Opinion
NOT TO BE PUBLISHED
Super. Ct. No. CV023794
ROBIE, J.
This case involves an option to purchase land that was subsumed into the resulting contract to purchase that land. The issue presented is whether the optionee and would-be purchaser of the land, plaintiff Ron L. Johnson, could exercise the option to purchase by telling the optionor and would-be seller of the land, defendant Sylvester Miller, Sr., that he intended to purchase the land. We hold that this was sufficient to exercise the option, and that the exercise of the option transformed the contract into a bilateral contract to purchase the land. In so holding, we reject Miller’s position that Johnson had to pay the balance ($440,000) of the $450,000 purchase price to exercise the option, and we remand the matter to the trial court to make factual findings to determine whether either party anticipatorily breached the contract to purchase the land.
FACTUAL AND PROCEDURAL BACKGROUND
On June 4, 2003, Johnson and his business partner, Pacific Pride Communities, entered into a written contract with Miller regarding the right to purchase and the purchase of eight acres of land owned by Miller. These eight acres were part of a larger parcel of land Miller owned, consisting of approximately 25 acres off Pock Lane in Stockton.
The contract stated in full as follows:
“OPTION AGREEMENT
“I, Sylvester J. Miller, Sr. (Optionor) give to Pacific Pride Communities, a California corporation and Ron Johnson (Optionee) the right to purchase approximately eight (8) +/- acres, being the north portion of a 25.55 acre parcel (APN #179-120-08), and located adjacent to the City of Stockton, County of San Joaquin.
“The purchase price shall be $450,000. Optionee agrees to deposit $10,000 (Initial Option Payment) with First American Title Company in Stockton within sixty (60) calendar days following execution of this agreement (The Commencement Date). The balance of the purchase price is to be paid within 12 months (Initial Option Period) from The Commencement Date, subject to Optionee receiving an approved vesting tentative subdivision map [(]VTSM), including all appeal periods, from the City of Stockton with at least 50 single family residential lots measuring 50’ x 100’ (typical). Option may be extended for an additional six (6) months upon Optionee paying an additional $10,000 (Increased Option Payment) prior to the expiration of the Initial Option Period. Optionor agrees to cooperate and sign all documents necessary to process and receive annexation and a VTSM from the City of Stockton.
Handwritten on the contract was a notation stating that that $10,000 was nonrefundable. The notion was initialed by Johnson and Miller.
“By signing below, all parties are in agreement to the terms and conditions outlined in this Option Agreement.”
The contract was drafted by Bernarr Heyne, the vice president of Pacific Pride Communities, a real estate broker and an “experienced land acquisitioner.” The contract was signed by Johnson and Heyne on June 4, 2003, and by Miller on June 6, 2003. On August 1, 2003, Johnson paid the $10,000.
In January 2004, Johnson told Miller he intended to exercise his option and purchase the property and he would have the money by June or July. Johnson also asked Miller if he could buy the entire parcel of land, which consisted of 25 acres (including the eight acres that were the subject of the contract) less five acres that Miller wanted to keep for himself, for $950,000. Johnson gave Miller a written purchase agreement for the other 12 acres he wanted to buy.
In April 2004, Johnson and Miller had another conversation about the land. Johnson said that “he wanted to pay the 8 acre purchase price of $450,000 but that he needed some collateral or security.” By this time, Johnson had a preliminary title report indicating that the eight acres had not been separated from the rest of the land and therefore was not a parcel unto itself. Johnson was not concerned, however, because he thought he was going to be able to purchase the remaining 12 acres from Miller, for a total of 20 acres. Believing it was Johnson’s duty to separate the eight acres, Miller told Johnson, “the deal was off.” Johnson had his attorneys draft a new proposed “option agreement” that would have given Johnson the right to purchase the eight acres “‘after a lot line adjustment has been approved by the City and/or County.’” (Bolding omitted.) This new proposed agreement was never signed.
