FYBEL J.
Where a written contract expressly requires that an option be exercised on and not before a specific date, and the option holder purports to exercise the option before the specified date, we hold that the option has not been properly exercised. In this case, we conclude substantial evidence supports the trial court's findings that the contract's language was clear in its requirement that the exercise of an option take place on a date certain, and that the option holder failed to exercise the option as specified by the contract. We further hold that an equitable duty to advise the option holder of the imperfection of the purported exercise cannot be imposed when the contract's language removes any such duties. We therefore affirm the trial court's judgment that the option was not exercised.
Havasu Lakeshore Investments, LLC (HLI) was formed in 2004. J. Victor Construction, Inc. (JVC), the majority member of HLI, was controlled by Jean Victor Peloquin. In August 2004, Terry L. Fleming, Jr., and his father collectively loaned JVC $1,250,000 to develop the Vista Del Lago project in Lake Havasu.
In December 2004, Fleming, his father, and Peloquin, as an individual, signed an option agreement, which converted Fleming's loan into a membership interest in HLI, and gave Fleming the option to have Peloquin personally repurchase that membership. The option agreement provided that the option "must be exercised on, and not before August 20, 2009." The agreement also provided: "If this option is not exercised on August 20, 2009, it will automatically terminate. The termination ends all rights the FLEMINGS [have] under this Option Agreement. No notice of termination is required." The option agreement could "be amended only by written agreement executed by the parties in interests [sic] at the time of modification."
In October 2007 the members of HLI—Capital Source LLC, JVC, Fleming, Fleming's father, and VLD, LLC—held a meeting to discuss HLI business. After the meeting, Lee Anthony, HLI's accountant, prepared a document titled "Havasu Lakeshore Investments, LLC and Vista Havasu, LLC Agreements, and Meeting Notes" (the meeting notes).
In relevant part, the meeting notes read as follows: "Peloquin has promised to buy the shares held by the Flemings at a 15% compound return on capital. The promise was made separately to Terry Fleming, Sr. and Terry Fleming, Jr. in the form of a buyout option. The compound return is from the date of investment until August 2009, at which time each of the Flemings must make a choice to sell their shares to [Peloquin] at the original price plus the compound return, or stay in the LLC as members, and forego the guaranteed return."
On July 9, 2009, Fleming sent a letter to Peloquin reading, in relevant part: "Pursuant to the `Havasu Lakeshore Investments, LLC and Vista Havasu, LLC Agreements, and Meeting Notes' and attached hereto, I (Terry L. Fleming Jr.) am notifying you of my intent to exercise the option for the buy out that is to be completed by August 2009." Peloquin did not respond.
In May 2011, Fleming demanded payment for the repurchase of his HLI membership units. "As you are aware, we entered into an Option Agreement in 2004 concerning the company Havasu Lakeshore Investments, LLC. This Option Agreement allowed me to make capital infusions to the company that would then facilitate the development of the Vista Del Lago project and in return I had the option to sell my membership interest in the company and you are required to purchase said interest. [¶] Pursuant to the Option Agreement, I exercised my right to buyout from Havasu Lakeshore Investments, LLC almost two years ago. . . . [¶] Consider this letter my final demand for payment."
Fleming sued Peloquin for breach of the option agreement.
The trial court entered judgment in Peloquin's favor. The court also awarded Peloquin attorney fees. Fleming timely filed a notice of appeal.
In this appeal, we address three distinct questions: (1) What constitutes the contract? (2) How do we interpret the relevant language of the contract? (3) Did Fleming comply with the contract when attempting to exercise his option?
As to the first question, Peloquin argues the contract was the written option agreement alone; Fleming argues the contract was the option agreement, as amended by the meeting notes.
The determination as to whether a contract exists is a question of fact requiring deference to the trial court. (In re First Capital Life Ins. Co. (1995) 34 Cal.App.4th 1283, 1287.) When the existence of a contract is at issue, "we will defer to factual findings made by a trial court when there is oral or written evidence to support such findings." (Ibid.)
