Brooks v. Pierson

Filed 10/2/07 Brooks v. Pierson CA5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIFTH APPELLATE DISTRICT

APPEAL from a judgment of the Superior Court of Stanislaus County. David G. Vander Wall, Judge.

Stockton & Sadler, James L. Sadler, for Defendant and Appellant.

Damrell Nelson Schrimp Pallios Pacher & Silva, David B. Walker, for Plaintiff and Respondent.

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Respondent James Brooks and Shawn Weizel, the sole shareholders of Hi Tech Traffic, Inc., agreed that Weizel would purchase Brookss interest in the corporation. A written purchase agreement and promissory note were signed by the parties on January 17, 2002, and the note was guaranteed by appellant John Pierson. According to the terms of the promissory note, the purchase price was established on 08/15/01 at a price of $244,000.00, but this principal amount was reduced by two payments made thereafter (one of $10,000 and one of $32,000), leaving a remaining balance of $202,000.00 as of 12/31/01. Although there were other sums paid to Brooks prior to December 31, 2001, the promissory note did not refer to those other payments. When Weizel defaulted, Brooks sued Pierson for the balance due. Following a court trial, judgment was entered in favor of Brooks in the sum of $168,500. Pierson appeals, contending that the court erred when it interpreted the parties agreement so as to exclude the pre-December 31, 2001 payments that were not referenced in the note. Pierson argues such payments should have been applied toward the principal obligation. We conclude the trial court properly construed the agreement, and we therefore affirm the judgment.

BACKGROUND FACTS

In 1997, Brooks and Weizel formed Hi Tech Traffic, Inc. Brooks owned 51 percent of the stock and Weizel owned 49 percent. The business began under the auspices of Brookss contractors license and he acted as responsible managing officer, while Weizel ran the day-to-day operations of the business. In August of 2001, the two had a falling out after Brooks allegedly found illegal drugs on the premises. At that time, they began negotiations and it was agreed that instead of dissolving the entity, Weizel would purchase Brookss interest in the corporation.

There was conflicting testimony about the parties understanding regarding the value of the shares and the purchase price. According to Brooks, he and Weizel estimated that the value of the corporation was $700,000, and agreed the purchase price of his shares was $350,000. Brooks testified that any principal payments received after that time (i.e., after August 15, 2001) were to be deducted from the $350,000. In turn, Weizel testified that he had several discussions with Brooks about the value of Brookss shares and they finally agreed on the sum of $244,000. He claimed that no other price was ever discussed. Weizel could not recall a specific date when this number was formally agreed to, but he thought it was before Thanksgiving of 2001. Weizel told the court he did not know how we came up with that number, but he was sure that was the agreed number. His understanding was that any payments to Brooks after August of 2001 would be deducted from the $244,000.

Brooks wanted the purchase of his shares to be all cash. However, when Weizel declined to seek a loan because of unfavorable interest rates, the parties were agreeable to having Pierson guarantee the note.

Pierson met with Brooks and Weizel to discuss the terms of the financial obligation that Pierson would be asked to guarantee. There was a conflict in the evidence as to when this meeting occurred. Both Weizel and Pierson testified at trial that the meeting was in mid-November of 2001, although in Piersons prior deposition he referred to a mid-December date. Piersons secretary, who typed up the documents, recalled that the meeting occurred before Thanksgiving of 2001. On the other hand, Brooks testified that it occurred on December 22, 2001, based on certain calendar notations.^[1] The promissory note and purchase agreement were prepared by Pierson based on his notes taken at the meeting.

On December 21, 2001, a check in the amount of $98,747 was paid to or for the benefit of Brooks by Hi Tech Traffic Services, Inc. Although the check was made payable to an entity known as Marketing Concepts, that was merely as an accommodation to Brooks, who owned and controlled Marketing Concepts. Brooks concedes that, in essence, he received the funds.

Brooks executed a stock certificate transferring his 51 percent interest in the corporation to Weizel. Although the transfer document is dated December 31, 2001, it was likely signed by him sometime in January of 2002.

On January 17, 2002, the purchase agreement and promissory note were signed by all of the parties, including Pierson. According to Brooks, this was the first time that he had ever seen the written documents and he believed they were prepared that same day.

