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United Television Broadcasting Systems, Inc. v. Rancho Palos Verdes Broadcasters, Inc.

California Court of Appeals, Second District, First Division
Sep 15, 2008
B191091, B192896 (Cal. Ct. App. Sep. 15, 2008)

Opinion

NOT TO BE PUBLISHED

APPEALS from judgments and an order of the Superior Court of Los Angeles County No. BC297832, David L. Minning, Judge.

Squire, Sanders & Dempsey, Don A. Proudfoot, Jr., and Lan T. Quach for Plaintiff, Cross-defendant and Appellant.

Weston, Benshoof, Rochefort, Rubalcava & MacCuish, Kurt Osenbough, Andrew M. Gilford and Todd Benoff; Knott & Glazier and Steven E. Knott for Defendant and Respondent Rancho Palos Verdes Broadcasters, Inc.

Owens & Gach Ray, Robert B. Owens and Linda Gach Ray for Defendant and Respondent Rancho Palos Verdes Broadcasters, LP and Defendant, Cross-complainant and Respondent Terence E. Crosby.


NEIDORF, J.

Retired Judge of the Los Angeles Superior Court assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

INTRODUCTION

Plaintiff and cross-defendant United Television Broadcasting Systems, Inc. (UTB) appeals from a nonsuit judgment on its complaint and from a postjudgment order awarding attorney’s fees to defendants. Defendant and cross-complainant Terence E. Crosby (Crosby) appeals from a nonsuit judgment, on his cross-complaint, in favor of UTB. We affirm the judgments in part and reverse in part, and we vacate the order.

By order of this court filed November 6, 2006, UTB’s appeal from the judgment, No. B191091, was consolidated with UTB’s appeal from the attorney’s fees order, No. B192896.

FACTUAL AND PROCEDURAL BACKGROUND

In 1982, the Federal Communications Commission (FCC) allocated a new television station, known as KXLA Channel 44 (Channel 44) to serve the South Bay area of Los Angeles and invited the public to apply for a license to operate the channel. Crosby was founder, majority shareholder, an officer and a director of defendant Rancho Palos Verdes Broadcasters, Inc. (RPVB), which he formed to become the licensee of the new television station. Crosby was also a general partner in a related limited partnership, defendant Rancho Palos Verdes Broadcasters, Ltd. (RPV LP).

RPVB applied to the FCC for the Channel 44 license. Other business entities also applied, including South Bay Broadcasters (the Blums) and two other principal applicants. Crosby, on behalf of RPVB, negotiated an FCC-approved settlement arrangement with the other principal applicants by which they agreed to dismiss or withdraw their applications (the Dismissing Applicants) in exchange for payments from RPVB, in the aggregate totaling approximately $4.5 million and other consideration (License Settlement). Thereafter, in July 1985, the FCC issued to RPVB a construction permit, the precursor to the full license.

In connection with RPVB’s efforts to obtain financial backing in order to complete the License Settlement payments on schedule in 1986 and begin construction, Crosby met with John Haneda (Haneda). Haneda was the founder and president of UTB, which was in the business of producing Japanese-language television programming. He was interested in becoming a programming broadcaster by obtaining an interest in a television station.

As a result of negotiations between Crosby and Haneda, UTB entered into an agreement with RPVB and RPV LP for UTB to loan them $2 million, subject to certain conditions. In return, after Channel 44 began broadcasting, RPVB would transfer certain ownership rights, honor stock options granted to UTB to purchase RPVB, and make programming time available to UTB at certain rates. The agreement, entitled Revised Short Form Agreement of Loan and Option To Purchase Stock and Partnership Interest (1986 Agreement), was dated January 15, 1986, and also on that date, UTB paid the first loan installment of $200,000 to RPVB. UTB advanced another $200,000 on March 14, 1986.

Pursuant to the 1986 Agreement, the parties were to negotiate more detailed terms and execute a long form agreement to supersede the 1986 Agreement. Haneda and Crosby failed to complete the long form agreement, however, and Haneda did not advance the remainder of the $2 million loan. Crosby did not have the funds to meet his buyout obligations to the Dismissing Applicants, and they filed suit (the Blum litigation). UTB was added as a defendant after the original complaint was filed.

Haneda and Crosby adopted opposing positions as to whether one of them breached the 1986 Agreement. In the instant appeal, as in their arguments to the trial court, Crosby and counsel for defendants have voiced their opinions, as though they were fact, that Haneda breached the 1986 Agreement by not providing the remaining loan funds. However, Crosby admitted that none of the defendants ever pursued a breach of contract action against Haneda. By the time UTB filed the instant lawsuit in 2003 and Crosby and RPVB filed their cross-complaints, any such contract breach claim would likely be barred by the applicable statute of limitations, the relevant events having occurred in 1986 and 1987. The alleged breach of contract does not, however, bear on our resolution of this appeal.

