Fpi Development, Inc. v. Nakashima

• Citation: 231 Cal.App.3d 367,282 Cal.Rptr. 508
• Decision Date: 19 June 1991
• Docket Number: No. C003167,C003167
• Court: California Court of Appeals
• Parties: FPI DEVELOPMENT, INC., et al., Plaintiffs and Respondents, v. Al NAKASHIMA, et al., Defendants and Appellants.

Page 508

282 Cal.Rptr. 508

231 Cal.App.3d 367

FPI DEVELOPMENT, INC., et al., Plaintiffs and Respondents, v. Al NAKASHIMA, et al., Defendants and Appellants.

No. C003167.

Court of Appeal, Third District, California.

June 19, 1991.

[231 Cal.App.3d 374] Matthew Righetti, San Francisco, for defendants and appellants.

Mackenroth, Seley & Anwyl, Jim Anwyl and Claudia J. Robinson, Quattrin, Clemons & England, and Timothy C. Clemons, Sacramento, for plaintiffs and respondents.

[231 Cal.App.3d 375]

OPINION ON REHEARING

BLEASE, Acting Presiding Justice.

Al Nakashima and George Price (defendants) appeal from a summary judgment granted plaintiffs FPI Development, Inc. (FPI) and K.W. Hunt in an action on a promissory note. ¹

The case tenders two issues of importance to summary judgment proceedings. The first issue concerns the application of the parol evidence rule in such a proceeding. The second issue concerns the use of a defensive showing to amplify a defectively pled answer in framing the issues for summary judgment.

The note was created as part of a complicated set of real estate development transactions. Kenneth Earp obtained an option (the Earp option) to purchase a golf course. Plaintiffs obtained an option (the FPI option) to purchase the Earp option from Earp. They assigned their rights in the FPI option to defendants in return for execution of a promissory note. The note was not paid according to its terms. Defendants claim the note is not enforceable. The dispute gave rise to this action.

In their complaint plaintiffs alleged that defendants made and delivered a promissory note and that it was not paid. Defendants answered with a general denial and a laundry list of affirmative defenses stating essentially the name of a defense and that it bars recovery. Plaintiffs did not challenge this practice at the pleading stage, and there is little or no suggestion in the record that they used discovery methods to amplify or penetrate the nature of the purported defenses. (See Andalon v. Superior Court (1984) 162 Cal.App.3d 600, 605, 208 Cal.Rptr. 899.)

Instead they invoked summary judgment proceedings and adduced proof of the note and that defendants did not pay, ignoring the affirmative defenses suggested in the answer. Defendants responded with a melange of evidence and arguments addressed to legal theories not correlated with the answer. [231 Cal.App.3d 376] Plaintiffs replied in part with an additional responsive showing and in part by challenging the defendants' evidence as barred by the parol evidence rule. The trial court ruled in plaintiffs' favor.

The result is an amorphous controversy for which we need a structure for analysis. We will first examine the procedural shortcomings and determine that no issues of material fact were raised by the conclusory allegations of affirmative defense of the answer. Since plaintiffs did not demur thereto they waived objection to the form of the pleading. But to determine the materiality of defendants' showing we read the evidence they adduced as supplementing the defectively pled answer where plausibly connected to a defense asserted in the answer. Having done so we will resolve the questions whether the parol evidence rule should be applied to bar a defense and whether a triable defense has been made out by defendants' showing.

We will conclude that the view of the parol evidence rule applied by the trial court--that it categorically bars a collateral oral agreement which conditions the payment of a promissory note unconditional on its face--fails to comply with the rule set forth in Code of Civil Procedure section 1856 and the case law it incorporates, including the leading case of Masterson v. Sine (1968) 68 Cal.2d 222, 65 Cal.Rptr. 545, 436 P.2d 561. Nonetheless a correct decision must be upheld regardless of the reasoning (see e.g., People v. Braeseke (1979) 25 Cal.3d 691, 700, 159 Cal.Rptr. 684, 602 P.2d 384) and we will test defendants' claims with the correct parol evidence rule.

Defendants advance three defenses. We will conclude that while the parol evidence rule does not generically bar defendants' first claim of an unmet, unstated condition to payment, this particular claim is barred by the rule advanced in Masterson v. Sine. We will conclude that defendants' remaining claims--of frustration of purpose and sham transaction--are not subject to the parol evidence rule but that their showing as to these claims does not make out a viable defense to enforcement of the note in the light of the pleadings.

