Hermanson v. Patterson
Filed 9/6/13 Hermanson v. Patterson CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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opinion has not been certified for publication or ordered published for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
BARRY HERMANSON et al.,
Plaintiffs and
Respondents,
v.
SCOTT PATTERSON et al.,
Defendants and
Appellants.
G047401
(Super. Ct.
No. 30-2009-00125179)
O P I N I O
N
Appeal from a judgment of
the Superior Court
of Orange County,
William M. Monroe, Judge. Reversed and
remanded.
Timothy A. Hootman;
Cristobol M. Galindo, for Defendants and Appellants.
Robert S. Lewin for
Plaintiffs and Respondents.
INTRODUCTION
Appellant Scott
Patterson and respondent Barry Hermanson entered into a joint venture involving
the importation and sale of merchandise from China. They fell out, and respondent Hermanson sued
Patterson in superior court. The parties
settled the lawsuit, entering into a settlement agreement that required
Patterson to pay off a promissory note over three years. The parties also stipulated to the entry of
judgment if appellant Patterson defaulted.
As the three-year period
was about to end, respondent accused appellant of defaulting on the note. Appellant disagreed. Respondent applied ex parte to the superior
court for entry of his stipulated judgment, a proceeding respondent opposed. The court granted the ex parte application
and entered judgment for $50,660.75, exclusive of attorney fees and costs. It later denied appellant’s request to set
aside the judgment.
Although it appears that
respondent was entitled to judgment in some amount, we are sending the case
back to recalculate this amount. We
perceive a significant discrepancy between what the evidence showed appellant
still owed on the note at the time of default and the amount of the judgment
entered against him. If this is so, then
the judgment would constitute an unlawful penalty. The court must revisit the evidence presented
regarding the payments on the note to ensure that respondent is not collecting
far more than his due. It should also
look more closely at the attorney fee award.
FACTS
Appellant and respondent
entered into a written settlement agreement, which included a promissory note
in the principal amount of $111,500.
Appellant was to pay off the note, plus 7 percent interest, in monthly
installments over three years, beginning on August 5, 2009. If any payment was not received within five
days of the due date, respondent could accelerate the entire balance.
The settlement agreement
also required appellant to sell the joint venture’s inventory on hand, which he
estimated to be worth at least $40,000, and to pay this money to
respondent. Appellant undertook to sell
half of the inventory by July 10, 2010, and the remainder by July 10,
2011. If he did not sell all of the
inventory for at least $40,000 by the dates specified, the balance would be
added to the note. The total settlement
was therefore worth $151,500, exclusive of interest. The settlement agreement also included a
stipulation for judgment, whereby respondent could apply ex parte to have a
$150,000 judgment entered in the event any default was not cured within 10 days
of a written notice of default. The
judgment would also include attorney fees and costs.
Appellant made the
initial July 10, 2010 deadline, selling the first half of the inventory for
$20,000. He did not make the second
deadline, and a balance of $7,263.03 was added to the note, with interest at 7
percent, to reflect the unsold portion of the inventory.
Apparently everything
ran smoothly until June 2012, when there were only two payments left on the
note. Respondent’s counsel notified
appellant he was in default for not making the June payments on the original
balance and the unsold inventory balance, $4,000 and $683.61 respectively. Respondent elected to accelerate the
balances, which came to $18,571.69 and $852.09, for a total of $19,423.78. The notice letter attached an amortization
schedule showing the amounts paid, principal and interest, for both
balances.
Appellant did not cure
the default, and respondent applied to the court ex parte to enter the
stipulated judgment. Respondent told the
court that appellant had paid $99,339.23 on the note, so the amount of the
judgment should be $50,660.75, plus costs and attorney fees.
$54,052.
Appellant objected to
the entry of judgment on the ground he had not received credit for inventory he
had sold after July 10, 2011. He claimed
he should be credited for this amount ($12,744) against the balance of the
note. He moved to set aside the judgment
on the grounds that he had already paid respondent everything he was owed under
the note. The court denied his
motion.
