Court Opinion

ID: 873474
Source: CourtListenerOpinion
Date Created: 2013-05-31 00:02:11.953844+00
Date Added: 2024-06-11T15:25:05.885276
License: Public Domain

Filed 5/30/13 Adam v. Adam CA2/6

                 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.111.5.

             IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                    SECOND APPELLATE DISTRICT

                                                   DIVISION SIX

THOMAS G. ADAM et al.,                                                           2d Civil No. B237557
                                                                               (Super. Ct. No. 1272918)
     Plaintiffs and Appellants,                                                 (Santa Barbara County)

v.

ANDREW M. ADAM,

     Defendant and Respondent.

                   Appellants Thomas G. Adam and his wife Janice Adam1 appeal from a
declaratory relief judgment arising from Andrew M. Adam's (Thomas's brother) sale
and leaseback of a 321-acre ranch. Thomas argues, among other things, that the trial
court erred in finding that Andrew breached no fiduciary duty and was not required to
provide a more detailed accounting. We affirm.
                                               The Family Ranches
                   In 1990, Thomas's and Andrew's father, William P. Adam, Jr. (Bill),
owned the 321-acre Union Sugar Ranch (USR) and 134-acre Main Street Ranch in

                   1
                We refer to appellants as Thomas and refer to other family members by
their first names for the convenience of the reader.
Santa Maria. Due to financial problems, Bill had to file a Chapter 11 bankruptcy and
wanted to keep the ranches in the family. With the bankruptcy court's approval,
Andrew purchased USR and Main Street Ranch by paying $100,000, forgiving a
$157,500 debt, paying Bill's vendors, and executing a $3.462 million all-inclusive note
(AIN) naming Bill and Georgiana Adam (Thomas's and Andrew's mother) as payees.
The AIN provided that Andrew would make payments on three loans (underlying
obligations) encumbering both ranches.
              In order to finance the purchase, Andrew kept Main Street Ranch and
sold USR to his brothers, Thomas and William O. Adam, III (William), pursuant to a
sale and leaseback agreement. Thomas and William executed a $3.557 million AIN
and trust deed to pay principal and interest in the amounts and times called for in the
underlying obligations (i.e., the three ranch loans and Bill's $3.462 million AIN). The
20-year lease provided that Andrew would rent the farmable portion of USR for
$224,700 a year, that the rent was insufficient to service the underlying obligations,
and that William and Thomas would have to advance money to avoid a default. By
the end of 1993, the default amount was almost $300,000.
                               Loan Workout Agreement
              The family attorney, Maurice Twitchell, corresponded with the brothers
and drafted a 1994 loan workout agreement entitled: "Agreement for Curing of
Default and Payment of Note" (ACD) and "Renegotiated Farm Lease" (RFL). The
ACD stated that Andrew had paid all the rent and advanced $557,977.87 to cure the
defaults on the underlying obligations. It further stated that William and Thomas had
not paid property taxes and were in default on Andrew's AIN and trust deed.
              The RFL was for a 26-year lease term (November 1, 1994 to October 31,
2020) and provided that Andrew would sublease USR and pay rent equal to the
subrents received, less any amount paid for property taxes, repairs, and maintenance of

                                            2
wells/pumps and other improvements (i.e., the "Basic Rental").2 The RFL stated that
William and Thomas "irrevocably authorizes and directs Tenant [Andrew] to pay such
basic rent directly to the financial institutions described in said all inclusive deed of
trust until such obligations shall be paid in full. Any amounts of basic rent in excess of
the amounts needed to pay said underlying obligations shall be retained by Tenant as
reimbursement for his prior advances in accordance with that certain 'Agreement for
Curing of Default and Payment of Note' between the parties signed concurrently
herewith."
              The ACD incorporated the RFL and acknowledged that the rents were
not sufficient to pay the underlying obligations, that advances would have to be made
to avoid a loan default/foreclosure, and that Andrew has "the legal right, but not the
obligation, to advance funds to pay the portions of the underlying obligations not paid
for by the subrents, which advances are added to and become payable to [Andrew]
under the terms of said all inclusive trust deed note."
              Over the next 10 years, Andrew used all the rents to make payments on
the underlying obligations and advanced more than $1 million to avoid a loan default
and foreclosure. On August 11, 2006, Andrew refinanced Main Street Ranch, paid off
the underlying obligations, and kept the USR rents. The RFL stated that, commencing
November 1, 2016, Andrew would share the rents with Thomas and William until the
RFL expired on October 31, 2020.
                                      The Complaint
              Thomas demanded an accounting and filed a complaint on October 24,
2008, for breach of contract, rescission, breach of fiduciary duty, accounting, and
declaratory relief. The complaint prayed that "[Andrew] Adam's estate in the Union

              2
                 The RFL states that Andrew is leasing 310 acres. The remaining 11
acres is either nonfarmable or used by William and Thomas to store equipment and
materials for their construction business.

