HUDSON PROPERTIES CO INC v. L.B. Nelson Corporation, Defendant and Appellant. (1984)

Statement of Facts 1

As enacted in 1977, Education Code section 39369.5 ² applies to the case before us.   It provided, in relevant part, that

“(a) In the event that the governing board of a school district, intends to sell real property pursuant to this article, the former owner from whom the district acquired the property shall be accorded the right, prior to the final acceptance of bids, to purchase the property at the tentatively accepted highest bid price.” ³

Defendants John and Hilda Marovich (hereafter, Maroviches) are the former owners of what is now the Hamilton School property.   Maroviches sold the property to Campbell Union Elementary School District (hereafter, District) in 1952.

On April 17, 1979, District determined that the Hamilton property was no longer needed for school purposes, and resolved to sell it to the highest bidder at a public auction to be held on August 9, 1979.   The resolution expressly stated that the acceptance of any bid was to be “subject to the prior rights of the various public agencies and former owners.”   It also stated that “District reserves the right to accept or reject any and all bids.”

On July 6, 1979, Maroviches entered into a written agreement with P. Michael Hunt (hereafter, Hunt).   Maroviches were to repurchase the Hamilton property from District after the bidding had taken place.   Hunt was to provide the necessary funding.   The agreement stated, in part:  “Consideration for this option to purchase will be $500.00 payable upon execution of this Agreement.”   Maroviches also gave Hunt “the option to purchase the property for $500.00 more than the sum paid to the Campbell Union School District ․”  Hunt subsequently paid Maroviches $500, and Maroviches informed District that they intended to purchase the property at the highest bid price.

In the meantime, L.B. Nelson Corporation (hereafter, Nelson) had become aware of the Hamilton property and deemed its acquisition advisable.   Nelson learned that Maroviches were the former owners.   Nelson contacted them, and they referred Nelson to Hunt.   Nelson and Hunt entered into a written agreement on August 9, 1979, before the bidding commenced, whereby Nelson obtained the rights that Hunt had acquired from Maroviches in consideration of $10,000, plus $90,000 if Nelson closed on the purchase.

Previously, plaintiff Hudson Properties, Inc. (hereafter, Hudson) had received a copy of District's resolution to sell and decided to bid.

The auction was held, as planned, on August 9, 1979.   Written bids were received from five bidders, including Hudson and Nelson.   The highest bid, in the total amount of $1,760,132, was submitted by Nelson.   Oral bidding followed.   Nelson bid once at $2,005,000.   Hudson made the last and highest bid of $2,425,000.   This bid was tentatively accepted, subject to the rights of the former owners and “subject to final acceptance of any bid by the Governing Board pursuant to statute and the bid documents.”

At the conclusion of the oral bidding, Maroviches announced their intention to exercise their right to purchase the property at the highest bid price, $2,425,000.

On August 10, 1979, Maroviches, Hunt, and Nelson entered into an agreement.   Hunt agreed “to assign his rights” to Nelson;  Maroviches consented to “Hunt's assignment” and agreed to have Nelson act as their agent.   Maroviches gave notice of this agreement to District and as a deposit delivered a check drawn by Nelson.

District confirmed the sale to Maroviches on August 15, 1979, and executed a grant deed to them.   There is no evidence that the deed was recorded.   Nelson paid Hunt the sum of $10,000.

Procedural History

On September 7, 1979, plaintiff Hudson filed this action in Santa Clara County Superior Court, seeking injunctive and declaratory relief against District, Nelson, Hunt, and Maroviches.   Hudson sought:  (1) To prevent the sale of the property by District to Nelson or Maroviches;  (2) to restrain defendants from developing the property pending a declaration of rights;  (3) a declaration that Hudson's bid on the property was the highest and an order compelling the sale of the property to Hudson;  and, (4) a declaration that section 39369.5, pursuant to which District was planning to sell to Maroviches, was unconstitutional.

On October 19, 1979, the trial court granted a preliminary injunction.   The action was later tried without a jury.

On August 19, 1980, following oral argument, the court issued a memorandum of intended ruling.   The court determined that Education Code section 39369.5 applied retroactively to Maroviches;  that Maroviches had granted an option to Hunt, rather than an assignment of their rights;  that the statute as applied to Maroviches was unconstitutional because it conferred a gift upon them;  and, that the court lacked jurisdiction to compel sale of the property to Hudson.   In its judgment issued on December 15, 1980, the court, in accordance with the intended decision, found null and void any agreement by District to sell the property to Maroviches.

