Opinion
B162358.
7-14-2003
MISSION BELL PLAZA PHASE II, LLC, A CALIFORNIA LIMITED COMPANY, Plaintiff and Appellant, v. REDEVELOPMENT AGENCY OF THE CITY OF MOORPARK, et al., Defendant and Respondent.
Kulik, Gottesman & Mountain; Donald S. Gottesman and Philip M. W. Pailey, Jr. Lascher & Lascher, Wendy Cole Lascher, for Appellant. Burke, Williams & Sorensen; Joseph M. Montes, Joseph P. Buchman, Renee J. Laurents and Daniel E. Wright, for Respondents.
Mission Bell Plaza Phase II, LLC (Developer) owns a shopping center and movie theater that were developed under a Disposition and Development Agreement (DDA) with the Redevelopment Agency of the City of Moorpark (Agency). In the DDA, Agency guaranteed "rent payments under the lease between Developer and [the movie theater lessee] for the first ten years of the term of said lease . . . ." Developer agreed that, if the lessee defaulted, it would "assign the UCC-1 securing the movie theater equipment for the benefit of Developer to Agency . . . ." With Agencys consent, however, Developer leased the theater to a tenant who refused to grant Developer a security interest in its equipment. When the lessee defaulted, Developer could not assign a UCC-1 to Agency. Agency refused to pay the rent. Developer sued for breach of contract, contending that Agency waived enforcement of the so-called "UCC-1 provision" by consenting to the lease. Agency claimed no waiver occurred and that the guarantee failed for lack of consideration. The trial court granted Agencys motion for summary judgment on that theory. After independent review, we conclude that issues of fact exist concerning the materiality of Developers breach of the UCC-1 provision and whether Agency waived or is estopped to demand performance of it. Accordingly, we reverse.
Appellant purchased the development in 1998 from the original developer, Mission Bell Partners. For convenience, we will refer to these entities collectively as "Developer," unless the context requires that we distinguish between them.
Facts
The DDA
The April 1995 DDA permitted Developer to build a shopping center and movie theater in Moorpark. To assist Developer in obtaining financing, Agency guaranteed rent payments on the movie theater for 10 years. Developer agreed to use its best efforts to eliminate the rent guarantee from its permanent financing, to collect rent from the lessee, and to find a new lessee after a default; promptly to notify Agency of a tenant default; promptly to file an unlawful detainer action against a defaulting tenant; and to "assign the UCC-1 securing the movie theater equipment for the benefit of Developer to Agency . . . ."
The rent guarantee provided that it is "subject to the following conditions: [P] (i) Agencys obligation is limited to the difference between the rental amount actually paid by [the tenant] . . . and the rental amount owed under the [movie theater lease], exclusive of percentage rents . . .; [P] (ii) [the tenant] is in monetary default under the [movie theater lease] and Developer has filed an action for unlawful detainer; and (iii) Developer is aggressively seeking a successor tenant . . . ." It further provided that: "The rent guarantee shall terminate, without notice to Developer or Lender, and Agency shall have no further obligation to Developer or Lender pursuant to the rent guarantee in the event that: [P] (i) the [property covered by the DDA] is not used and maintained as a retail commercial shopping center or the movie theater, or any portion thereof, is not used and maintained as a movie theater; [P] (ii) the [movie theater lease], or any interest therein, is assigned without the written consent of Agency, which consent shall not be withheld if the proposed lessee demonstrates to the reasonable satisfaction of Agency that it has the financial and professional qualifications necessary to operate the movie theater and make the rental payments under the San Carlos Lease; and [P] (iii) [the theater lessee] or its assign is constructively evicted from [the movie theater]."
The San Carlos Lease
In January 1995, Developer leased the movie theater to San Carlos Cinemas, Inc. (San Carlos). The San Carlos Lease obligated San Carlos to grant Developer "a security interest in all personal property and trade fixtures" installed in the theater. San Carlos further agreed to "execute with [Developer] any financing statement or other document necessary to protect Landlords security interest . . . ."
