Opinion
2d Civil No. B206598.
6-25-2009
MARK BURNES et al., Plaintiffs and Respondents, v. GERALD SUGARMAN, Defendant and Appellant.
John F. Hodges, under appointment by the Court of Appeal, for Defendant and Appellant Gerald Sugarman. Ogden & Fricks, LLP, Roy E. Ogden, Sue N. Carrasco for Plaintiffs and Respondents Mark and Tamara Burnes, Bill and Jane Sadek and Bedlam Thinktank, LLC.
Not to be published in Official Reports
A jury awarded damages for breach of contract. Defendant contends the trial court erred in admitting parol evidence to interpret the contract. The defendant also contends that he is entitled to a new trial based on an inconsistent verdict. We affirm.
FACTS
Gerald Sugarman owns a parcel of property on Grand Avenue in Arroyo Grande. His offices are located on the front portion of the parcel. He had plans to construct a planned unit development consisting of nine residences on the back portion of the parcel. He applied to the city for a lot split to make the back portion of his property a separate parcel. Sugarman stopped processing his application in 2003.
In 2005, Bill Sadek heard about Sugarmans project. Sadek contacted Sugarman and began negotiations to purchase the project. Sadek brought in Mark Burnes to participate in the purchase.
Sugarman told Sadek that the project was "ready to go," and that "the city absolutely loves it." Sugarmans real estate agent, Kirby Gordon, told Burnes that the project is a "slam-dunk," and that the city loves it.
The parties agreed to a total purchase price of $800,000, with $250,000 down and the $550,000 balance due at close of escrow. Because, however, Sugarman had not obtained a lot split, the Subdivision Map Act (SMA) (Gov. Code, § 66410 et seq.) presented a problem. The SMA generally prohibits the sale of a parcel until an approved map is recorded. (Gov. Code, § 66499.30, subds. (a)-(c); Gardner v. County of Sonoma (2003) 29 Cal.4th 990, 999.) But it does not prohibit the parties from entering into a contract to sell property that is expressly conditioned on the approval and filing of a final map. (Gov. Code, § 66499.30, subd. (c).)
In an attempt to comply with the SMA, the parties structured the transaction as an option to purchase and a purchase contract:
The option to purchase was in consideration of $250,000, payable within 30 days of the acceptance of the agreement. The period in which to exercise the option was from February 10, 2005, and February 15, 2006. The option agreement provides: "Closing is contingent on recording the lot line adjustment finalized and recorded as per the tentative tract map. Escrow to close 30 days after lot line adjustment."
The purchase contract requires payment of the $550,000 balance of the $800,000 purchase price. The contract provides that "Close of Escrow shall occur on February 14, 2006."
Both the option and purchase contract contained provisions stating that time is of the essence. Both also contained integration clauses stating that all understandings between the parties are incorporated in the agreements, and that the agreements represent the exclusive expression of the parties intent.
Burnes exercised the option and paid Sugarman $250,000 in March of 2005. Burnes then began the process of obtaining the necessary governmental approvals for the project. The city wanted changes, including more open space and one fewer residential unit. The changes required by the city increased the amount of time necessary to obtain the required approvals.
By May 2006, Burnes had obtained all the significant approvals from the city. The city approved the tentative tract map for the project in July 2006.
In October 2006, Burnes sent draft plans for the project to Gordon, Sugarmans agent. Gordon wrote to Burnes that Sugarman would not close escrow unless Burnes agreed to reimburse him for interest incurred since February 14, 2006, the closing date stated in the purchase contract.
The parties were unable to agree on any additional compensation. On February 15, 2007, Burnes filed the instant action for declaratory relief, specific performance, breach of contract, rescission and quiet title. Sugarman filed his own declaratory relief action. The court consolidated the two actions.
