Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC321926. Victor E. Chavez, Judge.
Rutter Hobbs & Davidoff, Bernard M. Resser and Rosslyn S. Hummer for Defendants and Appellants.
Neufeld Law Group, Timothy L. Neufeld and Alison E. Maker for Plaintiff and Respondent.
ARMSTRONG, Acting P. J.
This is an appeal from a judgment for specific performance, ordering appellants Renee Gaon, Steven Gaon, Alexander Gaon and Olympic-Alameda Ventures (OAV) to sell a property at 1807 Olympic Boulevard in Los Angeles to respondent Meruelo Properties. We affirm.
An Overview of the Facts
1807 Olympic is located near the Los Angeles Produce Market, and is largely tenanted by small businesses. In 2002, OAV, which owned the property, decided to sell. OAV is a partnership which at that time consisted of Renee Gaon, who had a 75 percent interest, her adult sons Steven and Alexander Gaon, who each owned 6.25 percent, and Suzanne Stillman, who owned 12.5 percent.
In 2005, after the complaint was filed, but before trial, Stillman sold her interest to Meruelo Properties. She had already been named as a defendant in this complaint for specific performance, but confessed to judgment. She is not a party to this appeal.
Meruelo Properties owns similar, near-by buildings, and Richard Meruelo, President of Meruelo Properties, had been interested in buying 1807 Olympic since 1988. In late 2003, after the property had fallen out of escrow several times, Meruelo Properties stepped in as buyer. The price was $16.95 million. Meruelo Properties deposited $250,000 in escrow, at Commerce Escrow. Closing was set for February of 2004, but escrow did not close due to disputes amongst the OAV partners.
Meruelo Properties filed a lawsuit which soon settled. As a result of the settlement, the sales contract was rescinded and a new escrow opened. The parties agreed, in writing, that the earlier failure to close was through no fault of the buyer, that the sellers were in the process of dissolving the partnership and wished to convey title as tenants in common, and that Meruelo Properties had agreed to a new sales contract on the same terms and condition except that the sellers would be tenants in common. The evidence at trial was that the sellers wanted this change so that they could, individually, enter into tax-deferred 1031 exchanges. Thus, while the original escrow was between Meruelo Properties and OAV, under the new instructions, the Gaons and Stillman are the sellers.
Once again, the deal did not close. Meruelo Properties sued OAV and the individual partners for specific performance. (Other causes of action were dismissed prior to trial.) OAV cross-complained for breach of contract and on other theories. Trial was to the court. In brief, appellants' theory of the case was that Meruelo Properties failed to perform, and Meruelo Properties' theory was, of course, that it was appellants who were in default.
The court found that transfer of title from OAV to the individuals was a condition precedent to closing, and that title was not transferred prior to the closing date of August 20, 2004. The sellers were in breach for that reason and because they had not satisfied other conditions of escrow. In contrast, Meruelo Properties timely performed the acts required of it. As to the principle issue on appeal, Meruelo Properties' ability to perform, the trial court found that its lender was prepared to deliver the loan funds into escrow to allow the transaction to close, and that even without the lender's participation, Meruelo Properties had sufficient assets to close. The court found that Meruelo Properties was entitled to specific performance, and granted that remedy. Judgment was also entered for Meruelo Properties on the cross-complaint.
Discussion
1. Ready, willing, and able
A buyer seeking specific performance must prove that it was ready, willing, and able to perform. (Am-Cal Inv. Co. v. Sharlyn Estates, Inc. (1967) 255 Cal.App.2d 526, 539.) Appellants' principle argument is that under California law, Meruelo Properties could only prove that it was able to perform by proving that it had sufficient cash to close or a legally enforceable loan commitment. They then argue that there was no substantial evidence for the trial court finding that Meruelo Properties was able to perform. They are wrong on both the law and the facts.
Facts and trial court findings
Richard Meruelo testified that he was President of Meruelo Properties and an officer or owner of various other real estate holding companies, all part of a family business. Through these entities, he owned close to a hundred properties, about half of them in downtown Los Angeles. In 2004, Meruelo entities had income of between $18 million and $20 million a month, and mortgage payments of $12 million a month. The surplus was used to fund purchases, and he bought between 10 and 15 buildings that year.
In August 2004, a Meruelo entity had over $50 million in equity in the Rykoff building, across the street from 1807 Olympic. At that time, Richard Meruelo's personal net worth was over $134 million. At time of trial, his personal net worth was over $600 million.