In the statement of decision, the trial court found: "Mr. Fleming Jr. claims that the Option Agreement was modified by [the meeting notes]. [¶] . . . [¶] This Court finds that Mr. Fleming Jr. failed to prove that he and Mr. Peloquin agreed to a modification of when the Option Agreement could be exercised."
Substantial evidence supports the trial court's finding. The option agreement required that any modifications be in writing and signed by the parties in interest. Peloquin signed the meeting notes as a representative of JVC, and not as an individual. However, JVC was not a party to the option agreement; only Peloquin in his individual capacity was.
Nor is there evidence that the meeting notes were intended as a modification of the option agreement. Anthony testified he drafted the meeting notes as minutes following the meeting of the HLI members. The option agreement was referenced, according to Anthony, to ensure all HLI members knew that the option agreement was an obligation of Peloquin only and would not impact HLI.
Anthony testified there was no discussion at the October 24, 2007 meeting about changing the exercise date in the option agreement. Peloquin's testimony corroborated Anthony's testimony. Specifically, Peloquin testified that at no time did he intend to change the date on which Fleming was required to exercise the option. The trial court specifically found Peloquin's testimony credible.
For his part, Fleming had testified "I don't know" when asked at his deposition if the option agreement had ever been amended in writing. At trial, however, Fleming testified the parties discussed modifications to the option agreement at the October 24 meeting, and that the meeting notes constituted an amendment of the option agreement.
The meeting notes themselves, however, show that they were not intended as a modification of the option agreement with respect to the date of exercise. The exercise is mentioned as follows: "Vic Peloquin has promised to buy the shares held by the Flemings at a 15% compound return on capital. The promise was made separately to Terry Fleming, Sr. and Terry Fleming, Jr. in the form of a buyout option. The compound return is from the date of investment until August 2009, at which time each of the Flemings must make a choice to sell their shares to Vic at the original price plus the compound return, or stay in the LLC as members, and forego the guaranteed return. [¶] A question arose regarding the second capital infusion. Terry Fleming, Sr. wanted to know if the second infusion was also eligible for the `buyout option.' After discussion, Vic agreed that the second infusion would have the same rate of return as the first, and he would offer a buyout option on the second infusion by the Flemings at the same date (August 2009). The purchase obligation associated with the guaranteed return is a personal obligation of Vic Peloquin, and not an obligation of Havasu Lakeshore Investments, LLC."
Separately and later, the meeting notes provide: "The members unanimously agreed as follows." This notation is followed by a series of items, which do not even mention the option exercise date.
Fleming argues that JVC became a party in interest to the option agreement because it acknowledged and consented to the option agreement. The acknowledgement and consent specifically waives the rights of the HLI members under the HLI operating agreement relating to the transfer of membership interests. Nothing about the acknowledgement and consent makes that document a part of the option agreement, nor does it prescribe that its signatories are parties to the option agreement. Indeed, at trial Fleming testified it was "just an acknowledgement and consent to the option agreement by all of the parties to HLI."
We conclude substantial evidence supported the trial court's finding that the contract consisted of the option agreement only.
As to the second question of the meaning of the contract, we begin by considering the applicable standard of review. Although Fleming contends the applicable standard of review for an issue of contract interpretation is de novo, the question in this case is actually more nuanced. "The ultimate construction placed on the contract might call for different standards of review. When no extrinsic evidence is introduced, or when the competent extrinsic evidence is not in conflict, the appellate court independently construes the contract. [Citations.] When the competent extrinsic evidence is in conflict, and thus requires resolution of credibility issues, any reasonable construction will be upheld if it is supported by substantial evidence." (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955-956 (Founding Members).)
The language of the option agreement regarding the date for the exercise of the option was clear and unambiguous, and required the option to be exercised on August 20, 2009, and neither before nor after that date. The option agreement provides, in relevant part: "This option must be exercised on, and not before, August 20, 2009. . . . [¶] If this option is not exercised on August 20, 2009, it will automatically terminate." (Italics added.) Thus, the agreement twice specifies that the option must be exercised on a date certain, and further specifies it may not be exercised before or after that date.
