HERON v. SMITH (1994)

When the trial court indicates its intent to consider “defensive matter” and, based thereon, to grant a defense judgment pursuant to section 631.8 of the Code of Civil Procedure, the plaintiff must, on request, be given an opportunity to reopen.   Since that wasn't done in this case, we reverse and remand for a new trial.¹

FACTS

In February 1987, Brian Heron and Charles Smith executed a printed form “Rental Agreement (Month-to-Month Tenancy)” and a “Supplemental Portion of Rental Agreement” prepared by Smith, the owner of the property.   Unfortunately, they didn't talk to a lawyer and when Heron later thought he had effectively exercised an option to purchase the property, Smith disagreed and refused to sell.   Heron sued Smith for specific performance and the case was tried to the court.   The following evidence was presented during Heron's case-in-chief, through documents and testimony (by Heron, Smith, and other witnesses).

The Rental Agreement obligated Smith to “demise and let unto [Heron] ․ a single family house ․ for a tenancy from month-to-month commencing on the 1st day of February, 1987, and at a monthly rental of ․ $600 ․ per month․”  The Supplemental Agreement provided the “month-to-month lease is based on a twelve month period.   At the end of this period the house will be offered for purchase to [Heron] at a price of $115,000.00 or the option of renegotiating the lease.”  (Emphasis added.)

On November 12, 1987, Heron wrote to Smith:  “I was sorry to hear from your wife of your illness.   As I mentioned earlier[,] I was seeking financing for the purchase of the house.   Well the good news is that I have found the backing.   As soon as your health permits please contact me so that we may meet to make the necessary arrangements to effect the sale of the property․”  (Emphasis added.)

On January 7, 1988, Heron again wrote to Smith:  “Concerning our getting together[,] just let me know when and where we could most conveniently meet.   My friend tells me that he is confident that I can secure the necessary financing for the purchase of the house.   I would like to meet with you first and then we can set the meeting with my friend․”

On January 24, Heron again wrote to Smith:  “As I mentioned in our phone conversation[,] time is beginning to run out on us, and we must begin the arrangements to conclude our deal regarding the sale of the property.   I have secured the backing and all that remains to set things in motion is that we meet as soon as is possible for you so that we can set up things with you and my financial backing.   This letter tells you that I am exercising my option to conclude the purchase of the property.”  (Emphasis added.)

In February or March, Heron and Smith met at a cafe and discussed the sale of the house.   According to Smith, Heron “offered” at this meeting to buy the house for $100,000, and Smith replied that he was not interested.   According to Heron, he “inquired” whether Smith would consider reducing the purchase price by $5,000 because Smith had failed to install a heater as promised when the house was first rented.   When Smith got “excited,” Heron said the previously agreed price of $115,000 was “fine.”   Smith then said he would have some “real estate people” value the house.

In another letter to Smith, Heron wrote:  “Your proposal for a price to be set in accordance with present real estate values is unacceptable.   Again I must insist that you conclude the sale at the agreed price as per our agreement as written in Feb. '87․  As I said[,] I would like to meet with you and my representative as soon as possible to conclude the sale.”

On March 22, Heron again wrote to Smith:  “I have been thinking seriously since our meeting and I am very concerned.   I want to make a few things very clear․  [W]e can not get into any negotiations now or in the future that will jeopardise [sic ] my right to purchase the property.   As you know[,] I have exercised my option to purchase the property as we agreed I could, and to which you have never voiced any objection.   All of your points about exchange deals and increase in value are making me very nervous.   If there is any way that I can help regarding tax problems I will do whatever I can but I must confess that I do not understand the exchange things you talk about.   As I told you[,] I have secured the backing and am ready to go ahead as soon as you are able and well enough to conclude the sale and deliver title of the property.   I am sorry that you could not see your way to allowing some of the rent payments to go towards the sale-especially considering the conditions under which we lived-but nonetheless as I told you-I am ready to pay the full price of $115,000 as we agreed last year.”  (Some emphasis in original, some added.)

On March 31, Smith sent Heron a letter with a real estate broker's recommendation that the property be listed for sale at $185,000.   At about the same time and again in July, Smith flat-out told Heron he was not interested in selling the house to Heron.   Smith's mind was made up and he never asked Heron to demonstrate his ability to pay the $115,000.

Heron then sued Smith for specific performance, to enforce the agreement for the sale of the property at $115,000.   At trial to the court, Heron presented evidence of the facts set out above, following which Smith moved for judgment pursuant to section 631.8, contending Heron had failed to prove he had been ready, able and willing to perform the contract and that Heron's “counter-offer” at the “cafe meeting” had somehow extinguished Smith's exercise of his option to purchase the house for $115,000.

