Opinion
A097690.
11-12-2003
BAY AREA LUXURY HOMES/STEVICK I, LLC, Plaintiff and Appellant, v. WILLIAM L. LEE III, et al., Defendants and Respondents.
This appeal arises from a contractual dispute over the purchase of property on Stevick Drive in Atherton (the Property) and the projected construction of a luxury residence thereon (the Construction Project). Bay Area Luxury Homes/Stevick I appeals from a judgment entered on the motion of respondents William L. Lee III and Leslie K. Lee pursuant to Code of Civil Procedure section 631.8.[] Appellant contends the evidence shows there was a valid, enforceable construction contract between the parties, and the trial court erred in granting judgment in favor of respondents on appellants contract cause of action. We conclude that the trial courts decision in respondents favor was supported by substantial evidence that there was never any meeting of the minds between the parties regarding the proposed Construction Project to build a residence on the Property, and thus no enforceable contract for that purpose. We therefore affirm.
Unless otherwise indicated, all further statutory references are to the Code of Civil Procedure.
The Property at issue in this case consists of a lot in Atherton "a little over an acre" in size with "a beautiful site," "very mature landscaping," and a detached single story ranch-style home. In the summer of 1999, appellant purchased the Property with the intention of tearing down the existing residence, designing and building a new home on it, and then placing the Property on the market "for speculative sale." At the time, appellant was in the business of purchasing and developing property for resale on the luxury home market.
After first hearing about the Property, respondents met with Robert A. Johnston, a principal of appellant, in early January 2000. With Johnston, they visited the site and examined the plans for the luxury residence appellant proposed building on it. On January 4, 2000, respondents executed a 6-page agreement entitled "Vacant Land Purchase Contract and Receipt for Deposit" (the Contract) for the purchase of the Property. The stated purchase price on the Contract was $7 million.
The Contract contained two specific references to an anticipated written agreement to construct a new house on the Property. Under paragraph 1(H) of the Contract, entitled "Additional Financing Terms," the following notation was handwritten: "see manufactured housing addendum to be completed by buyer [and] seller upon ratification of this contract." Under paragraph 21, entitled "Other Terms and Conditions," another handwritten notation reads: "The construction improvement contract is attached hereto. The terms and conditions of the construction improvement contract shall apply." In fact, neither a "manufactured housing addendum" nor a "construction improvement contract" was attached to the Contract as executed. Instead, a form contract addendum—"Contract Addendum No. 1"—filled in by hand and also dated January 4, 2000, stated that the Contract "is to be seperated [sic] into two parts totaling 7 million dollars": one, the "vacant land contract," in the amount of $3.5 million for the land alone with close of escrow to be on January 25, 2000; and the other, the "construction improvement contract," for the construction of the new residence and also in the amount of $3.5 million, with payment to be made in 10 equal installments "throughout the construction project as defined in the payment schedule." (Italics added.) Thus, both the Contract itself and the "contract addendum" referred to a separate "construction improvement contract," which itself was not attached to either document when respondents executed them.
On February 1, 2000, respondents closed escrow on the purchase of the Property for a purchase price of $3.5 million, pursuant to a grant deed executed on appellants behalf by Johnston and his partner, Greg Bock. Once again, however, no "construction improvement contract" was signed. A second addendum, dated February 1, 2000, reflected this fact, and the ongoing negotiations between the parties to reach an agreement on such a contract. Thus, the February 1, 2000, addendum specifically states that "[t]his sale includes plans for a two story residence"; "[a]ll base construction parameters and detailed specifications are to be agreed upon by both parties within ten days of close of escrow of land sale"; and "[b]oth Buyer and Seller agree that although the final plans and specifications for the construction of this home have not yet been agreed, they will negotiate a conclusion to the Home Construction contract for the construction of a two story residence . . . within ten days of close of escrow of land sale." (Italics added.) In addition, the addendum acknowledges the possibility that a "deed restriction" might "prevent the construction of a two story home," in which event appellant agreed to purchase the Property back from respondents and reimburse them "for all costs incurred in this transaction."
