C. Robert Nattress & Associates v. Cidco

• Decision Date: 06 August 1986
• Citation: 229 Cal.Rptr. 33,184 Cal.App.3d 55
• Court: California Court of Appeals Court of Appeals
• Parties: C. ROBERT NATTRESS & ASSOCIATES, etc.; et al., Plaintiffs and Respondents, v. CIDCO, etc.; et al., Defendants and Appellants. E001700.

Page 33

229 Cal.Rptr. 33

184 Cal.App.3d 55

C. ROBERT NATTRESS & ASSOCIATES, etc.; et al., Plaintiffs and Respondents, v. CIDCO, etc.; et al., Defendants and Appellants.

E001700.

Court of Appeal, Fourth District, Division 2, California.

Aug. 6, 1986.

As Modified Aug. 20, 1986.

Review Denied Oct. 22, 1986.

Best, Best & Krieger, Barton C. Gaut and Virginia A. Ettinger, Riverside, for defendants and appellants.

Reid & Hellyer, Donald F. Powell and Alexandra S. Ward, Riverside, Wyman, Bautzer, Rothman, Kuchel & Silbert, and Thomas R. Malcolm, Newport Beach, for plaintiffs and respondents.

KAUFMAN, Associate Justice.

Defendants John Michels, Raymond Magnon, Charles Sutherland and CIDCO appeal from a judgment of specific performance in favor of plaintiffs C. Robert Nattress & Associates and C. Robert Nattress as an individual. The judgment ordered defendants CIDCO and Sutherland to sell to plaintiffs a commercial building in the City of Riverside pursuant to an agreement for purchase and sale of the building that was expressly made subject to a right of first refusal held by defendant Michels, the building's principal tenant. The judgment also required defendants Michels and Magnon, who had obtained title to the building from CIDCO and Sutherland by purporting to exercise Michel's right of first refusal, to relinquish the building and transfer title to plaintiffs. Finally, the judgment required defendants CIDCO and Sutherland to pay "plaintiff" a real estate commission of $40,582. (Hereafter the appellation Sutherland shall also include CIDCO unless the context indicates otherwise.)

On appeal, defendants contend the judgment must be reversed because the evidence shows: (1) that plaintiffs failed to prove the property was unique as to them or that they were ready, willing and able to perform their contract to purchase the property; (2) that Michels and Magnon effectively exercised Michels' right of first refusal so plaintiffs were entitled to no recovery; and (3) that in any event plaintiff C. Robert Nattress as an individual had no right to specific performance. Failing all else, defendants contend the court erred in refusing to order them reimbursed for their expenditures for maintenance of and improvements to the property during their interim ownership.

Facts

Magnon, Sutherland and Claire Taber were general partners in CIDCO. The CIDCO partnership owned several parcels of real property including the subject of these proceedings, an industrial building in Riverside referred to as the Hops Building.

In about August 1978, Sutherland purchased the partnership interests of Taber and Magnon and thereafter was the sole owner of the Hops Building although record title remained in the CIDCO name. As the result of the buyout and other transactions dating back to 1974, Sutherland was considerably in debt to his former partner Magnon. These debts were evidenced by several promissory notes from Sutherland to Magnon, including one dated August 30, 1978, in the amount of $150,000 and three bearing dates in 1974 in an aggregate original principal amount in excess of $141,000.

Defendant Michels occupied one-half the Hops building under a lease to John S. Michels, Inc., doing business as Hops Distributing Company. The lease term commenced in 1975 and continued through 1978. The lease gave Michels a right of first refusal in the event the lessor decided to sell, which is set out in the margin. ¹

On or about November 27, 1978, C. Robert Nattress and Associates, a limited partnership of which C.R. Nattress was the general partner, made a written offer to purchase the Hops building for $676,382, payable in the form of $310,582 cash and the assumption of a $365,800 obligation secured by an existing first trust deed on the property. $40,582 of the $310,582 cashrepresented a broker's commission to be paid by Sutherland to Nattress personally. The total cash to be received by Sutherland from the escrow was therefore $270,000. Sutherland for himself and CIDCO accepted the offer subject to Michels' right of first refusal on December 8, 1978, and an escrow was opened. Nattress had read the Michels lease and talked to Michels and was fully aware of the outstanding right of first refusal before making the offer to purchase and the escrow instructions expressly provided the transaction was subject to the right of first refusal.

