Opinion
G058883
12-17-2020
DOUG WALL CONSTRUCTION, INC., Petitioner, v. THE SUPERIOR COURT OF ORANGE COUNTY, Respondent; ABRAHAM STUART RUBIN, Real Party in Interest.
Best Best & Krieger, Christopher E. Deal and Daniel L. Richards for Petitioner. No appearance by Respondent. McGarrigle, Kenney & Zampiello, Patrick C. McGarrigle and Philip A. Zampiello, for Real Party in Interest.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2019-01103707) OPINION Original proceedings; petition for writ of mandate challenging an order of the Superior Court of Orange County, Theodore R. Howard, Judge. Petition granted. Requests for judicial notice. Granted. Best Best & Krieger, Christopher E. Deal and Daniel L. Richards for Petitioner. No appearance by Respondent. McGarrigle, Kenney & Zampiello, Patrick C. McGarrigle and Philip A. Zampiello, for Real Party in Interest.
* * *
This dispute arises out of a failed hotel development project. Construction stopped short of completion allegedly because the developer failed to pay the general contractor.
In paragraph 1 of the contract at issue in this writ proceeding, real party in interest Abraham Stuart Rubin agreed to "unconditionally guaranty payment and performance of all obligations" the developer owed to the general contractor, petitioner Doug Wall Construction, Inc. (Wall). The guaranty had one limitation, paragraph 13: "Notwithstanding the above, Wall must wait a period of ninety (90) days after substantial completion of the project or the issuance of a certificate of occupancy (which shall ever occur first) before it enforces its rights under this guaranty. This ninety day time period is to allow the owner and/or lender sufficient time to complete the funding of the project for their final payment to Wall."
Rubin contends the guaranty is not currently enforceable against him because the project has not been substantially completed. In other words, paragraph 13 is a condition precedent to all attempted enforcement actions on the guaranty. Denying Wall's application for a right to attach order and writ of attachment (Code Civ. Proc., §§ 481.010 et seq.), the trial court agreed with Rubin's interpretation and concluded that Wall had not demonstrated a probability of prevailing in this dispute.
We disagree. The only reasonable interpretation of the guaranty is that paragraph 13 applies in limited circumstances, i.e., the end of the project when the "final payment" is due. This understanding of the contract makes sense of the document as a whole, harmonizing Rubin's broad promise to "unconditionally guaranty payment" with the specific limits on Wall's freedom of action included in paragraph 13. To concur with Rubin's reading would privilege paragraph 13 over the rest of the contract and make the guaranty nearly valueless to Wall. We grant the petition for writ of mandate.
I
FACTS
The Project
In 2017, Glenroy Coachella, LLC (Developer) hired Wall as general contractor for a hotel construction project in Coachella, California (the Project). Developer and Wall entered a "cost-plus" construction contract. Wall agreed to provide all labor and materials necessary to build a hotel according to the Developer's plans. Developer promised to reimburse Wall for its expenses, plus a five-percent fee.
The construction contract authorized monthly billing. In general, Developer agreed to pay Wall "within two (2) week[s] from the date of billing." But the "final payment shall be due and payable thirty days from the date that [Developer] obtains occupancy approval from the applicable governmental agency or from the date when [Developer] takes possession whatever occurs first."
The Guaranty
Rubin is the president of Developer. He signed the construction contract in 2017 on behalf of Developer.
In the summer of 2018, Rubin executed a guaranty with the following recitals: Developer and Wall "have entered into a contract for the construction of a hotel . . . . The project is approximately 1/2 complete. Payments to Wall under the construction contract are in arrears. [Developer] has procured a construction loan for the project and has assured Wall that it has sufficient funds in the loan and additional funds further committed to pay for all costs of construction and other related costs. Wall has requested that Rubin as the principal of [Developer] personally guarantee all obligations of [Developer] under said construction contract. A true and correct copy of said construction contract executed by [Developer] . . . is attached as Exhibit 1 to this guarantee agreement. Wall but for this guaranty would not continue with the construction of the project because of the issue of whether or not there are enough funds committed and absolutely available to complete the project."
