Lowe v. Massachusetts Mut. Life Ins. Co.
Decision Date | 23 January 1976 |
Citation | 127 Cal.Rptr. 23,54 Cal.App.3d 718 |
Court | California Court of Appeals Court of Appeals |
Parties | Karl K. LOWE, Plaintiff and Appellant, v. MASSACHUSETTS MUTUAL LIFE INS. CO., Defendant and Respondent. CONTRACT DESIGN ASSOCIATES, LTD., Plaintiff and Appellant, v. MASSACHUSETTS MUTUAL LIFE INS. CO., Defendant and Respondent. Civ. 32332. |
Mitchell & Smith, by David L. Smith, San Jose, Jack I. Rosen, Encino, for plaintiffs and appellants.
George L. Cooke, San Francisco, for respondent.
Appellants Karl K. Lowe and Contract Design Associates, Ltd., as assignees of an applicant for a real estate loan from respondent insurance company, have each appealed from separate judgments, entered after a consolidated trial by the court, which denied their claim that their assignor was entitled to the return of $94,000 deposited with the company in connection with its commitment to lend the assignor $4,700,000 upon compliance with the conditions stated in the agreement between the company and the assignor.
They contend that the trial court erred in finding that the commitment agreement constituted an option and in finding that the amount deposited and retained by the company did not constitute liquidated damages and, as such, a penalty proscribed by law. They also assert that the court erred in denying their motion for a new trial because there were irregularities in the proceedings which prevented them from having a fair trial, and because there was insufficient evidence to justify the decision. An examination of the record in the light of applicable principles of law reflects that there is no merit to these contentions. The judgments must be affirmed. It is therefore unnecessary to examine the respondent's counter-contention that the trial court erred in preventing the company from examining into the validity and effectiveness of the assignment relied upon by claimant Lowe.
The trial court found that on or about August 2, 1962, plaintiffs' assignor made a written application to the life insurance company for a real estate loan in the amount of $4,850,000. The application contained the following provision: $48,500 was paid with the application.
Under date of October 31, 1962, the company wrote the applicant that the application had been approved on a modified basis. This letter, which was approved by the applicant on November 12, 1962, reduced the amount of the loan to $4,700,000, provided that the commitment would be firm until March 31, 1964, and that funds would be disbursed between January 1 and March 31, 1964, on a date selected by the lender, upon compliance with requirements set forth in the commitment letter. These requirements consisted of the completion of a projected 250 room hotel, an office building and underground garage all to approved specifications, of the delivery as collateral security of a chattel mortgage on the chattels used in the hotel and assignments of leases with designated tenants for the hotel, garage and a portion of the office building, and with other tenants, to be approved, up to minimum prescribed standards of space and gross rents. In addition the prospective borrower was to deposit an additional $45,500 to increase the total stand-by deposit to $94,000. That sum was paid by the assignor.
The court expressly found that under the terms of the commitment letter defendant was contractually obligated to lend $4,700,000 upon the applicant-assignor's compliance with the conditions stated in the letter of commitment dated October 31, 1962. This finding is not questioned by the assignees. In fact the record reflects that after assignments to plaintiff Lowe dated December 31, 1962, and January 2, 1963, and a demand by Lowe for payment in May 1963, the commitment was in fact extended for two years to March 31, 1966, but the project was never completed as contemplated.
The court further found that plaintiffs' assignor was not contractually bound or obligated to either meet the conditions stated in said commitment letter or to accept the loan which the company was committed to make; that the commitment letter, when accepted by plaintiffs' assignor, constituted an option by which the company was irrevocably committed to the assignor to lend the sum of $4,700,000 when and if it met and performed the conditions contained in that letter; that the sum of $94,000 paid by plaintiffs' assignor constituted the agreed consideration for said stand-by commitment; and that the sum of $94,000 paid by plaintiffs' assignor to the company did not constitute liquidated damages.
--
A--
Plaintiffs attack the findings last referred to by attempting to establish that there was a bilateral contract, under which their assignor was bound not only to carry out all the conditions in the commitment letter, but also to borrow exclusively from the company which furnished him the letter. We have not been referred to any provision of the original application or the commitment letter under which the assignor expressly agreed to so perform.
'The outstanding factor is that the optionee is not bound until he acts on the option one way or another.' (Williston, Op.cit., § 61B, pp. 199--200, and see authorities cited above passim.) 'It is universally accepted that an option agreement is a contract distinct from the contract to which the option relates, since it does not bind the optionee to perform or enter into the contract upon the terms specified in the option.' (Warner Bros. Pictures v. Brodel, supra, 31 Cal.2d 766, 771--772, 192 P.2d 949, 951.)
The findings of the court are therefore sustained by the terms of the agreement itself. It nowhere bound the plaintiffs' assignor to perform the conditions precedent to the company's obligation to furnish the funds, or to solely rely on the company as the source of funds if the project was completed. In such event if a take-out loan on more favorable terms had been available from another lender, the developer was free to take such a loan, subject only to the loss of the stand-by deposit.
In Goldman the court concluded, (251 Md. at p. 581, 128 A.2d at p. 158. See also Chambers & Co. v. Equitable Life Ass'n Soc. (5th Cir. 1955) 224 F.2d 338, 343; Paley v. Barton Savings & Loan Ass'n (1964) 82 N.J.Super. 75, 83--84, 196 A.2d 682, 686--687; and Frank's Nursery Sales, Inc. v. American Nat. Ins. Co. (E.D.Mich.1974) 388 F.Supp. 76, 84.
Although the courts of this state apparently have not reviewed the validity of a stand-by charge given in consideration for an option to secure a loan, similar charges have been upheld in other settings. In Welk v. Fainbarg, supra, the purchasers made a deposit of $20,000 on a purchase price of $480,000 for a parcel of land. They sought recovery of the deposit after failure to close the escrow within the stipulated time. On a review of all the evidence the court sustained the trial court's finding that the deposit was the unrefundable consideration for an option to purchase. It based that decision on the following conclusion, 'In view of the patent inconsistency between the printed provisions of this instrument and its typed provisions, the latter of which are controlling, and the objective manifestations of the parties' intention at the time of the execution of the instrument properly in evidence, the conclusion is inescapable that the agreement could not be enforced against the...
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