Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
Napa County Super. Ct. No. 26-17758
Siggins, J.
Robert W. Petty, Lynne I. Petty, and Leisa Petty (the Pettys) appeal a judgment awarding damages to Lake Berryessa Enterprises, Inc., II (LBE) in connection with the parties’ agreement that the Pettys would purchase the Putah Creek Park Resort (the Resort). The Pettys contend the court erred when it determined that the parties’ agreement was mutually cancelled rather than rescinded and awarded LBE damages in the form of the balance of the Pettys’ down payment. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
In 1998, the Pettys proposed to purchase LBE’s interest in the Resort, which is located on federal land administered by the Bureau of Reclamation (BOR). LBE’s concession agreement with the BOR was set to expire in 2008. In early 1999, the parties reached agreements that allowed the Pettys to possess and operate the Resort as of February 1, 1999, while they pursued approval by the BOR of transfer of the underlying concession agreement. The Pettys agreed to purchase the Resort for $1.6 million. The Pettys were to receive all the Resort income and to be responsible for all costs of ownership and operation as of their date of possession (February 1, 1999). LBE agreed to cure specific previously disclosed defaults, and remained primarily responsible to the BOR under the concession agreement until final transfer of title to the Resort, subject to contractual rights of indemnity from the Pettys. In 1998, the BOR had notified LBE of certain defaults under the concession agreements, and the California Regional Water Quality Control Board (the water board) issued a cleanup and abatement order. LBE remained responsible to correct these defaults under the parties’ purchase agreement.
The Pettys are co-trustees of the revocable Petty family trust. Lee and Pamela Johnson were also purchasers in the resulting transaction, but settled out of this case before trial.
The buyers also entered into a separate consulting and anti-competition agreement with the Petsas Family LLC effective on February 1, 1999. Nick and Melpo Petsas were officers of LBE and operated the resort for many years.
The buyers also agreed to pay $720,000 to the Petsas’ pension plan, and $35,000 for the existing alcoholic beverage licenses.
The purchase agreement specifically provided: “The obligations of Seller and Purchaser hereunder are conditioned upon the approval by Government on or before the Date of Closing of the sale of the Resort and the assignment of the Concession Agreement to Purchaser. Purchaser shall obtain such consent promptly after the Date of this Agreement, including, without limitation, providing such financial statements and other information as may be requested by Government.” The contract also permitted the parties to waive in writing the requirement that the BOR approve transfer of the concession agreement prior to close of the transaction.
The buyers were to “use the u[t]most diligence to secure the approval of Purchaser as concessionaire of the Resort and to secure the consent of the Government to the transfer of the Concession Agreement to Purchaser.”
The agreements required the Pettys to manage the Resort and perform all routine day-to-day and periodic maintenance from their date of possession to the date of transfer of the concession agreement, and LBE had no liability to the Pettys for the physical condition of the Resort or compliance with applicable regulations once they took possession. The Pettys were to collect the Resort’s income, and pay LBE $11,100 per month. The management agreement was effective when the Pettys took possession of the Resort on February 1, 1999, and was to continue until the earliest of (1) the sale of the Resort to them as management, (2) their failure to perform in accordance with the agreement, (3) the occurrence of any default caused by the Pettys under the terms of the concession agreement, (4) the Pettys’ failure to pay monthly fees due LBE, or (5) April 15, 1999, the date for expected close of escrow.
The purchase agreement provided for an extension of the close of escrow to April 30, 1999, in the event that the transfers of the concession agreement and alcoholic beverage license had not occurred by April 15, 1999, and then for extension of the purchase agreement by written notice of either party to the other not later than April 29, 1999.
The Pettys began operating the Resort but escrow did not close as scheduled, when it became clear that transfer of the concession agreement would not receive timely approval. The Pettys argued that escrow did not close because of LBE’s failure to cure the defaults noticed by the BOR and the water board, and that they never waived the requirement that the concession agreement transfer prior to closing. LBE argued the transfer was not approved because the Pettys failed to timely apply for approval, and that the Pettys waived that condition both in the purchase agreement and by their conduct.
Johnson, the Pettys’ partner, testified that they closed the transaction subject to the future transfer and assignment of the concession agreement, and that he talked with Mr. Petty about the need to waive the condition requiring transfer. The accountant/real estate broker for LBE and its advisor in the transaction agreed that the parties intended “to transfer [the rights of ownership] and treat it as a closed transaction.” The Pettys claimed the purchase of the Resort as part of a section 1031 exchange, and Mr. Petty described himself as owner of the Resort to the Franchise Tax Board. He also held himself out as the owner to Resort employees.
