SERIES AGI WEST LINN OF APPIAN GROUP INVESTORS DE, LLC, Plаintiff and Respondent, v. ROBERT EVES, Defendant and Appellant.
No. A135832
First Dist., Div. Two
June 14, 2013
Wild, Carey & Fife and John E. Carey, Jr., for Defendant and Appellant.
Katzoff & Riggs, Kenneth S. Katzoff and Stephen G. Preonas for Plaintiff and Respondent.
OPINION
RICHMAN, J.—Robert Eves appeals from the Judicial Council form AT-120 right to attach order and order for issuance of writ of attachment after
The novelty of the issue notwithstanding, we resolve it as simply one of contractual interpretation. Our examination of the guaranty, together with other documents executed at the same times, shows that Eves could have inserted language extending the exclusion from the assets to the sale proceeds of those same assets. He simply failed to do so. Judicially correcting that omission would amount to an improper rewriting of the parties’ contract. For this reason we agree with the trial court that the proceeds are not exempt from being attached tо satisfy the surety‘s obligation.
BACKGROUND
According to the papers of plaintiff Series AGI West Linn of Appian Group Investors DE, LLC (Series AGI), in April 2007 it lent $3.1 million to VPC-OR West Linn Limited Partnership, LLC (VPC-OR), for the development of a “commercial marketplace” in West Linn, Oregon. The loan provided for interest at 13 percent per annum, and an “exit fee of the amount equal to an annualized thirteen percent... of the original principal balance” of the loan.1 The loan was secured by a deed of trust, which was junior to another deed of trust held by a financial institution that had loaned VPC-OR $18.4 million.
Contemporaneously, Eves executed a “Continuing Guaranty” by which he “unconditionally guarantees and promises to pay Lender [(Series AGI)]... any and all indebtedness... of Borrower [(VPC-OR)] to Lender.”2 A “Guaranty of Loan Addendum,” setting out seven categories of assets as
Series AGI‘s deed of trust was extinguished when the senior lender forеclosed. VPC-OR made no payments on the loan, and Eves refused to honor his guaranty. In March 2012 Series AGI filed suit to recover approximately $6.3 million from VPC-OR, or Eves, together with prejudgment interest, and attorney fees, according to the terms of the loan agreement and the continuing guaranty.4 One month after it filed its complaint, Series AGI applied for a prejudgment order of attachment (
”Limitation of Recovery. [¶] Notwithstanding the foregoing, the personal Guaranty of Eves may only be collected from assets not expressly excluded, as provided in the Asset Exclusion Schedule for Eves that is attached hereto as Schedule 1; provided such limitation shall be inapplicable in the event Eves or any affiliate of Eves supplements or enhances in any material manner any Excluded Asset but only to the extent of such supplement or enhancеment.”
Series AGI‘s application was submitted on papers, exhibits, and declarations. Series AGI‘s first declaration, by Attorney Stephen Preonas, concerned the amount of attorney fees Series AGI was likely to incur, together with an explanation of the damages it was seeking. The second, by Jon Lotter, Series AGI‘s manager, authenticated a number of attached exhibits, including the guaranty, and narrated the history of the planned project.
Eves responded with a declaration by Attorney John E. Carey, Jr., that simply authenticated an attached copy of the guaranty. Eves himself provided two declarations. The first purported to set out Eves‘s “understanding” of the guaranty. The trial court sustained Series AGI‘s objections that virtually all of Eves‘s declaration was speculation, opinion, or otherwise lacked foundation.
Lotter then filed a supplemental declaration explaining how paragraph 13 came to be included in the guaranty. The final declaration was the supplemental one by Eves, which is the only source of particulars regarding the sale of his Italian residence: “I sold that property in the summer of 2011. The proceeds of the sale... were all cash and that cash has been deposited in various accounts. No part of the proceeds of [the] sale has ever been comingled with any other funds. The sale proceeds have always been easily identifiable because they have been in segregated accounts as I have drawn them down to satisfy various obligations.”5 The apparent purpose of this explanation was to buttress Eves‘s claim that “where collateral is sold, the secured creditor‘s security interest automatically attaches to the proceeds of sale.
