Herrick v. Sanguinetti

Filed 9/29/06 Herrick v. Sanguinetti CA5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIFTH APPELLATE DISTRICT

APPEAL from a judgment of the Superior Court of Tuolumne County. William G. Polley, Judge.

McCormick, Barstow, Sheppard, Wayte & Carruth, Todd W. Baxter, Timothy J. Buchanan; Stockton & Sadler and James L. Sadler for Defendant and Appellant.

Law Office of Daniel S. Glass, Daniel S. Glass; Germain Law and Michael R. Germain for the Plaintiffs and Respondents.

-ooOoo-

This is essentially an action for declaratory relief to determine whether the parties entered into a binding contract for the purchase and sale of real property. The critical part of the transaction was a counteroffer made by the seller using a standard real estate form that included a provision stating the counteroffer would be deemed revoked if it was not accepted by the buyers within three days from the date the seller signed it. For reasons that are the subject of the present disagreement, however, the seller’s agent (who was also the buyer’s agent) did not transmit the counteroffer to the buyers until four days after the effective revocation date. The buyers signed the form indicating their acceptance of the counteroffer, and returned it to the agent the same day they received it.

Whether the buyers’ acceptance of the counteroffer created a contract, and if so what the terms of the contract were, also depends upon the significance to be attached to the parties’ conduct during the next several weeks. The agent opened an escrow account, the buyers took steps to raise the money necessary to complete the purchase and, to the buyers and the agent at least, the sale appeared to be proceeding normally in the absence of any objection by the seller to the buyers’ late acceptance of the counteroffer. But then, some two months later, the seller objected to a different aspect of the deal and refused on this other ground to go through with the sale. The buyers then sued for declaratory relief and specific performance of the contract. When they later moved for summary judgment, the seller asserted in opposition to the motion, for the first time, that no contract had ever been formed given the buyers’ untimely acceptance of the counteroffer. The court denied summary judgment, and a bench trial followed at which the seller again challenged the existence of the contract. The court concluded the seller had waived her objection to the buyers’ late acceptance, and ordered her to complete the sale according to the terms of the counteroffer. It also ordered her to pay the buyers $58,092.25 toward their attorney fees incurred in the action, pursuant to an attorney fee provision in the contract. This appeal followed. We will affirm both the judgment and the order awarding attorney fees.

FACTS AND PROCEEDINGS

The property that is the subject of the present dispute is located along Old Wards Ferry Road in Tuolumne County, near Sonora. Identified as Parcel 2, the property is one of four adjoining parcels created in 1995 by the division of a single 40-acre piece of land owned by Laura Lynn Sanguinetti. Sanguinetti lived in a house on what would become Parcel 4, which consisted of about 20 acres. The other three parcels were undeveloped.

The four parcels together form a square. Access to all of them is provided by what appears to be a private road (called “Relief Road”) going from Old Wards Ferry Road to the southwest corner of the square. Each of the four parcels is shaped in such a way that some small part of it connects to this access road at or near the southwest corner. Parcel 2, consisting of about five acres, is located in the opposite, southeast corner of the 40-acre square, separated from the access road by Parcel 1 except for a narrow strip of land, or “panhandle,” on Parcel 2 along the southern boundary of the square. This panhandle had been created to serve as the route for a driveway from the access road to the main part of Parcel 2. Some grading had been done on it in the past, but it had since been overgrown by grass and weeds.

Sanguinetti’s house, on Parcel 4, was situated near the eastern boundary of the 40-acre square. Parcel 4, likewise, was connected to the access road by a narrow strip of land. A gravel driveway ran across this strip, and then continued uphill along the southern edge of Parcel 4, where Parcel 4 adjoins first Parcel 1 and then Parcel 2, before turning north toward the house. Thus, the existing driveway on Parcel 4 provided an alternative, and arguably better, means of access to Parcel 2.

Sanguinetti listed Parcel 4 (the 20 acres with her house) for sale in September of 2000, and the three undeveloped parcels in December of that year. All the listings were made through California Properties, a local real estate agency in nearby Jamestown. The listing agent was Zane McDow.

On January 27, 2001, Michael and Sylvia Herrick, a married couple from Alameda, were driving along Old Wards Ferry Road and saw a California Properties sign near the entrance to Sanguinetti’s property. They telephoned McDow, who met them later at the property and showed them through Sanguinetti’s house. Sanguinetti herself was not there at the time. The Herricks returned a week later, when Sanguinetti was there to show them around Parcel 4 and point out the boundaries. The Herricks decided Parcel 4 was more than they could afford, but they liked the surrounding property as well and arranged to return again three weeks later, on February 25, 2001, this time to tour Parcels 2 and 3 with both Sanguinetti and McDow. (Sanguinetti, in the meantime, had accepted an offer for Parcel 1 from someone named Dan Rogers.) The Herricks told McDow, who told Sanguinetti, at the end of the tour that they were prepared to make a full-price offer of $100,000 for Parcel 2. The Herricks agreed to meet McDow at her office to complete the paperwork.

By then it was around five o’clock in the evening. Everyone was tired, McDow was having trouble with her computer printer, and the Herricks needed to get on the road back to Alameda. As a result, the forms the Herricks signed contained some mistakes and omissions. The principal form was one called a “Vacant Land Purchase Contract and Receipt for Deposit.” (Capitalization omitted.) Among other things, the Herricks signed the form as both the buyer and the seller, they failed to identify the company they wanted to handle the escrow, and they did not specify a time period within which Sanguinetti was required to respond. (We will refer to this partially completed form as the Herricks’ “initial offer.”) Also on February 25, 2001, the Herricks gave McDow a deposit check for $1,000 (made out to “Yosemite Title”), and a signed disclosure form acknowledging she was acting as a dual agent for both the buyer and seller in the transaction.

