Opinion
H044044
09-17-2019
SPILIOS BOUMIS et al., Plaintiffs and Appellants, v. GENNARO PASSARO, Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Santa Clara County Super. Ct. No. 1-14-CV265553)
This action arises out of a dispute concerning Santa Cruz property located on 700 Soquel Avenue (hereafter the Property or the Santa Cruz Property). Appellants are Spilios Boumis (Spilios) and Vicki Boumis (Vicki), Peter and Ionna Moutzouridis (collectively, the Moutzouridises), and Metaxa Properties I, LLC (Metaxa), and are the owners of the Property. (Hereafter, appellants are collectively referred to as the Boumises.) In May 2014, the Boumises filed this action against Gennaro Passaro for declaratory and injunctive relief concerning a contract signed in January 2014 entitled "Commercial Real Estate Purchase Contract And Deposit Receipt" (capitalization omitted; hereafter the Agreement). Under the Agreement, the Boumises agreed to sell the Property to Passaro for $2,518,000. In their first amended complaint (Complaint), the Boumises alleged, inter alia, that an actual controversy had arisen in that the Boumises contended the Agreement was unenforceable because it was an illusory contract, while Passaro asserted the Agreement was valid. Passaro filed a cross-complaint against the Boumises, alleging claims for breach of contract, specific performance, and declaratory relief arising out of the Agreement. Passaro alleged, inter alia, that (1) he had offered to pay the full sales price under the terms of the Agreement, (2) he continued to be ready, willing, and able to pay the consideration required to purchase the Property, and (3) the Boumises had failed and refused, and continued to fail and refuse, to convey the Property to him.
We refer to appellants Spilios and Vicki Boumis herein by their forenames to promote clarity by distinguishing them from the remaining appellants. We mean no disrespect by doing so.
Spilios and Vicki brought suit as individuals and in their capacities as cotrustees of The Spilios Boumis and Vicki Boumis Revocable Family Trust of 2008. Peter and Ionna Moutzouridis are Spilios's brother-in-law and sister, respectively. Metaxa, which was named as a plaintiff in the first amended complaint, is apparently an entity controlled by Spilios and Vicki and/or the Moutzouridises. The record shows that Metaxa was the entity that entered into the contract to purchase the Property in July 2013, but the Property was apparently deeded at the time of sale in December 2013 to the revocable family trust of Spilios and Vicki, and to the Moutzouridises. The agreement of sale of January 2014 that is the subject of this lawsuit identified Spilios and Vicki Boumis and the Moutzouridises as the seller of the Property. Since it is apparent that virtually all dealings with respondent on behalf of appellants were by Spilios and Vicki Boumis (primarily Spilios), for simplicity, when we refer herein to the Boumises, we are concerned with all of the appellants herein.
After a three-day court trial, a tentative decision was rendered in favor of Passaro and against the Bouomises on the Complaint and on the cross-complaint, the court concluding that Passaro was entitled to specific performance permitting him to complete the purchase of the Property within 120 days of entry of judgment. A formal statement of decision consistent with the tentative decision was thereafter filed, and on July 29, 2016, the court entered judgment in favor of Passaro granting him specific performance to purchase the Property from the Boumises.
In their appeal, the Boumises contend, inter alia, that the trial court erred in granting Passaro specific performance because he failed to prove a necessary element to support that claim, i.e., that he was ready, willing and able at the time of trial to purchase the Property. The trial court concluded, inter alia, "that the evidence submitted by Passaro on the issue [of his present ability to perform was] not substantial." The Boumises argue that because the trial court so concluded, its decision to grant specific performance was error.
The Supreme Court has plainly held that a buyer seeking the equitable remedy of specific performance must show that he or she is ready, willing, and able to perform under the contract. (Dotson v. Intl. Alliance etc. Employees (1949) 34 Cal.2d 362, 372 (Dotson).) As an intermediate court, we are bound by that precedent. (Auto Equity Sales, Inc. (1962) 57 Cal.2d 450, 455 (Auto Equity).) Accordingly, because Passaro failed to establish that he was ready, willing, and able to purchase the Property at the time of trial, he was not entitled to specific performance. We will therefore reverse the judgment.
I. FACTS
A. Background
Passaro is a licensed commercial real estate agent with approximately 15 years of experience working for three different brokerage firms, the most recent being Ritchie Commercial, Inc. (Ritchie). He first met Spilios in 2004 as a result of property Passaro had advertised for sale. According to Passaro's testimony, he and Spilios "were very close . . . [and] spent a tremendous amount of time together, both personally and from a business perspective." Spilios and Vicki are the godparents of Passaro's child. From 2005 through 2013, Passaro represented the Boumises as their agent in approximately five real estate transactions, and Passaro marketed and obtained offers relative to two other properties owned by the Boumises. Spilios testified that Passaro was his real estate agent and he also considered him a friend until 2010. Vicki testified that she viewed Passaro as family until February 2014.
Although not relevant to this appeal, we are aware from the record that in response to an accusation filed in February 2016 before the Bureau of Real Estate of the State of California, Passaro surrendered his real estate agency license, which surrender was accepted by the Bureau of Real Estate in July 2016.
At the time of trial, Spilios was 70 years old. He did not attend school in the United States, and he has had no education in the field of real estate. He retired from the restaurant business, having owned two prior restaurants. Over the years, Spilios and Vicki have owned various real estate, including restaurants and other commercial properties. As of the time of trial, they had been married for 39 years. Vicki testified that she participated with her husband with respect to their real estate holdings, including leasing activities and negotiations, tenant improvements, handling business e-mail communications for her husband, and discussing potential investments.
B. Livermore-Santa Cruz Property 1031 Exchange
The Boumises owned commercial property in Livermore (Livermore property) that they entered into a contract to sell. Under the contract, it was contemplated that the Boumises would sell the Livermore property using the tax benefits of an exchange under section 1031 of the Internal Revenue Code (hereafter 1031 exchange). Passaro was not the Boumises' agent in the transaction. The sale of the Livermore property closed in approximately June 2013.
