Robert Eves appeals from the Judicial Council form AT-120 right to attach order and order for issuance of writ of attachment after
The novelty of the issue notwithstanding, we resolve it as simply one of contractual interpretation. Our examination of the guaranty, together with other documents executed at the same times, shows that Eves could have inserted language extending the exclusion from the assets to the sale proceeds of those same assets. He simply failed to do so. Judicially correcting that omission would amount to an improper rewriting of the parties' contract. For this reason we agree with the trial court that the proceeds are not exempt from being attached to satisfy the surety's obligation.
According to the papers of plaintiff Series AGI West Linn of Appian Group Investors DE, LLC (Series AGI), in April 2007 it lent $3.1 million to VPC-OR West Linn Limited Partnership, LLC (VPC-OR), for the development of a "commercial marketplace" in West Linn, Oregon. The loan provided for interest at 13 percent per annum, and an "exit fee of the amount equal to an annualized thirteen percent ... of the original principal balance" of the loan.
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."
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.
Series AGI's application was submitted on papers, exhibits, and declarations. Series AGI's first declaration, by Attorney Stephen Preonas, concerned the amount of attorney fees Series AGI was likely to incur, together with an explanation of the damages it was seeking. The second, by Jon Lotter, Series AGI's manager, authenticated a number of attached exhibits, including the guaranty, and narrated the history of the planned project.
Eves responded with a declaration by Attorney John E. Carey, Jr., that simply authenticated an attached copy of the guaranty. Eves himself provided two declarations. The first purported to set out Eves's "understanding" of the guaranty. The trial court sustained Series AGI's objections that virtually all of Eves's declaration was speculation, opinion, or otherwise lacked foundation.
Lotter then filed a supplemental declaration explaining how paragraph 13 came to be included in the guaranty. The final declaration was the supplemental one by Eves, which is the only source of particulars regarding the sale of his Italian residence: "I sold that property in the summer of 2011. The proceeds of the sale ... were all cash and that cash has been deposited in various accounts. No part of the proceeds of [the] sale has ever been comingled with any other funds. The sale proceeds have always been easily identifiable because they have been in segregated accounts as I have drawn them down to satisfy various obligations."
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 [52 Cal.Rptr. 533].) Thus, it is our independent duty 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 [86 Cal.Rptr.2d 855, 980 P.2d 407]; U.S. Leasing Corp. v. DuPont (1968) 69 Cal.2d 275, 284-285, 290 [70 Cal.Rptr. 393, 444 P.2d 65].)
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 [8 Cal.Rptr. 427, 356 P.2d 171]; Mitau v. Roddan (1906) 149 Cal. 1, 14 [84 P. 145].) 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 [76 P.2d 663] ["Parties are, within reason, free to contract as they please, and to make bargains which place one party at a disadvantage...."].) As we stated in 1964: "The courts cannot make better agreements for parties than they themselves have been satisfied to enter into or rewrite contracts because they operate 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 [39 Cal.Rptr. 767]; see Moreno Mut. Irr. Co. v. Beaumont Irr. Dist. (1949) 94 Cal.App.2d 766, 782 [211 P.2d 928] ["`nor will the courts relieve one from the consequences of his own improvidence or poor judgment'"].) Or, as we later stated: "It is widely recognized that the courts are not at liberty to revise an agreement under the guise of construing it. Neither abstract justice nor the rule of liberal interpretation justifies the creation of a contract for the parties which they did not make themselves." (Hinckley v. Bechtel Corp. (1974) 41 Cal.App.3d 206, 211 [116 Cal.Rptr. 33]; 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 [237 Cal.Rptr. 473] ["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.
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,"
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.
The arguments advanced by Eves to evade this conclusion do not persuade.
Looking to paragraph 13 of the guaranty, this is how Eves explains its meaning: "The final sentence of Paragraph 13 refers to `supplements or enhancements' of an excluded asset. If the excluded asset were a $3 million residence and after signing the guaranty, the guarantor `enhanced' that asset by building a $2 million addition, the guaranty says that the value of the enhancement would not be excluded.... This makes sense as a hedge against the guarantor `banking' money into an excluded asset after the loan agreement is executed that would otherwise have been available in the event of collection. In such a circumstance, the only way to give effect to the sentence is to interpret it to say that if the only way to pay the portion of value attributable to a supplement or enhancement is to sell the asset, the owner need only turn over that sum that represents the supplement or enhancement and may keep the balance. The only way to make sense of the exclusion being limited to the extent of such enhancement is to conclude that from the proceeds of the sale, the creditor receives only the $2 million enhancement. The limitation expressly provides that the creditor will not receive the balance of the proceeds of the sale. To argue otherwise, turns the document on its head.... The language of the guaranty itself clearly states that the Creditor does not receive the proceeds of sale of an excluded asset unless the asset was enhanced, and then only that portion of the proceeds of sale attributable to the enhancement." Not at all. The obvious purpose of the provision is to establish a formula for the valuation of the excluded asset and prevent that value from being "supplement[ed] or enhance[d]" in such a way that reduced Eves's other resources for satisfying his guaranty. As evident from the use of the present tense, the predicate of that purpose is Eves retaining the excluded asset. The absence of the words "sell," "sale," or "sold" from paragraph 13 is conspicuous.
It is illogical for Eves to insist that "The language of the guaranty itself clearly states that the Creditor does not receive the proceeds of sale of an excluded asset unless the asset was enhanced" and that "The limitation expressly provides that the creditor will not receive the balance of the proceeds of the sale" when the word "proceeds" is nowhere present. Nothing about proceeds from the sale of excluded assets is "clearly stated" or "expressly" provided in the guaranty. To read paragraph 13 as Eves does — to encompass proceeds 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 was forced to sell an excluded asset like the home in Italy in order to survive, he could be forced to pay over all of the proceeds of that sale, thereby forcing him to sell his Mill Valley home, and so on. The proceeds of that sale could be taken as well and he would have to sell one after the other, all of the `excluded' assets enumerated in the guaranty." This
Eves maintains that what he is arguing for is nothing more than "the mirror image of the concept expressed" in 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. This 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 [51 Cal.Rptr.2d 344] 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.
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.
The order is affirmed.
Kline, P. J., and Haerle, J., concurred.
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."
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 [339 P.2d 869]; Burns v. Massachusetts Etc. Ins. Co. (1944) 62 Cal.App.2d 972, 975 [146 P.2d 29].) 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.)
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." (See T & R Painting Construction, Inc. v. St. Paul Fire & Marine Ins. Co. (1994) 23 Cal.App.4th 738, 744-745 [29 Cal.Rptr.2d 199]; Gold v. Maxwell (1959) 176 Cal.App.2d 213, 219 [1 Cal.Rptr. 226]; College Nat. Bank v. Morrison (1929) 100 Cal.App. 403, 408 [280 P. 218].)
