HOLLENHORST, J.
Following a court trial, judgment was entered in favor of plaintiff and respondent FHC, Inc. (Buyer) and against defendant and appellant Sunnymead Mutual Water Company, Inc. (Seller) for breach of contract arising out of a real estate transaction in which Buyer was to purchase certain unimproved real property from Seller. The trial court found that Seller failed to provide a reasonable period of time for Buyer to tender payment after the last agreed date for payment. Buyer was awarded $789,286.64 in damages. Seller appeals, contending: (1) the trial court erred in determining that Seller breached the Purchase and Sale Agreement (Agreement); (2) the Agreement was illusory and unenforceable for lack of consideration; and (3) the damages award was excessive.
Seller owns 10 acres of property located at the southwest corner of Heacock Street and Ironwood Avenue in Moreno Valley, California (Property). In 2002, Seller was approached by Buyer through its principal, Fred Darryl "Fritz" Howser, president of Buyer, regarding the Property. Buyer and Howser were engaged in commercial real estate development.
Buyer submitted an offer to purchase the Property at $2.2 million. On June 19, 2002, the offer was accepted and Buyer prepared the Agreement. Escrow was opened at Fidelity National Title Company with an initial deposit of $10,000. The transaction proposed by Buyer included a "due diligence" period that allowed Buyer to investigate the Property, followed by a lengthy escrow. Billy L. Hall, president of Seller, suggested the "time of the essence" provision in the Agreement be removed. Hall also requested that the attorney fees provision be removed because Seller was not represented by counsel.
The Agreement was executed in October 2002 by Buyer and in December 2002 by Seller. Prior to that time, escrow had been opened for the transaction. The effective date of the Agreement was the last date it was signed by the parties, which was December 10, 2002. As previously noted, the Agreement allowed Buyer to conduct a nine-month review period (Review Period) to enter onto the Property for the purpose of conducting studies or tests relating to engineering and/or economic feasibility pertaining to the eventual use of the Property. Under the terms of the Agreement, the escrow on the sale of the Property was to close on the earlier of Buyer's receipt of all permits for its intended use of the Property, or nine months after the expiration of the Review Period.
On or about June 25, 2003, Buyer requested that Seller agree to an extension of the Review Period. Seller agreed, and the Review Period was extended to October 1, 2003. Thereafter, the Review Period was extended to December 1, 2003, June 1, 2004, and October 1, 2004. On March 16, 2004, the purchase price was reduced by $400,000 based upon representations made by Buyer that substantial remedial work was required on the Property at a substantial cost to Buyer.
On September 30, 2004, Buyer provided notice pursuant to the Agreement that it was approving the due diligence items, which were the subject of the Review Period, and was increasing its deposit to $25,000. As a result, all contingencies relating to the purchase and sale of the Property with respect to Buyer were deemed satisfied.
In the beginning of 2005, an issue arose as to whether Seller had promised to donate two to five acres of the Property to the Moreno Valley Historical Society. This delayed Buyer's ability to proceed with its review of the Property, because Buyer needed to ensure that it would buy the Property free and clear. In March 2005, Hall was diagnosed with tumors in his spleen and pancreas; thus, Howser was directed to contact Andy Hacker, another officer of the board of Seller. Howser claimed that Hacker had no knowledge of the Agreement.
On January 6, 2006, Buyer failed to tender payment for the purchase of the Property, and escrow did not close as scheduled. On January 18, 2006, when Buyer contacted Seller to report that Buyer was prepared to close, Seller (Hall) indicated there was no intent to move forward and another buyer had inquired about the Property. On January 27, 2006, Seller attempted to cancel escrow by faxing written cancellation instructions to Fidelity National Title Company. Buyer threatened legal action.
On February 10, 2006, Buyer initiated this action for breach of contract, specific performance, purchaser's lien, constructive trust and injunctive relief. Seller answered the complaint and raised numerous affirmative defenses. On February 27, 2009, the action proceeded to trial. After hearing the evidence, the trial court found in favor of Buyer on the grounds that Seller failed to provide Buyer with a reasonable time to perform. The court further stated: "[Seller] had not performed its seller obligations pursuant to the agreement and it was not entitled to cancel escrow on January 27, 2006. This is a difficult finding to make, for, understandably, Hall's patience was at an end and he was infirm and unsophisticated in legal matters." The trial court awarded damages to Buyer in the amount of $789,286.64. Seller appeals.