As part of their plan to finance the purchase, the Herrick’s decided to sell a small rental home they owned in Jamestown. So, at the same time they completed the offer for Parcel 2, they signed a listing agreement with McDow for the Jamestown property, at an asking price of $139,000. The offer for Parcel 2 was not contingent, however, on the sale of this property; the Herricks also planned to (and subsequently did) take out a second mortgage on their home in Alameda.

At this point in the story, the parties’ accounts of the transaction begin to diverge. One, fairly consistent account was provided by McDow, the Herricks, and Janie Cabral, an escrow officer for Yosemite Title Company. Sanguinetti, on the other hand, offered a substantially different and conflicting version of events. As will appear, the trial court largely credited the McDow and Herrick account.

The feature that most attracted the Herricks to Parcel 2 was the view from the upper part of the property near its border with Parcel 4, i.e., the area accessible from the gravel driveway going to Sanguinetti’s house. There is some dispute about whether the Herricks were aware when they toured Parcel 2 that it had access over the panhandle, but little question the existing gravel driveway was the better alternative for their purposes. A real estate appraiser, hired by the Herricks in connection with this litigation, estimated the value of Parcel 2, with access from the gravel driveway, was $100,000 at the time the Herricks made their offer. When asked about the value without such access, he testified:

“Well, it would adversely affect the value of the property because that would only leave the lower access[.] [A]s we see on the … map, it’s a flag [i.e., a flag-shaped?] lot with a long narrow strip that allows access from the public rightaway [sic] up to the major building sites on the subject [property]. This … would be a real costly endeavor to bring a road in that way. There [are] several gullies over which one would have to put a road in.

“Also the best building sites on the lot take advantage of the view, which is pretty spectacular. Those are all located on the top part of the site up in this area here. So [the Herricks] would have to essentially build a road this entire length across the hill up to this point.”

Michael Herrick testified he had not known about the panhandle access route when he and his wife made their initial offer, and had assumed, without giving the matter much thought, that the purchase price included an access easement over the gravel driveway on Parcel 4. So “it was almost an afterthought” that the Herricks asked McDow to make the initial offer, as McDow worded it on the form, “contingent upon seller granting to buyer a perminant [sic] easment [sic] of access from parcel number 4 to the entire northern border to parcel number 2.” (Capitalization omitted.)

February 25, 2001, the day the Herricks made their initial offer, was a Sunday. Sanguinetti picked up the offer at McDow’s office the same day and, after discussing it with her father, asked McDow to make some changes and corrections. She and McDow apparently did not meet again until the following Saturday, March 3, 2001, at McDow’s office.

In addition to correcting the mistakes and omissions in the Herricks’ initial offer, Sanguinetti wanted to change some of the offer’s proposed terms regarding the allocation of costs between the parties. And she wanted to impose some conditions on the Herrick’s use of the gravel driveway. The method she and McDow came up with involved two new documents. First, McDow created a second “Vacant Land Purchase Contract and Receipt for Deposit” form similar to the one the Herricks had signed, but with assorted changes and additions meant to correct the mistakes in the original, and with the new or different terms proposed by Sanguinetti regarding the allocation of costs. This new form was also dated February 25, 2001, like the original. Thus, although the new form was in effect a counteroffer, it was treated as if it were a corrected version of the Herrick’s original offer. Sanguinetti then signed this corrected offer indicating her acceptance of it, but checked a box stating her acceptance was subject to the second document, an attached counteroffer.

The counteroffer, entitled “Counter Offer No. 1” (capitalization omitted), stated Sanguinetti was accepting the corrected February 25, 2001 offer, subject to the following:

“1. Seller to grant access along north side of parcel number 1 to the most north east corner of parcel number 2.

“2. For consideration of this access to parcel number 2, buyer will pave and maintain this section of access.” (Capitalization omitted.)

It appears Sanguinetti was proposing by this language to grant the Herricks an access easement over the gravel driveway on Parcel 4, not on Parcel 1 (which she was in the process of selling to Dan Rogers). As best we can tell, the gravel driveway is located entirely on Parcel 4 near, and roughly parallel to, its boundary with Parcels 1 and 2.

Notably, Sanguinetti’s counteroffer did not specify a time within which the paving of the gravel driveway was to be completed.

Sanguinetti signed both the corrected offer (or at least the signature page of the corrected offer) and the counteroffer on March 3, 2001. The counteroffer included the following preprinted provision, in Paragraph 4, with blanks provided as shown to specify the time within the counteroffer had to be accepted before it would be deemed to have been revoked.

“4. EXPIRATION: Unless acceptance of this Counter Offer is signed by the person receiving it, and communication of acceptance is made by delivering a signed copy in person, by mail, or by facsimile which is personally received, to the person making this Counter Offer or to __________, by 5:00 PM on the third calendar day after this Counter Offer is written (or, if checked, £ date: _________, time _________ £ AM £ PM), this Counter Offer shall be deemed revoked and the deposit shall be returned to Buyer. This Counter Offer may be executed in counterparts.”

Since Sanguinetti made no entries in the blanks, the counteroffer expired by its terms at 5:00 p.m. on March 6, 2001. But McDow testified she and Sanguinetti had not discussed the expiration date, or attached any particular significance to it, and Sanguinetti testified similarly during her deposition. At trial, however, Sanguinetti insisted they had discussed it, and that she (Sanguinetti) had stressed to McDow the importance of getting a response to the counteroffer within three days.

As things turned out, it was not until March 10, four days after the counteroffer had expired, that McDow sent the corrected offer and the counteroffer to the Herricks by facsimile (fax). What happened in the week between March 3 and March 10 to account for the delay is the subject of considerable dispute, and the record is somewhat confusing in this regard.

