Free Appendix - District Court of California - California

Case 5:07-cv-04808-JF

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to Banco up to the amount of the value of the in-

ventory. In other words, from the outset the respondents were wiling to become indebted to Banco in an amount equal to the value of assets
which would be delivered to them and which they would be free to reselL.

11 A few days earlier, on June 9, 1982, Koudsi and Antoci had advised Stefanon that because of Antoci's health problems, they were looking for a
buyer for the business. They informed Stefanon

that they believed they had located such a buyer, the Sarbaz family, whom they described as having been connected with the Mazda Company in
Iran. They inquired of Stefanon about Banco's

(***12) The ffrst meeting involving Banco, or any
of its agents, took place on June 14, 1982. By this time,

the respondents had been negotiating with Koudsi and Antoci, the owners of Kudsy, for over a month and had submitted three ffrm written offers (one of which was in response to a Kudsy counter-offer) to purchase all of the assets of those companies. During those negotiations the
respondents had been informed about the Kudsy relation-

position "regarding fmancial assistance to a new buyer."
The second meeting involving Banco and the re-

spondents occured on July 21, 1982, (**876) two
weeks after Latian had entered into the written agreement of July 7 to purchase all of the assets of Kudsy. This meetig involved Stefanon and Ferral on behalf of
Banco and Amanollah and Manoucher on behalf of Latian. Also present were Latian's counsel, Robert Nagata,

ship with Banco. That relationship, which was apparently well established, included not only Banco's security interest in all of the auto parts inventory but also a line of
credit arrangement which at that time was in the ap-

and Henr Fields, representing Banco.

proximate sum of $ 2 (*986) millon, 10 of which ap-

proximately $ 1,860,000 had been drawn down and was
then outstanding.

10 The testimony indicated that Stefanon had

The central purose of this meeting was to discuss Banco's partcipation in and consent to the sale transaction (***15) that the respondents had already concluded with Koudsi and Antoci to purchase the assets of the four

approved earlier in 1982 a credit line for Kudsy in the sum of$ 2,010,000.
Present at this initial meeting were (1) Amanollah, Manoucher and Dariush Sarbaz (one of Amanollah's
other sons) acting for (***13) themselves and Latian,

Kudsy companies. In order for Latian to acquire the
Kudsy assets by assuming Kudsy's obligation to Banco,

Banco's approval was required. Mr. Fields, counsel for Banco, testiffed that he explained all of this to the respondents and that Amanollah would have to personally

(2) Koudsi and Antoci on behalf of Kudsy and (3) Stefanon and Messrs. Jose Boiteux and Angel Ferral on behalf of Banco. 11 Amanollah spoke only Farsi and so Manoucher had to translate for him. Manoucher testiffed that at this meeting his father asked Stefanon, "If and when we buy it (i.e., Kudsy), would you cooperate with
us? Would you let us assume the line of credit?" Ac-

would retain its security position with respect to the inventory. Manoucher requested that Latian be allowed to
assume the credit line and Stefanon responded that

guarantee Latian's obligation (*987) and that Banco

Banco's head offce would have to approve any additional credit and that the respondents would have to provide adequate fmancial information. 12 (**877) Finally,

cording to Manoucher, Stefanon replied, "If and when you buy the business, we wil cooperate with you. And there should be no problem to let you assume the line of credit. . . . There are some paper works and formlity you
have to do with the head offfce, but there would be no problem and we would cooperate with you." According
to Stefanon, and ths does not appear to be disputed,

Stefanon indicated that the then (*988) outstanding
Kudsy debt would have to be reduced by $ 500,000 before the deal could be approved. Following this meetig,
Stefanon, on July 26, 1982, submitted a lengthy written

report to Banco's home offce (see the last paragraph of fn. 12, ante, and the reference to exhbit 49) recommending approval of the transaction allowing Latian to assume
Kudsy's bank debt and to provide credit availability up

there was no discussion at that time of a line of credit for Latian, separate and apart from that of Kudsy nor did the

respondents make any application for such a separate credit extension or submit any ffnancial informtion to Banco. In other words, Stefanon had no problem with
Kudsy and Latian working together with Kudsy's exist-

upon certain conditions. However, this report was based upon the assumption that the transaction would close
upon the term and conditions spelled out in the written

(***16) to $ 1.6 million, for a period of six months,

contractual agreement signed by the parties on July 7,
1982. Unfortnately, it did not.

ing line of credit which, as we have noted, was entirely
drawn down except for $ (***14) 150,000 and would

be of no practical importance without substantial paydowns to Banco.

12 There is considerable discrepancy in the testimony with respect to just what was said regarding this issue. Contrast the testimony of Manoucher with that of Stefanon. Manoucher

testifed under examination by his own attorney:

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"Q. What did Mr. Stefanon say, if at all -- if anything at all, at that meeting with regard to the line of credit?

"A. The discussion was that I explained to them that any line of credit for Latian should be submitted to the head offce. It wil depend on the
approval from the head offfce.
"Q. Did you explain to them what the head

"A. He did say that of course he has to prepare some paper works and reports and send it to
his head offce and get their approvaL. But that is
basically a formlity. (para.) And my father also

offce was?
"A. Not necessarily. They didn't ask anythng, and so I said that I need the authorization

spoke with Mr. Stefanon --

"Q. First Mr. Stefanon said he had to get approval at the head offce but he said it was a formality?

from the head offce for the approval.
"Q. Did you say where the head offce was?
"A. In Rio de Janeiro."

"A. Yes Sir.

"Q. All right. Now go ahead. (para.) And
you said that your father then spoke privately

Of these two conficting versions, Latian's
own counsel, who was present at the meeting,

with Mr. Stefanon?
"A. Yes, sir.

seems to agree with Stefanon and, by strong implication, rejects any "private conversation" between Amanollah and Stefanon. Mr. Nagata testiffed:

"Q. And were you translating?
"A. Yes, sir.
"Q. All right. Tell us now, as best you can,

"Q. And is it your recollection that at ths
meeting, Mr. Stefanon advised everyone present
that the request that was before him would require the head offce approval of Banco do Brasil?
"A. Yes.

what your father said to you, which you translated to Mr. Stefanon, and what Mr. Stefanon said to you, which you translated to your father?

"A. My father basically repeated the same
thing, and he -- that he has lost most of his assets in Iran because of the revolution, and he has six sons and one daughter. He likes to set up a business for them. (para.) And he seeks cooperation

"Q. Okay. And do you recall that during this meeting, he also asked for ffnancial informtion from Latian, which he intended to pass on to the
head offfce?

of Mr. Stefanon, and he wants to make sure that

Banco do Brasil wil grant $ 2 million line of
credit to us.

"A. Yes.

"Q. Do you recall what that financial information was that he asked for?
"A. Not exactly.

"Q. And what did Mr. Stefanon say to your
father through you?

