Opinion
G030888.
10-14-2003
WILLIAM M. PAGE, Plaintiff and Appellant, v. LARRY J. HUNT et al., Defendants and Respondents.
Stanley R. Jones and Thomas Wells for Plaintiff and Appellant. Law Offices of Thomas J. OKeefe and Thomas J. OKeefe; Good, Wildman, Hegness & Walley, Heidi Stilb Lewis and Frank M. Cadigan; Law Offices of Ronald K. Brown, Jr., and Ronald K. Brown, Jr., for Defendants and Respondents.
William Page appeals the trial courts grant of summary judgment on his breach of contract claim against Larry and Virginia Hunt for refusal to recognize his option to renew a lease. The court determined Pages lease on the Huntss property had terminated, precluding him from exercising the option. The Hunts defend the judgment on grounds that Pages unauthorized assignments terminated the lease as a matter of law. Additionally, they claim the failure of Page or his company to assume the lease in their respective bankruptcy proceedings resulted in termination. Page argues his assignments did not terminate the lease and that, in any event, the Hunts waived objection to the transfers by accepting rent. For the reasons set forth below, we hold the lease did not automatically terminate, and therefore we reverse the judgment.
I
FACTS AND PROCEDURAL BACKGROUND
The Hunts sold their auto repair and towing business in Laguna Beach (the Business) to Page (Lessee) in 1991, and also leased the underlying property to him for 10 years with an option to renew for two additional five-year periods (the Lease). The Lease required the Huntss written consent to any assignment, and allowed the Lessor (the Hunts) to choose from two alternatives if this provision was violated. First, the Lessor could notify the Lessee the assignment was being treated as a curable default. Or the Lessor could treat the assignment as a noncurable breach and terminate the Lease or increase the rent after 30 days written notice. Another provision added that the Lessors acceptance of rent would not waive any preceding breach or default by the Lessee except the failure to pay rent.
To finance his purchase of the Business, Page obtained a loan from Dana Niguel Bank (Bank), which received a security interest in the Businesss auto repair and towing equipment. The security interest expressly permitted the Bank to enter the premises and take the equipment if Page defaulted on the loan. With the Huntss written consent, Page also assigned his interest in the Lease to the Bank. The terms of the assignment provided the Hunts would give the Bank at least 60 days prior written notice to cure default before terminating the Lease. The assignment form stated that if Page defaulted, "so long as [Bank] has not entered into possession of the premises covered by said Lease for the purpose of operating a business, it shall not be liable for rent or any other obligation of said Lessee . . . ."
Following execution of the Lease and arrangement of financing through the Bank, Page formed DePage Enterprises, Inc. (DePage), a corporation in which Page was the sole shareholder. Page claims Larry Hunt orally consented to Pages assignment of his interest in the Business and the Lease to DePage. The Hunts contend there was no consent and Page was not authorized to assign his interest in the Lease. Rent payments were made to the Hunts by checks drawn on DePages account.
Shortly before 1994, Page transferred half his stock in DePage to Todd Evenson. In August 1994, DePage filed for bankruptcy protection under Chapter 11. Schedules in the bankruptcy listed the Hunts as unsecured creditors for $40,000 and as landlords under the Lease. The bankruptcy proceedings listed Page as president of DePage, owning half the company stock, and Evenson as vice president, owning the other half. In July 1995, DePages reorganization plan was confirmed by the bankruptcy court, and the company assumed the Lease and rental payments under it as of January 1995.
In August 1995, Page filed for individual bankruptcy under Chapter 7. Page listed the Hunts as unsecured creditors for $40,000, the amount of unpaid rent under the Lease.
In 1997 and 1998, Page and Evenson sold their interests in DePage, including the Lease, to Albert Palucci, making him DePages sole owner.
In September 1999, the Hunts notified the Bank, DePage, and Page, of default for rent payments on the Lease. Before the 60-day period to cure the default ended, Page purchased the Banks assigned interest in the Lease and its equipment security interest for $110,000. Within the same period, Page also paid the Hunts the back rent and penalties owed, approximately $ 17,500, and took possession of the premises and the Business.
In January 2001, DePage again filed for bankruptcy under Chapter 7, listing its interest in the Lease as "uncertain."
Meanwhile, Page found a buyer for the Business and gave the Hunts written notice he was exercising his option to extend the Lease for an additional five years. The Hunts objected, claiming the Lease was terminated once Page assigned his interest without their written authorization.
Page then sued the Hunts alleging breach of contract for their refusal to honor his option. The Hunts filed an answer and cross-complaint alleging Page violated the Lease by assigning it without their written consent. They also alleged that by failing to assume the Lease in his individual bankruptcy action in 1995, Page allowed the lease to terminate as a matter of law.
Subsequently, the Hunts filed a motion for summary judgment, which the trial court granted, and Page now appeals.
II
DISCUSSION
A. Standard of Review
The parties do not dispute the facts but rather their effect on the lease. The critical question of whether Pages actions constituted a breach terminating the lease is one of law. Accordingly, we review the trial courts decision de novo. (See NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 71-72.)