As to the financing for the purchase of 1807 Olympic, Meruelo planned to get a short-term loan from Namco Capital Group, which made its decisions quickly, without an application process. He would then re-finance, perhaps with a loan from Center Bank, which had just financed another property for him and had expressed interest in financing additional purchases.
He had been doing business with Namco since 1997, and had borrowed between $50 and $100 million from it. In 2004 alone, there had been three Namco loans to different Meruelo entities, one of them for $22 million.
On this deal, Namco agreed to a $15 million loan secured by a first deed of trust on 1807 Olympic and a second deed of trust "on other property that I owned." There would be a three percent origination fee and interest of ten percent a year, payable monthly. At time of trial, Namco was still willing to finance the purchase.
Ezri Namvar of Namco testified: he had an on-going business relationship with Richard Meruelo and Meruelo Properties. Before the transaction at issue here, he had lent money to Meruelo and sold him buildings. Meruelo had never defaulted or missed a payment. Concerning Namco's resources, Namvar testified that in 2004, Namco lent $600 or $700 million.
Like Richard Meruelo, Namvar testified that Namco did not require a formal application or appraisal. If Meruelo wanted to borrow money, he called, and "[w]e ask him a few questions about the property, the purchase price. And we discuss with him rates and terms. And if he says yes, we find out when the closing date is and draw up loan documents." Namvar made the decisions personally. His commitment was not normally in writing. He had never made a commitment to Meruelo which he had not honored.
Namvar agreed to make the loan on 1807 Olympic after one or two face-to-face meetings with Meruelo. The terms they discussed were a loan of up to $17 million, subject to a 12 percent rate, two or three points, and additional security on the Rykoff property and other properties owned by Meruelo entities. Namvar knew that Richard Meruelo bought and held properties under different LLCs, but did not care which entity would take title: "it did not matter to us as long as we had his personal guarantee."
Namvar testified that the day before his testimony, Meruelo had asked him to show that he could fund the loan on short notice. Thus, Namvar brought to court a cashier's check for $15 million, made out to Commerce Escrow.
On this evidence, the trial court found that Richard Meruelo had a net worth of over $130 million, and that a Meruelo entity had $50 million equity in a property near 1807 Olympic, against which it could borrow. The court also found that "Mr. Namvar and his Company were prepared and committed to loan all the funds necessary for the purchase both at the time of trial and in August and September, 2004," that Meruelo Properties "commanded assets for the purchase price and other assets to use as security for the requisite credit," and that "the assets of Meruelo alone show that it was ready, willing, and able to perform, even independent of the commitment from Mr. Namvar and his company."
Discussion
Appellants focus on two cases, Henry v. Sharma (1984) 154 Cal.App.3d 665 and C. Robert Nattress & Associates v. Cidco (1986) 184 Cal.App.3d 55. They argue that the two cases are inconsistent, and that Nattress correctly holds that a buyer seeking specific performance must show that the prospective buyer had cash or a legally enforceable commitment to lend, and that, in contrast, Henry applies a lesser, looser, standard. After extensive analysis of California law and the law of other states, appellants go on to argue that Nattress is a correct statement of California law and that Henry is limited to its facts, or was wrongly decided, and that we should reject it.
We see no need for any such complex analysis, and instead hold that under established California law, the trial court finding that Meruelo Properties was ready, willing, and able to perform was supported by substantial evidence.
First, there was substantial evidence that (even aside from the Namco commitment) Meruelo Properties had the ability to close. Richard Meruelo had a net worth well in excess of the sum needed to close. Meruelo entities also had $50 million in equity in the Rykoff building. It is true that, as appellants argue, this is evidence of resources that did not, strictly speaking, belong to Meruelo Properties, but the evidence was that Richard Meruelo ran Meruelo Properties and other entities as a single family enterprise and that, for instance, the equity in the Rykoff building could be used to secure a loan to Meruelo Properties. His lender operated that way, too, so that Namco was willing to make a loan on 1807 Olympic no matter which Meruelo entity was the buyer, and which owned the collateral.
Appellants also cite various bank statements entered into evidence, showing monthly balances of $1.3 million, or less, in Richard Meruelo's account. They argue that the totals are so low that even if Richard Meruelo's assets are considered, Meruelo Properties did not prove ability to close. Appellants thus at least impliedly argue that (aside from a binding loan commitment) only liquid assets can show ability to perform.
