Filed 6/20/22 Devlin/McNally Construction v. Drolapas 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

In this action to foreclose a mechanics lien, Devlin/McNally Construction, Inc. (Contractor) appeals the trial court’s judgment in favor of the property’s owner, the Drolapas Family Trust (Owner). We affirm.

FACTUAL BACKGROUND

Mission Hub LLC (Tenant) leased certain commercial real property (the Property) from Owner. Tenant subsequently contracted with Contractor for construction work on the Property. During the construction, disputes arose between Contractor and Tenant, and Contractor placed a mechanics lien on the Property.

On June 13, 2018, Contractor and Tenant executed two documents. The first was on Contractor’s letterhead with the heading, “Final Change Order – Final Contract Amount and Settlement Agreement Terms” (hereafter, Final Change Order). The Final Change Order stated its “purpose . . . is to memorialize the Final Contract Amount and the Settlement Agreement Terms and Payment schedule.” It also provided the parties agreed “the terms of the settlement shall be incorporated into a separate Settlement Agreement and Mutual Release substantially in the form attached as Attachment 2 to this Final Change Order.” It set forth the final contract amount, supported by a detailed change order log; the total amount paid by Tenant to date; and the remaining amount Tenant owed Contractor, $400,000. It attached a payment schedule setting forth installments and interest, which it contemplated “shall be incorporated into a separate Promissory Note substantially in the form attached” to the Final Change Order. It further provided, immediately above the signature line, “As part of the settlement herein, [Contractor] agrees to release its lien recorded on the project. To replace the security provided to [Contractor] by [Contractor’s] lien, [Tenant] shall execute a Stipulation for Entry of Judgment and Judgment substantially in the form attached” as an exhibit to the Final Change Order.

The second document contained the heading, “Settlement Agreement and Mutual Release” (Settlement Agreement).[1] (Capitalization altered.) The Settlement Agreement identified the final contract amount, the amount paid by Tenant to date, and the amount due, using figures identical to those in the Final Change Order. Like the Final Change Order, the Settlement Agreement identified a payment plan, “Promissory Note,” and “Stipulation for Entry of Judgment.” Unlike the Final Change Order, the Settlement Agreement did not mention the mechanics lien. The Settlement Agreement included an integration clause, stating it “constitutes the entire agreement among the Parties with respect to the subject matter hereof.”

A Stipulation for Entry of Judgment, referenced in both the Final Change Order and the Settlement Agreement, was also signed by Contractor and Tenant on June 13, 2018. This document states Tenant executed a promissory note for $400,000 and sets forth terms in the event of default. The stipulation states it “is entered as consideration for [Contractor’s] waiving certain claims against [Tenant] and to serve as security for [Tenant’s] obligations under [Settlement Agreement].”

A promissory note, also referenced in both the Final Change Order and Settlement Agreement, was signed by Tenant on June 13, 2018. In the promissory note, Tenant agrees to pay Contractor $400,000, plus interest.

PROCEDURAL BACKGROUND

In July 2018, Contractor filed the underlying complaint against Tenant and Owner seeking, as relevant here, to foreclose its mechanics lien on the Property.[2] Owner’s answer to the operative first amended complaint asserted, among other defenses, that Contractor “executed a waiver and release of the [mechanics] lien on or about June 13, 2018 . . . .”

At the beginning of the court trial between Contractor and Owner, the parties agreed to try Owner’s affirmative defense separately before proceeding to Contractor’s foreclosure claim. In briefs filed before trial on this defense, Owner pointed to the lien release language in the Final Change Order and argued the Final Change Order and Settlement Agreement were part of one agreement or, in the alternative, should be taken together pursuant to Civil Code section 1642.[3] Contractor argued the Settlement Agreement—which contained no promise to release the lien—was the final agreement between the parties and superseded the Final Change Order. Contractor alternatively argued the lien release language in the Final Change Order was ineffective pursuant to statutes governing waiver of mechanics liens, and Owner was not a third party beneficiary. Both parties argued parol evidence was neither necessary nor appropriate to resolve these issues.

