Perera v. Moine CA2/7 ( 2023 )

Filed 9/18/23 Perera v. Moine CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
LIONEL PERERA et al., as B317395
Trustees, etc.,
(Los Angeles County
Plaintiffs, Cross-defendants Super. Ct. No.
and Appellants, 19STCV12537)
v.
CHARLES A. MOINE,
Defendant, Cross-complainant
and Appellant.
APPEALS from a judgment of the Superior Court of
Los Angeles County, Terry Green, Judge. Reversed and
remanded with directions.
Law Offices of Jeffrey B. Ellis and Jeffrey B. Ellis for
Plaintiffs, Cross-defendants and Appellants.
Robert D. Feighner; Hitchcock Bowman & Schachter and
Robert B. Schachter for Defendant, Cross-complainant and
Appellant.
Charles A. Moine sold contaminated commercial property
to Lionel and Nirmala Perera as Trustees of the Perera Family
Trust. Following a bench trial the court found Moine had
breached his obligation under the parties’ purchase agreement to
provide regulatory approval in the form of a “No Further Action
Letter” (NFA) regarding the contamination, but reduced the
damages awarded to the Pereras (from approximately
$1.12 million to approximately $750,000) based on its finding the
Pereras had breached the implied covenant of good faith and fair
dealing by failing to authorize payments from an account created
by a separate holdback agreement and refusing to execute a deed
restriction to expedite regulatory approvals. The court also found
in favor of Moine on his cross-complaint for a common count,
further reducing the total award of damages through an offset.
On appeal Moine contends he did not breach the purchase
agreement and, even if he did, the Pereras were not entitled to a
judgment because of their own material failure of performance,
breach of the implied covenant and failure to mitigate damages.
In a cross-appeal the Pereras contend the trial court erred in
finding they had breached the implied covenant of good faith and
fair dealing and ruling in favor of Moine on his cross-complaint.
We reverse the judgment, agreeing with the Pereras’ positions in
Moine’s appeal and their cross-appeal, and remand for entry of a
new judgment in favor of the Pereras on both their breach of
contract action and Moine’s cross-complaint that includes a new
damage award consistent with our opinion.
2
FACTUAL AND PROCEDURAL BACKGROUND
1. The Parties’ Agreements
a. The purchase agreement
On November 17, 2006 Moine, Kathleen M. Kokawa-Moine
and Daniel M. Moine as “Seller” and the Pereras as “Buyer”
entered into an agreement to sell 3.27 acres of land in Compton,
California for $6.65 million. It was undisputed that industrial
operations under ownership prior to the Moines had resulted in
contamination of the property. Paragraph 12.2 of the purchase
agreement provided, “Buyer hereby acknowledges that, except as
otherwise stated in this Agreement, Buyer is purchasing the
Property in its existing condition and will, by the time called for
herein, make or have waived all inspections of the Property
Buyer believes are necessary to protect its own interest in, and
its contemplated use of, the Property. The Parties acknowledge
that, except as otherwise stated in this Agreement, no
representations, inducements, promises, agreements, assurances,
oral or written, concerning the Property, or any aspect of the
occupational safety and health laws, Hazardous Substance laws,
or any other act, ordinance or law, have been made by either
Party or Brokers, or relied upon by either Party hereto.”
Paragraph 12.4 of the purchase agreement provided in
part, “Any environmental reports, soils reports, surveys, and
other similar documents which were prepared by third party
consultants and provided to Buyer by Seller or Seller’s
representatives, have been delivered as an accommodation to
Buyer and without any representation or warranty as to the
3
sufficiency, accuracy, completeness, and/or validity of said
documents, all of which Buyer relies on at its own risk.”
Paragraph 26(d) of the purchase agreement—central to the
instant litigation—provided, “Seller shall continue to monitor the
groundwater until Seller provides a No Further Action Letter
from the County of Los Angeles.”1
b. The holdback agreement
On March 20, 2007, a month prior to the close of escrow,
the Pereras as “Buyer,” the Moines as “Seller,” CDC Small
Business Finance as “Lender” and Exchange Resources, Inc. as
“Holder” executed a holdback agreement. The agreement
provided as part of the recitals, “After the close of escrow, ground
water sampling and any related environmental work necessary for
the issuance of a ‘No Further Action Letter’ will be required by the
Lender as part of the SBA[2] environmental clearance
requirements. The estimated cost of these samplings, and any
remediation work required, is Fifty-four thousand dollars
($54,000). The SBA requires that 110% of the estimated cost be
deposited and held for the testing. The parties agree that Seller
will deposit into this Holdback Account funds totaling Sixty
thousand dollars and 00/100 ($60,000) to be held for payment of
the semi-annual testing.” (Original italics.)
1 The purchase agreement also contained an integration
clause (paragraph 17) providing, “This Agreement supersedes
any and all prior agreements between Seller and Buyer regarding
the Property,” and specifying, “Amendments to this Agreement
are effective only if made in writing and executed by Buyer and
Seller.”
