Filed 6/14/13
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION TWO
SERIES AGI WEST LINN OF APPIAN
GROUP INVESTORS DE LLC,
Plaintiff and Respondent, A135832
v. (Marin County
ROBERT EVES, Super. Ct. No. CIV-1201214)
Defendant and Appellant.
Robert Eves appeals from the Judicial Council form AT-120 Right to Attach Order
and Order for Issuance of Writ of Attachment. The appeal presents a single issue, one
that appears to be an issue of first impression, not only in California, but in the entire
country: If a surety specifically excludes a specified asset from a continuing guaranty,
are the proceeds from the sale of that asset still excluded when the surety is called to
answer for its guaranty?
The novelty of the issue notwithstanding, we resolve it as simply one of
contractual interpretation. Our examination of the guaranty, together with other
documents executed at the same times, shows that Eves could have inserted language
extending the exclusion from the assets to the sale proceeds of those same assets. He
simply failed to do so. Judicially correcting that omission would amount to an improper
rewriting of the parties‟ contract. For this reason we agree with the trial court that the
proceeds are not exempt from being attached to satisfy the surety‟s obligation.
BACKGROUND
According to the papers of plaintiff Series AGI West Linn of Appian Group
Investors DE, LLC (Series AGI), in April 2007 it lent $3.1 million to VPC-OR West Linn
1
Limited Partnership, LLC (VPC-OR) for the development of a “commercial
marketplace” in West Linn, Oregon. The loan provided for interest at 13 percent per
annum, and an “exit fee of the amount equal to an annualized thirteen percent . . . of the
original principal balance” of the loan.1 The loan was secured by a deed of trust, which
was junior to another deed of trust held by a financial institution that had loaned VPC-OR
$18.4 million.
Contemporaneously, Eves executed a “Continuing Guaranty” by which he
“unconditionally guarantees and promises to pay Lender [Series AGI] . . . any and all
indebtedness . . . of Borrower [VPC-OR] to Lender.”2 A “Guaranty of Loan Addendum”
setting out seven categories of assets as “Schedule 1,” added: “The following assets are
1
The pertinent language in VPC-OR‟s promissory note reads: “Exit Fee. In
addition to all other sums due from Borrower [VCP-OR] to Lender [Series AGI] under
this Note, on the Maturity Date [April 30, 2009], or upon any acceleration thereof,
whether by default, application of insurance proceeds, applications of condemnation
award, or otherwise, Borrower shall pay to Lender an exit fee („Exit Fee‟) in the amount
equal to an annualized thirteen percent of the original principal balance of the Loan.”
Another provision of the note allowed that if VPC-OR failed “to pay any sum . . . when
due . . . the unpaid principal sum evidenced by this Note, all accrued and unpaid Interest
thereon . . . shall, at the option of the Lender, . . . become immediately due and payable,
and . . . may be enforced and recovered at once.”
2
A joint obligor on the guaranty was Venture Development Corporation, Inc.,
which was the general partner of VPC-OR. Eves signed the guaranty on behalf of
Venture Development Corporation, Inc. as its president. There are two related entities,
Venture Professional Centers and Venture Commerce Centers, both of which are limited
liability companies. Eves is the president and secretary of Venture Commerce Centers,
which is interestingly also designated on several documents as the general partner of
VPC-OR.
When Series AGI filed for the attachment, one of its attorneys attached as an
exhibit to his declaration a “Venture Corporation and Related entities Organizational
Chart” provided by Eves. It appears from this chart that Eves owns 100 percent of
Venture Professional Centers and Venture Commerce Centers, and 99 percent of 46 other
limited liability companies and limited partnerships.
None of these other entities figures on this appeal. The point of recounting their
existence is to establish that Eves is no stranger to sophisticated financial transactions.
Indeed, in his brief he describes himself as presiding over a “business empire.”
