HANDY v. GORDON

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

C. Jon HANDY, Plaintiff and Appellant, v. M.E. GORDON and Edith Gordon, Defendants and Respondents.

Civ. 30019

Decided: July 07, 1966

William L. Stein, Beverly Hills, for appellant. Heily & Blase and William C. Hoelsken, Oxnard, for respondents.

Plaintiff sued to compel specific performance of a contract of sale of real property owned by defendants.   Demurrers having been sustained, plaintiff twice amended his complaint;  defendants filed their motion for judgment on the pleadings which was granted.   Thereafter, the trial judge granted plaintiff's motion for reconsideration, vacated the prior order and denied defendants' motion;  then upon defendants' motion the judge again reconsidered the matter, vacated his prior order and granted the motion.   Pursuant thereto judgment on the pleadings was entered and the court rendered a memorandum opinion.1  We treat plaintiff's appeal as one properly taken from the judgment.

The sole question is the sufficiency of the second amended complaint to state a cause of action for specific performance;  the determination of this issue turns on whether the land sale agreement is uncertain as a matter of law.

 The second amended complaint for specific performance alleges a written contract (Escrow Instructions) dated January 21, 1964, a copy of which is attached thereto and incorporated therein as Exhibit A.   Under this agreement defendants agreed to sell to plaintiff 320 acres of real property, excepting therefrom 3 acres containing defendants' home which was to be retained by them.   The agreement also contains a subordination provision.

The subordination clause, part of the then recommended from (Exh. A) of Security Title Insurance Company, provides that the deed of trust shall be subordinate to a new deed or deeds of trust to be thereafter executed covering any lot into which the land shall be subdivided, each securing a loan primarily for the purpose of constructing improvements, and after completion of the improvements, to a new deed or deeds of trust securing a loan primarily for the purpose of refinancing.   While the terms and conditions of these proposed loans are thereinafter described, some omissions of detail appear.   The issue presented by the lower court's ruling is whether these omissions constitute an inherent infirmity affecting the entire contract as to render it uncertain as a matter of law and incapable of enforcement in equity.  (Magna Development Co. v. Reed, 228 Cal.App.2d 230, 232, 39 Cal.Rptr. 284.)   In the light of controlling authority, we do not regard any omission of detail in the terms of the proposed superior encumbrances as defects which necessarily render the land sale agreement so uncertain as to deny specific enforcement;  they relate not to terms upon which the parties have failed to agree but to details the parties have contracted to leave to the lenders or to usage and custom in the area of such loans or to the negotiation of the buyers and lenders.

 Each initial construction loan is “to have a final maturity date not more than 6 years from the date of said note,” and each refinancing loan, “not more than 35 years from the date of said note.”   these maturity provisions setting out the maximum terms are similar to that in the subordination clause in Burrow v. Timmsen, 223 Cal.App.2d 283, 35 Cal.Rptr. 668, 100 A.L.R.2d 544, in which the construction loan and/or permanent loan was not to exceed a “maximum maturity date of 30 years.”   The subordination provision was held to be sufficiently certain for specific performance.  “The modern trend of the law is to favor the enforcement of contracts, to lean against their unenforceability because of uncertainty, and to carry out the intentions of the parties if this can feasibly be done.   Neither law nor equity requires that every term and condition of an agreement be set forth in the contract.”  (p. 288, 35 Cal.Rptr. p. 671.)   In Stockwell v. Lindeman, 229 Cal.App.2d 750, 40 Cal.Rptr. 555, the subordination clause merely stated that the deed of trust would be subordinate to “ ‘a new construction loan deed of trust not to exceed the sum of $80,000 with interest not to exceed 7.5% per annum, payable at such terms and upon such conditions as are required by the lender making such construction loan’  No terms for the payment of such encumbrances are stated.”  (p. 755, 40 Cal.Rptr. p. 557.)   Thus, specifically no maturity date was mentioned.   Said the court at page 758, 40 Cal.Rptr. p. 559:  “In cases involving sales of real estate which call for subordination of a purchase money encumbrance to a construction loan it is recognized that all of the details of such future loans may not be known in advance and to require details, as to the amount of monthly instalments and the exact duration of the loan, to be anticipated and stated in the sales agreement would unduly burden the parties.  * * * ”  (Emphasis added.)

