Reid v. Landon

• Decision Date: 23 December 1958
• Citation: 333 P.2d 432,166 Cal.App.2d 476
• Court: California Court of Appeals Court of Appeals
• Parties: Helen REID and B. Louise Merry, Plaintiffs and Appellants, v. Winifred Alicia LANDON, Defendant and Respondent. Civ. 23072.

Page 432

333 P.2d 432

166 Cal.App.2d 476

Helen REID and B. Louise Merry, Plaintiffs and Appellants, v. Winifred Alicia LANDON, Defendant and Respondent.

Civ. 23072.

District Court of Appeal, Second District, Division 1, California.

Dec. 23, 1958.

Carleton B. Wood and Paul D. Kolyn, Santa Barbara, for appellants.

Cornwall & Westwick, Santa Barbara, for respondent.

LILLIE, Justice.

Plaintiffs filed an action for specific performance of an option agreement and, in the alternative, for damages for its breach. Defendant's answer set up a general denial and inadequacy of the consideration specified in the agreement and, in addition, alleged that the agreement had been rescinded for fraud and mistake. Plaintiffs appeal from the court's judgment in favor of defendant.

Viewing the evidence in the light most favorable to respondent, and indulging all intendments and reasonable inferences in favor of sustaining the findings (Clark v. Redlich, 147 Cal.App.2d 500, 305 P.2d 239), the following is a brief summary of the pertinent facts surrounding the execution of the agreement.

Defendant owned a fifteen-acre ranch in Santa Ynez Valley, upon which she and one Miss Burt resided. As a gift, and for no consideration, defendant deeded one acre thereof to plaintiffs, close friends of hers, who lived and worked in the city. At defendant's invitation, plaintiffs decided to retire to defendant's ranch and open a tearoom. They moved into her home in 1946. Because of the intimate friendship existing among the four women, and defendant wanting them all to share equally with her in the ranch, in May, 1947, without receiving any monetary consideration therefor, she deeded the entire ranch to the four in joint tenancy. At this time plaintiffs relinquished their one acre. Shortly thereafter, plaintiffs constructed a tearoom, hereinafter called Orchard House, on a portion of the premises and opened it for business in the fall of 1947. Miss Burt died shortly thereafter and she is not involved in this litigation. Defendant had no interest in the tearoom and has never claimed any, but in order to help her friends finance it she contributed some of her own money, all of which has been repaid; and with her permission a mortgage was placed on the ranch. Although the ranch was held in joint tenancy, the tearoom was not a joint venture, but was constructed and operated entirely by the two plaintiffs.

In July, 1951, desiring to have in their names alone the land upon which Orchard House was located, plaintiffs proposed to defendant that she deed it to them in return for their deed to the remainder of the ranch. Since defendant at no time had or wanted any interest in Orchard House, she orally agreed with them to exchange deeds. Defendant told them she would have her attorney attend to it. An informal accounting then resulted in the settlement of all accounts, including proration of taxes, insurance, and reimbursement of any money due her; and plaintiffs agreed to pay her $1,000. Thereafter, but during the same conversation, plaintiffs discussed with defendant the one acre lying between Orchard House and the highway.

A factual conflict arises here, but the trial court found, and there is ample evidence thereof in the record, that there was no mention between plaintiffs and defendant of either any option to buy the acre in question or any sale price therefor; and that defendant at no time ever wanted, or intended, to sell the same. The evidence further discloses that after the reciprocal deeds and informal accounting were each discussed and agreed upon plaintiffs then asked defendant if she would sell them the acre between Orchard House and the road. She said she would not and furthermore, it had been leased for five years. Plaintiffs then asked her if they could have the right of first refusal thereon, stating that in return therefor they would give her the right of first refusal on Orchard House. Defendant told them she was not interested in a first refusal right on Orchard House for had she any interest in it she would not have agreed to deed it to them in the first place. She further advised them that she did not want or intend to sell the acre in question. Finally, to keep harmony she agreed to give them a right of first refusal in the event she ever decided to sell. Defendant testified that she at no time agreed to give plaintiffs an option to buy and that the word 'option' was never mentioned, nor was the subject of an 'option' ever discussed.