Even if the language were ambiguous, we would conclude the admissible parol evidence leads to the same conclusion. "California's parol evidence rule is codified in section 1856 of the Code of Civil Procedure. Subdivision (a) of section 1856 provides: `Terms set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement.'" (Founding Members, supra, 109 Cal.App.4th at p. 953.)
"The basic goal of contract interpretation is to give effect to the parties' mutual intent at the time of contracting. [Citations.] When a contract is reduced to writing, the parties' intention is determined from the writing alone, if possible. [Citation.] `The words of a contract are to be understood in their ordinary and popular sense.' [Citations.] [¶] Extrinsic evidence is admissible to prove a meaning to which the contract is reasonably susceptible. [Citations.] If the trial court decides, after receiving the extrinsic evidence, the language of the contract is reasonably susceptible to the interpretation urged, the evidence is admitted to aid in interpreting the contract. [Citations.] Thus, `[t]he test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.' [Citation.] [¶] The threshold issue of whether to admit the extrinsic evidence—that is, whether the contract is reasonably susceptible to the interpretation urged—is a question of law subject to de novo review. [Citations.] [¶] . . . [¶] California recognizes the objective theory of contracts [citation], under which `[i]t is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation' [citation]. The parties' undisclosed intent or understanding is irrelevant to contract interpretation." (Founding Members, supra, 109 Cal.App.4th at pp. 955-956.)
"When the meaning of the words used in a contract is disputed, the trial court engages in a three-step process. First, it provisionally receives any proffered extrinsic evidence that is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. [Citations.] If, in light of the extrinsic evidence, the language is reasonably susceptible to the interpretation urged, the extrinsic evidence is then admitted to aid the court in its role in interpreting the contract. [Citations.] When there is no material conflict in the extrinsic evidence, the trial court interprets the contract as a matter of law. [Citations.] This is true even when conflicting inferences may be drawn from the undisputed extrinsic evidence [citations] or that extrinsic evidence renders the contract terms susceptible to more than one reasonable interpretation. [Citations.] If, however, there is a conflict in the extrinsic evidence, the factual conflict is to be resolved by the jury." (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1126-1127, fn. omitted.)
The competent extrinsic evidence in this case includes the testimony of Fleming and Peloquin, the testimony of Peloquin's attorney who reviewed and recommended modifications to the option agreement before it was signed, the earlier draft of the option agreement, the contemporaneous correspondence of the parties' agents regarding the language of the option agreement, and Fleming's July 9 letter purporting to exercise the option. This extrinsic evidence (particularly Fleming's testimony and Fleming's July 9 letter) is conflicting, and therefore we review the trial court's findings regarding the interpretation of the agreement for substantial evidence.
The parties specifically negotiated for the August 20 exercise date. Initially, paragraph 3.2 of the option agreement would have allowed the option to be exercised by August 20, 2009, meaning on any date up to or including August 20, 2009. Peloquin's attorney, Maurice Wainer, testified regarding the draft of the option agreement: "I received the agreement. I was asked to review the agreement. In my role as a lawyer, I looked at the agreement and I thought that one of the things that needed to be changed was paragraph 3.2 as to when the option could be exercised because I felt in my professional opinion that it was too uncertain as to when the option could be exercised and what the impact would be on the debtor, so I tried to get additional debtor protections."
Therefore, the language of paragraph 3.2 was modified to allow the option to be exercised only on a date certain—August 20, 2009. This change was confirmed in writing by Fleming's counsel prior to execution of the final Operating Agreement: "Dear Messrs. Fleming: [¶] I spoke with both Vic Peloquin and his counsel in regards to the Option Agreement that you forwarded to them earlier today. They have requested two changes. The first and most significant is that the Option Agreement is not actionable until August 20, 2009 and not before. . . . [¶] I was informed that you have agreed to these changes. Accordingly, I have modified the Option Agreement, which is enclosed." Fleming confirmed in his testimony that this provision of the option agreement was modified before the agreement was finalized.