                                             3
Sugar Ranch be destroyed. . . ." At trial, Thomas claimed that Andrew only advanced
$64,000 to cure the loan default rather than $557,977.87, and that Andrew breached a
fiduciary duty by not accounting for rents.
              The trial court found that Andrew breached no fiduciary duty and that
the rescission cause of action was time barred. (Code Civ. Proc., § 337, subd. 3.) The
court reopened the trial to receive expert testimony on the August 11, 2006 payoff
amount, i.e., the amount advanced by Andrew to pay off the underlying obligations.
Adopting the calculations of Andrew's expert, the court found that the payoff amount
was $4,498,189.
              Judgment was entered with findings that Andrew did not materially
breach the contracts or breach any fiduciary duty, that Thomas suffered no damages,
and that Andrew is entitled to all the USR rents through October 31, 2016.
Commencing November 1, 2016, Andrew will split the net rental income with Thomas
and William until October 31, 2020, when the RFL expires. The judgment states that
Thomas and William can terminate the RFL at any time by selling the USR and paying
Andrew $4,498,189 (the August 11, 2006 payoff amount) plus eight percent simple
interest.
                                    Fiduciary Duty
              Thomas argues that Andrew breached a fiduciary duty to make a full
disclosure of the subleases and rents, provide regular accountings, and disclose what
advances were made to pay off the underlying obligations. The trial court found that
insufficient evidence was presented to show damages or the breach of any fiduciary
breach.
              Because Thomas had the burden of proof at trial, the question on appeal
is whether the evidence compels a finding in favor of Thomas as a matter of law.
(Roesch v. De Mota (1944) 24 Cal.2d 563, 570-571.) It is a daunting standard on
review. A defense judgment based on failure of proof will be upheld unless the
plaintiff's evidence is "uncontradicted and unimpeached," and "of such a character and

                                              4
weight as to leave no room for a judicial determination that it is insufficient to support
a finding . . . ." (Id., at p. 571.) Thomas does not meet that standard.
              The RFL states that "[t]he relationship between the parties is that of
landlord and tenant, and not partners or joint venturers." A landlord and tenant
relationship does not create a fiduciary duty. (Girard v. Delta Towers Joint Ventura
(1993) 20 Cal.App.4th 1741, 1749.) Andrew assumed a lender and borrower
relationship with Thomas but "[t]he relation between a mortgagee and mortgagor is
not fiduciary. [Citation.]" (Lineker v. McColgan (1921) 54 Cal.App. 771, 774
[mortgagee in possession].) Where no negligence or improper conduct is alleged, a
mortgagee in possession is only chargeable with what he actually received, and no
more. (Murdock v. Clarke (1891) 90 Cal. 427, 438; Miller & Starr, Cal. Real Estate
(3d ed 2011) § 10:46, p. 150.) The trial court correctly found no breach of fiduciary
duty and that it was an arm's length transaction. (See, e.g., Oaks Management Corp. v.
Superior Court (2006) 145 Cal.App.4th 453, 466; Bastajian v. Brown (1943) 57
Cal.App.2d 910, 915.)
                              $557,977.87 Default Amount
              Thomas claims that the $557,977.87 default amount was written into the
ACD after he signed it in 1994. The trial court credited Andrew's testimony that the
default amount was set forth in the ACD when it was signed. The evidence shows
Thomas was aware of the $557,977.87 default amount and did not object until 2008
when he filed the complaint, rendering the rescission claim time-barred. (Code Civ.
Proc., § 337, subd. 3.) Although Thomas claims that $557,977.87 is too much, the
trial court found that it is the exact number, to the penny listed in a ledger maintained
by Thomas's and Andrew's mother, Georgiana. Andrew made additional advances
after the ACD was signed "by refinancing the debts, paying the obligations that were
secured by Union Sugar [R]anch and placing the liens against his own property. This
was something that no party anticipated and which the agreement fails to directly
address."

