Opinion
NOT TO BE PUBLISHED
Lake County Super. Ct. No. 41383
Kline, P.J.
These consolidated appeals by defendants Michael and Sheila Robertson (the Robertsons) challenge a June 26, 2006 judgment after court trial, in favor of plaintiff Holly Warneck (A115112), and a December 5, 2006 order awarding Warneck attorney fees and costs (A116506). We uphold both decisions.
BACKGROUND
The case arises out of Warneck’s withdrawal from contractual arrangements to purchase, as her residence, a Lake County house in Middleton that the Robertsons were building. Those arrangements began with a purchase agreement (the original contract) and were followed over the next few months by documents—change orders and several entitled “Addendum to Contract”—that specified added construction, extended the close of escrow, and in time increased the purchase price to $305,872 and deposits by Warneck to $52,000. When Warneck withdrew, frustrated with slow progress and having by then sold her own home in San Jose, she got only $10,260 of her deposits returned. She brought this action against the Robertsons for declaratory relief, breach of contract, negligent misrepresentation, accounting, and money had and received.
The parties do not mention it, but causes of action against Warneck’s real estate agent were dismissed at the start of trial.
Trial focused on whether there was one amended purchase contract or, instead, separate construction contracts for the added work, whether Warneck stood in breach, whether she could rely on prospective inability to perform, whether the Robertsons could rely on anticipatory breach, the validity and effect of a three-percent liquidated damages cap, and a posttrial motion by the Robertsons to amend their answer to seek “offset” for extra damages should the three-percent cap control.
Trial took place on two days in December 2005, with Warneck and Michael Robertson each testifying regarding the intent of their written agreements. On March 9, 2006, the court ruled orally, denying leave to amend and closely anticipating a statement of decision it would later issue at the Robertsons’ request. On June 15, the court heard argument on objections to its proposed statement, and on June 26, the court issued a final statement of decision and judgment after court trial, also declaring plaintiff the prevailing party. The Robertsons timely appealed.
Fees and costs were litigated thereafter, Warneck seeking them as prevailing party under a provision in the original contract. The principal issue was whether the contract language barred recovery of fees because Warneck had not sought mediation before filing an initial action (Super. Ct. Lake County, 2001, No. 40156) that she dismissed without prejudice before filing this one (Super. Ct. Lake County, 2002, No. 41383). The court heard arguments and, in an order of December 5, 2006, awarded Warneck fees and costs. The Robertsons again timely appealed.
Trial Facts and Testimony
The house in question was, by Michael Robertson’s description, a “spec house” he was building as general contractor through his sole proprietorship construction company, Michael Robertson Construction. The original contract, dated November 4 and signed on November 6, 2000, was titled “Residential Purchase Agreement and Joint Escrow Instructions (and Receipt for Deposit).” It set a purchase price of $249,900, a close of escrow within 60 days, and called for a deposit of $2,000, which Warneck deposited in escrow. A separately initialed liquidated damages provision in that contract recites: “If Buyer fails to complete this purchase because of Buyer’s default, Seller shall retain, as liquidated damages, the deposit actually paid. If the property is a dwelling . . . which Buyer intends to occupy, then the amount retained shall be no more than 3% of the purchase price. Any excess shall be returned to Buyer. . . . Buyer and seller shall sign a separate liquidated damages provision for any increased deposit.”
Special construction was contemplated from the start. A “Contract Addendum” dated and signed by the parties on the same dates as the original contract specifies that the parties will meet to discuss “plans and specifications, subject to Buyer’s approval,” that “any changes or additions” will be “agreed upon in writing,” and that buyer will have “the right of a ‘walk-thru’ following completion of construction . . . to ensure that construction and materials are satisfactory according to plans and specifications.” Warneck testified that the house was “pretty much a shell, walls, cement floors” in early November and that she discussed upgrades upon first meeting Michael Robertson at the property, before making her offer. Robertson agreed, in testimony, that he had a lot to do on the house at that point. The addendum begins with a printed provision: “The following terms and conditions are hereby incorporated in and made a part of the . . . Residential Purchase Agreement and Receipt for Deposit . . . dated 11-04-00.”