At trial, both Brooks and Weizel claimed the note to be inaccurate, but for different reasons. Brooks explained that at the time he read and signed the note, he was in ill health and was going to be hospitalized the next day for a heart procedure. Because of his poor condition, he was anxious to get something on paper. His main concern was that the note accurately stated the remaining balance owed to him -- namely, the sum of $202,000. Since that amount was correct, he signed the promissory note and did not mention the fact that it was inaccurate where it recited the original purchase price on August 15, 2001 was $244,000, instead of $350,000. In other words, Brooks saw that the bottom line was right and, in view of his condition, that was sufficient.

Weizel testified that the note was inaccurate because it did not reflect the $98,747 payment made on December 21, 2001. He was asked to explain why he would sign a promissory note that clearly stated he owed the sum of $202,000 as of December 31, 2001, if he believed that the check for $98,747 should have been deducted from the principal amount due. His response was that although the amount on the promissory note was incorrect, he signed it because he knew he had the canceled check to confirm that the payment of $98,747 was made. In addition, Weizel claimed at trial that the note was inaccurate because it did not reflect monies paid to Brooks in the year prior to the purchase agreement, including a $67,550 payment made on May 11, 2000 (for Brookss purchase of a motor home) and a $45,000 payment made to Marketing Concepts on December 29, 2000. As with the $98,747, these two payments were not mentioned in the promissory note.

The promissory note included the following relevant provisions:

This note is established for the purchase of 51% stock ownership of Hi-Tech Traffic, Inc. by Shawn Weizel and John Pierson.

The purchase price was established on 08/15/01 at a price of $244,000.00. This principal amount was reduced through a $10,000 cash payment on 09/01/01 and payroll in the amount of $32,000.00 through 12/31/01 leaving a remaining balance of $202,000.00 as of 12/31/01.

        An interest only payment of $1,000 is due on the 25th of each month beginning January 2002 and ending December 2002. This represents approximately 6% annual interest.

        A payroll payment estimated at $32,000 which is scheduled to be paid to Jim Brooks by December 31, 2002 is to be deducted from the principal balance of this note leaving a balance of $170,000.00.

        An interest only payment of $1,000 is due on the 25th of each month beginning January 2003 and ending December 2003. This represents approximately 7 % annual interest.

Any other compensation or consideration paid to Jim Brooks and/or Marketing Concepts above the interest only payments outlined above will be deducted directly from the principal balance of this note.

After the promissory note was signed, Brooks received interest payments of $1,000 per month from January 2002 through December 2002, a $32,000 payment in December of 2002 and an interest payment of $1,500 in early 2003. Weizel stopped making payments on or about March of 2003.

On August 6, 2003, Brooks filed the instant lawsuit against Pierson, alleging that the sum of $170,000 in principal was due under the promissory note. Piersons answer was filed on March 1, 2004.

The case was tried by the court on September 7 and 8, 2005. On September 28, 2005, the court issued its Decision on Submission, which determined that Brooks was entitled to monetary damages in the sum of $168,500. The court emphasized that the promissory note state[d] on its face that the balance as of 12/31/01 is $202,000, and that it further provided said balance would be reduced to $170,000 once the $32,000 payment was made on December 31, 2002. The payments that Pierson claimed should be deducted from principal (including the check for $98,747) were received prior to 12/31/01 and were not included in the note. Therefore, those payments were not applied toward the purchase price. Further, the court construed the provision referring to [a]ny other compensation paid to Brooks above the interest only payments, as referring to any monies paid after December 31, 2001.

Pierson requested a formal statement of decision. A statement of decision was signed by the court, and on December 8, 2005, a monetary judgment in the amount of $168,500 was entered in favor of Brooks and against Pierson. Timely notice of appeal followed.

DISCUSSION

I. Standard of Review

The interpretation of a written contract presents a question of law which we review de novo, unless the interpretation turns upon the credibility of extrinsic evidence. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.) When a contract is reasonably subject to more than one interpretation, and the relevant extrinsic evidence is in conflict, any reasonable construction will be upheld as long as it is supported by substantial evidence. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1166.) On the other hand, when the extrinsic evidence is undisputed and the parties have merely drawn conflicting inferences, the question remains one of law and we independently interpret the contract. (Parsons v. Bristol Development Co., supra, at p. 866, fn. 2; City of El Cajon v. El Cajon Police Officers Assn. (1996) 49 Cal.App.4th 64, 71.)

II. Principles of Contract Interpretation

We begin by reviewing some of the applicable principles of contract interpretation that guide our analysis.

