Opinion
NOT TO BE PUBLISHED
San Francisco City and County Super. Ct. No. CGC-07-464972
Reardon, Acting P.J.
Appellant Richard Tipton appeals the judgment against him as guarantor of a hotel lease. Tipton maintains he had a right to revoke the guaranty as to fixed rental obligations under the initial term of the lease, pursuant to Civil Code section 2815 which permits revocation of a continuing guaranty “in respect to future transactions....” We conclude there were no future transactions to which the statute applied. Further, we reject Tipton’s assertion of error based on his affirmative defense of unclean hands, and accordingly affirm the judgment.
Unless otherwise noted, all statutory references are to the Civil Code.
I. BACKGROUND
A. Facts
The real property at issue, located at 180-190 O’Farrell Street in San Francisco, is a six-story building, with the first floor occupied by retail tenants and the top five floors operating as a hotel. Part of the hotel was operated as a residential hotel, subject to the constraints of San Francisco rent control laws, and part contained tourist rooms for lease.
In October 2003, the owner of the property, 180-190 O’Farrell St. LLC, a limited liability company, entered into a lease agreement (Lease) with American Hotels Inc. and Crown Management Inc., as the tenants (Corporate Tenants). At the time, Tipton was president of the Corporate Tenants. Sharon Wagner represented the Corporate Tenants in the lease negotiations; the landlord was also represented by counsel. There were substantial negotiations between the parties. Tipton was Wagner’s sole source of information concerning the Corporate Tenants’ negotiating positions.
Attached to the Lease as an exhibit and executed at the same time was a guaranty (Guaranty), given by Tipton as guarantor in favor of the landlord and in consideration of the landlord entering into the Lease. Under the Guaranty, Tipton “absolutely and unconditionally” guaranteed all amounts that the Corporate Tenants might owe under the Lease, plus any extensions, renewals or modifications. The Guaranty specifically inured to the benefit of the landlord, and the landlord’s successors and assigns.
Pursuant to article 19.21 of the Lease, the Lease and all exhibits constituted a fully integrated agreement, and Tipton so acknowledged that integration. That provision also provided that the Lease and exhibits, including the Guaranty, could be altered, amended or revoked only by a written instrument signed by both the landlord and the Corporate Tenants.
Around March 2004—within six months of executing the Lease and Guaranty—Tipton sold his interest in the Corporate Tenants to Sanjay Bakshi and resigned as president of the Corporate Tenants. Tipton continued as an employee for a while and then consulted through the end of 2004. Bakshi took over as president of the Corporate Tenants in March 2004. For nine years prior to the sale, Bakshi had been a minority partner and served as the financial controller of the Corporate Tenants.
On March 23, 2004, Tipton executed a document which purported to assign his obligations under the Guaranty to Bakshi. The landlord at the time, 180-190 O’Farrell St. LLC, never consented to the release of Tipton as guarantor. In fact, the company later sued Tipton on the Guaranty for unpaid insurance premiums and taxes that accrued after Tipton resigned from the Corporate Tenants. On his attorney’s advice, Tipton paid money to the landlord to settle the claims made on the Guaranty.
In February 2006, 180-190 O’Farrell St. LLC sold the property to Jeffrey Litke (Litke) as Trustee of the Jeffrey Litke Revocable Separate Property Trust (Trust). Simultaneously, the company assigned and transferred all its right, title and interest in the Lease and Guaranty. Litke testified that his office investigated Tipton’s background and concluded he “was a good guarantor for the lease.” In entering into the transaction, Litke relied on Tipton’s guaranty “to perform the obligations of the lease.”
A year later, Litke, as trustee of the Trust, transferred all right, title and interest in the property and leases to respondent Litke O’Farrell, LLC (Litke LLC).
Within a month after the Trust took over the property, the Corporate Tenants fell behind on their rent. Bakshi asked Litke to find a replacement tenant. Although Bakshi sought Litke’s approval to substitute himself in the stead of Tipton on the Guaranty, Litke was unwilling to accommodate the request.
In November 2006, Litke had a conversation with Tipton. Litke told Tipton he was liable under the Guaranty, but Tipton disavowed further liability.
As of October 2008, the unpaid rents totaled $410,605.28.
