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Phillips v. Walker & Walker Development, LLC

California Court of Appeals, Fourth District, Second Division
Mar 17, 2008
No. E042164 (Cal. Ct. App. Mar. 17, 2008)

Opinion


WILLIAM P. PHILLIPS, Plaintiff and Respondent, v. WALKER & WALKER DEVELOPMENT, LLC, Defendant and Appellant. E042164 California Court of Appeal, Fourth District, Second Division March 17, 2008

NOT TO BE PUBLISHED

APPEAL from the Superior Court of San Bernardino County. Super. Ct.No. BBCHS704 Robert E. Law, Judge. (Retired judge of the Mun. Ct. for the Central Orange Co. Jud. Dist., assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.)

David McDonnell for Defendant and Appellant.

Law Office of Ron W. Townsend and Ron W. Townsend, for Plaintiff and Respondent William P. Phillips.

OPINION

HOLLENHORST, J.

In 2004, Plaintiff William Phillips (plaintiff) initiated this action for damages for breach of contract and fraud against Walker & Walker Development, LLC (the Company). Following a court trial, judgment was entered in favor of plaintiff. The Company appeals.

I. PROCEDURAL BACKGROUND AND FACTS

The Company is a California limited liability company that was organized in 1997. David Walker (David) is the sole managing member; however, DPW Inc. is another member. Paul Walker (Paul) is David’s brother. Paul is a general contractor who did business as A. Walker Enterprises (Enterprises). In 2002, the Company acquired title to two vacant properties for the purpose of building “spec” homes to sell for a profit. The Company entered into an agreement with Paul in which the Company would buy the properties and Paul would build the homes. David and Paul planned to sell the homes and split the profit 50/50. However, in 2003 David wanted out of the agreement.

David is president of DPW Inc.

The properties are located at 1028 Sequoia and 1370 Pine Lane in Big Bear.

Joe Jarvies (Jarvies) is a real estate agent employed by Tarbell Realtors and who was acquainted with Paul. In August 2003 Paul told Jarvies about the “spec” homes project. Paul indicated that the properties were in default and he needed someone to clear the default and take over so that David could step out of the project. Paul wanted to continue construction and sale of the properties for profit. Jarvies told plaintiff, a real estate agent who was also employed by Tarbell Realtors, about this investment opportunity.

A meeting was held between Paul, Jarvies and plaintiff. The parties viewed the properties and noted how much work needed to be done to complete the homes. After the meeting, Paul provided Jarvies with estimates of how much money was needed and what the costs and expenses would be to complete the project. Jarvies prepared a cost breakdown for the properties in which he estimated costs and expenses, inclusive of payment of money to Paul to complete construction, closing costs, and real estate sales commissions. According to Jarvies’s breakdown, neither Paul nor David would receive money from the sale of the properties, and David would receive nothing at all. Paul agreed with this breakdown and prepared a contract dated September 17, 2003, between Enterprises, on the one hand, and plaintiff and Jarvies, on the other.

Jarvies determined that there was no profit incentive to be an investor under Paul’s breakdown of costs and expenses.

A meeting was held among David, Jarvies, and plaintiff on September 19, 2003. David was shown and agreed with the cost breakdown. David acknowledged that he was stepping out of the project and would receive no money from the sale of the properties, in exchange for Jarvies and plaintiff reinstating the Company’s defaulted loans, paying immediate capital to continue construction of the properties, and accepting full financial responsibility for the properties. Jarvies prepared a writing entitled “Acknowledgment” that set forth the agreement of the parties. The Acknowledgment attached the cost breakdown and the contract with Enterprises. Because the properties remained in the name of the Company, the Acknowledgment stated that the Company agreed not to obligate the properties. The parties signed the Acknowledgment, with David signing on behalf of the Company.

After signing the Acknowledgment, plaintiff gave David two checks payable to Pacific Mortgage Exchange, Inc. (PME), to reinstate the defaulted loans, and a third check to Jarvies to pay Paul to recommence construction of the properties. Jarvies was led to believe that Paul was a member of the Company. Paul gave Jarvies the listing to sell the properties for a commission. Jarvies and plaintiff agreed that Jarvies would handle the listing and sale of the properties, plaintiff would contribute needed capital, and both would share Jarvies’s commissions and the profits from the sale of the properties.

Due to fire issues, bark beetles, and the fact that Paul did not timely complete construction of the properties, Jarvies was unable to sell the properties within 90 days. Thus, the listing was referred to Realty Executives. Plaintiff made all monthly loan payments until the sale of the first property. Realty Executives informed Jarvies that the Sequoia property was sold and in escrow. Jarvies requested escrow to remit payment of sales proceeds to Jarvies and plaintiff; however, the Company, as seller, refused to allow escrow to do so. Instead, per David’s instructions, escrow paid all sales proceeds to the Company. Thus, an issue arose between plaintiff and the Company regarding who was entitled to the sales proceeds.

