Summary
In Paul v. Schoellkopf, supra, 128 Cal.App.4th 147, the escrow instructions contained a narrow attorney fee provision substantively identical to the provision in this case.
Summary of this case from Glencoe v. Malibu Escrow Corp.Opinion
No. B170379
April 5, 2005 CERTIFIED FOR PARTIAL PUBLICATION
Pursuant to California Rules of Court, rules 976(b) and 976.1. this opinion is certified for publication with the exception of parts II and III of the Discussion.
Appeal from the Superior Court of Los Angeles County, No. SC061564, Laurence D. Rubin, Judge, and James A. Albracht, Judge.
Judge of the former Municipal Court for the Santa Monica Judicial District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
Edward J. Horowitz for Plaintiffs and Appellants.
Shoop Leanse and Paul Shoop for Defendants and Respondents.
OPINION
This case arises from a dispute between buyers and sellers of residential property. The buyers were awarded judgment, including attorney fees. In the published portion of this opinion we hold that a provision for attorney fees in escrow instructions limited to fees incurred by the escrow company in collecting for escrow services does not apply to other disputes between the buyer and seller over their land sale contract. Because the attorney fees provision in this case is so limited, and the dispute between the parties had nothing to do with the adequacy of services performed by the escrow company or payment of its fees and expenses, we shall reverse the award of attorney fees. In unpublished portions of the opinion we reduce the amount of damages and reject arguments by the appellant concerning a setoff and the bar of the statute of limitations.
FACTUAL AND PROCEDURAL SUMMARY
In 1988, Shobhan and Gurmit Paul sold a piece of unimproved real estate located at 31499 Pacific Coast Highway in Malibu (the Schoellkopf property) to Juergen and Monika Schoellkopf. The Pauls own an adjacent lot, located at 31505 Pacific Coast Highway, where they built a house and currently reside.
The parties signed three documents regarding the sale: the purchase agreement, the addendum, and the escrow instructions. The Schoellkopfs agreed to pay $325,000 for the lot. The Pauls agreed to build road and water connections to the lot, and the Schoellkopfs agreed to pay half the costs, up to $65,000. The Pauls also promised to install a new fire hydrant, without charge to the Schoellkopfs, or buy into an existing one and share the cost. The parties also agreed that the Pauls would have the right to approve the location and height of the Schoellkopfs' new home. The agreement of the parties was contingent upon approval by the California Costal Commission of the proposed improvements on the Schoellkopfs' property.
The Schoellkopfs hired an architect to design plans for their new home. In 1989, they showed these plans to the Pauls and then submitted them to the County of Los Angeles, which approved them. The plans were then submitted to the California Coastal Commission for review, where Mr. Paul spoke in favor of approval. The plans ultimately were approved by the Coastal Commission.
Mr. Paul subsequently informed the Schoellkopfs that he did not approve the plans due to the house's elevation. The parties attempted to negotiate a different elevation, but they could not reach an agreement. In the meantime, the Pauls completed construction of their residence by 1991.
In 1998, the Schoellkopfs hired a new architect and prepared new plans. The parties continued to disagree over elevation of the house, which was modified multiple times. The Pauls interfered with the Schoellkopfs' attempts to obtain approval for the plans from the Coastal Commission and the City of Malibu. Ultimately, in September 2001, the Pauls notified the Schoellkopfs that they approved the plans.
Prior to that, in 2000, the Pauls filed suit against the Schoellkopfs for breach of contract and for specific performance, primarily concerning the house's height and location. The Schoellkopfs cross-complained against the Pauls, alleging breach of the purchase agreement's implied covenant of good faith and fair dealing, for declaratory relief, and for monetary damages. The Pauls filed a cross-complaint against the Schoellkopfs, and both parties subsequently amended their cross-complaints.
After a bifurcated bench trial, the court found in favor of the Schoellkopfs. The court awarded damages for breach of contract, including $75,000 for failure to install the fire hydrant and $30,499.92 for loss of use of their property. The court also awarded the Schoellkopfs $371,942 in attorney fees. The Pauls filed this timely appeal, challenging the damages award and attorney fees.
DISCUSSION I
The Pauls argue the trial court improperly awarded $371,942 in attorney fees to the Schoellkopfs. The trial court found that the escrow instructions, which had an attorney fee clause, were part of the overall agreement between the parties. Reasoning that Civil Code section 1717 (section 1717) requires recovery for all parties if any one party can recover attorney fees for any aspect of a contract, the trial court granted attorney fees to the prevailing party, the Schoellkopfs. We review de novo an award of attorney fees under a contractual provision where, as here, extrinsic evidence has not been offered to interpret the contract, and the facts are not in dispute. ( Carver v. Chevron U.S.A., Inc. (2002) 97 Cal.App.4th 132, 142 [ 118 Cal.Rptr.2d 569].)
