Kovtun v. DeAntoni

Filed 3/20/06 Kovtun v. DeAntoni CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, Ronald L. Styn, Judge. Affirmed.

At least as far back as the codification of the Code of Civil Procedure in 1872, California law has dictated that recitals of fact in a written agreement are conclusively presumed true as between the parties to that agreement. Equally well established is an exception to that rule: The presumption does not apply to "the recital of a consideration."^[1]

In this appeal, Deonnetti DeAntoni challenges the trial court's application of this rule, now codified in Evidence Code section 622 (Section 622), to conclusively establish the truth of a factual recital in a surety agreement which states that the agreement was executed as "the condition of [an earlier] Contract." DeAntoni contends that the recital is "a recital of a consideration" which he could, and did, disprove by extrinsic evidence -- ultimately rendering the surety agreement, upon which the trial court based his liability, void.

As discussed post, we conclude the trial court correctly determined that the recital at issue was not a recital of a consideration, but rather a factual recital that must be conclusively presumed true under Section 622. The recital is not on its face a statement of consideration, and while it influences the determination of whether there is consideration for the surety agreement, it does not itself provide that consideration.

FACTS

In 2001, the Kovtun Family Trust^[2] (Kovtun) contracted with JKCD, Inc., dba Jeff Kull Construction Development (Kull), to serve as a general contractor for the construction of a residence on a property in Pacific Beach. In July 2002, Kull hired a subcontractor, Laguna Sash & Door, Inc. (Laguna), to provide custom doors and windows for the residence. Kull and Laguna entered into a contract (the Laguna Subcontract) which specified the materials and labor that Laguna would provide and the payment it would receive. The Laguna Subcontract also stated that Laguna would provide a 20-year warranty for the doors and windows, and that Laguna's owner, Deonnetti DeAntoni, would provide a "personal guarantee" at a later time. The scope of the personal guarantee was not specified.

In September 2002, Kovtun terminated Kull as the general contractor and took over construction of the residence. In October, Kovtun required DeAntoni to guarantee the Laguna Subcontract. The written "Guaranty of Contract" that DeAntoni subsequently executed (the Guaranty) recites that the Laguna Subcontract had been assigned to Kovtun "and as a condition of the original bid and the Contract, [Kovtun] has required that [DeAntoni] execute and deliver to [Kovtun] this Guaranty." The scope of the Guaranty is expansive, including not only DeAntoni's personal guarantee of the 20-year warranty on labor and materials, but also his promise to pay "all interest, costs advanced by [Kovtun], damages, and expenses (including reasonable attorney fees) that may arise in consequence of [Laguna]'s default," if such should occur, on the Laguna Subcontract.

Laguna subsequently failed to perform the Laguna Subcontract. Kovtun brought a breach of contract action against Laguna in which Kovtun sought damages from DeAntoni pursuant to his personal guarantee of the Laguna Subcontract. The case was tried on September 21, 2004, without a jury. The trial court ruled in favor of Kovtun, finding that Laguna breached the Laguna Subcontract and that DeAntoni was personally responsible for damages in the amount of $123,007.46 pursuant to the Guaranty.

DeAntoni moved for a new trial under Code of Civil Procedure section 657, contending he had no personal liability because the Guaranty upon which his liability rested was without consideration and therefore void. (See, e.g., Rusk v. Johnston (1937) 18 Cal.App.2d 408, 409 [guaranty invalid for lack of consideration].) The trial court granted the motion.

A second nonjury trial was held on April 6, 2005, at which the court heard testimony on the issue of the validity of the Guaranty. At trial, Kovtun did not dispute that the Guaranty was without separate consideration. Instead, Kovtun argued that no such consideration was required under Civil Code section 2792, which provides that the consideration for an original agreement is sufficient to support a subsequently executed guaranty if the guaranty obligation is "entered into at the same time with the original obligation." (Civ. Code, § 2792 ["Where a suretyship obligation is entered into at the same time with the original obligation, or with the acceptance of the

latter by the creditor, and forms with that obligation a part of the consideration to him, no other consideration need exist. In all other cases there must be a consideration distinct from that of the original obligation'']; Pacific States Sav. etc. Co. v. Stowell (1935) 7 Cal.App.2d 280, 281 (Pacific States).)