The lawsuit was Richard C. Blum and Pearl V. Blum v. RPVB, Rancho Palos Verdes Broadcasters, Crosby, Leon Crosby, [UTB], Channel 44, Inc., Channel 44 Associates, California Telecasters, Inc. (Super. Ct. L.A. County, No. SWC85970) filed June 24, 1986.

While dealing with the Blum litigation, Crosby entered into negotiations with Peter Allard (Allard) and James Monaghan (Monaghan) pursuant to which Allard and Monaghan would loan defendants $3.25 million for construction of Channel 44 and to settle the Blum litigation by making payments as provided in the License Settlement. UTB was not a party to nor involved in the negotiations. At the time, defendants had not paid back any portion of the $400,000 loan advanced to them by Haneda in 1986.

Allard and Monaghan presented a letter agreement, dated January 23, 1987, which Crosby and the other defendants executed, setting forth the terms on which Allard and Monaghan would make the $3.25 million loan (Lenders’ Agreement). The terms of the Lenders’ Agreement required, inter alia, defendants to enter into an agreement with UTB for UTB’s purchase of programming in the amount of at least $1 million per year for each of five years and to execute a note for repayment of the $400,000 plus interest which UTB had previously advanced to defendants. The Lenders Agreement stated: “RPVB’s obligations to make payments under the [UTB] Note shall be contingent upon (a) the entry by RPVB into the agreements for the sale of [programming time], (b) The making of the loan by Lender and (c) the performance by [UTB] of all of its obligations under the [programming purchase agreement].” (Italics added.)

In the Lenders’ Agreement, the term “Lender” was specifically defined as “[Allard and Monaghan] or a corporation or other entity to be established by us” to make the $3.25 million loan.

Defendants presented to UTB two draft documents: a Non-negotiable Promissory Note (Note) and an Option, Programming and Settlement Agreement (Programming Agreement). UTB approved the drafts. RPVB and Crosby, in his individual capacity, executed the Note on March 6, 1987, and UTB and defendants executed the Programming Agreement at the same time.

In Recital C, the Programming Agreement stated: “[RPV LP and RPVB] represent that: (i) they have entered into an agreement (the ‘Lenders’ Agreement’) with Peter Allard and James Monaghan (‘Lenders’) generally providing that Lenders would loan [RPVB] the sum of Three Million Two Hundred Fifty Thousand Dollars ($3,250,000) (the ‘Loan’) . . . .” Recital B stated that UTB advanced $400,000 to RPVB in 1986.

Pursuant to the Programming Agreement section 3, UTB obtained an option to purchase part of Crosby’s interest in Channel 44 and, under section 1, defendants obtained UTB’s promise to purchase programming time at specified rates for specified time slots for a five-year period. In section 1.5, the Programming Agreement set forth two conditions precedent to UTB’s obligation to purchase programming time: (1) RPVB and Crosby “shall have executed the Promissory Note attached hereto as Exhibit C . . .; (2) UTB “shall be released with prejudice from any lawsuit or cross-complaint initiated by” the Dismissing Applicants, including the Blum litigation. Section 2 specified that “Crosby shall execute the [] Note concurrent herewith.”

Programming Agreement section 2.1 provided for mutual releases of claims, subject to certain conditions, including that “Lenders have advanced funds pursuant to the Lenders’ Agreement” and that the releases “shall not affect any of [RPVB’s] or Crosby’s obligations under the [] Note.” Section 9 provided that the “terms of [the Programming] Agreement and the attached [] Note” constituted the entire agreement between the parties and “no extrinsic evidence whatsoever” could be introduced in any judicial proceedings “involving [the] Agreement.”

The Note was for repayment by RPVB and Crosby of the $400,000 they received in 1986 from UTB, with interest accruing from the date of advance. The Note stated: “No payments shall be due hereunder until within three (3) days of receipt of the first advance of funds to [RPVB] from Lenders pursuant to the Lenders’ Agreement at which time a principal payment of One Hundred Thousand Dollars ($100,000) shall be made. One year after the date that Channel 44 first broadcasts a full power test pattern . . . all accrued but unpaid interest through such date shall be added to principal. The new principal amount shall be paid in equal monthly payments . . . provided that any balance of principal or accrued but unpaid interest shall be due and payable . . . two years after the” first broadcast.

The Note provided that, after Channel 44 became operational, defendants would be permitted to make payments with broadcasting time (rather than cash) at the rates set forth in the Programming Agreement. The Note included a clause which permitted UTB to accelerate payment in the event Crosby sold the Channel 44 construction permit or his interest in the station. The final paragraph of the Note provided that if UTB breached the Programming Agreement and failed timely to cure, the Note would be deemed forgiven.