Nor does it appear under Burrow and Stockwell that the maximum amount of interest rate provided in the subordination provision is so indefinite as to prevent enforcement.   The interest rate set out for construction loans is “not more than 7% per annum, with provision for a greater interest rate in the event of a default and/or in the event of an increase in the rate of interest paid by the lender on its deposits, and any ‘late charges' penalties required by the lender;  and in connection with which loan the payment of any fees or charges made by the lender, in addition to such interest, late charges and penalties, may be provided for * * *.”   The refinancing loan shall bear interest at the rate of “not more than 6% per annum,” with the same provision.   Again, the details in the proviso are not left to the future agreement of the parties.   In Burrow v. Timmsen, 223 Cal.App.2d 283, 35 Cal.Rptr. 668, the subordination clause provided that the loans shall bear “interest, exclusive of any late charges and/or penalties, and/or fees set forth in said note and/or deed of trust, of not more than—[9]% per annum, * * *.”  (Emphasis added;  p. 289, 35 Cal.Rptr. p. 670, n. 1.)   The court found there to be no uncertainty as to “the rate of interest.”  (p. 289, 35 Cal.Rptr. 668.)   Similarly in Burrow the “late charges and/or penalties and/or fees” provided in the subordination clause could be added to the maximum interest by the lender at his discretion.   Appropriate is the court's distinction in Stockwell v. Lindeman, 229 Cal.App.2d 750, 40 Cal.Rptr. 555, between leaving something “for future agreement between the seller and buyers” which creates uncertainty, and leaving something to a lender for negotiation with the buyer, which is certain and enforceable.  (p. 755, 40 Cal.Rptr. 555, 558.)  “Other details the parties may contract to leave to the institutional lenders (as in Burrow, supra) or to usage and custom in the area for such loans, or to the negotiation of the buyers and the lender as was done here.”  (p. 758, 40 Cal.Rptr. 555, 560.)

While the maximum amount 2 of the property loans depends upon the total number of lots into which the property is to be divided, the maximum amount is not left for the future agreement of the parties;  the subdivision of the property is at the option of the buyer and at his discretion subject, of course, to laws, rules and regulations relative to subdivision of real estate and zoning.   This is similar to the buyer-lender future agreements authorized in Stockwell except here the provision seems to be more certain.

After setting out the maximum amount of the loans and their purpose, disbursement and use of the funds, the maximum interest rate and the maximum maturity of the proposed loans, the subordination clause provides that the loans are “to be paid upon such terms and at such times as are required by the lender thereof.”   Any uncertainty in the manner of payment, whether by installments or on demand, is not one that is incapable of being removed.   Moreover, the details of payment are not matters left for the future agreement of the parties hereto, but for future negotiation between the buyer and lender.   In Burrow v. Timmsen, 223 Cal.App.2d 283, 35 Cal.Rptr. 668, the court authorized custom and usage to interpret a similar provision, except for the naming of certain institutional lenders.  “There is uncertainty whether the debt would have to be paid in periodic installments, but it is not an uncertainty that is necessarily incapable of being removed.   The proposed subordination agreement provides that the construction loan must be from “a bank, life insurance company or correspondent thereof, building or savings and loan association, or other institutional lender.'   It is also provided that the proceeds of the loan, with certain minor deductions would be used in the construction of improvements.   The import of these provisions is that the terms and conditions of the construction loan would have to conform to the practices of responsible and conservative lending institutions.   These terms and conditions presumably would be appropriate to assure that the land, and the improvements to be constructed, would be of a value substantially greater than the amount of money loaned.   The mere statement that the construction loan should have a maturity of 30 years does not mean that there would ever be a loan due in 30 years with no requirement for installment payments.   Since the money would have to be borrowed from conservative and responsible institutions evidence would be receivable whether such institutions, as a common practice, make construction loans, or loans following completion of construction, without requiring periodic payments for application upon accrued interest and principal of the debt.”  (pp. 289–290, 35 Cal.Rptr. p. 672.)   In Stockwell v. Lindeman, 229 Cal.App.2d 750, 755, 40 Cal.Rptr. 555, 557, the provision was substantially the same as the one before us.   Moreover, as here, the identity of the lender was unknown;  it reads in part, that seller agrees “ ‘ * * * at a future date to subordinate this deed of trust to a new construction loan deed of trust not to exceed the sum of $80,000.00 with interest not to exceed 7.5er annum, payable at such terms and upon such conditions as are required by the lender making such construction loan.’   No terms for the payment of such encumbrances are stated.”   Justice Burke, speaking for the court, said:  “Again, while it may seem imprudent or poor business for the seller to agree that the buyers may arrange with the lender, whoever it might be, for the remainder of the terms of the construction loans, so long as principal and interest do not exceed the maximums agreed upon, it is not the function of the court to remake the contract between the parties if the terms are clear and certain.   Here, again, there is nothing left for future agreement between the seller and buyers.   In effect, the seller states that whatever terms of repayment the lender may require which are satisfactory to the buyers are acceptable to the seller.   It is noted that, in the most crucial areas of the maximum amounts of construction loans and of interest rates, the seller has fully protected herself and as to the other details we must assume from their agreement she is content to allow buyers to contract with lenders for new construction loans as they see fit and that whatever serves their interests will not adversely affect her own.  * * * ”  (p. 755, 40 Cal.Rptr. p. 558)

