Stanford Law School - Robert Crown Law Library

Filed 12/22/08

IN THE SUPREME COURT OF CALIFORNIA

SUNIL PATEL,
Plaintiff and Respondent,
S156797
v.
Ct.App.
4/1
D048582
MORRIS LIEBERMENSCH et al.,
San
Diego
County
Defendants and Appellants.
Super. Ct. No. GIC839199

In this action for specific performance of a real estate option contract, the
Court of Appeal reversed a judgment for the plaintiff. Over a vigorous dissent, the
court held that the contract was too uncertain to enforce because it lacked the
essential terms of time and manner of payment. We reverse. It is settled that if a
contract for the sale of real property specifies no time of payment, a reasonable
time is allowed. The manner of payment is also a term that may be supplied by
implication, and was not significantly uncertain in this case. The Court of Appeal
majority erred by failing to enforce a straightforward option contract. It also
improperly relied on the parties’ conduct after their dispute arose to conclude that
they had failed to reach a binding agreement.
BACKGROUND
Defendant Morris Liebermensch and his wife Zita owned a condominium
unit in San Diego, through a family partnership. They acquired the property with
the idea that one of their children might want to live there after finishing college.
However, none of the children used the unit, and it was vacant in July 2003 when
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plaintiff Sunil Patel expressed interest in leasing the property with an option to
buy. On July 25, Liebermensch faxed Patel the following proposal:
“We propose to rent our condominium at 7255 Navajo Road, Apt. #370,
San Diego, CA 92119 at a monthly rate of $1,400.00 starting August 7, 2003 for
one year ending August 6, 2004; with a security deposit of $1,200.00 and the
following option to buy:
“Through the end of the year 2003, the selling price is $290,000. The
selling price increases by 3% through the end of the year 2004 and cancels with
expiration of your occupancy. Should this option to buy be exercised, $1,200.00
shall be refunded to you.
“Please indicate your acceptance by signing below and returning to me at
the above referenced fax.”
Patel signed the proposal, with a handwritten amendment providing an
option to renew until August 2005. Zita Liebermensch prepared a form rental
agreement, adding a paragraph stating “OPTION TO BUY IS ATTACHED.”
Patel and Morris Liebermensch signed the agreement. Liebermensch also signed
the option proposal and initialed Patel’s amendment.
In July 2004, Patel sent Liebermensch a letter, enclosing a notice that he
was exercising the option to purchase for the agreed price of $298,700. In the
letter, he said he and his wife were “anxious to complete the purchase as soon as
reasonably possible so as to take advantage of the current interest rates.”
Liebermensch sent Patel a purchase agreement dated August 16, 2004, referring to
the parties’ option agreement and Patel’s notice exercising the option. The
purchase agreement included an “as is” clause, a requirement of a 10 percent
deposit with the escrow company, and a specification that “The SELLER will
require ninety (90) days or sooner to close escrow with the right to extend the
closing for an additional thirty (30) days if necessary in order to exercise a 1031
exchange.” At trial, Liebermensch conceded that the parties had not previously
discussed the subject of a tax-deferred exchange under 26 United States
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Code section 1031 (section 1031 exchange). Mrs. Liebermensch testified that she
and her husband had not discussed the matter in 2003 when the option contract
was negotiated, although she was familiar with the subject of section 1031
exchanges.
Patel responded with a proposed agreement in which the “as is” clause was
qualified by giving the buyer an option to cancel if not fully satisfied, and which
provided that if the seller required more than 30 days to close escrow, the deposit
would be reduced to $5,000 and the seller would “be responsible for all escrow
and other expenses after 30 days of opening escrow.” Patel testified that he
included the latter clause because his mortgage broker had informed him an
interest rate could not be guaranteed for as long as 90 to 120 days.
Liebermensch rejected this proposal. According to Patel, Liebermensch
told him “if you want to buy the condominium, you buy it on my bid.” At some
point, Patel and his wife Bela signed Liebermensch’s original purchase agreement
and sent it to Liebermensch. However, Liebermensch did not respond.
Patel filed suit, seeking specific performance of the option agreement. The
jury returned special verdicts finding that the parties had entered into an option
contract giving Patel the right to purchase the property, and that the terms of the