The fundamental goal of contract interpretation is to give effect to the mutual intention of the parties as it existed at the time of contracting. (Civ. Code,  1636; Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264.) When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible. (Civ. Code,  1639; Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955.) If the language of a contract is clear and explicit, it governs. (Civ. Code,  1638; Bank of the West v. Superior Court, supra, at p. 1264.) In ascertaining the parties intent, [t]he whole of the contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other. (Civ. Code,  1641.) The words of a contract are generally to be understood in their ordinary and popular sense. (Civ. Code,  1644; see also Lloyds Underwriters v. Craig & Rush, Inc. (1994) 26 Cal.App.4th 1194, 1197-1198 [We interpret the intent and scope of the agreement by focusing on the usual and ordinary meaning of the language used and the circumstances under which the agreement was made].)

Thus, when parties embody their agreement in writing, the legal effect is significant. Not only must we look to the writing itself, to the extent possible, to determine the parties intent, but [t]he execution of a contract in writing, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument. (Civ. Code,  1625.) As provided in the parol evidence rule, terms set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement. (Code Civ. Proc.,  1856, subd. (a); see also BMW of North America, Inc. v. New Motor Vehicle Bd. (1984) 162 Cal.App.3d 980, 990 [such evidence is excluded under the parol evidence rule because the agreement is the writing itself].)^[2]

Nevertheless, a court is always required to ascertain what the parties meant by the words they used. (Pacific Gas & E. Co. v. G. W. Thomas Drayage Etc. Co. (1968) 69 Cal.2d 33, 38.) Thus, in interpreting the meaning of language used in a written contract, extrinsic evidence is admissible to prove a meaning to which the contract is reasonably susceptible. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.) If the trial court decides, after receiving the extrinsic evidence, the language of the contract is reasonably susceptible to the interpretation urged, the evidence is admitted to aid in interpreting the contract. (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc., supra, 109 Cal.App.4th at p. 955.) The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. (Pacific Gas & E. Co. v. G. W. Thomas Drayage Etc. Co., supra, at p. 37.) Conversely, extrinsic evidence that is inconsistent with any interpretation to which the instrument is reasonably susceptible is irrelevant, and cannot serve as a basis for interpreting the obligations under the instrument. (BMW of North America, Inc. v. New Motor Vehicle Bd., supra, 162 Cal.App.3d at p. 990.)

California follows the objective theory of contracts. (Berman v. Bromberg (1997) 56 Cal.App.4th 936, 948; Titan Group, Inc. v. Sonoma Valley CountySanitationDist. (1985) 164 Cal.App.3d 1122, 1127.) Accordingly, [i]t is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation [citations]. The parties undisclosed intent or understanding is irrelevant to contract interpretation. (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc., supra, 109 Cal.App.4th at p. 956; and see 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts,  744, pp. 830-832.) The mutual intention to which the courts give effect is determined by objective manifestations of the parties intent, including the words used in the agreement, as well as extrinsic evidence of such objective matters as the surrounding circumstances under which the parties negotiated or entered into the contract; the object, nature and subject matter of the contract; and the subsequent conduct of the parties. (Morey v. Vannucci (1998) 64 Cal.App.4th 904, 912; and see Civ. Code,  1635-1656, Code Civ. Proc.,  1859-1861, 1864.)

III. Trial Court Properly Construed the Contract

In the present case, the issues raised on appeal are solely those of contract interpretation; that is, the meaning of the language used by the parties. For the reasons set forth hereafter, we hold the trial court correctly interpreted the agreement.

A. Amount Due Under the Promissory Note

Brookss complaint sought enforcement of the promissory note against Pierson. The primary issue raised thereby was the balance due, if any, under the promissory note.

At trial, the parties to the promissory note offered extrinsic evidence relating to the purchase price and the amount due thereon. Both Brooks and Weizel claimed their true intentions differed from what the promissory note actually stated. Weizel (and through him, Pierson) contended there were other payments that should have been deducted from the principal set forth in the note, and that the principal balance stated therein was thus inaccurate. Brooks asserted that although the principal balance set forth in the promissory note was correct, the purchase price the parties initially agreed to in August of 2001 was $350,000, not $244,000. The trial court lamented these conflicting oral assertions about the real terms of the agreement as opposed to what the promissory note says. The court explained that [t]his type of conflicting evidence, presented long after the note was signed, and where there are significant issues of credibility and motive at play, is exactly why courts put great weight on the four corners of the note.