Owner presented one witness to authenticate the Final Change Order and Settlement Agreement: Contractor’s signatory, David Devlin. During cross-examination, Contractor’s counsel questioned Devlin about his intent to include the Final Change Order as part of the final agreement with Tenant. Owner objected under the parol evidence rule; the court allowed the questioning but reserved ruling on the objection. Devlin testified that he did not intend to release the lien as part of the Settlement Agreement. Both sides rested and presented argument. During argument, Contractor moved to reopen evidence to present extrinsic evidence of the circumstances surrounding the agreement. After considering new authority provided by Contractor, the trial court granted the motion in part, ruling that the parol evidence rule barred extrinsic evidence to contradict the agreement, but allowed it to help explain the circumstances under which the agreements were made.

Contractor recalled Devlin, who testified Contractor and Tenant initially intended to include the mechanics lien release as part of the agreement, but after Tenant was nonresponsive during negotiations and stopped making scheduled payments, Contractor informed Tenant it was no longer willing to include the lien release. Devlin understood Tenant to agree and Contractor circulated a new version of the settlement agreement and stipulation for entry of judgment with changes intended to remove language that Contractor would release the mechanics lien. Contractor presented no other witnesses.

During Devlin’s testimony, Contractor sought to introduce an email exchange which included a June 13, 2018 email in which Contractor told Tenant and its attorneys, “[Contractor] has removed the stipulation that we would release the lien upon execution of the Final C[hange ]O[rder],” and identified language about releasing the lien that was deleted from prior versions of the settlement agreement and stipulation for entry of judgment. The email was copied to Steve Drolapas, one of Owner’s trustees, and also to Owner’s previous attorney.[4] Owner objected to admission of the email because it had not been produced in discovery. The court exercised its discretion, despite the undisputed discovery violation, to admit the email “for a very limited purpose”: the email was not admissible “to vary the terms of or depart from the terms of” the Final Change Order and Settlement Agreement,” but it was admitted as evidence of the circumstances surrounding the formation of the agreements.

Contractor also presented a July 16, 2018 email from Contractor to Tenant and its attorneys, again copying Drolapas and Owner’s previous attorney. The body of the email states that attached are the “Final C[hange]O[rder] & Settlement Agreement Documents – Fully Executed,” identifying the documents as the “Final C[hange ]O[rder] (rev) & Attachments 5.1.18 (Fully Executed),” “Settlement Agreement & Mutual Release (rev) 5.1.18 (Fully Executed),” and “Stipulation for Judgement (rev) 5.18.18 (Fully Executed).” The attachments to the email included two, slightly varying versions of the settlement agreement (see fn. 1, ante).[5]

Drolapas testified Tenant’s lease provided that Owner could evict Tenant if the lien was not cleared from the Property, and he had advised Tenant in May or June of 2018 to ensure that any agreement with Contractor included a provision releasing the lien.

After the parties rested for the second time, the trial court issued a statement of decision finding in favor of Owner. The court found the Final Change Order and Settlement Agreement must be taken together pursuant to Civil Code section 1642. The court further found that because the Final Change Order includes an express mechanics lien release provision and nothing in the Settlement Agreement conflicts with or contradicts that provision, the agreement as a whole includes Contractor’s promise to release the lien. The court rejected Contractor’s claim of mistake, finding that, although Contractor stated its desire to remove the lien release provision from the agreement in the June 13, 2018 email, “[t]here is no evidence that [Tenant] agreed to relieve [Contractor] of this condition and—to the contrary—the [Final Change Order] to which the form settlement agreement was attached contained the express provision and was executed by both parties . . . .” The court rejected Contractor’s contention that the release was ineffective under certain statutes, and found Owner was a third party beneficiary.

Judgment issued in favor of Owner. Contractor filed a motion for a new trial, which the trial court denied.

DISCUSSION

I. Civil Code Section 1642

Contractor first challenges the trial court’s finding that the Final Change Order and Settlement Agreement should be read together pursuant to Civil Code section 1642, arguing it is not supported by substantial evidence. We reject the challenge.

“Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together.” (Civ. Code, § 1642.) “Civil Code section 1642 ‘ “is most frequently applied to writings executed contemporaneously, but it is likewise applicable to agreements executed by the parties at different times if the later document is in fact a part of the same transaction.” ’ [Citation.] [¶] ‘Whether a document is incorporated into the contract depends on the parties’ intent as it existed at the time of contracting.’ [Citation.] ‘ “ ‘For the terms of another document to be incorporated into the document executed by the parties the reference must be clear and unequivocal . . . .’ ” ’ [Citation.] ‘The contract need not recite that it “incorporates” another document, so long as it “guide[s] the reader to the incorporated document.” ’ [Citation.] To be construed together, the separate instruments must be ‘so interrelated as to be considered one contract.’ ” (R.W.L. Enterprises v. Oldcastle, Inc. (2017) 17 Cal.App.5th 1019, 1027–1028 (R.W.L.).)

Contractor contends extrinsic evidence should not have been excluded to determine whether the Final Change Order and Settlement Agreement should be read together. The argument is perplexing because the trial court did not exclude extrinsic evidence for this purpose. The statement of decision, in discussing the application of Civil Code section 1642, quotes Code of Civil Procedure section 1860, which allows evidence of “the circumstances under which [an instrument] was made,” and expressly states the court “heard and considered the circumstances under which the contracts were executed . . . .”

Contractor next argues “there was no evidence that these documents [the Final Change Order and Settlement Agreement] were supposed to be read together . . . .” The assertion borders on frivolous. The Final Change Order and Settlement Agreement were executed by the same parties on the same date, involved the same dispute, and recited the same dollar amounts paid and due. Executed versions were emailed to interested parties in one email, which referred to them collectively as the “Final C[hange ]O[rder] & Settlement Agreement Documents.” The Final Change Order expressly references the Settlement Agreement, the Settlement Agreement expressly references “the final Change Order,” and both the Final Change Order and Settlement Agreement expressly reference the Stipulation of Judgment and promissory note, two documents that were also executed on the same day as the Final Change Order and Settlement Agreement. The evidence amply supports the trial court’s finding that the Final Change Order and Settlement Agreement should be taken together.

Contractor points to Devlin’s testimony that he did not intend to release the lien as part of the final agreement. Even assuming this testimony is evidence that the two agreements should not be taken together, the substantial evidence claim fails. When reviewing for substantial evidence, “we accept all evidence supporting the trial court’s order” and “we completely disregard contrary evidence.” (Schmidt v. Superior Court (2020) 44 Cal.App.5th 570, 581.) We determine simply “whether there is any substantial evidence—contradicted or uncontradicted—to support the trial court findings.” (Id. at p. 582.) As discussed above, such substantial evidence is present. The cases relied on by Contractor are easily distinguishable. (See Amtower v. Photon Dynamics, Inc. (2008) 158 Cal.App.4th 1582, 1605–1606 [the two agreements were not between the same parties]; R.W.L., supra, 17 Cal.App.5th at p. 1031 [“the two writings were executed nine years apart”]; Pellegrini v. Weiss (2008) 165 Cal.App.4th 515, 535 [“the two other agreements were not ‘between the same parties’ as is required under Civil Code section 1642”]; Pilcher v. Wheeler (1992) 2 Cal.App.4th 352, 355–356 [partnership agreement and construction contract subsequently entered into by partnership were not part of the same transaction where, “[a]t the time of the execution of the partnership agreement, the precise terms of the construction contract and even the identity of the contractor were uncertain”].)

II. Parol Evidence

Contractor argues that, even if the Final Change Order and Settlement Agreement are properly taken together pursuant to Civil Code section 1642, the trial court erred in excluding parol evidence to construe them. We reject the claim.