2 The SBA refers to the Small Business Administration.
4
The agreement then provided, “The Parties agree that
Holder will disburse the funds held as follows: [¶] Seller, Buyer
and/or Lender will deliver to Holder a copy of the Invoice for
ground water sampling. Upon receipt of the Invoice, Holder will
issue an instruction authorizing payment of the Invoice. Lender
will advise Holder when all Invoices have been delivered. Holder
will issue a final instruction authorizing the release of the
balance of funds to Seller. [¶] Funds will be placed in an Interest
Bearing Account with Union Bank of California. Interest to
accrue for the benefit of Seller, so long as a W-9 is deposited with
Holder at the time the account is opened.” In bold typeface and
all capital letters, the agreement provided, “Parties acknowledge
that Holder will not release any funds without mutually
approved instructions.”3
2. Moine’s January 25, 2019 Letter
On January 25, 2019 Moine’s attorney sent a letter to the
Pereras’ counsel stating Moine would not be submitting any
additional documents regarding the property to any
governmental agency. It was undisputed that no NFA was
issued. The Pereras initiated this lawsuit three months later.
3. The Operative Pleadings
In their operative first amended complaint the Pereras
alleged the prior owners of the Compton property conducted soil
sampling in the mid-to-late 1990’s that detected concentrations of
trichloroethylene (TCE). The investigation of contamination at
the property came under regulatory oversight by the Los Angeles
3 The holdback agreement provided Exchange Resources
would be paid as “Holder” an annual fee of $500 “to be paid by
Seller.”
5
Regional Water Quality Control Board. Moine purchased the
property in 2003, and the Board designated him the sole party
responsible for the contamination.
The Pereras further alleged they agreed with Moine to
purchase the property for $6.65 million (attaching the
November 17, 2006 purchase agreement as an exhibit) and
Moine, in turn, agreed to provide an NFA from the regulator
regarding the contamination. From 2006 to 2021, however,
Moine failed to obtain an NFA. On January 25, 2019 Moine’s
attorney notified the Pereras’ attorney that Moine would not be
submitting any additional documents to any governmental
agency. The Pereras alleged they had incurred damages as a
result of Moine’s breach.
In his cross-complaint for a common count against the
Pereras, Moine alleged, although he had approved the release of
holdback agreement funds to pay expenses, the Pereras failed to
authorize, or delayed in authorizing, release. The Pereras’
breach of the holdback agreement, Moine averred, damaged him.
4. The Trial, Statement of Decision and Judgment
At the bench trial, which commenced on August 2, 2021,
multiple witnesses testified over the course of several days. The
purchase agreement, the holdback agreement and the
January 25, 2019 letter were admitted into evidence; and the
parties stipulated, “Under Paragraph 26(d) of the Purchase
Agreement, Moine agreed to ‘provide[ ] a No Further Action
Letter from the County of Los Angeles’ for the Property.”
6
The trial court issued a statement of decision4 on
August 16, 2021. The court found that Moine, in selling the
property, promised to obtain a letter from the Board absolving
the Pereras of responsibility for cleaning up the TCE. Although
there were full disclosures of the contamination of the property
and the property was sold “as is,” paragraph 26(d) of the
purchase agreement required Moine to “continue to monitor . . .
the groundwater until [S]eller provides [an NFA] from the
[C]ounty of Los Angeles.” Quoting excerpts of the holdback
agreement, the court stated it “extended [Moine’s] obligations
beyond the completion of payment.”
The court further found that in January and March 2007
the parties had expected an NFA from the Board would be
forthcoming. As the court explained, there were two components
to obtaining an NFA: “soil closure” and “groundwater closure.”
The property had been under the Board’s review for years with
only regular groundwater monitoring required. “Several times
during the period 2008 to 2015 the Board seemed ready to issue
[an NFA] with respect to soil,” with the “only conditions
precedent to issuance [being] a deed restriction—that the
property would not later become residential—and payment of
outstanding fees.” Although the property was zoned for
commercial use and there was no evidence the Pereras ever
intended any other use, the Pereras refused to sign the deed
restriction and also refused to timely authorize payments to the
Board from the holdback account. As a result, a soil closure
letter was never issued.
4 We omit unnecessary capitalization of letters in any
document quoted in this opinion.
7
The groundwater had been monitored for several years.
From 2001 to 2020 monitoring showed a steady decline in
contaminants. It was Moine’s position this was due to natural
processes that should be allowed to continue. The Board,
however, starting around 2014, became convinced more proactive
remediation was required. On January 25, 2019 Moine
abandoned efforts to obtain the NFA, and it then became the
Pereras’ burden, as a “co-responsible party,” to satisfy the Board.
The Pereras claimed to have paid $209,448 for environmental
consultants and board oversight fees. The NFA contemplated by
the purchase agreement was never issued.
The court’s rulings included: (1) Paragraph 26 of the
purchase agreement imposed an obligation on Moine to furnish
the Pereras an NFA for the property, and Moine’s obligation was
unconditional; (2) no NFA had been issued by the Board, which
decides when issuance of the NFA is warranted; (3) the
January 25, 2019 letter reflected an anticipatory breach by Moine
of the purchase agreement; (4) the Pereras unreasonably refused
to sign the deed restriction; (5) the holdback agreement
contemplated that funds be spent on groundwater sampling and
any related environmental work necessary for the issuance of an
NFA; (6) the Pereras unreasonably refused to authorize
payments of funds from the holdback agreement; (7) the Pereras’
refusal to sign the deed restriction and/or refusal to authorize
funds to reimburse the Board prevented the issuance of the soil
closure letter; (8) issuance of the soil closure letter would not
have necessarily led to the issuance of a groundwater closure
letter and the NFA for the property; (9) the Pereras’ refusal to
sign the deed restriction and/or authorize the transfer of funds
constituted a breach of the implied covenant of good faith and fair
8
dealing, but only excused Moine’s performance of the obligation
to obtain a soil closure letter and did not excuse Moine from
performing his obligation to obtain the other component of an
NFA for the property, a groundwater closure letter; and
(10) obtaining a soil closure would constitute 33 percent of the
potential costs of cleanup.
