Cal Aero JetCenter v. Oldridge

Filed 3/13/07 Cal Aero Jet Center v. Oldridge CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, W. Michael Hayes, Judge. Affirmed in part and reversed in part with directions.

Law Offices of Edwin Paul, Edwin Paul and Margie L. Jesswein for Defendant, Cross-complainant and Appellant.

Law Offices of Carlos F. Negrete and Carlos F. Negrete for Plaintiffs, Cross-defendant and Respondents.

Defendant and cross-complainant Riley Air Charter, Inc. appeals from a judgment in favor of plaintiff and cross-defendant Cal Aero Jet Center, LLC (Cal Aero) and plaintiff Phillip Oldridge. Cal Aero recovered damages for breach of a written lease of an aircraft. Defendant claims the court erred in admitting parol evidence to vary the terms of the lease and as a result the damages awarded were incorrect. It also contends the statement of decision was inadequate because it failed to explain the basis for admitting parol evidence and computation of the damages awarded and did not discuss the defense of failure to mitigate damages. We reverse and remand for the court to calculate an additional amount of rent to be paid to defendant and otherwise affirm.

FACTS

Oldridge formed Cal Aero for the purpose of operating an air charter business; the company required certification by the Federal Aviation Administration (FAA) as did the planes Cal Aero used in its operation. Oldridge entered into discussions with Glenn Riley, who owned defendant, about purchasing or leasing a plane from defendant. Defendant and its planes were certified by the FAA. Oldridge testified at trial that, during negotiations, Riley told him defendant was currently flying the plane it was considering leasing and as a result, Oldridge believed the FAA would certify it for plaintiffs operation as well.

In June 2002, Cal Aero and defendant entered into a written lease whereby defendant leased a plane to Cal Aero. The lease was for a term of six months from the date of this agreement with a 30-day written termination provision. The lease provided that for the first 90 days Cal Aero would pay $150 an hour for a minimum of five hours per week beginning when the plane was fully conformed and accepted by the FAA on [Cal Aeros] Air Carrier Certificate and available for [Cal Aeros] use in commercial operations. Cal Aero agreed to pay a $3,000 security deposit. The parties also agreed that [d]uring the term of [the lease, [Cal Aero] shall pay all costs for . . .  maintenance . . . and . . . be responsible for the airworthiness of the [plane] . . . . The lease required all amendments to be in writing and contained a standard integration provision. Defendant signed the lease on June 14; Cal Aero signed it on June 20. Cal Aero was not allowed to inspect the plane before he signed the lease because defendant claimed it was using it right up to delivery on June 26.

Shortly after Cal Aero took possession in late June, the plane was inspected by an FAA representative for purposes of certification. The inspection revealed the plane was not airworthy, having many mechanical defects, which Cal Aero paid to cure. At trial Oldridge testified that when he learned of the necessary repairs and their substantial cost, he spoke with Riley and complained that before he had entered into the lease, Riley had represented the plane was in a condition to meet the FAA certification. Oldridge asked Riley how he wanted to handle the cost of repairs. Riley responded that he did not want to pay for them but if Cal Aero wanted to complete repairs it could fly off the repairs, that is, credit the cost to the minimum rent.

At this time, Cal Aero had not yet paid the $3,000 security deposit. Oldridge testified Riley agreed to allow $1,700 of that amount as a credit for some of the repairs; Cal Aero then paid the $1,300 balance. Riley confirmed Oldridge made an offer on these terms but denies agreeing to a credit. He testified he accepted the partial payment, expecting to be paid the balance later, because he was having so much trouble getting any money from Cal Aero.

After repairs were made, the FAA found the plane fully conformed and it was accepted under Cal Aeros certificate on August 25, two months after the lease was signed.

In September the propellers were timed out, that is, due for replacement under the manufacturers specifications because their life-span had ended. Oldridge testified that before the lease was signed, Riley told him that, although he was not sure when, the propellers would need to be overhauled and that defendant would pay the cost. He further testified that when the time came for replacement, Riley said he would take care of it at defendants cost.

Riley denied having these conversations with Oldridge. However, when the propellers timed out, because Oldridge was not around, Riley took the plane and paid $18,000 to have them replaced. Otherwise, he testified, Cal Aeros whole operation was going to grind to a halt. He testified he expected to be reimbursed by Cal Aero.

In early October, defendant made demand on Cal Aero for lease payments from June 26 forward; Cal Aero refused to pay. On October 4, defendant mailed Cal Aero a 30-day notice terminating the lease. About two weeks later, defendant sent Cal Aero a bill for $6,000 for eight weeks rent; it was not paid. On November 7, defendant took possession of the plane.

