Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from an order of the Superior Court of Los Angeles County, Los Angeles County Super. Ct. No. BD135888.
Marjorie S. Steinberg, Judge. Reversed and remanded with directions.
Greines, Martin, Stein & Richland, Robin Meadow, Tillman J. Breckenridge for Appellant.
Trope and Trope, Thomas Paine Dunlap, Lawrence E. Leone, James A. Durant; Joe Young Law, Joe Young, Jeannie Evans for Respondent.
BOREN, P.J.
As part of their 1994 marital dissolution judgment, Dennis and Karen Gertmenian were directed to form a partnership to handle the income from two commercial properties in which each spouse held a one-half interest. Many years later, Karen sought arrearages from Dennis for claimed underpayments of partnership income. Based on our interpretation of the dissolution judgment, Dennis has no personal liability for partnership debts; therefore, the trial court erred by ordering Dennis to pay Karen over half a million dollars. The appropriate remedy is an accounting to determine whether the partnership owes Karen any income arrearages or money from the sale of the two properties.
Following the parties’ lead, we refer to them by their first names. (See In re Marriage of Smith (1990) 225 Cal.App.3d 469, 475-476, fn. 1.)
FACTS
The parties were married in 1977. The marriage produced three children. In 1993, Dennis filed for divorce.
The Marital Settlement Agreement
In August 1994, the parties entered a marital settlement agreement (MSA) regarding the disposition of their community property. Among the community assets were two properties, one in Yuma, Arizona, and one in Salinas, valued at a total of $2.5 million. Each party received a one-half interest in the two properties. Per the MSA, the parties agreed to place the two properties in a partnership, with Dennis, the managing partner, “personally guaranteeing that Karen will receive one-half of the net profits but not less than $3,500 monthly income (as will Dennis) so long as the partnership is in existence. [ ] The partnership shall continue until the death of either party, the sale of either property, or until August 1, 2009, whichever event first occurs”
The Dissolution Judgment
In December 1994, the trial court entered judgment in the Gertmenian dissolution action (the dissolution judgment). The dissolution judgment incorporates the MSA, but specifies that if the provisions in the MSA are “inconsistent” with the dissolution judgment, the judgment prevails.
With respect to the two properties, the dissolution judgment reiterates that they will be transferred into a partnership managed by Dennis, with Karen to receive “one-half of the net profits of said partnership, but not less than $3,500 monthly income so long as the partnership is in existence.” The dissolution judgment does not specify that Dennis personally guarantees payment of the $3,500 monthly distribution to Karen. The judgment states that the partnership “shall continue until the death of either party, the sale of either property, or until August 1, 2009, whichever event first occurs.” The properties “shall not be sold to any third party without [Karen’s] prior written approval.”
The Partnership Agreement
The parties entered a partnership agreement in January 1994, to carry out the terms of the judgment. The “Yuma-Salinas Partnership” engaged in the business of owning and leasing the two properties. The partnership continued “until the earliest of (1) death of either party, (2) dissolution by mutual agreement or (3) August 1, 2009.” Upon dissolution of the partnership, each partner is entitled to “receive an amount which, when added to all other amounts previously received from the Partnership as distributions or withdrawals, shall equal his or her total capital contribution to the Partnership, plus his or her share of income or loss from inception.”
The “mutual agreement” provision does not appear in either the MSA or the dissolution judgment.
The partnership was capitalized with the parties’ ownership interest in the two properties, and each partner was “credited with a 50% interest in the capital of the partnership.” The parties acknowledged that the rental income to the partnership was $7,000 per month, and Karen was to receive a monthly $3,500 distribution of this income for the duration of the partnership.
The Sale of the Salinas Property
In December 1996, Dennis wrote to Karen and recommended the sale of the Salinas property, due to an upcoming mortgage balloon payment of $696,239. Karen’s attorney replied that Dennis has exclusive authority to manage the partnership business, except that the partnership agreement requires that Dennis obtain Karen’s approval to refinance or encumber the properties; as a result, counsel wrote, “whatever decision has to be made with respect to refinancing, sale, leasing, or otherwise, will have to be made by [Dennis].” Karen asked to see Dennis’s appraisal of the Salinas property, and stated that she intended to have an independent appraisal done.
