Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County No. 05CC02630, Steven L. Perk, Judge.
Steptoe & Johnson and Jason Levin for Defendants and Appellants.
Price, Crooke, Gary & Hammers and Stephen G. Hammers for Defendant and Respondent.
OPINION
RYLAARSDAM, ACTING P. J.
Defendants Alpine-Riviera, L.L.C., Alpine-McIntyre, L.L.C., Destiny-Phoenix West, L.L.C., and Destiny-Dallas, L.L.C. (collectively seller) agreed to sell defendant H. Wayne Klekamp, Inc. (buyer) four recreational vehicle (RV) parks. The parties opened an escrow with plaintiff Chicago Title Company and buyer deposited $100,000. When the parties failed to complete the transaction, both seller and buyer asserted a right to the deposit. Plaintiff filed this interpleader action and deposited the $100,000 with the superior court.
After trial, the court awarded the deposit to buyer. Applying New York law, as required by the contract’s choice-of-law clause, the court found seller committed a material breach of the agreement by failing to inform buyer of pending governmental enforcement action against one RV park concerning its noncompliance with water quality standards, which seller failed to cure before the closing date. In addition, the court ruled buyer was not required to provide seller either with proof it had obtained adequate funding for the purchase or that it was otherwise ready, willing, and able to complete the contract to recover its deposit. Seller appeals. We affirm the judgment.
FACTS
1. The Water Problems at Seller’s Arizona Park
One of seller’s RV parks is Destiny-Phoenix West (Destiny) located in Maricopa County, Arizona. In May 2003, the Maricopa County Environmental Service Department sent a warning letter to Destiny’s local manager, stating a test of the park’s well showed the water in it had a nitrate contaminant level twice that allowed by law. The letter directed Destiny to post public notice of the problem, “provide alternate drinking water, such as bottled water . . . until the violation is corrected,” and “submit a plan to correct the violation within 30 calendar days . . . .” Destiny complied with the first and second requirements. Seller’s principal, David Donnalley, testified he directed Destiny’s onsite manager to search for a solution to the problem.
In September, the county issued a letter of violation to Destiny concerning the failure to resolve the excessive nitrate contaminant level. The letter informed Destiny it “must submit a plan for correction of the violation . . . for approval . . . by November 15, 2003,” and that any approved plan “must be implemented within 30 days of receiving [a]pproval . . . .” The letter also stated that “[f]ailure to comply will result in Maricopa County . . . proceeding with escalated enforcement action against [Destiny] . . . .”
Destiny hired Eugene Cetwinski, a civil engineer, to assist in resolving the park’s water problem. Cetwinski recommended construction of a water treatment plant. With Donnalley’s authorization, Cetwinski submitted his water treatment proposal to Maricopa County for review and received approval for it in January 2004. At that time, construction of the proposed water treatment plant would have cost $90,000.
Seller took no action to implement Cetwinski’s proposal. Donnalley claimed he was considering two other options, installing a line to draw water from either the public water system or a private water company.
2. The Purchase Contract
In January 2004, buyer’s principal, H. Wayne Klekamp, contacted Donnalley offering to buy his RV parks. The two had several telephone conversations. Klekamp testified Donnalley did not mention Destiny’s water problem. Donnalley testified he told Klekamp there was “a water issue” concerning a high level of nitrates at Destiny, which seller was “in the process of fixing.” But Donnalley admitted he did not tell Klekamp Maricopa County had found Destiny in violation of the applicable water quality standards, mention the county’s violation notices, or that Destiny was providing drinking water to park residents.
Through counsel, the parties drafted a contract for buyer to purchase seller’s four parks for $11 million. The agreement, effective March 17, 2004, included a 120-day escrow and 60-day due diligence period, and contained a “[t]ime is of the essence” clause.