On May 27, 1988, Allard and Monaghan withdrew their offer to make the $3.25 million loan which was the basis for the Lenders’ Agreement. As the result of not obtaining the Allard and Monaghan loan, defendants negotiated a settlement of the Blum litigation. Negotiations resulted in the execution of an agreement entitled Creditors Agreement, dated October 31, 1988, by defendants and Dismissing Applicants. UTB was named as a party to the agreement but did not sign it. Defendants subsequently sought and obtained other financial backing to fund construction of Channel 44 facilities and make settlement payments to the Dismissing Applicants. Haneda and UTB were not involved in the financing or payments.

In 1997, Haneda sold his interest in UTB to Hisatake Shibuya, who remained UTB’s owner at the time of the trial court proceedings herein. Channel 44 commenced broadcasting on December 17, 2000. Crosby entered into an agreement to sell his stock in Channel 44 on December 20, 2000 for $8.6 million.

UTB filed the underlying complaint in this action on June 20, 2003. The third amended complaint is the operative complaint herein. UTB alleged causes of action for breach of contract as to the Programming Agreement and the Note, declaratory relief as to its rights to payments from the two instruments, money lent under the terms of the Note, constructive trust over all funds rightfully owned by UTB arising from the two instruments, and breach of the implied covenant of good faith and fair dealing with respect to the Note and the Programming Agreement.

Crosby filed a cross-complaint against UTB alleging damages for fraud and negligent misrepresentation by UTB’s attorney, John Kightlinger, during the Blum litigation, alleging that he represented that UTB agreed to the Creditors Agreement. RPVB brought a cross-complaint against UTB and Crosby. As to UTB, RPVB alleged that UTB implicitly or explicitly agreed to the Blum litigation settlement, which included the Creditors Agreement; the Note and Programming Agreement were merged into the Creditors Agreement by operation of law; and, therefore, UTB’s exclusive remedy was payment of $100,000 as provided in the Creditors Agreement, claim to which was now barred by applicable statutes of limitations.

An eight-day jury trial was held, with testimony beginning on February 7, 2006. During the course of the trial, defendants made motions for judgments of nonsuit as to each of UTB’s claims. Also, UTB moved for nonsuits on the cross-complaint of RPVB and the cross-complaint of Crosby. On March 22, 2006, the trial court issued a written order granting the various motions for a judgment of nonsuit.

As to the Note, the trial court stated that it granted defendants’ “motion for nonsuit as to all claims relating to the Promissory Note on the ground that a condition precedent to the rights and obligations set forth in the Promissory Note did not occur. Specifically, the Promissory Note expressly provides that no payments would be due from Defendants to [UTB] unless and until Defendants received a loan of $3.25 million from Peter Allard and James Monaghan. The undisputed evidence at Trial established that Messrs. Allard and Monaghan never made that loan (or any other loan) and, therefore, the parties’ rights and obligations under the Promissory Note were not triggered. Defendants do not owe [UTB] anything pursuant to the terms of the Promissory Note.” The trial court granted defendants’ motions for nonsuit against UTB as to all of UTB’s remaining causes of action: breach of the Programming Agreement, declaratory relief as to the Programming Agreement, breach of the implied covenant of good faith and fair dealing, constructive trust, and money lent. The trial court granted UTB’s motions for judgment of nonsuit against RPVB with respect to its cross-complaint and against Crosby with respect to his cross-complaint.

During the trial proceedings that continued after nonsuit was granted as to UTB’s Note claims, UTB moved for reconsideration, proffering the opinion of a linguistics expert that, giving the words their ordinary meaning, the words in the Note were only a time reference and not a condition precedent. The trial court properly denied the motion. It is well-established that the opinion of a linguist or other expert as to the meaning of contract language is irrelevant to the court’s task of interpreting the plain language of the contract. (Evid. Code, § 801; Jordan v. Allstate Ins. Co. (2004) 116 Cal.App.4th 1206, 1217-1218.) Expert testimony is unnecessary to explain matters that are common knowledge, i.e., “You don’t need a weatherman to know which way the wind blows.” (Bob Dylan (1965) “Subterranean Homesick Blues.”)

Motions for attorney’s fees were made by UTB and defendants, and UTB also moved to tax costs of RPV LP and Crosby (collectively, the Crosby defendants) and RPVB. On July 26, 2006, the trial court issued an order awarding costs and attorney’s fees to defendants as the prevailing parties under Civil Code section 1717. The trial court expressly denied UTB’s request to reduce the amount of the award on the grounds that some of the fees were incurred in connection with RPVB’s cross-complaint. The trial court’s stated ground was that RPVB’s cross-complaint was defensive in nature—asserting that the Creditors Agreement barred UTB’s claims, and the trial court could not distinguish between attorney’s fees incurred in connection with the cross-complaint and those fees incurred in connection with RPVB’s affirmative defense based upon the Creditors Agreement.

