Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from the Superior Court of Riverside County. Ct. No. INC035420 H. Morgan Dougherty, Judge.
Best Best & Krieger, Martin A. Mueller and Douglas S. Phillips for Plaintiff, Appellant and Respondent.
Schlecht, Shevlin & Shoenberger and Ulrich R. McNulty for Defendants, Appellants and Respondents.
King, J.
I. INTRODUCTION
This case involves a written contract for the purchase and sale of certain real property in Palm Springs. Plaintiff Steven Davis alleged that defendants agreed to sell the property to him, and that defendants breached the agreement by, among other ways, failing to deliver title to the property. Following a court trial, the court found that Davis was not entitled to damages because he had not proved that he was a ready, willing, and able buyer. Defendants moved for an award of their attorney fees pursuant to the contract, which the court denied. Davis appealed from the judgment against him, and defendants appealed from the court’s denial of their motion for attorney fees.
Davis contends that the court erred by: (1) failing to issue a statement of decision addressing which of the three defendants was liable on the contract; (2) finding that Davis was not “ready, willing, and able” to purchase the property; and (3) finding that Davis had not proven damages. Because we find that Davis has failed to show that the court erred in finding that he was not ready, willing, and able to purchase the property, we may summarily reject his remaining arguments and affirm the judgment.
In their appeal, defendants contend that the court erred in failing to award them their attorney fees. We find no error in the court’s ruling. Accordingly, we will affirm the court’s order.
II. FACTUAL BACKGROUND
On January 17, 2003, Davis entered into the written contract that is the subject of this action with one or more of the defendants. Who among the defendants was the seller under the contract was an issue at trial. On the preprinted form contract, Davis signed the contract as the “buyer.” Defendant Bernard Rosenson signed his name on the line for “Seller.” On the next line, following the preprinted word, “By,” Rosenson wrote “President Bernard Rosenson.” No other entity is mentioned as the seller. (For ease of reference, we will refer to this contract as the Davis-Rosenson contract.)
Legal title to the property was held at the relevant time by defendant Palm Springs Property, LLC, a California limited liability company (PSP). Rosenson was the managing member of PSP and, according to him, “make[s] the decisions” for that entity. According to the defendants’ verified answer to the complaint, Rosenson signed the contract on behalf of PSP and no other defendants. The third defendant, Palm Springs Racquet Club (PSRC), is a corporation that leased the property from PSP. Rosenson was the president of PSRC.
According to the contract, escrow was to close on March 17, 2003. The purchase price was $3.3 million. A handwritten addendum to the contract provides: “If contract is not performed by 2/18/03 the price increases to $3,400,000. [¶] If contract is not performed by 3/18/03 the price increases to $3,500,000.”
The contract also provides for the recovery of attorney fees by a prevailing party in any action arising out of the contract. However, such fees are not available to a party who “commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after a request has been made.”
The property described in the Davis-Rosenson contract consists of four parcels. According to Davis, he planned to assign his rights to buy two of the parcels to other investors and use the proceeds as part of the purchase price for the entire property. For this reason, the handwritten addendum to the contract states that Davis “may draw up three separate CAR [California Association of Realtors] purchase contracts. The contract purchase price of $3,300,000 will be allocated amongst the APN parcels at Buyer[’]s discretion. Seller agrees to sign the above contracts which will otherwise be identical to the 1/17/03 contract.”
Other terms and conditions of the contract will be discussed below where relevant.
Three days after entering into the Davis-Rosenson agreement, Davis entered into separate agreements with Mark Bodon and Mark Peterson whereby Bodon agreed to buy one of the four parcels—the southwest parcel—for $1.2 million, and Peterson agreed to buy the northwest parcel for $1.32 million. Escrow was to close on these transactions on or about February 12, 2003.
After entry into the Davis-Rosenson contract, disputes arose between Davis and the defendants regarding their respective obligations. Davis asserted, among other things, that defendants failed to timely provide certain disclosures regarding the property and improperly demanded that Davis undertake additional obligations beyond what was required by the contract. The seller asserted that the transaction failed because Davis could not and did not perform his obligation to timely pay the purchase price.
In April 2003, Davis’s real estate agent requested that the parties mediate their disputes pursuant to the dispute resolution provision in the contract. An attorney acting on behalf of one or more of the defendants rejected the request. Davis then sued defendants for, among other claims, breach of contract. Defendants filed a cross-complaint for abuse of process.
Prior to trial, defendants served Davis with an offer to compromise pursuant to Code of Civil Procedure section 998. Davis did not respond to the offer.
