Rezzadeh v. Chiu CA5 ( 2021 )

Filed 12/13/21 Rezzadeh v. Chiu 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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
RUDY REZZADEH,
F080263
Plaintiff and Appellant,
(Super. Ct. No. BCV-16-101978)
v.
JOHN C. CHIU et al., OPINION
Defendants and Respondents.
APPEAL from an order of the Superior Court of Kern County. Gary T. Friedman,
Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.)
Arent Fox, Malcom S. McNeil and Stefan Bogdanovich for Plaintiff and
Appellant.
Tressler, Karl P. Schlecht and Judy Y. Chiang for Defendants and Respondents.
-ooOoo-
Appellant Rudy Rezzadeh appeals following a trial court order denying his request
to enforce a settlement agreement. The agreement previously resolved litigation
surrounding the purchase of an apartment building owned by one or more of respondents
John C. Chiu (Chiu), PARS-15, LLC, and Presidential California Financial Funding, LLC
(Presidential). Appellant contends, however, that respondents continued to stymie the
sale of the building after the agreement and eventually improperly closed escrow, thereby
preventing the sale from concluding. Of course, respondents claim it was appellant who
failed to close the deal, arguing they were within their rights to close escrow when
appellant failed to fund the transaction as required.
Following a motion under Code of Civil Procedure section 664.6 for an order to
enforce the settlement agreement, the trial court issued an order refusing to enforce the
settlement agreement because appellant’s failure to fund the purchase prior to the close of
escrow triggered a time is of the essence clause, permitting respondents to terminate the
purchase immediately. Upon review, we find the trial court properly set forth the terms
of the settlement agreement and that the trial court’s factual findings are supported by
substantial evidence. However, we conclude that the trial court failed to recognize the
full scope of the settlement agreement in its legal analysis. Specifically, the court failed
to give effect to the specific agreement between the parties that a breach preventing the
timely close of escrow triggers a required notice to close escrow and three-day period to
cure. Although time is of the essence clauses are strictly construed, they cannot be used
to eliminate specific terms of the contracts to which they are attached. Rather, the parties
are generally bound to their agreements as made. Time is of the essence clauses are
strictly construed to permit immediate termination when no other provisions control, not
when the parties reached a separate understanding. Accordingly, for the reasons set for
below, we reverse the trial court’s order and remand for the trial court to enter an order
enforcing the settlement agreement.
FACTUAL AND PROCEDURAL BACKGROUND1
In April 2016, appellant (the buyer in the purchase agreement) and Chiu, acting on
behalf of Presidential (the seller), entered into a residential income property purchase
agreement, utilizing a standard preprinted form offered by the California Association of
Realtors. The agreement was to purchase an apartment complex in Kern County. Both
1 Both appellant and respondents have filed motions for judicial notice. No objections
have been filed. Upon review, appellant’s motion for judicial notice filed April 29, 2020, and
respondents’ motion for judicial notice filed May 29, 2020, are GRANTED.
2.
parties utilized the same real estate agent. The agreed purchase price was $6.5 million,
with escrow to close 120 days after acceptance.
Relevant to the arguments in this appeal, the form contract contained several
paragraphs containing provisions that could be utilized to regulate the execution of the
purchase and the information that should be exchanged. Some of these paragraphs were
utilized and others remained blank.
In paragraph 3.A., an initial deposit of $190,000 was required. In paragraph 3.C.,
the contract contained a provision titled “ALL CASH OFFER.” This provision was not
marked as selected but explained that such agreements are “NOT contingent on Buyer
obtaining a loan.” The immediately following paragraph 3.D. provided an opportunity to
disclose the loans, if any, that would be used to finance the purchase. No information
was marked as selected or added in this paragraph either. Rather, in paragraph 3.F., the
contract noted that a “BALANCE OF DOWN PAYMENT OR PURCHCHASE
PRICE in the amount of … $6,310,000.00” would be required, “to be deposited with
Escrow Holder pursuant to Escrow Holder instructions.”
In paragraph 5, the parties noted the existence of an agreed upon addendum. This
addendum explained that one of the structures had been damaged by fire and affirmed
Presidential would repair the damage. Presidential also agreed to provide 16 types of
documents “if applicable and in its possession.” These included property operating
statements for three prior years, complete and current rent rolls, all rental agreements,
utility bills for the prior 12 months, service contracts, and extraordinary expense
statements.
Paragraph 13 contained seller documentation and additional disclosure
requirements. These included all current leases and agreements pertaining to operation of
the property along with rental statements for all tenants as kept in the ordinary course of
business, the books and records for the property, engineering documents, permits, and
documentation of any prior structural modifications. In addition, the parties specifically
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checked the box for paragraph 13.C., titled “TENANT ESTOPPEL CERTIFICATES.”