Peloquin testified he was aware that Wainer had recommended the option agreement provide a date certain for exercising the option, and that this request for a date certain in the option agreement was communicated to the Flemings. Peloquin believed the option agreement provided that if the option were not exercised on August 20, 2009, it would automatically terminate.
Fleming testified he believed the option must be exercised "by August 2009." The July 9, 2009 letter in which Fleming purported to exercise the option is consistent with Fleming's testimony.
Fleming also testified at trial, however, that he was aware that if he did not exercise the option on and not before August 20, 2009, the option would terminate and he would retain his interest in HLI. Fleming carefully read the contract, knew the terms of the contract, and signed it freely and voluntarily.
We therefore conclude substantial evidence supported the trial court's finding that the language of the option agreement required that the option be exercised on August 20, 2009 only. Even if the de novo standard of review applied, we would reach the same conclusion as did the trial court based on the evidence and the reasons set forth ante.
As to the third question, in the statement of decision, the trial court found "Fleming Jr. did not prove that he did all that was required of him by the contract. . . . Because Mr. Fleming Jr. did not exercise the option as required by the Option Agreement, he had not substantially performed pursuant to the Option Agreement."
After hearing the evidence, the trial court made the specific factual finding that "Mr. Fleming Jr. knew or should have known that to the extent his July 9, 2009 letter was exercising the option, it was defective because it was exercised before August 20, 2009." The court further found that "[t]he parties had specifically negotiated with the assistance of counsel that the option could not be exercised before August 20, 2009. Mr. Peloquin was not in a superior position than Mr. Fleming Jr. to know that the letter was defective." Further, "Mr. Peloquin was not obligated to inform Mr. Fleming Jr. that his exercise of the option was defective."
Fleming testified at trial that he knew paragraph 3.2 required that the option be exercised "on and not before August 20, 2009" and knew if he did not exercise the option on August 20, 2009 it would "automatically terminate." Fleming also admitted that he did not exercise the option on August 20, 2009. Fleming argues, however, that his July 9 letter effectively exercised the option. Fleming relies for this argument on the meeting notes. As discussed ante, however, the trial court found the meeting notes did not modify the terms of the option agreement as to when the option must be exercised, and that finding is supported by substantial evidence.
Flickinger v. Heck (1921) 187 Cal. 111, on which Fleming relies, is factually inapposite. In that case, the plaintiff held an option to require the defendants to repurchase shares of corporate stock on a date certain. (Id. at p. 112.) The parties' contract required that the plaintiff provide written notice of his intention to exercise the option ten days before the exercise date. (Ibid.) The plaintiff provided such notice of his intent to exercise on the specified date. (Ibid.) The defendants refused to perform because the plaintiff had not tendered the stock and demanded payment from the defendants on the specified exercise date. (Id. at pp. 112-113.) Because the language of the option contract did not specify when and how the tender and demand was to occur, and because the plaintiff fully complied with the notice provisions of the option contract, the defendants were liable for their failure to fulfill their contractual obligations. (Id. at pp. 114-116.) Here, Fleming failed to comply with the specific contractual requirements to exercise the option. Peloquin's obligations under the option agreement never came into being.
We note that Fleming never argued the July 9 letter was a premature exercise of the option, either in the trial court or on appeal. Fleming's argument has always been that the July 9 letter properly and effectively exercised the option because the letter was sent and received "by August." His premise is that the option agreement was modified by the meeting notes, an argument soundly, and properly, rejected by the trial court (see ante).
The trial court's finding that Fleming did not exercise the option as required by the option agreement was necessitated by the relevant law, and by Fleming's unequivocal admission that he did not exercise the option on August 20, 2009. "The language of the [option] contract itself controls as to what act or acts constitute an election." (Flickinger v. Heck, supra, 187 Cal. at p. 114.) "[W]hen the provisions of an option contract prescribe the particular manner in which the option is to be exercised, they must be strictly followed." (Palo Alto Town & Country Village, Inc. v. BBTC Company (1974) 11 Cal.3d 494, 498.)
