Opinion
NOT TO BE PUBLISHED
San Mateo County Super. Ct. No. CIV 453368
Jenkins, J.
Plaintiffs Jun Sook Yoon and her husband, Sung Ho Yoon (jointly “the Yoons”), appeal the trial court’s entry of judgment after a bench trial in favor of defendant Hae Soo Park (“Park”). Specifically, the Yoons challenge the trial court’s conclusion that two restaurant subleases they held from Park contained no enforceable option to renew, and its resulting decision to deny the Yoons’ request for reformation of the subleases to include such an option to renew. We affirm in part, reverse in part, and remand.
Background
The Yoons held two written subleases for a Japanese and a Korean restaurant located within the premises of the Kuk Je Market, a Korean grocery store owned and operated by Park on leased premises in Daly City. On March 7, 2006, the Yoons filed a complaint against Park alleging the subleases should be reformed to reflect the parties’ intention to extend the subleases “for as long as Plaintiff[s] wanted.” On April 10, 2006, Park filed an unlawful detainer action against the Yoons seeking to evict the Yoons after the subleases expired. The actions were consolidated and a bench trial on the consolidated actions commenced on September 26, 2006. In a decision filed on October 10, 2006, the trial court denied the Yoons’ request for reformation of the subleases because “the parties’ true intention in this case is unenforceable.” The trial court also dismissed Park’s unlawful detainer action for lack of proper notice. Judgment was entered on November 2, 2006, and the Yoons filed a timely notice of appeal on November 28, 2006.
In its decision, the trial court made the following findings of fact, which for purposes of this appeal the parties do not dispute: “The Yoons immigrated to the United States from Korea in 1998. They understood very little English, whether spoken or written. Commencing in late 1999, the Yoons became involved in the restaurant business. [¶] . . . [¶] On July 8, 2002, Mr. Park entered into a written Lease with Mrs. Yoon for the Japanese restaurant. The sublease specifies a 3-year term commencing on September 1, 2002, and terminating on August 31, 2005. It does not contain any option for renewal.
“Prior to the execution of the Japanese restaurant sublease, the Yoons and Mr. Park did not discuss its terms or any subsequent renewal thereof. In going to Mr. Park’s accountant’s office to sign the sublease on July 8, 2002, the Yoons first saw and were informed of the 3-year term. While the tenant’s name on the sublease was being changed from Mr. Yoon’s name to Mrs. Yoon’s name, the Yoons expressed to Mr. Park their concerns about the 3-year term with no option to renew based upon the time and money they would be investing into the restaurant operations. Mr. Park told them not to worry, told them the sublease was a mere ‘formality,’ and assured them that so long as they had no problems with his other tenants, he would renew the sublease as long as they wanted.
“Mr. Park built out at his own expense the tenant improvements for the Kuk Je Market and the Japanese and Korean restaurants located therein and supplied the restaurants with some equipment and furnishings. Mr. Park obtained and has consistently maintained the permits for food service from the Department of Health. The Yoons invested further money on some additional equipment, furnishings, and supplies for their restaurant operations.
“The Kuk Je Market and the two restaurants opened simultaneously for business on December 12, 2002. [¶] In February or March of 2003, the Yoons purchased the Korean restaurant from its previous owner for $160,000 ($100,000 of which was for the security deposit). Sometime thereafter, Mr. Park entered into a written Lease with Mrs. Yoon for the Korean restaurant and backdated it as of July 26, 2002. The sublease specifies a 3-year term commencing on September 1, 2002, and terminating on August 31, 2005. It does not contain any option for renewal. [¶] Prior to the execution of the Korean restaurant sublease, the Yoons and Mr. Park did not discuss its terms or any subsequent renewal thereof. [¶] Following the expiration of the 3-year terms of the Japanese and Korean restaurant subleases on August 31, 2005, Mr. Park declined to renew the subleases for another fixed term. The Yoons continued possession of the restaurant premises was held pursuant to a holdover tenancy.”
