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Steiner v. Thexton

March 18, 2010

MARTIN A. STEINER, PLAINTIFF AND APPELLANT,
v.
PAUL THEXTON, AS TRUSTEE, ETC., DEFENDANT AND RESPONDENT;
SIDDIQUI FAMILY PARTNERSHIP, INTERVENOR AND APPELLANT.



Ct.App. 3 C054605 Sacramento County Super. Ct. No. 04AS04230, Judge: Lloyd Allan Phillips, Jr.*fn1

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

Plaintiff Martin A. Steiner, and his partial assignee, intervenor Siddiqui Family Partnership (hereafter collectively referred to as plaintiffs), seek specific performance of a sales agreement with defendant property owner Paul Thexton. Based on language granting Steiner "absolute and sole discretion" to terminate the transaction, the Court of Appeal construed the agreement as an option and further concluded the option was revocable because it was unsupported by consideration. The Court of Appeal also rejected plaintiffs' claim that promissory estoppel required the agreement's enforcement. The court therefore upheld the trial court's refusal to order specific performance of the agreement.

We agree the agreement was an option; however, we conclude sufficient consideration existed to render the option irrevocable. We accordingly reverse the Court of Appeal's judgment and remand the action for further proceedings. In light of our conclusion, we need not reach the promissory estoppel issue.

I. FACTUAL AND PROCEDURAL BACKGROUND

In 2003, Steiner, a real estate developer, was interested in purchasing and developing several residences on a 10-acre portion of Thexton's 12.29-acre parcel of land.*fn2 County approvals for a parcel split and development permits were required. Thexton had previously rejected an offer from a different party for $750,000 because that party wanted Thexton to obtain the required approval and permits. The written agreement between Steiner and Thexton, prepared by Steiner, provided for Thexton to sell the 10-acre parcel for $500,000 by September 2006 if Steiner decided to purchase the property after pursuing, at his own expense, the county approvals and permits. Paragraph 7 of the "Contingencies" section of the agreement provided Steiner was not obliged to do anything and could cancel the transaction at any time at his "absolute and sole discretion...."*fn3

After Steiner and Thexton signed the agreement on September 4, 2003,*fn4 Steiner began pursuing the necessary county approvals and, together with his partial assignee Siddiqui, ultimately spent thousands of dollars.*fn5 In May and August 2004, Thexton cooperated with Steiner's efforts by signing, among other things, an application to the county planning department for a tentative parcel map. In October 2004, however, Thexton asked the title company to cancel escrow and told Steiner he no longer wanted to sell the property. Steiner nevertheless proceeded with the final hearing of the parcel review committee and apparently obtained approval for a tentative map. Steiner opposed canceling escrow and filed suit seeking specific performance of the agreement. In his answer, Thexton asserted various defenses, including that the agreement constituted an option unsupported by consideration.*fn6

Following a bench trial, the trial court entered judgment in favor of Thexton. It concluded the agreement was unenforceable against Thexton "because it is, in effect, an option that is not supported by any consideration." First, it pointed out that the agreement bound Thexton to sell the property to Steiner for $500,000 for a period of up to three years while Steiner retained " `absolute and sole discretion' " to cancel the transaction. "The unilateral nature of this agreement," the trial court explained, "is the classic feature of an option."

Second, in concluding, "[b]ased on the evidence and the language of the contract itself,... that the option was not supported by consideration," the trial court noted no money was paid to Thexton for his grant of the option to purchase the property, nor did he receive any other benefit or thing of value in exchange for the option.*fn7 The trial court rejected plaintiffs' claim that the agreement obligated them to expeditiously proceed with the parcel split and that their work and expenses constituted sufficient consideration for the option. The trial court reasoned that the adequacy of consideration is measured as of the time a contract is entered into and pointed out the agreement did not bind plaintiffs to do anything; rather, it gave them the power to terminate the transaction at any time. Finally, the trial court rejected plaintiffs' claim that, in the absence of consideration for the option, their efforts merited applying the doctrine of promissory estoppel. The Court of Appeal affirmed for the reasons given by the trial court and we granted review.

II. DISCUSSION

We consider whether the agreement was an option and, if so, whether the option was irrevocable because it was supported by sufficient consideration. We conclude, for the following reasons, that the agreement is an irrevocable option.*fn8

A. The Sales Agreement Constitutes an Option

Plaintiffs contend the Court of Appeal erred when it concluded the sales agreement constituted an option. We disagree. We begin by briefly setting forth the established law concerning what constitutes an option.

As this court explained long ago, "When by the terms of an agreement the owner of property binds himself to sell on specified terms, and leaves it discretionary with the other party to the contract whether he will or will not buy, it constitutes simply an optional contract." (Johnson v. Clark (1917) 174 Cal. 582, 586.) Thus, an option to purchase property is "a unilateral agreement. The optionor offers to sell the subject property at a specified price or upon specified terms and agrees, in view of the payment received, that he will hold the offer open for the fixed time. Upon the lapse of that time the matter is completely ended and the offer is withdrawn. If the offer be accepted upon the terms and in the time specified, then a bilateral contract arises which may become the subject of a suit to compel specific performance, if performance by either party thereafter be refused." (Auslen v. Johnson (1953) 118 Cal.App.2d 319, 321-322.)

In the present case, although the agreement was titled "REAL ESTATE PURCHASE CONTRACT," the label is not dispositive. Rather, we look through the agreement's form to its substance. (Mahoney v. San Francisco (1927) 201 Cal. 248, 258.) Viewing the substance, we conclude, as did the trial court, that the agreement between Steiner and Thexton contained "the classic feature[s] of an option." First, the agreement obliged Thexton to hold open an offer to sell the parcel at a fixed price for three years. (Ante, at p. 2, fn. 2 [close of escrow provisions].) Second, Steiner had the power to accept the offer by satisfying or waiving the contingencies and paying the balance of the purchase price; however, because of the escape clause, Steiner was not obligated to do anything. The relevant term provided "It is expressly understood that ...


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