Filed 9/24/20 Goto v. Soto CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FOURTH APPELLATE DISTRICT

DIVISION THREE

CHERYLL GOTO et al.,

Plaintiff and Respondent,

v.

WILLIAM SOTO,

Defendant and Appellant.

G058145

(Super. Ct. No. 30-2013-00692098)

O P I N I O N

Appeal from a judgment of the Superior Court of Orange County, Nathan R. Scott, Judge. Affirmed in part as modified.

AlvaradoSmith, Kevin A. Day and Jacob M. Clark for Defendant and Appellant.

Law Offices of John A. Belcher and John A. Belcher for Plaintiff and Respondent.

* * *

In December 2006, appellant William Soto purchased a commercial property from decedent Robert Garren with a $250,000 down payment and a promissory note for $750,000. Under the terms of the note, Soto agreed to make three principal payments in the amount of $250,000 annually, plus monthly interest-only payments. After making one $250,000 principal payment, Soto failed to make any other payments.

In early 2009, Soto informed Garren he was having problems paying a third party loan he had taken out on the property. On March 2009, Soto hand-delivered grant deeds purporting to reconvey the commercial property to Garren, and Garren hand delivered a copy of the promissory note to Soto.

In March 2015, Garren sued Soto, alleging Soto breached his contractual promise to pay the promissory note. Respondent Sheryll Goto substituted into the case when Garren died before trial. Soto claimed at trial the March 2009 transaction, discussed above, constituted an accord and satisfaction of the promissory note. The trial court rejected Soto’s claim, finding Soto failed to show an accord and satisfaction.

Soto contends the trial court erred in determining he failed to show an accord and satisfaction because the original promissory note was in his possession at the time of trial, and his possession of the note creates an evidentiary presumption he paid the debt. As discussed further below, the mere possession of the promissory note is insufficient to constitute prima facie evidence of an accord and satisfaction. Soto did not meet his burden to show Garren hand-delivered the original promissory note to him in March 2009, rather than a copy of the note. We also conclude the March 2009 transaction did not establish an accord and satisfaction because there was no evidence the parties compromised a bona fide dispute about the money owed under the promissory note.

Soto also contends the damages award is unauthorized because it includes amounts that cannot be recovered under the applicable statute of limitations. As discussed below, we agree with Soto, and accordingly, modify the judgment to reduce the damages award. As modified, we affirm the judgment.

I

FACTUAL AND PROCEDURAL BACKGROUND

A. The Operative Complaint

On March 27, 2015, Garren filed a Fourth Amended Complaint (FAC) against Soto, alleging causes of action for fraud, constructive fraud, breach of fiduciary duty, elder abuse, and breach of contract to pay a promissory note. The FAC alleged that Garren, who was 65 years of age or older in 2005, owned a piece of commercial property in Huntington Park and operated a flower shop on the property. In 2005, Soto approached Garren about purchasing the property for $1 million. He proposed to pay with $250,000 in cash and a recorded promissory note for $750,000. Soto later presented Garren with a written purchase agreement, escrow instruction, and a separate promissory note. Although the escrow instructions specifically called for a recorded trust deed, the FAC alleged escrow never recorded a trust deed as a result of Soto’s actions. In August 2013 Garren learned from his estate planning attorney he had no recorded first trust deed in the property.

The FAC further alleged that after the purchase, “Soto then proceeded to borrow approximately $750,000 from a third party and . . . drained all equity from the Property.” Soto defaulted on the third party loan in October 2008, and foreclosure proceedings began soon thereafter. Soto also defaulted on the promissory note. In March 2009, Soto purported to reconvey the property, via a grant deed, back to Garren to settle his default on the promissory note. The FAC alleged that the March 2009 grant deed did not reconvey the property because it was never recorded, and due to Soto’s default on the third party loan, Soto no longer had any interest in the property to transfer. The FAC also claimed Soto concealed from Garren that he had borrowed against the property, the property had been foreclosed upon, and he had no interest in the property to transfer.