An exchange pursuant to Internal Revenue Code section 1031 is "a real estate exchange transaction available under 26 U.S.C. § 1031, which provides that for certain types of property transactions, recognition of capital gains upon sale may be deferred, as may any capital gains taxes otherwise due. [Citation.]" (Piping Rock Partners, Inc. v. David Lerner Associates, Inc. (N.D. Cal. 2013) 946 F.Supp.2d 957, 969, fn. 5.)
Sometime in 2013, Spilios advised Passaro that he had observed a sign on the Santa Cruz Property and asked that Passaro look into the matter. The Property is located in the Seabright neighborhood on the east side of Santa Cruz, contains a total of approximately 40,000 square feet, and consists of five contiguous parcels with a building located on the corner parcel. The building has a restaurant, the Buttery, located on the ground floor and the Property is well-known in the Santa Cruz community. Passaro conducted some investigation and contacted agents in Santa Cruz, determining that there were seven outstanding offers. He also noted that "there were entitlements and . . . permits in place for the development of [the] 5,000 [square] foot parcel" that were expiring in September 2013.
The Boumises, through Passaro, made an offer to purchase the Santa Cruz Property, and they accepted the seller's counteroffer at a purchase price of $2,600,000. After the contract was in place, another prospective buyer filed a lawsuit that delayed the Boumises' acquisition of the Property. As a result, according to Passaro's testimony, Spilios was concerned about whether the matter would be resolved in time to complete the 1031 exchange. Passaro testified that the Property in 2014 was appraised for $100,000 less than the purchase price. Further, because of delays in the sale, the entitlements to the Property expired. Spilios was thus unhappy with the transaction and, in fact, changed his mind frequently about proceeding with the purchase of the Property.
Spilios testified that one of the reasons for deciding to purchase the Property was the existence of entitlements that would permit him to develop it. After the Boumises purchased the Property, Spilios attempted to revive the entitlements, but impediments to doing so included a building code change and neighborhood opposition to development.
The purchase price was ultimately reduced by the seller in December 2013 to $2,513,000. The Boumises closed escrow on or about December 15, 2013, using the proceeds from the sale of the Livermore property to purchase the Santa Cruz Property.
C. Passaro's Agreement to Purchase Santa Cruz Property
The summary of facts concerning Passaro's Agreement to purchase the Property from the Boumises is based upon the testimony of Passaro. The circumstances concerning the parties' Agreement were largely in dispute. In general, the trial court resolved those factual disputes in Passaro's favor. Although the circumstances concerning the parties' Agreement are not germane to our ultimate resolution of this appeal, we present them here based upon Passaro's testimony; we describe in footnotes the testimony by Spilios in which he disputed Passaro's version of the circumstances of the parties' entering into the Agreement.
According to Passaro's testimony, in December 2013, shortly before the Boumises closed escrow on the Property, Spilios—who was unhappy with the transaction but felt it necessary to proceed in order to preserve the 1031 exchange—asked Passaro whether he was prepared to buy the Property if the Boumises decided they wanted to sell "and do another 1031 exchange." Spilios said that he did not think the Property was worth what he would be paying for it even with the seller's having discounted the purchase price. Passaro responded, " 'If you buy it and you decide that you don't want the property, I'll be more than happy to buy it from you.' " Passaro testified further that Spilios asked him how he would pay for the Property, and Passaro responded, " 'I'm going to sell my shopping center, or . . . [D]ad can help me out.' " At or about the same time, according to Passaro's testimony, Passaro and Spilios discussed the details of Passaro's potential purchase of the Property. Passaro testified that the terms Spilios wanted included (1) $5,000 more than the Boumises had paid for the Property (i.e., a purchase price of $2,518,000), (2) time (at least six months) to locate replacement property for a 1031 exchange, (3) three 30-day extensions in the event they needed more time to locate replacement property, and (4) each side to be self-represented so that there would be no commissions.
The record is unclear whether, according to Passaro's testimony, the conversation in which he and Spilios discussed the terms of a proposed sale of the Property occurred at the same time that Spilios asked if Passaro would buy the Property and Passaro responded that he would do so.
Spilios testified that it was Passaro who set the purchase price at $5,000 more than the Boumises' price for purchasing the Property. The trial court resolved this factual dispute in Passaro's favor. Spilios also testified he was not concerned about having extension language in the Agreement.
Passaro testified that in January 2014 he prepared a contract for his purchase of the Property from the Boumises that was based upon his prior discussions with Spilios. Passaro used as a "template" a form agreement from a brokerage firm for which he had previously worked. Passaro presented the proposed agreement, signed by him, along with two checks to Spilios on January 3, 2014. The two checks were a $20,000 deposit and a postdated $80,000 increased deposit. Passaro explained the terms of the Agreement to Spilios at the time. Passaro left the contract with the Boumises unsigned. On January 6, 2014, Spilios dropped off the Agreement signed by Spilios and Vicki and the Moutzouridises. Passaro testified that he did not threaten the Boumises in any way, there was no hostility, and the Agreement "was more of a formality."
Spilios presented a very different version of what transpired concerning the execution of the Agreement. He testified that Passaro came to the house twice on the first weekend in January 2014—to drop off the Agreement for signature on Friday, January 3, and on Sunday, January 5, to pick up the Agreement executed by the Boumises. Spilios testified that on either January 3 or 5, Passaro threatened him and his family to coerce them into signing the Agreement, stating words to the effect that he (Passaro) was crazy and the Boumises better sell him the Property as promised. On January 3, Passaro "threaten[ed Spilios] so many times that day." On January 3, Passaro told Spilios that Passaro would obtain a check from his father for $2.5 million to buy the Property and deliver it to Spilios the following Monday. (Elsewhere in his testimony, Spilios stated that Passaro told him on the day the Boumises bought the property—December 15, 2013—that Passaro would get a check from his father for $2.5 million to buy the Property and would deliver it the following Monday.) Spilios testified that he called Passaro's father, Biagio Passaro, to ask if he was going to give Passaro money, and Biagio Passaro responded, " 'No way.' " Spilios testified further that on January 5, Passaro told Spilios that he (Passaro) would lose his house and children if the Boumises did not sign the Agreement. On that day, Spilios told Passaro when he signed the Agreement that he was not going to sell the Property to him.