Except where a contract or statute provides otherwise, each party to a lawsuit must pay its own attorney fees. (Code Civ. Proc., § 1021.)
Section 1717 was enacted to "avoid the perceived unfairness of one-sided attorney fee provisions. . . ." ( International Billing Services, Inc. v. Emigh (2000) 84 Cal.App.4th 1175, 1182 [ 101 Cal.Rptr.2d 532].) It now provides that "if a contract gives one party the right to recover attorney fees in an action arising out of the contract, the other party, [if it prevails], is [also] entitled to fees." ( Ibid.)
The statute also provides, in relevant part: "In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonably attorney's fees in addition to other costs. [¶] Where a contract provides for attorney's fees, as set forth above, that provision shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract." (Civ. Code, § 1717, subd. (a).)
"One purpose of section 1717 is to avoid uncertainty and clarify the issue of [attorney] fees, so both sides can make rational evaluations about the case, including prospects of settlement and so forth." ( International Billing Services, Inc. v. Emigh, supra, 84 Cal.App.4th at pp. 1186-1187.) If a clause "does not put the principals to [an agreement] on notice that it is an attorney fees clause," section 1717 does not give all parties a right to recover attorney fees. ( Campbell v. Scripps Bank (2000) 78 Cal.App.4th 1328, 1337 [ 93 Cal.Rptr.2d 635] [refusing to award attorney fees based on an indemnification clause in escrow instructions].)
Of the three documents signed by the parties, only one, the escrow instructions, contains an attorney fees provision. It states: "In the event of failure to pay fees or expenses due you hereunder, on demand, I agree to pay a reasonable fee for any attorney's service which may be required to collect such fees or expenses." In the agreement, the term "you" refers to Townsgate Escrow, the escrow company handling the transaction. By this provision, the escrow company and the parties manifested an intent to pay attorney fees to the escrow company if its fees or expenses went unpaid and an attorney's services were required to collect them.
We note that section 1717 would have made this right reciprocal had the lawsuit been over the performance of the escrow. The Legislature amended section 1717 in 1983 by adding the second paragraph. The express purpose of this amendment was to overturn Sciarrotta v. Teaford Custom Remodeling, Inc. (1980) 110 Cal.App.3d 444 [ 167 Cal.Rptr. 889]. ( Harbor View Hills Community Assn. v. Torley (1992) 5 Cal.App.4th 343, 349 [ 7 Cal.Rptr.2d 96]; Sen. Com. on Judiciary. Analysis of Sen. Bill No. 886 (1983-1984 Reg. Sess.) as amended May 16, 1983, p. 2.) In that case, property owners sued a contractor for breach of contract to build a house in a workmanlike manner. ( Sciarrotta v. Teaford Custom Remodeling, Inc., supra, 110 Cal.App.3d at p. 446.) After prevailing on their claims, the property owners sought attorney fees under the following provision in the written contract: "`In the event that default should occur in the payment of the Contract price or of any part thereof, Owner agrees to pay Contractor's reasonable attorney's fees and court costs incurred by Contractor to enforce payment herein.'" ( Ibid.) The court denied plaintiffs' request because "the contractual language was clear, explicit and unambiguous in limiting attorney's fees to a certain kind of action," and the suit was not over the failure to pay the builder's contract price. ( Id. at p. 452.) The Legislature disagreed, and amended the law "to provide complete mutuality of remedy where a contractual provision makes recovery of attorney fees available to one party." ( Harbor View Hills Community Assn. v. Torley, supra, 5 Cal.App.4th at p. 349.) Thus, parties may not limit recovery of attorney fees to a particular type of claim, such as failure to pay escrow costs.
"Where a contract provides for attorney's fees, as set forth above, that provision shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract." (Civ. Code, § 1717, subd. (a).)
This case is different. Here, the parties agreed to a limited attorney fees provision in the initial portion of the escrow instructions. As we have seen, the clause addressed the rights and obligations of the escrow holder as to the buyer and seller, and vice versa. There was no attorney fees clause in the remainder of the documents, which described the rights and obligations as between buyer and seller.
Accordingly, the parties indicated their intent to limit recovery of fees to conflicts over the execution of the escrow. There was no such conflict in this case. This intent is also demonstrated by the parties' failure to include an attorney fees clause in their subsequent addendum, which stated additional rights and duties of buyer and seller. The parties agreed that the addendum "will dominate and supersede any other agreement . . . between buyer and seller. . . ." It was not reasonable for the Pauls and Schoellkopfs to expect that section 1717 would enable them to recover attorney fees on any claim regarding the entire transaction.