Turning to the allegation the Pereras had breached the
implied covenant of good faith, the court concluded the Pereras’
breach by failing to authorize payment of fees and/or by their
refusal to sign the deed restriction was material and Moine’s
obligation to obtain soil closure was dependent on the Pereras’
cooperation. Accordingly, the Pereras’ breach excused Moine
from his obligation to obtain soil closure. Because Moine’s
obligations with regard to groundwater remediation were
independent of that breach, however, Moine remained liable for
his failure to provide groundwater remediation. The Pereras’
damages, the court ruled, were limited to amounts necessary for
that portion of any future remediation efforts.
Determining the damage award—the amount it would cost
to satisfy the Board and obtain the NFA—the court rejected the
Pereras’ proposed figure of $4.1 million based on their expert
Frank Edward Reynolds, Jr.’s opinion and adopted Moine’s
estimate of $911,000 based on his environmental consultant
Mark Leymaster’s calculations. In addition to that sum, the
court included as damages $209,448 for payments by the Pereras
to environmental consultants and the Board. However, because
the court found the Pereras could not recover one-third of their
damages due to their breach of the implied covenant related to
soil closure, the court found the Pereras were entitled to total
damages of $750,700.16. Under the subheading “The Cross-
9
complaint,” the court, without any explanation specific to that
subheading, found for Moine and assessed damages at $61,000.
The court entered its judgment on October 26, 2021
awarding the Pereras as plaintiffs damages of $750,700.16 plus
prejudgment interest, attorney fees and costs, and awarding
Moine as cross-complainant $61,000 as an “[o]ffset of Plaintiffs’
damages.” Moine filed a timely notice of appeal of the judgment,
and the Pereras filed a timely notice of cross-appeal.
DISCUSSION
1. The Trial Court Did Not Err in Concluding Moine
Committed Anticipatory Breach of Contract
a. Governing law and standard of review
“‘Under statutory rules of contract interpretation, the
mutual intention of the parties at the time the contract is formed
governs interpretation. [Citation.]’ [Citation.] In determining
this intent, ‘[t]he rules governing policy interpretation require us
to look first to the language of the contract in order to ascertain
its plain meaning or the meaning a layperson would ordinarily
attach to it.’” (Hartford Casualty Ins. Co. v. Swift Distribution,
Inc. (2014) 59 Cal.4th 277, 288; accord, Wind Dancer Production
Group v. Walt Disney Pictures (2017) 10 Cal.App.5th 56, 69 [“[w]e
ascertain ‘“the intent and scope of [an] agreement by focusing on
the usual and ordinary meaning of the language used and the
circumstances under which the agreement was made”’”].)
When no ambiguity is asserted or there is no conflicting
extrinsic evidence concerning the meaning of a purported
ambiguity in a contract, interpretation of the contract is a legal
determination subject to de novo review. (City of Hope National
Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 393-395;
see Hanna v. Mercedes-Benz USA, LLC (2019) 36 Cal.App.5th
10493, 507 [“in the absence of any conflict in extrinsic evidence
presented to clarify an ambiguity,” written agreements are
interpreted de novo].) “‘It is solely a judicial function to interpret
a written contract unless the interpretation turns upon the
credibility of extrinsic evidence, even when conflicting inferences
may be drawn from uncontroverted evidence.’” (Hess v. Ford
Motor Co. (2002) 27 Cal.4th 516, 527; accord, Gilkyson v. Disney
Enterprises, Inc. (2021) 66 Cal.App.5th 900, 915.) But where “the
facts to which a contract provision must be applied are disputed
or require the weighing of evidence, the application of that
provision presents a question of fact,” and our review is for
substantial evidence. (Scheenstra v. California Dairies, Inc.
(2013) 213 Cal.App.4th 370, 391, fn. 15.)
b. The Trial Court Did Not Err in Concluding the
January 25, 2019 Letter Reflected Moine’s
Anticipatory Breach of the Purchase Agreement
Moine contends the trial court erred in finding he
anticipatorily breached the purchase agreement on January 25,
2019 for three reasons. First, the Pereras purchased the property
“as is” and Moine continually monitored the groundwater as
required. Second, the holdback agreement provided a $60,000
ceiling for the cost of monitoring. Third, evidence of the parties’
conduct demonstrated they did not contemplate remediation
would be required. None of Moine’s arguments has merit.
With respect to Moine’s primary contention, the purchase
agreement did provide the Pereras were acquiring the property
“in its existing condition.” However, paragraph 12.2’s as-is
provision is expressly limited by the additional language “except
as otherwise stated” in the parties’ agreement. As discussed,
paragraph 26(d) required Moine to continue monitoring the
11
groundwater until he provided an NFA, a dual obligation
recognized by the parties in their trial stipulation, which
acknowledged Moine had agreed to provide an NFA from the
County. Moine’s attempt to negate that second aspect of his
contractual promise by referring to extrinsic evidence purportedly
demonstrating the agreement required only monitoring, not an
NFA, is groundless in light of the plain, unambiguous language of
paragraph 26(d), fortified by the parties’ stipulation. (See People
v. Farwell (2018) 5 Cal.5th 295, 300 [“Farwell’s stipulation
conclusively established the stipulated facts as true”].)