contract were sufficiently clear to carry out its objective.1 Based on those verdicts,
the trial court entered judgment granting Patel specific performance. The parties
were required to perform their respective duties under the contract within 60 days
after the notice of entry of judgment was mailed.
The Court of Appeal reversed, in a split decision. The majority reasoned
that the Liebermensches were bound by the terms of the option contract only if it
included all the essential terms of a real estate purchase contract. Here, the
1
The latter issue was improperly presented to the jury. Whether a contract
is certain enough to be enforced is a question of law for the court. (Bustamante v.
Intuit, Inc. (2006)141 Cal.App.4th 199, 208-209; cf. Sterling v. Taylor (2007) 40
Cal.4th 757, 771.) However, as noted by the dissenting justice below, the correct
result was reached in the trial court despite the error.
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contract did not specify the time or manner of payment. The majority decided
that, while it might be reasonable in some circumstances to imply standard terms
on these points into the contract, here it was not. The majority noted the tax
consequences facing the Liebermensches, and concluded that the parties’ ongoing
dispute over economic conditions after Patel exercised the option demonstrated
they had never agreed on all material terms of the transaction.
The dissenting justice would have supplied terms for time and manner of
payment by implication, allowing a reasonable time and assuming that the manner
of payment was cash or cash equivalent upon delivery of the deed. The dissent
faulted the majority for relying on negotiations arising after Patel exercised his
option.
We granted Patel’s petition for review.
DISCUSSION
Settled principles of contract law govern this case. The equitable remedy of
specific performance cannot be granted if the terms of a contract are not certain
enough for the court to know what to enforce. (Civ. Code, § 3390, subd. 5;
Buckmaster v. Bertram (1921) 186 Cal. 673, 676.) However, “ ‘[t]he law does not
favor but leans against the destruction of contracts because of uncertainty; and it
will, if feasible, so construe agreements as to carry into effect the reasonable
intentions of the parties if [they] can be ascertained.’ ” (McIllmoil v. Frawley
Motor Co. (1923) 190 Cal. 546, 549; accord, Bohman v. Berg (1960) 54 Cal.2d
787, 797 (citing cases); Blackburn v. Charnley (2004) 117 Cal.App.4th 758, 766;
Okun v. Morton (1988) 203 Cal.App.3d 805, 817.)
“An agreement for the purchase or sale of real property does not have to be
evidenced by a formal contract drawn with technical exactness in order to be
binding.” (King v. Stanley (1948) 32 Cal.2d 584, 588 (King).) “Equity does not
require that all the terms and conditions of the proposed agreement be set forth in
the contract. The usual and reasonable conditions of such a contract are, in the
contemplation of the parties, a part of their agreement. In the absence of express
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conditions, custom determines incidental matters relating to the opening of an
escrow, furnishing deeds, title insurance policies, prorating of taxes, and the like.
[Citations.] The material factors to be ascertained from the written contract are the
seller, the buyer, the price to be paid, the time and manner of payment, and the
property to be transferred, describing it so it may be identified. [Citations.]” (Id.
at pp. 588-589.)
Here, the Court of Appeal agreed with the Liebermensches that the absence
of terms specifying the time and manner of payment made the parties’ contract too
uncertain to enforce. It is clear, however, that there was no substantial dispute or
uncertainty over the manner of payment by Patel.2 While the purchase agreement
drafted by Liebermensch after Patel exercised his option added a requirement that
Patel make a “good faith” 10 percent deposit with the escrow company, and Patel
countered with a deposit proposal of his own, these were merely incidental matters
that had no effect on the ultimate payment to be received by the Liebermensches at
the close of escrow.3 It was the length of the escrow period, unspecified in the
contract, that was the sticking point. King, however, makes it plain that the
escrow period is not a necessary term in a contract of sale, and that in any event
2
It is not clear why the King court included “manner of payment” in its
recitation of material terms. (King, supra, 32 Cal.2d at p. 589.) The supporting
authority cited in King does not refer to the subject. (Breckinridge v. Crocker
(1889) 78 Cal. 529; Grafton v. Cummings (1887) 99 U.S. 100; O’Donnell v. Lutter
(1945) 68 Cal.App.2d 376; see King, supra, 32 Cal.2d at p. 589.) In any event, the
