Opinion
A101260
10-21-2003
Estate of THOMAS J. GONZALES II, Deceased. LUTHER F. YOUNG, M.D., MEDICAL PROFIT SHARING PLAN, Plaintiff and Appellant, v. TOM GONZALES, as Personal Representative, etc., Defendant and Respondent.
I. INTRODUCTION
In this action for breach of contract and related tort claims defendant Tom Gonzales, in his capacity as personal representative for the estate of Thomas Gonzales II, deceased (the Estate), successfully obtained summary judgment in favor of the Estate. Plaintiff, the Luther F. Young, M.D., Medical Profit Sharing Plan (the Plan), appeals, arguing that triable issues of fact preclude summary judgment. We affirm.
II. BACKGROUND
The Plan, represented by its trustee Dr. Luther Young (Young), entered into an agreement allegedly to purchase shares of Commerce One, Inc. (the Company) from Thomas Gonzales II (Gonzales), an executive officer of the Company. The parties signed a written agreement on May 5, 1999, not long before the Companys initial public offering (IPO) on July 1, 1999. It was structured as a loan agreement whereby the Plan loaned $ 105,000 to Gonzales and the latter pledged 10,000 of his shares of Company stock as security. On May 6, 1999, the Plan transferred $ 105,000 to Gonzales pursuant to the agreement. In exchange, Young expected that the Plan would receive 10,000 shares no later than six months after the IPO.
On June 24, 1999, Gonzales transferred the money back to the Plan, and a few days later informed Young that the shares were no longer available. The Plan refused the transfer and, after the IPO on July 1, Young allegedly made several demands to Gonzales to deliver the 10,000 shares. The last demand requested delivery no later than January 3, 2000. Gonzales refused and, since the Plan would not accept his return of the money, deposited $105,880.26 into a trust account for the Plan.
The Plan brought this action against Gonzales on October 18, 2000, for breach of contract, fraud, and misrepresentation. Gonzales died on December 4, 2001, and his father, Tom Gonzales, was afterwards appointed personal representative of the deceased defendants estate. On July 2, 2002, the trial court substituted the Estate as the defendant.
On September 19, 2002, the Estate filed a motion for summary judgment or summary adjudication. One ground for the motion was an affirmative defense, namely, that Gonzales and Young (the latter acting as trustee of the Plan) had orally agreed to rescind the written agreement between Gonzales and the Plan.
By order filed November 25, 2002, the trial court granted summary judgment in favor of the Estate based on its conclusion that there was undisputed evidence of a mutual rescission of the written agreement. Judgment was entered accordingly and filed the same date. The Plan has timely appealed the judgment. (See Code Civ. Proc., §§ 437c, subd. (m)(1), 904.1, subd. (a)(1); Cal. Rules of Court, rule 2(a).)
III. DISCUSSION
A. Standard of Review
We review a summary judgment de novo to determine whether the moving party has met its burden of persuasion that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law. When the defendant is the moving party, it must show either (1) that the plaintiff cannot establish one or more elements of a cause of action, or (2) that there is a complete defense. If that burden of production is met, the burden shifts to the plaintiff to show the existence of a triable issue of fact with respect to that cause of action or defense. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850; Code Civ. Proc., § 437c, subds. (c) & (o)(2).)
B. The Estate Met Its Burden of Showing an Agreement to Rescind
1.Applicable Law
The Plan argues, in effect, that the Estate failed to meet its burden as moving party to establish all the elements of its affirmative defense of mutual rescission. In particular, the Plan contends that the Estate failed to establish that Young unequivocally accepted Gonzales offer to return the money and rescind their agreement.
The question whether certain words or conduct constitute acceptance of an offer is generally one of fact. The test is what meaning a reasonable person in the position of the parties would give to such words or conduct. (See Guzman v. Visalia Community Bank (1999) 71 Cal.App.4th 1370, 1376.) In the context of a motion for summary judgment, the question is whether undisputed evidence establishes acceptance as a matter of law. That is, the question is whether a person in the position of the offeror could reasonably interpret undisputed evidence of the offerees words and conduct to mean anything other than an unqualified acceptance.
2. The Underlying Facts
The Estate submitted evidence showing the following facts: Young stated that on May 5, 1999, he met Gonzales at the latters home. Various exhibits submitted in support of the motion show that Gonzales residence at that time was located in Pleasant Hill, Contra Costa County. Several other individuals were present. At this time, Young and Gonzales signed an agreement. They dated the agreement April 14, 1999, at Gonzales request. When Young left, he took the original copy of this signed agreement.