Pursuant to the contract, buyer made an initial $100,000 good faith deposit into escrow. Section 2.2.1 provided, “Deposit shall be fully refundable to [b]uyer if for any or no reason, [b]uyer terminates this Agreement before expiration of the Due Diligence Period. Unless this Agreement is timely terminated by [b]uyer on or before May 17, 2004 . . ., the Deposit shall be non-refundable and [s]eller shall be entitled to the Deposit, unless there is a breach of this Agreement by [s]eller.”
Section 3 governed the conditions for the transaction’s closing. In part, it provided, “Closing is subject to and contingent on [buyer’s] satisfaction [or waiver] of [certain] conditions,” including “[a]ll representations and warranties of [s]eller contained in this agreement shall be true and correct in all material respects as of the date made and as of the Closing Date . . . .” The contract gave buyer the “right[] to terminate” the transaction “for any reason . . . prior to May 17,” or “by disapproval of certain matters described in . . . Section 3,” provided “[b]uyer . . . notify [s]eller of [its] disapproval . . . by written notice . . . by the date as is specified . . . but in any event on or before May 17 . . . .” In addition, buyer’s right to terminate based on a disapproval of conditions was “subject to [s]eller’s right to remove or cure disapproved items, or to obtain a bond or title endorsement . . . .”
Section 8 contained the parties’ representations and warranties. Section 8.4 declared: “To [s]eller’s knowledge, there is no action, suit, arbitration, unsatisfied order or judgment, government investigation or proceeding pending against [s]eller which, if adversely determined, could individually or in the aggregate materially interfere with the consummation of the transaction contemplated by this Agreement.” Also, section 8.7 provided: “To [s]eller’s knowledge, [s]eller has not received written notice of any uncured violation of any federal, state or local law relating to the use or operation of the Property that has not been disclosed to [b]uyer which would materially adversely affect the Property or use thereof.”
Under section 10, governing defaults, seller was authorized “to retain [buyer’s] deposit as . . . liquidated damages” in the event “buyer has not terminated this agreement in accordance with section 3 or section 7 [describing parties’ remedies in the event of damage or destruction of the property or condemnation] . . . .” (Capitalization omitted.) However, this section also provided buyer with a preclosing remedy of “cancel[ing] this Agreement” and recovering from seller “the lesser of . . . [its] out-of-pocket costs” or “$100,000,” if seller “fail[ed] to perform any act required to be performed . . . pursuant to this Agreement on or before the Closing Date” and seller failed to cure the breach within “five . . . Business Days” after buyer “deliver[ed] to [it] written notice of such breach . . . .”
3. The Events during Escrow
Donnalley hired Larry Carlson to handle the details of the sale with Klekamp and to resolve Destiny’s water problem.
In May 2004, Maricopa County’s Environmental Services Department sent Destiny a second violation notice concerning the excessive nitrate contaminant level. Again, it demanded Destiny bring its water system into compliance and provide documentation of its effort, noting “[f]ailure to . . . demonstrat[e] compliance within 30 days may result in an administrative order or civil action requiring but not limited to . . . substantial civil penalties, and/or the suspension or revocation of any applicable permit/license.” The letter also acknowledged “[a]chieving compliance does not preclude [the county] from seeking civil penalties and/or suspending or revoking any applicable permit/license for the violations alleged in this letter as allowed by law.” In July, the county’s environmental services department referred the Destiny water problem to its legal department for possible legal action.
Klekamp testified he visited Destiny during the due diligence period and walked the entire property. He attempted to speak with the local manager, but she appeared hostile and did not want to talk to him. Klekamp saw “a substantial amount of bottled water” in the park’s store, but denied seeing any posted signs concerning nitrate contamination. He claimed that he first learned about the water problem during a conversation with the manager at another one of seller’s RV parks. He then contacted Maricopa County and obtained documentation on the problem.
