatoes to Sun Russet. There was no written contract or confirmation of the guaranty.
Mr. Byrnes denied saying Glacier would guarantee Sun Russet’s debt to Century 21. He admitted, however, that he may have said Glacier would help Century 21 if there were a problem. Mr. Byrnes testified he had been a director of Sun Russet for most of its operating life. He also stated he loaned money from his pension plan to Sun Russet at a favorable rate.
Sun Russet paid for some of the purchases from Century 21, but owed $13,210.09 when it filed bankruptcy. When Mr. Yoshino learned Sun Russet had filed bankruptcy, he contacted Mr. Byrnes asking Glacier to honor its guaranty. Mr. Byrnes replied Glacier had not guaranteed Sun Russet’s debt. Century 21 attempted to recover from Sun Russet’s bankruptcy estate, but was unsuccessful. This suit followed, and the jury found Glacier liable for the full amount.
*796Oral Guaranty
Glacier contends the oral guaranty was void and unenforceable under the statute of frauds, RCW 19.36.010. We disagree.
The statute of frauds, RCW 19.36.010, requires a contract to be in writing if it is a "special promise to answer for the debt, default, or misdoings of another person . . .”. Here, Century 21 admits Glacier’s promise to answer for Sun Russet’s debt was not in writing. However, courts have held where the "primary purpose” or "leading purpose” of the guaranty is to benefit the guarantor, the promise will be upheld without a writing. See Morrison-Knudsen Co. v. Hite Crane & Rigging, Inc., 36 Wn. App. 860, 863, 678 P.2d 346, review denied, 101 Wn.2d 1020 (1984). Primary purpose analysis is often phrased in terms of whether the guaranty was an original promise or a collateral promise. It is an original promise if the primary purpose is to benefit the guarantor. See Washington Belt & Drive Sys., Inc. v. Active Erectors, 54 Wn. App. 612, 774 P.2d 1250 (1989), review denied, 113 Wn.2d 1035 (1990).
Glacier relies on Seiffert Co. v. Wright, 108 Wash. 616, 619, 185 P. 577 (1919) for the proposition that whether the leading object exception is met is a question of law. Glacier misconstrues Seiffert. The holding in Seiffert is clearly limited. "There being no substantial conflict in the testimony, the question ... is one of law.” Seiffert, at 619. Here, there was a substantial conflict in testimony; the question was properly submitted to the jury.
The jury’s general verdict for Century 21 necessarily implies it found the primary purpose for Glacier’s guaranty was Glacier’s own benefit. The trial court instructed the jury as follows:
The plaintiff has the burden of proving the following propositions:
1. Sun Russet Potato entered into a contract with the plaintiff to purchase potatoes, of which the sum of $13,210.09 remains unpaid;
2. That the defendant, Glacier Sales, made a promise to pay for the debt owed by Sun Russet Potato; and
*7973. That the promise to pay for the debt to the plaintiff was for the leading benefit to Glacier Sales.
(Italics ours.) Instruction 4. The court further instructed the jury:
An oral promise to guarantee the debt of another is legally binding and enforceable if the leading purpose of the promise is to benefit the person or entity making the promise.
Instruction 6.
"In reviewing a jury’s finding of fact this court’s inquiry is limited to whether that finding is supported by substantial evidence.” Strother v. Capital Bankers Life Ins. Co., 68 Wn. App. 224, 234, 842 P.2d 504 (1992), rev’d on other grounds sub nom. Ellis v. William Penn Life Assur. Co. of Am., 124 Wn.2d 1, 873 P.2d 1185 (1994). Substantial evidence exists where the record contains evidence in sufficient quantum to persuade a fair-minded, rational person of the truth of the declared premise. Robinson v. Safeway Stores, Inc., 113 Wn.2d 154, 157, 776 P.2d 676 (1989). Here, there was substantial evidence of a close relationship between Glacier and Sun Russet and that Sun Russet was one of Glacier’s significant suppliers. There was testimony that Glacier had entered contracts to sell the hash browns it was to receive from Sun Russet and, if Sun Russet did not supply those hash browns, Glacier would have to purchase hash browns on the open market — at a potentially higher price. The jury was free to infer Glacier’s primary purpose in making the guaranty was to ensure itself a supply of hash browns. We will not disturb the jury’s finding. The oral guaranty is within the primary purpose exception to the statute of frauds and is valid.
Mitigation op Damages
Glacier argues the trial court erred in rejecting its proposed jury instruction on mitigation of damages. Again, we disagree.
A trial court may not give an instruction that is not supported by the evidence. State v. Benn, 120 Wn.2d 631, 654, 845 P.2d 289, cert. denied, 114 S. Ct. 382 (1993).
