James H. MAREK, Jr., etc., Plaintiff and Appellant, v. NAPA COMMUNITY REDEVELOPMENT AGENCY, Defendant and Respondent.
This is an appeal from a judgment rendered in a declaratory relief action brought pursuant to Health and Safety Code section 33675, subdivision (e).
The parties to the action are plaintiff James H. Marek, Jr., Auditor-Controller for the County of Napa (hereafter appellant or controller) and defendant Napa Community Redevelopment Agency (hereafter respondent or agency). The central dispute in this case revolves around the allocation of tax revenues for the purposes of the Parkway Plaza Redevelopment Project in Napa (hereafter project). We hold that the redevelopment contract before us did not constitute “indebtedness” which would entitle the agency to receive such tax revenues and, accordingly, we reverse.
The pertinent facts reveal that the project was originally adopted by the Napa City Council in December 1969 in order to redevelop the downtown business district into a modern shopping area. The project provided for tax increment financing as authorized by California Constitution, article XVI, section 16, and several provisions of California Community Redevelopment Law (Health & Saf.Code,1 § 33000 et seq.).2
On or about February 5, 1980, the agency amended the original redevelopment plan and entered into a so-called “Disposition and Development Agreement” (DDA) with the Sequoia partnership to redevelop a 10–acre site within the project. Under the DDA, the agency is obligated to acquire the land and resell it to the Sequoia partnership. In addition, the agency is required to provide for (or bear the expense of) utility relocations, street and traffic improvements and construction of parking facilities. The Sequoia partnership, in turn, has the contractual obligation to buy the land from the agency and develop it in accordance with the DDA, including the construction of a shopping center with a large department store and other retail shops.
Since the execution of the DDA the agency acquired properties at a cost of $149,682 in fiscal year 1980–1981 and at a cost of approximately $830,000 in 1981–1982. In addition, the agency incurred expenses and was proceeding with condemnation actions to acquire the remaining parcels necessary for the construction of the shopping center.
In consonance with section 33675,3 the agency filed a statement of indebtedness with the controller for both 1981 and 1982 fiscal years, claiming to have an outstanding debt of $11,648,834 toward the Sequoia partnership as of June 30, 1981 and $11,890,780 as of June 30, 1982. The controller disputed the above sums and initiated declaratory relief actions pursuant to section 33675, subdivision (e), to contest the same. Simultaneously, the controller withheld the tax increments otherwise available for distribution to the agency ($550,000 for 1981 and $594,000 for 1982). After consolidation of the two cases, the matter proceeded to trial. The superior court, sitting without a jury, found, inter alia, that the DDA in dispute constituted an indebtedness within the meaning of article XVI, section 16, of the California Constitution and section 33675; and that the amount of indebtedness under the DDA was $11,226,111 for the fiscal year 1981–1982 and $11,955,780 for the fiscal year 1982–1983. Consistent therewith, the court ordered that the full amount of tax increments be transferred and paid to the agency.
The central issue on appeal is whether the DDA entered into between the agency and the Sequoia partnership constitutes “indebtedness” within the meaning of article XVI, section 16, subdivision (b), of the California Constitution and the several provisions of the Community Development Law, its implementing legislation. (§§ 33670, 33675, 33801.)
Controller argues that, under general definition, debt is a specified sum of money which is due from one person to another and which calls for a payment schedule, payment of interest on the principal and penalties for delinquent payments, etc. (Jamison v. United States (N.D.Cal.1968) 297 F.Supp. 221, 227; Utility Trailer Manufacturing Company v. United States (S.D.Cal.1962) 212 F.Supp. 773, 785; Black's Law Dict. (5th ed. 1979) p. 363.) Because the obligations arising under the DDA do not include fixed and specified amounts of debt already matured and fail to meet other criteria of debt as well, controller insists that the DDA is at best a commitment to incur debt but not debt or indebtedness upon which tax increments should be paid to the agency. Respondent agency, in turn, takes the position that the terms “debt” or “indebtedness” have different meanings in different statutes; that those phrases are flexible so as to include unmatured debts as well; and that at any rate under the statutory scheme here present, the DDA in dispute constitutes indebtedness as a matter of law. Although we agree that contracts such as the DDA before us may constitute “debt” for purposes of entitlement to tax increments in some circumstances, we conclude that this DDA cannot be so interpreted.