According to McDow and Michael Herrick, the time was taken up principally by discussions regarding Sanguinetti’s proposed condition that would require the Herricks to pave the gravel driveway. McDow had told the Herricks of the impending counteroffer, and they thought it unfair they should be required to bear the full cost of an improvement that would benefit the owners of Parcels 1 and 4 as well. Consequently, there were some discussions involving McDow, Herrick, Rogers, and Sanguinetti about the possibility of sharing the cost. They could not come to an agreement, however, and Sanguinetti was unwilling to moderate her position. In any event, Sanguinetti was aware, by McDow’s account at least, that the March 6 expiration date had already passed by the time McDow sent the counteroffer to the Herricks, and Sanguinetti raised no objection to the delay.

Late in the morning of Saturday, March 10, 2001, McDow and Sanguinetti met again at McDow’s office. They were planning to drive together to Monterey to spend the weekend with McDow’s son and his family there. Before they left, McDow called and left a recorded telephone message at Michael Herrick’s office. She said in part:

“Hi Michael this is Zane.

Anyway I will try and get a hold [sic] of you at home. I just wanted to send this contract over. I am going to go ahead and send it over with a letterhead, it is the original contract that Lynn signed, I need you to sign it where all the Xs are. And there is a counter offer with it from Lynn and you either need to sign it on the acceptance [line] with your name and Sylvia’s name, or sign on the multiple counter [offer line]. If we want to do a counter we can.

I did talk to Dan Rogers and he is still up in the air about what he wants to do. But I do feel we need to get this contract consummated. I got allot [sic] of people standing by here….”

Asked at trial what she had meant by “allot of people standing by,” McDow said she simply was referring to the parties to the transaction -- the Herricks, Sanguinetti, and herself -- not to any other prospective buyers. She testified that, in fact, no one else had expressed an interest in the property.

McDow then faxed copies of the corrected contract and Sanguinetti’s counteroffer to the Herricks. In a cover page to the fax, she noted the changes Sanguinetti had made to their initial offer, and stated generally: “I am faxing you a new contract that is agreeable with Lyn [sic] Sanguinetti.”

Later the same day, when the Herricks received McDow’s phone message and fax, they did “some real soul searching” about whether to accept the counteroffer. They were concerned, in addition to thinking the paving condition was unfair to them, about whether Sanguinetti expected them to complete the work within any certain period of time. They called McDow on her cell phone while she and Sanguinetti still were driving to Monterey. The connection was poor, however, so they agreed to call again later after McDow had arrived at her son’s house. During this second telephone conversation, McDow assured the Herricks that there was no time requirement on the paving. With this assurance, the Herricks “swallow[ed] hard” and agreed to accept the counteroffer, and told McDow so on the phone. She immediately relayed the news to Sanguinetti.

According to Michael Herrick, he attached no real significance to the fact, if he noticed at all, that Sanguinetti had signed the corrected offer and counteroffer on March 3. He assumed her counteroffer was operative on the day it was sent to him.

The Herricks signed the corrected offer and the counteroffer, and faxed them back to McDow’s office that evening, March 10, 2001, along with a copy of a letter signed by Michael Herrick confirming their intention to accept the counteroffer. The letter stated in part: “Although we would prefer a shared arrangement as to the road paving, we believe that it is important to conclude the contract without further delay.”

McDow testified Sanguinetti had been present with her during all these events on March 10, had fully understood their significance, and had given them her consent and approval. That is, McDow said, Sanguinetti reviewed and approved the counteroffer at McDow’s office; she was aware of and approved the phone message and fax; she was with McDow in the car when the Herricks called McDow’s cell phone, and she overheard their conversation; she was standing next to McDow at her son’s house, and overheard their conversation, when the Herricks called and accepted the counteroffer; and she was “very joyous and happy” to learn the deal was completed.

Sanguinetti, on the other hand, testified she had not been to McDow’s office the day the two of them drove to Monterey, because McDow had picked her up at her home that day. Consequently, Sanguinetti said, she was unaware of McDow’s phone message and fax to the Herricks from the office. Moreover, she claimed she had not been present when McDow received a phone call from the Herricks, either in the car or at her son’s house, and McDow never said anything to her at all during the entire trip about having sent the counteroffer or having talked with the Herricks. Sanguinetti explained she had simply assumed, once the March 6 expiration date had passed, that the Herricks did not accept the counteroffer. But she conceded she never asked McDow whether they had or not.

The corrected offer signed by the Herricks provided that escrow would close either 45 days from the date the offer was accepted, or on April 10, 2001.

McDow opened an escrow account on March 14, 2001, with Janie Cabral at the Yosemite Title Company, the same escrow officer who was handling Sanguinetti’s sale of Parcel 1 to Dan Rogers. Earlier that day, or perhaps the day before, McDow had given Sanguinetti copies of the offer and counteroffer signed by the Herricks, and she had told Sanguinetti of her intention to open the escrow. Sanguinetti did not say anything about the counteroffer having expired.

A week later, on March 21, 2001, Cabral sent a preliminary title report for Parcel 2 to the Herricks, and to Sanguinetti.

Sanguinetti disputed these accounts, and testified she was unaware the Herricks had signed the counteroffer, or that an escrow had been opened, until several weeks later in late April, when she received the proposed escrow instructions.

Sanguinetti had discussed with McDow the possibility of making the sale of some or all of her property, including Parcel 2, part of a “1031 exchange.”^[1] McDow explained this would require an amendment to the contract. Sanguinetti asked McDow to proceed. Accordingly, on April 4, 2001, McDow prepared and faxed to the Herricks a form called “Contract Addendum No. 1.” (Capitalization omitted). This form, which the Herricks signed and faxed back the same day, provided that: “Buyer agrees to participate in a 1031 tax[-]deferred exchange at no cost or liability to Buyer.” (Capitalization omitted.) A note made by Janie Cabral in the Parcel 2 escrow file, dated “4/4/01,” similarly indicated that the sale was “Now part of an exchange per Lynn.” Cabral testified she would not have written “per Lynn,” meaning Sanguinetti, unless she had received the information from Sanguinetti herself (although she could not recall their actual conversation).