On the above facts, the trial court identified “significant problems which defeat the Yoons’ [] cause of action for reformation.” The trial court ruled as follows: “First, the Yoons are asking this Court to reform the subleases to create a contract which the evidence does not show was ever agreed to by the parties thereto. The law only allows a court to reform a contract to reflect the true intention of the parties. (Citations.) The evidence here established to the Court’s satisfaction that, immediately prior to the execution of the sublease for the Japanese restaurant, the parties agreed that its original 3-year term would be extended so long as there were no problems with the other tenants. The evidence is undisputed that such was never discussed prior to the execution of the sublease for the Korean restaurant. Yet the Yoons’ counsel asked this Court in his closing argument to reform both subleases to provide for renewal options based upon equitable terms never discussed nor contemplated by the parties themselves.
At this point, the trial court added a footnote stating: “The Court has resolved the disputed testimonies of the Yoons and Mr. Park on this issue in favor of the Yoons.”
“Second, the parties’ true intention in this case is unenforceable. Their agreement that the term of the Japanese restaurant sublease would be extended “in continuation” (as Mrs. Yoon testified at trial) so long as there were no problems with the other tenants is nothing more than an agreement to agree upon option terms in the future. In order to be enforceable, ‘[a]n offer must be sufficiently definite, or must call for such definite terms in the acceptance, that the performance promised is reasonably certain.’ (Citation.) Here Mr. Park’s promise to renew the sublease for the Japanese restaurant fails to specify, inter alia, the length of the extended term, the rental for the extended term, the manner in which the option may be exercised, or how it is determined whether or not there are problems with other tenants. As such, the parties’ oral agreement is too uncertain to be enforceable as an additional provision of the sublease. (Citation.)”
Discussion
The Yoons’ sole contention is that the trial court erred by failing to reform the subleases to include an option to renew beyond the original three-year term. In essence, the Yoons argue that because the trial court found Park promised to renew the sublease for the Japanese restaurant on the condition there were no problems with other tenants, it was required by law to reform both subleases to add such an option to renew in order to reflect the true intention of the parties. The Yoons’ argument has merit with respect to the sublease for the Japanese restaurant only.
A. Legal Principles of Reformation
California law provides for reformation of contracts under Civil Code section 3399, which states: “When, through fraud or a mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved, so as to express that intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value.” Further, section 3401 states: “In revising a written instrument, the court may inquire what the instrument was intended to mean, and what were intended to be its legal consequences, and is not confined to the inquiry what the language of the instrument was intended to be.”
Further statutory references are to the Civil Code unless otherwise noted.
These statutory principles “have long been the law in California without special reference to the code sections.” (Stafford v. California C. P. Growers (1938) 11 Cal.2d 212, 218.) Moreover, courts have recognized that “the remedy of reformation is equitable in nature and not restricted to the exact situations stated in section 3399.” (Jones v. First American Title Ins. Co. (2003) 107 Cal.App.4th 381, 388; MacFarlane v. Peters (1980) 103 Cal.App.3d 627, 631 (MacFarlane) [equitable powers of reformation are “broad, flexible and capable of being expanded to deal with novel cases and conditions”]; 12 Miller & Starr, Cal. Real Estate (3d ed. 2001) Remedies, § 34:14, p. 59, and cases cited therein [courts may exercise their equitable powers of reformation to prevent fraud, oppression, and unjust enrichment].)
Furthermore, reformation is intended “ ‘to correct a written instrument in order to effectuate a common intention of both parties which was incorrectly reduced to writing.’ (Citation.)” (Lister v. Sorge (1968) 260 Cal.App.2d 333, 338.) Accordingly, to justify reforming the language of an instrument, “ ‘it must be established that both parties agreed to something different from what is expressed in the writing, and the proof upon this point should be clear and convincing.’ (Citation.)” (Ibid.; 12 Miller & Starr, supra, § 34:14, pp. 63-64 [“person seeking reformation has the burden of proving the true intent of the parties by clear and convincing evidence”]; 1 Cal. Real Property Remedies & Damages (2d ed. Aug. 2007) Reformation, § 2.40, pp. 93-94 [“party who seeks to reform the terms of a written instrument has the burden of establishing that the instrument does not express the parties’ true intentions” by clear and convincing evidence].)