Nelson filed a timely appeal from that portion of the judgment declaring the statute unconstitutional and negating the rights of Maroviches.   Hudson filed a timely cross-appeal from that portion of the judgment holding that the court lacked jurisdiction to order the sale of the property to Hudson.

Retroactivity of Section 39369.5

We first address the question of whether section 39369.5 operates retroactively as to Maroviches as former property owners who conveyed to District before the statute was enacted.

We initially observe that this issue was implicitly resolved in Al J. Vela & Associates, Inc. v. Glendora Unified School Dist. (1980) 108 Cal.App.3d 444, 166 Cal.Rptr. 732, the sole case addressing the statute in the form now in question.   The situation was the following:  Ray and Frances Bloker owned real property which, in 1965, they sold to Glendora Unified School District.   Frances thereafter died;  Ray married Dorene who, in 1976, became the executrix of his estate.   In 1977, the district decided to sell the property.   Vela, one of the bidders, sought an injunction to prevent the sale of the property to Dorene, individually or as personal representative of her husband's estate.   Dorene wished to exercise her right of first refusal under section 39369.5.   The trial court denied the injunction.

On appeal, the sole issue was whether the estate was a “former owner” under the statute.   The appellate court found that it was not but that until his death, Ray Bloker had qualified as a former owner:

“We have determined the right of first refusal is limited by section 39369.5, subdivision (a) to former owners from whom the property was acquired.   It follows that this right, being personal to Ray and Frances Bloker as former owners, terminated upon Ray's death ․”  (Al J. Vela & Associates, Inc. v. Glendora Unified School Dist., supra, 108 Cal.App.3d 444, 449, 166 Cal.Rptr. 732.)

Implicit was a determination of the statute's retroactivity, since Bloker had sold his property to the district in 1965, and the statute became operative only in 1977.

We agree with this interpretation, which in our opinion conforms with legislative purpose as discussed below.

No express legislative intent on the issue of retroactivity appears in the legislative records, nor can we infer from the statutory language itself that a retroactive application was intended:  The statute clearly is meant to apply to prospective sales of real property only, but is ambiguous as to whether its benefit extends to a former owner whose property was acquired by a school district before the statute became effective.

“ ‘․ Where the Legislature has not set forth in so many words what it intended, the rule of construction [giving a prospective interpretation] should not be followed blindly in complete disregard of factors that may give a clue to the legislative intent.   It is to be applied only after, considering all pertinent factors, it is determined that it is impossible to ascertain the legislative intent.’  [Citation.]  ․  A wide variety of factors may illuminate the legislative design, ‘such as context, the object in view, the evils to be remedied, the history of the times and of legislation upon the same subject, public policy, and contemporaneous construction.’ ”  (In re Marriage of Bouquet (1976) 16 Cal.3d 583, 587, 128 Cal.Rptr. 427, 546 P.2d 1371, italics omitted;  see also Industrial Indemnity Co. v. Workers' Comp. Appeals Bd. (1978) 85 Cal.App.3d 1028, 1031, 149 Cal.Rptr. 880.)

The statute was enacted at a time when the Legislature was facing the problem of an increase in surplus government property, particularly in the school system.⁴  Section 39369.5 appears to have been part of a general plan to dispose of this surplus government land.   In keeping with that plan, the statute conferred upon former owners of such land a degree of priority in reacquiring it.⁵  The priority device served an equitable purpose, as offering the property to the former owner first was a recognition that the property had been acquired through condemnation or arguably its threat and that the reason for the school district's acquisition of his property no longer existed.   At the same time, the school district would incur no loss, because the former owner was required to pay the property's probable fair market value, the highest bid price.

 We infer, therefore, that section 39369.5 was intended to operate retroactively, as there is no apparently good or logical reason to limit or restrict accomplishment of these purposes by a prospective interpretation.

We conclude from the foregoing that Maroviches, as former owners under section 39369.5, are entitled to the rights arising under that statute.

Assignability of the Rights of the Former Owners

Next, we discuss the assignability of the rights of the former owners.

 In Al J. Vela & Associates, Inc. v. Glendora Unified School Dist., supra, 108 Cal.App.3d 444, 449, 166 Cal.Rptr. 732, the court squarely held:  “The statute, in clear and unequivocal language, limits the right of first refusal to not only a former owner, but to an owner ‘from whom the district acquired the property.’   The right created is thus personal to the grantor.”   The right of the former owners, Maroviches, being personal to them, is, therefore, not assignable.

