Sells v. Orphan

Filed 7/31/07 Sells v. Orphan CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FIRST APPELLATE DISTRICT

DIVISION THREE

Plaintiff Marilou Cotchett Sells appeals a judgment following a court trial denying her contract and fraud claims arising from an alleged failure of respondents to pay her brokers commission. We affirm.

BACKGROUND

The commercial property that was the subject of negotiations leading to this dispute is owned by Waterfront Towers, a limited partnership. The limited partners are Angelo Orphan, Kenneth Marks and his wife; the general partner is Peninsula Office Management, Incorporated.

In December 1999, Sells, a real estate broker, became interested in the property on behalf of her client, Joseph Sully. Over the following months several offers and/or counteroffers between Sully and the principals in Waterfront Towers were rejected or expired.

In May 2000, Sells and Orphan asked Marks to prepare a nonbinding letter of interest to initiate negotiations for a purchase contract. Marks was instructed to draft the basic business terms that would become the foundation of further negotiations. The price term, $39,850,000, was supplied by Orphan and Sells. Marks testified he was not told Sells wanted written authorization to procure a buyer, and that he had no intention of providing her such authorization. Sells testified that, after the sellers rejected a number of offers from her client, she demanded to know the price they would accept and the amount of her commission.

On May 3, 2000, the sellers faxed Sells a one-page document. Sells describes it as a counter-offer and authorization for her to procure a purchaser. The sellers describe it as a non-binding letter of interest. It states: The following is an outline of a counteroffer for the negotiations to purchase of the above named property. This outline shall be null and void if not agreed to by May 8, 2000. It specified a price of $39,850,000 in cash, close of escrow thirty days from the date Seller is able to procure a sec. 1031 exchange property, a nonrefundable deposit of 3 percent of the purchase price, and escrow at First American Title Company. The outline of the counter-offer further provided: BINDING EFFECT: The parties intend to negotiate in good faith to reach an actual agreement on the terms specified above within twenty days. However, they expressly agree that neither party can be held liable for an alleged breach of an obligation to negotiate in good faith. Unless the parties actually agree on these terms in writing, the parties do not intend to be bound, and there shall be no contract binding them to perform the proposed transaction.

Marks testified that the Internal Revenue Code section 1031 exchange condition was an important term because there would be enormous adverse tax liability were they to sell Waterfront Towers without locating a satisfactory exchange property. Orphan, who was less involved in the negotiations, told Sells he was only interested in a property trade and would not sell the building outright. Marks told Sells that the choice of title company was not negotiable.

Sells faxed the one-page document back to Orphan on May 8, unsigned, bearing her handwritten notation on the left margin that: Joseph Sully accepts the above offerformal contract to follow. Buyer wishes to use North American Title Co. Sells testified that she also hand-delivered a copy signed by Sully to Orphan at his office the same day.^[1] Marks testified that neither he nor Orphan received Sullys signed response until May 12, 4 days after the May 3 proposal expired.

On May 11, 2000, Sells delivered to the sellers a proposed form Commercial/Investment Purchase Agreement and Deposit Receipt, executed by herself and Sully. This purchase agreement included a number of terms that differed from those in the May 3 outline of the counter-offer. The amount of the deposit was changed from 3 percent of the purchase price to $100,000; the title company was changed from First American Title to Commonwealth Title Company; and the sellers were given only 60 to 90 days to procure an exchange property. Sellers acceptance would authorize a commission of 1.5 percent to Sells and the proposal would expire at 6 p.m. on May 15. The sellers did not accept this offer.

On May 12, Marks faxed Sells a letter that stated: Since we have not received a signed acceptance by your client of the counter letter of interest dated 05/05/2000 [sic], we assume that he has lost interest in the formation of a possible transaction. All we received was your notation that it was acceptable to your client. [] We will therefore proceed to pursue alternatives related to the future of the building.

On May 16, 2000, Marks provided Sells with an unsigned document entitled Purchase and Sale Contract, denoted on the top of each page as Draft for Review Only. He testified that this was intended as a nonbinding draft agreement for review by the parties and their attorneys. While Marks was enthusiastic about the prospects for a deal, he explained to Sells that the deposit she had suggested was insufficient; that there were other items requiring further discussion; and that sellers would require a properly legally drafted agreement reviewed and approved by the partnerships counsel. Because the partnerships attorney was busy, Marks drafted the May 16, 2000, document by modifying a standard form he had previously used in another transaction. He anticipated the parties would modify it and noted a number of questions to discuss with counsel, including the provision for a brokerage commission and the Internal Revenue Code section 1031 exchange condition. With respect to the brokerage commission, Marks testified that he prepared two versions, one having Sells exclusively represent the buyer and another having her exclusively represent the sellers. In both versions her commission was conditioned on the close of escrow and the amount was to be negotiated between Orphan and Sells. The draft agreement included a condition to closing whereby Seller procures and enters into a contract to trade property to his sole satisfaction and conforming to IRS section 1031 during the term of this escrow.