Per Paragraph 1 of the guaranty: "Rubin agrees to unconditionally guaranty payment and performance of all obligations to Wall under the Exhibit 1 construction contract by" Developer. In paragraph 2, Rubin waived "all suretyship and guaranty defenses including notice, presentment, waiver and the right to insist that [Wall] first proceed against" Developer for "obligations under the Exhibit 1 contract for said breach."
Paragraph 3 is an integration clause: "This Guaranty constitutes the entire understanding between the parties hereto and the parties acknowledge and agree that they have neither received nor relied upon any statement or representation, either written or oral, expressed or implied, other than those provisions and statements that are specifically and expressly set forth and contained in this Guaranty. Moreover, no representations or promises of any kind or character have been made to any party to this Guaranty except as expressly set forth and provided herein, and all prior discussions, statements, and/or negotiations made and/or which have occurred prior to the signing of this Guaranty shall be deemed understood, interpreted and construed to have merged into this Guaranty and any such statements, discussions and/or negotiations which are not otherwise specifically and expressly stated and set forth in this document are understood and agreed by and between the parties to be of no legal force or effect and to be null and void."
Paragraphs 4 through 12 are mostly inconsequential to the instant dispute (e.g., process for modifying the agreement, time is of the essence clause, severability). Notably, the guaranty selected California law and provided for arbitration of any disputes.
The final paragraph of the guaranty, paragraph 13, stated: "Notwithstanding the above, Wall must wait a period of ninety (90) days after substantial completion of the project or the issuance of a certificate of occupancy (which shall ever occur first) before it enforces its rights under this guaranty. This ninety day time period is to allow the owner and/or lender a sufficient time to complete the funding of the project for their final payment to Wall."
Termination of Contract and Demand for Payment
From May 2019 to September 2019, Wall and Rubin exchanged communications in which Wall sought payment for overdue bills and Rubin provided assurances that payment was forthcoming.
On September 9, 2019, the lender holding a deed of trust on the Project's site recorded a notice of default and election to sell the property, alleging a failure to make loan payments since May 2019.
Days later, Wall terminated the construction contract for nonpayment. The alleged amount Developer owed to Wall was more than $4 million.
Procedural History of Litigation
In October 2019, Wall filed a complaint for breach of guaranty and related causes of action against Rubin. Shortly after the filing of the complaint, Wall moved to compel arbitration of his claims, a motion which was ultimately granted.
Wall also promptly applied for a provisional remedy pending the outcome of the arbitration — a right to attach order and writ of attachment based on his contract claim for a readily ascertainable amount of damages.
On an ex parte basis, the trial court granted a temporary protective order restricting Rubin's freedom to dispose of or impair the value of certain real property, pending a full hearing on the writ of attachment application. But, after briefing and a contested hearing, the court denied Wall's application and dissolved the temporary protective order.
Wall filed a timely petition for writ of mandate. We issued an alternative writ, formal briefing was filed, and oral argument was heard.
II
DISCUSSION
"Attachment is a prejudgment remedy that allows a creditor to have a lien on the debtor's assets until final adjudication of the claim sued upon." (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2020) ¶ 9:853, p. 9(II)-113.) Determinations made in attachment proceedings "shall not be given in evidence nor referred to at the trial." (Code Civ. Proc., § 484.100.)
Appellate courts may issue a writ of mandate to compel trial courts to grant the provisional remedy of attachment. (San Diego Wholesale Credit Men's Assn. v. Superior Court (1973) 35 Cal.App.3d 458, 462; cf. Code Civ. Proc., § 904.1, subd. (a)(5) [order granting right to attach order is appealable].)