The FAC attached an unsigned, unnotarized promissory note and a payment schedule. The note stated that Soto promised to pay Garren the principal sum of $750,000, “with interest from January 1, 2007 in the amounts or principal remaining from time to time unpaid (Reference Payment Agreement attached hereto and made a part of herein as Exhibit ‘A’).” The attached payment schedule showed three principal payments due in December 2006, February 2007, January 2008, and January 2009, and monthly interest-only payments for all months in 2007 and 2008.

B. Prior Proceedings

After the trial court partially sustained Soto’s demurrers to the FAC, the FAC alleged only a single cause of action for breach of contract to pay a promissory note. Garren died before trial, and Goto replaced him as plaintiff in her capacity as successor trustee of Garren’s trust. (See Goto v. Soto (Nov. 28, 2017 G053961) [nonpub. opn.].)

The parties proceeded to trial on the contract claim, and after a bench trial, the court ruled in Soto’s favor. After Goto appealed, we reversed the judgment because the superior court announced its tentative decision at the close of trial without allowing the parties to make their closing arguments, and it failed to issue a statement of decision explaining the factual and legal basis for its judgment. We also ruled that if the trial judge who originally heard the matter was legally unavailable to hear closing arguments and issue a statement of decision, Goto was entitled to a new trial. (See Goto v. Soto (Nov. 28, 2017 G053961) [nonpub. opn.].) Because the original trial judge retired, the matter was retried before a new judge.

C. Trial on the FAC

In Soto’s trial brief, he contended Goto could not enforce the promissory note because she did not possess the actual note. Soto asserted that Garren hand delivered the actual promissory note to him in 2009. He further claimed the note attached to the FAC is a “fraudulent note Plaintiff created.”

Soto also asserted several defenses to the action, including discharge and accord and satisfaction. Soto argued the note was discharged by the agreement of the parties because Garren intentionally surrendered the instrument to him in 2009. He further argued there was an accord and satisfaction because the FAC admitted that Garren “accepted” the grant deed to settle Soto’s default on the note.

At trial, Soto testified he purchased a commercial property from Garren, and agreed to make a $250,000 down payment and three payments of $250,000 over the next three years. Asked about a promissory note labeled as Exhibit 117, Soto testified the “document was prepared by escrow and I signed it.” Soto acknowledged signing the document on December 14, 2006, and that it was notarized. He left the document at escrow, and believed escrow would have sent the original document to Garren after escrow closed. Exhibit 117 had bates stamps, and Soto produced the document in discovery.

Soto acknowledged never making the second and third $250,000 payments. He also acknowledged taking out a $609,000 loan from East-West Bank. Soto fell behind in making payments to East-West Bank and he informed Garren about the situation. Soto told Garren he wanted to return the property to Garren, and “hopefully he would be able to [pay] the debt that was owed and keep the property.” Garren asked for the latest loan statement, and Soto faxed it to him on March 17, 2009.

Later, Soto met with Garren to return the property back via grant deeds, and Garren gave Soto an unsecured promissory note dated December 8, 2006, signed December 8, and notarized on December 8. Soto had the grant deeds signed and notarized on March 9, 2009, before he faxed Garren the loan statement, which showed he was $16,000 in arrears. At the time Soto returned the property to Garren, Soto did not know the fair market value of the property. Garren never contacted Soto afterwards.

Soto testified that he and Garren had several conversations leading up to the agreement to purchase the commercial property. Soto also prepared “several variations” of the purchase agreements. He testified that Exhibit No. 103, consisting of a payment schedule with a November 15, 2006 date, was prepared “earlier in the transaction.” Shown Exhibit No. 257 – the unsecured promissory note dated December 8, 2006 – Soto testified this document was the original promissory note he signed in escrow. Exhibit No. 257 did not have any attachments when Soto signed it. Soto left the document with escrow, but by April 23, 2015, Exhibit No. 257 was in his possession.

After escrow closed, and Soto took possession of the property, he extensively repaired the property over the next five months. Soto started renting out the property, except for three units Garren occupied: a flower shop, a medical suite, and Garren’s residence. Soto testified that Garren paid the rent on the flower shop, but not the other two units. Soto believed he would have enough cash flow to pay the mortgage if he could rent out the suite and residence. He later clarified that vacancies were not the only reason he could not pay the mortgage, noting the general economic climate in 2008 “made it very difficult for myself and others to meet their own financial obligations.”