"A. Mr. Stefanon assured my father of his cooperation, and he again mentioned that he has to fill out some paper works and get the approval
of the head offce, but he also mentioned that

"Q. When Mr. Stefanon described the bank's

position on the transaction, did you understand
what he was saying?
"A. Yes.

these are merely a formlity. Once we commnd (sic) the line, it would be okayed by the head office."

"Q. Okay. Was it your impression that the
Sarbaz family, who was present during that meeting, also understood what he had said?
"A. Yes.

Stefanon, on the other hand, testifed under
examiation by Banco's counsel:

meeting concernng a line of credit to be granted to the Latian Company?
"A. The discussion that -- Yes, there was.

"Q. And was there any discussion at this

"Q. Do you recall that the transaction between Latian and Kudsy in fact did go forward,

and those two parties closed on their transaction
around August 25, 1982?

"A. That's my understanding.
"

"Q. What was that discussion?

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"Q. . . . Now, between July 21, 1982, after
the meeting with the bank, and August 25, 1982,

dum provided that if Latian were not successful, within
one year of

did you ever make a written request to Banco do Brasil to allow Latian to assume a $ 2 million line
of credit?

the closing date (which ultimately tued out

to be (*** 18) August 25, 1982), in obtaining the Blaupun distributorship then held by Kudsy, the purchase price would be reduced by stil another $ 100,000.
Thus, when the transaction closed on August 25,

"A. No, I didn't.

"Q. Did Mr. Manoucher Sarbaz ever ask you
to author such a document during that time frame.

1982, neither the total value of the inventory had been
determed by the parties (i.e., the "independent valua-

tion" provided for in the sale agreement had not taken
place) nor had Latian determned which inventory items

"A. I don't believe he did.
"

it would retu to Kudsy.
Although Banco's representatives who attended the closing 13 stated, on Stefanon's instrctions, that Banco would not oppose the transaction (i.e., the transfer of the
inventory to Latian and its assumption of the secured

the Latian-Kudsy transaction, and given what you

"Q. Given everything that you knew about

had heard at the meeting on July 21, was it not
your understanding that if Banco do Brasil was to

provide to Latian any $ 2 million line of credit, that the term and conditions of such line of
credit would have been set fort in wrtig?

inventory liability), there had been no action by Banco's head offce on Stefanon's letter of July 26, 1982, requesting a six-month credit line for Latian. Although Ste-

fanon had specifically requested it at the meeting of July
26, as of the closing date Banco had not been supplied

"A. Yes.

"Q. And as you sit here today, sir, am I correct that you have never seen any written $ 2 million line of credit that was executed by Banco do Brasil and Latian?
"A. No. I never have."
Finally, exhbit 49 in evidence is a written

with any credit information on Latian or any of the respondents. However, durg Stefanon's absence on vacation, members (**878) of his staff received communications from Banco's home offce regarding the need for
additional fmancial informtion. 14 This process (*** 19)

was not completed by the time of the closing of the
transaction on August 25, 1982. is
13 This did not include Stefanon who was then

report sent, on or about July 26, 1982, by Ste-

fanon to Banco's home offce. This report, written contemporaneously before any dispute arose, is entirely consistent with the testimony of Stefanon and Mr. Nagata.

away on vacation.

14 On August 6, 1982, Banco's head offce had sent a letter to Stefanon requestig more informtion about the transaction including the Kudsy loan history and inquiring as to whether anything

the meeting of July 21, the respondents had inspected the Kudsy auto parts inventory and had concluded that a substantial porton was not
(***17) By the time of

marketable. After the meeting on July 21, the respondents entered into fuher negotiations with Koudsi and

other than receipt of the new guarantees on the debt was required, that is, whether any fuher extension of credit was either necessary or desirable. Again on August 18, 1982, after being in-

Antoci which resulted in the execution, (*989) in early August 1982, of an "addendum" to the July 7 contract.
Under the term of the addendum, Latian was given the

formed by one of Stefanon's assistant managers that Banco's approval of the sale transaction was
required, the Banco head offce requested fuer

right to "aggregate and transfer back" to Kudsy $
442,000 in inventory which was to be designated "at the Buyer's (i.e., Latian's) discretion." In addition, from the

informtion including speciffcally the "new

owner's schedule of investments in the business." 15 Manoucher, although conceding that the re-

total value of the inventory, as reduced by $ 442,000,
there was to be deducted a fuher $ 100,000 as a "discount" from the original agreed purchase price.

This amendment to the transaction had the effect of reducing the total "value of the inventory" for the purpose of the sale transaction by $ 542,000 and in the bargain, gave Latian the right to select from the inventory
the most marketable items and to retu to the Kudsy

quested ffnancial information had not been supplied, and indeed was not supplied to Banco until after February 1983, nonetheless testified that at the closing his father, Amanollah, had stated to
the Banco representatives (with Manoucher's

translation) that "by signing this, we're going to

get the line of credit. And if we are not going to get the line of credit, please tell us now because
we are not going to close the deaL." Manoucher also testiffed that Mr. Boiteux (Stefanon's ass is-

companies the less desirable items. Finally, the adden-

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tant manager, who was one of the two representatives of Banco's Los Angeles Agency present at the meeting) responded that "you can -- we wil

work with you and we'll cooperate with you.
You are -- you can use the line under the name of Kudsy's three companies until offcially its transferred to your name. . . we wil work with you, and we're not going to choke you." Mr. Boiteux denied making any such statements and claims that he stated only that Banco would not oppose
the inventory transfer from Kudsy to Latian.

debt reduction on the secured obligations then due to Banco. IS The contemporaneous records of Banco are consistent with (***22) Stefanon's (**879) testimony

and reflect that these funds were in fact (*991)
promptly applied to the debt. 19 Indeed, the record con-

ffrm that Manoucher was informed as to Banco's application of said $ 310,000 and he neither raised any objection thereto nor requested that his counsel do so.

17 On September 7, 1982, the attorneys for
Kudsy had sent a mailgram to Robert Nagata, the attorney for Latian, a copy of which was received
by Stefanon on the same date. The mailgram

(***20) (*990) Nonetheless, the sale transaction,
as modified by the addendum, closed on August 25, 1982. At that time, Latian and Amanollah signed the contiuing guarantee agreement by which they under-

stated, ". . . pursuant to an agreement with your

took to guarantee Kudsy's inventory debt in a sum not to

exceed $ 1,534,296.33. This sum was less than the
higher ffgure originally discussed because of the reduction in the inventory which Latian had agreed to purchase. In addition, Stefanon, on behalf of Banco, had

client, Latian, Inc., Latian was required to pay Banco Do Brasil the sum of $ 310,000 on or before September 1, 1982, it is our understanding that said payment has not been made, demand is hereby made upon your client to make said payment to Banco do Brasil fortwith."

requested that there be a reduction of the total Kudsy
indebtedness by $ 500,000 as a part of the transaction.

