Opinion
NOT TO BE PUBLISHED
APPEAL from the Superior Court of San Bernardino County Super.Ct.No. VCV035317. Kurt J. Lewin, Judge. (Retired judge of the San Bernardino Super. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.)
Harbin & McCarron, Bruce A. Harbin and Richard H. Coombs, Jr., for Defendants and Appellants and Plaintiffs and Appellants Francisco and Lori Michel.
Caldwell, Kennedy & Porter and D. Kevin Porter for Plaintiffs and Respondents and Defendants and Respondents Fred and Rebecca Bernal.
McKinster, Acting P.J.
Francisco and Retha Lori Michel (collectively referred to as the Michels) appeal from a judgment for specific performance of an option to purchase real property contained in a lease Francisco entered into with Fred and Rebecca Bernal (collectively referred to as the Bernals). They contend that the evidence was insufficient to support a finding of an enforceable option. They also contend that the court erred in awarding punitive damages in the absence of evidence as to their financial condition. We will reverse the award of punitive damages but otherwise affirm the judgment.
Hereafter, we will refer to Ms. Michel as Lori Michel, as is her preference.
FACTUAL AND PROCEDURAL HISTORY
The Bernals leased a house on Stallion Trails in Victorville from the Michels. The Bernals had considered leasing another house in Victorville, but were concerned that the owner would sell the house when their lease expired, causing them to have to relocate again. Ultimately, they decided against leasing that house. Fred Bernal and Francisco Michel worked together, and Michel was aware that Bernal was considering leasing a house in Victorville. The Michels were looking for a larger house and offered to lease the Stallion Trails house to the Bernals if the Michels purchased a new house. In response to the Bernals’ concern about entering into a lease for a house that the owner might later wish to sell, Francisco Michel offered them a two-year lease with an option to purchase the house at the end of the lease term. Francisco Michel inserted the following into the form residential lease he prepared: “Lessee will have option to purchase property at end of 2 yr [sic] term. Purchase price not to exceed $175,000.00. Terms may be negotiated at that time via seller or private lenders.” Michel testified that he based the option price on an appraisal he had recently obtained on the property, and that the language of the option was entirely his own. He testified that he believed the contract to be binding when he wrote it.
The Bernals and Francisco Michel executed the lease, which ran from October 15, 2002 until October 15, 2004, and the Bernals moved into the house. Lori Michel did not sign the lease. She testified that she knew nothing about the lease or the option until she was served with the Bernals’ lawsuit. She had executed an interspousal transfer prior to the execution of the lease in order to refinance the mortgage on the house. However, she considered the house to be community property.
In June 2004, the Bernals decided to exercise the purchase option. They obtained preapproval for a loan in the amount of $175,000. Fred Bernal notified Francisco Michel in writing that he intended to exercise the option. Michel responded that the situation had changed and offered to sell Bernal the house for $245,000. After entering into the lease with the Bernals, the Michels had refinanced the house several times, each time cashing out some of the equity. By the time of the trial, the house was encumbered far in excess of the $175,000 option price. The Michels had not disclosed the lease or the option to the lenders who provided the subsequent mortgages. In addition, Francisco Michel had forged Fred Bernal’s signature on a lease for a different property.
Charles Barger, president and CEO of Bristol Home Loans, who was also Fred Bernal’s brother-in-law, testified that he had approved the loan and that the loan would have been funded before the option date if the Michels had entered into a purchase contract with the Bernals. The interest rate at that time would have been about 5.5 percent. He testified that the loan could still be funded as of the date of trial. However, the interest rate would then have been about 7 percent, resulting in an increase of about $170 in the Bernals’ monthly mortgage payment.
On August 25, 2004, the Bernals filed suit for specific performance, breach of contract, fraud, quiet title and declaratory relief. The Michels answered the complaint on October 28, 2004, and filed an unlawful detainer complaint the following day. The parties stipulated to consolidate the two cases. On July 19, 2005, Lori Michel filed a complaint in intervention to cancel the lease and to quiet title.