The matter was tried to the court. On December 19, 2006, the court issued a minute order and a “Ruling after court trial.” Judgment was for the defendants on the complaint and for Davis on the cross-complaint. Although the court acknowledged in its ruling that the identity of the seller under the contract was an issue in the case, it did not decide the issue. The court made the following findings and conclusions: (1) “Seller” materially breached the agreement by insisting that Davis pay additional sums—loan prepayment penalties and fixture leases—that Davis was not required to pay under the contract; (2) Davis materially breached the contract by failing to obtain “suitable financing”; (3) when seller withdrew the demand that Davis pay the additional sums, “that breach no longer exist[ed]”; (4) moreover, Davis’s continued negotiations after seller withdrew that demand “may well be a waiver of the breach”; (5) seller also materially breached the contract by failing to provide disclosures to Davis that were required under the contract; however, Davis’s remedy for this breach was to cancel the contract, not an action for damages; (6) regarding Davis’s breach—the failure to obtain suitable financing—seller “likely waived” this breach “until the seller was no longer in material breach regarding the prepayment penalties and fixture leases”; and (7) if seller’s breaches were not waived and Davis’s failure to obtain financing was waived or excused, Davis “has nevertheless failed to prove any damages.” Finally, the court ruled that there was “no legal basis for any judgment” on the defendants’ cross-complaint for abuse of process.
The court directed defendants to prepare a judgment and a statement of decision. After a proposed statement of decision, several revised proposed statements of decisions, and objections to these documents were filed by the parties, the court announced that it “adopts its notice of intended decision as the Statement of Decision . . . .” The court was apparently referring to its initial ruling included with the court’s December 19, 2006, minute order. Davis did not make any further objections to the court’s ruling. Judgment was thereafter entered. Costs were awarded to defendants on the complaint and to Davis on the cross-complaint.
Defendants filed a motion for attorney fees, which Davis opposed. Following a hearing, the court denied the motion.
Additional facts will be discussed below where pertinent to the issues raised in this appeal.
III. ANALYSIS
A. Davis’s Inability to Perform
The trial court found that the seller breached the contract by refusing to deliver title to the property unless Davis paid him more money than Davis was required to pay under the terms of the contract. This conduct, Davis successfully argued, constituted a repudiation and anticipatory breach of the contract. As he concedes, however, in order to recover damages for such breach he was still required to prove that, but for defendants’ breach, he was ready, willing, and able to perform—i.e., to pay the purchase price. Both sides refer us to Ersa Grae Corp. v. Fluor Corp. (1991) 1 Cal.App.4th 613 (Ersa Grae) for the applicable rule: “Although it is true that an anticipatory breach or repudiation of a contract by one party permits the other party to sue for damages without performing or offering to perform its own obligations [citation], this does not mean damages can be recovered without evidence that, but for the defendant’s breach, the plaintiff would have had the ability to perform. . . . [¶] . . . As explained by Professor Corbin, in ‘an action for breach by an unconditional repudiation it is still a condition precedent to the plaintiff’s right to a judgment for damages that he should have the ability to perform all such conditions. If he could not or would not have performed the substantial equivalent for which the defendant’s performance was agreed to be exchanged, he is given no remedy in damages for the defendant’s non-performance or repudiation.’ [Citation.]” (Id. at p. 625; accord, County of Solano v. Vallejo Redevelopment Agency (1999) 75 Cal.App.4th 1262, 1276.)
“Anticipatory breach occurs when one of the parties to a bilateral contract repudiates the contract. The repudiation may be express or implied. An express repudiation is a clear, positive, unequivocal refusal to perform [citations]; an implied repudiation results from conduct where the promisor puts it out of his power to perform so as to make substantial performance of his promise impossible [citations]. [¶] When a promisor repudiates a contract, the injured party faces an election of remedies: he can treat the repudiation as an anticipatory breach and immediately seek damages for breach of contract, thereby terminating the contractual relation between the parties, or he can treat the repudiation as an empty threat, wait until the time for performance arrives and exercise his remedies for actual breach if a breach does in fact occur at such time. [Citation.] However, if the injured party disregards the repudiation and treats the contract as still in force, and the repudiation is retracted prior to the time of performance, then the repudiation is nullified and the injured party is left with his remedies, if any, invocable at the time of performance. [Citations.]” (Taylor v. Johnston (1975) 15 Cal.3d 130, 137-138; accord, Central Valley General Hospital v. Smith (2008) 162 Cal.App.4th 501, 514.)