B. Analysis
Based on a credibility determination in favor of the Yoons, the trial court determined that before the parties executed the sublease for the Japanese restaurant, they “agreed that its original 3-year term would be extended so long as there were no problems with the other tenants.” We may not disturb the trial court’s credibility determination on appeal. (Powers v. Dickson, Carlson & Campillo (1997) 54 Cal.App.4th 1102, 1111 [“when the meaning of a contract is uncertain, and contradictory evidence is introduced to aid in the interpretation, the question of meaning is one of fact properly assigned to the [finder of fact] and its findings should not be disturbed by the appellate tribunal”].) Thus, any factual dispute about the language of the agreement has been resolved and it has been determined that Park agreed to extend the sublease on the Japanese restaurant “so long as there were no problems with other tenants.” However, notwithstanding its credibility determination in favor of the Yoons on the question of the sublease for the Japanese restaurant, the trial court denied reformation of that sublease because Park’s promise to renew the sublease was too indefinite with respect to, “inter alia, the length of the extended term, the rental for the extended term, the manner in which the option may be exercised, or how it is determined whether or not there are problems with other tenants.” Here the trial court erred because the parties’ agreement was definite enough to permit reformation of the sublease for the Japanese restaurant.
1. The Absence Of Material Terms For Renewal Is Not Fatal To Reformation Because Relevant Material Terms May Be Imported From The Existing Lease
As the Yoons correctly point out, not all of the factors identified by the trial court are barriers to reformation. For example, in Penilla v. Gerstenkorn (1927) 86 Cal.App. 668 (Penilla), the plaintiffs leased a property for a four-year term with “the right of renewing this lease” and no covenant against assignment. (Id. at p. 669.) Subsequently, plaintiffs refused to renew the lease and sued to recover the property from an assignee of the lease who ran a service station there. (Ibid.) The Court of Appeal held the assignee was entitled to renewal of the lease, stating: “While the covenant to renew is general, it is sufficiently certain to be enforceable. It does not, as appellants contend, purport to create a perpetuity. . . . ‘A general covenant to extend or renew implies an additional term equal to the first, and upon the same terms, including that of rent, except the covenant to renew; to include which would make the lease perpetual.’ (Citation.)” (Id. at p. 670 [italics added].) Thus, because Park induced the Yoons to sign the sublease to the Japanese restaurant by making a general, albeit conditional, promise to renew the lease, then the trial court could have reformed the sublease to include such an option for a further three-year term under the same rental conditions as the original lease, as in Penilla, supra.
The Yoons also correctly point out that the parties’ failure to specify the manner in which the option to renew may be exercised is not in itself a barrier to reformation. The parties agreement on a general, albeit conditional, option to renew means that the Yoons’ continued occupation of the premises upon expiration of the original term was sufficient to indicate their intention to exercise the option to renew. (ADV Corp. v. Wikman (1986) 178 Cal.ApP.3d 61, 66 [“lessee’s retention of possession shows an election to extend”]; Schmitt v. Felix (1958) 157 Cal.App.2d 642, 646 [noting that “an option to renew may be exercised by a tenant remaining in possession and paying the rent”].)
Applying these principles here, we conclude that Park offered and the Yoons accepted a general option to renew, albeit with a condition precedent that we discuss in detail below. Accordingly, Park’s offer to renew may be deemed definite in all its material terms, including the premises to be let, the monthly rent, the percentage of the annual rent increases (4%), and the length of term (3 years), because all the terms of the prior lease are simply imported into the renewed lease where there is a valid option to renew and no terms are specified. (Penilla, supra, 86 Cal.App. at pp. 670-671.) The only term which is not imported into the renewed lease is an additional option to renew—that term falls away because the lease is not one in perpetuity. (Id. at p. 670; see also Cook v. Adams County Plan Com’n (2007) 871 N.E.2d 1003, 1009 [a “covenant for renewal cannot authorize renewals in perpetuity, it must be limited to a single renewal in the absence of language clearly authorizing a different number”].)