Cal Aero and Oldridge filed this action for breach of contract and fraud and on common counts, seeking reimbursement for repairs and lost profits. At trial they requested almost $16,000 as reimbursement for repairs and $6,000 for lost profits. Defendant cross-complained for breach of contract and on a common count based on nonpayment of rent and the security deposit and failure to pay maintenance as required under the lease, seeking almost $25,000.

Prior to commencement of trial, defendant made a motion in limine to exclude parol evidence relating to the lease. The court denied it without prejudice. At trial the court overruled the objections and admitted parol evidence of discussions before and after the lease was signed to explain its meaning.

After a bench trial the court issued a lengthy Statement of Decision and Tentative Decision. It found defendant was liable for all repairs required to get the plane certified in the amount of approximately $10,300 Cal Aero had paid. The court also found that before the lease was executed, defendant agreed to pay for the overhaul of the propellers and thus Cal Aero was not liable to reimburse defendant the $18,000 it had paid. The court ruled that the plane was not certified by the FAA until August 26. As a result Cal Aero owed a total amount of rent of $2,250. The court credited Cal Aero with the $1,300 payment for the security deposit. The net amount defendant owed Cal Aero was almost $9,400.

Defendant filed written objections to the statement of decision and requested a statement of decision on the issues it set out. The court overruled the objections and denied the request on the grounds defendant had not set out any issues in addition to those already covered.

DISCUSSION

1. Parol Evidence

The court admitted parol evidence in the form of Oldridges testimony that before the lease was signed Riley orally agreed defendant would pay for replacement of the propellers. There was also evidence that when the time came for their replacement, Riley again agreed to pay the costs.

In addition, the court admitted testimony that after the lease was signed and Cal Aero learned of all the repairs required before the FAA would certify the plane, Oldridge spoke to Riley about how payments would be made and the parties agreed Cal Aero could credit the costs to the rent. The court found that before the lease was signed, the parties expected that, because the plane was already certified and being used by defendant, it would be a simple and easy matter to transfer . . . it to Cal Aero.

Defendant contends this evidence improperly contradicts and modifies the clear language of the lease. Specifically, it attacks the findings that it was required to deliver the plane to Cal Aero in a condition such that it would be certified by the FAA, thus requiring it to pay for or credit Cal Aeros payment for repairs, and that it would pay for replacement of the propellers.

Where the parties have executed a written integrated agreement, extrinsic evidence to add to or vary its terms is inadmissible. (Civ. Code,  1625; Code Civ. Proc.  1856, subd. (a); Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 343.) Here the lease contains an integration clause and parties do not claim it is not integrated.

Even when the agreement is integrated, however, parol evidence may be admitted to interpret a writing if it is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. [Citations.] (Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37; see also Founding Members of the Newport Beach County Club v. Newport Beach County Club, Inc. (2003)

109 Cal.App.4th 944, 955.) Whether to admit extrinsic evidence is determined in two steps. The court first provisionally receives . . . all credible evidence concerning the parties intentions to determine . . . whether the language is reasonable susceptible to the interpretation urged by a party. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.) If so, the evidence is then admitted to construe the contract terms. (Ibid.)

We review de novo whether contractual language is reasonably susceptible to the interpretation suggested. (Winet v. Price, supra, 4 Cal.App.4th at p. 1165.) This can be determined from the language of the contract itself [citation] or from extrinsic evidence of the parties intent [citation]. (Southern Cal. Edison Co. v. Superior Court (1995) 37 Cal.App.4th 839, 848.)

An examination of the lease confirms that its language was reasonably susceptible to the interpretation the plane was to be delivered in such a condition that it would be certified by the FAA. It provided the plane was leased for use in Cal Aeros air charter business; that required the plane to be certified. The term of the lease was only six months. It is not reasonable to believe the parties intended that for a substantial portion of that time the plane would not be in a condition to be certified and thus could not be used.

Defendant points to lease language that minimum rent began at such time as the plane was fully conformed and accepted by the FAA on [Cal Aeros FAA c]ertificate and available for [Cal Aeros] use in commercial operations. It argues this makes it clear the parties did not intend that the plane be in certifiable condition at the inception of the lease. It also asserts it was providing free rent during the conformity period, supporting the meaning that Cal Aero was liable for making the plane airworthy.

But this language actually supports admission of the parol evidence. Because the plane had to be inspected before Cal Aero received its FAA certification, which was to occur after the lease was executed and the plane delivered to Cal Aero, the lease is reasonably susceptible to the interpretation that this would take a short time and rent payments would then begin. And if the plane could not be used, it would make no sense for Cal Aero to be paying rent during that period. Therefore defendants interpretation of the free rent provision is not the only reasonable construction.