Although the trial court considered the extrinsic evidence offered by the parties regarding the purchase price and amount due under the promissory note, ultimately no ambiguity or uncertainty of meaning was found to exist as to such terms. The promissory note was clear and explicit that the purchase price was $244,000 and that the balance due as of December 31, 2001 was $202,000.00. The note specifically referenced two payments made after the August negotiations and prior to December 31, 2001, which reduced the principal balance from $244,000 to $202,000, but it did not include any other payments received prior to December 31, 2001. The note also expressly provided that a payroll payment of $32,000 to be made at the end of 2002 would reduce the balance to $170,000. In light of these clear and specific statements in the promissory note concerning the balance due, the trial court flatly rejected Piersons assertion that other payments received before December 31, 2001, but not mentioned in the note, must be deducted from the principal balance.

We agree with the trial courts conclusion. Obviously, a fundamental purpose of the promissory note was to identify the precise amount that must be repaid and guaranteed. This important object was accomplished by stating that $202,000 was the balance due as of December 31, 2001. Moreover, to the extent the parties intended to reduce the principal balance based on payments received prior to December 31, 2001, such payments were expressly referenced in the promissory note. The other payments asserted by Pierson of $98,747, $67,550 and $45,000 were not referenced therein. To the contrary, the promissory note signed on January 17, 2002 unambiguously stated that the sum of $202,000 was the remaining balance as of December 31, 2001, which was also the effective date of the stock transfer in which Brooks sold his interest in the corporation. We hold, as the trial court implicitly did, that the language of the promissory note is not reasonably susceptible to the interpretation offered by Pierson that other pre-December 31, 2001 payments were intended to be applied toward the balance due. Further, to the extent Pierson is asserting an oral understanding of what the agreement really was, independent of the written promissory note, such evidence is inadmissible under the parol evidence rule since it contradicts the unambiguous terms of the written contract -- i.e., the statement of the balance due as of December 31, 2001. (Code Civ. Proc.,  1856, subd. (a) [parol evidence cannot contradict terms of written agreement]; Sunniland Fruit, Inc. v. Verni (1991) 233 Cal.App.3d 892, 898 [parol evidence may show a meaning to which the language is reasonably susceptible, but not contrary intentions independent of an unambiguous written instrument].)

To summarize, the promissory note was unequivocal in setting forth the purchase price and amount due, and it was proper for the trial court to disregard extrinsic evidence that contradicted its terms or was offered in furtherance of an interpretation to which the language was not reasonably susceptible. In this regard, we agree with the following comments in Banco Do Brasil, S.A. v. Latian, Inc. (1991) 234 Cal.App.3d 973, 1011: Parties to a business or commercial transaction, such as those in this case, should be able to clearly express their intent as to the nature and scope of their legal relationship and then be able to rely on that expression. The courts simply cannot permit clear and unambiguous integrated agreements, such as the one before us, to be rendered meaningless by the oral revisionist claims of a party who, at the end of the game, does not care for the result.

Pierson contends the opposite is true -- namely, that the trial court committed error by relying on Brookss subjective intention independent of the terms of the written agreement. In support, Pierson focuses on the courts further explanation concerning the parties failure to reference the other payments (including the $98,747) in the promissory note. The court noted that this failure was consistent with the explanation offered by Brooks that these payments reduced the original value placed on the business and were part of the negotiations between [Brooks] and Wei[t]zel before the note was signed. Seizing upon this remark, Pierson contends the trial court improperly relied on Brookss subjective intent, apart from the written agreement, as the basis for its ruling. We disagree. Of course, subjective intent or understanding cannot be used to establish an intent independent from the express written terms of the agreement. (Sunniland Fruit, Inc. v. Verni, supra, 233 Cal.App.3d at p. 898.) However, that is not what occurred here. In determining the amount due under the promissory note, the trial court followed the express, written terms of the note. The note clearly identified the remaining balance due as of December 31, 2001, and the court enforced that obligation as written. In so doing, the court properly disregarded extrinsic evidence to the contrary.

Although unnecessary to its ruling, the trial court also suggested a potential rationale for why the parties may have included some payments in the promissory note (that expressly reduced the principal balance), but not others. Upon a general comparison of Weizels explanation (i.e., that the parties intended to apply the unreferenced other payments against the $244,000) with Brookss explanation (payment before the note was signed caused the price to be reduced to $244,000), the court merely pointed out that Brookss version appeared more consistent with the evidence. We do not believe the trial courts comment in any way undermined the reasonable construction that it gave to the express language of the promissory note. In any event, in our independent review of the contract language, we conclude the note was properly construed by the trial court.

