Marriage of Gilbertie

Excerpt:

III
Interpretation of Paragraph 4.05

James argues the trial court wrongly interpreted paragraph 4.05 of the marital settlement agreement. He claims the paragraph's unambiguous language demonstrates the equalization payment was not his obligation individually, but was an obligation of a corporate entity he owned. He maintains Leslie's testimony of the parties' intent contradicts the terms of the agreement and thus is not admissible under the parol evidence rule. We disagree with James's contentions.

A. Terms of the marital settlement agreement
While married, Leslie and James owned two textbook publishing businesses as community property, NWP North West Publishing LLC (NWP) and CAT Publishing Company (CAT). As part of the division of community property, Leslie assigned to James her interest in NWP, including ownership and copyright of textbooks and materials written by James (the Gilbertie Books). (Agreement, ¶ 4.01(e).) James assigned to Leslie his interest in CAT, including ownership and copyright of textbooks and materials written by James Willis and Martin Primack (the Willis Books). (Agreement, ¶ 4.02(d).)
As part of Leslie assigning her interest in NWP to James, the parties agreed NWP would provide CAT with limited use of the Gilbertie Books, and CAT would pay James royalties for all Gilbertie Books it sold. (Agreement, ¶ 4.01(e)(ii), (iii).)

As part of James assigning his interest in CAT to Leslie, the parties agreed CAT would provide NWP with limited use of the Willis Books, and NWP would compensate CAT $10,000 each semester the Willis Books were sold “as and for consultation fees,” for total compensation of $20,000 per academic year. (Agreement, ¶ 4.02(d)(ii), (iv).) The trial court below held this provision did not impose an obligation on James in his individual capacity, and Leslie does not challenge that decision.

The equalization payment provision at issue here, found at paragraph 4.05, reads in full: “As and for an equalization payment to Wife, Husband, as owner of NWP North West Publishing, agrees to purchase the ownership and copyright rights to ‘Gilbertie Books'. NWP North West Publishing LLC will sign a promissory note in the amount of $80,000 made payable to CAT Publishing Company. Semi-annual payments of $10,000 shall be paid on March 15th and October 15th beginning March 15, 2003 by NWP North West Publishing LLC.”

The parties released each other from all other claims, known and unknown. (Agreement, ¶ s 8.01, 8.02.) They waived their rights to have the agreement set aside under Family Code section 2122, subdivision (e), due to mistake, or under Code of Civil Procedure section 473 due to mistake, inadvertence, surprise, or excusable neglect. (Agreement, ¶ 8.06, 8.07.)

The agreement includes an integration clause, by which the parties stated the agreement and judgment were intended to be the final and exclusive agreement between the parties; the agreement supersedes any previous or contemporaneous oral or written agreements between the parties; and there were no agreements or promises except as set forth in the written agreement. (Agreement, ¶ 9.02.)

The agreement ordered each party, at the request of the other, “to execute and deliver any instrument, furnish any information, and perform any other act reasonably necessary to carry out” the agreement's provisions. (Agreement, ¶ 9.04.) Any party who failed to comply with this order was required to pay the other party's expenses and attorney's fees necessarily incurred to enforce the agreement. (Ibid.)
The parties executed the agreement in their individual capacities. Neither NWP nor CAT was named as a party. The agreement, however, states it is binding on the parties' “heirs, executors, administrators, assigns and successors in interest.” (Agreement, ¶ 2.03, italics added.)

B. Standard of review
“When considering a question of contractual interpretation, we apply the following rules. ‘A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.’ (Civ.Code, § 1636.) ‘The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.’ (Civ.Code, § 1638.) ‘When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible ....‘ (Civ.Code, § 1639.)

“Parol or extrinsic evidence is admissible to resolve an ambiguity. [Citations.] In such cases, the court engages in a two-step process: ‘First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine “ambiguity,” i.e., whether the language is “reasonably susceptible” to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is “reasonably susceptible” to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step-interpreting the contract. [Citation.]’ (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.) The trial court's determination of whether an ambiguity exists is a question of law, subject to independent review on appeal. (Ibid.) The trial court's resolution of an ambiguity is also a question of law if no parol evidence is admitted or if the parol evidence is not in conflict. However, where the parol evidence is in conflict, the trial court's resolution of that conflict is a question of fact .... Furthermore, ‘[w]hen two equally plausible interpretations of the language of a contract may be made ... parol evidence is admissible to aid in interpreting the agreement ....‘ (Walter E. Heller Western, Inc. v. Tecrim Corp. (1987) 196 Cal.App.3d 149, 158.)” (WYDA Associates v. Merner (1996) 42 Cal.App.4th 1702, 1709-1710.)