“In cases involving sales of real estate which call for subordination of a purchase money encumbrance to a construction loan it is recognized that all of the details of such future loans may not be known in advance and to require details, as to the amount of monthly instalments and the exact duration of the loan, to be anticipated and stated in the sales agreement would unduly burden the parties.   Of greatest importance is the maximum amount of such construction loans based either on a percentage of construction costs, or state, as here, in an agreed amount and the maximum interest rate to be permitted.   These items most directly affect the security of the property for repayment of the subordinated purchase money trust deed.   Other details the parties may contract to leave to the institutional lenders (as in Burrow, supra) or to usage and custom in the area for such loans, to the negotiation of the buyers and the lender as was done here.   However, if such details are left to the future agreement of buyer and seller, then the contract is uncertain and unenforceable.”  (p. 758, 40 Cal.Rptr. p. 559.)

The subordination provisions in Gould v. Callan, 127 Cal.App.2d 1, 273 P.2d 93, and Kessler v. Sapp, 169 Cal.App.2d 818, 338 P.2d 34, relied upon by the lower court, are not similar to the one before us;  in those provisions there were material defects—omission of rate of interest, term of the loan and monthly payments.   In Gould v. Callan, 127 Cal.App.2d 1, 273 P.2d 93 while the maximum amount of the construction loan was related to a percentage of the true building costs of the proposed improvements, no other terms of the loan were stated.   Said the court:  “The subordination provision is incomplete in its statement of the obligation to be secured by the first deed of trust.   It is silent as to the amount of interest, the length of time it is to run, and the terms of payment.  * * * ” (pp. 4–5, 273 P.2d p. 95.)   The court held that since these omissions were material and essential to a contract providing for a deed of trust as security for an obligation, their absence made the same indefinite and uncertain, fatal to the claim for specific performance.   Similarly, in Kessler v. Sapp, 169 Cal.App.2d 818, 338 P.2d 34, only one term of the contemplated construction loan deed of trust to which the purchase money deed of trust was to be subordinated was specified in the subordination provision, i.e., the maximum rate of $6.50 per square foot of new construction.  “ * * * [T]he rate of interest, the amount of the monthly payments and the period of the debt were left to the future agreement of the parties.”  (p. 823, 338 P.2d p. 37.)   The court held this “radical uncertainty” as to a material feature of the sales agreement rendered it incapable of performance.

As in Stockwell, the subordination provision herein is uncertain only as to monthly payments, the maximum amount of the proposed loans, the purpose of the loans, the use, the maximum rates of interest and the maximum maturity of the loans having been provided for.   Stockwell, similar on its facts to the instant case, distinguished Kessler v. Sapp and Gould v. Callan, and discussed Burrow v. Timmsen, 223 Cal.App.2d 283, 35 Cal.Rptr. 668, in which also the only term missing was the term of payment.   Said the court in Stockwell:  “While in the case before this court the contract did not contain reference to institutional lenders, the statement of general principles set forth in Burrow, supra, remains applicable, governing the responsibility of the courts to favor enforcement of contracts and that neither law nor equity requires that every term be set forth.   The rules of construction in Burrow, supra, are but further elaborations of those basic principles enunciated in the Civil Code to guide the courts in the construction of contracts to which we have previously alluded.”  (229 Cal.App.2d 750, 757–758, 40 Cal.Rptr. 555, 559.)   While Stockwell involves an action at law for damages for breach of a land sales agreement, and Burrow and the instant case involve specific performance, we regard the distinction as having no bearing on the issues herein.   As in Stockwell, no lender is here specified;  in Burrow, an institutional lender was provided.   Nevertheless, the court in Stockwell held that “the statement of general principles set forth in Burrow, supra, remains applicable * * *.”  (p. 757, 40 Cal.Rptr. p. 559.)   The same was recognized by the court in Magna Development Co. v. Reed, 228 Cal.App.2d 230, 39 Cal.Rptr. 284, but not applied because “not even the maximum amounts of the construction loan were specified.”  (Emphasis added;  see Stockwell v. Lindeman, 229 Cal.App.2d 750, 756–757, 40 Cal.Rptr. 555, 559.)