The February 1, 2000, addendum provided in pertinent part as follows: "1. All base construction parameters and detailed specifications are to be agreed upon by both parties within ten days of close of escrow of land sale. [¶] 2. In the event the deed restriction should in any way prevent the construction of a two story home, Bock Construction/Bay Area Luxury Homes, LLC hereby agrees to purchase back said property and reimburse Buyers for all costs incurred in this transaction. [¶] 3. This sale includes plans for a two story residence. A preliminary version of the plans have already been delivered to the Buyer and Buyer intends to build a similar two story home on the purchased property. Both Buyer and Seller agree that although the final plans and specifications for the construction of this home have not yet been agreed, they will negotiate a conclusion to the Home Construction contract for the construction of a two story residence by Bock Construction within ten days of close of escrow of land sale."
No construction improvement contract was ever executed by any of the parties. The parties never "agreed upon" the plans and specifications for the projected new residence, and therefore never successfully "negotiate[d] a conclusion" to the residential construction contract referred to in the original Contract and addenda thereto. The parties met numerous times during the period of a month between the time of executing the original Contract and close of escrow on the Property. Regarding these negotiations, respondents wrote appellant on January 10, 2000, that "[o]ur goal is to get the design discussions going so we can figure out what this house really looks like and costs and get the Construction Improvement contract finalized and completed." After executing the February 1, 2000, addendum, the parties continued their efforts to negotiate the promised home construction improvement contract. Johnston and Bock told respondents that the preliminary plans for the residence appellant proposed to build on the Property were merely a "starting point" not intended to limit respondents ideas, and that appellant would follow respondents wishes in order to build their dream house. As far as respondents were concerned, their negotiations with appellant were not over changes they were trying to obtain to a preexisting plan, but instead "an attempt to evolve the house that [they] wanted."
The testimony of both respondents was very similar on this point. Mrs. Lee testified: "We talked about this house and the preliminary plans they had for this house. What Bob and Greg told us was they would build us the house that we wanted, the house of our dreams. We could define that house. This is what they had planned to build there before we came into the picture and that we agreed to use that as a starting point for the conversation of what to build. [¶] . . . [& para;] Bob and Greg told us that they would build the house that we wanted and that didnt limit us to this house." Asked whether she knew Johnston and Bock were trying to accommodate respondents in their "requested changes to the plans," Mrs. Lee responded: "They were not requested changes to the plan. They were an attempt to evolve the house that we wanted."
Mr. Lees testimony was very similar. Asked whether Johnston and Bock told him they would build a house different than the one depicted in their preliminary proposals, Mr. Lee testified: "Absolutely. They told us they would build our house not their house. They told us they would build our house whatever we wanted. [¶] . . . [¶] That means that they would stop doing a spec house, listen to what we wanted, put whatever we wanted into it. We [would] all come [to an] agreement and they would build that house. [¶] . . . [¶] Together we would define what that house should be." Asked again whether the negotiations "were to discuss your changes to the project," Mr. Lee responded: "It was to define the house[—]our house not the spec house that they had put together previously."
As negotiations progressed, respondents expressed discomfort with the specifications for the proposed residence as they had been prepared to that point. Respondents requested a 10 to 15 percent retention or "holdback" on the construction cost. Johnston declined, telling respondents such a retention was not possible because appellant was making most of its profit from the land sale, with a profit of less than 10 percent on the construction of the house. Despite repeated requests by respondents for construction cost information, appellant did not provide cost estimates until February 14, 2000. At that point, respondents learned that the actual projected construction cost of the new residence was only approximately $ 1.77 million, far less than the approximately $3 million respondents had believed it would be; that, contrary to respondents earlier understanding, appellant had not already taken their profit percentage on both land and house out of the $3.5 million paid for the land purchase, but were instead anticipating making it on the construction project; and that the total price charged to respondents for the projected residence was now over $4.2 million. Respondents concluded that appellant was "making a lot more money" and respondents were "getting [a] lot less house" than appellant had led them to believe. On March 15, 2000, respondents informed appellant that they no longer wanted to go through with construction of the new residence on the Property.
