Clever Hospitality v. Patel CA2/2 ( 2016 )

Filed 4/21/16 Clever Hospitality v. Patel CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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
SECOND APPELLATE DISTRICT
DIVISION TWO
CLEVER HOSPITALITY, INC. et al., B264921
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC530043)
v.
BHUPENDRAKUMAR M. PATEL et al.,
Defendants and Respondents.
APPEAL from an order of the Superior Court of Los Angeles County.
Robert L. Hess, Judge. Affirmed.
The Dressler Law Group, Thomas W. Dressler, for Plaintiffs and Appellants.
Paul R. Rosenbaum for Defendants and Respondents.
* * *
The owner of a hotel grants a prospective buyer a 60-day option to buy the hotel,
during which time the buyer can conduct its due diligence and, if interested, exercise the
option by depositing $150,000 into escrow. The buyer spends time and money
conducting due diligence, but never makes the deposit. When the hotel owners thereafter
sell the hotel to someone else, the buyer and its real estate agent sue the owners for
breach of contract and related claims. The trial court dismissed the buyer’s claims. On
appeal, the buyer and agent argue that the buyer’s due diligence efforts either rendered
the option irrevocable or substituted for the deposit as the means of exercising the option.
We disagree and affirm.
FACTS AND PROCEDURAL BACKGROUND
I. Facts
We draw these facts from the operative Second Amended Complaint (SAC) and
from the exhibits attached to it. (Crawley v. Alameda County Waste Management
Authority (2015) 243 Cal.App.4th 396, 403-404 (Crawley).)
In December 2012, defendants Buhpendrakumar M. Patel and Hasaben B. Patel
(collectively, the Patels), as trustees of the B. Patel Family Trust dated February 13, 1991
(the Trust), signed a “Purchase and Sale Agreement” (Agreement) with plaintiff Clever
Hospitality, Inc. (Clever). Under that Agreement, the Patels agreed to sell Clever the
Gilbert Hotel, a hotel on Wilcox Avenue in Los Angeles, for $8,528,000. Plaintiff
Kenneth Heller (Heller) was to act as the real estate broker, and was to receive a
commission of $338,000 “[u]pon the Close of Escrow.”
The sale was not to happen immediately. Instead, the Agreement granted Clever
a 60-day “due diligence” period during which Clever could evaluate the Hotel and either
agree to consummate the sale by depositing $150,000 into escrow or decide to terminate
the Agreement for any reason. To facilitate Clever’s due diligence, the Agreement gave
Clever the right to enter the physical premises; to inspect and review the Patels’ financial
and other records for the Hotel, including “all agreements, advance bookings, leases,
licenses and permits for operation of the Hotel”; and to perform at its own expense “such
surveys, marketing, zoning, inspections, tests, studies and investigations as [it] deems
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appropriate.” The Agreement also obligated the Patels to make their records available for
inspection and review. The Agreement specifically provided that “if the Deposit is not
paid . . . on or before the expiration of the Due Diligence Period, [it] shall be terminated
without further notice or demand.”
The parties agreed that the due diligence period would begin on January 7, 2013.
Clever “expended substantial funds, and long hours of work” conducting its due
diligence. Because the Hotel was in a “deteriorated condition” and served as “cheap
lodging for transients,” Clever spent money on “architectural and renovation evaluation
and planning.” Clever also asked the Patels for access to the Hotel’s “occupancy
records” in order to assess the feasibility of shutting the Hotel down for any renovations;
the Patels did not disclose those records despite “numerous requests” to do so.
On February 25, 2013, Clever asked for an extension of the due diligence period.
The Patels never agreed to an extension, but also “never stated or indicated that they
would terminate the [Agreement] at the expiration of the original, unextended due
diligence period.” Notwithstanding the Patels’ silence, Clever did not deposit any money
into escrow prior to March 8, 2013—the 60th day after the due diligence period started.
In an email dated March 12, 2013, the Patels (through their attorney) indicated that
the Agreement had expired due to the nonpayment of the deposit. Thereafter, the Patels
and their adult son made somewhat inconsistent statements to Clever regarding the sale
of the Hotel: They frankly acknowledged that they were talking to other buyers, but also
indicated that they would provide Clever with the occupancy records and expressed a
“willingness” and “wish” to proceed with the sale to Clever. All communications
stopped in the summer of 2013, when the Patels sold the Hotel to someone else.
II. Procedural History
Clever and Heller sued the Patels and the Trust. Specifically, Clever sued for
breach of contract and Heller sued for intentional interference with his real estate
commission contract with Clever. The Patels and the Trust demurred and moved to strike
the SAC as improperly filed.
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The trial court sustained the demurrer without leave to amend. The court reasoned
that Clever’s “failure to make the initial monetary deposit into escrow acted to cancel the
agreement” and that its “expenditure of funds . . . as part of its due diligence activities”
“was of no benefit to and did not con[s]titute consideration.” The court denied the
motion to strike as moot.