The trial court agreed with Kovtun, ruling that under Civil Code section 2792, the consideration for the original Laguna Subcontract supported the Guaranty. The trial court recognized, as DeAntoni argued, that Civil Code section 2792 should not apply as a factual matter, because the obligation to enter the Guaranty was not "entered into at the same time with the original obligation."^[3] (Civ. Code, § 2792.) Nevertheless, the court determined that DeAntoni, as a party to the Guaranty, was bound by a factual recital in the surety agreement which stated that the Guaranty was "a condition of the original . . . Contract." The court ruled that it was required to conclusively presume the truth of this recital under Section 622, which states: "The facts recited in a written instrument are conclusively presumed to be true as between the parties thereto, or their successors in interest[.]"^[4] The court concluded, "I don't think I have any choice under the law" but to render judgment for Kovtun.^[5]

DISCUSSION

On appeal, DeAntoni challenges the trial court's determination that Section 622 conclusively established the truth of the recital that the Guaranty was a condition of the original Laguna Subcontract. DeAntoni presents two separate grounds for this challenge, each of which we address below after setting out the appropriate standard of review.^[6]

A

Standard of Review

Where, as here, an appellant does not challenge the trial court's factual findings, but instead challenges the court's application of law to those findings, the reviewing court is confronted with a question of law requiring de novo review. (California School Employees Assn. v. Kern Community College Dist. (1996) 41 Cal.App.4th 1003, 1008 ["Resolution of the question before this court is a question of law resting entirely on the interpretation of relevant statutes and case law. Therefore, review is de novo"].) Kovtun's contrary contention that we should apply the substantial evidence standard because the "trial court weighed the evidence and concluded . . . that the Guaranty was a part of the original contract" is without merit. (See, e.g., Winet v. Price (1992) 4 Cal.App.4th 1159, 1166 (Winet) ["When the competent parol evidence is in conflict, and thus requires resolution of credibility issues, any reasonable construction will be upheld as long as it is supported by substantial evidence"].) As we have discussed, the trial court weighed the evidence and determined that the Guaranty was not part of the original contract. The court nevertheless determined as a matter of law under Section 622 that it was required to presume that it was. Our review of that legal determination is de novo.

B

The Factual Recital That the Guaranty Was a Condition of the Original

Contract Is Not "the Recital of a Consideration" and Was Therefore

Binding on DeAntoni

DeAntoni's argument at trial was that because the Guaranty established a broader surety obligation than the personal guarantee originally contemplated in the Laguna Subcontract, it was not a condition of that agreement, but rather constituted an independent transaction which required separate, additional consideration. (See Civ. Code, § 2792.) As DeAntoni entered into the Guaranty without receiving any such consideration, he contended the Guaranty was void, and consequently, he had no personal liability for damages.

The analytical premise of DeAntoni's argument is that the factual recital, which states that the Guaranty was, in fact, a condition of the Laguna Subcontract, need not be presumed true under Section 622 because it is "the recital of a consideration." (§ 622.) DeAntoni contends that this conclusion is unavoidable because even if the recital is not on its face a recital of consideration, it effectively functioned as consideration in this case.^[7]

DeAntoni's argument -- in essence, that the exception in Section 622 applies not only to "the recital of a consideration" (ibid.), but also to other recitals that influence the legal determination of whether consideration exists -- is primarily refuted by the plain and unambiguous text of Section 622, by which we are bound. (See Day v. City of Fontana (2001) 25 Cal.4th 268, 272 (Day) [in interpreting a statute, we "examin[e] the statutory language, giving the words their usual and ordinary meaning," and "[i]f there is no ambiguity, then we presume the lawmakers meant what they said, and the plain meaning of the language governs"].)

Section 622, by its terms, applies to every "fact[] recited in a written agreement" excepting only "the recital of a consideration." The recital at issue here is not labeled or referenced within the Guaranty as consideration,^[8] and fails to constitute "consideration" as that term is commonly defined -- a "benefit conferred" or "prejudice suffered."^[9] (Civ. Code, § 1605; see Plotitsa v. Superior Court (1983) 140 Cal.App.3d 755, 762 ["where a word or phrase has a well-known and definite legal meaning it will be construed to have the same meaning when used in a statute"].) Consequently, the recital does not fit within the "plain meaning" of the statutory exception to Section 622 (Day, supra, 25 Cal.4th at p. 272), and exempting the recital from the statute's reach would "violate the cardinal rule that courts may not add provisions to a statute." (Adoption of Kelsey S. (1992) 1 Cal.4th 816, 827.)

