UJHAZI v. BUNKER

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Court of Appeal, Sixth District, California.

Jane M. UJHAZI, et al., Plaintiffs and Appellants, v. Ray BUNKER, et al., Defendants and Appellants.

No. H009766.

Decided: December 13, 1993

Craig J. Bassett, Morgan Hill, for plaintiffs and appellants. Charles R. Dean, Jr., Cheryl L. Mattson, Hoge, Fenton, Jones & Appel, Inc., San Jose, for defendants and respondents.

 Plaintiffs sued defendants, their real estate agent and broker, for professional negligence after plaintiffs incurred substantial costs to finance their holding of the lot they purchased during the period between the close of escrow and site approval.   Plaintiffs originally premised liability on defendants' failure to advise plaintiffs to obtain geological reports prior to the close of escrow.   However, the trial court allowed plaintiffs to amend the complaint at the beginning of trial to allege that defendants had been negligent in failing to ensure that County site approval was obtained prior to the close of escrow pursuant to a condition in the purchase contract.   The jury rendered a verdict in favor of plaintiffs from which both parties appeal.   Defendants challenge the sufficiency of the evidence.1  Plaintiffs claim that the trial court erred in (1) refusing to allow them to amend the complaint to allege a cause of action for negligent misrepresentation and refusing to instruct the jury on negligent misrepresentation, (2) instructing the jury on comparative negligence, (3) excluding some of plaintiffs' damages evidence and (4) refusing to award plaintiffs their attorney's fees pursuant to an attorney's fees clause in the land purchase agreement.   We conclude that the trial court's limitation of plaintiffs' damages evidence was erroneous and that plaintiffs are therefore entitled to a new trial on damages.   In the published section of this opinion, we hold that plaintiffs were entitled to recover their attorney's fees pursuant to the attorney's fees clause in the purchase contract.

FACTS

Plaintiffs engaged the services of defendant Ray Bunker as their real estate agent.   Bunker showed plaintiffs a 20 acre lot in the Hayes Valley Ranch subdivision.2  The lot was bisected by a road.   The two portions of the lot were quite different.   The 12 acre portion of the lot was steep and barren, and plaintiffs did not like it.   The other portion of the lot contained a meadow (hereafter the meadow site) which was the only portion of the property which plaintiffs found attractive.   Plaintiffs told Bunker that the meadow site was the only place they wanted to build a home and that they had no interest in the other portion of the lot.

Bunker represented plaintiffs in their negotiations for the purchase of the lot.   Bunker drew up plaintiffs' offer knowing that plaintiffs wanted to build a residence on the meadow site.3  Bunker inserted a clause into the offer which stated that “this contract and offer is subject to County Site Approval and free of conditions restricting the building of a single family dwelling.” 4  Bunker also added a clause which gave plaintiffs the right to obtain geological studies prior to the close of escrow.   However, Bunker did not at any time advise plaintiffs to obtain geological reports.5  Bunker also said nothing to plaintiffs about obtaining County site approval.   Plaintiffs had no idea what “site approval” meant, and they were unaware that the meadow site had not been approved by the County prior to the close of escrow.6  Plaintiffs believed that the site approval clause in the contract meant that once escrow closed they could start building on the meadow site right away.7  Prior to the closing of escrow, Bunker assured plaintiffs that everything was fine and that they would be in their yet to be constructed new home by Christmas, just five months after escrow was due to close.

Plaintiffs financed the land purchase by obtaining a bank loan for 50 percent of the purchase price and giving the sellers a note for 50 percent of the purchase price secured by plaintiffs' home.   No geological studies were done, and escrow closed in early August 1988 without site approval being obtained from the County.   In early September 1988, plaintiffs learned that the meadow site was the site of an extensive ancient landslide.   Because of the existence of a landslide on this site, plaintiffs were required to pay for extensive geological studies as a prerequisite to site approval by the County.   It took nearly two years for plaintiffs to obtain site approval from the County, although site approval ordinarily takes from ten to twelve months 8 , and plaintiffs incurred substantial costs to finance their holding of the property during this period.

In September 1989, plaintiffs filed an action for professional negligence against Bunker and the real estate broker for whom he worked.   Plaintiffs alleged that Bunker had negligently failed to obtain geological studies or advise plaintiffs to obtain geological studies of the land during the period allowed for in the purchase contract.   A copy of the purchase contract was attached to the complaint and incorporated therein by reference.   The purchase contract contained an express condition requiring “County Site Approval.”