This interpretation of the parties' intent mirrors the distinct relationship between the escrow agent and the buyer and seller, as opposed to the relationship between buyer and seller. The purpose of an escrow is to "effect the sale [or] transfer . . . of real . . . property. . . ." (Fin. Code, § 17003.) The transaction involves one person "deliver[ing] any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by that third person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered by that third person to a grantee, grantor, promisee, [or] promisor. . . ." (Fin. Code, § 17003.)
An escrow agent is merely someone who "receiv[es] escrows for deposit or delivery." (Fin. Code, § 17004.) Generally, his or her limited role in the transaction is as an agent who "`carries out the escrow instructions.'" ( Peterson Development Co. v. Torrey Pines Bank (1991) 233 Cal.App.3d 103, 117 [ 284 Cal.Rptr. 367], quoting Kirby v. Palos Verdes Escrow Co. (1986) 183 Cal.App.3d 57, 64-65 [ 227 Cal.Rptr. 785], disapproved on other grounds in Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 714 [ 117 Cal.Rptr.2d 541, 41 P.3d 548].)
An escrow agent's role ends once he or she has successfully exchanged payments and instruments, and he or she "has no general duty to police the affairs of its depositors." ( Claussen v. First American Title Guaranty Co. (1986) 186 Cal.App.3d 429, 435 [ 230 Cal.Rptr. 749].) Here, the escrow was completed successfully, but the buyer and seller still had obligations to each other, including installing a fire hydrant and securing the Pauls' approval of building plans. The breach over which the Pauls and Schoellkopfs sued came long after the role of the escrow agent had ended.
As we have discussed, we look to the parties' reasonable expectations to determine whether section 1717 creates the right for recovery of attorney fees. ( Campbell v. Scripps Bank, supra, 78 Cal.App.4th at p. 1337.)
The parties did not agree and could not reasonably have expected that there was a right to recover attorney fees in a dispute between the buyer and seller, which had nothing to do with the performance of escrow services. This conclusion is compelled by the escrow agent's limited role and the absence of an attorney fees clause in the section detailing the mutual obligations of the buyer and seller. It was improper to award attorney fees to the Schoellkopfs.
II, III II
See footnote, ante, page 147.
The Pauls argue the statute of limitations bars the Schoellkopfs from claiming $75,000 damages for the Pauls' failure to install a new fire hydrant or buy into an existing one. The statute of limitations for a breach of a written contract is four years. (Code Civ. Proc., § 337.) By 1991, the Pauls had completed construction on their house. According to the Pauls, by installing fire sprinklers and a pump instead of a hydrant, they put the Schoellkopfs on notice that they were not going to install the hydrant. The Schoellkopfs did not formally demand the Pauls install the hydrant until 2001, six years after the four-year period. When the parties entered this contract, neither had built a home on the property. As the trial court stated, they likely anticipated the fire department would require a hydrant as a condition for construction of either or both houses, and in 2001 when the Schoellkopfs finalized their plans to build a house, the fire department did require them to install a fire hydrant. The purchase agreement stated: "Seller shall provide Buyer: [¶] a. . . . . [¶] b. . . . . [¶] c. A fire hydrant located pursuant to the regulations of the fire department. If Seller has to buy into an existing fire hydrant, then the costs shall be equally shared by Buyer and Seller. If Seller is permitted to install a fire hydrant, Buyer will be permitted to share its use without charge." By building their own house with sprinklers and a pump instead of a hydrant, the Pauls did not put the Schoellkopfs on notice they intended to breach their duty to provide a hydrant to the Schoellkopfs. The Pauls' election not to use a fire hydrant for their house did not prevent them from providing one for the Schoellkopfs. The contract states that the Pauls shall provide the Schoellkopfs with a fire hydrant, and that the Pauls may share its use. It does not make installation of the hydrant contingent upon use by both the Pauls and the Schoellkopfs. To notify the Schoellkopfs, they would have had to have clearly manifested their intent to not install the hydrant. Neither side alleges this occurred. There is a further, and perhaps more fundamental reason that this aspect of the Schoellkopfs' claims is not barred. The contract did not specify a time by which the Pauls had to install the hydrant. As a result, the Pauls had an ongoing obligation to install it. In order to install the hydrant, its location had to be determined, which could not be done without completed house plans. The house plans could not be finalized without approval from the Pauls, who unreasonably withheld their approval until 2001, when they finally agreed to the Schoellkopfs' plans. It was at this point that the Schoellkopfs demanded the Pauls fulfill their obligation to build the hydrant, placing their ultimate request for damages in 2001 within the four-year period. In a related argument, the Pauls suggest a new trial must be held on the statute of limitations issue because the trial court erroneously excluded the testimony of Erich Stein, the Schoellkopfs' architect. Stein designed the plans for the house that was approved by the Coastal Commission in 1989, but ultimately rejected by the Pauls later that year. The Pauls argue Stein would testify that, in 1989, the fire department had indicated where the fire hydrant should be placed, and that the Schoellkopfs needed a hydrant before they started construction. The trial court excluded Stein's testimony under Evidence Code section 352. We review such rulings under the abuse of discretion standard. ( Aguayo v. Crompton Knowles Corp. (1986) 183 Cal.App.3d 1032, 1038.) The 1989 house plans were disapproved by the Pauls, so the Schoellkopfs could not proceed to build their house based on those plans. In 1998, the Schoellkopfs hired a new architect, Gordon Powers, who redesigned the house. The plans ultimately approved by the Pauls in 2001 were different than the 1989 plans, making it irrelevant whether the 1989 plans specified where the hydrant had to be installed. The trial court did not abuse its discretion in excluding Stein's testimony.
