Opinion
C094566
07-12-2023
ERNEST JAMES BEZLEY, Plaintiff and Appellant, v. JOY LYNETTE WORKMAN, as Successor Trustee, etc., Defendant and Respondent.
NOT TO BE PUBLISHED
(Super. Ct. No. STK-CV-UBT-2019-0007128)
EARL, P. J.
This is an appeal from a judgment in favor of the defendant following a bench trial. The judgment is based on the trial court's determination that a 2015 settlement agreement in a bankruptcy proceeding released the claim the plaintiff is currently asserting in this case. The plaintiff appeals, arguing the judgment is wrong both as a matter of law (because his current claim is not waivable or releasable) and as a matter of fact (because his current claim was not actually included in the release). For the reasons stated below, we agree the judgment is wrong as a matter of fact, and we thus do not reach the plaintiff's claim that the judgment was wrong as a matter of law. We shall reverse the judgment and remand with directions to the trial court to determine whether the plaintiff proved his claim, and/or whether the defendant proved any affirmative defenses that are not based on the release.
FACTUAL AND PROCEDURAL BACKGROUND
The Loans
Plaintiff Ernest James Bezley obtained a loan from Harold L. Jennings in 1999 for $350,000, and another in 2008 for $250,000. Both loans are evidenced by promissory notes and secured by deeds of trust on three parcels of real property (the property) owned by Bezley and used (at least in part) as his residence. The interest rate on both loans was 10 percent per annum, and both loans were interest only loans-i.e., interest payments were due monthly, and the principal was due at maturity. The maturity date on the 1999 loan was February 4, 2002, and the maturity date on the 2008 loan was March 13, 2009.
The First Default and Bankruptcy Proceedings
At some point Bezley defaulted on the loans, and in 2011 Jennings instituted foreclosure proceedings on the property that secured the loans. Bezley then filed for bankruptcy in order to stop the foreclosure proceedings.
In late 2013, the bankruptcy trustee initiated an adversary proceeding (which the parties refer to as the AP) by filing a complaint against Jennings. The trustee alleged in the complaint that the loans were usurious within the meaning of article XV, section 1 of the California Constitution because the interest rate exceeded 10 percent when certain loan fees were considered. The trustee sought damages and reformation of the loans.
All causes of action Bezley could have asserted as of the date the bankruptcy case was commenced became the property of the bankruptcy estate and could only be asserted by the bankruptcy trustee on behalf of the estate. (In re Bell & Beckwith (Bankr. N.D.Ohio 1986) 64 B.R. 144, 147.)
Article XV, section 1 of the California Constitution, along with an uncodified initiative measure adopted in 1918, is often referred to as the "usury law." (See G Companies Management, LLC v. LREP Arizona, LLC (2023) 88 Cal.App.5th 342, 351.)
Jennings answered the complaint in the adversary proceeding and asserted two affirmative defenses: (1) failure to state facts sufficient to constitute a cause of action, and (2) statute of limitations.
In October 2014, the trustee, Bezley, and Jennings participated in a mediation pursuant to the bankruptcy dispute mediation program. Prior to the mediation, the trustee submitted a brief in which he argued why the loans were usurious. He also noted, "The usury laws exempt certain lenders; it is undisputed Mr. Jennings is not exempt." Finally, he stated he would be entitled to recover at least $321,931 in damages if he prevailed in the adversary proceeding, which would become property of the bankruptcy estate. At the mediation, the parties reached a settlement in principle, and they ultimately executed a written settlement agreement in early 2015. That settlement agreement lies at the heart of this case.
The Settlement Agreement
The settlement agreement included the following terms and provisions. Jennings would pay $225,000 to the trustee, and that money would become part of the bankruptcy estate, free and clear of any claims by Jennings. Jennings would also pay $125,000 to the county tax collector in back taxes that Bezley owed on the property (the property tax payment). The parties agreed the principal due on the loans was $600,000, and accrued and unpaid interest on the principal was $276,399.94. Effective January 1, 2015, interest on the principal would be reduced to 6 percent (down from 10 percent), and interest-only payments of $3,000 would be due each month; no interest would accrue on the $276,399.94 in unpaid interest. Interest at 6 percent would also accrue on the property tax payment that Jennings made on Bezley's behalf. The maturity date of both loans was extended to January 2018, at which time all amounts owed (i.e., principal, unpaid interest, and the property tax payment), together with any accrued but unpaid interest, was due.
