Kehoe Testing and Engineering v. Douglass

Filed 9/28/06 Kehoe Testing and Engineering v. Douglass CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 977.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

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, Corey S. Cramin, Judge. Affirmed.

Stephen Shepard for Defendant and Appellant.

Hart, King & Coldren, William R. Hart and Andrew C. Kienle, for Plaintiff and Respondent.

* * *

Defendant Robert L. Douglass, as trustee of the Robert L. Douglass Family Trust, Dated March 22, 2001, appeals from a judgment declaring plaintiff Kehoe Testing and Engineering, Inc. is entitled to enforce the parties’ real property purchase contract and granting specific performance of that agreement. We reject defendant’s claim the parties never entered into an enforceable contract and affirm the judgment.

FACTS

Defendant’s family trust owned commercial property in Huntington Beach consisting of an industrial building with approximately 10,300 square feet of space and an outdoor yard area. Reynolds Sailing, a boat building company, occupied a 3,000 square foot portion at the back of the building along with an adjacent yard area under a written lease that contained three, 1-year renewal options allowing the lessee to extend its lease through January 2007. The lease contained a clause declaring it to be “binding upon . . . the heirs, assigns, and successors in interest to the parties.”

Defendant had obtained a short-term $600,000 loan secured by the property. The loan needed to be repaid in September 2004 or the lender could begin foreclosure proceedings. On April 15, he entered into a listing agreement with CB Richard Ellis, a real estate brokerage, to offer the property for sale at a price of $1.55 million. Agents Robert L. Goodmanson and Ryan Peterson represented defendant.

Steve and Susanne Kehoe, plaintiff’s principal officers, were interested in purchasing a building with approximately 10,000 square feet and a yard area. Plaintiff retained the services of Darin McDonald and Ted Sawyer, agents with a brokerage named Lee & Associates, to assist in finding a property.

After learning about defendant’s property, the Kehoes walked through the premises. Both of them testified they briefly discussed with defendant whether “he’d be interested in selling the [built-in] furniture [in the building’s office].” The Kehoes claimed defendant responded “he might want to sell [the furniture], but that it wouldn’t be part of the real estate transaction, it would just be a separate sale . . . .” There was no discussion about the tenant or other issues at that time.

On June 14, the Kehoes, the parties’ brokers, and Jack Minor, defendant’s consultant, conducted a final walk through of the property. The Kehoes testified that during this meeting, the parties discussed the status of the tenant and received a handwritten list of the furniture, again acknowledging “it wouldn’t be part of the real estate deal.” They asked Minor if they could park a large truck in the yard before the sale closed, but were told the answer was probably no. Finally, Minor told the Kehoes that defendant intended to leave the built-in shelving located in the shop area.

Steve Kehoe, plaintiff’s president, signed and initialed each page of a pre-printed document entitled “Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate“ (capitalization omitted) that had been prepared by Goodmanson. In it, plaintiff offered to buy defendant’s property for $5,000 over the listing price, payable in the form of a 10 percent cash deposit plus a new loan for the balance. At Minor’s request, the parties modified the typewritten proposal to extend the sale contract’s closing date to September 15 and changed the escrow company. Paragraph 2.3 of the document, which described the property to include “the permanent improvements thereon,” contained the typewritten phrase “To Be Determined” at the end of the clause. The document limited plaintiff’s right of entry “upon the Property” to “making inspections and tests specified in this Agreement,” and further declared plaintiff would receive “[p]ossession of the Property . . . at the Closing subject to the rights of tenants under Existing Leases.”

Goodmanson presented the agreement to defendant. At trial, defendant admitted initialing each page and signing the agreement below paragraph 27, which, in part, states, “Seller accepts the foregoing offer to purchase the Property and hereby agrees to sell the Property to Buyer on the terms and conditions therein specified.”

Defendant testified that, after doing so, he went to paragraph 26 of the agreement, entitled “Additional Provisions“ (bold omitted) and struck the word “None” that had been inserted at the end of the paragraph. In its place he inserted the phrase “see attached letter” (capitalization omitted). Defendant claimed he then attached a letter dated June 15 addressed to only Goodmanson, which stated as follows: “Per your meeting at my office yesterday with Jack Minor, I have a few clarifications that must be addressed and agreed to by the buyer prior to entering into escrow. . . .

1) As you are aware, I have a lease with the tenant in the back of the building. . . . I think we need to make provisions to let this tenant remain in the space until the end of the current lease or until he can move to another space.

2) Unless we can agree to a price, all built in desks and cabinets will be removed and taken with us. All other furniture will also be taken.