While we have concluded that nothing material or essential is left to the future agreement of the parties in the subordination provision of the contract which renders the same uncertain and unenforceable, and whatever detail is omitted is left to the lender or to the buyer or for future negotiations between buyer and lender, it appears that on quite a different ground, not raised in the court below, the agreement is unenforceable as being uncertain;  for that reason alone we affirm the judgment.

The second amended complaint seeks specific performance of a land sale agreement consisting of Escrow Instructions, Exhibit A attached thereto.   Paragraph III of the complaint alleges that while the agreement sets out the full purchase price of the property as $1,500,100, such reference is illusory;  that although the Escrow Instructions declare that plaintiff has paid defendants the additional sum of $300,000 outside of escrow, in fact he did not do so and the same was never intended to be paid and was not to be a part of the agreement;  and that the true amount of the purchase price for the 320 acres, less the approximately 3 acres to be retained by defendants, is $1,200,100.   The agreement (Exh. A) reveals that the only amount paid down on the $1,200,100 total purchase price was the sum of $100.   It further provides “Legal description to be approved in writing by Buyer and Seller prior to close of escrow, showing title vested in:  C. JON HANDY, or Nominee.”;   and that a deed of trust shall be “executed by the above vestees” to secure a long term note for $1,200,000 payable to the defendants.  (Exh. A, p. 1.)

 It is an established rule that on a cash sale where the buyer's credit is not too important a factor and thus, it would be immaterial to the seller whether the buyer “or Nominee” takes title, such latter designation in the contract does not render the same unenforceable.  (King v. Stanley, 32 Cal.2d 584, 589, 197 P.2d 321;  San Francisco Hotel Co. v. Baior, 189 Cal.App.2d 206, 213, 11 Cal.Rptr. 32.)   However, where an owner agrees to sell his property for a small percentage down with the balance to be paid on a long term note, the buyer's credit becomes an important factor, and an arrangement in the contract whereby the land shall be vested in a named buyer “or nominee,” which permits the named buyer to designate a substitute and walk away from the transaction, is indefinite, uncertain, unilateral and unenforceable.   (Rivadell, Inc. v. Razo, 215 Cal.App.2d 614, 625, 30 Cal.Rptr. 622.)

In San Francisco Hotel Co. v. Baior, 189 Cal.App.2d 206, 11 Cal.Rptr. 32, in an action for specific performance of a contract to sell real property, defendant asserted that the buyer referred to therein as “Fred Whitman or nominee” made the agreement so uncertain that the same could not be specifically enforced.   Holding that it could, the court's ruling obviously was predicated on the fact that the entire purchase price had been paid in cash.  “The buyer was Fred Whitman.   The fact that he was referred to as ‘Fred Whitman or nominee’ did not affect his identity.   The phrase ‘or nominee’ as used in the deposit receipt was merely surplusage.   Whitman was entitled to assign the rights under the agreement, including the right to enforce specific performance.  [Citations.]  If he did not choose to assign, as the purchase price was payable in cash, he could have nominated a vestee of the title without affecting his rights under the agreement.  King v. Stanley, supra, 32 Cal.2d 584, 589, 197 P.2d 321.   Whether a cash purchase price is paid by a buyer who takes title in his name or by an assignee which takes title in its name is immaterial.  King v. Stanley, supra, 32 Cal.2d 584, 589, 197 P.2d 321.”  (Emphasis added;  189 Cal.App.2d p. 213, 11 Cal.Rptr. p. 36.)