The next modification is in the form of a letter of November 26, 2000, on construction company letterhead, to Warneck. Subscribed by Warneck on the indicated same date but unsigned by either of the Robertsons, it begins: “In order to start on the changes requested of [sic] the buyers on the house at 18345 Grizzly Ct., we need the enclosed documents signed for approval as required in the original contract. All change orders/extras add time onto the completion date of the house, but we assure you we all want to finish this project as soon as possible. We will be able to give the buyers a more specific timeline when these changes are approved.” Specified items needing “immediate attention” are stated, and then a final paragraph (the November 26 provision) states: “All changes require the increased fees to be put in escrow before the start of the project and funds released to builder. In the event the buyers elect not to purchase the house, there will be no refund for any changes made or materials ordered at that time.”
Next in time is another contract addendum, signed by both parties on December 5, 2000. Drafted on the same printed form as the first with the same printed incorporation of its terms into the original contract, it extends the close of escrow to February 1, 2001, and says, in a provision initialed by Warneck and Michael Robertson: “Received on account for change order list dated 11-26-00 monies in the amount of Fifty thousand [dollars].” Separately signed by Warneck alone on the same indicated date of December 5, are a listing on company letterhead of paint, appliances, cabinets and fixtures, plus two change orders (Nos. GR 01 and GR 02) that together list changes and prices totaling $42,422, and sets a “Revised Contract Total” of $292,322. A check for $50,000 dated the same day, from Warneck, is made out to Michael Robertson Construction.
Warneck testified that she understood the $50,000 (then exceeding the $42,422 cost of indicated changes) to be a “deposit” toward the purchase of the house, but also to be used for upgrades and improvements, and that it was part of the contract to purchase the home. The money was not paid into escrow, she explained, but directly to Michael Robertson to speed work on the house so that she could move from her own house to this one and so that he would not run short of money to finish the work. She understood the “revised contract total” to be the purchase price revised to reflect the cost increases from the work she wanted done. The escrow date was changed because Robertson was requesting more time to do the work. As for the November 26 provision calling for “no refund for any changes made or materials ordered at that time” should she not purchase the property, Warneck said she understood this to mean “completed” changes and materials that could not be returned because already incorporated into the house.
In deposition, Warneck had said she understood that the $50,000 was “ ‘not to be considered the cost of the house.’ ” She clarified at trial that the $50,000 was going toward the house for improvements and upgrades and that this would add to the cost of the house.
Michael Robertson testified that he typed up the December modification in his office and deposited the $50,000 check into his general business account. He initially agreed with the characterization of the $50,000 as a further “deposit” and that he intended for the changes to be “part of the contract” for the sale of the property. Later, however, he testified that he believed that it was a separate contract for changes to the house. Asked why, then, he would combine the two and use language that the changes became part of the existing purchase contract, he explained: “Well, because technically they intertwine because even though they’re a separate entity they affect the first project.” He conceded that the $50,000 did apply against the new price of $292,322. Asked still later about deposition testimony in which he had indicated that the addendum was “technically” part of the contract, he explained further: “Well, because all of the extras are a separate entity, they still affect the original contract because they’re part—the property itself is part of the deal”; “they intertwine, they intermingle a little bit.” Robertson also maintained that, although he read the addendum provision that the modifications became part of the residential purchase agreement, he did not understand that he was modifying the purchase agreement.
As to the November 26 provision for no return of funds for “changes made” if the buyer defaulted, Robertson said he regarded this as applying to changes in progress or started, not just completed work.