4. Buyer’s Notice of Seller’s Breach
On June 3, 2004, buyer’s lawyer sent a letter to seller’s lawyer declaring seller had breached sections 8.4 and 8.7 because seller “has known for quite some time that [Destiny] is in violation of local environmental laws.” Counsel’s letter acknowledged seller’s “right to cure or bond off [set aside a portion of the purchase price] this problem” and urged “any discussions about bonding off the issue . . . begin immediately.” When escrow failed to close on July 15, both parties made a demand for the $100,000 held in escrow.
Donnalley testified that when buyer’s notice was received, he had not made a final decision on which option to pursue in resolving Destiny’s water problem. However, the evidence reflects Carlson first contacted the local city about the cost of extending its water line to the park in a June 8, 2004 letter, and it was not until mid-August that the city advised Carlson about the possibility of Arizona Water Company, a private water company, supplying water to Destiny. In September, Destiny paid the private supplier $71,737 to construct a water line to the park. The work was completed in approximately 60 days.
DISCUSSION
1. Seller’s Breach of the Contract
Seller contends the trial court erred by finding it breached section 8.4 and 8.7 of the contract’s representations and warranties clause. Alternatively, it argues that, even if it breached the agreement, the court erred by finding that breach material.
“‘“It is axiomatic that a contract is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language employed”’ [citations]. Thus, ‘clear, complete writings should generally be enforced according to their terms’ [citation]. . . . The rule has even greater force in the context of real property transactions, ‘where commercial certainty is a paramount concern’ [citation], and where, as here, the instrument was negotiated between sophisticated, counseled business people negotiating at arm’s length [citation].” (Wallace v. 600 Partners Co. (1995) 86 N.Y.2d 543 [658 N.E.2d 715, 717, 634 N.Y.S.2d 669].)
Section 8 of the contract provided “[s]eller represents and warrants to [b]uyer that as of the date of this Agreement and as of the Closing Date,” it was, inter alia, unaware of any “action” or “government investigation or proceeding pending against” it that “could . . . interfere with” the completion of the sale, nor had it “received written notice of any uncured violation of . . . law relating to the use or operation of the Property that has not been disclosed to [b]uyer which would materially adversely affect the Property or use thereof.” The continuing accuracy of seller’s “representations and warranties . . . as of the date made and as of the Closing Date” is repeated twice in section 3 governing closing conditions. While section 2 declared buyer’s deposit would be nonrefundable after the 60-day due diligence period expired, it contained an exception for “a breach of this [a]greement by [s]eller.” Finally, section 10.2 authorized buyer to cancel the contract and recover its deposit if seller “fail[ed] to perform any act required . . . by . . . this Agreement” within five business days after buyer “deliver[ed] . . . written notice of [the] breach . . . .”
Seller contends it did not violate section 8.7 because there was no evidence the elevated level of nitrates in Destiny’s well water materially affected the park’s operations. But Donnalley admitted the elevated level of nitrates in Destiny’s water “was a serious issue” and that it “needed to be fixed.” He also admitted the park was not making much money. Consequently, the need to notify guests of the water problem and to give away bottled water certainly affected the park’s bottom line. In addition, the county was insisting on a permanent correction of the problem, which the evidence reflects eventually resulted in a capital expenditure of nearly $72,000. Furthermore, seller’s delay in implementing the permanent solution resulted in Maricopa County notifying it in May 2004 that the park may suffer additional fines or other penalties even after resolving the water problem. Although the county never carried through with this threat, the mere potential would have dampened a potential buyer’s interest in acquiring the park.
As for section 8.4, seller claims that, in light of the language in section 8.7, it should be limited to circumstances involving “formal administrative or legal action.” While section 8.4 refers to “action[s]” in the formal sense, it also includes “government investigation[s] and proceeding[s].” Clearly, Maricopa County’s notices to Destiny about the well water problem and directions to both take immediate interim action and to implement a permanent solution falls into the latter category. In “adjudicat[ing] the[ parties’] rights according to the unambiguous terms of the contract,” a court “must give the words and phrases employed their plain meaning [citation].” (Laba v. Carey (1971) 29 N.Y.2d 302 [277 N.E.2d 641, 644, 327 N.Y.S.2d 613].) And it “should not ‘adopt an interpretation’ which will operate to leave a ‘provision of a contract . . . without force and effect’ [citations].” (Ibid.) Seller’s interpretation of section 8.4 would render the reference to “government investigation[s] and proceeding[s]” mere surplusage.