As relevant here, the settlement agreement contained a release pursuant to which the trustee released and discharged Jennings "from any and all claims . . . known or unknown, relating to or arising from the claims and defenses in the AP, including without limitation any and all claims for . . . usury as to the" 1999 and 2008 loans. The settlement agreement also contained a Civil Code section 1542 waiver, and provided each of the parties "understands and acknowledges it is possible unknown losses or claims exist or that they may have underestimated losses or claims in amount or severity, and each of them took that into account in determining the amount of consideration to be exchanged in the Agreement, and a portion of that consideration, having been bargained for between the Parties with the knowledge of the possibility of such unknown claims, was given in exchange for a full accord, satisfaction, and discharge of all such claims."
Civil Code section 1542 provides: "A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party."
The bankruptcy trustee filed a motion to approve the settlement agreement. Among other things, the motion stated Jennings "shall retain his loans secured by two deeds of trust," as modified by the settlement agreement. The bankruptcy court approved the settlement agreement on or around April 6, 2015.
The Second Default
Thereafter, Bezley once again defaulted on the loans, and in July 2018, Jennings once again instituted foreclosure proceedings on the property that secured the loans. Jennings died in November 2018, and his daughter, defendant Joy Lynette Workman, was appointed as the successor trustee of his trust, and it is the trust that held the deeds of trust to the property that secured the loans. A foreclosure sale was set for June 10, 2019.
The Present Action
On June 4, 2019, one week before the foreclosure sale, Bezley filed the present action against Workman, alleging the loans were made in violation of the California Financing Law, Financial Code section 22000 et seq. (Financing Law). In particular, Bezley alleged Jennings was a finance lender who was engaged in the business of making consumer or commercial loans within the meaning of section 22009, but was not licensed as required by section 22100. Because Jennings was not licensed, Bezley alleged the loans were rendered void and unenforceable pursuant to section 22750, subdivision (b), which provides if any provision of the Financing Law "is willfully violated in the making or collection of a [consumer] loan, whether by a licensee or by an unlicensed person subject to this division, the contract of loan is void, and no person has any right to collect or receive any principal, charges, or recompense in connection with the transaction." Bezley's position was that (1) the loans were consumer loans, (2) Jennings was an unlicensed person subject to the Financing Law, (3) Jennings willfully violated the Financing Law by not having a license, and (4) as a result, the loans were void and no person (including Workman) may collect any principal or interest thereon. Bezley sought to enjoin the foreclosure sale; to enjoin Workman from collecting any remaining amounts due on the loans; and to require Workman to make restitution of all loan payments made after the 2015 settlement agreement. He also sought a judicial declaration that the loans were void, and that the settlement agreement was void because it modified the loans but continued to give Jennings (and now Workman) the right to collect or receive principal and interest despite the fact that Jennings was not licensed, in derogation of section 22750.
Further undesignated statutory references are to the Financial Code.
The trial court issued a temporary restraining order followed by a preliminary injunction enjoining the foreclosure pending final resolution of the case.
Workman filed an answer and asserted 11 affirmative defenses. Some, but not all, of the affirmative defenses were based on Workman's contention that the settlement agreement's release of known and unknown claims included all claims asserted in the present action.
(1) Waiver; (2) equitable estoppel; (3) statute of limitations; (4) laches; (5) collateral estoppel; (6) judicial estoppel; (7) lack of standing; (8) accord and satisfaction; (9) novation; (10) settlement; and (11) unjust enrichment.