B. Clause Regarding Other Compensation Was Properly Construed

The promissory note, after setting forth interest payments and certain principal payments to be made after execution thereof, also provided as follows: Any other compensation or consideration paid to Jim Brooks and/or Marketing Concepts above the interest only payments outlined above will be deducted directly from the principal balance of this note. Extrinsic evidence included Brookss testimony that this provision meant that if he received any payments after January 17, 2002, in excess of the interest-only payments, such sums would be deducted from the principal balance of the note. Pierson, who drafted the note, believed the provision may have been included to allow Brooks to receive equipment instead of monetary payment. The parties also offered conflicting views on the purpose(s) of the payments of $98,747, $67,550 and $45,000.

The trial court construed the other compensation provision as referring to any payments made after December 31, 2001, rather than to payments made before that time, because the latter interpretation would render the promissory note inherently uncertain. The court indicated it would be unreasonable to conclude that the parties would intentionally create such uncertainty as to the amount due. We fully agree. A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties. (Civ. Code,  1643.) Also, [a] contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates. (Civ. Code,  1647.) The trial court properly adopted the only interpretation which was definite, certain and reasonable under the circumstances. By its own terms, the clause clearly relates to other compensation paid above the interest only payments and the interest-only payments were not due until after the date of execution of the note. The trial court correctly found this to be further evidence in the note itself that [said provision] refers to payments made and received after 12/31/01. Moreover, as previously discussed, the promissory note unambiguously states that the amount due as of December 31, 2001, was $202,000.^[3] We conclude the trial courts interpretation of the other compensation clause was correct.^[4]

IV. No Reversible Error Regarding Statement of Decision

Pierson argues that there are deficiencies in the trial courts statement of decision. The argument fails.

The trial courts decision adequately addressed the ultimate issues in this case -- i.e., the interpretation of the promissory note and the balance due on same. The statement of decision properly set out an explanation of the factual and legal grounds for its decision regarding these issues. This was all it was required to do under Code of Civil Procedure section 632. A trial court [is] not required to address how it resolved intermediate evidentiary conflicts, or respond point by point to the various issues posed in appellants request for a statement of decision. [Citations]. (Muzquiz v. City of Emeryville (2000) 79 Cal.App.4th 1106, 1126, italics omitted.)

To the extent that Pierson is contending there are ambiguities or omissions in the statement of decision, such issues were waived by failure to raise the objections in the trial court. (See Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133; Code Civ. Proc.,  634.) Finally, as to Piersons contention that the trial courts statement of decision discloses legal error -- i.e., that the court improperly construed the note based on Brookss subjective intent independent of the written terms -- we have adequately addressed such contention in a previous section of this opinion.

DISPOSITION

The judgment is affirmed. Respondent Brooks is entitled to costs on appeal.

_____________________

Kane, J.

WE CONCUR:

_____________________

Vartabedian, Acting P.J.

_____________________

Harris, J.

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Analysis and review provided by El Cajon Property line attorney.

^[1] December 22, 2001, was the day after Brooks received the check for $98,747.

^[2] The parties have assumed in this appeal that the promissory note is an integrated agreement. We agree. Clearly, the note was intended as a final expression of agreement with respect to such terms as are included therein -- i.e., purchase price, balance due, payments, etc. (Code Civ. Proc.,  1856, subd. (d).) Hence, the note is an integrated agreement on the subject matters addressed therein. (See Esbensenv. Userware Internat., Inc. (1992) 11 Cal.App.4th 631, 637 [Obviously where following negotiations the parties execute a written agreement, that agreement is at least partially integrated and parol evidence cannot be admitted to contradict the terms agreed to in the writing].) It is unnecessary for purposes of this appeal to determine whether the promissory note is also a complete and exclusive statement of the parties agreement.

^[3] To the extent any conflict exists between these provisions, the specific statement that the balance due on December 31, 2001, was $202,000 would control over the more general other compensation clause (Code Civ. Proc.,  1859), and the notes main objective of specifying a balance due would prevail over other matters. (Civ. Code,  1650, 1652, 1653.)

^[4] As indicated by Brooks, Piersons interpretation would result in further absurdity. Namely, if the payments of $98,747, $67,550 and $45,000 were meant to be applied toward principal, the promissory note would already have been paid in full at the time the parties signed it on January 17, 2002, and Weizel was paying interest on a nonexistent debt.