This request was acknowledged and agreed to by
Kudsy's letter of August 11, 1982. 16 On August 26,

18 It should be emphasized that the obligations due Banco were secured by the Kudsy inventory which was now in the possession of Latian and,
since August 26, 1982, was being sold off.

1982, Latian took possession of the inventory and commenced selling it.

19 Such records reflected that the $ 310,000
check was placed in an "escrow deposit" account before the check cleared and the proceeds were applied to reduce the Kudsy debt. Stefanon testi-

16 In the letter of August 11, 1982, Koudsi and Antoci stated, "Persuant (sic) to your request, we

are pleased to inorm you that, in light of the
pending deal with the Sarbaz's, we have agreed to

reduce our indebtedness with your Bank by $
500,000.00 imediately after the approval by your Head Offce of the Sarbaz's credit line."

fied that this was not a tre escrow account but rather was a routine means utilized by Banco to account for deposited checks pending clearance, payment and determation of the proper account
to be credited. Subsequently, on October 5,

(***21) On September 8, 1982, following his retu from vacation, Stefanon met with Amanollah and

Manoucher. They explained why they had decided not to buy all of the inventory. By this time Stefanon was aware that Latian did not intend to take all of the inventory and he had been informed that as a result of this

1982, the respondents paid another $ 150,000 on account of the assumed Kudsy obligations. However, there was no escrow deposit account utilized with respect to that check. Stefanon explained the difference:

change in the transaction, Latian and Kudsy had agreed to split the $ 500,000 debt reduction payment requested by Banco, 17 $ 310,000 from Latian and $ 190,000 from Kudsy. At this meeting Amanollah delivered a check payable to Banco in the sum of $ 310,000. There is considerable confict in the evidence as to the purose and

"Q. If those payments, the 150,000 and the 310,000, were for the notes of the Kudsy companies, why was one put into escrow and the other credited directly to the loans? "A. When we received the ffrst payment of the $ 310,000, we didn't know yet which notes to have apply. Because of the splitting between the Kudsies and the Sarbaz, notes have to bea split -split also between Kudsies and Sarbaz. (para.) And also the calculation of the interest. Because they decide that interest should be paid up to August 24 by Kudsy; after August 24 by the Sarbaz.

appropriate disposition of this check. Both Amanollah and Manoucher testiffed that when they gave this check to Stefanon on September 8, they told him it was to be placed in an escrow account and held until approval of the line of credit was received from Banco's head offce. Stefanon, on the other hand, denied that either of the

(para.) So at the very beginng, when I came
back from vacation September 10, we started doing those -- the job as to split the loans. And take
some time. That's why the money was applied to

Sarbazes said any such thing. He testiffed that such
payment was accepted as a paydown on the $ 500,000

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this escrow deposited, unrelated. (para.) Later on, when we received the payment of $ 150,000,

of business and to provide monthly inventory reports
and) . .. (4) At the time of a request for utilization of

we had already the notes immediately to be applied, because we had already decided which one
to be applied."

any line of credit by any Borrower, to provide to Secured Part a Compliance Certffcate (in a particular described form)." (***25) 21 (Italics (**880) added.) This docu-

(***23) Following the meeting of September 8,
Stefanon wrote a report to Banco's home offce regarding
the changed natue of the transaction. He advised Banco

ment was signed by Latian, as debtor, on Sept. 27 and
Banco signed on October 21, 1982.

that his Los Angeles Agency had been in the process of collecting the materials requested by Banco, "when we were informed by the interested parties that there would

no longer be a total inventory transfer. '" (para.) We request, therefore, that the proposal referred to in our letter. . . dated July 26, 1982, be suspended until it is
substituted by another with the elements of the new posi-

21 The record reflects that neither Latian nor Kudsy at any time prepared or submitted a Compliance Certffcate which, under the term of this Addendum to Security Agreement, was required before any credit line advance or utilization could
occur. The signffcance of this Addendum is dis-

tion." Much was later made of this letter, with counsel
for the respondents arguing that Stefanon, without telling the respondents, had requested that Banco give no fuher
consideration to their request for a credit line. 20

cussed below in connection with our review and application of the parol evidence rule.
Subsequently, on or about October 6, 1982, Stefanon met with Amanollah and Manoucher. At this time, Stefanon was informed that the respondents were unhappy
with the Kudsy people, partcularly Koudsi and Antoci.

20 This request for suspension of the proposal
was the subject of considerable attention and advocacy at tral by counsel for the respondents.

However, this language comes from the English translation of Stefanon's letter which was actually

written in Portguese. In the original, the statement actually made by Stefanon was that the "reviewing of the proposal. . . be stopped until it is

Apparently differences had arisen as to how to operate the business. 22 Stefanon testiffed that Manoucher requested that Latian be given its own line of credit separate from Kudsy. Stefanon replied that he would do his best to provide it and would submit a proposal for such a
credit line.

submitted by another with the elements of the new position." (Italics added.) By this, Stefanon
testiffed that all he intended to communicate was the fact that the deal described in the July 26 letter had been changed by the partes and Banco

22 Indeed, those differences had become so serious that Koudsi was discharged from his position with Latian. Under the term of the original
agreement, he was to be employed for a 12-

should not waste fuher time on it but rather
should await a new report which in fact was subsequently submitted on November 5, 1982.
(***24) Thereafter, on or about September 27,

month period to assist the respondents in learnng and developing the business.

(***26) On November 5, 1982, Stefanon wrote to Banco and explained that the original transaction had
changed. Latian would not be taking all of the inventory

and had agreed to assume no more than $ 1,534,000 of
Kudsy's total indebtedness to Banco. The $ 310,000 payment (made on Sept. 8) was described as a "partial

1982, Stefanon met again with Amanollah and

Manoucher to discuss their failure to have signed, on August 25, all of the documentation necessary to their
assumption of the Kudsy obligations. The missing

payment of the commtment (which Latian) had assumed." This report also described the deterioratig relationship between the Kudsy owners and the respondents
and the fact that Koudsi and Antoci were contemplating

document was a Security Agreement in which Latian was described as the "Debtor" and the Kudsy companies

were (*992) denominated the "Borrowers." A printed form was modiffed for this purose and it described the
security as "All inventory of Debtor now owned or hereafter acquired. . . and All proceeds" of such collateraL.

This agreement also incorporated a special "Addendum

bankptcy. This was of concern because they were liable for the entire debt due Banco. Stefanon stated that since "Latian Inc. (had) commtted itself to such an extent that it would not accept a cancellation (and had)
practically assumed the control of the business, with the only debt being that (due) to (Banco)," Stefanon (in the . absence of a different authorization from Banco) had
agreed to the partal sale of inventory to Latian based

to Security Agreement" which stated that, "To induce
Secured Part (i.e., Banco) from time to time to make

line of credit facilities available to Borrowers, Debtor
agrees (to maintain a certain minimum inventory value,

to give a proper notice to Secured Part in the event of a sale of assets other than inventory in the ordinary course

upon "the guaranties, Latian's UCC-L, personal guaranties of its owners, and insurance policy endorsed in favor of the Bank." In this way, (*993) Stefanon concluded,

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at least "part of the debt would be protected against the bankptcy (***27) of (Kudsy)." 23 After describing the unpaid obligations 24 and applying the two payments
made by Latian of $ 310,000 and $ 150,000, the total
remaining debt for which Latian was liable was $

who could pay in the event of Kudsy's default.