Jarvies and plaintiff attempted to resolve the issue with David. According to them (Jarvies and plaintiff), David verbally agreed to the settlement; however, he refused to sign any written agreement. David kept all monies from the sale. He felt that the Acknowledgment had been one sided and that he had been left with the liability. The attempted settlement would have allowed the sales proceeds to be used to buy down the other property’s PME loan on which plaintiff continued to make monthly payments. Upon the sale of the other property, the proceeds would be shared between the Company and plaintiff ($75,000/$75,000), and any excess would be paid to Jarvies.

As a result of the attempted settlement with David, Jarvies and plaintiff changed their agreement. It was agreed that plaintiff would receive all sales proceeds because he had contributed all of the capital. The Pine Lane property was sold. All monies from escrow were again paid to the Company, and David refused payment of any monies to plaintiff. David did not give any of the monies to plaintiff or Jarvies because, in his opinion, the monies “[w]eren’t owed.”

On August 12, 2004, plaintiff initiated this action. On July 3, 2006, plaintiff filed an amended complaint alleging, inter alia, breach of contract, promissory estoppel, money had and received, open book account, unjust enrichment, imposition of constructive trust and resulting trust, and fraud. The matter was tried before the court. It was agreed that, for purposes of trial, the Company is David. David’s testimony was impeached by a felony conviction involving moral turpitude. Following a court trial, judgment was entered in favor of plaintiff, who was awarded $148,547 in damages. The Company has appealed. On appeal, the Company contends that (1) it should have received an offset or credit for the money it invested, and (2) the Acknowledgment between the parties is void because of the violations of plaintiff’s duties as a real estate licensee.

II. RIGHT TO OFFSET

The Company challenges the award of damages to plaintiff on the ground that the trial court failed to offset the award with an amount equal to the expenses paid by the Company. The Company argues that plaintiff was entitled only to the profit or the “net proceeds from escrow” minus expenses, including the Company’s costs and expenditures.

The agreement that controls the award of damages is the Acknowledgment The Acknowledgment is the controlling contract between the parties. The interpretation of a contract, without the use of any parol evidence, is a matter of law for this court to determine, and we are not bound by the interpretation of the trial court. Therefore, our review is de novo. (Amwest Surety Ins. Co. v. Patriot Homes, Inc. (2005) 135 Cal.App.4th 82, 87.) The contract must be interpreted to give effect to the mutual intentions of the parties, which are ascertained from the “‘clear and explicit’” language the parties have used. (Continental Heller Corp. v. Amtech Mechanical Services, Inc. (1997) 53 Cal.App.4th 500, 504; see also Civ. Code, §§ 1636, 1638, 1639.)

Here, the Acknowledgment, in relevant part, provides:

“[The Company] acknowledges that [plaintiff] and [Jarvies] have agreed to assume the balance of the financial responsibility on 370 Pine and 1028 Sequoia in Big Bear City, CA[.]

“Any further cash outlay to finish these two homes will be the responsibility of [plaintiff] and [Jarvies].

“In return [plaintiff] and [Jarvies] have full rights to sell said property for a profit, less mortgages and expenses now due and to be incurred. See breakdowns and attachments.” (Italics added.)

According to the Acknowledgment, the only expenses that were to be deducted from the profit due to plaintiff were the “mortgages and expenses now due and to be incurred.” There is no reference to any expenses previously incurred by the Company that were to be reimbursed. Exhibit 4, which is the cost breakdown for the Big Bear Project, has a line item entitled “Sequoia Current Payoff to Dave Walker.” However, there is a “ — ” inserted where a dollar figure would have been written. Such line insertion supports the testimony that David and the Company were stepping out of the project completely and in exchange for agreeing to take nothing, neither David nor the Company had to incur any further expenses, and the properties would not be foreclosed upon.

We find the Company’s claim that it had to make the $5,400 August 2004 payment to PME to cure a default on the Pine property to be disingenuous. It had been agreed by the parties that the net amount released from escrow on the Sequoia property to the Company would be used to pay the monthly PME loan payments on the Pine property. Had the amount in the Sequoia escrow been delivered to plaintiff per the Acknowledgment, plaintiff would have paid the $5,400 out of his pocket.

