Golden Bear v. StateCenterCommunity College Dist.

Filed 9/22/08 Golden Bear v. State Center Community College Dist. CA5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or

relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIFTH APPELLATE DISTRICT

THE COURT:

It is ordered that the opinion filed herein on August 21, 2008, be modified as follows:

1. On page 1, in the introductory paragraph, the sentence beginning with When ACH and Golden Bear, the initials ACH are corrected to read APH.

2. On pages 8 through 13, part II., beginning with Enforceability of the MOU is deleted and the following heading and paragraphs are inserted:

II. MOU

We first address the issue of the enforceability of the option under the MOU. The trial court found that the MOU did not create any valid legal option or right of first refusal. SCCCD contends that the trial court erred in addressing this issue because the MOU had been fully performed, and Golden Bear did not challenge the validity of the MOU and right of first refusal until after it had been fully performed. SCCCD also contends that to the extent Golden Bear had standing to challenge the MOU, it waived that right.

The issue of the enforceability of the MOU is relevant only on the issue of bad faith by SCCCD. From our review of the record, we conclude that there is insufficient evidence to find that the MOU was unenforceable as between APH and SCCCD, or that enforcement constituted bad faith by SCCCD.

Between APH and SCCCD

The trial court found that the MOU (1) failed to specify a purchase price and terms, (2) was not recorded, (3) did not contain a specific clause stating that it was assignable by Velma to APH, and (4) lacked consideration. Based upon these factual findings, the trial court concluded that the MOU did not create a legally valid option right between APH and SCCCD. These findings do not support the conclusion that the MOU was not enforceable as between APH and SCCCD.

A right of first refusal, or preemptive right, gives the holder of the right a conditional right to acquire property if the owner elects to sell the property. The right of first refusal ripens into an option when the owner of the property elects to sell the property and receives a bona fide offer from a third party. (Hartzheim v. Valley Land & Cattle Co. (2007) 153 Cal.App.4th 383, 389.)

The right of first refusal is enforceable against any successor in interest to the owner of the property who has notice of the existence of the right. (Rollins v. Stokes (1981) 123 Cal.App.3d 701, 705-711 (Rollins); 7 Miller & Starr, Cal. Real Estate (3d ed. 2004)  19:136, p. 422.) Velma, as an initial partner in APH, certainly was aware of the MOU. Furthermore, every partner is the agent of the partnership and knowledge of one partner with respect to the business of the partnership is imputed to the other partners and the partnership. ( 2332; GHK Associates v. Mayer Group, Inc. (1990) 224 Cal.App.3d 856, 881.)

Furthermore, in Rollins, supra, 123 Cal.App.3d at page 713, this court held that any defects in an option agreement, or the exercise of a preemptive right to purchase property, can be waived and that any defects are waived if the optionor remains silent at tender and then later seeks to raise hidden objections. APH, as optionor, did not raise any objections or challenge the enforceability of the right of first refusal by SCCCD at the time SCCCD sought to exercise the right of first refusal.

When a buyer purchases a parcel of property and obtains a right of first refusal on another parcel, as a matter of law the purchase of the one parcel constitutes consideration for the granting of the right of first refusal on another parcel. (Mercer v. Lemmens (1964) 230 Cal.App.2d 167, 171-172; 1 Miller & Starr, Cal. Real Estate (3d ed. 2000)  2:10, pp. 39-40.)

A right of first refusal cannot be defeated by an owner entering into a sale for a larger parcel. In such cases, the owner must make a reasonable allocation of the sales price to the portion subject to a right of first refusal. If the owner fails to do so, the courts will determine the fair value of the portion subject to a right of first refusal. (Maron v. Howard (1968) 258 Cal.App.2d 473, 488-489; 7 Miller & Starr, Cal. Real Estate, supra,  19:138, p. 429.)

Velma and SCCCD in all likelihood could have prevented the subsequent litigation if they had agreed to record the MOU. Failure to record the MOU, however, does not defeat its enforceability. A right of first refusal can be created by contract or by a recorded covenant. (1 Miller & Starr, Cal. Real Estate, supra,  2:10, p. 39.) The statute of frauds requires that the MOU be in writing to be enforceable, which it was, but not that it be recorded to be enforceable as between the parties. ( 1624, subd. (a)(3); Pac. etc. Dev. Corp. v. Western Pac. R.R. Co. (1956) 47 Cal.2d 62, 68.) Moreover, as between SCCCD and APH, neither party to the MOU raised any objection to enforceability.

As these authorities demonstrate, the trial courts factual findings cannot support a conclusion that the MOU was unenforceable as between APH and SCCCD. Therefore, the trial court erred in concluding that the MOU was unenforceable by SCCCD and that enforcement constituted bad faith.

Between Golden Bear and SCCCD

Golden Bear sought to raise defects in the MOU at the time of trial, after the MOU had been fully performed between the parties to the agreement, APH and SCCCD. The trial court concluded that because the MOU was not a recorded instrument, it could not have placed Golden Bear or anyone else on notice. Golden Bear, however, was given actual notice of the MOU and never raised an objection to its enforceability until after title had transferred to SCCCD.

