Opinion
Super. Ct. No. 04 CECG 00531
APPEAL from a judgment of the Superior Court of Fresno County. Hillary Chittick, Judge.
Fletcher & Fogderude and Eric K. Fogderude for Defendants, Cross-complainants and Appellants.
Harry Pascuzzi and Patricia Bone O’Neill for Plaintiff, Cross-defendant and Respondent.
OPINION
VARTABEDIAN, Acting P. J.
This is an appeal from a judgment after a trial to the court sitting without a jury. Appellants Norman L. Fletcher and Ester Fletcher contend the court erred in granting judgment for $55,000 against them and in favor of respondent Laurence Hanner on respondent’s complaint for breach of contract and other causes of action. Appellants contend the court made erroneous evidentiary rulings, applied wrong principles of law, and reached conclusions that were not supported by substantial evidence. We affirm the judgment.
Facts and Procedural History
Appellants had sold a condominium unit in Fresno to one Perez, and appellants had taken a second deed of trust on the property to secure a portion of the purchase price. Perez also had a purchase money adjustable rate loan from Long Beach Mortgage Company, secured by a first deed of trust.
About the time of the first adjustment of the mortgage payment (two years into the loan), the unit sustained water damage. Perez fell behind in both mortgage payments and, in December of 2000, quitclaimed the unit to appellants in lieu of foreclosure of their second deed of trust. Appellants caught up on Perez’s first-mortgage payments and filed an insurance claim for the water damage.
Respondent, a close friend of appellants for some 35 years, had moved to Mexico from Fresno. After a couple of years there, he was unhappy and felt his physical and financial security was threatened by staying in Mexico. Appellants, who had remained in contact with respondent, offered that he could return to Fresno and live in the condominium unit. In return, respondent would oversee repair of the water damage and pay the first mortgage, taxes, association dues, and insurance for the property. Respondent accepted the offer and moved into the unit in December of 2000.
Appellants received an insurance settlement of $6,000, which they turned over to respondent to effect repair of the unit. Apparently, respondent was able to complete the repairs for about $2,000 and used the balance to buy furniture and otherwise establish himself in the unit. Subsequently, appellants refinanced the property in their own names, paying off the Perez first deed of trust. This new loan was for $40,000 and netted appellants about $4,800 in cash. The parties refer to the new loan as the Sanwa Bank loan. Respondent remained responsible for the monthly payment on this loan.
During this time, appellant Norman Fletcher (Fletcher) had been quite ill with cancer. He had undergone various treatments for the illness and was still quite weak in the spring of 2001. On May 9, 2001, Fletcher had certain outpatient procedures at a hospital near the condominium unit. Respondent walked over to the hospital and the men had lunch together.
Apparently motivated by Fletcher’s illness and an impending trip by appellant Ester Fletcher to her native Norway, respondent proposed to Fletcher, an attorney, that they put in writing a contract reflecting respondent’s rights and duties with respect to the property. Fletcher testified respondent said he feared, with reason, that appellants’ children would evict respondent from the unit if both appellants were to die. Respondent denied any conflict with appellants’ children.
Fletcher and respondent traded proposals over the next week, working out what Fletcher described as minor disagreements. They reached agreement on the terms of the contract, which appellants and respondent signed on or about May 17, 2001. Fletcher testified that the written agreement reflected the parties’ agreement after negotiations, “but with the understanding that the reason we were putting it in writing was to give Larry [respondent] some security in case something happened to me and my wife so that our children would not be able to evict him from the property. Because Larry said, ‘this is my nest, I will never sell it, but I am afraid of your children. This is my nest. You know that I will never sell it. I am only doing this because I am afraid of your children.’ So we agreed to put it in there just the way we did it.” Respondent was not asked about such a conversation; he did testify, however, that transfer of ownership from appellants to respondent had been the parties’ stated intention from the time of the initial agreement that respondent would live in the property.
The agreement signed by the parties on May 17, 2001, was entitled “Contract of Sale.” Because this document is central to the issues on appeal, it will be necessary to summarize it in detail. In the agreement, appellants are identified as “Sellers” and respondent is identified as “Buyer.”
