Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Stanislaus County Super. Ct. No. 149121. Donald E. Shaver, Judge.
Crabtree, Schmidt, Zeff & Jacobs, Robert W. Crabtree; McCormick, Barstow, Sheppard, Wayte & Carruth LLP, Todd W. Baxter and Timothy J. Buchanan, for Plaintiffs and Appellants.
Geiger, Coon & Keen LLP, John B. Rudquist, for Defendants and Respondents.
OPINION
Kane, J.
This is an appeal from a judgment of partnership dissolution and accounting involving appellant Westside Development, a California general partnership (Westside Development). The judgment included an accounting of partnership assets and liabilities among the four partners, two of whom were the majority partners, appellants L. L. Loveless and Kenneth Cox, and the other two were the minority partners, respondents Larry Melton and Donald Olmsted. One of the primary issues at trial was how to characterize a $400,000 payment made by respondents to appellants Loveless and Cox. After reviewing the several written agreements and the circumstances thereof, the trial court concluded the $400,000 was a capital contribution by respondents to the partnership venture. On a separate issue, the trial court found that respondents breached their fiduciary duties when they diverted $335,983.27 under false pretenses, and this entire sum was credited back to the partnership. Based on these and other findings, a final accounting was rendered stating what each partner owed to the others, and judgment was entered thereon. Loveless, Cox and Westside Development appeal on the ground that the trial court erred in its construction of the written agreements when it concluded the $400,000 payment was intended to be a capital contribution. Additionally, appellants assign error to the trial court’s calculation of prejudgment interest, its award of interest on a purported capital contribution made by Melton, and its denial of appellants’ request for attorney fees. We agree the trial court erred in its characterization of the $400,000 as “capital” and in its arbitrary cessation of prejudgment interest on the diverted funds. Accordingly, the judgment is reversed and the case remanded with instructions that the trial court undertake a revised accounting and enter a new judgment consistent herewith.
FACTS AND PROCEDURAL HISTORY
The underlying facts are largely undisputed. In late 1991, appellants Loveless and Cox became interested in an approximately 340-acre parcel of land located in Tuolumne County that was commonly referred to as the Westside Property. They purchased the property on November 1, 1991 from West Coast Real Estate Corporation, and in conjunction with said purchase gave a note and second deed of trust to West Coast Real Estate Corporation (the West Coast Note). According to Loveless, the basic idea was to buy the property and “have an exit, get zoning, whatever, and then resell.”
Hereafter, for convenience, we will generally refer to Loveless and Cox together as simply “appellants” or the “individual appellants.” Although the partnership entity (Westside Development) is also an appellant, we will attempt to make it clear, by context or otherwise, when the term “appellants” includes Westside Development.
Formation of Partnership and Payment of the $400,000
Sometime before the purchase of the real property by appellants, there were discussions with respondents about the possibility of having respondents become involved in the Westside Property venture. Appellants believed they already had a prospective buyer and expected to quickly resell the property for a profit. Appellants approached respondents to see if they would be interested in loaning $300,000 for the joint venture, which loan would be paid back in the amount of $360,000 if the property sold quickly, as was anticipated. Respondents agreed to loan appellants $300,000, and in exchange took a note in the face amount of $360,000. The promissory note was executed by appellants and respondents on October 7, 1991 (the October Note). However, the October Note was much more than a promise of repayment. It also incorporated provisions set forth in an Exhibit “A,” entitled “Conditions of the Note,” that allowed respondents to increase their involvement in the venture.
Specifically, the October Note provided that if the real property was not in a firm escrow (i.e., for the expected quick resale) within 90 days, or if such escrow failed to close within six months, the note would be “converted to a 14.30% interest in the above described property with L. L. Loveless and K. L. Cox.” The note further provided that after said 90-day or six-month time period, respondents would have the option to purchase an additional 18.70 percent interest in the land, thereby increasing their ownership interest to 33 percent, for an additional $400,000. In this regard, the October Note stated as follows concerning the potential $400,000 payment:
Respondents did loan appellants the amount of $300,000, and elected to convert the loan into a 14.30 percent interest in the property. Respondents further elected to purchase the additional 18.70 percent interest in the property for $400,000, bringing their total interest in the property to 33 percent. As contemplated by the October Note, a joint venture agreement was prepared to memorialize the transaction (the Joint Venture Agreement). We now turn our attention to that agreement.
Appellants and respondents executed the Joint Venture Agreement on November 18, 1991, even though it was before the expiration of the previously agreed 90-day period. The Joint Venture Agreement’s express objective was “to establish a joint venture for the purpose of developing and selling certain real property which is commonly known as the Westside property in Tuolumne City, Tuolumne County, California, which consists of approximately 340 acres.” The Joint Venture Agreement provided in Paragraph 3 thereof that even though legal title to the real property may remain in appellants’ names, the actual ownership of the property was as follows: Loveless, one-third; Cox, one-third; Melton, one-sixth; and Olmsted, one-sixth.
The Joint Venture Agreement was prepared by respondent Melton’s attorney.
Paragraphs 4, 5 and 6 of the Joint Venture Agreement are relevant to the question of characterization of the monies respondents paid to appellants. We recite these paragraphs verbatim, as follows:
Capital Accounts and Contributions“5. Future Payments to Loveless and Cox: [¶] MELTON and OLMSTED agree to pay to LOVELESS and COX a total of $400,000.00 in cash with no interest, representing a purchase of a portion of their interest in the real property, as follows: [¶] A. The sum of $100,000.00 to be paid upon execution of this agreement. [¶] B. The sum of $100,000.00 to be paid on or before January 15, 1992. [¶] C. The final sum of $200.000.00 to be paid during the time period January 15, 1992 through January 15, 1993.
Future Advances of CapitalFinally, paragraph 7 of the Joint Venture Agreement makes provision for distribution of proceeds in the event of a sale of joint venture assets. It specifies that after payment of expenses and indebtedness of the joint venture, capital contributions would be returned to the respective joint venturers “in proportion to actual capital contributed.” After capital contributions have been returned, all excess proceeds would be then divided as set forth in Paragraph 3 of the Joint Venture Agreement, according to the percentages of real property ownership as stated therein.
The $400,000 was timely paid by respondents to appellants in accordance with the Joint Venture Agreement.