Despite some earlier indications by Michels in telephone conversations with Nattress that he was not then interested in exercising his right of first refusal, Michels, Magnon and Sutherland had a meeting on January 5, 1979, at which Michels informed Sutherland that he and Magnon intended to exercise the right. In essence the plan was that Michels and Magnon, who was Michels' former partner in CIDCO and also apparently an occupant of a portion of the building, would purchase the building as tenants in common. The total purchase price was to be the same price as offered by the Nattress limited partnership less the $40,582 commission to be paid to Nattress under the Nattress offer. Michels and Magnon would assume the existing $365,800 first trust deed on the property and pay the balance of $270,000 as follows: Michels would pay one-half, $135,000, in cash. However, $85,000 of the $135,000 would be paid to Magnon in satisfaction of part of Sutherland's outstanding debt to Magnon. Magnon was to pay his half of the $270,000 by giving Sutherland credit for $135,000 against Sutherland's $150,000 note to Magnon. In cash and debt reduction, therefore, Sutherland was to receive the same amount from Michels and Magnon as would have been received if the property were sold to plaintiffs.

A "MEMORANDUM OF AGREEMENT" dated January 5, 1979, was signed between Sutherland and Michels in which Michels expressed his intent to exercise the preemptive right to purchase. However, at its end the memorandum stated: "The above is subject to JOHN S. MICHELS and RAY MAGNON making an agreement, which is not applicable to this transaction, on or before January 12, 1979."

Michels thereafter sent Sutherland a letter dated January 11, 1979, which read in pertinent part: "I am notifying you that I am hereby exercising my option under the terms of our January 5, 1979 signed agreement to purchase one-half interest in the Hops Building at 1616 Marlborough Avenue, Riverside, California, subject to the conditions of the escrow instructions, which are being initiated. In addition, it is understood and agreed to by both Ray Magnon and myself that we will hold title to the Hops Building as Tennants [sic] in Common. [p] As soon as you receive said escrow instructions, please notify Sunset Escrow to cancel Escrow Number 16480 [the Sutherland-Nattress escrow] immediately."

Sutherland then notified Nattress that the right of first refusal had been exercised and that the agreement for purchase and sale with C. Robert Nattress and Associates was thus cancelled. The new escrow between Sutherland, Michels and Magnon opened on February 2, 1979, on the terms and conditions discussed at the January 5 meeting, and in due course the escrow closed and Michels and Magnon took title to the property. Title to Michels' half interest was vested at his direction in a trust created by him, the John Spiegel Michels Trust No. 1, and title to Magnon's half interest was vested at his direction in another of his partnerships, Marlborough Square North.

When he was notified by Sutherland the right of first refusal had been exercised, Nattress acknowledged the notice and asked to have sent to him a copy of the Sutherland-Michels-Magnon escrow instructions. Though this request was repeated several times, no copy of those escrow instructions was furnished Nattress, so he refused voluntarily to cancel the Nattress-Sutherland escrow, and ultimately instituted this action.

The complaint was in three counts: specific performance and constructive trust, damages for breach of contract, and fraud. The fraud count charged in substance that the purported exercise by Michels and Magnon of the right of first refusal was in reality a subterfuge concocted between Michels, Magnon and Sutherland to avoid having to sell the property to C. Robert Nattress and Associates and to avoid having to pay C. Robert Nattress individually the $40,582 real estate commission. The specific performance and breach of contract counts were bottomed on the claim the purported exercise of the right of first refusal was ineffective because the purchase by Michels and Magnon was on terms different from those offered by the Nattress limited partnership.

The trial court found against plaintiffs on the claim of fraud, expressly striking from the statement of decision proposed by plaintiffs language impugning the bona fides of the Michels-Magnon purchase or indicating it was a subterfuge. However, the court found for both plaintiffs on the specific performance-constructive trust count and for plaintiff C. Robert Nattress as an individual for his commission on the breach of contract count, the court having determined the purported exercise of the right of first refusal was ineffective. The statement of decision reads in pertinent part:

"25. As to the optionee (Michels), an option is an irrevocable offer that can be accepted only in strict conformity with the terms specified in the option. Simons v. Young, 93 Cal.App.3d 170, 179, 155 Cal.Rptr. 460 (1979). Where contracts are optional in respect to one party, they are strictly interpreted in favor of the party bound and against the party that is not bound. 3 Williston on Contracts § 620, P. 1788.

"26. Michels purported 'acceptance' was invalid and unenforceable for three reasons. First, Michels conditioned his purported 'acceptance' of the option-offer on his reaching an agreement with Magnon. Such a conditional acceptance actually constitutes a rejection of the offer. Landberg v. Landberg, 24 Cal.App.3d 742, 750, 756-57, 101 Cal.Rptr. 335 (1972). Further,...