B. Litigation
Litke LLC sued the Corporate Tenants and Tipton for breach of contract and declaratory relief. Prior to trial, the Corporate Tenants stipulated to judgment against them for the full amount and the cause proceeded to a court trial against Tipton on the first amended complaint. During trial, Tipton moved unsuccessfully for nonsuit and for judgment, presenting various arguments that he was not liable under the Guaranty; ultimately the court denied both motions.
The trial court issued a detailed statement of decision and entered judgment for Litke LLC in the amount of $523,979.28. This appeal followed.
II. DISCUSSION
A. No Right to Revoke Guaranty
Pursuant to section 1 of the Guaranty, Tipton, as guarantor, “absolutely and unconditionally” guaranteed to the landlord the timely payment of amounts owed under the Lease, and the “full, faithful, and timely performance” of the Corporate Tenants’ obligations thereunder, as well as “any extensions, renewals, or modifications.” Section 6 stated that the Guaranty was a “Continuing Guaranty.” A “continuing guaranty” is “[a] guaranty relating to a future liability of the principal, under successive transactions, which either continue his liability or from time to time renew it after it has been satisfied....” (§ 2814.) Section 2815 provides: “A continuing guaranty may be revoked at any time by the guarantor, in respect to future transactions....”
Tipton is adamant that under section 2815, he had the right to unilaterally revoke the Guaranty as to rental obligations under the initial term of the Lease, because the Guaranty was a continuing guaranty. Therefore, once he disavowed responsibilities during the November 2006 telephone conversation with Litke, section 2815 operated to cut off all future or further liability under the Guaranty.
Rejecting this very argument, the trial court underscored the critical language of section 2815, namely “in respect to future transactions.” It reasoned: “[S]ection 2815 does not allow a guarantor to revoke his guaranty as it relates to existing, known and determined liabilities that have been contractually guaranteed. If the case were otherwise, the guarantee would not be worth the paper upon which it’s written.... In the case at bar, it was undisputed that all of the rental damages claimed by Plaintiff related to the stated rental obligations under the initial term of the Lease. There was no evidence presented that the terms of the Lease were modified or that any lease extension was ever granted. There were no damages claimed by Plaintiff under a transaction that would qualify as a ‘future transaction’ as required under... section 2815.” We agree.
“ ‘A continuing guaranty contemplates a succession of liabilities for which, as they accrue, the guarantor becomes liable. It is prospective in its operation, and is generally intended to provide security in respect to futuretransactions ....’ ” (Goldman v. Dangerfield (1929) 101 Cal.App. 67, 75, italics added; see Champion Home BuildersCo. v. Sipes (1990) 219 Cal.App.3d 1415, 1424.)
Here section 1 of the Guaranty committed Tipton to guaranty the Corporate Tenants’ performance of their obligations under the Lease for the initial 10-year term. The Lease enshrined predetermined, existing obligations on the part of the Corporate Tenants with respect to rent, real property taxes and insurance, a security deposit and other items, for that term. These were known liabilities ensuing from a single transaction—execution of the Lease—that Tipton contractually guaranteed under section 1 of the Guaranty. The Guaranty also stated that it was a continuing guaranty, making Tipton personally liable for unstated potential liabilities under any future extensions, renewals or modifications of the Lease. The Guaranty was revocable under section 2815 only as to these prospective, unknown, unaccrued future liabilities that might be forthcoming from successive transactions such as a modification, amendment or extension of the Lease. On the other hand, the guaranty of the existing, determined liabilities under the initial term of the Lease did not and could not operate as a continuing guaranty, and therefore could not be revoked without the landlord’s consent. The Lease was never modified, extended, amended, terminated then reinstated, or anything similar, and thus the section 2815 revocation rights never took effect.
Tipton relies on Pearl v. General Motors Acceptance Corp. (1993) 13 Cal.App.4th 1023 (Pearl) and Central Building, LLC v. Cooper (2005) 127 Cal.App.4th 1053 (Central Building) to support his position, but this authority is not helpful. Pearl had to do with a revolving line of credit, a classic example of a continuing guaranty in which the guarantor would have the right to revoke as to future extensions of credit. The Pearl court held a guarantor under a continuing guaranty may waive his or her section 2815 revocation rights and that under the operative documents, the guarantor had not waived those rights. (Pearl, supra, 13 Cal.App.4th at pp. 1031-1033.) We agree with Tipton that waiver is not the issue here, but to reiterate, section 2815 never came into play because none of the damages sought against him related to a successive or future transaction. The Pearl opinion supports the conclusion that known, determined liabilities do not come within the ambit of revocation permitted under section 2815, with the following: “Section 2815 essentially allows a guarantor to revoke his continuing guaranty at any time in order to preclude his liability for any future additional advances to the debtor.” (Pearl, supra, at p. 1030, italics added.)