McDow told Sanguinetti the Herricks had signed the addendum, but Sanguinetti did not sign it herself at that point because, according to McDow, “[s]he was still a little bit up in the air” about a 1031 exchange, and needed to do some additional investigation. Sanguinetti denied having talked to McDow or Cabral about a 1031 exchange.

On April 12, 2001, Michael Herrick, McDow, and Sanguinetti met for lunch at the Lickskillet Café in Columbia to talk about the sale of Parcel 2. Sanguinetti gave Herrick three estimates she had obtained of the cost to pave the gravel driveway. The estimates, each of which was for about $25,000, were dated March 13, March 28, and March 31, 2001. At no time during the lunch, according to Herrick and McDow, did Sanguinetti indicate to them the deal was off for lack of a timely acceptance.

Sanguinetti testified the Herricks, through McDow, had requested the estimates around the time of their initial offer on February 25, 2001, i.e., before Sanguinetti made her counteroffer containing the paving condition. She also insisted neither Herrick nor McDow said anything during the lunch to the effect that the Herricks had accepted her counteroffer, and, in fact, Herrick did not bring up the transaction at all.

Yosemite Title Company prepared escrow instructions for the sale of Parcel 2 on April 16, 2001. Sometime soon after that date, McDow gave a copy of the instructions to Sanguinetti, and, on April 24, 2001, she faxed a copy to the Herricks. In a cover page to the fax, McDow wrote in part: “Lynn should be looking this over tonight.…

Things are going good. I’ll call you AM. Zane.”

The access easement in favor of Parcel 2 was described in the attached documents as follows:

“An exclusive easement for ingress and egress over and across a strip of land 7’ in width lying Northerly of and adjacent to the Southerly boundary line of Parcl [sic] 4 and 7’ in width lying Southerly of and adjacent to the Northerly line of Parcel 1, all as shown and delineated on that certain Map filed October 3, 1995 .…

Said easement [is] appurtenant to and exclusively for the benefit of Parcel 2 of said Map.”^[2]

On April 26, 2001, Sanguinetti called Michael Herrick from the office of her attorney, James Sadler. Sadler, after assuring Herrick it was not his intent to “‘change your deal,’” told him Sanguinetti wanted the paving to be completed before the close of escrow, and offered some proposals about how this might be accomplished, including extending the escrow. Sanguinetti had never before sought to impose a time limit on the paving. Herrick asked Sadler to put his proposals in writing, but did not receive anything further from him in this regard. Sadler said nothing during the telephone call indicating he or Sanguinetti believed there was no contract because the Herricks’ acceptance of the counteroffer had been untimely.

Sometime soon afterward, Sanguinetti went to McDow’s office and, McDow said, “she kind of threw a fit” and refused to sign the escrow instructions. “She was -- actually she just went absolutely crazy. Like, you know, she was telling me that she didn’t want to be in this escrow any longer and she wasn’t going to sign escrow instructions and flew out of the office.” McDow testified she was “very surprised” by Sanguinetti’s reaction, and did not understand why she was upset, because she (Sanguinetti) had been aware of the escrow for six weeks. In any event, according to McDow, Sanguinetti did not say she was upset because, as far as she knew, the Herricks had not accepted her counteroffer in time to create a contract.

But Sanguinetti testified this was the very reason she was upset, i.e., because she was not aware until McDow asked her to sign the escrow instructions that the transaction had gone any farther than her March 3 counteroffer. She left the office and called George Stanley, the owner and broker of California Properties.

McDow phoned the Herricks on April 30, 2001, and told them Sanguinetti was refusing to sign the escrow instructions. Michael Herrick faxed a letter to McDow the same day, with a copy to Sanguinetti, in which he wrote in part:

“This is to acknowledge that today April 30, 2001, you advised us by phone of Lynn Sanguinetti’s intention to Breach the Vacant Land Purchase Contract that she signed on March 3, 2001.

“In this conversation I informed you that we have been ready for weeks to perform all the required conditions of the purchase contract and escrow … and specifically the transfer to the title company of the $99,000 in funds to close the contract.

“The only delay in closing the escrow was Ms. Sanguinetti’s failure to deliver title to parcel two, and the access road easement favoring parcel two, from parcel four as was previously agreed. You have acknowledged several times that there was no specific time required in the land sale contract for the road improvements to be completed. We fully intend to complete those improvements within a reasonable time.

“We can not agree to any further extension of time for the escrow to be completed, given Ms. Sanguinetti’s outrageous failure to perform. Please be advised that it is our intention to file suit for breach of cont[r]act and demand specific performance of the land sale agreement. Pursuant to paragraph 22 of the contract, we will see[k] attorney fees as the prevailing party in the likely litigation.”

The next day, May 1, 2001, Herrick received a phone message from George Stanley (the California Properties broker) who evidently had intercepted Herricks’ letter to McDow. (Stanley terminated McDow’s relationship with California Properties around this same time.) The phone message was followed by a letter from Stanley to Herrick, dated May 2, in which Stanley wrote in part:

“I met with Ms. Sanguinetti today 5/2/01 regarding the concerns you expressed in your letter. Ms. Sanguinetti is of the opinion that you were going to pave the road prior to close of escrow, evidently she was informed by Zane McDow that you were unable to pave the road at that time, her offer to pay for the paving and place a Note and Deed of Trust on the property for security was an offer to get the property closed in a timely manner. As to the easement, Yosemite Title Company did not have the paper work [sic] to us until 4/18/01 at which time Ms. Sanguinetti wanted her attorney Mr. Sadler to review the easement, and they feel that the easement is wrong. I have an appointment scheduled with Yosemite Title Company tomorrow 5/3/01 at 4:30 P.M. to discuss the easement in question.