In the broadest sense the word “debt” means all that is due from one person to another under any form of obligation. (In re Marriage of Fithian (1977) 74 Cal.App.3d 397, 404, 141 Cal.Rptr. 506.) While the word “debt” may have different meanings in specific statutes, it has been held that debt or indebtedness may include sums which are payable either in the present or in the future and that it may embrace obligations whether or not yet matured. (UMF Systems, Inc. v. Eltra Corp. (1976) 17 Cal.3d 753, 756–757, 132 Cal.Rptr. 129, 553 P.2d 225.) As our Supreme Court stated in Carman v. Alvord (1982) 31 Cal.3d 318, 326–327, 182 Cal.Rptr. 506, 644 P.2d 192, “ ‘The term “indebtedness” has no rigid or fixed meaning, but rather must be construed in every case in accord with its context.’ [Citations.] It can include all financial obligations arising from contract ․ and it encompasses ‘obligations which are yet to become due as [well as] those which are already matured.’ ” (Accord Provident etc. Assn. v. Davis (1904) 143 Cal. 253, 255, 76 P. 1034.)
In the case at bench, the DDA was concededly a valid, binding contract which imposed rights and duties on both of the contracting parties. Moreover, the obligations and expenses for which the agency claimed the tax increments grew out of the DDA. It does not follow, however, that the latter obligations (present and future) constituted indebtedness within the meaning of the law sufficient to provide the requisite statutory basis for allocation of tax revenues to the agency.
Our conclusion is supported by the related portions of the redevelopment statute, especially when read together with the provisions of the DDA. Section 33811 4 underlines that the redevelopment agencies may request supplemental tax revenues for payment of indebtedness resulting from breach of contract. The term “indebtedness” for which tax increments can be claimed is explicitly defined by the statute. Section 33801 reads in pertinent part: “ ‘Indebtedness' means any obligations incurred by a redevelopment agency prior to July 1, 1978, the payment of which is to be made in whole or in part out of taxes allocated to the agency pursuant to Section 33670 and includes: ․ [¶] (c) A contractual obligation which, if breached, could subject the agency to damages or other liabilities or remedies.” (Emphasis added.)
For the most part, the court's interpretation of the DDA was based upon its analysis of the bare words of the document. However, some extrinsic evidence regarding the subject was admitted at trial. Significantly, there was no conflicting material evidence on this issue. In such a case, we must make an independent determination of the meaning of the agreement. (Blumenfeld v. R.H. Macy & Co. (1979) 92 Cal.App.3d 38, 44, 154 Cal.Rptr. 652; see Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 866, 44 Cal.Rptr. 767, 402 P.2d 839.)
Controller contends that the DDA is not indebtedness within the purview of section 33801, subdivision (c), because breach of the DDA does not subject the agency to damages or other liabilities. More specifically, appellant claims that if the agency breaches the contract prior to the conveyance of the site, the only remedy available to the Sequoia partnership is to terminate the agreement, recover its deposit and attempt to renegotiate the contract within the time prescribed by law.
The agency contends that controller's position should be rejected for three reasons. First, it argues that section 510 of the DDA gives only an option to the Sequoia partnership to rescind the agreement, recoup the deposit and renegotiate the contract within 120 days: it contends that the partnership is not forced to do so by foregoing other remedies available to it under the agreement.5 Second, the agency argues that, in the event of default or other breach, the DDA expressly provides the parties to the contract may recover damages or may demand specific performance. Third, the agency contends that the remedies set out in sections 507, 508 and 510 are cumulative and not mutually exclusive as demonstrated by two additional sections of the DDA: (1) Section 503 provides that “In addition to any other rights or remedies, either party may institute legal action to cure, correct or remedy any default, or recover damages for any default, or to obtain any other remedy consistent with the purpose of this Agreement. Such legal actions must be instituted in the Superior Court of the County of Napa, State of California, in an appropriate municipal court in that County or in the Federal District Court in the Northern District of California.” (Emphasis added.); and (2) Section 506 adds that “Except as otherwise expressly stated in this Agreement, the rights and remedies of the parties are cumulative, and the exercise by any party of one or more of such rights or remedies shall not preclude the exercise by it, at the same time or different times, of any other rights or remedies for the same default or any other default by the other party.” (Emphasis added.)