After the trial court entered an order dismissing the complaint, Clever and Heller
timely appealed.
DISCUSSION
In an appeal of an order dismissing a case after sustaining a demurrer without
leave to amend, our task is to ascertain “whether the complaint alleges facts sufficient to
state a cause of action” under any theory and “whether there is a reasonable possibility
that the plaintiff could cure [any] defect with an amendment.” (Schifando v. City of Los
Angeles (2003) 31 Cal.4th 1074, 1081.) In undertaking this task, we “must assume the
truth of the complaint’s properly pleaded allegations” unless they are contradicted by any
exhibits attached to the complaint. (Ibid.; Crawley, supra, 243 Cal.App.4th at pp. 403-
404.) We review the complaint’s sufficiency de novo, and the potential for amendment
for an abuse of discretion. (Schifando, at p. 1081; Crawley, at p. 403.)
I. Sufficiency of the Operative Complaint
A. Breach of contract
To state a claim for breach of contract, Clever must allege “(1) the existence of [a]
contract, (2) [its] performance or excuse for nonperformance, (3) [the Patels or the
Trust’s] breach, and (4) . . . resulting damages.” (Oasis West Realty, LLC v. Goldman
(2011) 51 Cal.4th 811, 821.) A binding, bilateral contract exists only if “‘there are
mutual promises given in consideration of each other.’” (Bleecher v. Conte (1981) 29
Cal.3d 345, 350, quoting Davis v. Jacoby (1934) 1 Cal.2d 370, 378; Sully-Miller
Contracting Co. v. Gledson/Cashman Constr. Inc. (2002) 103 Cal.App.4th 30, 36
[“‘mutuality of obligation must exist where the exchange of promises between promisor
and promisee is meant to represent the contract’s consideration’”].)
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The Agreement in this case created an “option to purchase property” because the
Patels, as the “optioner,” “‘offer[ed] to sell the subject property at a specified price or
upon specified terms and agree[d] . . . [to] hold the offer open for [a] fixed time.’”
(Steiner v. Thexton (2010) 48 Cal.4th 411, 418 (Steiner), quoting Auslen v. Johnson
(1953) 118 Cal.App.2d 319, 321-322.) Because only one party to this option (namely,
the Patels) made any promises, this “option to purchase property,” was, without more, “‘a
unilateral agreement’”—not an enforceable, bilateral contract. (Steiner, at pp. 418, 420.)
However, an option to purchase property can become a binding contract in one of
two ways: (1) the buyer can provide consideration for the option, thereby making the
option irrevocable until it expires according to its terms (C. Robert Nattress & Assocs. v.
Cidco (1986) 184 Cal.App.3d 55, 67 [“‘(a)n option supported by consideration is an
irrevocable offer, open for a prescribed period’”], quoting Riverside Fence Co. v. Novak
(1969) 273 Cal.App.2d 656, 660; Steiner, supra, 48 Cal.4th at p. 420 [noting how
consideration can render an option “irrevocable for the negotiated period of time”]); or
(2) the buyer can exercise the option, thereby ripening the option into a “‘mutually
enforceable agreement to buy and sell’” the property (Steiner, at p. 420; cf. ibid. [“an
option without consideration is not binding on either party until exercised . . . until then,
the option ‘“is simply a continuing offer which may be revoked at any time”’”]).
As explained below, the option in this case never became a binding contract.
1. Option never became irrevocable
Clever admits that it never paid any money to make the Patels’ option irrevocable,
but asserts that (1) the time and money Clever spent on due diligence constitutes
consideration, and (2) the doctrine of promissory estoppel substitutes for consideration.
We disagree.
To constitute the consideration necessary to make a revocable option irrevocable,
(1) “[t]he promisee [in this case, the buyer] must confer (or agree to confer) a benefit or
must suffer (or agree to suffer) prejudice,” and (2) this “benefit or prejudice ‘“must
actually be bargained for as the exchange for the promise.”’” (Steiner, supra, 48 Cal.4th
at pp. 420-421, quoting Bard v. Kent (1942) 19 Cal.2d 449, 452; Orcilla v. Big Sur, Inc.
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(2016) 244 Cal.App.4th 982, 1007; Booth v. Bond (1942) 56 Cal.App.2d 153, 157;
Parsons v. Cashman (1913) 23 Cal.App. 298, 301.) A buyer can satisfy this requirement
by paying money or by undertaking tasks that the seller bargained for. Thus, in Steiner,
our Supreme Court held that a buyer’s expenditure of time and money to obtain approvals
to split a parcel of land for the seller’s benefit constituted consideration sufficient to
render the seller’s three-year option contract irrevocable during the option period.