Citing Donnalley’s testimony that he mentioned the “water issue” to Klekamp during their initial discussions about the proposed sale, seller contends it sufficed to place buyer on notice concerning the county’s administrative proceeding concerning the elevated nitrate level in the park’s well water. Klekamp denied Donnalley told him about the water issue, and the mere fact the court cited Donnalley’s testimony in its statement of decision does not support a conclusion it decided this evidentiary conflict in seller’s favor.
But even if the court did credit Donnalley’s testimony, his vague description of the matter fell far short of what is required by sections 8.4 and 8.7. The contract contained an integration clause declaring the agreement “supersedes all prior . . . understandings, . . . representations and warranties, whether written or oral, made by [b]uyer or [s]eller concerning the Property or the other matters which are the subject of the Agreement.” Donnalley’s purported oral disclosure about Destiny’s water problem admittedly did not include mention that it involved a violation of Arizona’s water quality laws or the county’s enforcement proceedings. “[P]arties to the sale of real property, like signatories of any agreement, are free to tailor their contract to meet their particular needs and to include or exclude those provisions which they choose,” and “[a]bsent some indicia of fraud or other circumstances warranting equitable intervention, it is the duty of a court to enforce rather than reform the bargain struck [citations].” (Grace v. Nappa (1979) 46 N.Y.2d 560 [389 N.E.2d 107, 109, 415 N.Y.S.2d 793].)
Citing the county’s proceeding against Destiny concerning the water problem and seller’s failure to bond around or even decide on a permanent correction to it before the date for close of escrow, the trial court’s statement of decision found “seller was in material breach of the Purchase Agreement.” Seller challenges this finding.
“‘Under New York law, for a breach of a contract to be material, it must go to the root of the agreement between the parties.’ [Citation.] Therefore, a ‘party’s obligation to perform under a contract is . . . excused where the other party’s breach of the contract is so substantial that it defeats the object of the parties in making the contract.’ [Citation.]” (Bear, Stearns Funding, Inc. v. Interface Group-Nevada, Inc. (S.D.N.Y. 2005) 361 F.Supp.2d 283, 295.)
“‘[C]ourts and commentators have long recognized that materiality is primarily a question of fact, the resolution of which is necessarily a function of context and circumstances.’ [Citations.]” (Bear, Stearns Funding, Inc. v. Interface Group-Nevada, Inc., supra, 361 F.Supp.2d at pp. 295-296.) “In reviewing . . . findings of fact, the record should be reviewed in a light most favorable to sustain the judgment [citation] and we should not disturb the findings and determinations of the trial court if they are not against the weight of the credible evidence or contrary to the law [citations].” (Merrill Transport Co. v. State (App.Div. 1983) 97 A.D.2d 921 [470 N.Y.S.2d 764, 765].) The trial court’s assessment of witness credibility is entitled to great weight (Liccione on Behalf of Wendy A. v. John H. (1985) 65 N.Y.2d 826 [482 N.E.2d 917, 918, 493 N.Y.S.2d 121]), and its resolution of conflicting inferences cannot be overturned unless its decision is clearly wrong. (Duane Jones Co. v. Burke (1954) 306 N.Y. 172 [117 N.E.2d 237, 245].)
Seller claims there is no evidence buyer relied on its representations and warranties in section 8 of the contract or that the county’s administrative actions would defeat buyer’s objective in purchasing the RV parks. But Klekamp testified he had “a bad history [with] water issues” in RV parks, and he “[didn’t] buy lawsuits.” Also, seller ignores the evidence relating to Destiny’s profitability and the interim and long-term costs incurred to resolve the problem, plus, as the trial court noted, the potential for future sanctions resulting from seller’s delay in resolving the problem.
