Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County, Los Angeles County Super. Ct. No. NC041025, Elizabeth Allen White, Judge.
Robinson, Diamant & Wolkowitz, and Irv M. Gross for Appellant.
Steckbauer Weinhart Jaffee, LLP, William Steckbauer, Dawn M. Coulson and Susan M. Freedman for Plaintiffs and Respondents.
TURNER, P. J.
I. INTRODUCTION
Timothy J. Yoo, as trustee for the bankruptcy estate of defendants Rex Bennett and Janice Bennett, appeals from a July 27, 2006 judgment after a court trial in favor of plaintiffs, Art Galvez and Abel Galvez. The trial court awarded plaintiffs damages for breach of a commercial lease agreement. The trial court also ordered specific performance of plaintiffs’ option, under the lease, to purchase the commercial property. We find there was no substantial evidence plaintiffs were ready, willing, and able to purchase the property at all relevant times. Accordingly, we reverse the judgment to the extent it decreed specific performance and awarded compensation incidental thereto. We affirm the judgment for $308,866.72 in contract breach damages.
For purposes of clarity and not out of any disrespect, the Galvezes will be referred to by their first names.
II. BACKGROUND
On May 8, 2002, plaintiffs and defendants entered into a commercial lease agreement. Art gave Mr. Bennett a $1,000 deposit toward the first year’s rent of $18,000. On May 13, 2002, Art gave Mr. Bennett a $17,000 check for the balance of the first year’s rent. The contract was for a two-year lease. But plaintiffs could renew the lease for an additional two years. The lease term was to begin June 1, 2002. In addition, plaintiffs had an option to purchase the leased property. The lease states: “ Option to purcha[s]e property. [¶] Tenant has the first option to purchase the property lease[d] in this agreement at the price of $850,000,00. Tenant will assumed [sic] any balance of any loan due at the time of sale and will negotiate with Landlord the offset of the remainder of the purchase sale agreement [$850,000.00 minus balance due to financial institution = Amount (subject to negotiation)]” (Orig. bold and underscore.) On May 18, 2002, Mr. Bennett purported to cancel the lease. Mr. Bennett physically locked plaintiffs out of the property by putting chains around the gates and changing the door locks. It was undisputed Mr. Bennett returned plaintiffs’ $17,000 check.
On March 16, 2004, plaintiffs filed a complaint for contract breach, reformation, specific performance, and fraud. The reformation claim was resolved by stipulation at trial. After trial, the court found no fraud, stating, “[A]t no time do I believe Mr. Bennett intended to defraud Mr. Galvez.” This appeal concerns the remaining causes of action for contract breach and specific performance. On March 18, 2004, plaintiff recorded a lis pendens. The notice states: “PLEASE TAKE NOTICE that the within action was commenced in the above-entitled court on March 16, 2004, by Plaintiffs . . . against Defendants . . ., and is now pending. [¶] The Complaint alleges a real property claim and prays for specific performance of an agreement for the purchase and sale of real property . . . .”
In January 2006, just prior to the first trial date in this case, defendants refinanced the property through Innovative Bank for $2 million, less a mortgage loan payoff to Banco Popular in the amount of $381,411.53 and other costs. The Innovative Bank trust deed was recorded on January 17, 2006. Between January and March 2006, defendants spent $1.227 million.
A court trial was held in June 2006. Plaintiffs were awarded $308,866.72 in contract breach damages. The trial court also decreed specific performance of the option to purchase as of March 2004, together with $1.15 million in incidental compensation. The trial court explained, “The court orders a judgment in favor of [plaintiffs] in the sum of $1,150,000 which represents the $850,000 purchase price plus the equitable lien that [plaintiffs have] on the proceeds of the loan from Innovative Bank.” Judgment was entered on July 27, 2006. A quitclaim deed of the property to plaintiffs was recorded on August 28, 2006. Defendants declared bankruptcy on September 15, 2006.