This paragraph required Presidential to provide “tenant estoppel certificates [utilizing a
standard form] completed by Seller or Seller’s agent, and signed by tenants” essentially
confirming the existing rental agreements have not been modified and are not in default.
These and other requirements were subject to the timing provisions of
paragraph 19, which stated time periods could “only be extended, altered, modified or
changed by mutual written agreement.” Under this paragraph, after acceptance
Presidential had seven days to provide their required materials and appellant had 17 days
to “complete all Buyer Investigations; review all disclosures, reports, lease documents …
and other applicable information .…” After this point, appellant was required to release
all contingencies or cancel the agreement, with an additional five days added from the
point any required disclosures were belatedly provided.
Paragraph 19.C. then laid out Presidential’s right to cancel. For example,
paragraph 19.C.(2) permitted Presidential to cancel “after first delivering to the Buyer a
[Notice to Buyer to Perform]” if “by the time specified in this Agreement, Buyer does not
take the following action(s): (i) Deposit funds as required by paragraph 3A or 3B …
(iv) Deliver verification as required by paragraph 3C or 3H .…”
Paragraph 19.F. added additional requirements to cancel in the event one party
failed to close escrow. This paragraph provided that before “Buyer or Seller may cancel
this Agreement for failure of the other Party to close escrow pursuant to this Agreement,
Buyer or Seller must first Deliver to the other Party a demand to close escrow ([using a
standard DCE form]). The DCE shall: (i) be signed by the applicable Buyer or Seller;
and (ii) give the other Party at least 3 (or ___ ) Days After Delivery to close escrow. A
DCE may not be Delivered any earlier than 3 Days Prior to the scheduled close of
escrow.”
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Finally, paragraph 38, titled “TIME OF ESSENCE; ENTIRE CONTRACT;
CHANGES,” included the sentence: “Time is of the essence.” The remainder of the
paragraph then discussed statute of frauds, choice of law, and other standard legal issues.
Apparently, there were immediate issues with completing the purchase. Thus, in
August 2016, appellant filed suit seeking specific performance. The complaint alleged
that PARS-15, LLC, also owned by Chiu, was the proper owner. It further alleged that
Chiu had attempted to cancel the sale, forcing appellant to send a “Notice to Seller to
Perform.”
Despite the conflict, the parties agreed to settle following a mandatory settlement
conference. On March 14, 2019, their agreement was placed on record. The relevant
portion stated by Chiu’s counsel provided:
“[T]he settlement is that [appellant] will purchase the property that is identified in
the complaint for six million five hundred and fifty thousand dollars. It will be subject to
the terms of the original contract and escrow instructions. The length of the escrow will
be four months with the option of the seller to extend it twice, one month each time. The
escrow instruction and contract will be modified in terms of the price and the escrow
period as discussed above.
“And the term in the addendum to the escrow—addendum to the contract
requiring the defendants to repair the fire damaged building will be deleted since the
building has been repaired. [¶] … [¶]
“The buyer will cooperate in 1031 [tax] exchange as long as it is at no cost to him.
Each side will bear their own attorney’s fees and costs.…”
Additional clarifications included that “PARS-15, LLC is the owner of the
property” and will be bound by the settlement; that the deposit shall be applied to the
purchase, as opposed to refunded; that the “dates with the escrow instructions shall be
modified to be consistent with dates agreed here today,” meaning “if the record was to
say a closing date in 2016, of course, we’ll modify the dates to be consistent with” an
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agreement starting March 18, 2019; and that any 1031 tax exchange efforts would not
increase cost or delay to respondents. Respondents also agreed to “cooperate and provide
financial records and rent rolls to the buyer.”
The pending trial date was vacated, and the court stated it would “retain
jurisdiction of the terms of the settlement” under Code of Civil Procedure section 664.6.2
Again, however, problems arose.
In early April and throughout May 2019, appellant’s counsel sought information
on whether escrow had been reopened, asked for required documents from respondents,
and asked Chiu to allow his bank to utilize information on the property in processing a
loan application from appellant. By June 2019, appellant still did not have respondents’
documents or Chiu’s consent for the loan issue, despite statements he would receive
them. As a result, appellant filed a motion to compel. This apparently resulted in
respondents providing additional documentation on June 25, 2019, and consent for the
bank to utilize its existing information on June 27, 2019. But no tenant estoppel
certificates or lease agreements were provided.
Shortly thereafter, appellant requested to extend escrow until August 31, 2019. It
appears he had identified potential financing for the property that could be completed by
that date. Appellant’s counsel states he was told by opposing counsel that they would
speak with Chiu about obtaining an extension.
