Rabo AgriFinance v. Valadao CA2/8 ( 2023 )

Filed 1/31/23 Rabo AgriFinance v. Valadao CA2/8
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
RABO AGRIFINANCE, LLC, B322658
Plaintiff and Respondent, Fresno County
Super. Ct. No. 17CECG03829
v.
EDUARDO VALADAO,
Defendant and Appellant.
APPEAL from judgment of the Superior Court of Fresno
County. Kimberly A. Gaab, Judge. Reversed and remanded.
Griswold, LaSalle, Cobb, Dowd & Gin, Jeffrey L. Levinson;
McCormick, Barstow, Sheppard, Wayte & Carruth and Scott M.
Reddie for Defendant and Appellant.
Baker Manock & Jensen, J. Jackson Waste, Joseph M.
Marchini and Michael J. Fletcher for Plaintiff and Respondent.
___________________________
This is an appeal from judgment following summary
adjudication in favor of plaintiff and respondent Rabo
AgriFinance, LLC (Lender), as successor in interest to Rabobank,
N.A. Lender lent money to Edward Valadao, Jr. and April
Valadao (together, the Valadaos1), spouses who did business
under the name “Lone Star Dairy.” Lender also lent money to
Triple V Dairy, a partnership in which the Valadaos were, along
with others, general partners.
Defendant is the father of Edward Valadao, Jr. He
guaranteed debts of the Valadaos to Lender. Which debts he
guaranteed are the subject of this dispute. Defendant contends
the trial court erred in failing to consider extrinsic evidence he
offered to show his guaranty extended only to the Valadaos’ debts
relating to Lone Star Dairy and not those incurred in their
capacities as general partners of Triple V Dairy. We agree that
the trial court erred. After reviewing the evidence, we conclude
that the guaranty is reasonably susceptible to defendant’s
interpretation. The trial court therefore should have considered
defendant’s evidence and denied Lender’s motion.
Accordingly, we reverse and remand for further
proceedings in accordance with this opinion.
BACKGROUND
Together with certain other individuals, the Valadaos were
partners in Triple V Dairy, a California general partnership. In
November 2012, Lender extended a line of credit to Triple V
Dairy under a credit agreement, which the parties later amended
1 The Valadaos share their surname with defendant and
appellant Eduardo Valadao. For clarity, we refer to defendant
and appellant as “defendant.” Our reference to the “Valadaos”
does not include defendant.
2
on various occasions. In December 2013, Lender extended a
second line of credit to Triple V Dairy under a second credit
agreement, which the parties also later amended on various
occasions. The Valadaos signed each of the Triple V Dairy credit
agreements in their respective capacities as “General Partner.”
Defendant did not execute a guaranty of Triple V Dairy’s
obligations to Lender in connection with either such credit
agreement.
In May 2013, after the date of the first Triple V Dairy
credit agreement but before the date of the second Triple V Dairy
credit agreement, Lender entered into a credit agreement with
the Valadaos. The credit agreement provided for a term loan and
a line of credit to finance the “Lone Star Dairy.” The Lone Star
Dairy is not a legal entity but merely a “dba”—a name under
which the Valadaos did business. The Valadaos signed the Lone
Star Dairy credit agreement as “EDWARD VALADAO, JR., doing
business as Lone Star Dairy” and “APRIL VALADAO, doing
business as Lone Star Dairy,” respectively.
Defendant executed a guaranty dated as of the same date
as the Lone Star Dairy credit agreement. By the guaranty,
defendant “absolutely, unconditionally and irrevocably
guarantee[d] to Lender full and prompt payment . . . and full and
prompt performance . . . of the Guaranteed Obligations (as
defined [t]herein) . . . .”
Two defined terms in the guaranty are relevant to the
dispute on appeal.
First, in recitals, the guaranty defines “Borrower” as
follows: “Lender has extended or will extend credit or other
financial accommodations to EDWARD VALADAO, JR. (‘Edward
Valadao, Jr.’) and APRIL VALADAO (‘April Valadao’), husband
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and wife, doing business as Lone Star Dairy (Edward Valadao,
Jr. and April Valadao are individually and collectively,
‘Borrower’), under the terms and conditions of a credit agreement
between Borrower and Lender dated as of the date of this
guaranty (that agreement, the ‘Credit Agreement’).”
Second, the guaranty defines “Guaranteed Obligations,” in
relevant part, as (a) all obligations under the Lone Star Dairy
credit agreement, and (b) “all other obligations of Borrower to
Lender, whether now existing or hereafter incurred or
created . . . .” The interpretation of the second definition lies at
the heart of this dispute.
When the loans made pursuant to the Triple V Dairy credit
agreements matured in 2017, Triple V Dairy failed to repay
them. The loans made pursuant to the Lone Star Dairy credit
agreement matured on the same day, and the Valadaos also
failed to repay them. Accordingly, in November 2017, Lender
sued Triple V Dairy, its six general partners (including the
Valadaos), and defendant. Lender specified that it was suing the
Valadaos in their individual capacities, both as general partners
of Triple V Dairy and doing business as Lone Star Dairy. In
Lender’s initial complaint, it alleged only that the Lone Star
Dairy loans were secured by defendant’s guaranty, making no
mention of recourse to defendant on account of the Triple V Dairy
obligations.