Fleming argues Peloquin should be estopped to deny Fleming's proper exercise of the option because Peloquin failed to advise Fleming the exercise was improper when he received the July 9, 2009 letter. "Whenever a party has, by his own statement or conduct, intentionally and deliberately led another to believe a particular thing true and to act upon such belief, he is not, in any litigation arising out of such statement or conduct, permitted to contradict it." (Evid. Code, § 623.) "All objections to the mode of an offer of performance, which the creditor has an opportunity to state at the time to the person making the offer, and which could be then obviated by him, are waived by the creditor, if not then stated." (Civ. Code, § 1501.)
"The doctrine of equitable estoppel is founded on concepts of equity and fair dealing. It provides that a person may not deny the existence of a state of facts if he intentionally led another to believe a particular circumstance to be true and to rely upon such belief to his detriment. The elements of the doctrine are that (1) the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or he must so act that the party asserting the estoppel has a right to believe it was so intended; (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury." (Strong v. County of Santa Cruz (1975) 15 Cal.3d 720, 725.)
Fleming has not established an equitable estoppel here. Fleming was not ignorant of the true state of the facts—i.e., what the option agreement required to properly exercise the option. Similar to this case, in Sanguansak v. Myers (1986) 178 Cal.App.3d 110, 113-114, the appellant paid off the entire amount due on a promissory note secured by a deed of trust, which had been obtained with the help of an attorney. This action caused a prepayment penalty to become due, which the bank did not mention when it accepted the full payoff. (Id. at p. 114.) Ultimately, foreclosure proceedings were commenced when the appellant failed to pay the prepayment penalty. (Ibid.) The appellant argued the respondent was equitably estopped from relying on the unpaid prepayment penalty as a basis for the foreclosure proceedings. (Id. at p. 117.) The court rejected that argument, as the appellant was not ignorant of the true state of the facts, having been represented by counsel when the promissory note was executed, and being aware that a prepayment penalty would be assessed. (Id. at p. 118.)
Significantly, the option agreement contained a specific, express provision that Peloquin was not required to undertake any action if Fleming did not exercise the option. "If this option is not exercised on August 20, 2009, it will automatically terminate. This termination ends all rights the FLEMINGS [have] under this Option Agreement. No notice of termination is required." Thus, the option agreement was structured to terminate automatically if Fleming did not exercise his option on the specified date. Fleming claims that Peloquin was equitably estopped from denying Fleming his rights under the option agreement because Peloquin failed to advise Fleming he had improperly exercised his option. Fleming attempts to impose on Peloquin a duty that was specifically rejected by the terms of the parties' agreement itself.
None of the other cases cited by Fleming presented an option agreement that required the exercise of the option to be made on a date certain, and not before, where the party did not exercise the option on the date certain, and a duty was imposed on the other party to correct the exercising party's error. (See Collins v. Marvel Land Co. (1970) 13 Cal.App.3d 34, 39-40 [defendants affirmatively accepted plaintiffs' oral notice through their agent, and began acting on it before declaring the option to have lapsed]; Layton v. West (1969) 271 Cal.App.2d 508, 510, 511-512 [exercise of an option cannot impose additional conditions, but offeree cannot remain silent and not give the offeror the chance to remedy defects in the option exercise]; Hunt v. Mahoney (1947) 82 Cal.App.2d 540, 543-546 [homebuyers failed to pay the purchase price on the contractual closing date; sellers had waived performance and the contract contained an extension of the time for payment].)
Fleming also argues the trial court's statement of decision was inadequate. This argument is not supported by law. "[A] statement of decision is adequate if it fairly discloses the determinations as to the ultimate facts and material issues in the case. [Citation.] When this rule is applied, the term `ultimate fact' generally refers to a core fact, such as an essential element of a claim. [Citation.] Ultimate facts are distinguished from evidentiary facts and from legal conclusions." (Central Valley General Hospital v. Smith (2008) 162 Cal.App.4th 501, 513.)