In August 1995, Agency and Developer executed the First Amendment to the DDA modifying provisions of the rent guarantee that are not at issue here. By May 1996, San Carlos had assigned the theater lease to Cine/Max Cinemas, Inc. (Cine/Max) with the consent of Agency and Developer. Cine/Max provided Developer with a UCC-1 covering the equipment in the theater. About two months before the theater was scheduled to open, Cine/Max notified Developer that it "had decided not to go forward with the development and operation of [the] theater . . . ." Developer informed Agency of this event and then negotiated a new lease with Regal Cinemas, Inc. (Regal). Regal demanded a slightly lower rent and "emphatically" refused to grant Developer a security interest in its theater equipment. As a result, the Regal lease states that the paragraph which contained the security interest requirement in the San Carlos Lease was "intentionally omitted" from the Regal lease.
Developer gave Agency a copy of the Regal lease. Its representative, Neno Spondello, stated in his declaration that he told Agencys executive director, Steven Kuney, "at the beginning of the Regal lease negotiations that Regal would not agree to provide a UCC-1 (i.e., a security interest in its movie theater equipment) to [Developer]. Kuney never said or suggested the Agency had any objection to the fact that Regal would not provide a UCC-1 to [Developer]."
The Second Amendment to the DDA
To acknowledge the new theater lease, Developer and Agency signed the Second Amendment to the DDA in November 1996. In this document, Agency acknowledged that it had consented to the termination of the San Carlos lease and to Developers new lease with Regal. Developer and Agency also acknowledged that Agency was obligated under the DDA, "to guarantee rent payments under the San Carlos Lease subject to certain terms and conditions. In order to provide that the rent guarantee will continue to be in effect under the Regal Lease and to assure that the rent guarantee does not exceed the obligations of the lessee under the Regal Lease, Agency and Developer have agreed to modify Section III.L ( § 312) of the DDA, as previously modified by the First Amendment."
In the Second Amendment to the DDA, Agency continued to "guarantee rent payments under the lease between Developer and [Regal] (the [Regal] Lease) for the benefit of Developer and its Lenders[,]" but the parties agreed that the guarantee would expire on October 31, 2006. In language similar to that used in the DDA, the Developer promised to: (1) use its best efforts to eliminate the rent guarantee from its permanent financing; (2) use its best efforts to collect the full rent from the tenant; (3) give Agency five days notice of its intent to file an unlawful detainer or other action against the tenant; (4) promptly file an unlawful detainer action after a tenant default; (5) use its best efforts to find a new tenant; and (6) "assign the UCC-1 securing the movie theater equipment for the benefit of Developer to Agency within ten (10) days after receipt of a written notice thereof from Agency, provided Agencys notice is given after [Regal] goes into monetary default under the [Regal] Lease." The conditions to which the guarantee is subject remained the same. The circumstances under which Agencys guarantee would terminate also remained the same, except that the third circumstance — constructive eviction of the tenant — was deleted.
The Second Amendment to the DDA contains an integration clause which provides: "Except as modified by the First Amendment and this Second Amendment, the DDA shall remain unchanged and in full force and effect. This Second Amendment contains the entire understanding between the parties hereto with respect to the subject matter hereof. In the event of any inconsistency between the terms of the DDA, as previously modified, and this Second Amendment, the terms of this Second Amendment shall prevail. The DDA, as modified by the First Amendment and this Second Amendment, shall bind and inure to the benefit of heirs, personal representatives and assign of the parties hereto."