As the trial court found, the January 25, 2019 letter, in
which Moine’s attorney stated Moine would not be submitting
any additional documents to any governmental agency,
constituted an anticipatory breach of Moine’s obligation to
provide an NFA. The inescapable import of the January 25, 2019
letter was that Moine had abandoned any effort to obtain an NFA
from the Board and did not intend to pursue obtaining an NFA
after that date.
With regard to the contention that responsibility for the
cost of monitoring was limited to $60,000 and that this limitation
precluded the court from finding a breach of contract when Moine
ceased efforts to obtain an NFA, Moine does not contend the
purchase agreement contains any such limitation. Rather, Moine
argues the holdback agreement should be considered an
amendment to, or extension of, the purchase agreement and the
holdback agreement shows the parties anticipated the cost of all
monitoring or other environmental clearance requirements would
not exceed $60,000.
The holdback agreement did state the estimated cost of
groundwater sampling and any required remediation work was
12
$54,000 and explained the SBA required 110 percent of the
estimated cost to be deposited for the testing. However, the
holdback agreement did not purport to condition Moine’s
obligation under the purchase agreement to monitor and provide
an NFA on the cost of doing so not exceeding $60,000, an amount
the holdback agreement indicated was calculated to satisfy the
SBA requirement.5
Moine’s contention the parties’ conduct shows they did not,
at the time they entered into the purchase agreement,
contemplate remediation would be required does not support, let
alone compel, a contrary result. Moine relies on testimony
indicating the parties were not aware until 2014 or 2015 that the
Board would actually require remediation. However, nothing in
the record suggests the parties communicated before the
property’s sale their subjective beliefs as to whether Moine’s
obligations would include any remediation necessary to obtain an
5 Moine’s testimony that he believed his exposure was
limited to $60,000 was contradicted by the testimony he gave at
trial: Asked whether, at the time the $60,000 figure was
developed, Moine had any expectation that semi-annual testing
would exceed $60,000, he responded, “Well, we were prepared to
go over. . . . [T]hese are based on estimation [sic] projections, so I
thought it was realistic, a little more or a little less, but I thought
it was a reasonable estimate.” Significantly, Moine points to no
evidence he expressed to the Pereras before sale of the property
any belief his obligations to provide monitoring and an NFA were
conditioned on a $60,000 cost limitation. Even if Moine had such
a subjective belief, it is not relevant to our interpretation of the
parties’ agreements. (See Zissler v. Saville (2018) 29 Cal.App.5th
630, 644 [the parties’ undisclosed intent or understanding is
irrelevant to contract interpretation]; Iqbal v. Ziadeh (2017)
10 Cal.App.5th 1, 8 [same].)
13
NFA.6 (See Reigelsperger v. Siller (2007) 40 Cal.4th 574, 579
[“‘mutual consent is gathered from the reasonable meaning of the
words and acts of the parties, and not from their unexpressed
intentions or understanding’”]; Zissler v. Saville (2018) 29
Cal.App.5th 630, 644 [same]; Iqbal v. Ziadeh (2017)
10 Cal.App.5th 1, 8 [“‘California recognizes the objective theory of
contracts [citation], under which “[i]t is the objective intent as
evidenced by the words of the contract, rather than the subjective
intent of one of the parties, that controls interpretation”’”; “‘[t]he
parties’ undisclosed intent or understanding is irrelevant to
contract interpretation’”].)
As discussed, the parties stipulated that under
paragraph 26(d) Moine agreed to provide an NFA; and it was
undisputed no NFA had been issued. The most reasonable
interpretation of that agreement is that Moine also agreed to do
what would be necessary to provide the NFA, including any
remediation work the Board required. The trial court did not err
in concluding Moine anticipatorily breached the purchase
agreement when he abandoned his efforts to provide an NFA.
6 Moine on appeal relies in part on his testimony answering
“No” to the questions, “At any time before close of escrow, did you
indicate to Mr. Perera that you would do remediation work on the
site,” and, “Did you indicate to him that you would do any
cleanup on the site?” That testimony, however, does not establish
that Moine had communicated to the Pereras that he would not
do remediation work or cleanup on the site. Indeed, Perera
testified he did not have any discussions with Moine about the
condition of the property before the close of escrow, nor had any
environmental issues been discussed with Moine.
14
2. The Trial Court Erred in Concluding the Pereras
Breached an Implied Covenant To Sign the Deed
Restriction7
a. Additional background
In a September 5, 2008 letter to Moine (trial exhibit 21),
the Board indicated a soil closure restricted to
commercial/industrial land use “could be considered.” The letter
stated, “Upon completion, submittal and concurrence of [a
‘Certification Declaration for Compliance with Fee Title Holder
Notification Requirements’ and a ‘Covenant and Environmental
Restriction on Property’] from this Regional Board, a soil closure
will be granted.” The letter continued, “If an unrestricted soil
closure is preferred a human health risk assessment must be
completed and submitted to this Regional Board. If the results
from this health risk assessment indicate that soil contamination
remaining at the site does not pose a significant risk for human
health under the unrestricted land use scenario, a[n] unrestricted
soil closure will be considered.”