A further modification came in a contract addendum of January 29, 2001, again signed by both parties and with the same printed language that the terms and conditions were incorporated into and made a part of the residential purchase agreement. This one reads that the close of escrow is March 1 if there are “no further changes,” but that buyer and seller will negotiate in good faith to establish a “new” closing date should there be further changes requested.
Next, a change order of February 12, 2001 (No. GR 03) signed by Warneck alone, but again generated on Robertson’s letterhead, specifies new changes totaling $8,185, extends the time to April 1, and increases the revised contract total to $300,507. Finally, another such change order (No. GR 04) with the same signing and closing dates, adds changes of $5,365 and sets a revised contract price of $305,872. These change orders, like each of the preceding ones, state: “Note: This Change Order becomes part of and in conformance with the existing contract.”
Warneck testified that when she viewed the property on February 24, 2001, she was shocked to find it uninhabitable, with much of the house unfinished, including the bathrooms and kitchen. She withdrew, having by then not only deposited $52,000, but also spent nearly $13,000 outside the contract, on a painter and an interior decorator. She testified that she understood the last time extension, to April 1, as meant to allow her to move into the house by March 1 while some work continued, not as affecting escrow. It was now clear that she would be unable to move in on time, and she bought a home in Eureka instead.
There is no need to detail the evidence presented by the Robertsons on damages. For purposes of the issues raised on appeal, we only note that the court found it lacking, partly due to commingled funds and poor record keeping, to carry their statutory burden under Civil Code section 1675 et seq. of showing that the actual payment of $52,000 was reasonable in lieu of the three-percent cap otherwise envisioned by the statute.
All unspecified further section references are to the Civil Code.
Trial Decision
The court concluded that the several writings following the original contract were amendments to and parts of that original contract rather than separate agreements, and that Warneck was in breach by withdrawing when she did. For liquidated damages, the court held that the provision in the original contract fully complied with code law (fn. 3, ante), thus bringing the initial $2,000 deposit within the three-percent cap. For the later, November 26 provision purporting to make certain funds nonreturnable, the court found substantial compliance and thus validity (at the buyer’s option; Guthman v. Moss (1984) 150 Cal.App.3d 501, 508-513), despite lack of initialing by the seller and lack of express reference to the still-later added $50,000 as liquidated damages. Since the Robertsons failed to prove that the greater amount paid by Warneck in this case was reasonable (§ 1675, subds. (d)-(e)), the three-percent cap applied to the full $52,000. Alternatively, the court held, even if the November 26 provision had not substantially complied, the valid provision in the original contract had been incorporated through the December 5 contract addendum in any event. Finally, the court held that disallowing the Robertsons leave to amend their answer caused them no prejudice because there was no legal authority that would allow them to use the concept of “offset” to circumvent a valid liquidated damages cap.
Limiting liquidated damages to $9,176.17 (three percent of the final purchase price of $305,872), and crediting the Robertsons with the $10,260 they had already returned, the court awarded Warneck $32,564.
DISCUSSION
“A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable . . . .” (§ 1636.) A contract may consist of more than one writing, something commonly done by a later writing referring to or incorporating a former one. (Williams Constr. Co. v. Standard-Pacific Corp. (1967) 254 Cal.App.2d 442, 454.) Also, “[s]everal contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together.” (§ 1642.) For a written contract, “the intention of the parties is to be ascertained from the writing alone, if possible” (§ 1639), but in this case the trial court received extrinsic evidence from both parties as to asserted ambiguity.
Interpreting a written instrument “is essentially a judicial function to be exercised according to the generally accepted canons of interpretation so that the purposes of the instrument may be given effect. [Citations.] Extrinsic evidence is ‘admissible to interpret the instrument, but not to give it a meaning to which it is not reasonably susceptible’ [citations], and it is the instrument itself that must be given effect. [Citations.] It is therefore solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence” (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865), i.e., unless “the issue turns upon the credibility of extrinsic evidence, or requires resolution of a conflict in that evidence” (Estate of Dodge (1971) 6 Cal.3d 311, 318). Thus “where extrinsic evidence has been properly admitted as an aid to the interpretation of a contract and the evidence conflicts, a reasonable construction of the agreement by the trial court which is supported by substantial evidence will be upheld. [Citations.]” (In re Marriage of Fonstein (1976) 17 Cal.3d 738, 746-747.)