The amounts awarded for attorney’s fees and costs were as follows: Crosby defendants award – $404,082.69; RPVB award – $1,620,339.62.

DISCUSSION

UTB contends that the trial court erred in its interpretation of the Programming Agreement and the Note which were the basis for the grant of defendants’ motions for a judgment of nonsuit as to all of UTB’s causes of action. In his cross-appeal, Crosby contends that the trial court erred in granting UTB’s nonsuit motion to Crosby’s claims of fraud and negligent misrepresentation on the basis of a statute of limitations bar and lack of evidence of the requisite reliance by Crosby.

A. Standard of Review

“‘[C]ourts traditionally have taken a very restrictive view of the circumstances under which nonsuit is proper.’” (Castaneda v. Olsher (2007) 41 Cal.4th 1205, 1214.) A trial court may not grant a defendant’s motion for nonsuit if the plaintiff’s admissible evidence is sufficient to permit a jury to find in the plaintiff’s favor. (Ibid.; Nally v. Grace Community Church (1988) 47 Cal.3d 278, 291.) In determining the sufficiency of a plaintiff’s evidence, the trial court must accept the evidence most favorable to plaintiff as true and indulge all legitimate inferences which may be drawn therefrom in the plaintiff’s favor. (Nally, supra, at p. 291.) The trial court may not weigh or assess the credibility of the evidence and must disregard all conflicting evidence. (Ibid.)

The principles applicable to a trial court’s grant of nonsuit also apply to our review of a judgment entered after a defendant’s motion for nonsuit is granted. (Nally v. Grace Community Church, supra, 47 Cal.3d at p. 291.) “We will not sustain the judgment ‘“unless interpreting the evidence most favorably to plaintiff’s case and most strongly against the defendant[s] and resolving all presumptions, inferences and doubts in favor of the plaintiff a judgment for the defendant[s] is required as a matter of law.”’ [Citations.]” (Ibid.)

B. Interpretation of the Programming Agreement and Note

The nonsuit against UTB turns on the interpretation of the Programming Agreement and the Note. The fundamental objective of contract interpretation is to give effect to the mutual intention of the parties. (Civ. Code, § 1636; Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1356.) Contract interpretation requires a two-step process. (Ibid.) First, a trial court determines whether the contract is ambiguous, that is, whether it is reasonably susceptible to a meaning that differs from the plain and ordinary meaning of the words of the contract, and specifically, whether it is reasonably susceptible to the meaning proffered by a party. (Civ. Code, §§ 1638, 1639, 1644; Wolf, supra, at p. 1351.) In the second step, the trial court interprets the contract. If the court has determined the contract is ambiguous, then the court may admit relevant extrinsic evidence to aid in interpretation. (Wolf, supra, at p. 1351.) A contract must be interpreted by consideration of the whole agreement, with the provisions in context, not in isolation. (Civ. Code, § 1641; City of Manhattan Beach v. Superior Court (1996) 13 Cal.4th 232, 240.)

Determination of ambiguity of a contract is a question of law. (Roden v. Bergen Brunswig Corp. (2003) 107 Cal.App.4th 620, 625; Appleton v. Waessil (1994) 27 Cal.App.4th 551, 554-555.) It is subject to our de novo review. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1166.) We review the interpretation of a contract de novo where the trial court based its interpretation solely upon the words of the unambiguous contract, where the relevant admissible extrinsic evidence is not conflicting, or where there is an issue as to admissibility of extrinsic evidence. (Morey v. Vannucci (1998) 64 Cal.App.4th 904, 912-914.)

1. Note Interpretation

Plaintiff contends that the trial court erred in granting defendants’ motion for nonsuit as to all of plaintiff’s allegations related to or arising from the Note based upon its literal interpretation of the following provision: “No payments shall be due hereunder until within three (3) days of receipt of the first advance of funds to RPV from Lenders pursuant to the Lenders’ Agreement at which time a principal payment of One Hundred Thousand Dollars ($100,000) shall be made.” The trial court agreed with defendants’ asserted interpretation, as follows: The Note is part of the Programming Agreement in which “Lenders” is defined as “Peter Allard and James Monaghan.” Receipt of loan funds by defendants Crosby, RPVB and RPVB, Inc. from Allard and Monaghan was a condition precedent to defendants’ obligation to pay the Note. Allard and Monaghan never loaned any money to defendants. Therefore, defendants’ duty to repay the amounts advanced to them by plaintiff never became effective.