Defendant also emphasizes Cal Aeros liability for costs of maintenance and responsibility for the planes airworthiness during the term of the lease. It cites to two definitions in the Code of Federal Regulations relating to the Federal Aviation Administration. Maintenance is defined as inspection, overhaul, repair, preservation, and the replacement of parts, but exclude[ing] preventive maintenance. (Aeronautics and Space, 14 C.F.R.  1.1 (2006).) Further, regulations hold certificate holders responsible for airworthiness, which includes propellers, rotors, appliances, and parts . . . . (Aeronautics and Space, 14 C.F.R.  135.413(a) (2006).) Whether or not these were the meanings intended by the parties, however, the requirements that Cal Aero pay for maintenance and airworthiness during the term of the lease reasonably can be interpreted to mean that they were to begin after Cal Aero received the plane in certifiable condition.

Our de novo review confirms the lease provisions on their face were reasonably susceptible to Cal Aeros interpretation and the court correctly admitted parol evidence. Having made such a finding, we now review the evidence to determine whether it was sufficient to support the construction the court placed on it. (Winet v. Price, supra, 4 Cal.App.4th at p. 1166.)

The discussion above serves to demonstrate the court could evaluate the extrinsic evidence, including making credibility determinations, and conclude the parties intended the plane would be in certifiable condition at the inception of the lease, and if it was not, that defendant would bear the cost to put it in such condition. Contrary testimony, such as Rileys denial of that intent, does not establish insufficiency of the evidence. (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873.) We must accept all evidence supporting the successful party, disregard the conflicting evidence, and draw all reasonable inferences to uphold the verdict. (Minelian v. Manzella (1989)

215 Cal.App.3d 457, 463.)

In a related argument, defendant asserts the parol evidence as to the fly off arrangement and payment for replacement of the propellers violates the rule the lease cannot be modified by an oral agreement. Civil Code section 1698, subdivision (c) states that [u]nless the contract otherwise expressly provides, a contract in writing may be modified by an oral agreement supported by new consideration. The lease provides that an amendment shall be in writing and signed by all of the parties.

The agreement to credit rent to pay for repairs is not an amendment to the lease and does not contradict Cal Aeros obligation to maintain the plane. Rather it is conduct subsequent to the formation of a contract [that] may be looked upon to determine the meaning of disputed contractual terms. [Citations.] (Cedars-SinaiMedicalCenter v. Shewry (2006) 137 Cal.App.4th 964, 983.)

The same is true for the testimony about defendant paying to replace the propellers. The court noted that Oldridges testimony was inconsistent on this issue. He testified that, at the time the lease was signed, he did not know about the propeller problem, yet he also testified he discussed the issue with Riley before signing the lease and Riley agreed to pay for replacement. The court found it was unnecessary to decide what part of Oldridges testimony was correct, but would find the parties did discuss the propeller replacement before the lease was executed and defendant agreed it would pay. It also found that while a dispute was brewing, Riley took the aircraft and got the propellers repaired. At the end of the day he kept his word and took care of this issue pursuant to the agreement.

Thus, evidence was sufficient to support the meaning the court attributed to the lease and the findings are based on substantial evidence.

2. Award of Rent

The court awarded defendant gross rent in the sum of $2,250 for the period August 26, the day after the plane was certified by the FAA, to September 17, the day before Riley took the plane to have the propellers overhauled. It specifically did not award rent for the period after the propeller replacement and return of the plane to Cal Aero until defendant repossessed the plane on November 7.

The courts rationale derives from defendants notice of lease termination. Although it was served on October 4, the body of the notice states that the lease was to be terminated 30 days after July 29. Riley testified the July 29 date was erroneous and he intended the termination to run from October 4. Oldridge testified he received the notice on October 2 or 4. Defendant took possession of the plane on November 7, more than 30 days after serving the notice. However, the court found that although defendant could not give notice to run retroactive[ly], the notice created enough confusion to not force [Cal Aero] to pay further [rent].

Defendant claims the court erred in failing to award rent for the period after certification until the date defendant took final possession of the plane. We agree defendant is entitled to a rent credit but only for a portion of this period.

Because of defendants agreement to pay for propeller overhaul, the decision that Cal Aero would not owe rent for that period is reasonable. However, it is not reasonable for defendant to lose rent for the time after the propellers were replaced until the plane was repossessed. Cal Aeros confusion about the date of the termination does not change the fact it had possession of the plane in usable condition for that period. That it never flew the plane, as the court found, was Cal Aeros choice, and defendant should not be penalized for it.

In their briefs, both parties agree there was testimony the propeller overhaul was completed on September 20. However there was no finding as to when the plane was returned to Cal Aero thereafter. We remand to the trial court for the limited purpose of making a finding as to that date and awarding additional rent from that date until the plane was repossessed by defendant. This shall be an additional credit against the sum owed by defendant to Cal Aero.