On May 19, 2004, Johnson sued Miller for declaratory relief, claiming he had “a continuing right to purchase the Miller Parcel for $450,000.00.”
Following a court trial in July 2006, the court ruled in favor of Miller. The court reasoned that the contract was a “textbook option agreement”; certain items were missing from the agreement including the method of giving notice of the exercise of the option; although Johnson said in January 2004 he intended to go through with the purchase, he did not pay the purchase price or pay consideration to extend the option period so as to convert the unilateral agreement into a bilateral contract; Miller’s statement in April 2004 that the deal was off was not an anticipatory repudiation because generally there can be no anticipatory breach of a unilateral contract, Johnson had yet to pay the purchase price or pay consideration to extend his right to purchase, and Miller did nothing to prevent Johnson from doing either.
Johnson filed a timely notice of appeal from the subsequent judgment and on appeal claims he successfully exercised the option in January 2004; Miller anticipatorily repudiated the purchase agreement in April 2004; and he is entitled to specific performance against the subsequent purchaser of the land.
DISCUSSION
Interpretation of a contract or other written instrument is a question of law. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.) On review, we independently determine the meaning of the contract or written instrument unless the trial court has received conflicting evidence regarding the parties’ mutual intention. (Lange v. TIG Ins. Co. (1998) 68 Cal.App.4th 1179, 1185.)
When a dispute arises over the meaning of contract language, the court must first decide whether the language is ambiguous, that is, if it “is capable of two different reasonable interpretations.” (Oceanside 84, Ltd. v. Fidelity Federal Bank (1997) 56 Cal.App.4th 1441, 1448, italics added.) “‘If it is not, the case is over.’” (Ibid.) “‘If the court decides the language is reasonably susceptible to the interpretation urged, the court moves to the second question: what did the parties intend the language to mean?’” (Ibid.)
At issue here is interpretation of the “option agreement.” An option contract is one in which the optionor (here Miller) stipulates that in exchange for payment of consideration by the optionee (here Johnson), the optionor waives the right to revoke the offer for a specified or reasonable period. (Warner Bros. Pictures v. Brodel (1948) 31 Cal.2d 766, 772.) “Such a contract is clearly different from the contract to which the irrevocable offer of the optionor relates . . . . An option contract relating to the sale of land is therefore ‘by no means a sale of property, but is a sale of a right to purchase.’” (Ibid.) If the option is exercised, a bilateral executory contract is created, one in which the optionee may compel the optionor’s performance of that contract by an action for specific performance. (1 Miller & Starr, Cal. Real Estate (3d ed. 2000) Specific Contracts, § 2:9, p. 31.)
Here, the dispute between the parties boils down to whether Johnson exercised his option to purchase the eight-acre parcel. That, of course, turns on how the option was to be exercised -- a matter of contract interpretation. As is to be expected, Miller and Johnson take opposing positions. Miller contends the option could be exercised only by paying the balance of the $450,000 purchase price (which was $440,000). On the other hand, Johnson contends the option could be exercised by telling Miller that he (Johnson) intended to exercise the option.
“It is well settled that when the provisions of an option contract prescribe the particular manner in which the option is to be exercised, they must be strictly followed.” (Palo Alto Town & Country Village, Inc. v. BBTC Company (1974) 11 Cal.3d 494, 498.) If the option contract does not prescribe any particular manner in which the option is to be exercised, any manner of communicating the election is proper, so long as it conveys to the optionor that the option is, in fact, exercised. (Riverside Fence Co. v. Novak (1969) 273 Cal.App.2d 656, 661; Schmidt v. Beckelman (1960) 187 Cal.App.2d 462, 469.)