A six-day bench trial was held between October 2019 and September 2020. On December 17, 2020, the trial court issued a verdict, finding: "Prior to trial, [and] during the trial, both on and off the record the Plaintiff has asserted the case is not barred by the settlement agreement signed in 2015. Defendant has plead[ed] and argued the Plaintiff is barred in this case because of that settlement. The court is going to address this issue. [¶] Plaintiff has argued he is not barred from this lawsuit and cites the case of Brack vs. Omni Loan Co., Ltd (2008) 164 Cal.App.4th 1312. However, the court finds the Brack decision was limited and does not apply in this case. Plaintiff has given this court no authority or facts showing why or even how this court could undo the settlement agreement. At the time of the settlement agreement, all possible defenses were waived and the Plaintiff received the 'benefit of the bargain.' [¶] Therefore, based on the fact a valid settlement agreement exists this court finds in favor of the Defense. Due to the court finding the affirmative defense the court need not address the other causes of action."
At Bezley's request, the trial court thereafter issued a statement of decision. As relevant here, the trial court found: (1) Jennings was in the business of making commercial loans; (2) there was no evidence he had a lender's license; and (3) Bezley used the loan proceeds, at least in part, to pay for personal, family, or household expenses. The trial court also found the settlement agreement contained "a valid waiver and release as to any and all known and unknown claims set forth in the settlement agreement," including (1) claims "related to or arising from the 1999 and 2008 loans," and (2) claims involving "Mr. Jennings' alleged lack of a lender license." It reiterated, "Mr. Bezley's claims arising from or related to the 1999 [and] 2008 loans were assets of the . . . bankruptcy estate, and . . . the Bankruptcy Trustee waived and released said claims pursuant to the terms of the 2015 global Settlement Agreement." Based on these findings, the trial court found in favor of Workman and entered judgment accordingly.
Due to briefing delays, this case was not fully briefed until February 27, 2023, and was assigned to this panel thereafter.
DISCUSSION
I
Standard of Review
"In reviewing a judgment based upon a statement of decision following a bench trial, we review questions of law de novo. [Citation.] We apply a substantial evidence standard of review to the trial court's findings of fact. [Citation.] Under this deferential standard of review, findings of fact are liberally construed to support the judgment and we consider the evidence in the light most favorable to the prevailing party, drawing all reasonable inferences in support of the findings." (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981.) "We presume the judgment is correct and will affirm it on any ground supported by the evidence, whether articulated by the trial court or not." (Look v. Penovatz (2019) 34 Cal.App.5th 61, 69-70.)
II
Analysis
We begin with a discussion of the Financing Law, which was enacted to (among other things) protect borrowers against unfair lending practices. (§ 22001, subd. (a).) The Financing Law provides, "No person shall engage in the business of a finance lender . . . without obtaining a license from the commissioner [of financial protection and innovation]." (§ 22100, subd. (a); see also § 22005.) The term" [f]inance lender'" "includes any person who is engaged in the business of making consumer loans or making commercial loans." (§ 22009.) A consumer loan is a loan the proceeds of which the borrower intends to use "primarily for personal, family, or household purposes." (§ 22203.) A commercial loan is a loan of $5,000 or more, the proceeds of which the borrower intends to use "primarily for other than personal, family, or household purposes." (§ 22502.)
The Financing Law was formerly known as the Finance Lenders Law, which is how many of the cases refer to it.
The Financing Law specifies penalties for its violation. For consumer loans, the law provides, "If any provision of this division is willfully violated in the making or collection of a loan, whether by a licensee or by an unlicensed person subject to this division, the contract of loan is void, and no person has any right to collect or receive any principal, charges, or recompense in connection with the transaction." (§ 22750, subd. (b).) If the violation is not willful, the lender forfeits interest but may collect the principal. (§ 22752, subd. (a).) These forfeiture provisions-which lie at the heart of Bezley's complaint-only apply to consumer loans, not to commercial loans. (See t'Bear v. Forman (ND.Cal. 2019) 359 F.Supp.3d 882, 908-909; In re Jesse &Joan (Bankr. N.D.Cal. 2001) 266 B.R. 192, 194.)
In Brack v. Omni Loan Co., Ltd. (2008) 164 Cal.App.4th 1312, the court held "the requirements of the Financ[ing] Law are matters of fundamental public policy which cannot be waived by way of agreement between the parties." (Id. at p. 1326.) In so holding, the court highlighted the fact that "under section 22750 contracts made in willful violation of the Financ[ing] Law, including in particular violation of the requirement that a lender have a license issued by the commissioner, are void." (Ibid.) The court also emphasized the fact that the Financing Law contained detailed licensing requirements and imposed substantive and procedural requirements on licensees, and it noted, "There would be little, if any, utility in establishing this thorough licensing scheme . . . if the licensing requirements of the law . . . could be waived by simple agreement between lender and borrower." (Brack, at p. 1327.)