We will affirm the judgment.

FACTS AND PROCEDURAL BACKGROUND

The complaint alleges a cause of action on a promissory note, breach of a written contract to pay money in accord with its terms. It alleges that defendants "made and delivered" a promissory note to pay plaintiffs $478,718 on or before February 20, 1986, and that defendants failed to make [231 Cal.App.3d 377] payment as of the date the complaint was filed, March 21, 1986. The note is incorporated by reference. ²

Defendants answered the complaint by way of a general denial and assertions of some 16 affirmative defenses. All of them are stated as legal conclusions, e.g., "Plaintiffs and their agents and employees, practiced fraud and deception upon the Defendants." Some of the asserted defenses are not legally recognizable. Among the assertions are that plaintiffs "fraudulently induced" defendants to enter into the note and that there has been a failure of consideration between the parties relieving defendants of their obligation to perform. The former assertion was related in the summary judgment proceedings to the claim that defendants were told the note would not be due until they sold the property. The latter assertion was related to the claim that the note was made as part of an agreement to purchase the FPI option and that the option was worthless.

Plaintiffs did not demur to the answer and moved directly for summary judgment. They tendered the following pertinent evidentiary showing. Defendants admitted in response to requests for admissions that they executed the note and that no payment was made as required by its terms. Taken alone, and disregarding the assertions of affirmative defense, this showing is sufficient to entitle plaintiffs to a summary judgment.

Plaintiffs asserted the following background to the note transaction. In June 1984 Marian Fry gave Kenneth Earp an option to purchase the parcel of real property known as the Hayward Golf Course. In December 1984 FPI and Earp entered an agreement "wherein FPI assumed EARP's option position." Thereafter defendants had some discussions with Earp and as a result sought to obtain the FPI option. Defendants "negotiated the option rights with FPI in return for personally executing [the promissory note]." The president of FPI executed an assignment of the FPI option to defendants.

Plaintiffs offered the defendants' declarations in support of these assertions. Nakashima declared (in a proceeding pertaining to a cross action between defendants and Earp) that: "On or about November 20, 1985, GEORGE PRICE and I entered into a written agreement wherein FPI assigned [231 Cal.App.3d 378] all right, option and interest in and to the FPI option, related to the Hayward Golf Course real property, to GEORGE PRICE and myself. [p] 2. A major dispute in this litigation concerns an oral and written modification of the aforementioned FPI option granted by [Earp], to the optionees-by-assignment (GEORGE PRICE and myself). [p] 3. I believe the aforementioned modification included a reduction in the purchase price and an indemnity as to obligations concerning FPI."

Nakashima and Price made identical declarations in pertinent part as follows. Defendants met with Kenneth Earp and Ralph Thompson. Earp acknowledged his signature on a written agreement that was produced. The writing stated that if defendants could obtain the FPI option from FPI for less than $1,350,000, Earp would reduce the price to purchase the Earp option and assume all responsibility defendants incurred to pay FPI. Defendants met with FPI representatives and negotiated an assignment of the FPI option in return for personally executing the promissory note.

Plaintiffs also attached replies to interrogatories in which defendants denied that there were no unexpressed conditions precedent to its performance but listed as "all" of such conditions "That plaintiffs not intentionally and/or negligently misrepresent the circumstances surrounding the status and progress of the property, including certain promises of political support."

Plaintiffs argued that the note is unambiguous and that defendants admit its execution and nonpayment. There are therefore no triable issues of fact and they are entitled to summary judgment.

Defendants tendered a cacophonous medley of declarations and discovery materials as purported defenses to the enforcement of the terms of the note. They made several arguments concerning triable issues of material fact. The first is that FPI breached its contract with Earp in failing to "aggressively pursue the development of the option property."

Defendants attached a portion of the written agreement between FPI and Earp. It grants FPI an exclusive right to purchase the Earp option by making installment payments totalling $400,000. (Only one installment payment, in the amount of $100,000 was to occur after the date of execution of the note.) The FPI/Earp agreement also contains a clause requiring FPI to "have prepared and aggressively process a residential development for the Property." Defendants adduced a deposition excerpt in which Earp testified that he had written to FPI expressing his opinion that it was not pursuing the development procedure properly and that at the time he felt FPI had breached the contract. They adduced a letter, dated several months after the [231 Cal.App.3d 379] date of execution of the note, from an attorney representing the owner of the...