On July 1, 1993, the parties executed a written partnership agreement (the Partnership Agreement) and the joint venture became Westside Development, the partnership. The Partnership Agreement recognized that all four partners had contributed to the capital of the partnership, but it did not state the amounts thereof. It was agreed that as need for additional capital arose in the future, each partner would contribute his pro rata share, based upon his ownership interest. In the event any partner failed to make a required contribution, any other partner was permitted to advance the required contribution as a loan to the partnership at an interest rate not to exceed 15 percent, and the amount of interest accrued on the loan would be charged to the noncontributing partner’s capital account. The ownership interest of each partner in the partnership was stated as follows: L. L. Loveless, 33-1/3 percent; Kenneth Cox, 33-1/3 percent; Larry Melton, 16-2/3 percent; and Donald Olmsted, 16-2/3 percent.
A first addendum to the Partnership Agreement (the Addendum) was also executed on July 1, 1993. The Addendum referenced the parties’ Joint Venture Agreement and expressly ratified its terms. Additionally, the Addendum acknowledged that appellants (and their respective spouses) had executed a grant deed conveying the Westside Property to Westside Development. For various reasons stated in the Addendum, the grant deed was not recorded at that time, but all partners agreed that the real property was owned by Westside Development.
In addition to the several written agreements, other evidence was presented at trial potentially relating to the question of how the $400,000 payment should be characterized. First was the partners’ own testimony. Appellants stated at trial that the $400,000 was intended only to be a “buy-in” of an interest in the real property, not a capital contribution. On the other hand, respondent Melton testified that it was always understood by the parties that this sum would be treated as capital and returned to respondents.
Also, the trial court heard testimony from the accountants retained by the litigants. Mr. John Lust, the accountant designated by appellants, was asked on cross-examination about the $400,000 and how it would be treated under generally accepted accounting principles. He was asked to assume that the money was paid for purchase of an interest in real property which was then transferred into the partnership. Mr. Lust offered the opinion that under such conditions, the payment would ordinarily be treated as a capital contribution pursuant to generally accepted accounting principles. However, Mr. Lust also noted that it is acceptable for people to use accounting principles other than generally accepted accounting principles, and from his review of the records, it did not appear that generally accepted accounting principles were being followed by the partnership. Mr. John Bettencourt, the accountant retained by respondents, likewise testified that under generally accepted accounting principles the $400,000 would be treated as a capital contribution.
Finally, it was shown at trial that in 1996 the partners executed an agreement for purposes of resolving a dispute in connection with filing of federal and state partnership tax returns. In that document, it was agreed that “the funds advanced by partners which have been characterized as loans will in fact be treated as capital for the purpose of [former Corporations Code] section 15040.” (Italics added.) However, since none of the parties’ prior agreements ever characterized the $400,000 payment as a “loan,” this document was plainly inapplicable to the particular characterization issue at hand and the trial court properly did not rely on it in its ruling.
In its Judgment and Final Accounting, the trial court reviewed the several agreements and concluded that the Joint Venture Agreement “[was] the controlling document determining how the parties agreed to characterize their contributions.” The trial court noted that although the Joint Venture Agreement expressly stated “‘Melton and Olmsted agree to pay to Loveless and Cox a total of $400,000 in cash with no interest, representing a purchase of a portion of their interest in the real property…,’ [the Joint Venture] agreement did not specifically characterize any part of the $400,000.” (Italics added.) It was then observed by the trial court that the parties’ immediately preceding agreement, the October Note, did shed light on their intent regarding the $400,000. The trial court explained: “The Court finds that it was the intent of the parties in drawing up the October [Note] that both payments, the mandatory $300,000 conversion and the optional $400,000 purchase, would be subject to the same provisions in the October [Note]. The Court further finds that the parties did not intend to change this in the November [Joint Venture] agreement, but merely to implement it. Therefore, the Court finds the $400,000 to be capital credited to [respondents].”
The $165,000 Note and Respondents’ Breach of Fiduciary Duty
In 1995, the West Coast Note was in default and the partners were at risk of losing the partnership’s sole asset, the real property, to foreclosure. At the same time, appellant Kenneth Cox declared to the other partners that he was out of money and would no longer be able to contribute capital to the partnership. Various funding alternatives were discussed among Loveless, Melton and Olmsted, but time was running out. Respondents represented that they knew of a third party who would lend the needed funds, but the terms would be very favorable to the lender, including a requirement of 10 percent interest plus a sum equal to 15 percent of the “net net profit” resulting from the sale of the real property. Melton told appellants the third party lender was involved in a divorce and wanted to remain anonymous. It was proposed that Melton & Olmsted Enterprises, Inc., a California corporation (hereafter M&O California), an entity owned by respondents, would facilitate the transaction with the anonymous third party such that the loan payments would be made to M&O California. On May 12, 1995, the partners agreed to the proposed terms of the loan in the amount of $165,000 and signed a promissory note secured by a deed of trust (the $165,000 Note).
The $165,000 Note, which was prepared by respondent Melton or his attorney, included the following representation: “The maker of this note, Westside Development, a California general partnership, and all of its partners individually, are fully aware that the principals of [M&O California] … are Larry D. Melton and Donald L. Olmsted, who are also partners in Westside Development. The maker of this note, and all of its partners individually, are fully aware that M&O [California] has borrowed the sum of $165,000.00 from a third person in order to lend it to Westside Development, that M&O [California] has encumbered other real property to secure the loan from the third person, and that M&O [California] has become obligated to see that the third person receives a 15% share of the ‘net net profit’ upon sale of the subject real property.”
Contrary to respondents’ representations, the $165,000 did not come from a third party. The actual funding source for the loan was the respondents themselves or their corporation, M&O California, which fact was admitted at trial. Additionally, M&O California did not encumber any property to secure a loan from a third party, and never became obligated to ensure that a third party would receive a share of the “net net profit” upon the sale of the real property. The falsehood of respondents’ representations did not come to light until the time of respondents’ depositions in this action.
Melton testified he had made preliminary arrangements with a Mr. Joe Davis concerning a possible loan of money for the partnership, which Mr. Davis confirmed, but that loan was never made. Mr. Davis testified he had been in a divorce proceeding at one time, but that was back in 1987.
On June 6, 1997, while escrow was pending in the sale of the real property to Cherry Valley Development (Cherry Valley), respondent Olmsted sent a demand letter to the escrow on behalf of M&O California. The demand letter claimed that pursuant to the $165,000 Note (secured by a deed of trust), it was entitled to receive a total of $334,859.62. M&O California was actually paid $335,983.27 out of the escrow on June 19, 1997.