The trial court rejected the Boumises' contention that their execution of the Agreement was the result of coercion or undue influence exerted by Passaro. The court found that Spilios's testimony concerning what transpired on January 3, 2014, was "confused and lack[ed] credibility." It concluded further that, as to the events of January 5, 2014, when Passaro allegedly returned to pick up the signed Agreement, "[t]he details of the threatening words [were] muddled, contradictory and unconvincing." The court concluded that "[w]hatever interaction there was at the time the contract was signed, if any, [it] was not sufficient to overcome [the Boumises'] free will."
Passaro testified that for approximately one month (mid-January to mid-February 2014), he managed the Property (including collection of rents), without compensation from the Boumises. He did so because "[l]ogically[, he] was going to buy the property." Passaro ceased managing the Property at the Boumises' request.
According to Passaro, after execution of the Agreement, he took financial steps necessary to acquire the Property, including "clean[ing] up" his shopping center located in San Jose on South Bascom Avenue (hereafter the South Bascom property), through painting, landscaping, and roof repair, and by marketing it for sale and opening an escrow. The South Bascom property was sold on or about April 17, 2014. Passaro also prepared his home for sale and hired an agent for that purpose. Passaro testified the Boumises were aware of his efforts to sell the South Bascom property as well as its ultimate sale.
Passaro testified he placed his home on the market in June 2014, but immediately took it off the market because of health reasons. He sold the home approximately one year later.
Spilios testified he was unaware that Passaro was selling the South Bascom property in order to purchase the Santa Cruz Property.
Passaro also testified that he made attempts to secure a loan to buy the Property, contacting Santa Cruz County Bank and Mathew Piro of SVS Finance. Passaro also considered borrowing funds from his father to aid in the purchase of the Property as "an option," but he had no written agreement with his father for such a loan. Biagio Passaro testified that he had no agreement with his son regarding a loan for the purchase of the Property. Biagio Passaro testified further that he had never been advised of the purchase price or how much money would be needed for his son to close escrow on the Property.
On February 11, 2014, the escrow officer, Kelly Caparso, notified the Boumises in writing that Passaro had "no objections to any contingencies and therefore, all contingencies have been removed within the timeframe set forth [in the Agreement], with the exception of that per Section 30, which must be waived or removed by July 3, 2014." On February 21, 2014, the Boumises advised Caparso by e-mail that they wanted to cancel the escrow. This request was followed with a letter from the Boumises' counsel, Jesse Jack, on February 24, 2014, confirming the Boumises' request that the escrow be cancelled and instructing the escrow agent to return the deposit to Passaro. No reason for cancelling the escrow was stated either in the Boumises' February 21 e-mail or in Jack's February 24 letter. On April 17, 2014, Caparso sent an e-mail to the Boumises and Passaro advising that "[t]he buyers are ready to fund on the escrow of 700 Soquel Avenue." On July 2, 2014, Passaro made the additional deposit of $80,000 into escrow provided in the Agreement. The proceeds from the sale of the South Bascom property held by an intermediary were the source of the additional deposit. At that time, the escrow company notified the Boumises that they needed to sign papers to close escrow. Passaro testified that he was ready, willing, and able to close escrow to purchase the Santa Cruz Property on August 3, 2014, as provided in the Agreement.
As of April 21, 2014, the intermediary was holding net proceeds of $1,216,000 from Passaro's sale of the South Bascom property.
Caparso, the escrow officer, testified that it was her understanding that Passaro intended to use the proceeds from his sale of the South Bascom property coupled with a loan of $1,350,000 obtained from Doug Feece to purchase the Santa Cruz Property. According to the testimony of Mathew Piro, a real estate agent working in a mortgage loan brokerage firm contacted by Passaro, Pacific Private Money, Inc. was the lender that was targeted to make the loan to Passaro for the purchase of the Santa Cruz Property.
Passaro ultimately purchased other commercial real estate on Willow Street in San Jose (hereafter the Willow Street property). He testified that he entered into the agreement to purchase the Willow Street property to mitigate his damages so that he could use it as replacement property for a 1031 exchange involving the South Bascom property if he were unable to complete the purchase of the Santa Cruz Property. Passaro's father, Biagio, supplied a portion of the funds ($935,000) used to purchase the Willow Street Property.
The source of the remaining funds for the Willow Street property purchase was the net funds he received from the sale of his South Bascom property, since Passaro listed the former property as the replacement property for a 1031 exchange.
II. PROCEDURAL BACKGROUND
A. Complaint
The Boumises initiated this action on May 20, 2014. They filed the (First Amended) Complaint on September 30, 2014. In it, the Boumises alleged four causes of action for (1) declaratory relief regarding the enforceability of an arbitration clause in the Agreement, (2) professional negligence, (3) breach of fiduciary duty, and (4) declaratory relief regarding the enforceability of the Agreement. Only the fourth cause of action was at issue at trial. As it concerns the controversy tried by the court below, the essential allegations contained in the Complaint are stated below.
Plaintiffs and appellants include the Boumises, the Moutzouridises, and Metaxa. (See fn. 1, ante.)
The Boumises indicated in their trial brief that in June 2014, the court enjoined Passaro from pursuing his prior demand for arbitration filed with the American Arbitration Association. Further, although the dismissal is not part of the record, the Boumises advised the court in their trial brief that they had dismissed Ritchie from the lawsuit and had dismissed the second and third causes of action of their Complaint.
Passaro was a licensed real estate agent employed by Ritchie, a licensed California real estate broker. The Boumises were represented by Passaro and Ritchie in a transaction involving Metaxa's December 2013 purchase of the Property.
Prior to January 2014, Metaxa owned certain real property located on Wright Brothers Avenue in Livermore (the Livermore property). Before January 2014, the Boumises advised Passaro that they were selling the Livermore property and that they wished to complete a 1031 exchange. In July 2013, Metaxa signed a contract to buy the Property for a purchase price of $2,513,000. Prior to Metaxa entering into that agreement, Passaro, while acting as real estate agent for the Boumises, told them he wished to buy the Property but did not have funds to accomplish the purchase; Passaro said that if the Boumises would buy the Property, he would thereafter buy it from them. The Boumises closed escrow on the purchase of the Property on December 15, 2013.
