Opinion
NOT TO BE PUBLISHED
APPEAL from the Superior Court of Riverside County No. INC061917, Robert G. Taylor, Randall Donald White and John G. Evans, Judges.
Retired judge of the Riverside Superior Court, Banning branch, assigned by the Chief Justice pursuant to article VI, section 6, of the California Constitution.
Best Best & Krieger, Douglas S. Phillips and Kira L. Klatchko for Plaintiff and Appellant.
Law Offices of Michael Zitomer and Michael Zitomer for Defendant and Respondent.
OPINION
Gaut, J.
Plaintiff Aloha Trading Company, LLC, a limited liability company (Aloha), appeals judgment entered in favor of defendant Michel Despras, trustee of the Michel Despras Trust (Despras). This action arises from a dispute over whether Aloha, lessee of the restaurant property owned by Despras, was entitled to exercise an option to extend the term of the restaurant lease. Aloha contends the trial court erred in construing the restaurant lease and addendum as precluding Aloha from exercising the option. The trial court concluded the option was personal to the original lessee, Ted Llewellyn, and could not be assigned to Aloha. Aloha argues it was the original lessee because the lease and addendum defined “Lessee” as including “Ted Llewellyn or his assignee.”
Based on our independent review of the language of the lease and addendum, we conclude that Aloha, as an assignee to the original lessee, Llewellyn, was not entitled to exercise the option to extend the lease because the right to exercise the option was personal to the original lessee, and Aloha was not the original lessee. The judgment is affirmed.
1. Factual and Procedural Background
This is Aloha’s second appeal. In Aloha’s first appeal (Aloha Trading Company, LLC v. Michael Despras, as Trustee, etc., (Aug. 8, 2007, E042413) [nonpub. opn.]), Aloha challenged the trial court’s ruling sustaining without leave to amend Despras’s demurrer to Aloha’s verified complaint for breach of contract. This court in the first appeal reversed the ruling sustaining the demurrer on the ground there was a substantial factual question as to whether under the lease and addendum Aloha could exercise the second option to extend the lease.
Upon remand, the parties stipulated to a referee, the Honorable Robert G. Taylor (Retired), hearing the case. Pursuant to the stipulation, the trial court ordered Taylor appointed as referee to hear the case by general reference under Code of Civil Procedure section 638. Taylor’s statement of decision was ordered to serve as the basis for an appealable judgment to be entered by the trial court.
The parties further stipulated to specified facts and admission into evidence of 13 exhibits. The following is a summary of the stipulated facts and documents.
In the 1980’s Mario Lalli, through his corporation, EMT, Inc. (EMT), purchased the subject restaurant property in La Quinta, and operated a restaurant on the property.
In 1998, Lalli listed the property for lease. In March 1998, Lalli and Llewellyn executed a letter of intent stating that Llewellyn or his “nominee” was interested in leasing the restaurant property for five years, with the option to purchase the property.
In April 1998, Lalli, on behalf of EMT, and Llewellyn, individually, signed a preprinted form lease, which included handwritten additions and strikeouts. The lease provided for a five-year restaurant lease of EMT’s property.
The same day the parties signed the lease, they also executed a typewritten addendum to the lease, which added certain terms and conditions to the lease. Both the lease and the addendum defined the term, “Lessee,” as “Ted Llewellyn or his assignee.”
The lease contained a provision ([¶] 39.2) stating that any options, such as an option to purchase or extend the lease, were personal to the original lessee and could not be assigned or exercised by anyone other than the original lessee. The addendum provided that the lessee would have two options to extend the term of the lease for an additional period of five years each.
In December 2002, Llewellyn exercised the first of the two options to extend, which extended the lease to April 1, 2008.
A month later, Llewellyn assigned his lease to Aloha, with EMT’s written consent.
In July 2003, the owner of Aloha sold his interest in Aloha and assigned the lease, with EMT’s consent, to the new owners of Aloha. EMT’s consent to the assignment was necessary under paragraph 12.1(b) of the lease because of the change in the owners and control over Aloha.
By grant deed recorded in December 2004, EMT sold and transferred its interest in the restaurant property to Despras, who became Aloha’s new landlord.
In September 2005, Aloha agreed to sell to Eviter, Inc. (Eviter) Aloha’s restaurant business and assign the lease for $350,000. Escrow was to close on November 25, 2005. Extension of the lease from 2008 to 2013, by exercise of the second option to extend, was an essential term of the sale. Extension of the lease was crucial to Aloha’s sale of its restaurant business because, if the lease could not be extended, Aloha’s restaurant business did not hold as much value, since the restaurant lease would expire in 2008, as opposed to 2013.
