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Pavlovic v. Pratt

California Court of Appeals, First District, Fourth Division
Mar 27, 2008
No. A116569 (Cal. Ct. App. Mar. 27, 2008)

Opinion


JACK D. PAVLOVIC, et al., Plaintiffs and Respondents, v. DOUGLAS PRATT, et al., Defendants and Appellants. A116569 California Court of Appeal, First District, Fourth Division March 27, 2008

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

Mendocino County Super. Ct. No. SCUK-CVG-0492151

Rivera, J.

In this contract action, Douglas Pratt, Judy Judd, and Josh Judd (collectively, the Judds) appeal from the court’s judgment awarding damages to plaintiffs Jack D. Pavlovic and Waters Construction, Inc., a joint venture (Pavlovic/Waters), damages in the amount of $104,261. The Judds contend that the trial court erred in not rescinding the easement agreement based on unilateral mistake; that it erroneously awarded delay damages and that Waters Construction, Inc. was not entitled to recover against the Judds on a repair agreement because it was not a party to the action. We affirm.

Factual Background

In 1990 or 1991, Pavlovic purchased 65 acres of property on Marina Drive in Calpella. At the time, Pavlovic contemplated subdividing the property. The Cortina subdivisions were located to the north of Pavlovic’s property. In March 1993, Pavlovic entered into an agreement with Joann Cortina under which Pavlovic deeded a 50-foot strip of property that Cortina needed for drainage in exchange for a road easement across the Cortina property. Pavlovic’s proposed subdivision included parcel 4, which required access across the Cortina property in order to get to Cortina Place, the public street. The agreement provided that Cortina would construct the road easement granting title to Pavlovic for the easement. If the roadway was not completed, the exchange would be reversed and the parties returned to their original position. Cortina used the strip for approximately six years, but failed to complete the road. Cortina therefore deeded back the 50-foot strip to Pavlovic.

The Cortina property was eventually sold to the Judds. Pavlovic learned that the ditch that Cortina built on his property was being used by the Judds to drain water onto the 50-foot strip on his property. In fact, the Judds’ contractor was working on the ditch to deepen it and increase the drainage.

Pavlovic contacted the Judds who acknowledged Pavlovic’s ownership. They agreed to meet to discuss the issue. In June 2001, the parties entered into an easement agreement under which the Judds agreed to grant an easement over a roadway to be constructed at the east end of Cortina Place. The easement would provide Pavlovic/Waters road access for parcel 4 of its proposed subdivision and connection to all utilities along the existing Cortina Place. Pavlovic/Waters agreed to transfer title to the Judds to a strip of land 50 feet wide at the east side of Calpella Road and to pay the cost of constructing the main sewer and water lines at the east end of the existing Cortina Place. Pavlovic/Waters further agreed to pay the costs of designing the roadway on Cortina Place and to construct it at cost. The parties agreed to share the costs of construction.

The Judds subsequently learned that the existing Cortina Place road did not meet county standards. The cost of the improvements to the road to meet the county’s specifications amounted to $46,000. Pavlovic/Waters and the Judds each paid 50 percent of the cost.

In late 2002, the Judds informed Pavlovic/Waters that they could not afford to pay for the road. They raised the possibility of exchanging 10 acres of a parcel in exchange for the cost of the road. Earlier Pavlovic had told the Judds that Cortina’s estimate for the road was $127,000, but Pavlovic also informed the Judds that the cost would exceed that amount because that estimate was given in 1994. Indeed, in July 2003, Pavlovic informed the Judds that the road would cost $212,000. In August 2003, the Judds assured Pavlovic/Waters that they would honor the contract. In September 2003, counsel for the Judds e-mailed Pavlovic that the easement agreement was unenforceable and that the Judds would not abide by it. The Judds did not transfer back the 50-foot strip and proceeded to subdivide the Cortina property into two parcels and a remainder. The two parcels were sold to third parties. One of the parcels sold included half of the 50-foot strip.

As a result of the Judds’ refusal to comply with the road easement agreement, Pavlovic/Waters had to modify its subdivision plan because parcel 4 of its subdivision required access onto the Judds’ property. Pavlovic/Waters subsequently submitted new plans to the county planning department to merge parcel 4 with parcel 5, so that no road access through the Judds’ property was required. The merger was not completed until August 8, 2004, approximately 10 months after being informed by the Judds’ counsel that they would not abide by the easement agreement.

