Series AGI West Linn v. Eves ( 2013 )


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  • Filed 6/14/13
                               CERTIFIED FOR PUBLICATION
    
                    IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
    
                                  FIRST APPELLATE DISTRICT
    
                                          DIVISION TWO
    
    
    SERIES AGI WEST LINN OF APPIAN
    GROUP INVESTORS DE LLC,
            Plaintiff and Respondent,                   A135832
    
    v.                                                  (Marin County
    ROBERT EVES,                                        Super. Ct. No. CIV-1201214)
            Defendant and Appellant.
    
    
            Robert Eves appeals from the Judicial Council form AT-120 Right to Attach Order
    and Order for Issuance of Writ of Attachment. The appeal presents a single issue, one
    that appears to be an issue of first impression, not only in California, but in the entire
    country: If a surety specifically excludes a specified asset from a continuing guaranty,
    are the proceeds from the sale of that asset still excluded when the surety is called to
    answer for its guaranty?
            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 to 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
    
    
                                                   1
    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 “Schedule 1,” added: “The following assets are
    
    
           1
               The pertinent language in VPC-OR‟s promissory note reads: “Exit Fee. In
    addition to all other sums due from Borrower [VCP-OR] to Lender [Series AGI] under
    this Note, on the Maturity Date [April 30, 2009], or upon any acceleration thereof,
    whether by default, application of insurance proceeds, applications of condemnation
    award, or otherwise, Borrower shall pay to Lender an exit fee („Exit Fee‟) in the amount
    equal to an annualized thirteen percent of the original principal balance of the Loan.”
    Another provision of the note allowed that if VPC-OR failed “to pay any sum . . . when
    due . . . the unpaid principal sum evidenced by this Note, all accrued and unpaid Interest
    thereon . . . shall, at the option of the Lender, . . . become immediately due and payable,
    and . . . may be enforced and recovered at once.”
           2
              A joint obligor on the guaranty was Venture Development Corporation, Inc.,
    which was the general partner of VPC-OR. Eves signed the guaranty on behalf of
    Venture Development Corporation, Inc. as its president. There are two related entities,
    Venture Professional Centers and Venture Commerce Centers, both of which are limited
    liability companies. Eves is the president and secretary of Venture Commerce Centers,
    which is interestingly also designated on several documents as the general partner of
    VPC-OR.
           When Series AGI filed for the attachment, one of its attorneys attached as an
    exhibit to his declaration a “Venture Corporation and Related entities Organizational
    Chart” provided by Eves. It appears from this chart that Eves owns 100 percent of
    Venture Professional Centers and Venture Commerce Centers, and 99 percent of 46 other
    limited liability companies and limited partnerships.
           None of these other entities figures on this appeal. The point of recounting their
    existence is to establish that Eves is no stranger to sophisticated financial transactions.
    Indeed, in his brief he describes himself as presiding over a “business empire.”
    
    
                                                  2
    excluded from the Robert J. Eves personal Guaranty: [¶] . . . [¶] The personal residence
    of Robert J. Eves at Via Regina, 27 Moltrasio, Como, Italy and its contents.”3 The
    parties expected the project to be completed by the end of April 2009. But it was not to
    be.
           Series AGI‟s deed of trust was extinguished when the senior lender foreclosed.
    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 (Code Civ. Proc., § 484.010).
    
    
    
           3
            The other excluded assets were Eves‟s “personal residence” in Mill Valley,
    “personal and/or real property” owned by specified family trusts, and “automobiles
    owned and used by the . . . family members” of Eves and his then wife.
           4
            The leading treatise explains how Eves‟s $3.1 million guaranty could balloon to
    more than twice that amount.
             First, “Where the guaranty is of a money obligation, the amount recoverable by
    the creditor in an action against the guarantor is the sum which is due according to the
    terms of the instrument. Together with this sum, the guarantor is generally liable for
    interest on the debt from the time of default by the principal. This liability for interest
    increases the amount . . . but it is justified because of the fact that the guarantor puts
    himself in the place of the principal and agrees to perform all that the principle is liable
    for. . . . [¶] . . . [¶] The allowance of interest is proper even though its effect may be to
    increase the recovery of the guarantor beyond the limit of liability specified in his
    contract of guaranty.” (Stearns, The Law of Suretyship (Elder rev. ed. 1951) § 4:19,
    pp. 85-86, fns. omitted.) “Interest normally commences to run against the principal from
    the date that he violates his obligation and, since the surety is liable for the principal‟s
    entire debt, he will be liable also for such interest on the debt.” (Id., § 8:19, p. 283.)
    California follows this rule. (Berg Metals Corp. v. Wilson (1959) 
    170 Cal. App. 2d 559
    ,
    569-570; Burns v. Massachusetts Etc. Ins. Co. (1944) 
    62 Cal. App. 2d 972
    , 975.) Given
    that VPC-OR made no payments on the loan for five years, the amount of interest that
    would accrue at an annual rate of 13 percent would be considerable.
           Second, the “exit fee,” which would add 13 percent of the $3.1 million principal
    (see fn. 1, ante), appears to be in the nature of a penalty or liquidated damages provision.
    (Stearns, The Law of Suretyship, supra, § 8:17, p. 280.)
    