The agreement begins with a recital of purpose: “WHEREAS, Sellers do now own said certain real property, and do desire to sell same to Buyer, upon the following terms and conditions, be it agreed as follows:” Paragraph 1 states that “Buyer shall have the right to occupy said premises exclusively, provided only that he make all payments” as described above. Paragraph 2 states that at a “convenient time in the future, Buyer may take the necessary steps to assume the [Sanwa Bank] note subject to trust deed, or to refinance said note … and put his name alone on title, thus relieving Sellers from any and all liability in the premises.” The paragraph states there is “no time limit” on respondent’s right and that respondent “shall occupy said premises whether or not he decides to put his name on title .…” Paragraphs 3 and 4 state that respondent shall hold harmless appellants for any injury occurring on the premises and that the agreement shall not be recorded because the Sanwa Bank note had a due on sale clause.
Paragraph 5 provides: “Buyer shall have the right to sell said property at such time as the names of Sellers are being, or have been, removed from the title (either through concurrent escrow, or otherwise) and from the trust deed securing said note, provided that said property shall not be sold for less than the total amount then owing on it.” The paragraph states that respondent would forfeit this right if the property was no longer his principal residence “while Sellers’ names are still on said title .…” It provides that, in the event of a sale of the property, respondent would hold harmless appellants for any income, capital gains, or other taxes arising from the sale.
Paragraph 6 states that if respondent dies before any transfer of the property, the contract shall become null and void, and the property would revert to appellants, extinguishing any rights of respondent or his estate. Paragraph 7, by contrast, states that if either or both appellants died, the contract would remain in full force and effect.
At the time the parties entered in to this agreement in 2001, the unit was worth between $50,000 and $60,000, encumbered by the $40,000 deed of trust. Three years later, Fresno real estate prices had escalated dramatically and respondent decided to sell the property. Respondent advertised the property for sale and, within a few days, obtained an offer from one Lopez in the amount of $140,000 (later modified to $138,000). Appellants signed a real estate purchase agreement with Lopez and escrow was opened. Neither the purchase agreement nor the escrow instructions mentioned respondent.
As the time neared for escrow to close, respondent notified the escrow agent of his claim to the net proceeds of the sale, presenting for the first time the May 17 contract. Appellants then caused to be recorded a second deed of trust securing repayment of an $80,000 promissory note to their son-in-law. The escrow agent declined to close the sale of the property in light of the conflicting claims. The escrow was cancelled and Lopez’s deposit was returned.
The designated clerk’s transcript on appeal does not disclose when respondent filed his initial complaint. The matter came for trial on respondent’s fourth amended complaint and appellants’ cross-complaint. After trial, the court found that the May 17 contract granted respondent an option to purchase the property, that he exercised that option in substantial conformity with its terms, that appellants waived any objections to the formalities of exercise of the option, that the exercise of the option created a bilateral contract, and that appellants had breached this contract. The court determined that specific performance of the contract was unwarranted and awarded monetary damages to respondent in the amount of $55,000, the approximate net proceeds if the Lopez sale had occurred. The court quieted title to the property in appellants and extinguished respondent’s rights in the property.
Appellants filed a timely notice of appeal and filed a bond to stay enforcement of the judgment.
Discussion
1. Parol Evidence
In its tentative decision, the court stated: “The court provisionally admitted parol evidence to the effect that [respondent] told [appellants] he would never sell [the property]. But that is directly contrary to the contract provisions, and therefore the court is not considering that representation.” Appellants contend the court erred because “the parol evidence rule does not exclude other evidence of the circumstances under which the agreement was made or to which it relates, where trust is involved, and that trust and confidence rests in parol, either parol evidence must be received, or the faithless party will always prevail.”
We have no problem with appellants’ general statement of the law or their reliance on the cases cited, Adams v. Talbott (1943) 61 Cal.App.2d 315 and Kett v. Graeser (1966) 241 Cal.App.2d 571. The problem is, instead, that the evidence in question does not establish any promise by respondent to reconvey or otherwise act in derogation of the terms of the contract itself, upon which a trust relationship could be found. (See 13 Witkin, Summary of Cal. Law (10th ed. 2005) Trusts, §§ 319-326, pp. 892-903.)
Thus, in Adams v. Talbott, supra, 61 Cal.App.2d 315, the plaintiff had befriended defendant, an older man who was in financial distress. The parties agreed defendant would transfer a parcel of real estate to plaintiff, who would manage it and use the proceeds to pay off defendant’s debts, and then plaintiff would reconvey title to defendant. Plaintiff sued to quiet title to the property. She contended the oral promise to reconvey was without “legal significance” because there was no actual fraud and the parties were not in a confidential relationship sufficient to support a finding of constructive fraud. (Id. at p. 319.) There was no disagreement among the parties whether the promise to reconvey had been made, and the promise to reconvey did not, in itself, alter the terms of the initial deed of conveyance. Plaintiff was denied affirmative relief, a constructive trust was imposed, and plaintiff was ordered to reconvey the property on certain terms. (Id. at p. 324.) By contrast, in the present case, appellants have failed to allege or prove that respondent promised to do anything that would support imposition of a constructive trust on the property in order to enforce that promise.