This argument is diffcult to accept. Apart from
the fact that it was good bankng practice to insist

upon such guarantee by Latian before agreeing to the transfer of the secured inventory from Kudsy

1,072,876.33. Stefanon stated that Latian had agreed "to liquidate this balance in 12 monthly installments of approximately equal amounts with interest at 15% per annum." 25

to Latian, this assumption of indebtedness was
the idea of the respondents, not Banco. Such debt
assumption proposal was an integral and consistent part of everyone of

the offers made to Kudsy

23 Respondents argued at trial, and reassert
here, that this communication was "proof' of the perffdy and fraudulent scheme of Stefanon and Banco. By inducing Latian to become obligated for Kudsy's debts, Banco acquired another debtor

to purchase its assets, including the thee which were submitted before Banco ever became involved in the transaction. (***28) 24 The Kudsy obligations which Latian had assumed were:

Kudsy Company
Wholesale Autoparts Supply Inc.
I

Original Debt Assumed
I

Balance after Latian's Payment

of $ 460,000 $89,890.00
$89,890.00
I

Herbert Albrecht
Autoparts Inc.

I

J. Kudsy & Co., Inc.
I

875,943.00 568,463.33
I

611,613.00 371,373.33
$ 1,072,876.33

TOTALS

$ 1,534,296.33

25 Stefanon testiffed that the respondents had
agreed to ths repayment strctue at the meetig

grant Latian a fixed credit ceiling of $ 1,100,000 (to

cover the debt already assumed) plus a revolving credit
(***29) line of $ 800,000. 27 Stefanon asked that this

held on or about October 6, 1982. The original Kudsy obligation to Banco, which Latian had assumed on August 25, 1982, required a payoff by December 31,1982.

revolving credit line be valid for a period of six months,
at which time a reevaluation of Latian's credit position could be made.

After recommending vigorous collection activities for the portion of Banco's unpaid (**881) debt which was the sole responsibility of the Kudsy companies, Stefanon concluded his report with the statement that, "it is
in our interest that Latian Inc. contiue operating, which
depends on the support of the Bank." To express such
support, Stefanon proposed that Banco, as an exception 26

26 As Stefanon explained it, an "exception" was required because an extension of such credit was beyond Stefanon's authority and Banco's parameters as Latian had no ffnancial track record.

27 Of ths proposed credit line, Stefanon recommended that it be distributed as follows:

Internal Credit

LISP (credit for Brazilian business) Other foreign business

$ 100,000

500,000 200,000

1
$ 800,000

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dated November 18, 1982, and, among other things, requested a copy of Latian's openig balance sheet. Stefanon called Manoucher and requested that he provide

(*994) Banco responded to Stefanon by a telex

Banco by the four Kudsy companies, and reflecting the total amounts due, interest paid and owing

such balance sheet. Manoucher replied that it was being prepared and would be provided later. He orally advised
Stefanon that the paid-in capital was $ 800,000 which
Stefanon accepted, as he was in a rush to respond to

and the due dates. In addition, Latian had received from Banco sometime prior to October 18, 1982, a document setting forth the loan schedule on which Latian was expected to make payments.
This schedule reflected that the total then owing on the debt assumed by Latian was $

Banco's request (***30) for ffnancial informtion. He communicated such informtion to Banco on November
19. As of this date, no ffnancial documents had been

1,223,501.86 and that it would all be due by December 31, 1982. When Banco received Latian's

payment of $ 310,000 it notified Latian how it
had applied that payment. The copy of the loan

supplied to Banco. The requested fmancial statement, allegedly in preparation in November 1982, was not in
fact delivered to Stefanon until April

schedule obtained from Latian's ffles reflected
notations regarding such application written by Manoucher.
(***32) Obviously, a restrctue of the payment

15, 1983.28

28 Manoucher testified that this ffnancial statement was prepared in February 1983 (but appar-

ently not submitted to Banco until April 15,
1983) and reflected a value for the common stock of$ 750,000. However, he admtted that this was
incorrect and that the amount of paid-in stock

schedule of the monies due Banco was very important to
the respondents. Although there is conficting testimony

on the point, it is also clear that Manoucher, on behalf of

Latian, (*995) requested that the interest rate be reduced and the payments extended over 18 rather than 12

was only $ 100,000 when Latian was formed in May 1982. Whle no fuer capital was provided to Latian, Manoucher testified that substantial sums (in excess of $ 1 million) were provided to
the company (ths included the $ 460,000 paid to

months. This was favorably considered by Stefanon
(**882) and in early January 1983, Banco's attorneys
began preparig drafts of

the necessary documents. 30

30 In his testimony Manoucher denies that any

Banco on the Kudsy debts), presumably in the form of loans or advances and it was the respondents' intent to convert $ 650,000 of ths amount
to paid-in capital stock.
In December 1982, Stefanon met with Manoucher

request for an 18-month repayment schedule was ever made. However, that testimony is directly
contradicted by the subsequent written restrctue

documents which he read, approved and signed
without oral or written objection. Respondents

(***31) at the bank's Los Angeles Agency offces.

are conclusively bound by such written recitals. (
Evid. Code, § 622.)

Manoucher inquired about the status of the line of credit and stated that Latian was having financial diffculties
and was going to have trouble meeting its obligation to Banco. Stefanon approved an additional loan (for 90

days) of$ 50,000 to be used to apply on a $ 57,000 interest payment which was then due. As a result of this disclosure of Latian's ffnancial probleín the parties entered
into discussions regarding the restrctue of the debt ob-

ligations which Latian had undertaken. Although
Manoucher, in his testimony, stated that he did not know that the Kudsy debt which had been assumed was all due

On January 19, 1983, Stefanon was advised by Banco that his November 5, 1982 request for approval of Latian's purchase of the Kudsy inventory and assumption of related debt, payable over a 12-month (***33) period, was approved; however, his request for the extension of a revolving $ 800,000 line of credit was refused. According to Stefanon, this informtion was immediately
communicated to Manoucher by telephone as well as to Banco's attorneys who then were in the process of completing work on the restrctue documents. 31

and payable by December 31, 1982, the record makes
clear that he indeed must have known such fact. 29

29 On July 26, 1982, counsel for Banco had
supplied to Mr. Nagata, the attorney representing the respondents, a complete schedule of all of the notes and obligations of Kudsy as they then existed. Those documents, which Manoucher con-