“The parol evidence rule will exclude evidence of a prior or contemporaneous agreement that contradicts the terms of an integrated writing. [Citation.] . . . If the parol evidence rule is raised as a bar, the party proffering the parol evidence must show the writing was not intended to be the complete agreement of the parties, and that the agreement is susceptible to the meaning proffered. [Citation.] Where the parties execute a written agreement following negotiations, the agreement is at least partially integrated and parol evidence may only be introduced to prove additional terms of the contract which are consistent with the express language of the written agreement.” (Take Me Home Rescue v. Luri (2012) 208 Cal.App.4th 1342, 1351 (Take Me Home).) “ ‘Although extrinsic evidence is not admissible to add to, detract from, or vary the terms of a written contract, these terms must first be determined before it can be decided whether or not extrinsic evidence is being offered for a prohibited purpose.’ [Citation.] Accordingly, courts must preliminarily consider all credible evidence offered to prove the intention of the parties so that courts can place themselves ‘ “in the same situation in which the parties found themselves at the time of contracting.” ’ [Citation.] If, after considering this evidence, the language of the contract ‘ “is fairly susceptible of either one of the two interpretations contended for,” ’ then the extrinsic evidence is admissible to prove that meaning.” (Oakland-Alameda County Coliseum Authority v. Golden State Warriors, LLC (2020) 53 Cal.App.5th 807, 817.)

A. Applicability of the Parol Evidence Rule

Contractor argues the parol evidence rule does not apply for two reasons: the Final Change Order and Settlement Agreement were not integrated, and the rule does not apply to contract disputes involving a stranger to the contract.

In the trial court, Contractor initially argued the parol evidence rule applied to bar extrinsic evidence. After it changed its position, it did not contend the parol evidence rule did not apply, but rather that it did not preclude extrinsic evidence to demonstrate mistake or resolve ambiguities. Contractor provides no record citation that it argued below the parol evidence rule did not apply. The question is not discussed in the trial court’s thorough statement of decision; to the contrary, the statement of decision states, “The parties initially agreed that the agreements are unambiguous, and there is no basis for admitting parol evidence. During trial [Contractor] retreated from this position and asked the court to consider parol evidence, claiming both an ambiguity in the [S]ettlement [A]greement and evidence of a purported mistake in the [Final Change Order].” Contractor made no objections to the proposed statement of decision and, in its motion for a new trial, did not challenge this statement or otherwise contend the parol evidence rule did not apply. Indeed, as to the issue of whether strangers to a contract can assert the parol evidence rule, one of the cases relied on by Contractor below held they could. (Neverkovec v. Fredericks (1999) 74 Cal.App.4th 337, 350, fn. 8 [“[a stranger to the contract] is free to object on parol evidence grounds”]; but see Thomson v. Canyon (2011) 198 Cal.App.4th 594, 608 [there is “lingering uncertainty as to whether the parol evidence rule permits a stranger to the contract to invoke the parol evidence rule’s exclusionary provisions”].)

Accordingly, Contractor’s contention that the parol evidence rule does not apply is forfeited. (Premier Medical Management Systems, Inc. v. California Ins. Guarantee Assn. (2008) 163 Cal.App.4th 550, 564 (Premier Medical) [“ ‘t is fundamental that a reviewing court will ordinarily not consider claims made for the first time on appeal which could have been but were not presented to the trial court.’ ”]; [i]In re Marriage of Furie (2017) 16 Cal.App.5th 816, 827 [“if a party does not bring [omissions or ambiguities in a statement of decision] to the trial court’s attention, [the party] waives [its] right to claim on appeal that the statement was deficient in these regards, and hence the appellate court will imply findings to support the judgment”].)

B. Admissibility of Evidence Under the Parol Evidence Rule

The primary purpose for which Contractor sought to introduce extrinsic evidence was to show the mechanics lien release was not part of the parties’ agreement, in conflict with the express lien release provision in the Final Change Order. As Contractor does not dispute, the parol evidence rule bars extrinsic evidence offered to contradict the express terms of a contract. (Take Me Home, supra, 208 Cal.App.4th at p. 1351.) To the extent Contractor challenges the trial court’s exclusion of evidence for this purpose—and continues to argue the evidence shows the lien release was not part of the agreement—we reject the challenge.