Instead, appellants’ proffered evidence only showed that respondent said he “will never sell” the property. In the context of the agreement, this must be taken merely as a statement of present intention, not as a promise to act or not act in any particular way. There are two basic reasons for this conclusion.
First, and most prominently, appellants do not contend the parol evidence shows any alteration of the fundamental purpose of the agreement, which appellants themselves claim to have been the protection of respondent’s interest in the property if both appellants died. Thus, while it may be that respondent’s statement that this was his “nest” that he would “never sell” actually motivated appellants to convey the property to respondent on favorable terms, there is no suggestion by appellants that they did not intend to create an ownership interest in respondent, at least with respect to appellants’ children. Instead, the implication from all parties’ testimony is that, if respondent survived both appellants, he would be entitled to transfer of the property on the terms contained in the May 17 contract.
Once it is conceded that, even in light of respondent’s statements, the parties intended to create in respondent an enforceable interest, it is likewise clear that respondent’s statements cannot reasonably be interpreted as limiting the other provisions of the contract in such a manner as to make the contract inoperative if respondent tried to sell the property. Paragraph 5, as previously set forth, expressly states respondent’s right to sell the property. There is nothing in the language of the contract or of the alleged statements that distinguishes between respondent’s rights prior to appellants’ deaths and thereafter; in fact, the language of the contract expresses a clear intent to preserve existing rights after such death, not to create new rights upon appellants’ deaths. Respondent is not alleged to have stated, for example, “I will never sell the property as long as you both are alive.” (See 6 Corbin, Contracts (interim ed. 2002) § 577, p. 100.) Whatever statements were made were not limited to certain circumstances, even in appellants’ account of the evidence.
Second, it may well be true -- indeed, it would be surprising if it were not true -- that appellants did not contemplate that respondent would sell the property after a scant three years of living there. It is probable that appellants and respondent were all greatly surprised that the value of the property more than doubled in such a short time. But that surprise, even if it led to greed in respondent and regret in appellants, cannot change the contract the parties entered into three years earlier. Given the facts as they existed on May 17, 2001, it is reasonable to interpret respondent’s statements as a true report of his then-current intentions. Given the balance of the language of the contract, it is wholly unreasonable to interpret those statements as an enforceable promise not to sell, breach of which would terminate the contract.
Thus, appellants have failed to establish that the proffered evidence, parol or otherwise, establishes grounds for equitable relief. Similarly, appellants focus on the wrong aspect of the evidence in their contention that the trial court abused its discretion “when it required proof of a fiduciary relationship in order to find constructive fraud.” The evidentiary problem is not the nature of the parties’ relationship, but the absence of any promise that would give rise to a constructive trust or be the basis for finding constructive fraud.
2. Evidence of Closeness of Parties’ Relationship
The parties agreed that they had been especially close friends for over 35 years. Appellants sought to buttress this conclusion with evidence of particular incidents over the course of the relationship. The trial court sustained a relevancy objection to a question about respondent’s ownership of pets at any time during the parties’ friendship (the question sought to lay the groundwork for a subsequent question that was answered without objection, namely, whether appellants had permitted respondent to “bury your cat in their backyard”). Then the court stated: “Here’s what the Court’s going to do. You may introduce evidence from the five years preceding the signing of [the May 17 agreement].” The trial proceeded on that basis.
Appellants now contend “the evidence was overwhelming that the parties had a close friendship, and both parties pleaded, briefed, and argued for such a relationship.… Had the court allowed even more evidence, it is reasonably probable that the court would have reached the conclusion that these parties did, in fact, have such a relation as is required for constructive fraud.” Instead, the court found there “was no evidence of a fiduciary relationship between the parties.”