                                            5
              The ACD gave Andrew the legal right but not the obligation to pay the
underlying obligations in advance.3 Exercising that right, Andrew paid all the property
taxes and paid off the underlying obligations so that he could enjoy future USR rental
income. The trial court found that it "was an entirely voluntary act . . . to go ahead and
pay off the loans. . . . Is that a bad thing for Andrew to do? Not necessarily. It might
be a perfectly sound business decision to make . . . ."
              At the hearing on a motion for new trial, Thomas's counsel conceded that
"[w]e were never seeking damages from the defendant. . . . [W]e did think there was a
breach of contract. We wanted to control it, but [Andrew] would still get the same
money he's going to get now." If no damages were suffered or are being sought, the
action for breach of contract, failure to disclose, and breach of fiduciary duty fails as a
matter of law. (See Bramalea California, Inc. v. Reliable Interiors, Inc. (2004) 119
Cal.App.4th 468, 473; Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086.)
                                  Regular Accountings
              Thomas argues that he is entitled to "regular accountings, and a court
order requiring Andrew to do so." But that is what Thomas got. Andrew's expert,
Thomas Rust, provided an accounting. Thomas's accountant, Mike Radakovich,
reviewed the loan records, ledgers, lease agreements, rent records, and accounting
prepared by Andrew's and Thomas's mother, Georgiana Adam, and declared that he
had enough information to calculate the payoff amount.

              3
                 Thomas argues that interpretation of the ACD and RFL is a question of
law subject to de novo review on appeal. (See WYDA Associates v. Merner (1996) 42
Cal.App.4th 1702, 1710.) Thomas, however, claimed that the ACD and RFL were
ambiguous and introduced parol evidence. Where here, the extrinsic evidence is in
conflict, we will uphold any reasonable interpretation of the contract that is supported
by substantial evidence. (Ibid.) "Even in cases where the evidence is undisputed or
uncontradicted, if two or more different inferences can reasonably be drawn from the
evidence this court is without power to substitute its own inferences or deductions for
those of the trier of fact . . . ." (Howard v. Owens Corning (1999) 72 Cal.App.4th 621,
631.)

                                             6
              Thomas is dissatisfied with the accuracy of the accounting but it was his
own doing. (Civ. Code, § 3517 ["No one can take advantage of his own wrong"].)
The trial court found: "The simple fact is that the parties entered into a sale and lease
agreement which resulted in claims and counter claims against each other based on
failures to make payments, failures to account for rents, and other assorted claims.
Rather than rely on accountants, the parties kept their own ledgers maintained by their
mother, Georgiana. Forensic accountants attempted to reconcile financial information
from the ledger, but were unable to agree."
              Thomas claims that the trial court erred in not ordering future
accountings but that was ordered, too. The judgment states that Andrew is "to provide
yearly accountings along with the leases to plaintiff regarding monies they are
receiving for the rent."
                       Payoff Amount if Thomas Cancels the RFL
              At Thomas's request, the trial court reopened the trial to determine the
August 11, 2006 payoff amount should Thomas cancel the RFL before it expires on
October 31, 2020. The court stated: "The starting point is the original amount
advanced, $577,977.87, plus any additional advances after the date of the Agreement
[for Curing] Default and Renegotiated Farm Lease plus 'simple interest on such
advances at the rate of eight percent per annum' less any reimbursement received by
Andrew from net rental income."
              The trial court determined that the $4,498,189 payoff amount calculated
by Andrew's expert (Thomas Rust) was more accurate than the $4,022.218 calculation
by Thomas's expert (Mike Radakovich). We are precluded from reweighing the
evidence. (Berniker v. Berniker (1947) 30 Cal.2d 439, 444.) An accounting was
ordered. Accounts were rendered. Objections were filed and heard, and the trial court
determined that the payoff amount was $4,498,189. There was no miscarriage of
justice nor is Thomas entitled to a new accounting. (See, e.g., Sears v. Rule (1945) 27
Cal.2d 131, 149; Douglas v. Westfall (1952) 113 Cal.App.2d 107, 114.)