Shortly after closing escrow on the purchase of the Property, on January 5, 2014, the Boumises entered into the Agreement for the sale of the Property to Passaro. The Agreement was drafted by Passaro. The Boumises alleged that Passaro failed to disclose to them that if they sold the Property to him, they would lose the benefit of a 1031 exchange, thereby incurring substantial tax liability. He also failed to disclose to the Boumises that he had a conflict of interest in that he was concurrently representing them while representing his own interest in the purchase of the Property. The Boumises alleged further that Passaro drafted the Agreement in a manner that obligated them to sell the Property for a period of six months while Passaro would have no legal obligation to purchase the Property.
The Boumises alleged in the fourth cause of action for declaratory relief that an actual controversy had arisen between the parties concerning the Agreement. The Boumises contended it was unenforceable because (1) it was an illusory contract because no consideration was paid by Passaro and he had no obligation to buy the Property, while the Boumises remained obligated to sell the Property to him for six months; (2) Passaro never waived contingencies as provided in the Agreement that he had drafted; and (3) the Agreement drafted by Passaro identified the sellers of the Property as the Boumises, while the contract under which the Property was previously acquired identified the buyer as Metaxa, and Metaxa was the entity that thereby acquired the Property. They alleged that Passaro asserted the Agreement was valid.
B. Cross-Complaint
On or about July 21, 2014, Passaro filed a cross-complaint alleging three causes of action for breach of contract, specific performance, and declaratory relief. Passaro alleged that the Boumises were the owners of the Property as of January 5, 2014, and at that time, Passaro and the Boumises "mutually negotiated the significant terms" and entered into the Agreement. On January 3, 2014, escrow was opened and Passaro deposited $20,000 "pursuant to the Agreement." On February 21, 2014, the Boumises advised the escrow officer that they wished to cancel the escrow. Four days later, Passaro sought assurances from the Boumises that they would perform under the Agreement. On March 3, 2014, the Boumises advised Passaro that they did not intend to perform under the Agreement. On July 3, 2014, Passaro deposited $80,000 into escrow, said sum representing the remaining amount of the deposit.
Passaro alleged in the first cause of action for damages that the Boumises had breached the Agreement by failing and refusing to convey the Property to him. He alleged that he sustained general and consequential damages as a result of the Boumises' breach of contract. In the second cause of action for specific performance, Passaro alleged that (1) the consideration to be paid for the Property under the Agreement was at the time of its execution adequate and the Agreement was just and reasonable; (2) he offered to pay the full consideration and he continued to be ready, willing, and able to pay the consideration; (3) he had demanded that the Boumises convey the Property; (4) the Boumises had refused and continued to refuse to convey the Property; and (5) Passaro had no adequate remedy at law other than specific enforcement of the Agreement. Passaro alleged in the third cause of action for declaratory relief that a controversy existed in that he contended the Agreement was valid and enforceable, while the Boumises contended that the Agreement was invalid.
C. Trial and Judgment
The case proceeded to a three-day court trial in April 2016. After post-trial briefing, including supplemental briefing requested by the court concerning evidence presented at trial demonstrating Passaro's "current ability to complete the contract if specific performance is granted"—the court filed its tentative statement of decision on May 25, 2016, finding in favor of Passaro.
The court's statement of decision, the substance of which was consistent with the tentative decision, was filed on July 14, 2016. The court concluded, inter alia, that (1) the Boumises' contention that the Agreement was an illusory contract that was unenforceable was without merit; (2) the Boumises failed to establish their affirmative defense to the breach of contract claim based upon alleged coercion or undue influence exerted by Passaro in connection with the execution of the Agreement; (3) Passaro, contrary to the allegations and testimony of the Boumises, was not the Boumises' agent in connection with their sale of the Property to Passaro under the Agreement; (4) Passaro adequately tendered performance under the terms of the Agreement, including "waiving all contingencies, including the financing contingencies, long after [the Boumises] had announced that they would not perform"; (5) Passaro did not establish that he, as buyer, had suffered damages resulting from the seller's breach of an agreement to convey real property because the contract sales price was greater than the Property's appraised value (see Civ. Code § 3306); and (6) Passaro was entitled to a judgment of specific performance, under which he would be able to purchase the Property provided that he closed escrow within 120 days of entry of judgment. The court entered judgment on July 29, 2016.
The first nine pages of text of the statement of decision are identical to the text of the court's tentative decision. There were two substantive differences at the end of the documents. In the tentative decision, the court awarded Passaro "monetary compensation incidental to specific performance" in the amount of $196,455. In its statement of decision, the court made no monetary award to Passaro incidental to specific performance. Second, in the tentative decision, the court determined that Passaro was the prevailing party entitled to reasonable attorney fees and costs, while in the statement of decision, the court deferred the prevailing party determination until a time postjudgment when it was learned whether Passaro was able to complete the purchase of the Property under the terms of the court's decision.
Further specifics regarding the trial court's findings in its statement of decision, particularly concerning the element of Passaro's present ability to perform under the Agreement to support his request for specific performance, are discussed in part III.B.3., post.
The Boumises filed a timely notice of appeal.
III. DISCUSSION
A. Standard of Review
"Specific performance is not a matter of absolute right, but rests within the sound discretion of the court, and is to be granted only in accordance with established principles of equity and always with reference to the facts of the particular case. [Citation.]" (Pasqualetti v. Galbraith (1962) 200 Cal.App.2d 378, 382.) As such, the grant or denial of specific performance is reviewed on appeal for abuse of discretion. (Petersen v. Hartell (1985) 40 Cal.3d 102, 110; see also Real Estate Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 463, 472.)