Following a bench trial, the court found that Lori Michel had no right to void the option based on her assertion that she had no knowledge of the option until the Bernals sought to exercise it. The court found credible the testimony of Ed Zamott, who testified that he heard Lori Michel tell Rebecca Bernal, on the day the Bernals moved into the Stallion Trails house, that the Bernals could do anything they wanted to do to the house in terms of decorating, because “you are going to own it in a couple of years, anyway.” The court found that the Michels were sophisticated investors in real estate and had bought and sold properties for occupancy and/or investment, had executed interspousal transfers to facilitate financing, created leases, including the fictitious one involving the Bernals, conducted foreclosures and took real estate courses. It found that the Michels used the option to induce the Bernals to enter into the lease but deliberately kept Lori’s community property interest “up their sleeve” in the event the option became unfavorable to them, and that they had no intention of honoring the option if the property increased in value. The court determined that the Michels had committed promissory fraud. The court also found that the Michels had fraudulently conveyed the property by encumbering it in excess of the option price.
The court found that the contract created an enforceable option for the Bernals to purchase the property for $175,000. It found that the use of the phrase “no more than $175,000” did not create any ambiguity or uncertainty in the terms of the option, but merely allowed the Bernals to offer a lower price without repudiating their absolute right to exercise the option at the full contract price. Accordingly, the court ordered specific performance. It ordered the Michels to retire the debt secured by the property on or before the close of escrow. In the event that they failed to do so, the Bernals would be entitled to judgment in the amount of the difference between the payoff demand under the trust deed(s) and the option price of $175,000. The court ordered the Bernals to open escrow within a commercially reasonable time following entry of judgment. The court also awarded the Bernals the amount of rent they had paid since the end of the lease term, less any property taxes paid by the Michels, plus prejudgment interest. It did not award the Bernals damages based on the difference in interest rates, because it had found that the contract provided them with the option to purchase the property for cash. Finally, the court awarded the Bernals $20,000 in punitive damages, with the proviso that the award of punitive damages would be applied only if the Michels failed to pay off the debts secured by the property before the close of escrow.
The Michels filed a timely notice of appeal. We determined, however, that the judgment was not final and consequently not appealable, because the trial court reserved jurisdiction to amend the judgment, depending upon whether the Michels paid off the loans secured by the property by the close of escrow. We offered the parties the option of filing an amended, final judgment. On July 27, 2007, the Michels filed an amended judgment with this court and requested the opportunity for supplemental briefing based on the amended judgment. We granted that request.
LEGAL ANALYSIS
JUDGMENT AGAINST LORI MICHEL IS PROPER
Lori Michel contends that judgment should not have been entered against her because she had conveyed away her interest in the property before the execution of the lease and was not a party to the lease. She contends that she is not a defendant in the suit filed by the Bernals, and that she appeared in the action only as an intervenor, to protect her community property interest. However, the register of actions shows that Lori Michel was added as a defendant on the Bernals’ complaint on October 28, 2004. She filed an answer to the complaint on the same date. Having made a general appearance in the action, she subjected herself to the court’s jurisdiction (Fireman’s Fund Ins. Co. v. Sparks Construction, Inc. (2004) 114 Cal.App.4th 1135, 1145), and judgment could be entered against her. Her remaining contentions, all of which are in the nature of defenses to the judgment as to her, were not litigated below and cannot be raised for the first time on appeal. (Hepner v. Franchise Tax Board (1997) 52 Cal.App.4th 1475, 1486.)
THE OPTION WAS ENFORCEABLE
The Michels contend that the option was deficient in a number of respects and therefore unenforceable.
The Michels frame their contention (indeed, all of their contentions) as a matter of substantial evidence. However, the interpretation of a writing is a question of law that we review de novo, unless the trial court’s decision was based on its determination of the credibility of conflicting extrinsic evidence. (Mayer v. C.W. Driver (2002) 98 Cal.App.4th 48, 57.) The Michels’ contentions under this heading do not rely on conflicting evidence. Therefore, we review the sufficiency of the option de novo. (Ibid.)
The Michels contend that the option is deficient because it fails to identify the parties bound by it with sufficient specificity. They contend first that the option does not identify the optionor, but they admit that the context shows that Francisco Michel is the optionor.
