Gault v. Sass Electric CA4/1 (2016) · DecisionDepot
Gault v. Sass Electric CA4/1
California Court of Appeal Sep 30, 2016 No. D069107Unpublished
Filed 9/30/16 Gault v. Sass Electric CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
MICHAEL GAULT et al., D069107
Plaintiffs and Appellants,
v. (Super. Ct. No. 37-2012-00096451- CU-BC-CTL) SASS ELECTRIC, INC. et al.,
Defendants and Respondents.
APPEAL from an order of the Superior Court of San Diego County, Timothy B.
Taylor, Judge. Affirmed.
Higgs, Fletcher & Mack, John Morris and Rachel E. Moffitt for Plaintiffs and
Appellants.
Smaha Law Group, John L. Smaha, John Paul Teague and Gregory J. Borman for
Defendants and Respondents.
In 2012, Michael Gault and CGE, Inc. (together Gault) sued Sass Electric, Inc. and
Christopher Sass (together Sass) regarding a business dispute. In April 2013, they
resolved their dispute by entering a settlement agreement, which provided several
payment options for Sass to fulfill his monetary obligation to Gault. One of the payment
options permitted Sass to satisfy his obligation by paying Gault $386,000 within three
years. The settlement agreement also provided that if Sass defaulted under the terms of
their agreement, then Gault could seek entry of a stipulated judgment on an ex parte
basis. About one year after the settlement agreement was executed, Gault alleged Sass's
default, obtained entry of the prior stipulated judgment, and began collection activities.
By June 2015, Sass paid Gault a total of $386,000 and moved to compel Gault to
acknowledge satisfaction of the stipulated judgment, which the trial court granted.
Gault appeals and argues that the stipulated judgment's principal amount of
$692,000 was not satisfied because under the terms of the parties' settlement agreement,
Sass could only pay him a lesser amount if he was not in default under their settlement
agreement. We do not interpret the settlement agreement in the manner Gault urges, and
affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Prior to April 2012, Sass performed electrical work as a subcontractor for Gault.
In the course of their dealings, Gault contributed over $734,000 to Sass to pay for Sass's
expenses and allegedly obtained an option to purchase 50 percent of Sass Electric, Inc.
(SEI). Sass disputed that Gault acquired an option to purchase any interest in SEI. In
April 2012, Gault filed a complaint against Sass regarding their business disputes, and
one year of litigation followed.
On April 9, 2013, the parties entered a settlement agreement. Under the
agreement, Sass is required to pay Gault a $15,000 "down payment" within 60 days and
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$65,000 by February 1, 2014 (or earlier, if Sass could sell his two collectible
automobiles). The agreement contains the following provisions regarding continuing
payments:
"SEI and Sass, collectively, shall make additional monthly payments to Gault in the following manner:
$5,000 a month for the first 36 months; $8,000 a month for the next 24 months; $10,000 a month for the next 24 months.
"Payment shall be made on the first day of each month, commencing May 1, 2013 directly to Gault. If, however, SEI and Sass timely pay Gault $2,500 a month for the first 36 months; $3,500 for the next 24 months; and $4,500 a month for the next 24 months, Gault shall waive the remaining payment amounts. Similarly, if SEI and Sass pay Gault a total of $306,000 (exclusive of the $80,000 noted above) within three years of this Agreement, Gault shall waive the remaining amount owed." (Emphasis in original.)
The agreement additionally calls for Sass to execute a promissory note to Gault in
the amount of $692,000 and to secure the note with a deed of trust on Sass's real property
(the Ramona property). The promissory note reiterates the agreement's payment terms,
including a provision that "if [Christopher Sass] pays [Michael Gault] a total of $386,000
within three years of this Agreement, [Michael Gault] shall waive the remaining amount
owed." The note states that it "evidences a settlement" between the parties and refers to
the executed settlement agreement.
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Further under the settlement agreement, the parties agreed to execute a stipulated
judgment attached to the agreement and incorporated by reference into it. The agreement
states:
"The original Stipulated Judgment will be held in trust by Gault, and only filed in the event of Default under this Agreement. Sass and SEI and their counsel agree that Gault shall be entitled to submit an ex parte application to the Court requesting the Court re-open the case, enter the Stipulated Judgment if a Default has occurred, and include in the Stipulated Judgment the attorneys' fees and costs associated with entering the Stipulated Judgment."
"Default" is separately defined in the settlement agreement to include "any failure by
Sass or SEI to timely pay settlement funds when due or breach of any other obligation
created by this Agreement" and "any failure to comply with this Agreement[.]" The
stipulated judgment, which by its terms references the parties' "attached" settlement
agreement, shows "$692,000" typed in as the principal amount and blank lines where
deductions could be made for payments, or additions for attorney fees, to arrive at the
total judgment amount.