Right to Attach Orders and Writs of Attachment
A party applying for a right to attach order and writ of attachment (Code Civ. Proc., § 484.010) bears the burden of establishing four elements: (1) its claim is for money "based upon contract, express or implied" (§ 483.010, subd. (a)); (2) its claim is "probably valid" (§ 484.050, subd. (b)); (3) the attachment is sought for a proper purpose, i.e., "recovery on the claim" rather than harassment (§ 484.090, subd. (a)(3)); and (4) the amount to be secured is "readily ascertainable" and greater than $500 (§ 483.010, subd. (a)). (See Goldstein v. Barak Construction (2008) 164 Cal.App.4th 845, 852.)
If attachment is sought against a "natural person" (like Rubin in this case), the applicant also must demonstrate the contract claim arises out of the individual's "trade, business, or profession." (Code Civ. Proc., § 483.010, subd. (c).)
The court "shall issue a right to attach order" if the moving party establishes each required showing. (Code Civ. Proc., § 484.090, subd. (a).) "If the right to attach order is issued, a writ of attachment will be issued to attach the property described in the plaintiff's application unless the court determines that such property is exempt from attachment or that its value clearly exceeds the amount necessary to satisfy the amount to be secured by the attachment." (Code Civ. Proc., § 484.050, subd. (d).)
Wall based his case for prejudgment attachment on the contractual terms of Rubin's guaranty. Attachment "may issue on a guaranty, regardless of whether the principal loan is secured, so long as the guarantor has waived the right to require the creditor to proceed first against the security given for the primary obligation." (United Central Bank v. Superior Court (2009) 179 Cal.App.4th 212, 215-216; see also Bank of America, N.A. v. Stonehaven Manor, LLC (2010) 186 Cal.App.4th 719, 721.)
The trial court denied the application based on a finding that Wall failed to establish the "probable validity" of its claim. Probable validity means "it is more likely than not that the plaintiff will obtain a judgment against the defendant on that claim." (Code Civ. Proc., § 481.190.) Probable validity findings are often based on disputed findings of fact and reviewed for substantial evidence. (Santa Clara Waste Water Co. v. Allied World National Assurance Co. (2017) 18 Cal.App.5th 881, 885.)
The trial court did not make any factual findings. Instead, it ruled that Paragraph 13 unambiguously constituted a condition precedent to enforceability of the guaranty. The condition precedent required Wall to substantially complete the Project or, alternatively, the issuance of a certificate of occupancy. Neither condition occurred; the Project foundered before completion. Thus, based on its interpretation of the guaranty, the court concluded it was not probable Wall would win its lawsuit against Rubin.
The trial court's written order denying the application did not analyze the other elements Wall was required to prove. We therefore confine our review to the "probable validity" element.
Standard of Review and Principles of Contract Interpretation
This mandate proceeding turns on whether the trial court erred in its interpretation of the guaranty. "We independently review . . . a guaranty agreement subject to the usual rules of contract interpretation." (Central Building, LLC v. Cooper (2005) 127 Cal.App.4th 1053, 1058.)
"A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." (Civ. Code, § 1636.) But "mutual intention of the parties" does not mean our task is to divine the subjective beliefs and states of mind of the contracting parties. Instead, courts perform an "objective" evaluation of the meaning of the contract. We consider "'what the outward manifestations of consent would lead a reasonable person to believe.'" (Roth v. Malson (1998) 67 Cal.App.4th 552, 557.) "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. (2003) 109 Cal.App.4th 944, 956.)
The first step in determining the objective meaning of a contract is to examine the language of the contract itself, framed by the general circumstances in which it was executed. "The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." (Civ. Code, § 1638.) "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.) "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; see Nish Noroian Farms v. Agricultural Labor Relations Bd. (1984) 35 Cal.3d 726, 735 ["The factual context in which an agreement was reached is also relevant to establish its meaning unless the words themselves are susceptible to only one interpretation"].)