2
excluded from the Robert J. Eves personal Guaranty: [¶] . . . [¶] The personal residence
of Robert J. Eves at Via Regina, 27 Moltrasio, Como, Italy and its contents.”3 The
parties expected the project to be completed by the end of April 2009. But it was not to
be.
Series AGI‟s deed of trust was extinguished when the senior lender foreclosed.
VPC-OR made no payments on the loan, and Eves refused to honor his guaranty. In
March 2012 Series AGI filed suit to recover approximately $6.3 million from VPC-OR,
or Eves, together with prejudgment interest, and attorney fees, according to the terms of
the loan agreement and the continuing guaranty.4 One month after it filed its complaint,
Series AGI applied for a prejudgment order of attachment (Code Civ. Proc., § 484.010).
3
The other excluded assets were Eves‟s “personal residence” in Mill Valley,
“personal and/or real property” owned by specified family trusts, and “automobiles
owned and used by the . . . family members” of Eves and his then wife.
4
The leading treatise explains how Eves‟s $3.1 million guaranty could balloon to
more than twice that amount.
First, “Where the guaranty is of a money obligation, the amount recoverable by
the creditor in an action against the guarantor is the sum which is due according to the
terms of the instrument. Together with this sum, the guarantor is generally liable for
interest on the debt from the time of default by the principal. This liability for interest
increases the amount . . . but it is justified because of the fact that the guarantor puts
himself in the place of the principal and agrees to perform all that the principle is liable
for. . . . [¶] . . . [¶] The allowance of interest is proper even though its effect may be to
increase the recovery of the guarantor beyond the limit of liability specified in his
contract of guaranty.” (Stearns, The Law of Suretyship (Elder rev. ed. 1951) § 4:19,
pp. 85-86, fns. omitted.) “Interest normally commences to run against the principal from
the date that he violates his obligation and, since the surety is liable for the principal‟s
entire debt, he will be liable also for such interest on the debt.” (Id., § 8:19, p. 283.)
California follows this rule. (Berg Metals Corp. v. Wilson (1959) 170 Cal.App.2d 559,
569-570; Burns v. Massachusetts Etc. Ins. Co. (1944) 62 Cal.App.2d 972, 975.) Given
that VPC-OR made no payments on the loan for five years, the amount of interest that
would accrue at an annual rate of 13 percent would be considerable.
Second, the “exit fee,” which would add 13 percent of the $3.1 million principal
(see fn. 1, ante), appears to be in the nature of a penalty or liquidated damages provision.
(Stearns, The Law of Suretyship, supra, § 8:17, p. 280.)
3
In his combined opposition and claim of exemption (Code Civ. Proc., §§ 484.060,
484.070), Eves opposed only that part of the application aimed at “proceeds from the
sale” of the Como house, which “[b]y the terms of the personal guarantee upon which
plaintiff‟s application for attachment . . . is based . . . are „excluded‟ from attachment.”
Eves based this conclusion on his reading of the guaranty‟s paragraph 13: “Limitation
of Recovery. [¶] Notwithstanding the foregoing, the personal Guaranty of Eves may
only be collected from assets not expressly excluded, as provided in the Asset Exclusion
Schedule for Eves is attached hereto as Schedule 1; provided such limitation shall be
inapplicable in the event Eves or any affiliate of Eves supplements or enhances in any
material manner any Excluded Asset but only to the extent of such supplement or
enhancement.”
Series AGI‟s application was submitted on papers, exhibits, and declarations.
Series AGI‟s first declaration, by attorney Stephen Preonas, concerned the amount of
attorney fees Series AGI was likely to incur, together with an explanation of the damages
it was seeking. The second, by Jon Lotter, Series AGI‟s manager, authenticated a
number of attached exhibits, including the guaranty, and narrated the history of the
planned project.
Eves responded with a declaration by attorney John E. Carey, Jr., that simply
authenticated an attached copy of the guaranty. Eves himself provided two declarations.