Trial exhibit 39, acknowledged by Moine’s counsel to be the
deed restriction at issue, was a form titled “Covenant and
Environmental Restriction on Property.” The form provided it
“sets forth protective provisions, covenants, conditions and
restrictions (collectively referred to as ‘Restrictions’) upon and
7 “It has long been recognized in California that ‘[t]here is an
implied covenant of good faith and fair dealing in every contract
that neither party will do anything which will injure the right of
the other to receive the benefits of the agreement.’” (Kransco v.
American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390,
400.) “A breach of the implied covenant of good faith is a breach
of the contract.” (Thrifty Payless, Inc. v. The Americana at
Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.)
15
subject to which the Burdened Property and every portion thereof
shall be improved, held, used, occupied, leased, sold,
hypothecated, encumbered and/or conveyed” (section 1.1); the
Restrictions would run with the land (section 1.1); the owners
executing the form “covenant[ ] that the Restrictions shall be
incorporated in and attached to each and all deeds and leases of
all or any portion of the Burdened Property” (section 1.3);
recordation of the form “shall be deemed binding on all
successors, assigns, and lessees, regardless of whether a copy of
[the form] has been attached to or incorporated into any given
deed or lease” (section 1.3); the purpose of the form was to
“convey to the Board real property rights, which will run with the
land” (section 1.4); and the form was to be recorded within
10 days of execution (section 5.4). Among other limitations it
required development and use of the burdened property to be
restricted to industrial, commercial or office space—with no
residence for human habitation, hospitals, schools for minors or
day care centers for senior citizens or for children being
permitted on the burdened property (section 3.1).
On April 6, 2010 Leymaster, whose services for Moine
included performing the property’s groundwater monitoring,
wrote Moine (trial exhibit 30) stating his understanding that the
Board had indicated a soil closure letter could be issued for
commercial/industrial use, with a closure letter likely within one
to two months if the current property owner executed “the deed
restriction for commercial/industrial use only.” In his letter
Leymaster also stated a soil closure for unrestricted use would
take longer, with a health risk assessment to be sent for review
and additional work that “could push the final closure letter out
to 12 months for unrestricted use.” Leymaster testified that, had
16
Lionel Perera signed a deed restriction, Leymaster had no doubt
soil closure would have been obtained, but, because Perera did
not want the restriction, efforts to obtain soil closure for
residential standards were instead made, with a human health
risk evaluation submitted shortly after April 2010. Those efforts
were successful, and the Board indicated it would grant the soil
closure on the condition its bills were paid.8
As shown in a string of emails admitted in evidence, on
September 28, 2012 a Board representative notified Leymaster
the Board’s invoices needed to be paid before issuance of the soil
closure letter. After a further exchange of emails about the
Board’s outstanding invoices, the Board representative on
November 15, 2013 told Leymaster as soon as the invoices were
paid the soil closure letter was ready to be issued. Leymaster
forwarded the email string to Moine. On November 26, 2013
Moine sent an email to real estate broker David Denitz, who had
been involved in the sale of the property, stating Perera needed
to approve payment of the Board’s invoices from the holdback
account before the Board would mail the closure letter. Perera
testified that he had seen the November 26, 2013 email and
Denitz told him he needed to approve payment of the Board’s
invoices.
In the meanwhile, on October 2, 2012 the Board notified
Perera it intended to issue a soil closure, with no mention of any
requirement for a deed restriction or payment of Board fees for
its issuance. On May 21, 2015 Moine sent an email to Denitz
8 In a July 20, 2010 letter the Board informed Moine it was
permitted under the law to recover its reasonable expenses for
certain regulatory work.
17
stating the Board had approved soil closure, pending the
payment of fees due, more than two and one-half years earlier.
Denitz testified there was a time when the Board had been
ready to issue a soil closure if Perera had signed a deed
restriction. Perera testified the property had never been used for
residential purposes and he had no intention at the time he
bought it to use it for residential purposes; but he was reluctant
to agree to the deed restriction because of concern about its
impact on his ability to sell the property in the future.
In finding a breach of the implied covenant, the trial court
stated, “While it is true that signing a deed waiver was not an
affirmative term of [the purchase agreement], there was never
any need for such a term. There was never any expectation that
the site be used for residential dwellings. The property is and
was zoned for commercial use only, and it was always intended
by the parties for commercial purposes. In failing to sign the
deed waiver, [the Pereras] neither gained nor gave up anything,
and given the state of the evidence at the time the waiver was
sought, Plaintiff’s signature would have resulted in the issuance
of the soil closure letter.”