Several days thereafter, defendant went alone to her attorney and discussed the various informal agreements, including the proposed reciprocal rights of first refusal, and accordingly asked him to draw the papers. After she left his office, he prepared certain deeds and documents, including a letter agreement which gave plaintiffs a right of first refusal on the acre and defendant a right of first refusal on Orchard House. None of these instruments made any mention of an option to buy.

Thereafter, and without the knowledge of defendant, plaintiffs went to see defendant's attorney who read to them the letter agreement which he had prepared at the request of defendant; and gave them the ranch quitclaim deed to sign. Plaintiffs thereupon told him the letter agreement was in error, that defendant had agreed that they were to have an option to buy the acre instead of only the right of first refusal. Relying on plaintiffs' word, defendant's counsel, without further advising her or consulting with defendant, and without her knowledge, drew a new letter agreement, giving plaintiffs an option to purchase the acre for $200, and defendant a right of first refusal on Orchard House. He mailed the executed quitclaim deed, the grant deed to Orchard House to be signed by defendant, the new option letter agreement and a letter of instruction, not to defendant his client, but to plaintiffs, who first took the documents to their own lawyer for advice and then presented them to defendant for her signature. Defendant had not seen or heard from her counsel since she asked him to prepare the documents and she did not know of the change in the letter agreement; nor did plaintiffs advise her they had been to see her counsel, that they had requested him to change the terms of the letter agreement as opposed to those she asked her lawyer to prepare, that he had done so, or that the document was any different than the one she had originally authorized him to draw. In presenting the letter agreement and other documents to her for her signature, plaintiffs told defendant they were the papers drawn by her lawyer to put their agreement in formal form, and that they all should sign them. Defendant read the documents, including the letter agreement. She saw the word 'option' but believed the term to mean the same as a 'right of first refusal' upon which they had originally agreed, which she discussed with her counsel and concerning which she asked him to prepare the letter agreement. Since she had not previously discussed any option with plaintiffs, she did not understand the word 'option' to mean an option to buy, as explained to her later, or that there was any distinction between that term and the refusal right. She thought she was signing an agreement giving plaintiffs only a right of first refusal.

Relying upon plaintiffs' representations and believing it to be the same document she had instructed her attorney to prepare, she executed the letter agreement, having 'utter faith' in her friends and her lawyer. She also signed the grant deed and letter of instruction to her counsel, which incidentally referred to the letter agreement as containing 'certain first refusal rights' without any mention of an option. Thereafter, the parties continued to live together for five years during which time no mention was made of any option. However, on August 7, 1956, plaintiffs wrote to defendant advising her they were taking up the option to buy under the letter agreement. This was defendant's first knowledge that the letter agreement actually contained an option to buy, as such. A controversy arose and plaintiffs moved out of defendant's home. Defendant refused to convey the acre and on September 27, 1956, served a notice of rescission of the agreement on plaintiffs.

The trial court found against the material allegations of plaintiffs' complaint and specifically found that the price of $200 for the acre in question was neither reasonable nor adequate consideration therefor, and that the alleged option agreement was neither just nor fair to defendant. Plaintiffs offered no evidence on the issue of damages and the court found they had sustained none. Appellants attack none of these findings. As to the affirmative defenses set up in the answer, the trial court found that plaintiffs' statements to defendant's lawyer that they were to have an option to purchase the acre for $200 were false, although not knowingly and deliberately so; that defendant relied upon the statements in signing the letter agreement and would not otherwise have signed it; and that at all times defendant mistakenly believed she was executing only a right of first refusal. The trial court concluded that the agreement was not fair or equitable to defendant and the consideration for the property was inadequate; that defendant signed the agreement while laboring under a mistake of law and fact; that plaintiffs were not entitled to specific performance thereof or damages; that plaintiff had no right, title or interest in the one acre and defendant had rescinded the agreement on September 27, 1956, on the ground of mistake.

Although plaintiffs have appealed from the entire judgment, they seek to reverse only that portion of the judgment resulting from the trial court's findings and conclusions arising out of the affirmative defenses set up in defendant's answer. They attack only that portion of the judgment declaring the rescission of the option letter...