31 However, Manoucher denies that he was ever advised by Stefanon prior to June 1983 that the
credit line had been refused. (See discussion,

post.)
On the next day, January 20, 1983, Banco's attorneys sent the restrctue documents to counsel for re-

cedes were sent to his counsel, but which he says he never reviewed, consisted of a computer print-

spondents. They were reviewed by said counsel and
Manoucher carefully read them to make certain that they reflected the agreement which had been reached with
Banco regarding the payment of the outstanding obliga-

out listing all of the outstanding notes given to

36

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1991 CaL. App. LEXIS 1135, ***; 91 CaL. Daily Op. Service 7901 tions which Latian had assumed. He also carefully ex-

plained the documents to his father before they were
signed. That explanation included the fact that this agreement was the entire agreement between the partes

presumption provision of section 622 would have
no application with respect to the Guaranty

Agreement. We perceive of no valid legal basis
for ths conclusion. Respondents' argument that

and that it contained (***34) no provision for a "$ 2
million line of credit." There can be little doubt that both Manoucher and Amanollah clearly understood.
The restrctue of the debt relationship is set forth in

they were induced to execute ths agreement by

Banco's promissory fraud, and therefore are not bound by any provision of that agreement, has no

more validity on this issue than it does with respect to the parol evidence rule discussed below.
(***36)

the Guaranty Agreement and it recites and acknowledges
certain facts which are conclusively presumed to be tre.
( Evid. Code, § 622.) 32 Speciffcally, the Guaranty

Agreement states:

33 Although this paragraph is not included in the "Recital" portion of the Guaranty Agreement,

(*996) "A. Latian and Sarbaz (i.e., Amanollah) are
joint and several guarantors of any and all indebtedness

it nonetheless constitutes a recital of one of the background and existing facts which serve as a predicate for the agreement entered into by the
parties.
After settng fort the term, conditions and securty

Albrecht Autoparts, Inc. and Wholesale Autoparts Supply, Inc. (the 'Borrowers'), existing on August 25, 1982 (and any renewals and extensions thereof), up to a principal amount of$ 1,534,296.33, pursuant to a Continuing Guaranty of Latian and Sarbaz in favor of the Bank dated
August 25, 1982 (the 'Guaranty').

(the 'Indebtedness') of L Kudsy & Co., Inc., Herbert

for the repayment of this indebtedness, the following
integration clause is set forth: "4. Entire Agreement;

Amendment. This Agreement together with exhbits attached hereto, 34 embodies the entire agreement and understanding among the parties (*997) hereto and su-

"B. The Borrowers are in default in payment of the Indebtedness and the Bank has made demand upon the Borrowers for payment of the Indebtedness. The Borrowers have failed to make such payment.
"e. The Bank has also made demand upon Latian

persedes all prior agreements and understandings relating to the subject matter hereof This Agreement may not be amended or altered except by a writing duly executed by each of

the partes hereto." (Italics added.)

and Sarbaz to make payment on the Indebtedness pursuant to the term of the Guaranty. Latian and Sarbaz have (***35) made partial payments on the Indebtedness and
have requested that the indebtedness remaining unpaid

34 The attached exhbits were:
1. A promissory note for $ 1,072,874.51,

executed by Latian; the interest rate provided for
in the note was at the reduced rate of 13 percent

on January 1, 1983 (which Indebtedness remaining un-

per annum;
2. A Continuing Guaranty executed by

paid is $ 1,072,874.51) be repaid in 18 consecutive

monthly installments, together with interest, as hereinaf-

ter provided and the Bank has agreed, all on the term
and subj ect to the conditions hereinafter set forth.
"

Amanollah Sarbaz, replacing the one signed by him on August 25, 1982 in which he and Latian had agreed to guarantee the Kudsy indebtedness up to a maximum of $ 1,534,296.33. By ths instrment he agreed to guarantee the debt of Latian only up to the amount of $ 1,072,874.51.

"1. Acknowledgement of Guaranty. Latian and Sar-

baz each acknowledge their joint and several obligations under the Guaranty to pay the Indebtedness and (**883) agree that such obligations are absolute and unconditional." (Italics added.) 33

The prior guaranty was subsequently retued to

him by Banco;

32 Evidence Code section 622 provides:

"The facts recited in a written instrment are

conclusively presumed to be tre between the parties thereto, or their successors in interest; but this rule does not apply to the recital of a consideration. "

3. The Security Agreement, dated September 27, 1982, with Addendum thereto, which we have previously described and discussed. This is the document which describes Latian as "Debtor," the Kudsy companies as "Borrowers" and Banco as "Secured Par." In addition to its relevance to the parol evidence issue, the incorporation of this

earlier security agreement into the restrctued
debt arrangement would seem to confir Ste-

For reasons that are not at all clear in the re-

cord, the trial cour, in response to a motion in limine fied by Banco, ruled that the conclusive

fanon's testimony that no separate credit line was ever recognied or agreed to for Latian.

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(***37) Manoucher testiffed that he understood
this integration clause and he conceded that no written

fanon and offered Banco three options: (1) provide the $

amendment was thereafter made. He also admitted that
during the time that his attorneys were negotiating this

2 millon line of credit, (2) retain the guarantees from Latian and Amanollah, but release Banco's security interest so that Latian could obtain a line of credit from
another lender or (3) foreclose on the security and take

agreement he never asked them to make any provision
for a $ 2 million line of credit.
It is on this restrctued obligation which Banco has based this action. 35 Latian made the payments called for under this agreement for February and March 1983, but
did not make any fuher principal payments, although

Latian's inventory in satisfaction of the debt. Banco declined to accept any of these alternatives. 37

interest payments were made through December 1983.

37 Nor was it obligated to do so. This obviously was not an offer of rescission. It was simply an attempt by Latian to renegotiate its debt position

In May of 1983, Latian obtained a line of credit from
another bank (Capistrano Bank) which ultimately rose to

with Banco. However, respondents urge that
Banco's failure to accept one of these alternatives precludes its objections to a damage award which
retued to Latian and Amanollah all of the

approximtely $ 500,000. In support of its application for credit, Latian and Amanollah provided Capistrano Bank with ffnancial informtion which reflected that as of May 1983 Latian had a net equity of $ 535,648 and
Amanollah had a personal net worth of $ 11,268,000.

money they had paid Banco and Kudsy and al-

lowed them to retain the auto parts inventory as
well.

Manoucher testiffed that this fmancial information which
was supplied to Capistrano Bank was tre and correct.

Latian retained, and presumably sold, the auto parts
(***40) inventory purchased from Kudsy which had

35 Also, it was on the basis of the extensive
documentation of the restrctued indebtedness

been security for the repayment of the sum due Banco. No accounting for such sales has apparently even been

made and Banco received no credit therefore in the
judgment entered against it.
Contentions

agreement that Banco argued at trial the bar of
the parol evidence rule.

(***38) Manoucher testiffed, contrary to the testimony of Stefanon, that the respondents were never informed at any time during January through May 1983,
that Banco had refused to extend to them a line of credit.

Banco in its appeal makes six principal arguments.