Statements attributed to Young are taken from his deposition held February 9, 2001.
The agreement itself is entitled "Loan Agreement & Promissory Note." It provides for the Plan to loan Gonzales the sum of $ 105,500 and for Gonzales to repay this sum with six percent interest at the end of 36 months. Repayment is secured by a pledge of 10,000 shares of Company stock. The agreement further provides that if the Company begins trading its shares publicly before the end of the 36-month loan period, the Plan may "elect . . . to call the loan . . . and . . . accept the shares that were pledged as the original security as full payment." The Plan, if it opts to "take stock in exchange of loan repayment," is "entitled to any and all increases in value of stock." The agreement also provides that Gonzales may "elect to surrender stock and . . . to consider [the] debt paid in full" if the Company begins trading publicly before the end of the loan period.
In opposition to the motion, Young submitted deposition testimony explaining that the real purpose of the agreement was to have the Plan purchase from Gonzales 10,000 shares of Company stock at $10.50 per share. Gonzales prepared the written agreement in the form of a loan and promissory note "because of security regulations." He said Gonzales assured him orally that the Plan would receive the pledged shares within six months of the Companys upcoming IPO.
We mention this testimony merely to shed light on the possible true nature of the transaction. The trial court overruled the Estates objection to this testimony. In its reply papers the Estate noted alternately that this evidence raised no triable issue of fact as to the language of the agreement. We note, more importantly, that whatever the agreements true purpose, this evidence raises no triable issue of fact regarding rescission of the written agreement.
Young stated that he arranged to have the investment firm that managed the Plan, Bear Stearns, transfer $105,000 from the Plan into Gonzales account. Bear Stearns records show that these funds were wired to Gonzales account at the Mount Diablo National Bank (the Bank) on May 6, 1999.
Young stated that he met with Gonzales a second time on June 18, 1999, together with three other investors who had executed separate agreements with Gonzales. This meeting, like the first, was at Gonzales home. At this meeting Gonzales explained that Commerce One had reduced its shares by half in a pre-IPO "reverse split." Young understood this to mean that his agreement now "cover[ed] 5,000 shares" rather than 10,000. That is, the security for the Plans loan to Gonzales was to be 5,000 shares valued at $21.00 per share instead of 10,000 shares valued at $10.50 per share. Gonzales told Young and the others that their "investment would be sound even with the reverse split," but "[i]n spite of that, [he was] prepared to give [them their] money back." Two of the three other investors told Gonzales they "still want[ed] to be in. The third "wanted to get his money back." Gonzales told that investor "Ill go get you a check" and "Ill need your contract." Gonzales then wrote a check for that individual and the latter returned his original copy of their contract in exchange for the check.
The fourth investor present at this meeting was, as just noted, Young. He told Gonzales that he "wanted to check it with [his attorney]" before making a decision. He asked Gonzales if he could "let him know Monday [June 21, 1999]." Gonzales replied "Monday would be fine" and "[i]n fact, any time before the IPO."
Young stated that he contacted Gonzales by telephone on June 21, 1999. He made this call from his office located in South Carolina. He told Gonzales that, because his attorney had "advised [him] against [the deal]" he "thought it would probably be better for [him] not to [go forward with it]." In response, Gonzales said, "[w]ell, that would be fine." He also told Young that he "would want the agreement back" and that he "would need the information from Bear Stearns as to where to wire the money." After this conversation, Young telephoned Bear Stearns and told an employee that Gonzales "would need the routing information, and . . . [to] provide that to him." Bears Stearns records show that it sent this information to Gonzales by facsimile transmission on the morning of June 23, 1999. The cover sheet included the following handwritten statement: "[t]hese are the instructions to wire funds into Dr. Youngs P/S A/C, to payback funds wired out on 5/6/99." Young stated that this comment was "consistent" with the request he made to Bear Stearns.
The records of Gonzales Bank show that, later in the day on June 23, Gonzales transmitted the routing instructions to the Bank with a request that it transfer $105,000 pursuant to those instructions. Bear Stearns records and the deposition testimony of an employee show that the New York office designated in the routing instructions received, on June 24, 1999, "at 3:08:18 p.m. Eastern Daylight Time," a wire transfer of $105,000 sent by the Bank on Gonzales behalf, which was deposited in a Bear Stearns account on the Plans behalf.