Under the same heading (“An option must specify the parties bound by it”), the Michels note that “[n]othing in the lease or the option language can be fairly read to include Lori Michel. Through their addition of Lori Michel as a Defendant, [the Bernals] clearly recognized that Lori Michel is necessary to make any transfer to [the Bernals] complete.” The Michels make no further argument on this point. At trial, the Michels argued that because the Stallion Trails property was community property, despite the interspousal transfer Lori executed, Lori had the right to void the transaction. We do not know whether, by alluding to Lori as a “necessary” party to the option, they are attempting to make this argument on appeal. The Michels have the burden to show reversible error. (State Farm Fire & Casualty Co. v. Pietak (2001) 90 Cal.App.4th 600, 610.) Their contentions must be supported by argument and citation to authority. (McComber v. Wells (1999) 72 Cal.App.4th 512, 522-523.) The Michels cite no authority on that point and make no meaningful argument. Thus, even if we assume that by referring to Lori as a necessary party, the Michels are attempting to argue that Lori had the right to void the transaction, they have not met their burden on this point.
We assume that the Michels recognize that substantial evidence supports the trial court’s finding that Lori knew about the option and that the Michels deliberately omitted her from the lease and kept her community property interest “up their sleeve” in order to be able to renege on the option while offering it to the Bernals in order to entice them to enter into the lease.
Next, the Michels contend that the option does not identify the property with certainty. This is nonsense. The option is a provision in the lease for the residence described as 14604 Stallion Trails in Victorville, California. Francisco Michel, who wrote the option provision, did not testify that he did not understand that he was referring to the Stallion Trails property when he wrote it, and if he had so testified, we have no doubt that the trial court would have found his testimony unworthy of belief, as would we. Next, the Michels state that the option must fail because it does not state whether the buyer is to assume existing encumbrances on the property. However, they have not provided any legal authority that supports their position. The case they cite, Wright v. Lowe (1956) 140 Cal.App.2d 891, does not hold that the contract in question was not specifically enforceable because it failed altogether to state whether the buyer would assume the existing encumbrances on the property. Rather, the court held that the contract was ambiguous because it provided that the buyer would assume existing assessments, but at the same time provided that the property was to be delivered free of assessments. (Id. at p. 895.)
Finally, the Michels contend that the option was unenforceable because it failed to specify the method of financing the Bernals were to employ. Again, the authorities they cite do not support their contention. Both cases deal with the specificity necessary in real estate purchase contracts with clauses in which the sellers agreed to subordinate their trust deeds to other trust deeds securing loans to be obtained by the buyer for construction and permanent financing. (Handy v. Gordon (1967) 65 Cal.2d 578, 580, 581; Krasley v. Superior Court (1980) 101 Cal.App.3d 425, 430-431.) The contract at issue in this case contains no such clause. On the contrary, it expressly provides that financing could be negotiated at the time of purchase.
THE BERNALS PROPERLY EXERCISED THE OPTION
The Michels contend that the court made no finding that the option was properly exercised and that there is insufficient evidence in the record to support a finding that it was properly exercised.
In fact, in its tentative decision, the court did find that the Bernals properly exercised the option. It did not state the basis for that finding. The Michels did not request a statement of decision stating the facts upon which the court relied to reach that conclusion. We therefore assume that the court made the factual findings necessary to support that conclusion. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133-1134.) If the Michels’ challenge to this ruling truly were a question of substantial evidence, we would be required to uphold the ruling as long as there is substantial evidence to support the court’s implied factual findings. (Michael U. v. Jamie B. (1985) 39 Cal.3d 787, 793, superseded on another point by statute as noted in In re Zacharia D. (1993) 6 Cal.4th 435, 448.) However, the Michels’ actual contention appears to be that the undisputed evidence is not sufficient as a matter of law to support the finding that the Bernals properly exercised the option. This is a question of law that we review de novo. (People v. Villalobos (2006) 145 Cal.App.4th 310, 316, fn. 3.)