When the purchaser intends to use his or her own money to pay the purchase price, the ability to perform is a relatively simple factual question—the purchaser either did or did not have sufficient funds available to pay the price. When, however, the purchaser intends to finance the purchase using funds obtained from third parties, the evidence can be more complicated. In Am-Cal Investment Co. v. Sharlyn Estates, Inc. (1967) 255 Cal.App.2d 526 (Am-Cal Investment), the court explained that a “purchaser without funds of his own may show that he was ready and able to pay the purchase price because he had made arrangements to borrow the required funds from a lending institution or from a third party, but if he relies upon the negotiation of a loan from a third party, the buyer must prove: (1) That the third party was legally bound by contract to advance the funds [citation]; and (2) ‘. . . that the party offering to advance the [purchase price] has the financial ability so to do . . . .’ [Citations.]” (Id. at pp. 539-540.) In C. Robert Nattress & Associates v. CIDCO (1986) 184 Cal.App.3d 55, the court, citing Am-Cal Investment, stated, “In cases where the buyer expects to produce the funds for the purchase of a property from a third person through a loan, courts have required the buyer to prove that the prospective lender had the ability to supply the funds and was legally bound to do so by a contract.” (C. Robert Nattress & Associates v. CIDCO, supra, at p. 65.)
To the extent that Am-Cal Investment suggested an “iron-clad rule . . . that plaintiffs could only establish ability to perform by proving they had obtained a legally enforceable loan contract,” the suggestion was rejected in Henry v. Sharma (1984) 154 Cal.App.3d 665 (Henry). In Henry, the court explained that the buyers under a real property purchase and sale contract needed to show an ability to pay the purchase price in the sense that they “‘commanded resources upon which [they] could obtain the requisite credit.’ [Citation.]” (Id. at p. 671; accord, WYDA Associates v. Merner (1996) 42 Cal.App.4th 1702, 1716; D-K Investment Corp. v. Sutter (1971) 19 Cal.App.3d 537, 546.) The Henry court pointed out that the Am-Cal Investment court itself stated 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 . . . .’ [Citation.]” (Henry, supra, at p. 671, quoting Am-Cal Investment, supra, 255 Cal.App.2d at p. 546.)
In Behniwal v. Mix (2005) 133 Cal.App.4th 1027, the court expressly rejected the rule that the purchaser had to present evidence of legally binding loan commitments. (Id. at pp. 1044-1045.) Relying heavily upon Henry, the Behniwal court held that purchasers presented sufficient evidence that they were ready, willing, and able to purchase the property by showing that they were preapproved for a loan and had arranged with a relative “to help with the deposit.” (Behniwal v. Mix, supra, at p. 1045.) The Ersa Grae court also implicitly rejected the narrow rule suggested by Am-Cal Investment when it explained that the buyer in that case should have been permitted to present evidence that, but for the seller’s breach, it had the ability to “form [a] consortium and fund the deal.” (Ersa Grae, supra, 1 Cal.App.4th at p. 626.) More recently, the Court of Appeal in 02 Development, LLC v. 607 South Park, LLC (2008) 159 Cal.App.4th 609 rejected as “legally erroneous” the rule that a purchaser was required to prove that he had either the funds to pay the purchase price or “legally binding commitments from third parties to provide the necessary funding.” (Id. at p. 613.)
We agree with the majority and trend of authorities that a purchaser who relies upon financing by third parties to prove that he was a ready, willing, and able buyer is not required to prove that he or she had legally binding loan commitments from financially able lenders. Although binding loan commitments are relevant, whether a purchaser was ready, willing, and able to pay the contract price within the time required is ultimately a highly factual inquiry that “depends on all the surrounding circumstances.” (Henry, supra, 154 Cal.App.3d at p. 672; see also Ersa Grae, supra, 1 Cal.App.4th at p. 626.)
Here, the trial court found that Davis failed to prove that he was able to purchase the property because he “never obtained suitable financing, even though he did produce witnesses who did testify that Davis was a good credit risk and a good candidate for a loan.” Arguably, the court’s “never obtained suitable financing” language suggests that the court applied too narrow of a test in evaluating Davis’s ability to fund the purchase. Davis, however, does not contend that the court used an incorrect rule of law; rather, he asserts that the “court’s finding that neither Davis nor his assignees had obtained suitable financing is unsupported by any evidence in the record.” We thus assume that the court applied the correct rule and interpret its finding as a factual determination that, based upon all the surrounding circumstances, Davis was not ready, willing, and able to complete the purchase within the relevant time frame. We turn next to whether the court erred in making this finding.
The parties agree that we review this finding under the substantial evidence standard. Under a common formulation of this standard, “our review begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the trial court’s factual determinations. [Citations.] Substantial evidence is evidence of ponderable legal significance, reasonable in nature, credible, and of solid value. [Citation.]” (Ermoian v. Desert Hospital (2007) 152 Cal.App.4th 475, 501.) “On substantial evidence review, we examine the evidence in the light most favorable to the prevailing party and give that party the benefit of every reasonable inference. We accept all evidence favorable to the prevailing party as true and discard contrary evidence. We do not reweigh the evidence or reconsider credibility determinations.” (Katsura v. City of San Buenaventura (2007) 155 Cal.App.4th 104, 107.)