Sells took the draft agreement to Orphan, who altered the brokerage term to specify a dual agency with the seller to pay a .5 percent commission. Sully marked up the draft to identify Commonwealth Title as the title company and specify that the deposit would be placed in escrow, rather than directly with the sellers. He also wrote a check for $1,195,500 made out to Commonwealth Title. The draft agreement specified that Buyer shall deliver [the deposit] to Seller by cashiers or certified check or by wire transferred funds. . . . The sellers did not execute this draft agreement or negotiate the check.

Discussions continued between Sells and Marks over the following days. Marks was unaware that Sully had signed the draft agreement. On May 23 Sells told Marks that Sully would give the sellers 180 days to find an exchange property.

Later the same day she called Marks back to warn him that the market was changing and Sully was getting cold feet. On May 25, 2000, Sells wrote to Orphan demanding that the sellers produce a signed contract. She stated: Angelo, I have to have someone fax me a signed copy of the contract Kenneth drew up, that my client signedJoe Sully is terminating the transaction today if he does not get a signed contract. He has waited 6 weeks to get a contract and he will not wait any longer. He is willing to give you 6 months to find a property, and as soon as you find one, he will close escrow 30 days after his Due Diligence period. You changed the price twiceand each time he accepted the price, and signed the contract Kenneth devised. Now he feels he is paying too much, the market is changing. Interest rates have gone up, and things are a different storyso he wont wait any longereither he has a dealor no. Sells concluded: Anyway, Mr. Sully has given me until 12 noon to produce a contract or no deal.

Marks considered Sellss letter to be a complete termination of the transaction. [I]f anyone tells me I have to perform in two hours on a 39-million-dollar deal, my answer is going to be no. So I rejected the proposal. In addition, the fixed six-month term for finding an exchange property was unacceptable and the deal required approval from the partnerships attorney.

In the days following May 25 Sells left messages for Orphan saying her client still wanted to pursue the deal, but never received a return call.

Sells sued the sellers, seeking to recover a claimed commission of $199,250 plus treble damages for fraud, interest, and punitive damages. The trial court sustained a demurrer without leave to amend based on the statute of frauds. This court reversed. (Sells v. Orphan (April 27, 2004, A101547) [nonpub. opn.].) After a bench trial, the court entered judgment in favor of sellers. Sells timely appealed.

DISCUSSION

Sellss primary argument seems to be that the single page May 3, 2000, proposal is a binding listing agreement that entitles her to a brokers commission. The trial court disagreed. Instead, it found (1) the proposal was merely an agreement to engage in negotiations; (2) that it made no mention of retaining Sells as a real estate broker; and (3) if it were a listing agreement, Sully failed to timely present the seller with an offer conforming with the specified terms. The court therefore concluded the proposal cannot be construed as a contract whereby plaintiffs services as a broker were retained, nor where the property owner agreed to pay plaintiff a commission.

We agree. Nowhere in the May 3 transmission is there any manifestation that Orphan or Marks intended to engage Sells as broker or pay her a commission. Although Sells argues that this point was resolved in her favor in the earlier appeal in this litigation and is law of the case, she is mistaken. The sole issue in the prior appeal was whether Sells satisfied the requirement of the statute of frauds that the alleged brokerage agreement be evidenced by a writing. We held that, although the May 3 proposal did not refer to Sellss retention as a broker or mention a commission, the various writings exchanged by the parties during their negotiations, taken together, were adequate to satisfy the statute of frauds. But this court did not address whether a contract for Sellss services as a broker had in fact been formed; to the contrary, we specifically stated that whether Sells will be able to prove her allegations is not before us, and our decision should not be read as expressing an opinion about the ultimate merits. We conclude only that Sells has sufficiently alleged causes of action to withstand demurrer.

The trial court also correctly rejected Sellss apparent assertion that the May 3 document was an offer to enter into a binding contract upon acceptance by the buyers.  Whether a writing constitutes a final agreement or merely an agreement to make an agreement depends primarily upon the intention of the parties. In the absence of ambiguity this must be determined by a construction of the instrument taken as a whole. [Citation.] Preliminary negotiations or an agreement for future negotiations are not the functional equivalent of a valid, subsisting agreement. A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent. [Citation.] [Citation.] Thus, where it is part of the understanding between the parties that the terms of their contract are to be reduced to writing and signed by the parties, the assent to its terms must be evidenced in the manner agreed upon or it does not become a binding or completed contract. (Beck v. American Health Group Internat., Inc. (1989) 211 Cal.App.3d 1555, 1562.)