The dispute revolves around the difference in escrow closing dates stated in the option and purchase contract. The option provided for close of escrow 30 days after a lot line adjustment. The purchase contract provided for close of escrow on February 14, 2006. Sugarman contended that Burnes breached the contract by failing to close escrow on or before February 14, 2006.
Sugarman made a motion in limine to exclude parol evidence in support of Burnes position that the date for close of escrow is 30 days after the recording of the lot line adjustment or February 14, 2006, whichever is later. The trial court denied the motion. In denying the motion, the trial court stated that the $250,000 paid to Sugarman is a "high percentage of the purchase price . . . ." The court reasoned that $250,000 is a lot to pay for an option where the money is forfeited after one year.
At trial, Sadek testified that February 14, 2006, was a "target date." He said: "I have to bust my chops and do my very best to get the entitlements done. . . ." He had a reasonable amount of time to close escrow. He considered two years to be a reasonable time, "[g]iven the pace of how things go with the city. . . ." He would not have invested $250,000, plus nearly $100,000 in development costs to obtain approvals without some sort of protection.
James Garing, a civil engineer, testified that the processing and management of Burnes application to the city was "fairly typical" of most tracts. Gregory Soto, an architect, testified that Burnes was taking a reasonable amount of time in attempting to complete the project.
Ryan Foster, Arroyo Grande associate planner, testified that the time spent processing Burnes development project was average. He said that much of the pre-application work done by Sugarman three years earlier had to be redone. The composition of the architectural review committee and the planning commission had changed. There had also been a significant change in the zoning ordinance.
Gordon, Sugarmans agent and expert, testified that Burnes should have been able to obtain approvals for Sugarmans original project by at least March of 2006. But if Burnes started a new project, city approval would take at least 18 months.
The jury found that Sugarman breached the contract and awarded Burnes $250,000 for the option and $51,406 for development expenses.
DISCUSSION
I
Sugarman contends the trial court erred in admitting parol evidence on the time for close of escrow. ""The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible." To determine whether offered evidence is relevant to prove such a meaning the court must consider all credible evidence offered to prove the intention of the parties. "If the court decides, after considering this evidence, that the language of a contract, in the light of all the circumstances, "is fairly susceptible of either one of the two interpretations contended for . . ." [citations], extrinsic evidence to prove either of such meanings is admissible." . . ." (Delta Dynamics, Inc. v. Arioto (1968) 69 Cal.2d 525, 528, citing Pacific Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co. (1968) 69 Cal.2d 33, 40.) The trial courts ruling on whether the agreement is reasonably susceptible to the interpretation suggested by the extrinsic evidence is a question of law subject to independent review. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.)
Here the option and purchase contract are two parts of the same transaction. Thus the trial court correctly read them together as a single contract. (See Civ. Code, § 1642 ["Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together."].) Where, as here, a single agreement provides two different times for the close of escrow, there is an ambiguity under any test. The only question is whether the language of the contract in light of all the circumstances is fairly susceptible to the interpretation suggested by the extrinsic evidence.
Burnes relies on the option provision for close of escrow 30 days after the lot line adjustment recorded per the tentative tract map. Sadek, Burnes partner, testified that February 14, 2006, was a target date; that he had to do his best to obtain approval from the city; but that he had a reasonable amount of time to close escrow. In light of all the circumstances, that is a reasonable interpretation of the contract.
Gordon, Sugarmans own expert, testified that Burnes should have been able to obtain approvals of the original project at least by March of 2006. The testimony indicates the parties intended some flexibility in the February 14, 2006, closing date. Moreover, Sugarman does not claim his preliminary discussions with the city that ended in 2003 resulted in a vested right to complete the original proposed development. Thus it is reasonable to conclude the parties knew that the city could compel Burnes to make changes in the project. Even Gordon conceded it could take 18 months to obtain approvals for a changed project, well past February 14, 2006. Finally, as the trial court noted, $250,000 is a large portion of the purchase price to pay for a one-year option. That is especially true in light of the time, expense and uncertainties involved in obtaining the citys approval of the project.
