RODRIGUEZ v. BARNETT (1958)

In October, 1956, plaintiffs filed an action in the municipal court against the defendant for money had and received in the amount of $1,500. The defendant answered and cross-complained for $15,000 for breach of contract, whereupon the case was transfered to the superior Court. The plaintiffs answered the cross-complaint and after a pretrial conference the case was tried and judgment rendered for plaintiffs on their complaint for the sum of $1,500 and against defendant-cross-complainant¹ on the cross-complaint. Defendant appeals from the judgment and order denying his motion for a new trial. The appeal is on the judgment roll.

On March 16, 1956, plaintiffs entered into a written agreement for the purchase of certain real property from the defendant in Riverside County. Pertinent provisions of the agreement are as follows: (1) ‘It being understood that the purchasers named herein will subdivide the subject property and the final subdivision map as approved by the necessary governmental bodies, shall be subject to the approval of the purchasers herein, it being further understood that said government bodies shall allow a minimum of 6,000 square feet per lot or a maximum of 9,000 square feet per lot, which the purchasers herein agree to accept.’ (2) ‘The purchasers agree to furnish for the approval of the seller documentary evidence of the following items:

‘1. Approval of the subdivision by necessary Government agencies.

‘2. Construction loan commitments by recognized lending institution.

‘3. Permanent financing by recognized lending institution.

‘4. Veteran Administration and or FHA approval of site.

‘5. Buyers and sellers herein to determine which type of financing shall be acceptable.

‘6. Improvement Bond for on site improvements.

‘7. Recording of approved subdivision map.’

‘All above items subject to approval of buyers, this agreement is contingent upon their approval.’ (3) ‘It is further understood that the purchasers herein shall have six months from date to comply with the above demand of the seller to furnish said items listed in the preceding paragraph [Nos. 1–7], otherwise, at the option of the seller, the monies deposited herewith shall be forfeited and retained by the seller as consideration for executing this agreement.’ (4) ‘Should purchasers herein fail to pay the balance of said purchase price or complete said purchase as herein provided, the sum paid hereon may, at the option of the seller, be retained as consideration for the execution of this agreement,’ and (5) ‘We agree to purchase the above described property on the terms and conditions herein stated.’

Pursuant to the agreement, plaintiffs deposited $1,500 with the defendant and thereafter unsuccessfully sought to obtain the approval by the Riverside Planning Commission of plaintiffs' tentative subdivision map. The subdivision map proposed by the Planning Commission was not acceptable to plaintiffs. Defendant was notified of these facts and on July 13, 1956, plaintiffs served a notice of rescission upon the defendant in which a demand was made for the return of the $1,500 deposit. The defendant did not return the deposit, consequently plaintiff instituted the present action for money had and received.

In his cross-complaint, defendant alleged that he complied with all terms and conditions of the agreement but that plaintiffs refused to complete the agreement to the damage of defendant in the sum of $15,000. In their answer to the cross-complaint, plaintiffs alleged that the agreement was expressly conditioned upon the approval by plaintiffs of the final subdivision map and that such condition failed to occur and the agreement was thereby rendered impossible to perform and that on or about May 22, 1956, the defendant abandoned the agreement.

The pertinent findings of fact are as follows: ‘That it is true that’ * * * (1) ‘plaintiffs * * * deposited the sum of fifteen hundred dollars ($1,500.00) with the defendant * * * as a deposit on the purchase price provided for in the above agreement,’ (2) ‘said written agreement provided that the obligation of the purchasers to complete the purchase was conditional upon the approval by the purchasers of the final subdivision map as approved by the City of Riverside,’ (3) ‘the Planning Commission of the City of Riverside, California, refused to approve the tentative subdivision map presented by the plaintiffs * * * and that plaintiffs * * * did not approve the subdivision map contemplated by the City of Riverside,’ (4) ‘the refusal of plaintiffs * * * to approve the subdivision map proposed by the City of Riverside, California, was reasonable,’ (5) ‘upon such failure to approve by the City of Riverside, California, plaintiffs * * * were under no duty to proceed with the purchase * * * according to the provisions of the aforesaid written agreement,’ (6) ‘by the terms of the aforesaid written agreement, plaintiffs * * * are entitled to the return of the deposit of fifteen hundred dollars ($1,500.00) from the defendant,’ (7) ‘on July 13, 1956, and within a reasonable time after the ascertainment of the above facts, plaintiffs * * * served upon defendant * * * a notice of rescission of the aforesaid written agreement and a notice that the plaintiffs * * * had not been able to secure the approval of the City of Riverside, California, of the subdivision map and a demand for the return of the fifteen hundred dollars ($1,500.00) deposited with the defendant,’ and (8) ‘the above set forth terms and conditions of the written agreement have been determined by a consideration of the agreement itself without regard to the parol evidence admitted at the trial.’ The court further found ‘that it is not true that plaintiffs * * * refused and failed to perform any of the terms of the written agreement. * * *’