UTB claims that, when the provision is read in context with the two subsequent sentences, the provisions are reasonably susceptible to a different meaning—that, if defendants obtained funds from any source (not solely Allard and Monaghan), completed construction of the station and began broadcasting on Channel 44, defendants would be obligated to pay the Note. The two subsequent sentences state: “One year after the date that Channel 44 first broadcasts a full power test pattern (the ‘Installment Payment Date’), at which time all accrued but unpaid interest through such date shall be added to principal. The new principal amount shall be paid in equal monthly payments of principal and interest beginning on the first day of the month following the Installment Payment Date, provided that any balance of principal or accrued but unpaid interest shall be due and payable on the date two years after the Installment Payment Date.”

UTB specifically asserts that “Lenders” meant any persons or entities that provided financing to defendants to enable them to construct Channel 44 facilities and get the station operational. The phrase in the subject sentence that payment was not due “until” Lenders advanced funds to defendants applied only to the timing for defendants’ first payment, and was not a condition precedent to defendants’ full repayment of their debt to plaintiff. UTB claims that the trial court erred in its application of the parol evidence rule when it sustained defendants’ objections to questions by UTB’s counsel to Haneda regarding discussions Haneda had with Crosby about payment provisions in the Note, whether “Lenders” was defined in the Note, and whether Haneda and Crosby had discussions about whether the Note and the Programming Agreement were separate agreements.

The trial court allowed Haneda to give other relevant testimony that, if taken as true, would undermine the trial court’s finding that Crosby’s and RPVB’s obligations under the Note and the Programming Agreement were dependent upon Allard and Monaghan advancing loan funds to RPVB. Haneda testified that he never saw the Lenders’ Agreement and that Crosby told him the Lenders’ Agreement had nothing to do with UTB. He testified that the long form of the 1986 Agreement never came into existence, and instead the Programming Agreement and the Note became the final agreement between UTB and defendants.

It is undisputed that defendants ultimately obtained financing from another source, constructed the station and, on December 17, 2000, first commenced broadcasting on Channel 44. It is also undisputed that defendants failed to make the first payment when they obtained financing to construct the station or to make any of the required installment payments, starting one year after Channel 44’s first broadcast.

The fundamental objective of contract interpretation is to give effect to the mutual intention of the parties. (Wolf v. Superior Court, supra, 114 Cal.App.4th at p. 1356.) Contract interpretation “involves ‘a two-step process: “First the court provisionally receives (without actually admitting) all credible evidence [including extrinsic 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.]”’” (Ibid.) In general, the parol evidence rule precludes the admission of extrinsic evidence in the contract interpretation step to vary, alter or add to the terms of an integrated written agreement (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 343) or “flatly contradict the express terms of the agreement” (Winet v. Price, supra, 4 Cal.App.4th at p. 1167). The rule excludes extrinsic evidence of the parties’ collateral agreements which would contradict, create or modify the terms of the contract. (Casa Herrera, Inc. v. Beydoun, supra, 32 Cal.4th at p. 344).

The parol evidence rule is codified in Civil Code section 1625 and Code of Civil Procedure section 1856. Civil Code section 1625 provides: “The execution of a contract in writing, whether the law requires it to be written or not, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.” Code of Civil Procedure section 1856 provides: “(a) Terms set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement. [¶] (b) The terms set forth in a writing described in subdivision (a) may be explained or supplemented by evidence of consistent additional terms unless the writing is intended also as a complete and exclusive statement of the terms of the agreement. [¶] (c) The terms set forth in a writing described in subdivision (a) may be explained or supplemented by course of dealing or usage of trade or by course of performance. [¶] . . . [¶] (f) Where the validity of the agreement is the fact in dispute, this section does not exclude evidence relevant to that issue. [¶] (g) This section does not exclude other evidence of the circumstances under which the agreement was made or to which it relates, as defined in section 1860, or to explain an extrinsic ambiguity or otherwise interpret the terms of the agreement, or to establish illegality or fraud.”

The parol evidence rule permits use of extrinsic evidence to determine the meaning of contract provisions intended by the parties. (Casa Herrera, Inc. v. Beydoun, supra, 32 Cal.4th at p. 344; Pacific Gas & E. Co. v. G.W. Thomas Drayage Etc. Co. (1968) 69 Cal.2d 33, 40.) Where any reasonable assertion is made as to the meaning or intention of the parties with respect to words and phrases in their contract, a court may consider and admit extrinsic evidence which allows the trial court to place itself in the same situation in which the parties found themselves at the time of contracting. (Pacific Gas & E. Co., supra, at p. 40; Beneficial Etc. Ins. Co. v. Kurt Hitke & Co. (1956) 46 Cal.2d 517, 524; Bionghi v. Metropolitan Water Dist. (1999) 70 Cal.App.4th 1358, 1361.) Such evidence includes extrinsic evidence of objective matters such as “‘the surrounding circumstances under which the parties negotiated or entered into the contract; the object, nature and subject matter of the contract; and the subsequent conduct of the parties’” (Wolf v. Superior Court, supra, 114 Cal.App.4th at p. 1356) as well as specific negotiations which took place before the contract was executed, positions of the parties on issues during the negotiations, the drafting process, and discussions of the parties regarding the meaning of terms and clauses in the contract (Beneficial Etc. Ins. Co., supra, at pp. 524-525; Bionghi, supra, at pp. 1367-1368).

