WYDA Associates v. Merner

• Decision Date: 05 February 1996
• Docket Number: No. A063962,A063962
• Citation: 50 Cal.Rptr.2d 323,42 Cal.App.4th 1702
• Court: California Court of Appeals Court of Appeals
• Parties: , 96 Cal. Daily Op. Serv. 1491, 96 Daily Journal D.A.R. 2469 WYDA ASSOCIATES, Plaintiff and Appellant, v. Carl J. MERNER, Defendant, Cross-defendant, and Respondent; Litton/Fuller Group of Walnut Creek, Cross-complainant and Appellant.

Page 323

50 Cal.Rptr.2d 323

42 Cal.App.4th 1702, 96 Cal. Daily Op. Serv. 1491,

96 Daily Journal D.A.R. 2469

WYDA ASSOCIATES, Plaintiff and Appellant, v. Carl J. MERNER, Defendant, Cross-defendant, and Respondent;

Litton/Fuller Group of Walnut Creek, Cross-complainant and Appellant.

No. A063962.

Court of Appeal, First District, Division 3, California.

Feb. 5, 1996.

Rehearing Denied Feb. 29, 1996.

Review Denied May 22, 1996 ^*.

Peter A. Mankin, Sheldon & Mankin, Malcolm A. King, Walnut Creek, Gary S. Garfinkle, Lafayette, for plaintiff, cross-complainant, and appellants.

Scott A. Sommer, Miller, Starr & Regalia, Tobin & Tobin, Walnut Creek, for defendant, cross-defendant, and respondent.

CORRIGAN, Associate Justice.

The essence of this litigation revolves around when a contractual period to obtain financing for the purchase of real estate elapsed. Property owner, WYDA Associates (WYDA), and real estate brokerage, Litton/Fuller Group of Walnut Creek (Litton/Fuller), appeal from the grant of summary judgment in favor of buyer, Carl J. Merner, in a breach of contract action. We hold the trial court incorrectly interpreted the terms of the purchase agreement. Thus, we reverse and remand for further proceedings.

Statement of Facts

On May 23, 1991, Merner offered to purchase real property from WYDA for $2.9 million. ¹ That offer was, however, contingent upon Merner's inspection of the property and review of various documents pertaining to the property (the inspection contingencies) ² and his ability to obtain financing within certain specifications (the financing contingency). ³ According to the agreement, on the date the inspection contingencies were removed, two events were to occur: Merner was to deposit $60,000 in escrow and was then to be given 60 days to obtain financing.

Merner had 10 business days from his receipt of the specified documents on May 31 to complete his review and remove the inspection contingencies. However, on June 14 (the tenth business day), Merner asked for a three-week extension to further consider the purchase of the property.

Initially, Litton/Fuller prepared an agreement, which was signed by Merner on June 14, extending the time to remove the inspection contingencies until July 5. Litton/Fuller, believing WYDA would not agree to keep the property off the market for an additional three weeks without consideration, did not present WYDA with this agreement. Instead, they prepared a "Conditional Removal of the Inspection Contingencies and Option to Purchase" (the option), whereby Merner paid WYDA $1,000 in exchange for an option to purchase the property by July 5, under the same terms as the original agreement. The parties executed the option on June 21. Merner exercised that option on July 5 and deposited $60,000 into escrow.

On July 16, Merner signed a preliminary application for financing, which was then sent to American Savings Bank (American Savings). ⁴ On July 31, American Savings responded with a letter of interest, asking Merner to complete further documents and send a loan application fee within 10 days. Merner was aware that processing of the application would take approximately 60 days, as indicated on the application fee agreement he signed. On August 1, the parties executed a special addendum, extending the financing period from 60 to 90 days. However, that document did not indicate the date from which the financing period was running. On August 6, Merner sent American Savings the completed application and fee. ⁵

On or about September 10, Merner was notified by American Savings that the property contained asbestos throughout the ceilings of all buildings. As a result, American Savings sent Merner various "environmental loan documents" that would have to be executed if the loan was eventually approved. On September 19, Merner called American Savings and inquired about stopping the loan process. On September 23, Merner informed the title company he believed the 90-day financing contingency had expired and that the purchase agreement was null and void. ⁶

On October 2, 1991, American Savings approved the loan. ⁷ Merner, however, refused to proceed.