The Agencys Consent
Simultaneously with the execution of the Second Amendment to the DDA, Agency signed a "Consent" in which it consented to: (a) termination of the San Carlos Lease; (b) the mutual release between Developer and Cine/Max; and (c) the lease between Developer and Regal. The Consent further states: "Notwithstanding (a) the termination of the [San Carlos Lease] and [Developers] release of [Cine/Max] as set forth in the Settlement, and (b) [Developers] execution of the [Regal] Lease which includes terms and conditions which vary in some aspects from the terms and conditions of the [San Carlos Lease] (including without limitation the fact that the [Regal] Lease provides for a rental rate that is less than the rental rate set forth in the [San Carlos Lease]), the rent guarantee by the undersigned Agency provided in Section 312 of the [DDA as amended], shall remain in full force and effect and shall inure to the benefit of Sanwa Bank California, a California corporation ("Sanwa"), or its successors and assigns. [P] Nothing in the [Regal] Lease shall defeat, impair or otherwise alter the undersigned Agencys rent guarantee obligations under said Section 312 of the [DDA as amended]."
After these documents were signed, Regal began operating the theater. In September 1998, appellant Mission Bell Plaza Phase II, bought the shopping center and theater from its original developers, Mission Bell Partners. Appellant had to obtain Agencys consent to the transaction. Appellants managing member, Marianne Moy, met with Kuney, Agencys executive director to discuss the matter. During that meeting, Kueny told Moy that Agency was more likely to approve the purchase if appellant could eliminate the rent guarantee. Developers lenders refused, however, to do so. Agency later approved the purchase by appellant. Moy stated in her declaration that, before appellant purchased the development, Kuney never told her Agency believed the guarantee was unenforceable.
In January 2001, Regal failed to pay its rent. Developer demanded that Agency pay the rent under its guarantee. Agency demanded performance of the UCC-1 provision. Developer was unable to comply. Thereafter, Agency notified Developer that, "due to your material default and anticipated failure to cure such default, the Agencys rent guarantee obligation has been excused. Accordingly, the Agency does not intend to make rent guarantee payments as requested . . . ."
Meanwhile, Regal filed a bankruptcy petition. Developer made a claim in the bankruptcy matter for payment of rent under the Regal lease. That claim was eventually settled, with the approval of the bankruptcy court, for $ 1,600,000.
Agencys Request for Judicial Notice and Developers conditional request for judicial notice of these bankruptcy court documents are granted. (Evid. Code, § 452, subd. (c), (d).)
The Litigation
Developer filed this action for declaratory relief, breach of contract and breach of the lease. Agency moved for summary judgment, contending that the rent guarantee failed for lack of consideration because Developer breached the UCC-1 provision by not obtaining a security interest in Regals theater equipment. Developer contended that any breach was immaterial and that Agency waived and was estopped to demand performance of the UCC-1 provision because Agency consented to the Regal lease knowing that Regal would not provide a UCC-1.
The Trial Courts Ruling
The trial court concluded that Developers breach of the UCC-1 provision gave Agency a complete defense to Developers claims. According to the trial court, "Under paragraph 312 of the DDA, initially and as amended, [Developer] had a duty to secure a security interest in the theater equipment from any theater tenant during the ten-year period when the rent guarantee was in effect. The rent guarantee was given on the understanding that the Agencys payment of rent on behalf of the defaulted tenant would be secured by the tenants theater equipment. The Agencys knowledge of [Developers] lease terms with Regal does not constitute a waiver or estoppel of the [Developers] covenant. The second amendment to the DDA also includes the covenant."
Standard of Review
We independently review the trial courts decision to grant Agencys motion for summary judgment. Because the interpretation of a written contract without reference to conflicting extrinsic evidence presents an issue of law, we also independently construe the parties various agreements. (Allabach v. Santa Clara County Fair Assn. (1996) 46 Cal.App.4th 1007, 1011.) "Whether the parol evidence rule applies in a given set of circumstances is a question of law which we consider de novo . . . ." (EPA Real Estate Partnership v. Kang (1992) 12 Cal.App.4th 171, 176; see also Hayter Trucking, Inc. v. Shell Western E&P Inc. (1993) 18 Cal.App.4th 1, 14 ("The determination of whether the agreement in the instant case is an integration . . . is a question of law to be determined by the court."); City of Chino v. Jackson (2002) 97 Cal.App.4th 377, 384 (trial courts threshold determination that written agreement contains no ambiguity is a question of law subject to de novo review on appeal); Winet v. Price (1992) 4 Cal.App.4th 1159, 1165-1166 (where parol evidence is not introduced or is not in conflict, construction of written instrument is a question of law "and the appellate court will independently construe the writing.").)