Defendant argues that the instant agreement was not a bilateral contract but rather an option, and the $1,500 was consideration for the option and such consideration cannot be recovered merely because the optionee fails to exercise the option. Defendant predicates his argument on the fact that plaintiffs reserved to themselves the right to approve or disapprove the final subdivision map and, this being the case, they were under no enforceable obligation to purchase the property. This fact, coupled with the provisions for the retention of the deposit (provisions 3 and 4 quoted above), according to defendant, compels a conclusion that the written agreement was an option and not a bilateral contract to purchase the property. Defendant cites Caras v. Parker, 149 Cal.App.2d 621, 623, 309 P.2d 104, 106, where the following language was held to have given rise to an option as support for his position that an option existed in the case at bar: ‘This escrow is contingent upon Buyer securing approval of city of Manhattan Beach of property described above to be divided into eight lots.’ The recent decision in Mattei v. Hopper, 51 Cal.2d 119, 330 P.2d 625, fully disposes of defendant's reliance on the reasoning in the Caras case. In the Mattei case, plaintiff, a real estate developer, entered into a written agreement to purchase the defendant's property. The concluding paragraph of the deposit receipt provided: ‘Subject to Coldwell Banker & Company obtaining leases satisfactory to the purchaser.’ Defendant refused to perform. Our Supreme Court found a binding contract and held in effect that an otherwise enforceable contract is not vitiated by the inclusion of either a satisfaction or approval clause.² In view of the decision in Mattei v. Hopper, supra, the writing in the instant case was not merely an option but constituted a valid bilateral contract.

We come now to a consideration of the effect of provisions 3 and 4 of the agreement relative to the disposition of the $1,500 deposit in event the transaction was not consummated. Initially, it should be pointed out that although the word ‘forfeited’ is used in provision 3 it does not appear that either of these provisions when applied to the instant factual situation constituted a forfeiture clause in any proper legal sense. By provision 3 the purchasers were given six months within which to fulfill the requirements of paragraphs 1 to 7 under provision 2, supra. If, however, the purchasers acting in good faith failed to furnish the items and fulfill the requirements set forth in paragraphs 1 to 7 within six months, then the deposit could be ‘retained by the seller as consideration for executing this agreement.’ This thought is emphasized by provision 4, which does not use the word ‘forfeited’ and merely says: ‘Should purchasers herein fail to pay the balance of said purchase price or complete said purchase as herein provided, the sum paid hereon may, at the option of the seller, be retained as consideration for the execution of this agreement.’ Thus it appears from the face of the agreement that if plaintiffs because of inability to furnish the items mentioned in provision 2 did not go through with the deal the seller was entitled to retain the $1,500 deposit as consideration for executing the agreement.

The last portion of provision 2 is essentially an escape clause: ‘All above items subject to approval of buyers, this agreement is contingent upon their approval.’ The purchasers utilized this provision as justification for their failure to complete the purchase. If they acted in good faith in refusing to approve the subdivision map as proposed by the Riverside authorities, their utilization of the ‘escape’ clause constituted no breach of the agreement. But when the purchasers elected to avail themselves of the escape clause the seller had the right on the face of the agreement to retain the $1,500 deposit.

In this case we are only called upon to determine whether the agreement in question, taken by its four corners, supports the findings and judgment of the trial court. The basic finding on which the judgment rests is that ‘by the terms of the aforesaid written agreement, plaintiffs are entitled to the return of the deposit of $1,500 from the defendant.’ (Emphasis added.) It is apparent from what we have said that the agreement does not on its face so provide and therefore there is no support in the agreement for this finding. As a consequence, the judgment must be reversed.

In his memorandum decision, the trial judge indicated that what he termed ‘the forfeiture clauses' of the contract, vis., provisions 3 and 4, supra, were not ‘as clear as they might be.’ Our examination of the writing leads us to the conclusion that some aspects of the agreement are not entirely clear. Upon a retrial it would be proper, under the principles stated in Beneficial Fire & Casualty Ins. Co. v. Kurt Hitke & Co., 46 Cal.2d 517, 297 P.2d 428, for the trial court to receive and consider any pertinent extrinsic evidence that may be offered that would tend to aid in the interpretation of the agreement.

The purported appeal from the order denying motion for new trial is dismissed. The judgment is reversed.

FOOTNOTES

1.  For convenience the parties will be referred to as plaintiffs and defendant.

2.  Lawrence Block Co. v. Palston, 123 Cal.App.2d 300, 266 P.2d 856, 858, which held illusory a contract providing ‘O. P. A. Rent statements to be approved by Buyer’ and ‘subject to buyer's inspection and approval of all apartments' was disapproved in the Mattei case as was Pruitt v. Fontana, 143 Cal.App.2d 675, 300 P.2d 371, 377, which held illusory a written instrument with a provision making the sale of land subject to the covenants and easements being ‘approved by the buyers.’

FOX, Presiding Justice.

ASHBURN and HERNDON, JJ., concur.