There is no dispute, by either side on appeal, that the court properly admitted extrinsic evidence.
Characterization of the Contract
The Robertsons dispute, as at trial, which of the damages provisions controls the $50,000 added funds provided by Warneck—the three-percent cap in the original contract (mirroring code law at § 1675 et. seq.) or the broader, November 26 language that there would be “no refund for any changes made or materials ordered.” As presented in their opening brief, they repeat with almost no evidentiary references, their trial position that all addenda and change orders after the original contract were, in effect, separate contracts for construction, rather than part of the home-purchase agreement subject to the presumptive three-percent cap of section 1675 et seq. (fn. 3, ante). Thus they insist that the validity of the November 26 provision had to be tested under the general provisions of section 1671, with the burden on Warneck to establish unreasonableness, and they claim that she failed entirely to present such evidence.
Section 1671 provides in part: “(a) This section does not apply in any case where another statute expressly applicable to the contract prescribes the rules or standard for determining the validity of a provision in the contract liquidating the damages for the breach of the contract “(b) Except as provided in subdivision (c), a provision in a contract liquidating the damages for the breach of the contract is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made.” “ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ”
Warneck, in her respondent’s brief, chides the Robertsons for not deferring to the trial court’s resolution of factual matters, urges waiver of the issue by failure to set forth all of the evidence pro and con (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881), and provides her own, appropriately detailed analysis of the evidence supporting the trial court’s conclusions that the many agreements were part of the same purchase and sale of the house and thus subject to the section 1675 scheme.
In their reply brief, the Robertsons do not better their evidentiary showing but, rather, fault Warneck for her one-versus-two-contracts analysis and concede that this was but a single contract: “The reasonable view is that, although there are several documents, since there is one overall transaction, there is one contract”; and they go so far as to call “distinctions on the basis of numbers of contracts . . . meaningless” and a “thinly veiled attempt to create an evidentiary conflict where otherwise none exists.” In other words, they treat this as a pure question of law unaffected by conflicts or credibility issues in the extrinsic evidence.
Then, however, they reframe the issue as being whether this single contract had two “facets,” each subject to a different damages provision and code burden of validity. “There were two facets to this transaction: the real estate purchase contract, which is a contract for the purchase of residential real property, and the subsequent addenda that were clearly construction contracts, i.e., [Warneck’s] requests for changes and upgrades for additional consideration, to-wit, the $50,000.”
Thus, the Robertsons recast Warneck’s one-versus-two-contracts analysis as a one-versus-two-facets argument in an effort to transform the issue into a pure question of law. The effort fails. First, it was their own theory at trial that there were two contracts, not one, and we view the effort to now call it two facets of one contract a classic elevation of form over substance. Second, assuming it has substance, the dual-facet characterization poses the same evidentiary problem for them, for they, like Warneck, urged the court to entertain extrinsic evidence below on the meaning of their writings. They succeeded in this, persuading the court that ambiguity existed that extrinsic evidence could clarify. The existence of such ambiguity might warrant de novo review by this court on appeal (Hillman v. Leland E. Burns, Inc. (1989) 209 Cal.App.3d 860, 866), but the Robertsons do not even challenge the ruling here. Indeed, having invited the ruling below, they are estopped to dispute it now. (See generally Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 403.)