…

“Ms. Sanguinetti feels that she has done everything possible to expedite the sale of this property. As soon as the property is paved or some suitable agreement has been reached and the easement is written properly for recording Ms. Sanguinetti will be ready and willing to close escrow.”

On May 14, 2001, Stanley sent a letter to Herrick, Sadler, and Sanguinetti, in which he wrote in part:

“On May 11, 2001, I spoke to Mr. Herrick and Ms. Sanguinetti. Mr. Herrick informed me after reading my letter dated 5/2/01 that he did not intend to do anything to change his previous position. I called Ms. Sanguinetti and informed her of this conversation. I also talked to Yosemite Title Company concerning the easement in dispute. The easement was written wrong. Yosemite Title now has the proper changes as to the location of the easement and [is] waiting for both parties to agree on paving and maintenance verbiage.

“I have a suggestion that might work for both parties. We could write an addendum to the contract stating that the Seller will give Buyer an easement at the time Buyer contracts for the completion of the paving and maintenance agreement. In the mean time [sic] Seller would give Buyer permission to use the road for a reasonable amount of time. If this type of agreement is acceptable we could close escrow immediately.”

Three weeks later, on June 6, 2001, Stanley sent the following letter to Michael Herrick:

“Ms. Sanguinetti contacted me today 6/6/01 asking if I have had any contact with you concerning the subject property.

Ms. Sanguinetti is willing to go along with my suggestion to allow you access for a reasonable amount of time and give you the easement at the time you pave the driveway.

If this is satisfactory, escrow is to close within 15 days from the date of this letter. Is this is not satisfactory[,] Ms. Sanguinetti has instructed me to cancel the escrow and put the property back on the market. Please advise me as to your position on this matter.”

There then followed a series of letters and faxes between the Herricks’ attorney, Michael Germain, and Sanguinetti’s attorney, James Sadler. The Herricks asked, among other things, that Sanguinetti promise not to sell or encumber Parcel 2 pending mediation or settlement discussions. Sanguinetti failed to respond to that request.

The Present Action

On July 3, 2001, the Herricks filed the present action against Sanguinetti. They asserted causes of action for breach of contract and fraud, and sought declaratory relief as to the existence and terms of the land sale contract, specific performance of the contract, and injunctive relief prohibiting Sanguinetti from selling, transferring, or encumbering Parcel 2. They also sought to recover their attorney fees pursuant to a provision in the contract allowing such recovery under certain conditions.

The Herricks filed a notice of pending action (lis pendens) as to Parcel 2 on July 5, 2001. (See Code Civ. Proc., § 405.2.)

Sanguinetti answered the complaint on October 15, 2001.

On March 12, 2002, the Herricks moved for summary adjudication of their claims for breach of contract and specific performance. In the course of discovery, Sanguinetti had asserted two grounds for her refusal to complete the sale of Parcel 2: she claimed no contract had been formed because the Herricks’ attempted acceptance of her counteroffer was untimely, and she claimed the Herricks had anticipatorily breached the contract by declaring their intention not to pave the driveway in a timely and reasonable manner. The Herricks maintained their acceptance was timely or, if it was not, Sanguinetti had waived her right to object on that ground. The trial court ruled there were triable issues of fact as to both timeliness and waiver, and denied the Herricks’ motion on June 14, 2002.

On July 11, 2002, the Herricks filed a motion asking the court to specifically enforce, modify, or invalidate a settlement agreement the parties had reached following a lengthy settlement conference on May 3, 2002. The agreement provided, among other things, that Sanguinetti would sell Parcel 2 to the Herricks for $100,000 and grant them an exclusive access easement over the gravel driveway; that escrow for the sale would close no later than June 20, 2002; that the driveway would be graded and paved at the Herricks’ expense no later than December 1, 2002; and that the Herricks would secure their performance of this obligation, prior to the close of escrow, in one of three ways designated in the agreement.

The Herricks’ motion alleged that Sanguinetti and her attorney, Sadler, failed to disclose during the settlement negotiations that Sanguinetti had allowed a deed of trust to be recorded the previous December against Parcel 4, i.e., the parcel that would be subject to the easement. Moreover, the Herricks alleged, Sanguinetti and Sadler refused, once the existence of the trust deed became known, to cooperate in efforts to get the beneficiary to subordinate the trust deed to the easement. The Herricks asserted they would not have agreed to the settlement had they known of this cloud on the easement.

The court, in an order filed October 11, 2002, set aside the settlement agreement and restored the action to the civil active list.

The Herricks filed and recorded a notice of pending action with respect to Parcel 4 on October 29, 2002.

A three-day bench trial began on May 20, 2003, with respect to the Herricks’ causes of action for declaratory relief and specific performance. They dismissed their causes of action for injunctive relief and fraud. The Court’s Decision

The trial court issued a tentative decision on August 6, 2003, in which it found, based principally on the decision in Sabo v. Fasano (1984) 154 Cal.App.3d 502 (Sabo), that Sanguinetti had waived any objection to the Herricks’ untimely acceptance of her counteroffer. The court explained in part:

“In this case, [Sanguinetti’s] counter-offer became the offer. She knew the [Herricks] had accepted her counter-offer on March 10, 2001, because she was present when they called McDow in Monterey and told McDow they had signed it. [Sanguinetti] received a copy of the signed counter-offer on March 13 or March 14, 2001. She proceeded with acquiring bids for the paving work to be done by [the Herricks] and delivered them on April 14, 2001 [sic, April 12, 2001, the day of the lunch at the Lickskillet Café]. She contacted the title company on April 4, 2001, to inform the escrow officer that she wanted to do an exchange. Her attorney admitted to Michael Herrick on March 26, 2001 [sic, April 26, 2001], that they had a deal. He just wanted to fine-tune it. And, most significantly, [Sanguinetti] never ever objected to anyone about [the Herricks’] late acceptance.

