Filed 10/1/19 Fjeld Family Limited Partnership v. Abadir CA1/5

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

FJELD FAMILY LIMITED PARTNERSHIP, et al.,

Plaintiffs and Respondents,

v.

PERRY ABADIR, et al.,

Defendants and Appellants.

A153576

(Contra Costa County

Super. Ct. No. MSC1002088)

To satisfy a $1.155 million stipulated judgment that arose from an unpaid loan, the defendants agreed to pay a discounted amount in monthly installments. They made the required payments, but one payment was a day late, and another was 18 days late. The interest owed to the creditor from the delay was approximately $200, which defendants paid. The creditor, however, treated the agreement as terminated and sought enforcement of the full stipulated judgment, at an estimated cost to defendants of an additional $1 million. The trial court denied defendants’ application for entry of satisfaction of judgment for the discounted amount. (See Code Civ. Proc., §§ 724.010, subd. (a) [money judgment may be satisfied by agreement to accept lesser amount], 724.050, subd. (d) [upon application, court may enforce agreement to satisfy judgment].)

We reverse. Given evidence that the breaches were minor, the defendants had already made timely payments totaling hundreds of thousands of dollars and were prepared to perform the agreement in full, the creditors suffered no damage from the breaches, and the consequences of terminating the agreement were harsh, the trial court should have determined whether the breaches were sufficiently material to justify terminating the contract.

BACKGROUND

A.

In 2008, Fjeld Family Limited Partnership and Henry Klyce (collectively, Fjeld) made an $800,000 construction loan to an entity related to Perry Abadir. The borrower defaulted in 2009. Fjeld then filed this action in 2010.

To resolve the litigation, Fjeld entered into a 2011 lease and option contract with Abadir and two entities related to Abadir (collectively, defendants). Defendants acknowledged they owed Fjeld at least $1.155 million in principal, interest, and attorneys’ fees and costs due to the loan. Defendants stipulated a $1.155 million judgment would be entered against them in case of default on the new contract. In 2012, defendants defaulted, and the stipulated judgment was entered. Fjeld refrained from enforcing the judgment for three years.

B.

In December 2015, the parties entered into the agreement that is the immediate subject of this appeal. The agreement allowed defendants to repay the stipulated judgment at a discount: Defendants agreed to pay Fjeld $50,000 on December 4, 2015 and $40,000 a month from February 2016 to January 2018 for a total of $1.010 million. If all the payments through November 2017 were timely, Fjeld agreed to further discount the amount by waiving the last two payments. Fjeld agreed to forbear on enforcing the stipulated judgment while payments were timely received and, after final payment, acknowledge full satisfaction of the stipulated judgment. The agreement stated “any monthly payment not received by [Fjeld] no later than the fourth calendar day of each month shall be an immediate and incurable breach of this Agreement,” and “[t]ime is of the essence with regard to this Agreement.” Upon any breach, Fjeld could enforce the stipulated judgment in full with accrued interest.

C.

Either two or three payments were late. The parties dispute whether the July 2016 payment was timely, but agree the March 2017 payment was one day late. Defendants’ June 2017 check bounced, and defendants did not deliver a replacement cashier’s check until June 22, 2017, 18 days after the payment was due. Fjeld declared defendants had breached the agreement, told defendants not to attempt further payments because the agreement was “no longer in enforce [sic] and . . . will not be honored,” and took steps to enforce the stipulated judgment in full. At the time, Fjeld estimated the money judgment would require payment of an additional $1 million, including accrued interest.

Defendants attempted to complete their payments under the agreement. They gave Fjeld checks for all monthly payments through November 2017 (i.e., the last payment due if the payments had all been timely), plus $200 to cover the interest for the late payment in June.

D.

In October 2017, defendants asked the court to enter satisfaction of the stipulated judgment based on their full performance under the December 2015 agreement. (See Code Civ. Proc., §§ 724.010, subd. (a), 724.050, subd. (d); Horath v. Hess (2014) 225 Cal.App.4th 456, 466-469.) Among other arguments, defendants contended that Fjeld lacked grounds to terminate the agreement because defendants’ breaches were immaterial. Fjeld responded that the terms of the agreement were clear: if the monthly payments were not received by the fourth of each month, the breach was “immediate and incurable,” and Fjeld could enforce the stipulated judgment in full.

After extended oral argument, the trial court denied defendants’ motion. The court observed that enforcing the agreement was harsh, the breach was minor, and defendants would have made the final payments. But the court found “that there is a judgment in place in favor of [Fjeld] against Defendants, that the parties entered into [the agreement], and that said Agreement must be strictly construed. [Fjeld] intended that compliance with the Agreement had to be strictly construed. The Court finds that there has not been complete compliance with the terms of the Agreement and, as such[,] the Motion for Order for Entry of Satisfaction of the Judgment is denied.” The defendants appealed.

E.

In December 2017, the court filed an order permitting enforcement of the stipulated judgment through the sale of real property owned by one of the defendants. Fjeld represents that defendants thereafter paid the stipulated judgment in full, and, in July 2018, Fjeld acknowledged satisfaction of judgment.

DISCUSSION

A.