Third, their own extrinsic evidence, through the testimony of Michael Robertson, was that he considered the contract of sale related in subject matter but separate from the contracts for upgrades and additional work. This posed credibility issues, not only due to inconsistent deposition testimony by Robertson but also due to conflicts with Warneck’s testimony on the subject, which was that there was a single contract, envisioning added construction from the very beginning, and that her increased payment of $50,000 (exceeding the estimated cost of work she requested) was an added deposit toward the purchase price as well as a source of funding for the extra work. Warneck’s version was also supported circumstantially by the internal incorporation of modifications into the original contract and by the lack of any separate extensions of escrow. It is also supported by testimony, from both parties, that when the original contract was signed, it was at an early stage of construction and accompanied discussions, from the very outset, of special upgrades being requested by Warneck and further negotiated.
In summary, the Robertsons’ appeal effort to recast the dual-contracts issue as an issue of dual facets of a single contract does not create a pure question of law unaffected by issues of credibility and conflict in the extrinsic evidence. (Estate of Dodge, supra, 6 Cal.3d at p. 318.) Accordingly, their failure to set out all of the evidence, for and against their position, forfeits their right to claim that the court reached an incorrect interpretation of the contract. (Foreman & Clark Corp. v. Fallon, supra, 3 Cal.3d at p. 881.) We see no significant difference in the importance of that extrinsic evidence, whether to show the existence of two contracts, or a single contract with two “facets.”
Finally, since the Robertsons do not directly challenge, much less present all of the evidence on, the trial court’s conclusion that they failed to establish that $50,000, rather than the three-percent cap, were reasonable actual damages under the code scheme (fn. 3, ante), there is nothing further for us to review concerning liquidated damages.
Motion to Amend the Answer
We test the denial of leave to amend an answer at trial for abuse of discretion (Moss Estate Co. v. Adler (1953) 41 Cal.2d 581, 585-586) and find none shown here. The Robertsons focus largely on the issue having arisen during trial and thus on lack of surprise or unfairness in allowing their claim of offset, but whatever the merits of that issue, they fail to establish what most troubled the trial court—whether a defense of “offset” is legally available in these circumstances to defeat a valid liquidated damages cap. None of their cited authority so holds, and their position appears to be unsustainable in precedent or policy.
This is not a case of offset arising from some obligation outside the liquidated damages cap; it is an attempt to circumvent the cap itself. Liquidated damages are legislatively favored in this situation, under conditions of formality and reasonableness (§§ 1675-1677) that were held satisfied. If parties could defeat such a provision simply by claiming, under the rubric of “offset,” that their actual damages exceeded the cap, it would strip the provision of all effect. The Robinsons had the chance to demonstrate to the court below that the three-percent limitation was unreasonable in the circumstances (§ 1675, subd. (c)). They failed in that below and similarly fail here in their appellate burden to present argument and authority demonstrating reversible error. (In re Sade C. (1996) 13 Cal.4th 952, 994.)
Fees Award
The court awarded Warneck fees and costs totaling $51,167.31, utilizing a fees provision in the original contract. Our analysis above affirms the trial court’s conclusion that there was but one contract subject to one damages provision, and thus the sole issue is whether, as the Robertsons urge, the award was precluded by Warneck having filed and dismissed without prejudice an earlier action seeking the same relief.
A timeline of pertinent events as relied upon in the court’s order is undisputed. Warneck filed her first complaint on August 2, 2001, and the Robertsons answered on September 11. On September 12, Warneck’s counsel faxed opposing counsel a letter asking if the Robertsons were willing to mediate, and their counsel declined by a letter of September 21. Warneck voluntarily dismissed her action without prejudice on October 9, 2001, and, through an October 16 letter from her counsel, with no action pending, asked the Robertsons to reconsider mediation. Opposing counsel replied in a letter of October 23 that his clients were still not interested in mediation. This was before a notice of entry of dismissal in the old action was served by mail, on November 15. Warneck filed the current action on January 25, 2002.
The contract provision reads in pertinent part: “mediation: 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’s fees, even if they would otherwise be available to that party in any such action.” The trial court construed this language as barring fees for the old action only, and thus awarded fees for the new action.