As the California Supreme Court has explained: "A ruling that constitutes an abuse of discretion has been described as one that is 'so irrational or arbitrary that no reasonable person could agree with it.' [Citation.] But the court's discretion is not unlimited . . . . Rather, it must be exercised within the confines of the applicable legal principles. [¶] 'The discretion of a trial judge is not a whimsical, uncontrolled power, but a legal discretion, which is subject to the limitations of legal principles governing the subject of its action, and to reversal on appeal where no reasonable basis for the action is shown.' [Citations.] 'The scope of discretion always resides in the particular law being applied, i.e., in the "legal principles governing the subject of [the] action . . . ." Action that transgresses the confines of the applicable principles of law is outside the scope of discretion and we call such action an "abuse" of discretion. [Citation.] . . . [¶] The legal principles that govern the subject of discretionary action vary greatly with context. [Citation.] They are derived from the common law or statutes under which discretion is conferred.' [Citation.] To determine if a court abused its discretion, we must thus consider 'the legal principles and policies that should have guided the court's actions.' [Citation.]" (Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 773 (Sargon Enterprises).) "The abuse of discretion standard is not a unified standard; the deference it calls for varies according to the aspect of a trial court's ruling under review. The trial court's findings of fact are reviewed for substantial evidence, its conclusions of law are reviewed de novo, and its application of the law to the facts is reversible only if arbitrary and capricious." (Haraguchi v. Superior Court (2008) 43 Cal.4th 706, 711-712, fns. omitted.)
The judgment appealed from herein was entered after a court trial and the filing of a statement of decision. In an instance in which a statement of decision is requested, the court must issue a statement of decision "explaining the factual and legal basis for its decision as to each of the principal controverted issues at trial." (Code Civ. Proc., § 632; see also In re Marriage of Fong (2011) 193 Cal.App.4th 278, 293, fn. omitted ["statement of decision facilitates appellate review by revealing the bases for the trial court's decision"].) Under these circumstances, the standard of review has been explained as follows: "In reviewing a judgment based upon a statement of decision following a bench trial, we review questions of law de novo. [Citation.] We apply a substantial evidence standard of review to the trial court's findings of fact. [Citation.] Under this deferential standard of review, findings of fact are liberally construed to support the judgment and we consider the evidence in the light most favorable to the prevailing party, drawing all reasonable inferences in support of the findings. [Citation.]" (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981 (Thompson).)
B. Buyer's Ability to Perform Requirement
1. Contentions on Appeal
The Boumises contend that the court erred in granting specific performance without evidence that Passaro was ready, willing, and able at the time of trial to perform his obligations under the Agreement. (Hereafter, we will sometimes refer to this circumstance as "the present ability to perform" or "the present-ability-to-perform requirement.") They argue that the trial court acknowledged that the buyer seeking specific performance has the burden of showing his or her ability to perform at the time of trial. But because—the Boumises argue—the trial court concluded "that the evidence submitted by Passaro on the issue [of his present ability to perform was] not substantial," it disregarded this essential element for specific performance in granting Passaro the equitable relief he requested. The Boumises contend that the trial court's reliance upon dictum in Behniwal v. Mix (2005) 133 Cal.App.4th 1027 (Behniwal) to disregard the present-ability-to-perform requirement constituted an error of law compelling reversal of the judgment of specific performance.
Passaro responds that the court has broad powers in determining the appropriate equitable relief to which a party is entitled, and the trial court in this instance exercised its discretion properly in granting specific performance. Passaro argues further that the trial court properly adopted "the practical approach" presented in Behniwal, supra, 133 Cal.App.4th 1027, wherein the appellate court stated that "the ability-to-perform problem is ultimately self-correcting," in that if the buyer, after judgment, is unable to perform on the contract, the property will ultimately not be sold to him or her. (Id. at p. 1045.). Passaro also contends that even if the court erred with respect to the present- ability-to-perform requirement, any error was harmless. Lastly, Passaro argues that, assuming the trial court erred in granting specific performance, the case should be remanded to afford him the opportunity to present evidence through "applicable motions" of his ability to purchase the Property.
2. Applicable Law
It is beyond question that one essential element a buyer must establish to obtain specific performance under a contract for the sale of real property is proof that the buyer tendered the purchase price or was ready, willing, and able to pay the purchase price. (Buckmaster v. Bertram (1921) 186 Cal. 673, 677-678 (Buckmaster).) To be afforded the equitable remedy of specific performance, there "must be a showing by the plaintiff [buyer] of performance, or tender of performance, or ability and willingness to perform. [Citations.]" (Cockrill v. Boas (1931) 213 Cal. 490, 492 (Cockrill).) Although the seller's "positive repudiation of a contract of sale . . . excuses the [buyer] from a formal tender of the price as a condition precedent to an action for specific performance, it does not obviate the necessity of stating in [the buyer's] complaint that he [or she] is ready able and willing to pay the amount due from him [or her]." (Buckmaster, supra, at p. 678.)
Thus, "it is the settled rule that although an unqualified repudiation by the promisor may excuse tender or performance of conditions precedent in advance of suit, it does not excuse a party, when seeking specific performance, from pleading and proving at trial that he [or she] is ready, able, and willing to perform the contractual conditions. [Citations.]" (Dotson, supra, 34 Cal.2d at p. 372.) As held by the Supreme Court in Dotson and as reiterated by the Second District Court of Appeal (Division Two), this ability-to-perform requirement is not limited temporally to the time of execution of the contract: "[I]t is axiomatic that to obtain specific performance, a buyer must prove not only that he [or she] was ready, willing and able to perform at the time the contract was entered into but that he [or she] continued ready, willing and able to perform at the time suit was filed and during the prosecution of the specific performance action. [Citations.]" (C. Robert Nattress & Associates v. Cidco (1986) 184 Cal.App.3d 55, 64 (C. Robert Nattress & Associates); see also Ninety Nine Investments, Ltd. v. Overseas Courier Serv., etc. (2003) 113 Cal.App.4th 1118, 1126; Cal. Real Property Remedies and Damages (Cont.Ed.Bar 2d ed. 2018) § 5.15, p. 5-17 [buyer seeking specific performance of real estate sales contract "must still plead and prove that he or she was and continues to be ready, willing and able to perform (i.e., that he or she had and presently has the resources to purchase the property)"].)
For example, in Buckmaster, supra, 186 Cal. 673, the buyer, in seeking specific performance, alleged that she was ready and willing to pay the purchase price, after the court offset damages she incurred as a result of the seller's breach; the appellate court held that the buyer was not entitled to equitable relief because she had not shown she was ready, willing, and able to pay the amount due under the contract. (Id. at pp. 677-678.) Likewise, in Cockrill, supra, 213 Cal. 490, where the buyer had not deposited the purchase price or tendered performance, and the evidence showed he intended to borrow the majority of the purchase price but had failed to meet the conditions of the prospective lender, the court held he was not entitled to specific performance. (Id. at p. 492; see also C. Robert Nattress & Associates, supra, 184 Cal.App.3d at pp. 64-65 [specific performance improper where buyer failed to show ability to pay purchase price and its nominee, who was not a party to the suit, was not obligated to buyer to purchase the property and was no longer interested in doing so].)