3) The shelving . . . in the warehouse is pretty much part of the building. We will not be taking or removing that shelving. . . .

4) I understand the buyer would like to store a truck and other items in the yard. As you can see we are full and have no room to add anything else. What little room we have will be required during our move out of the building.”

Defendant testified the four points came from Jack Minor. He explained “the purpose of the letter [was] to take care of the two items that I wanted discussed . . . at that final walkthrough[, the tenant’s occupancy of the premises and the need for a separate agreement on the office furniture], plus the two items that the buyer had asked for[, removal of the shelving and truck storage].”

Defendant admitted not discussing the June 15 letter’s four points with the Kehoes, and Steve Kehoe denied defendant asked him to sign the June 15 letter. But defendant claimed he gave a copy of the letter to McDonald, plaintiff’s agent, and told McDonald that he wanted these terms in the escrow instructions. McDonald admitted receiving a copy of the letter and discussing it with defendant, but claimed defendant only asked that he give plaintiff a copy of the letter. Although defendant testified it was necessary for the Kehoes to “sign off on th[e] June 15th letter,” both Goodmanson and McDonald denied defendant ever told them “there was no deal for the sale of the property” unless they did so.

At trial, defendant initially testified he “did not want the escrow even started until these points were in . . . the escrow documents.” But after admitting that he knew escrow opened on June 16, plaintiff had made a $50,000 initial deposit, plus he had received the escrow instructions and executed escrow documents, defendant changed his testimony, claiming escrow “[c]ould not close” unless the Kehoes “signed off on the four points in [the] June 15th . . . letter . . . .” Even later, defendant testified the June 15 letter’s points “needed to be addressed in escrow.”

Defendant also testified he concluded the “deal was dead“ because his agent, Ryan Peterson, called him every day claiming plaintiff was threatening not to proceed with the purchase unless defendant removed Reynolds Sailing from the property. Peterson testified differently, estimating that he spoke with defendant a “[h]alf a dozen times” between late June and the end of July. He admitted discussing the tenant issue with defendant because, initially, McDonald told him the Kehoes wanted Reynolds Sailing “out of the property.” But later “it became apparent that that wasn’t an issue anymore.” Steve Kehoe testified that, while they “would prefer to have the whole building, and . . . parking,” Reynolds Sailing’s continued occupation of a portion of the premises was not a “deal breaker.”

In mid-July, defendant sought alternative financing for the short-term loan, paying $40,000 for a broker’s commission and a lender’s origination fee. Escrow on that loan closed September 1.

The same day, defendant faxed a letter to the escrow stating the escrow “has been cancelled because certain conditions were never agreed upon or included in the escrow instructions.” On September 13, Steve Kehoe signed a copy of the June 15 letter underneath a stamp that stated, “read and approved” (capitalization omitted). Defendant refused to accept it.

Plaintiff filed suit, in part seeking specific performance of the purchase agreement. After a court trial, the judge issued a statement of decision ruling in plaintiff’s favor on its specific performance claim. The court found defendant’s “execution of the Standard Offer . . . for Purchase of Real Estate constituted an acceptance of [plaintiff’s] offer to purchase the Property and thus, formed a valid and binding agreement between [the parties] for the sale of the Property.” The court rejected defendant’s claim the June 15 letter “constitute[d] a rejection of [plaintiff’s] offer, or a counteroffer by [defendant]” which had been revoked by the “September 1, 2004 letter to escrow . . . .”

DISCUSSION

Although at trial the defense challenged the purchase agreement’s enforceability by focusing primarily on the purported lack of agreement as to Reynolds Sailing’s right to continue occupying part of the property, on appeal defendant contends that since the parties never resolved the status of the built-in office furniture, they failed to enter into an enforceable real estate purchase contract. He argues this portion of his June 15 letter constituted a material term because it related to both the description of the property and the contract price. As a result of his alteration of the proposed contract to refer to the June 15 letter, defendant argues that his “qualified acceptance” of the proposed agreement amounted to both a rejection of plaintiff’s offer and a counteroffer, which plaintiff needed to timely accept to create an enforceable contract. Defendant contends that since plaintiff failed to do so before he revoked the counteroffer, no binding contract arose between the parties. We disagree.

“Contract formation requires mutual consent, which cannot exist unless the parties ‘agree upon the same thing in the same sense.’ (Civ. Code, § 1580; see also

§§ 1550, 1565.) ‘If there is no evidence establishing a manifestation of assent to the “same thing” by both parties, then there is no mutual consent to contract and no contract formation.’ [Citation.] ‘Mutual consent is determined under an objective standard applied to the outward manifestations or expressions of the parties, i.e., the reasonable meaning of their words and acts, and not their unexpressed intentions or understandings.’ [Citations.]” (Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 208; see also Meyer v. Benko (1976) 55 Cal.App.3d 937, 942-943.)