In the case before us, the buyer paid but $100 down on a $1,200,100 purchase price, the balance, $1,200,000, to be paid on a long term note;  thus the buyer's credit is a most important factor.  Rivadell, Inc. v. Razo, 215 Cal.App.2d 614, 30 Cal.Rptr. 622, involved an action by a real estate broker to recover his commission under a listing agreement.   The evidence showed an offer to purchase by a named buyer “or nominee.”   Said the court at page 625, 30 Cal.Rptr. at p. 628:  “Further militating against plaintiff's claim for an allegedly earned commission is the failure of plaintiff to produce a buyer ‘able, willing and ready’ to purchase.   No proof was adduced to establish plaintiff's customer as an able, willing and ready purchaser.   Who was the purchaser?   The deposit receipt indicates it was “Chas. Firestone Construction Co. and Investment Corp. or nominee.'   Such designation, ‘Chas. Firestone Construction Co. and Investment Corp.,’ is ambiguous;  are there two entities or one?   True, the ambiguity is cleared somewhat by the execution of the document by ‘Chas. J. Firestone Construction and Investment Corp. by Chas. J. Firestone (Pres.).’   However, the words ‘or nominee’ completely destroy the instrument as a firm and binding offer on the part of Firestone Corp. to buy the property.   What it says is, in effect, that Firestone or someone else designated by Firestone will buy the property.  (Emphasis added.)

“Defendant was agreeing to sell his property for only 18 per cent down with the balance on a long term contract.   He was entitled to know with certainty just who was making the offer.   Here, it was Firestone Corp. or nominee.   Assuming defendant accepted the offer and that Firestone changed its mind, the latter could designate anyone as its nominee.   The seller would then have to look to the nominee.   The ‘nominee’ would be an escape hatch for Firestone.   Thus, it is apparent there was no binding, unqualified offer on the part of Firestone.   On a sale for cash, where the credit of the buyer is not so important a factor an ‘or nominee’ offer could possibly be construed as an obligation on the part of the named purchaser to either buy or see to it that the property is purchased.   But, here all the named buyer need do is to designate a substitute and walk away from the transaction.   This is not the same as an undertaking n the part of Firestone to buy the property but with a provision in the offer that the purchaser reserves the right to take title either in its own name or in the name of its nominee.   In the latter event the seller still looks to the credit of Firestone in evaluating the offer.   Here the offer is by a named purchaser, whose credit standing could be ascertained but who can be substituted out the next day for someone whose credit may be nil.   Such an arrangement is indefinite, uncertain, unilateral and a nullity.”

 The case at bench involves a far more aggravated situation than that in Rivadell.   Here defendants agreed to sell their property for a purchase price of $1,200,000;  the $100 paid by plaintiff is the only cash down payment and amounts to but 83/1000831000 of 1% of the purchase price, the balance to be paid on a long term note to be “executed by the above vestee,” referring to “C. Jon Handy, or Nominee.”   Applying the principal of Rivadell, Inc. v. Razo, 215 Cal.App.2d 614, 625, 30 Cal.Rptr. 622, we hold such an arrangement to be indefinite, uncertain and unilateral, and incapable of enforcement.

In light of our conclusion we deem it unnecessary to discuss the matter of the sufficiency of the description of the 3 acres to be retained by defendants under the agreement, except to say that the description may be made certain by reference to Title Insurance and Trust Company file 57 70 273 (February 27, 1962) and Subdivision Map Layout.

The judgment is affirmed.

FOOTNOTES

1.   “(2) From the face of the pleadings two items of uncertainty, as a matter of law, preclude the maintenance of this action.“(a) The ‘three acres' of land to be excluded is not sufficiently identified for specific performance.   This uncertainty could be corrected by amendment of the pleadings to include the subdivision map layout.   If this were the only uncertainty, leave would be granted to amend.“(b) However, the subordinated provision does not contain the amount of monthly payments of the trust deed which may become the first trust deed under the subordination agreement.   The terms of payment are material and essential to a contract providing for a trust deed, and the absence of same is fatal to specific performance.  * * * As it does not appear that this essential term can be provided from any of the allowable sources * * * judgment on the pleadings is proper.”

2.   The new deed of trust securing the construction loan shall cover “ * * * any lot or group or groups of lots into which said land shall have been subdivided, each thereof securing a loan, not exceeding an amount arrived at by multiplying the number of lots described in said new deed of trust securing the same by $10,000.00, but in no event less than an aggregate of $26,000.00 * * * ”;  and the new deed of trust securing the refinancing loan “may be placed on each of said lots by the trustors or their successors in interest, each thereof securing a loan, not exceeding $52,000.00, but in no event less than $26,000.00, * * *.”

LILLIE, Justice.

WOOD, P.J., and FOURT, J., concur.