Fjeld argues the appeal must be dismissed as moot because Abadir voluntarily satisfied the judgment in full. We disagree. While payment of a money judgment may moot an appeal, this rule does not apply “where compliance arises under compulsion of risk or forfeiture.” (Lee v. Brown (1976) 18 Cal.3d 110, 115-116; see, e.g., Reitano v. Yankwich (1951) 38 Cal.2d 1 [appellant faced with an execution sale against his property if judgment not satisfied]; Selby Constructors v. McCarthy (1979) 91 Cal.App.3d 517, 521 [appellant faced with execution sale].) Here, Abadir faced an execution sale of property if he did not satisfy the judgment. We proceed to the merits.

B.

The defendants contend the trial court erred by failing to consider whether their breach of the agreement was sufficiently material to justify Fjeld’s decision to terminate the contract. We agree.

It is settled that “although every instance of noncompliance with a contract’s terms constitutes a breach, not every breach justifies treating the contract as terminated.” (Superior Motels, Inc. v. Rinn Motor Hotels, Inc. (1987) 195 Cal.App.3d 1032, 1051; see 1 Witkin, Summary of Cal. Law (11th ed. 2017) Contracts, § 877, pp. 922-924.) As Witkin explains, “The test is whether the breach is material, and a total or complete breach is of course material and a grounds for termination by the injured party. [¶] Whether a partial breach is material depends on the importance or seriousness thereof and the probability of the injured party getting substantial performance.” (Witkin at p. 923.) A minor breach “at the outset of the performance may justify termination, for it indicates future difficulty in obtaining performance.” But “[a]fter considerable performance, a slight breach that does not go ‘to the root’ of the contract will not justify termination.” (Ibid.; see also Sackett v. Spindler (1967) 248 Cal.App.2d 220, 229 [citing Restatement of Contracts § 275, pp. 402-403, for factors to determine materiality].) The trier of fact determines whether a breach is material. (Superior Motels, supra, 195 Cal.App.3d at pp. 1051-1052.)

The key to this inquiry, according to a helpful law review article cited by Witkin, is to focus on whether terminating the contract—the remedy for a material breach—is necessary to protect the nonbreaching party’s interest in future performance. (Andersen, A New Look at Material Breach in the Law of Contracts (1998) 21 U.C. Davis L.Rev. 1073, 1077, 1095-1098 (Material Breach).) When one party breaches a contract, the other party may have good reason to doubt the ability or willingness of the breaching party to perform in the future. If so, it is reasonable for the nonbreaching party to resort to the self-help remedy of terminating the contract. Thus, the question is, in part, whether the timing and nature of the breach demonstrates that the breaching party lacks the ability to fulfill its remaining duties. A trivial breach may not justify termination because it does not indicate a serious risk that the breaching party will not perform in the future. (See id. at pp. 1074-77, 1092-1111, 1130-1134.) A trivial breach may instead be remedied by awarding damages for the injury caused by the breach. (See Superior Motels, Inc. v. Rinn Motor Hotels, Inc., supra, 195 Cal.App.3d at p. 1051; Sackett v. Spindler, supra, 248 Cal.App.2d at pp. 229-230 [damages to nonbreaching party were inappropriate where breaching party’s willingness to perform was too uncertain].) Professor Andersen further observes that courts should assess the impairment of the nonbreaching party’s interest in future performance from the perspective of a reasonable person rather than from the subjective viewpoint of the nonbreaching party. (Material Breach at p. 1132.)

We conclude the trial court erred. It did not apply the legal standard for determining whether defendants’ breach was sufficiently material to justify Fjeld’s decision to terminate the contract. Indeed, Fjeld concedes that the court made no finding on material breach. Instead, the court found that the parties intended the agreement to be strictly construed and defendants did not comply with the agreement’s terms, and stopped there. The court acknowledged, however, evidence that is relevant to an assessment of material breach—e.g., the result was harsh, the breach was minor, defendants substantially performed prior to the breach, and defendants would have completed the payments. The only evidence of damage to Fjeld appears to be interest on the delayed June 2018 payment—about $200—which defendants promptly paid.

Fjeld’s arguments are unpersuasive. Fjeld concedes that material breach “was not the focus of the trial court” and argues “the trial court did not need to make such a finding.” Obviously, we disagree—the court should have considered material breach and made the appropriate findings. Fjeld argues the agreement unambiguously defines the circumstances that constitute a breach, “and that provision will control a determination of whether a breach has occurred,” citing Silverado Modjeska Recreation & Park Dist. v. County of Orange (2011) 197 Cal.App.4th 282, 312-314. We have no quarrel with that proposition, but the issue is not whether a breach occurred; the issue is whether the breach was material under the applicable standard. Finally, Fjeld argues, alternatively, that the breach was material. But Fjeld cites no evidence of damages and concedes that material breach is a question of fact for the trial court. We have reviewed Fjeld’s other arguments and find them to be without merit.

DISPOSITION

The November 29, 2017 order denying the defendants’ motion for entry of an order acknowledging satisfaction of judgment is vacated. We remand the case to the trial court to consider anew defendants’ application for relief under Code of Civil Procedure section 724.050 (Horath v. Hass, supra, 225 Cal.App.4th at p. 469) and to determine whether the defendants’ breach was sufficiently material to justify Fjeld’s termination of the contract.

 

_________________________

BURNS, J.

WE CONCUR:

_________________________

JONES, P. J.

_________________________

SIMONS, J.

A153576