III
Arguing that the addendum contains a liquidated damages clause, the Pauls argue the trial court should have calculated the setoff for the loss of use damages at $3,000 per month. Instead, the trial court relied on testimony from the Schoellkopfs' real estate appraiser, and estimated the Schoellkopfs derived a monthly rental value of $500 by living on the property in a mobile home for 158 months and 24 days, totaling $79,400.08. We find no error. The purchase agreement contains the following provision: "Seller agrees that if buyer does not get a coastal permit all monies will be returned to buyer other than a sum of $3,000/-per month to be charged for the period the property was held in buyer's favor." The addendum also allowed the Schoellkopfs to demand return of the purchase price, other than $3,000 per month, if a satisfactory percolation test and lot line adjustment could not be obtained. This is not a liquidated damages clause. Instead, the agreement provides a way for the Schoellkopfs to rescind the contract and recover the purchase price under specific situations where external factors such as a bad percolation test or denied permit would prevent them from building their house, or would interfere with the marketability of their title. This is much different than the situation before us, where the Schoellkopfs are seeking damages from the Pauls' breach of their contractual obligations, not return of the purchase price. In addition, the $3,000 figure cannot be an estimation of the value the Schoellkopfs would receive by using the land. If the conditions were not met, the Schoellkopfs likely could not have built their house and would not be living on the land. There is substantial evidence supporting the trial court's determination of $500 per month fair rental value. The court relied on the testimony of the Schoellkopfs' expert real estate appraiser, John MacNeil. MacNeil based his estimate on the site's nature, with few improvements, no amenities, a dirt road driveway, with the user paying taxes, utilities, and insurance. Mr. Paul also testified regarding the fair rental value, but the court found he was not credible. Accordingly, the record supports the court's conclusion that the fair rental value was $500. In a related argument, the Pauls also contend the court improperly calculated the value of the loss of use damages at $109,850, or 10 percent per year, the legal interest rate, on $390,000. The trial court arrived at $390,000 by adding the original purchase price, $325,000 and the amount the Schoellkopfs paid the Pauls for improvements, $65,000. The Pauls assert it was error to include the $65,000 because the Schoellkopfs stipulated they were not seeking any damages for the construction. We agree. "Damages are awarded in an action for breach of contract to give the injured party the benefit of his bargain and insofar as possible to place him in the same position he would have been in had the promisor performed the contract. [Citations.]" ( Coughlin v. Blair (1953) 41 Cal.2d 587, 603.) In a breach of contract for real estate, it is appropriate to calculate damages based on the loss of use of the purchase price of the property. ( Id. at p. 604, fn. 4.) The Schoellkopfs agreed to pay $325,000 for the land and no more than $65,000 for the Pauls to construct road and water connections. It is not disputed that the Pauls built these improvements, and that the Schoellkopfs paid the Pauls $65,000. Although they were not able to build their house due to the Pauls' breach, the Schoellkopfs were able to use and benefit from the road and water when they lived on the property in their mobile home. Accordingly, it is not appropriate to compensate them for loss of use of the $65,000. The proper calculation is $325,000 at the legal interest rate, which the trial court determined was 10 percent per year, for the applicable period.
DISPOSITION
The loss of use damages calculation is ordered reduced to 10 percent per year for the applicable period, on $325,000. The order granting attorney fees is reversed. The setoff calculation is affirmed. The order awarding $75,000 damages for failure to install the fire hydrant is affirmed. The case is remanded to the superior court for entry of a new judgment consistent with this opinion. In all other respects the judgment is affirmed. The parties are to bear their own costs on appeal.Hastings, J., and Grimes, J., concurred.
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
A petition for a rehearing was denied April 28, 2005, and respondents' petition for review by the Supreme Court was denied June 15, 2005.