III. DISCUSSION
The trustee argues the specific performance judgment, including incidental compensation, must be reversed because: plaintiffs neither pleaded nor proved they were ready, willing, and able to exercise the option to purchase the property; plaintiffs were not damaged by the imposition of the Innovative Bank lien and, therefore, should have been required to tender the $850,000 purchase price to defendants as a condition of specific performance; the trial court failed to consider offsets to the incidental damages; and the trial court awarded plaintiffs more property than was covered by the option to purchase or was sought in the complaint. Because we agree with the trustee’s first point, we need not consider the remaining arguments. The trustee contends there was no substantial evidence plaintiffs were ready, willing, and able to specifically perform the purchase option within the time required by the contract and thereafter. (Cockrill v. Boas (1931) 213 Cal. 490, 492; Buckmaster v. Bertram (1921) 186 Cal. 673, 677-678.) Absent such evidence, specific performance will be denied; a judgment decreeing specific performance will be reversed. (C. Robert Nattress & Associates v. CIDCO (1986) 184 Cal.App.3d 55, 63-65; Am-Cal Investment Co. v. Sharlyn Estates, Inc. (1967) 255 Cal.App.2d 526, 545-546.)
Whether a buyer is ready, willing, and able to perform is a question of fact. (Henry v. Sharma (1984) 154 Cal.App.3d 665, 670; Am-Cal Inv. Co. v. Sharlyn Estates, Inc., supra, 255 Cal.App.2d at p. 539.) The contention that a judgment is not supported by substantial evidence may be raised for the first time on appeal. (People v. Butler (2003) 31 Cal.4th 1119, 1126 & fn. 4; Tahoe National Bank v. Phillips (1971) 4 Cal.3d 11, 23, fn. 17.) The applicable standard of review is well-stated in Grappo v. Coventry Financial Corp. (1991) 235 Cal.App.3d 496, 506-507, as follows: “The standard of review of a claim that a judgment is unsupported by the evidence in the record is well established. We must consider all of the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference, and resolving conflicts in support of the judgment. (Campbell v. Southern Pacific Co. (1978) 22 Cal.3d 51, 60; Chodos v. Insurance Co. of North America (1981) 126 Cal.App.3d 86, 97; 9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 278, pp. 289-291.) We must accept as true all evidence and all reasonable inferences from that evidence tending to establish the correctness of the trial court's findings and decision, resolving every conflict in favor of the judgment. It is not our task to weigh conflicts and disputes in the evidence; that is the province of the trial court. Our authority begins and ends with a determination of whether, on the entire record, there is any substantial evidence, contradicted or uncontradicted, which will support the judgment. (Board of Education v. Jack M. (1977) 19 Cal.3d 691, 697; Estate of Teel (1944) 25 Cal.2d 520, 526-527; Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429; Henry v. Sharma, supra, 154 Cal.App.3d at p. 670; Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874; McKinney v. Kull (1981) 118 Cal.App.3d 951, 955.) As long as there is such evidence, and it is ‘substantial’—that is, of ‘ponderable legal significance,’ ‘reasonable in nature, credible, and of solid value’—we are bound to uphold the judgment. (United Professional Planning, Inc. v. Superior Court (1970) 9 Cal.App.3d 377, 392-393; Estate of Teed (1952) 112 Cal.App.2d 638, 644; 9 Witkin, op. cit. supra, §§ 281, 285, pp. 292-293, 296.)” (Accord, e.g., Ninety Nine Investments, Ltd. v. Overseas Courier Service (Singapore) Private, Ltd. (2003) 113 Cal.App.4th 1118, 1127.)