Procedural History

On May 8, 1992, WYDA sued Merner for breach of contract for "refusing to accept financing which was approved in accordance with the terms and conditions of the Agreement, and which was otherwise available to him to complete the sale...." Merner cross-complained against WYDA and Litton/Fuller, the brokerage that represented both parties to the contract. ⁸ Litton/Fuller cross-complained against Merner, alleging causes of action substantially the same as those alleged by WYDA. ⁹ Merner moved for summary judgment against both WYDA and Litton/Fuller (hereafter appellants).

It is important to set forth the specific contentions of the summary judgment motion in order to clarify the procedural posture of the case as it stands before us. The basis of Merner's motion was that the financing contingency period expired on September 19; thus, no contract existed when he informed appellants he was no longer interested in the property. Appellants countered by alleging the contingency period did not expire until October 3. They also contended that, even if the contingency period expired on September 19: (1) Merner had no right to invoke the 90-day contingency period because it was solely for the benefit of the seller; (2) Merner had prematurely breached the contract by attempting to withdraw on September 19; and (3) Merner had breached the implied covenant of good faith by failing to diligently pursue financing. Merner countered by alleging that, even if the contingency period expired on October 3, the loan was not approved by that time. Appellants did not move for summary judgment or summary adjudication of any issues.

Summary judgment was granted on April 19, 1993. After appellants' motion to reconsider, the trial court again granted summary judgment on September 24, 1993. The court found the option was unambiguous and that the contingency period began running on June 21, thus ending on September 19. The court also found the financing period was for the benefit of the buyer; thus, Merner had the right to invoke the expiration of the period in order to withdraw from the contract. Next, the court found there was no triable issue of material fact as to Merner's diligence in obtaining financing or as to Merner's alleged anticipatory breach. The court did not reach the question of whether the loan was, in fact, approved before October 3.

Judgment was entered in favor of Merner, and the escrow funds were released to him. The parties stipulated that Merner's cross-complaint would be dismissed without prejudice.

Discussion

A. Standards of Review

"On review of a summary judgment in favor of the defendant, we review the record de novo to determine whether the defendant has conclusively negated a necessary element of the plaintiff's case or demonstrated that under no hypothesis is there a material issue of fact that requires the process of trial. [Citation.]" (Ann M. v. Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 673-674, 25 Cal.Rptr.2d 137, 863 P.2d 207.) Because the trial court's determination is one of law based upon the moving papers, the reviewing court must make its own determination and, in doing so, must strictly construe the papers of the moving party and liberally construe those of the opponent. (Krongos v. Pacific Gas & Electric Co. (1992) 7 Cal.App.4th 387, 390, fn. 1, 9 Cal.Rptr.2d 124.) We do so mindful that " '[s]ummary judgment is a drastic measure which should be used with caution so that it does not become a substitute for trial.' " (Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 610, 7 Cal.Rptr.2d 859.)

When considering a question of contractual interpretation, we apply the following rules. "A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." (Civ.Code, § 1636.) "The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." (Civ.Code, § 1638.) "When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible...." (Civ.Code, § 1639.)

Parol or extrinsic evidence is admissible to resolve an ambiguity. (Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 435, 204 Cal.Rptr. 435, 682 P.2d 1100; Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 38, 69 Cal.Rptr. 561, 442 P.2d 641; Code Civ.Proc., § 1856, subd. (g).) In such cases, the court engages in a two-step process: "First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine 'ambiguity,' i.e., whether the language is 'reasonably susceptible' to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is 'reasonably susceptible' to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step--interpreting the contract. [Citation.]" (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165, 6 Cal.Rptr.2d 554.) The trial court's determination of whether an ambiguity exists is a question of law, subject to independent review on appeal. (Ibid.) The trial court's resolution of an ambiguity is also a question of law if no parol evidence is admitted or if the parol evidence is not in conflict. However, where the parol evidence is in conflict, the trial court's resolution of that conflict is a question of fact and must be upheld if supported by substantial evidence. (Id. at p. 1166, 6 Cal.Rptr.2d 554.) Furthermore, "[w]hen two equally plausible interpretations of the language of a contract may be made ... parol evidence is admissible to aid in interpreting the agreement, thereby presenting a...