In its Judgment and Final Accounting, the trial court found that all of respondents’ representations to the partnership regarding the third party financing were “untrue,” and that once the sale of the property was pending, respondents “presented a false and fraudulent payment demand based on the above representations in the amount of $335,983.27.” The court found that the true facts were not discovered until long after escrow had paid the demand in full. As disclosed in subsequent depositions, respondent Melton had been the lender all along and had intentionally concealed this information from the partners. The trial court then reached the following conclusions:
Furthermore, the trial court found that the $335,983.27 paid to M&O California “shall be credited to the Partnership with no interest to be calculated, nor credited, to the partnership until after close of escrow.”
Transfer to Avoid Foreclosure and the Cherry Valley Note
In the autumn of 1996, while the partners were still trying to arrange a sale of the real property, there was once again an imminent risk of foreclosure. At that time, in order to avoid losing the real property, the partners agreed to follow respondent Melton’s plan to convey the property to his Nevada corporation, M&O Enterprises, Inc. (hereafter M&O Nevada). The partners privately agreed that “whatever is owned by Westside Partners in the partnership, will still be owned by the partners in M&O [Nevada].” Thus, it was understood that M&O Nevada would be holding the property and any proceeds for the benefit of the partners.
On November 7, 1996, M&O Nevada entered into an agreement to sell approximately 320 acres to Cherry Valley. This agreement was executed by respondent Melton on behalf of M&O Nevada and by Thomas C. Hix on behalf of Cherry Valley. Thereafter, on February 5, 1997, a new and different agreement to sell the real property was executed, superseding the prior one and adding other contracting parties, including appellants and one Jerry Ivy as trustee of the Ivy Separate Property Revocable Trust. This was the signed agreement whereby the real property was ultimately sold to Cherry Valley.
Ivy was made a party because he agreed to purchase the West Coast Note, which was in default, and in exchange was provided with a quitclaim deed in lieu of foreclosure by M&O Nevada. Cherry Valley would then have the right to purchase Ivy’s interest, on terms set forth in the sale agreement.
In regard to the acreage of the real property, the recitals to the February 1997 purchase agreement indicated the property was originally 345 acres (when originally purchased by appellants), but 27 acres were conveyed to the local school district in 1993, leaving approximately 318 acres.
In connection with the sale of the real property, Cherry Valley gave M&O Nevada a promissory note in the amount of $650,000, which would mature on June 19, 2002 (the Cherry Valley Note). The Cherry Valley Note was secured by way of a security agreement granting M&O Nevada a 25 percent interest in Cherry Valley. In addition, the Cherry Valley Note provided for an increase in the principal obligation of the note by the sum of $10,400 for each single family detached lot approved in excess of the initial 158 lots. There was conflicting testimony at trial as to the value of the Cherry Valley Note in light of Cherry Valley’s financial situation at that time. The trial court found insufficient evidence to fix a value to the Cherry Valley Note. In any event, the real property was foreclosed on in March of 2002, rendering the note without value in the court’s estimation, as set forth in the final judgment.
Procedural Background
A final accounting was rendered based on the trial court’s many findings of fact, including those which we have highlighted above. We now briefly allude to certain procedural aspects of the case.
Appellants filed their original complaint for partnership dissolution, accounting and other relief on May 14, 1997. On May 27, 1998, a first amended complaint was filed by appellants Loveless, Cox and Westside Development. Respondents answered and filed a cross-complaint. The case was tried to the court on May 4, 1999 to May 13, 1999. On August 23, 1999, the trial court issued a tentative statement of decision and the parties made formal requests for a statement of decision. After several hearings regarding details of the statement of decision, a final statement of decision was issued on January 14, 2000. The court then directed that an accounting be performed for the purpose of rendering a final accounting based on the court’s findings. The accounting was prepared and objections thereto were heard and resolved by the court. A Judgment and Final Accounting was filed by the trial court on October 7, 2003. It is unclear why there was such a lengthy delay between the final statement of decision and entry of judgment. Inevitably, this delay had an impact on the amount of prejudgment interest, which is one of the issues herein. Following entry of judgment, appellants filed motions for new trial and to vacate judgment and enter a new and different judgment, both of which were denied. Timely appeal followed.
DISCUSSION
I. The Trial Court Erred in its Interpretation of the Written Agreements when it Held that the $400,000 Payment Was a Capital Contribution
Appellants contend that the governing written agreements are not reasonably susceptible to the interpretation that the $400,000 was meant to be treated as a capital contribution. Respondents counter that the Joint Venture Agreement was silent or ambiguous on the issue of how to characterize the $400,000 payment and the trial court appropriately resolved the issue by relying on extrinsic evidence of intent. It is not disputed that the characterization of the payment directly impacts the final accounting as between the partners.
A capital contribution is commonly understood as cash or property “contributed by partners to a partnership.” (Black’s Law Dict. (8th ed. 2004) p. 222.) Here, we are primarily dealing with the question of whether the parties agreed to treat particular payments to the individual appellants (for the purchase of an interest in their real property) as “capital” contributed to the venture.
Preliminarily, we agree that the issue before us is one of contractual interpretation. As a general rule, individuals who form a partnership or joint venture may agree among themselves what their respective rights, duties and liabilities will be. (See 48 Cal.Jur.3d (2004) Partnership, § 54, p. 476-477.) In this case, at least for purposes of determining the respective rights of the partners as between themselves, the question of whether the payment in question was to be treated as capital, or something else, was one which the parties were free to decide by contract. That being said, we now turn to the contested issue of interpretation.
Of course, certain rights and responsibilities inherent in the partnership relationship may not be bargained away, such as fiduciary duties and the right to reasonable access to books and records. (See 9 Witkin, Summary of Cal. Law (10th ed. 2005) Partnership, § 19, pp. 595-596; and Corp. Code, § 16103 [describing rights and duties which may not be varied by agreement].)
Accordingly, we do not address the question of how the payment might be characterized under principles of tax law or under accounting standards. Our review is limited to application of well-established rules of contractual construction.
A. Standard of Review
The interpretation of a written contract presents a question of law which we review de novo, unless the interpretation turns upon the credibility of extrinsic evidence. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.) When a contract is reasonably subject to more than one interpretation and the relevant extrinsic evidence is in conflict, “any reasonable construction will be upheld as long as it is supported by substantial evidence.” (Winet v. Price (1992) 4 Cal.App.4th 1159, 1166.) On the other hand, when the extrinsic evidence is undisputed and the parties have merely drawn conflicting inferences, the question remains one of law and we independently interpret the contract. (Parsons v. Bristol Development Co., supra, at p. 866, fn. 2; City of El Cajon v. El Cajon Police Officers’ Assn. (1996) 49 Cal.App.4th 64, 71.)