On April 15, 2013, Christopher Sass recorded a quitclaim deed for the Ramona
property to his mother without Gault's knowledge, and that same day, also executed and
mailed a deed of trust for the Ramona property to Gault. Two days later, Gault recorded
the deed of trust.
In February 2014, Gault discovered his flawed security interest in the Ramona
property and sent a notice of default to Sass. Sass did not respond or take curative
actions within the settlement agreement's prescribed time to do so.
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In March 2014, Gault filed an ex parte request for entry of the stipulated judgment
in the amount of $692,000 less payments made, which Sass opposed.1 The court entered
the stipulated judgment in the amount of $592,000, representing $692,000 less $107,500
for payments already made plus $7,500 in attorney fees relating to filing the ex parte
request. Subsequently, Gault began collection activities, including a judgment debtor's
examination.
In June 2015, Sass filed a motion to compel acknowledgment of satisfaction of
judgment and for entry of satisfaction of judgment. His motion was based on the fact that
he had by then paid Gault a total of $386,000, plus additional amounts for attorney fees
and interest. Christopher Sass submitted a supporting declaration regarding his
understanding that the settlement agreement permitted him to satisfy the stipulated
judgment by paying Gault $386,000 before April 2016.
In opposition, Gault acknowledged that the settlement agreement contains various
payment options/incentives but argued that Sass's ability to pay less than $692,000 to
satisfy his debt was expressly conditioned on him "not defaulting." According to Gault,
entry of the stipulated judgment extinguished Sass's rights under the settlement
agreement as a matter of law and contract interpretation. Michael Gault's supporting
declaration states his intent for the default provision to act as an "acceleration clause,"
divesting Sass of the "lesser payment" benefit.
1 By this time, Christopher Sass once again held title to the Ramona property. 5
The trial court disagreed with Gault, discussing that his interpretation of the
agreement "would have the effect of either excising the key contract language entirely, or
adding language to it which was not expressed by the parties at the time of contracting."
The court entered Sass's satisfaction of judgment, and Gault timely appealed.
DISCUSSION
I
THE MERGER DOCTRINE DOES NOT APPLY IN THIS CASE
Gault first argues that under the doctrine of merger, the court's entry of a stipulated
judgment operated as a matter of law to extinguish Sass's contractual rights. Gault cites
Chelios v. Kaye (1990) 219 Cal.App.3d 75, and other cases supporting the proposition
that when a plaintiff obtains a judgment on a breach of contract claim, the parties'
underlying rights and duties on the contract are extinguished and they may not relitigate
the same or subsumed claims.
"The doctrine of merger is an aspect of res judicata. [Citation.] 'Under that aspect
a claim presented and reduced to judgment merges with the judgment and is thereby
superseded.' " (Diamond Heights Village Association, Inc. v. Financial Freedom Senior
Funding Corp. (2011) 196 Cal.App.4th 290, 301.) The merger doctrine developed to bar
subsequent litigation to enforce an extinguished or "merged" contract right. (See 40A
Cal.Jur.3d (Aug. 2016) Judgments, § 193 [nature and effect of merger]; see also
judgment, being regarded as a contract between the parties, must be construed as any
other contract." ' "].)
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II
THE PARTIES AGREED TO THREE ALTERNATIVE PAYMENT OPTIONS
Gault next argues the trial court did not reasonably interpret the settlement
agreement, contending that, under the contract, Sass's payment options were expressly
conditioned on Sass "not defaulting" and if Sass defaulted and Gault chose to enter the
stipulated judgment, then Sass relinquished his right to pay a total of $386,000 within
three years (the early payment option). Gault points to the fact that the stipulated
judgment shows a principal amount of $692,000, less payments made, on its face and
urges that any other interpretation would render a default without consequence.
Sass responds that his early payment option remained effective after entry of the
stipulated judgment. He contends that the stipulated judgment must be interpreted
together with the settlement agreement's terms regarding payments, the stipulated
judgment acted as a form of security to ensure payment, and there is no language
regarding waiver or extinguishment of his early payment option upon default and entry of
judgment. He indicates that Sass could improperly nullify the early payment option if
any other interpretation was adopted.
The parties disagree on the proper standard of review. The only conflicting
evidence in the record is the parties' declarations discussing each individual's subjective
understanding and intention pertaining to the payment provisions, but "evidence of the
undisclosed subjective intent of the parties is irrelevant to determining the meaning of
contractual language." (Winet v. Price (1992) 4 Cal.App.4th 1159, 1166, fn. 3.) Because
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there is no conflict in competent extrinsic evidence, we independently construe the
settlement agreement and stipulated judgment. (Ibid.)