In this case, plaintiffs had a duty to prove they were ready, willing, and able to perform. (Cockrill v. Boas, supra, 213 Cal. at p. 492; Buckmaster v. Bertram, supra, 186 Cal. at pp. 677-678.) Moreover, plaintiffs had a duty to prove they were ready, willing, and able to purchase the property throughout the lawsuit. (Cockrill v. Boas, supra, 213 Cal. at p. 492; Buckmaster v. Bertram, supra, 186 Cal. at pp. 677-678; Ninety Nine Investments, Ltd. v. Overseas Courier Service (Singapore) Private, Ltd., supra, 113 Cal.App.4th at p. 1126; Gaggero v. Yura (2003) 108 Cal.App.4th 884, 890; C. Robert Nattress & Associates v. CIDCO, supra, 184 Cal.App.3d at p. 64; Henry v. Sharma, supra, 154 Cal.App.3d at pp. 669-670; Stratton v. Tejani (1982) 139 Cal.App.3d 204, 211; Am-Cal Investments Co. v. Sharlyn Estates, Inc., supra, 255 Cal.App.2d at p. 539; Rest.2d Contracts, § 254; see Dotson v. International Alliance (1949) 34 Cal.2d 362, 372.) This essential element is not excused where the seller repudiates the contract in advance. (Buckmaster v. Bertram, supra, 186 Cal. at p. 678; Am-Cal Investment Co. v. Sharlyn Estates, Inc., supra, 255 Cal.App.2d at p. 539.) The Court of Appeal has explained, “[I]t is axiomatic that to obtain specific performance, a buyer must prove not only that he was ready, willing and able to perform at the time the contract was entered into but that he continued ready, willing and able to perform at the time suit was filed and during the prosecution of the specific performance action. (Buckmaster v. Bertram[, supra, ] 186 Cal. [at pp.] 677-678; . . . .)” (C. Robert Nattress & Associates v. CIDCO, supra, 184 Cal.App.3d at p. 64.)
Decisional authority discusses the evidence necessary to show a buyer is ready, willing, and able to perform. What proof is required depends on all of the surrounding circumstances. (Behniwal v. Mix (2005) 133 Cal.App.4th 1027, 1044-1045; Henry v. Sharma, supra, 154 Cal.App.3d at p. 672.) Proof of a hypothetical loan that could have been secured is insufficient. (Am-Cal Investment Co. v. Sharlyn Estates, Inc., supra, 255 Cal.App.2d at p. 545.) However, a buyer need not show it has a legally binding loan contract. (WYDA Associates v. Merner (1996) 42 Cal.App.4th 1702, 1716; Henry v. Sharma, supra, 154 Cal.App.3d at p. 672.) A buyer may show it was ready, willing, and able to perform by proof: it possessed the necessary funds; had liquid assets; had property that could be sold; had made arrangements to borrow the required funds from a financially responsible lending institution; or there was a contractually bound, financially able third party who could have provided the funds. (Henry v. Sharma, supra, 154 Cal.App.3d at p. 671; Am-Cal Investment Co. v. Sharlyn Estates, Inc., supra, 255 Cal.App.2d at p. 546.) With respect to third party loans, the Court of Appeal has held: “A purchaser without funds of his own may show that he was ready and able to pay the purchase price because he had made arrangements to borrow the required funds from a lending institution or from a third party, but if he relies upon the negotiation of a loan from a third party, the buyer must prove: (1) That the third party was legally bound by contract to advance the funds [citation]; and (2) ‘. . . that the party offering to advance the (purchase price) has the financial ability so to do . . . .’ [citations].” (Am-Cal Investment Co. v. Sharlyn Estates, Inc., supra, 255 Cal.App.2d at pp. 539-540; accord, C. Robert Nattress & Associates v. CIDCO, supra, 184 Cal.App.3d at p. 65.)
In Behniwal v. Mix, supra, 133 Cal.App.4th at pages 1044-1045, for example, the defendants argued the plaintiffs were not entitled to specific performance of a real property purchase agreement. Defendants argued there was no evidence plaintiffs could meet the obligations imposed on the purchasers under the contract. There was evidence that, initially, the buyers had money for the down payment and had secured pre-approval for a loan for the balance. But they later spent some of the down payment on attorney fees. In addition, their loan pre-approval had expired. The plaintiffs had then secured a loan from a relative for the down payment. The Court of Appeal for the Fourth Appellate District, Division Three, held this was sufficient evidence the buyers were ready, willing, and able to meet their contract obligations: “In the present case, there was easily enough evidence to show that the [plaintiffs] were ready, willing, and able to perform, independent of the financial fallout of the litigation. Primarily . . . they obtained a pre-approval on a loan. Secondly, [they] had arranged with [a relative] to help with the deposit since they had spent their original savings for the deposit on attorney’s fees.” (Id. at p. 1045.)