The problem with appellants’ contention is much like the problem addressed in the previous section. It is not that the parties’ relationship would not have supported a finding of constructive fraud or the need for imposition of a constructive trust. (See, e.g., Adams v. Talbott, supra, 61 Cal.App.2d at pp. 319-320.) It is, instead, that the evidence does not demonstrate a promise based on the parties’ relationship, however characterized. There was no evidence of an oral promise by respondent to reconvey (see ibid.) or otherwise act for the benefit of appellants. In the absence of such, the trial court was correct to find that the parties’ dealings in this instance were not based on a fiduciary or confidential relationship. Furthermore, there is no reason to believe that the admission of additional general evidence of the years of closeness of the parties’ relationship, even if such evidence were marginally relevant, would cause any difference in the outcome reached by the trial court.
3. The Characterization of the May 17 Agreement as an Option Contract
In a rather wide-ranging argument, appellants contend (1) parol evidence, if admitted, would have shown there was no enforceable agreement between the parties so it could not have been an option agreement; (2) even if it was otherwise in the form of an option, it was not valid because California law requires that an option state a time limit for its exercise; and (3) even if it was a valid offer, respondent did not exercise the option in the manner required by the option, so appellants had no duty to go forward.
We have already stated our conclusion that the parol evidence offered in this case did not establish that the May 17 agreement was a sham: even appellants’ evidence showed that the parties intended the agreement to be operative against appellants’ children. Accordingly, the parol evidence did not show the parties intended the May 17 agreement to be wholly unenforceable, so appellants’ first argument fails.
Appellants are correct that, as the trial court found, the May 17 agreement does not state a date upon which it expires. We note, however, the agreement clearly provides that respondent’s rights thereunder, including the right to purchase, would terminate upon the earlier of respondent’s death or his abandonment of the premises as his principal residence.
In any event, there is no requirement in the law of contracts that an option agreement contain a fixed date of expiration. Instead, it “is a well-settled principle of law in this state that, where the option agreement is silent as to the time for exercising the option, the optionee must exercise his option within a reasonable time.” (Lohn v. Fletcher Oil Co., Inc. (1940) 38 Cal.App.2d 26, 31; see 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 175, p. 210.) Thus, “an option is a right ‘acquired by contract to accept or reject a present offer within a limited or reasonable time in the future.’ [Citation omitted.]” (Brickell v. Atlas Assurance Co., Ltd. (1909) 10 Cal.App. 17, 22, cited with approval in County of San Diego v. Miller (1975) 13 Cal.3d 684, 688.) The absence of a fixed date of expiration did not prevent the option agreement from being enforceable.
Much of the law concerning option contracts has arisen in the context of a dispute over a party’s attempt to exercise the option. The case law concerning strict construction of requirements for timeliness and manner of exercise often involves a change of circumstances that makes exercise of the option more valuable than the right appeared at the time of the grant of the option, resulting in one party’s refusal to accept the attempted exercise of the option. But that is not the present case: here, the trial court found appellants did accept respondent’s exercise of the option without objection, thereby forming a bilateral contract apart from, or beyond, the mere option.
Appellants fail to recognize that different rules apply once an option has been exercised without objection as to the form of exercise. “The form of election prescribed in the option must be strictly followed. [Citations.] An objection as to the form of election is waived if the optioner does not specifically point out the defects. [Citation.]” (1 Witkin, Summary of Cal. Law, supra, § 176, p. 210; see Crowell v. Braly (1959) 169 Cal.App.2d 352, 355.)
The requirements concerning the manner and time of exercise of an option become irrelevant in light of the new, bilateral contract formed upon acceptance of the option holder’s exercise. As the trial court correctly found, upon appellants’ concurrence in respondent’s exercise of the option, an enforceable bilateral contract arose. It is this contract, not the original option agreement, that the trial court found appellants breached.
4. Expiration of the Option after a Reasonable Time
Appellants further contend: “Where the option does not state any expiration time, the court will apply a ‘reasonable time’ standard, which must depend on the circumstances of the case.… It is the duty of the trial court to determine ‘reasonable’ time.… In our case, the ‘option’ does not overlook a time limit. It clearly states that there is no time limit. Thus, the court had no need to, nor did it, apply the reasonable time limit standard.” (Case citations omitted.)
Nowhere do the foregoing statements assert a claim of reversible error. Nor does there appear a contention that the court abused its discretion by failing to find respondent’s exercise of the option ineffective because respondent did so beyond a “reasonable time” from the grant of the option. Appellants do state: “The trial court improperly found an option unlimited in time, rather than the non-existence of an option because there was no time limit.”