In interpreting the contract, we begin with the words of contract. The option agreement stated, in relevant part, that the purchase price was $450,000, the initial option payment was $10,000, and the “balance of the purchase price is to be paid within 12 months (Initial Option Period) from The Commencement Date, subject to Optionee receiving an approved vesting tentative subdivision map [(]VTSM), including all appeal periods, from the City of Stockton with at least 50 single family residential lots measuring 50’ x 100’ (typical). Option may be extended for an additional six (6) months upon Optionee paying an additional $10,000 (Increased Option Payment) prior to the expiration of the Initial Option Period.”
Miller argues that by insertion of the term “initial option period” the parties understood that “the option was to be exercised by payment of the balance of the purchase price prior to the expiration of the ‘initial option period.’” In support of his position, he cites to portions of the trial transcript where he claims that Johnson and Heyne admitted as much. Miller’s citations do not support his claim. Rather, the portions of the transcript to which Miller cites have to do with questions and answers regarding closing escrow and when the balance of the purchase price had to be paid. Therefore, the extrinsic evidence that Miller contends supports his argument is simply not there.
The evidence Miller cites provides as follows: Heyne answered “No” when asked if it was “true that you understand that you -- that Pacific Pride Communities and Ron Johnson, as the co-optionees of the option agreement in this case, had to exercise the option by closing escrow by the end of the initial option period.” Miller’s attorney then tried to impeach Heyne with Heyne’s deposition testimony when he answered “‘Yes’” when asked “‘When you say “our option to close escrow,” what do you mean by that? Does that mean tendering the $450,000 to Mr. Miller?’”
Even if it could be said there was extrinsic evidence to support Miller’s interpretation of the option agreement, it would be unhelpful to Miller because it is not reasonable to interpret the contract to require Johnson to pay the remaining $440,000 to exercise the option, as Miller would have us do. (See Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 114.) According to Miller’s reasoning, because Johnson had not exercised the option by paying $440,000, the contract remained unilateral, and because the contract was unilateral, the doctrine of anticipatory breach did not apply. (See Cobb v. Pacific Mutual Life Ins. Co. (1935) 4 Cal.2d 565, 573; Palo Alto Town & Country Village, Inc. v. BBTC Company, supra, 11 Cal.3d at p. 502.) Therefore, if we were to accept Miller’s reasoning, when Miller told Johnson in April 2004 that the deal was off, Johnson could not bring suit against him for specific performance claiming anticipatory repudiation until he had tendered the $440,000, i.e., until the option agreement transformed into a bilateral contract. We find this logic tenuous.
It would be unreasonable to expect Johnson to continue to secure $440,000 to buy Miller’s land when Miller had told him that the deal was off. It would be even more unreasonable, given that Johnson not only had to secure funds, but he also had to receive an approved vesting tentative subdivision map. Against this backdrop, the contract simply cannot be read as requiring Johnson to pay $440,000 to exercise the option. (See ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1269 [the “[i]nterpretation of a contract ‘must be fair and reasonable, not leading to absurd conclusions’” and “‘[t]he court must avoid an interpretation which will make a contract extraordinary, harsh, unjust, or inequitable’”].)
Viewed in this light, there is only one reasonable construction of the option agreement -- that it was silent on how the option was to be exercised. As such, election was to be communicated by any manner that conveyed to the optionor that the option was, in fact, exercised. (Riverside Fence Co. v. Novak, supra, 273 Cal.App.2d at p. 661; Schmidt v. Beckelman, supra, 187 Cal.App.2d at p. 469.) Here, the court found that “[t]he only evidence at trial was that [Johnson] said in January he intended to go through with the purchase” but “there is no dispute he did not go through with it” and that “once the lot split issue surfaced, [Johnson] did not make any further oral representations, or take any actions to purchase the 8 acres.” Applying these uncontroverted facts to the contract as we have interpreted it, we find that Johnson exercised the option in January 2004 by telling Miller he intended to exercise his option and purchase the property.
This is not to say that the term “initial option period” is left without meaning. It reasonably can be read to define the time period in which the $440,000 had to be paid, i.e., 12 months from the payment of the $10,000 deposit if the time period was not extended by six months by the optionee paying an additional $10,000.