(Steiner, at pp. 421-424; accord, Blonder v. Gentile (1957) 149 Cal.App.2d 869, 874-875
[contracting party’s efforts to stake out mining claims on behalf of other party constituted
adequate consideration].) In this case, Clever’s due diligence efforts benefitted only
itself; the Patels did not ask Clever to do anything and obtained no benefit from Clever’s
efforts. Thus, Clever surely spent time and money on due diligence but those efforts,
even if they qualify as prejudice, were never bargained for; as such, it does not constitute
consideration. (Accord, Steiner, at p. 422, fn. 11 [noting that “the outcome” in Steiner
“might have been different had plaintiffs’ efforts been exclusively in their own
interest”].)
The doctrine of promissory estoppel can sometimes take the place of
consideration. (Kajima/Ray Wilson v. Los Angeles County Metropolitan Transportation
Authority (2000) 23 Cal.4th 305, 310; Joffe v. City of Huntington Park (2011) 201
Cal.App.4th 492, 513.) The doctrine applies if (1) the party to be estopped has made
“‘“‘“a promise clear and unambiguous in its terms”’”’”; (2) the other party has relied on
that promise; (3) that reliance is “‘“‘“both reasonable and foreseeable”’”’”; and (4) the
relying party has been injured by its reliance. (Granadino v. Wells Fargo Bank, N.A.
(2015) 236 Cal.App.4th 411, 416 (Granadino).) Clever urges us to apply this doctrine,
but does not explain how or when the Patels made a clear and unambiguous promise to
make the option irrevocable notwithstanding the Agreement’s clear language that the
option is revocable.
Further, even if we assume that the option became irrevocable, this only makes the
option enforceable according to its terms and the option here expired when Clever did not
deposit $150,000 into escrow by the end of the due diligence period. Clever seems to
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suggest that the option period was extended because Clever asked for an extension and
got no response. However, this suggestion is foreclosed both by general contract
principles (e.g., Khajavi v. Feather River Anesthesia Medical Group (2000) 84
Cal.App.4th 32, 60 [“if it is a new proposal and it is not accepted it amounts to
nothing”]), and by the plain terms of the Agreement, which provide that the Agreement
terminates “without further notice or demand” upon the expiration of the option period.
2. Option never ripened into binding contract to sell
Clever admits that it never satisfied the option’s express condition that Clever
deposit $150,000 into escrow, but offers two arguments as to why the option nevertheless
ripened into a binding contract to sell the hotel: (1) Clever’s noncompliance with the
deposit condition was excused by the Patels’ noncompliance with their duty to provide
the occupancy records; and (2) promissory estoppel. We are not persuaded.
The Patels’ failure to provide the Hotel’s occupancy records does not provide a
basis for excusing Clever’s noncompliance with the Agreement’s deposit requirement
because the Patels’ promise to provide those records, like the option itself and for the
reasons noted above, was unsupported by any consideration. (E.g., Jara v. Suprema
Meats, Inc. (2004) 121 Cal.App.4th 1238, 1249 [“California courts have repeatedly
refused to enforce gratuitous promises, even if reduced to writing in the form of an
agreement”].)
The doctrine of promissory estoppel also does not excuse Clever’s failure to
provide the deposit. As noted above, promissory estoppel applies here only if the Patels
made a clear and unambiguous promise to disregard the deposit condition. (Granadino,
supra, 236 Cal.App.4th at p. 416.) Here, they did not. The Patels’ statements following
the 60-day due diligence period are admittedly murky, evincing both a willingness to
provide the documents and consummate the sale with Clever and a desire to sell to
others. What is missing is any promise—let alone a clear and unambiguous promise—to
proceed with the sale notwithstanding Clever’s noncompliance with the deposit
requirement.
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B. Intentional interference with a contract
To state a claim for intentional interference with a contract, a plaintiff must allege
“(1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this
contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the
contractual relationship; (4) actual breach or disruption of the contractual relationship;
and (5) resulting damage.” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19
Cal.4th 26, 55.)
Implicit in these elements is the requirement that the defendants’ acts—rather than
something else—cause the breach or disruption. Thus, “[w]here a broker has seen fit to
allow payment of his compensation to be contingent upon performance of a contract
between parties other than himself, he cannot complain if, through the nonperformance of
that contract, his own contingent rights be lost.” (Cochran v. Ellsworth (1954) 126
Cal.App.2d 429, 440; City of Turlock v. Paul M. Zagaris (1989) 209 Cal.App.3d 189, 193
[same].) In this case, Heller’s commission contract was made expressly contingent
“[u]pon the Close of Escrow,” but it was Clever’s failure to exercise the option—not
anything the Patels did—that prevented the option from ripening into a contract under
which escrow would close.
II. Reasonable Possibility of Amendment
Clever and Heller offer no grounds upon which the defects we have identified
could be cured by further pleading, and we independently discern no such grounds. The
trial court accordingly did not abuse its discretion in dismissing the complaint after
sustaining the demurrer without leave to amend.
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DISPOSITION
The order of the trial court is affirmed. The Patels and the Trust are entitled to
their costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
, J.
HOFFSTADT
We concur:
, Acting P.J.
ASHMANN-GERST
, J.
CHAVEZ
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