Bleecher v. Conte

• Citation: 173 Cal.Rptr. 278,626 P.2d 1051
• Court: United States State Supreme Court (California)
• Decision Date: 23 April 1981
• Parties: Michael BLEECHER et al., Plaintiffs and Respondents, v. Sirpuhe Philibosian CONTE, Defendant and Appellant. L.A. 31355.

Page 278

173 Cal.Rptr. 278

626 P.2d 1051

Michael BLEECHER et al., Plaintiffs and Respondents, v. Sirpuhe Philibosian CONTE, Defendant and Appellant.

L.A. 31355.

Supreme Court of California In Bank.

April 23, 1981.

Rehearing Denied May 20, 1981.

Katz, Hoyt & Bell, Charles J. Katz and Louis C. Hoyt, Los Angeles, for defendant and appellant.

Belcher, Henzie & Bieganzahn and William I. Chertok, Los Angeles, for plaintiffs and respondents.

BIRD, Chief Justice.

This case involves a land sale agreement with a liquidated damages clause which, upon the buyers' breach of contract, limited the seller's remedy to possession of any plans or reports prepared at the buyers' request and expense. The court must decide: (1) whether the buyers' promise was illusory and, therefore, failed to bind the parties to the legal obligations of a valid contract; and (2) whether the buyers were entitled to specific performance even though the seller waived that remedy in the liquidated damages clause.

I.

The plaintiff buyers are two real estate broker/developers and one real estate salesman. They seek specific performance of an agreement they made to purchase property for a condominium development. The defendant seller, Mrs. Sirpuhe Conte, is an experienced businesswoman involved in real estate transactions. ¹

In 1977, Mrs. Conte bought 40 acres of unimproved land in Palm Desert for $150,000. Approximately one year later, she gave Mr. Gregory Corarito, a licensed real estate salesman written authorization to act as her agent in locating a buyer for this property. Mr. Corarito contacted potential buyers including another licensed real estate salesman, Mr. Michael Bleecher.

Mr. Bleecher joined with two associates (plaintiffs), Mr. Adeeb Sadd and Mr. George Nigro, contractors involved in real estate development. On September 17, 1978, they prepared a deposit receipt and agreement of purchase and sale form offering $575,000 for the 40 acres. The terms of the offer provided for a $1,000 deposit to open escrow, 29 percent to be paid at the close of escrow, with the remainder to be paid within 5 years.

Escrow was scheduled to close on the day after the final tract map was recorded. The buyers agreed to "do everything in their power to expedite the recordation of the final map and [to] proceed with diligence." The buyers' obligation to pay was contingent upon their approval of the title report, plat map, and soil, zoning and engineering reports. However, approval could not be unreasonably withheld. The offer form also included a liquidated damages clause limiting the seller's remedy to possession of the reports and plans created for the buyers. ²

On September 18th, the seller rejected the offer and made a signed counteroffer. The counteroffer stated: "[a]ll of the terms and conditions of the aforementioned Agreement to purchase offer are hereby accepted and shall remain the same with the exception of the following: [p] 1) Property to be sold for all cash. ($575,000) [p] 2) Seller warrants that no less that one hundred and twenty residential units can be constructed on subject property." The defendant neither questioned nor discussed any other term of the original offer. The plaintiffs signed the counteroffer that same day.

On September 20th, the buyers made a $1,000 deposit into escrow. The terms of the deposit receipt and the agreement of purchase and sale, as well as the counteroffer, were incorporated in the escrow instructions. Mr. Bleecher, at Mrs. Conte's request, took these instructions to Mrs. Conte's tax attorney for his review.

A telephone conference call involving Mrs. Conte, her attorney, Mr. Bleecher and Mr. Corarito was held shortly thereafter. During this telephone conversation, Mrs. Conte refused to sign the escrow instructions or proceed with the agreement unless the buyers would pay the entire purchase price before the end of the calendar year. Since that was not part of the agreement, the buyers brought suit for specific performance.

At the trial, Mrs. Conte defended her actions by asserting that: (1) she had never agreed to an open-ended escrow; (2) the agreement was void because it imposed no legal obligation on the buyers; and (3) she could not be forced to specifically perform because of the nature of the liquidated damages clause. The presence in this clause of one party's waiver of the specific performance remedy precluded, she claimed, specific performance of the agreement for either party.

The trial court rejected her arguments and entered judgment for the plaintiffs. The court ordered Mrs. Conte to place the deed to the property in escrow and to sign the escrow instructions. Plaintiffs were ordered to proceed with diligence to obtain and record a tract map within a period of six months, unless the court modified its ruling. This appeal by the seller followed.

II.