Having reviewed all of the evidence before the trial court, we conclude that controller's position is correct. Although the DDA contains numerous contractual obligations, the remedies available to the parties in the event of a default prior to conveyance of the property are significantly different than those occurring after conveyance. As we next describe, this circumstance is a direct consequence of the agency's difficulties with the initial redeveloper of the project.
In 1971, the agency entered into a different DDA with another redeveloper. After certain difficulties occurred, a dispute arose between the agency and first redeveloper concerning responsibility for resulting delays. The dispute was settled prior to conveyance of the project property with the redeveloper agreeing to termination of the initial DDA. However, after executing a termination agreement, the redeveloper then claimed that his assent had been coerced. He sued the agency for significant damages, but more importantly, recorded a lis pendens which tied up the redevelopment project for years while the action was pending. The lawsuit was ultimately settled with the agency paying the redeveloper $400,000 in exchange for release of his lis pendens.
It was against this background that the present DDA was drafted and executed. The most significant alteration of the initial DDA was the inclusion of language intended to eliminate the situation which occurred with the first developer who initially agreed to terminate his DDA before conveyance of the property and then sued for damages.
In paragraph 4 of section 108, the parties agreed that the redeveloper's good faith deposit would be treated as liquidated damages in the event of a pre-conveyance default under sections 510 or 511. Section 506 was drafted to provide that the rights and remedies specified in the DDA were cumulative, except as otherwise expressly stated in the agreement. (Ante, p. 10.) Section 509 (actually a title) was drafted to read: “Remedies and Rights of Termination Prior to Conveyance of the Site to the Redeveloper.” Finally, section 510 (titled “Termination by the Redeveloper”) was drafted to provide for the rights of the redeveloper in the event of a material pre-conveyance default by the agency and section 511 (titled “Termination by the Agency”) was drafted to provide for the rights of the agency in the event of such a default by the redeveloper.
Agency's argument that the redeveloper's rights under section 510 are simply one option of the redeveloper for pre-conveyance defaults by the agency is unpersuasive for several reasons. First, as demonstrated by section 108, the specific purpose of new sections 510 and 511 was to provide the exclusive remedy of termination and limited liquidated damages in order to eliminate the possibility that, prior to conveyance of the redevelopment property to the Sequoia Partnership, disputes between the parties could subject either to the threat of significant contingent liabilities. If agency's position were correct, it would render sections 511 and 510 meaningless and lead to precisely the same situation which caused the agency to redraft the DDA after its experience with the first redeveloper.
In order to understand that this is the case, it is only necessary to consider what would happen in the event of a material pre-conveyance default by the agency under its present interpretation of the DDA. In such a situation, there would be absolutely no reason for the redeveloper to ever exercise its purported “option” to terminate the DDA in exchange for return of its $30,000 good faith deposit. Unquestionably, the only logical course would be for the redeveloper to sue the agency on the contract for its damages, thereby recovering any provable damages and maintaining the potential for profits from continued redevelopment of the project. The developer would never need section 510 requiring the agency to refund his deposit, for obviously it could recover the deposit plus damages according to proof at trial if an unlimited claim for pre-conveyance damages were permitted under the DDA.
Our conclusion is bolstered by two additional provisions of the present DDA. First, section 503 provides in part: “In addition to any other rights or remedies, either party may institute legal action to cure, correct or remedy any default, or recover damages for any default, or to obtain any other remedy consistent with the purpose of this Agreement.” (Emphasis added.) The purpose of the DDA is to “effectuate the Urban Redevelopment Plan ․ for the Parkway Plaza Redevelopment Project․” Needless to say, the unfortunate dispute with the first redeveloper did not effectuate that purpose. Thus, when the new DDA was drafted, one of the primary objectives was to avoid expenditures of significant public funds for resolution of alleged pre-conveyance defaults such as occurred when the agency found it necessary to pay the first redeveloper $400,000 in order to resolve his damages action and move ahead with the redevelopment project.
Second, section 506 provides in part: “Except as otherwise expressly stated in this Agreement, the rights and remedies of the parties are cumulative ․” (Emphasis added.) We note that agency seizes upon this language to support its own position because neither section 510 or section 511 expressly state, in so many words, that they are the exclusive remedies for pre-conveyance defaults by the parties. However, our review of the entire DDA and the history of the agency's dealings with the first redeveloper lead us to the opposite conclusion.