The issue, then, is whether Maroviches assigned their rights to Hunt or Nelson, or simply granted an option allowing Hunt or Nelson to purchase the property from them once they had reacquired it.

 This question is one of contract interpretation.   The case was submitted on a stipulation of facts;  there was no conflict in the evidence and no oral evidence.   We, therefore, may make an independent determination of the meaning of the agreements.  (Oliver & Williams Elevator Corp. v. State Bd. of Equalization (1975) 48 Cal.App.3d 890, 894, 122 Cal.Rptr. 249.)

 An option is “a contract, made for consideration to keep an offer open for a prescribed period.”  (1 Witkin, Summary of Cal.Law (8th ed. 1973) Contracts, § 126, p. 124.)   On the other hand, an assignment is the “transfer of title to any kind of property” (id., § 726, p. 607);  there “ ‘must be a manifestation to another person by the owner of the right indicating his intention to transfer, without further action or manifestation of intention, the right to such other person, or to a third person.’ ”  (Id., § 728, p. 609.)

The Hunt-Maroviches agreement provides, in part:

“P. Michael Hunt has the option to purchase the property for $5,000.00 more than the sum paid to the Campbell Union School District of Santa Clara County.”

 If this language constituted the entire agreement, it would be clear that Hunt had obtained an option to repurchase the property, once Maroviches had exercised their right of first refusal.   In consideration of $5,000, Maroviches would have agreed to keep open an offer to resell the property to Hunt.

Our analysis, however, cannot end here, for the agreement also provides that Maroviches

“do hereby agree, upon receipt of written request from P. Michael Hunt to repurchase the above lands ․

“․

“It is understood that the undersigned will have the opportunity to purchase the property at the price equal to that of the highest bidder and in turn will agree to re-sell the property to P. Michael Hunt․  It is understood that P. Michael Hunt will provide the monies for the undersigned to acquire the property and will pay escrow fees, recording fees, etc․ [and] legal fees ․ not to exceed a total of $300.00․  [Maroviches] shall execute all necessary documents in [Maroviches'] name (but for the benefit of P. Michael Hunt) ․”  (Italics added.)

From this language, it becomes clear that Hunt did not obtain an option to repurchase the property should Maroviches decide to exercise their right of first refusal;  rather, Hunt obtained Maroviches' right of first refusal.   Hunt agreed to provide the funding necessary for the repurchase by Maroviches and, in exchange, they became bound to re-sell the property to him.   Hunt would be, in effect, making the purchase himself.   The intent was to transfer title to the property;  there was an assignment.   The fact that Maroviches, rather than Hunt, actually exercised the right of first refusal, does not change the fact that they were acting as agents “for the benefit” of Hunt.

This interpretation is supported by the later agreements of Hunt, Maroviches, and Nelson.   The Hunt-Nelson agreement states:

“Hunt represents that he is the owner of certain rights of first refusal for the purchase of said property ․”

The later Hunt-Maroviches-Nelson agreement states:

“Whereas Marovich has previously assigned its Right of First Refusal to Hunt;  and [¶] Whereas Hunt requested Marovich to exercise its Right of First Refusal ․

“․

“Now ․ [¶] ․ Hunt agrees to assign his rights to the Right of First Refusal to Nelson pursuant to separate agreement between them.”

Nelson argues that the “double escrow procedure” used has no effect on the existence of the option to repurchase, and that the fact that Maroviches themselves were unable to finance the purchase and had to use Nelson's funds, does not invalidate the agreement, citing Majewsky v. Empire Constr. Co., Ltd. (1970) 2 Cal.3d 478, 85 Cal.Rptr. 819, 467 P.2d 547.   That argument overlooks an important point.   It is true that Majewsky approved of the double escrow procedure.   But it also discussed the issue of whether a resulting trust had arisen in favor of the plaintiffs:

“Contrary to plaintiffs' apparent position here, a ‘resulting trust is not founded on the simple fact that money or property of one has been used by another to purchase property.   It is founded on a relationship between the two, on the fact that as between them, consciously and intentionally, one has advanced the consideration wherewith to make a purchase in the name of the other.   The trust arises because it is the natural presumption in such a case that it was their intention that the ostensible purchaser should acquire and hold the property for the one with whose means it was acquired.’ ”  (Id., at p. 485, 85 Cal.Rptr. 819, 467 P.2d 547, original italics.)