manner of payment, like the time of payment, is a matter that may be determined
by reference to custom and reason when the contract is silent on the question.
(Vezaldenos v. Keller (1967) 254 Cal.App.2d 816, 825; Dennis v. Overholtzer
(1960) 178 Cal.App.2d 766, 775, disapproved on other grounds in Ellis v. Mihelis
(1963) 60 Cal.2d 206, 221.) This is not a case in which financing provisions were
included in the contract, but with insufficient certainty to protect the seller’s
interests. (Cf. Krasley v. Superior Court (1980) 101 Cal.App.3d 425, 430-431;
Stockwell v. Lindeman (1964) 220 Cal.App.2d 555, 559.)
3
The trial court included no deposit requirements in its grant of specific
performance. The Liebermensches have taken no exception to this omission,
either in the Court of Appeal or in this court.
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“time of payment” is a contract term determinable by implication as a matter of
law.
The contract in King, evidenced by an exchange of letters between the
parties, made no reference to time of payment or the period of escrow. (King,
supra, 32 Cal.2d at pp. 586-587.) The defendant claimed the escrow instructions
included terms to which she had not agreed. (Id. at p. 589.) This court rejected
her arguments, reasoning in part as follows:
“The escrow instruction signed by the plaintiff that he was to pay the
seller’s title and escrow charges constituted compliance with the defendant’s
condition [that plaintiff would take care of escrow expenses], which was
unaffected by the addition of the 30-day time limitation. In a contract for the sale
of real estate the delivery of the deed and the payment of the purchase price are
dependent and concurrent conditions (Civ. Code, § 1657; Cates v. McNeil [(1915)]
169 Cal. 697, 706; Whittier v. Gormley [(1906)] 3 Cal.App. 489). But it was well
within the contemplation of the parties that the money should remain in the escrow
for such time as would be necessary to determine the matter of merchantable title,
and 30 days is a reasonable time for that purpose. Inasmuch as the instructions
were merely supplementary to the executory contract and not the contract itself,
the parties could have arranged for a different period . . . .” (King, supra, 32
Cal.2d at pp. 590-591, italics added.)
Thus, while parties are obviously free to include escrow specifications in
the contract of sale, they are not necessary terms. Insofar as the period of escrow
effectively determines the time of payment, the provisions of Civil Code section
1657 apply to the interpretation of the contract: “If no time is specified for the
performance of an act required to be performed, a reasonable time is allowed. If
the act is in its nature capable of being done instantly — as, for example, if it
consists in the payment of money only — it must be performed immediately upon
the thing to be done being exactly ascertained.” A legion of cases supports the
proposition that a reasonable time for payment may be implied in a contract for the
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sale of real property.4 Under Civil Code section 1657, the purchase price is
deemed payable upon delivery of the deed. (King, supra, 32 Cal.2d at p. 590;
Whittier v. Gormley, supra, 3 Cal.App. at p. 491.)
The Court of Appeal majority recognized that a reasonable period may be
supplied by implication, but decided that here the parties’ unsuccessful attempts to
complete the transaction showed the option agreement did not represent a meeting
of the minds on all essential terms. This was error. The parties’ conduct
subsequent to the formation of a contract, “including the dispute which arises and
the remedy sought,” may be relevant in determining which terms they considered
essential. (Rest.2d Contracts, § 131, com. g, p. 338; Seaman’s Direct Buying
Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 762-763; House of Prayer
4
E.g., King, supra, 32 Cal.2d at page 590; Cates v. McNeil, supra, 169
Cal. at page 706; Copple v. Aigeltinger (1914) 167 Cal. 706, 709; House of Prayer
v. Evangelical Assn. for India (2003) 113 Cal.App.4th 48, 53-54; Hastings v.
Matlock (1985) 171 Cal.App.3d 826, 838; Henry v. Sharma (1984) 154
Cal.App.3d 665, 669; Vezaldenos v. Keller, supra, 254 Cal.App.2d at page 825;
San Francisco Hotel Co. v. Baior (1961) 189 Cal.App.2d 206, 213, (disapproved
on other grounds in Ellis v. Mihelis, supra, 60 Cal.2d at p. 216); Greenstone v.
Claretian Theo. Seminary (1959) 173 Cal.App.2d 21, 32 (disapproved on other
grounds in Ellis, supra, 60 Cal.2d at p. 221); Dennis v. Overholtzer, supra, 171
Cal.App.2d at page 775; Slye v. Brock (1935) 3 Cal.App.2d 670, 674-675; Fogler
v. Purkiser (1932) 127 Cal.App. 554, 558-559; Whittier v. Gormley, supra, 3
Cal.App. at page 491.