On July 22, 2019, however, appellant received notice that respondents had
instructed the escrow company to cancel the escrow. Appellant filed a motion to enforce
the settlement agreement which, after full briefing, was ultimately heard on
September 30, 2019.
Following the hearing, the trial court requested proposed findings of fact and
conclusions of law from both parties. In appellant’s submission, appellant raised the
2 All future statutory references are to the Code of Civil Procedure unless otherwise noted.
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factual and legal arguments now presented on appeal. The court, however, chose to
adopt respondent’s findings of fact and conclusions of law, essentially in toto.
In its six-page order dated October 23, 2019, the court made several relevant
findings of fact and conclusions of law. All matched respondents’ draft order. With
respect to the terms and conditions of the prior settlement, the court found: “1) the
Parties agreed to a $6,550,000 sale price subject to the terms of the original escrow
instructions and contract, 2) the original sale was all-cash with no loan contingencies,
3) pursuant to paragraph 38 of the original contract, time was of the essence, 4) the
Parties agreed to start a four-month escrow on March 18, 2019, 5) only Seller had the
option to extend the escrow, and 6) Seller agreed to ‘cooperate and provide financial
records and rent rolls to the buyer.’ ”
The court further found that 392 pages “of rent rolls and monthly income/expense
statements” covering January 2017 through November 2018 had been provided on
December 26, 2018, and an additional “five months [of] financials and rent rolls” were
provided on June 25, 2019, “a full TWENTY-THREE DAYS prior to the close of
escrow.” Additionally, the court found that appellant’s lender “ ‘was satisfied with the
documents provided’ ” as of July 16, 2019, that by agreement only Seller could extend
escrow past July 18, 2019, that “Seller was ready to fully perform on or before the final
day of escrow,” and that “Buyer failed to deposit any of the remaining $6,360,000
purchase monies needed to timely close escrow.” Thus, the court found, “[e]scrow
closed, no funds were received, and Seller [now] seeks to cancel escrow,” noting “after
escrow expired and [no] funds were received, Seller cancelled escrow and does not want
to move forward with the untimely transaction.” The court added that although “Buyer
claims to have the necessary funds,” he has “not provided escrow with any additional
funds despite having over 80 days to do so since the lawful close of escrow and over
50 days since claiming to have the cash.”
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Based on these findings, the court concluded it had jurisdiction to enforce the
settlement agreement that had previously been entered into the record. The court
explained that the agreement should be treated like a contract and that California law
generally requires contracts be performed in the time limits stated, especially when a time
is of the essence clause is included. The court found that performance was to be
completed by July 18, 2019, that time was of the essence, and that the meaning of this
clause was not ambiguous. The court determined that a key term of the agreement was
that escrow receive full funding of the purchase by its closing date, that this was not
done, and that California law would not treat a buyer able to make payment as one that
had made payment.
Relying on Pittman v. Canham (1992) 2 Cal.App.4th 556, 559–560 (Pittman), the
court explained that “[w]hen time is of the essence and the time has expired, both parties
are discharged” and either “party can terminate the transaction without liability, even
though the party has neither performed nor tendered performance, assuming the
terminating party has not waived the timeliness requirement.” Applying this principle,
the court concluded, “time was of the essence, Buyer made no final payment, Buyer
presented no evidence of waiver or potential forfeiture, and Seller did not waive the
timeliness requirement.” Accordingly, “the transaction was terminated, and Seller was
within its right to cancel the contract.”
The court wrapped up its findings with a conclusion that “Seller did not prevent
Buyer’s performance.” Although noting “an important exception to discharge … wherein
seller’s failure to perform prevents the buyer from performing,” the court found “Seller
provided Buyer with enough information to timely close” given that no loan
contingencies were in the agreement. The court thus determined appellant had received
his benefit of the bargain and chose not to complete the sale. This warranted denying
appellant’s motion to enforce the settlement agreement.
This appeal timely followed.
8.
DISCUSSION
The parties’ arguments in this case raise several procedural and substantive issues.
Initially, they dispute how this court should treat the trial court’s order denying
appellant’s motion to enforce the settlement agreement. Although framed in the context
of whether a remand to set forth additional terms of the settlement is needed, the dispute
itself raises a jurisdictional concern as to how we should treat the fact the trial court did
not enter a final judgment. As part of this issue, the parties have different takes on how
this court should proceed under section 664.6, if it does have jurisdiction. Assuming this
court reaches the specific terms of the settlement agreement, the parties differ over
whether certain provisions of the agreement constitute conditions precedent to
termination, whether the time is of the essence clause controls despite these provisions,
and whether the agreement actually called for a reasonable time to close. In aid of his
interpretation of the case, appellant raises certain factual disputes with the trial court’s
order which he contends caused the trial court to improperly find appellant was the
breaching party. Finally, for the first time on appeal, appellant argues estoppel should
preclude any reliance on the time is of the essence clause.