The first purported to set out Eves‟s “understanding” of the guaranty. The trial court
sustained Series AGI‟s objections that virtually all of Eves‟s declaration was speculation,
opinion, or otherwise lacked foundation.
Lotter then filed a supplemental declaration explaining how paragraph 13 came to
be included in the guaranty. The final declaration was the supplemental one by Eves,
In addition, the underlying agreement between VPC-OR and Series AGI, as well
as the guaranty, allows for recovery of attorney fees, so Eves could also be liable for “all
expenses, costs, charges, and legal fees reasonably incurred.” (T&R Painting
Construction, Inc. v. St. Paul Fire & Marine Ins. Co. (1994) 23 Cal.App.4th 738,
744-745; Gold v. Maxwell (1959) 176 Cal.App.2d 213, 219; College Nat. Bank v.
Morrison (1929) 100 Cal.App. 403, 408.)
4
which is the only source of particulars regarding the sale of his Italian residence: “I sold
that property in the summer of 2011. The proceeds of the sale . . . were all cash and that
cash has been deposited in various accounts. No part of the proceeds of [the] sale has
ever been comingled with any other funds. The sale proceeds have always been easily
identifiable because they have been in segregated accounts as I have drawn them down to
satisfy various obligations.”5 The apparent purpose of this explanation was to buttress
Eves‟s claim that “where collateral is sold, the secured creditor‟s security interest
automatically attaches to the proceeds of sale. Cal. U. Com. Code, § 9315(a)(2)
(„A security interest attaches to any identifiable proceeds of collateral.‟)”
Following a brief hearing, the trial court made an order denying “Eves‟ claim of
„exemption‟ for the Como, Italy property” proceeds and granting Series AGI‟s
application for an order of attachment. Eves timely sought review of this appealable
order. (Code Civ. Proc., § 904.1, subd. (a)(5).)
REVIEW
Preliminary Matters And The Scope Of Our Review
Although the parties do not suggest that any other documents executed
contemporaneously with the guaranty (i.e., VPC-OR‟s promissory note, security
agreement, and deed of trust) are useful in ascertaining the scope and meaning of the
guaranty, these other instruments may be considered for that purpose. (Civ. Code,
§§ 1642, 1647; Davenport v. Stratton (1944) 24 Cal.2d 232, 244-245.) Consideration of
the other documents is particularly appropriate because they are referenced on each of the
pages of the guaranty. (Goodwin v. Nickerson (1875) 51 Cal.166, 169; Fidler v. Board of
Trustees (1931) 112 Cal.App. 296, 309.)
The Attachment Law (Code Civ. Proc., §§ 481.010-493.060) requires the party
seeking a prejudgment attachment to demonstrate the probable validity of its claim,
i.e., that it is “more likely than not that the plaintiff will obtain a judgment against the
5
The record does not establish the value of the Como property at any time. In
short, the amount of the proceeds available for attachment is unknown.
5
defendant” (Code Civ. Proc., §§ 481.190, 484.090, subd. (a)(2).). An attachment is
properly issued in an action involving a contractual claim of money of a fixed or
ascertainable amount of more than $500 (Code Civ. Proc., § 483.010, subd. (a)). An
attachment may be issued against a natural person only if the claim arises “out of the
conduct by the defendant of a trade, business, or profession.” (Id., § 481.010, subd. (c).)
A trial court‟s findings on these issues will be upheld if supported by substantial
evidence. (Code Civ. Proc., § 484.090, subd. (a); Lorber Industries v. Turbulence, Inc.