    
                                                  3
           In his combined opposition and claim of exemption (Code Civ. Proc., §§ 484.060,
    484.070), Eves opposed only that part of the application aimed at “proceeds from the
    sale” of the Como house, which “[b]y the terms of the personal guarantee upon which
    plaintiff‟s application for attachment . . . is based . . . are „excluded‟ from attachment.”
    Eves based this conclusion on his reading of the guaranty‟s paragraph 13: “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 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
    enhancement.”
           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,
    
           In addition, the underlying agreement between VPC-OR and Series AGI, as well
    as the guaranty, allows for recovery of attorney fees, so Eves could also be liable for “all
    expenses, costs, charges, and legal fees reasonably incurred.” (T&R Painting
    Construction, Inc. v. St. Paul Fire & Marine Ins. Co. (1994) 
    23 Cal. App. 4th 738
    ,
    744-745; Gold v. Maxwell (1959) 
    176 Cal. App. 2d 213
    , 219; College Nat. Bank v.
    Morrison (1929) 
    100 Cal. App. 403
    , 408.)
    
    
                                                   4
    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. Cal. U. Com. Code, § 9315(a)(2)
    („A security interest attaches to any identifiable proceeds of collateral.‟)”
           Following a brief hearing, the trial court made an order denying “Eves‟ claim of
    „exemption‟ for the Como, Italy property” proceeds and granting Series AGI‟s
    application for an order of attachment. Eves timely sought review of this appealable
    order. (Code Civ. Proc., § 904.1, subd. (a)(5).)
                                              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 other instruments may be considered for that purpose. (Civ. Code,
    §§ 1642, 1647; Davenport v. Stratton (1944) 
    24 Cal. 2d 232
    , 244-245.) Consideration of
    the other documents is particularly appropriate because they are referenced on each of the
    pages of the guaranty. (Goodwin v. Nickerson (1875) 51 Cal.166, 169; Fidler v. Board of
    Trustees (1931) 
    112 Cal. App. 296
    , 309.)
           The Attachment Law (Code Civ. Proc., §§ 481.010-493.060) requires the party
    seeking a prejudgment attachment to demonstrate the probable validity of its claim,
    i.e., that it is “more likely than not that the plaintiff will obtain a judgment against the
    
    
           5
             The record does not establish the value of the Como property at any time. In
    short, the amount of the proceeds available for attachment is unknown.
    