This Court’s Jurisdiction
We begin, as we must, with this court’s jurisdiction to hear the appeal. “The
existence of an appealable judgment or order is a jurisdictional prerequisite to an appeal.”
(Harrington-Wisely v. State of California (2007) 156 Cal.App.4th 1488, 1494.) A
judgment that leaves nothing to be decided between the parties is final and appealable.
(§ 904.1, subd. (a)(1); Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725, 741.)
Although judgments typically resolve a contest of law or facts, they also may be entered
to enforce a settlement agreement. (See Weddington Productions, Inc. v. Flick (1998)
60 Cal.App.4th 793, 797 (Weddington).)
The parties and the trial court frame the dispute in this case in the context of
respondents’ actions—essentially asking whether respondents were within their rights to
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cancel escrow. The trial court’s order thus reads like the resolution of a summary
judgment claim on a contract. Within this framing, the trial court resolved what we
consider to be the core issue in this case: the extent to which and manner by which the
settlement agreement permits cancellation of escrow. In its selection of competing drafts
of the proper factual and legal analysis, the court necessarily rejected appellant’s position
that the agreement required prior notice to cancel and appellant’s claim that his
performance was excused by respondents’ own failures under the agreement. 3
In ultimately concluding respondents could properly cancel escrow based on
appellant’s failure to fund the purchase, the court necessarily identified the controlling
terms of the agreement and resolved all remaining disputes between the parties. And by
rejecting appellant’s motion to enforce the settlement agreement because there was no
breach by respondents, the court’s order functionally terminated all litigation between the
parties. Like the court in Hines, we conclude this resolution is sufficient to be treated as
a final appealable judgment. (Hines v. Lukes (2008) 167 Cal.App.4th 1174, 1183
(Hines).)
Based on its references to the incorporation of the original sales agreement, the
parties’ oral agreement, and specific provisions of the original sales contract, the
judgment identifies the full scope of the settlement agreement and, ultimately, reveals the
trial court’s conclusion that the “time is of the essence” clause predominates over any
additional terms in the purchase agreement. Thus, appellant’s motion was denied
because the trial court found a valid settlement agreement existed but determined the
agreement was not what appellant argued. We see no functional difference with respect
to conducting a jurisdictional analysis from that in Hines, where the court found a valid
settlement agreement and then enforced it. In both cases the trial court’s order resolved
3 The first of these issues raises a legal dispute about the terms of the agreement whil e the
second raises both factual issues regarding the parties’ conduct and legal issues regarding their
required performance under the agreement.
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all disputes over the settlement agreement at issue and was thus treated as a final
judgment. Indeed, if this were not the case the trial court’s order would be insulated from
any form of review regardless of whether the court properly understood the settlement
agreement or simply made up a new set of terms. A respondent would merely need to
argue that the request for enforcement was denied and, thus, no judgment was needed.
As discussed further below, however, the court’s entry of judgment is a necessary
component of enforcement under section 664.6, regardless of how the agreement is
enforced. Orders finally resolving disputes should thus be treated as appealable
judgments if the court does not enter a separate judgment.
The Trial Court’s Section 664.6 Order is Procedurally Sufficient
Moving on from the jurisdictional concern, the parties differ over how this court
should proceed given the order issued by the trial court. Appellant argues that the order
is insufficient as a judgment under Hines because it “states some of the settlement terms,
but omits others.” Respondents reiterate their claim that there was never any need for the
trial court to enter a judgment, both because it was not formally requested and because
the settlement was already enforceable, before arguing the trial court did not omit any
material terms. We first review the requirements when conducting proceedings under
section 664.6 and our relevant standard of review. We then apply those principles to the
court’s action in this case. We ultimately conclude the trial court’s order is procedurally
sufficient.
“Prior to the enactment of section 664.6, a party seeking to enforce a settlement
agreement had to file a new action alleging breach of contract and seeking either contract
damages or specific performance of the settlement terms, or alternatively had to
supplement the pleadings in a pending case. [Citations.] Although a summary judgment
motion could be filed based on the newly pleaded contract or specific performance claim,
summary judgment could be granted only if the opposing party failed to raise a triable
issue of fact. [Citation.] Expeditious enforcement of a settlement agreement was
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therefore not always possible. [⁋] Section 664.6 was enacted to provide a summary
procedure for specifically enforcing a settlement contract without the need for a new
lawsuit.” (Weddington, supra, 60 Cal.App.4th 793, 809.) It does so by converting the
settlement agreements into judgments that are then enforceable by the original court. (Id.
at p. 797.)