" 'The purpose of the law of contracts is to protect the reasonable expectations of
the parties.' " (ASP Properties Group v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1268
(ASP Properties).) " ' "Under statutory rules of contract interpretation, the mutual
intention of the parties at the time the contract is formed governs interpretation. (Civ.
Code, § 1636.) Such intent is to be inferred, if possible, solely from the written
provisions of the contract. (Id., § 1639.) The 'clear and explicit' meaning of these
provisions, interpreted in their 'ordinary and popular sense,' unless 'used by the parties in
a technical sense or a special meaning is given to them by usage' (id., § 1644), controls
judicial interpretation. (Id., § 1638.)" [Citations.]' [Citation.] 'The whole of a contract is
to be taken together, so as to give effect to every part, if reasonably practicable, each
clause helping to interpret the other.' (Civ. Code, § 1641.) 'The factual context in which
an agreement was reached is also relevant to establish its meaning unless the words
themselves are susceptible to only one interpretation.' " (Canaan Taiwanese Christian
Church v. All World Mission Ministries (2012) 211 Cal.App.4th 1115, 1124.) Courts
must avoid an interpretation that will make a contract extraordinary, harsh, unjust, or
inequitable. (ASP Properties, supra, at p. 1269.)
The question of interpretation before us is whether Sass could use the early
payment option to satisfy the stipulated judgment. We conclude he could.
First, at the time the contract was formed, the parties' mutual intent was to provide
Sass with sufficient motivation to completely fulfill his monetary obligation to Gault by
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2016 instead of 2020. The parties understood that Sass did not have the current or
immediate ability to fully pay Gault.2 Under the settlement agreement, the first and
second payment options contemplated set monthly payments by Sass until May 2020, and
the third payment option does not set a monthly schedule but required total payments of
$386,000 by April 9, 2016.
Second, the settlement agreement does not state that Sass's early payment option is
extinguished, void, or otherwise waived upon default and entry of stipulated judgment,
while the agreement is detailed on many other points. Gault argues that Sass's ability to
pay a less than face amount was "expressly conditioned" on Sass not being in default, but
we do not perceive any language conditioning the early payment option on whether or not
Sass is in default. Instead, it is most naturally read as a means for Sass to completely
satisfy his obligation even if he missed or delayed some monthly payments. Otherwise,
Sass could arguably "default" under the contract merely by exercising his third payment
option (i.e., intend to pay $386,000 by April 2016 and not make strict monthly payments
beforehand), thereby rendering the option meaningless.
Third, the promissory note and stipulated judgment evidenced Sass's monetary
obligation to Gault and were intended to facilitate collection efforts, but they were not
intended to alter the surrounding terms and amount of Sass's obligation. The promissory
note essentially duplicates the settlement agreement's payment terms. The stipulated
judgment references an "attached" settlement agreement for its genesis and does not by
2 For example, the parties contemplated payments over years and the timing of one payment under the settlement agreement depended on Sass's ability to sell illiquid assets. 10
its terms extinguish the settlement or any other agreements the parties may have entered
into.
Based on the foregoing, a default under the settlement agreement did not
extinguish Sass's ability to use his early payment option. The parties could and did agree
in advance that Gault would waive the balance due him above $386,000 if Sass made
payments of $386,000 within a three-year period. Our interpretation protects the parties'
reasonable expectations since if Sass defaulted in year four after the agreement's signing,
then he would have lost the early payment right.
In summary, Sass's payments to Gault of $386,000 within three years of the
settlement agreement satisfied the stipulated judgment, and the trial court properly
required Gault to acknowledge satisfaction of judgment.
DISPOSITION
The order compelling Gault to acknowledge satisfaction of judgment and entering
satisfaction of judgment is affirmed. Sass is entitled to costs on appeal.
HUFFMAN, Acting P. J.
WE CONCUR:
HALLER, J.
O'ROURKE, J.
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AI Brief
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Holding. The court held that a stipulated judgment did not extinguish the debtor's contractual right to satisfy the total debt through an early payment option, as the settlement agreement did not condition that option on the absence of default.
Issues
Whether the doctrine of merger extinguished the debtor's contractual payment rights upon entry of a stipulated judgment.
Whether the debtor's early payment option under the settlement agreement remained valid after a default and entry of a stipulated judgment.
Disposition. Affirmed
Quotations verified verbatim against the opinion
“The legal doctrines of merger and res judicata do not necessarily apply when judgments are entered by consent or stipulation.”
“The settlement agreement does not state that Sass's early payment option is extinguished, void, or otherwise waived upon default and entry of stipulated judgment”
“Sass's payments to Gault of $386,000 within three years of the settlement agreement satisfied the stipulated judgment”