Here, as in House of Prayer v. Evangelical Assn. for India, supra, 113
Cal.App.4th at p. 53, “[d]efendants have cited no case, and we are aware of no
case, that concludes an agreement to sell real property is invalid because the
written agreement, sufficient in every other respect, omits the time of payment.”
The Liebermensches refer us to Bruggeman v. Sokol (1954) 122 Cal.App.2d 876.
There, however, far more than time and manner of payment was unresolved,
including the price and description of the bulk of the property and the terms and
conditions of interim financing. (Id. at pp. 881-882.)

Because time and manner of payment are terms that may be supplied by
implication, it is inaccurate to refer to them as material elements that must appear
in writing in every real estate sale agreement. (See House of Prayer v.
Evangelical Assn. for India, supra, 113 Cal.App.4th at pp. 53-54; fn. 2, ante.) To
the extent it imposes such a requirement, King v. Stanley, supra, 32 Cal.2d 584, is
disapproved.
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v. Evangelical Assn. for India, supra, 113 Cal.App.4th 48, 53-54.) However, few
contracts would be enforceable if the existence of subsequent disputes were taken
as evidence that an agreement was never reached.
In this case, by signing the option contract the Liebermensches bound
themselves to its terms. (Palo Alto Town & Country Village, Inc. v. BBTC
Company (1974) 11 Cal.3d 494, 502-503.) They could have, but did not, provide
for an extended escrow period in the contract. The Liebermensches suggest this
was a matter left for future agreement, as in Etco Corp. v. Hauer (1984) 161
Cal.App.3d 1154. Not so. In Etco and similar cases, a provision specifically
contemplating future agreement on an essential term was held unenforceable.
“ ‘[A] promise may be sufficiently definite when it contains an option given to the
promisor or promisee, yet if an essential element is reserved for the future
agreement of both parties, the promise can give rise to no legal obligation until
such future agreement. Since either party by the terms of the promise may refuse
to agree to anything to which the other party will agree, it is impossible for the law
to affix any obligation to such a promise.’ ” (Ablett v. Clauson (1954) 43 Cal.2d
280, 284-285, quoting 1 Williston, Contracts (rev.ed. 1936) 131, § 45; Etco, supra,
at pp. 1156, 1158; see also Roberts v. Adams (1958) 164 Cal.App.2d 312, 316-318
(discussing cases).)
The
parties
here
made
no provision for future agreement. The essential
terms of their option contract are easily ascertainable. In the absence of a
specified time of payment, a reasonable period is allowable under Civil Code
section 1657.5 Even if the Liebermensches had shown that they were
contemplating a section 1031 exchange when they agreed to the option contract,
their undisclosed intentions would not have become part of the contract. “The
mere state of mind of the parties is not the object of inquiry. The terms of the
contract are determinable by an external, not by an internal standard — or by what
5
The Liebermensches do not argue that the 60 days allotted by the trial
court’s judgment is an unreasonable period.
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has been termed the objective rather than the subjective test. (Zurich etc. Assur.
Co. v. Industrial Acc. Com. [(1933)] 132 Cal.App. 101, 104.) Measured by any
reasonable standard there is here mutual assent to a contract which is sufficiently
certain so that the court was within its power in decreeing specific performance.”
(King, supra, 32 Cal.2d at pp. 591-592; see also 1 Witkin, Summary of Cal. Law
(10th ed. 2005) Contracts, § 116, pp. 155-156.)
DISPOSITION
We reverse the judgment of the Court of Appeal.
CORRIGAN, J.