On September 25, 2000, appellant filed suit against respondents for damages and declaratory relief, alleging breach of contract, fraud, and unjust enrichment. Nonjury trial commenced on July 31, 2001. On August 6, 2001, after appellant had rested its case in chief, respondents moved for judgment pursuant to section 631.8, subdivision (a). On August 7, 2001, after hearing argument and receiving written points and authorities from both parties, the trial court granted respondents motion as to appellants cause of action for breach of contract only. Trial proceeded on the other causes of action.
Section 631.8 provides in pertinent part: "(a) After a party has completed his presentation of evidence in a trial by the court, the other party, without waiving his right to offer evidence in support of his defense or in rebuttal in the event the motion is not granted, may move for a judgment. The court as trier of the facts shall weigh the evidence and may render a judgment in favor of the moving party, in which case the court shall make a statement of decision as provided in Sections 632 and 634, or may decline to render any judgment until the close of all the evidence. The court may consider all evidence received, provided, however, that the party against whom the motion for judgment has been made shall have had an opportunity to present additional evidence to rebut evidence received during the presentation of evidence deemed by the presenting party to have been adverse to him, and to rehabilitate the testimony of a witness whose credibility has been attacked by the moving party. . . .
"(b) If it appears that the evidence presented supports the granting of the motion as to some but not all the issues involved in the action, the court shall grant the motion as to those issues and the action shall proceed as to the issues remaining. Despite the granting of such a motion, no final judgment shall be entered prior to the termination of the action, but the final judgment in such action shall, in addition to any matters determined in the trial, award judgment as determined by the motion herein provided for.
"(c) If the motion is granted, unless the court in its order for judgment otherwise specifies, such judgment operates as an adjudication upon the merits."
Presentation of evidence concluded on August 16, 2001. On October 5, 2001, after the submission of further post-trial briefing by the parties, the trial court issued a decision in favor of respondents on the fraud and unjust enrichment causes of action. Among other things, the trial court found that in their negotiations with appellant up until they received appellants disclosure of actual construction costs on February 14, 2000, respondents had a good faith intent to proceed with the construction of a custom home on the Property; that there was therefore no fraud; and that the declaratory relief cause of action had been disposed of by the previous ruling granting judgment for respondents on the breach of contract cause of action. Judgment consistent with this decision was entered on November 27, 2001. This appeal timely followed.
NO ERROR IN GRANT OF JUDGMENT ON BREACH OF CONTRACT
Appellant contends the trial court erred in granting respondents motion for judgment as to the cause of action for breach of contract, because "the [e]vidence [c]learly [s]howed that the [p]arties [a]ssented to [a]ll [e]ssential [t]erms of the [c]ontract" to construct the new residence, whether or not they had actually reduced those terms to writing in a formal contract. Appellant is wrong.
The specific issue presented on respondents motion for judgment was whether appellant had stated a cause of action for breach of contract. The outcome of this issue in turn depended on the answer to the threshold question of whether in executing their written Contract for the sale of the Property, the parties had in fact also executed a contract to construct a new residence on the Property.
The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. (Civ. Code, § 1636; Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264; Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865; 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts § 684, pp. 617-618.) The mutual intention to which the courts give effect is determined by objective manifestations of the parties intent, including the words used in the agreement, as well as extrinsic evidence of such objective matters as the surrounding circumstances under which the parties negotiated or entered into the contract; the object, nature and subject matter of the contract; and the subsequent acts and conduct of the parties. (Civ. Code, §§ 1635-1656; Code Civ. Proc., §§ 1859-1861, 1864; Universal Sales Corp. v. Cal. etc. Mfg. Co. (1942) 20 Cal.2d 751, 761; Morey v. Vannucci (1998) 64 Cal.App.4th 904, 912; Southern Cal. Edison Co. v. Superior Court (1995) 37 Cal.App.4th 839, 851; Hernandez v. Badger Construction Equipment Co. (1994) 28 Cal.App.4th 1791, 1814; 1 Witkin, supra, §§ 688-689, pp. 621-623.)