Bezley makes two primary arguments on appeal. First, and based on Brack, Bezley argues the provisions of the Financing Law may not be waived by agreement of the parties, and the parties thus could not, as a matter of law, release claims based on alleged Financing Law violations when they entered into the settlement agreement. Second, Bezley argues the parties did not, as a matter of fact, release claims based on alleged Financing Law violations when they entered into the settlement agreement. If either argument is correct, the judgment must be reversed, because it was based on the trial court's finding that the release bars Bezley's complaint. We need not decide the legal question-i.e., whether the parties could release claims based on alleged Financing Law violations-because we agree the parties did not release claims based on alleged Financing Law violations.
The trial court found the settlement agreement barred Bezley's entire complaint, because it released all claims related to or arising from the loans, including claims based on Jennings' alleged lack of a lender's license. Bezley argues the trial court erred in so finding, because the settlement agreement only released claims related to the loans' alleged violations of the usury law, and did not release claims related to the loans' alleged violations of the Financing Law or Jennings' lack of a license. Bezley thus contends his current claims based on Jennings' alleged violation of the Financing Law are outside the scope of the release. We agree.
"We interpret a release or settlement agreement under the same rules of construction that apply to contracts generally. [Citations.] We interpret a contract to give effect to the mutual intention of the parties at the time they formed the contract. [Citations.] We discern the parties' intention based on the written contract alone, if possible, but may also consider the circumstances under which the contract was made and its subject matter." (Camacho v. Target Corp. (2018) 24 Cal.App.5th 291, 306.)" 'Contract principles apply when interpreting a release, and "normally the meaning of contract language, including a release, is a legal question." [Citation.]' [Citation.] 'Where, as here, no conflicting parol evidence is introduced concerning the interpretation of the document, "construction of the instrument is a question of law, and the appellate court will independently construe the writing. [Citation.]"' [Citation.] 'The appellate court's objective in construing contractual language is to determine and effectuate the intention of the parties. [Citation.] "It is the outward expression of the agreement, rather than a party's unexpressed intention, which the court will enforce. [Citation.]" [Citation.]'" (M&F Fishing, Inc. v. Sea-Pac Ins. Managers, Inc. (2012) 202 Cal.App.4th 1509, 1530.)
There was no conflicting parol evidence introduced in this case either. Jennings' attorney and Bezley both testified about what they thought the release meant, but Bezley's intent is irrelevant because he was not a party to the settlement agreement. Instead, the settlement agreement was an agreement between the bankruptcy trustee and Jennings. The bankruptcy trustee did not testify at trial, so the only evidence of his intent is the language of the settlement agreement itself. As for the testimony of Jennings' attorney, and as noted below, his one-sided interpretation of the release is irrelevant. (See Winet v. Price (1992) 4 Cal.App.4th 1159, 1166, fn. 3 ["evidence of the undisclosed subjective intent of the parties is irrelevant to determining the meaning of contractual language"].)
Settlement agreements" 'settle only such matters and differences as appear clearly to be comprehended in them by the intention of the parties and the necessary consequences thereof, and do not extend to matters which the parties never intended to include therein, although existing at the time.' [Citations.] Thus they ordinarily conclude all matters put in issue by the pleadings-that is, questions that otherwise would have been resolved at trial. [Citation.] They do not, however (absent affirmative agreement of the parties), conclude matters incident to the judgment that were no part of the cause of the action." (Folsom v. Butte County Assn. of Governments (1982) 32 Cal.3d 668, 677.)
We begin with the wording of the parties' release, because it "is essential to determination of what is released." (2 Schwing &Carr, Cal. Affirmative Defenses (2d ed. 2022), § 42:1.) It states the parties release each other "from any and all claims . . ., known or unknown, relating to or arising from the claims and defenses in the AP, including without limitation . . . any and all claims for usury."