(1985) 175 Cal.App.3d 532, 534-535; Nakasone v. Randall (1982) 129 Cal.App.3d. 757,
762.) However, none of the trial court‟s findings on these points is challenged by Eves.6
Although the precise point does not appear to have been authoritatively
established, it appears from some statutory language and case law that a claim of
exemption upheld by the trial court is also judged according to the substantial evidence
standard. (See Code Civ. Proc., § 484.090, subd. (b) [“If . . . the court finds that the
defendant has failed to prove that all the property sought to be attached is exempt from
attachment”] italics added; Schwartzman v. Wilshinsky (1994) 50 Cal.App.4th 619, 626
[whether account is meant for individual‟s retirement, and thus exempt from levy, is
substantial evidence question]; Yaesu Electronics Corp. v. Tamura (1994) 28 Cal.App.4th
6
At the end of his reply brief, Eves argues that the recent decision in Riverisland
Cold Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th 1169
undermines the trial court‟s finding that Series AGI had demonstrated the validity of its
claim. The decision deals with an arcane aspect of the parole evidence rule as applied to
a contract allegedly tainted by fraud. But as neither fraud nor the parole evidence rule
was mentioned by Eves in opposing Series AGI‟s attachment request, we discern no basis
for reading the trial court‟s finding as undermined by this change in the law. Moreover,
because the issue of fraud was not made to the trial court, we have proceeded in
conformity with the principle that “ „when a person with the capacity of reading and
understanding an instrument signs it, he is, in the absence of fraud and imposition, bound
by its contents, and is estopped from saying that its provisions are contrary to his
intentions or understanding. . . .‟ ” (Edwards v. Comstock Insurance Co. (1988)
205 Cal.App.3d 1164, 1167, quoting Smith v. Occidental Etc. Steamship Co. (1893)
99 Cal. 462, 470-471.) That said, because the attachment order is a prejudgment remedy,
we do not foreclose the issue from being presented in subsequent proceedings before the
trial court.
6
8, 14 [same]; but see Code, Civ. Proc., § 484.090, subd. (c) [“If the court determines that
property of the defendant is exempt from attachment, in whole or in part, the right to
attach order shall describe the exempt property and prohibit attachment of the property”],
italics added.)
However, because there are no contested issues of fact, the issue becomes one of
law. (Continental Casualty Co. v. Hartford Acc. & Indem. Co. (1966) 243 Cal.App.2d
565, 570.) Thus, it is our independent duty is to interpret Eves‟s guaranty in a manner
that will effectuate its purpose. (Civ. Code, § 1636; Cates Construction, Inc. v. Talbot
Partners (1999) 21 Cal.4th 28, 39; U.S. Leasing Corp. v. DuPont (1968) 69 Cal.2d 275,
284-285, 290.)
Analysis
A guaranty is a form of surety, whereby the guarantor “promises to answer for the
debt . . . of another.” (Civ. Code, § 2787) A guaranty is a form of contract and subject to
the usual rules governing contract interpretation. (Civ. Code, § 2837; Rest.3d Suretyship
and Guaranty, § 14, p. 69.) The oft-repeated formulation of that interpretive function first
appeared in 1903: “While it is true that a surety cannot be held beyond the express terms
of his contract, yet in interpreting the terms of a contract of suretyship, the same rules are
to be observed as in the case of other contracts. Such construction does not mean that
words are to be distorted out of their natural meaning, or that, by implication, something
can be read into the contract that it will not reasonably bear; but it means that shall be
fairly construed with a view to effect the object for which it was given, and to accomplish
the purpose for which it was designed.” (Sather Banking Co. v. Briggs Co. (1903)
138 Cal. 724, 730.)
A bedrock principle of contract law in California has always been that competent
parties should have “ „ “the utmost liberty of contract” ‟ ” to arrange their affairs
according to their own judgment so long as they do contravene positive law or public
policy. (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992)
2 Cal.4th 342, 363 and authorities cited; see, e.g., Guz v. Bechtel National, Inc. (2000)
24 Cal.4th 317, 336 [“the parties are free to define their relationship . . . as they wish”];
7
Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 75 [“Aerojet
and the insurers were generally free to contract as they pleased”]; Linnastruth v. Mut.
Benefit Etc. Assn. (1943) 22 Cal.2d 216, 218 [“parties may contract as they please so long
as they do not violate the law or public policy”].) Surety agreements are no different.
