Appeals court awards $1.7 million to former owners of Harley-Davidson motorcycle shop

By Angela Underwood | May 17, 2017

SAN JOSE — The knowledge of credit postponement precludes exoneration, according to a ruling from the California Sixth District Court of Appeal.

In an opinion delivered May 4 by Sixth Appellate District Presiding Justice Conrad L. Rushing and associate justices Eugene M. Premo and Franklin D. Elia, the panel ruled that a defendant was not exempt from an agreement he made with plantiffs for the purchase of a motorcycle shop.

G.W. Warren’s Inc., a Salinas Harley-Davidson motorcycle shop that was owned and operated by Granville and Wanda Warren for 38 years, was sold to Judson Dabney II in 2006 after an asset purchase agreement, including a letter of guaranty, was signed by all parties.

“One of those agreements was a “Letter of Guaranty” (Guaranty) signed by Dabney, under which he “covenant[ed] and agree[d]... to guarantee... the collection and receipt of all amounts” required under Section 2 of the agreement,” the justices said in the opinion, further noting that Dabney could allocate his rights and responsibilities under the agreement to Monterey Motorcycles Inc. (MMI), a company he also owned.

As the assignee, Dabney had financial difficulties and G&W Warren's entered into two separate six-month deferral agreements to extend Dabney’s amount owed. When MMI defaulted on loans and the dealership was sold to a third party in 2012, G&W Warren’s filed a lawsuit against Dabney.

After a trial, Dabney was found “liable under the guaranty for assignee’s obligations,” according to the ruling that granted the G&W Warren’s $2.7 million for the judgement. 

Appealing the decision, Dabney argued he was not accountable for more than $1.1 million under the contract he signed. 

“He [Dabney] contends the guaranty did not cover the obligations under those three agreements that were signed by the parties at the time of the sale,” according to the  opinion, which further states “by virtue of G&W Warren’s having agreed with assignee to extend the deadline for payments and having provided it with additional loans—concessions to which Dabney did not agree—he was exonerated from any liability under the Guaranty.”

Rejecting his claim of error, the appeals panel of judges found Dabney answerable under the “guaranty for assignee’s obligations” and reversed the judgment and entered a new order granting G&W Warren’s their owed amount with interest, cost and attorney fees in the amount of almost $1.7 million. 

“We conclude that there was substantial evidence supporting the trial court’s finding that Dabney consented to the deferral agreements and the two loans to assignee (MMI), and that in any event, by the terms of the guaranty, Dabney expressly waived the exoneration,” according to the opinion.

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