Nonetheless, the Company claims that because it remained liable, i.e., the Company was the trust or on the deeds of trust for each property, plaintiff failed to make sure that it was no longer liable for any financial obligation regarding the properties. However, as David admitted at trial, the Acknowledgment never stated that plaintiff would “[g]et the properties out of [David’s] name,” and there was an alienation clause in the notes and deeds of trust that provided the notes could be called if any interest was transferred. Thus, the properties needed to stay in the Company’s name.

Furthermore, we reject the Company’s claim that the use of the term “profit” and not “net proceeds from escrow” supports its argument in favor of an offset. We find that the use of the term “profit” in the Acknowledgment is irrelevant. The relevant words are those found after the word “profit,” namely, “less mortgages and expenses now due and to be incurred. See breakdowns and attachments.” If the Company sought an offset for its expenditures prior to the Acknowledgment, it should have made sure that such expenditures were noted in the breakdowns and attachments to the Acknowledgment. It failed to do so.

Given the record before this court, we find substantial evidence to support the trial court’s award of damages to plaintiff, with no offset for any expenditures incurred by the Company prior to the date of the Acknowledgment.

III. PLAINTIFF’S DUTIES AS REAL ESTATE LICENSEE

The Company contends that the trial court erred in finding that “[p]laintiff was a mere investor and that he did not enter into an agency relationship” with the Company. Instead, the Company argues that plaintiff “owed certain fiduciary duties to [it], many of which were violated, thereby resulting in a void contract.”

We must sustain the trial court’s finding if it is based on substantial evidence. “‘When a trial court’s factual determination is attacked on the ground that there is no substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination, and when two or more inferences can reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for those of the trial court.’” (Lammers v. Superior Court (2000) 83 Cal.App.4th 1309, 1317, fn. 4, quoting Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874.)

Here, as plaintiff notes, the record is void of any evidence that plaintiff acted as both an investor and the listing agent for the properties. There is no evidence that plaintiff ever had any discussions with the Company about listing the properties. Nor does the record support a finding that plaintiff was the one who approached the Company about the properties. Rather, the record shows that it was David’s brother, Paul, who contacted Jarvies, who contacted plaintiff. David and the Company wanted out of the project. No payments on the loan were being made and notices of default and foreclosure were sent out. David agreed to have the properties taken back. However, Paul wanted to finish the project and thus went out to find an investor who would take over the financial obligations. Such investor was plaintiff. From the moment an agreement was reached between David and the Company on the one hand and plaintiff on the other, plaintiff bore all of the financial obligations. According to the record, plaintiff invested $64,267.89 into the properties to finish the project. Plaintiff was willing to do so because he anticipated being compensated for his investment.

According to the record, Jarvies executed a listing agreement with Paul, who had no ownership interest in or any right to enter into agreements for the Company.

The Company suggests that because David was under extreme distress at the time he entered into the Acknowledgment and agreement with plaintiff, and because Jarvies was aware of David’s distress, the trial court should have found grounds to void the Acknowledgment. However, as we have already noted, there was no listing agreement between plaintiff and the Company. Given the fact that Paul entered into the listing agreement with Jarvies on behalf of the Company, we question whether that was a valid listing agreement. Nonetheless, with no listing agreement between plaintiff and the Company, there were no fiduciary duties owed by plaintiff to the Company. The fact that David was under extreme distress does not raise any red flags. Most people who want out of a financial obligation, and who are willing to allow their property to be foreclosed upon, fit the description of being distressed. On top of that, David was facing criminal charges for a DUI (driving under the influence) causing bodily injury.

Because there was no listing agreement, and thus no fiduciary relationship between the parties, the Company’s case law regarding the duties owed by a real estate agent is inapplicable.

At the time the Company was notified that the properties were in foreclosure, the Company only had approximately $2,887 invested in the Sequoia property and $637 in the Pine property.

For the above reasons, we find substantial evidence to support the trial court’s finding that plaintiff did not owe any duties to the Company as a real estate licensee.

IV. DISPOSITION

The judgment is affirmed. Plaintiff is to recover his costs on appeal.

We concur: RAMIREZ, P.J., MCKINSTER, J.


Summaries of

Phillips v. Walker & Walker Development, LLC

California Court of Appeals, Fourth District, Second Division
Mar 17, 2008
No. E042164 (Cal. Ct. App. Mar. 17, 2008)
Case details for

Phillips v. Walker & Walker Development, LLC

Case Details

Full title:WILLIAM P. PHILLIPS, Plaintiff and Respondent, v. WALKER & WALKER…

Court:California Court of Appeals, Fourth District, Second Division

Date published: Mar 17, 2008

Citations

No. E042164 (Cal. Ct. App. Mar. 17, 2008)