To the contrary. It is well-established law that "The buyer's financial ability may be proved by showing the purchaser had liquid assets, property which could be sold and the proceeds used as collateral for a loan, or an actual loan commitment, providing such resources are sufficient to close the deal." (Am-Cal Inv. Co. v. Sharlyn Estates, Inc., supra, 255 Cal.App.2d at p. 546 [emphasis added].) "A finding the buyer seeking specific performance of a contract has the ability to purchase is supported by proof 'he commanded resources upon which he could obtain the requisite credit.' (Merzoian v. Kludjian, 183 Cal. 422, 430; see also Am-Cal Investment Co. v. Sharlyn Estates, Inc., 255 Cal.App.2d 526, 546.)" (D-K Investment Corp. v. Sutter (1971) 19 Cal.App.3d 537, 546.) D-K Investment is remarkably similar to this case. There, the trial court's finding that the plaintiff had the ability to perform was supported by evidence that plaintiffs were the owners of property which was contiguous to the property to be purchased and which had greater value than the property to be purchased, and which would have afforded adequate basis for extending plaintiff credit to purchase. There thus was substantial evidence for the trial court's conclusion that Meruelo Properties had sufficient funds to close the deal.
There was also the loan commitment from Namco. It was not in writing, but appellants are simply wrong when they assert that a loan commitment is not proof of ability to perform unless it is legally enforceable. Like Henry "we find no support for the iron-clad rule suggested by seller that plaintiffs could only establish ability to perform by proving they had obtained a legally enforceable loan contract. Rather, the proof needed to show ability depends on all the surrounding circumstances."(Henry v. Sharma, supra, 154 Cal.App.3d at p. 672.) "A buyer is not necessarily unable to obtain a loan merely because he does not have a legally enforceable loan contract." (WYDA Associates v. Merner (1996) 42 Cal.App.4th 1702, 1716; Behniwal v. Mix (2005) 133 Cal.App.4th 1027, 1045.) Ezri Namvar's testimony that Namco normally made loans without a written commitment, that he had made a commitment to Richard Meruelo to make this loan, and that he had never dishonored a commitment, is also substantial evidence for the trial court finding that Meruelo properties was ready, willing, and able to perform.
Any suggestion to the contrary in Nattress is dicta.
Finally, appellants make an argument based on the rule that a buyer seeking specific performance must show ability to perform during the lawsuit. (Gaggero v. Yura (2003) 108 Cal.App.4th 884, 890.) They acknowledge Namco's $15 million check and Namvar's testimony that he was still willing to make the loan, but argue that the check was too small, because the price was $1.95 million more than the check, and further argue that Meruelo Properties' purchase of Stillman's interest in OAV did not reduce the price. This is really not a tenable argument. The purchase of Stillman's interest obviously reduced the sum needed to pay appellants at closing. Meruelo Properties was not required to pay itself. Richard Meruelo testified that he would seek a credit in escrow which reflected his interest in OAV, and that disposes of this issue.
2. Did Meruelo Properties perform?
Appellants next argue that even if Meruelo Properties had the ability to perform, it did not do so, and thus was not entitled to relief. They make this argument with reference to an August 30, 2004 letter from Renee Gaon, on behalf of OAV, to Meruelo Properties, purporting to be a formal notice pursuant to paragraph 8.8 of the Offer and Agreement. The letter states that the sellers "are in a position to close escrow immediately," and demands that Meruelo Properties consummate the transaction within five days (that is, by September 7) or the escrow would be terminated. Appellants argue that with this letter, they performed under the contract and put Meruelo Properties in default.
Meruelo Properties' obvious and correct response is that, as the trial court found, under the Offer and Agreement, only parties not in default may give notice under paragraph 8.8. To counter this, appellants also argue that the trial court erred in finding that transfer of title from OAV to the individuals was a condition precedent to closing, and that instead it was a concurrent condition with Meruelo Properties' deposit of funds, or that transfer of funds was a condition precedent (by several hours) of their obligation to transfer title. They also argue that it did not matter whether they ever transferred title, because Meruelo Properties did not care who it took title from, and from all this conclude that it was Meruelo which was in default. There are many problems with these arguments. First, the absence of deeds to the sellers made closing impossible. The Offer and Agreement was not between Meruelo Properties and OAV, it was between Meruelo Properties and Renee Gaon, Alexander Gaon, Steven Gaon, and Suzanne Stillman, and was signed by those individuals, as seller. Because OAV did not, by August 20 (or, apparently, any other date) transfer title to the sellers, they could not perform and were in default on every relevant date. Meruelo Properties had no obligation to complete its loan and deposit funds into escrow when sellers could not perform.