Relying on this standard, Davis contends that defendants “presented no evidence that Davis would have been unable to arrange for the necessary funding to close the transaction on time . . . .” Because there was no evidence offered to negate the evidence of his ability to finance the transaction, he contends, there was necessarily no substantial evidence to support the court’s finding. Indeed, defendants do not rely upon affirmative evidence of Davis’s inability to perform. Instead, they argue that the evidence presented by Davis failed to prove that he had the ability to finance the transaction: “At best, Davis had verbal commitments from third parties without consideration, which is insufficient to prove ability to purchase.”
When the challenged factual finding is, in essence, that the plaintiff failed to prove a fact upon which he had the burden of proof, applying the usual formulation of the substantial evidence standard can be problematic, particularly when the defendant does not produce affirmative evidence to negate the fact. (See, e.g., In re Sheila B. (1993) 19 Cal.App.4th 187, 199.) As one court stated in a similar context: “To find substantial evidence in support of a finding of no evidence draws the reviewing court into a kind of juridical shell game.” (Greening v. General Air-Conditioning Corp. (1965) 233 Cal.App.2d 545, 550 [reviewing findings on a motion for judgment pursuant to Code Civ. Proc., § 631.8].) That court held that “the appropriate rule on appeal [is]: ‘“When two or more inferences can be reasonably deduced from the facts, the reviewing court is without power to substitute its deductions for those of the trial court . . . .”’ [Citations.]” (Greening v. General Air-Conditioning Corp., supra, at p. 551.) Applying this rule in this case, if the evidence reasonably permits the inference that Davis was not ready, willing, and able to buy the property, we are powerless to disturb that finding. If, on the other hand, the only reasonable inference that can be drawn from the evidence is that Davis was ready, willing, and able to buy the property, the court’s conclusion that Davis failed to prove that fact is without evidentiary support and cannot stand. Thus, Davis can show reversible error only if “the only reasonable hypothesis” deducible from the evidence is that he was in fact ready, willing, and able to purchase the property; that is, that he established such fact as a matter of law. (See Horn v. Oh (1983) 147 Cal.App.3d 1094, 1099; accord, Ermoian v. Desert Hospital, supra, 152 Cal.App.4th at p. 506.)
This is not to say that we must rely on the foregoing adaptation of the substantial evidence rule. Although defendants rely upon the lack of evidence to support Davis’s assertion that he was ready, willing, and able to buy the property, we also review the record to determine whether there is substantial, affirmative evidence that Davis was not ready, willing, or able to buy the property. Such evidence includes, of course, testimony of Davis’s witnesses on cross-examination. As we explain below, under either application of the substantial evidence rule, the judgment must be affirmed.
With these rules in mind, we consider Davis’s arguments on appeal and the facts disclosed in the record. Under the Davis-Rosenson contract, Davis was obligated to pay at least $3.3 million to purchase the four parcels that comprised the property. Davis planned to obtain a large part of the purchase price by concurrently selling, or assigning his rights to buy, two of the four parcels. Initially, Bodon was to purchase the southwest parcel for $1.2 million and Peterson was to purchase the northwest parcel for $1.32 million. However, as Davis testified, Bodon never “put any money into the deal,” and the agreement with Bodon was eventually cancelled by mutual assent. Another investor, Adams, then agreed to buy the southwest parcel for $1.3 million. The closing date for the Adams transaction was June 15, 2003—well after the March closing date for the primary contract. The Adams transaction was dependent upon the sale of certain other property, which did not occur until August 2003.
On appeal, Davis does not rely upon evidence of the agreements with Bodon or Adams. Instead, he relies primarily upon evidence that Peterson was ready, willing, and able to purchase both the southwest parcel and the northwest parcel for $2.6 million, and that a mortgage broker was prepared to lend Davis $1.6 million. Together, Davis contends, this was “more than enough funds to finance the transaction.”