Seller challenges the trial court's finding that the Agreement was breached, arguing that Buyer (1) "did not establish performance of the . . . Agreement on its part," nor (2) "did it establish that [Seller] breached . . . the Agreement."
Seller asserts the trial court's finding that it breached the Agreement is reversible error as a matter of law, and thus, the de novo standard of review applies. Buyer responds that the substantial evidence standard applies. We agree with Buyer. In challenging the trial court's finding that Seller breached the Agreement, Seller is challenging the court's finding that Seller failed to allow for a reasonable time to perform. What constitutes a reasonable time for performance is a question of fact, depending upon the circumstances of the case. (Consolidated World Investments Inc. v. Lido Preferred Ltd. (1992) 9 Cal.App.4th 373, 381.) Thus, "our duty `begins and ends' with assessing whether substantial evidence supports the verdict. [Citation.] `[The] reviewing court starts with the presumption that the record contains evidence to sustain every finding of fact.' [Citation.] We review the evidence in the light most favorable to the respondent, resolve all evidentiary conflicts in favor of the prevailing party and indulge all reasonable inferences possible to uphold the . . . verdict. [Citation.]" (US Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887, 908.)
In support of its argument that the trial court erred in finding it breached the Agreement, Seller cites Pitt v. Mallalieu (1948) 85 Cal.App.2d 77, 81 [no right to seek specific performance where contract provided for time is of the essence and purchaser failed to deposit purchase money in escrow by specified time]; Fogarty v. Saathoff (1982) 128 Cal.App.3d 780, 784 [failure of the buyer to remove a lender approval contingency justifies cancellation on the part of the seller]; Pittman v. Canham (1992) 2 Cal.App.4th 556, 559-660 [where "the parties have made time the essence of the contract, at the expiration of time without tender by either party, both parties are discharged" and neither party can hold the other in default]; and Nash v. Superior Court (1978) 86 Cal.App.3d 690, 693 [where instructions stated, "`In the event escrow is not closed by [a specified date and time], escrow is to be immediately cancelled without any further instructions from any party and funds deposited herein by buyer are to be returned to buyer less all cancellation charges incurred herein,'" the duty to convey terminated on the date specified and buyer could not obtain specific performance], disapproved in part on another ground in Malcolm v. Superior Court of Santa Clara County (1981) 29 Cal.3d 518, 528, fn. 5. Each of these cases involved contracts with time of the essence provisions.
Recognizing there was no "time is of the essence" provision in the Agreement in this case, Seller claims "the custom and practice of the parties in executing a series of written extension agreements which specified a date certain for close of escrow established that the parties contemplated use of a defined date for close of escrow." Noting the trial court found that on December 15, 2005, Seller stated no further extensions would be given past January 6, 2006, Seller argues it was entitled to cancel escrow after Buyer failed to tender payment by January 6, 2006.
"Like any other contractual terms, timeliness provisions are subject to waiver by the party for whose benefit they are made. [Citation.]" (Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, 1339, fn. omitted.) Applying this principle to the present case, the trial court found that, because the Agreement did not have a "time is of the essence" clause, and Seller granted many extensions of time for performance, Seller's notice to perform on December 13, 2005, less than one month from the close of escrow, was "insufficient notice to perform." Thus, although the closing date of January 6, 2006, was a date certain, given the parties' prior interactions, along with Howser's understanding that the date had been extended to February 7, 2006, Seller's failure to provide a reasonable time for Buyer to perform amounted to a breach of the Agreement.