" 'Usury is the exacting, taking or receiving of a greater rate than is allowed by law, for the use or loan of money.' [Citation.] A transaction is usurious if there is a loan at greater than the legal rate of interest." (O'Connor v. Televideo System, Inc. (1990) 218 Cal.App.3d 709, 713.) Under California's usury law, the interest rate on loans that are used primarily for personal, family or household purposes may not exceed 10 percent. (Cal. Const., art. XV, § 1; see also Creative Ventures, LLC v. Jim Ward & Associates (2011) 195 Cal.App.4th 1430, 1441.) There are exemptions to the usury law, including loans made by "any . . . class of persons authorized by statute ...." (Cal. Const., art. XV, § 1.) As relevant here, finance lenders licensed pursuant to the Financing Law are exempt from the usury law, and thus may legally charge interest rates exceeding 10 percent. (See Moore v. Hill (2010) 188 Cal.App.4th 1267, 1280; § 22002 ["this division creates a class of exempt persons pursuant to Section 1 of Article XV of the California Constitution"].)
Bezley argues his current claim that the loans violate the Financing Law because Jennings did not have a license does not relate to or arise from the claims and defenses in the adversary proceeding, because the adversary proceeding was solely concerned with a violation of the usury law. The complaint in the adversary proceeding alleged the loans violated the usury law, but did not allege the loans violated the Financing Law. Indeed, the complaint mentions the usury law (i.e., Cal. Const., article XV, § 1) no fewer than six times, and does not mention either the Financing Law or Jennings' lack of a license. Jennings' answer to the complaint also does not mention the Financing Law. Moreover, although Jennings did assert two affirmative defenses in his answer-(1) failure to state facts sufficient to constitute a cause of action and (2) statute of limitations-neither defense related to or arose from the Financing Law or Jennings' lack of a license. Finally, the bankruptcy trustee's motion to approve the settlement agreement stated the purpose of the settlement was to resolve "the estate's lawsuit against Harold Jennings, which alleges Mr. Jennings made a series of usurious loans to the Debtor." The motion goes on to discuss the strengths and weaknesses of the usury claim, and Jennings' defense thereto. The motion never mentions either the Financing Law or Jennings' licensure or lack thereof. Bezley thus argues that the language of the release itself- particularly when interpreted in light of the complaint in the adversary proceeding, Jennings' answer to the complaint, and the trustee's motion to approve the settlement agreement-demonstrates the parties only intended to release claims related to or arising out of alleged violations of the usury law. Bezley also argues that his current claims, which are based on alleged violations of the Financing Law, are outside the scope of the release. We agree.
As noted, the trial court found the settlement agreement released "[a]ll claims related to or arising from the 1999 and 2008 loans," including claims based on "Jennings' alleged lack of a lender license," (although we note the trial court did not explain or even discuss this finding). The quoted language, however, does not appear in the settlement agreement. Bezley argues that if the parties had intended to release all claims related to the loans, or all claims related to Jennings' lack of a license, they would have said so.
Instead, they said they released all claims related to the claims and defenses in the adversary proceeding, which does not include Bezley's current claims. Again, we agree.
To explain why we agree, we find it useful to compare the release in this case to the release in Winet v. Price, supra, 4 Cal.App.4th 1159. In that case, an attorney named Price drafted a partnership agreement for a client named Winet, who served as the general partner. A dispute arose between Winet and Price over legal fees, and Price filed a collection action. The parties settled the collection action and signed a general release as part of the settlement. The release stated the parties released any and all claims, whether known or unknown, arising from (1) the matters, facts, or events alleged in the collection action, and (2) the performance of legal services by Price for Winet. (Id. at pp. 1162-1163.) Fifteen years later, some of the limited partners in the partnership sued Winet for breaching his duties as general partner, and sought to reform the partnership agreement. Winet filed a cross-complaint against Price for contribution and indemnity, alleging that his liability to the plaintiffs, if any, was caused by Price's malpractice in drafting the partnership documents. Price moved for summary judgment, arguing the cross-complaint was barred because Winet had released all claims, known or unknown, arising out of or connected to Price's legal services. (Id. at p. 1164.) The trial court granted the motion, and the appellate court affirmed, noting the parties' release "is about as complete, explicit and unambiguous as a general release can be." (Id. at p. 1173.) In particular, the parties released all known and unknown claims related to "any act or omission in connection with the legal services Price rendered to Winet," which would included claims based on malpractice. (Id. at pp. 1166-1167.)