Sugarman points out that the rules of construction require the court to give meaning to all the terms of the contract if possible. (Code Civ. Proc., § 1858.) He complains that Burnes interpretation of the contract makes the February 14, 2006, closing date a nullity. But Burnes interpretation is based on the premise that he was using reasonable effort to obtain the citys approval of the project. Had Burnes not been using such reasonable effort, Sugarmans obligation to close escrow would have expired on February 14, 2006, the date specified in the purchase contract. Thus the February 14, 2006, date was meaningful at the time the parties executed the contract.
Sugarman also points out that both the option and purchase contract contain integration clauses stating that all understandings between the parties are incorporated in the agreements, and that the agreements represent the exclusive expression of the parties intent. He argues the parol evidence rule bars the admission of the evidence. (Code Civ. Proc., § 1856.) The parol evidence rule limits the ability of the parties to an integrated agreement to claim the writing is incomplete. (Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 412.) But the rule does not bar extrinsic evidence to resolve ambiguities in contract language. (Ibid.) Here the evidence was admitted to resolve ambiguities in contract language.
Sugarman points out that Burnes inserted the February 14, 2006, date into the purchase contract. He relies on the rule of contract construction that contract language should be interpreted against the party who drafted the language. (See Civ. Code, § 1654.) But that rule only applies when none of the other canons of construction succeed in dispelling the uncertainty. (Oceanside 84, Ltd. v. Fidelity Federal Bank (1997) 56 Cal.App.4th 1441, 1448.) Here the circumstances surrounding the agreement and Sadeks testimony as to the meaning of the agreement militate against the mechanical application of the rule.
Tahoe National Bank v. Phillips (1971) 4 Cal.3d 11 is of no help to Sugarman. There the defendant needed capital for a real estate venture within two hours. She applied to her bank for a loan. Instead of a trust deed to secure the loan, the bank had her execute an instrument entitled, "Assignment of Rents and Agreement Not to Sell or Encumber Real Property." (Id. at p. 14.) When the defendant defaulted, the bank brought an action for foreclosure, contending the instrument was an equitable mortgage. The trial court allowed the bank to introduce extrinsic evidence. Thereafter, the trial court interpreted the instrument to be an equitable mortgage, and ordered foreclosure. Our Supreme Court reversed stating: "Plaintiff bank, which occupied the more powerful bargaining position and deliberately chose to use a standardized form providing for the assignment of rents and a covenant against conveyances, cannot be permitted to transform this assignment into a mortgage contrary to the reasonable expectation of its borrower. On examining the terms and purpose of the assignment, we conclude that it is not reasonably susceptible of construction as a mortgage at the instance of the bank, and thus that the trial court erred in invoking extrinsic evidence offered by the bank to prove it to be a mortgage." (Ibid.)
Sugarman believes Tahoe illustrates the proposition that an ambiguity must be interpreted against the drafter. But Sugarman reads Tahoe too broadly. The instant case does not involve the vast difference in bargaining power between a bank and a customer in need of a quick loan. Here all parties are relatively sophisticated, and there is nothing to indicate they did not have equal bargaining power. Moreover, unlike the assignment in Tahoe, the contract here is reasonably susceptible to the construction suggested by the extrinsic evidence.
II
Sugarman contends the judgment must be reversed because the jury rendered an inconsistent verdict.
In its special verdict, the jury found that Burnes fulfilled his contract obligations and Sugarman breached his. In the blank on page 2 of the verdict form following the words, "The amount of reasonable expenses in attempting to develop the property," the jury inserted "51,406." Handwritten in the right margin next to the $51,406 is "$83,406 - 32,000 = $51,406," with the words, "lost interest," and an arrow pointing to "32,000."