Procedural History

Pavlovic/Waters sued the Judds for breach of contract. The Judds cross-complained, alleging, inter alia, breach of contract and fraud, and seeking rescission, reformation, and declaratory relief. After a court trial and a series of posttrial exchanges the court issued its revised statement of decision upon which judgment was entered. The court determined that the Judds had breached the easement agreement and awarded Pavlovic/Waters $104,261 in damages, which included the value of the drainage easement retained by the Judds, reimbursement of the costs for the Cortina Place improvements, engineering expenses incurred for the design of the road, and delay damages. The court rejected the Judds’ claims for fraud, breach of contract and rescission. The Judds appealed.

Discussion

1. Rescission

The Judds argue that the trial court erred in not rescinding the easement agreement due to unilateral mistake. They contend that they entered the agreement under a material mistake of fact that their share of the cost of the road would not exceed $50,000.

It is well settled that in reviewing evidence on appeal, “all conflicts must be resolved in favor of the respondent, and all legitimate and reasonable inferences indulged in to uphold the verdict if possible. . . . [W]hen a verdict is attacked as being unsupported, the power of the appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, which will support the conclusion reached by the jury.” (Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429 (Crawford).) The substantial evidence standard also applies to findings made by a trial court in its statement of decision rendered after a nonjury trial. (SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 462.) Where, as here, “the trial court’s findings are set forth in a statement of decision, ‘any conflict in the evidence or reasonable inferences to be drawn from the facts will be resolved in support of the determination of the trial court decision.’ [Citations.]” (TME Enterprises, Inc. v. Norwest Corp. (2004) 124 Cal.App.4th 1021, 1030.)

“A party to a contract may rescind the contract . . . [¶] (1) If the consent of the party rescinding, or of any party jointly contracting with him, was given by mistake, or obtained through duress, menace, fraud, or undue influence, exercised by or with the connivance of the party as to whom he rescinds, or of any other party to the contract jointly interested with such party.” (Civ. Code, § 1689, subd. (b)(1).) Unilateral mistake of fact is a ground for rescission where “ ‘the effect of the mistake is such that enforcement of the contract would be unconscionable.’ (Rest.2d Contracts, § 153, subd. (a).)” (Donovan v. RRL Corp. (2001) 26 Cal.4th 261, 281.)

The trial court found that while there may have been a basis to rescind the contract based on the mistake regarding the anticipated cost of constructing the road, the Judds waived any rescission rights by accepting a benefit of the contract even though they were aware of the increased costs of the road construction. The court explained that the Judds retained title to the 50-foot strip and proceeded with the sale of the subdivision lots including the strip even after they knew that the costs of the road had escalated. “[T]he subsequent sale of the two subdivision lots, which included the entirety of the fifty-foot strip, constituted a waiver of any right of rescission and an election to affirm the June 2001 agreement.”

Substantial evidence supports the trial court’s decision that the Judds waived their right to claim rescission. The evidence shows that the Judds accepted the benefit of the contract by retaining the 50-foot strip and not paying the entire cost of the improvements to Cortina Place while denying Pavlovic/Waters the easement the parties had agreed upon. “[A]ny right that plaintiff might have had to rescind the contract was waived by its failure to give prompt notice of its election to rescind, by its adherence to the contract for several years, and by its failure to avail itself of its right to terminate it.” (Pearson Candy Co. v. Waits (1946) 27 Cal.2d 615, 620; see also Saret-Cook v. Gilbert, Kelly, Crowley & Jennett (1999) 74 Cal.App.4th 1211, 1226 [“ ‘Waiver of a right to rescind will be presumed against a party, who, having full knowledge of the circumstances which would warrant him in rescinding, nevertheless accepts and retains benefits accruing to him under the contract. [Citation.]’ ”].)

The Judds’ counsel’s letter dated November 19, 2003, indicating that the Judds would pay a “fair price for the drainage area” was insufficient to rescind the contract. At this point, the Judds had already subdivided the property and sold two parcels including the 50-foot strip, thus retaining the benefits under the easement agreement without paying any consideration. Substantial evidence thus supports the trial court’s finding that the letter from the Judds’ counsel did not constitute “an offer of restoration of consideration sufficient to support a rescission of the Easement Agreement.”

2. Delay damages

The Judds argue that the trial court erroneously awarded Pavlovic/Waters $21,796 in damages for delay costs. They argue that the damages were too uncertain.