Recognizing that the recital does not fit within any recognized definition of "consideration," DeAntoni argues it nevertheless "must be a recital of a consideration" because the trial court found that absent the recital, there was no consideration for the Guaranty. This argument misinterprets the trial court's ruling and the role of Civil Code section 2792.

Civil Code section 2792 does not eliminate the need for a surety agreement to be supported by consideration. It merely provides that such consideration may be found in an earlier transaction in which the surety obligation was contemplated. (Pacific States, supra, 7 Cal.App.2d at p. 281 [under Civ. Code, § 2792, the original agreement and the later guaranty become "one transaction," and "the consideration of the one promise supports the other"].) Consequently, the trial court did not (and could not) find that the recital at issue here established consideration for the Guaranty. Rather, the court properly recognized that the recital, under Civil Code section 2792, allowed it to look to the Laguna Subcontract to find consideration for the Guaranty. The court then properly found that the Laguna Subcontract contained adequate consideration to support the Guaranty.^[10] (Civ. Code, § 2792 [where guaranty is entered into as part of original obligation "no other consideration need exist" apart from that for the original obligation], italics added.) Of course, DeAntoni remained free under Section 622 to disprove the existence of consideration in the Laguna Subcontract; he was simply unable to do so as a factual matter. (Cf. Palermo v. Pyke (1952) 111 Cal.App.2d 350, 356 (Palermo) [factual recital in agreement must be presumed true even though later recital of consideration which referenced that recital can be challenged].)^[11]

In sum, while the recital at issue here had the effect under the facts of this case of defeating DeAntoni's argument that the Guaranty was lacking in consideration, it did not itself constitute consideration for the Guaranty. This distinction is crucial given the explicit text of the statutory exception we are interpreting, which solely exempts from the class of factual recitals that will be conclusively presumed true, the "recital of a consideration." (§ 622.)^[12]

The case primarily relied on by DeAntoni on this appeal, Feinberg v. Teitelbaum Furs, Inc. (1965) 236 Cal.App.2d 744, 751 (Feinberg), is in no way inconsistent with our conclusion. In Feinberg, the party to a contract was permitted to disprove the truth of contractual recitals where the contract stated that it was issued " '[i]n consideration of the foregoing [recitals].' " (Id. at p. 748.) In Feinberg, unlike here, the recitals at issue were both explicitly referenced as "consideration" and fit within the traditional definition of "consideration" -- as benefits conferred. Consequently, the exception in Section 622 (then Code Civ. Proc., § 1962, subd. (2)) exempting "the recital of a consideration" applied by its terms to allow the parties to dispute the recitals, and demonstrate by extrinsic evidence that the true consideration was something other than those recitals. (Feinberg, at p. 751.)

Feinberg, supra, 236 Cal.App.2d 744, is further distinguishable because the contract at issue there stated that it was entered into " '[i]n consideration of the foregoing [recitals]' " as well as for " 'other good and sufficient consideration.' " (Id. at p. 748.) As this language explicitly referenced consideration that was not listed in the document itself, the Feinberg court ruled that extrinsic evidence could be used to determine the " 'other' " consideration referenced even though doing so indirectly contradicted the recitals explicitly listed as consideration in the contract. (Id. at p. 752 ["[i]t is settled that the introduction of parol evidence to show consideration in addition to that recited in the instrument is proper, when phrases such as 'other valuable considerations' . . . are used"].) Consequently Feinberg provides no support for DeAntoni's position.

B. Ambiguity Does Not Bar Application of Section 622

Alternatively, DeAntoni argues that the use of the phrase "has required" in the disputed recital creates ambiguity, because it demonstrates that the recital "could just as easily mean that the Owner [Kovtun] was now requiring the personal guarantee in order to allow Laguna . . . to continue with the contract." (Italics added.) He asserts that this ambiguity allowed the court to disregard the recital because "[Section] 622 does not apply in the event of an ambiguity." Again, we disagree. DeAntoni's argument correctly recognizes that ambiguity plays a role in the application of Section 622, but misinterprets that role.