Although the agency's interpretation of section 506 may seem plausible in the abstract, one needs to only examine the entire DDA to see why it is wrong. Nowhere in the entire 42–page DDA is there a phrase or clause which states in words or in substance: “This remedy is the exclusive remedy for defaults or breaches of this sort.” In other words, the phrase “expressly stated” in section 506 cannot mean that words like “this is an exclusive remedy” or similar words must appear in a section of the DDA before a remedy is to be exclusive, rather than cumulative. Instead, section 506 simply means that all of the remedies in the DDA are cumulative except where the remedy stated, such as those expressly stated in sections 510 and 511, is by its nature and purpose, exclusive.
Finally, we note that the agency did incur a contingent liability or obligation under the DDA. In the event of a material pre-conveyance breach of the DDA, the agency would be required to refund some or all of the developer's good-faith deposit. However, that contingent liability did not constitute indebtedness for purposes of entitlement to tax increments. Section 33801 explicitly states that such indebtedness must be an obligation “the payment of which is to be made in whole or in part out of taxes allocated to the agency pursuant to section 33670 ․” Needless to say, a refund of the good-faith deposit would not be paid from tax increment funds, but rather from the deposit itself. Therefore, even the contingent liability or obligation for refund of the $30,000 deposit does not constitute “indebtedness” within the meaning of section 33801.6
Because we conclude that the only remedy available to either of the parties for material pre-conveyance breaches of the DDA are those set forth in sections 510 and 511, it follows that the contractual obligations under the DDA in fiscal years 1981 and 1982 did not constitute indebtedness or debt as claimed by the agency for purposes of its entitlement to tax increment payments.
The judgment is reversed and the trial court is directed to enter a new judgment consistent with the opinions expressed herein.7
I respectfully dissent because I am firmly convinced that the reversal of the well reasoned and fully supported judgment is unjustified for two primary reasons.
I. The DDA Constitutes “Indebtedness” Pursuant to Statute
Section 33801, subdivision (c), provides that for purposes of redevelopment law, indebtedness includes “A contractual obligation which, if breached, could subject the agency to damages or other liabilities or remedies.” The majority concedes that the DDA is a valid contract which imposes rights and duties upon the contracting parties, and it further concedes that the obligations and expenses for which the agency claims tax increments grew out of that contract. Nonetheless, the majority concludes that the obligations arising in this case do not constitute indebtedness within the meaning of the statute because they do not subject the agency to damages or other liabilities. This majority conclusion rests primarily upon their interpretation of section 510 of the DDA which grants the redeveloper an option to terminate the contract and recover its deposit in case the agency breaches its duty prior to the conveyance of the site. (Maj. opn., fn. 5.) The majority insists that in such a case no true indebtedness arises because the only consequence of the breach is an obligation of the agency to return the good-faith deposit to the redeveloper—an option which does not in their view trigger tax increment funding. The majority's position does not withstand critical analysis.
First, it is well settled that the parties' intention must be ascertained from the contract as a whole, not from some isolated portion or portions thereof. (Civ.Code, § 1641; 1 United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1968) 263 Cal.App.2d 531, 539, 69 Cal.Rptr. 373; Stewart Title Co. v. Herbert (1970) 6 Cal.App.3d 957, 962, 96 Cal.Rptr. 631; International Surplus Lines Ins. Co. v. Devonshire Coverage Corp. (1979) 93 Cal.App.3d 601, 609, 155 Cal.Rptr. 870.) When so considered the DDA reveals that in case of breach the parties are entitled to invoke a host of remedies and that the remedies under the agreement are cumulative.
Thus, DDA section 507 provides that “If the Redeveloper or the Agency defaults with regard to any of the provisions of this Agreement, the nondefaulting party shall serve written notice of such default upon the defaulting party. If the default is not cured or commenced to be cured by the defaulting party within ninety (90) days after service of the notice of default, the defaulting party shall be liable to the other party for any damages caused by such default.” (Emphasis added.) DDA section 508 grants the parallel remedy of specific performance by setting forth that “If the Redeveloper or the Agency defaults under any of the provisions of this Agreement, the nondefaulting party shall serve written notice of such default upon the defaulting party. If the default is not commenced to be cured by the defaulting party within forty-five (45) days of service of the notice of default, the nondefaulting party, at its option, may institute an action for specific performance of the terms of this Agreement.” (Emphasis added.)