In support of this argument, seller relies on New York’s caveat emptor doctrine. “[W]ith respect to transactions in real estate, New York adheres to the doctrine of caveat emptor and [generally] imposes no duty upon the vendor to disclose any information concerning the premises [citation] . . . .” (Stambovsky v. Ackley (App.Div. 1991) 169 A.D.2d 254 [572 N.Y.S.2d 672, 675].) But, while seller otherwise may not have had an affirmative duty to disclose Maricopa County’s administrative proceeding against Destiny concerning the elevated nitrate levels in its well water, the parties negotiated a contract that included representations by seller which required it to disclose certain matters, including the details of the water issue. Thus, the caveat emptor doctrine is inapplicable here. (Lindlots Realty Corporation v. Suffolk County (1938) 278 N.Y. 45 [15 N.E.2d 393, 396].)
Seller challenges the sufficiency of the trial court’s statement of decision, claiming it requested specific findings on factors “that New York courts use for determining the materiality of a contract breach,” but the court refused to do so. This argument is unavailing.
Code of Civil Procedure section 632 declares that, upon request, “The court shall issue a statement of decision explaining the factual and legal basis for its decision as to each of the principal controverted issues at trial . . . .” But under Code of Civil Procedure section 634, if “a statement of decision does not resolve a controverted issue, or if the statement is ambiguous and the record shows that the omission or ambiguity was brought to the attention of the trial court . . ., it shall not be inferred on appeal . . . that the trial court decided in favor of the prevailing party as to those facts or on that issue.” Furthermore, “[s]ection 634 . . . does not require that a finding be made as to every minute matter on which evidence is received at the trial . . . .” (Coleman Engineering Co. v. North American Aviation, Inc. (1966) 65 Cal.2d 396, 410.) Thus, the foregoing statues “have been interpreted to mean that a statement of decision is adequate if it fairly discloses the determinations as to the ultimate facts and material issues in the case. [Citation.] When this rule is applied, the term ‘ultimate fact’ generally refers to a core fact, such as an essential element of a claim,” as “distinguished from evidentiary facts and from legal conclusions. [Citation.]” (Central Valley General Hospital v. Smith (2008) 162 Cal.App.4th 501, 513; see also Yield Dynamics, Inc. v. TEA Systems Corp. (2007) 154 Cal.App.4th 547, 559.) Here, the finding that seller materially breached the contract was sufficient.
Next, seller contends buyer failed to give it a reasonable opportunity to cure the breach. Buyer’s notice acknowledged seller’s right to cure. Although seller claims buyer frustrated its attempts to “bond off” the problem by insisting on lender approval for the bond without identifying the lender, it does not cite to any evidence in the record to support this claim. Seller could merely have proposed to set aside a portion of the purchase price to cover implementation of a permanent solution for the water problem, plus any additional expense for delays, but it failed to do so. In addition, the contract contained a time is of the essence clause.
In fact, as noted, seller was rather dilatory in taking steps to resolve the water problem. Maricopa County informed Destiny of the problem and the need for a permanent resolution in May 2003, nearly a year before the parties executed the contract. As of June 2004, Destiny had obtained a proposal to build a water filtration plant but failed to implement it. Destiny apparently did not even seriously consider the possibility of acquiring water from the local municipality or a private water company until after buyer declared it to be in default under the contract.
Thus, the record supports the trial court’s finding that seller committed a material breach of the purchase contract.
2. Buyer’s Ability to Perform Under the Contract
At trial, seller contended buyer could not have completed the agreement because it never obtained a loan for the purchase price. In its statement of decision, the trial court concluded buyer did not have to show it was ready, willing, and able to perform. Seller challenges this ruling arguing a buyer must show its ability to perform even where it seeks to cancel the contract and recover its deposit.