Section 664.6, subdivision (a) provides that if “parties to pending litigation
stipulate, in a writing signed by the parties outside the presence of the court or orally
before the court, for settlement of the case, or part thereof, the court, upon motion, may
enter judgment pursuant to the terms of the settlement. If requested by the parties, the
court may retain jurisdiction over the parties to enforce the settlement until performance
in full of the terms of the settlement.” Under this statute, the trial court must first
determine whether the parties reached a valid and binding settlement. (Osumi v. Sutton
(2007) 151 Cal.App.4th 1355, 1360.) “If the court determines that the parties entered
into an enforceable settlement, it should grant the motion and enter a formal judgment
pursuant to the terms of the settlement.” (Hines, supra, 167 Cal.App.4th at p. 1182.) It
may then enforce or not enforce the judgment through its inherent powers and the
summary proceedings of section 664.6. (Machado v. Myers (2019) 39 Cal.App.5th 779,
796 fn. 13 (Machado); Wackeen v. Malis (2002) 97 Cal.App.4th 429, 432 fn. 1, 439–
440.)
We exercise our independent review when interpreting section 664.6 and when
determining whether the trial court satisfied the strict requirements of that statute.
(Machado, supra, 39 Cal.App.5th at pp. 790–791.)
In this case, the parties do not dispute that a proper and binding settlement
agreement exists. Moreover, the record shows that the parties orally agreed to the
settlement as read into the record and that the specific terms of the agreement were
known because the parties specifically incorporated the prior sales contract and escrow
instructions, subject to any modifications specifically placed on the record. The court’s
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order itself states that purchase under the settlement would be “subject to the terms of the
original escrow instructions and contract.” Given that the relevant disputes in this case
center on the meaning of provisions contained in the original purchase agreement, as
potentially modified by the oral statements to the court, we find the court’s recitation of
the settlement in its order sufficient to satisfy the requirements of section 664.6. We thus
find no procedural defect in the trial court’s order.
Reviewing the Settlement Agreement
Having concluded the trial court’s order is procedurally sufficient, we turn next to
the substantive arguments made regarding the court’s analysis of the settlement
agreement and its related findings. Here, appellant raises both factual and legal
arguments. Factually, appellant contends that the trial court wrongly concluded that
(1) the underlying agreement was an all cash deal and (2) appellant had enough time to
complete due diligence once documents were provided. Legally, appellant argues the
trial court incorrectly analyzed the terms of the settlement agreement to strictly enforce
the time is of the essence clause. Appellant believes the agreement actually provided a
“reasonable time to close” and did not permit respondents to unilaterally cancel escrow
based on various conditions precedent contained in the agreement. Appellant also raises
a breach of good faith and fair dealing and an equitable estoppel argument to prevent
enforcement of the time is of the essence clause.
The trial court’s factual findings are proper
In support of appellant’s legal arguments, appellant contends that two factual
findings made by the trial court, and allegedly relied upon in its order, were not supported
by substantial evidence. These findings were that the underlying agreement was an all
cash deal and that appellant had enough time to complete due diligence once documents
were provided. Appellant’s underlying arguments partially turn on a claim that the
contract contemplated and granted appellant a right to seek and obtain financing for the
purchase. Thus, appellant argues, the incorrect factual findings that the deal was an all
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cash transaction and that appellant had sufficient time to review the financial documents
produced caused the trial court to wrongly conclude respondents were not at fault for any
breach caused by appellant failing to obtain financing for the purchase. We do not agree.
We review for substantial evidence the court’s factual findings on a motion to
enforce a settlement. (Williams v. Saunders (1997) 55 Cal.App.4th 1158, 1162.)
Appellant argues his contractual right to secure financing is demonstrated through
the fact that the purchase agreement does not have the box checked next to the all cash
offer option in paragraph 3.C. However, the evidence does not compel a finding that
failing to check this box indicated a loan would be utilized to purchase the property. As
noted above, the form contract also contained paragraph 3.D. for disclosing any loans
upon which the purchase would be contingent. And this option was not checked either.
Rather, reading the contract as a whole reveals a set purchase price, a deposit, and a total
that would need to be deposited to close escrow. The trial court was well within its
discretion to determine that this structure was all cash with no loan contingencies. That it
utilized the term all cash offer to describe this arrangement does not indicate an error on
the court’s part. Rather, such a framing is consistent with its conclusion that there were
no contingencies included for a loan.
