Kaufman & Broad Bldg. Co. v. City & Suburban Mortg. Co.

• Citation: 10 Cal.App.3d 206,88 Cal.Rptr. 858
• Court: California Court of Appeals Court of Appeals
• Decision Date: 04 August 1970
• Parties: KAUFMAN & BROAD BUILDING CO., a corporation, Plaintiff and Appellant, v. CITY & SUBURBAN MORTGAGE CO., a corporation, Defendant and Respondent. Civ. 35209.

Page 858

88 Cal.Rptr. 858

10 Cal.App.3d 206

KAUFMAN & BROAD BUILDING CO., a corporation, Plaintiff and Appellant, v. CITY & SUBURBAN MORTGAGE CO., a corporation, Defendant and Respondent.

Civ. 35209.

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

Aug. 4, 1970.

Hearing Denied Oct. 1, 1970.

Richards, Watson and Hemmerling, by Clifford A. Hemmerling, Los Angeles, for plaintiff and appellant.

Edward E. Everly, Lakewood, for defendant and respondent.

COMPTON, Associate Justice.

This is an appeal from a judgment entered pursuant to a directed verdict in favor of defendant. Plaintiff sought declaratory relief and damages for breach of a contract to provide loans for the purchase of homes constructed and marketed by plaintiff.

Plaintiff and appellant, Kaufman and Broad Building Company (hereinafter referred to as 'K and B'), is one of the largest subdividers and builders of low and medium priced houses in California.

Defendant and respondent, City & Suburban Mortgage Company, is a mortgage banker and correspondent for various large institutional investors.

In early 1966, K and B was developing a 'model complex' in Huntington Beach given the advertising name 'Shorcrest.' In order to market the several hundred homes in Shorecrest, K and B sought forward loan commitments from institutional investors. Once K and B obtained these commitments it would in turn offer full home financing to its customers. It was contemplated by K and B that a substantial number of these home-buyer loans would be FHA or VA guaranteed.

On May 24, 1966, Eli Broad and Eugene S. Rosenfeld, representatives of K and B, met with James A. Edmonds, Jr., president of City & Surburban Mortgage Co., to discuss defendant's proposed commitment to the Shorecrest loans. Uncontradicted testimony established that the parties discussed various matters concerning the substance and content of the proposed loan commitment.

On May 27, 1966, Edmonds, on behalf of the defendant, sent to K and B a letter which in substantial part read: 'Pursuant to our telephone conversations and our meeting at your office on May 24, * * * (defendant) hereby commits to close 5 3/4% FHA/VA's with maximum of 30-year maturity on the above referenced subdivision (Shorecrest) in the amount of $4,000,000 over a period of nine months, terminating March 31, 1967, at a price of 95.5 discount to * * * (plaintiff) plus 1% Origination fee from the purchaser. * * * Should this commitment be acceptable to you, it will be necessary for * * * (plaintiff) to deposit $40,000 with * * * (defendant) representing 1% Good faith deposit.'

On June 1, 1966, Rosenfeld called Edmonds to discuss several of the conditions included in the May 27th letter.

On June 7, 1966, Broad telephoned Edmonds to notify defendant that plaintiff would accept the May 27th letter of commitment.

Later in the day of June 7, 1966, Broad mailed to defendant the letter of the 27th, gigned under the pretyped words 'Accepted: Kaufman and Broad Building Company.' Attached to that letter was a check for $40,000 and the following separate letter which in substantial part read: 'Enclosed you will find an accepted, signed copy of your commitment letter dated May 27, 1966, together with our deposit check in the amount of $40,000. * * * Confirming your conversation with Gene Rosenfeld, the commitment obligates you to purchase all loans that are approved by FHA and/or VA.'

It is of interest to note that these negotiations proceeded against a background of an unstable money market. On June 10, 1966, the Federal National Mortgage Association lowered the market price on mortgage Following the exchange of letters a number of conferences and telephone conversations took place.

loans that they would accept. Consequently, the money market tightened and mortgage bankers had substantial difficulty thereafter obtaining 'back-up commitments.'

Between June 7, 1966 and July 28, 1966, defendant made several substantial yet unsuccessful efforts to obtain 'back-up' commitments from large institutional investors. In seeking these back-up commitments, defendant made statements to the effect that it had a 'binding commitment with K and B.'

In July 1966, K and B sent twenty-three loan applications to City & Suburban. Of these applications defendant rejected fifteen loans and sent them back to K and B marked 'insufficient credit.'