“If California followed the counter-offer theory described in Sabo, … [Sanguinetti] would be entitled to judgment because there would be no contract. However, California follows the waiver theory. [Sanguinetti’s] conduct after March 10, 2001, shows her unequivocal intention to proceed with the sale to [the Herricks]. The time for acceptance condition was for her benefit. She was aware of it and she ignored it with the clear intention of proceeding with the contract.

The time for paving the road is a reasonable time after close of escrow. Since the evidence is uncontradicted that [the Herricks] have the money available to proceed with paving, the variables for determination of reasonable time are weather and the schedule of the contractor they select.”

The court also concluded the Herricks, although they had established a breach of contract, had failed to prove they were damaged as a result of the breach. (The Herricks previously had dismissed their claims for fraud and injunctive relief.)

Attorney Fees

The court then turned to the Herricks’ request for attorney fees, and stated:

“[The Herricks’] prayer requests attorney’s fees. Paragraph 22 of the contract entitles a prevailing party to attorney’s fees and costs ‘… except as provided in paragraph 17.’ Paragraph 17 calls for mediation of any dispute and says:

“If any party commences an arbitration or court action based on a dispute or claim to which this paragraph applies without first attempting to resolve the matter through mediation, then in the discretion of the arbitrator(s) or judge, that party shall not be entitled to recover attorney’s fees, even if they would otherwise be available to that party in any such arbitration or court action. [Capitalization omitted.]

“The Court finds that mediation should have, and probably would have, settled this matter. [The Herricks] presented no evidence that mediation ever occurred. The Court will exercise its discretion under paragraph 17 to deny recovery of attorney’s fees.”

The tentative decision further provided that it would become the proposed statement of decision if either party requested a statement of decision.

On August 19, 2003, the Herricks requested a statement of decision (Cal. Rules of Court, rule 232), and objected to the portion of it denying their request for attorney fees. They reminded the court they had attempted to introduce evidence of their efforts toward mediation, but that the court had disallowed the evidence as irrelevant in the absence of any claim by Sanguinetti disputing those efforts.

The court treated the Herricks’ objection as a motion to reopen their case to introduce evidence of their mediation efforts, and it scheduled a hearing on the motion for September 25, 2003. The court granted the motion after the hearing, over Sanguinetti’s objection, and set the matter of the Herricks’ request for attorney fees for a one-day court trial on November 18, 2003.

The court issued its proposed statement of decision granting the Herricks’ request for attorney fees on February 3, 2004. It explained:

“… While [the Herricks] did not formally request mediation prior to filing suit [on July 3, 2001], they did raise the issue in [their attorney] Michael Germain’s letter dated June 13, 2001 (Exhibit 47) to [Sanguinetti] with a copy to [her attorney] Mr. Sadler. Mr. Germain wrote:

“We are mindful of the mediation provision of the Contract. Nonetheless, we are very concerned about possible attempts to transfer or encumber this property. Accordingly, we are unwilling to commence a mediation unless we have written agreements or assurances promptly, to the effect that the property cannot be marketed, transferred or further encumbered during the pendency of mediation proceedings and for a reasonable time thereafter. If you desire mediation, then you or you attorney should immediately contact us to make suitable written arrangements so that a mediation can occur.

“While Mr. Germain’s letter was not exactly a positive approach to mediation, it did raise the issue. The assurances which he requested were essential to any hope of success in mediation. If the property were sold, transferred or further encumbered during the mediation process, mediation could not succeed.

“Neither [Sanguinetti] nor her attorney at any time responded to the inquiry about mediation. Nor did they ever request mediation or in any way offer to mediate the dispute. In a side bar conference at the beginning of the trial, [Sanguinetti’s] attorney said that he was not raising the issue of failure to mediate or arbitrate.

“The clear intention of the contract was to promote settlement of disputes by mediation before suit was filed. The Court still believes that mediation could have provided alternatives to the parties which would have been faster and far less expensive than litigation to resolve the problem. It is true, however, that both sides were firmly and tenaciously entrenched in their positions and neither showed any significant willingness to bend.

“In view of the fact that [the Herricks’] position was consistent with the contract while [Sanguinetti’s] position was not, and [Sanguinetti] knew it, the Court will exercise its discretion to award [the Herricks] judgment for their attorney’s fees and costs reasonably incurred in this action pursuant to paragraphs 17 and 22, to be fixed according to cost bill.”

On March 5, 2004, Sanguinetti filed objections to the court’s proposed statements of decision issued both on August 6, 2003, (regarding the existence of the contract) and on February 3, 2004 (regarding attorney fees). The court ruled her objections to the first decision were untimely, and it overruled the objections to the second decision on the merits. The Herricks were directed to prepare a proposed judgment.

On May 3, 2004, Sanguinetti filed objections to the proposed judgment on two grounds. The court sustained her objection to a provision that would have required her to convey an easement to the Herricks prior to the close of escrow, and changed it to require the conveyance at the close of escrow. The court overruled her objection to a provision that would require her to convey the easement free of the trust deed she caused to be placed against Parcel 4.

The court entered judgment on May 17, 2004, directing Sanguinetti to sell Parcel 2 to the Herricks on the terms contained in the counteroffer they signed on March 10, 2001 (the “Contract”). With respect to the easement, the judgment provided:

“5. Subject to the terms of this Judgment, [Sanguinetti], on the terms and conditions set forth in the Contract, shall grant and convey to [the Herricks], at close of escrow, an easement for egress and ingress over and across the existing roadway (hereinafter, the ‘Easement’) over … [Parcel 4].