Just as the intent of the parties is crucial for the operation of a resulting trust, so too is intent determinative here as to the interest acquired by Hunt and later, from him by Nelson.   It is clear that all parties first intended that Maroviches acquire the property with funding from Hunt (the Hunt-Maroviches agreement), and later with funding from Nelson (the Hunt-Maroviches-Nelson agreement), and that Maroviches then convey the property to Nelson.

As previously discussed, a former owner is free to exercise his statutory right to repurchase his former property.   He may also grant a valid option entitling a third party to purchase the property from him, once he has properly reacquired it.   The owner may not, however, assign his right of repurchase.   Here, the evidence indicates that the parties, in fact, contracted for an assignment, not an option.   The intent of the statute—to grant a personal right to the former owner—should not be circumvented by semantics.   This assignment was invalid.

Disposition of the Property

Hudson has filed a cross-appeal requesting a mandatory injunction compelling District to convey the property to Hudson in the event that Maroviches are not entitled to, or if they are entitled to, and do not exercise, a preemptive right.   The issues on appeal are (1) whether a contract was formed between Hudson and District;  and (2) whether this court may compel conveyance.

A. Relationship between Hudson and District

The parties have stipulated that at the end of oral bidding on the property, District tentatively accepted the high bid of Hudson, “subject to the rights of ․ Marovich under ․ Section 39369.5 ․, and subject to final acceptance of any bid by the Governing Board pursuant to statute and the bid documents.”   They also stipulated that following District's tentative acceptance of Hudson's bid, Hudson deposited with the board a check in the sum of $121,250 in accordance with bidding procedures, which sum remains on deposit with District.

“ ‘Basic contract law holds that until such time as a bid is accepted, there is no contractual relationship between the bidder and the entity.   [Citation.]’ ”  (Pacific Architects Collaborative v. State of California (1979) 100 Cal.App.3d 110, 122, 166 Cal.Rptr. 184.)   The issue we initially determine, then, is whether District accepted the bid of Hudson.

 The authority of a school district governing board is limited by the power conferred upon it whether expressly or by necessary implication by the Legislature.  (See City and County of San Francisco v. Padilla (1972) 23 Cal.App.3d 388, 400, 100 Cal.Rptr. 223.)   Our first step, therefore, is to ascertain the controlling statutory regulation.

Former section 39369.5 states in part:

“(c) Bids, both written and oral, shall be submitted and acted upon by the governing board in the manner otherwise prescribed by this article, except that the acceptance of a bid shall be tentative only, subject to the right of the former owner to purchase the property.

“․

“(e) In the event that the former owner rejects the offer, the governing board shall sell the property to the highest responsible bidder, by final acceptance of the bid theretofore tentatively accepted.”

 The statute is clear on its face.   It states that “acceptance of a bid shall be tentative.”   The stated condition to acceptance is the former owner's exercise of his right of repurchase.   Moreover, the statute expressly states that “․ the governing board shall sell the property.”  (Italics added.)   The word “shall” in a statute connotes mandatory action, especially if to construe the word otherwise would render the law meaningless.  (See Rosenfield v. Superior Court (1983) 143 Cal.App.3d 198, 203, 191 Cal.Rptr. 611.)   In this instance, giving the word that mandatory connotation gives the statute its meaning, and we so interpret it.   Finally, as evident from the words “shall sell ․ by final acceptance” (italics added), conclusion of the sale is to be demonstrated by District's final acceptance of the previously only tentative bid.   Thus, this final acceptance is not a precondition.

 We, therefore, construe the statute:  (1) To mean that District accepted the highest tentative bid, subject only to the former owner's rights;  (2) to require District to sell the property to the bidder whose bid was previously tentatively accepted, should the former owner decline his preemptive right.   Applying this interpretation to the instant case, we conclude that District accepted Hudson's tentative bid and, if the Maroviches decline to exercise their right to repurchase the property, District must sell to Hudson.

 It is true that the statute states that the sale shall be to “the highest responsible bidder.”   District argues that, under its own regulations, it is to be the sole judge of who that bidder is.   In context, however, the statute clearly implies that this bidder is to be the one whose bid was previously tentatively accepted.   District “tentatively accepted” Hudson's bid.   In doing so, District implicitly found Hudson to be the “highest responsible bidder.”   There is no basis for its now reversing that formal and presumably deliberative decision and redetermining the responsibility of that bidder.

B. Hudson's Right to Conveyance

Whether the sale to Hudson may be compelled by the court turns upon whether the sale is a discretionary act or a ministerial act.