When the buyer intends to obtain funds from a third-party lender, courts are divided on whether the buyer must show he or she had a binding commitment from the lender to satisfy the ability-to-perform requirement. Earlier cases held that when a buyer expected to purchase real property by tendering funds based upon the proceeds of a loan, he or she was required to show that the prospective lender was able and was obligated to supply the funds to the buyer. (Am-Cal Investment Co. v. Sharly Estates, Inc. (1967) 255 Cal.App.2d 526, 539-540; see also C. Robert Nattress & Associates, supra, 184 Cal.App.3d at p. 65.) Other courts have eschewed the strict requirement of a binding loan agreement. (See, e.g., Behniwal, supra, 133 Cal.App.4th at pp. 1044-1045; Henry v. Sharma (1984) 154 Cal.App.3d 665, 671-672 (Henry).) The court in Henry held that "we find no support for the iron-clad rule suggested by seller that [buyers] could only establish ability to perform by proving they had obtained a legally enforceable loan contract." (Henry, supra, at p. 672.) It reasoned: "Where . . . the seller has committed an anticipatory breach, we see no purpose in requiring the buyers to bind themselves to a loan for which they have no immediate need. Moreover, we question whether a lender would make a firm commitment to loan money for the purchase of property the present owner refuses to sell." (Ibid.) The Henry court therefore held that "proof needed to show ability [to perform] depends [not on the existence of a legally enforceable loan agreement, but] on all the surrounding circumstances." (Ibid.; see also WYDA Associates v. Merner (1996) 42 Cal.App.4th 1702, 1716.)
3. Trial Court's Decision
The trial court in its statement of decision correctly stated the law as recited above concerning the present-ability-to-perform requirement. It noted: "In order to award specific performance of the contract, buyer has the burden of proving that he is now ready, willing and able to perform on the purchase. In order to make that determination, the court may consider whether Passaro has the necessary funds in the form of liquid assets, ownership of property that could be sold, arrangements with a responsible lending institution, or assistance from a financially able third person. In essence, the court is to consider all surrounding circumstances." (Italics and bold in original.)
The court proceeded to consider the surrounding circumstances as presented at trial, finding that "[g]iven the state of the evidence, it is uncertain whether Passaro can cobble together the remaining cash balance." It noted that Passaro had sold his home and the South Bascom property "to produce the $1,220,000 balance of the purchase price," but he had "used some or all of that cash" to purchase the Willow Street property while the lawsuit was pending. The court found that there "is no competent evidence establishing how much cash Passaro now has in his account." It also concluded that the testimony of Biagio Passaro, a potential lender, "was of no value" in that "he never explained what his capacity might be to actually contribute any cash to the purchase, especially after he had contributed to Passaro's purchase of the Willow Street property." The court held that "[t]he evidence does not demonstrate [Passaro's] current financial condition, whether he can still qualify for the same loan amount, whether the same loan investors are still available in the current market or whether they will honor their prior loan commitment." And it determined that, to the extend Passaro suggested he could sell or encumber the Willow Street property to obtain funds to perform under the Agreement, he had not shown that he had the ability to do so in a timely fashion to purchase the Santa Cruz Property.
The court concluded: "As tenuous as the evidence of present ability to perform might be, it is the only element lacking in an otherwise clear and convincing case for specific performance. Further, it is not as if the evidence clearly indicates that Passaro cannot perform. It simply means that the evidence submitted by Passaro on the issue is not substantial."
The trial court went on to grant Passaro specific performance. In so doing, it relied on Behniwal, supra, 133 Cal.App.4th 1027, where the appellate court concluded "there was easily enough evidence to show that the [buyers] were ready, willing, and able to perform." (Id. at p. 1045.) The trial court here noted that in Behniwal, the appellate court went "on to conclude that even if it [were] wrong about buyer[s'] ability to perform, [the issue] is ultimately 'self-correcting' [(ibid.) in that] if specific performance is ordered and buyer is unable to perform because he cannot come up with the purchase price, the seller will ultimately prevail because the property will not be transferred." The trial court—acknowledging that the language in Behniwal "may be dicta [that] establishes a practical solution that virtually eliminates the present ability to perform as an element of proof"—adopted it in concluding that Passaro was entitled to specific performance.
4. Grant of Specific Performance Was Error
As noted, the trial court correctly observed in its statement of decision that "buyer has the burden of proving that he is now ready, willing and able to perform on the purchase" in order to be awarded specific performance. (Italics and bold in original.) This observation echoed the court's prior communication to counsel after trial and submission of the case in requesting supplemental letter briefs because "neither closing brief . . . addressed the extent of evidence presented at trial of [Passaro's] current ability to complete the contract if specific performance [were] granted. [Passaro] has the burden of proof on that issue." The court found in its statement of decision that, while Passaro had adequately tendered performance under the terms of the Agreement and waived contingencies after the Boumises unequivocally stated they would not complete the transaction, "the evidence submitted by Passaro on the issue [of his present ability to perform was] not substantial." The court deemed the evidence concerning Passaro's present ability "tenuous," after considering all of the surrounding circumstances. Those circumstances leading the court to conclude that the evidence was "not substantial" concerning Passaro's present ability to perform included evidence that Passaro had (1) sold the South Bascom property and his home; (2) obtained $1,220,000 from those sales to contribute to the purchase price required under the Agreement; (3) subsequently purchased the Willow Street property, using some or all of the proceeds from the prior sale; (4) presented "no competent evidence" of the amount of cash he had available at the time of trial; (5) offered no persuasive evidence that his father, Biagio Passaro, who had already contributed to the purchase of the Willow Street property, was a source of funds for purchasing the Santa Cruz Property; (6) presented no evidence that his lender, from whom he had obtained a loan commitment of $1,325,000 in April 2014, was still in existence, whether it would honor its commitment made two years earlier, and whether Passaro could still qualify for such loan; and (7) not shown, to the extent he suggested he could sell or encumber the Willow Street property to obtain funds to purchase the Santa Cruz Property, an ability to timely complete such sale or encumbrance.