Two further sections of the DDA make it even more explicit that the remedies obtainable by the parties are cumulative and can be invoked in addition to each other. Section 503 provides without qualification that “In addition to any other rights or remedies, either party may institute legal action to cure, correct or remedy any default, or recover damages for any default, or to obtain any other remedy consistent with the purpose of this Agreement.” (Emphasis added.) Lastly, DDA section 506 further underlines that “Except as otherwise expressly stated in this Agreement, the rights and remedies of the parties are cumulative, and the exercise by any party of one or more of such rights or remedies shall not preclude the exercise by it, at the same time or different times, of any other rights or remedies for the same default or any other default by the other party.” (Emphasis added.)
Second, DDA section 510, on which the holding of the majority rests, clearly states that the remedies available thereunder (termination of the contract, return of deposit and an eventual renegotiation of the agreement) are optional on the part of the redeveloper. The phrase “option” or “optional,” by definition, involves freedom of choice between two or more possibilities or alternatives.2 Any other interpretation of the term simply would not be reasonable. It is, of course, well recognized that the common or usual meaning will be ascribed to words used in a contract, unless the circumstances indicate that the parties attached a special meaning thereto. (Civ.Code, § 1644; Estate of Cox (1970) 8 Cal.App.3d 168, 197, 87 Cal.Rptr. 55; Reliance Life Ins. Co. v. Jaffe (1953) 121 Cal.App.2d 241, 245, 263 P.2d 82.) In the case at bench there is no showing that the parties to the DDA intended to use the term “option” in a special sense and contrary to its common, normal and widely accepted meaning.
Third, the majority's reliance on DDA section 506 is misplaced. Section 506 provides in its introductory part that “except as otherwise expressly stated in this Agreement” (emphasis added), the parties' rights and remedies are cumulative. However, contrary to the position of the majority, section 510 of the DDA does not state either expressly or impliedly that the “option” available to the redeveloper is the sole remedy in exclusion of other remedies set out in DDA section 506 (as well as §§ 503, 507 and 508). All that section 510 says is that if the redeveloper proceeds under section 510, its only remedy is a termination of the agreement, a refund of the deposit made to the agency and an eventual renegotiation of the agreement. Nowhere is it required, however, that the redeveloper must avail itself of the section 510 remedies when the site has not yet been conveyed to the redeveloper.
Indeed, this requirement would be unreasonable for two main reasons. In the first place, both sections 507 and 508 of the DDA provide in unconditional terms that in the event of a default with any provisions of the DDA, the parties may recover damages and/or seek specific performance. (See citations, supra.) In the second place, the record demonstrates that in reliance on the agency's contractual obligation the redeveloper obtains commitments from future tenants (department stores and the like) for long term leases. These future lessees, in turn, incur expenditures by preparing feasibility studies and making long term financial plans, and other arrangements in anticipation of occupying the premises and expanding their businesses in the would-be development project. It is all but obvious that in case of a preconveyance breach by the agency, the redeveloper may face lawsuits on the part of the future tenants in order to recover damages and loss of profits. In this situation a restrictive interpretation of the agreement allowing merely a return of the deposit to the redeveloper without the additional right of damages against the agency would be not only contrary to the purpose of the DDA (see § 503, Maj. opn., p. 87), but outright unreasonable—it would bar the redeveloper from recovering the loss it has incurred in reliance on the DDA. It is, of course, elementary that a contract must receive such interpretation as will make it reasonable and avoid absurdities. (Civ.Code, §§ 1638, 1643; Indemnity Ins. Co. v. Pacific Clay Products Co. (1970) 13 Cal.App.3d 304, 313, 91 Cal.Rptr. 452.)
The majority's resort to extrinsic evidence (such as the 1971 DDA) is unavailing for three elementary reasons. One, it is axiomatic that where, as here, the contract is clear and unambiguous, the intention of the parties should be ascertained from the writing itself and in such an instance extrinsic evidence is inadmissible. (Civ.Code, § 1639; Estate of Wemyss (1975) 49 Cal.App.3d 53, 59, 122 Cal.Rptr. 134; Eastern-Columbia v. System Auto Parks (1950) 100 Cal.App.2d 541, 545, 224 P.2d 37.) As stated in Spitser v. Kentwood Home Guardians (1972) 24 Cal.App.3d 215, 220, 100 Cal.Rptr. 798: “when the language is clear and explicit, does not involve an absurdity (Civ.Code, § 1638) and no ambiguity is shown, evidence of conduct is irrelevant. In other words, evidence to clarify an ambiguity is not needed when no ambiguity is shown to exist. Petersen v. Ridenour  135 Cal.App.2d 720, [287 P.2d 848] states the rule thus (p. 725 [287 P.2d 848] ): ‘ ․ practical construction has no place in the consideration of an unambiguous agreement.’ ” Secondly, a brief comparison of the 1971 and 1980 DDA's demonstrates that the provisions relating to the optional remedies are almost identical. (Compare §§ 9 and 10 of the 1971 DDA with §§ 510 and 511 of the 1980 DDA.) 3 Three, since the almost identical provisions of the 1971 DDA gave rise to recovery of substantial damages against the agency, by parity of reasoning damage recovery under the new DDA ought to be likewise available.
