Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County, No. 06CC11037 Jane D. Myers, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.)
Law Offices of Stewart & Stewart and Laurie A. Messerly Stewart for Plaintiff, Cross-defendant and Appellant.
Morris & Associates, James G. Morris, Brandon C. Murphy and Le’Roy T. Roberson for Defendant, Cross-complainant and Respondent.
OPINION
MOORE, J.
Pursuant to a financier agreement, appellant John Stewart (Stewart) loaned $250,000 to Doc Brown Productions, LLC (Doc Brown) to complete the funding for a rock concert at the Great Wall of China. Joyce and Associates, Inc. (Joyce) guaranteed repayment of the loan. After the concert took place, it was made available for viewing on a pay-per-view basis, DVD’s of the concert were made available for sale on the Internet, and the filmed footage of the concert and all of its sound recordings were sold for $1,964,117.80. Nonetheless, no money was returned to Stewart, who commenced litigation.
A default judgment was entered against Doc Brown on the financier agreement, but judgment was entered in favor of Joyce on the guaranty. The court construed the financier agreement as meaning that Stewart was to recover no monies until the concert had generated gross revenue. It found that Stewart had not shown that any gross revenue had been generated.
We disagree. While Stewart failed to provide any evidence with regard to the amounts of money, if any, generated from DVD or pay-per-view sales, he provided evidence to show that the filmed footage of the concert and all of its sound recordings were sold for $1,964,117.80. This one sale alone was enough to demonstrate that the concert had generated “gross revenue” within the meaning of the financier agreement. The fact that the payment was made with an unsecured promissory note instead of cash does not mean that a sale did not take place or that gross revenue was not generated. Doc Brown’s repayment obligation under the financier agreement was triggered, but Doc Brown failed to perform. Thus, Joyce’s obligation under the guaranty was triggered. Joyce also failed to perform. We reverse and remand.
I
FACTS
The Great Wall of China concert was scheduled to take place on September 25, 2004. Doc Brown was running short of financing so, on or about September 8, 2004, Stewart loaned Doc Brown $250,000. The financier agreement required Doc Brown to repay Stewart, from gross revenue, the amount loaned plus 30 points. Cary Floyd (Floyd) signed the financier agreement as the “duly authorized agent” of Doc Brown.
Joyce guaranteed the performance of Doc Brown’s obligations under the financier agreement, pursuant to a guaranty dated September 8, 2004. Floyd, who was an officer, director, and 50 percent owner of Joyce, signed the guaranty on Joyce’s behalf.
However, after the concert took place, neither Doc Brown nor Joyce reimbursed Stewart for the money he had loaned. This was so even though, on May 1, 2006, Doc Brown sold to Digital Sports & Entertainment, Inc., doing business as WOW Music International (Digital Sports), all of the filmed footage of the concert, all of the sound recordings therefrom, and all the program, trailer, commercial, and media edits. Digital Sports paid Doc Brown $1,964,117.80, in the form of an unsecured promissory note, for the assets.
Several months later, Stewart filed a complaint against Doc Brown, Joyce, and Floyd. The complaint asserted causes of action for breach of contract against Doc Brown, for breach of guaranty against Joyce, for fraud against Doc Brown, Joyce and Floyd, for alter ego liability against Floyd, and for vicarious liability against Joyce. Joyce filed a cross-complaint for declaratory relief. It requested a determination that the obligation to pay Stewart was contingent upon the concert generating revenue. In the alternative, Joyce requested a determination that the obligation to pay back the amount of Stewart’s investment plus 30 points was usurious, and that the guaranty was invalid because Floyd had no authority to execute it on Joyce’s behalf.
A default judgment was taken against Doc Brown and Floyd. The total amount of the judgment was $386,552.70, including the principal amount of $325,000 ($250,000 plus 30 points), interest, costs and attorney fees. Stewart then filed a motion for summary adjudication against Joyce, on the ground that Joyce was liable, under the guaranty, to pay the amount of the default judgment against Doc Brown. The court denied the motion.