Discussion
Breach of Contract
Developer contends that its inability to assign to Agency a UCC-1 security interest in the movie theater equipment is not a breach of the DDA because Agency knew when it signed the Second Amendment to the DDA and the Consent that Developer did not have and could not obtain a security interest in the equipment. Thus, the UCC-1 provision imposes no obligation on Developer because the parties knew it could not be performed.
Extrinsic evidence must be considered to determine whether the parties had such a mutual understanding. "`The parol evidence rule generally prohibits the introduction of any extrinsic evidence to vary or contradict the terms of an integrated written instrument. " (Bionghi v. Metropolitan Water Dist. (1999) 70 Cal.App.4th 1358, 1364, quoting Gerdlund v. Electronic Dispensers International (1987) 190 Cal. App. 3d 263, 270, 235 Cal. Rptr. 279.) Extrinsic evidence is, however, admissible to explain ambiguous contract terms. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.) "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. (Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37 [69 Cal.Rptr. 561, 442 P.2d 641, 40 A.L.R.3d 1373].)" (Winet v. Price, supra, 4 Cal.App.4th at p. 1165.)
Developer contends the Second Amendment to the DDA, the Consent, and the Regal lease, when read together, may reasonably be construed to mean that Developer had no obligation to obtain and assign to Agency a UCC-1 covering Regals theater equipment. Like the trial court, we conclude that, as a matter of law, the agreement is not reasonably susceptible to this construction. Had they wished to convey such an agreement the parties would have removed the UCC-1 provision from the Second Amendment to the DDA. Developers proposed construction does not explain the UCC-1 provision, it deletes the provision from the parties agreement. "Parol evidence is admissible only to prove a meaning to which the language is `reasonably susceptible [citation], not to flatly contradict the express terms of the agreement. (Stevenson v. Oceanic Bank (1990) 223 Cal. App. 3d 306, 317-318 .)" (Winet v. Price, supra, 4 Cal.App.4th at p. 1167.)
We also reject Developers contention that the Consent and the Regal lease accomplish that result. In the Consent, Agency acknowledges that the DDA as amended "is in full force and effect[,]" that the terms of the Regal lease "vary in some aspects from the terms and conditions of the Prior Lease[,]" and that "the rent guarantee by the undersigned Agency provided in Section 312 of the [DDA] as modified by the Second Amendment to the [DDA], shall remain in full force and effect . . . ." This rent guarantee, however, contains the UCC-1 provision. The Regal lease omits any mention of a security interest in its theater equipment and thus, neither requires Regal to provide Developer with a UCC-1 covering that equipment nor prohibits Regal from doing so. Its silence on this issue is not sufficient to eliminate the UCC-1 provision from the DDA.
Material Breach
Developer contends that, if it breached the UCC-1 provision, the breach was not material and does not justify rescinding Agencys rent guarantee. Agency contends the guarantee was properly rescinded because the UCC-1 provision was the consideration provided by Developer for it. Without the security interest, Agency claims, the entire guarantee fails for lack of consideration. The trial court agreed with this analysis. We, however, are not persuaded.
The DDA as amended does not expressly provide that the UCC-1 provision constitutes the consideration for the rent guarantee. To the contrary, the original DDA states in its opening paragraph that the "mutual covenants and agreements contained herein" form the consideration for the contract. Section 312 of the DDA does not single out the UCC-1 provision for special emphasis. Instead, it contains several promises by Developer, including the promises to provide Agency with notice of tenant defaults, to evict defaulting tenants promptly, and to seek new tenants aggressively. Each of these covenants, along with the UCC-1 provision, is part of the consideration for the rent guarantee. Moreover, the DDA lists only three conditions to which the rent guarantee is subject and only three events that will terminate it. Breach of the UCC-1 provision is not on either list.