Sugarman speculates that the "lost interest" refers to the interest he paid on the propertys mortgage in the eight months between the closing date of February 14, 2006, and the October 13, 2006, letter from Gordon demanding $32,000 in carrying charges. Sugarman points to evidence that he was paying $4,000 a month interest during the eight-month period. He concludes the jury rendered an inconsistent verdict by finding both that he breached the contract and by crediting him with interest payments. He cites Shaw v. Hughes Aircraft Co. (2000) 83 Cal.App.4th 1336, 1344, for the proposition that a new trial is the remedy for an inconsistent verdict.
In Shaw, plaintiff sued for breach of contract, breach of the implied covenant of good faith and for wrongful discharge, all arising from the defendants discharge of plaintiff from his employment. The jury found the defendant did not breach the contract, but awarded plaintiff $405,153 for breach of the implied covenant of good faith. The jury also found (nine to three) that plaintiff was wrongfully discharged, but awarded no damages. The Court of Appeal determined the jurys finding of no breach of contract and an award of damages for breach of the implied covenant of good faith constituted an inconsistent verdict for which a new trial was required. (Shaw v. Hughes Aircraft Co., supra, 83 Cal.App.4th at pp. 1344-1346.) The court also determined that the jurys findings of wrongful discharge and no damages suggest a compromise verdict for which a new trial is also required. (Id. at p. 1346.) The court noted the jury did not even award the $200,000 that defendants own expert calculated as plaintiffs minimum loss. (Ibid.)
A verdict finding both no breach of contract and breach of a contract covenant is clearly inconsistent. Here, however, the jury found Sugarman breached the contract and awarded Burnes damages consisting of the return of the $250,000 he paid for the option and $51,406 for the development expenses. There is nothing inconsistent about that. At most, the calculation and notation in the margin of the verdict form indicate the jury may not have awarded Burnes all the damages to which he is entitled.
Moreover, unlike Shaw, the award of damages here was not so grossly inadequate as to indicate a compromise verdict. At worst, it was the result in a misapprehension in the method of calculating damages. This is not a case where a new trial is required. (See, e.g., Rose v. Melody Lane of Wilshire(1952) 39 Cal.2d 481, 488-489 [where jury awarded plaintiff less than special damages indicated by the evidence and, despite painful injuries, only awarded $1 in general damages].)
Nor is Sugarman helped by Shapiro v. Prudential Property & Casualty Co. (1997) 52 Cal.App.4th 722. There plaintiff sued for negligent misrepresentation. The jury found for plaintiff, but an unsigned, handwritten notation on the special verdict form indicated that the jury reduced the damages award 42.5 percent for comparative negligence. Plaintiff moved to vacate the judgment and enter a new judgment awarding full damages. The motion was based on the theory that the jury could not apply comparative negligence in a fraud action based on negligent misrepresentation. The trial court denied the motion to enter a new judgment, but granted plaintiff a new trial limited to the question of damages. On appeal, the defendant claimed the trial court had no jurisdiction to grant a new trial where a party does not move for one. On cross-appeal, the plaintiff claimed the court erred when it refused to correct the verdict. The Court of Appeal affirmed the trial courts grant of a new trial on the issue of damages.
If anything, Shapiro works against Sugarman. There, as here, unsigned notes in the margin of a special verdict form indicated the jury may have improperly reduced the award of damages. When the aggrieved plaintiff objected, the trial court granted a new trial on the issue of damages. Nothing in Shapiro suggests that any party is entitled to a new trial on all issues, as Sugarman apparently now seeks. Moreover, Sugarman is not aggrieved by an inadequate award of damages; Burnes is. But Burnes is not contesting the award. Sugarman cites no authority that he is entitled to a new trial, whether general or limited, simply by showing the jury improperly reduced an award of damages against him. A party must be aggrieved in order to appeal. (See 9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 33, p. 94.)
The judgment is affirmed. Costs are awarded to the respondents.
We concur:
YEGAN, J.
COFFEE, J. --------------- Notes: Respondents are collectively referred to as "Burnes" unless the context indicates otherwise.