“6. [Sanguinetti], at her own expense, shall convey the Easement to [the Herricks], at close of escrow, free of the deed of trust which [she] caused to be placed against Parcel 4 after the commencement of this lawsuit (hereinafter, ‘the Parcel 4 Trust Deed’). Therefore, at or prior to close of escrow, [Sanguinetti] shall either pay in full, from the proceeds of [the] sale of [Parcel 4] to [the Herricks] if necessary, the promissory note which relates to the Parcel 4 Trust Deed; or [Sanguinetti], at her own expense, shall cause the Parcel 4 Trust Deed to be subordinated to the Easement.

“7. As per the terms of the Contract, [the Herricks], at their sole expense, shall cause the Easement to be paved within a reasonable time after close-of-escrow, in light of weather and the availability of a contractor. [They] shall thereafter reasonably maintain the Easement at their own expense.

…

“10. [The Herricks] shall recover their reasonable attorney[‘]s fees, to be fixed according to cost bill.”

The Herricks filed a memorandum of costs on May 27, 2004, which included a claim for attorney fees totaling $59,283. Sanguinetti filed a motion to tax costs, and to strike the Herricks’ claim for attorney fees as an item of costs. The Herricks then filed a noticed motion for attorney fees in the amount of $64,104.75. Sanguinetti objected on the ground the amounts claimed were unreasonable.

In an order filed on January 4, 2005, the court overruled the objection except as to attorney fees incurred in connection with the Herricks’ motion for summary adjudication. The court disallowed those fees because “it seems clear to this Court that there was always a triable issue of material fact as to whether or not [Sanguinetti] waived the three-day provision in the form counter-offer which she used.” The court ordered Sanguinetti to pay the remaining fees totaling $58,092.25.

On June 11, 2004, pending the resolution of the Herricks’ claim for attorney fees, Sanguinetti filed a motion for new trial or, alternatively, a motion to modify or vacate the judgment and enter a new judgment in her favor. (Code Civ. Proc., §§ 657, 663.)

In an order filed on July 12, 2004, the court denied Sanguinetti’s new trial motion, and granted her motion to modify the judgment as to paragraph 6 only. The order stated in part:

“3. An amended judgment shall be entered which shall be identical to the judgment entered May 17, 2004, except paragraph 6 which shall read:

“6. [Sanguinetti], at her own expense, shall convey clear and marketable title to the Easement to [the Herricks] at close of escrow, subject only to exceptions contained in the preliminary title report prepared by Yosemite Title Company within [sic] an effective date of March 16, 2001 (Exhibit 17 in evidence).

“4. In all other respects[,] the motion to vacate the judgment is denied.

“5. [The Herricks’] attorney shall prepare and serve a proposed form of amended judgment consistent with this order.”

Sanguinetti objected to the proposed change to paragraph 6.

The amended judgment, with the change in paragraph 6 as ordered by the court, was filed on August 27, 2004.

Notice of entry of the amended judgment, and of the order awarding attorney fees, was mailed to Sanguinetti on January 12, 2005. She filed a timely notice of appeal on February 15, 2005.

DISCUSSION

Sanguinetti challenges the trial court’s reliance on the waiver theory of contract formation endorsed by the court in the Sabo decision, and maintains in any event that the evidence here fails to support a finding of waiver. She also disputes the requirement she convey clear and marketable title to the easement, and argues she should not be liable for the Herrick’s attorney fees.

The Sabo Decision

Sabo was a case very much like the present one, except that there it was the sellers (the Fasanos) who were presented with, and signed, the buyer’s (Sabo’s) offer one day after the five-day expiration period provided in the offer. Sabo did not object to the late acceptance. He signed escrow instructions; made arrangements to finance and insure the property; and expressed to the Fasanos and their attorney his intention to go through with the deal. The Fasanos, although they had helped to prepare the escrow instructions, then refused to sign them or to complete the sale. Sabo sued for specific performance, and the Fasanos argued there was no contract given their late acceptance.^[3] The trial court ruled in favor of the Fasanos. It held their attempted acceptance of the offer, because it was late, had become a counteroffer that Sabo had not formally accepted. Alternatively, if Sabo could be deemed to have accepted the counteroffer by signing the escrow instructions, or to have waived the late acceptance by going forward with the transaction, the court held the acceptance or waiver had not been communicated effectively to the Fasanos. (Sabo, supra, 154 Cal.App.3d at pp. 504-505.)

The appellate court reversed. It held Sabo had waived his objection to the Fasanos’ late acceptance, and had communicated to them his intention to do so through his subsequent actions.

“It is well settled a contracting party may waive conditions placed in a contract solely for that party’s benefit. [Citations.] The provision in an offer specifying the means of acceptance is such a condition and may be waived by the offeror. [Citations.] We find no reason why this rule should not apply in the case of a time limit imposed by the offeror for acceptance by the offeree.” (Sabo, supra, 154 Cal.App.3d at p. 505.)

“In the case at bar, the trial court assumed Sabo waived late acceptance but found that ‘there was no communication of any waiver to defendants.’ The court then concluded: ‘Without communication of such waiver, the offeree has no knowledge as to whether or not there is a binding agreement, and the purported agreement is lacking mutual assent.’

“It would be a rare case in which the offeror’s waiver was not communicated to the offeree. This is not such a case and the trial court’s finding to the contrary is not supported by the evidence. Here, the evidence demonstrates an unequivocal desire of the buyer to go ahead with the purchase of the property. This desire was communicated to the sellers through the buyer’s words and deeds.