In October 2005, Aloha provided Despras with a proposed assignment agreement allowing Aloha to assign the restaurant lease to Eviter. The proposed agreement included a provision acknowledging that Eviter could exercise the second option to extend the lease notwithstanding the option limitations stated in paragraph 39.2. Despras rejected the proposed assignment based on paragraph 39.2 of the lease.
On November 4, 2005, after Despras refused to allow Eviter to exercise the option to extend the lease, Aloha delivered to Despras a second proposed lease assignment agreement, declaring that Aloha, rather than Eviter, was permitted to exercise the second option to extend the lease. The notice further declared that Despras agreed that “notwithstanding the provisions contained in paragraph 39.2 of the Lease, Eviter has the right to exercise the second option to extend the term of the Lease” from April 1, 2008, to April 1, 2013. Once again, Despras refused to execute the proposed assignment agreement based on paragraph 39.2 of the lease. Despras refused under paragraph 39.2 to agree to Aloha or any other assignee exercising the option to extend the lease.
On November 15, 2005, Despras consented in writing to assignment of Aloha’s restaurant lease to Eviter. Although the third proposed assignment agreement omitted any agreement that Aloha or Eviter could exercise the second option to extend the lease, the lease assignment agreement stated that Despras consented to the assignment not prejudicing Aloha’s right to contest by litigation Aloha’s claim that it had a right to exercise the second option to extend the lease.
In December 2005, escrow closed on the sale of Aloha’s business to Eviter, with the sales price reduced from $350,000 to $150,000 due to Despras’s refusal to allow Eviter or Aloha to exercise the second option to extend the lease to 2013.
In September 2006, Aloha filed a verified complaint against Despras, alleging he breached the lease and addendum by refusing to recognize Aloha’s right to extend the lease. Aloha prayed for recovery of $200,000 in damages.
At trial, the parties stipulated that if Taylor found the lease or addendum was ambiguous, extrinsic evidence would be provisionally received to determine the ambiguity. If Taylor found the language of the lease or addendum was reasonably susceptible to the interpretation urged based on the extrinsic evidence, the extrinsic evidence would be admitted into evidence to aid in interpreting the lease and addendum. The parties stipulated to Taylor considering under such circumstances the following extrinsic evidence:
(1) Llewellyn testified at his deposition that the “Lessee” in the lease was “Ted Llewellyn or his assignee” because Llewellyn intended to incorporate, and then assign the lease to that corporation. Llewellyn also testified that he incorporated but never assigned the lease to the corporation.
(2) Lalli of EMT testified at his deposition that under the lease and addendum the two options to extend the lease could be exercised by Llewellyn and his assignees.
In addition to stipulating to the above extrinsic evidence, the parties submitted written trial briefs and Taylor heard oral argument. No testimony was presented during the trial. Taylor noted that since the parties had provided a statement of stipulated facts, there was no dispute as to the facts. The dispute concerned solely the question of law of whether Aloha had a right to exercise an option to extend the lease.
Following the trial, Taylor issued a written statement of decision stating that judgment was to be entered in favor of Despras. Taylor concluded that Aloha did not have a right under the lease and addendum to exercise the second option to extend the lease. The trial court accordingly entered judgment against Aloha, and Aloha appeals.
2. Applicable Contract Law Principles
The interpretation of the lease and addendum are governed by the same principles applicable to any other contractual agreement. (Bates v. Industrial Property Holding Co. (1957) 155 Cal.App.2d 697, 700.) Those principles include the following: “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.) “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.)
If there is an ambiguity in the contract, parol or extrinsic evidence is admissible to resolve the ambiguity. (WYDA Associates v. Merner (1996) 42 Cal.App.4th 1702, 1710 (WYDA Associates); Code Civ. Proc., § 1856, subd. (g).) “The test of whether parol evidence is admissible to construe an ambiguity is not whether the language appears to the court to be unambiguous, but whether the evidence presented is relevant to prove a meaning to which the language is ‘reasonably susceptible.’” (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.)
In determining whether parol evidence is admissible, the trial court engages in a two-step process: “First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties’ intentions to determine ‘ambiguity,’ i.e., whether the language is ‘reasonably susceptible’ to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is ‘reasonably susceptible’ to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step—interpreting the contract. [Citation.]” (Winet, supra, 4 Cal.App.4th at p. 1165.)