Next, we can see no error in the trial court finding the transfer to the individuals was a condition precedent to Meruelo Properties' obligation to deposit funds into escrow. The Offer and Agreement signed by the parties so provides, when it provides that escrow is to close "on the next business day following the recordation of the deeds . . ." transferring title from OAV to the individuals. The document also provides that the buyer will deposit the purchase price no later than 2:00 p.m. on the business day prior to the expected closing date.
Appellants do not disagree with this reading of the Offer and Agreement, but instead contend that that agreement was amended by June 21 and June 22 escrow instructions. The June 21 instructions provide that "Sellers have now dissolved, or are in the process of dissolving their general partnership. After such dissolution, Sellers wish to convey title to Buyer as tenants in common," and set the closing date as "sixty (60) days from the date all parties sign this instruction, which date shall be inserted above immediately upon receipt of this instruction signed by all parties." The June 22 instructions, prepared by Commerce Escrow, provide that closing shall be "on or before August 20, 2004."
As appellants see it, the instruction setting a fixed closing date superseded the original instructions, so that the transaction now required Meruelo Properties to deposit funds into escrow on August 19, the day before the closing, and required the sellers to have recorded their deeds on the same date. We see it differently. The June 22 "on or before" closing date sets an outside limit on the transaction. Nothing in the June 21 or June 22 documents change the order of performance agreed on by the parties.
3. Uncertainty
Here, appellants argue that the contract was vague and uncertain as to the time and nature of the performances, and thus that it is too uncertain to be specifically enforced. They support this argument by contending that "the interpretation successfully asserted by Meruelo at trial is not supported by the words of the Purchase Agreement, or the rules of contract interpretation and certainty required for specific performance," and that it is the contract as interpreted by the trial court which is too uncertain. Because we see nothing wrong with the trial court's interpretation of the contract, we see nothing right in this argument.
4. Dual Agency
Appellants' real estate agent was Robert Grahm, an agent at Magnum Properties. Meruelo Properties was represented by Mike Meraz of Magnum Properties. Appellants argue that they were entitled to rescind the transaction because the dual agency was undisclosed. The trial court found that they did not prove that they were entitled to rescission. We agree.
This was the evidence: Appellants' business relationship with Grahm pre-dated this transaction, as did Meruelo's relationship with Meraz. The Offer and Agreement stated that both buyer and seller were represented by Magnum and made various disclosures about the nature of a dual agency and the obligations of such an agent. Grahm, who had had a long term business relationship with the appellants, testified they understood that there was a dual agency, and were "very familiar" with the fact that Mike Meraz represented Meruelo. Steven Gaon testified that he knew "[t]hat there was only one broker representing both sides." Renee Gaon testified that neither Grahm nor Meraz ever told her Magnum and Meruelo had a "prior, close" relationship, but she also testified that she had never read the purchase agreement. (Appellants did not present evidence from Alex Gaon.) All of this is substantial evidence that the sellers were informed of the dual agency, and thus that appellants did not prove that they were entitled to rescission.
Appellants argue that the disclosures in the purchase agreement were insufficient as a matter of law, citing Brown v. FSR Brokerage, Inc. (1998) 62 Cal.App.4th 766, a case which considered the duty of disclosure under Civil Code section 2079.14, applicable to residential real estate (Civ. Code, § 2079.13, subd. (j)) and which concerned a suit for damages against the broker, not rescission of the sales contract. We need not dwell on that case, because the content of these disclosures is immaterial, given the evidence that Grahm told the sellers of the dual agency, Steven Gaon's admission that he knew of the dual agency, the lack of evidence from Alex Gaon, and Renee Gaon's failure to read the contract. Brown also held that "It is, of course, true that '[w]hen a person with the capacity of reading and understanding an instrument signs it, he may not, in the absence of fraud, coercion or excusable neglect, avoid its terms on the ground he failed to read it before signing it.' [Citation.]" (Id. at p. 777.)
Disposition
The judgment is affirmed. Respondent to recover costs on appeal.
We concur: MOSK, J., KRIEGLER, J.