Trial commenced in January 1992.   Defendants moved in limine to limit plaintiffs' proof to the theories of liability alleged in the complaint.   Defendants asserted that plaintiffs should not be permitted to premise liability on Bunker's conduct with respect to the site approval condition since no such allegation appeared in the complaint.   Plaintiffs objected to such a limitation.  “If the Court restricts us on this issue, we have no case.   We might as well walk out of here and ask the appellate court to review this whole matter.”   The trial court initially excluded the site approval issue.   Plaintiffs protested this ruling.  “We are not ready to proceed, Your Honor.   We don't have a case.”   Plaintiffs moved for a mistrial.   The court first granted a mistrial and then retracted its ruling.   The court thereafter allowed plaintiffs to amend the complaint pursuant to Code of Civil Procedure section 473 to allege professional negligence based on Bunker's failure to ensure that County site approval was obtained prior to the close of escrow.9  Defendants were offered a continuance, but they refused it in favor of proceeding to trial.

Expert testimony at trial established that Bunker's failure to ensure that specific site approval was obtained prior to the close of escrow was conduct below the minimum standard of care for a real estate agent.10  In addition, one of defendants' experts opined:  “I would not want [a buyer] to close escrow if ․ they already knew where they wanted to build.   Then I would ask them probably to get specific site approval, or I would recommend that.” 11

The trial court excluded some of plaintiffs' damages evidence.   Plaintiffs were not permitted to introduce evidence that they had paid (1) escrow fees, (2) expenses related to the abatement of a grading violation which was disclosed by the sellers prior to plaintiffs' acceptance of their counter-offer and (3) the cost of geological and soils reports.   Over plaintiffs' objections, the trial court also restricted plaintiffs' evidence of the cost of holding the property pending site approval to a 12 month period based on the testimony of plaintiffs' expert that it ordinarily takes about 12 months to obtain site approval.

Defendants' nonsuit motion at the close of plaintiffs' case was denied.   At plaintiffs' request, the trial court instructed the jury on the measure of damages pursuant to Civil Code section 3333.12  Instructions on comparative negligence were given over plaintiffs' objection.   The court refused to instruct the jury on negligent misrepresentation “on the basis that the evidence before us and the pleadings were a professional negligence cause of action.”   The jury returned a verdict in plaintiffs' favor for $38,858.93.13

Defendants' motions for judgment notwithstanding the verdict and for a new trial were denied.   Plaintiffs filed a memorandum of costs in which they claimed $25,250 in attorney's fees in reliance on the attorney's fees clause in the purchase contract.   Defendants moved to tax those costs arguing that an attorney's fees award was not authorized by statute or contract.   The trial court found that “the broker defendants were not parties to this contract ․ [and] it was not a suit on a contract;  it was a suit for a breach of fiduciary duty and negligence for which attorney's fees do not lie.”   The court disallowed plaintiffs' claim for attorney's fees.   Both parties filed timely notices of appeal.14

DISCUSSION

A.–D.**

E. ATTORNEY'S FEES

 Plaintiffs assert that they were entitled to recover their attorney's fees.  “Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties․”  (Code Civ.Proc., § 1021.)   Plaintiffs' entitlement to their attorney's fees depends on (1) whether the attorney's fees clause in the purchase contract was an agreement between plaintiffs and defendants regarding attorney's fees and (2) whether this action was one “arising out of” the purchase contract.

The purchase contract expressly provided that “[i]n any action or proceeding arising out of this agreement, the prevailing party shall be entitled to reasonable attorney's fees and costs.”   The purchase contract served three functions.   It was a deposit receipt for plaintiffs' earnest money, an agreement for the purchase of the lot and an agreement by the seller to compensate the seller's broker.21  The main body of the contract contained both the deposit receipt and the specific clauses pertinent to plaintiffs' purchase of the lot including the site approval condition.   Defendants were obligated under the contract to place plaintiffs' earnest money in escrow upon receipt of the sellers' acceptance, which defendants were authorized by the contract to receive on plaintiffs' behalf.   The aforementioned attorney's fees clause appeared in the main body of the contract.   Plaintiffs' and defendants' signatures appear side-by-side on the last page of the contract just above the seller's acceptance.   In our view, these facts reflect that defendants were bound by the attorney's fees clause in the purchase contract.