Lender filed an amended complaint about a year later.
This time it alleged defendant’s guaranty extended both to the
Lone Star Dairy loans and the Valadaos’ obligations under the
Triple V Dairy loans. The Lone Star Dairy obligations were
thereafter satisfied (the parties do not tell us how) but the Triple
V Dairy obligations remained outstanding. Lender obtained a
4
judgment against Triple V Dairy by stipulation—approximately
$8.7 million—and then filed a summary adjudication motion
against defendant on the guaranty. According to Lender’s
motion, the guaranty unambiguously extended to all the
Valadaos’ debts to Lender, including their personal liability to
Lender in respect of the Triple V Dairy loans in their capacity as
general partners of Triple V Dairy.
The following day, defendant filed a motion for summary
judgment against Lender. According to defendant’s motion, the
guaranty was limited to the Valadaos’ debts to Lender incurred
while doing business as Lone Star Dairy, and not as general
partners of Triple V Dairy. Like Lender, defendant claimed his
own interpretation of the guaranty was compelled by its
“unambiguous language,” meaning it had to be construed without
resort to extrinsic evidence.
But in opposing Lender’s motion, defendant took a different
tack. There, relying on authority that extrinsic evidence may be
used to construe an ambiguous term, defendant proffered
internal Lender records and correspondence from Lender to
defendant regarding the Lone Star Dairy loans. In the internal
Lender records, Lender referenced the guaranty only in
connection with the Lone Star Dairy loans and made statements
to the effect that the Triple V Dairy loans had “no Guarantor.”
Lender’s correspondence to defendant concerned only the Lone
Star Dairy loans, and defendant testified that he got no
equivalent correspondence regarding the Triple V Dairy loans.
This evidence, defendant contended, showed the guaranty’s
definition of “Borrower” was “reasonably susceptible” to his
interpretation as limited to the Valadaos “doing business as Lone
Star Dairy.”
5
The trial court granted Lender’s summary adjudication
motion and denied defendant’s motion. In rendering its decision,
the trial court stated it “w[ould] not consider any extrinsic
evidence of the parties’ intent . . . .” It explained: “although
[defendant] offers extrinsic evidence of the parties’ intent as to
the definition of ‘Borrower,’ such evidence should not be
considered because both parties, including [defendant], contend
and explicitly argue that the Guaranty is unambiguous and
should be interpreted according to the contract language alone.”
On the basis of the parties’ dueling claims of what the
“unambiguous” contract means, the trial court proceeded to
construe the guaranty based on its terms alone. After parsing
the structure of the sentence where “Borrower” is defined, it
concluded that “any debt that [the Valadaos] owe to [Lender] is a
‘Guaranteed Obligation’ for which [defendant] is, in the event of
nonpayment, liable.” Because there was no dispute that the
Valadaos had obligated themselves to satisfy Triple V Dairy’s
obligations to Lender and those obligations were in default and
unsatisfied, the trial court entered judgment against defendant—
approximately $10.1 million after accounting for interest on the
Triple V Dairy judgment.
Defendant timely appealed.
DISCUSSION
1. Summary Adjudication Standard of Review
A party is entitled to summary judgment “if all the papers
submitted show that there is no triable issue as to any material
fact and that the moving party is entitled to a judgment as a
matter of law.” (Code Civ. Proc., § 437c, subd. (c).) “Summary
adjudication works the same way, except it acts on specific causes
of action or affirmative defenses, rather than on the entire
6
complaint.” (Hartline v. Kaiser Foundation Hospitals (2005)
132 Cal.App.4th 458, 464.) Thus, “[w]e review rulings on motions
for summary judgment and summary adjudication de novo,
applying the same rules and procedures.” (Ibid.)
A plaintiff moving for summary judgment must produce
admissible evidence on each element of a cause of action entitling
it to judgment. (Code Civ. Proc., § 437c, subd. (p)(1).) Once the
plaintiff has met its burden, “the burden shifts to the defendant
. . . to show that a triable issue of one or more material facts
exists as to the cause of action or a defense thereto.” (Ibid.)
Our Supreme Court has made clear that the purpose of the
1992 and 1993 amendments to the summary judgment statute
was “ ‘to liberalize the granting of [summary judgment]
motions.’ ” (Perry v. Bakewell Hawthorne, LLC (2017) 2 Cal.5th
536, 542.) It is no longer called a “disfavored” remedy. (Ibid.)
“Summary judgment is now seen as ‘a particularly suitable
means to test the sufficiency’ of the plaintiff’s or defendant’s
case.” (Ibid.)
2. Analysis
This appeal rests on a single premise: that the trial court
erroneously refused to consider extrinsic evidence defendant
offered to show the parties intended to limit the term “Borrower”
in the guaranty to the Valadaos doing business as Lone Star
Dairy.
a. Applicable rules of contract interpretation
“The interpretation of a contract is a judicial function.