In Henry v. Sharma, supra, 154 Cal.App.3d at pages 670-672, the buyers intended to pay a portion of the purchase price with their own funds, and to obtain the balance from an institutional lender. There was evidence they had received oral and written approval for the loan. The Court of Appeal held: “We believe the evidence supports the trial court’s finding that the buyers had the ability to pay in the sense that they ‘commanded resources upon which [they] could obtain the requisite credit.’ [Citation.] Both buyers were employed. They owned a home which they had on the market at the time they contracted to buy the property at issue here. They proceeded to sell that home and realized $26,500, from the sale. In addition, buyers owned a six-unit apartment house and a duplex in Los Angeles. When the deal at issue here fell through, buyers purchased another home on almost identical terms to those in the instant transaction. From this evidence the trial court could reasonably conclude the buyers had the ability to perform their end of the bargain.”
The present case concerns a two-year lease with an option to renew for two years. Moreover, there was an option to purchase the real property. The question before us is when, if ever, plaintiffs acquired the ability to purchase the real property. Plaintiffs did not allege they were ready, willing, and able to exercise the purchase option. Moreover, at trial, Art testified that when he negotiated the option to purchase the property, he wanted to have the two years under the lease to determine how to finance it. Art testified, “We actually had at the time some money we were going to put down to get it financed, or we were just going to go ahead and come up with the money; but we wanted two years to do that . . . .” Art never applied for a purchase money loan because he was immediately locked out of the property. There was evidence Abel owned the property next door to that at issue, 704 and 724 West Pacific Coast Highway. He had purchased it in 2001. Art described the property as running from a corner to the next street over and containing two buildings. One of the buildings was roughly 700 square feet in size.
Plaintiffs contend this was sufficient evidence they were ready, willing, and able to perform their part of the bargain. We disagree. There is no evidence plaintiffs had financial resources or recourse to funds sufficient to purchase the property within the time contemplated by the contract or during the prosecution of this case. There was no evidence as to the value of Abel’s neighboring property or the extent to which it was encumbered. Plaintiffs had never sought pre-approval for a purchase money loan. There was no evidence of cash available or of liquid assets. That plaintiffs had “some money” at the time they negotiated the option to purchase in 2002, and Abel owned property next door, was insufficient for the trier of fact to conclude plaintiffs were ready and able to purchase the property at all relevant times. As a result, the judgment for specific performance and compensation incidental thereto must be reversed.
At oral argument, plaintiffs’ counsel asserted the equity in the property belonged to his clients and they could rely on it to finance the purchase. It may be that plaintiffs could rely on the equity to finance the purchase. But a buyer cannot prove he or she is ready, willing, and able to purchase by first deducting damages—caused by the seller’s refusal to perform—from the purchase price. (Buckmaster v. Bertram, supra, 186 Cal. at p. 678.) The Supreme Court has held: “While the positive repudiation of a contract of sale by the vendor excuses the vendee from a formal tender of the price as a condition precedent to an action for specific performance, it does not obviate the necessity of stating in his complaint in such action [and proving] that he is ready, able, and willing to pay the amount due from him. This requisite is not complied with by an offer to pay the amount due after deducting the damages to the vendee, from the refusal of the vendor to perform, from the amount of the purchase price unpaid.” (Ibid.) As noted above, there was no evidence plaintiffs were ready and able to pay the purchase price because they had made arrangements to borrow the funds from a financial institution or a third party.
IV. DISPOSITION
The judgment is reversed insofar as it awarded specific performance and compensation incidental thereto. The judgment for $308,866.72 in contract breach damages is affirmed. Timothy J. Yoo, as trustee for the bankruptcy estate of defendants Rex Bennett and Janice Bennett, is to recover his costs on appeal from plaintiffs, Art Galvez and Abel Galvez.
We concur: ARMSTRONG, J., MOSK, J.