A court cannot "conclusively presume[]" (§ 622) the truth of a recital of fact unless it first determines the meaning of that fact. Consequently, to apply Section 622, the court must first resolve any ambiguity in the recital at issue and may, of course, consider extrinsic evidence in doing so. (See Cordasco v. Scalero (1962) 203 Cal.App.2d 95, 107 (Cordasco) ["It is the rule that where ambiguity appears in the language used in a written instrument, parol evidence may be used to show the true significance of the language, and notwithstanding the statutory presumption [now codified in § 622], the court will adopt the more reasonable interpretation"], disapproved on other grounds in Estate of Propst (1990) 50 Cal.3d 448.)

The application of this familiar rule of contract interpretation -- allowing extrinsic evidence to resolve ambiguity in contract language, does not render Section 622 inapplicable. Rather, as with any ambiguous provision of a contract, the trier of fact (here the trial court) is permitted to examine extrinsic evidence for the purpose of "adopt[ing] the more reasonable interpretation" of the recital. (Cordasco, supra, 203 Cal.App.2d at p. 107; Perkins v. Maiden (1943) 57 Cal.App.2d 46, 52 [same].) Once the ambiguity is resolved, Section 622 continues to apply, requiring the court to presume the truth of the more reasonable interpretation of the ambiguous recital. (Perkins, at p. 52.)

Here, the trial court followed this procedure, and did so without error. DeAntoni's counsel raised the same ambiguity that he now asserts in his argument before the trial court. The court, having heard extensive extrinsic evidence, rejected this argument, interpreting the recital to mean that the Guaranty is "part of the original contract."^[13] DeAntoni provides no real argument^[14] or authority to contradict the court's ultimate determination that this was the more reasonable interpretation of the recital's assertedly ambiguous language and we see no grounds for disturbing the court's determination.^[15] Whatever the merits of DeAntoni's contention that there is ambiguity in a portion of the recital, the recital itself states unequivocally that the Guaranty is "a condition of the original . . . Contract" -- a clear statement of the parties' intent that supports, if not mandates, the trial court's finding. (Winet, supra, 4 Cal.App.4th at p. 1167 ["parol evidence is admissible only to prove a meaning to which the language is 'reasonably susceptible' [citation], not to flatly contradict the express terms of the agreement"].)

Consequently, ambiguity in the recital, if any, did not render Section 622 inapplicable, but simply allowed the trial court some leeway to interpret the meaning of the recital in light of the extrinsic evidence. The trial court did so here, and we perceive no error in its resolution of the ambiguity.

In sum, we conclude that the trial court properly determined that the recital was not the recital of a consideration, and therefore must be presumed true under Section 622. Consequently, we will not disturb the trial court's ruling that the Guaranty required no additional consideration under Civil Code section 2792 and was therefore binding on DeAntoni.

DISPOSITION

Affirmed.

IRION, J.

WE CONCUR:

BENKE, Acting P. J.

NARES, J.

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^[1] (See Amer v. Hightower (1886) 70 Cal. 440, 442 [noting presumption in former Code Civ. Proc., § 1962, subd. (2), and exception that rule "does not apply to the recital of a consideration"]; People v. Post (2001) 94 Cal.App.4th 467, 477 [discussing codification of Code of Civil Procedure in 1872].)

^[2] Plaintiffs Jay and Lael Kovtun are the cotrustees of the Kovtun Family Trust. Plaintiff Gordon Kovtun, the sole beneficiary of the Kovtun Family Trust, is not a party to this appeal.

^[3] The court found that the Guaranty was not contemplated in the original transaction between Kull and Laguna/DeAntoni, but was in fact much broader than the personal guarantee referred to in the Laguna Subcontract.

^[4] Section 622 states in full: "The facts recited in a written instrument are conclusively presumed to be true as between the parties thereto, or their successors in interest; but this rule does not apply to the recital of a consideration."

^[5] Expressly contemplating appeal, the trial court stated that it was "finding in favor of [DeAntoni] on every issue except the recital. In other words, I'm finding that but for that recital, there would be no consideration. I'm finding that the original agreement between Kull and Laguna . . . when they referred to the Guaranty, they were referring to a guaranty of the 20-year warrant[y] [i.e., not the more comprehensive Guaranty actually entered into], but I'm finding that the recital is conclusive under the Evidence Code and, therefore, the first part of [Civil Code, section] 2792 applies. . . . I don't think I have any choice under the law but to make the decision that I have."