Several factors support a conclusion that the nonsuit judgment as to the Note should be reversed. Determination of ambiguity is a question of law and thus, subject to independent appellate review. (Roden v. Bergen Brunswig Corp., supra, 107 Cal.App.4th at p. 625; Appleton v. Waessil, supra, 27 Cal.App.4th at pp. 554-555.) A well-established principle of contract interpretation is that a contract must be interpreted by consideration of the whole agreement, with the provisions in context, and not as isolated provisions. (Civ. Code, § 1641; City of Manhattan Beach v. Superior Court, supra, 13 Cal.4th at p. 240.) This principle applies to the initial determination of ambiguity as well as subsequent interpretation of the contract. The trial court, however, came to its interpretation that defendants’ receipt of funds from Allard and Monaghan was a condition precedent to defendants’ obligations to repay the Note on the basis of language in only a single sentence in the contract, not in the context of the Note as a whole. Further, the trial court determined the literal meaning was unambiguous, without provisionally receiving all relevant extrinsic evidence proffered by plaintiff, and thus, without opportunity to ascertain if a latent ambiguity would be identified. (Wolf v. Superior Court, supra, 114 Cal.App.4th at pp. 1350-1351.)

When the sentence relied upon by the trial court is read in context with the two subsequent sentences regarding repayment terms for the Note, one plausible interpretation is that the parties allocated the payment amounts and time they must be paid that was consistent with reasonable expectations of when the defendants would have the resources to pay. A payment equal to about one-fourth of the obligation was to be due when defendants had the resources to make the payment because they had obtained funds for construction. The remainder was to be due within Channel 44’s second year of broadcasting, that is, when defendants could expect to have income arising from operation of the station.

At the time the defendants signed the Note and the parties signed the Programming Agreement, there was a loan agreement in place between defendants and Allard and Monaghan as lenders. The agreement required defendants to refrain from soliciting or entertaining proposals of other lenders or purchasers while the parties were progressing in good faith to close the Allard and Monaghan loan. Naturally, the parties were focused on the Allard and Monaghan transaction. They failed expressly to address the scenario that ultimately occurred, that is, what would happen if Allard and Monaghan did not come through with the funding, but defendants obtained funding elsewhere, completed the construction of Channel 44, and began broadcasting.

The Note is clear as to what happens if Allard and Monaghan provide loan funds to defendants. Defendants would be required to repay the Note on the stated terms. The trial court’s literal interpretation is based upon only two potential contingencies—Allard and Monaghan would either advance the needed funds or they would not. The Note fails to address a third potential contingency—that the needed funding would come from a source other than Allard and Monaghan. The Note does not include any express provisions to the effect that, if Allard and Monaghan never provided loan funds, defendants would not have to pay the Note, but rather UTB would forgive the $400,000 debt or would otherwise forfeit the $400,000.

The trial court’s literal reading, in isolation, of the Note and the Programming Agreement would be tantamount to creating a gift of $400,000 from UTB to defendants in the event defendants received the needed funding from some source other than Allard and Monaghan. There is no express provision stating that UTB intended to make such a gift. Sophisticated business people dealing at arm’s length would not reasonably be expected to agree to such a gift.

Considering the trial court’s interpretation from another perspective, it would require UTB to forfeit $400,000 if defendants received funding from any source other than Allard and Monaghan. Forfeitures are disfavored, and it is well settled that where the language of a contract is of doubtful meaning, the contract will be construed to avoid a forfeiture if it is at all possible. (Ballard v. MacCallum (1940) 15 Cal.2d 439, 444; 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 826, p. 915.) As a practical matter, a contract cannot address every potential contingency. To attempt to do so would result in a voluminous document. Thus where a literal interpretation would produce a harsh or unreasonable result, and there is reason to doubt whether the parties intended such a result, further efforts to determine the parties’ intent are warranted. (See 14 Williston on Contracts (4th ed. 2000) § 42:3, pp. 356-364.)