We doubt that this argument, even if correct, is relevant to the appeal since, as stated above, the court found a breach of the subsequent, bilateral contract, not a breach of the option agreement itself. In any event, two additional points defeat appellants’ position. First, exercise of the option was not wholly unlimited; the option would terminate on respondent’s death or his departure from the premises. Second, respondent had clear, on-going duties during the pendency of the option, namely, to make all mortgage, tax, and insurance payments as they came due, for so long as the unit was his principal residence or until he caused appellants’ names to be removed from the title. It is hardly plausible to contend that respondent’s exercise of the option failed to occur within a reasonable time under all of the circumstances, when the evidence showed respondent continued to make the relevant payments and continued to occupy the unit, in effect giving new consideration for the option each month he made the payments on appellants’ account.
5. Waiver and Substantial Performance
Appellants contend the trial court erred in finding respondent substantially complied with the terms for exercise of the option and in finding that appellants waived any flaws in that exercise. Appellants say, in another unfocused and overly broad argument (see Cal. Rules of Court, rule 8.204 (a)(2), regarding the requirement of separate headings), that respondent was required to plead the “defenses” of waiver and specific performance; that there was no substantial evidence to support the court’s finding that the parties had formed a bilateral contract for sale in 2004 based on respondent’s exercise of the option; and that the May 17 agreement terminated when respondent tendered a nonconforming exercise of the option, so appellants could not have made a subsequent, valid acceptance of the nonconforming exercise of the option by respondent.
As we have indicated above, appellants’ arguments ignore the difference between an action to enforce an option agreement and an action for breach of the contract arising out of such exercise. If respondent had sued to enforce the option, he might well have been required to plead substantial compliance and waiver of defects as preconditions to appellants’ duty. Instead, though, respondent pled and proved a bilateral contract; it was his obligation to prove the contract, not to prove the mechanism by which it came into existence.
There was ample evidence from which the court could conclude, as trier of fact, that appellants’ execution of the escrow instructions, with knowledge that respondent was claiming the right to sell under the May 17 agreement, was evidence of the parties’ contract arising out of respondent’s exercise of rights under that agreement. Appellants contend the court was required to conclude from the evidence that appellants were “proceeding with their escrow on their own.” Especially in light of appellants’ weak testimony attempting to establish that the May 17 agreement was only intended to dispossess their children and not themselves, the court was well within the bounds of reason in its conclusions about appellants’ execution of the escrow instructions. “‘When a finding of fact is attacked on the ground that there is not any substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether there is any substantial evidence contradicted or uncontradicted which will support the finding of fact.’ [Citations.]” (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.)
Appellants’ reliance on Landberg v. Landberg (1972) 24 Cal.App.3d 742, 757, is misplaced. Appellants contend, in essence, that even if parties agree on a contract, the contract is invalid unless it arises from a traditional offer and unconditional acceptance: “When [appellants] later signed the [escrow] instructions, they were not accepting [respondent’s] counteroffer. [Record citation.] Indeed, they could not have revived the dead offer or counteroffer even if they had wanted to do so.”
In a case in which the court finds there is a bilateral contract between the parties, it is largely irrelevant how the parties got to their agreement. (See Rest.2d Contracts, § 22(2).) While Landberg v. Landberg, supra, 24 Cal.App.3d 742, discusses the effect of qualified and conditional acceptances on the continuing viability of a formal offer, it does not purport to limit the power of the parties to enter into a contract on mutually agreeable terms: “‘The acceptance must be in accordance with the terms of the option agreement .… “Nothing less will suffice unless the option or waives one or more terms of the option.” [Citations.]’” (Id. at p. 752.)
We conclude the finding by the trial court, that the parties had a contract pursuant to which net proceeds of the sale of the condominium would go to respondent, was supported by substantial evidence and was in accord with the relevant law.
6. The Slander of Title Cause of Action
Appellants contend that in denying respondent relief on his slander of title cause of action (on the basis that respondent did not have title to the property) the trial court made a finding wholly inconsistent with its finding that respondent “exercised the option” of May 17. In reality, the court found that the bilateral contract formed when respondent presented, and appellants signed, the escrow instructions established contract rights, not equitable title, in respondent. The court found that the contract rights were not specifically enforceable because damages were an adequate remedy. As such, there was no inconsistency in the two conclusions to which appellants refer.
Disposition
The judgment is affirmed. Respondent is awarded costs on appeal.
WE CONCUR: WISEMAN, J., GOMES, J.