B. Principles of Contract Interpretation
We begin by reviewing some of the applicable principles of contract interpretation which guide our analysis. The fundamental goal of contract interpretation is to give effect to the mutual intention of the parties as it existed at the time of contracting. (Civ. Code, § 1636; Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264.) When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible. (Civ. Code, § 1639; Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955.) If the language of a contract is clear and explicit, it governs. (Civ. Code, § 1638; Bank of the West v. Superior Court, supra, at p. 1264.) “Where contract language is clear and explicit and does not lead to absurd results, we ascertain intent from the written terms and go no further.” (Ticor Title Ins. Co. v. Employers Ins. of Wausau (1995) 40 Cal.App.4th 1699, 1707.) The words of a contract are generally to be understood in their ordinary and popular sense. (Civ. Code, § 1644; see also Lloyd’s Underwriters v. Craig & Rush, Inc. (1994) 26 Cal.App.4th 1194, 1197-1198 [“We interpret the intent and scope of the agreement by focusing on the usual and ordinary meaning of the language used and the circumstances under which the agreement was made”].)
Although the parties’ intent is to be ascertained from the writing alone, if possible, a court must determine “what the parties meant by the words they used.” (Pacific Gas & E. Co. v. G. W. Thomas Drayage Etc. Co. (1968) 69 Cal.2d 33, 38.) At times, extrinsic evidence may be necessary to explain the meaning of contractual terms or to resolve ambiguity. In interpreting the meaning of language used in a written contract, extrinsic evidence is admissible to prove a meaning to which the contract is reasonably susceptible. (Winet v. Price, supra, 4 Cal.App.4th at p. 1165.) “If the trial court decides, after receiving the extrinsic evidence, the language of the contract is reasonably susceptible to the interpretation urged, the evidence is admitted to aid in interpreting the contract.” (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc., supra, 109 Cal.App.4th at p. 955.) “The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.” (Pacific Gas & E. Co. v. G. W. Thomas Drayage Etc. Co., supra, at p. 37.) Conversely, extrinsic evidence that is inconsistent with any interpretation to which the instrument is reasonably susceptible is irrelevant, and cannot serve as a basis for interpreting the obligations under the instrument. (BMW of North America, Inc. v. New Motor Vehicle Bd. (1984) 162 Cal.App.3d 980, 990.)
A contract may be explained by reference to the circumstances under which it was made and the matter to which it relates, so that the judge may be placed in the position of those whose language he is to interpret. (Civ. Code, § 1647; Code Civ. Proc., § 1860.)
C. Interpretation of the Parties’ Written Agreements
In reviewing the several written agreements, the trial court concluded that “the Joint Venture Agreement is the controlling document determining how the parties agreed to characterize their contributions.” We fully agree with this assessment. When the parties made provision in the October Note for respondents’ potential future participation in the venture, they also expressly provided that a joint venture agreement would be prepared at that time. The Joint Venture Agreement memorializes the $300,000 and the $400,000 payments previously referenced in the October Note and describes how they are characterized by the parties. Later, when the parties executed an Addendum to their subsequent Partnership Agreement, they expressly ratified the terms of the Joint Venture Agreement. Thus, it is clear that the parties intended the Joint Venture Agreement to govern their relationship with respect to the terms set forth therein, including the manner in which it characterizes contributions.
Appellants do not challenge this finding by the trial court.
The Joint Venture Agreement, in paragraph 4 thereof under the heading “Capital Contributions and Accounts,” clearly categorizes respondents’ payment of the initial $300,000 as capital:
“Prior to the close of escrow, LOVELESS and COX executed a promissory note in the sum of $360,000.00 in favor of MELTON and OLMSTED. This promissory note shall be deemed to be capital in the sum of $300,000.00 contributed to the joint venture. $150,000.00 shall be credited to the capital account of MELTON and $150,000.00 shall be credited to the capital account of OLMSTED. The promissory note shall be cancelled.”
However, the $400,000 payment is not listed in the above paragraph identifying respondents’ capital contributions, nor is it included or potentially encompassed in paragraph 6 of the Joint Venture Agreement relating to future advances of capital “to the joint venture.” Instead, the $400,000 is defined in paragraph 5 of the Joint Venture Agreement as constituting future payments “to Loveless and Cox” (as distinct from payments to or for the joint venture) and “representing a purchase of a portion of their [Loveless’s and Cox’s] interest in the real property.” (Italics added.) The obvious effect of this wording is to differentiate the character and treatment of the $400,000 payment from that of a contribution to the venture itself.
Paragraph 6 of the Joint Venture Agreement includes the following provision: “Any advances to the joint venture by any of the joint venturers, as reflected in escrow number 01093909 (including the original $300,000.00 loan of MELTON and OLMSTED), together with any future advances from November 1, 1991 (date of close of escrow) shall be considered capital contributions.”
Again, a “capital contribution” is generally cash or property contributed by partners to a partnership. (Black’s Law Dict. (8th ed. 2004) p. 222; and see Corp. Code, § 16401, subd. (a).)
From the above summary, it is clear that the Joint Venture Agreement intentionally distinguished the $300,000 from the $400,000 in its treatment by the partners. Of these two separate payments by which respondents first acquired and then increased their interest in appellants’ real property, the parties expressly determined in their Joint Venture Agreement that one (the $300,000) would be treated as a capital contribution to the venture itself, and the other (the $400,000) would be treated as a purchase from and a payment to the individual appellants.
The trial court concluded the Joint Venture Agreement did not “specifically characterize any part of the $400,000” and then resorted to the October Note for guidance regarding the parties’ intent. The court gleaned from its reading of the October Note that the parties intended to treat both the $300,000 and the $400,000 payments alike -- as capital. We disagree with the trial court’s conclusion that the Joint Venture Agreement did not expressly characterize the $400,000. As discussed above, that payment was clearly relegated to the status of a purchase from individuals; while in contrast, the $300,000 was deemed a capital contribution to the venture. On these points, there is no ambiguity in the language or meaning of the Joint Venture Agreement. Moreover, the Joint Venture Agreement is not reasonably susceptible to an interpretation that the $400,000 was intended to be treated by the partners as capital. (See BMW of North America, Inc. v. New Motor Vehicle Bd., supra, 162 Cal.App.3d at p. 990 [extrinsic evidence of an interpretation to which the wording is not reasonably susceptible is irrelevant].)