“Discretion may be defined, when applied to public functionaries, as the power conferred on them by law to act officially according to the dictates of their own judgment.   A ministerial act, on the other hand, is one that a public officer is required to perform in a prescribed manner in obedience to the mandate of legal authority and without regard to his own judgment or opinion concerning the propriety or impropriety of the act to be performed, when a given state of fact exists.  [Citation.]  Stated otherwise, it is ․ an act or duty prescribed by some existing law that makes it incumbent on him to perform precisely as laid down by the law.”  (People ex rel. Fund American Companies v. California Ins. Co. (1974) 43 Cal.App.3d 423, 431, 117 Cal.Rptr. 623.)

 The act or duty in question here is the sale mandated by section 39369.5.   It is a ministerial act which the courts may compel.   (Compare, Williams v. City of Stockton (1925) 195 Cal. 743, 748, 235 P. 986;  Monarch Cablevision, Inc. v. City Council (1966) 239 Cal.App.2d 206, 211, 48 Cal.Rptr. 550.)

 We conclude, therefore, that should Maroviches decide not to exercise their right as former owners, the trial court should order District to sell the property to Hudson.

Constitutionality of Section 39369.5

The trial court determined that section 39369.5 was unconstitutional, in that it violated article XVI, section 6 of the California Constitution (the “gift clause”).   On appeal, Nelson urges us to hold that the statute is constitutional.

In light of the above discussion, we need not reach the issue.   Even if we were to resolve the question in favor of Nelson, the ultimate conclusion we reach would not be different, inasmuch as we have concluded that the rights of Maroviches were not assignable to Nelson.

For the same reason, we do not discuss Hudson's argument that the statute violates the Equal Protection Clause because it singles out specific individuals for a benefit.

Conclusion

To recapitulate, we have determined that:  (1) Section 39369.5 is retroactive as to former owners;  (2) their statutory right of repurchase is not assignable and Maroviches' assignment of their rights was void;  and, (3) if Maroviches decline to exercise their statutory right, Hudson, as the bidder who placed the tentatively accepted bid, is entitled to purchase the property.

We reverse with directions to the trial court to order District:  (1) To give Maroviches the opportunity to exercise their right of first refusal;  and, if they do not exercise that right, (2) to sell the property to Hudson.

FOOTNOTES

1.   The facts have been taken from the parties' stipulation of facts.

2.   All statutory references are to the Education Code, unless otherwise specified.

3.   The complete statute then provided:“(a) In the event that the governing board of a school district, intends to sell real property pursuant to this article, the former owner from whom the district acquired the property shall be accorded the right, prior to the final acceptance of bids, to purchase the property at the tentatively accepted highest bid price.“(b) At any time after the notice of meeting given pursuant to Section 39369, and prior to the date of such meeting, the prior owner from whom the district acquired the property may submit to the governing board written notice of intention to purchase the property at the tentatively accepted highest bid price.   Such notice does not constitute an offer to purchase.“(c) Bids, both written and oral, shall be submitted and acted upon by the governing board in the manner otherwise prescribed by this article, except that the acceptance of a bid shall be tentative only, subject to the right of the former owner to purchase the property.“(d) Upon receipt of bids, the governing board shall offer to sell the property to the former owner at the tentatively accepted highest bid price, subject to the terms and conditions of sale initially fixed by the board.“(e) In the event that the former owner rejects the offer, the governing board shall sell the property to the highest responsible bidder, by final acceptance of the bid theretofore tentatively accepted.”The statute was amended in 1980.   A former owner no longer has a right of first refusal.

4.   We take judicial notice, as did the trial court, of:  (1) Enrollment Data for California Elementary and Secondary Public Schools in the years 1971 through 1978 which indicate a decline in school enrollment during those years;  and, (2) an article in the “San Jose Mercury” dated September 20, 1979, attributing this decline to “a variety of factors,” including “a low birthrate [and] the continuing trend toward smaller families.”

5.   The sale of real property pursuant to article 4, chapter 3, part 23 (“Sale or Lease of Real Property”), which encompasses section 39369.5, was subject to Government Code sections 54220 et seq., pertaining to disposition of surplus government land.Section 39030 allowed the governing board of a school district to sell for less than fair market value, any school site deemed to be surplus property.   Finally, section 39363.5 set up priorities and procedures for the sale of the property.

HOLMDAHL, Associate Justice.

RACANELLI, P.J., and ELKINGTON, J., concur.