In this case, the trial court issued a thorough and well-reasoned statement of decision addressing all of the principal controverted issues in the case. The failure to address every question or issue in Flemings's objections does not affect the adequacy of the statement of decision. "`"Only where a trial court fails to make findings as to a material issue which would fairly disclose the determination by the trial court would reversible error result. Even though a court fails to make a finding on a particular matter, if the judgment is otherwise supported, the omission is harmless error unless the evidence is sufficient to sustain a finding in favor of the complaining party which would have the effect of countervailing or destroying other findings. A failure to find on an immaterial issue is not error. [Citation.] In issuing a statement of decision, the trial court need not address each question listed in a party's request. All that is required is an explanation of the factual and legal basis for the court's decision regarding such principal controverted issues at trial as are listed in the request."'" (Bandt v. Board of Retirement (2006) 136 Cal.App.4th 140, 162.)
Fleming also argues that the trial court's attorney fees award must be reversed if the judgment is reversed. Because we affirm the judgment, we need not address the issue of attorney fees.
The judgment is affirmed. Respondent to recover costs on appeal.
BEDSWORTH, ACTING P. J. I CONCUR.
IKOLA, J., dissenting,
I respectfully dissent. The majority opinion creates a million dollar windfall based on a technicality none of the parties contemplated. The inescapable fact is that Peloquin had Fleming Jr.'s exercise of the option on his desk on August 20, 2009, the exercise date. According to the majority, that was ineffective merely because it had been received the month before, rather than on that exact date. In my view, and in the view of every case I found addressing the premature exercise of an option, the exercise took effect on August 20, 2009. Even if it had not, moreover, Peloquin forfeited any objection to the premature exercise. Peloquin had an affirmative duty to inform Fleming Jr. of any objection he had to the form of the exercise of the option. The evidence shows Peloquin was simply not picking up his business mail around that time. He thus failed his duty and forfeited his objection. The majority largely ignores this doctrine. For both reasons, the judgment should be reversed.
I begin by addressing the facts. I agree with the majority that the meeting notes did not modify the exercise date under the option agreement. Two points bear emphasis, however.
First, it is undisputed that the meeting notes did modify the option agreement in other respects: It permitted Fleming and Fleming Jr. to exercise their options separately, and it extended the scope of the option agreement to cover a second cash infusion (but not a third). This is important because every indication in the record suggests Fleming Jr. believed the meeting notes had modified the exercise date. Notably, when Fleming Jr. attempted to exercise the option, he expressly did it pursuant to the meeting notes and even attached a copy of the meeting notes to his exercise letter. This was well before August 20, 2009, and thus he easily could have exercised on that date if he believed it to be the effective date. Since the meeting notes did modify the option agreement in other respects, there is no reason to doubt Fleming Jr.'s good faith belief that the meeting notes had modified the exercise date as well.
Second, Peloquin's attorney insisted on a specified exercise date, not because it was important that Peloquin receive a piece of paper on that exact date, but because specification of the date ensured that the repurchase obligation would not arise earlier during the five-year lifespan of the option agreement. Peloquin's attorney testified the language was needed because, without it, "it was too uncertain as to when the option could be exercised and what the impact would be on the debtor. . . ." He sought "to provide some certainty to the debtor." This "impact" could only refer to Peloquin's repurchase obligation arising upon exercise of the option, as the receipt of a piece of paper has no impact at all on its own.
This brings me to the crucial point in this case: On August 20, 2009, Peloquin had a notice of exercise of the option on his desk. According to the majority, the only reason this was defective was because it had been received the month before. But there is nothing in either the language or the history of the option agreement to suggest that that matters. Peloquin cared when his obligation to repurchase Fleming Jr.'s membership interest would arise, not when the paper was delivered. In my view, the exercise became effective on August 20, 2009.