Gregory Ryan testified that Garren retained him to perform estate planning services. When Ryan reviewed Garren’s assets, including the promissory note from the sale of the commercial property to Soto, Ryan discovered the note was not recorded and Garren had no secured interest in his former property. Garren was “stunned” when Ryan told him.

D. Trial Court’s Statement of Decision

Following trial, the court found in Goto’s favor.

The court found there were various iterations of the promissory note, including:

“FAC – promissory note – unsigned, unnotarized, with Exhibit A

“Ex. 103 – 11-15-06 schedule, no promissory note

“Ex. 104 – promissory note: unsigned, no attachment

“Ex. 105- Exhibit A; no promissory note

“Ex. 117 – promissory note: signed, notarized, with Exhibit A

“Ex. 165- promissory note: signed, notarized, with Exhibit A

“Ex. 166 – 11-15-06 schedule, blue ink signatures; no promissory note

“Ex. 257 – promissory note: signed, notarized, no attachment.”

It found the true version of the promissory note to be Exhibit 117, explaining: “Soto admitted signing it at the escrow office. It attaches a schedule labeled Exhibit A, just like its terms provide. The Bates stamps suggest Soto kept the note and Exhibit A together. It is notarized 12/14/06, thus superseding the 11-15-06 schedule.”

The trial court also determined “Plaintiff did not act fraudulently by attaching an unsigned, unnotarized version of the same promissory note to his pleadings. The operative terms are identical: Soto promised to pay Garren ‘or order’ $750,000, with 7 [percent] annual interest from 1/1/07, making reference to the ‘Payment Agreement attached hereto and made a part herein as Exhibit “A.”’”

The court concluded that Goto showed she was entitled to recover on the promissory note. It determined Soto, who had the burden of proof, failed to show an accord and satisfaction. According to the court, Soto failed to show there was a bona fide dispute between the parties about what Soto owed Garren. Moreover, despite Garren’s acceptance of the March 2009 grant deeds, Soto also failed to show a valid consent or the parties had a meeting of the minds because he failed to show Garren knew what he was getting in return. “Soto did not show the fair market value of the building or his remaining equity in it was of March 2009. He instead conceded he had borrowed heavily against the building, the rental revenue could not service the debt, and the lender would not renegotiate. [Citations.] By March 2009, Soto had already been in default for months. [Citation.] The lender noticed a trustee’s sale in April and sold the building in May. [Citations.] Soto did not persuasively show Garren knowingly consented to let him satisfy an undisputed $500,000 debt with a fleeting, unrecordable interest in a building bled dry.” The court also stated it was not convinced “Garren received the 3/17/09 fax with the [loan] statements before he accepted the 3/9/09 grant deeds. Nor is it convinced the fax shows Garren was fully informed.” The court rejected other defenses such as abandonment, rescission, tender, or discharge for the same reasons.

The trial court awarded Goto damages of $979,109, consisting of $553,947 in missed payments ($500,000 plus 7 percent interest on the amount), plus $425,162 in prejudgment interest on the principal and interest-only payments.

II

DISCUSSION

A. Bench Verdict

Soto challenges the trial court’s verdict, arguing substantial evidence shows the parties reached an accord and satisfaction on the debt owed under the note. In reviewing a judgment based upon a statement of decision following a bench trial, we review questions of law de novo. (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981 (Thompson).) For example, “[w]e independently review the provisions of the note.” (JCC Development Corp. v. Levy (2012) 208 Cal.App.4th 1522, 1532.) In reviewing the trial court’s findings of fact, we generally apply a substantial evidence standard of review. (Thompson, supra, 6 Cal.App.5th at p. 981.) “Under this deferential standard of review, findings of fact are liberally construed to support the judgment and we consider the evidence in the light most favorable to the prevailing party, drawing all reasonable inferences in support of the findings.” (Ibid.) However, where, as here, “‘the trier of fact has expressly or implicitly concluded that the party with the burden of proof did not carry the burden and that party appeals,’” “‘the question for a reviewing court becomes whether the evidence compels a finding in favor of the appellant as a matter of law. [Citations.] Specifically, the question becomes whether the appellant’s evidence was (1) “uncontradicted and unimpeached” and (2) “of such a character and weight as to leave no room for a judicial determination that it was insufficient to support a finding.”’” (Sonic Manufacturing Technologies, Inc. v. AAE Systems, Inc. (2011) 196 Cal.App.4th 456, 465-466.)