The interpretation of any written instrument is a judicial function unless the interpretation turns on the credibility of conflicting extrinsic evidence. Extrinsic evidence is admissible to interpret the language of a written instrument, so long as such evidence is not used to give the writing a meaning to which it is not reasonably susceptible. (Parsons v. Bristol Development Co., supra, 62 Cal.2d at p. 865; Morey v. Vannucci, supra, 64 Cal.App.4th at p. 912; New Haven Unified School Dist. v. Taco Bell Corp. (1994) 24 Cal.App.4th 1473, 1483.) Where the meaning of the words used in a contract is disputed, the trial court must provisionally receive any proffered extrinsic evidence which is relevant to show whether the contract is reasonably susceptible of a particular meaning. (Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 39-40 & fn. 8; Morey v. Vannucci, supra, 64 Cal.App.4th at pp. 912-913; Pacific Gas & Electric Co. v. Zuckerman (1987) 189 Cal.App.3d 1113, 1140-1141.) Where the interpretation of the contract turns upon the credibility of conflicting extrinsic evidence which was properly admitted at trial, an appellate court will uphold any reasonable construction of the contract by the trial court. (Parsons v. Bristol Development Co., supra, 62 Cal.2d at pp. 865-866; Morey v. Vannucci, supra, 64 Cal.App.4th at p. 913.)
The central issue in this case is whether the Contact executed by the parties on January 4, 2000, incorporated not only the purchase of the Property itself, but also the demolition of the existing building and construction of a new residence according to plans drawn up by appellant. This is a disputed issue of contract interpretation which turns on conflicting extrinsic factual evidence and testimony. On the one hand, appellant argues that at the time of entering into the Contract, respondents had accepted the artists renderings, general architectural plans and specifications, and agreed to pay, in ten installments, the $3.5 million price of the new home to be constructed on the Property According to appellant, all that remained was for the parties to negotiate the final details preparatory to drawing up and executing a separate written construction agreement.
In opposition, respondents deny that the parties ever came to an agreement on constructing a new residence on the Property; to the contrary, they argue, there was never anything between the parties more than an agreement to negotiate a future agreement to do so. In support of their position, respondents point to the lack of any executed construction contract, and factual evidence that despite the best efforts and intentions of the parties, they were never able to come to final agreement on the plans and contractual terms for construction of the residence. Among other things, respondents cite the following evidence: (a) the "construction improvement contract" referred to in the Contract and its addenda was not attached to either the Contract or the addenda; (b) no such construction improvement contract was ever signed or executed by any party; (c) after execution of the purchase Contract for the Property, a draft construction improvement contract was submitted to respondents and their counsel for review, revision and approval, but never executed; (d) the original Contract contained a reference to an attached "manufactured housing addendum" which never existed; (e) in the two written and executed addenda to the Contract, the parties expressly acknowledged that they had not yet agreed upon the final construction plans, base construction parameters or specifications for the construction of the new residence, and promised to "negotiate a conclusion" to the construction improvement contract; (f) the February 1, 2000, addendum acknowledged that construction of any two-story residence on the Property might be barred by deed restrictions that would effectively terminate the entire arrangement between the parties; and (g) negotiations ultimately broke down over issues of the cost and feasibility of achieving respondents wishes for the plans and specifications.
Thus, this case does not present a purely legal question of contractual interpretation subject to de novo review on appeal. To the contrary, the central issues in this case—the existence of a contract between the parties for the construction of a residence on the Property, and its breach by respondents—turn almost entirely upon the credibility of conflicting extrinsic evidence which was properly admitted at trial. These issues were necessarily for the trial court, and subject to deferential appellate review. (Morey v. Vannucci, supra, 64 Cal.App.4th at p. 913.)