The Michels contend that the option was not properly exercised for several reasons. First, they contend that in the letter Fred Bernal wrote to inform Francisco Michel that he intended to exercise the option, he failed to state that he was acting on behalf of both Fred and Rebecca Bernal. Second, they contend that the letter did not explicitly state that Bernal was exercising the option, but merely stated that he intended to do so. Third, they contend that Bernal’s letter was not a valid exercise of the option because in the letter, he “demanded” a written response from Michel. A response was not a term of the option. Fourth, they contend that the option was not timely exercised because, per the terms of the option, it could be exercised only at the end of the two-year term of the lease. The letter stated that Bernal intended to exercise the option on October 15, 2004. However, the lease term expired at 12:00 a.m. on October 15, 2004, and an exercise of the option later that day would not be timely. Finally, they contend that the purported exercise of the option was not completed because the Bernals did not tender performance. They contend that the Bernals had only a “reasonable time within which to tender performance” after notice of exercise of the option, and that as of the date of their opening brief, the Bernals had still not tendered performance.
Bernal’s letter, dated June 20, 2004, stated, “This is to inform you of my intentions to purchase the property at 14604 Stallion Trails in the City of Victorville, California for the amount of $175,000 on October 15, 2004 as per the written agreement signed on October 15, 2002 (see attached copy enclosed). [¶] Please respond to me in writing within 10 business days.” When he received no response, Bernal wrote again on July 15, again asserting his intention to purchase the property “in the amount agreed to in the lease agreement.” Michel responded in writing on July 26, 2004, refusing to honor the option but offering to sell Bernal the property for $245,000.
Bernal’s letter was sufficient to convey to Michel that he was there and then exercising the option to purchase the property on the terms specified in the contract (which includes Rebecca as an optionee), and Michel’s response clearly reflects that understanding. Bernal’s request for a response was not an alteration of the terms of the option; rather, it was merely a request for an acknowledgment that he had communicated his exercise of the option to Michel. Michel simply did not want to sell the property at the price he agreed to in the lease because the property had appreciated in value and he had encumbered it in excess of the option price.
The Bernals’ exercise of the option was not untimely. “‘The exercise of an option is merely the communicated election of the optionee to accept the option.’ [Citation.]” (Riverside Fence Co. v. Novak (1969) 273 Cal.App.2d 656, 661.) Unless the contract specifies a different manner of exercising the option, notice by mail is sufficient, and the exercise of the option is complete upon mailing the notice. (Palo Alto Town & County Village, Inc. v. BBTC Company (1974) 11 Cal.3d 494, 500-501; Civ. Code, § 1583.) Here, the option did not provide a date by which the option had to be exercised; rather, it provided for purchase of the property upon the expiration of the term of the lease. The lease expired on October 15, 2004. Bernal exercised the option on June 20, 2004. This was unquestionably timely.
Counsel for both parties would do well to familiarize themselves with the rules pertaining to citation of authorities. (See, e.g., Cal. Style Manual (4th ed. 2000) ch. 1.) Both parties cited Riverside Fence Co. v. Novak, but both cited to the wrong volume of the California Appellate Reports. And, in this as well as in most other instances, they did not provide a citation to the pertinent pages of the cases they cited.
Nor does the Bernals’ “failure” to tender performance affect the validity of the exercise of the option. Unless the option so provides, the exercise of the option need not be accompanied by a tender of performance. (Riverside Fence Co. v. Novak, supra, 273 Cal.App.2d at p. 661.) Here, the option provided for tender of performance at the end of the term of the lease. Thus, no tender of performance was due at the time Bernal exercised the option. Moreover, the Michels cannot complain that the Bernals did not tender performance. The undisputed evidence established that the Bernals were ready, willing and able to purchase the property for the option price by the option date, i.e., the expiration of the lease. (See fn. 2, ante.) However, Francisco Michel told Fred Bernal that he would not sell the property for the option price, thus rendering a tender of that amount futile.
THE COURT PROPERLY ORDERED SPECIFIC PERFORMANCE
The Michels contend that the court erred in ordering specific performance because there was no evidence that the Bernals were ready, willing and able to perform. However, as the Michels concede, Charles Barger, the owner of Bristol Home Loans, testified that he had approved the Bernals’ loan application for the purchase price and that the loan would have been funded before the option date if the Michels had entered into a purchase contract. (See fn. 2, ante.) The Michels provide no authority or meaningful argument as to why this testimony is not legally sufficient evidence that the Bernals were ready, willing and able to perform. The testimony of a witness, if believed by the trier of fact, is substantial evidence. (People v. Young (2005) 34 Cal.4th 1149, 1181.)