                                              7
                      Eight Percent Interest on Andrew's Advances
              Thomas argues that the trial court erred in finding that he must pay
$4,498,189 plus 8 percent simple interest if Thomas cancels the RFL by selling the
property. Paragraph 23 of the RFL, entitled "Cancellation Clause," states: "Landlord
[i.e., Thomas] shall have the right, upon written notice to Tenant, to cancel this [lease]
at such time as all of the underlying obligations, as defined above, have been paid in
full and Tenant has been reimbursed in full for all advances that Tenant has made
towards payment of the underlying obligations, together with simple interest on such
advances at the rate of eight percent per annum." At trial, Thomas admitted there
were discussions about "breaking the lease" and agreed that Andrew would be "paid
back for any advances" and "we also pay him eight percent on those advances . . . ."
              The eight percent interest charge is consistent with the ACD which
acknowledges that advances had to be made to save the ranches. Thomas's and
William's initial investment was less than $55,000, they paid no property taxes or loan
payments after the ACD was signed, and they own USR which is now worth more
than $19 million. Andrew's refinancing and early payoff of the underlying obligations
was unexpected but saved William and Thomas more than $1 million in loan interest.
In the words of William, co-owner of USR , it was "the best investment [Thomas] and
I ever made in our life." On the first day of trial, Thomas's attorney agreed that
Andrew should be paid for his advances, "[p]lus, if we cancel this lease, we would
even say that he would be entitled to interest on that . . . I think in fairness we would
give [him] that eight percent." There are no grounds in law or equity to rewrite the
sale and leaseback agreement to make it more profitable for Thomas.
              Sale of USR as Condition Precedent to Cancellation of RFL
              Thomas argues that the trial court erred in finding that the sale of USR is
a condition precedent to cancellation of the RFL. The ACD and RFL incorporate each
other and must be read together in determining the parties' respective rights. (Civ.
Code, § 1642; Harm v. Frasher (1960) 181 Cal.App.2d 405, 412-413.) Paragraph 4 of
the ACD states: "Despite any provision in this agreement to the contrary, it is agreed

                                             8
that [William] and [Thomas] may cancel the renegotiated farm lease at any time that
they wish to sell the property, in which case the following agreements shall apply: [¶]
. . . [¶] B. All amounts advanced by [Andrew] towards payment of the underlying
obligations or taxes on the Union Sugar [R]anch shall continue to be due under the
terms of the deed of trust and shall be all due and payable upon the consummation of
the sale of the Union Sugar [R]anch." (Emphasis added.) Reading the ACD and RFL
together, the trial court reasonably concluded that the sale of USR is a condition
precedent to cancellation of the RFL. Phrased differently, the only way Thomas can
cancel the RFL is to sell the USR.
              Thomas claims that the ACD and RFL have different cancellation rights
that do not depend upon one another. The argument is based on the theory that
paragraph 23 of the RFL (cancellation of the RFL) gives Thomas the right to cancel
the RFL if he pays the underlying obligations and reimburses Andrew for the
advances. But early cancellation of the RFL would be contrary to the ACD which
provides that the "renegotiated farm lease shall be fully and completely performed by
[William] and [Thomas] . . . including the extended term thereof . . . ." The testimony
and Twitchell's letters show that the 26-year lease term was to ensure that the
underlying obligations were paid in full and to ensure that Andrew would receive half
the net rents from November 1, 2016 to October 31, 2020.4 At trial, Thomas
acknowledged that Andrew's rent share would be $240,000 between 2016 and 2020.
              The trial court reasonably concluded that the RFL cancellation clause
may not be used to trump the ACD and exclude Andrew from receiving his share of
the rents after he refinanced his ranch (Main Street Ranch) and paid off the underlying
obligations. The right to cancel the RFL, as described in paragraph 23, is further

              4
                 Andrew testified that the sale "was upside-down for a long time" and,
now that the rents are more than the payments on the underlying obligations, "the hard
times should be over and we should be collecting . . . this money back. And I still
don't believe I'll collect all of my advances back . . . ."