1. There was insuffcient evidence to establish the formtion of a contract whereby Banco would provide to
Latian and Amanollah a "$ 2 million line of credit." 38

Thus, on July 25, 1983, the respondents' attorney, Robert
Nagata, wrote to Stefanon and complained about the

failure to make a "line of credit available for Latian, notwithstanding your prior promises and representations." 36 Mr. Nagata stated that failure to provide this

2. There was insuffcient evidence to establish fraud against either Banco or Stefanon;

credit extension had resulted in ffnancial diffculties for

Latian and if Banco continued to refuse to provide a credit line, Latian would fie suit. However, the parties apparently were having ongoing discussions regarding
credit extensions and $ 40,000 was loaned to Latian on a
30-day note on June 23, 1983. In addition, in December 1983, Banco agreed to provide a $ 200,000, 90-day re-

3. There was insuffcient evidence to establish the damages awarded by the trial cour or, indeed, any damages, whether based on contract or fraud and, fuher,

that the compensatory damages were improper and du-

plicative;

4. There was no evidentiary or legal basis for an

award of puntive damages against either Stefanon or
Banco;

volving line of credit to Latian. Two draws were taken by Latian: on December 6, 1983, it borrowed $ 5,685.17
on a 62-day note and on December 31, 1983, it borrowed
$ 11,927.11 (**884) on a 60-day note. None of

5. As there is no dispute that Latian failed to pay the obligations to Banco which it had agreed and undertaken
to do, Banco is entitled to judgment notwithstanding the

these

sums was ever repaid.
36 As we point out below, this was the ffrst time

verdict; and

that any written document from the respondents or their counsel made any reference to a line of
credit for Latian.
(***39) (*998) In December 1983, Latian had

6. Banco was denied due process of law when its motion for a new trial was not heard or decided by the
trial judge.

stopped making even interest payments. Thereafter, on

38 Included withi this contention is Banco's argument that the trial cour's ruling with respect to
the parol evidence rule was in error.

behalf of himself and Latian, Amanollah met with Ste-

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(***41) (*999) For their part, respondents contend that the trial cour abused its discretion in condition-

avoid the claim asserted by respondents that the
point has been waived. We also note that "The

ally granting a new trial and that the punitive damage
awards, reduced by respondents' acceptance of the remittitm, should be restored.

rule requiring an adequate legal argument. . . is
largely for the convenience of the reviewing
cour. And, since the cour may decide a case on

As we conclude that the parol evidence rule barred the essential evidence relied upon by respondents and that, in any event, such evidence, when examied in light
of the whole record, was not suffcient to demonstrate a

any proper points or theories, whether urged by counselor not, there is no reason why it cannot examie the record, do its own research on the law, or accept a belated presentation." (9 Witkin,
CaL. Procedure (3d ed. 1985) Appeal, § 480, p.

binding commtment or promise, we need only reach one of the other issues raised by Banco. 39 In light of our conclusions, the issues raised by respondents in their crossappeal are moot.

471.) Following oral argument, we gave the parties an opportty to fie supplemental briefs on

ths issue; these were ultimately received and

have been considered.

39 That other issue is Banco's claim that it is en-

titled to judgment on its complaint. In view of the conclusions we reach with respect to the assertions of respondent, we concur with Banco on
this point. (See discussion, post.)

(***43) (*1000) 1. The Parol Evidence Rule
(2) In California, the parol evidence rule is statutorily defmed in Code of Civil Procedure section 1856. 42 It

provides that where the parties to a contract have set
fort the term of their agreement in a writig which they

Discussion

intend as the final and complete expression of their un-

The entire case asserted by respondents, both in defense of Banco's complaint and in support of their successful claims for affirative relief, (***42) is based

derstanding, it is deemed integrated and may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement. (2 Witk, CaL. Evidence

upon the allegation that Banco orally promised to pro-

(3d ed. 1986) § 967, pp. 915-916.)

vide a $ 2 million line of credit to Latian and failed to honor that commtment. Respondents sought and obtained relief on the theory of breach of contract and, claiming that Banco's promise was falsely made, on
fraud as well. 40

42 Code of Civil Procedure section 1856, as
amended in 1978, provides: "(a) Term set forth in a writig intended by the partes as a final expression of their agreement with respect to such term as are included therein may not be contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement.
"(b) The term set fort in a writing de-

40 We do not overlook that respondents also
claim that Banco falsely represented the fmancial standing and strength of Kudsy. We discuss that contention elsewhere and conclude that, in any

event, it is totally without merit as a matter of
law.

scribed in subdivision (a) may be explained or
supplemented by evidence of consistent addi-

(1) (See fn. 41. (**885) Banco argued at trial and urges here that evidence of the collateral oral agreement upon which respondents base their case should have been
excluded under the parol evidence rule. 41 Banco also

tional term unless the writing is intended also as a complete and exclusive statement of the term of the agreement.

argues that, in any event, the evidence was not suffcient to establish that Banco had in fact made a commtment or promise to provide such line of credit. We consider
each of these arguments in tu.

"(c) The term set forth in a writing described in subdivision (a) may be explained or supplemented by course of dealing or usage of
trade or by course of performnce.
"(d) The cour shall determne whether the

41 We note with some dismay that Banco's
original briefs do not devote the substantial effort

writing is intended by the parties as a final expression of their agreement with respect to such
term as are included therein and whether the writing is intended also as a complete and exclusive statement of the term of the agreement.

which this issue clearly requires. Indeed, their
two briefs, totaling 191 pages spend less than one page discussing this critical and potentially dis-

positive question. This meager effort is somewhat surrising in light of the time devoted to the
issue in the trial cour. However, it is enough to

"(e) Where a mistake or imperfection of the
writing is put in issue by the pleadings, this sec-

tion does not exclude evidence relevant to that issue.

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"(f) Where the validity of the agreement is the fact in dispute, this section does not exclude evidence relevant to that issue.
"(g) This section does not exclude other evidence of the circumstances under which the

"(4) In its actual application the rule is, howev~r,

agreement was made or to which it relates, as defined in Section 1860, or to explain an extrinsic ambiguity or otherwise interpret the term of the agreement, or to establish ilegality or fraud.

limited to those cases where the parties intended the writing to be complete unto itself." ( Salyer Grain & Miling Co. v. Henson, supra, 13 CaL. App. 3d at p. 498.) "It is based upon the premise that the written instrment is the agreement of the partes. (Citation.) Its application involves a two-part analysis: 1) was the writing intended to be an integration, i.e., a complete and fmal expression of the parties' agreement, precluding any evidence of collat-

ment includes deeds and wils, as well as contracts between parties."

"(h) As used in this section, the term agree-

eral agreements (citation); and 2) is the agreement susceptible of the meaning contended for by the part offering the evidence? (***46) (Citation.)" ( Gerdlund v.
Electronic Dispensers International (1987) 190 CaL.