B. Pages Leasehold Interest Was Not Extinguished By His Bankruptcy
The Hunts contend Pages failure to assume the Lease in his individual bankruptcy action in 1995 terminated the Lease as a matter of law. To the contrary, the parties separate statements of fact for and against summary judgment show it was "Undisputed" that "[t]he Hunt Lease was not listed as an executory contract and unexpired lease in schedule `G of the William M. Page voluntary chapter 7 bankruptcy petition." (Italics added.) Only obligations that are listed or scheduled, including executory contracts and unexpired leases, are discharged in bankruptcy. (See 11 U.S.C. § 523(a)(3) [no discharge for obligations "neither listed nor scheduled" by debtor]; In re Venegas (Bankr. D.Idaho 2001) 257 B.R. 41, 46; see generally 2 Cowans, Bankruptcy Law and Practice (7th ed. 1998) Nondischargeability of Debts Not Scheduled by the Debtor — Section 523(a)(3), §§ 6.14 & 6.14(b), pp. 226 & 229.) The fact that the lease was not scheduled in Pages bankruptcy provides no reason to suppose — as the Hunts do — that Pages contractual interest in the lease was extinguished by his bankruptcy.
C. Pages Assignments Did Not Terminate the Lease
The Hunts argue the Lease terminated, ipso facto, with Pages unauthorized assignments to DePage, Evenson, and Palucci in 1991, 1993, and 1997, respectively. The Hunts assert they never consented to any assignment, orally or otherwise. They also maintain that even if they gave oral consent, the Lease required Page obtain written consent for a valid assignment. As a result, the Hunts contend the Lease automatically terminated upon Pages failure to obtain a written consent to the assignments.
But the Lease did not provide for automatic termination. If the Hunts considered these assignments breaches of the Lease, under its terms they were required to choose from two alternatives and act affirmatively to give notice or immediately terminate the Lease. Paragraph 12.1(d) of the Lease expressly provided: "An assignment . . . of Lessees interest in this Lease without Lessors specific prior written consent shall . . . be a Default curable after notice . . . or a noncurable Breach without . . . any notice and grace period. If Lessor elects to treat such unconsented to assignment . . . as a noncurable Breach, Lessor shall . . . : (i) terminate this Lease, or (ii) upon thirty (30) days written notice (`Lessors Notice), increase the monthly Base Rent." (Italics added.) Paragraph 13.2 makes clear that termination is authorized but not required: "In the event of a Breach of this Lease by Lessee . . . , Lessor may [¶] (a) Terminate Lessees right to possession of the Premises . . . in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor." (Italics added.)
Generally, "[t]he language of a contract is to govern its interpretation, if the language is clear and explicit." (Civ. Code, § 1638.) The Lease unambiguously requires certain affirmative and immediate action by the Lessor to communicate default or breach to the Lessee and to signify termination. The Hunts did not give notice, raise the rent other than for yearly adjustments, or immediately terminate the Lease. Instead, they waited until the 10-year lease period ended in 2001 to notify Page they believed the Lease terminated some years earlier. Because the Hunts did not affirmatively act to declare Pages assignments a breach or default, the Lease was still in effect in 2001 and Page had the right to exercise the options under it. Summary judgment for the Hunts was therefore improper.
D. DePages Failure to Assume Lease In Its Bankruptcy Is Irrelevant
The Hunts maintain the Lease terminated when DePage failed to assume it in bankruptcy proceedings in 2001. However, Page and DePage were separate legal entities, and Pages purchase of the Lease assignment from the Bank did not make it part of DePages assets. DePages failure to schedule the Lease in its second bankruptcy proceeding says nothing about the validity of Pages interest purchased from the Bank. This argument has no merit.
E. Parol Evidence Not At Issue
Page asserts the Hunts orally consented to his assignment to DePage and that the trial court should have ruled on each of the Huntss objections to his declaration rather than sustaining them "en masse as part of the order drafted by respondents counsel granting the [summary judgment] motion . . . ." (Heading format deleted.) The Hunts respond the trial court properly granted their evidentiary objections to Pages declaration because the parol evidence rule prohibits introducing oral or written extrinsic evidence to vary the terms of a fully integrated contract. Because we have concluded the Lease did not terminate as a matter of law on the theories advanced by the Hunts, we need not reach this issue.
III
DISPOSITION
Having concluded the trial courts grant of summary judgment on the grounds the Lease terminated as a matter of law was improper, the judgment must be reversed. The party ultimately prevailing in subsequent proceedings, if any, on remand shall be entitled to its costs for this appeal. (Cal. Rules of Court, rule 27.)
WE CONCUR: BEDSWORTH, ACTING P. J. and IKOLA, J. --------------- Notes: The interesting question of what interest exactly Page held in the Lease remains to be determined by the trial court. The Hunts now argue on appeal that the option to renew was personal to Page (see Lease, ¶ 39.2) and hence, notwithstanding the Huntss consent, did not survive assignment to the Bank. But this contention was not presented to the trial court. Consequently, it is not a proper ground on which to affirm. (See Adams v. Bell Directory (2003) 111 Cal.App.4th 93; Code Civ. Proc., § 437c, subd. (m)(2).) Additionally, whether the interest Page received back from the Bank was only a security interest or whether, once Page took possession and began paying rent, privity of estate was thus restored and joined with whatever privity of contract Page retained after assignment, are issues for the trial court to resolve in the first instance if the parties pursue this litigation. We express no opinion on any of these matters.