Defendants rely on Super 7 Motel Associates v. Wang (1993) 16 Cal.App.4th 541, 20 Cal.Rptr.2d 193 (hereafter Super 7 ) to support their claim that they were not bound by the attorney's fees clause.   Their reliance is misplaced because Super 7 is readily distinguishable from the instant matter.  Super 7 was a tort action by the buyer of real property against the seller's broker.   The appellate court held that the seller's broker, Wang, could not recover attorney's fees from the buyer pursuant to an attorney's fees clause in the main body of the purchase contract.   While the purchase contract in Super 7 was substantially similar to the one involved here, the relationships between the parties were not similar to those involved in this case.   Wang, unlike defendants herein, was not a signatory to the main body of the contract but signed only the “ACCEPTANCE” portion of the contract which obligated the seller to pay Wang his commission.   A separate attorney's fees clause in that portion of the contract was expressly limited to seller and Wang.   The Super 7 court concluded that the “ACCEPTANCE” portion of the contract was an entirely separate agreement from the main body of the contract.   As Wang was only a signatory to the “ACCEPTANCE” portion of the contract and a separate attorney's fees clause applied to that agreement, the court found that Wang was not a party to the attorney's fees clause in the main portion of the purchase contract.

In contrast, defendants were signatories to the main portion of the purchase contract involved herein and were obligated under the purchase contract to place plaintiffs' deposit in escrow upon acceptance by the sellers.   No separate attorney's fees clause applied to defendants' obligations.   Furthermore, since defendants prepared the purchase contract, any ambiguities in the contract with respect to the applicability of the attorney's fees clause must be construed against defendants.  (Civ.Code, § 1654;  Holloway v. Thiele (1953) 116 Cal.App.2d 68, 71, 253 P.2d 131.)   Such a construction supports our conclusion that the attorney's fees clause in the purchase contract constituted an agreement between plaintiffs and defendants with respect to attorney's fees.

The next question is whether this action is one “arising out of” the purchase contract.   We find considerable guidance on this issue in Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338, 5 Cal.Rptr.2d 154.   Therein, the purchasers of real property brought a tort action against their real estate broker.   The broker prevailed and sought attorney's fees pursuant to an attorney's fees clause in the purchase contract.22  The trial court denied the broker's request for attorney's fees, but the appellate court reversed and ordered the trial court to award reasonable attorney's fees.   The appellate court explained that Code of Civil Procedure section 1021 leaves the allocation of attorney's fees to the agreement of the parties in all cases.   Since nothing in the statute limits such agreements to contract actions, the parties “may validly agree that the prevailing party will be awarded attorney fees incurred in any litigation between themselves, whether such litigation sounds in tort or in contract.”  (Id. at p. 1341, 5 Cal.Rptr.2d 154.)

The Xuereb court proceeded to construe the language of the attorney's fees clause therein at issue.   That clause provided for attorney's fees in any lawsuit which the purchase contract “gives rise to․”  (Id. at p. 1340, 5 Cal.Rptr.2d 154.)   Noting that this kind of language is usually used in a “general, transactional sense”, the court went on to examine the circumstances under which the attorney's fees clause had been agreed to by the parties.  “The circumstances of the Purchase Agreement and the matter to which it related was a large real property transaction, in which the buyer and the seller made certain reciprocal agreements with respect to the inspection of the premises and a variety of contingencies which were supposed to take place prior to the close of escrow.   It was out of these contingencies, or the alleged failure thereof, that the lawsuit arose.”   Since the lawsuit arose from a condition in the purchase contract, the action was governed by the attorney's fees clause in the contract.  (Id. at p. 1344, 5 Cal.Rptr.2d 154.)

 The “gives rise to” language in the Xuereb attorney's fees clause is equivalent to the “arising out of” language in the attorney's fees clause before us.  (Id. at p. 1344, 5 Cal.Rptr.2d 154.)   We agree with the Xuereb court that this language is intended to have a broad scope.   In addition, unlike the Xuereb court, we are guided in our construction of the clause by the fact that defendants prepared the purchase agreement in which the attorney's fees clause is set forth, and thus any ambiguity must be resolved against them.  (Civ.Code, § 1654;  Holloway v. Thiele, supra, 116 Cal.App.2d at p. 71, 253 P.2d 131.)   This action, like the one in Xuereb, arose out of a failure to ensure that a condition set forth in the purchase contract was satisfied prior to the close of escrow.   Under these circumstances, we hold that this action was one “arising out of” the purchase contract, and therefore one to which the attorney's fees clause applied.

The attorney's fees clause in the purchase contract was an agreement between plaintiffs and defendants regarding attorney's fees.   That clause applied to this action.   Consequently, plaintiffs are entitled to recover their attorney's fees.

DISPOSITION

The judgment is reversed.   The trial court is directed to order a new trial on damages unless defendants consent to modification of the judgment to increase the damages award by $19,197.40.   The trial court is also directed to award plaintiffs their trial and appellate attorney's fees and costs.