The specific issue presented in this case is whether defendant accepted plaintiff’s offer to purchase the property. “An acceptance must be absolute and unqualified, or must include in itself an acceptance of that character which the proposer can separate from the rest, and which will conclude the person accepting. A qualified acceptance is a new proposal.” (Civ. Code, § 1585.) While “an acceptance to be effective must in every respect comply with the terms of the offer[,] . . . [i]t is not essential . . . that the identical language be repeated. [Citation.]” (Schreiber v. Hooker (1952) 114 Cal.App.2d 634, 639.) Furthermore, an offeree’s addition of conditions to its acceptance which are implied either in the offer’s terms or by law do not constitute a rejection or counteroffer. (State v. Agostini (1956) 139 Cal.App.2d 909, 915 [lessee’s acceptance of option to purchase property that requested optionor to comply with terms and conditions option imposed did not amount to counteroffer; “It is true that acceptance of an offer must be unconditional, but that only means free of conditions which the other party is not bound to perform”]; Humphry v. Farmers U. & M. Co. (1920)

47 Cal.App. 211, 213-214 [contract for sale of produce arose even though acceptance insisted produce shipped be subject to inspection, because “the law would have added these words to the contract even if they had not been inserted”].)

The parties initialed each page of the standard purchase agreement and signed it. That agreement covered all of the material terms for the sale. Defendant focuses on his deletion of the word “None” in paragraph 26 and insertion of the phrase “See attached letter.” But this change did not constitute a modification of the proposed transaction’s material terms.

As for Reynolds Sailing’s tenancy, it had a continuing right to occupy a portion of the premises under both paragraph 13 of the standard purchase agreement as well as the law generally. (Scholey v. Steele (1943) 59 Cal.App.2d 402, 404-405 [“The fact that [a party] acquired [real] property after the inception of the tenancy is immaterial” since “[h]e took it subject to the terms of the existing lease”].) Points two and three of the June 15 letter, dealing with the built-in office furniture and the shelving, were covered by the insertion of the phrase “To be determined” in paragraph 2.3, which defined the permanent improvements considered to be part of the property subject to the sale. Finally, under paragraph 14, plaintiff’s right to enter and use the property before consummation of the sale was limited to inspections and testing “specified” by the agreement. Thus, the terms of defendant’s June 15 letter were either expressly or impliedly covered by plaintiff’s offer. The mere fact he used different words to express the same terms did not amount to a rejection of plaintiff’s offer or a counteroffer which it needed to expressly accept.

Defendant argues the trial court’s ruling is subject to de novo review. However, the existence of “[m]utual assent is a question of fact. [Citation.]” (Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th 129, 141.) “‘”[W]here the existence and not the validity or construction of a contract or the terms thereof is the point in issue, and the evidence is conflicting or admits of more than one inference, it is for the jury or other trier of the facts to determine whether the contract did in fact

exist, . . . “ [Citation.]’ [Citation.]” (Ibid.) Contrary to defendant’s argument, there were evidentiary conflicts at trial and the trial court was obligated to and did draw inferences from those factual disputes.

Furthermore, a court may consider the surrounding circumstances in determining whether the parties intended a particular writing to be a contract. (San Diego County v. Viloria (1969) 276 Cal.App.2d 350, 354; Fowler v. Security-First Nat. Bank (1956) 146 Cal.App.2d 37, 47.) The parties treated the executed standard purchase agreement as a binding contract. Plaintiff’s officers testified the points mentioned in defendant’s June 15 letter had been previously discussed by the parties. In particular, they note paragraph 2.3 covered the status of the built-in furniture by noting its status was yet to be determined. After defendant signed the document, plaintiff deposited money into escrow, took steps to finance the acquisition, and signed documents related to the purchase of the property. Although defendant’s letter demanded the points mentioned be “addressed and agreed to . . . prior to entering into escrow,” he admitted knowing an escrow for plaintiff’s purchase had been opened and, not only did he fail to object to escrow, he also executed documents related to it. His objection to completing the sale arose only after he had refinanced the short-term loan. Thus, the evidence supports the conclusion the parties entered into a binding contract of sale.

DISPOSITION

The judgment is affirmed. Respondent shall recover its costs on appeal.

RYLAARSDAM, J.

WE CONCUR:

SILLS, P. J.

FYBEL, J.

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