2. The Conditional Nature Of The Option Does Not Preclude Reformation
There remains the question of whether the conditional nature of the parties’ agreement—to extend the sublease on the Japanese restaurant “so long as there were no problems with other tenants”—is definite enough to permit reformation of the sublease to reflect such agreement. This is a question of law which we review de novo. (Coast Plaza Doctors Hosp. v. Blue Cross of California (2000) 83 Cal.App.4th 677, 684 [where there is no factual dispute as to the language of the agreement, the Court of Appeal determines the legal interpretation to be given that language de novo and is not bound by the trial court’s construction or interpretation].) The undoubtedly conditional nature of Park’s promise to renew the lease “so long as there were no problems with other tenants” raises two different issues of contract interpretation—a contract formation issue and a contract performance issue.
(i)
“In order for acceptance of a proposal to result in the formation of a contract, the proposal ‘must be sufficiently definite, or must call for such definite terms in the acceptance, that the performance promised is reasonably certain.’ (1 Witkin, Summary of Cal. Law, supra, Contracts, § 145, p. 169.) A proposal ‘ “cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. [¶] . . . The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.” ’ (Ibid., quoting from Rest.2d Contracts, § 33.) If, by contrast, a supposed “contract” does not provide a basis for determining what obligations the parties have agreed to, and hence does not make possible a determination of whether those agreed obligations have been breached, there is no contract. (See, e.g., 1 Williston on Contracts (4th ed. 1990) § 4:18, p. 414 [‘It is a necessary requirement that an agreement, in order to be binding, must be sufficiently definite to enable the courts to give it an exact meaning.’]; see also Civ. Code, § 3390, subd. 5 [a contract is not specifically enforceable unless the terms are ‘sufficiently certain to make the precise act which is to be done clearly ascertainable.’].)” (Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 811-812.)
Nevertheless, although a contract is unenforceable unless the terms are “sufficiently certain to make the precise act which is to be done clearly ascertainable” (Civ. Code, § 3390, subd. 5), we are mindful that “the modern trend of the law favors carrying out the parties’ intentions through the enforcement of contracts and disfavors holding them unenforceable because of uncertainty. (Citations.) ‘The defense of uncertainty has validity only when the uncertainty or incompleteness of the contract prevents the court from knowing what to enforce.’ (Citation.) At bottom, ‘[i]f the parties have concluded a transaction in which it appears that they intend to make a contract, the court should not frustrate their intention if it is possible to reach a fair and just result, even though this requires a choice among conflicting meanings and the filling of some gaps that the parties have left. [Fn. omitted.]’ (Citation.)” (Okun v. Morton (1988) 203 Cal.App.3d 805, 817.)
We do not think the conditional nature of Park’s promise renders it unenforceable as too indefinite. This case is unlike Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761 (Ladas), for example, where a contract was held to be too uncertain to support enforcement. In Ladas, plaintiffs were insurance sales representatives who claimed that their employer had breached a contract to “consider” parity with other insurance companies in setting compensation rates. (Id. at p. 771.) The Ladas court held this alleged contract too uncertain to be enforceable, stating: “An amorphous promise to ‘consider’ what employees at other companies are earning cannot rise to the level of a contractual duty. . . . By what standard would a court or a jury determine that the [employer] failed to meet its obligation to ‘consider’ commissions earned by competitors? What would be the relevant market on which such a duty would be predicated? [The employer’s] four major competitors? All insurers in the state? Eighty companies nationwide? How would ‘damages’ be calculated? By totaling up all yearly commissions earned by other agents, averaging them and subtracting the difference? By coming up with an ‘industry standard’ factor and increasing [the employer’s] unit value ratio by that factor? The nature of the obligation asserted provides no rational method for determining breach or computing damages.” (Ibid.) On account of these multiple uncertainties, the court found no contract had been formed. (Ibid.)