    
                                                   5
    defendant” (Code Civ. Proc., §§ 481.190, 484.090, subd. (a)(2).). An attachment is
    properly issued in an action involving a contractual claim of money of a fixed or
    ascertainable amount of more than $500 (Code Civ. Proc., § 483.010, subd. (a)). An
    attachment may be issued against a natural person only if the claim arises “out of the
    conduct by the defendant of a trade, business, or profession.” (Id., § 481.010, subd. (c).)
    A trial court‟s findings on these issues will be upheld if supported by substantial
    evidence. (Code Civ. Proc., § 484.090, subd. (a); Lorber Industries v. Turbulence, Inc.
    (1985) 
    175 Cal. App. 3d 532
    , 534-535; Nakasone v. Randall (1982) 129 Cal.App.3d. 757,
    762.) However, none of the trial court‟s findings on these points is challenged by Eves.6
           Although the precise point does not appear to have been authoritatively
    established, it appears from some statutory language and case law that a claim of
    exemption upheld by the trial court is also judged according to the substantial evidence
    standard. (See Code Civ. Proc., § 484.090, subd. (b) [“If . . . the court finds that the
    defendant has failed to prove that all the property sought to be attached is exempt from
    attachment”] italics added; Schwartzman v. Wilshinsky (1994) 
    50 Cal. App. 4th 619
    , 626
    [whether account is meant for individual‟s retirement, and thus exempt from levy, is
    substantial evidence question]; Yaesu Electronics Corp. v. Tamura (1994) 
    28 Cal. App. 4th 6
             At the end of his reply brief, Eves argues that the recent decision in Riverisland
    Cold Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 
    55 Cal. 4th 1169
    undermines the trial court‟s finding that Series AGI had demonstrated the validity of its
    claim. The decision deals with an arcane aspect of the parole evidence rule as applied to
    a contract allegedly tainted by fraud. But as neither fraud nor the parole evidence rule
    was mentioned by Eves in opposing Series AGI‟s attachment request, we discern no basis
    for reading the trial court‟s finding as undermined by this change in the law. Moreover,
    because the issue of fraud was not made to the trial court, we have proceeded in
    conformity with the principle that “ „when a person with the capacity of reading and
    understanding an instrument signs it, he is, in the absence of fraud and imposition, bound
    by its contents, and is estopped from saying that its provisions are contrary to his
    intentions or understanding. . . .‟ ” (Edwards v. Comstock Insurance Co. (1988)
    
    205 Cal. App. 3d 1164
    , 1167, quoting Smith v. Occidental Etc. Steamship Co. (1893)
    
    99 Cal. 462
    , 470-471.) That said, because the attachment order is a prejudgment remedy,
    we do not foreclose the issue from being presented in subsequent proceedings before the
    trial court.
    
    
                                                  6
    8, 14 [same]; but see Code, Civ. Proc., § 484.090, subd. (c) [“If the court determines that
    property of the defendant is exempt from attachment, in whole or in part, the right to
    attach order shall describe the exempt property and prohibit attachment of the property”],
    italics added.)
           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 is to interpret Eves‟s guaranty in a manner
    that will effectuate its purpose. (Civ. Code, § 1636; Cates Construction, Inc. v. Talbot
    Partners (1999) 
    21 Cal. 4th 28
    , 39; U.S. Leasing Corp. v. DuPont (1968) 
    69 Cal. 2d 275
    ,
    284-285, 290.)
                                               Analysis
           A guaranty is a form of surety, whereby the guarantor “promises to answer for the
    debt . . . of another.” (Civ. Code, § 2787) A guaranty is a form of contract and subject to
    the usual rules governing contract interpretation. (Civ. Code, § 2837; Rest.3d Suretyship
    and Guaranty, § 14, p. 69.) The oft-repeated formulation of that interpretive function first
    appeared in 1903: “While it is true that a surety cannot be held beyond the express terms
    of his contract, yet in interpreting the terms of a contract of suretyship, the same rules are
    to be observed as in the case of other contracts. Such construction does not mean that
    words are to be distorted out of their natural meaning, or that, by implication, something
    can be read into the contract that it will not reasonably bear; but it means that shall be
    fairly construed with a view to effect the object for which it was given, and to accomplish
    the purpose for which it was designed.” (Sather Banking Co. v. Briggs Co. (1903)
    
    138 Cal. 724
    , 730.)
           A bedrock principle of contract law in California has always been that competent
    parties should have “ „ “the utmost liberty of contract” ‟ ” to arrange their affairs
    according to their own judgment so long as they do contravene positive law or public
    policy. (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992)
    
    2 Cal. 4th 342
    , 363 and authorities cited; see, e.g., Guz v. Bechtel National, Inc. (2000)
    
    24 Cal. 4th 317
    , 336 [“the parties are free to define their relationship . . . as they wish”];
    
    
                                                   7
    Aerojet-General Corp. v. Transport Indemnity Co. (1997) 
    17 Cal. 4th 38
    , 75 [“Aerojet
    and the insurers were generally free to contract as they pleased”]; Linnastruth v. Mut.
    Benefit Etc. Assn. (1943) 
    22 Cal. 2d 216
    , 218 [“parties may contract as they please so long
    as they do not violate the law or public policy”].) Surety agreements are no different.
    (See Rest.3d Suretyship and Guaranty, § 6 & com. a, p. 29.)
           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 they themselves have been
    satisfied to enter into or rewrite contracts because they operate harshly 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
    , 210; see Code Civ.
    Proc., § 1858 [“the office of the Judge is . . . not to insert what has been omitted”]; Levi
    Strauss & Co. v. Aetna Casualty & Surety Co. (1986) 
    184 Cal. App. 3d 1479
    , 1486 [“The
    court . . . cannot insert in the contract language which one of the parties now wishes were
    there.”].)
           With these principles in mind, construction of the guaranty is not difficult.
    