“Within three days after the Fasanos accepted his offer [on December 29], Sabo went to the escrow office ‘to get the paper work moving.’ He signed escrow instructions on January 12 and a second set of instructions on January 17. He deposited $3,000 into escrow and arranged for the transfer of an additional $24,000 into escrow. In addition, he arranged for a loan and insurance on the property. He also advised the Fasanos’ attorney and the Fasanos themselves of his intention to go forward with the deal. These are not the acts of one who has revoked his offer to buy property.”^[4] (Sabo, supra, 154 Cal.App.3d at pp. 508-509. See also Forbes v. Board of Missions (1941) 17 Cal.2d 332, 339 (Forbes) [failure to object to late acceptance constituted waiver]; Davies v. Langin (1962) 203 Cal.App.2d 579, 585 (Davies) [offeror has right to refuse to recognize late acceptance but right can be waived].)^[5]

The Sabo court acknowledged that waiver was only one of two theories that might be applied in late-acceptance cases.

“We recognize there is an alternative view, held by respected legal scholars and courts of other jurisdictions, that ‘[u]nless the offeree exercises his power of acceptance before [the offer] expires, there is no contract, for there is no power to accept. Therefore, where the offer has terminated by lapse of time, an attempt to accept is ineffectual to create a contract.... Once terminated ... the original offer can never be revived.’ [Citations.] This view is based on the theory that ‘[u]ntil the end of [the time limit on the offer] the offer is regarded as being constantly repeated. After that there is no offer, and, properly considered, nothing to withdraw.’ [Citations.] Those who hold this view treat the late acceptance as a counter-offer which must be accepted by the original offeror to create a contract. [Citation.]

“Other courts have expressed the view, with which we tend to agree, that regardless of the legal analytical vehicle, i.e., counteroffer and acceptance or waiver of the time limitation for acceptance, the end result is the same. [Citations.]

“Both the ‘counteroffer’ and ‘waiver’ theories can be rationally defended. For the reasons set forth below, we have elected to follow the waiver theory.” (Sabo, supra, 154 Cal.App.3d at pp. 506-507; see also 1 Miller & Starr, Cal. Real Estate (3d ed. 2003) § 1:29, pp. 96-98.)

One of the criticisms of the waiver theory, the court explained, is that it can, at least in the case of an offeror who is silent as to his or her intentions upon receipt of a late acceptance, leave the offeree uncertain about whether or not a contract has been formed.

“ … The simple answer to this argument is that the [offeree], who created his own dilemma by accepting late, can resolve any uncertainty by making an inquiry of the [offeror]. It must be assumed the [offeree] intends to bind herself by the act of acceptance, even if the act is untimely.… The [offeror] may or may not waive the time for acceptance but generally this decision will be expressed by his actions after receiving the late acceptance. (Again, that is what occurred in the case at bar.) If the [offeree] is in doubt whether the [offeror] has waived the time limit, the [offeree] should make inquiry. As a matter of fundamental fairness the party who caused the uncertainty by late acceptance of the offer should bear the burden of clarifying matters if clarification is necessary. An analogy exists in the long-standing rule that ‘the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist.’ (Civ. Code, § 1654.)” (Sabo, supra, 154 Cal.App.3d at pp. 507-508.)

Sanguinetti maintains Sabo was wrongly decided, and we should not follow it.^[6] She also contends the distinction between the two theories -- the waiver theory and the counteroffer theory -- is outcome determinative in the present situation. For this latter claim, she relies on the trial court’s comment that: “If California followed the counter-offer theory described in Sabo, … [Sanguinetti] would be entitled to judgment because there would be no contract. However, California follows the waiver theory.” We do not agree with either of her contentions.^[7]

As we have said, the chief criticism of the waiver theory, and the one upon which Sanguinetti places greatest reliance, is the uncertainty it creates when the offeror takes no action one way or the other indicating a willingness, or not, to overlook a late acceptance. The waiver theory, in that situation, can run afoul of the general rule that “an offeree [i.e., the recipient of a counteroffer in the form of a late acceptance] does not need to reply to [the counteroffer], and his silence and inaction will not be construed as an assent to [it].” (2 Williston on Contracts (Rev. ed., 2002) § 6:49, p. 561.)^[8] However, as the court was careful to point out in Sabo, that was not a situation where the party receiving the late acceptance (Sabo) was silent as to his intention to proceed with the deal. “Here, the evidence demonstrates an unequivocal desire of [Sabo] to go ahead with the purchase of the property.” (Sabo, supra, 154 Cal.App.3d at p. 508.)

Moreover, the commentators that have questioned Sabo have acknowledged the analytical differences, in late-acceptance cases, between the situation where the party who receives the late acceptance does nothing, and the situation where the recipient manifests an intention to be bound by it notwithstanding its lateness. For example, Williston says:

“ … [A]n acceptance must comply with the terms of the offer, and any deviation from those terms will result in the offer’s being rejected. It has sometimes been suggested that following receipt of a defective acceptance, the offeror may waive the defect [citing Sabo]. If this means merely that the offeror may accept a counteroffer from the offeree, which, by reason of any failure to comply with the terms of the original offer did not amount to an acceptance, and furthermore that sometimes silence under those circumstances may amount to an acceptance by the original offeror of this counteroffer [late acceptance], no fault can be found. However, to the extent that these statements mean that the offeror may at his option assert either that there has not been a valid acceptance because of the defect, or that a contract has been made because he is willing to disregard the defect, and that this option on the part of the offeror may be exercised without communication to the offeree, and perhaps without any limitation of time, significant principles of the law of contracts are violated. Such statements, thus, are at best misleading and at worst incorrect.” (2 Williston on Contracts, supra, § 6:55, pp. 662-667, fns. omitted, italics added; see also id., § 6:56, p. 674 [principles that apply to defective acceptances generally, also apply equally to acceptances that are defective because they are late].)

Thus, the criticism of Sabo is not that it reached the wrong result, but that its waiver rationale might lead to an incorrect or unjust result in a different situation, unlike that in Sabo, where the offeror remains silent in the face of a late acceptance. Further, the injustice in that situation works to the disadvantage of the offeree (the Herric