Ct.App. 4/1 D048582 San Diego County Super. Ct. No. GIC839199. County: San Diego Judge: Joan Marie Lewis and Judith F. Hayes.
The opinion of the court was delivered by: Corrigan, J.
In this action for specific performance of a real estate option contract, the Court of Appeal reversed a judgment for the plaintiff. Over a vigorous dissent, the court held that the contract was too uncertain to enforce because it lacked the essential terms of time and manner of payment. We reverse. It is settled that if a contract for the sale of real property specifies no time of payment, a reasonable time is allowed. The manner of payment is also a term that may be supplied by implication, and was not significantly uncertain in this case. The Court of Appeal majority erred by failing to enforce a straightforward option contract. It also improperly relied on the parties' conduct after their dispute arose to conclude that they had failed to reach a binding agreement.
Defendant Morris Liebermensch and his wife Zita owned a condominium unit in San Diego, through a family partnership. They acquired the property with the idea that one of their children might want to live there after finishing college. However, none of the children used the unit, and it was vacant in July 2003 when plaintiff Sunil Patel expressed interest in leasing the property with an option to buy. On July 25, Liebermensch faxed Patel the following proposal:
"We propose to rent our condominium at 7255 Navajo Road, Apt. #370, San Diego, CA 92119 at a monthly rate of $1,400.00 starting August 7, 2003 for one year ending August 6, 2004; with a security deposit of $1,200.00 and the following option to buy:
"Through the end of the year 2003, the selling price is $290,000. The selling price increases by 3% through the end of the year 2004 and cancels with expiration of your occupancy. Should this option to buy be exercised, $1,200.00 shall be refunded to you.
"Please indicate your acceptance by signing below and returning to me at the above referenced fax."
Patel signed the proposal, with a handwritten amendment providing an option to renew until August 2005. Zita Liebermensch prepared a form rental agreement, adding a paragraph stating "OPTION TO BUY IS ATTACHED." Patel and Morris Liebermensch signed the agreement. Liebermensch also signed the option proposal and initialed Patel's amendment.
In July 2004, Patel sent Liebermensch a letter, enclosing a notice that he was exercising the option to purchase for the agreed price of $298,700. In the letter, he said he and his wife were "anxious to complete the purchase as soon as reasonably possible so as to take advantage of the current interest rates." Liebermensch sent Patel a purchase agreement dated August 16, 2004, referring to the parties' option agreement and Patel's notice exercising the option. The purchase agreement included an "as is" clause, a requirement of a 10 percent deposit with the escrow company, and a specification that "The SELLER will require ninety (90) days or sooner to close escrow with the right to extend the closing for an additional thirty (30) days if necessary in order to exercise a 1031 exchange." At trial, Liebermensch conceded that the parties had not previously discussed the subject of a tax-deferred exchange under 26 United States Code section 1031 (section 1031 exchange). Mrs. Liebermensch testified that she and her husband had not discussed the matter in 2003 when the option contract was negotiated, although she was familiar with the subject of section 1031 exchanges.
Patel responded with a proposed agreement in which the "as is" clause was qualified by giving the buyer an option to cancel if not fully satisfied, and which provided that if the seller required more than 30 days to close escrow, the deposit would be reduced to $5,000 and the seller would "be responsible for all escrow and other expenses after 30 days of opening escrow." Patel testified that he included the latter clause because his mortgage broker had informed him an interest rate could not be guaranteed for as long as 90 to 120 days.
Liebermensch rejected this proposal. According to Patel, Liebermensch told him "if you want to buy the condominium, you buy it on my bid." At some point, Patel and his wife Bela signed Liebermensch's original purchase agreement and sent it to Liebermensch. However, Liebermensch did not respond.
Patel filed suit, seeking specific performance of the option agreement. The jury returned special verdicts finding that the parties had entered into an option contract giving Patel the right to purchase the property, and that the terms of the contract were sufficiently clear to carry out its objective.*fn1 Based on those verdicts, the trial court entered judgment granting Patel specific performance. The parties were required to perform their respective duties under the contract within 60 days after the notice of entry of judgment was mailed.
The Court of Appeal reversed, in a split decision. The majority reasoned that the Liebermensches were bound by the terms of the option contract only if it included all the essential terms of a real estate purchase contract. Here, the contract did not specify the time or manner of payment. The majority decided that, while it might be reasonable in some circumstances to imply standard terms on these points into the contract, here it was not. The majority noted the tax consequences facing the Liebermensches, and concluded that the parties' ongoing dispute over economic conditions after Patel exercised the option demonstrated they had never agreed on all material terms of the transaction.
The dissenting justice would have supplied terms for time and manner of payment by implication, allowing a reasonable time and assuming that the manner of payment was cash or cash equivalent upon delivery of the deed. The dissent faulted the majority for ...