Young said that he telephoned Gonzales "either on June the 23rd or June the 24th" and left a voice-mail message stating that "after reconsidering . . . [he] wanted to stay with the agreement." Young stated that he made this call from a hospital in South Carolina, and that he charged the call to his AT&T calling card. Since it was his intent to talk with Gonzales rather than merely leave a message, Young said he made the call during Gonzales normal business hours. The deposition testimony of a Company employee identified the office number that Gonzales used at that time. Telephone records for a telephone number Young maintained at his home in South Carolina list a one-minute call to Gonzales office number, placed from a number other than Youngs home number and charged to Youngs AT&T calling card. This call was made on June 24, 1999, at 3:58 p.m. Eastern Daylight Time.
Young stated that, after leaving this voice-mail message, he telephoned Bear Stearns. He spoke with the same employee to whom he had made his earlier request to transmit routing instructions to Gonzales, and told her he "still wanted the stock and therefore . . . didnt want the money returned to [the Plans] account." On June 25, 1999, Bear Stearns returned the funds that had been wired by Gonzales Bank the preceding day. That same day, Young sent Gonzales a written note by facsimile transmission in order to confirm his telephone message and to "solidify [his] desire to stay with the stock." This note, sent from a hospital in South Carolina, stated: "Since I did not hear from you, I had the money that you sent to Bear Stearns rerouted to you. As I stated on your voice mail, I would like my contract (which I have retained a copy) to remain in place. I hope you find this satisfactory."
Young stated that, at some unspecified time after he sent the written note, and while he was still in South Carolina, he received a telephone call from Gonzales, who told him "the shares were no longer available." Bank records and the deposition testimony of a Bank employee show that, on July 13, 1999, Gonzales opened a trust account and deposited $105,880.26 into the account for the benefit of the Plan. Gonzales and the Estate have since maintained this account for the Plan.
3. The Facts Established an Agreement to Rescind
Mutual rescission involves the formation of a new contract. (Harriman v. Tetik (1961) 56 Cal.2d 805, 810.) Mutual rescission of a written contract may be accomplished by an oral agreement. (Hastings v. Matlock (1985) 171 Cal.App.3d 826, 837; 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 876, pp. 787-788.) Offer and acceptance need not be express, but may be implied from the words and acts of the parties. (See Schertzinger v. Williams (1961) 198 Cal.App.2d 242, 246.) The mutual promise to forego rights under the rescinded contract is sufficient consideration. (See 1 Witkin, Summary of Cal. Law, supra, § 875, p. 787, citing Jura v. Sunshine Biscuits, Inc. (1953) 118 Cal.App.2d 442, 447.)
In this case, the supporting evidence summarized above shows that Gonzales made an offer to rescind on June 18, 1999. Young said at that time that he wanted to consult with his attorney and asked if he could inform Gonzales of his decision on Monday, June 21, 1999. Gonzales indicated that Young could take even more time if he wished, so long as he communicated his decision before the IPO date. Young did not indicate he would take more time. Rather, he contacted Gonzales by telephone on June 21, the date he had specified. He told Gonzales that he had consulted with his attorney, who had advised against the deal. He said it was therefore "probably . . . better" not to "go forward" with the agreement.
We conclude that, under these circumstances, there was an unqualified acceptance of the offer to rescind. Youngs statements included no conditions that would render them a counteroffer and a rejection. Gonzales said that Youngs decision was "fine" and asked Young to send routing instructions so that he could return the Plans money. These remarks very clearly communicated Gonzales understanding that Young had accepted the offer and that Gonzales intended to perform his obligation under the new agreement by returning the money. Nevertheless, at this point, Young did not request additional time to decide. Nor did he say anything that might indicate to Gonzales that his prior statements did not have the meaning that Gonzales had indicated he understood them to have. Under these circumstances, there is no reasonable basis to attribute to Youngs words any meaning other than as an acceptance of Gonzales offer to rescind. Two days later, on the morning of June 23, Bear Stearns forwarded routing instructions to Gonzales at Youngs request. There is no reasonable basis for a person in Gonzales position to interpret this conduct as anything other than a confirmation of Youngs acceptance of the offer of rescission. It is, in effect, a performance by Young under the new agreement that was a necessary prerequisite to Gonzales performance.