b. An implied covenant to sign the deed restriction
conflicts with the purchase agreement’s express
provisions and purpose
The trial court reduced the damages awarded the Pereras
by one-third—from $1,120,448 to $750,700—based on its finding
that they had breached the implied covenant of good faith and
fair dealing by refusing to sign the deed restriction prohibiting
residential use of the property or refusing to authorize payments
from the holdback account (or both). Challenging the first
ground, the Pereras essentially argue the obligation the court
18
identified as encompassed by the implied covenant contradicts
the express provisions and purpose of the purchase agreement,
which provided for delivery of a general warranty deed conveying
fee title.9
As the Pereras emphasize, the purchase agreement did not
indicate the fee title conveyed would be subject to any conditions
or restrictions, including any use restrictions. To the contrary,
paragraph 12, provided “Seller hereby makes the following
warranties and representations to Buyer and Brokers. [¶] . . . [¶]
. . . Seller has no knowledge of any actions, suits or proceedings
pending or threatened before any commission, board, bureau,
agency, arbitrator, court or tribunal that would affect the
Property or the right to occupy or utilize same.” Thus,
interpreting the implied covenant to include an obligation to sign
the deed restriction reflected in trial exhibit 39 would be
inconsistent with express provisions of the purchase agreement
regarding the property rights conveyed even if the Pereras never
intended to develop the property for residential use, and even
assuming the property was currently zoned for
commercial/industrial use and a deed restriction would not have
decreased the Property’s value. (See, e.g., Kransco v. American
Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 400 [“[t]he
scope of the duty of good faith and fair dealing depends upon the
purposes of the particular contract because the covenant ‘is
aimed at making effective the agreement’s promises’”]; Carma
9 Paragraph 10.2(a) of the purchase agreement provided,
“Seller shall deliver to Escrow Holder in time for delivery to
Buyer at the Closing: [¶] (a) Grant or general warranty deed,
duly executed and in recordable form, conveying fee title to the
Property to Buyer.”
19
Developers (Cal.), Inc. v. Marathon Development California, Inc.
(1992) 2 Cal.4th 342, 374 [“as a general matter, implied terms
should never be read to vary express terms”]; Bevis v. Terrace
View Partners, LP (2019) 33 Cal.App.5th 230, 252 [“[i]t is well
settled that ‘an implied covenant of good faith and fair dealing
cannot contradict the express terms of a contract’”]; see also
Foothill Properties v. Lyon/Copley Corona Associates (1996)
46 Cal.App.4th 1542, 1551-1552 [implied covenant of good faith
and fair dealing “‘requires neither party do anything which will
deprive the other of the benefits of the agreement’”].)
Moreover, although the trial court found the conditions
precedent to issuance of an NFA for soil included the deed
restriction, as discussed the trial exhibits relied upon by the court
actually showed soil closure could be granted for unrestricted use
through submission of a health risk assessment, albeit the
process to obtain soil closure for unrestricted use would likely
take longer. There was thus insufficient evidence to support a
finding that signing of the deed restriction was necessary for soil
closure or that the failure of the Pereras to do so constituted a
breach of the implied covenant.10
10 Moine on appeal asserts the Pereras did not argue in the
trial court that he had the option to obtain soil closure without
any deed restriction. Moine’s counsel, however, advised the trial
court the requirement of a deed restriction was a “nonissue”
because Moine had submitted additional soil testing and the
Board agreed to issue closure with an unrestricted deed. In
addition, Moine’s counsel conceded the deed restriction was
unnecessary for soil closure, arguing that exhibit 21 “is the letter
in 2008 which says that [the Board] will issue a soil closure if
Mr. Perera—if the Pereras would sign a covenant or a deed
20
3. The Trial Court Erred in Concluding the Pereras
Breached the Implied Covenant By Failing To Authorize
Release of Holdback Account Funds To Reimburse the
Board
The Pereras also contend the trial court erred in concluding
their refusal to authorize the transfer of holdback account funds
to reimburse Board expenses constituted a breach of the implied
covenant of good faith and fair dealing excusing Moine’s
obligation to obtain a soil closure letter.11 The holdback
agreement, they assert, required only that they authorize the
release of funds to pay for groundwater sampling (such as
Leymaster’s invoices for that work), not the Board’s fees for its
administrative and oversight costs. Moine, in response, argues
the holdback agreement was established to pay for any
environmental work necessary for issuance of an NFA, including
the fees for the Board’s regulatory work, and not simply
groundwater sampling.
restriction. They went on to say, ‘If you won’t do that, then we
need a health risk assessment,’ which was done by Moine and
Leymaster because they couldn’t get Perera to do what he was
supposed to do.”
11 The evidence established the Board delayed soil closure for
failure to pay its fees, not Leymaster’s expenses. Accordingly,
although the Pereras may have withheld approval of the release
of holdback account funds to pay Leymaster’s invoices prior to
2015, the trial court’s finding the Pereras breached the implied
covenant was not based on any issue of payments to Leymaster.
Moine does not dispute that characterization of the trial court’s
finding.
21
The Pereras’ interpretation of the holdback agreement
conforms more closely to the plain language of the contract.12 To
be sure, the agreement did, as Moine points out, state
groundwater sampling and any related environmental work
necessary for the issuance of an NFA would be required by the
lender as part of the SBA environmental clearance requirements.
But that language was part of the agreement’s recitals, not its
operative provisions. (See, e.g., Sabetian v. Exxon Mobil Corp.
(2020) 57 Cal.App.5th 1054, 1069 [“‘[t]he law has long
distinguished between a “covenant” which creates legal rights
and obligations, and a “mere recital”’”]; see also O’Sullivan v.
