APPEAL from a judgment of the Superior Court of Merced County. Ronald W. Hansen, Judge. (Super. Ct. No. CV000579)
The opinion of the court was delivered by: Levy, Acting P.J.
CERTIFIED FOR PUBLICATION
Appellants, Daniel and Joyce Souza, made loans to Manuel and Esmeralda Teixeira evidenced by promissory notes and secured by an interest in dairy cattle and farm equipment. Respondent, Cargill, Inc. (Cargill), was an unsecured creditor of the Teixeiras. Upon the Teixeiras' default on the promissory notes, the Souzas and the Teixeiras entered into a "TRANSFER IN LIEU OF FORECLOSURE AGREEMENT" (Transfer Agreement). Under this Transfer Agreement, the Teixeiras agreed to transfer the dairy cattle and farm equipment to the Souzas and the Souzas agreed not to sue the Teixeiras on the promissory notes. The Souzas also agreed to pay the Teixeiras' outstanding obligations listed on an exhibit to the Transfer Agreement. However, this exhibit was left blank.
Cargill filed a complaint against the Souzas to reform and enforce the Transfer Agreement as an alleged third party beneficiary. Cargill sought to schedule the Teixeiras' debt to it on the blank exhibit and then enforce appellants' covenant to pay that debt under the Transfer Agreement.
On the Souzas' motion, summary judgment was granted in their favor. As the "prevailing party," the Souzas moved for an award of attorney fees. The trial court ruled that the attorney fees clause in the Transfer Agreement did not apply to third party beneficiaries and denied the Souzas' motion.
The Souzas contend that, if Cargill had prevailed on its complaint, it would have been entitled to attorney fees as a third party beneficiary pursuant to the attorney fees clause in the Transfer Agreement and thus the Souzas are entitled to attorney fees. As discussed below, the Souzas are correct. Therefore, the order will be reversed.
The Teixeiras leased and operated a dairy. They borrowed $1 million from the Souzas to purchase dairy cattle and farm equipment. The Teixeiras executed two promissory notes and a security agreement granting the Souzas a secured interest in the dairy cattle and the equipment.
The Teixeiras had purchased feed from Cargill and owed Cargill approximately $262,000. This debt was unsecured.
Following the Teixeiras' default on the promissory notes, the Souzas and the Teixeiras executed the Transfer Agreement and the Souzas took possession of the collateral. As part of this agreement, the Souzas, referred to as "Lender," agreed that:
"At Closing, Lender will pay the outstanding obligations of Borrower [the Teixeiras] with respect to the Dairy listed on Exhibit G, attached hereto and incorporated herein by this reference. The proceeds necessary to pay such obligations and all closing costs shall be additional advances under the Loan Documents and added to the [amount of debt due and owing to Lender under the promissory notes]...."
Exhibit G, entitled "BORROWER'S OBLIGATIONS," provided that the Souzas agreed to pay, on behalf of the Teixeiras, "the following outstanding obligations that [are] due and owing by Borrower to the following persons and/or entities." However, while this exhibit was signed by the parties, it stated it was "intentionally left blank."
The Teixeiras, as the "Borrower," further represented and warranted that "[a]ll persons and entities supplying material, labor or equipment to the Dairy have been paid or will be ...