^[6] DeAntoni does not challenge the trial court's application of Civil Code section 2792.

^[7] DeAntoni summarizes his argument as follows: "Since the court found that except for this recital there would be no consideration, then the recital must be a recital of a consideration. Logic so demands. This logic holds true whether the recital uses the words or labels 'consideration' or not."

^[8] In fact, the Guaranty contains other language stating it was entered into "[f]or mutual and valuable consideration, the adequacy and receipt of which is hereby acknowledged" -- a true recital of consideration that DeAntoni was able to dispute under Section 622.

^[9] "Consideration" has been defined by the Legislature in the Civil Code in accordance with its well-established meaning as "[a]ny benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducement to the promisor . . . ." (Civ. Code, § 1605; see Conservatorship of O'Connor (1996) 48 Cal.App.4th 1076, 1102 ["Consideration is a benefit conferred or agreed to be conferred upon the promisor or prejudice suffered or agreed to be suffered 'as an inducement' to the promisor"], citing Civ. Code, § 1605.)

^[10] The Laguna Subcontract is supported by abundant consideration, including an agreed upon exchange of labor and materials for $128,829.19; DeAntoni does not contend otherwise on appeal.

^[11] In a case that is distinguishable because it did not concern a surety agreement, but is nonetheless roughly analogous, Palermo, supra, 111 Cal.App.2d 350, the appellate court found a recital which stated that " 'irreparable damage . . . has been done to the [buyer]' " by the seller, must be presumed true even though the contract went on to state that the seller agreed to the contract " '[a]s consideration . . . for the damage' " caused. The court ruled that "the recital . . . that 'irreparable damage' was caused by [the buyer], was a recital of fact and was conclusive" (id. at p. 356); the court held that the exception to Section 622 (former Code Civ. Proc., § 1962, subd. (2)) meant only that "the further recital that damage was a consideration for the agreement is not conclusive and was open to question by appellant at the trial" (Palermo, at p. 356, italics added).

^[12] Our conclusion that Section 622 does not apply to the recital at issue here is supported by an old, but apparently still viable, line of authority that holds that where the exception in Section 622 (former Code Civ. Proc., § 1962, subd. (2)) comes into conflict with the rule itself, the exception "must yield to [the rule's] higher claims." (Arnold v. Arnold (1902) 137 Cal. 291, 297 [" 'There is no doubt but that parol evidence is admissible for the purpose of contradicting or showing that the true consideration is other and different from that expressed in the written instrument. This is not a rule, but an exception to the rule, that the legal effect of a written instrument cannot be varied or defeated in whole or in part by parol evidence. The exception can never be allowed to override the rule, for that would be to dispense with the rule entirely and preserve only the exception. The exception always loses its governing force when it comes in conflict with the rule which it qualifies, and must yield to its higher claims' "].)

^[13] The trial court stated its finding as follows: "I find that the recital is conclusive. That it's part of the original contract and that no additional consideration is required . . . ." (Italics added.) (See also Runyan v. Pacific Air Industries, Inc. (1970) 2 Cal.3d 304, 309 [reviewing court will imply a finding consistent with the judgment if such a finding " 'results by necessary implication from the express findings which are made' "].) DeAntoni acknowledges that "the Court wrestled with the interpretation of the recital."

^[14] DeAntoni solely contends that if the recital was intended to mean that the Guaranty was a condition of the Laguna Subcontract, the Guaranty's subsequent generic recitation that there was "mutual and valuable consideration" was unnecessary under Civil Code section 2792. This exceedingly subtle contention is unconvincing in the face of the recital's unambiguous statement that it is "a condition of the original . . . Contract."

^[15] We need not resolve whether the substantial evidence or de novo standard of review applies to the trial court's finding. (See Winet, supra, 4 Cal.App.4th at p. 1166 [review is for substantial evidence "[w]hen the competent parol evidence is in conflict, and thus requires resolution of credibility issues," but de novo "when no parol evidence is introduced (requiring construction of the instrument solely based on its own language) or when the competent parol evidence is not conflicting"].) As indicated above, under either standard, we would not disturb the finding.