The evidence that Peterson was ready, willing, and able to purchase both lots is equivocal. Three days after Davis entered into the agreement to purchase the property, Davis and Peterson entered into an agreement whereby Peterson would purchase the northwest parcel for $1.32 million. The payment terms called for a $40,000 initial deposit to be held in escrow, a further deposit of $60,000 to be deposited within 15 days from the date of the contract, a $1.2 million loan, and $200,000 cash deposited in escrow prior to closing. This transaction was set to close on or about February 12, 2003. Peterson wrote a check payable to Davis for the initial $40,000 deposit, which (contrary to the terms of the contract) Davis cashed without depositing into escrow. Peterson never made the second, $60,000, deposit. The Davis-Peterson agreement required Peterson to provide Davis with a letter from a lender stating that Peterson had been prequalified for the $1.2 million loan. Peterson did not provide this letter; nor was there other evidence that a lender was prepared to loan him that amount of money. Instead, Peterson testified that he had a “verbal loan commitment” from a mortgage broker, Greg Flowers, for $800,000. Greg Flowers testified that the commitment was for “close to” $850,000 or $875,000. In addition, Peterson testified that he had approximately $2 million in “liquid assets” in January and February 2003; he “had the money, [and was] willing to show” it in his financial account statements. When his account statements from 2003 were examined during trial, however, they revealed that his brokerage accounts had securities valued at approximately $800,000, plus securities in pension plan accounts (the withdrawal of funds from which would trigger a penalty) worth approximately $500,000. He also testified that he owned “a lot of real estate,” suggesting that he could use such property to obtain funds, and that he has “some people running money for me” and “a lot of people [from whom] I can get money and usually in 21 days.” However, there was no evidence that he had taken steps to mortgage any of his properties or to obtain the necessary money from his “people.”
Relative to the southwest parcel (which had been the subject of the Bodon and Adams contracts), Peterson testified that he “would love to buy” it for the “fabulous” price of $1.3 million. Yet there is no evidence that he and Davis entered into an agreement for the parcel or that he had the funds to pay for this parcel in addition to the northwest parcel, or that he had taken any steps to arrange financing for the second parcel. Thus, the evidence regarding Peterson’s ability to purchase the southwest and northwest parcels falls well short of establishing that he was ready, willing, and able to purchase such parcels as a matter of law.
Even if Peterson was ready, willing, and able to purchase the northwest and southwest parcels, the evidence that Davis was prepared to pay the remaining portion of the purchase price is unconvincing. On cross-examination, Davis admitted that he did not pay the initial deposit called for in the contract by the date specified in the contract. Nor was a subsequent deposit required under the contract timely made. Indeed, Davis never deposited any of his own money into escrow. On March 18, 2003—the day after the date the transaction was originally scheduled to close—the parties met to discuss the matter. At that time, the Bodon transaction had been cancelled and the agreement with Adams was not scheduled to close for almost three months. Following the meeting, Rosenson offered to extend the closing date to March 25, 2003, provided (among other conditions) that Davis gave him “proof of a financing source.” Davis did not respond to this request.
Davis relies upon evidence that Flowers’s mortgage firm, First Net Mortgage, was willing to lend money to Davis for the transaction. According to Flowers, First Net Mortgage was “prepared to lend” $1.6 million to Davis in January 2003. He explained that First Net Mortgage was acting as a broker for the loan, and that the funds were to be provided by “Washington Mutual” or “Green Point Mortgage.” He testified that he submitted information regarding Davis and the transaction to these lenders and the lenders sent him a “loan approval sheet.” However, these documents were not available at trial because Flowers previously “shredded” the file regarding the transaction. Flowers testified that he was “ready to draw loan documents,” but, on cross-examination, explained that he never did so because Davis directed him not to.
Notwithstanding Flowers’s testimony that he could obtain $1.6 million for Davis, the court could reasonably conclude that Davis failed to satisfy his burden of proof on the issue of his ability to pay the purchase price. The cancellation of the Bodon transaction, the untimeliness of the Adams transaction, the failure of Davis to make timely deposits into escrow, and the evidence that financing remained incomplete and uncertain for Peterson and Davis supports the reasonable inference that Davis was not ready, willing, and able to purchase the property within the applicable time frame. As explained above, we will not disturb such inference on appeal. For the same reasons, the court’s findings are supported by substantial evidence.
B. Other Issues
Davis contends that the court erred in failing to make a requested finding as to which defendants were obligated to sell the property under the contract. Because we hold that Davis failed to show error regarding the finding that he was not ready, willing, and able to perform under the contract, the court’s failure to determine which defendant or defendants were bound by the contract is of no consequence. That is, regardless of which party was obligated to deliver title to the property, none of them could be found liable for damages because Davis was not ready, willing, and able to perform his obligation to timely pay the purchase price.
Davis also argues that the court’s alternative findings regarding Davis’s alleged damages were erroneous. Because we affirm the court’s finding that Davis failed to establish liability, the issues regarding damages are moot.
Finally, Davis argues that the court correctly found that the seller materially breached the contract by failing to provide documents to Davis as called for in the contract and by insisting that Davis pay certain loan prepayment penalties and assume certain fixture leases not required under the contract. Regarding the failure to provide documents, the contract calls for the disclosure and production of certain documents within seven days after formation of the contract. As the trial court explained, however, the contract provides that if the seller fails to provide the required documents the buyer has the right to cancel the agreement. There is no basis for an action for damages for such failure.