Based in part on this factual conclusion, we also find substantial evidence supports
the trial court’s statement that appellant had sufficient time to review the financial
documents provided by respondents. As the court found, there was no loan contingency
in the agreement. In addition, the record shows that the parties agreed to a specific period
of time in which to review financial documents, 17 days. As the court noted, substantial
financial documents were provided to appellant more than 17 days before the close of
escrow. Further, the record does not indicate that appellant sought to enforce his right to
obtain other required documents, such as the tenant estoppel certificates, through a notice
to perform. Finally, the trial court also found that appellant’s bank was satisfied with the
documents provided before the close of escrow. Based on these facts, the evidence
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supports the trial court’s factual conclusion that appellant received sufficient
documentation with sufficient time for review to close escrow. That his bank may have
desired additional time does not change this conclusion, as the court properly concluded
that appellant had no contractual right to insist upon time to secure a loan.
We thus reject appellant’s assertions that the trial court’s factual findings were
improper. Having reached this conclusion, we need not reach appellant’s arguments that
require reversing the trial court’s factual determinations, such as appellant’s claims that
the trial court wrongly concluded respondents had not caused the failure to fund based on
their lack of production of documents, respondents breached the covenant of good faith
and fair dealing by delaying documents critical for obtaining financing, or the contract
called for a reasonable escrow closing date.
The trial court’s core legal conclusion is flawed
We therefore turn to the court’s ultimate legal conclusion. Here, appellant takes
issue with the trial court’s finding that the time is of the essence clause controls over
other provisions of the sales agreement as incorporated into the settlement agreement.
More specifically, appellant argues that the requirement for 3-day notice before
termination of the agreement is a condition precedent that is not affected by the time is of
the essence clause. Respondents argue this notice provision is not a condition precedent
and, regardless, the settlement agreement should be construed to disregard the provisions
based on the time is of the essence clause. We agree with appellant.
Relevant Law
In entering judgment and enforcing it, the “trial court is empowered under
section 664.6 to resolve reasonable disputes over the terms of the settlement.” (Machado,
supra, 39 Cal.App.5th at p. 795.) “ ‘A settlement agreement is a contract, and the legal
principles which apply to contracts generally apply to settlement contracts.’ ” (Sully-
Miller Contracting Co. v. Gledson/Cashman Construction, Inc. (2002) 103 Cal.App.4th
30, 36.) In addition, a “settlement agreement which incorporates other documents can be
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enforced pursuant to section 664.6, but only if there was a meeting of the minds
regarding the terms of the incorporated documents.” (Weddington, supra, 60 Cal.App.4th
at p. 814.)
“Courts seek to interpret contracts in a manner that will render them ‘ “lawful,
operative, definite, reasonable, and capable of being carried into effect” ’ without
violating the intent of the parties.” (Kaufman v. Goldman (2011) 195 Cal.App.4th 734,
745.) “The fundamental goal of contract interpretation is to give effect to the mutual
intention of the parties as it existed at the time they entered into the contract. [Citations.]
That intent is interpreted according to objective, rather than subjective, criteria.” (Klein
v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1385.)
“ ‘Extrinsic evidence is admissible to prove a meaning to which the contract is
reasonably susceptible. [Citations.] If the trial court decides, after receiving the extrinsic
evidence, the language of the contract is reasonably susceptible to the interpretation
urged, the evidence is admitted to aid in interpreting the contract.’ ” (Iqbal v. Ziadeh
(2017) 10 Cal.App.5th 1, 8.) However, when “the contract is clear and explicit, the
parties’ intent is determined solely by reference to the language of the agreement. (Civ.
Code, §[ ] 1638 [‘language of a contract is to govern its interpretation, if the language is
clear and explicit, and does not involve an absurdity’], [citation].)” (Klein v. Chevron
U.S.A., Inc., supra, 202 Cal.App.4th at p. 1385, first & third bracketed insertions added.)
The time is of the essence clause is not dispositive
The fundamental question raised in this case is whether the time is of the essence
clause excuses respondents from failing to utilize the notice provision contained in
paragraph 19.F. prior to terminating the purchase agreement. Relying on Pittman,
respondents argue this is the case because the close of escrow creates concurrent
conditions that, if not met, “result[] in a discharge of both parties’ duty to perform” when
backed by a time is of the essence clause. (Pittman, supra, 2 Cal.App.4th at p. 560.)
Citing to Galdjie v. Darwish (2003) 113 Cal.App.4th 1331 (Galdjie), respondents further
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note that time is of the essence clauses are generally strictly enforced in California and
thus argue that appellant’s failure to perform his side of the agreement in a timely manner
justified respondents’ decision to terminate escrow.
Although we acknowledge the general strictness applied to a time is of the essence
clause, we find the specific terms of the agreement in this case distinguish it from those
where unilateral action on the part of the aggrieved party was permitted. Accordingly,
although the trial court correctly concluded that appellant’s failure to proffer funding
prior to the close of escrow created a breach, the court incorrectly concluded that
respondents could terminate the agreement with no further action.