Following trial, the court entered judgment in favor of Joyce. It granted declaratory relief to Joyce on the cross-complaint and held that the wording of the financier agreement showed an intention that Doc Brown’s obligations as principal and Joyce’s obligations as guarantor were contingent upon the concert generating gross revenue. It further held that Stewart had failed to meet its burden of proof to show that any gross revenue had been received by Doc Brown or Floyd with respect to the concert. Finally, it held that Joyce’s remaining claims on the cross-complaint were denied as moot. The judgment included an award of $47,085 in attorney fees and $1778 in costs against Stewart.
Stewart’s request for a statement of decision was denied as untimely. Stewart appeals from the judgment against him.
II
DISCUSSION
A. Default Judgment and Guaranty:
Stewart acknowledges the general rule that one party to an action is not bound by a default judgment taken against another. (All Bay Mill & Lumber Co. v. Surety Co. (1989) 208 Cal.App.3d 11, 17-18; see also Gottlieb v. Kest (2006) 141 Cal.App.4th 110, 120; Knowles v. Tehachapi Valley Hospital Dist. (1996) 49 Cal.App.4th 1083, 1090-1092.) However, he argues that the rule does not apply in this context, where Joyce has waived all defenses to liability, and that Joyce should be bound to pay the default judgment against Doc Brown.
The guaranty contains several relevant provisions. The first paragraph thereof provides in pertinent part: “The undersigned hereby unconditionally guarantees and agrees to be liable for the full and indefeasible payment... when due of all now existing and future indebtedness, obligations, or liabilities of the Debtor to you, however arising,... whether arising under... [the financier agreement]... or by operation of law or otherwise....” (Italics added.) The third paragraph of the guaranty states in pertinent part: “The undersigned also agrees that you... may require the undersigned to make immediate payment of Obligations to you when due or at any time thereafter. The Obligations shall be due and payable when and as the same shall be due and payable under the terms of the [financier agreement] ....” (Italics added.)
Language in both of these paragraphs emphasizes that monies shall be due under the guaranty when they are due under the financier agreement. At the same time, the first paragraph does provide, as Stewart points out, that Joyce shall be liable for Doc Brown’s debts whether arising under the financier agreement or arising by operation of law. Stewart argues that the default judgment arose by operation of law and, once entered, constituted a debt of Doc Brown that was then due and payable.
Stewart also emphasizes that the guaranty is expressly unconditional. Indeed, the fourth paragraph of the guaranty states in part: “The undersigned acknowledges that this Guaranty and the undersigned’s obligations hereunder are... absolute and unconditional in all respects, and shall at all times be valid and enforceable irrespective of... any... circumstances of any nature whatsoever that might otherwise constitute a defense to this Guaranty and the undersigned’s obligations under this Guaranty....” In addition, the paragraph provides: “[T]he undersigned absolutely, unconditionally, and irrevocably waives any and all right to assert any defense, set-off, counterclaim, or cross-claim of any nature whatsoever with respect to this Guaranty or the obligations of the undersigned or any other person... (including... the Debtor) in any action or proceeding brought by you....”
According to Stewart, the language of the guaranty shows that Joyce waived the right to raise any defense whatsoever to the default judgment and that, inasmuch as the guaranty was absolutely unconditional, there was no condition precedent to Joyce’s obligation to satisfy Doc Brown’s liability on the default judgment. Joyce, on the other hand, asserts that the Legislature has codified, in Civil Code section 2856, subdivision (a), the types of defenses that may be waived, and that a waiver of due process rights and an opportunity to defend is not among them. Neither party, however, cites a case addressing whether the list of waivable defenses set forth in section 2856, subdivision (a) is all-inclusive and whether it is against public policy to waive defenses not on the list.
Civil Code section 2856, subdivision (a)(1) provides: “(a) Any guarantor or other surety... may waive any or all of the following: [¶] (1) The guarantor or other surety’s rights of subrogation, reimbursement, indemnification, and contribution and any other rights and defenses that are or may become available to the guarantor or other surety by reason of Sections 2787 to 2855, inclusive.”