REVIEW
Preliminary Matters and the Scope of Our Review
Although the parties do not suggest that any other documents executed contemporaneously with the guaranty (i.e., VPC-OR‘s promissory note, security agreement, and deed of trust) are useful in ascertaining the scope and meaning of the guaranty, these othеr instruments may be considered for that purpose. (
The attachment law (
However, because there are no contested issues of fact, the issue becomes one of law. (Continental Casualty Co. v. Hartford Acc. & Indem. Co. (1966) 243 Cal.App.2d 565, 570.) Thus, it is our independent duty to interpret Eves‘s guaranty in a manner that will effectuate its purpose. (
Analysis
A guaranty is a form of surety, whereby the guarantor “promises to answer for the debt... of another.” (
The nonpaternalistic corollary to this freedom is that courts assume that each party to a contract is alert to, and able to protect, his or her own best interests. (See Crestview Cemetery Assn. v. Dieden (1960) 54 Cal.2d 744, 753; Mitau v. Roddan (1906) 149 Cal. 1, 14.) Therefore, courts will not rewrite contracts to relieve parties from bad deals nor make better deals for parties than they negotiated for themselves. (See Naify v. Pacific Indemnity Co. (1938) 11 Cal.2d 5, 11 [“Parties are, within reason, free to contract as they please, and to make bargains which place one party at a disadvantage....“].) As we stated in 1964: “The courts cannot make better agreements for parties than they themselves have been satisfied to enter into or rewrite contracts because they operate hаrshly or inequitably. It is not enough to say that... the contract would be improvident or unwise or would operate unjustly. Parties have the right to make such agreements.” (Walnut Creek Pipe Distributors, Inc. v. Gates Rubber Co. (1964) 228 Cal.App.2d 810, 815; see Moreno Mut. Irr. Co. v. Beaumont Irr. Dist. (1949) 94 Cal.App.2d 766, 782 [“‘nor will the courts relieve one from the consequences of his own improvidence or poor judgment’ “].) Or, as we later stated: “It is widely recognized that the courts are not at liberty to revise an agreement under the guise of construing it. Neither abstract justice nor the rule of liberal interpretation justifies the creation of a contract for the parties which they did not make themselves.” (Hinckley v. Bechtel Corp. (1974) 41 Cal.App.3d 206, 211; see
With these principles in mind, construction of the guaranty is not difficult.
The “Deed of Trust, Security Agreement with Assignment of Rents and Fixture Filing” that Eves, as the president of Venture Commerce Centers, signed for VPC-OR on the same day as the guaranty, has numerous references to “proceeds” in different contexts. VPC-OR transferred to Series AGI “All income, rents, royalties, revenue, issues, profits, proceeds and other benefits from any and all of the Land and/or Improvements,” together with “All proceeds and claims arising on account of any damage to, or Condemnation ... of the Land and/or Improvements.” (Italics added.) VPC-OR also transferred a number of specified rights categorized as “Personal Proрerty,” which encompassed “All proceeds of any of the foregoing, including, without limitation, proceeds of any voluntary or involuntary disposition or claim respecting any of the foregoing (pursuant to judgment, condemnation award, or otherwise) and all goods, documents, general intangibles, chattel paper, and accounts, wherever located, acquired with cash proceeds of any of the foregoing or proceeds thereof.” (Italics added.) Another provision explained at great length how “Insurance Proceeds,” “Net Insurance Proceeds,”7 “Condemnation Proceeds” and “Proceeds of Sale” would be handled. (Italics added.) A glossary of “Defined Terms” stated that “‘Rents and Profits’ shall mean all аnd any income, rents, royalties, revenue, issues, profits, proceeds, accounts receivable, and other benefits now or hereafter arising from the Property, or any part thereof.” (Italics added.) Among the “Remedies Upon Default” given to Series AGI were a “Power of Sale” and the discretionary power over “Application of Proceeds of Sale.” (Italics added.)
These provisions demonstrate that the concept of proceeds was not overlooked by Series AGI, VPC-OR, or Eves. The language of the excluded assets shows that some care was given to their description. (See fn. 3, ante.) If Eves meant to anticipate the liquidation or sale of an excluded asset, all he had to do was insert language to cover that contingency.8 (See Safeco Ins. Co. v. Robert S. (2001) 26 Cal.4th 758, 763 [“The policy before us... contains not a criminal act exclusion but an illegal act exclusion. Had Safeco wanted to exclude criminal acts from coverage, it
The arguments advanced by Eves to evade this conclusion do not persuade.