The guaranty included an integration clause. The parties represented that the guaranty comprised their entire agreement. They disavowed any reliance on documents (other than the construction agreement, attached to the guaranty) or oral statements not included in the guaranty. This further strengthens the preference, to the extent possible and in the absence of ambiguity, for interpreting the guaranty based on the language of the contract without regard to extrinsic evidence. (Thrifty Payless, Inc. v. Mariners Mile Gateway, LLC (2010) 185 Cal.App.4th 1050, 1061 [integration clause means that extrinsic evidence cannot change instrument's express terms].)
Courts may also consider extrinsic evidence if pertinent language in a contract is ambiguous. "Whether contractual language is ambiguous is a question of law that we review de novo." (American Alternative Ins. Corp. v. Superior Court (2006) 135 Cal.App.4th 1239, 1245.) Courts must provisionally receive proposed extrinsic evidence to assist in determining whether the contractual language is ambiguous and susceptible of a particular meaning, rather than rely solely on their own interpretation of the language. (Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1350-1351.) If factual findings are made regarding conflicting extrinsic evidence, those factual findings are reviewed for substantial evidence. (De Anza Enterprises v. Johnson (2002) 104 Cal.App.4th 1307, 1315.)
The parties dispute the meaning of Paragraph 13. Rubin contends it is a condition precedent barring Wall from enforcing the guaranty absent substantial completion of the Project. Wall counters that Paragraph 13 applies only after substantial completion of the Project and, hence, Paragraph 13 is inapplicable here. Both parties assert the contract's plain language supports their respective interpretations.
Both parties also argue in the alternative that extrinsic evidence supports their positions. They cite declarations from principals and attorneys attesting to their purported contemporaneous understanding of Paragraph 13 consistent with their current positions, as well as contemporaneous communications exchanged during negotiations of the guaranty. Wall points in particular to its counsel's declaration, in which counsel explains Paragraph 13 reflected the industry practice of construction lenders delaying final distribution of funds to allow for the expiration of time when mechanics' liens may be filed. Rubin, conversely, emphasizes a July 2018 e-mail from Wall's counsel to his client, which stated in part: "I talked to the attorney who was concerned that there be some time for the lender and owner to get their act together when the project is done before you enforce the guaranty so added paragraph 13. Giving them 90 days after completion to do so . . . ." (Italics added.) Wall points out that the same e-mail continued: "I was firm that we were not going to make any changes in the guarantee itself which is basic. See added paragraph 13."
Probable Validity of the Action on the Guaranty
We hold: (1) the guaranty is not ambiguous; (2) there is no need to resort to extrinsic evidence; (3) our review is de novo; (4) Paragraph 1, Rubin's unconditional guaranty of Developer's payment obligations, is enforceable when Developer's payment obligations are breached before substantial completion of construction; (5) Paragraph 13 of the guaranty is not a condition precedent to the enforcement of the unconditional guaranty; and (6) Paragraph 13 is inapplicable to a situation like the instant one, i.e., Developer's failure to pay Wall in the midst of construction, rather than after substantial completion of the Project and while awaiting "final payment." Consequently, Wall has shown his claim is "probably valid."
"The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practical, each clause helping to interpret the other." (Civ. Code, § 1641; see Universal Sales Corp. v. California Press etc. Co. (1942) 20 Cal.2d 751, 760.) "Particular clauses of a contract are subordinate to its general intent." (Civ. Code, § 1650.)
"A condition precedent is one which is to be performed before some right dependent thereon accrues, or some act dependent thereon is performed." (Civ. Code, § 1436.) "'The existence of a condition precedent normally depends upon the intent of the parties as determined from the words they have employed in the contract. [Citation.]' [Citation.] '"The rule is that provisions of a contract will not be construed as conditions precedent in the absence of language plainly requiring such construction. [Citations.]"'" (Barroso v. Ocwen Loan Servicing, LLC (2012) 208 Cal.App.4th 1001, 1009-1010 (Barroso).)