Moreover, appellant failed to request any statement of decision with regard to the trial courts grant of judgment. We must therefore presume that the trial court made all factual findings necessary to support the judgment for respondents, and indulge all inferences in favor of the correctness of its decision. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133; Tusher v. Gabrielsen (1998) 68 Cal.App.4th 131, 140.) The only question on this appeal, therefore, is whether the implied findings of the trial court are supported by substantial evidence in the record. (Michael U. v. Jamie B. (1985) 39 Cal.3d 787, 792-793; Tusher v. Gabrielsen, supra, 68 Cal.App.4th at p. 140; Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2002) ¶ 8:22.)
Under section 631.8, subdivision (a), a statement of decision is required when a trial court grants motion for judgment in favor of the moving party. However, no statement is required unless timely requested by a party. (& sect; 632; Tusher v. Gabrielsen, supra, 68 Cal.App.4th at p. 140, fn. 10; Newby v. Alto Riviera Apartments (1976) 60 Cal.App.3d 288, 304.)
On the evidence before us, we conclude there was ample substantial evidence to support the implied finding of the trial court that no executed construction contract ever came into being between the parties. It is well-settled that there can be no such thing as an "agreement to agree." In general, a contract which leaves an essential element for the future agreement of the parties is fatally uncertain and unenforceable. (Ablett v. Clauson (1954) 43 Cal.2d 280, 284; Beck v. American Health Group Internat., Inc. (1989) 211 Cal.App.3d 1555, 1563; Robinson & Wilson, Inc. v. Stone (1973) 35 Cal.App.3d 396, 409; Rest.2d, Contracts, § 33 & coms. e, f; 1 Witkin, supra, §§ 155-156, pp. 176-178.) The ultimate validity, enforceability, and effect of a contract containing a promise to agree in the future depend entirely on the severability and relative importance of the matter left to future agreement. Where these matters are unessential, the unsettled point may simply be left unperformed and the remainder of the contract enforced as written. (Coleman Engineering Co. v. North American Aviation, Inc. (1966) 65 Cal.2d 396, 405; City of Los Angeles v. Superior Court (1959) 51 Cal.2d 423, 433.) When they are essential, however, the agreement to agree in the future is unenforceable. (Ablett v. Clauson, supra, 43 Cal.2d at pp. 284-285.)
"The general rule regarding contracts to agree in the future is stated to be as follows: `Although a promise may be sufficiently definite when it contains an option given to the promisor or promisee, yet if an essential element is reserved for the future agreement of both parties, the promise can give rise to no legal obligation until such future agreement. Since either party by the terms of the promise may refuse to agree to anything to which the other party will agree, it is impossible for the law to affix any obligation to such a promise. [Citation.] The rule is well established in this state [citations], and, in conformity with the weight of authority in other states [citations], it has been held that an . . . agreement which leaves an essential term to future agreement is not enforceable. [Citations.]" (Ablett v. Clauson, supra, 43 Cal.2d at pp. 284-285.)
In short, with respect to the construction of a contractual provision calling for the future negotiation of contractual terms by the mutual agreement of the parties, the validity and enforceability of the agreement to negotiate terms will depend upon the relative materiality of the terms left for future agreement. (Coleman Engineering Co. v. North American Aviation, Inc., supra, 65 Cal.2d at p. 406; Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 816-818.) A contract containing such an agreement to agree on future modification of contractual terms is valid and enforceable only insofar as the adjustments or modifications subsequently sought might be considered "minor or of not great magnitude." (Coleman Engineering Co. v. North American Aviation, Inc., supra, 65 Cal.2d at p. 406.) Here, the trial court impliedly found that appellant failed to establish a contractual obligation on respondents part to agree to the terms of the proposed construction contract. This implied finding is supported by substantial evidence in the record that the issues between the parties were not trivial, but material and substantial. There was no enforceable construction contract between the parties; they only executed an agreement to negotiate an agreement in the future, and never came to a meeting of the minds concerning the essential terms of that projected agreement.