In a statement of intended decision (which was in effect an oral tentative ruling on the motion for judgment), the trial court made the following findings:  The agreements gave Heron an option to purchase the house for $115,000;  Smith had not retained the right to refuse to sell to Heron;  Heron had made an “offer” during the “cafe meeting” to buy the house at $100,000 (according to Smith's testimony) or at $105,000 to $110,000 (according to Heron's testimony), which amounted to a “counter offer” and “rejection” of the option;  and, even if there was no rejection, Heron was not ready, willing or able to perform because he did not have “binding” commitments to finance the purchase.   But the court did not say whether it was finding that Heron's letters had or hadn't exercised the option, jumping instead to its conclusion that the “counter-offer” at the cafe was a “rejection” of the option.   By minute order entered the same day, the motion for judgment was granted.

Heron then filed a motion for reconsideration, pointing out that there was no authority for the conclusion that his inquiry regarding a reduced purchase price somehow retroactively extinguished his exercise of the option.   In his motion, Heron requested the opportunity to reopen to present additional evidence that he did, indeed, have the ability to perform.   The court construed Heron's motion as a request to reopen and present additional evidence under section 631.8 and, so construed, denied the motion.   A statement of decision was thereafter signed by the court and judgment was entered in favor of Smith (followed by an order granting Smith's motion for attorneys' fees in the amount of $10,000).   Heron appeals.

DISCUSSION

Heron contends the trial court was required to permit him to reopen.   We agree.²

Section 631.8 is the court trial equivalent of a motion for nonsuit in a jury trial.  (National Farm Workers Service Center, Inc. v. M. Caratan, Inc. (1983) 146 Cal.App.3d 796, 807.)   When a defendant moves for judgment under section 631.8 at the conclusion of the plaintiff's case and the court, in ruling on that motion, exercises its discretion to consider “defensive matter” that may have come in as part of the plaintiff's case, the plaintiff must be given an opportunity to reopen to present rebuttal evidence.  (§ 631.8;  People v. Mobil Oil Corp. (1983) 143 Cal.App.3d 261, 271-272.)

In ruling on Smith's motion, the trial court considered Smith's testimony and also considered the testimony of other witnesses which was clearly defensive.   For example, there was testimony which arguably raised questions about Heron's assurances, in his letters, that he in fact had the financing he needed to perform the option contract.   And it could only have been Smith's conclusory testimony about the effect of the letters from Heron which led the trial court to conclude, in its subsequent Statement of Decision, that Heron had not exercised the option before the cafe meeting.

The trial court's consideration of this “defensive matter” in support of Smith's motion gave Heron the right to present additional, rebuttal evidence and the trial court's failure to grant Heron's request is reversible error.   (Wegner, Fairbank & Epstein, Cal.Practice Guide:  Civil Trials and Evidence (Rutter 1993) Nonjury Trials, § 16:44 et seq., p. 16-11 [noting that a “motion for judgment may not be granted unless the opposing party has had an opportunity to rebut any adverse evidence brought out during its case which is being considered by the court” and suggesting the very practical approach of permitting additional evidence whenever the request is made in order to protect the record on appeal];  Johnson, Cal.Trial Guide (Matthew Bender 1994) Motions to Terminate Proceedings, § 80.40[3], pp. 80-34-80-35;  Legis.Counsel's Dig., Sen.Bill No. 1888, 1 Stats.1978, ch. 372 (Reg.Sess.) Summary Dig. p. 92 [the 1978 amendment to section 631.8 was adopted specifically to give the party against whom the motion is made the opportunity to rebut the moving party's evidence before the motion is granted].) ³

DISPOSITION

The judgment and the post-judgment order granting attorneys' fees are reversed and the cause is remanded to the trial court for a new trial.   Heron is awarded his costs of appeal.

FOOTNOTES

1.   All section references are to the Code of Civil Procedure.

2.   Although Heron raises several claims of error, we address only the one which is dispositive of the appeal.   We note in passing, however, that our review of the documents suggests the option was exercised (in the January 24 letter which unequivocally stated, “This letter tells you that I am exercising my option to conclude the purchase of the property,” and which was confirmed by the March 22 letter, “As you know I have excercised my option to purchase the property as we agreed I could”).   Assuming the option was exercised, any later inquiry at the cafe meeting was immaterial-because the earlier exercise of the option created a binding contract (Erich v. Granoff (1980) 109 Cal.App.3d 920, 928-929) which could not conceivably be modified by a mere inquiry.  Landberg v. Landberg (1972) 24 Cal.App.3d 742, discussed in excruciating detail by both parties, is immaterial if the option was exercised prior to the cafe meeting-all Landberg holds is that an attempt to exercise an option on terms other than those offered is a counteroffer and, therefore, a rejection;  it has nothing to do with a post-exercise request for modification.   Of course, the exercise of the option and its continuing validity are not the only issues-as will appear, there remains some question about whether Heron was able to perform and there may be defenses which were never presented because the section 631.8 motion was granted.

3.   The trial court seemed to think there was a problem in permitting Heron to reopen after the court had announced its intended decision.   Since the right to reopen arises only after the plaintiff is made aware of the trial court's intent to rely on defensive matter (People v. Mobil Oil Corp., supra, 143 Cal.App.3d at pp. 271-273), we fail to see how the request to reopen could have been untimely.

MIRIAM A. VOGEL, Associate Justice.

MASTERSON, J., concurs. SPENCER, P.J., concurs in the judgment only.