Notwithstanding the above, Seller claims that, "[b]y consistently defining a specified date for performance and by consistently executing written agreements setting forth a time limitation for performance, [the parties] exhibited their intent to require performance by a date certain." We disagree. It is equally plausible that the opposite is true, i.e., by consistently extending close of escrow to a date certain over the course of three years, the parties indicated their understanding that performance was not contingent so much on a specific date as it was on the time required for Buyer to finish its review (conducting studies or tests relating to engineering and/or economic feasibility) and Seller to clear all potential issues (the historical society's claim and shareholders' approval) that may impede development. Thus, even with Seller's decision to deny any extension beyond January 6, 2006, Seller was still required to provide Buyer with a reasonable time to perform beyond January 6. Buyer was ready to close 13 days later, on January 19. Given the facts of this case, a 13-day delay was not unreasonable. Accordingly, Seller's failure to provide a reasonable time to perform amounted to a breach of the Agreement.
Moreover, as Buyer points out, the record shows that Seller had failed to fulfill its seller obligations and failed to offer to unconditionally perform at the time it attempted to unilaterally cancel escrow on January 27, 2006. Seller was obligated to deliver, inter alia, the following items to Buyer at close of escrow: title policy, grant deed executed and acknowledged by Seller, ad valorem tax statements for 2005-2006, certificate of nonforeign status, and evidence of Seller's authority and capacity to sell the Property. Despite Seller's failure to fulfill its obligations, it sought to cancel escrow on January 27, eight days after Buyer sent written tender of performance. Given Buyer's attempt to perform within a reasonable time of the set closing date, Seller's inactions and actions further support the trial court's finding that Seller breached the Agreement.
Seller contends the Agreement was illusory and unenforceable for lack of consideration.
The interpretation of the contract, which does not involve conflicting extrinsic evidence, is a question of law subject to de novo review. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866.) Thus, Seller argues that we apply a de novo review to the issue of adequacy of consideration. However, Buyer argues that "a trial court's ruling regarding whether a contract is supported by consideration is subject to the substantial evidence standard of review." Regardless of which standard we apply, there was adequate consideration in this case.
Seller contends Buyer "had the ability to terminate the transaction at any time and if so terminated, [Seller] was required to return the initial deposit to [Buyer]." Seller points to section 14, paragraph (p) of the Agreement, which provides: "
In response, Buyer contends section 14, paragraph (p), applied only during the Review Period. On September 30, 2004, Buyer provided notice pursuant to the Agreement that it was approving the due diligence items, which were the subject of the Review Period, and was increasing its initial deposit of $10,000, to a deposit of $25,000. As a result, all of the contingencies relating to the purchase and sale of the Property with respect to Buyer were deemed satisfied. Thus, Buyer argues that if it had withdrawn from the Agreement after the Review Period, it would have forfeited the $25,000 deposit to Seller as liquidated damages. We agree with Buyer.
In Steiner v. Thexton (2010) 48 Cal.4th 411 (Steiner), the buyer of real property was given a three-year period of time in which to pursue, at his own expense, approvals to split the property, which was the subject of the agreement, with the seller. (Id. at p. 415, 417 & fn. 2.) There was a provision that allowed the buyer to cancel the transaction at any time. (Ibid.) The buyer began pursuing the necessary approvals, spending thousands of dollars. (Id. at p. 416.) Within a year, the seller decided he did not want to sell the property and notified escrow. (Ibid.) The buyer sued. (Id. at p. 417.) The trial court found in favor of the seller on the grounds that the agreement provided seller with an option to purchase the property that was not supported with any consideration. The trial court found that the seller was bound to sell the property to buyer for three years, while the buyer could cancel at any time. (Ibid.) Further, there was no provision for liquidated damages. (Id. at p. 415, fn. 2.)
The appellate court affirmed the trial court's ruling; however, our state's highest court granted review. (Steiner, supra, 48 Cal.4th at p. 417.) On review, the Court held that, although the agreement contained a due diligence condition allowing the buyer to conduct investigation and to cancel the transaction at any time, the insertion of the due diligence condition did not, as a matter of law, render the agreement illusory. (Id. at p. 421-425.) Instead, the Court concluded that the buyer's "part performance of the bargained-for promise to seek a parcel split created sufficient consideration to render the option irrevocable." (Id. at p. 421-422.) The buyer "conferred a bargained-for benefit on [the seller] and suffered bargained-for prejudice unaffected by his power to cancel, making up for the initially illusory nature of his promise." (Id. at p. 422.) Thus, the buyer's substantial efforts and expenditures to seek a parcel split effectively made the agreement enforceable. (Id. at p. 424.)