    
    
                                                  8
           This is not a contract of adhesion. Eves is no novice, but a knowledgeable and
    sophisticated person with wide experience in this particular type of commercial
    transaction. (See fn. 2, ante.) Thus, he is presumed competent to negotiate and draft
    documents that would protect his interests. The other instruments executed
    contemporaneously with the guaranty are highly pertinent to its construction.
           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
    Property,” 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 and 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
    
    
    
           7
            Exhibit D attached to the “Deed of Trust and Security Agreement with
    Assignment of Rents and Fixture Filing” addressed how “Net Insurance Proceeds” could
    be used for “restoration” of the property. As previously noted, “application of insurance
    proceeds” is also mentioned in the promissory note. (See fn. 1, ante.)
    
    
                                                 9
    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 could easily have done so.”].)
    His failure to do so cannot be remedied with a judicial blue pencil, because we “cannot
    insert in the contract language which one of the parties now wishes were there.” (Levi
    Strauss & Co. v. Aetna Casualty & Surety Co., supra, 
    184 Cal. App. 3d 1479
    , 1486;
    accord, Safeco Ins. Co. v. Robert S., supra, at p. 764.) Eves is therefore bound by the
    guaranty‟s plain language limiting the exemption from attachment to assets “expressly
    excluded . . . in the Asset Exclusion Schedule.” Proceeds were not expressly excluded.
           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
    
    
           8
             It is useful to note that Eves took the trouble to ensure that the exclusion of each
    of the two “personal residence[s]” specified that the exclusion extended to “its contents.”
    
    
                                                  10
    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 to believe the exempted asset consists not of his former personal
    residence in Como, as such, but the market value of that residence at the time the
    guaranty was executed. That is not, however, what the plain language of the guaranty
    says. Schedule 1 declares that the excluded asset consists of “The personal residence of
    Robert J. Eves at Via Regina, 27 Moltrasio, Como, Italy and its contents.” At the time of
    the attachment, Eves no longer owned the Como residence or its contents. The sale of
    those assets essentially vitiated the exclusion.
           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
    
    
           9
            This absence is only underscored by the presence elsewhere in the guaranty of
    language whereby Eves waived “any and all benefits, rights and defenses under
    [California‟s Anti-Deficiency legislation] Code of Civil Procedure Sections 580a and
    726, which would otherwise limit [Eves‟s] liability after a nonjudicial or judicial
    foreclosure sale”.
    
    
                                                  11
    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 from 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 that 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 were 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 is the sort
    of eventuality an experienced investor such as Eves, assisted by counsel, might be
    expected to anticipate. It is precisely the kind of situation that proves “improvident or
    
    
                                                 12
    unwise or . . . operate[s] unjustly” where courts leave competent contracting parties to lie
    in the bed they have made. (Walnut Creek Pipe Distributors, Inc. v. Gates Rubber Co.,
    supra, 
    228 Cal. App. 2d 810
    , 815; Moreno Mut. Irr. Co. v. Beaumont Irr. Dist., supra,
    
    94 Cal. App. 2d 766
    , 782.)
           Eves maintains that what he is arguing for is nothing more than “the mirror image
    of the concept expressed” in California Uniform Commercial Code section 9315,
    subdivision (a)(2), which provides that a perfected security interest “attaches to any
    identifiable proceeds of collateral” covered by the security agreement which, Eves points
    out, is “created by contract between the parties.” However, there is no equivalent statute
    for sureties, which makes it a matter for the parties‟ contractual negotiation. Which in
    turn sends us back to the absence of such a contractual provision here.
           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 11 U.S.C. § 522),
    which is not present here. The extended discussion in ITT Commercial Finance Corp. v.
    Tech Power, Inc. (1996) 
    43 Cal. App. 4th 1551
     concerning the tracing of proceeds from
    the sale of collateral covered by a perfected security interest is irrelevant for the reason
    stated in the preceding paragraph.
           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
    
