Background
In January 2020, Eugenio Gonzalez executed two promissory notes in favor of QBN Capital, LLC: a $1 million Recapitalization Note and a $1,463,800.26 Gonzalez Note. His mother Theresa and wife Monica each executed personal guaranties the same day. The notes arose from a cannabis venture in which QBN's principal Benjamin Bequer contributed capital to purchase a dispensary and fund litigation, with Eugenio allegedly agreeing to repay portions of those contributions.
After Eugenio defaulted, the parties negotiated an Amendment and Waiver Agreement effective May 22, 2020, with Eugenio's signature notarized May 27. In that agreement, executed with independent counsel, the Gonzalezes acknowledged the defaults, ratified all obligations under the notes and guaranties as 'legal, valid and binding,' stated no offsets, defenses or counterclaims existed, and released all defenses relating to the loans. QBN waived the specific defaults and eliminated monthly interest payments.
QBN filed a complaint in June 2022 alleging four causes of action for breach of contract. The Gonzalezes asserted 33 affirmative defenses, not including fraudulent inducement or undue influence. In opposing summary judgment, they argued for the first time that the notes were procured by fraud and undue influence, claiming Bequer misrepresented that the notes would 'go away' after a sale of the dispensary's assets. In October 2023, the trial court granted summary judgment, and in February 2024 entered judgment for QBN for $4,224,569.47 plus 15 percent interest from October 2023 forward.
The Court’s Holding
The Court of Appeal affirmed. It declined to find the fraud and undue influence defenses forfeited despite being raised first in the summary judgment opposition, because QBN had an opportunity to respond and showed no prejudice. However, the court held the Gonzalezes expressly waived these defenses in the Amendment and Waiver Agreement by reaffirming their obligations and agreeing no defenses existed. The court rejected the argument that a clause preserving 'fraud' claims in the release paragraph saved the defense, noting the waiver appeared in separate paragraphs and the argument was raised for the first time at oral argument.
The court also held the Gonzalezes impliedly waived the defenses by ratifying the notes after discovering the alleged fraud. The Gonzalezes knew by May 2020 that Bequer did not intend to make the notes 'go away,' yet they executed the Amendment and Waiver Agreement and made partial payments instead of seeking rescission. The court distinguished Storage Services v. Oosterbaan, finding QBN's waiver of collection rights on defaults constituted a substantial benefit.
The court further held the Gonzalezes forfeited their appellate arguments regarding contract formation, consideration, and QBN's performance by failing to raise them in the trial court. Even if not forfeited, the court found them meritless given the waivers. The court also found any error in excluding Eugenio's handwritten exhibit was harmless.
Key Takeaways
- A party that executes a subsequent agreement ratifying obligations under prior contracts, while represented by counsel and with knowledge of alleged fraud, waives fraudulent inducement and undue influence defenses to those earlier contracts.
- Express waiver language in an amendment agreement—stating obligations are 'legal, valid and binding' and that no defenses exist—can foreclose fraud defenses even when a separate release clause purports to preserve fraud claims.
- Arguments not raised in opposition to summary judgment are forfeited on appeal.
- A lender meets its initial summary judgment burden on notes and guaranties by producing the instruments and evidence of nonpayment.
- Erroneous exclusion of evidence at summary judgment is harmless when the appellant has waived the defenses the evidence supported.
Why It Matters
This decision reinforces the finality of negotiated workout agreements in commercial lending. Borrowers and guarantors who sign such agreements with counsel, acknowledging defaults and reaffirming obligations, face a heavy burden in later challenging the underlying debt based on alleged fraud in the original transaction. Ratification after discovering alleged fraud—manifested by executing a new agreement and making partial payments—constitutes a waiver of the right to rescind.
The case also illustrates the procedural risks of raising new defenses or arguments for the first time on appeal or in summary judgment opposition. While courts may excuse late-raised affirmative defenses absent prejudice, entirely new theories attacking the moving party's evidentiary showing are typically forfeited if not presented to the trial court.
Read the full opinion (PDF) · Court docket