Looking to paragraph 13 of the guaranty, this is how Eves explains its meaning: “The final sentence of Paragraph 13 refers to ‘supplements or enhancements’ of an excluded asset. If the excluded asset were a $3 million residence and after signing the guaranty, the guarantor ‘enhanced’ that asset by building a $2 million addition, the guaranty says that the value of the enhancement would not be excluded.... This makes sense as a hedge against the guarantor ‘banking’ money into an excluded asset after the loan agreement is executed that would otherwise have been available in the event of collection. In such a circumstance, the only way to give effect to the sentence is to interpret it to say that if the only way to pay the portion of value attributable to a supplement or enhancement is to sell the asset, the owner need only turn over that sum that represents the supplement or enhancement and may keep the balance. The only way to make sense of the exclusion being limited to the extent of such enhancement is to conclude that from the proceeds of the sale, the creditor receives only the $2 million enhancement. The limitation expressly provides that the creditor will not receive the balance of the proceeds of the sale. To argue otherwise, turns the document on its head.... The language of the guaranty itself clearly states that the Creditor does not receive the proceeds of sale of an excluded asset unless the asset was enhanced, and then only that portion of the proceeds of sale attributable to the enhancement.” Not at all. The obvious purpose of the provision is to establish a formula for the valuation of the excluded asset and prevent that value from being “supplement[ed] or enhance[d]” in such a way that reduced Eves‘s other resources for satisfying his guaranty. As evident from the use of the present tense, the predicate of that purpose is Eves retaining the excluded asset. The absence of the words “sell,” “sale,” or “sold” from paragraph 13 is conspicuous.9
Eves appears tо believe the exempted asset consists not of his former personal residence in Como, as such, but the market value of that residence at
It is illogical for Eves to insist that “The language of the guaranty itself clearly states that the Creditor does not receive the proceeds of sale of an excluded asset unless the asset was enhanced” and that “The limitation expressly provides that the creditor will not receive the balance of the proceeds of the sale” when the word “proceeds” is nowhere present. Nothing about proceeds from the sale of excluded assets is “clearly stated” or “expressly” provided in the guaranty. To read paragraph 13 as Eves does—to encompass proceeds frоm the sale of that asset—is a distortion of the natural meaning of the language chosen by the parties. (See Sather Banking Co. v. Briggs Co., supra, 138 Cal. 724, 730.) For this court to agree with Eves would be to “revise an agreement under the guise of construing it.” (Hinckley v. Bechtel Corp., supra, 41 Cal.App.3d 206, 211.)
Similarly, with no citation to the record Eves insists that the language of paragraph 13 was “designed to protect Mr. Eves’ personal core assets .... Mr. Eves’ business empire remained at risk and available to the lender for collection in the event of default but Mr. Eves was allowed to protect items unrelated to the business that would, if necessary, provide a life boat in the event of an economic meltdown.... There is nothing in the Continuing Guaranty that supports the argument that the proceeds from the sale of an excluded asset loose [sic] the exclusion by virtue of the sale. In the absence of an express agreement between the parties to the contrary, the proceeds from the sale of an excluded asset take the place of the asset itself, and the contractual rights and duties of the parties attributable to the asset apply to the proceeds.” (Italics added.) This is exactly backwards—paragraph 13 plainly conveys thаt Eves‘s guaranty could be satisfied from all of his assets except those “expressly excluded.” If “personal core assets” was indeed such a pressing concern, nothing prevented Eves from using protective language.
Eves tells us that unless proceeds from the sale of an excluded asset are also excluded, “the exclusion is a term without a purpose” that will not safeguard from this scenario: “If, due to exigent circumstances, Mr. Eves had no funds and was forced to sell an excluded asset like the home in Italy in order to survive, he could be forced to pay over all of the proceeds of that sale, thereby forcing him to sell his Mill Valley home, and so on. The proceeds of that sale could be taken as well and he would have to sell one after the other, all of the ‘excluded’ assets enumerated in the guaranty.” This
Eves maintains that what he is arguing for is nothing more than “the mirror image of the concept expressed” in
The handful of other authorities cited by Eves are equally unhelpful. In re CellNet Data Systems, Inc. (3d Cir. 2003) 327 F.3d 242, 248 involved a contract that did expressly address “‘proceeds from any Excluded Asset.‘” The court in In re Cunningham (1st Cir. 2008) 513 F.3d 318, 323-324 held that the proceeds from an exempted homestead is likewise exempted. But Eves fails to appreciate that the Bankruptcy Code generally pegs such exemptions to state law (see
Finally, Eves submits that “proceeds” should be treated as an implied term, on the theory that “after examining the contract as a whole it is so obvious that the parties had no reason to state the [term], the implication arises from the language of the agreement, and there is a legal necessity.” (College Block v. Atlantic Richfield Co. (1988) 206 Cal.App.3d 1376, 1380.) We reject this argument because it is made for the first time in Eves‘s reply brief. (Garcia v. McCutchen (1997) 16 Cal.4th 469, 482, fn. 10; 9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 723, p. 790.) But even if the argument were properly before us, we would reject it on the merits. Implied terms “are justified only when they are not inconsistent with some express term of the contract and, in the absence of such implied terms, the contract could not be effectively performed.” (Tanner v. Title Ins. & Trust Co. (1942) 20 Cal.2d 814, 824; see Carma Developers (Cal.), Inc. v. Marathon Development California, Inc., supra, 2 Cal.4th 342, 374 [“implied terms should never be read to vary
Regardless of whether the issue is framed as one of fact judged according to the standard of substantial evidence (Schwartzman v. Wilshinsky, supra, 50 Cal.App.4th 619, 626) or as one of law for our independent review (U. S. Leasing Corp. v. DuPont, supra, 69 Cal.2d 275, 284-285, 290; Continental Casualty Co. v. Hartford Acc. & Indem. Co., supra, 243 Cal.App.2d 565, 570), the result is the same: there is no basis for relieving Eves from the consequences of the language to which he willingly assented.
DISPOSITION
The order is affirmed.
Kline, P. J., and Haerle, J., concurred.