By identifying the Joint Venture Agreement as controlling, the trial court apparently considered the October Note as extrinsic evidence to explain or elucidate the parties’ intent in the Joint Venture Agreement, rather than viewing the two agreements “together” pursuant to Civil Code section 1642. We note that under Civil Code section 1642, “[s]everal contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together.” Because the two agreements are consistent on the issue at hand, the outcome would be the same under either approach. And even if a section 1642 approach were followed and the agreements were found to be inconsistent, the later contract (i.e., the Joint Venture Agreement) would supersede any inconsistent provisions set forth in the former one. (See Frangipani v. Boecker (1998) 64 Cal.App.4th 860, 863; 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 747, p. 836.)
In any event, the October Note does not support the trial court’s conclusion, as we now explain. The October Note is divided into two parts: First, there is the promissory note itself, showing a promise by appellants to repay $360,000 (in exchange for the $300,000 payment by respondents); second, there is an attachment entitled “conditions of the note.” The “conditions of the note” attachment sets forth the terms for converting the note into a purchase of an interest in the real property owned by appellants. It further describes the respondents’ option to purchase an additional interest in the real property for an extra payment of $400,000. Under these provisions, both the initial $300,000 (after the 90-day period) and the subsequent $400,000 are described as a purchase of an interest in the real property.
However, the similarity in how the October Note describes the two payments ends there. The last sentence of the “Conditions of the Note” attachment provides as follows: “The note itself will go into the joint venture described above as a capital injection and at that time a joint venture agreement will be drafted and signed.” (Italics added.) The “note” is defined in the attachment as the “$360,000.00 note from L. L. Loveless and K. L. Cox to Larry Melton and Donald Olmsted.” Thus, the attachment singles out the “note itself” (i.e., the loan of $300,000 in exchange for a promise to repay $360,000) for treatment as a capital infusion, but does not extend that characterization to the additional $400,000. This is entirely consistent with the treatment of these two payments in the Joint Venture Agreement. Thus, even if we were to allow the October Note to elucidate the meaning of the controlling Joint Venture Agreement, the interpretation would be unchanged.
We conclude from the Joint Venture Agreement that the $400,000 was to remain a mere purchase from the individual appellants, while the $300,000 was to be treated as a capital contribution to the venture itself. Since the agreement is unambiguous on these points and is not reasonably susceptible to an interpretation that the parties intended the $400,000 to be deemed a capital contribution, we conclude that the trial court erred.
II. The Trial Court Erred in Terminating Prejudgment Interest on the $335,983.27
Appellants contend the trial court erred when it ordered prejudgment interest on the $335,983.27 based on respondents’ fraud, but then discontinued such interest prior to entry of judgment without any reasonable basis or explanation. We agree the trial court abused its discretion by arbitrarily halting the accrual of interest, which was imposed to compensate for respondents’ fraudulent deprivation of property.
By way of review, the trial court found that the respondents committed breach of fiduciary duty amounting to fraud with respect to the $165,000 Note and the related escrow demand by which M&O California received $335,983.27. The court held that “[t]he $335,983.27 … should have been paid out of escrow to the partnership, not to M&O [California].” Accordingly, the judgment provided that the entire sum of $335,983.27 “shall be credited to the [Westside] Partnership,” with interest to be calculated thereon “from close of escrow.” The judgment elsewhere repeated the time at which interest would begin accruing: “no interest [on the $335,983.27] to be calculated, nor credited, to the partnership until after close of escrow.”
Appellants’ first amended complaint included a seventh cause of action for fraud and deceit concerning these transactions.
In the final accounting, which became part of the judgment, prejudgment interest was calculated on the $335,983.27 from June 19, 1997 to January 14, 2000. The starting date of June 19, 1997 was, as required by the court, the date on which escrow closed and the payment was made to respondents’ company, M&O California. The ending date for computing such interest was the date of the trial court’s “Final Statement of Decision” filed on January 14, 2000. It is unclear why the calculation of prejudgment interest in the final accounting was discontinued on January 14, 2000. The trial court was given an opportunity via appellants’ postjudgment motions to explain its rationale for discontinuing interest or to correct the asserted error. The court declined to do either, stating only that the interest determination was not a mathematical error but a disputed legal question, the propriety of which would have to be resolved “in an appropriate forum.” Appellants contend the trial court abused its discretion when it halted prejudgment interest on the date of its statement of decision, since prejudgment interest should have continued until the date judgment was entered. We agree.
Although the trial court stood firm on the interest cessation, it never explained why it did so. The final statement of decision directed that a final accounting was to be prepared, consistent with the court’s findings. The court’s findings therein specified that the $335,983.27 “shall be credited to the Partnership with interest at the legal rate,” but said nothing about an ending date of the interest. When the final accounting was eventually prepared, it provided for interest on the $335,983.27 from close of escrow until January 14, 2000. In appellants’ postjudgment motions in the trial court, they urged the trial court to correct the apparent mistake. Appellants also argued that prejudgment interest must be continued, as a matter of law, “during the period following rendition of the verdict or decision and until entry of judgment.” Respondents countered that it was appropriate to stop prejudgment interest at the time of the final statement of decision because once the several findings therein were made by the court, the net effect of those findings on the partners’ obligations to each other could then be derived by completion of the accounting, which “net judgment” ultimately showed that appellants owed respondents money. The trial court did not explain its position on the matter, but proceeded to deny appellants’ postjudgment motions regarding the interest calculation on the ground that it was not a mere mathematical error but a legal issue that would have to be resolved on appeal.
The court’s final statement of decision was filed on January 14, 2000. The judgment was entered on October 7, 2003, over three years later. Although the parties attribute fault to each other regarding the delay, it is unclear from the record why it took over three years for an accounting to be prepared and a final judgment to be submitted to the court and filed.
Preliminarily, we note the award of prejudgment interest was made in connection with the trial court’s finding of fraud. A trier of fact has discretion to award prejudgment interest in cases in which oppression, fraud or malice is found. (Civ. Code, § 3288; Bullis v. Security Pac. Nat. Bank (1978) 21 Cal.3d 801, 814-815.) We concur with appellants that the trial court’s award of prejudgment interest in this case was made pursuant to Civil Code section 3288.