The Pettys filed an application for transfer of the concession agreement in April 2001, and continued to operate the Resort until mid-2002. Meanwhile, LBE was continuing negotiations with the BOR and the water board to cure their precontract defaults.
An administrative hearing in the fall of 2002 resulted in a hearing officer’s finding of no substantial defaults as of May 13, 2002.
Mr. Petty testified that when he agreed to purchase the Resort, he believed the holder of the concession agreement “would be given at minimum fair market value” by the BOR when the agreement expired in 2008. Later, he learned from the BOR that “it would be valueless in year 2008” “[a]nd that there’s a possibility that the owners of the concession agreement would have to pay out of their pocket to have things removed at the owner’s expense. . . . And that’s what made the decision to get out.” Mr. Petty did not want to risk whether the BOR would allow the Resort to continue to operate after the concession agreement expired in 2008. Shortly thereafter, the Pettys’ lawyer wrote to LBE in order to rescind the agreements.
The Pettys’ lawyer wrote the letter to LBE purporting to rescind in March 2002. LBE acknowledged receipt of the letter, recognized the rescission and termination, but disputed the grounds for rescission and demanded that the Pettys cease operating the Resort and return it to LBE due to their breach of contract. In June 2002, LBE filed suit against the Pettys. The parties also stipulated to a temporary restraining order that removed the Pettys from the Resort.
LBE filed a first amended complaint, including causes of action for misrepresentation, breach of contract, quantum meruit, restitution, conversion, an accounting, injunctive and declaratory relief. The Pettys filed a cross-complaint that included causes of action for misrepresentation, rescission, declaratory relief, imposition of constructive trust, and breach of contract.
The Petsas Family LLC also cross-complained against the Pettys alleging breach of contract. The court found the consulting and anti-competition agreement was cancelled by agreement in May 2002, and neither party had any unfulfilled obligations on the contract.
After a 17-day court trial, the court concluded that the parties, by their conduct, waived the contract provision that required all waivers of contract terms to be in writing, and continued to act according to the terms of their agreements even though the condition of BOR approval was not met. The court stated: “As a general principle, the Court finds that the parties’ emphasis on the Close of Escrow language in the purchase/sale contract is misplaced. The Court finds that while the purchase contract required waivers to be in writing, the parties waived this condition by their conduct. (See 8 Corbin Contracts, Section 40.4 (Revised Edition, 1999). Each side continued to operate and do business with the other notwithstanding the language in the contract requiring escrow to close in mid-April 1999. The parties did not treat the failure to close as a breach by the other side. Since the parties continued to act under the terms of the contract, notwithstanding the failure to technically close, the court decides that the Pettys owe the balance of the down payment as required in the Purchase Contract.”
The court also noted it would be “a practical impossibility to rewind the tape [to restore the parties to their former positions], as rescission would require. Because the [BOR]’s concession agreement was of limited duration (expiring in 2008) the years that the resort was under the Petty[s’] control cannot be recouped and therefore the parties cannot be restored to their original positions. This conclusion is also supported by Mr. Petty’s trial testimony that he gave up any intention of accepting the transfer of the concession agreement. Therefore, the court deems the contract cancelled on May 20, 2002 and not rescinded.”
Accordingly, the parties’ agreement was mutually cancelled, not rescinded, in May 2002, and as damages the Pettys owed LBE the unpaid balance of the down payment required by the contract. The court found: “The parties by stipulation entered into on January 7, 2005 have agreed to waive an accounting and to limit the court’s authority to award damages to the unpaid balance of the down payment.” The court’s postjudgment order awarding attorney fees to LBE is the subject of a separate appeal pending before this court in A112128.
The court also found the Pettys breached the purchase and management agreements in numerous ways. They failed to diligently pursue an application for transfer of LBE’s concession agreement or alcoholic beverage license, failed to maintain the resort as promised, failed to conduct an independent investigation or maintain a proper management team, failed to make payments on the promissory note until the time of cancellation, failed to collect and pass through the accounts receivable at the time they took possession of the resort, and failed to pay all costs of ownership and operation after the date of possession (including “obligations owed to suppliers and merchants, employees’ payroll, payroll taxes, [water board] fines, removal of mobile homes, sewer and water upgrades”). The court also found against the Pettys on their cross-complaint, and entered judgment for LBE in the amount of $97,000. The Pettys timely appealed.