In their reply brief and again at oral argument, appellant has argued that completed plans and specifications are not necessary to the enforcement of a construction contract; and that the absence of such plans and specifications does not "vitiate" or impair the formation of an enforceable contract by demonstrating a failure to reach a meeting of the minds. Appellants argument misses the mark. It may be true that completed plans and specifications are not necessarily essential to an enforceable construction agreement. But it does not follow that the absence of such plans and specifications is always immaterial to the enforceability of the agreement. In fact, there is no bright-line rule on the materiality of uncompleted plans and specifications to a construction contract for purposes of enforceability. In every case, the key issues are the mutuality of agreement on the material elements of the contract, and the materiality of the matters left to future agreement. Resolution of these twin issues will turn on the contractual language in question and, where relevant, the extrinsic facts and circumstances of each case. Where this evidence demonstrates that the essential terms of the missing plans and specifications were material, as in this case, their absence will be fatal to the enforceability of the construction contract.
In the cases relied upon by appellant, the courts found that the parties had reached specific agreement on all the essential terms of construction, and the areas left to future agreement were immaterial under the particular factual circumstances presented. (Sanders Construction Co. v. San Joaquin First Fed. Sav. & Loan Assn. (1982) 136 Cal.App.3d 387, 391-395 [the parties to a lease agreement had agreed with "specificity" to all the material terms concerning the physical description of the premises, size and building costs of the projected commercial building, and the modifications to the plans and specifications were "inconsequential" with only "insignificant impact" on the space leased to the appellant]; S. Jon Kreedman & Co. v. Meyers Bros. Parking-Western Corp. (1976) 58 Cal.App.3d 173, 180-183 [held, specificity required for enforceable contract depends upon the factual circumstances; where parties had agreed to all essential material details concerning projected multistoried garage structure, absence of plans and specifications did not void contract].) These cases in turn carefully distinguished other cases finding no mutuality of agreement where material issues of cost and construction design were left to future agreement. (Robinson & Wilson, Inc. v. Stone (1973) 35 Cal.App.3d 396, 400-411 [contractual provisions on plans and specifications for proposed building were so indefinite and uncertain as to indicate no meeting of the minds, but only an unenforceable promise to agree in the future]; King Lumber Co. v. National Bank (4th Cir. 1923) 286 Fed. 906, 907-908 [where plans and specifications necessary to completion of construction contract were not yet approved or agreed to by the parties, there was no meeting of the minds as to the contract itself; held, "action for breach of contract must fail for lack of proof that the contract was made"].) Under the facts presented, we conclude the instant case is governed by the latter cases.
In the final analysis, the question whether an enforceable construction contract was created in this case turns on disputed extrinsic evidence. There is substantial evidence in the record to support the trial courts implied conclusion that there was no meeting of the minds between appellant and respondents on material issues of construction costs and design, and consequently no construction contract was formed between them.
After granting the motion for judgment on the cause of action for breach of contract, the matter proceeded to trial on appellants fraud cause of action. In finding against appellant on that cause of action, the trial court issued a statement of decision specifically finding that respondents conduct indicated that, at least until they learned of the construction costs, respondents had a sincere intent to proceed toward a construction contract. It was in part on the basis of this finding that the trial court concluded there was no fraud on respondents part. Appellant now contends this finding "contradicts" the previous judgment on the contract cause of action, because it shows the trial court determined that respondents "intended to and did enter into a contract" to construct the residence.
The assertion is meritless. The trial courts finding simply shows that respondents were proceeding in good faith in attempting to negotiate the terms of a construction agreement with appellant. It does not contradict the conclusion that the parties never had more than an unenforceable agreement to agree in that regard.
DISPOSITION
The judgment entered in favor of respondents upon their motion pursuant to Code of Civil Procedure section 631.8 is affirmed. Appellant shall pay respondents costs on this appeal.
We concur: Parrilli, J., Pollak, J.