[Citation.] In engaging in this function, the trial court ‘give[s]
effect to the mutual intention of the parties as it existed’ at the
time the contract was executed. [Citation.] Ordinarily, the
objective intent of the contracting parties is a legal question
7
determined solely by reference to the contract’s terms.” (Wolf v.
Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107,
1125–1126 (Walt Disney Pictures).)
“The court generally may not consider extrinsic evidence of
any prior agreement or contemporaneous oral agreement to vary
or contradict the clear and unambiguous terms of a written,
integrated contract.” (Walt Disney Pictures, supra,
162 Cal.App.4th at p. 1126.) Indeed, no extrinsic evidence is
admissible to “add to, detract from, or vary the terms of a written
contract.” (Pacific Gas & Electric Co. v. G. W. Thomas Drayage &
Rigging Co. (1968) 69 Cal.2d 33, 39–40 (Pacific Gas & Electric).)
“Extrinsic evidence is admissible, however, to interpret an
agreement when a material term is ambiguous.” (Walt Disney
Pictures, at p. 1126; see also Pacific Gas & Electric, at pp. 39–40.)
A term is ambiguous when it is “reasonably susceptible to
more than one interpretation.” (Joseph v. City of Atwater (2022)
74 Cal.App.5th 974, 982; see also Hess v. Ford Motor Co. (2002)
27 Cal.4th 516, 525 [“contractual language is ‘ambiguous only if
it is susceptible to two or more reasonable constructions despite
the plain meaning of its terms’ ” (italics omitted)].) Contract
language is “reasonably susceptible” only to those meanings
plausibly embraced by the words of the agreement. Contract
language is not reasonably susceptible to a reading that
contradicts the contract’s express terms. (See Consolidated
World Invs., Inc. v. Lido Preferred Ltd. (1992) 9 Cal.App.4th 373,
379; see also Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336,
344.)
For example, “if the contract calls for the plaintiff to deliver
to defendant 100 pencils by July 21, 1992, parol evidence is not
admissible to show that when the parties said ‘pencils’ they really
8
meant ‘car batteries’ or that when they said ‘July 21, 1992’ they
really meant May 13, 2001.” (Consolidated World Invs., Inc. v.
Lido Preferred Ltd., supra, 9 Cal.App.4th at p. 379.) In contrast,
even where the meaning of a term may seem obvious on its face,
it may nonetheless be ambiguous where the parties accorded it a
special meaning. (Abers v. Rounsavell (2010) 189 Cal.App.4th
348, 356.) For example, extrinsic evidence may be considered to
ascertain whether, where unresolved by the agreement, “days”
means business days or calendar days, or “tons” means one or
another weight sometimes referred to as a ton. (Bionghi v. Metro.
Water Dist. (1999) 70 Cal.App.4th 1358, 1366.)
Whether a term is ambiguous is a question of law, not fact
(Winet v. Price (1992) 4 Cal.App.4th 1159, 1165 (Winet)), but one
that must be informed by the evidence offered to demonstrate the
existence of the ambiguity. (Ibid. [“The test of whether parol
evidence is admissible to construe an ambiguity is not whether
the language appears to the court to be unambiguous, but
whether the evidence presented is relevant to prove a meaning to
which the language is ‘reasonably susceptible’ ”]; see also Pacific
Gas & Electric, supra, 69 Cal.2d at p. 37 [“The test of
admissibility of extrinsic evidence to explain the meaning of a
written instrument is not whether it appears to the court to be
plain and unambiguous on its face, but whether the offered
evidence is relevant to prove a meaning to which the language of
the instrument is reasonably susceptible].”)
Thus, when presented with a claim of ambiguity, the trial
court must “provisionally receive[] (without actually admitting)
all credible evidence concerning the parties’ intentions to
determine ‘ambiguity’ . . . . If in light of the extrinsic evidence
the court decides the language is ‘reasonably susceptible’ to the
9
interpretation urged, the extrinsic evidence is then admitted to
aid in . . . interpreting the contract.” (Winet, supra, 4 Cal.App.4th
at p. 1165; see also Wolf v. Superior Court (2004) 114 Cal.App.4th
1343, 1351 (Wolf).) On the other hand, if the court, after
reviewing the extrinsic evidence provisionally received, concludes
that the language is not reasonably susceptible to the proponent’s
interpretation, it is excluded, and this ends the inquiry.
(Southern Cal. Edison Co. v. Superior Court (1995)
37 Cal.App.4th 839, 847 [“When a dispute arises over the
meaning of contract language, the first question to be decided is
whether the language is ‘reasonably susceptible’ to the
interpretation urged by the party. If it is not, the case is over”].)
It is error for a trial court to refuse to consider extrinsic
evidence of an alternative meaning on the basis of the trial
court’s own conclusion that the language of the contract is
unambiguous on its face. (Wolf, supra, 114 Cal.App.4th at
p. 1351.)
b. The trial court refused to consider defendant’s
extrinsic evidence
Lender disputes on appeal that the trial court in fact failed
to “provisionally receive” defendant’s extrinsic evidence about the
meaning of the term “Borrower” in the guaranty. Lender’s view
that the court adequately considered defendant’s evidence is
premised on two facts. First, Lender contends in its brief the
trial court identified specific extrinsic evidence in its order—“the
Cowlifornia Dairy[2] loan documents and the signature blocks on
the other Lone Star loan agreements.” Second, it justified
2 Cowlifornia Dairy is apparently another entity or “DBA”
related to defendant and/or the Valadaos that took a loan from
Lender which defendant guaranteed.