My conclusion, unlike the majority's, is buttressed by what little case law exists addressing the premature exercise of an option. As American Jurisprudence observed, "although not prevalent among the reported cases, the issue may also arise as to whether premature notice of exercise of an option of specified duration — that is notice given before the option period starts to run — constitutes timely notice. Of the few courts to address this issue, all have ruled that a lessee's premature notice of the exercise of an option to renew or extend a lease is nevertheless timely." (63 Am.Jur.3d (2017) Proof of Facts, § 20.) I found no California cases that address this issue, but two out of state cases are helpful.
In Goodyear v. Kin Properties (N.J.Super.Ct. 1994) 647 A.2d 478 (Goodyear) a tenant had a three month window in which to exercise an option to renew a lease — between six and nine months before the end of the lease period. (Id. at p. 479.) The tenant sent a renewal notice approximately 18 months before the end of the lease. (Id. at p. 480.) The landlord argued the premature notice was ineffective, but the appellate division held otherwise: "There is a vast difference between a substantially late exercise of an option to renew a lease, in which case the option expires and is lost, and the early exercise of an option which merely permits the parties to solidify the terms of the extension period at an earlier time. There is a purpose to the cutoff date for the exercise of the option. A tenant is generally required to give ample notice of the exercise of an option to renew a lease so that the landlord is not forced to wait until the last day of the lease term before he is informed whether the tenant wishes to remain on the premises. This requirement substantially reduces the risk that the premises will remain unoccupied for an indefinite period in the event that the renewal option is not exercised. The plaintiff herein satisfied that purpose. There appears to be no discernable purpose to the earlier date of a window time period, such as the one herein, other than to provide a trap for the unwary." (Id. at p. 481.)
Similarly, in Estate of Schler v. Benson (Mo.Ct.App. 1997) 947 S.W.2d 495 (Estate of Schler) the decedent bequeathed to a beneficiary an option to purchase property within seven months of issuance of letters of notice. The beneficiary sent notice exercising the option 10 days before the letters of notice issued. (Id. at p. 497.) The personal representative argued the premature exercise was invalid, but the court held otherwise: "Its effect was simply suspended until first publication of notice of letters occurred on April 6, 1996. It then took immediate effect. Because the notice is thus considered as if given the very first day it could be given, it clearly was timely." (Id. at p. 500.)
Here, as in Goodyear, there is no discernible purpose to punishing the earlier mailing other than to provide a trap for the unwary. The avowed purpose of the August 20 provision was to protect Peloquin. Peloquin's repurchase obligation was substantial, and if it could be called at any time, Peloquin would be forced to keep additional reserves to meet the repurchase obligation. By ensuring Peloquin could know exactly when his obligation would arise, if it all, it freed up Peloquin's resources. Holding that the earlier mailing became effective on August 20, 2009, does nothing to undermine that protection. To the contrary, receiving earlier notice could only benefit Peloquin: It would give him additional time to generate the funds to meet the repurchase obligation, and would give him greater certainty over his financial affairs. As in Estate of Schler, the exercise did not become effective when it was sent. However, it did become effective on August 20, 2009.
This brings me to the second reason Fleming Jr.'s exercise was effective: Peloquin forfeited any objection to a premature exercise. "Although acceptance must be in the terms of the option agreement, an optionor can waive one or more of the terms. [Citation.] If an optionor does not specify the alleged defects in the tender by the optionee, then a waiver results. [Citation.] The reason for this rule is that an optionee should be able to remedy any defects in his tender and prevent the optionor from remaining silent at the time of the tender and later surprise the optionee with hidden objections." (Rollins v. Stokes (1981) 123 Cal.App.3d 701, 713; see Sabo v. Fasano (1984) 154 Cal.App.3d 502, 505 ["It is well-settled a contracting party may waive conditions placed in a contract solely for that party's benefit. [Citation.] The provision in an offer specifying the means of acceptance is such a condition and may be waived by the offeror. [Citations.] We find no reason why this rule should not apply in the case of a time limit imposed by the offeror for acceptance by the offeree"].) Although the authorities above describe this rule in terms of a waiver, it is properly understood as a forfeiture rule. (See Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 315 ["Generally, `waiver' denotes the voluntary relinquishment of a known right. But it can also mean the loss of an opportunity or a right as a result of a party's failure to perform an act it is required to perform, regardless of the party's intent to abandon or relinquish the right"]; U.S. v. Olano (1993) 507 U.S. 725, 733 ["Waiver is different from forfeiture. Whereas forfeiture is the failure to make the timely assertion of a right, waiver is the `intentional relinquishment or abandonment of a known right'"].)