Notwithstanding this evidence, Miller contends that Johnson “repudiated and abandoned the option by making multiple counter-offers during the initial option period.” The problem with Miller’s theory is that once Johnson exercised the option, it ceased to exist and was merged into the land purchase contract. (1 Miller & Starr, supra, § 2:9, at p. 31.) This is because notice of exercise of the option is an “‘acceptance’ of that offer and signifies the optionee’s ‘consent’ to be bound according to the terms of the bilateral contract created by the acceptance.” (Palo Alto Town & Country Village, Inc. v. BBTC Company, supra, 11 Cal.3d at p. 504.) Once there was acceptance in January 2004, Johnson’s subsequent statements to Miller could not be deemed counteroffers to an already accepted offer.
When the offer was accepted (i.e., the option was exercised), a bilateral contract arose which could become the subject of a suit to compel specific performance, if performance thereafter was refused. (Auslen v. Johnson (1953) 118 Cal.App.2d 319, 321-322.) Here, Johnson claims he was entitled to bring suit against Miller before the time for performance had arrived because Johnson anticipatorily breached the contract in April 2004 when he said the deal was off.
“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.” (Taylor v. Johnston (1975) 15 Cal.3d 130, 137.) “[R]epudiation is ordinarily a question of fact and intent, and must be determined by the facts in the particular case.” (Gold Min. & Water Co. v. Swinerton (1943) 23 Cal.2d 19, 28.)
Here, it appears that the trial court made some factual findings on the issue of anticipatory breach, but it is not clear whether the trial court made those findings because the evidence showed that Miller did not anticipatorily breach the contract or because the court believed (erroneously) that Johnson had not exercised the option, so the contract remained unilateral and the doctrine of anticipatory breach did not apply. Because we cannot say the trial court would have made the same factual findings regarding anticipatory breach if it had not erroneously believed that the contract was unilateral and the doctrine of anticipatory breach did not apply, we will remand the matter to the trial court. On remand, the trial court is to make factual findings on the issue of anticipatory breach in light of our conclusion that Johnson exercised the option in January 2004, transforming the contract into a bilateral contract for the sale of land. Given this conclusion, we do not reach Johnson’s final contention that he is entitled to specific performance, even against the “mala fide” purchaser of the land.
The trial court found that Miller’s “reference to the deal being off was not an anticipatory repudiation. The weight of the evidence is that the lot split issue had arisen and its solution was inextricably bound up with [Johnson]’s new offer in his new Option Agreement offer.” It also found that Miller did nothing to prevent Johnson from paying the purchase price or paying $10,000 to extend his right to purchase, nor did he convey the property to the third party.
DISPOSITION
The judgment is reversed and the case is remanded to the trial court for further proceedings. On remand, the trial court is to make factual findings on the issue of anticipatory breach of the bilateral contract for the sale of land to determine whether there was an anticipatory breach of that contract by
either party in this case. Johnson shall receive his costs on appeal. (Cal. Rules of Court, rule 8.276(a)(1).)
We concur: DAVIS, Acting P.J., BUTZ, J.
The other cite is to Johnson’s testimony in which he was asked, “What was your understanding as to the term that you had to pay off this option money, the balance of the purchase price,” and Johnson responded that he thought it was “June of ’03 to June ’04” but that he now understood that it was “from August of ’03 to August of ’04.”
Because none of this evidence stands for the proposition Miller claims it does, it is Miller and not Johnson who has misstated the record, and we therefore decline Miller’s request in his respondent’s brief that we should deem Johnson to have “waived the right to challenge the trial court’s findings.”
Before making these findings, however, the court stated that the contract at issue was a “unilateral agreement [that] never matured to a bilateral contract” and that “[g]enerally, there can be no anticipatory repudiation of an option contract, a unilateral contract, because in a unilateral contract, the injured party has already performed and he does not suffer any unreasonable loss by merely waiting until the time of counterperformance before bringing suit.”