*798The doctrine of mitigation of damages is inapplicable in this case. Mitigation of damages is concerned with an innocent party’s actions after a breach of contract has occurred. A party’s actions prior to learning of a breach are irrelevant to the doctrine of mitigation of damages. Glacier cites Snowflake Laundry Co. v. MacDowell, 52 Wn.2d 662, 674, 328 P.2d 684 (1958) in support of its argument, but that case shows why mitigation of damages is inapplicable here: "The whole concept turns on the idea that a damaged party should pursue a course, after a breach, which is designed to assist the party in breach.” (Italics ours.)
Glacier contends the relevant breach in this matter is the breach of Sun Russet in failing to pay its debt to Century 21 because that is the breach that triggered Glacier’s obligation to pay the debt. Glacier is incorrect. The contract at issue is the guaranty contract between Glacier and Century 21. This contract was not breached until Glacier refused to honor the guaranty. Century 21’s actions before that time are irrelevant to mitigation of damages.
Glacier’s basis for its mitigation of damages defense is that Century 21 failed to file a Perishable Agricultural Commodities Act, 1930 (PACA), 7 U.S.C. § 499, trust continuation statement within the allowed period after shipping potatoes to Sun Russet. It was not until long after the expiration of the time limit that Century 21 learned Glacier was reneging on its guaranty. Century 21’s actions before learning of the breach are irrelevant to mitigation of damages.
Glacier neither complained of nor presented any evidence regarding wrongful actions by Century 21 following Glacier’s breach of its guaranty. Indeed, the evidence shows Century 21 did all it could after the breach. It filed the required PACA notice, which was determined to be untimely. It filed a claim against Sun Russet’s bond, and it filed a claim in Sun Russet’s bankruptcy. Unfortunately, Century 21 was unable to recover any moneys through these efforts. The trial court correctly refused to give Glacier’s requested instruction on mitigation of damages.
*799Impairment of Collateral
Glacier contends, even if the guaranty is valid, it should be discharged because Century 21 impaired collateral securing the obligation. We agree.
As noted in National Bank v. Equity Investors, 86 Wn.2d 545, 556, 546 P.2d 440 (1976):
If the principal’s debt to the creditor is secured by property of the principal, the surety acquires by the operation of law, a kind of property interest in the res that is securing the primary debt. The creditor, in such instances, is under a legal duty to take whatever action is necessary to maintain the value of security.
(Citation omitted.) Unless required by the suretyship contract, a creditor need not take any affirmative acts to acquire security, but once acquired, the creditor must maintain any security he has.
While a creditor is not obligated to take any steps to secure possession of any of the property of the principal, a creditor is not entitled, without the consent of the surety, to relinquish any hold which he has actually acquired on the property of the principal, and which might have been made effectual for payment of the debt.
(Citation omitted. Italics ours.) 74 Am. Jur. 2d Suretyship § 87 (1974). Should a creditor impair the collateral, the surety will be discharged to the extent he is harmed by the impairment. National Bank, at 556.
Here, there was not a written agreement requiring Century 21 to acquire collateral for the debt. However, in this instance the protection was granted by operation of law. PACA established a trust for the benefit of Century 21 and provides:
Perishable agricultural commodities received by a commission merchant, dealer, or broker in all transactions, and all inventories of food or other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, shall be held ... in trust for the benefit of all unpaid suppliers or sellers of such commodities . . . until full payment of the sums owing in connection with such transactions has been received . . ..
7 U.S.C. § 499e(c)(2). The trust begins at the time of sale, but will be lost if the seller does not timely file notice with *800both the Department of Agriculture and the purchaser. 7 U.S.C. § 499e(c)(3). This notice is relatively simple and easily filled out; the notice is common in the industry and was well understood by Century 21. However, in this case Century 21 did not timely file the notice.
Because it purchased virtually all of Sun Russet’s production, Glacier may have "controlled” Sun Russet’s accounts receivable as Century 21 alleges. Century 21 does not argue that it was relying on the accounts receivable themselves as security, and it took no steps to establish a security interest in the accounts. Rather, Century 21 states it relied only on Glacier’s guaranty. In any event, Century 21 did not make its demand under the guaranty until after Sun Russet had filed bankruptcy; by that time the accounts receivable were part of the bankruptcy estate and subject to the control of the bankruptcy trustee, not Glacier.
Had the PACA lien continuation notice been filed, the trust would have been preserved, and payment of the debt would have been assured regardless of Sun Russet’s bankruptcy. By failing to preserve the trust, Century 21 deprived Glacier of its opportunity to be subrogated to the benefits of the trust. Failure to preserve the trust harmed Glacier to the full extent of the guaranty and results in a complete discharge of Glacier’s obligation. While the jury could have found Glacier’s guaranty included a waiver of a defense based on impairment of collateral, it was not asked to do so. We decline to make such a factual determination.
Reversed.
Schulthbis, J., concurs.