That is the situation in this case. The May 3 document expressly states: The parties intend to negotiate in good faith to reach an actual agreement on the terms specified above within twenty days. However, they expressly agree that neither party can be held liable for an alleged breach of an obligation to negotiate in good faith. Unless the parties actually agree on those terms in writing, the parties do not intend to be bound, and there shall be no contract binding them to perform the proposed transaction. The writing unambiguously manifests an agreement to pursue negotiations and not an intention that acceptance would result in a final agreement. An  agreement to agree . . . cannot be made the basis of a cause of action. (Beck v. American Health Group Internat., Inc., supra, 211 Cal.App.3d at p. 1563.)

Nor does the record support Sellss insistence that Sullys purported acceptance of the May 3 document was timely. Despite conflicting evidence, the trial court believed Markss testimony, admitted without objection, that neither he nor Orphan received Sullys signed acceptance by May 8th, the specified deadline. It is beyond this courts purview to second guess that determination.  With rhythmic regularity it is necessary for us to say that where the findings are attacked for insufficiency of the evidence, our power begins and ends with a determination as to whether there is any substantial evidence to support them; that we have no power to judge the effect or value of the evidence, to weigh the evidence, to consider the credibility of the witnesses, or to resolve conflicts in the evidence or in the reasonable inferences that may be drawn therefrom. No one seems to listen.  (9 Witkin, Cal. Procedure (4th ed. 1997) Appeal,  359, p. 410, quoting Overton v. Vita-Food Corp. (1949) 94 Cal.App.2d 367, 370.) Sellss appellate counsel cites us to the correct standard of review, but does not heed that lesson.

To the extent Sells argues that subsequent negotiations resulted in an enforceable agreement by the sellers to pay her a commission, we also disagree. Substantial evidence supports the courts findings that none of the subsequent offers and counteroffers resulted in an enforceable agreement. Sullys May 11, 2000, proposal, which provided for a 1.5 percent commission to Sells, was never accepted, and expired by its own terms. The sellers May 16, 2000, proposed Purchase and Sale Contract, which included a brokers commission, was marked draft for review only, was not signed by the sellers, and Marks communicated to Sells that further negotiations were necessary before a binding agreement could be achieved. In any event, when Sully signed the May 16 proposal, he changed material terms by striking the requirement that the deposit be paid to the Seller and changing the title company. Even assuming the May 16 draft could be construed as an offer, therefore, there was no effective acceptance.  [T]erms proposed in an offer must be met exactly, precisely and unequivocally for its acceptance to result in the formation of a binding contract [citations]; and a qualified acceptance amounts to a new proposal or counteroffer putting an end to the original offer.  (Panagotacos v. Bank of America (1998) 60 Cal.App.4th 851, 855-856.)^[2] All negotiations ended on May 25, 2000, when Sells notified the sellers that Sully would terminate the transaction unless the sellers produced a signed contract within two hours.

The evidence also defeats Sellss claim that she is entitled to a commission even without a contract. The initial flaw with her position is, of course, the absence of a valid listing agreement between her and the sellers. Nor, even assuming the May 3 proposal resulted in a listing agreement, would she be entitled to a commission. Sells relies on the rule that a written contract between the seller and the purchaser is not essential to the recovery of the brokers commission if he has produced to the seller a purchaser who is ready, willing and able to purchase upon the terms proposed by the seller and who has agreed to those terms and is willing and offers to enter into a binding written contract. The broker has performed his duty and has earned his commission regardless of whether a written contract is actually entered into . . . . (Twogood v. Monnette (1923) 191 Cal. 103, 107 (italics added).) But the court determined that Sully did not agree to the sellers terms, and its determination is supported by substantial evidence.

Sellss remaining contentions merit only brief mention. Our conclusion that the evidence supports the courts decision on the merits effectively moots Sellss claim that the court erroneously denied her leave to substitute the name of the general partner in place of a doe defendant because substitution would not have changed the result. The same is true for the courts denial of Sellss motion to amend her complaint at trial to add a cause of action for breach of the implied covenant of good faith and fair dealing. Sells admits the viability of this proposed cause of action rests on her claim to an enforceable listing agreement; she also concedes that the amendment would have changed nothing about the case but to give the trial judge a wider palette upon which to apply the facts revealed at trial.

DISPOSITION

The judgment is affirmed.

_________________________

Siggins, J.

We concur:

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McGuiness, P.J.

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Pollak, J.

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^[1] The evidence also includes a faxed copy of the document signed by Sully, showing a fax date of December 15, 1998. Sells testified she was having problems with her fax machine printing the wrong dates on transmissions. She faxed the unsigned copy from Kinkos in San Mateo.

^[2] Curiously, Sells contends that the purported May 3 proposal to bargain in good faith once it had been timely accepted by the buyer, took the transaction outside the strict confines of the contract law that says material variances in an acceptance constitute only a counter-offer. As a factual matter, as noted above, the court appropriately found that Sully did not effectively accept the May 3 proposal. Moreover, Sells provides no legal authority whatsoever for her novel proposition that an agreement to bargain in good faith removes subsequent negotiations from the confines of contract law.