Griffith (1908) 153 Cal. 502, 506 [“[a] covenant or warranty is
never implied from a mere recital”].) Moreover, although in its
recitals the agreement stated the estimated cost of samplings and
any required remediation work was $54,000, the recitals
continued by stating the “SBA requires that 110% of the
estimated cost be deposited and held for the testing,” with no
mention that the funds be held for payment of any remediation or
other environmental work.
In contrast, the substantive provisions of the parties’
agreement (what the “parties agree[d]” to) unequivocally stated
12 The trial court interpreted the holdback agreement on the
fee authorization issue without indicating it was resolving any
conflicts in extrinsic evidence. We thus review the holdback
agreement on the fee authorization issue de novo, “exercising our
independent judgment in interpreting the clause[s] without
giving any deference to the trial court’s ruling.” (Campbell v.
Scripps Bank (2000) 78 Cal.App.4th 1328, 1336; accord, Alki
Partners, LP v. DB Fund Services, LLC (2016) 4 Cal.App.5th 574,
599; see City of Hope National Medical Center v. Genentech, Inc.,
supra, 43 Cal.4th at p. 395.)
22
the holdback account funds would be held for payment of
groundwater sampling or testing. There was no mention of
payment for related, additional environmental work. Indeed, the
only provision of the contract relating to any obligation of Moine
and the Pereras to authorize the release of funds stated the
“[p]arties acknowledge that Holder will not release any funds
without mutually approved instructions,” and the specific
contractual provision setting forth what funds would be
disbursed by “Holder,” Exchange Resources, referred simply to
the “[i]nvoice for ground water sampling.”
Despite this clear language, a potential ambiguity was
arguably created by the fact the recitals stated the amount of
holdback account funds to be deposited was based on a
percentage of the estimated cost of samplings and any
remediation work. Extrinsic evidence in the record fully supports
interpreting the agreement as ensuring only the payment of
Leymaster’s groundwater sampling work, not the cost of
remediation or any other related environmental work, including
the Board’s fees.
Hyung Kim, an environmental consultant who worked for
the lender, CDC Small Business Finance, in 2006 and 2007,
testified he had been asked by CDC to estimate the groundwater
monitoring cost. He had been aware Leymaster was conducting
periodic groundwater monitoring and had reviewed a test copy of
a groundwater monitoring report by Leymaster. Kim initially
proposed to CDC a cost estimate of $70,000 for groundwater
monitoring, which assumed a certain number of sampling events,
but later revised that number to $54,000 by reducing the
estimated rounds of sampling. Because the SBA required setting
aside 110 percent of the estimated cost, Kim proposed the set
23
aside amount of $60,000. His cost estimate was not based on any
remedial action plan.13
Moine’s effort to identify extrinsic evidence to support his
(and the trial court’s) interpretation of the holdback agreement is
unavailing. Moine relies in part on the parties’ at times
ambiguous testimony regarding their subjective understanding of
the agreement’s language without any evidence those subjective
understandings had been expressed to the other party before
execution of the agreement. Similarly, while Moine points to
evidence a person who was not a party to the agreement (Denitz)
told Perera years after execution of the holdback agreement that
Perera had to approve payment of the Board’s invoices, Moine
fails to explain how that evidence demonstrates the mutual
intent of the contracting parties at the time of contract formation.
Finally, Moine relies on the fact Perera ultimately
authorized payment of $22,025.99 in Board fees, as shown by
trial exhibit 43, an April 22, 2015 letter to Moine from Perera
referring to the Board’s most recent bill. In that letter Perera
insisted, “It is my view that this payment should have been made
by you as party responsible for payment long time ago. It is also
my view that if this payment was duly made, the ‘no further
action’ letter respecting [the property] may by now have been
received by us from the [Board].” Then, after explaining his
secured lender had refused his request for a new loan with a
lower interest rate when it discovered the absence of the NFA,
Perera stated, “In order that I would reduce any further financial
13 In the trial court the parties did not dispute Kim’s
testimony the $60,000 in holdback account funds was based on
the estimated cost for groundwater sampling or testing and not
for remediation.
24
loss to me I have therefore decided to authorize Exchange
Resources Inc. to release the amount of $22,025.99.” Nothing
about Perera’s decision to release funds as explained in that
letter supports a finding that Perera intended at the time he
entered into the holdback agreement that the holdback account
funds were to be used to pay for the Board’s fees.14
4. The Trial Court Erred in Finding in Favor of Moine on
His Cross-complaint
Without explanation or elaboration the trial court found in
favor of Moine on his cross-complaint and awarded him $61,000
as an offset to the Pereras’ damages award. In his briefing in
this court Moine explains that, in support of that $61,000 award,
he had presented at trial invoices and requests for payment from
the holdback account of Leymaster’s fees and the Board’s fees, as
well as a summary showing he had paid out of his own pocket a
total of $61,302.31 for fees after the close of escrow. Under the
holdback agreement, according to Moine, the fees were to be paid
14 Our determination the trial court erred in ruling the
Pereras breached the implied covenant of good faith and fair
dealing disposes of Moine’s arguments premised on the trial
court’s conclusion. For example, in arguing the Pereras cannot
recover any damages because of their material failure of
performance, Moine contends the Pereras’ breach of the implied
covenant excused his own contractual performance. Similarly,
Moine’s contention the Pereras failed to mitigate damages (what
he refers to as the avoidable consequences doctrine) is predicated
on the same erroneous assumptions underlying his breach of
implied covenant claim that the Pereras were required to sign a
deed restriction and authorize the release of funds to pay Board
fees.