Contractor argues parol evidence was admissible to show mutual mistake or construe an ambiguity. Several of the asserted mistakes or ambiguities had nothing to do with the mechanics lien provision; for example, nonsubstantive differences in the two executed versions of the Settlement Agreement (see ante, fn. 1), and differences in two versions of the page for counsel to approve the Stipulation for Entry of Judgment as to form. While these differences may show clerical error or minor confusion, they do not create an ambiguity as to whether the executed agreements were operative, as Contractor suggests. And they have no bearing whatsoever on the only provision at issue here, the mechanics lien release.

The asserted ambiguities that do involve the mechanics lien provision also do not demonstrate error. Contractor highlights language in the Settlement Agreement stating the parties agree to execute the Stipulation for Entry of Judgment “as further security” for the amount owed by Tenant. Contractor argues this language could mean in addition to the security provided by the mechanics lien only (as opposed to the security provided by Tenant’s promissory note). The proposed construction does not appear to be a reasonable one in light of the Final Change Order’s express provision releasing the mechanics lien. In any event, parol evidence is inadmissible to contradict an agreement’s express terms, and therefore Contractor cannot rely on extrinsic evidence contradicting the express mechanics lien release. (Take Me Home, supra, 208 Cal.App.4th at p. 1351.)

Contractor also argues there is ambiguity as to which lien would be released (the lien covered both the Property and Tenant’s leasehold interest), and when it would be released. It identifies no extrinsic evidence offered and excluded as to these issues (other than evidence that Contractor intended to remove the provision altogether), and therefore fails to demonstrate any error with respect to them.

III. Third Party Beneficiary

Contractor argues the trial court erred in finding Owner was a third party beneficiary of the agreements. We reject the claim.

“Under Civil Code section 1559, a third party can enforce the terms of a contract ‘made expressly for the benefit of [the] third person.’ ‘Expressly’ in this context is interpreted to mean ‘merely the negative of “incidentally.” ’ [Citation.] The contract need not be exclusively for the benefit of the third party in order to permit enforcement, and the third party does not need to be the sole or the primary beneficiary. Further, the third party need not be identified as a beneficiary, or even named, in the contract. [Citation.] ‘If the terms of the contract necessarily require the promisor to confer a benefit on a third person, then the contract, and hence the parties thereto, contemplate a benefit to the third person.’ ” (National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 51.)

Contractor argues the language of the agreements alone is insufficient to prove third party beneficiary status. Even assuming this were a correct statement of law (but see Civ. Code, § 1639 [“[w]hen a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible”]), it would be insufficient here. The trial court found Owner was a third party beneficiary based not only on the lien release provision itself, but also on the terms of the lease agreement between Owner and Tenant imposing consequences on Tenant if it failed to secure release of the lien, and on Contractor’s and Tenant’s conduct of copying Owner on emails about their negotiations and eventual agreement.

Contractor also argues extrinsic evidence shows the parties intended to remove the mechanics lien release provision, in conflict with the express language of the agreements. We have rejected this claim above, and the challenge to the trial court’s third party beneficiary ruling also fails.[6]

Contractor relies on authority that a third party beneficiary cannot assert greater rights than those of the promisee under the contract. (See Souza v. Westlands Water Dist. (2006) 135 Cal.App.4th 879, 894–895.) Contractor argues that Tenant was only entitled to enforce the lien release if Tenant paid the amount due and, because Tenant had not paid the amount due, Owner cannot enforce any lien release. Contractor provides no record citation that it raised this issue below and it does not appear in the trial court’s statement of decision or Contractor’s new trial motion; therefore, the claim is forfeited. (Premier Medical, supra, 163 Cal.App.4th at p. 564.)[7]

IV. Mechanics Lien Law

Contractor’s final argument is that the mechanics lien release provision is unenforceable because it fails to comply with the statutory requirements for such a release. (E.g., Civ. Code, § 8126 [“written statement purporting to waive, release, impair or otherwise adversely affect a lien or claim is void and unenforceable” unless “statement is pursuant to a waiver and release under this article”].)