“For the breach of an obligation arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby . . . .” (Civ. Code, § 3300.) “No damages can be recovered for a breach of contract which are not clearly ascertainable in both their nature and origin.” (Civ. Code, § 3301.)

Here, the trial court awarded Pavlovic/Waters $21,796 in damages representing four months of interest charges it incurred on a line of credit used to finance the development of the subdivision. Pavlovic/Waters claimed that as a result of the Judds’ refusal to abide by the easement agreement, its subdivision project was delayed seven months because the loss of access for parcel 4 required that it submit new plans to the county modifying the subdivision to combine parcels 4 and 5. The trial court awarded four months of interest, finding that it was foreseeable to the Judds that as a consequence of the failure to perform the easement agreement, Pavlovic/Waters would have to modify its plans and resubmit them to the county for approval. “Although defendants could not have anticipated the precise amount of additional interest ($21,796) they could and should have anticipated that plaintiff would incur some additional interest expenses as a consequence of the need to revise and resubmit its development plans.”

Substantial evidence supports the court’s award of damages. The evidence demonstrated that the Judds were aware of Pavlovic/Water’s intention to use the access road as part of its subdivision development. As the trial court found, it was reasonably foreseeable that without that access road, in order to subdivide its property, Pavlovic/Waters would be required to modify its subdivision plan to develop the parcel without the easement for the access road through the Judds’ property and that the modification would cause delay. Nor were the damages too uncertain to be recoverable. It was reasonably foreseeable that Pavlovic/Waters would incur costs associated with the delay. Contrary to the Judds’ argument, the award of damages was not a “speculative exercise.” Based on the evidence before it, the trial court could properly conclude that the interest costs incurred during the delayed subdivision approval process were foreseeable and reasonably certain. (Coughlin v. Blair (1953) 41 Cal.2d 587, 603-604 [plaintiffs entitled to damages for increased building costs and loss of use of property resulting from defendants’ delay in performance of contract to pave a road and install utilities]; cf. Vu v. California Commerce Club, Inc. (1997) 58 Cal.App.4th 229, 233 [gambling losses incurred as result of other players’ cheating too uncertain for recovery].)

3. Standing

Finally, the Judds contend that Waters Construction was not a party to the action and hence Pavlovic/Waters had no standing to recover damages for the Cortina Place repairs performed by Waters Construction. The Judds argue that the contract for the Cortina Place repairs was solely between Judy Judd and Waters Construction.

The evidence showed that the county, as a condition to approval of the Judds’ subdivision, required them to reconstruct Cortina Place because the road was substandard. The road reconstruction was completed in July 2003 at a cost of $46,851.33. The Judds paid half of the cost. The reconstruction work was preliminary to the work on the extension of the Cortina Place contemplated by the easement agreement. As damages, Pavlovic/Waters sought reimbursement of $23,425.67, representing the 50 percent cost of the road that it paid. Pavlovic/Waters claimed that as the Judds breached the easement agreement, it should be reimbursed for the costs it absorbed as it derived no benefit in the improvements to Cortina Place.

Substantial evidence supports the finding that Pavlovic/Waters was entitled to damages in the amount of $23,426 representing the cost it incurred on the Cortina Place improvements. The evidence before the court was that Pavlovic/Waters absorbed 50 percent of the costs of the improvements to Cortina Place in order to advance the easement agreement—the extension of Cortina Place could not occur if the improvements to the existing road were not completed. The Judds’ argument that Waters Construction was not a party to the action and therefore not entitled to recover damages is without merit. Waters Construction agreed to complete the improvements to Cortina Place at cost, in contemplation that the Judds would perform their obligations under the easement agreement. When the Judds breached the agreement, Pavlovic/Waters incurred a loss of $23,426, the amount it spent to improve a road that it could no longer use. The court properly awarded this amount as part of Pavlovic/Waters’ damages.

Disposition

The judgment is affirmed.

We concur: Reardon, Acting P. J., Sepulveda, J.


Summaries of

Pavlovic v. Pratt

California Court of Appeals, First District, Fourth Division
Mar 27, 2008
No. A116569 (Cal. Ct. App. Mar. 27, 2008)
Case details for

Pavlovic v. Pratt

Case Details

Full title:JACK D. PAVLOVIC, et al., Plaintiffs and Respondents, v. DOUGLAS PRATT, et…

Court:California Court of Appeals, First District, Fourth Division

Date published: Mar 27, 2008

Citations

No. A116569 (Cal. Ct. App. Mar. 27, 2008)