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RC Royal Development and Realty Corp. v. Standard Pacific Corp.

September 29, 2009

RC ROYAL DEVELOPMENT AND REALTY CORPORATION, PLAINTIFF AND APPELLANT,
v.
STANDARD PACIFIC CORPORATION, DEFENDANT AND RESPONDENT.



APPEAL from a judgment of the Superior Court of Los Angeles County, Ann I. Jones, Judge. Reversed. (Los Angeles County Super. Ct. No. BC360045).

The opinion of the court was delivered by: Aldrich, J.

CERTIFIED FOR PARTIAL PUBLICATION*fn1

INTRODUCTION

A broker contracted with a buyer to locate real property for the buyer to purchase. The buyer entered into a buy-sell contract with the seller, but escrow never closed. The broker sued the buyer to recover its commission. The trial court granted the buyer‟s motion for summary adjudication of the first cause of action for breach of the broker‟s agency agreement and the second for breach of the covenant of good faith and fair dealing implied in that agreement, and dismissed the case. The broker appeals. In the published portion of this opinion, we construe the agency agreement and hold that the broker earned its commission at the time the buyer entered into the buy-sell contract and the close of escrow was not a condition precedent to the right to a commission. Thus, the trial court erred in granting summary adjudication of the breach of contract cause of action. In the unpublished portion of this opinion, we hold that triable issues of fact about whether the buyer had cause or acted in bad faith in failing to close escrow precluded summary adjudication of the second cause of action. Accordingly, the judgment is reversed.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Agency Agreement Between RC and Standard Pacific

RC Royal Development and Realty Corporation (RC), a licensed California real estate broker, notified Standard Pacific Corporation (Standard Pacific) that it had information about a condominium development project in Los Angeles County. On June 15, 2005, Standard Pacific entered into a written "Confidentiality and Agency Agreement" with RC designating the latter as its agent with respect to information or offers concerning that or other property (the Agency Agreement). Under the Agency Agreement, Standard Pacific agreed to pay RC a brokerage commission equaling 1.5 percent of the gross sales price for the property.

It appears that RC brought Standard Pacific two parcels of real property owned by LPC Union Apartments, L.P. (Lincoln) and located on Alameda Street in downtown Los Angeles, known as Union Station Village (the property).

2. Standard Pacific's Transaction with Lincoln

On August 19, 2005, Standard Pacific entered into a "Real Estate Agreement" with Lincoln to purchase the property for $116 million (the buy-sell agreement). Thereunder, Lincoln agreed to improve the property by developing two separate buildings containing 107 and 171 condominium units, with subterranean parking and related facilities.

Also on August 19, 2005, Standard Pacific and Lincoln opened escrow on the property. Concurrently with the opening of escrow, Standard Pacific paid a $1 million deposit, and then $5 million as earnest money before September 14, 2005.

The buy-sell contract contained certain conditions. In particular, Standard Pacific agreed that its obligation to close was subject to the satisfaction or waiver of, inter alia, a "review period" that expired on September 14, 2005. Lincoln agreed to provide title and construction documents, among other things, for Standard Pacific‟s inspection and evaluation. Standard Pacific could terminate the buy-sell contract during the review period without forfeiting its earnest money, but its failure to terminate the buy-sell contract by September 14, 2005 would constitute a conclusive waiver of the conditions contained in the review period.

The buy-sell contract also conditioned Standard Pacific‟s obligation to purchase the property on the issuance of a temporary certificate of occupancy for phases 1 and 2, the recordation of a final map, and the delivery of the architect certificate. The buy-sell contract contemplated that the transaction would close within five business days of the issuance of a temporary certificate of occupancy "but in no event earlier than January 4, 2006." (Italics added.) Time was not made of the essence of the buy-sell contract.

The temporary certificate of occupancy was never issued. W.A. Colton, III, Vice President of Development for the Los Angeles Division of Standard Pacific, declared in connection with Standard Pacific‟s summary adjudication motion, that as of August 2006, occupancy permits had not been obtained and there was no certainty about when the project would be completed or when escrow would close. The Vice President of Land Acquisition of the Los Angeles Division of Standard Pacific, Adam Call, declared that the project encountered delays in permitting, inspection, and construction. Meanwhile, the declarants averred, during the period of delay, the condominium market in downtown Los Angeles suffered a reversal with the result that Standard Pacific felt its purchase of the property as a condominium project was no longer economically feasible or beneficial. Escrow never closed and Standard Pacific never acquired the property.

In August 2006, Standard Pacific and Lincoln entered into a release and settlement agreement terminating the buy-sell contract and escrow. Thereunder, Standard Pacific forfeited $4 million, representing its earnest money minus $2 million it spent in investigation and transaction costs on the project. Standard Pacific did not pay RC its commission.

3. The Instant Lawsuit

RC brought this action against Standard Pacific seeking damages under theories of, inter alia, breach of contract and breach of the implied covenant of good faith and fair dealing. The gravamen of RC‟s complaint was that its right to the commission under the Agency Agreement had vested and that Standard Pacific was not justified in declining to finalize its purchase of the property. In the first and second causes of action, respectively, RC alleged that Standard Pacific breached the Agency Agreement by "failing and refusing" to pay RC its commission, and breached the implied covenant of good faith and fair dealing "by failing and refusing to complete" the buy-sell contract without justification or cause.

4. Summary Adjudication

Standard Pacific moved for summary adjudication asserting that RC had no basis for recovery of a brokerage commission because Standard Pacific never breached any obligation it owed to RC. Alternatively, Standard Pacific sought summary adjudication of the breach of contract cause of action on the grounds, inter alia, that the Agency Agreement provided that a commission would be earned only when Standard Pacific‟s purchase of property "actually closes." Standard Pacific sought summary adjudication of the cause of action alleging breach of the implied covenant on the grounds at all times Standard Pacific acted with justification and in a commercially reasonable manner.

RC opposed the motion relying in part on the words of the contracts at issue and the declaration of Reg Del Ponte, ...


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