We observe that in at least one context a defense not enumerated in Civil Code section 2856, subdivision (a), was held not to be waivable. In WRI Opportunity Loans II, LLC v. Cooper (2007) 154 Cal.App.4th 525, the court addressed whether a guarantor could waive a usury defense. (Id. at p. 542.) It noted that the California Constitution establishes the maximum interest rate on loans and held that a guarantor could not waive a usury defense just as it could not waive the right to defend on the basis that a contract was illegal and unenforceable. (Id. at pp. 533, 542-544.) The court also stated that the Legislature did not intend, by enacting section 2856, subdivision (a)(1), to curtail the rule that a usury defense cannot be waived. (Id. at pp. 544-545.)
From this case, we discern that public policy concerns may dictate whether a defense that is not enumerated in Civil Code section 2856, subdivision (a)(1) may be waived or not. Cases addressing generally whether a default judgment or stipulated judgment against one party should be binding upon another emphasize that the issue is one of due process of law. (Gottlieb v. Kest, supra, 141 Cal.App.4th at pp. 150, 156 [default judgment]; Knowles v. Tehachapi Valley Hospital Dist., supra, 49 Cal.App.4th at pp. 1090-1091 [stipulated judgment].) We conclude that, just as the constitutional protection against usury cannot be waived, the constitutional right to due process of law cannot be waived in this context. The trial court did not err in so concluding. Joyce was entitled to its day in court, to assert that no monies were yet due and owing under the financier agreement, irrespective of whether Doc Brown had chosen not to defend the litigation and to leave Joyce “holding the bag.” (See Knowles v. Tehachapi Valley Hospital Dist., supra, 49 Cal.App.4th at pp. 1089-1092.)
B. Financier Agreement:
The financier agreement required Doc Brown “to pay to [Stewart] from Gross Revenue” an amount equal to the money loaned plus 30 points “prior to payment of any other fees, expenses or costs.” Paragraph 7 of the financier agreement, in turn, required Doc Brown to provide Stewart with monthly accountings “showing the information necessary to determine the amount of any payments to be made to [Stewart].” Inasmuch as the language of paragraph 5b clearly states that Stewart shall be repaid from gross revenue, the trial court interpreted the language to mean that no repayment is due unless and until gross revenue is generated.
Stewart contends that this interpretation is inconsistent with a prior trial court determination that the language of the financier agreement was unclear. He says the prior determination was set forth in the order denying his motion for summary adjudication, which stated: “There is nothing in the Financier Agreement itself which states when the money is/was to be repaid. The agreement just says that [Stewart] was to be paid first out of the revenues (¶ 5b) and that Doc Brown was to provide [Stewart] with an accounting once a month in a form showing the information necessary to determine the amount of payments to be made to [Stewart] (¶ 7). One reasonable reading of that language is that [Stewart] was to be paid from the revenues and that his right to be repaid was subject to revenue being received.”
We disagree with Stewart’s characterization of this order as a finding that the language of the financier agreement was unclear as to whether he should be repaid from gross revenues. Rather, the ambiguity the trial court noted had to do with the timing of the payment after gross revenues had been generated. In any event, to the extent that Stewart impliedly argues that the trial court was bound by the doctrine of law of the case — that having once found that the financier agreement was ambiguous it could not later find that it was clear — we must disagree. As we have previously observed, “the doctrine of law of the case is inapplicable in trial court proceedings. [Citation.]” (Harbor Island Holdings v. Kim (2003) 107 Cal.App.4th 790, 795.)
The inapplicability of the doctrine of law of the case also disposes of Stewart’s argument that the court’s ultimate interpretation of paragraph 5b of the financier agreement is inconsistent with its implied findings in support of the default judgment. Stewart says that, in proving up the default, he made no assertion that repayment was contingent on receipt of gross revenue. Rather, in support of his application for default judgment, Stewart declared that, in order to induce him to invest the $250,000, Floyd, around September 1, 2004, had represented to him that repayment would be made within 90 days. In his application, Stewart argued that the return of his money plus 30 points was due because the 90 days had passed. On appeal, Stewart contends that the trial court, at the time it entered the default judgment, could not have construed the financier agreement as conditioning repayment on receipt of gross revenue. We dispose of this argument quite simply. Once again, the doctrine of law of the case does not constrain the trial court. (Harbor Island Holdings v. Kim, supra, 107 Cal.App.4th at p. 795.)