    
                                                  13
    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 express terms”].) Implied terms “are disfavored at law. The
    courts will not imply a better agreement for parties than they themselves have been
    satisfied to enter into, or rewrite contracts whenever they operate harshly.” (Vikco Ins.
    Services, Inc. v. Ohio Indemnity Co. (1999) 
    70 Cal. App. 4th 55
    , 70; see Sather Banking
    Co. v. Briggs Co., supra, 
    138 Cal. 724
    , 730 [in construing a guaranty, court will not
    imply “something . . . into the contract that it will not reasonably bear”].) All of these
    caveats work against Eves. The hoped-for implied term is contrary to the unequivocal
    language of Paragraph 13 that to be exempt from the guaranty assets must be “expressly
    excluded.” The guaranty appears fully capable of being effectively performed without
    the insertion of the term “proceeds.” And we have already pointed out that it is not our
    job to save Eves from himself. (Code Civ. Proc., § 1858; Levi Strauss & Co. v. Aetna
    Casualty & Surety Co., supra, 
    184 Cal. App. 3d 1479
    , 1486; Hinckley v. Bechtel Corp.,
    supra, 
    41 Cal. App. 3d 206
    , 210; Walnut Creek Pipe Distributors, Inc. v. Gates Rubber
    Co., supra, 
    228 Cal. App. 2d 810
    , 815.)
           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.
    
    
    
    
                                                 14
                                     _________________________
                                     Richman, J.
    
    
    We concur:
    
    
    _________________________
    Kline, P.J.
    
    
    _________________________
    Haerle, J.
    
    
    
    
                                15
    A135832, Series AGI West Linn of Appian Group Investors De LLC v. Eves
    
    Trial Court:                               Marin County Superior Court
    
    Trial Judge:                               Honorable Roy C. Chernus
    
    Attorney for Defendant and Appellant:      Wild, Carey & Fife, John E. Carey, Jr.
    
    Attorneys for Plaintiff and Respondent:    Katzoff & Riggs, Kenneth S. Katzoff and
                                               Stephen G. Preonas
    
    
    
    
                                              16
    

Document Info

DocketNumber: A135832

Filed Date: 6/14/2013

Precedential Status: Precedential

Modified Date: 10/30/2014

Authorities (22)

In Re Cunningham , 513 F.3d 318 ( 2008 )

In Re: Cellnet Data Systems, Inc., Debtor Schlumberger ... , 327 F.3d 242 ( 2003 )

US Leasing Corp. v. DuPont , 69 Cal. 2d 275 ( 1968 )

Naify v. Pacific Indemnity Co. , 11 Cal. 2d 5 ( 1938 )

Linnastruth v. Mutual Benefit Etc. Assn. , 22 Cal. 2d 216 ( 1943 )

Davenport v. Stratton , 24 Cal. 2d 232 ( 1944 )

Tanner v. Title Ins. & Trust Co. , 20 Cal. 2d 814 ( 1942 )

Carma Developers (Cal.) v. Marathon Dev. Calif. , 2 Cal. 4th 342 ( 1992 )

Moreno Mutual Irrigation Co. v. Beaumont Irrigation Dist. , 94 Cal. App. 2d 766 ( 1949 )

Levi Strauss & Co. v. Aetna Casualty & Surety Co. , 184 Cal. App. 3d 1479 ( 1986 )

Hinckley v. Bechtel Corp. , 41 Cal. App. 3d 206 ( 1974 )

Continental Casualty Co. v. Hartford Acc. & Indem. Co. , 243 Cal. App. 2d 565 ( 1966 )

Walnut Creek Pipe Distributors, Inc. v. Gates Rubber Co. , 228 Cal. App. 2d 810 ( 1964 )

ITT Commercial Finance Corp. v. Tech Power, Inc. , 43 Cal. App. 4th 1551 ( 1996 )

VICKO INS. SERVICES, INC. v. Ohio Indem. , 82 Cal. Rptr. 2d 442 ( 1999 )

Schwartzman v. Wilshinsky , 50 Cal. App. 4th 619 ( 1996 )

Safeco Ins. Co. of America v. Robert S. , 110 Cal. Rptr. 2d 844 ( 2001 )

Guz v. Bechtel National, Inc. , 100 Cal. Rptr. 2d 352 ( 2000 )

College Nat. Bank v. Morrison , 100 Cal. App. 403 ( 1929 )

Fidler v. Board of Trustees , 112 Cal. App. 296 ( 1931 )

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