Adams v. Williams Resorts, Inc.

• Decision Date: 04 December 1962
• Citation: 26 Cal.Rptr. 656,210 Cal.App.2d 456
• Court: California Court of Appeals Court of Appeals
• Parties: John H. ADAMS et al., Plaintiffs and Respondents, v. WILLIAMS RESORTS, INC., Defendant and Appellant. Civ. 154.

Page 656

26 Cal.Rptr. 656

210 Cal.App.2d 456

John H. ADAMS et al., Plaintiffs and Respondents, v. WILLIAMS RESORTS, INC., Defendant and Appellant.

Civ. 154.

District Court of Appeal, Fifth District, California.

Dec. 4, 1962.

Clifford H. Plumley, and Bartow & Christiansen, Madera, for appellant.

Peckinpah, Fryer & Karr by F. John Karr, Fresno, for respondents.

BROWN, Justice.

This is an appeal by the defenant, Williams Resorts, Inc., a California corporation, from a judgment in favor of the plaintiffs, John H. Adams and Irene B. Adams.

The action is based on a written contract entitled 'Agreement of Exclusive Agency and Sublease,' dated January 6, 1954, between the plaintiffs, licensed real estate brokers, and the defendant, engaged in the business of subleasing lots as home sites, which lots are carved out of a tract of land around Bass Lake held by defendant under long-term leases from Pacific Gas and Electric Company.

The agreement, in material part, provides that plaintiffs shall have the exclusive right to negotiate the subleasing of lots in the area on a 10 percent commission basis for a term of 5 years commencing as of January 1, 1954, and terminating December 31, 1958. It is then agreed that the defendant may, at its option, terminate the agreement in the event plaintiffs fail to negotiate and complete at least 10 subleases per year on the subdivided lots.

The contract further contains a provision of sublease of certain land for an office site for plaintiffs to assist them in carrying out their performance under the contract, at an annual rental of $100, defendant to furnish water and garbage service for $10 each per year; plaintiffs to construct an office building on the leased premises, with the right of removal thereof at the termination of the contract term.

The plaintiffs and the defendant find their problems in the provisions of paragraph IX of the agreement. As originally drafted, the first sentence thereof provided that, 'In the event that Second Parties [plaintiffs] have abided by all the terms and conditions of this agreement during the five (5) year term thereof, Second Parties shall have the option to extend the term of this agreement for an additional five (5) years.' Prior to execution the words 'have the option to' were stricken by a line drawn in ink and the words 'at their option and at option of First Party' were handwritten in the margin so the first sentence of the executed contract reads, 'In the event that Second Parties have abided by all the terms and conditions of this agreement during the five (5) year term thereof, Second Parties shall at their option and at option of First Party extend the term of this agreement for an additional five (5) years.' The second sentence of the same paragraph provides, 'In the event Second Parties desire to exercise this option they shall give written notice of such election to First Party not later than 30 days before the 31st day of December, 1958.'

Paragraph X of the contract provides, 'First Party has entered into this agreement with Second Parties in reliance upon the personal pervices of Second Parties * * *'; then follows a prohibition against assignment by plaintiffs without defendant's written consent.

That the plaintiffs performed in accordance with their covenants during the original five-year term is not questioned. The record discloses that the plaintiffs gave timely notice of their election to extend the term for an additional 5 years. There was testimony that plaintiffs delivered to defendant a check for $100 covering rental of the office site for 1959, which check was retained by defendant for approximately three months, was then lost, and was not returned to plaintiffs; that plaintiffs paid by check the rental for 1960, which check was not deposited by defendant and was returned to plaintiffs in August 1960, after the filing of this action. During the year 1959 defendant fusnished plaintiffs with maps and other data and made available to them lot listings; plaintiffs negotiated and completed subleases of lots and were paid their commission thereon. Plaintiffs expended time and money in advertising the lots, paid their water bill, repainted the office building, purchased new office signs, and purchased a home at Bass Lake.

Meanwhile, the right of the plaintiffs to extend the term of the agreement by unilateral action was in controversy; both sides consulted attorneys, and plaintiffs and G. E. Williams, president of defendant corporation, met during December 1958, at which time a new contract was apparently discussed, but not executed.

In May 1960, defendant refused to honor a sublease negotiated by plaintiffs and, in 1960, granted an exclusive agency to sublease lots in the tract involved to another real estate broker, the non-appealing defendant, Jack Gyer. Plaintiffs then initiated this action seeking a declaratory judgment adjudicating the rights of plaintiffs under the contract, damages, and a prohibitory injunction. Upon a nonjury trial, the court made appropriate findings of fact and conclusions of law, and judgment was entered pursuant thereto. By the judgment it was declared that the term of the agreement was extended for an additional 5 years from January 1, 1959, to December 31, 1963, on the same terms and conditions; plaintiffs were awarded damages of $1,600, less an offset of $300 covering rental of the office site for 3 years; and defendants were enjoined from the operation of a real estate office on the lands which are the subject of the agreement and restrained from violating plaintiffs' exclusive right to negotiate subleases in accordance with the terms of the agreement.

The principal question presented on this appeal requires a determination of whether or not the language of paragraph IX above set out creates a bilateral option, i. e., one which, to be effective, must be exercised by the joint agreement of both plaintiffs and defendant, or two unilateral options, one capable of being exercised by plaintiffs acting alone, and one capable of being exercised by defendant acting alone.

In construing the meaning of disputed language contained in a contract, the court is not without established standards of interpretation. The applicable statutory and case-made rules of construction are summed up in Universal Sales Corp. v. California Etc. Mfg. Co., 20 Cal.2d 751, at pages 760 and 761, 128 P.2d 665, at page 671, as follows:

'The fundamental canon of construction which is applicable to contracts generally is the ascertainment of the intention of the parties (Civ.Code, § 1636), * * *

'As an aid in discovering the all-important element of intent of the parties to the contract, the trial court may look to the circumstances surrounding the making of the agreement [citations], including the object, nature and subject matter of the writing [citations], and the preliminary negotiations between the parties [citations], and thus place itself in the same situation in which the parties found themselves at the time of contracting. [Citations.] Also applicable here is the familiar rule that when a contract is ambiguous, a construction given to it by the acts and conduct of the parties with knowledge of its terms, before any controversy has arisen as to its meaning, is entitled to great weight, and will, when reasonable, be adopted and enforced by the court. [Citations.] The reason underlying the rule is that it is the duty of the court to give effect to the intention of the parties where it is not wholly at variance with the correct legal interpretation of the terms of the contract, and a practical construction placed by the parties upon the instrument is the best evidence of their intention.'

In support of the judgment, plaintiffs cite and rely on Glenn v. Bacon, 86 Cal.App. 58, 260 P. 559. There, a lease from Glenn to Bacon provided for a term of one year 'with option of four more years.' In a subsequent clause it was provided, 'It is expressly agreed and understood that said lease shall run at the option of the parties hereto for five years from date hereof.' Bacon elected to take the additional term and Glenn sued in unlawful detainer. On appeal from the judgment for Bacon, the court was called upon to construe the meaning of the option provision. The appellant's contention that the language which we have emphasized meant that the additional term should only become effective upon the joint agreement of the appellant and the respondent was rejected and it was held that the term 'at the option of the parties' gave to either Glenn or Bacon the option to continue the lease in effect for...