25
from the $60,000 in the holdback account, but Perera refused to
authorize payment at any time before April 23, 2015.
Urging us to reverse the judgment in favor of Moine on his
cross-complaint, the Pereras argue that the $61,302.31 in
payments for which Moine sought reimbursement were sums he
paid to perform his own obligation to obtain an NFA under
paragraph 26(d) of the purchase agreement and that Moine failed
to establish any amount of the $60,000 in the holdback account
had been released to pay for costs unrelated to obtaining an NFA.
They also argue Moine failed to show anything more than
$15,000 remained in the holdback account and, moreover, any
balance that may remain is to be released to him. Although there
was no evidence Moine had ever requested release of the
remaining fund balance, the Pereras on appeal represent they
would consent to that request.
We agree the trial court erred in finding in favor of Moine
on his cross-complaint. Although Moine labeled his cause of
action a common count, Moine’s theory of liability was breach of
contract: Moine alleged the existence of the holdback agreement
under which the parties agreed to hold $60,000 for certain
expenses; Moine approved the release of funds from the holdback
agreement; the Pereras, failing or delaying in doing so, breached
the agreement; and, as a result, Moine was damaged. (Compare
Marina Pacific Hotel and Suites, LLC v. Fireman’s Fund
Insurance Company (2022) 81 Cal.App.5th 96, 108 [“‘[t]he
elements of a cause of action for breach of contract are (1) the
existence of the contract, (2) plaintiff’s performance or excuse for
nonperformance, (3) defendant’s breach, and (4) the resulting
damages to the plaintiff’”] with Allen v. Powell (1967)
248 Cal.App.2d 502, 510 [“[t]he essential allegations of a common
26
count ‘are (1) the statement of indebtedness in a certain sum,
(2) the consideration, i.e., goods sold, work done, etc., and
(3) nonpayment’”].)15
Despite having the burden of proving his alleged damages
(see, e.g., Jeff Tracy, Inc. v. City of Pico Rivera (2015)
240 Cal.App.4th 510, 519-520), Moine failed to establish he was
injured by a breach of the holdback agreement. As discussed, the
Pereras’ refusal to authorize release of Board fees did not
constitute a breach of that contract; and, as for Leymaster’s fees,
because it was Moine’s obligation under the purchase agreement
to provide groundwater monitoring and obtain an NFA, he was
responsible for the costs to do so. Moine neither argues nor
points to any evidence showing Leymaster’s fees for which he
sought reimbursement were unrelated to his obligation to provide
groundwater monitoring and an NFA.
In addition, the cross-complaint did not allege any amount
of the $60,000 held in the holdback account had been wrongfully
diverted by the Pereras. On appeal Moine acknowledges his
cross-complaint did not seek recovery of any amounts paid out of
that account.
Finally, the holdback agreement provided that Exchange
Resources would issue a final instruction authorizing the release
15 Even if viewed as a common count, in arguing Moine’s
cross-complaint was to recoup payments made to perform his own
obligation, the Pereras essentially contend, and we agree, Moine
did not carry his burden of proving consideration to support a
common count cause of action: Moine did not allege, much less
prove, the $61,302.31 he sought was unrelated to groundwater
monitoring and obtaining an NFA, which were, as we hold,
Moine’s obligation.
27
of any balance of funds to Moine. Moreover, as discussed, Moine
explains his cross-complaint sought only those amounts he
directly paid to Leymaster, not any amount that may remain in
the holdback account, and the trial court’s award of $61,000
exceeds any amount that could have remained in the $60,000
holdback account after any disbursements. In sum, Moine fails
to show he suffered any damage from a breach by the Pereras of
the holdback agreement as alleged in his cross-complaint.
Moine contends the Pereras forfeited by failing to raise in
the trial court what he characterizes as their “windfall”
argument—that is, their contention Moine by his cross-complaint
improperly sought a double recovery by seeking as damages the
payment for services he was already obligated to provide. In
their closing brief in the trial court, however, the Pereras’
arguments included that Moine was not entitled to recover
$61,302.31, comprising entirely of sums paid to Leymaster for his
work, because Leymaster’s services constituted “a necessary
component to obtain the contracted for No Further Action letter”
and Moine, not the Pereras, was thus obligated to pay for those
services. The Pereras thus adequately asserted in the trial court
the crux of their “windfall” argument.16
16 Moine’s forfeiture argument also ignores that his cross-
complaint was filed on August 13, 2021—after the parties had
already rested on August 9, 2021 and just three days before the
court issued its statement of decision on August 16, 2021.
28
DISPOSITION
The judgment is reversed. On remand the trial court is
directed to vacate its finding in favor of Moine on his cross-
complaint, including the $61,000 award to Moine, and to enter a
new finding in favor of the Pereras on the cross-complaint. The
trial court is further directed to vacate its damage award of
$750,700.16 in favor of the Pereras on their complaint and to
enter a new damage award that does not include any reduction
for the nonexistent breach of the implied covenant of good faith
and fair dealing and that is otherwise consistent with this
opinion.
The Pereras are to recover their costs on appeal.
PERLUSS, P. J.
We concur:
SEGAL, J.
FEUER, J.
29