The trial court’s determination of whether there is an ambiguity is a question of law, subject to independent review on appeal. (Winet, supra, 4 Cal.App.4th at p. 1165.) “The trial court’s resolution of an ambiguity is also a question of law if no parol evidence is admitted or if the parol evidence is not in conflict. However, where the parol evidence is in conflict, the trial court’s resolution of that conflict is a question of fact and must be upheld if supported by substantial evidence. [Citation.] Furthermore, ‘[w]hen two equally plausible interpretations of the language of a contract may be made... parol evidence is admissible to aid in interpreting the agreement, thereby presenting a question of fact....” (WYDA Associates, supra, 42 Cal.App.4th at p. 1710, quoting Walter E. Heller Western, Inc. v. Tecrim Corp. (1987) 196 Cal.App.3d 149, 158; see also Winet, supra, at pp. 1165-1166.)
Here, this court is not bound by the trial court’s interpretation because (1) the threshold determination of ambiguity is always subject to de novo review, and (2) the competent extrinsic evidence introduced in this case was not in conflict and does not resolve the issue before this court. (Winet, supra, 4 Cal.App.4th at p. 1166.) Accordingly, we do not defer to the trial court’s interpretation of the disputed portion of the lease and addendum but independently construe the documents to determine whether they provide Aloha with an option to extend the lease.
3. Construing the Lease and Addendum
Aloha construes the lease, in conjunction with the addendum, as entitling Aloha to exercise the second option to extend the lease. Aloha argues that, because the term, “Lessee,” as defined in the lease and addendum, states, “TED LLEWELLYN, or his assignee,” Aloha could exercise the option to extend the lease even though the “Options” provision in the lease, paragraph 39.2, states that any such option is personal to the original lessee. Aloha claims that because the term “Lessee,” as defined in the lease and addendum, included both Llewellyn and his assignee, Aloha was an “original Lessee,” as Llewellyn’s assignee. Despras argues Aloha could not exercise the option to extend the lease because Aloha was not the original lessee.
Our objective in construing the pertinent language in the lease and addendum is to determine and to effectuate the intention of the parties. (Winet, supra, 4 Cal.App.4th at p. 1166.) In doing so, “It is the outward expression of the agreement, rather than a party’s unexpressed intention, which the court will enforce.” (Ibid.) We thus begin with a review of the literal terminology of the lease and addendum. (Civ. Code, §§ 1638, 1639.)
A. Lease Provisions
The relevant lease provisions are the following:
“1.1 Parties: This Lease (‘Lease’)... is made by and between E.M.T. INC. (‘Lessor’)and TED LLEWELLYN OR HIS ASSIGNEE (‘Lessee’)....”
“1.12 Addenda and Exhibits. Attached hereto is an Addendum... SEE ADDENDUM – ATTACHED LETTER OF INTENT DATED..., all of which constitute a part of this Lease.”
“39.2 Options Personal To Original Lessee. Each Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.”
The lease consisted of a preprinted form in which the parties handwrote in the blanks information relevant to the lease in question, and also added information to several preprinted provisions and crossed out various provisions. No changes to paragraph 39.2 were made. Llewellyn signed the lease, as lessee, on April 24, 1998, and Mario Lalli signed the lease as president of EMT on April 25, 1998.
B. Addendum Provisions
The relevant lease addendum provisions are the following:
“This First Addendum to the Lease is made 24 Apr 1998, 1998 [sic] at La Quinta, California by E.M.T., Inc. ‘LESSOR’ and TED LLEWELLYN, or his assignee, ‘LESSEE’ and LESSOR and LESSEE agree to change, amend, modify, add to and supplement said Lease form as follows: [¶]... [¶]
“2. Option to Extend. LESSEE shall have two (2) options to extend the term of this Lease for an additional period of five (5) years each, running consecutively, and commencing on the expiration of the original term as specified in this Lease provided:”
We note that while the addendum indicates the term, “LESSEE,” includes “Llewellyn, or his assignee,” paragraph 5 of the addendum also uses the term “LESSEE” to refer solely to Llewellyn. Paragraph 5 states that “The subject Lease, Addendum, and attachments thereto, are specifically conditioned upon the occurrence of the following: a) LESSEE, or its assignee, obtaining the necessary liquor license from the Alcoholic Beverage Control Board to operate a restaurant and full service bar.” [Italics added.]
The addendum is typewritten. As with the lease, Llewellyn signed the addendum, as lessee, on April 24, 1998, and Mario Lalli signed the addendum on behalf of EMT on April 25, 1998. It is unknown who drafted the lease and addendum.