(See Rest.3d Suretyship and Guaranty, § 6 & com. a, p. 29.)
The nonpaternalistic corollary to this freedom is that courts assume that each party
to a contract is alert to, and able to protect, his or her own best interests. (See Crestview
Cemetery Assn. v. Dieden (1960) 54 Cal.2d 744, 753; Mitau v. Roddan (1906) 149 Cal. 1,
14.) Therefore, courts will not rewrite contracts to relieve parties from bad deals nor
make better deals for parties than they negotiated for themselves. (See Naify v. Pacific
Indemnity Co. (1938) 11 Cal.2d 5, 11 [“Parties are, within reason, free to contract as they
please, and to make bargains which place one party at a disadvantage”].) As we stated in
1964: “The courts cannot make better agreements for parties they themselves have been
satisfied to enter into or rewrite contracts because they operate harshly or inequitably. It
is not enough to say that . . . the contract would be improvident or unwise or would
operate unjustly. Parties have the right to make such agreements.” (Walnut Creek Pipe
Distributors, Inc. v. Gates Rubber Co. (1964) 228 Cal.App.2d 810, 815; see Moreno Mut.
Irr. Co. v. Beaumont Irr. Dist. (1949) 94 Cal.App.2d 766, 782 [“nor will the courts
relieve one from the consequences of his own improvidence or poor judgment”].) Or, as
we later stated: “It is widely recognized that the courts are not at liberty to revise an
agreement under the guise of construing it. Neither abstract justice nor the rule of liberal
interpretation justifies the creation of a contract for the parties which they did not make
themselves.” (Hinckley v. Bechtel Corp. (1974) 41 Cal.App.3d 206, 210; see Code Civ.
Proc., § 1858 [“the office of the Judge is . . . not to insert what has been omitted”]; Levi
Strauss & Co. v. Aetna Casualty & Surety Co. (1986) 184 Cal.App.3d 1479, 1486 [“The
court . . . cannot insert in the contract language which one of the parties now wishes were
there.”].)
With these principles in mind, construction of the guaranty is not difficult.
8
This is not a contract of adhesion. Eves is no novice, but a knowledgeable and
sophisticated person with wide experience in this particular type of commercial
transaction. (See fn. 2, ante.) Thus, he is presumed competent to negotiate and draft
documents that would protect his interests. The other instruments executed
contemporaneously with the guaranty are highly pertinent to its construction.
The “Deed of Trust, Security Agreement with Assignment of Rents and Fixture
Filing” that Eves, as the president of Venture Commerce Centers, signed for VPC-OR on
the same day as the guaranty, has numerous references to “proceeds” in different
contexts. VPC-OR transferred to Series AGI “All income, rents, royalties, revenue,
issues, profits, proceeds and other benefits from any and all of the Land and/or
Improvements,” together with “All proceeds and claims arising on account of any
damage to, or Condemnation . . . of the Land and/or Improvements.” (Italics added.)
VPC-OR also transferred a number of specified rights categorized as “Personal
Property,” which encompassed “All proceeds of any of the foregoing, including, without
limitation, proceeds of any voluntary or involuntary disposition or claim respecting any
of the foregoing (pursuant to judgment, condemnation award, or otherwise) and all
goods, documents, general intangibles, chattel paper, and accounts, wherever located,
acquired with cash proceeds of any of the foregoing or proceeds thereof.” (Italics
added.) Another provision explained at great length how “Insurance Proceeds,” “Net
Insurance Proceeds,”7 “Condemnation Proceeds” and “Proceeds of Sale” would be
handled. (Italics added.) A glossary of “Defined Terms” stated that “ „Rents and Profits‟
shall mean all and any income, rents, royalties, revenue, issues, profits, proceeds,
accounts receivable, and other benefits now or hereafter arising from the Property, or any
part thereof.” (Italics added.) Among the “Remedies Upon Default” given to Series AGI
7
Exhibit D attached to the “Deed of Trust and Security Agreement with
Assignment of Rents and Fixture Filing” addressed how “Net Insurance Proceeds” could
be used for “restoration” of the property. As previously noted, “application of insurance
proceeds” is also mentioned in the promissory note. (See fn. 1, ante.)