Civil Code section 3288 provides: “In an action for the breach of an obligation not arising from contract, and in every case of oppression, fraud, or malice, interest may be given, in the discretion of the jury.” While section 3288 only grants such authority to the jury, it is established by judicial construction that “the trial court, when acting as the trier of fact, may award prejudgment interest under this section.” (Bullis v. Security Pac. Nat. Bank, supra, 21 Cal.3d at p. 814, fn. 16.)
“[T]he decision to award prejudgment interest may not be overturned unless the trial court abused its discretion. A trial court’s exercise of discretion will be upheld if it is based on a ‘reasoned judgment’ and complies with the ‘... legal principles and policies appropriate to the particular matter at issue.’ [Citations.]” (Bullis v. Security Pac. Nat. Bank, supra, 21 Cal.3d at p. 815.) Here, we consider that the fundamental purpose of awarding interest under Civil Code section 3288 is to compensate a party for the loss of use of property. (Bullis v. Security Pac. Nat. Bank, supra, 21 Cal.3d at p. 815; Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1586.) “The inclusion of interest in the verdict pursuant to section 3288 is not the granting of damages in excess of the loss incurred. When, by virtue of the fraud or breach of fiduciary duty of the defendant, a plaintiff has been deprived of the use of his money or property and is obliged to resort to litigation to recover it, the inclusion of interest in the award is necessary in order to make the plaintiff whole. It is for this reason that it is proper to have such interest run from the time the plaintiff parted with the money or property on the basis of the defendant’s fraud.” (Nordahl v. Department of Real Estate (1975) 48 Cal.App.3d 657, 665.)
In accord with these principles, the trial court’s decision to award prejudgment interest under Civil Code section 3288 was based on the premise that the partnership was, from the time escrow closed, fraudulently deprived of the use and benefit of such funds which rightfully belonged to it. Interest was therefore applied to compensate the partnership for this loss. That being so, a consistent application of the statutory purpose (i.e., interest as compensation for fraudulent deprivation of property) requires that such interest continue to be applied until either the funds are restored or the judgment is entered. There is nothing in the record to indicate that the underlying factual basis upon which the trial court awarded prejudgment interest (i.e., the fraudulent loss of funds belonging to the partnership) did not continue to exist through the date of entry of judgment. No explanation was given by the trial court for the halting of prejudgment interest on the $335,983.27, and on the record before us the decision appears to have been arbitrary.
The respondents’ suggestion that the trial court may have cut off interest at the time of its final statement of decision because the findings therein would eventually result in a “net judgment” is unpersuasive. With respect to this discrete fraud claim, until a judgment was actually entered by which the partnership was fully credited with such funds, plus interest, the rationale for applying prejudgment interest under Civil Code section 3288 continued to exist. Nor can the existence of mere delay between the decision and judgment be posited as a hypothetical justification for the trial court’s termination of interest, since an important rationale for awarding such prejudgment interest in the first place is to compensate a party “for the delay in recovery” what is due to him or her. (6 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 1643, p. 1160.)
“‘The discretion of a trial judge is not a whimsical, uncontrolled power, but a legal discretion, which is subject to the limitations of legal principles governing the subject of its action, and to reversal on appeal where no reasonable basis for the action is shown. [Citation.]’ [Citations.]” (Westside Community for Independent Living, Inc. v. Obledo (1983) 33 Cal.3d 348, 355; 9 Witkin, Cal. Procedure (4th ed. 1997) Appeal, § 358, pp. 406-408.) Under the circumstances, we conclude the trial court’s decision to discontinue prejudgment interest prior to entry of judgment was an abuse of discretion because it had no reasonable basis and did not adhere to the legal principles which should have guided such exercise of discretion. We therefore reverse this aspect of the interest determination and remand with instruction that the trial court recalculate prejudgment interest on the $335,983.27 by continuing the accrual of such interest until the date judgment was entered.
It is apparent from the wording of Civil Code section 3288 that the nature of the discretion conferred therein upon the jury (or the court as trier of fact) is either to award prejudgment interest, or not, as a form of compensation for a fraudulent loss of property or money, together with the concomitant discretion to decide when to begin the interest running if an award is made. Nevertheless, we do not conclude that a trial court could never discontinue an award of such prejudgment interest prior to entry of judgment, or that a jury could never provide for a preverdict cessation of section 3288 interest, where the facts or equities so warranted, but only that no reasonable basis existed in the present case for doing so. In light of our decision herein, we need not address appellants’ additional contention that the trial court’s final statement of decision was the functional equivalent of a damage verdict upon which legal interest was required until entry of judgment. (See Cal. Rules of Court, rule 3.1802 [“The clerk must include in the judgment any interest awarded by the court and the interest accrued since the entry of the verdict”]; see also 7 Witkin, Cal. Procedure (4th ed. 1997) Judgment, § 271, p. 814; Dixon Mobile Homes, Inc. v. Walters (1975) 48 Cal.App.3d 964, 974 [even though interest under Civil Code section 3288 was waived, trial court was still required to apply legal interest from date of damage verdict until entry of judgment].)
III. Award of Interest on the $165,000 Was Proper
Appellants claim that the trial court abused its discretion when it awarded interest on the $165,000. We disagree.
The trial court found that respondents falsely represented, among other things, that the $165,000 was from an anonymous third party and that the loan to rescue the property from foreclosure had to be on terms very favorable to the anonymous lender. The representations were untrue, and in fact the funds were advanced by respondents’ corporation or by respondent Melton himself. To remedy this fraud, the trial court’s judgment decreed “that the $165,000 advanced by [respondents] be treated as a capital contribution, and the note be reformed and set aside.” The judgment further declared as follows: “All proceedings flowing from the note are set aside. The Court declines to award interest on the $165,000, nor to award punitive damages.”
Despite these provisions in the judgment, the trial court nevertheless adopted the final accounting which provided for interest to accrue to respondents Melton and Olmsted on the $165,000 from May 12, 1995 (the date the money was advanced). Appellants requested in its postjudgment motions that the trial court strike out the award of interest on the $165,000 on the ground it was inconsistent with the judgment’s decision treating it as a capital contribution. The trial court denied appellants’ motions. Moreover, by its adoption of the final accounting in the judgment, the trial court appears to have intended to award interest on the $165,000 notwithstanding its indications to the contrary in other provisions of the judgment. (See Verdier v. Verdier (1953) 121 Cal.App.2d 190, 192-193 [change by interlineation of one part of written judgment manifested judge’s intent, despite failure to correct a contrary provision set forth elsewhere in the judgment].)