                                           9
limited by paragraph 13 of the RFL which provides that Andrew "may farm all or a
portion of the leased premises and continue to farm the same for so long as all of the
underlying obligations are prepaid at least one year in advance." (Emphasis added.)
              At the hearing on the motion for new trial, the trial court explained that
Thomas could pay off the AIN and deed of trust without selling the property.
Thomas's attorney argued that the judgment could be read to mean that the sale of the
property was a condition precedent to paying off the AIN and deed of trust. The trial
court responded: "No, that's not my intent. It's not a condition precedent . . . . It's just
if the property is sold by . . . plaintiff and his brother, then Andrew must be paid off."
              Thomas's attorney asked the trial court to "clear that up a little bit, just to
make sure somebody else who reads that in the future doesn't have a
misunderstanding." Thomas submitted a proposed order containing the language he
seeks on appeal (i.e., that Thomas cannot pay off the AIN unless the USR is sold).
Andrew objected and the trial court issued its own order omitting the language
proposed by Thomas. There is no merit to the argument that the judgment misstates
the trial court's findings or should be modified.
                                   1985 Judgment lien
              Thomas also requested that the trial court order Andrew to "pay" a 1985
judgment lien that was recorded before Andrew bought and resold USR. Andrew
testified that he would relieve Thomas of responsibility for the $500,000 lien if the
RFL "is left intact."
              Thomas argues that Andrew should be ordered to pay the judgment lien
because it his contractual responsibility. But that misstates the RFL which provides
that "Tenant agrees to keep the leased premises free and clear of all liens . . . arising
out of Tenant's operation of the premises . . . ." Andrew has no contractual obligation
to pay a judgment lien recorded before the RFL was executed.
              At the hearing on a motion for new trial, the trial court stated that it
would not order Andrew to pay the judgment lien because the lien could be removed
by other means. Andrew could void the lien in bankruptcy court or get the lienholder

                                            10
to agree to transfer the lien to other property. If Andrew was ordered to pay the
judgment lien, it would have the unintended consequence of making the judgment
creditor a third party beneficiary and giving the judgment creditor the right to sue
Andrew.
              The judgment provides that removal of the 1985 judgment lien "shall be
the sole responsibility of Andrew Adam" and that Andrew "shall indemnify, defend
and hold plaintiffs harmless from said judgment . . . ." As worded, the judgment is
like a title insurance policy and adequately protects Thomas's ownership rights. (See,
e.g., Rosen v. Nations Title Ins. Co. (1997) 56 Cal.App.4th 1489, 1499.) We reject the
argument that the judgment should be corrected to say that Andrew must pay the
judgment lien.5
                             Additional Declaratory Relief
              Thomas requests that we grant additional relief and render our "own
judgment in order to avoid future delay or expense to the parties."6 Reviewing courts
do not make advisory opinions based on a hypothetical state of facts. (Hunt v.
Superior Court (1999) 21 Cal.4th 984, 998; Selby Realty Co. v. City of San
Buenaventura (1973) 10 Cal.3d 110, 117.) The trial court was concerned that

              5
                After the trial court granted Thomas's motion to reopen and receive
expert testimony on the payoff amount, it modified the statement of decision to
provide that Andrew "shall pay, indemnify, and hold harmless plaintiffs from said
judgment lien." At the July 6, 2011 hearing on attorney's fees, Thomas argued that the
judgment should be modified to say that Andrew must defend, indemnify and hold
Thomas harmless on the 1985 lien. The trial court agreed and signed a proposed
judgment, omitting the word "pay." It did not err. "[A] court is not bound by its
statement of intended decision and may enter a wholly different judgment than that
announced." (Canal-Randolph Anaheim, Inc. v. Wilkoski (1978) 78 Cal.App.3d 477,
494.)
              6
                Thomas requests that we decide whether the sale and leaseback "debt"
will be deemed paid in full when the RFL expires on October 31, 2020. Thomas also
wants a determination that the Cancellation Clause in paragraph 23 of the RFL gives
him the right to refinance the USR and pay off Andrew.

                                           11
"William is not a party to this action and therefore the Court believes that it cannot
order the Renegotiated Farm Lease terminated." We, too, are precluded from
considering hypothetical future actions the brothers may take in what the trial court
characterized as "a family broken apart by financial dealings." Wise adjudication has
its own time for ripening. (Sierra Club v. California Dept. of Parks & Recreation
(2012) 202 Cal.App.4th 735, 738.)
              Thomas's remaining arguments have been considered but merit no
further discussion.
              The judgment is affirmed. Andrew is awarded costs on appeal.
              NOT TO BE PUBLISHED.

                                                         YEGAN, J.

We concur:

              GILBERT, P. J.

              PERREN, J.

                                            12
                              Arthur A. Garcia, Judge

                      Superior Court County of Santa Barbara

                        ______________________________

              Brenneman Juarez & Adam, LLP, Richard C. Brenneman for Plaintiffs
and Appellants.
              The Law Offices of Robert D. Reed, Robert D. Reed for Defendant and
Respondent.

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