Regarding the extra contractual demands made by the seller, the court found that these demands constituted a breach of contract by the sellers. Even so, as Davis acknowledges (and as explained above), Davis cannot recover damages for such breach “without evidence that but for the defendant’s breach, the plaintiff would have had the ability to perform.” (See Ersa Grae, supra, 1 Cal.App.4th at p. 626.) As explained above, Davis has failed to show that the court erred in concluding that Davis failed to prove this fact. Thus, even if, as Davis argues, the trial court correctly found that the seller’s demands constituted a material breach, the judgment must be affirmed.
Although it is not clear from the court’s ruling, the court apparently concluded that the demands made by the seller expressly or impliedly communicated that seller would not deliver title to the property unless such demands were met. The demands thus constituted an anticipatory breach of seller’s obligation to perform.
C. Appeal: Attorney Fees
Defendants moved below for an award of their attorney fees in the amount of $1,018,854.04 based upon the attorney fees clause in the Davis-Rosenson contract. Alternatively, they sought fees in the amount of $675,780.04 incurred after the service of their offer made pursuant to Code of Civil Procedure section 998. The trial court denied their motion. The court had different reasons for denying the motion as to the different defendants. As to PSP, the court stated that it was “the appropriate party to the contract.” The contract prohibited the recovery of attorney fees by a prevailing party if that party “did not either request mediation or refused mediation.” Because PSP, through its counsel, refused to mediate, it was not entitled to recover its fees. As to the other defendants, Rosenson and PSRC, the court acknowledged case law whereby a defendant who is sued for breach of a contract that contains an attorney fees clause and such defendant is not in fact a party to the contract, the defendant may nevertheless recover its fees pursuant to the contract. (See, e.g., Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124 (Reynolds).) However, notwithstanding this rule, the court denied the recovery of fees to Rosenson and PSRC, stating: “Good social policy justifies requiring all parties to mediate to avoid litigation of this nature.” Finally, the court noted that, “if required to award fees to Rosenson and [PSRC], the court would award only nominal fees given that little time was spent on the issue relating to these defendants.”
On appeal, defendants make the following contentions: (1) the mediation clause of the agreement was inapplicable because there was no dispute or claim to be mediated; (2) the mediation requirement applies to a defendant only when the refusal to mediate occurs after the lawsuit has been filed; (3) Davis requested mediation with Rosenson only, not PSP, and Rosenson’s refusal to mediate does not impact PSP’s right to recover fees; and (4) Rosenson and PSRC were not parties to the agreement and therefore not required to mediate, but are nevertheless entitled to recover their fees under the agreement.
“‘The standard of review on issues of attorney’s fees and costs is abuse of discretion. The trial court’s decision will only be disturbed when there is no substantial evidence to support the trial court’s findings or when there has been a miscarriage of justice. If the trial court has made no findings, the reviewing court will infer all findings necessary to support the judgment and then examine the record to see if the findings are based on substantial evidence.’ [Citation.]” (Frei v. Davey (2004) 124 Cal.App.4th 1506, 1512.) However, we review “the legal basis for an award of attorney fees . . . de novo.” (Id. at p. 1511.)
1. Applicability of the Mediation Clause
The attorney fees clause provides: “In any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorney fees and costs from the non-prevailing Buyer or Seller, except as provided in paragraph 22A.” Paragraph 22A provides, in relevant part: “Buyer and Seller agree to mediate any dispute or claim arising between them out of this Agreement, or any resulting transaction, before resorting to arbitration or court action. . . . If, for any dispute or claim to which this paragraph applies, any party commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after a request has been made, then that party shall not be entitled to recover attorney fees, even if they would otherwise be available to that party in any such action.” (Italics added.)
Defendants’ first argument is that the mediation prerequisite to the recovery of attorney fees applies only when there is a “dispute or claim” to mediate. According to defendants, by the time Davis requested mediation, the disputes the parties had concerning the agreement had in fact been resolved and “[t]here was nothing to mediate.” We disagree.
In the weeks preceding the request for mediation, the parties continued to discuss and attempt to resolve numerous issues and disputes. For example, Davis asserted: that the seller was continuing to fail to provide required disclosures and documents, and that such failures tolled the time for performing Davis’s obligation; the contract should be interpreted to permit “a reasonable amount of time to close” (which had, in his view, not yet expired); and the seller had no right to “unilaterally cancel” the contract. Defendants (through their attorney) asserted that Davis’s requests “for more documentation and more disclosures” are not supported by the contract; and that by no later than April 28, 2003, “Mr. Rosenson [was] no longer under any obligation to sell [the] property to Mr. Davis.” These disputes between the parties patently arose “out of [the] agreement” for purposes of the mediation clause. We therefore reject defendants’ argument.