Finally, even if assumed arguendo that DDA section 510 provides the exclusive remedy in case of a preconveyance breach, the analysis of the majority still falls short. As the parties agree, the DDA constitutes indebtedness as defined by statute if its breach could subject the agency “to damages or other liabilities or remedies.” (§ 33801, subd. (c), emphasis added.) The majority here concedes that, no matter how interpreted, section 510 of the DDA does accord certain remedies in case of breach by the agency (i.e., termination of the contract, refund of deposit, duty to renegotiate the agreement under certain circumstances). This, of course, is sufficient to bring the DDA within the subdivision (c), section 33801, and render it indebtedness as a matter of law even if the majority is correct in holding that other legal and equitable remedies (such as damages specific performance and the like) are not available to the redeveloper in the event of a section 510 breach, i.e., preconveyance.
II. The Tax Increments Awarded to the Agency are Justified by the Evidence
The majority's holding that the obligations set out in the DDA did not constitute indebtedness because the only consequence of a preconveyance breach by the agency would be a refund of the good-faith deposit to the redeveloper which does not require nor justify tax-increment funding (Maj. opn., pp. 87–88), reflects both a narrow reading of the DDA and the statute; such a reading betrays complete misunderstanding of the objectives and function of the entire redevelopment scheme.
The record demonstrates that, contrary to the majority's assumption, the DDA encompasses not only the agency's obligations toward the redeveloper, but also a multitude of other legal requirements which the agency must meet before conveyance of the site to the redeveloper. Thus, the DDA requires the agency to purchase the property, to demolish existing buildings, to relocate occupants, to provide for (or bear the expense of) utility relocations, to improve street and traffic flow, to construct parking facilities, to provide landscaping, etc (DDA § 202, attachment No. 5, p. 3)—all before it can convey to the redeveloper. Indeed, the evidence introduced at trial unequivocally proved that to comply with the provisions of the DDA and before conveyance, the agency had acquired property at a cost of $149,682 in 1980–1981 and at a cost of approximately $830,000 in 1981–1982. The evidence also disclosed that two remaining parcels necessary to the project still needed to be purchased at a further cost of approximately $300,000.4 While the 1980–1981 land purchase was obtained through a federal community block development grant, in 1981–1982 the agency was forced to negotiate a $325,000 emergency loan from the City of Napa due to the controller's withholding tax increment funds—withholding which my majority colleagues here condone. Proof at trial established that other estimated expenses arising from DDA obligations included $35,000 for clearing and demolition of the site; $674,900 for utility relocations; $600,000 for street and traffic improvements; $270,000 for surface parking lot expansion and landscaping; and some $4 to $6 million for constructing new parking facilities which was partially to be paid from tax increment revenues. Does either the law or justice require that tax increases directly attributable to those expenditures be denied the Agency simply because it has not yet satisfied its obligation to the redeveloper under the DDA and, therefore, not yet conveyed the site? I think not.
To me it is beyond dispute that all these expenses do constitute “indebtedness” within the meaning of the redevelopment law and were to be funded (at least in part) from tax increment allocations. The statutory scheme clearly supports this conclusion. As the majority recognizes (Maj. opn., pp. 84–85), under section 33801 indebtedness means any obligations incurred by the redevelopment agency, the payment of which is to be made from tax increments allocated pursuant to section 33670, and this includes obligations arising from breach of contract (subd. (c)). But as the majority overlooks, indebtedness also includes “Loans or moneys advanced to the agency including, but not limited to, loans from federal, state or local agencies.” (subd. (b) of § 33801, emphasis added.)