“An accord is an agreement to accept, in extinction of an obligation, something different from or less than that to which the person agreeing to accept is entitled.” (Civ. Code, § 1521.) “Acceptance, by the creditor, of the consideration of an accord extinguishes the obligation, and is called satisfaction.” (Civ. Code, § 1523.) “The elements of an accord are: (1) A proper subject matter; (2) competent parties; (3) consent, or meeting of the minds of the parties, and (4) consideration.” (Moore v. Satir (1949) 92Cal.App.2d 809, 812.) Additionally, “[i]n order that the doctrine shall be applicable, it must appear that there is a dispute between the parties as to the amount due.” (Whepley Oil Co. v. Associated Oil Co. (1935) 6 Cal.App.2d 94, 112 (Whepley); see also Kelly v. David D. Bohannon Organization (1953) 119 Cal.App.2d 787, 792 [“An accord and satisfaction must be predicated upon a bona fide dispute, a real dispute.”].) “The question of the existence of an accord and satisfaction depends on the mutual intention of the respective parties, and unless there is a lack of evidence to support the finding of the jury or the decision of the trial court in that regard, their determination of that issue will not be disturbed on appeal.” (Kinkle v. Fruit Growers Supply Co. (1944) 63 Cal.App.2d 102, 112.)

Citing Evidence Code section 634, Soto argues he met his burden of proof to show an accord and satisfaction because he “produce[d] the original Note at the time of Trial.” We disagree. Evidence Code section 634 states: “A person in possession of an order on himself for the payment of money, or delivery of a thing, is presumed to have paid the money or delivered the thing accordingly.” But there is undisputed evidence Soto did not pay the money owed under the debt, and thus the presumption has been rebutted. More important, Soto has cited no case authority applying this evidentiary presumption to an accord and satisfaction defense. Rather, case authority indicates Evidence Code section 634 applies in cases involving whether the debtor fully satisfied a debt under the terms of the parties’ original agreement, not where the debtor extinguished a debt obligation by “something different from or less than that to which the person agreeing to accept is entitled.” (See also In re Marriage of Thompson (1996) 41 Cal.App.4th 1049, 1058 [“An accord and satisfaction is the substitution of a new agreement for and in satisfaction of a preexisting agreement between the same parties.”].)

In a related argument, Soto argues he met his burden in establishing the affirmative defense of accord and satisfaction because he presented evidence that “Garren accepted the accord offer” based on Garren’s delivery of the “original [promissory] Note” to Soto in March 2009. However, Soto testified that Garren delivered Exhibit No. 257 to him. The trial court considered whether Exhibit 257 was the “true version” of the original promissory note and found that Exhibit 117, not Exhibit 257, was the true version. Thus, Exhibit No. 257 is not the original promissory note. (See Thompson, supra, 6 Cal.App.5th at p. 981 [“findings of fact are liberally construed to support the judgment and we consider the evidence in the light most favorable to the prevailing party, drawing all reasonable inferences in support of the findings”].) Because Garren possessed the original promissory note after escrow closed and did not deliver the original note to Soto in March 2009, it cannot be inferred the promissory note was satisfied at that time. (Cf. Evid. Code, § 635 [“An obligation possessed by the creditor is presumed not to have been paid.”].)

Moreover, the March 2009 transaction (the purported satisfaction of the promissory note via reconveyance of the commercial property) does not constitute prima facie evidence the parties reached an accord and satisfaction. “The fact that a creditor gets and keeps collateral security for an indebtedness is no proof whatever that he has agreed to accept the security as full payment of the debt. ‘The delivery of property by the maker to the payee of a promissory note, with instructions to sell the property and apply the proceeds in payment of the note, is neither payment nor satisfaction.’ [Citation.]” (Rabinowitz v. Kandel (1969) 1 Cal.App.3d 961, 966.) Garren’s acceptance of the March 2009 grant deeds does not show an accord and satisfaction.