9
were a “Power of Sale” and the discretionary power over “Application Of Proceeds of
Sale.” (Italics added.)
These provisions demonstrate that the concept of proceeds was not overlooked by
Series AGI, VPC-OR, or Eves. The language of the excluded assets shows that some
care was given to their description. (See fn. 3, ante.) If Eves meant to anticipate the
liquidation or sale of an excluded asset, all he had to do was insert language to cover that
contingency.8 (See Safeco Ins. Co. v. Robert S. (2001) 26 Cal.4th 758, 763 [“The policy
before us . . . contains not a criminal act exclusion but an illegal act exclusion. Had
Safeco wanted to exclude criminal acts from coverage, it could easily have done so.”].)
His failure to do so cannot be remedied with a judicial blue pencil, because we “cannot
insert in the contract language which one of the parties now wishes were there.” (Levi
Strauss & Co. v. Aetna Casualty & Surety Co., supra, 184 Cal.App.3d 1479, 1486;
accord, Safeco Ins. Co. v. Robert S., supra, at p. 764.) Eves is therefore bound by the
guaranty‟s plain language limiting the exemption from attachment to assets “expressly
excluded . . . in the Asset Exclusion Schedule.” Proceeds were not expressly excluded.
The arguments advanced by Eves to evade this conclusion do not persuade.
Looking to Paragraph 13 of the guaranty, this is how Eves explains its meaning:
“The final sentence of Paragraph 13 refers to „supplements or enhancements‟ of an
excluded asset. If the excluded asset were a $3 million residence and after signing the
guaranty, the guarantor „enhanced‟ that asset by building a $2 million addition, the
guaranty says that the value of the enhancement would not be excluded. . . . This makes
sense as a hedge against the guarantor „banking‟ money into an excluded asset after the
loan agreement is executed that would otherwise have been available in the event of
collection. In such a circumstance, the only way to give effect to the sentence is to
interpret it to say that if the only way to pay the portion of value attributable to a
supplement or enhancement is to sell the asset, the owner need only turn over that sum
8
It is useful to note that Eves took the trouble to ensure that the exclusion of each
of the two “personal residence[s]” specified that the exclusion extended to “its contents.”
10
that represents the supplement or enhancement and may keep the balance. The only way
to make sense of the exclusion being limited to the extent of such enhancement is to
conclude that from the proceeds of the sale, the creditor receives only the $2 million
enhancement. The limitation expressly provides that the creditor will not receive the
balance of the proceeds of the sale. To argue otherwise, turns the document on its
head. . . . The language of the guaranty itself clearly states that the Creditor does not
receive the proceeds of sale of an excluded asset unless the asset was enhanced, and then
only that portion of the proceeds of sale attributable to the enhancement.” Not at all. The
obvious purpose of the provision is to establish a formula for the valuation of the
excluded asset and prevent that value from being “supplement[ed] or enhance[d]” in such
a way that reduced Eves‟s other resources for satisfying his guaranty. As evident from
the use of the present tense, the predicate of that purpose is Eves retaining the excluded
asset. The absence of the words “sell,” “sale,” or “sold” from paragraph 13 is
conspicuous.9
Eves appears to believe the exempted asset consists not of his former personal
residence in Como, as such, but the market value of that residence at the time the
guaranty was executed. That is not, however, what the plain language of the guaranty
says. Schedule 1 declares that the excluded asset consists of “The personal residence of
Robert J. Eves at Via Regina, 27 Moltrasio, Como, Italy and its contents.” At the time of
the attachment, Eves no longer owned the Como residence or its contents. The sale of
those assets essentially vitiated the exclusion.