Further, only the provision requiring the $100,000 payment expressly refers to Lenders as the source of loan funds. If “Lenders” were deemed to mean “Allard and Monaghan” for the purposes of interpreting that provision, the potential interpretation could be that defendants have no obligation to repay the $100,000. However, it is undisputed that Channel 44 commenced broadcasting in December 2000. A question arises concerning whether, regardless of receipt of any funds from Allard and Monaghan, defendants remained obligated to pay $300,000 under the subsequent provisions requiring payment of the remaining balance beginning one year after the date Channel 44 first broadcasted a full test pattern.

The foregoing factors provide a basis for our determination that the terms of the Note are reasonably susceptible to a meaning other than the literal meaning applied by the trial court. (Casa Herrera, Inc. v. Beydoun, supra, 32 Cal.4th at p. 343.) We conclude that the Note provisions with respect to defendants’ obligations to repay the Note are ambiguous. (Roden v. Bergen Brunswig Corp., supra, 107 Cal.App.4th at p. 625; Appleton v. Waessil, supra, 27 Cal.App.4th at pp. 554-555.) They fail to address the contingency that a source other than Allard and Monaghan would provide the needed funding. In the Note, there is no clear expression of intent that UTB would forgive or forfeit the $400,000 advanced to defendants if funding was provided by a source other than Allard and Monaghan. Given the ambiguity in the Note, the determination of the parties’ intent must necessarily involve admitting related parole evidence, including testimony of the two business people who negotiated the Note and the Programming Agreement, that is, Crosby and Haneda. (Beneficial Etc. Ins. Co. v. Kurt Hitke & Co., supra, 46 Cal.2d at pp. 524-525; Bionghi v. Metropolitan Water Dist., supra, 70 Cal.App.4th at pp. 1367-1368.)

Nonsuit is to be reserved for limited circumstances. (Castaneda v. Olsher, supra, 41 Cal.4th at p. 1214.) Evidence and inferences therefrom which are favorable to plaintiff must be treated as true and any contradictory evidence provided by defendants must be disregarded. (Nally v. Grace Community Church, supra, 47 Cal.3d at p. 291.) Viewing the evidence discussed above in the manner most favorable to plaintiff and disregarding all conflicting evidence, we conclude that plaintiff’s evidence is sufficient to permit a jury to find in plaintiff’s favor with regard to its claims arising from the Note. (Ibid.) Accordingly, the grant of a motion for nonsuit as to those claims was not merited, and judgment as to those claims is reversed. (Ibid.)

2. Programming Agreement

Plaintiff contends that the trial court erred in holding that “as a matter of law that a dismissal of UTB with prejudice from the Blum litigation was a condition precedent to any obligations of any defendant under the Programming Agreement . . . .” Defendants argue that the trial court was correct. Plaintiff asserts that the condition was for its benefit and it had waived the condition pursuant to its right to do so. Pursuant to section 1.5 of the Programming Agreement, the UTB dismissal was a condition precedent to any obligation plaintiff would otherwise have to purchase broadcast time under the Programming Agreement. The dismissal was dependent on defendants’ actions to satisfy the Dismissing Applicants, and plaintiff was not a Dismissing Applicant.

Defendants also assert that the trial court found that the Note and the Programming Agreement were not separate agreements. Therefore, they claim, when the Note failed because Allard and Monaghan never made a loan to defendants, then a condition precedent to the Programming Agreement failed, in that the Note was a condition precedent to the Programming Agreement.

Defendants’ arguments on appeal as well as to the trial court somewhat confuse defendants’ negotiations with and obligations to Allard and Monaghan with the defendants’ obligations to plaintiff under the Programming Agreement and the Note. Plaintiff and Haneda, as its authorized representative, had no negotiations or agreements with Allard and Monaghan.

Defendants assert that dismissal of the Blum litigation by the Dismissing Applicants was an action required by Allard and Monaghan as one of the conditions to making the loan to defendants pursuant to the Loan Letter Agreement. Whether that was true or not, section 1.5 specified that dismissal of one party—plaintiff—was a condition precedent to the obligation of one party—plaintiff—to purchase broadcast time under the agreement. Interestingly, section 1.4 also specifies a condition precedent to plaintiff’s purchase obligation: Haneda’s inspection and approval of Channel 44 equipment and signal strength, quality and coverage. There was no condition precedent to plaintiff’s exercise of its right to purchase time.

Further, the Programming Agreement covered not only purchase of programming time, but also an option for Haneda to purchase an interest in Channel 44. Neither the broadcast time purchase provisions nor the option provisions were conditioned upon defendants’ receipt of the loan from Allard and Monaghan. The third subject matter of the Programming Agreement was settlement of all pending disputes between defendants and plaintiff through releases in section 2.1, subject to the condition that Allard and Monaghan made the loan to defendants—which never occurred.