DISCUSSION
of Civil Procedure section 664.6 permits a trial court to enforce a written
settlement agreement signed by the parties themselves by entering judgment
pursuant to the terms of the agreement, without requiring the initiation of
another lawsuit or a costly motion for summary judgment. (See Weddington
Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 809;
Cal.App.3d 280, 283-284; City of Fresno
v. Maroot (1987) 189 Cal.App.3d 755, 762.)
A settlement agreement is a contract (Nicholson v. Barab (1991) 233 Cal.App.3d 1671, 1683), and we review
the trial court’s enforcement of the agreement as we would review any dispute
over contract enforcement. We interpret
the contract language itself de novo (Appleton
v. Waessil (1994) 27 Cal.App.4th 551, 556; Stratton v. First Nat. Life Ins. Co. (1989) 210 Cal.App.3d 1071,
1084), and we review any factual findings the court has made to arrive at its
decision for substantial evidence. (
Cal.4th 896, 911; Murphy v. Padilla
(1996) 42 Cal.App.4th 707, 711.)
We agree with the trial
court’s implicit finding that appellant was not entitled to credit for the
inventory he sold after July 10, 2011.
The settlement agreement was very clear on that subject. Appellant had to sell the inventory by
certain dates; if he failed to meet the deadlines, the amount by which he fell
short of $40,000 was to be added to the note.
And that is what happened. The
balance of the note was increased by the amount of the inventory appellant
failed to sell by July 10, 2011. His
inventory sales after July 10 are outside the scope of the settlement
agreement.
We also agree that
substantial evidence supports the trial court’s finding appellant defaulted on
the note. Although appellant claimed to
have tendered checks to respondent for the June 2012 payments, copies of these
checks or other evidence of these payments was nowhere in sight.
the unpaid balance, and the stipulation gave respondent the right to apply for
the entry of judgment against respondent in the event of default. Substantial evidence supports the trial
court’s conclusion that there was a default.
Beyond that, however, we
cannot find evidence to support the amount of the judgment. Respondent explains that the “judgment is
based on the total amount of the stipulated judgment ($150,000 . . .), less
credit for the amount of principal paid against the note.â€
judgment was calculated. The total
principal paid on the note was $99,339.25, and subtracting that figure from
$150,000 results in the amount of the judgment:
$50,660.75.
But this calculation
results in respondent recovering far more from appellant’s failure to pay off
the note than he would have recovered if appellant had fully performed. Full performance would have required
appellant to pay an additional $19,423.78, the amount stated in respondent’s
demand letter. Under Civil Code section
3358, respondent cannot recover more in damages for breach of an obligation
than he could if appellant had fully performed. To us, this appears to be a penalty: “The characteristic feature of a penalty is
its lack of proportional relation to the damages which may actually flow from
failure to perform under a contract.†(
& Loan Assn. (1973) 9 Cal. 3d 731, 739, superseded by statute on other
grounds; accord, Greentree Financial
Group, Inc. v. Execute Sports, Inc. (2008) 163 Cal App.4th 495, 501
[stipulated judgment more than triple settlement amount].) Such a penalty would, as these cases point
out, not be allowed.
This has to be corrected
or explained to us. The trial court must
look closely at the evidence presented and award as a judgment only that amount
still owing on the note, taking into account all of the payments, principal and
interest, already made. The court may
wish to hold a hearing on this issue.
If, in fact, the amount of the judgment is significantly reduced, the
court should look again at the attorney fees awarded to respondent. The schedule set forth in Orange County
Superior Court Local Rule 366 for default judgments might provide a useful
yardstick for this purpose.
DISPOSITION
judgment is reversed, and the matter is remanded for a recalculation of the
amount. The court may hold a hearing on
this issue if it wishes. The parties are
to bear their own costs on appeal.
BEDSWORTH,
ACTING P. J.
WE CONCUR:
FYBEL, J.
IKOLA, J.
name="_ftn1" title=""> [1] The $99,399.23 figure seems to
represent payment of principal only on both the note balance and the inventory
balance, without any credit for interest payments.
name="_ftn2" title=""> [2]
Appellant attached copies of
two checks, each dated July 5, 2012, to his opposition to the ex parte
application for entry of stipulated judgment.
Both checks were for amounts significantly under the amounts that were
supposed to be paid by June 5.