C. Discussion
The key issue in this case is whether under the lease and addendum Aloha, as an assignee of the lease, had the right to exercise the second option to extend the lease, even though paragraph 39.2 of the lease states that options were personal to the original lessee and were not assignable.
A commercial lease may include restrictions on assignment or transfer of a tenant’s interest in the lease. (Civ. Code, §§ 1995.020, subd. (b) and 1995.210, subd. (a).) Absent such a restriction, the tenant has an unrestricted right of transfer. (Civ. Code, § 1995.210, subd. (b).) Any ambiguity in whether a transfer of a tenant’s interest in the lease exists must be construed in favor of transferability. (Civ. Code, § 1995.220.)
Here, for all intents and purposes relevant to the issue before this court, the lease and addendum are compatible and unambiguous. The form lease contains a provision restricting assignability of options but does not grant any specific option. The addendum supplements the lease by adding provisions that grant the lessee two options to extend the lease and an option to purchase the property.
Both parties assert that the lease and addendum are unambiguous. The parties therefore urge this court to construe de novo the lease and addendum on their face, without considering parol evidence. We agree there is no need to consider the parol evidence. Even if considered, it does not aid in resolving the issue in this case and the result would be the same. We thus construe the lease and addendum based solely on the clear and plain meaning of the two documents, without taking into account the stipulated parol evidence.
This case turns on how the term, “original Lessee” is construed, since under paragraph 39.2, only the “original Lessee” is entitled to exercise the option to extend the lease. Neither the lease nor addendum defines the term “original Lessee.” Aloha argues the option was assignable to Aloha because the term “Lessee” in the lease and addendum is defined as “Ted Llewellyn or his assignee.” Aloha asserts that even though the option was personal to the “original Lessee,” and could not be exercised by anyone other than the “original Lessee,” Aloha was an original Lessee. Aloha arrives at this conclusion by inserting in place of the term “Lessee,” the words “Ted Llewellyn or his assignee.”
We reject Aloha’s definition of “original Lessee” as including both Llewellyn and his assignee. First, under the common, plain meaning of “original,” Llewellyn’s assignee, Aloha, was not the original or first lessee. Llewellyn was the original lessee.
Second, even if we substitute the term, “Lessee” with the words, “Llewellyn or his assignee,” as Aloha urges, under the plain meaning of term, original, preceding the word “Lessee,” or the substituted words, “Llewellyn or his assignee,” there could only be one original lessee. The term, “Lessee,” was not defined in the lease and addendum as Llewellyn and his assignee. Thus the term “original Lessee,” referred to only one original lessee, either Llewellyn or his assignee.
It is undisputed that Llewellyn was the initial or original lessee at the inception of the lease, rather than an assignee, such as Llewellyn’s newly formed corporation or Aloha. Therefore any subsequent assignee of Llewellyn, including Aloha, was not the original lessee under either the lease or addendum, and thus under paragraph 39.2 could not exercise the option to extend. Within the plain meaning of the lease and addendum, the option was nonassignable. It was personal to Llewellyn.
Third, while the parties modified, changed, and struck various terms in the preprinted form lease and supplemented the lease by executing a lease addendum, the parties did not change, modify or strike paragraph 39.2 of the lease, thus indicating an intent to retain the provision and restrict assignment of the option to extend the lease.
Aloha cites Civil Code section 1995.340 for the proposition that the term “original” was never intended to limit Aloha in any way from exercising the option to extend the lease. Rather, the term “original” was used merely to state that, even though EMT granted Llewellyn and his assignee, Aloha, an option, this did not automatically waive EMT’s right to preclude transfers of the option to subsequent tenants.
Civil Code section 1995.340 is of no assistance in resolving the issue in the instant case of whether Aloha was entitled to exercise the option to extend the lease. Civil Code section 1995.340 merely provides that a restriction on a transfer of a tenant’s interest in a lease applies to a subsequent transfer even if the landlord has previously waived the restriction or consented to a prior transfer. Civil Code section 1995.340 does not provide any guidance in this case as to whether Aloha is an “original Lessee” entitled to exercise the option to extend.
We conclude based on our independent review of the lease and addendum that under paragraph 39.2 of the lease Aloha was not an “original Lessee” and thus was not entitled to exercise the option to extend the lease. The option was personal to the original lessee, Llewellyn, and was not assignable to Aloha.
4. Disposition
The judgment is affirmed. Despras is awarded his costs on appeal.
We concur: Ramirez, P. J., Hollenhorst, J.