10
“[e]xclusion” of the evidence by Pacific State Bank v. Greene
(2003) 110 Cal.App.4th 375 (Pacific State Bank), in which the
court detailed extrinsic evidence a guarantor offered to interpret
her guaranty but deemed it inadmissible because the guarantor’s
construction was at odds with any reading of the contract’s terms.
From this, Lender would have us infer that the trial court
performed the same analysis as the Pacific State Bank court
notwithstanding the court’s express statements to the contrary.
Specifically, the trial court’s order states: “The court will
not consider any extrinsic evidence of the parties’ intent, such as
the loan regarding Cowlifornia Dairy.” It continues, “extrinsic
evidence of the parties’ intent as to the definition of ‘Borrower[]’
. . . should not be considered because both parties . . . contend and
explicitly argue that the Guaranty is unambiguous and should be
interpreted according to the contract language alone.”
Lender contends the trial court considered evidence
extrinsic to the guaranty when the court referred to “other Lone
Star loan agreements.” But the credit agreement, which included
a term loan and a line of credit to finance Lone Star Dairy, and
the guaranty are inseparable parts of the same transaction. They
were executed on the same date in connection with the same
credit; the guaranty was a condition precedent to the extension of
credit; the guaranty incorporates portions of the credit agreement
(e.g., definitions and rules of interpretation) by reference; and the
credit agreement’s integration clause includes the guaranty. As
such, the credit agreement was not extrinsic to the guaranty.
(See Holguin v. Dish Network LLC (2014) 229 Cal.App.4th 1310,
1320 [“ ‘ “It is a general rule that several papers relating to the
same subject-matter and executed as parts of substantially one
transaction, are to be construed together as one contract” ’ ”].)
11
In any event, the trial court’s description of extrinsic
evidence in its order does not mean that it provisionally received
it and considered whether such evidence rendered the term
“Borrower” ambiguous. We take the trial court’s statement that
it did not “consider” evidence at face value. It is one thing to
recognize that extrinsic evidence has been offered; it is quite
another to assess its significance and disregard it based on its
substance. The trial court here only did the former. Its
discussion of Pacific State Bank does not change this. In fact, it
confirms it.
As the trial court noted in its order, the Pacific State Bank
court excluded extrinsic evidence because it was offered to
“confer[] upon the guaranty a meaning to which it was not
‘reasonably susceptible.’ ” (See Pacific State Bank, supra,
110 Cal.App.4th at pp. 386–387.) But the Court of Appeal did so
only after considering the full substance of the extrinsic evidence.
Indeed, that evidence—declaration testimony that the obligee’s
agent orally limited the guaranty—was reproduced at length in
the Pacific State Bank opinion. (See id. at p. 382.) In concluding
that defendant’s extrinsic evidence was offered to support a
similarly unreasonable construction, the trial court here
addressed only defendant’s arguments based on the text of the
guaranty. In doing so, it skipped to the conclusion of no
ambiguity without considering defendant’s proffered evidence—
just as the court stated in its order.
12
c. The trial court’s refusal to consider defendant’s
extrinsic evidence was error
i. Lender’s argument for a limited review
lacks merit
We again pause to address a preliminary issue Lender
raises by another strained reading of the trial court’s order.
According to Lender, the court made a “factual finding, upon
which it partially premised its legal conclusions, that [defendant]
and [Lender] agreed that the [g]uaranty is not ambiguous.” This
“fact,” Lender continues, is subject only to substantial evidence
review. We reject this argument.
The trial court did not find an “agreement” between the
parties; it merely observed that Lender and defendant had both
argued the guaranty’s language was unambiguous. Defendant
made this argument in his own motion for summary judgment,
which the trial court denied. But there was no agreement or
stipulation between the parties that the guaranty is not
ambiguous. In simultaneously opposing Lender’s motion for
summary adjudication, defendant argued otherwise. Specifically,
he presented the court with argument and authority that it was
obligated to consider his extrinsic evidence because the
guaranty’s language was “reasonably susceptible” to his
interpretation. Put another way, he argued that, if the court did
not find the guaranty unambiguously supported his
interpretation that the definition of “Borrower” limited it to the
debts of Lone Star Dairy, then the term “Borrower” was at least
ambiguous.
13
ii. The trial court should have considered
defendant’s extrinsic evidence
The trial court cited just one authority, Allen v. Smith
(2002) 94 Cal.App.4th 1270, in support of its decision to ignore
defendant’s extrinsic evidence. In that case, the court noted in
passing that “[p]arol evidence may be admitted to construe
ambiguous contract terms,” but considered no extrinsic evidence
because “the parties agree[d] the contract [wa]s unambiguous
and contain[ed] their entire agreement.” (Id. at p. 1277.) Allen is
easily distinguishable on its facts. Unlike here, there is no
indication in Allen that either party offered extrinsic evidence to
support their respective interpretations of the agreement or
argued in the alternative that the contract was ambiguous.