We begin with respondents’ claim that Pittman dictates a dual discharge of the
parties’ duty to perform in this case. In Pittman the plaintiff, a real estate broker, entered
into a contract with an elderly woman to purchase a 56-acre property for $250,000.
(Pittman, supra, 2 Cal.App.4th at p. 558.) The plaintiff drafted a contract in November
1987 and deposited $1,000 in escrow, with requirements that an additional $24,000 be
deposited, the remainder be paid by a deed of trust, and escrow to close in 30 days.
(Ibid.) The contract included a time is of the essence clause. (Ibid.)
Prior to escrow closing, the seller provided a signed deed, but failed to get it
notarized. (Pittman, supra, 2 Cal.App.4th at p. 558.) When the closing date passed, the
seller had not provided a notarized deed and the plaintiff had not tendered the $24,000, a
promissory note or a deed of trust. (Ibid.) In May 1988, the seller informed the plaintiff
she would sell to another party. This resulted in the plaintiff suing to obtain the property.
(Id. at pp. 558–559.) The trial court ultimately rejected the assertions in the plaintiff’s
lawsuit, concluding the plaintiff was responsible for the delay, the seller had not waived
time, and thus that the plaintiff had defaulted when he failed to tender payment. (Id. at
p. 559.)
The court of appeal affirmed. Rejecting the plaintiff’s argument that he could not
be in default because payment and transfer of the property were concurrent conditions,
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meaning his payment requirement was not a condition precedent to completing the sale,
the court explained that “[c]oncurrent conditions are conditions precedent which are
mutually dependent, and the only important difference between a concurrent condition
and a condition precedent is that the condition precedent must be performed before
another duty arises, whereas a tender of performance is sufficient in the case of a
concurrent condition.” (Pittman, supra, 2 Cal.App.4th at p. 559.) The court explained
that “the failure of both parties to perform concurrent conditions does not leave the
contract open for an indefinite period so that either party can tender performance at his
leisure.” (Ibid.) Rather, “failure of both parties to perform concurrent conditions during
the time for performance results in a discharge of both parties’ duty to perform. Thus,
where the parties have made time the essence of the contract, at the expiration of time
without tender by either party, both parties are discharged.” (Id. at pp. 559–560.)
The court also rejected the plaintiff’s argument based on additional language in the
escrow instructions stating that although time is of the essence, “ ‘[i]f no demand for
cancellation is made, you will proceed to close this escrow when the principals have
complied with the escrow instructions.’ ” (Pittman, supra, 2 Cal.App.4th at p. 560,
brackets in original.) The court found this provision could not override the time is of the
essence clause in the contract because it “merely instructs the escrow holder not to cancel
escrow on its own initiative, but to close escrow should the parties voluntarily and
nothwithstanding discharge mutually decide to perform.” (Ibid.)
The present case mirrors Pittman in many ways. The parties agreed time was of
the essence, both in their original agreement and by incorporating their purchase
agreement into their settlement of disputes arising under that agreement. Further, the
purchase agreement contained concurrent obligations to fund the purchase and provide
the necessary documents to transfer ownership at the close of escrow. However, the
contract in this case also included an additional clause that was not present in Pittman,
paragraph 19.F. As noted, this paragraph dealt specifically with how the parties must act
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to cancel the transaction if one or the other failed to properly close escrow. It provided:
“Before Buyer or Seller may cancel this Agreement for failure of the other Party to close
escrow pursuant to this Agreement, Buyer or Seller must first Deliver to the other Party a
demand to close escrow” which would “give the other Party at least 3 (or ___ ) Days
after Delivery to close escrow.” Such a notice could not be provided more than 3 days
prior to the stated close of escrow, meaning it could be used to enforce the agreed-upon
date to close escrow or, if not utilized, would extend the close of escrow while disputes or
unforeseen problems were resolved.
In other words, if one wanted to terminate the agreement on the day escrow was
scheduled to close, the contract required them to notify the other party of their intent and
to provide an opportunity to close escrow in a timely manner. Indeed, if either party
wanted to terminate the agreement for failure to close escrow, even if the time to close
had passed, they were required to provide a three-day notice and opportunity to cure the
failure. In essence, the contract itself waived the time is of the essence clause with
respect to the close of escrow unless one party affirmatively chose to enforce the
deadline. Such a provision is not surprising, as it permits parties to effectively deal with
any unexpected delays and provides ample opportunities to close the agreed upon deal
while ensuring that one may terminate the agreement at any time at or after the close of
escrow if they are unwilling to continue.
In Pittman, there is no indication the parties reached an explicit agreement on how
to proceed once a breach occurred. Thus, the court determined that once a breach of
concurrent conditions occurred, both parties were discharged and the contract could be
cancelled by either or completed by mutual agreement. Here, however, the form contract
used by the parties contemplated just the type of dispute that led to cases like Pittman.