The DDA as amended, then, is a classic bilateral contract in which the many promises made by Developer are themselves the consideration for the many promises made by Agency. (1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 215, pp. 223-224.) Where the parties promises are mutual, there is no requirement "that every individual promise in a contract must be supported by new and different consideration. Generally speaking, the rule is to the contrary: one promise in a contract `may be consideration for several counter promises. " (Martin v. World Savings & Loan Assn. (2001) 92 Cal.App.4th 803, 809.) Thus, where a contract contains many promises and is, as a whole, supported by consideration, each promise is enforceable even if it is not tied to a specific, identifiable item of consideration. (Id.)
For example, in Martin v. World Savings & Loan a deed of trust provided that the lender would be named loss payee if the borrower purchased optional earthquake insurance. That promise was enforceable even though the borrower received nothing "extra" from the lender for purchasing the insurance. As the court of appeal explained: "Nothing was given in exchange for the borrowers promise to make the lender the loss payee . . . . Nevertheless, the contract as a whole is supported by consideration. The lender promised to fund the loan, and it did. In exchange, the borrower promised a number of things, including the conditional promise that if earthquake insurance was obtained, it would be treated the same as required insurance — that is, the lender would be named loss payee and would have the right to control the disbursement of proceeds." (Id. at p. 809.)
Here, the DDA as a whole is supported by consideration in the form of the parties many promises to one another. Even considered separately, the rent guarantee provision is supported by consideration because Developer made and performed many other promises contained in that provision. We cannot say as a matter of law that the UCC-1 provision was the sole consideration for Agencys promise to make rent payments after a tenant default. Thus, we conclude the trial court erred when it found that Developers breach of the UCC-1 provision is sufficient in itself to result in a complete failure of consideration for, and to excuse performance of the rent guarantee.
That the DDA includes a severability clause does not alter this result. Paragraph 913 of the DDA provides that, "If any provision of this Agreement . . . shall to any extent be invalid or unenforceable, the remainder of this Agreement . . . shall not be affected thereby, and each provision of this Agreement shall be valid and shall be enforced to the extent permitted by law." The clause thus addresses the impact of a finding that that one portion of the DDA is unenforceable. It does not link specific contractual obligations within the DDA to discreet items of consideration, and therefore does not answer the question of whether Developers breach of the UCC-1 provision excuses Agencys performance of the rent guarantee.
Breach of the UCC-1 provision would excuse Agencys performance of the rent guarantee only if the breach is material. "The law sensibly recognizes that although every instance of noncompliance with a contracts terms constitutes a breach, not every breach justifies treating the contract as terminated. [Citations.] Following the lead of the Restatements of Contracts, California courts allow termination only if the breach can be classified as `material, `substantial, or `total. [Citations.]" (Superior Motels Inc. v. Rinn Motor Hotels, Inc. (1987) 195 Cal. App. 3d 1032, 1051, 241 Cal. Rptr. 487; see also Wyler v. Feuer (1978) 85 Cal. App. 3d 392, 403-404, 149 Cal. Rptr. 626 ["Case law has uniformly held that a failure of consideration must be `material, or go to the `essence of the contract before rescission is appropriate."].) Moreover, the question of whether a particular breach is material enough to justify termination "`is ordinarily a question for the trier of fact." (Superior Motels Inc. v. Rinn Motor Hotels, Inc., supra, 195 Cal. App. 3d at pp. 1051-1052, quoting Whitney Inv. Co. v. Westview Dev. Co. (1969) 273 Cal. App. 2d 594, 601, 78 Cal. Rptr. 302; see also Porter v. Arthur Murray, Inc. (1967) 249 Cal. App. 2d 410, 421, 57 Cal. Rptr. 554 ["Whether there is a material breach of a contract is in general a question of fact."].)