On appeal, Lender cites just one other decision, Fiteq Inc. v.
Venture Corp. (N.D.Cal. June 30, 2015, No. 13-cv-01946-BLF)
2015 U.S.Dist. Lexis 85110, to justify ignoring extrinsic evidence
when both sides argued by cross-motion that the subject contract
was unambiguous. That case has no persuasive value here.
First, it is an unpublished decision of a federal court. Second,
there was an express agreement in briefing that the court should
not look to extrinsic evidence. The defendants stated in their
brief: “ ‘Defendants agree with [plaintiff] that the [agreement] is
unambiguous and should be interpreted without resorting to
parol evidence.’ ” (Id. at p.*11.) Third, although a footnote
indicates the defendants may have alternatively argued an
ambiguity existed—it says they argued “the parol evidence
produced by Plaintiff creates a dispute of material fact that
precludes summary judgment” (id. at p. *11, fn. 1)—the court did
not address California law requiring provisional receipt of
extrinsic evidence to resolve a claim of ambiguity.
14
Just as Lender cites no persuasive authority that the trial
court was entitled to ignore evidence offered in opposition to
Lender’s motion based on defendant’s unsuccessful legal position
in his own motion, defendant cites nothing directly on point to
show error. Defendant offers that “[t]here is nothing perplexing
or inconsistent about a party arguing it believes contractual
language is clear and unambiguous but, to the extent the court
disagrees, showing the court through extrinsic evidence that its
interpretation is correct.” We agree. Further, we agree that
unsuccessfully making one argument by motion does not preclude
making another in opposition to a cross-motion.
As defendant observes, cross-motions for summary
judgment must be determined independently of one another.
(Tahoe Reg’l Planning Agency v. King (1991) 233 Cal.App.3d
1365, 1375, fn. 1.) This means the trial court had an obligation to
consider whether Lender met its burden to show it was entitled
to judgment as a matter of law in light of defendant’s opposition
and not based on legal positions defendant took in his motion.
The proper consequence of defendant moving on the untenable
position that the guaranty was unambiguously limited to debts
the Valadaos incurred while doing business as Lone Star Dairy
was to deny defendant’s motion, not to limit his ability to oppose
Lender’s motion. Indeed, if legal positions in a motion restricted
those available in opposition to a cross-motion, cross-motions for
summary judgment would always result in a judgment because
each party has necessarily taken the position that there are no
triable issues of material fact. This is not the law. (Borges v.
Home Ins. Co. (1966) 239 Cal.App.2d 275, 276 [“We have been
cited to no case and know of none which permits a reviewing
court to treat two contesting motions for a summary judgment as
15
a submission of the case to the court for a judgment on the
record”].)
For these same reasons, we reject Lender’s argument that
defendant invited error in the resolution of Lender’s motion based
on a position he took in his own motion. We also reject Lender’s
argument that defendant was judicially estopped from opposing
Lender’s summary adjudication motion by arguing ambiguity
(i.e., the guaranty was reasonably susceptible to his
interpretation) because in his cross-motion he claimed his
interpretation was the only reasonable one. Judicial estoppel
ordinarily applies only when all five elements are met, and
Lender cannot show the third element, that the party against
whom estoppel is asserted “was successful in asserting the first
position (i.e., the tribunal adopted the position or accepted it as
true).” (Jackson v. County of Los Angeles (1997) 60 Cal.App.4th
171, 183.) The trial court here did not adopt defendant’s position
that the guaranty was unambiguously limited to the debts of
Lone Star Dairy. While some courts have excused the success
element in cases of “egregious misconduct,” to the extent these
cases remain good law at all (see The Swahn Group, Inc. v. Segal
(2010) 183 Cal.App.4th 831, 849–850 [casting doubt on validity of
exception]), they are inapplicable here. Defendant’s positions in
seeking summary judgment and opposing summary adjudication
are familiar summary judgment advocacy and in no way showed
him to be playing “fast and loose” with the court. (See id. at
p. 841.)
d. The trial court’s error was not harmless
Lender argues that any error by the trial court was
harmless because defendant’s proffered extrinsic evidence was
inadmissible, both procedurally and substantively, and
16
inconsequential in any event. As to procedural inadmissibility,
Lender contends “none” of defendant’s extrinsic evidence was
competent under the Evidence Code. As to substantive
inadmissibility, it argues that, if the trial court had considered
the evidence, it would not have affected the outcome. We reject
both arguments.
i. Some of defendant’s extrinsic evidence
was procedurally admissible
First, we note that Lender’s procedural objections to
defendant’s evidence do not address that when Lender filed its
initial complaint, it alleged that “[t]he Lone Star [Dairy loans]
are also secured by [the guaranty]” but made no corresponding
allegation that defendant also guaranteed the Triple V Dairy
loans. Though it was not included in defendant’s separate
statement in opposition, defendant relied on this fact by reference
to Lender’s filed complaints in his opposition and Lender made no
objection, even as it acknowledged the argument.