2. Applicability of the Mediation Requirement When Request for Mediation and Refusal to Mediate Occur Prior to Filing of the Lawsuit
Defendants next argue that they should be barred from recovering their attorney fees only if the refusal to mediate occurred after the lawsuit was filed; because their refusal to mediate occurred prior to the filing of the lawsuit, they are not barred from seeking their fees. The language of the agreement does not support this argument. Under the agreement, a party who “refuses to mediate after a request has been made . . . shall not be entitled to recover attorney fees . . . .” Thus, according to the plain language of the agreement, the refusal must take place “after a request has been made.” There is nothing in the mediation provision that suggests that the refusal to mediate must occur after the lawsuit is filed. Defendants offer no citation to authority that supports their interpretation.
Defendants assert that there is a sound rationale for requiring that the refusal to mediate occur after a lawsuit is filed: “To require a potential defendant to accept an offer of mediation prior to the initiation of a lawsuit results in either: (1) an extorted settlement from the potential defendant to avoid potential litigation, or (2) that party paying one-half of the cost incurred for an otherwise meaningless procedural event put in place to, hopefully, secure recovery of his or her legal fees if a lawsuit is filed and if he or she prevails in that suit.” These might be good reasons for including in a contract a requirement that the refusal to mediate must occur after a lawsuit is filed. The language of the subject contract, however, simply does not require it.
3. Finding That PSP Refused to Mediate
In denying the defendants’ motion for fees, the court found that defendants, and, in particular, PSP, refused to mediate. Defendants assert that this finding is without substantial evidence in the record. We disagree.
The request for mediation was made in a letter sent by James Gormley to Thomas Pabst, an attorney. Gormley was Davis’s real estate agent in the transaction. Gormley initially communicated directly with Rosenson. By April 2003, Gormley began dealing with Pabst. In Pabst’s correspondence with Gormley, Pabst did not expressly reveal the identity of his client. Instead, he generally referred to the owner and seller of the property with the ambiguous phrase, “my client.” However, in one communication, Pabst sent a fax to Gormley that included a proposed amendment to the agreement that unambiguously identified the seller of the property as PSP. Although the parties did not agree to this amendment, the fact that it was drafted for Rosenson’s signature as “Member” of PSP and sent by Pabst indicates that Pabst was acting on behalf of, at least, PSP. At trial, Pabst testified that he represented Rosenson in his dealings with Gormley, and that he has been representing Rosenson “and his entities” for about 25 years. And in one written facsimile transmission, he referred to his client as “him” and “he,” suggesting that his client is a natural person. Referring to the lease between PSP and PSRC, he testified that the lease was a “captive tenant lease where the identity of the interest was the same,” indicating that the lessee (PSRC) and the lessor (PSP) are identical. Such communications provide substantial evidence for the court’s finding that Pabst was acting as the “attorney for [all of] the defendants.”
On April 29, 2003, Gormley sent a fax to Pabst stating, in part: “It now appears that you and the Seller will no longer refrain from entering into any negotiations for the sale of the property, executing any purchase contracts or limiting the property with a broker for sale. [¶] The Buyer proposes that we make one more attempt to reach common ground, agree to a contract Addendum No. 1, and close this escrow. As per the Purchase Agreement dated 1/17/2003, paragraph 22. DISPUTE RESOLUTION: A. MEDIATION: that the Buyer and Seller attempt to mediate their differences before the Buyer initiates either arbitration or court action. Please understand that if the Seller declines MEDIATION the Buyer will pursue his other legal options. [¶] . . . We await your timely reply.” The trial court found that this letter constituted a request to mediate within the meaning of the mediation provision of the contract. The parties do not dispute this finding.