At trial, Peloquin testified he was spending his time in Havasu in the summer of 2009. His bookkeeper testified she signed for the notice letter, which was sent by certified mail. She testified that in the summer of 2009 her practice was to set such mail aside for Peloquin, but he was not coming in very often to pick up his mail. The trial court concluded "Mr. Peloquin was not obligated to inform Mr. Fleming Jr. that his exercise of the option was defective. [Citation.] Mr. Peloquin's silence as to the timing of Mr. Fleming Jr.'s letter did not constitute an acceptance of . . . Mr. Fleming Jr.'s exercise of the option."
I disagree. Peloquin's neglect of his business mail during that time frame did not absolve him of the duty to make timely objections to the form of Fleming Jr.'s notice of exercise. To the extent there were consequences to Peloquin's neglect, they should fall on him, not on Fleming Jr., who made a good faith effort to comply with what he believed the contract required. If Peloquin took the view that the meeting notes had not modified the exercise date under the option agreement, and that the notice was premature as a result, it was his duty to inform Fleming Jr. of the alleged deficiency. That way Fleming Jr. could avoid any disputes by correcting the alleged error. Peloquin failed to satisfy that duty and thus forfeited any objection to a premature notice exercising the option.
The majority does not address this forfeiture rule at all. Instead, it focuses on whether Peloquin was estopped from asserting noncompliance with the option provision. "`[E]stoppel is applicable where the conduct of one side has induced the other to take such a position that it would be injured if the first should be permitted to repudiate its acts.'" (DRG/Beverly Hills, Ltd. v. Chopstix Dim Sum Cafe & Takeout III, Ltd. (1994) 30 Cal.App.4th 54, 59.) And to be fair to the majority, Fleming Jr. argues for an estoppel, rather than a waiver. I agree there is no basis for an estoppel. Peloquin did not do anything.
But therein lies the problem. The rule applicable to Peloquin's failure to act is forfeiture, not estoppel. He had a clear duty to inform Fleming Jr. of his objection to the notice of exercise. He did not. Therefore, he forfeited his objection.
To the extent the majority's estoppel discussion addresses this forfeiture issue, the majority's response is, "Fleming attempts to impose on Peloquin a duty that was specifically rejected by the terms of the parties' agreement itself." (Maj. opn. ante, at p. 14.) The specific provision the majority refers to, however, has no application here. The majority relies on the contract provision that states, "If this option is not exercised on August 20, 2009, it will automatically terminate. This termination ends all rights the FLEMINGS [have] under this Option Agreement. No notice of termination is required." (Id. at p. 2.) That provision addresses the situation where Fleming Jr. makes no attempt to exercise the option ("`If this option agreement is not exercised'"). (Id. at p. 8.) It simply restates the default rule than an unexercised option expires automatically. (See Rosenaur v. Pacelli (1959) 174 Cal.App.2d 673, 676 ["The very nature of an option, which by its terms must be exercised within a specified time, compels the inescapable conclusion that time is of the essence, and no express provision to that effect is required"].) It cannot reasonably be construed to absolve Peloquin of his duty to raise objections to the form of the exercise when Fleming Jr. has, in fact, attempted to exercise the option. In my view, therefore, Peloquin forfeited his objection to the premature notice, and the judgment should be reversed.