By utilizing the form contract, the parties entered into a specific agreement on how to
proceed upon a failure that caused escrow not to close. The contract provided one last
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chance to ensure performance through a demand to perform and a three-day window to
cure prior to permitting termination.
The time is of the essence clause in this case certainly created the possibility of a
breach and potential discharge of both parties’ obligations upon the agreed upon close of
escrow. However, we do not agree that it also discharged any obligation to follow the
specific provision of the contract dictating how to terminate the agreement in the event of
failure to close. In this sense, respondents’ citations to Galdjie, supra, 113 Cal.App.4th
1331 and Major-Blakeney Corp. v. Jenkins (1953) 121 Cal.App.2d 325 are not
compelling. While both cases affirm that time is of the essence clauses are strictly
construed, neither deal with a situation where additional provisions in the contract control
how to proceed once escrow fails to close. In fact, in Galdjie, despite finding the time is
of the essence clause should be strictly construed, the appellate court ultimately upheld a
finding the contract had been improperly terminated in part because the seller “waived
the time provisions by continuing to deal with [the] respondent after the dates specified in
the contract” and “did not reestablish time conditions by giving notice that the deal must
close by a certain date,” instead choosing to simply cancel escrow without notifying the
other party. (Galdjie, supra, 113 Cal.App.4th at p. 1340.) The appellate court noted
Pittman was not controlling in part because, in contrast to their case, the plaintiff in
Pittman “had no excuse for failing to at least tender performance, and no reason to
believe that the time condition had been waived.” (Id. at p. 1342.)
In this case, appellant was entitled to notice that the agreement would be
terminated and was not provided that notice. While it is correct that only the seller could
extend escrow under the oral terms of the settlement agreement, there is nothing in the
record indicating that this right to extend could not be granted through failure to cancel or
that the unilateral right to extend escrow was intended to override the express
cancellation terms contained in the written document incorporated into the settlement
agreement. Accordingly, we consider this case, like Galdjie, to be less akin to Pittman
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and more like those cases that distinguish Pitman’s strict reading of a time is of the
essence clause. (See Galdjie, supra, 113 Cal.App.4th at p. 1342.) Regardless of any
mistaken belief he was entitled to additional documents or loan support, appellant was
entitled to notice of cancellation and an opportunity to close the deal with a cash payment
under the contract.
Appellant could reasonably rely on the contract’s requirement to notify him of
cancellation based on the failure to close escrow. The time is of the essence clause has
no bearing on the express obligation to affirmatively notify the opposing party of
termination if escrow does not close and thus cannot be strictly construed to discharge
both parties’ responsibility to perform without further action. The trial court thus
incorrectly determined that respondents were permitted to terminate the purchase
agreement at the point escrow was scheduled to close. Having reached this conclusion,
we need not consider whether equitable estoppel precludes relying on the time is of the
essence clause in this instance.
Conclusion
Although time is of the essence clauses may support a discharge of one or both
parties’ obligations to perform a contract by affirming that the failure to act constitutes a
breach, this result is not absolute. The specific terms of the contract will control when
the parties agree upon a course of action that should occur upon default or breach. In this
case, the parties agreed upon a form contract that included specific provisions designed to
facilitate closing the planned transaction in the event of a failure that disrupted the close
of escrow. In doing so, they parties deprioritized their ability to cancel the agreement
quickly and unilaterally in favor of a process that provided notice and an opportunity to
cure before termination. The trial court’s order focused exclusively upon the effect of a
time is of the essence clause generally but failed to account for additional terms of the
contract that controlled even when the time is of the essence clause triggered a potential
breach. In this way, the trial court erred in interpreting the contract. Its analysis read the
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notice and cure provisions when escrow fails to timely close out of the agreement and
prioritized the time is of the essence clause even though the notice provision could be
utilized prior to the close of escrow to effectuate that clause’s general effect.
While this agreement has been overrun with disputes between and failures on both
sides, the agreement the parties entered into could not be terminated unilaterally if escrow
failed to close on the date set. We conclude the trial court correctly resolved all but this
one aspect of the pending disputes. Accordingly, we reverse the trial court’s order and
remand for the trial court to enter a new order that requires respondents to provide a
demand to close escrow and a three-day opportunity to do so before terminating escrow.
DISPOSITION
The appealed order, treated as a final appealable judgment, is reversed and the
matter remanded for the trial court to enter a new order that requires respondents to
provide a demand to close escrow and a three-day opportunity to do so before terminating
the purchase agreement incorporated into the parties’ settlement. Appellant is entitled to
his costs on appeal.
HILL, P. J.
WE CONCUR:
LEVY, J.
DETJEN, J.
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