3. Statement of Decision

Defendant also claims the court failed to adequately set out the basis of its ruling in the statement of decision regarding five issues. As to each of these, it objected to the combined tentative decision and statement of decision and requested a new statement of decision. Defendant contends it was error for the court to overrule its objections and deny its request. Our examination of the statement of decision leads us to conclude it was sufficient.

Preliminarily we reject defendants claim the court failed to adhere to the statutory procedure in sua sponte issuing the statement of decision at the time of the tentative decision. It cites no authority, and we find none, prohibiting the court from rendering a statement of decision without a partys request. In fact the contrary is true. In In re Marriage of Rising (1999) 76 Cal.App.4th 472, where the trial court issued a statement of decision without a request, on appeal the court treated it valid and reviewed it for sufficiency. (Id. at p. 476, fn. 6.)

A statement of decision must set out the legal and factual basis of each principal controverted issue. (Code Civ. Proc.,  632.) The court is not required to explain how it resolved subsidiary matters even if they are material to the ultimate issues. (Kuffel v. Seaside Oil Co. (1977) 69 Cal.App.3d 555, 565-566.)

Defendant objects to the findings it was responsible for repairing the plane to put it into airworthy condition and it orally agreed to pay for replacement of the propellers. It argues the statement of decision does not explain why the court admitted parol evidence on these issues and complains the court never found the lease was ambiguous or reasonably susceptible to Cal Aeros interpretation. We disagree.

In admitting the parol evidence, at one point the court noted that it seemed there was an ambiguity in the entire contract. It also stated several times throughout the trial that the lease language needed construing. Moreover it is plain from the statement of decision that the court found the lease was reasonably susceptible to Cal Aeros meaning.

Only where a trial court fails to make findings as to a material issue which would fairly disclose the determination by the trial court would reversible error result. [Citation.] Even though a court fails to make a finding on a particular matter, if the judgment is otherwise supported, the omission to make such finding is harmless error unless the evidence is sufficient to sustain a finding in favor of the complaining party which would have the effect of countervailing or destroying other findings. [Citation.] (People v. Casa Blanca Convalescent Homes (1984) 159 Cal.App.3d 509, 524, disapproved on another ground in Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 184-185.)

Defendant also challenges the statement of decision for failing to explain why the court did not award rent for the period after the plane was fully conformed instead of cutting it off once the propellers were replaced. But, as discussed above, the court did explain that defendant agreed to pay for replacing the propellers and that amount would be credited against rent, just as with the other repairs necessary to make the plane certifiable. The downtime excusing rent for propeller overhaul is the same as the time it took to make repairs after the plane was originally delivered to Cal Aero. Because we are reversing as to the award of rent for the period after propeller replacement we need not discuss the sufficiency of the statement of decision on that issue.

Defendant attacks the statement of decision on the additional ground that it did not rule on its claim Cal Aero failed to mitigate its damages. However even though relevant to the ultimate issue of defendants liability for damages, it is a subsidiary issue and therefore not required to be included in the statement. (Kuffel v. Seaside Oil Co., supra, 69 Cal.App.3d at pp. 565-566.) It is plain from the statement of decision that the court rejected this argument. The court found the parties understood the plane would be in a condition to be FAA certified at the inception of the lease. Because it was not, defendant was responsible to pay costs of repairs to put it into that condition. Thus when Cal Aero learned there were mechanical defects, it was reasonable for it to proceed with repairs with the understanding payments would be credited to the rent. It is clear the court rejected defendants claim Cal Aero should have terminated the lease to avoid incurring costs of repair.

Defendants final criticism of the statement of decision is that the court awarded amounts to both parties but failed to state whether it was based on a breach of contract theory. Because both parties cannot breach a contract, it continues, the award is inconsistent.

We can easily dispose of this argument. Parties are entitled to offsetting amounts when they both breach a contract. (See Burnett & Doty Development Co. v. Phillips (1978) 84 Cal.App.3d 384, 391.) In addition, defendant was entitled to recover rent under an unjust enrichment claim, as alleged in its cross-complaint, which is properly offset against Cal Aeros damage award. The fact that it was not identified as such in the judgment makes no difference because we review the ruling, not its underlying rationale. (Estate of Beard (1999) 71 Cal.App.4th 753, 776.)

DISPOSITION

The matter is reversed and remanded for the court to determine the date the plane was returned to respondent after the propeller overhaul and to award rent damages from that date until appellant took back possession on November 7. In all other respects the judgment is affirmed. The parties shall bear their own costs on appeal.

RYLAARSDAM, J.

WE CONCUR:

SILLS, P. J.

FYBEL, J.

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