Tipton further maintains that Central Building mandates reversal of the instant judgment. There, the guaranty agreements at issue were continuing guaranties that applied to a succession of lease amendments. However, the guarantors waived the revocation provisions of section 2815. (Central Building, supra, 127 Cal.App.4th at p. 1059.) Tipton focuses on the following passage from the Central Building opinion: “The guaranty of payment of a tenant’s present and future rent liability is an example of a continuing guaranty. (See, e.g., Office Leasing (Cont.Ed.Bar 2004) Guaranty of Lease, §§ 46.9, 46.24, pp. 1108, 1115-1117.) The guaranty agreement in this case applied to present and future obligations under the lease, and was a continuing guaranty, as specifically stated in paragraph 5 of the agreement.” (Central Building, supra, at p. 1059.) We agree with Tipton that the Guaranty here is a continuing guaranty, because it says so. However, to reiterate, section 2815 does not rear its head because, unlike the case in Central Building, there were no amendments, modifications or other future transactions at issue which would have summoned Tipton’s revocation rights.
As explained in the current iteration of the above-referenced Continuing Education of the Bar publication: “Revocation of the continuing guaranty, however, does not terminate the guarantor’s liability for the primary obligations that arose or were made before the revocation.” (Office Leasing (Cont.Ed.Bar 2009) Guaranty of Lease, § 46.9, p. 1170, italics added.) Thus, although a lease guaranty such as the one at hand would apply to each successive rental payment as it became due, the monthly rental payments are not successive transactions within the meaning of section 2815. Rather, they are primary obligations that were fixed and agreed upon with the execution of the Lease, and arose at that time.
Long ago our Supreme Court explained that where one contracts to become guarantor of “any definite contract, such as the erection of a building or the administration of an estate, ” the guarantor would not be entitled to revoke, but if one contracted to become a guarantor “for any liability which might thereafter in any manner exist or be incurred, ” the guaranty is continuing and may be revoked under section 2815. (White Sewing Machine Co. v. Courtney (1904) 141 Cal. 674, 676.) Again, the initial 10-year Lease was a done deal, a signed and delivered commitment covering a fixed term with fixed obligations, with Tipton guaranteeing the Corporate Tenants’ obligations thereunder. Under the Lease and section 1951.2, subdivision (a)(1)-(4), upon the Corporate Tenants’ default the landlord had the right to terminate the Lease and collect in a single judgment (1) the unpaid rent due to the date of termination; (2) the rent due between the termination and judgment dates; and (3) the present value of the rent due between the date of judgment and end of the initial Lease term, with items (2) and (3) subject to offset by amounts which the Corporate Tenants could prove could reasonably have been avoided. (See also Millikan v. American Spectrum Real Estate Services Cal., Inc. (2004) 117 Cal.App.4th 1094, 1101-1102.) In other words, upon entering the Lease, primary obligations of the Corporate Tenants arose that, upon breach, would allow the landlord to recover all contract damages caused by the breach, subject to present value adjustments and offsets. These primary obligations arose prior to Tipton’s attempt to revoke the Guaranty, and Tipton’s liability for those obligations could not be terminated by that action.
B. No Unclean Hands Defense
Tipton also faults the adequacy of the statement of decision, pressing that the trial court erred in not addressing his affirmative defense of unclean hands. This defense, he claims, provided an independent basis for barring Litke’s recovery under the Guaranty.
In rendering a statement of decision under Code of Civil Procedure section 632, a trial court need not address each and every issue requested by a party. All that is required is an explanation of the factual and legal basis for the decision on the principal controverted issues at trial as identified in a party’s request. (In re Marriage of Balcof (2006) 141 Cal.App.4th 1509, 1530-1531.) Only when the court “ ‘fails to make findings on a material issue which would fairly disclose [its] determination would reversible error result. [Citations.] Even then, if the judgment is otherwise supported, the omission to make such findings is harmless error unless the evidence is sufficient to sustain a finding in the complaining party’s favor which would have the effect of countervailing or destroying other findings. [Citation.] A failure to find on an immaterial issue is not error. [Citations.]’ ” (Id. at p. 1531.)