Defendant included the initial and operative complaints in
the record on appeal and continues to rely on the differences
between the two in his appellate briefs. Like in the trial court,
Lender made no procedural objection to the evidence in its
responding brief on appeal. Rather, Lender addressed the
differences between the complaints and elaborated on the issue,
even filing the leave to amend papers (including a comparison
document showing changes between the initial complaint and the
operative complaint) in a separate appendix.
Trial courts have discretion under Code of Civil Procedure
section 437c, subdivision (b)(3) to consider evidence missing from
the separate statement that is part of the record. (San Diego
Watercrafts, Inc. v. Wells Fargo Bank (2002) 102 Cal.App.4th 308,
17
316 [“Whether to consider evidence not referenced in the . . .
separate statement rests with the sound discretion of the trial
court”].) The initial complaint was part of the summary
judgment record, even in the absence of a request for judicial
notice. (Weil & Brown, Cal. Practice Guide: Civil Procedure
Before Trial (The Rutter Group 2022) ¶ 9:53.1a [“It is not
necessary to ask the court to take judicial notice of materials
previously filed in the case; all that is necessary is to call the
court’s attention to such papers”].)
Ordinarily, we would view the trial court’s disregard of the
differences between the initial complaint and amended complaint
as an exercise of its discretion. (San Diego Watercrafts, Inc. v.
Wells Fargo Bank, supra, 102 Cal.App.4th at p. 316.) But the
trial court plainly did not exercise any such discretion in this
case—it flatly refused to consider any extrinsic evidence on the
mistaken belief that defendant’s legal position in his motion for
summary judgment precluded consideration of any extrinsic
evidence. Given our obligation to independently determine
Lender’s motion and the parties’ respective arguments requiring
us to consider the evidence in the first instance, we consider our
discretion to consider the differences between Lender’s two
complaints coextensive to that of the trial court’s in this regard.
In light of the established significance of prior pleadings in
summary judgment proceedings (see, e.g., St. Paul Mercury Ins.
Co. v. Frontier Pacific Ins. Co. (2003) 111 Cal.App.4th 1234, 1248
[judicial admissions in pleadings binding on summary judgment])
and each party’s inclusion of related facts in their respective
appellate records, we exercise our discretion to do so.
As to the correspondence defendant included in opposition
to Lender’s motion, Lender contends it was inadmissible because
18
defendant could not authenticate it. Specifically, Lender
observes that defendant’s declaration stating he received the
correspondence contradicted an earlier discovery response he
gave denying receipt. We need not consider this argument
because Lender authenticated much of the same evidence itself.
Attached to Lender’s operative complaint were eight letters
from Lender to the Valadaos concerning amendments to the Lone
Star Dairy loans. Each of these letters contained defendant’s
name in the “cc” line after the signature. In the body of the
complaint, Lender admitted that these letters were “true and
correct” copies of the originals. “ ‘The admission of fact in a
pleading is a “judicial admission.” ’ . . . ‘[T]he trial court may not
ignore a judicial admission in a pleading, but must conclusively
deem it true as against the pleader.’ ” (Bucur v. Ahmad (2016)
244 Cal.App.4th 175, 187, citations omitted.) Lender’s admission
that these letters were “true and correct” copies and act of
attaching them to the complaint are sufficient to establish their
authenticity. (See Evid. Code, § 1414 [“writing may be
authenticated by evidence that: [¶] (a) The party against whom
it is offered has at any time admitted its authenticity; or [¶]
(b) The writing has been acted upon as authentic by the party
against whom it is offered.”].)
Defendant also submitted with his opposition other
correspondence (past due notices) he attests he received from
Lender concerning the Lone Star Dairy loans but which were not
attached to Lender’s complaint. We decline to address Lender’s
objection as to these notices and simply disregard them in our
analysis. The eight letters Lender authenticated itself establish
defendant’s point: Lender sent “notice after notice” to defendant
about the Lone Star Dairy loans. In contrast, it is undisputed
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that defendant never received any notices about Triple V Dairy
loans, modifications, or defaults.
As to the internal memoranda, Lender is correct that its
admission that these documents were “genuine cop[ies]” is not
enough to render them admissible. Lender remained entitled to,
and did, object to admission of the memoranda on hearsay
grounds. Defendant offers two arguments in response. We need
not address whether the memoranda are admissible under the
hearsay exception of Evidence Code section 1220, as we find
persuasive defendant’s other argument that the memoranda were
not offered for a hearsay purpose.