The rule also has a foundation in Civil Code section 1625, which provides: "The execution of a contract in wrting, whether the law requires it to be written or not, supersedes all the negotiations or stipulations concernng its matter which preceded or accompanied the execution of the instrment. "

App. 3d 263, 270 (235 CaL. Rptr. 279). Put another way,

"If a writing is deemed integrated, extrinsic evidence is admssible only if it is relevant to prove a meaning to which the language of the instrment is reasonably susceptible. (Citations.)" ( Bert G. Gianell Distributing Co. v. Beck & Co. (1985) 172 CaL. App. 3d 1020, 1037, fn. 4

(219 CaL. Rptr. 203). We will discuss these two issues
separately.
(1) The January 1983 Guaranty Agreement Was In-

(***44) a. Nature of Rule and De Novo Review

This "is not merely a rule of evidence excluding precontractual discussions for lack of credibility or reliability. It is a rule of substantive law making the integrated
written agreement of the partes their exclusive and bind-

tegrated
(5) The crucial issue is whether the parties intended
the written instrment to serve as the exclusive embodiment of their agreement. (Salyer Grain & Miling Co. v. Henson, supra, 13 CaL. App. 3d at p. 498.) "The instrment itself may help to resolve that issue. It may state,

ing contract no matter how persuasive the evidence of
additional oral understandings. Such evidence is legally irelevant and cannot support a judgment. (Citation.)" (
Marani v. Jackson (1986) 183 CaL. App. 3d 695, 701

for example, that 'there are no previous understandings or

(228 CaL. Rptr. 518), italics in the original; see also,
BMW of North America, Inc. v. New Motor Vehicle Bd. (1984) 162 CaL. App. 3d 980,990 (209 CaL. Rptr. 50).

agreements not contained in the writing,' and thus express the partes' 'intention to nullify antecedent understandings or agreements'. (See 3 Corbin, Contracts
(1960) § 578, p. 411.)" ( Masterson v. Sine (1968) 68

the rule applies so as to exclude any collateral oral agreement is one of law to be determed by the cour. (

(* 1 00 1) (3) The resolution of the issue of whether

CaL.2d 222,225-226 (65 CaL. Rptr. 545,436 P.2d 561).)

(***47) Indeed, if such a clause is adopted and used by
the partes, it may well be conclusive on the issue of in-

Code Civ. (**886) Proc., § 1856, subd. (d); Kaufman &

tegration. ( Salyer Grain & Miling Co. v. (*1002)
Henson, supra, 13 CaL. App. 3d at p. 501; Rest.2d Contracts, § 216, ccm. e, p. 140.)

Broad Bldg. Co. v. City & Suburban Mortg. Co. (1970)
10 CaL. App. 3d 206,215-216 (88 CaL. Rptr. 858); Salyer
Grain & Millng Co. v. Henson (1970) 13 CaL. App. 3d

493,499 (91 CaL. Rptr. 847); Brawthen v. H & R Block,
Inc. (1972) 28 CaL. App. 3d 131, 137 (104 CaL. Rptr.

(6) In order to resolve ths threshold issue, the cour
may consider all the surounding circumstances, including the prior negotiations of the parties. (Masterson v.

486); (***45) Wagner v. Glendale Adventist Medical Center (1989) 216 CaL. App. 3d 1379, 1385-1386 (265
CaL. Rptr. 412). We are therefore not bound by the trial

cour's determnation that the Guaranty Agreement was not integrated and that evidence of a collateral oral agreement was therefore admissible. We wil consider and resolve the issue de novo. (Wagner v. Glendale
Adventist Medical Center, supra, 216 CaL. App. 3d at p. 1386.)
b. Application of

Sine, supra, 68 CaL.2d at p. 226.) "In determning the issue, the cour must consider not only whether the written instrment contains an integration clause, but also examie the collateral agreement itself to determe whether it was intended to be a part of the bargain. (Citations.) However, in determning the issue of integra-

the Rule

tion, the collateral agreement will be examined only insofar as it does not directly contradict an express term of the written agreement; 'it cannot reasonably be presumed that the parties intended to integrate two directly contradictory term in the same agreement.' ((Gerlund v. Electronic Dispensers International (1987)) 190 CaL. App. 3d

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at p. 271.) (***48) In the case of prior or contemporaneous representations, the collateral agreement must be one

(9) An examination of the Guaranty Agreement

leaves no doubt that it is complete and was intended by
the partes to be a complete expression of their under-

which might natmally be made as a separate contract, i.e., if in fact agreed upon need not certainly have appeared in writing. (Citation.)" ( Wagner v. Glendale

standing. On its face, it purorts to fully describe the
entire restrctmed debt relationship among the partes.

Adventist Medical Center, supra, 216 CaL. App. 3d at p. 1386.)

Most importantly, however, it contains an express "integration" clause. This provision, which the respondents

(7) The resolution of the question of integration also requires, as the cour in Masterson (**887) explained, the accommodation of at least two policy considerations. The first "is based on the assumption that written evidence is more accurate than human memory.

concede they read, understood and discussed with their

attorneys, specifically provided that the Guaranty
Agreement "embodies the entire agreement and understanding among the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof." (Italics (***51) added.) It is diffcult
to imagine how the parties could have more clearly ex-

served by excluding parol evidence of agreements that directly contradict the wrting. (The second) policy is based on the fear that fraud or unintentional invention by witnesses interested in the outcome of the litigation wil
mislead the fmder of facts. (Citations.)" ( Masterson v. Sine, supra, 68 Cal.2d at p. 227.) This fear, which is at

(Citation.) This policy, however, can be adequately

pressed their intent to make the written instrment a full
and complete expression of their agreement.

(b) The Oral Agreement Directly Contradicts the
Written Instrment.

the heart of the concern of this second policy consideration, can be alleviated by indicia of credibility. The

(lOa) Respondents' argument to the contrary notwithstanding, there can be no question that the claimed

cour in Masterson suggested (***49) two such indicia. The first of these, taken from the Restatement of Contracts section 240 (§ 216 in Rest.2d Contracts), states that

"An oral agreement is credible if it might natmally have been made as a separate agreement by partes similarly situated." (FPI Development, Inc. v. Nakashima (1991)
231 CaL. App. 3d 367,388 (282 CaL. Rptr. 508), fn. omit-

oral aggeement directly contradicts the written Guaranty Agreement. (11) (See fn. 43.) (lOb) According to the record, the oral agreement relates to the extension of a $ 2 million line of credit which is claimed by respondents to have been an indispensable condition to their obligations under the written Guaranty Agreement. 43 The testimony offered by respondents repeatedly emphasized

ted.) A second and related indicia, based on Uniform
Commercial Code section 2-202, rests upon the proposi-

that the "promised" line of credit was critical to Latian's

purchase of the Kudsy inventory and indeed was a condi-

tion that an oral agreement is also "creditable uness it can be said with certainty that the parties would have
included the oral agreement in the writing." (231 CaL.

tion, absent the (**888) performnce of which, they would not have assumed the obligations of such purchase. That the extension of such a (* 1004) line of
credit was a critical condition of the deal was stated several times in the testimony offered by respondents 44 and

App. 3d at p. 388.)