Compare the release in Winet-which released all claims (1) alleged in or connected to the collection action, and (2) arising out of or connected to the underlying legal services performed by Price-to the release in this case, which only releases claims relating to or arising from the claims and defenses in the adversary proceeding. Unlike the release in Winet, it does not also release claims arising from or related to the underlying loans.
We also find it useful to compare the release in this case with the release in Villacres v. ABM Industries Inc. (2010) 189 Cal.App.4th 562. That case involved a class action suit brought against an employer for failing to pay overtime and split shift wages. The case settled, and the settlement agreement contained a broadly worded release that stated the class members released the employer" 'from any and all claims . . ., whether known or unknown, which have been or could have been asserted against the [employer].'" (Id. at p. 572, italics added.) Thereafter, another suit was brought against the same employer seeking penalties for failing to pay overtime and other alleged violations of the Labor Code. The plaintiff in the second suit was a member of the class that was certified in the first suit, and he did not opt out of the class, seek to intervene, or object to the settlement. (Id. at pp. 573-574.) The trial court held the claims raised in the second suit were claims that" 'could have been asserted'" in the first suit, and were thus released as part of the settlement agreement (id. at p. 574), and the appellate court affirmed. In affirming, the court noted that a release" 'may refer to all claims raised in the pending action, or it may refer to all claims, both potential and actual, that may have been raised in the pending action with respect to the matter in controversy.'" (Id. at p. 586.) The parties to the first lawsuit agreed to release all claims that could have been asserted, and the court in the second lawsuit enforced that broad release.
Again, compare the release in Villacres-which released all claims that were or could have been asserted in a particular lawsuit-with the release in this case, which released claims "relating to or arising from the claims and defenses in the AP." Unlike the release in Villacres, it does not also release claims that could have been asserted in the adversary proceeding.
Workman disagrees. She notes the settlement agreement released all claims "relating to or arising from the claims and defenses in the [adversary proceeding]." (Italics added.) The adversary proceeding contained a claim against Jennings for usury, and having a license issued pursuant to the Financing Law is a defense to such a claim because licensed financial lenders are exempt from the usury law. (Moore v. Hill, supra, 188 Cal.App.4th at pp. 1279-1280.) Workman thus argues the parties "necessarily released all claims against Mr. Jennings arising from the claims and defenses to the Adversary [Proceeding], . . . namely, . . . the defense to usury of holding a lending license." We disagree, because Jennings did not assert holding a license as a defense to the complaint in the adversary proceeding, and could not have asserted such a defense because he did not hold a license.
Workman also argues the release in the settlement agreement "was intended to be a global release of all issues between these parties related to the loans." The problem with this argument, as noted above, is that the release does not state the parties release each other from any and all claims relating to or arising from the loans. It states the parties release each other "from any and all claims . . . relating to or arising from the claims and defenses in the AP," and the only claim in the adversary proceeding is a claim for violation of the usury law.
To support her argument that the parties intended to release all claims related to the loans, Workman cites testimony from George Michael Williams, the attorney who represented Jennings in the adversary proceeding. Williams testified he considered various defenses to the usury claim, including whether or not Jennings had a finance lender's license. He also testified it was undisputed that Jennings did not have a license, and that he was thus not exempt from the usury law. Williams was asked about the importance of the settlement agreement's language "relating to or arising from the claims and defenses in the adversary proceeding," and he responded: "Well, there was claims made by Mr. Bezley, and there were defenses made. And this was to incorporate any potential claim that had been made as well as any potential defense and that this was a full and final settlement of everything, everything that was or could have been included or litigated in this action." (Italics added.) He testified Jennings wanted to be done "with . . . everything that had to do with Mr. Bezley," and he reiterated that his understanding was the parties intended to release all claims "related to the loan agreements" and "all claims that were or could have been asserted" in the adversary proceeding. (Italics added.)