In pertinent part, the memoranda include statements by
Lender representatives to the effect that there is no guarantor of
the Triple V Dairy loans. Defendant contends he did not offer the
memoranda to prove the truth of the statement that there was no
guarantor for the Triple V Dairy loans. Rather, he contends they
are admissible to show the state of mind of Lender
representatives concerned with collecting the Triple V Dairy
loans. The Lender representatives’ belief there was no guarantor
of the Triple V Dairy loans supports the inference that they did
not believe, at the time the memoranda were written, that
defendant had guaranteed those loans. That would explain why
the Lender sent many letters to defendant demanding he satisfy
only the Lone Star Dairy guaranty, and why the original
complaint alleged defendant guaranteed the Lone Star Dairy
debt but not the Triple V Dairy debt—which would, in turn,
support an inference that it was litigation counsel who advised
the Lender to amend the complaint to allege defendant had
guaranteed the Triple V Dairy debt, based on legal arguments
20
rather than the negotiations of the Lender representatives with
defendant.
ii. The extrinsic evidence was substantively
admissible
Lender’s argument that the evidence is substantively
inadmissible fails. It is premised on the rule that parol evidence
cannot be admitted in support of an interpretation to which the
contract language is not reasonably susceptible. Lender’s
argument effectively asks us to commit the same error that the
trial court did—to look just to the words of the guaranty to
determine that it is unambiguous and therefore no evidence could
have been provisionally admitted to construe it. This puts the
cart before the horse. In order to determine that extrinsic
evidence is inadmissible under the parol evidence rule, the court
must first consider the substance of the evidence:
“Although extrinsic evidence is not admissible to add to,
detract from, or vary the terms of a written contract, these terms
must first be determined before it can be decided whether or not
extrinsic evidence is being offered for a prohibited purpose. The
fact that the terms of an instrument appear clear to a judge does
not preclude the possibility that the parties chose the language of
the instrument to express different terms. That possibility is not
limited to contracts whose terms have acquired a particular
meaning by trade usage, but exists whenever the parties’
understanding of the words used may have differed from the
judge’s understanding. [¶] Accordingly, rational interpretation
requires at least a preliminary consideration of all credible
evidence offered to prove the intention of the parties.” (Pacific
Gas & Electric, supra, 69 Cal.2d at pp. 39–40, fn. omitted.)
We thus proceed to consider the evidence.
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iii. The trial court’s failure to consider
defendant’s evidence caused it to enter
judgment in error
The trial court’s failure to consider defendant’s evidence
caused it to erroneously conclude that the definitions of “Edward
Valadao, Jr.” and “April Valadao,” and in turn “Borrower,” could
only mean what the trial court thought they did from reading the
guaranty. Had the trial court considered defendant’s other
evidence, it would have recognized the parties may have intended
the meaning that defendant urges.
Defendant executed the guaranty the same day the
Valadaos executed the Lone Star Dairy credit agreement. He did
so “[t]o induce Lender to extend credit to [the Valadaos].” Before
the guaranty and Lone Star Dairy credit agreement were
executed, the Valadaos had already obligated themselves to
Lender in their capacities as general partners of Triple V Dairy,
which had borrowed money from Lender several months earlier.
The guaranty made specific reference only to the Lone Star Dairy
loans but made no reference to the Triple V Dairy loans.
In July 2013, August 2014, September 2015, March 2016,
and November 2016, the Valadaos and Lender amended the Lone
Star Dairy credit agreement. As to each amendment, defendant
signed the acknowledgement and consent form as guarantor. In
May 2014, August 2015, August 2016, and October 2016, the
Valadaos and Lender agreed to extend the maturity of the Lone
Star Dairy loans. Every document extending the Lone Star Dairy
loans identifies defendant as a “cc” recipient of such document.
In December 2013, September 2014, September 2015, and
February 2017, Triple V Dairy and Lender amended the Triple V
Dairy credit agreement. In August 2015, August 2016, October
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2016, and November 2016, Triple V Dairy and Lender agreed to
extend the maturity of the Triple V Dairy loans. Lender gave
defendant no notice of these amendments or extensions, even
though three of the extensions were given within a day or less of
extensions of the Lone Star Dairy loans that resulted in notices to
defendant.
Between 2014 and 2017, Lender representatives
administering the loans identified defendant as a guarantor of
the Lone Star Dairy loans but not as a guarantor of the Triple V
Dairy loans. Lender’s internal reports list “Secondary
Source(s) of Repayment” of Triple V Dairy’s obligations, not
just guarantors, and they do not list defendant—whom Lender
now seeks to hold secondarily liable on a judgment against Triple
V Dairy.
Lender refused to provide further extensions of the Triple V
Dairy loans in September 2017, they matured at the end of that
month, and “Triple V [Dairy] and its partners,” including the
Valadaos, defaulted by failing to pay the balance of the loans
when due. Similarly, Lender refused to provide further
extensions of the Lone Star Dairy loans in September 2017, they
matured at the end of that month, and the Valadaos defaulted by
failing to pay the balance of the loans when due.
Lender sought to enforce the parallel defaults under the
Lone Star Dairy credit agreement and the Triple V Dairy credit
agreement in largely the same way but with one glaring
difference. In an omnibus complaint to collect on, among others,
the Triple V Dairy loans and the Lone Star Dairy loans, Lender
sued the Valadaos, naming them in the caption as “EDWARD
VALADAO, JR., individually, as a general partner in TRIPLE V
DAIRY and dba LONE STAR DAIRY [and] APRIL VALADAO,
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individually, as a general partner in TRIPLE V DAIRY and dba
LONE STAR DAIRY.” In the same complaint lender also sued
defendant, “EDUARDO VALADAO, an individual.” But when it
alleged the extent of defendant’s liability under the guaranty, it
alleged only that he guaranteed the Lone Star Dairy loans,
without mention of the Triple V Dairy loans.