DISCUSSION
The Pettys argue the court erred when it determined that the purchase agreement was mutually cancelled, rather than rescinded. To the extent that the Pettys contend that the court’s ruling was legally incorrect, they cite no supporting authority to substantiate their arguments. (See People v. Stanley (1995) 10 Cal.4th 764, 793; Kim v. Sumitomo Bank (1993) 17 Cal.App.4th 974, 979.) Nor have the Pettys shown the court’s factual findings are unsupported by substantial evidence. (See Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874; see also Whiteley v. Philip Morris, Inc. (2004) 117 Cal.App.4th 635, 678 [defendants claiming insufficiency of the evidence assume “a ‘daunting burden’ ”].)
The Pettys’ opening brief cites only a single case, Tupman v. Haberkern (1929) 208 Cal. 256, for the general proposition that “[i]ncorrect legal analysis . . . can and should be reviewed by this Court.”
The Pettys say the purchase agreement was mutually rescinded, not cancelled, based on LBE’s “acceptance” of their notice of rescission. But LBE’s May 2002 letter does not clearly and unequivocally state its agreement to rescind the contract. (See Civ. Code, § 1689, subd. (a) [“A contract may be rescinded if all the parties thereto consent”]; Pennel v. Pond Union School Dist. (1973) 29 Cal.App.3d 832, 838 [“a mutual rescission requires an intent to rescind on the part of both parties”]; see also 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 927, pp. 1024-1025 [consent to rescind must be mutual].) LBE’s letter “recognize[s] the rescission and termination by the Petty Trust, although the grounds therefore are disputed.” Because the letter does not clearly and unequivocally express LBE’s intent to rescind the agreements, and in fact disputes the basis for the Pettys’ attempted rescission, the court did not err when it concluded the agreements were mutually cancelled, rather than rescinded. Civil Code section 1699, cited in the Pettys’ reply brief, does not require a different conclusion. That statute provides: “The destruction or cancellation of a written contract, or of the signature of the parties liable thereon, with intent to extinguish the obligation thereof, extinguishes it as to all the parties consenting to the act.” The Pettys do not claim to have relied on section 1699 below, nor did the court find that LBE intended to extinguish the obligations created by the agreements.
On March 27, 2002, the Pettys’ counsel sent a letter to LBE that stated: “The Trust hereby rescinds and terminates the [purchase and management] agreements and any related agreements and addenda between the Trust and Sellers and any affiliated parties such as the Petsas Family, LLC. . . . [¶] The Trust hereby tenders return of all consideration received by it, conditional only on the concurrent return of all money and other consideration given by the Trust.”
On May 20, 2002, counsel for LBE responded: “Please be advised . . . that [LBE] and the Petsas Family LLC recognize the rescission and termination by the Petty Trust, although the grounds therefore are disputed.” In mid-June 2002 the Pettys’ counsel wrote LBE’s counsel: “I still have not received a confirmation from you that your clients have agreed to rescission of the agreement.”
Mutual cancellation of a contract terminates the parties’ future obligations, but any right based on prior breach or performance survives. (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 925, p. 1022.) The parties stipulated that damages would be limited to the unpaid balance of the down payment, and the court concluded the Pettys owed it to LBE under the contract because each party continued to operate under the terms of their agreements until the time of mutual cancellation. (See also Civ. Code, § 1692 [“If . . . the court determines that the contract has not been rescinded, the court may grant any party to the action any other relief to which he may be entitled under the circumstances”].)
The Pettys also argue that “[i]n the context of a rescission, [the payment of the remaining down payment balance of $97,000] makes no sense, since the transaction is not being consummated, and the Pettys are not receiving anything for their money.” But the trial court determined that the agreements were mutually cancelled, not rescinded.
The Pettys also argue that “no mutual conduct in this case tended to show any waiver of the condition that the concession agreement transfer; and for that reason, no evidence supports a trial court finding of waiver.” But in making this argument, the Pettys ignore the court’s findings that “[e]ach side continued to operate and do business with the other notwithstanding the language in the contract requiring escrow to close in mid-April 1999,” and “did not treat the failure to close as a breach by the other side.” The Pettys’ failure to address the evidence that supports the court’s factual findings defeats their substantial evidence argument on appeal. (Nwosu v. Uba (2004) 122 Cal.App.4th 1229, 1246.) The Pettys belatedly raise the argument in their reply brief that the evidence did not support a finding that an oral modification of the agreement was fully executed by the parties, as required under Civil Code section 1698, subdivision (b). But this argument ignores subdivision (d) of the statute that further provides: “Nothing in this section precludes in an appropriate case the application of rules of law concerning . . . waiver of a provision of a written contract . . . .”