The evidence presented at trial established that as of February 13, 2004, Fugman, as the agent for Golden Bear, was aware that SCCCD had some interest that impacted the sale to Golden Bear. Between February 18 and 20, Fugman identified SCCCDs interest as an option or right of first refusal. Once Golden Bear had notice that SCCCD had some right or interest in a portion of the property Golden Bear was interested in purchasing from APH, Golden Bear had a duty to investigate. Furthermore, Golden Bear cannot rely on any representations or misrepresentations made by APH or William with respect to the right of first refusal and SCCCDs intentions regarding its preemptive right. It was Golden Bear who had the duty to investigate what interest, if any, was held by SCCCD once it had notice that SCCCD claimed some sort of right or interest. If Golden Bear fails to investigate fully, then it takes subject to SCCCDs right. (Chalmers v. Raras (1962) 200 Cal.App.2d 682, 686-688; 5 Miller & Starr, Cal. Real Estate (3d ed. 2000)  11:77, p. 196.)

Golden Bear received further actual notice of the MOU on February 24, 2004, when representatives of SCCCD and Golden Bear met. A big issue in the meeting was SCCCDs impending deadline of March 1 in which to decide whether to exercise the MOU. Additionally, during that meeting SCCCD asked Golden Bear to get APH to agree to a 15-day extension of time in which SCCCD could exercise its right to purchase. Golden Bear agreed to this request by SCCCD and asked William and APH to extend the time for exercise of the rights under the MOU. William granted Golden Bears request to extend SCCCDs purchase deadline.

Moreover, Golden Bear did not have to invest much effort in investigating exactly what right SCCCD might have in the lots. The due diligence package was received by Golden Bear on February 25, 2004, and included the MOU and the January 30 notification to SCCCD of the timeframe in which to exercise its rights under the MOU. There is no indication that Golden Bear, at any time prior to the recordation of the deed to the three lots to SCCCD, claimed the MOU was unenforceable or objected to SCCCDs exercise of rights under the MOU.

Both Fugman, Golden Bears agent, and Golden Bears principal testified that they understood as of February 24, 2004, that SCCCD had some right to purchase the three lots from APH. They did not dispute that right at that time, or at any time thereafter until the lawsuit was filed. Furthermore, neither Golden Bears principal nor its agent, Fugman, told SCCCD during the February 24 meeting that Golden Bear already was in contractual privity with APH to purchase the lots subject to the MOU. Instead, Golden Bear requested that William extend the time for SCCCD to exercise the right to purchase the three lots under the MOU.

It is undisputed that SCCCD purchased three lots from APH and the deed transferring title was recorded on April 30, 2004. Upon notification that SCCCD intended to purchase three lots initially included in the contract of sale to Golden Bear, Fugman, on behalf of Golden Bear, acknowledged notification of the exercise of SCCCDs right to purchase lots 18, 19, and 20. The March 31, 2004, letter from Fugman stated Golden Bear would expect a reduction in its purchase price by $725,000. The Fugman letter does not object to the sale, but acknowledges that SCCCD was exercising its option to purchase three lots.

Subsequent to the transfer of title to SCCCD by APH, Golden Bears principal issued a letter on May 11, 2004, acknowledging that SCCCD had an option on certain lots and had exercised that option and discussing the price reduction that would have to be granted under the contract between APH and Golden Bear. Golden Bear acknowledges that it and APH had a disagreement as to the amount of the price reduction, but nowhere in the letter does Golden Bear contend that the sale to SCCCD should not have moved forward and that it would expect specific performance and a sale of all 21 lots to Golden Bear. The letter concludes with a request that SCCCD be notified that APH and Golden Bear were in a dispute regarding the option price, not that Golden Bear had any objection to SCCCDs exercise of the option.

At no time before SCCCD exercised its rights under the MOU did Golden Bear challenge that right or the enforceability of the MOU. Golden Bear did not object to the sale to SCCCD going forward when notified of the exercise of rights under the MOU, nor did Golden Bear make any attempt to stop the sale to SCCCD from going forward. No objection or challenge was raised until the lawsuit was filed.

As of February 13, 2004, Golden Bear, through Fugman, was on notice that SCCCD had some interest that affected the sale to Golden Bear, which date was prior to the date that there was a fully executed contract between APH and Golden Bear. At that point, Golden Bear had an obligation to investigate fully the nature of SCCCDs claim and could not rely on any representations made by William as to the nature of SCCCDs interest or intentions. Further, Golden Bears subsequent conduct, particularly its request to William to extend the time for performance by SCCCD, indicates that Golden Bear was aware of SCCCDs preemptive right, did not raise any objection to the enforceability of the MOU, and acknowledged SCCCDs right of first refusal. Consequently, the trial courts finding that Golden Bear was a good-faith purchaser without notice was not supported by the evidence.

Golden Bears principal, Michael L. Thomason, as the owner of a real estate development company, presumably is sophisticated in the matter of real estate transactions. A review of the due diligence package, which Thomason apparently did not complete, would have disclosed the exact nature of SCCCDs interest. At a minimum, one would not expect Golden Bear to ask William to extend the time for performance under the MOU if Golden Bear had had any objections to the enforceability of the MOU or if Golden Bear believed its contract was not subject to SCCCDs right of first refusal.

Although the trial court concluded that Golden Bear was not estopped from challenging the MOU and the sale to SCCCD, under the facts of this case and relevant law, Golden Bear was estopped and its interest in the real property was subject to SCCCDs preemptive right.

Except for the modifications set forth, the opinion previously filed remains unchanged. There is no change in judgment.

Respondents petition for rehearing is denied.

_____________________

CORNELL, Acting P.J.

WE CONCUR:

_____________________

GOMES, J.

_____________________

KANE, J.

Publication courtesy of California pro bono legal advice.

Analysis and review provided by La Mesa Property line Lawyers.

San Diego Case Information provided by www.fearnotlaw.com