The problem with this argument (and with Williams' testimony in general) is that Williams' stated intent and understanding is not apparent from the language of the release itself. "Under California law, contracts are interpreted by an objective standard; the words of the contract control, not one party's subjective intentions." (Global Packaging, Inc. v. Superior Court (2011) 196 Cal.App.4th 1623, 1634.) Here, the only evidence we have of the bankruptcy trustee's intent is the language of the settlement agreement itself and (perhaps) the motion to approve the settlement agreement, neither of which support Workman's contention that the parties intended to release any and all claims that could have been asserted in the adversary proceeding. The subjective intent of Jennings' attorney is irrelevant to determining the meaning of the release. (See Winet v. Price, supra, 4 Cal.App.4th at p. 1166, fn. 3 ["evidence of the undisclosed subjective intent of the parties is irrelevant to determining the meaning of contractual language"].)
Workman also points to a recital in the settlement agreement that states, "On October 31, 2014, the Parties personally participated in a mediation under the Court's Bankruptcy Dispute Resolution Program .... At the mediation, the Parties reached a settlement in principle of the claims and disputes in the AP and other claims and disputes. This Agreement documents the settlement in principle the Parties reached at the mediation." (Italics added.) Workman argues the italicized language demonstrates the parties intended to settle and release claims other than and in addition to the claims in the adversary proceeding. As noted, however, this language is in a recital, and was not made part of either the terms of the agreement or the actual release, which is limited to "any and all claims . . . related to or arising from the claims and defenses in the AP." At oral argument, Workman argued that the recitals were incorporated by reference into the terms of the settlement agreement. They were not. The settlement agreement provides, in relevant part, "All capitalized terms used . . . in the Recitals to this Agreement are incorporated by reference herein as if fully set forth herein and will have the same meaning as set forth within the . . . Recitals to this Agreement." Here is an example of such a capitalized term, taken from the first paragraph of the recitals: "The Debtor [i.e., Bezley] and Mrs. Bezley own, as joint tenants, the real property located at 25344 East Highway 12, Clements, California (the 'Homestead')." The agreement thus effectively incorporates by reference this definition of the term" 'Homestead'" and other capitalized terms used in the recitals. The recitals themselves are not incorporated by reference into the agreement, and the recitals' reference to the parties' settlement in principle of "other claims and disputes" is thus not incorporated by reference into the release, which, again, is limited to "claims . . . related to or arising from the claims and defenses in the AP." "The law has long distinguished between a 'covenant' which creates legal rights and obligations, and a 'mere recital' which a party inserts for his or her own reasons into a contractual instrument. Recitals are given limited effect even as between the parties." (Emeryville Redevelopment Agency v. Harcros Pigments, Inc. (2002) 101 Cal.App.4th 1083, 1101, italics added.) We find the reference in a recital to "other claims and disputes" is insufficient to enlarge the language of the release to include claims that are not related to the claims in the adversary proceeding.
Finally, Workman points to the fact that Bezley disclosed in his bankruptcy schedules that he had the following claims against Jennings: "Claims and counterclaims against Harold Jennings . . . [for] usury, violation of fair debt collection practices act, improper foreclosures, predatory lending." (Italics added.) Workman argues that the claim at issue here (i.e., that the loans were made in violation of the Financing Law because Jennings did not have a license) is encompassed within the phrase "predatory lending."" 'Predatory lending' is a term generally used to characterize a range of abusive and aggressive lending practices, including deception or fraud, charging excessive fees and interest rates, making loans without regard to a borrower's ability to repay, or refinancing loans repeatedly over a short period of time to incur additional fees without any economic gain to the borrower." (American Financial Services Assn. v. City of Oakland (2005) 34 Cal.4th 1239, 1244.) Were we to assume for the sake of argument that making a loan in violation of the Financing Law's licensure requirement is a type of predatory lending, Workman does not go on to explain how Bezley's bankruptcy schedules support her argument that the settlement agreement released the claim at issue in this case.