Issues of fact remain to be resolved on the question of whether Developers breach of the UCC-1 provision was a material breach of the DDA as amended. Developer presented evidence that Agency consented to the Regal lease despite its knowledge that Regal would not provide a UCC-1, that Developer acted in good faith toward Agency, that it substantially performed its other obligations under the DDA as amended, and that it would suffer hardship amounting to a forfeiture if its breach of the UCC-1 provision is material. (See, e.g., BAJI No. 10.82 [facts to consider in determining whether a breach is material]; Rest.2d Contracts, § 241 [same].) The trial court therefore erred in granting Agencys motion for summary judgment.
Waiver and Estoppel
The same evidence creates issues of fact on the questions whether Agency waived, or is estopped to demand performance of the UCC-1 provision. Waiver occurs when the party holding a contract right intentionally relinquishes it after acquiring knowledge of the facts. "The waiver may be either express, based on the words of the waiving party, or implied, based on conduct indicating an intent to relinquish the right." (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 31, 900 P.2d 619; see also DRG/Beverly Hills, Ltd. v. Chopstix Dim Sum Cafe & Takeout III, Ltd. (1994) 30 Cal.App.4th 54, 60.) Estoppel occurs "`where the conduct of one side has induced the other to take such a position that it would be injured if the first should be permitted to repudiate its acts." (DRG/Beverly Hills, Ltd., supra, 30 Cal.App.4th at p. 59, quoting Insurance Co. of the West v. Haralambos Beverage Co. (1987) 195 Cal. App. 3d 1308, 1321, 241 Cal. Rptr. 427.) "Generally, the determination of either waiver or estoppel is a question of fact . . . ." (Platt Pacific Inc. v. Andelson (1993) 6 Cal.4th 307, 319, 862 P.2d 158.) The parol evidence rule does not bar admission of evidence relevant to prove a wavier or estoppel. (McPherson v. Empire Gas etc. Co. (1932) 122 Cal.App. 466, 473, 10 P.2d 146.)
Developer presented evidence that Agency waived its right to demand performance of the UCC-1 provision when it consented to the Regal lease. Agency knew that Regal refused to grant Developer a security interest in its theater equipment. Developers representative told Agencys director that it would not be able to get a UCC-1 from Regal. Developer provided Agency with a copy of the Regal lease which stated the paragraph on the security interest had been "intentionally omitted." Agencys Consent acknowledged that the terms of the Regal lease were different from those of the prior lease. Between the time Agency executed the Consent and the time Regal defaulted on the theater lease, Agency never inquired about whether Regal had provided Developer with a UCC-1, nor did Agency inform Developer of any objection to its absence. At the same time, however, Agency asked Developer to inquire whether its lenders would eliminate the rent guarantee. It also treated the guarantee as enforceable during the 1998 discussions prior to appellants purchase of the development. A reasonable trier of fact could conclude from this evidence that Agency knew it had the right to demand a security interest in the theater equipment but waived that right to secure Regal as a tenant.
For the same reasons, issues of fact exist on the question of whether Agency is estopped to rescind the rent guarantee or to demand performance of the UCC-1 provision. "The essence of an estoppel is that the party to be estopped has by false language or conduct `led another to do that which he would not otherwise have done and as a result thereof that he has suffered injury. (In re Lisa R. (1975) 13 Cal.3d 636, 645 [119 Cal.Rptr. 475, 532 P.2d 123].)" (State Compensation Ins. Fund v. Workers Comp. Appeals Bd. (1985) 40 Cal.3d 5, 16, 219 Cal. Rptr. 13, 706 P.2d 1146.) Developer presented evidence that it released the prior tenant, Cine/Max, from liability under the prior lease without calling on Agency to pay rent under the rent guarantee because Agency consented to the Regal lease, and that its 1998 purchase of the development depended in part on Agencys acknowledgement of the rent guarantee. A reasonable trier of fact could conclude that in both instances, Developer relied to its detriment on Agencys failure to demand strict compliance with the UCC-1 provision.
Conclusion
Questions of fact remain to be decided on the materiality, wavier and estoppel issues. The trial court therefore erred in granting Agencys motion for summary judgment. The judgment is reversed. Costs to appellant.
We concur: COFFEE, J., and PERREN, J.