There was, in addition, a second mortgage of $207,376 on the property.
Dennis’s lawyer wrote back indicating that “the property cannot be listed for sale, nor can it be sold, without the consent of both partners.” He demanded Karen’s written consent to sell the property. In reply, Karen’s attorney noted Dennis’s “absolute power of management and control” and insisted that “[t]here is no provision in the [Partnership] Agreement that prevents [Dennis] from selling the properties and assets of the business.” Dennis’s attorney responded that Dennis “will go forward to attempt to sell the property” in light of Karen’s refusal to participate in the sale, though he requested a “minor amendment” to the partnership agreement “to avoid any confusion” regarding the sale. In a final letter, Karen’s attorney reiterated Karen’s refusal to participate in the sale of the property, saying “If [Dennis] thinks it is in the best interest of the Partnership to sell the property, [Karen] will sign documents of sale as required by a title company so as not to interfere with his management, but without prejudice.” Karen would continue to rely on Dennis and his skills, and counsel saw no reason to amend the partnership agreement.
Karen’s appraiser valued the Salinas property at $1.5 million. Dennis sold the property in November 1997. Karen received $300,000 of the sale proceeds. During a deposition, Karen testified that she deposited the $300,000 check into her account. The partnership ceased making monthly payments of $3,500 to Karen in April 1997.
The Sale of the Yuma Property
In 2005, Dennis informed Karen that he was trying to sell the Yuma property. Through new counsel, and relying upon the dissolution judgment, Karen replied that “the Yuma property may not be sold to any third party without Karen’s prior written approval.” Karen demanded payment of $3,500 per month from April 1997 (when payments stopped) until the present. By the time that Karen’s letter was sent, the Yuma property had already been sold. Dennis offered to distribute Karen’s share of the proceeds from the sale to her.
The Application for a Writ of Execution
In June 2005, Karen applied for a writ of execution. She sought payment of the $3,500 per month listed in the dissolution judgment as her share of the partnership profits, an accrued amount of $339,500, plus $138,621 in interest. The court clerk issued the writ of execution. Dennis protested, and the court recalled the writ pending a court hearing.
Karen asked the court to determine whether Dennis was in arrears on the dissolution judgment. Karen argued that the partnership has not ended—despite the sale of both properties—because she never gave written approval for the sale of the properties. Because the conditions for ending the partnership have not occurred, Karen reasoned, Dennis’s obligation to pay the $3,500 in monthly partnership income has never ceased.
Dennis countered that Karen is not entitled to any income after the sale of the Salinas property in 1997, which ended the partnership and the obligation to pay $3,500 per month. The 1997 exchange of letters between the parties demonstrated Karen’s written consent to Dennis’s sale of the Salinas property, because she vigorously resisted Dennis’s efforts to involve her in the sale process, and advised him that he had “absolute power” over the properties.
Karen replied that the partnership is still in existence and that she retains the right to receive partnership income despite the sale of the two properties. She argued that “nothing in the judgment states that [Karen’s] right to receive the $3,500 would, as a matter of law, terminate and cease upon the sale of one of the properties.” Until the partnership was dissolved, Dennis’s obligation to pay continued. In deposition testimony, Dennis admitted that the Yuma-Salinas Partnership still owns assets, receives income, pays bills, and files tax returns.
The Trial Court’s Ruling
At the hearing on Karen’s motion, the court observed that Dennis sold the Salinas property without Karen’s “expressed [sic] written consent” or “written approval.” Dennis argued that Karen (a) was estopped from denying that she (through her attorney) insisted that Dennis alone make the sale, without Karen’s participation, or (b) waived her right to give written approval for the sale. Karen faulted Dennis for failing to dissolve the partnership in 1997, when he sold the Salinas property.
The court interpreted the dissolution judgment to mean that Karen had to authorize a sale in writing, in order for the $3,500 monthly obligation to terminate. In its statement of decision, the court found that Karen “did not approve the sale of the Salinas property in writing” and the letters from Karen’s attorney regarding the proposed sale “did not constitute such written approval.” Karen ceased receiving the monthly $3,500 distributions in May 1997, and did not inquire about the lack of payment until 2005, when her new counsel sought to enforce the monthly obligation. Karen did not approve, in writing, the sale of the Yuma property.