Tipton’s unclean hands defense has to do with tangential circumstances involving Litke’s persistence that Bakshi deliver a tenant estoppel certificate in connection with refinancing the property. In December 2006, Litke provided Bakshi with a form certificate, created by the lender, which contained the representation that all rents and other sums due under the Lease were paid in full. At the time, the Corporate Tenants were $38,061.74 in arrears. The Lease required the Corporate Tenants to execute and deliver a tenant estoppel certificate upon request. Apparently Bakshi initially refused to sign the certificate unless Litke LLC agreed to remove Tipton as guarantor and replace him with Bakshi. Reminding Bakshi of his obligation, Litke also stated that if Litke LLC suffered any financial loss or consequences due to Bakshi’s refusal to execute the certificate, “you will be held responsible for such financial loss or consequences.” Bakshi executed and faxed the certificate. An employee of Litke LLC told Bakshi that the company needed the original, and stated: “In addition, your Estoppel is in error as you have a current rental balance of $38,061.74.”
Tipton posits that the “false estoppel certificate, arising from damages that [are] at the heart of our case, was used as part of a scheme to perpetrate a fraud on UBS Bank” and such use “demonstrate[s] unclean hands.”
The doctrine of unclean hands is grounded in the maxim that one who comes to court looking for equity must come with clean hands. (Jay Bharat Developers, Inc. v. Minidis (2008) 167 Cal.App.4th 437, 445.) The doctrine mandates “ ‘that a plaintiff act fairly in the matter for which he seeks a remedy. He must come into court with clean hands, and keep them clean, or he will be denied relief, regardless of the merits of his claim.’ [Citation.]” (Ibid.)
Courts have refined a three-part test to determine the effect to be ascribed to a plaintiff’s unclear hands conduct. “Whether the particular misconduct is a bar to the alleged claim for relief depends on (1) analogous case law, (2) the nature of the misconduct, and (3) the relationship of the misconduct to the claimed injuries.” (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 979 (Kendall-Jackson).)
As for analogous case law, the defense is available in a legal action such as the present litigation. (Fibreboard Paper Products Corp. v. East Bay Union of Machinists (1964) 227 Cal.App.2d 675, 728.) The nature of the purported misconduct—submitting an estoppel certificate for bank financing that contained misrepresentations, and “coercing” Bakshi into signing it—bears closer scrutiny. The form certificate, prepared by the lender, was sent to the Corporate Tenants and their legal counsel. Litke’s reminding Bakshi of his obligations under the Lease and the possible consequences for noncompliance is not coercion, it is hardball—exactly what Bakshi engaged in when he initially balked at returning the certificate unless Litke removed Tipton as guarantor. The responsible party at Litke LLC did not recall whether a corrected certificate was sent to the lender reflecting the rental arrears. Nonetheless the lender was not a party to the lawsuit and never testified, and given the complete absence of any evidence of harm to the lender, there was no evidence that the purported misconduct amounted to a tort or other legal wrong.
In any event, any misconduct relative to the certificate had nothing to do with Litke LLC’s claims against Tipton under the Guaranty. There is no evidence that Tipton or the Corporate Tenants were harmed in any way by the fact of the refinancing. The purported misconduct did not infect Litke LLC’s cause of action against Tipton, or impact the equitable relationship between the parties. (Kendall-Jackson, supra, 76 Cal.App.4th at p. 984.) Stated a little differently, what matters is not that a plaintiff’s hands are dirty, but whether the plaintiff dirtied them in acquiring the right it now asserts, or that the manner of dirtying them rendered inequitable the assertion of such rights. (Magic Kitchen LLC v. Good Things Internat., Ltd. (2007) 153 Cal.App.4th 1144, 1166.) The suit against Tipton as guarantor, and the Corporate Tenants’ default under the Lease, were unaffected by Litke LLC’s efforts to refinance the building, and those efforts in no way prejudiced them. The issue of misrepresentation in the tenant estoppel certificate being immaterial, the trial court’s failure to rule on it was not error.
III. DISPOSITION
The judgment is affirmed.
We concur: Sepulveda, J., Rivera, J.