Here, the multiple uncertainties precluding contract formation in Ladas are not present. Moreover, “[t]he mutual intention to which the courts give effect is determined by objective manifestations of the parties’ intent, including the words used in the agreement, as well as extrinsic evidence of such objective matters as the surrounding circumstances under which the parties negotiated or entered into the contract; the object, nature and subject matter of the contract; and the subsequent conduct of the parties.” (Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1356-1357.) Here, Park induced the Yoons to sign the sublease for the Japanese restaurant by promising they could renew the lease “so long as there was no problem with other tenants.” Park’s promise to the Yoons was made in the course of negotiating one of a number of subleases for premises he let to other businesses within the Kuk Je Market as part of his overall operations, and the promise entitled the Yoons to renew the lease on the Japanese restaurant unless their operation of the restaurant during the initial 3-year term of the lease caused problems to those other tenants in the operation of their respective businesses. Viewed in this context, the term “so long as there are no problems with other tenants” is sufficiently clear for a court to “determin[e] what obligations the parties have agreed to,” and therefore makes possible “a determination of whether those agreed obligations have been breached. . . .” (Weddington Productions, Inc. v. Flick, supra, 60 Cal.App.4th at p. 811) In sum, we conclude that the conditional nature alone of Park’s promise does not render the contract so indefinite as to preclude reformation, and that under the circumstances presented here the Yoons are entitled to the equitable remedy of reformation regarding the sublease to the Japanese restaurant. (Jones v. First American Title Ins. Co., supra, 107 Cal.App.4th at pp. 388-389 [equitable remedy of reformation applied where failure to do so would give a windfall to one party and work injustice on another]; MacFarlane, supra, 103 Cal.App.3d at p. 632 [noting that “equity will intervene” where acts are done with a fraudulent or oppressive intent].)
(ii)
Nevertheless, the conditional nature of the promised option to renew the sublease for the Japanese restaurant constitutes a condition precedent to Park’s obligation to perform. (See generally 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 783, pp. 871-872 [discussing cases where performance is required to the satisfaction of the promisor].) Park was obligated to renew the sublease to the Japanese restaurant only if he was satisfied there were no problems with other tenants caused by the Yoons performance under the three-year term of the initial lease.
Where a contract is one in which “the satisfaction of one of the parties is a condition precedent to that party’s performance, two different tests are recognized: (1) the party may make a purely subjective decision but it must be made in good faith; or (2) the party must make the decision in accordance with an objective standard of reasonableness. (Citations.)” (Storek & Storek (2002) 100 Cal.App.4th 44, 58-59 (Storek).) Moreover “[t]he choice of objective or subjective test to evaluate a promisor’s satisfaction depends upon the intent of the parties, as expressed in the language of the contract. In the absence of a specific expression in the contract or one implied from the subject matter, the preference of the law is for the less arbitrary reasonable person standard. (Citation.) The reasonableness test is especially preferable when factors of commercial value or financial concern are involved, as distinct from matters of personal taste. (Citations.)” (Storek, supra, 100 Cal.App.4th at pp. 59-60; cf. Mattei v. Hopper (1958) 51 Cal.2d 119, 121 [subjective test applied where contract to purchase land was subject to purchaser “obtaining leases satisfactory to purchaser”].)
However, the issue of whether the objective or subjective test applies to the condition precedent is not before us. Rather, we hold only that the sublease to the Japanese restaurant should be reformed to include an option to renew “so long as there are no problems with other tenants.” The parties’ failure to specify the terms of renewal is not fatal because the material terms are supplied by law, as discussed above. The matter is remanded to the trial court for further proceedings on the question of whether Park validly refused to renew the lease as promised under the applicable test.
Regarding the lease on the Korean restaurant, however, the record supports the trial court’s determination that Mrs. Yoon and Park did not discuss the issue of renewal of the lease and Park made no promises or representations in that regard. Mrs. Yoon’s mistaken assumption that Park’s offer to renew would similarly apply to the Korean restaurant is not basis for reformation. (See, e.g., Cedars-Sinai Medical Center v. Shewry (2006) 137 Cal.App.4th 964, 985 [“Reformation for unilateral mistake is not available unless the mistake of one party was known or suspected by the other party at the time of the execution of the document. (Citation.)”].)
Disposition
The judgment is affirmed in part, reversed in part, and the case is remanded for further proceedings consistent with this opinion.
We concur: McGuiness, P. J., Pollak, J.