Here, Buyer was provided with a Review Period. Once Buyer approved the due diligence items that were the subject of the Review Period, it increased its initial deposit of $10,000, to a deposit of $25,000, making the deposit nonrefundable pursuant to the Liquidated Damages paragraph. Unlike the Liquidated Damages paragraph and the deposit of $25,000 in this case, in Steiner there was no such paragraph or deposit. Given the deposit of $25,000, the trial court did not need to determine what nonmonetary consideration supported the Agreement, since the nonrefundable $25,000 deposit was the consideration. Thus, we reject Seller's contention that the Agreement was illusory and unenforceable for lack of consideration. (Mattei v. Hopper (1958) 51 Cal.2d 119, 121 [contracts containing satisfaction clauses are nonetheless enforceable]; Bleecher v. Conte (1981) 29 Cal.3d 345, 351 ["The buyers do not have an unfettered right to cancel their contract or ignore their contractual obligations. More importantly, the buyers expressly promised to diligently pursue their obligations and to refrain from withholding their approval unreasonably."].)
Civil Code section 3306 provides: "The detriment caused by the breach of an agreement to convey an estate in real property, is deemed to be the price paid, and the expenses properly incurred in examining the title and preparing the necessary papers, the difference between the price agreed to be paid and the value of the estate agreed to be conveyed at the time of the breach, the expenses properly incurred in preparing to enter upon the land, consequential damages according to proof, and interest."
In calculating damages, the trial court used a contract price of $1,800,000 and a fair market value of $3,750,000, less $1,250,000 for improvement costs, for a fair value of $2,500,000. The difference amounted to $700,000. In addition to that figure, the court added Buyer's deposit of $25,000 and its out-of-pocket expenses of $64,286.64, for a total damages award of $789,286.64. Seller challenges this award, contending: "To sustain its evidentiary burden of establishing damages at trial, [Buyer] had the burden of producing evidence which established a fair market value of the Property which included the very same costs which it relied upon to achieve a reduced purchase price. As the evidence relied upon by [Buyer] did not include costs of both the well relocation and the flood control channel, [Buyer] failed to sustain its evidentiary burden of establishing any damages under Civil Code section 3306."
In response, Seller points out the real estate appraiser, Len Perdue, testified his valuation of the Property should have been reduced by costs associated with building a flood control (concrete box) channel, since these requirements would apply to any developer seeking to develop the Property. Perdue calculated the cost of the channel to be approximately $1,000,000. Based on this testimony, the parties were required to produce witnesses to testify as to the actual costs. Seller offered the testimony of Morris Reynolds, while Buyer offered the testimony of Carter Ewing. Reynolds stated that Buyer would have had to construct a channel extending past the property line, while Ewing said it would have extended only to the property line. Seller estimated that Perdue's appraisal should have been decreased by $1,500,000, while Buyer estimated the reduction to be $425,000. The trial court found the value of the Property should have been reduced by $1,250,000 for costs associated with constructing the channel.
Buyer points out that Seller failed to present evidence supporting its current claim that the value of the Property should have also been reduced by costs associated with relocating water wells. Seller counters by maintaining that Buyer bore the burden of proof. However, if Seller did not agree with Buyer's evidence of damages, Seller should have presented evidence and argued for a reduction of the damages amount in the amount associated with relocating water wells. It did not. The necessity of reducing the appraisal by the costs associated with the channel was addressed. According to Buyer, Perdue did not testify that the appraisal should be reduced by the well relocation costs, because "well relocation would have only been necessary if [Buyer] decided to develop the Property by constructing its proposed shopping center." Thus, Buyer argues that well relocation was tied to Buyer's specific site plan, and there is no evidence that Perdue was required to consider Buyer's specific site plan. We agree.
For the above reasons, we affirm the award of damages.
The judgment is affirmed. Costs on appeal shall be awarded to plaintiff and respondent.
We concur:
RAMIREZ, P.J.
MILLER, J.