WE CONCUR:
GEORGE, C. J.
KENNARD, J.
BAXTER, J.
WERDEGAR, J.
CHIN, J.
MORENO, J.

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See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Patel v. Liebermensch
__________________________________________________________________________________

Unpublished Opinion

Original Appeal
Original Proceeding
Review Granted XXX 154 Cal.App.4th 373
Rehearing Granted

__________________________________________________________________________________

Opinion No.

S156797
Date Filed: December 22, 2008
__________________________________________________________________________________

Court:

Superior
County: San Diego
Judge: Joan Marie Lewis and Judith F. Hayes

__________________________________________________________________________________

Attorneys for Appellant:

Lee R. Goldberg for Defendants and Appellants.

__________________________________________________________________________________

Attorneys for Respondent:

Mitchell & Gilleon, James C. Mitchell and Daniel M. Gilleon for Plaintiff and Respondent.

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Counsel who argued in Supreme Court (not intended for publication with opinion):

Lee R. Goldberg
23272 Mill Creek Drive, Suite 360-W
Laguna Hills, CA 92653
(949) 305-6870

James C. Mitchell
Mitchell & Gilleon
402 W. Broadway, Suite 880
San Diego, CA 92101
(619) 702-8623

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Petition for review after the Court of Appeal reversed the judgment in a civil action. This case presents the following issue: Are the time and manner of payment essential terms of a real estate purchase option contract such that their absence negates formation of a contract?

Opinion Information

Date:	Citation:	Docket Number:	Category:	Status:
Mon, 12/22/2008	45 Cal. 4th 344, 197 P.3d 177, 86 Cal. Rptr. 3d 366	S156797	Review - Civil Appeal	closed; remittitur issued

Opinion Authors
Opinion	Justice Carol A. Corrigan

Disposition
Dec 22 2008	Opinion: Reversed

Dockets
Sep 28 2007	Petition for review filed   Sunil Patel, plaintiff and respondent by James C. Mitchell, Mitchell& Gilleon, retained counsel (Filed in San Diego)
Oct 2 2007	Received Court of Appeal record   D048582 - one doghouse
Nov 14 2007	Petition for review granted (civil case)   Votes: George, C.J., Kennad, Baxter, Werdegar, Chin, Moreno, and Corrigan, JJ.
Nov 14 2007	Letter sent to:   counsel. Each party must file a "Certification of Interested Entities or Persons." The completed form and 7-copies should be returned to this court within 15 days.
Nov 21 2007	Certification of interested entities or persons filed   James C. Mitchell counsel for Sunil Patel, Plaintiff and Respondent
Nov 29 2007	Certification of interested entities or persons filed   Morris Liebermensch et al., Defendants and Appellants. Lee Randy Goldberg counsel
Dec 12 2007	Opening brief on the merits filed   Sunil Patel, Plaintiff and Respondent. James C. Mitchell, counsel
Jan 11 2008	Answer brief on the merits filed   Appellants Morris Liebermensch, Zita Liebermensch and Liebermensch Family Partnership, L.P. Attorney Lee R. Goldberg
Jan 31 2008	Reply brief filed (case fully briefed)   Sunil Patel, plaintiff and respondent by James C. Mitchell, Mitchell& Gilleon, retained counsel
Jul 14 2008	Change of contact information filed for:   Counsel for plaintiff and respondent received on July 14, 2008.
Sep 10 2008	Case ordered on calendar   to be argued Wednesday, November 5, 2008, at 1:30 p.m. in Sacramento
Nov 5 2008	Cause argued and submitted
Dec 19 2008	Notice of forthcoming opinion posted
Dec 22 2008	Opinion filed: Judgment reversed   We reverse the judgment of the Court of Appeal. Majority opinion by Corrigan, J. ----joined by George, C.J., Kennard, Baxter, Werdegar, Chin and Moreno, JJ.
Jan 29 2009	Remittitur issued (civil case)
Feb 5 2009	Received:   Receipt for Remittitur