We thus find the parties to the settlement agreement only released claims related to the claims and defenses in the adversary proceeding, and because the claims and defenses in the adversary proceeding related solely to violations of the usury law, the parties did not release the claims asserted in the present action, which relate solely to violations of the Financing Law. That means the trial court erred in concluding the release barred Bezley's complaint. Our finding, however, does not dispose of this case, and we must remand it to the trial court to determine (1) whether Bezley established his claim and, if so, what remedy he is entitled to, and/or (2) whether Workman established those affirmative defenses that are not based on the release (i.e., statute of limitations, laches, judicial estoppel, standing, etc.).
Bezley argues the trial court has already made three core findings that effectively entitle him to judgment in this case. Those three findings are: (1) that Jennings was in the business of making commercial loans; (2) that Jennings did not have a finance lender's license; and (3) that Bezley used the proceeds of the loans, "at least in part, for the payment of personal, family or household expenses." Bezley argues these three findings establish the loans violate the Financing Law, because they were made by an unlicensed person who was required to be licensed because he was in the business of making commercial loans. Bezley also argues the Financing Law, by its express terms, renders such loans "void," and further specifies "no person has any right to collect or receive any principal, charges, or recompense in connection with the transaction." (§ 22750.) There are two problems with Bezley's argument.
First, the remedy contained in section 22750 (i.e., voiding the loans) only applies if the loans are consumer loans, and consumer loans are defined as loans the borrower intends to use "primarily for personal, family, or household purposes." (§ 22203, italics added.) The trial court found Bezley used the loans, "at least in part, for the payment of personal, family or household expenses," (italics added), which is not the same as finding he intended to use the loan proceeds "primarily" for personal, family, or household purposes. The trial court thus has not determined one way or the other whether the loans are consumer loans within the meaning of the Financing Law, and without such a determination, Bezley is not entitled to judgment.
Second, section 22750 only renders the loans void and unenforceable if the violation of the Financing Law was willful. (§ 22750, subd. (b) ["If any provision of this division is willfully violated . . . the contract of loan is void" (italics added)].) If the violation was not willful, however, the loans are not rendered void and Workman can collect principal but not interest. (§ 22752, subd. (a) ["If any provision of this division is violated in the making or collection of a loan, for any reason other than a willful act of the licensee, the licensee shall forfeit all interest and charges on the loan and may collect or receive only the principal amount of the loan"].) The trial court, however, made no finding on willfulness. Bezley asked it to make a finding on willfulness, but the court declined, stating, "the court finds this issue is moot and makes no findings." Again, without a finding on willfulness, Bezley is not entitled to judgment.
As for Workman's affirmative defenses, the trial court only addressed the merits of the affirmative defenses that were based on the release, and did not reach the merits of the defenses that were not based on the release. For example, Workman asserted the complaint was barred by the four-year statute of limitations applicable to claims based on a written contract (Code Civ. Proc., § 337, subd. (a)), and claims brought pursuant to Business and Professions Code section 17200 et seq. (Bus. &Prof. Code, § 17208), and that it was also barred by the doctrine of laches. As a second example, Workman asserted the complaint was barred by the doctrine of judicial estoppel and because Bezley lacks standing; both of these defenses are related to Bezley's 2011 bankruptcy filing. The trial court did not reach the merits of these defenses.
We find that the current appeal is not the proper forum to decide the merits of Bezley's claims or Workman's affirmative defenses. Although we may affirm the judgment on a ground not articulated by the trial court, we may decline to do so when the alternative ground presents issues that the trial court did not address. (See Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408, 433; Erickson v. Aetna Health Plans of California, Inc. (1999) 71 Cal.App.4th 646, 653.) In such a case, it is appropriate to remand the case to the trial court to decide those issues in the first instance. (See Hamilton v. Asbestos Corp. (2000) 22 Cal.4th 1127, 1149; People v. Goolsby (2015) 62 Cal.4th 360, 368.) We find that this is such a case, and that it is appropriate to allow the trial court to decide the merits of Bezley's claims and Workman's affirmative defenses in the first instance.
DISPOSITION
The judgment is reversed. The case is remanded with directions to determine whether Bezley proved his claim, and/or whether Workman proved any affirmative defenses that are not based on the release. Bezley shall recovery his costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)
We concur: DUARTE, J., KRAUSE, J.