The trial court found these statutory requirements did not apply pursuant to a statute providing they “do[] not affect the enforceability of . . . an accord and satisfaction concerning a good faith dispute . . . if the accord and satisfaction . . . make specific reference to the lien or claim.” (Civ. Code, § 8130.) Contractor argues, assuming the Final Change Order and Settlement Agreement constitute an accord and satisfaction (and Contractor does not argue otherwise), the reference to the lien is insufficiently specific because it does not include the “recording date or instrument number.” The Final Change Order identifies the address of the Project and refers to “[Contractor’s] lien recorded on the project.” Contractor cites no evidence that it recorded any other lien on the address associated with the Project, or that there is any other lien that might be confused with the one at issue. Contractor’s opening brief provides no authority or reasoned argument that Civil Code section 8130 requires any further specificity and we see no basis to impose such a requirement.[8]

Contractor next argues Owner’s only remedy is for damages for Contractor’s failure to release the lien, rather than a judgment that the lien is unenforceable. Contractor provides no record citation that it raised this issue below. The issue is not discussed in the trial court’s statement of decision and was not raised in Contractor’s new trial motion. Accordingly, the contention is forfeited and we decline to address it. (Premier Medical, supra, 163 Cal.App.4th at p. 564.)

DISPOSITION

The judgment is affirmed. Respondents are awarded their costs on appeal.

SIMONS, Acting P. J.

We concur.

BURNS, J.

NEEDHAM, J. *

(A162092)

[1] A second version of this document was also submitted at trial, with the identical signature page. The only differences between the two versions are that one includes a header identifying it as “Attachment No. 2” to the Final Change Order, and the other includes a provision about counterparts and the heading for a provision about good faith compliance. Because the two versions are materially the same, we refer to them collectively as the Settlement Agreement, except where otherwise indicated.

[2] Judgment was subsequently entered against Tenant. Contractor was apparently only able to recover a small portion of this judgment.

[3] Civil Code section 1642 provides: “Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together.”

[4] Drolapas subsequently testified that his email address and the email address for Owner’s former attorney were correctly listed, but he had never read the email and did not recall having received it.

[5] In its opening brief on appeal, Contractor also relies on exhibits that were not admitted at trial. We disregard all references to such exhibits. (Connolly v. Trabue (2012) 204 Cal.App.4th 1154, 1166, fn. 5 [“Clearly, citations to . . . exhibits that were not admitted into evidence at trial do not satisfy the requirement that a party to an appeal cite evidence included in the record of the trial court to support their contentions to an appellate court.”].)

[6] In a footnote, Contractor contends this court should reverse the judgment because Owner failed to allege it was a third party beneficiary in its answer. “An appellant cannot bury a substantive legal argument in a footnote and hope to avoid waiver of that argument.” (Holden v. City of San Diego (2019) 43 Cal.App.5th 404, 419.) We decline to consider the contention.

[7] In any event, it is meritless. Contractor relies solely on an order denying a prior summary judgment motion about the consideration for the mechanics lien release. In the statement of decision—the trial court decision being challenged on appeal—the court found consideration for the mechanics lien release was Tenant’s “agreement to the amount and payment terms, and the execution of the promissory note and stipulation for judgment.” Contractor provides no argument or authority that this finding was impermissible by reason of the earlier summary judgment order.

[8] Any argument to this effect in Contractor’s reply brief is too late. (Tellez v. Rich Voss Trucking, Inc. (2015) 240 Cal.App.4th 1052, 1066 [“ ‘ “ ‘points raised in the reply brief for the first time will not be considered, unless good reason is shown for failure to present them before’ ” ’ ”].) In any event, it is unpersuasive. To the extent, as Contractor argues, “the other statutes in the statutory scheme regarding lien releases suggest significant detail of identification is needed for a release,” the lack of a similar reference in Civil Code section 8130 indicates no such significant detail is required. (Jarman v. HCR ManorCare, Inc. (2020) 10 Cal.5th 375, 385 [“ ‘When one part of a statute contains a term or provision, the omission of that term or provision from another part of the statute indicates the Legislature intended to convey a different meaning.’ ”].)

* Retired Associate Justice of the Court of Appeal, First Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.