In any event, at trial the court ultimately determined that the language of paragraph 5b of the financier agreement was clear and provided that Stewart’s repayment was conditioned on the concert generating gross revenue. Consequently, the court barred the admission of parol evidence with respect to meaning of paragraph 5b. Stewart insists that the court committed prejudicial error in blocking his proffered parol evidence.
“In the interpretation of the contract, ‘parol evidence is only admissible if the contract terms are ambiguous. [Citation.]’ [Citation.] ‘The decision whether to admit parol evidence involves a two-step process. The first is to review the proffered material regarding the parties’ intent to see if the language is ‘reasonably susceptible’ of the interpretation urged by a party. [Citation.] If that question is decided in the affirmative, the extrinsic evidence is then admitted to aid in the second step, which involves actually interpreting the contract. [Citation.]’ [Citation.]” (Roden v. Bergen Brunswig Corp. (2003) 107 Cal.App.4th 620, 624.) “‘On appellate review, the trial court’s threshold determination of ambiguity is a question of law [citation] and is thus subject to our independent review [citation].’ [Citation.]” (Id. at p. 625.)
At trial, Stewart offered to submit parol evidence to the effect that paragraph 5b of the financier agreement was intended only to express the priority of payments to be made from gross revenues, not to limit the source of repayment of his loan to gross revenues. In other words, Stewart sought to show that paragraph 5 of the financier agreement meant that Doc Brown was free to repay him from any source of funds, but to the extent gross revenues were received they would be used to pay him first before others.
Stewart cited paragraph 5c of the financier agreement, which provides: “Notwithstanding any of the foregoing, once [Doc Brown] has paid to [Stewart], from whatever source, an aggregate of the [money loaned plus 30 points], then [Doc Brown] shall not be further indebted to [Stewart] for [such amount], and [Stewart] shall not participate further in Gross Revenues generated from exploitation of the program.” (Italics added.)
To so construe the financier agreement would be to simply express a truism — if Doc Brown wanted to pay Stewart from any source of funds available, it was at liberty to do so. But to construe paragraph 5b of the financier agreement merely as requiring that if gross revenue is used to make any payments it must be used to pay Stewart first, but not as providing that the receipt of gross revenue triggers the obligation to pay Stewart, would be to strip the repayment provision of its otherwise implied due date. In other words, when the repayment provision of paragraph 5b and the accounting provision of paragraph 7 are read together, as the trial court harmonized them, repayment, by implication, is required to be made as soon as there is gross revenue available to do so. Under Stewart’s interpretation, where paragraph 5b is nothing but an expression of priorities, there would be no provision compelling repayment any time at all, unless Doc Brown chose to utilize gross revenue to make certain payments which could not be made before Stewart was paid. However, the repayment provision of the financier agreement is not reasonably susceptible to such an interpretation. The trial court’s interpretation of the financier agreement is a reasonable one — payment is to begin when gross revenue sufficient to start repaying the loan has been generated, and accountings shall be provided to Stewart to document gross revenue.
The trial court did not err in rejecting the proffered parol evidence. As an aside, we observe that its ruling was not actually prejudicial to Stewart. Were the financier agreement interpreted as he suggests, he would have been unable to show that any payment due date had arrived, unless he could show both that Doc Brown had received gross revenue and that Doc Brown was using such gross revenue to pay another party out of turn. To the extent that Stewart may also have hoped to testify to an understanding that the loan would be repaid in 90 days, irrespective of the generation of gross revenue, we note that the terms of the financier agreement are not reasonably susceptible to that interpretation.
C. Gross Revenue:
If Stewart, an attorney, believed the deal was for him to have been repaid within 90 days of making the loan no matter what, he would have been wise to sign a contract so providing. Without such a provision, he has suffered delay and endured court proceedings in pursuit of his intended result. In the end, however, he remains entitled to receive a return of his money, because the concert did generate gross revenue.
At trial, Stewart presented evidence to show that: (1) the Doyle Bramhall portion of the concert was made available for viewing on a pay-per-view basis; (2) DVD’s of the concert were made available for sale on the Internet; and (3) the filmed footage of the concert and all of its sound recordings were sold for $1,964,117.80.