The Pettys also argue that the court “found only that the management agreement had ended—without explanation of what happened thereafter.” But they do not explain the relevance or import of this alleged error.
The Pettys also challenge the court’s failure to find a breach of the purchase agreement by LBE. The Pettys argue that it was LBE’s failure to cure their defaults that prevented BOR approval of the transfer of the concession agreement. But a former BOR regional concession manager testified that there was no standard policy that prevented transfer of a concession agreement due to uncured defaults. LBE also argues that the defaults were disclosed at the time of sale, and that the purchase agreement included a waiver of the transfer of the concession agreement as a condition to closing in anticipation that the BOR might require all the defaults to be cured. Co-investor Lee Johnson testified that “when all the money changed hands and Mr. Petty took over the . . . management of the resort under the management agreement [the buyers] were waiving the condition in the contract as specified at 10.4 that the concession agreement be transferred in order to close the transaction.” Johnson testified the waiver provisions were designed to allow the transaction to close sufficiently to allow the Pettys to participate in a section 1031 exchange, without the requirement of a transfer of the concession agreement. Johnson’s notes indicated they “would close the transaction and get the concession transferred later on when the Bureau would accept the documentation.”
The trial court concluded the Pettys breached the purchase agreement “by failing to diligently pursue an application for transfer of [LBE’s] concession agreement with the [BOR],” that “LBE [] and Mr. Johnson suggested and requested that the Pettys pursue the concession transfer,” and that “[t]he Pettys, at one point, did commence the process of applying for a transfer, but failed to complete the process after deciding that they were unwilling to accept the risk of having to remove structures and restore the land to its nearly natural state, at their expense, pursuant to Public Law 96-375, at the end of the term of the concession agreement.”
As to the Pettys’ cross-complaint, the court found “that the Sellers materially performed the contract by expending substantial sums to cure the existing defaults (i.e. existing at the time of contract formation), which were the only ones that the Sellers were required to cure. While it is true that the defaults may have been cured earlier, they were cured and did not materially impede the transfer of the concession agreement because the evidence showed that the [BOR] would have continued to process the transfer even if the defaults were not completely cured. Rather, it was the Pettys[’] failure to provide the information that the [BOR] required that caused the [BOR] to stop processing the transfer application.”
The Pettys argue there was evidence that the BOR would not have approved a transfer of the concession agreement before the defaults were cured, but it is not the role of this court to reweigh the evidence or evaluate the credibility of the testimony of the witnesses. (See, e.g., Hurtado v. Statewide Home Loan Co. (1985) 167 Cal.App.3d 1019, 1024-1025 [trial court is in better position to observe the witnesses and “ ‘get “the feel of the case” ’ ”]; accord, Conservatorship of McElroy (2002) 104 Cal.App.4th 536, 545.) The Pettys have not shown that the court’s findings were unsupported by substantial evidence. (See Paterno v. State of California (1999) 74 Cal.App.4th 68, 102 [the burden is on appellant to establish no substantial evidence supports the trial court’s ruling, by fairly setting forth the relevant evidence]; Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 631-632 [appellant has burden to affirmatively demonstrate error].)
The Pettys also take issue with the court’s additional findings that they breached the purchase agreement by failing to conduct a thorough independent investigation, to diligently pursue an alcoholic beverage license transfer, to maintain their management team, to maintain the resort as promised, to make payments on the promissory note, to collect and pass through accounts receivable, or to pay the costs of ownership and operation of the resort after the date of possession. We do not address these issues in detail, but observe that the Pettys fail in many instances to address the evidence that supports the trial court’s findings, and have not shown that they were prejudiced by the alleged errors, in view of the parties’ stipulation limiting damages. The Pettys’ request for judicial notice of certain BOR policy documents was deferred to the decision of this appeal on the merits. Their motion claims that the documents show the underlying contract was illegal, but they acknowledge that issue was not raised at trial, and they make no such argument in their appellate briefs. The request for judicial notice is denied.
DISPOSITION
The judgment is affirmed.
We concur: McGuiness, P.J., Pollak, J.