Reading the guaranty as a whole, rather than focusing on Paragraph 13 in isolation, leads inexorably toward our interpretation of this document. We must consider the general circumstances in which this guaranty was executed and the objectively reasonable expectations parties in this position would have when reaching this agreement. The guaranty's recitals make clear Developer was in arrears on its payments and Wall, approximately halfway through the job, was worried it would not be paid if it continued to work on the Project. (See Evid. Code, § 622 [other than recital of consideration, "[t]he facts recited in a written instrument are conclusively presumed to be true as between the parties thereto"].) The guaranty was extracted from the principal of the party contracting for construction services. The guaranty references and attaches the construction contract the Developer already had breached. The construction contract provides for termination based on nonpayment of interim monthly billing statements.
In that factual context, Rubin agreed in Paragraph 1 to "unconditionally guaranty" Developer's payment and performance obligations. The plain meaning of this guaranty is that Rubin agreed to pay Wall if Developer did not do so, regardless of when Wall's breach of its payment obligations occurred. With half of the massive Project still to be completed and Developer already in arrears, it is implausible to reasonably construe the term "unconditionally guaranty" as a quite limited guaranty that applied only in the event Wall substantially completed the Project. Indeed, it is difficult to imagine how an unconditional guaranty of "all" Developer's payment and performance obligations can be made consistent with a proviso that the guaranty applies only if the Project already has been completed.
In light of Paragraph 1 and the circumstances in which the guaranty was executed, we conclude the parties intended that Paragraph 13 would apply only if the Project was in fact substantially completed. Paragraph 13's final sentence states its purpose was to facilitate the process of completing the funding for the Project so Developer could make the "final payment" to Wall. Paragraph 13 plays no role when Developer failed to meet its contractual obligation to pay Wall's monthly bills. Wall was not waiting for a "final payment." Wall sought payment for large amounts accrued before completion of the Project. Wall did not have to wait 90 days until after completion to enforce its right to payment from Rubin. Completion of the hotel is never going to occur, at least not under the construction contract guaranteed by Rubin.
Rubin contends the phrase, "[n]otwithstanding the above," in Paragraph 13 means Wall must wait 90 days after either (1) substantial completion of the Project or (2) issuance of a certificate of occupancy before it could enforce its right to the guaranty. Because neither of these events occurred, Rubin argues Wall's claim was likely to fail because its right to enforce the guaranty had not yet accrued.
On close inspection, this reading of Paragraph 13 is not merely wrong but unreasonable. The contract imposed on Wall the mild inconvenience of waiting 90 days before enforcing the right to final payment as against the guarantor, Rubin, rather than the 30 days specified in the initial contract for the final payment from Developer. But Rubin's interpretation would transform these straightforward provisions into an implied condition precedent requiring Wall to substantially complete construction of the hotel before obtaining any right to obtain payment from Rubin. This, of course, violates the rule that conditions precedent must be plainly expressed. (Barroso, supra, 208 Cal.App.4th at p. 1010.)
Second, Rubin's interpretation downplays the importance of the second sentence which clarifies that Paragraph 13 applies "to allow the owner and/or lender sufficient time to complete the funding of the project for their final payment to Wall." Read plainly, Paragraph 13 applies only when a "final payment" has come due because the Project has been substantially completed. Rubin treats this second sentence and his proffered extrinsic evidence as indicative of the parties' intent to only allow enforcement of the guaranty once the "final payment" is due and 90 days have passed. But Paragraph 13 simply does not address what should happen if the Project never reaches the substantial completion phase and the expectation of a "final payment." The natural reading of the guaranty is that Paragraph 1 covers Developer's failure to keep the project going with monthly payments without the imposition of the Paragraph 13 limitation.