It is illogical for Eves to insist that “The language of the guaranty itself clearly
states that the Creditor does not receive the proceeds of sale of an excluded asset unless
the asset was enhanced” and that “The limitation expressly provides that the creditor will
9
This absence is only underscored by the presence elsewhere in the guaranty of
language whereby Eves waived “any and all benefits, rights and defenses under
[California‟s Anti-Deficiency legislation] Code of Civil Procedure Sections 580a and
726, which would otherwise limit [Eves‟s] liability after a nonjudicial or judicial
foreclosure sale”.
11
not receive the balance of the proceeds of the sale” when the word “proceeds” is nowhere
present. Nothing about proceeds from the sale of excluded assets is “clearly stated” or
“expressly” provided in the guaranty. To read paragraph 13 as Eves does—to encompass
proceeds from the sale of that asset—is a distortion of the natural meaning of the
language chosen by the parties. (See Sather Banking Co. v. Briggs Co., supra, 138 Cal.
724, 730.) For this court to agree with Eves would be to “revise an agreement under the
guise of construing it.” (Hinckley v. Bechtel Corp., supra, 41 Cal.App.3d 206, 211.)
Similarly, with no citation to the record Eves insists that the language of Paragraph
13 was “designed to protect Mr. Eves‟ personal core assets . . . . Mr. Eves‟ business
empire remained at risk and available to the lender for collection in the event of default
but Mr. Eves was allowed to protect items unrelated to the business that would, if
necessary, provide a life boat in the event of an economic meltdown . . . . There is
nothing in the Continuing Guaranty that supports the argument that the proceeds from
the sale of an excluded asset loose [sic] the exclusion by virtue of the sale. In the absence
of an express agreement between the parties to the contrary, the proceeds from the sale of
an excluded asset take the place of the asset itself, and the contractual rights and duties of
the parties attributable to the asset apply to the proceeds.” (Italics added.) This is exactly
backwards—Paragraph 13 plainly conveys that Eves‟s guaranty could be satisfied from
all of his assets except those “expressly excluded.” If “personal core assets” was indeed
such a pressing concern, nothing prevented Eves from using protective language.
Eves tells us that unless proceeds from the sale of an excluded asset are also
excluded, “the exclusion is a term without a purpose” that will not safeguard from this
scenario: “If, due to exigent circumstances, Mr. Eves had no funds and were forced to
sell an excluded asset like the home in Italy in order to survive, he could be forced to pay
over all of the proceeds of that sale, thereby forcing him to sell his Mill Valley home, and
so on. The proceeds of that sale could be taken as well and he would have to sell one
after the other, all of the „excluded‟ assets enumerated in the guaranty.” This is the sort
of eventuality an experienced investor such as Eves, assisted by counsel, might be
expected to anticipate. It is precisely the kind of situation that proves “improvident or
12
unwise or . . . operate[s] unjustly” where courts leave competent contracting parties to lie
in the bed they have made. (Walnut Creek Pipe Distributors, Inc. v. Gates Rubber Co.,
supra, 228 Cal.App.2d 810, 815; Moreno Mut. Irr. Co. v. Beaumont Irr. Dist., supra,
94 Cal.App.2d 766, 782.)
Eves maintains that what he is arguing for is nothing more than “the mirror image
of the concept expressed” in California Uniform Commercial Code section 9315,
subdivision (a)(2), which provides that a perfected security interest “attaches to any
identifiable proceeds of collateral” covered by the security agreement which, Eves points
out, is “created by contract between the parties.” However, there is no equivalent statute
for sureties, which makes it a matter for the parties‟ contractual negotiation. Which in
turn sends us back to the absence of such a contractual provision here.