On July 25, 1966, K and B sent a telegram to City & Suburban Mortgage notifying it that K and B considered the rejection of the loans as a breach of the commitment agreement. K and B advised defendant that it would sell the rejected loans at the best attainable price and hold defendant liable for all damages resulting from defendant's 'arbitrary' refusal to process past, present and future loans submitted by K and B. K and B warned that further 'arbitrary (rejections)' would lead to legal proceedings.

On July 28, 1966, City & Suburban sent to K and B the $40,000 uncashed check and a letter of rescission.

Plaintiff filed this action on September 12, 1966. The pleadings are of substantial importance to the resolution of this appeal. The complaint alleges in paragraph 7 of plaintiff's designated 'First Cause of Action' that 'On June 7, 1966, plaintiff and defendant, * * * made and entered into a written contract, dated May 27, 1966, * * * A copy of said written contract * * * is attached hereto, * * *'

The complaint pleads a 'Second Cause of Action' which realleges the allegations contained in the 'First Cause of Action.' The 'Second Cause of Action' in effect pleaded that the intent of the parties at the time of the offer of May 27 and the acceptance of June 7 was that defendant would become obligated to fund all loans approved by either the VA or the FHA and that it would not have the right to impose its own credit criteria or to reject loans based on that criteria. This type of commitment is commonly referred to in the industry as an 'all credits commitment.'

By agreement of the parties the trial was bifurcated and proceeded at trial on the issue of liability, leaving the issue of damages to be dealt with at a later date.

Throughout the three week trial, evidence was introduced by both sides concerning (1) the substance of the several conversations between the parties on and after May 24; (2) the custom and usage in the industry concerning the failure by a mortgage banker to specifically reserve the right to impose an independent credit check on each FHA/VA home-buyer loan application; (3) the conduct of the parties following the May 24 conversation; and (4) the general stature and experience of the parties in the industry. All of this evidence was designed to establish the intent of the parties and the meaning that they attached to the phrase in the May 27 letter '* * * hereby commits to close 5 3/4% FHA/VA's * * *.'

At the conclusion of the evidence the trial court granted a motion for a directed verdict for the defendant on the 'First Cause of Action,' stating that it believed the plaintiff had abandoned its 'Second Cause of Action,' and having done so was confined to the 'four corners' of the contract.

The court further held that inasmuch as the 'First Cause of Action' did not plead ambiguity, the parol evidence could not be considered.

The court's granting of the motion for a directed verdict was based on the conclusion that in the last analysis the contract as pleaded was not ambiguous. Accordingly, the court ruled out the extrinsic evidence.

Subsequent to his ruling rejecting the extrinsic evidence the court found that, '* * * what happened here * * * is that the parties did have some discussions, and a written proposal was submitted, and it was silent on this very important question, very material question of all credits. So there either was not a meeting of the minds or there was a counter proposal or both. And in either event it wouldn't appear to be that a valid contract was established by the letter of May 27.'

Plaintiff has appealed from the judgment entered on November 22, 1968. The judgment decreed that '* * * plaintiff * * * recover nothing by reason of its Complaint, * * *' (Emphasis added.)

At the hearing on the motion for a new trial, the trial court entered an order purporting to be a dismissal of the plaintiff's 'Second Cause of Action' under section 581(4) of the Code of Civil Procedure. Plaintiff has not appealed from that order.

Whether this belated minute order constitutes an attempt by the trial court to comply with the provisions of section 581d of the Code of Civil Procedure and to make that order Nunc pro tunc to the time of the granting of the motion for the directed verdict, or whether it amounts to an improper attempt to modify the final judgment in contravention of the provisions of sections 657 and 662 of the Code of Civil Procedure, we need not decide.

It is patently clear (as will be pointed out below) that the trial court's action in decreeing that the plaintiff's 'Second Cause of Action' had been abandoned was such an integral part of the judgment ultimately rendered that the validity of the purported order of dismissal is properly before us on an appeal from the judgment.

DISCUSSION

The central issue on this appeal is whether the trial court in directing a verdict for the defendant improperly withdrew issues of fact from the consideration of the jury.

The trial court's directed verdict was fatally founded on (1) a misapplication of section 581(4) of the Code of Civil Procedure; (2) a misconception of plaintiff's pleadings, and (3) a misinterpretation of what were questions of law and what were questions of fact.

Section 581 of the Code of Civil Procedure provides in part:

'An action may be dismissed in the following cases: * * * 4. By the court, with prejudice to the cause, when upon the trial and before the final submission of the case, the plaintiff abandons it.' This statute is the foundation for the procedure of voluntary dismissal with...