The first issue to be decided is whether the agreement lacked mutuality of obligation and, therefore, was unenforceable. A bilateral contract is one in which there are mutual promises given in consideration of each other. (See Davis v. Jacoby (1934) 1 Cal.2d 370, 378, 34 P.2d 1026; Rest., Contracts, § 12.) The promises of each party must be legally binding in order for them to be deemed consideration for each other. (1 Witkin, Summary of Cal. Law (8th ed.1973) pp. 32, 162.)

If a party is not assuming a legal duty in making a promise, the agreement is not binding as a bilateral contract. This court expressed the rule in Mattei v. Hopper (1958) 51 Cal.2d 119, at page 122, 330 P.2d 625: "[w]hen the parties attempt ... to make a contract where promises are exchanged as the consideration, the promises must be mutual in obligation. In other words, for the contract to bind either party, both must have assumed some legal obligations. Without this mutuality of obligation, the agreement lacks consideration and no enforceable contract has been created. [Citations.]" (See also Civ.Code, § 3391, subd. 1.)

There are two other well-established rules which are pertinent. First, "[i]n every contract there is an implied covenant of good faith and fair dealing that neither party will do anything which injures the right of the other to receive the benefits of the agreement. [Citations.]" (Brown v. Superior Court (1949) 34 Cal.2d 559, 564, 212 P.2d 878; see also Redke v. Silvertrust (1971) 6 Cal.3d 94, 100, 98 Cal.Rptr. 293, 490 P.2d 805, cert. den. 405 U.S. 1041, 92 S.Ct. 1316, 31 L.Ed.2d 583; Universal Sales Corp. v. Cal. etc. Mfg. Co. (1942) 20 Cal.2d 751, 771, 128 P.2d 665; Masonite Corp. v. Pacific Gas & Electric Co. (1976) 65 Cal.App.3d 1, 9, 135 Cal.Rptr. 170.) Second if a contract is capable of two constructions, the court must choose that interpretation which will make the contract legally binding if it can be so construed without violating the intention of the parties. (Rodriquez v. Barnett (1959) 52 Cal.2d 154, 160, 338 P.2d 907; see also Civ.Code, §§ 1643, 3541.)

In the present case, the seller contends that the buyers' promise was illusory since they assumed no real obligations under the agreement. Therefore, she argues, the contract lacked mutuality of obligation and was unenforceable. She claims that the buyers could decline to have a tract map prepared or to obtain city approval for development, renege on the agreement, and still get back their $1,000 escrow deposit. An additional argument is advanced that the contract is void because the seller's remedy under the liquidated damages clause is limited to those plans or reports which had been prepared by the buyers.

There is one fatal flaw in the seller's argument that this contract lacked mutuality of obligation. She overlooks the buyers' promise to "do everything in their power to expedite the recordation of the final map" and to "proceed with diligence."

The present contract would have no value to the buyers if they did not proceed in good faith and obtain the necessary reports and approvals. The buyers do not have an unfettered right to cancel their contract or ignore their contractual obligations. More importantly, the buyers expressly promised to diligently pursue their obligations and to refrain from withholding their approval unreasonably. (See also Larwin-Southern California, Inc. v. JGB Investment Co. (1979) 101 Cal.App.3d 626, 640, 162 Cal.Rptr. 52.) The citations to Sturgis v. Galindo (1881) 59 Cal. 28 and Dabney v. Key (1922) 57 Cal.App. 762, 207 P. 921 by the seller are not persuasive.

In Sturgis, the court denied enforcement of a land sale contract in which one party could withdraw at any time at its discretion upon 30 days' notice. In Dabney, the court denied specific performance to a lessee who could cancel a lease by surrendering it at any time for any reason while the lessor was bound to a term of years. ³

The seller's reliance on County of Alameda v. Ross (1939) 32 Cal.App.2d 135, 89 P.2d 460 is similarly misplaced. In that case, the United States government and the Alameda County Board of Supervisors agreed that the county could use certain bridges for the convenience of public traffic. The county was obligated to make necessary repairs and to maintain the bridges. The agreement was explicitly revocable by the Secretary of War at any time for any reason. The court held that the lack of any "good cause" requirement for such revocation destroyed mutuality of obligation, thereby rendering the agreement void. In contrast, the buyers here promised that their approval of various reports would not be "unreasonably withheld."

In Larwin-Southern California, Inc. v. JGB Investment Co., supra, 101 Cal.App.3d 626, 637, 162 Cal.Rptr. 52, the "[d]efendants argue[d] that plaintiff's promise to purchase [was] illusory because it [was] conditioned by satisfaction clauses permitting plaintiff to perform or refuse to perform at its own unrestricted pleasure." The defendants contended that "the contract lack[ed] mutuality of obligation and [was] therefore unenforceable." (Ibid.)...