We note that interest on this amount was only calculated to January 14, 2000. No challenge is made herein to timing of the interest calculation on the $165,000.
Appellants argue the trial court’s determination to treat the $165,000 as a capital contribution precludes any award of interest on that sum. They cite the general rule that in the absence of agreement to the contrary, a partner is not entitled to interest on a capital contribution. (See Luchs v. Ormsby (1959) 171 Cal.App.2d 377, 387; 48 Cal.Jur.3d, (2004) Partnership, § 156, pp. 632-634.)
In support of the award, respondents point out that a reasonable basis existed under the terms of the Partnership Agreement for the trial court to award interest on the $165,000. Section 3.01 of the Partnership Agreement provided that as capital was needed “for the financial needs of the Partnership, each partner shall contribute his prorata [sic] share, based upon his ownership interest.” If a partner failed to make any required pro rata contribution, any other partner “may advance the required contribution as a loan to the Partnership…, and the amount of interest paid or accrued on the loan shall be charged to the non-contributing partner[’]s capital account.” We note there was testimony at trial that at the time the $165,000 was obtained, the partnership desperately needed the funds and neither of the appellants would provide any additional capital at that time. Under the circumstances, the $165,000 may have been considered by the court to be a contribution falling within section 3.01 of the Partnership Agreement to which the interest provision would reasonably apply. We believe that in using its equitable powers to set aside the note and treat the amount as a capital contribution, the court would also have discretion, under the facts alluded to above, to apply the interest provision set forth in the Partnership Agreement. This appears to have been the implicit rationale adopted by the court, and we must indulge all presumptions in favor of the judgment. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.) Accordingly, we uphold the trial court’s award of interest on the $165,000.
A similar interest provision to the one contained in the Partnership Agreement is set forth at Corporations Code section 16401, which provides as follows: “A partnership shall reimburse a partner for an advance to the partnership beyond the amount of capital the partner agreed to contribute.” (Corp. Code, § 16401, subd. (d).) “A payment or advance made by a partner that gives rise to a partnership obligation under subdivision (c) or (d) constitutes a loan to the partnership that accrues interest from the date of payment or advance.” (Corp. Code, § 16401, subd. (e).)
IV. Failure to Award Attorney Fees Was Not Abuse of Discretion
Appellants contend the trial court abused its discretion when it denied their request for attorney fees incurred in the successful recovery of partnership assets. Specifically, the judgment decreed that “[t]he $335,983.27, paid to M&O California shall be credited to the Partnership….” In light of this outcome on their fraud claim, appellants sought an award of attorney fees under Corporations Code section 16401, subdivision (c), which provides as follows: “A partnership shall reimburse a partner for payments made and indemnify a partner for liabilities incurred by the partner in the ordinary course of the business of the partnership or for the preservation of its business or property.” Appellants asserted that because the payment of fees resulted in the restoration of partnership property (i.e., the $335,983.27), such fees or a portion thereof should be reimbursed. The trial court disagreed, explaining that in the action for dissolution of partnership and accounting, the credited sum did not have the effect of preserving property for the benefit of the partnership, but was “part of the dissolution” by which all the accounts were settled between the individual partners. Accordingly, no attorney fees were awarded.
Appellants maintain the trial court erred because attorney fees were allegedly recoverable as a matter of law based on (1) Corporations Code section 16401, subdivision (c), and (2) the “common fund” equitable theory. For reasons explained below, we conclude that the trial court did not abuse its discretion. We will begin with a discussion of the “common fund” theory of recovery under California law.
California follows what is known as the American rule, in which each party to a lawsuit must pay his or her own legal fees unless otherwise provided by statute or contract. (Code Civ. Proc., § 1021; Trope v. Katz (1995) 11 Cal.4th 274, 278-279.) The courts have also developed, under their inherent equitable powers, narrow exceptions to the American rule, including the “common fund” and/or “substantial benefit” theories of recovery. (Trope v. Katz, supra, at p. 279.) Under these two theories, recovery of attorney fees is based “on the fact that the litigation has conferred benefits on others. Thus, if the litigation has succeeded in creating or preserving a common fund for the benefit of a number of persons, the plaintiff may be awarded attorney fees out of that fund. [Citation.] Likewise, if a judgment confers a substantial benefit on a defendant, such as in a corporate derivative action, the defendant may be required to pay the attorney fees incurred by the plaintiff. [Citation.]” (Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 505.)
“Under the ‘common fund’ principle, ‘when a number of persons are entitled in common to a specific fund, and an action brought by a plaintiff or plaintiffs for the benefit of all results in the creation or preservation of that fund, such plaintiff or plaintiffs may be awarded attorney’s fees out of the fund.’ [Citation.]” (Baker v. Pratt (1986) 176 Cal.App.3d 370, 378 (Baker).) “This is merely compelling all the persons for whose benefit the action is brought to bear their share of the expenses of the suit, and is equitable and just.” (Miller v. Kehoe (1895) 107 Cal. 340, 343-344.) As more fully explained by our Supreme Court, “[t]he bases of the equitable rule which permits surcharging a common fund with the expenses of its protection or recovery, including counsel fees, appear to be these: fairness to the successful litigant, who might otherwise receive no benefit because his recovery might be consumed by the expenses; correlative prevention of an unfair advantage to the others who are entitled to share in the fund and who should bear their share of the burden of its recovery; encouragement of the attorney for the successful litigant, who will be more willing to undertake and diligently prosecute proper litigation for the protection or recovery of the fund if he is assured that he will be promptly and directly compensated should his efforts be successful.” (Estate of Stauffer (1939) 53 Cal.2d 124, 132.)
However, these equitable considerations do not apply, and fees will be denied, “if the attorney’s and his client’s ultimate objective is not to secure or preserve a common fund but to establish personal adverse interests therein.” (Gabrielson v. City of Long Beach (1961) 56 Cal.2d 224, 229; see also Estate of Marre (1941) 18 Cal.2d 191, 192 [fees denied where the plaintiff’s suit benefited only himself, and the other beneficiaries “were hostile litigants each employing separate counsel”]; Miller v. Kehoe, supra, 107 Cal. at pp. 343-344 [where there are no passive beneficiaries, but only a contest between hostile litigants represented by counsel, doctrine does not apply]; Salmina v. Juri (1892) 96 Cal. 418, 420 [attorney fees properly denied in lawsuit between hostile litigants contesting whether certain property was a partnership asset]; but see Metzenbaum v. Metzenbaum (1953) 115 Cal.App.2d 395, 400-401 [attorney fees allowed in defending against claim by third persons to partnership property since it was more than a dispute between partners -- even though third person acted with connivance and cooperation of former partner].)