Briefs
Dec 12 2007	Opening brief on the merits filed
Jan 11 2008	Answer brief on the merits filed
Jan 31 2008	Reply brief filed (case fully briefed)

Brief Downloads
Petition For Review - Patel v Liebermensch.pdf (135047 bytes) - Plaintiff Patel's petition for review of the Court of Appeals's decision
Opening Brief - Patel v Liebermensch.pdf (167882 bytes) - Plaintiff / respondent's opening brief
Reply Brief - Patel v Liebermensch.pdf (57030 bytes) - Plaintiff / respondent's reply brief

If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website

May 19, 2011 Annotated by Elizabeth Boggs

Annotation by Elizabeth "Betsy" Boggs Facts In 2003, defendants Morris and Zita Liebermensch faxed an offer to lease a condominium unit to Sunil Patel with an option to purchase through the end of the year 2004. The offer provided that it could be accepted by signing and returning the fax. Patel signed this proposal after adding a handwritten amendment providing an option to renew until August of 2005. Following this acceptance, Zita Liebermensch prepared a form rental agreement, adding a paragraph that stated, "OPTION TO BUY IS ATTACHED," and attached the faxed proposal with the amendment. Both parties signed it and Liebermensch initialed Patel's amendment. In July 2004, Patel informed Liebermensch of his desire to exercise the option to purchase as quickly as possible. Liebermensch sent Patel a purchase agreement including a number of terms not contained in the previous agreement, including a provision granting the seller up to 120 days to close escrow. Patel responded by proposing modifications to Liebermench's proposed purchase agreement, including a reduction in the deposit if the seller required more than 30 days to close the sale. Liebermensch rejected these modifications, informing Patel, "[I]f you want to buy the condominium, you buy it on my bid." Procedural History Patel filed suit seeking specific performance of the option contract. The jury returned special verdicts finding that the parties had entered in to an option contract and that its objectives were sufficiently clear. The trial court thus granted Patel specific performance, requiring both parties to perform their duties under the contract. The Court of Appeal reversed, finding it was not reasonable to imply standard terms as to the time and manner of payment. Patel successfully petitioned for review. Issues Are the time and manner of payment essential terms to a contract for an option to purchase real estate? Are contracting parties bound by a real estate option contract even if they do not specify such terms? Holding The court held that the contract for the sale of real estate was sufficiently definite for a court to require specific performance. The time and manner of payment, including the length of escrow, were not essential to the contract's formation. Analysis The court began by emphasizing that courts would not use their equitable powers to grant the remedy of specific performance if the terms were too uncertain for a court to know what it was enforcing, citing Civil Code section 3390 and Buckmaster v. Bertram, 186 Cal. 673, 200 P. 610 (1921). However, the court relied on King v. Stanley for the proposition that "An agreement for the purchase or sale of real property does not have to be evidenced by a formal contract drawn with technical exactness in order to be binding." 32 Cal. 2d 584, 588, 197 P.2d 321 (1948). The court stated that parties entering into a contract for real estate anticipate some reasonable length of escrow and it is reasonable to imply a reasonable time for payment. The court stated that under Civil Code section 1657, the purchase price is presumed payable on delivery of the deed if the contract is otherwise silent on the point. The court criticized the Court of Appeal's reliance on the parties' post-contract negotiations about the length of escrow as evidence that the parties lacked a meeting of the minds on all essential terms, observing that "few contracts would be enforceable if the existence of subsequent disputes were taken as evidence that an agreement was never reached." The court further stated that had the Liebermensches wished to leave the length of escrow as a necessary term for future agreement, they could have provided for this in the contract. Since they did not, they were bound by the contract's terms regardless of whether they could reach future agreement on the length of escrow. The court concluded that "The essential terms of their option contract are easily ascertainable" under the appropriate, objective test and held that the trial court was within its equitable powers to order specific performance. Tags contract, essential terms, option, option contract, real estate, real estate contract, real estate transaction, real property, specific performance, equitable relief, equitable remedies, equity