Unpublished Disposition, 931 F.2d 60 (9th Cir. 1986)

MEMORANDUM^** 

Merchants, Inc. ("Merchants") appeals the district court's judgment in favor of Rouse & Associates-Terminals Limited Partnership ("Rouse") for ninety days rent. Merchants contends that the district court erred in finding that it became liable to Rouse under a guaranty. We have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm.

FACTS AND PROCEDURAL HISTORY

In November 1985, Rouse agreed to purchase six truck terminals from Merchants. The agreement was later amended so as to involve only two terminals--one in San Leandro and one in Santa Clara. Each of these terminals was under long-term lease to McLean Trucking Co. ("McLean"). After the purchase agreement was signed but before escrow closed, McLean filed a voluntary petition for bankruptcy. As the parties were concerned that the trustee in bankruptcy would reject the leases, thereby adversely affecting the value of the transferred property, the close of escrow was extended. On February 6, 1986, Merchants executed a Guaranty of Lease (the "Guaranty"), under which it agreed to pay to Rouse "all rents and all other sums due" for a period of ninety days commencing as of the date McLean "ceases to pay the rent and all other sums due under the [long-term] Lease...."¹ 

In early March, the parties learned that while the trustee was indeed planning to reject the Santa Clara lease, he was interested in utilizing the San Leandro facility as a location for marshaling and selling certain of McLean's rolling stock and other assets. Therefore, Merchants, Rouse, McLean and other interested parties entered into an Agreement and Lease (the "short-term lease"), under which the parties agreed that McLean would reject the long-term lease and enter into a new short-term lease at the same rent. On March 13, 1986, Merchants and Rouse executed an Addendum to the Guaranty ("Addendum") which made the Guaranty apply to both the long-term and the short-term leases.

On March 16, 1986, the trustee rejected both the Santa Clara and the San Leandro leases and approved the short-term lease for the San Leandro facility. Pursuant to the Guaranty, Merchants paid to Rouse the monthly rent due under the Santa Clara lease for the next ninety days.

McLean remained in possession of the San Leandro facility and paid rent under the short-term lease until that lease expired on August 31, 1986. On that date, McLean vacated the premises and ceased paying rent. Rouse then demanded ninety days rent from Merchants. Merchants refused, and this suit followed.

The district court found in favor of Rouse for ninety days rent plus interest and attorney fees. Specifically, the district court found that "the Guaranty of Lease applies and the obligations under it were not terminated by the new short-term lease...." Further, the district court found that "regardless of the new agreement, Merchants ... [is] still bound to the original agreement whereby Merchants guarantees McLean Trucking's payment for ninety days from the date McLean stopped paying rent."

STANDARD OF REVIEW

The interpretation of a contract is a mixed question of law and fact. The factual findings of the district court are reviewed under the clearly erroneous standard of review while principles of contract interpretation applied by the district court to the facts are reviewed de novo. L.K. Comstock & Co. v. United Engineers & Constructors, Inc., 880 F.2d 219, 221 (9th Cir. 1989); Rozay's Transfer v. Local Freight Drivers, Local 208, 850 F.2d 1321, 1326-27 (9th Cir. 1988), cert. denied, 490 U.S. 1030 (1989).

DISCUSSION

The Guaranty provided that

The Period Covered by the Guarantee shall be the ninety (90) day period commencing as of the date after close of escrow under the Purchase and Sale Agreement between Guarantor and Lessor that Lessee ceases to pay the rent and all other sums due under the lease ... and terminating ninety (90) days thereafter.

(emphasis added). This contractual language is unambiguous. It clearly requires that Merchants pay Rouse ninety days rent from the date McLean ceases to pay the rent due under the lease. The relevant inquiry on appeal is whether and, if so, when this Guaranty was triggered and the ninety day guaranty period began to run.

The circumstances surrounding the execution of the short-term lease are important to our inquiry into the Guaranty period. The short-term lease was not intended to substitute for or replace the long-term lease.²  In fact, the short-term lease provided that it would "not release, waive or otherwise prejudice, in any way, Merchants or its successor's rights or claims, if any, against McLean including but not limited to Merchants claims for damages resulting from the termination and rejection of the [long-term] Lease Agreement." Further proof that the short-term lease did not constitute a substitution for the long-term lease may be found in the fact that Merchants and Rouse executed the Addendum to the Guaranty, providing that the word "lease" in the Guaranty would reference both the short-term and the long-term leases.

We recognize that because the short-term lease expired by its own terms, no further rent was due under that lease. Because the Guaranty applied only to rent that was otherwise due, the Guaranty could not be triggered solely by the natural expiration of the short-term lease. Therefore, if the Guaranty was triggered it must necessarily have been because the rent was due under the long-term lease. We believe that to be the case.

It is clear that the rejection of the long-term lease potentially triggered the Guaranty given that the short-term lease was not a substitute for the long-term lease. A harder question is when the Guaranty period began to run. We believe that the answer to this inquiry lies in the Addendum to the Guaranty.

This Addendum provided that " [t]he terms 'Lease' and 'Leases', as used in the [Guaranty] ..., shall include [the short-term lease]...." Thus, the Guaranty was triggered when McLean stopped paying rent under both the short-term and the long-term leases. So long as McLean was paying rent pursuant to the short-term lease, the Guaranty period was tolled. Only when the short-term lease was either breached or naturally expired would the ninety day period begin to run. This occurred on August 31, 1986 when McLean ceased paying rent and vacated the San Leandro facility.

Therefore, the district court did not err in determining that the ninety day guaranty period began to run on August 31, 1986, the date when all payments of rent stopped. Accordingly, the judgment of the district court is AFFIRMED.