FOOTNOTES

1.   Defendants' briefing is disorganized and clearly violates the standards for appellate briefing set forth in the California Rules of Court.  “When a cross-appeal is taken ․, the respondent, as cross-appellant, need not file a separate brief on the cross-appeal but may include, in a separate section of his reply brief, the points he desires to raise on his cross-appeal.   The appellant, as cross-respondent, may reply thereto in a separate section of his reply brief, and the cross-appellant may file a reply brief confined to points on his cross-appeal.”  (Cal.Rules of Court, rule 14(c), emphasis added.)   Defendants are the respondents in plaintiffs' appeal and are also cross-appellants.   Defendants chose not to file a separate opening brief on their cross-appeal.   Instead, they included in their reply brief their arguments regarding their cross-appeal.   However, in violation of California Rules of Court, rule 14(c), they did not place these cross-appeal arguments in a separate section of their reply brief but interspersed those arguments throughout their reply brief without referencing which points were part of their reply and which points were part of their cross-appeal.   Then, in their next brief, defendants did not limit themselves to the issues in their cross-appeal.   They included arguments on all of the issues.When a party files defective briefs, such as those filed by defendants, the court has the option to return the briefs to counsel for correction, to order the briefs stricken with leave to file new briefs or to disregard the defects and consider the briefs as if they were properly prepared.  (Cal.Rules of Court, rule 18.)   Although these defects are quite serious, in the interests of efficiency and judicial economy, we choose to disregard the defects and treat defendants' briefs as if they had been prepared properly.   We caution counsel, however, that such practices will not be tolerated in the future.

2.   Because the Hayes Valley Ranch subdivision was an approved subdivision, each of the lots contained at least one buildable site since that was a requirement for the lots to be legally saleable.   James Berkland, a Santa Clara County geologist, testified that lots in an approved subdivision have “implicit site approval.”   When asked to explain this term, Berkland testified that he made up the term “implicit site approval” and that all it meant was that “perhaps somewhere on the lot, you could build, as long as you met the county's conditions.”

3.   Bunker tried to minimize the effect of this knowledge by referring to plaintiffs' desire to build on the meadow site as “a preference.”

4.   Bunker testified that he did not intend this clause to require “specific site approval” but only “general site approval.”   When he was asked to explain the difference, Bunker stated that general site approval was equivalent to Berkland's “implicit site approval.”   Bunker admitted that he knew when he drafted this clause that the lot was in an approved subdivision.   Hence, if the clause only required that the lot be a legally saleable lot, it required nothing at all.

5.   Of course, Bunker testified to the contrary.

6.   Bunker, however, testified that, at some point, he had explained the difference between “specific site approval” and “general site approval” to plaintiffs.   Defendants also introduced evidence that plaintiffs' architect had the “impression” that plaintiffs “understood what was involved with site approval.”

7.   Plaintiffs' expert testified that there is no such thing as “general site approval” and that “site approval” means that the County has approved the specific building site.

8.   Defendants' expert testified that site approval usually takes only seven to eight months.

9.   Plaintiffs stated that they were not basing their action on fraud, but, “if the truth comes out that [certain statements] were made, then it would be an actionable fraud and deceit, and we would move at that time to amend according to proof.”  (Emphasis added.)

10.   Defendants' experts testified that Bunker had not violated the standard of care.

11.   This expert testimony came in when the deposition testimony of one of defendants' experts was read into the record.

12.   Defendants argued in the trial court that damages should have been measured by the benefit of the bargain.   The trial court ruled that the relevant measure of damages was Civil Code section 3333.

13.   Plaintiffs' admitted damages evidence established that they had suffered $43,168.59 in damages.   Apparently the amount of the verdict was based on a 10 percent reduction for plaintiffs' comparative negligence.

14.   Since plaintiffs filed their notice of appeal first, they are the appellants and defendants are the cross-appellants.

FOOTNOTE.   See footnote *, ante.

21.   The seller's agreement with the seller's broker appeared beneath the signatures of defendants and plaintiffs in a section of the agreement denoted “ACCEPTANCE”.   The “ACCEPTANCE” portion of the agreement contained a separate attorney's fees agreement between the seller and the seller's broker.

22.   This attorney's fees clause specifically referred to the agent.  “If this Agreement gives rise to a lawsuit or other legal proceeding between any of the parties hereto, including Agent, the prevailing party shall be entitled to recover actual court costs and reasonable attorneys' fees․”  (Id. at p. 1340, 5 Cal.Rptr.2d 154, emphasis added.)

MIHARA, Associate Justice.

COTTLE, P.J., and BAMATTRE–MANOUKIAN, J., concur.