Based upon the above findings, the trial court found that "the evidence submitted by Passaro on the issue [of his present ability to perform was] not substantial." Reading the statement of decision in its entirety, we conclude that it is clear that the trial court, through the above-quoted finding, concluded that Passaro had not met his burden of proving his present ability to perform under the Agreement. The Boumises do not challenge that finding. We apply the deferential substantial evidence standard in reviewing this finding, made after a bench trial and the entry of a judgment based upon a statement of decision; under that standard, "findings of fact are liberally construed to support the judgment and . . . the evidence [is considered] in the light most favorable to the prevailing party, drawing all reasonable inferences in support of the findings. [Citation.]" (Thompson, supra, 6 Cal.App.5th at p. 981.) Here, there was substantial evidence supporting the trial court's conclusion that Passaro's showing that he was presently ready, willing, and able to perform under the Agreement was "not substantial." (See Henry, supra, 154 Cal.App.3d at p. 670 [buyer's financial ability to perform under purchase agreement presents question of fact, subject to appellate review for substantial evidence].) Indeed, the only evidence supporting Passaro's present ability to perform was evidence of his available financial resources, including the availability of a lending source, existing two years earlier. Given this two-year time difference, and in light of a significant change in Passaro's financial circumstances between 2014 and the time of trial (as observed by the trial court), any reliance upon evidence of Passaro's 2014 ability to perform to establish his present ability to perform in April 2016 would have been purely speculative.
The trial court relied on Behniwal, supra, 133 Cal.App.4th 1027 in support of granting specific performance notwithstanding Passaro's failure to show a present ability to perform. Behniwal does not support the trial court's conclusion for three reasons. First, the Behniwal court, in reversing the trial court's judgment denying the buyers' request for specific performance, concluded that "there was easily enough evidence to show that the Behniwals [the buyers] were ready, willing, and able to perform, independent of the financial fallout of the litigation." (Id. at p. 1045.) Here, the trial court found to the contrary—a finding supported by substantial evidence—and Behniwal is thus inapposite.
Second, the trial court relied on the following language in Behniwal: "Finally, the ability-to-perform problem is ultimately self-correcting. If the trial court orders specific performance, it is hardly going to hold the Mixes, as sellers, in contempt for not selling to the Behniwals if the Behniwals ultimately can't come up with the money. And if the Behniwals really can't come up with the money—which is unlikely and getting unlikelier as time passes—then the Mixes will get their wish and the property simply will not be sold to the Behniwals." (Behniwal, supra, 133 Cal.App.4th at p. 1045, original italics, fn. omitted.) Since the appellate court in Behniwal determined that there was ample evidence of the buyers' present ability to perform, the quoted language in Behniwal was unnecessary to the court's holding and was thus dicta. (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1158 [" 'Dicta consists of observations and statements unnecessary to the appellate court's resolution of the case' "].) As such, the quoted language was not binding authority. (Pogosyan v. Appellate Division of Superior Court (2018) 26 Cal.App.5th 1028, 1040.)
Third, to the extent the dicta in Behniwal is considered, we do not read it as abrogating the Supreme Court's directive that a buyer seeking specific performance must show a present ability to perform. The court specifically credited the "rule" that "the buyer must prove 'that he was ready, willing and able to perform at the time the contract was entered into but that he continued ready, willing and able to perform at the time suit was filed and during the prosecution of the specific performance action.' [Citation.]" (Behniwal, supra, 133 Cal.App.4th at p. 1044, quoting C. Robert Nattress & Associates, supra, 184 Cal.App.3d at p. 64.) Thus, Behniwal's dicta that "the ability-to-perform problem is ultimately self-correcting" (Behniwal, supra, at p. 1045) did not constitute a conclusion by that court eliminating the present-ability-to-perform requirement for specific performance mandated by the Supreme Court. Indeed, were we to construe the language of Behniwal relied on by the trial court otherwise, we would thereby conclude that the Behniwal court—contrary to its obligations as an intermediate appellate court as mandated by Auto Equity, supra, 57 Cal.2d at page 455—disregarded Supreme Court precedent requiring a buyer seeking specific performance to plead and prove its ability to perform (see, e.g., Cockrill, supra, 213 Cal. at p. 492; Buckmaster, supra, 186 Cal. at pp. 677-678). To the extent that the trial court here relied on Behniwal for the abrogation of the buyer's present-ability-to-perform requirement in granting specific performance, the trial court erred.
On appeal, Passaro does not argue that he made a showing at trial that he was then ready, willing, and able to purchase the Property. Instead, his principal response is that the trial court acted properly within its broad discretionary powers as a court of equity in fashioning the specific performance remedy, by adopting "the practical approach" presented in Behniwal, supra, 133 Cal.App.4th 1027. However, as we have discussed, Behniwal is distinguishable and in any event does not support the proposition that a buyer failing to show the present ability to perform may nonetheless be entitled to specific performance. The language in Behniwal that "the ability-to-perform problem is ultimately self-correcting" (id. at p. 1045) relied upon by Passaro is dicta, and, in any event, cannot be properly construed as eliminating the present-ability-to-perform requirement. Further, although a court of equity has broad powers (see Abers v. Rohrs (2013) 217 Cal.App.4th 1199, 1208), they are not without limitation. " '[A] court of equity will never lend its aid to accomplish by indirect means what the law or its clearly defined policy forbids to be done directly.' [Citation.]" (Tuthill v. City of San Buenaventura (2014) 223 Cal.App.4th 1081, 1088.) Here, although the trial court's equitable powers were broad, they did not extend to granting specific performance where a necessary element for such relief was absent. As an intermediate appellate court, we are bound by Supreme Court precedent requiring that a buyer seeking specific performance must show by a preponderance of the evidence a present ability to perform. (Auto Equity, supra, 57 Cal.2d at p. 455.) The court's action here was therefore beyond " 'the confines of the applicable principles of law' " and was therefore " 'outside the scope of [its] discretion.' " (Sargon Enterprises, supra, 55 Cal.4th at p. 773.)