The handful of other authorities cited by Eves are equally unhelpful. In re CellNet
Data Systems, Inc. (3d Cir. 2003) 327 F.3d 242, 248, involved a contract that did
expressly address “ „proceeds from any Excluded Asset.‟ ” The court in In re
Cunningham (1st Cir. 2008) 513 F.3d 318, 323-324, held that the proceeds from an
exempted homestead is likewise exempted. But Eves fails to appreciate that the
Bankruptcy Code generally pegs such exemptions to state law (see 11 U.S.C. § 522),
which is not present here. The extended discussion in ITT Commercial Finance Corp. v.
Tech Power, Inc. (1996) 43 Cal.App.4th 1551 concerning the tracing of proceeds from
the sale of collateral covered by a perfected security interest is irrelevant for the reason
stated in the preceding paragraph.
Finally, Eves submits that “proceeds” should be treated as an implied term, on the
theory that “after examining the contract as a whole it is so obvious that the parties had
no reason to state the [term], the implication arises from the language of the agreement,
and there is a legal necessity.” (College Block v. Atlantic Richfield Co. (1988)
206 Cal.App.3d 1376, 1380.) We reject this argument because it is made for the first
time in Eves‟s reply brief. (Garcia v. McCutchen (1997) 16 Cal.4th 469, 482, fn. 10; 9
Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 723, p. 790.) But even if the argument
were properly before us, we would reject it on the merits. Implied terms “are justified
13
only when they are not inconsistent with some express term of the contract and, in the
absence of such implied terms, the contract could not be effectively performed.” (Tanner
v. Title Ins. & Trust Co. (1942) 20 Cal.2d 814, 824; see (Carma Developers (Cal.), Inc. v.
Marathon Development California, Inc., supra, 2 Cal.4th 342, 374 [“implied terms
should never be read to vary express terms”].) Implied terms “are disfavored at law. The
courts will not imply a better agreement for parties than they themselves have been
satisfied to enter into, or rewrite contracts whenever they operate harshly.” (Vikco Ins.
Services, Inc. v. Ohio Indemnity Co. (1999) 70 Cal.App.4th 55, 70; see Sather Banking
Co. v. Briggs Co., supra, 138 Cal. 724, 730 [in construing a guaranty, court will not
imply “something . . . into the contract that it will not reasonably bear”].) All of these
caveats work against Eves. The hoped-for implied term is contrary to the unequivocal
language of Paragraph 13 that to be exempt from the guaranty assets must be “expressly
excluded.” The guaranty appears fully capable of being effectively performed without
the insertion of the term “proceeds.” And we have already pointed out that it is not our
job to save Eves from himself. (Code Civ. Proc., § 1858; Levi Strauss & Co. v. Aetna
Casualty & Surety Co., supra, 184 Cal.App.3d 1479, 1486; Hinckley v. Bechtel Corp.,
supra, 41 Cal.App.3d 206, 210; Walnut Creek Pipe Distributors, Inc. v. Gates Rubber
Co., supra, 228 Cal.App.2d 810, 815.)
Regardless of whether the issue is framed as one of fact judged according to the
standard of substantial evidence (Schwartzman v. Wilshinsky, supra, 50 Cal.App.4th 619,
626) or as one of law for our independent review (U.S. Leasing Corp. v. DuPont, supra,
69 Cal.2d 275, 284-285, 290; Continental Casualty Co. v. Hartford Acc. & Indem. Co.,
supra, 243 Cal.App.2d 565, 570), the result is the same: there is no basis for relieving
Eves from the consequences of the language to which he willingly assented.
DISPOSITION
The order is affirmed.
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_________________________
Richman, J.
We concur:
_________________________
Kline, P.J.
_________________________
Haerle, J.
15
A135832, Series AGI West Linn of Appian Group Investors De LLC v. Eves
Trial Court: Marin County Superior Court
Trial Judge: Honorable Roy C. Chernus
Attorney for Defendant and Appellant: Wild, Carey & Fife, John E. Carey, Jr.
Attorneys for Plaintiff and Respondent: Katzoff & Riggs, Kenneth S. Katzoff and
Stephen G. Preonas
16