The Robertsons observe that the court took the ending phrase—“in any such action”—as meaning any such action where fees were sought, and they assert that the only proper wording for such an interpretation would have been to place the stressed phrase as follows: “ ‘. . . then that party shall not be entitled to recover attorney’s fees in any such action, even if they would otherwise be available to that party.’ ”
We do not find error, regardless of the placement of the stressed phrase. A case construing the same broader operative language has observed that it simply “precludes a ‘party’ who ‘commences an action’ from recovering attorney fees if that party did not attempt to mediate the dispute.” (Leamon v. Krajkiewcz (2003) 107 Cal.App.4th 424, 432, fn. 6.) “A civil action is commenced by filing a complaint with the court” (Code Civ. Proc., § 411.10), and by that definition, Warneck brought two actions in this case, dismissing her first without prejudice and then filing her second. Her first action was not preceded by any attempt to mediate, but her second was. The court properly honored that distinction. To the extent that this construction might encourage a party to dismiss and refile upon realizing error in failure to offer mediation, the trial court here considered that possibility and decided that the policy goal of promoting resort to mediation (Leamon v. Krajkiewcz, supra, 107 Cal.App.4th at p. 433) was furthered, not frustrated, by it. The Robertsons offer no countervailing policy rationale.
The Robertsons do complain, as below, that they “were misled into believing that the first lawsuit, Case No. 40156, was still pending when Warneck made her overtures to mediate. Had [they] known that Case No. 40156 was dismissed on October 9, 2001, their response to [her] belated overture to mediate may have been different.” Like the court below, however, we are not convinced that this is legally relevant. No authority is cited to us. If the Robertsons mean to suggest some sort of estoppel, then a sufficient answer is that their counsel, while declaring below that he first learned of the dismissal only after rejecting mediation, never actually stated that he or his clients relied on the pendency of the action in formulating their response.
We reject the challenges and affirm the award, which is otherwise undisputed.
DISPOSITION
The judgment after court trial and the order awarding fees and costs are affirmed.
We concur: Haerle, J., Richman, J.
Section 1675 provides that, for the purchase of a home a buyer intends to occupy, a contract of purchase and sale “(b) . . . that provides that all or any part of a payment made by the buyer shall constitute liquidated damages to the seller upon the buyer’s failure to complete the purchase of the property is valid to the extent that payment . . . is actually made if the provision satisfies the requirements of Sections 1677 and 1678 and either subdivision (c) or (d) of this section.
“(c) If the amount actually paid pursuant to the liquidated damages provision does not exceed 3 percent of the purchase price, the provision is valid to the extent that payment is actually made unless the buyer establishes that the amount is unreasonable as liquidated damages.
“(d) If the amount actually paid pursuant to the liquidated damages provision exceeds 3 percent of the purchase price, the provision is invalid unless the party seeking to uphold the provision establishes that the amount actually paid is reasonable as liquidated damages.
“(e) For the purposes of subdivisions (c) and (d), the reasonableness of an amount actually paid as liquidated damages shall be determined by taking into account both of the following:
“(1) The circumstances existing at the time the contract was made.
“(2) The price and other terms and circumstances of any subsequent sale or contract to sell and purchase the same property if the sale or contract is made within six months of the buyer’s default.”
Section 1677 provides formal requirements that the contract provision is invalid unless: “(a) The provision is separately signed or initialed by each party to the contract; and [¶] (b) If the provision is included in a printed contract, it is set out either in at least 10-point bold type or in contrasting red print in at least eight-point bold type.”
Section 1678 provides: “If more than one payment made by the buyer is to constitute liquidated damages under Section 1675, the amount of any payment after the first payment is valid as liquidated damages only if (1) the total of all such payments satisfies the requirements of Section 1675 and (2) a separate liquidated damages provision satisfying the requirements of Section 1677 is separately signed or initialed by each party to the contract for each such subsequent payment.”