Respondents argue the equitable “common fund” theory does not apply in the present case, based on the rule noted above that fees will be denied where the litigant’s real objective is not to secure a common fund but to establish a personal adverse interest therein. They rely primarily on Baker, a case in which the plaintiff sued the defendant for dissolution of a closely held corporation of which the parties were the sole owners. The action ultimately resulted in the plaintiff establishing adverse interests in property or assets involved in the dissolution proceedings. The Court of Appeal held that under these circumstances, it was error to award attorney fees under the “common fund” or “substantial benefit” theories. It explained as follows:
“In the instant action, [the] respondent sued the defendant corporations in cases five and six for involuntary dissolution of the corporation. The actions resulted in findings that [the] appellant had misappropriated corporate funds and property, but this was to no one’s detriment other than [the] respondent’s. [The r]espondent and [the] appellant were the only shareholders in each of the corporate entities. It is clear that [the] respondent’s ‘ultimate objective [was] not to secure or preserve a common fund but to establish personal adverse interests therein. In such a case fees may not be awarded.’ [Citations.] It cannot be claimed that there were parties other than [the] respondent from whom fees could be sought and who were similarly situated with mutual interests in and mutual rights to proceed and recover the sums representing the fund. [Citation.] There are no ‘passive beneficiaries’ of [the] respondent’s action which he can claim should be made to bear their fair share of the litigation costs. [Citation.]” (Baker, supra, 176 Cal.App.3d at pp. 378-379.)
Further, the Baker court concluded that the “substantial benefit” theory, which is an extension of the “common fund” theory premised on a representative or derivative action being maintained for the benefit of a class of persons (Baker, supra, 176 Cal.App.3d at p. 379), was likewise inapplicable: “Both the common fund doctrine and the substantial benefit doctrine exist in equity so that the active litigator who extends a benefit to a class of passive beneficiaries is not made to bear the cost of litigation on his or her own. These actions involved the disputes of two persons in their individual capacities or of corporate entities that were owned by one or both of the parties to this action. Neither of the doctrines supports an award of attorneys fees in these disputes.” (Id. at p. 380.) As a more recent case explained: “Baker makes clear that if corporate shareholders are seeking to advance their individual interests, rather than the interests of the corporation generally, no fees should be awarded on a common fund or substantial benefit theory.” (Avikian v. WTC Financial Corp. (2002) 98 Cal.App.4th 1108, 1118.)
It is evident that the rationale set forth in Baker is fully applicable here. Although appellants would seek refuge under Cziraki v. Thunder Cats, Inc. (2003) 111 Cal.App.4th 552 (Cziraki), that case is clearly distinguishable. In Cziraki, a closely held corporation did substantially benefit from a derivative lawsuit, and unlike the present situation no dissolution of the entity was sought so the benefit was not passed on to individual litigants. In that context, the substantial benefit theory was held to apply: “Unlike the ultimate outcome in Baker, any award to Thunder Cats would not be immediately passed on to individual shareholders through a dissolution proceeding. The judgment in the present case reveals a clear distinction between the derivative interests of the shareholders and their individual adverse interests.” (Cziraki, supra, at p. 561.) Because of this critical difference, Cziraki does not support the appellants’ claim.
In conclusion, we agree with respondents that the equitable exceptions to the American rule, referred to as the common fund or substantial benefit theories, were inapplicable in the present case. Appellants and respondents were the sole partners of the partnership of which dissolution and accounting were sought, were hostile litigants represented by counsel, pursued claims for their own individual benefit, and ultimately sought to establish their own personal adverse interests in the accounting of assets and liabilities. Although in the accounting of rights and obligations within the dissolution process, the partnership was credited with the funds that were diverted by respondents, it is nevertheless clear that there were no passive beneficiaries in the action and the substance of the litigation was a contest between partners pursuing their individual interests. In the final analysis, the partners were ultimately litigating the “bottom line” of what they would owe or not owe to one other. We conclude that attorney fees were not available under these equitable theories.
Finally, appellants contend they were entitled to reimbursement of their attorney fees under Corporations Code section 16401, subdivision (c). As noted, the statute requires a partnership to reimburse a partner for payments made “for the preservation of its business or property.” Neither side has referred us to any case applying this provision. We do not doubt that in a proper context, a partnership may be required to reimburse a partner for payment of attorney fees incurred for preservation of partnership property, such as where the fees are expended to defend the partnership against an adverse claim. (See, e.g., 68 C.J.S. Partnership, § 83; 48 Cal.Jur.3d (2004) Partnership, § 154, pp. 629-631.) Nevertheless, we believe it was entirely appropriate in the present case for the trial court to deny a fee recovery. When reimbursement is sought pursuant to this statutory provision, a trial court must preliminarily decide whether the condition for reimbursement indicated therein -- the preservation of property for the benefit of the partnership -- has been satisfied. (See Leboire v. Royce (1960) 53 Cal.2d 659, 668-669 [holding under predecessor statute (former Corp. Code, § 15018, subd. (b)) that trial court had discretion to deny reimbursement where facts permitted reasonable inference that any “benefit” derived to entity from the expenditure was “too remote” to satisfy language and purpose of statute].) In the present case, in which the partnership was dissolved so that any benefit of the litigation passed on to individual litigants, we hold the trial court could reasonably conclude, as it implicitly did here, that the condition for reimbursement under the statute was not meaningfully satisfied because the expenses at issue were not ultimately for preservation of property for the partnership’s benefit. Accordingly, we hold the trial court did not abuse its discretion in denying appellants’ request for reimbursement of fees under Corporations Code section 16401, subdivision (c).
DISPOSITION
The trial court erred in its interpretation of the parties’ written agreements when it concluded the $400,000 was to be treated as “capital,” and further erred in its cessation of prejudgment interest on the $335,983.27 prior to entry of judgment. The judgment is reversed and the case is remanded with directions that the trial court undertake a revised accounting and enter a new judgment consistent herewith. Appellants are entitled to costs on appeal.
The new judgment shall also incorporate the trial court’s reconsideration of the partnership accounting and the issue of punitive damages in light of proffered new evidence of a concealed asset, based on our grant of petitioners’ Writ of Error Coram Vobis (see opinion in case No. F046375).
WE CONCUR: Levy, Acting P.J., Hill, J.