Third, if Rubin is correct, the method of constricting Wall's rights to this extent is odd and misleading. Paragraph 13 does not cancel the Developer's obligation to make regular interim payments. Nor does it state that Wall's substantial completion of the Project is a condition precedent to Rubin's obligation to pay any amounts Developer owes under the construction contract. Indeed, Paragraph 13 reaffirms Wall's "rights under this guaranty," referring to the unconditional guaranty in Paragraph 1. Taken seriously, Rubin's interpretation creates a paradox in which Wall's right to payment under the construction contract, including interim payments, is guaranteed but there is no practical way to enforce that right when Developer breaches its payment obligations before substantial completion, other than a commercially and perhaps legally untenable decision to continue to complete a project the Developer has abandoned.
Paragraph 13 is an odd way to make the guaranty contingent on completion of the Project, if that is what was actually intended. The parties easily could have adopted language making this clear. Rather than an unconditional guaranty, Paragraph 1 could have stated: Rubin conditionally guaranties Developer's payment obligations, contingent on substantial completion of the Project. To put an even finer point on the issue, the guaranty might have added: Rubin does not guarantee payment if Wall suspends and fails to substantially complete construction for any reason, including nonpayment of interim monthly bills owed by Developer. We offer these counterfactual clauses to communicate that parties should not expect courts to adopt a contract interpretation that indirectly takes away with one clause what has just been directly given with another (here, an unconditional guaranty). Instead, the contract simply should state what is being given in the first place, or at least state with precision the condition that is being placed on performance of the guaranty.
The extrinsic evidence offered by the parties does not raise any doubts about the meaning of the contract. It may be true that the parties were not on the same page subjectively. If so, that simply does not matter. The language of the contract itself bears only one reasonable meaning on the issue presented in this writ proceeding. (See G & W Warren's Inc. v. Dabney (2017) 11 Cal.App.5th 565, 577 [relying on contract itself rather than extrinsic evidence in the interpretation of a guaranty].)
In sum, Rubin's interpretation of the contract is inconsistent with a reasonable understanding of the business situation at the time the parties executed the guaranty and their reasonable expectations about the meaning of the guaranty in relation to the entire agreement. Consequently, the trial court erred when it declined to consider issuing a right to attach order and writ of attachment.
Necessity of Provisional Remedy of Attachment
Rubin contends we should deny the petition on alternate grounds, not reached or analyzed by the trial court.
The merits of this case will be resolved in arbitration. Under Code of Civil Procedure section 1281.8, subdivision (b), "a provisional remedy" such as attachment may issue in a case bound for arbitration only "upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without provisional relief." (See also California Retail Portfolio Fund GMBH & Co. KG v. Hopkins Real Estate Group (2011) 193 Cal.App.4th 849, 852 [affirming order because arbitration award "might be rendered ineffectual without a writ of attachment"].)
While this petition was pending, injunctive relief issued in the instant case and in a related action pertaining to the real property where the Project is sited. Presumably, the arbitration has progressed to some extent in resolving the underlying dispute on the merits. It is unclear whether, under current circumstances, the provisional remedy of attachment is necessary to avoid rendering any ultimate judgment ineffectual. We leave that question to the trial court in the first instance. (See Loeb & Loeb v. Beverly Glen Music, Inc. (1985) 166 Cal.App.3d 1110, 1117-1118 [appropriate for the court to conduct attachment proceedings despite existence of stay for arbitration on the merits of parties' dispute].)
III
DISPOSITION
Wall's requests for judicial notice, filed on March 6 and August 28, 2020, are granted.
The petition for writ of mandate is granted. Let a peremptory writ of mandate issue ordering the trial court to: (1) vacate its order denying a right to attach order and writ of attachment; (2) hold a new hearing, with an opportunity for the parties to address whether Wall has established all necessary elements required for issuance of a right to attach order and writ of attachment, including whether any arbitration award will be rendered ineffectual absent such relief (Code Civ. Proc., § 1281.8, subd. (b)); and (3) enter a new order consistent with the interpretation of the guaranty included in this opinion. Wall shall recover costs incurred in this proceeding. (Cal. Rules of Court, rule 8.493(a)(1)(A).)
ARONSON, J. WE CONCUR: MOORE, ACTING P. J. GOETHALS, J.