Stewart admits that he was unable, at trial, to prove how much money was generated from the pay-per-view and DVD sales. However, he emphasizes that the reason he was unable to do so was because Doc Brown had breached its agreement to provide him with accountings.
What Stewart did do was present a copy of the asset purchase agreement dated May 1, 2006, pursuant to which Doc Brown sold to Digital Sports all of the filmed footage of the concert, all of the sound recordings therefrom, and all the program, trailer, commercial, and media edits, for the price of $1,964,117.80. Payment of that amount was to be made, as we have stated, with an unsecured promissory note. Stewart admitted at trial that he had not seen the promissory note and was not aware of its terms.
There is an intriguing thread linking the various interests of Floyd in this matter. Floyd encouraged Stewart to participate in the deal. Floyd signed the financier agreement on behalf of Doc Brown. He also signed the guaranty on behalf of Joyce, in whom he had a 50 percent ownership interest. The other 50 percent owner was Paul George (George). On January 10, 2006, Floyd exchanged his interest in Joyce for George’s interest in Doc Brown and George exchanged his interest in Doc Brown for Floyd’s interest in Joyce. Floyd agreed to indemnify George and Joyce from and against any claim of Stewart. Floyd signed the asset purchase agreement on behalf of Doc Brown, although he allegedly had an interest in Digital Sports as well, according to Stewart’s belief.
The question arises whether the unsecured promissory note constitutes a form of gross revenue within the meaning of paragraph 5 of the financier agreement, the receipt of which triggered the obligation on the part of Doc Brown to repay Stewart. This is a matter as to which the parties disagree.
The financier agreement defined the term “Gross Revenues” to mean “all revenues received from all sources of exploitation of the Program, including but not limited to, Broadcast of the Program and Sponsorships of the Program.” To explain the meaning of the word “revenue,” both parties cite Black’s Law Dictionary.
Black’s Law Dictionary (8th ed. 2004) (Black’s) at page 1344 defines “revenue” as “[g]ross income or receipts.” In turn, it defines “income” as “[t]he money or other form of payment that one receives... from employment, business, investments, royalties, gifts, and the like.” (Id. at p. 778, italics added.) It defines “gross receipts” as “[t]he total amount of money or other consideration received by a business taxpayer for goods sold or services performed in a year, before deductions. [Citations.]” (Id. at pp. 722-723, italics added.)
Despite Joyce’s urgings, Black’s current definitions of income and receipts, which are types of revenue, need not take the form of cash. The definitions only require that payment or consideration, which may be in a form other than money, be received by a business in exchange for goods or services. Joyce maintains that “in order to acquire income, one must receive something.” However, Joyce apparently believes that receipt of an unsecured promissory note is not the receipt of “something.” It is wrong.
Here, Doc Brown sold what would appear to have been all of the concert-related assets in exchange for substantial consideration — or revenue — to the tune of $1,964,117.80. It would appear to have retained no concert-related assets that had the capacity to generate any other revenue later on. Joyce would have us believe that once Doc Brown so disposed of all the revenue-generating assets, by the simple expedient of accepting a note instead of cash, Stewart never needed to be paid back. Not so fast.
Inasmuch as Doc Brown received $1,964,117.80 in consideration, or revenue, the condition precedent to payment of the amounts owing to Stewart was triggered. But Doc Brown failed to make any payment pursuant to paragraph 5b of the financier agreement and thus breached its obligations under that agreement. That being the case, Joyce is now liable, under the guaranty, to make good on Doc Brown’s obligations arising out of the financier agreement.
C. Conclusion:
We reverse and remand the matter for a determination of the amounts owing to Stewart. In so doing, we note that the portions of Joyce’s cross-complaint that the trial court held to be moot are no longer moot. On remand, Joyce may pursue those portions.
III
DISPOSITION
The judgment is reversed and the matter is remanded to the trial court for further proceedings consistent with this opinion. Stewart shall recover his costs on appeal.
WE CONCUR: RYLAARSDAM, ACTING P. J., IKOLA, J.