The court found that Dennis “is personally obligated to pay” Karen not less than $3,500 monthly as long as the partnership exists. This is not a marital support obligation. While the defense of laches is available with respect to nonsupport obligations, the defense does not apply to this case because Dennis failed to show that he was prejudiced by Karen’s eight-year delay in seeking to enforce the monthly payment. Karen did not acquiesce in Dennis’s failure to make payments, nor did she act in a way that would estop her from seeking enforcement of the dissolution judgment. The partnership remains in existence: Dennis has taken no steps to dissolve it, and still files tax returns and otherwise operates it. The court ordered Dennis to pay Karen the $3,500 monthly amount from May 1997 until the partnership terminates “to the extent the Partnership itself is unable to make such distributions.” The amount of Dennis’s personal indebtedness to Karen, including interest, is $546,692.18. Dennis timely appeals from the court’s order.
DISCUSSION
1. Appeal And Review
In its statement of decision, the trial court made clear that it was interpreting and applying the 1994 dissolution judgment. Karen originally sought a writ of execution on the dissolution judgment, and asked the court to determine Dennis’s arrearages under the judgment. “A judgment entered in a marital dissolution proceeding ‘may be enforced by the court . . . by such . . . order or orders as the court in its discretion may from time to time deem necessary.” (In re Marriage of Justice (1984) 157 Cal.App.3d 82, 86.) Appeal may be taken from postjudgment orders. (Code Civ. Proc., § 904.1, subd. (a)(2).)
This appeal largely involves an interpretation of the dissolution judgment to determine the rights and duties of the parties. Our interpretation of the judgment presents a legal question. “‘The interpretation of the effect of a judgment is a question of law within the ambit of the appellate court.’” (Mendly v. County of Los Angeles (1994) 23 Cal.App.4th 1193, 1205.) The facts of this case are undisputed: the only question is the legal consequences of the events that occurred. “‘When the decisive facts are undisputed, we are confronted with a question of law and are not bound by the findings of the trial court.’” (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799.)
2. The Sale Of The Salinas Property Dissolved The Partnership
The dissolution judgment states that “[t]he partnership shall continue until . . . the sale of either property . . . .” Under the terms of the judgment, the partnership ended when the Salinas property sold in 1997. Although the judgment indicates that the partnership property “shall not be sold to any third party without [Karen’s] prior written approval,” there is no proviso in the judgment that the partnership would continue after the sale of either property, even if Karen withheld written consent. The sale of the Salinas property dissolved the partnership, even without written consent, though Karen could have made a claim against the partnership if Dennis failed to obtain an adequate price for the land that was sold, or otherwise breached his fiduciary duty of loyalty and care. (Corp. Code, § 16404.)
The evidence is undisputed that Karen—through her counsel—steadfastly refused to give prior written consent to the sale of the Salinas property, despite repeated requests from Dennis. However, she obtained her own appraisal of the property and agreed to “sign documents of sale” for the property, “but without prejudice.” This could only reasonably mean without prejudice to protesting the sale price, not the occurrence of the sale. If Karen disagreed with the occurrence of the sale, she would not have agreed to sign sale documents. Moreover, she would not have accepted and deposited in her account a check for $300,000, representing her share of the proceeds from the sale.
By using and benefiting from the sale proceeds of the Salinas property for the last decade, Karen has ratified the sale of the property. “Ratification is the voluntary election by a person to adopt in some manner as his own an act which was purportedly done on his behalf by another person, the effect of which, as to some or all persons, is to treat the act as it originally authorized by him.” (Rakestraw v. Rodrigues (1972) 8 Cal.3d 67, 73.) In Rakestraw, the defendant forged the plaintiff’s signature on a promissory note and a deed of trust to obtain funds for a business venture. The plaintiff received a check from the lender and, a few days later, learned her signature was forged to obtain the loan. (Id. at pp. 70-71.) Despite her awareness of the forgery, the plaintiff did nothing to repudiate the loan, and benefited financially from her receipt of the loaned money. (Id. at pp. 72-73.) The Supreme Court found that the plaintiff, by accepting and benefiting from the loan for three years, ratified the defendant’s act in forging her signature on the loan documents, as a matter of law. The court rejected the plaintiff’s argument that any ratification had to be in writing. (Id. at pp. 75-76.)