In providing for the distribution of tax increments derived from the redevelopment project, section 33670, subdivision (b), sets out in part that “That portion of the levied taxes each year in excess of such amount shall be allocated to and when collected shall be paid into a special fund of the redevelopment agency to pay the principal of and interest on loans, moneys advanced to, or indebtedness (whether funded, refunded, assumed, or otherwise) incurred by such redevelopment agency to finance or refinance, in whole or in part, such redevelopment project.” (See to the same effect: Cal. Const., art. XVI, § 17, subd. (b).)
The above-cited provisions leave no doubt that “indebtedness” includes not only contractual commitments or duties toward the redeveloper, but also any financial obligations (including loans) which were incurred by the agency for the purpose of meeting its obligations to the redeveloper under the redevelopment project contract, and which are to be funded from tax increment revenues. This conclusion of the trial court is mandated by both sound legal reasoning and common sense. As the evidence introduced at trial demonstrated, if all the above-mentioned obligations incurred under the DDA were not recognized as indebtedness and therefore could not be funded from tax increments, the whole redevelopment project would never get off the ground.
In summary, complicated as it seems, the dispute in this case may be reduced to two simple premises: (1) is the DDA an indebtedness within the meaning of the law, and (2) is the award of the trial court supported by the evidence. The answer to these questions is equally plain. The DDA constitutes indebtedness as a matter of law because its breach by the agency calls for damages or, at the very least, for some other remedies. (§ 33801, subd. (c).) Moreover, the DDA is broadly defined so as to encompass any obligations incurred including loans advanced to the agency. (§ 33801, subd. (b).) The award of the trial court is abundantly supported by the record which details the obligations incurred and expenditures made by the agency pursuant to the DDA. It is blackletter law that the judgment of the lower court is presumed correct and that appellant bears the burden of making an evidentiary showing that the judgment below is erroneous or improper. This is not only a general principle of appellate practice, but also an ingredient of the constitutional doctrine of reversible error. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564, 86 Cal.Rptr. 65, 468 P.2d 193; 9 Witkin, Cal.Procedure (1985) Appeal, § 268, p. 276.) Since, in the case at bench, appellant failed to carry his burden of proof with respect to the correctness of the amount of the award, this court is dutybound to affirm the judgment. To do otherwise violates elementary rules of appellate practice, as well as the constitutional premises relating to the scope of appellate review.
FN1. Unless otherwise indicated, all statutory references are to the Health and Safety Code.. FN1. Unless otherwise indicated, all statutory references are to the Health and Safety Code.
2. The referenced sections of the California Constitution and the Health and Safety Code provide that the tax revenues attributable to the increase in the assessed value of the property within a redevelopment project area after adoption of the redevelopment plan shall be allocated to the redevelopment agency to pay the “indebtedness” incurred or entered into for the public cost of redevelopment. The property taxes allocated to a redevelopment agency are commonly referred to as “tax increment.” The tax increment is paid to the redevelopment agency until the indebtedness has been paid. Thereafter, all tax revenues, including the tax increment, are allocated to the local public entities that share the property tax revenues collected from the project area.
3. Section 33675 provides in part: “(a) The portion of taxes required to be allocated pursuant to subdivision (b) of Section 33670 shall be allocated and paid to the agency by the county auditor or officer responsible for the payment of taxes into the funds of the respective taxing agencies pursuant to the procedure contained in this section. [¶] (b) Not later than the first day of October of each year, the agency shall file with the county auditor or officer described in subdivision (a) of this section, a statement of indebtedness certified to by the chief fiscal officer of the agency for each redevelopment project, the redevelopment plan for which provides for the division of taxes pursuant to Section 33670. [¶] (c) The statement of indebtedness shall contain for each such redevelopment project: [¶] (1) The date on which each loan, advance, or indebtedness was incurred or entered into. [¶] (2) The principal amount, term, purpose, and interest rate, of each loan, advance, or indebtedness. [¶] (3) The outstanding balance and amount due or to be paid by the agency of each loan, advance, or indebtedness. The Controller shall prescribe a uniform form of statement of indebtedness. [¶] (d) The county auditor or officer shall at the same time or times as the payment of taxes into the funds of the respective taxing agencies of the county, allocate and pay the portion of taxes provided by subdivision (b) of Section 33670 to each agency in an amount not to exceed the amount as shown on the agency's statement of indebtedness. [¶] (e) The statement of indebtedness shall be prima facie evidence of the indebtedness of the agency. If the county auditor or other officer disputes the amount of indebtedness as shown in the statement of indebtedness, the county auditor or other officer shall, within 30 days after receipt of the statement, give written notice to the agency thereof. The agency shall, within 30 days after receipt of such notice, submit such further information as it deems appropriate to substantiate the amount of any indebtedness which has been disputed. If the county auditor or other officer still disputes the amount of indebtedness, final written notice thereof shall be given to the agency and the amount disputed may be withheld from allocation and payment to the agency as provided in subdivision (c) of this section. In such event, the auditor or other officer shall bring an action in the superior court in declaratory relief to determine the matter not later than 90 days after the date of the final notice. The issue in any such action shall involve only the amount of indebtedness, and not the validity of any contract or debt instrument or any expenditures pursuant thereto. Payments to a trustee under a bond resolution or indenture of any kind or payments to a public agency in connection with payments by such public agency pursuant to a lease or bond issue shall not be disputed in any action under this section. Any such action shall be set for trial at the earliest possible date and shall take precedence over all other cases except older matters of the same character. Unless an action is brought within the time provided for herein, the auditor or other officer shall allocate and pay the amount shown on the statement of indebtedness as provided in subdivision (d).”