(8) From the foregoing, we perceive that an analysis
based on the examination of four questions is appropri-

was asserted by their counsel as (* 1 005) the foundation

of his damage arguments (***52) and is repeated in the
briefs before this cour. Thus, it is obviously the position

ate: (1) does the wrtten agreement appear on its face to
be a complete agreement; obviously, the presence of an

(*1003) "integration" clause wil be very persuasive, if
not controlling, on this issue; (2) does the alleged oral

of respondents that the granting of the line of credit was a condition of their entire obligation. This is, however, entirely and directly inconsistent with an express term of

agreement directly contradict the written instrment; (3)
can it be said that the oral agreement might natmally

the integrated written agreement: "Latian and Sarbaz
each acknowledge their joint and several obligations
under the Guaranty (the original Guaranty agreement

have been made as a separate agreement or, (***50) to put it another way, if the oral agreement had been actually agreed to, would it certainly have been included in
the written instrment; and (4) would evidence of the

oral agreement be likely to mislead the trier of fact. ( Malmstrom v. Kaiser Aluminum & Chemical Corp.
(1986) 187 CaL. App. 3d 299,314 (231 CaL. Rptr. 820);

executed in favor of Banco on August 25, 1982) to pay the Indebtedness and agree that such obligations are absolute and unconditional." (Italics added.) It is simply not possible to reconcile the respondents' claim of an oral condition on which their liability to Banco depends with

Brawthen v. H & R Block, Inc. (1975) 52 CaL. App. 3d
139, 146 (124 CaL. Rptr. 845).)

their expressed written commtment that there are no
conditions to such liability.

(a) The Written Agreement Is Complete.

43 Respondents argue that evidence of a condition precedent to a contract is not barred by the

parol evidence rule. That is generally tre,

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"uness the written contract includes express provisions inconsistent with the condition." ( Haines
v. Bechdolt (1965) 231 CaL. App. 2d 659,661 (42

"A. Yes, sir.

CaL. Rptr. 53). As we point out, the very claim

"Q. And you reviewed it before it was signed by your father?
"A. Yes, sir.

that their obligation to Banco was conditional is
one of the major contradictions between the

claimed oral agreement and the express provisions of the written Guaranty Agreement. (***53) 44 Indeed, Manoucher testified on examination

"Q. And you recommended to him that he
sign it, didn't you?

"A. Yes, sir.

by counsel for Banco that he had instrcted his
attomey with regard to the matter:

signed it that it accurately reflected the deal be-

"Q. And you satisfied yourself before he

1. With respect to the next to last offer to
Kudsy, dated June 25, 1982, Manoucher testified

tween yourself and the Kudsy companies, didn't you?

as follows:

"A. Yes, sir.
"Q. And at the time this document was

"Q. Did you instrct your attorney to put into
ths document a condition of the deal which said

signed, Mr. Sarbaz, isn't it tre that you considered the $ 2 million line of credit that you've
talked about previously to be very signficant to
ths transaction?

in essence if we don't get the $ 2 million line of

credit from Banco do Brasil, we don't have a
deal?

"A. As I remember, yes.

"A. Yes, sir.

"Q. Your answer is yes?
"A. Yes.

you had hoped to get from Banco do Brasil;
right?
"A. Right.

"Q. And the $ 2 million line of credit that

"Q. And do you know where in the document this condition exists?
"

contract in writing, did you instrct him to in-

"Q. At the time you had Mr. Nagata put this

"Q. Do you see there, Mr. Sarbaz, a condition designed to protect what you've testified was

clude a specific, precise condition which stated in

essence that the deal would only go through if
Latian got a $ 2 million line of credit from Banco
do Brasil?

very important to you? And that is that the deal
would tu on whether Banco do Brasil would

give Latian a $ 2 million line of credit.
"A. I couldn't find it, no."

"A. Yes, sir.

"Q. You instrcted him to do that?
"A. Yes, sir."

2. With respect to the fmal offer of July 7,
1982, which was accepted by Kudsy, Manoucher testified:

An examination of these documents of
course, reflects no mention whatever of any ~on-

"Q. Okay. The agreement is again with Latian as the purchaser, and the concept is that Latian wil purchase all of the assets of the companies as stated in paragraph I-A; is that correct?
"A. That is tre.

dition regarding the availability of a line of credit in any amount.
(***54) (c) The Claimed Oral Agreement Would

Not Naturally Have Been Made the Subject of a Separate Agreement.

"Q. Okay. This document was prepared by

Mr. Nagata?
"A. Yes, sir.

"Q. With your involvement?
"A. Yes, sir.

(12a) This issue can best be addressed by examiing not only the written Guaranty Agreement, but also the entire transaction. Such surounding circumstances provide the context in which the Guaranty Agreement was negotiated and executed. First, it must be emphasized that respondents were sophisticated and experi-

"Q. With your input?

enced businessmen who were at all times, from the very outset of their involvement with the Kudsy companies,

42

Case 5:07-cv-04808-JF

Document 50-3

Filed 07/03/2008

Page 14 of 30
Page 21

234 Cal. App. 3d 973, *; 285 Cal. Rptr. 870, **; 1991 Cal. App. LEXIS 1135, ***; 91 Cal. Daily Op. Service 7901

advised, counseled and assisted by attorneys of their own

choosing. The record clearly reflects that respondents
were both cautious and deliberate with respect to their

the line of credit, I can't imagine somebody extending somebody a line of credit on a transaction

negotiations and agreements in this matter. Their renegotiation and restrctming, prior to the August 25, 1982, (**889) closing, of the fundamental term of their original purchase agreement with the Kudsy companies is particularly telling. It is with that background that the
events leading to the negotiation and execution of the
Guaranty Agreement must be examied.

when a schedule of payments with that line of
credit not being expected to have any kind of influence on the scheduled payments. (para.) That

being the case, it seems to me that that would

make it really a natmal part of this agreement, and particularly when the agreement actually
makes reference to lines of credit. "

In December 1982, the respondents, unable to meet the obligation they had undertaken to Banco in the original August 1982 purchase transaction, (***55) sought an extension of the time in which such repayment could
be made as well as a reduction of their interest rate burden. This was a major debt restrctming which was

(***57) The trial cour concluded that such "language suggests that there was some arrangement between

these partes involving a line of credit, and they do not
say what that arrangement is. They don't say it. That
language does not indicate it. ... (para.) So I'm con-

vinced that the document is not integrated."

sought by the respondents and negotiated by them with the continuous aid and assistance of their counseL. A significant part of this context is the fact that, according to respondents, Banco had failed to deliver on the promised $ 2 million line of credit for over six months at the
time the restrctme documents were negotiated and

The trouble with the cour's conclusion is that its
premise was faulty and, in any event, it misses the point. First, the language to which the cour r