The Rakestraw principles apply here. Karen refused to give written consent to Dennis’s proposed sale of the Salinas property; however, she accepted and benefited from the proceeds of the sale for nearly eight years before seeking relief from Dennis’s purported wrongdoing in selling the property. As a matter of law, this was an affirmative endorsement of Dennis’s sale of the property, even without Karen’s written ratification or consent.
Dennis’s continued management of the Yuma property and his continued operation of an entity called the Yuma-Salinas Partnership does not signify a continuing partnership with Karen. The terms of the dissolution judgment ended that partnership upon the sale of the Salinas property. At that point, Karen and Dennis became tenants in common on a jointly owned property in Yuma, and both are entitled to share one-half of the income and one-half of the sale proceeds from the Yuma property. If Karen had wished to promptly liquidate her interest in the Yuma property, she could have forced its sale through a judicial partition action.
3. Effect Of Dissolution On Partnership Distributions
The dissolution judgment states that Karen “shall receive one-half of the net profits of said partnership, but not less than $3,500 monthly income so long as the partnership is in existence.” Once the partnership ended upon the sale of the Salinas property, in November 1997, Karen ceased to have the right to a monthly $3,500 distribution. Pursuant to the dissolution judgment, the monthly distribution amount presupposes that both the Salinas and the Yuma properties are generating a total of $7,000 in monthly rental income for the partnership, or $3,500 for each partner. After the Salinas property sold, the presupposition no longer existed.
Karen accepted a $300,000 capital distribution upon the sale of the Salinas property. Karen was free to invest that capital to generate her own monthly income. By retaining and benefiting from the $300,000 capital distribution after the sale of the Salinas property, Karen cannot reasonably or legitimately claim that Dennis owes her an income on the $300,000 for the last 10 years.
4. The Judgment Provides No Grounds For Imposing Personal Liability
Three documents are presented in this appeal: the MSA, the dissolution judgment, and the partnership agreement. Only one of the three documents—the MSA—purports to impose any kind of personal liability on Dennis for payment of partnership distributions. The MSA states that Dennis personally guarantees that Karen will receive at least $3,500 per month so long as the partnership exists. Neither the dissolution judgment nor the partnership agreement provides for a personal guarantee on the part of Dennis.
A marital property settlement agreement that is incorporated into a dissolution decree “causes the agreement to merge with the decree.” (Zastrow v. Zastrow (1976) 61 Cal.App.3d 710, 713.) This merger “replaces the obligations of the contract with those of the decree” and it extinguishes the obligations specified in the contract. (Id. at p. 714.) Because the decree supersedes any marital agreement, the value of that agreement is purely “historical,” and there is no right of action on the agreement incorporated into the decree. (Hough v. Hough (1945) 26 Cal.2d 605, 609-610; In re Marriage of Jones (1987) 195 Cal.App.3d 1097, 1104.)
In this case, the dissolution judgment incorporates the MSA. The dissolution judgment expressly provides as follows: “TERMS OF JUDGMENT PREVAIL [¶] 16. To the extent any of the provisions of this Judgment of Dissolution of Marriage are inconsistent with any of the provisions of [the MSA and an addendum], the provisions of this Judgment shall prevail.” The text of the dissolution judgment details the precise terms of the parties’ agreement. But nowhere in the dissolution judgment is any kind of provision decreeing that Dennis personally guarantees Karen’s receipt of monthly income from the partnership. This is a material difference between the MSA and the dissolution judgment. A personal guarantee on the part of Dennis simply cannot be extracted from any of the terms of the dissolution judgment.
We find, as a matter of law, that the personal guarantee language in the MSA is inconsistent with the decree. If the dissolution judgment failed to reflect the terms of the MSA, Karen had to challenge the judgment by taking a direct appeal when it was rendered. (Ellena v. State of California (1977) 69 Cal.App.3d 245, 259.) Because the terms of the dissolution judgment prevail over inconsistent terms in the MSA, and the judgment supersedes the MSA as a whole, the personal guarantee contained in the MSA cannot be enforced.
DISPOSITION
The postjudgment order is reversed. The case is remanded for the trial court to conduct an accounting. The parties are to bear their own costs on appeal.
We concur: ASHMANN-GERST, J., CHAVEZ, J.