Thus, the evidence submitted by the Estate is sufficient to meet its burden of persuasion, and establishes as a matter of law that, on June 21, 1999, Gonzales and Young made an effective oral agreement to rescind the written loan agreement between Gonzales and the Plan. Young completed part of his performance under the new agreement on June 23, 1999, when Gonzales received the routing instructions necessary for his own performance. Gonzales effectively completed his performance under the new agreement on the afternoon of June 24, 1999, when Bear Stearns received the wire transfer of funds sent by Gonzales, a transfer which was completed, we note, before Young left his voice-mail message for Gonzales on that day.
C. No Triable Issue Remains Regarding Return of the Original Contract
Once the Estate met its burden of establishing a complete defense to the Plans cause of action, the burden shifted to the Plan, as plaintiff, to show the existence of a triable issue of fact concerning that defense. (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 850; Code Civ. Proc., § 437c, subds. (c) & (o)(2).) The Plan argues that it did so by presenting evidence showing that the Plan never returned its original copy of the written agreement, and that its return of the original copy was a necessary condition to an acceptance of Gonzales offer.
The Plans evidence on this issue may be summarized as follows: Young, in his conversation with Gonzales on June 21, 1999, stated that, when he told Gonzales it was "probably . . . better" to not go forward with the deal, Gonzales said "that would be fine" but that Young "would need to send [him] the contract and then have [the routing instructions] Faxed to [him]." Reginald Bailey (Bailey), Youngs brother-in-law and one of the investors at the June 18, 1999, meeting, testified that Gonzales told them at this meeting that "they could have their money back, and he wanted their agreement[s] back." He also said that Gonzales telephoned him sometime after this meeting and said he wanted Bailey to ensure that Young returned his original copy of the agreement between Gonzales and the Plan. That is, Bailey was to contact Young and "tell him to return [the] loan agreement and promissory note" or "have [Young] return [his] loan agreement." He relayed this message to his sister, who told Bailey that "[t]hey were not going to give it back."
Robert Heaton (Heaton), another investor who attended the June 18 meeting, testified that he accepted Gonzales offer of rescission at that meeting. Gonzales "ask[ed] for that original contract back" and Heaton returned it in exchange for Gonzales check returning Heatons money. Margaret Young, Youngs wife, testified that she contacted Gonzales at some time after Young made the telephone call in which he left a voice-mail message for Gonzales that he wanted to "stay in the deal." She asked Gonzales if he had received that information, and he indicated the Plan could not "stay in the deal" and he wanted her "to send the contract to him." He contacted her a few days later and said again that he "wanted the contract." She refused and said "they were staying with the deal." Gonzales "became very angry." Donald Pritchett (Pritchett) stated in a declaration that he was one of the investors present at the June 18 meeting, and that Gonzales said at this meeting that "if we wanted our money back, we would first have to give him the original copy of the contract back . . . [and] that we would not receive our money back if we did not first provide him with the original contract." Young, by declaration, stated that he never returned the original contract to Gonzales.
We conclude that this evidence fails to raise a triable issue of fact. On June 21, 1999, Gonzales told Young that the latter would need to send routing instructions and return the original copy of the contract given his decision to accept the offer of rescission. These remarks are susceptible of only one reasonable interpretation, i.e., that Gonzales considered the return of the original contract to be one of the terms of performance required of Young under their new agreement, just as the terms of performance required Gonzales to return the money. The fact that Gonzales returned the money on June 24, 1999, before receiving the original contract, is consistent with this interpretation. On the other hand, it is necessarily inconsistent with an interpretation that makes the return of the original contract a condition for acceptance of his offer to rescind. Nothing in the opposing evidence summarized above is sufficient to suggest another reasonable interpretation. This evidence shows only that Gonzales expected the Plan to return the original contract as part of its obligation under the new agreement, and that he demanded such performance in several conversations with Bailey and Youngs wife. The authorities cited by the Plan are likewise inapposite. It is clearly possible to condition acceptance of an offer under an option agreement upon the delivery of that acceptance by a certain time and in a certain manner. (See, e.g., Palo Alto Town & Country Village, Inc. v. BBTC Company (1974) 11 Cal.3d 494, 498; Callisch v. Farnham (1948) 83 Cal.App.2d 427, 430.) However, such was clearly not the case here; Gonzaless return of the Plans money on June 24, 1999, before receiving the original contract back from Young, preludes any reasonable interpretation requiring that return as a condition precedent to Gonzaless obligation to repay the money, much less as a condition for acceptance of Gonzaless offer.