The following day, Pabst responded in a written fax as follows: “I spoke with Mr. Rosenson. Both Mr. Rosenson and I concur that there is no point in further negotiation. [¶] The time for your client to perform is long since past. It is absolutely clear to me that your client cannot, perhaps never could, perform his financial obligations under the Contract. [¶] To try to save this transaction, my client was even willing to consider allowing your client to take ‘subject to’ the existing loans. This was something never called for under the Contract and something my client has never previously considered doing. All we were requesting in return was that your client finally put up the necessary cash that he was obligated to from the beginning and close the deal without further delay. [¶] And what do I get in response to this proposal? Nothing! A suggestion that we ‘mediate’ and talk about unnamed ‘basic issues’ that are unresolved. Jim, there are none and you know it. This is just about more delay, more wasted effort, more meaningless discussions all because your client does not have the courage to own up to the fact that he doesn’t have the necessary cash to close the transaction. [¶] Nearly four months have been wasted. Enough! We’re moving on to see if we can find a real buyer who does more than endlessly negotiate.” Even if Gormley’s request to mediate was directed at Rosenson, the court could reasonably conclude that Pabst’s response expressed a clear and unequivocal refusal to mediate on behalf of each of the Rosenson-related entities involved in the transaction. Indeed, it would be unreasonable to read Pabst’s letter as a refusal by Rosenson solely in his individual capacity, which left open the possibility of mediation with the Rosenson-controlled entities, PSP and PSRC. The record thus provides substantial evidence for the court’s finding that Pabst, acting as the “attorney for the defendants,” i.e., Rosenson, PSP, and PSRC, notified Davis that “they refused to mediate.” Accordingly, we reject defendants’ argument that PSP did not reject mediation.
Defendants make a further alternative argument that PSP is entitled to recover the fees it incurred after serving their offer to compromise pursuant to Code of Civil Procedure section 998. This section provides, in relevant part: “If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendant’s costs from the time of the offer.” (Code Civ. Proc., § 998, subd. (c).) Under this provision, “a defendant whose settlement offer exceeds the plaintiff’s recovery is entitled to postoffer attorney fees in any case in which . . . attorney fees are otherwise available as costs.” (Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1112, italics added.) Here, attorney fees would have been “otherwise available as costs” only to the extent they were available under the contract. (See Code Civ. Proc., §§ 1032, 1033.5, subd. (a)(10)(A).) Because PSP refused to mediate, attorney fees are not recoverable by PSP under the contract. Thus, Code of Civil Procedure section 998 has no application to this case.
4. Denial of Rosenson’s and PSRC’s Request for Attorney Fees
Rosenson and PSRC contend that they were not parties to the contract and therefore not required to mediate any dispute. Nevertheless, they assert they are entitled to recover their attorney fees under the contract pursuant to the holdings in Reynolds, supra, 25 Cal.3d 124 and Hsu v. Abbara (1995) 9 Cal.4th 863 (Hsu). Reynolds held that a defendant who is sued for breach of a contract that provides for attorney fees and who is found not liable under the contract because he is not a party to the contract can still recover attorney fees pursuant to Civil Code section 1717. In Hsu, plaintiffs sued defendants for breach of a contract, which the trial court found had never been formed. (Hsu, supra, at p. 868.) The Supreme Court upheld the award of attorney fees for the defendants, stating: “It is now settled that a party is entitled to attorney fees under [Civil Code] section 1717 ‘even when the party prevails on grounds the contract is inapplicable, invalid, unenforceable or nonexistent, if the other party would have been entitled to attorney’s fees had it prevailed.’ [Citations.]” (Id. at p. 870.)
At the relevant time in Reynolds, Civil Code section 1717 provided: “‘In any action on a contract, where such contract specifically provides that attorney’s fees and costs, which are incurred to enforce the provisions of such contract, shall be awarded to one of the parties, the prevailing party, whether he is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to costs and necessary disbursements.’” (Reynolds, supra, 25 Cal.3d at p. 128, fn. omitted, quoting Civ. Code, § 1717.) This statute has since been amended in ways that are not material to this appeal.
Neither Reynolds nor Hsu addressed the situation in this case where a party’s contractual right to attorney fees was conditioned upon the party’s willingness to mediate. Reynolds did make clear, however, that the right to attorney fees created by Civil Code section 1717 “should be no greater than the contractual right.” (Reynolds, supra, 25 Cal.3d at p. 130.) Thus, the right to attorney fees held by the defendants who were not parties to the contracts in Reynolds was no greater than the right they would have had if they were parties to the contracts. And the defendants in Hsu should not have had a right to the recovery of attorney fees greater than the right they would have had if a contract had been formed. Similarly, the rights of Rosenson and PSRC to recover attorney fees in this case can be no greater than the rights they would have had if they had been parties to the contract.
The contractual right to attorney fees recoverable by any defendant in this case was conditioned upon the fact that defendants did not refuse to mediate. Here, the court found that Pabst was acting as attorney for the defendants when he refused Gormley’s request to mediate. As explained in the preceding section, this finding is supported by substantial evidence. Therefore, because Rosenson and PSRC, as well as PSP, refused to mediate, they too are not entitled to recover their attorney fees.
IV. DISPOSITION
The judgment and the order denying defendants’ motion for attorney fees are affirmed. Each party to bear their costs on appeal.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
We concur: McKinster, Acting P.J., Gaut, J.