Even if we assumed that the Blum dismissal never occurred, the failure of that condition precedent would not affect the effectiveness of the entire Programming Agreement, but only a very limited part of it: plaintiff’s obligation, but not its rights, to purchase broadcast time. Thus, the trial court’s finding that the Programming Agreement is no longer in effect, in that a condition precedent—dismissal of plaintiff from the Blum litigation did not occur, is not supported by the evidence. Viewing the evidence in the light most favorable to plaintiff, there is an insufficient basis for grant of a motion for nonsuit as to plaintiff’s claims arising from the Programming Agreement. Accordingly, judgment as to the Programming Agreement claims must be reversed.

Having reversed the judgment, the designation of a prevailing party for purposes of awarding attorney’s fees is premature. We vacate the award of attorney’s fees to defendants.

C. Crosby’s cross-appeal from nonsuit judgment on his cross-complaint

In his cross-complaint, Crosby alleged causes of action for fraud and negligent misrepresentation against UTB regarding UTB’s claim that it never agreed to the Creditors Agreement. For liability for fraud or negligent misrepresentation to arise, there must have been a misrepresentation and the person claiming fraud must have actually relied on it and suffered damages as a result. (Civ. Code, §§ 1572, 1709-1710; City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 482.) “The well-established common law elements of fraud which give rise to the tort action for deceit are: (1) misrepresentation of a material fact (consisting of false representation, concealment or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to deceive and induce reliance; (4) justifiable reliance on the misrepresentation; and (5) resulting damage. [Citations.]” (Id. at p. 481.) Fraud is distinguished from negligent misrepresentation by the element of fraudulent intent required for actionable fraud. (Id. at p. 482.)

Crosby failed to present substantial evidence that UTB made a misrepresentation to him to the effect that UTB agreed to the Creditors Agreement. Crosby alleged that UTB’s counsel in the Blum litigation, Kightlinger, participated in negotiations for a settlement of the litigation on terms and conditions which were ultimately incorporated in the Creditors Agreement. Crosby alleged further that, when counsel for all the parties in the litigation appeared before the trial judge, Kightlinger “represented to the Court in the Blum litigation, and all of the parties . . ., in open court, either expressly or by his silent assent and acquiescence thereto, that [UTB] agreed to the Creditors Agreement.”

Crosby alleged that Kightlinger’s actions constituted the misrepresentation at issue in his cross-complaint. Kightlinger testified at the trial, but no evidence in the record shows that he made any statements to the trial court in the Blum litigation about the Creditors Agreement or actively participated in the negotiation and drafting of the Agreement. In his cross-complaint, Crosby acknowledges that “a copy of the Creditors Agreement with [UTB’s] signature on the document has never been located.” Crosby also testified that he had conversations with Haneda about the Creditors Agreement, he talked and Haneda listened, but Haneda never said whether UTB agreed to the Creditors Agreement. Crosby testified that Haneda was not the person who had told Crosby that everyone had signed the Creditors Agreement.

Interpreting the evidence most favorably to Crosby’s allegations, we determine that Crosby presented insufficient evidence of the alleged misrepresentation. Without a misrepresentation, there can be no evidence of reasonable reliance on it, and ultimately, no actionable fraud or negligent misrepresentation. (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra, 68 Cal.App.4th at pp. 481-482.) Accordingly, we conclude that the nonsuit properly was granted. (Nally v. Grace Community Church, supra, 47 Cal.3d at p. 291.)

D. Attorney’s Fees Award

UTB contends it was an abuse of discretion for the trial court to determine that “defendants were the sole prevailing parties and that the entirety of the attorney’s fees and costs . . . should be awarded to them without allocation or reduction.” We need not and expressly decline to reach the merits of the contention. Reversal of the nonsuit judgment against UTB on its complaint will necessarily involve further proceedings in the trial court, and determination of the award of attorney’s fees is dependent upon the outcome of, and must await the conclusion of, those proceedings. The postjudgment order awarding attorney’s fees cannot stand.

DISPOSITION

The nonsuit judgment against UTB on its complaint is reversed. The postjudgment order awarding attorney’s fees is vacated. The nonsuit judgment against Crosby on his cross-complaint is affirmed. UTB is awarded its costs on appeal.

We concur: MALLANO, P. J., ROTHSCHILD, J.


Summaries of

United Television Broadcasting Systems, Inc. v. Rancho Palos Verdes Broadcasters, Inc.

California Court of Appeals, Second District, First Division
Sep 15, 2008
B191091, B192896 (Cal. Ct. App. Sep. 15, 2008)
Case details for

United Television Broadcasting Systems, Inc. v. Rancho Palos Verdes Broadcasters, Inc.

Case Details

Full title:UNITED TELEVISION BROADCASTING SYSTEMS, INC., Plaintiff, Cross-defendant…

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

Date published: Sep 15, 2008

Citations

B191091, B192896 (Cal. Ct. App. Sep. 15, 2008)