C. Analysis
Our first step requires we determine whether paragraph 4.05 of the agreement is ambiguous. We do this by reviewing, without admitting, the extrinsic evidence concerning the parties' intentions and decide whether the language of the contract is reasonably susceptible to the proffered interpretation.

In support of his request to quash the original writ of execution, James stated the writ was improperly issued because “there is no Judgment on file against this declarant and the only money Judgment, pursuant to the terms of the Marital Settlement Agreement, is against various business entities.”
His statement is obviously incorrect. There is a judgment against him-the judgment of dissolution-and it ordered him to comply with the terms of the marital settlement agreement, which were incorporated into the judgment. He also offers no evidence that contradicts Leslie's testimony. Thus, our interpretation of the agreement is one of law.

Leslie declared James was determined to have them reach a property settlement without the assistance of attorneys. He even proposed they divide the property based on only a verbal agreement. Leslie insisted they at least memorialize their agreement in writing.

The most difficult issue in dividing the community property was valuing their two publishing companies. Comparable sales of such companies did not exist, as most textbook publishing is done by divisions of much larger publishing companies. Nonetheless, she and James met several times over a period of three weeks in 2002 and, without the assistance of any third person, agreed upon terms for dividing the entire community estate.

Leslie continued: “A material part of the agreement was that [James] would pay me the sum of $80,000 in order to equalize the division of community property. That $80,000 was to be paid in semi-annual payments of $10,000, commencing March of 2003.

“After we reached an agreement as to the equalization amount and payment, [James] approached me with a proposal that he could derive a tax benefit from the equalization payment if he had the check made out by the publishing business he was to receive [NWP] rather than him individually under the guise that his business was purchasing the ‘Gilberte [sic ] books'. [James] furnished the language of the provision which he advised would allow him to gain the tax advantage. I trusted that [James] would honor his commitment to pay the equalization as we had agreed. I, of course, noted that per the language supplied by [James] he acknowledged that the obligation to equalize the community estate was his personal obligation and not that of [NWP]. Nor has [James] ‘as owner of [NWP]’ tendered any promissory note payable to me from that business.”

Leslie testified NWP is “a company which of course has no assets with which to satisfy the obligation.” “Throughout all our negotiations and discussions,” she concluded, “[James] acknowledged that the obligations undertaken in our judgment by [NWP] were obligations he would honor.”
The language of paragraph 4.05 is reasonably susceptible to the interpretation urged by Leslie. The extrinsic evidence highlights the ambiguity that exists in the paragraph. The payment is an equalization payment made by one separating spouse to another to remedy an unequal distribution of community property. James agrees to purchase the Gilbertie books as the equalization payment, but he does so as “owner of NWP.” NWP, however, is not a party to the agreement. James is the only promisor. It is unclear what the relevance of the phrase “as owner of NWP” may be until it is considered in light of Leslie's uncontradicted testimony.

After agreeing to the equalization payment, James decided NWP could obtain a tax advantage by paying the equalization payment in the form of a business expense. The intent of the parties thus was for James in effect to assign his obligation under paragraph 4.05 to NWP. A promisor who makes such an assignment, however, cannot escape the burden of his obligation. Even if the assignee assumes the obligation and agrees to perform it, the promisor still remains secondarily liable as a surety or guarantor, unless the promisee releases him or the parties execute a complete novation, neither of which has occurred here. (Civ.Code, § 1457; Cutting Packing Co. v. Packers' Exch. (1890) 86 Cal. 574, 576; Walker v. Phillips (1962) 205 Cal.App.2d 26, 33; 1 Witkin, Summary of Cal. Law, Contracts (9th ed.1987) § 943, p. 841.) Nothing in the language of the contract or the extrinsic evidence demonstrates any intent by the parties to free James from the ultimate responsibility to make the payment.
Here, the uncontested facts are that James's assignee, NWP, has not issued a promissory note and has not paid the installment. Whether we view James as primarily liable for the debt in his individual capacity or secondarily liable in his capacity as a surety, the result in this matter is the same-James is responsible for paying the equalization payment. The trial court correctly granted a writ of execution against James to recover on his judgment.

DISPOSITION
The order is affirmed. Costs on appeal are awarded to Leslie. (Cal. Rules of Court, rule 27(a).)