THE EVIDENCE IS INSUFFICIENT TO SUPPORT THE AWARD OF PUNITIVE DAMAGES
In the original judgment, the court awarded $20,000 in punitive damages based on its finding that the Michels’ conduct constituted fraud. However, the judgment provided that the punitive damage award would be imposed only if the Michels failed to pay off the debt secured by the property on or before the close of escrow. In addition, if the Michels did not retire the debt on or before the close of escrow, the court reserved jurisdiction to amend the judgment to include damages in the amount of the difference between the payoff demand under the trust deed(s), less credit for rent paid by the Bernals since the end of the two-year lease, net of any property taxes paid by the Michels. The Michels did not pay off that debt and were apparently unable to do so before the close of escrow. On the ex parte application of the Bernals, the court filed an amended judgment, awarding the Bernals $91,732 in compensatory damages and $20,000 in punitive damages.
The Michels’ motion to augment the record on appeal, filed July 27, 2007, is granted with respect to the documents attached to the motion.
In their opening brief, the Michels contend that the award of punitive damages was improper because there was insufficient evidence to support the court’s finding that their conduct constituted fraud. They concede that the court could reasonably have chosen to disbelieve their testimony. However, they contend that “the trial court was still left with no evidence of fraud that meets the clear and convincing evidence standard.”
As we have noted elsewhere, it is the appellant’s burden to demonstrate reversible error. (State Farm Fire & Casualty Co. v. Pietak, supra, 90 Cal.App.4th at p. 610.) The Michels have made no effort to demonstrate the deficiencies in the evidence to support the court’s judgment on the fraud cause of action. We therefore need not engage in any discussion of this issue.
The Michels also contend that the award was improper because it was not imposed to provide a remedy for their fraudulent conduct. Rather, it was imposed only if they were unable to pay off the debt secured by the property. Again, they provide no authority and little, if any, analysis, and have failed to meet their burden on appeal.
The Michels refer to a hearing that was conducted on July 10, 2007. Although they requested augmentation of the record on appeal to include the reporter’s transcript of that hearing, they have not provided us with a copy of the transcript as required by rule 8.155(a)(2) of the California Rules of Court. They also fail to cite to any specific portion of the transcript in support of their contentions. In the absence of any reliance by the Michels on any matter contained in that transcript, we conclude that it is not material to the issues on appeal, and we deny the motion to include the reporter’s transcript in the record on appeal.
We do, however, agree with the Michels that the record does not contain sufficient evidence to support the award of punitive damages. The purpose of punitive damages is to punish the defendant’s conduct and to deter similar misconduct in the future. In order to be an effective deterrent, punitive damages must be sufficient, relative to the defendant’s financial condition, to serve that purpose. At the same time, the award must not be excessive, relative either to the egregiousness of the misconduct or to the defendant’s financial condition. (Adams v. Murakami (1991) 54 Cal.3d 105, 109-113.) Evidence of the defendant’s financial condition is therefore essential in order to permit effective review on appeal of the propriety of an award of punitive damages. (Id. at pp. 114-116.) It is the plaintiff’s burden to produce that evidence. (Id. at p. 119.)
Here, the only evidence the Bernals point to that relates to the Michels’ financial condition is testimony that after the Michels leased the Stallion Trails property to them, the Michels purchased a home for approximately $349,000, and that they owned a parcel of property in Apple Valley and one in Texas. There is no evidence as to their income, the amount of equity, if any, in those properties, or any other facts that could assist the court in determining whether an award of $20,000 is sufficient to punish them for their fraudulent conduct but not excessive relative to their financial condition. Accordingly, the award of punitive damages cannot stand.
DISPOSITION
The amended judgment is reversed as to the award of punitive damages. In all other respects, the amended judgment is affirmed. The parties shall bear their own costs on appeal.
We concur: King, J., Miller, J.