“[T]he practical construction placed upon a contract by the
parties before any controversy arises regarding meaning affords
one of the most reliable means of determining the intent of the
parties.” (United California Bank v. Maltzman (1974)
44 Cal.App.3d 41, 49; see also Kennecott Corp. v. Union Oil Co.
(1987) 196 Cal.App.3d 1179, 1189; Salton Bay Marina, Inc. v.
Imperial Irrigation Dist. (1985) 172 Cal.App.3d 914, 936.) The
controversy regarding the scope of the guaranty arose well after
Lender filed the initial complaint. Though the precise date does
not matter, Lender offers guidance by including in its appendix a
July 2018 e-mail between counsel concerning the “previously
unstated [Lender] contention that [defendant] ha[d] allegedly
guaranteed . . . the Triple V [Dairy] obligation . . . .”
Lender’s noticing, internal records, and enforcement
conduct tend to show that, before their dispute, the parties
understood the guaranty to be limited to obligations the Valadaos
incurred while doing business as Lone Star Dairy. If Lender
believed defendant also guaranteed the Valadaos’ obligations in
respect of the Triple V Dairy loans, why would it have provided
defendant notices about the Lone Star Dairy loans but not the
Triple V Dairy loans? Especially when it was sending notices
regarding the two sets of loans at the same time? And why would
Lender representatives have identified defendant as a secondary
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source of repayment of the Lone Star Dairy loans but not the
Triple V Dairy loans?
Similar questions arise regarding the initial complaint and
changes in the amendment, leading to a similar inference that
Lender did not think defendant guaranteed the Triple V Dairy
obligations until after it filed its lawsuit. When seeking to collect
on all of the loans together, why would Lender allege defendant’s
liability with respect to the Valadaos’ Lone Star Dairy obligations
only while omitting any mention of the Triple V Dairy
obligations? The amendments to the initial complaint suggest
that Lender, in the midst of litigation, formed a new
understanding of the guaranty that it had not previously held.
For the first time in the amended complaint, Lender alleged that
it was “informed and believe[d] that [defendant] guaranteed the
obligations of the [Valadaos] to [Lender].”
In view of evidence that the parties may have intended the
defined terms for the Valadaos and “Borrower” in the guaranty to
be limited to the Valadaos doing business as Lone Star Dairy, we
must ask whether this is an interpretation to which the guaranty
is reasonably susceptible. We are satisfied that it is.
It is certainly reasonable to interpret the terms “Edward
Valadao, Jr.” and “April Valadao” as the trial court did—only by
reference to the individuals named before the definitions. But in
light of defendant’s extrinsic evidence, we see the terms are also
reasonably susceptible to being interpreted as modified by the
descriptors applied to the Valadaos in the sentence’s subsequent
clause—“husband and wife, doing business as Lone Star Dairy.”
Importantly, Lender offers no authority, and we are aware of
none, that a term defined in a contract may be defined only by
25
what precedes it in the definitional clause or sentence, and not by
what comes after.
To understand the definitions of “Edwardo Valadao, Jr.”
and “April Valadao” to embrace the description of the Valadaos as
“husband and wife, doing business as Lone Star Dairy” does not
result in a contradiction in terms or require that the contract be
rewritten. Lender argues that reading “husband and wife” into
the definitions of “Edwardo Valadao, Jr.” and “April Valadao”
would result in the absurdity of conditioning the guaranty’s scope
on the Valadaos’ marital status. We disagree. By providing that
“Borrower” includes the Valadaos “individually and collectively,”
any restriction based on their marital status falls away—they
could not “individually” be “husband and wife.” But the Valadaos
could conceivably operate Lone Star Dairy together or
independent of one another. Accordingly, it is a reasonable
construction of the entire definitional sentence that each
Valadao, when doing business as Lone Star Dairy, either together
or separately, is a “Borrower.”
For these reasons, we conclude that the term “Borrower” is
ambiguous and extrinsic evidence is admissible to resolve its
meaning.
e. We will not enter judgment for defendant based
on his extrinsic evidence alone
“When two equally plausible interpretations of the
language of a contract may be made, . . . parol evidence is
admissible to aid in interpreting the agreement, thereby
presenting a question of fact which precludes summary judgment
if the evidence is contradictory.” (Walter E. Heller Western, Inc.
v. Tecrim Corp. (1987) 196 Cal.App.3d 149, 158.) Defendant asks
that we resolve the ambiguity in his favor based on the absence of
26
any conflict in the evidence—an absence attributable to Lender’s
failure to introduce any extrinsic evidence of its own. We decline
to do so. Having found the extrinsic evidence demonstrates at
least two plausible interpretations of the credit agreement and
guaranty, we have concluded there is a triable issue of fact which
precludes summary judgment on this record.
DISPOSITION
The judgment is reversed. The matter is remanded to the
trial court with instructions to deny Lender’s motion for
summary adjudication. Defendant is to recover his costs on
appeal.
GRIMES, J.
WE CONCUR:
STRATTON, P. J.
VIRAMONTES, J.
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