4. Section 33811 provides that “The Legislature further finds and declares that unless supplemental sources of revenue for the payment of such indebtedness can be established, a substantial portion of such indebtedness will not be repaid, which will include the default of bonds and the breach of contractual obligations, and that if such defaults and breaches of contract occur, the credit and future borrowing capacity of both local agencies and the state may be impaired.”
5. Section 510 of the DDA provides that in case of breach or default described therein “this Agreement shall, at the option of the Redeveloper, be terminated by written notice thereof to the Agency. Upon such termination, the Agency shall return the Deposit to the Redeveloper or retain it or any portion thereof as liquidated damages as provided in Section 108 hereof, and neither the Agency nor the Redeveloper shall have any further rights against or liability to the other under this Agreement; provided, however, that if this Agreement is terminated for the failure on inability of the Agency to perform its undertakings, without default by the Redeveloper, then upon the request of the Redeveloper, the Agency shall negotiate in good faith with the Redeveloper for an alternate approach to the development of the Site within the ability of the Agency to perform, for a period of one hundred twenty (120) days from the date of termination of this Agreement. If said negotiations do not culminate in a mutually acceptable alternate approach to the development for the Site, neither the Redeveloper nor the Agency shall have any further rights or obligations to the other with respect to the Site at the end of such 120–day period.” (Emphasis added.)
6. Our conclusion supports the very purpose of the tax increment funding scheme. It would make absolutely no sense to pay the agency tax increments based on a contingent liability when the agency has already covered the contingency.
7. Nothing we have said precludes the trial court from entering a judgment which orders payment of tax increments based on evidence of other indebtedness which was before the court.
1. Civil Code section 1641 provides that “The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.”
2. “Option” is defined as “act of choosing”; or “exercise of power of choice”; or “the power or right to choose (as between alternatives)”; or “freedom of choice.” (Webster's New Internat. Dict. (3d ed. 1965).)
3. For example, section 10 of the 1971 DDA provides that “In the event that: [¶] (a) The Agency does not tender conveyance of the Property or possession thereof in the manner and condition, and by the date provided in this Agreement, and any such failure shall not be cured within thirty (30) days after written demand by the Redeveloper, then this Agreement shall, at the option of the Redeveloper, be canceled, and the Redeveloper shall be entitled to a return of the Deposit and all sums theretofore paid or deposited for the purpose of paying the purchase price of the Property, and neither the Agency nor the Redeveloper shall have any further rights against or liability to the other under this Agreement.”
4. In accordance with the evidence the trial court found, inter alia, that “The Sequoia Partnership DDA obligates the Agency to acquire land and reassemble it for resale to the Sequoia Partnership. The Agency is also to furnish or pay for parking facilities and other public improvements. The partnership is to buy the land and construct retail shopping facilities in accordance with plans approved by the Agency. Since the execution of the Sequoia DDA, the Agency has purchased the two major parcels of the shopping center site at a cost of $149,682.00 and $794,604.00, and the Agency is proceeding with condemnation actions and negotiations to acquire the remaining parcels required for assembly of the site.”
SABRAW, Associate Justice.
CHANNELL, J., concurs.