Passaro argues at length that it was an appropriate exercise of the court's powers in fashioning a remedy in which Passaro was given 120 days after entry of judgment to close escrow. Since we conclude the granting of specific performance was error, we have no occasion to address whether, had the relief been proper, a 120-day period for closing would have been appropriate.
Passaro argues that even if the court erred with respect to the present-ability-to-perform requirement, any error was harmless. He contends that his efforts to close escrow to purchase the Property, made after the court's issuance of its tentative decision and prior to entry of judgment, demonstrated that he was able to purchase the Property but was thwarted in those efforts by the Boumises. In support of this argument, Passaro makes extensive reference to posttrial matters, including a notice by Passaro filed July 20, 2016 (nine days before the entry of judgment) demanding that the Boumises close escrow on the Property. Passaro thus asserts that the court's decision concerning his present ability to perform "was, at most, a harmless error which was vindicated by the evidence in the record that [Passaro] did move forward to close escrow on the Property even before judgment was entered and could not do so only because of [the Boumises'] deceptive conduct and unclean hands." (Capitalization and bold omitted.)
As Passaro notes in respondent's brief, this notice included a letter from a lender of July 20, 2016, stating that Passaro had access to sufficient funds to close escrow.
As we understand the argument, Passaro contends that even if he failed to prove at trial that he had the present ability to perform and the trial court—finding that Passaro's evidence was "not substantial"—acknowledged this failure but disregarded it, such error was harmless because posttrial developments demonstrated that Passaro did have the ability to perform some three months after the trial concluded. Passaro cites no authority in support of applying the harmless error doctrine under these circumstances. Furthermore, the suggestion that we should consider the post-trial evidence Passaro proffers here is contrary to the law. "Appellate courts rarely accept postjudgment evidence or evidence that is developed after the challenged ruling is made. [Citation.] This is so in part because an appellate court reviews the correctness of a record that was before the trial court at the time it made its ruling. [Citation.]" (In re Robert A. (2007) 147 Cal.App.4th 982, 990.) Thus, for instance, as the California Supreme Court explained in a case involving a criminal defendant's mental capacity to stand trial, "In asserting that substantial evidence existed of his mental incapacity to stand trial, defendant also relies upon the psychiatric expert testimony presented by the defense at the penalty phase describing his considerable mental problems. [¶] We review the correctness of the trial court's ruling at the time it was made, however, and not by reference to evidence produced at a later date. [Citations.]" (People v. Welch (1999) 20 Cal.4th 701, 739.) Here, posttrial evidence, including an unsworn letter from a lender, cannot be used by Passaro to bolster an otherwise deficient showing at trial of a present ability to perform.
Finally, Passaro contends that, assuming the trial court erred and such error compels reversal, the matter should be remanded so that he has the opportunity to present evidence through "applicable motions" of his ability to purchase the Property. Passaro cites no authority in support of this argument, and we may therefore disregard it. (See Dabney v. Dabney (2002) 104 Cal.App.4th 379, 384 [appellate courts "need not consider an argument for which no authority is furnished"].) As has been explained: "[W]hen the [cross-complainant] has had full and fair opportunity to present his or her case, a reversal of a judgment for the [cross-complainant] based on insufficiency of the evidence should place the parties, at most, in the position they were in after all the evidence was in and both sides had rested. A judgment for the [cross-]defendant would then be entered, and a new trial permitted only for newly discovered evidence. [Citation.]" (McCoy v. Hearst Corp. (1991) 227 Cal.App.3d 1657, 1661.) Passaro had the full opportunity to present evidence at trial, and, as determined by the trial court, his present-ability-to-perform showing was insufficient as a matter of law to support a judgment of specific performance. Therefore, the case will not be remanded to permit Passaro to present additional evidence in support of his claim on remand. (See Frank v. County of Los Angeles (2007) 149 Cal.App.4th 805, 834.)
Because we are concerned with Passaro's cross-complaint for specific performance, we have substituted in the quote "plaintiff" with "cross-complainant" and "defendant" with "cross-defendant."
The Boumises also argue on appeal that (1) because the Agreement contained a six-month financing contingency without specification of terms or any obligations imposed upon Passaro, it lacked a mutuality of obligation and was thus unenforceable and the court therefore erred in finding otherwise; (2) the court should have permitted the Boumises to cancel or rescind the Agreement because Passaro, who had been their real estate agent for a lengthy period of time, failed to make any written disclosures to them; and (3) the trial court erred in granting Passaro's motion in limine that excluded evidence of Passaro's conduct that was relevant to the proceedings. Because we have concluded that the court erred in granting specific performance despite Passaro's failure to establish his ability to perform at the time of trial, it is unnecessary for us to address these additional claims of error. (Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 845, fn. 5 [appellate courts will not address issues whose resolution is unnecessary to the disposition of the appeal].)
IV. DISPOSITION
The judgment is reversed and the matter is remanded to the trial court with directions to enter judgment in favor of cross-defendants on the first and second causes of action of the cross-complaint (breach of contract and specific performance, respectively).
The trial court determined that Passaro did not establish that he had suffered damages resulting from the Boumises' breach of the Agreement because the contract sales price was greater than the Property's appraised value (see Civ. Code § 3306); it therefore found inferentially that Passaro could not prevail on his claim for breach of contract. Further, we have held that Passaro was not entitled to specific performance of the Agreement. Because Passaro cannot recover under either affirmative claim alleged in his cross-complaint, the issue of the Agreement's enforceability—raised in the declaratory relief claims in the First Amended Complaint and the cross-complaint—becomes solely a theoretical controversy requiring no declaratory relief. (See Connerly v. Schwarzenegger (2007) 146 Cal.App.4th 739, 746 [" 'declaratory relief is appropriate only where there is an actual controversy, not simply an abstract or academic dispute' "].) The enforceability of the Agreement is therefore an issue, the adjudication of which by "declaration or determination is not necessary or proper at the time under all the circumstances." (Code Civ. Proc., § 1061; see Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 647 [court may decline declaratory relief "when resolution of the controversy over future remedies would have little practical effect in terms of altering parties' behavior"].)
/s/_________
BAMATTRE-MANOUKIAN, J. WE CONCUR: /s/_________
GREENWOOD, P.J. /s/_________
DANNER, J.