Pritchetts declaration suggests that, at the June 18 meeting, Gonzales, insisted that each investor would be required to return his original contract before Gonzales would return that investors money. This, at best, suggests that he considered the return of the contract to be a condition precedent to Gonzales return of the money. The trial court sustained the Estates objection to this declaration on grounds of relevance and Pritchetts lack of personal knowledge as to the terms of Gonzales offer to Young. The Plan now contends this ruling was error because Pritchett had personal knowledge of what occurred at the June 18 meeting. We merely note that, whatever conditions Gonzales may have proposed to all the investors on June 18, they were not necessarily the same conditions as those to which Gonzales and Young agreed in their conversation on June 21. In that conversation, Gonzales simply told Young to provide him with routing instructions and to return the original contract.
Because we conclude there is no reasonable basis to interpret the return of the contract as a condition for acceptance of the offer, we need not address the merits of trial courts conclusion that Gonzales waived this condition.
D. No Triable Issue Remains Regarding the Plans Rejection of Gonzales Offer
The Plan argues finally that it raised a triable issue of fact on the element of acceptance by presenting evidence that the Plan effectively rejected Gonzales offer on June 23, 1999, or earlier.
The opposing evidence submitted on this point is as follows: Bailey stated that his sister, Margaret Young, contacted him on June 18, after the meeting held that day. She asked Bailey "to call [Gonzales] and to tell him that they would keep the shares." She did not mention to him that she had discussed the matter with Young. He relayed the message to Gonzales within the next two days, but could not recall what Gonzales said in reply. In addition, the Plan submitted a declaration by Young in which he stated that his telephone call to Gonzales, in which he left a voice-mail message stating he "wanted to stay in the contract," was made not from the hospital where he was working in South Carolina, but from his home on June 23, 1999, at 5:25 p.m. Eastern Daylight Time. This declaration was based on his refreshed recollection after reviewing his 1999 telephone records.
This evidence, too, fails to raise a triable issue of fact. The evidence submitted by both parties shows that only Young had authority, as trustee, to act on behalf of the Plan. The only person to whom he had delegated authority to act for the Plan, with respect to investment decisions, was his broker at Bear Stearns. There is no evidence that Young authorized Margaret Young to act on the Plans behalf, and she admitted she had no such authority. More importantly, it is undisputed that, at the meeting on June 18, Young specified how he would communicate his acceptance or rejection of the offer: he told Gonzales that he would confer with his attorney and would then contact Gonzales himself by June 21. Under these circumstances Gonzales was entitled to disregard any statements of Margaret Young relayed by Bailey, and instead await the communication from Young that the latter had specified.
With respect to Youngs declaration, we note the trial court sustained an objection to it on the ground that it conflicted with his prior deposition testimony. (See Visueta v. General Motors Corp. (1991) 234 Cal.App.3d 1609, 1613; Thompson v. Williams (1989) 211 Cal.App.3d 566, 573.) The Plans argues that this ruling was error because the prior testimony was not an unequivocal admission and thus not inherently more credible than the declaration based on Youngs refreshed recollection. (See Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465, 482.)
We need not reach the merits of this ruling, nor are we bound by the trial courts reasons for its grant of summary judgment. (See Stratton v. First Nat. Life Ins. Co. (1989) 210 Cal.App.3d 1071, 1083.) Youngs declaration is consistent with his telephone records, which show that a one-minute call was made from Youngs home telephone number to Gonzales office number on June 23, 1999, at 5:25 Eastern Daylight Time. Nevertheless, we have determined that Young effectively accepted Gonzales offer of rescission during their telephone conversation on June 21, 1999. At the time of the one-minute call made on June 23, Bear Stearns had already sent routing instructions, at Youngs request, so that Gonzales could perform his part of the new agreement. Youngs voice-mail message, whether he made it on June 23 or 24, 1999, was nothing more than an offer, "after reconsidering," to abandon the rescission agreement and revive their former agreement. Gonzales was free to accept or reject this offer, and effectively rejected it when he contacted Young after June 25, 1999, and told him that the shares were no longer available.
IV. DISPOSITION
The judgment is affirmed.
We concur: Kline, P.J., Ruvolo, J.