More important, the transaction, standing alone, does not establish there was a bona fide dispute between the parties about the amount due on the promissory note. (Whepley, supra, 6 Cal.App.2d at p. 112 [accord and satisfaction applies only where there is a dispute about amount due]; accord, D.E. Sanford Co. v. Cory Glass Etc. (1948) 85 Cal.App.2d 724, 729 [“At the threshold the inquiry arises whether there exists a bona fide dispute respecting an amount due.”].) Soto argues there was a bona fide dispute between the parties over Garren’s failure to pay rent on the medical suite and his residence, but no evidence indicates the March 2009 transaction was a compromise involving Soto’s claims against Garren for Garren’s rental payments. Because there was no dispute between the parties about the promissory note, there was no reason for the parties to enter into an accord and satisfaction. In sum, Soto failed to show there was an accord and satisfaction.

Finally, Soto contends the promissory note was discharged because Garren surrendered the promissory note in March 2009. Commercial Code section 3604, subdivision (a), provides: “A person entitled to enforce an instrument, with or without consideration, may discharge the obligation of a party to pay the instrument (1) by an intentional voluntary act, such as surrender of the instrument to the party, destruction, mutilation, or cancellation of the instrument, cancellation or striking out of the party’s signature, or the addition of words to the instrument indicating discharge . . . .” (Italics added.) However, as discussed above, Soto failed to show that Garren surrendered the original promissory note in March 2009. Thus, there was no discharge.

B. Damages Award

As noted, the trial court awarded Goto damages of $979,109, consisting of $553,947 in missed payments, plus $425,162 in prejudgment interest on the principal and interest-only payments. Soto argues the damages amount must be reduced by $66,959, which represents interest-only payments, plus prejudgment interest, outside the applicable six-year limitations period. We agree. Under the terms of the parties’ agreement, interest-only payments are due the first day of each month. Under California law, the statute of limitations commences running on the due date of each installment payment. (Bank of America v. McLaughlin (1957) 152 Cal.App.2d Supp. 911, 915 [“Where money is payable in installments, the statute of limitations begins to run against the cause of action for the recovery of an unpaid installment at the time it is payable”]; accord, Conway v. Bughouse, Inc. (1980) 105 Cal.App.3d 194, 200.) The applicable statute of limitations is six years, and this action was filed on December 10, 2013. Thus, Goto cannot recover for interest-only payments due in January 2007 through December 2007.

Goto’s reliance on an out-of-state case, Castle Rock Bank v. Team Transit, LLC (Colo.App. 2012) 292 P.3d 1077, is unavailing. That case interpreted a provision in a promissory note under Colorado law, and has not been cited by any other state court, including California courts. There, the appellate court concluded the creditor, a bank, had “three options to recover on the notes. First, the Bank could have accelerated the notes pursuant to its optional acceleration clause and demanded payment of both loans in full. Second, the Bank could have sued separately on each missed installment payment for the amount of that specific installment within six years from the date that each payment was missed. [Citations.] Third, as it did here, the Bank could sue for the ‘final payment of the unpaid principal balance plus accrued interest’ on each note, in which case the statute of limitations began running from the dates the ‘unpaid principal balance’ became due, which occurred on the notes’ maturity dates . . . .” (Id. at p. 1089.)

Here, the promissory note was not accelerated and therefore the first option identified by the Colorado appellate court is not at issue. As to the second and third options, Goto did not expressly elect how she wished to recover on the promissory note. However, the trial court calculated the damages amount by adding each payment and including prejudgment interest on the date each payment was due (consistent with second option), rather than computing the entire balance due (principal and accrued interest) on the maturity date and then including prejudgment interest on that balance from the maturity date (consistent with the third option). Goto does not challenge or otherwise contest the damages award calculation on appeal. Thus, she has elected to recover under the second option. Under that option, she is barred from recovering the interest-only payments due in 2007, plus interest on those payments. In sum, the damages amount must be reduced to exclude the interest-only payments, plus prejudgment interest. That amount, based on the trial court’s written statement of decision, is $66,959.

III

DISPOSITION

The judgment is modified to reduce the damages amount to $912,150. As modified, the amended judgment is affirmed. The parties shall bear their own costs.

ARONSON, J.

WE CONCUR:

O’LEARY, P. J.

MOORE, J.