It appears that in a context such as is presented here, where the contract contains a time is of the essence clause and seller was notified of its breach and afforded an opportunity to cure or bond around the breach, but failed to do so, the trial court properly concluded buyer was not required to show an ability to perform to recover the deposit. In Weintraub v. Rungmar Realty Corp. (Sup.Ct. 1962) 231 N.Y.S.2d 241, the court ruled a buyer that failed to present evidence of tender of performance and ability to do so was entitled to return of down payment upon seller’s failure to provide clear title, but was not entitled to damages for breach of contract. “A contract for the purchase of lands may be rescinded, and the purchase moneys paid in advance may be recovered, on the failure of the seller to perform, even though the purchaser could not have performed. In an action to rescind and recover payments made on account of the purchase price it is enough to show a breach by the seller. [Citations.] This is not the rule, however, when the action is to enforce the contract or to recover damages; for the seller’s breach, here, the one seeking damages for its breach must tender and prove his own readiness, willingness, and ability to perform. [Citations.]” (Id. at p. 244 []; see also Bigler v. Morgan (1879) 77 N.Y. 312, 318-319.)
Scull v. Sicoli (App.Div. 1998) 247 A.D.2d 852 [668 N.Y.S.2d 827], a case cited by seller is to the same effect. There the appellate court modified a judgment for the seller, finding its “anticipatory breach entitl[ed buyers] to recover their down payments without proof that they were ready, willing and able to complete the transaction [citations],” but upheld the dismissal of buyers’ breach of contract and specific performance claims concluding they “had the burden to establish that they were ‘ready, willing and able to perform under the contract at some point prior to the commencement of this action’ [citations]” and they “failed to meet that burden . . . .” (Id. at p. 828.)
Seller’s remaining case authority involve either an unreported trial court disposition, or are distinguishable on their facts because the contract did not contain a time is of the essence clause and the defect in the seller’s performance was curable within a reasonable time. For example, in Offner v. Engelen (Sup.Ct. 1951) 200 Misc. 53 [102 N.Y.S.2d 97], the court acknowledged “[t]here is . . . some doubt upon the question whether a vendee may maintain an action to recover a deposit, as distinguished from an action to recover damages for breach of contract, in the absence of proof that he has made a tender of the performance required of him by the contract,” but ruled for the seller, finding “[t]he weight of authority . . . holds that a vendee is not relieved from the necessity of making such a tender where it appears that there is no insurmountable difficulty in clearing the title and compliance by the vendor with the terms of the contract is not beyond his power. [Citations.]” (Id. at p. 99; see also Hegner v. Reed (App.Div. 2003) 2 A.D.3d 683 [770 N.Y.S.2d 87, 89] [“even assuming that the sellers were in breach of the contract on the day of the closing because the premises were not vacant, this alleged defect was curable within a reasonable time”]; Amity Associates, Inc. v. Amity Farms Shopping Center, Inc. (App.Div. 1960) 11 A.D.2d 811 [205 N.Y.S.2d 236, 238 [same]; Fleischer v. Lockwood Lumber Co., Inc. (App.Div. 1939) 258 A.D. 900 [16 N.Y.S.2d 205, 206] [seller “may invoke in her behalf the . . . general rule in equity that it is a sufficient answer to the claim for rescission that she is able to make her title good before decree”].)
This case is an interpleader action with the sole question being which party is entitled to recover the $100,000 escrow deposit. Their contract contained a time is of the essence clause, buyer offered seller the opportunity to either cure its breach of the representation and warranties clause or bond around it, but seller failed to accomplish either goal before the closing date. In light of the foregoing facts, we conclude the trial court properly found buyer need not establish its ability to perform the purchase agreement to recover the deposit.
DISPOSITION
The judgment is affirmed. Respondent shall recover its costs on appeal.
WE CONCUR: BEDSWORTH, J., IKOLA, J.