IN THE SUPREME COURT OF CALIFORNIA
MARTIN A. STEINER,
Plaintiff and Appellant,
S164928
v.
Ct.App. 3 C054605
PAUL THEXTON, as Trustee, etc.,
Sacramento County
Defendant and Respondent;
Super. Ct. No. 04AS04230
SIDDIQUI FAMILY PARTNERSHIP,
Intervener and Appellant.
____________________________________)
Plaintiff Martin A. Steiner, and his partial assignee, intervener Siddiqui
Family Partnership (hereafter collectively referred to as plaintiffs), seek specific
performance of a sales agreement with defendant property owner Paul Thexton.
Based on language granting Steiner “absolute and sole discretion” to terminate the
transaction, the Court of Appeal construed the agreement as an option and further
concluded the option was revocable because it was unsupported by consideration.
The Court of Appeal also rejected plaintiffs‟ claim that promissory estoppel
required the agreement‟s enforcement. The court therefore upheld the trial court‟s
refusal to order specific performance of the agreement.
We agree the agreement was an option; however, we conclude sufficient
consideration existed to render the option irrevocable. We accordingly reverse the
1
Court of Appeal‟s judgment and remand the action for further proceedings. In
light of our conclusion, we need not reach the promissory estoppel issue.
I. FACTUAL AND PROCEDURAL BACKGROUND
In 2003, Steiner, a real estate developer, was interested in purchasing and
developing several residences on a 10-acre portion of Thexton‟s 12.29-acre parcel
of land.1 County approvals for a parcel split and development permits were
required. Thexton had previously rejected an offer from a different party for
$750,000 because that party wanted Thexton to obtain the required approval and
permits. The written agreement between Steiner and Thexton, prepared by
Steiner, provided for Thexton to sell the 10-acre parcel for $500,000 by September
2006 if Steiner decided to purchase the property after pursuing, at his own
expense, the county approvals and permits. Paragraph 7 of the “Contingencies”
section of the agreement provided Steiner was not obliged to do anything and
could cancel the transaction at any time at his “absolute and sole discretion . . . .”2
1
The factual and procedural history is largely taken from the Court of
Appeal‟s opinion.
2
The agreement was titled “REAL ESTATE PURCHASE CONTRACT”
and stated in part:
“Martin A. Steiner and/or Assignee, hereinafter called „Buyer,‟ offers to
pay to FAS Family Trust, Paul Thexton, hereinafter called „Seller,‟ the purchase
price of Five Hundred Thousand Dollars ($ 500,000.00) for 10 acres of a 12.29
acre property situated in the County of Sacramento . . . hereinafter called
„Property‟ . . . .
“TERMS OF SALE:
“1. Upon the Seller‟s acceptance escrow shall be opened and $1,000 . . .
shall be deposited by Buyer, applicable toward purchase price.
“2. During the escrow term, Seller shall allow Buyer an investigation
period to determine the financial feasibility of obtaining a parcel split for
development of the Property. Buyer shall have no direct financial obligation to
Seller during this investigation period as Buyer will be expending sums on various
(Footnote continued on next page.)
2
(Footnote continued from previous page.)
professional services needed to reach the financial feasibility determination.
Buyer hereby warranties that all fees shall be paid for said professional services by
Buyer and neither the Seller nor the Property will in any way be obligated or
indebted for said services. [¶] . . . [¶]
“5. Buyer will pay for the required civil engineering and surveying for the
entire parcel map. Any agency requirements of Seller‟s remaining 2.29 acre
parcel will be paid by Seller. Any agency requirements for planning, development
or entitlement of the 10 acre parcel will be paid by Buyer. [¶] . . . [¶]
“10. If any condition herein stated has not been eliminated or satisfied
within the time limits and pursuant to the provisions herein, or if, prior to close of
escrow, Seller is unable or unwilling to remove any exceptions to the title objected
to, and Buyer is unwilling to take title subject thereto, then this Contract shall at
the end of the applicable time period, become null and void. [¶] . . . [¶]
“17. Buyer hereby agrees to purchase the above described Property for the
price upon the terms and conditions herein expressed. . . . [¶] . . . [¶]
“CONTINGENCIES:
“The Buyer shall have from date of acceptance until the closing of escrow
to satisfy or waive the items listed herein below:
“1. Seller is aware that Buyer plans to subdivide, apply for planning
entitlements and develop 10 acres from the existing parcel and agrees to
cooperate, as needed, with Buyer as Buyer attempts to obtain the necessary
permits and authorizations from the various local jurisdictions.
“2. Buyer at his sole option and expense will conduct all necessary
investigations, engineering, architectural and economic feasibility studies as
outlined earlier in this Contract.
“3. Both Buyer and Seller understand that Buyer could have substantial
investment during this development period.
“4. Buyer shall hereby indemnify and hold Seller harmless for any acts,
errors or omissions of Buyer or Buyer‟s agents; and Buyer and Buyer‟s agent
hereby agree that, upon the performance of any test, they will leave the Property in
the condition it was in prior to those tests.
“5. By acceptance of this offer, the Seller has granted Buyer and/or Buyer‟s
agents, the right to enter upon subject Property for the purpose of conducting said
tests and investigations.
(Footnote continued on next page.)
3
After Steiner and Thexton signed the agreement on September 4, 2003,3
Steiner began pursuing the necessary county approvals and, together with his
partial assignee Siddiqui, ultimately spent thousands of dollars.4 In May and
August 2004, Thexton cooperated with Steiner‟s efforts by signing, among other
things, an application to the county planning department for a tentative parcel
map. In October 2004, however, Thexton asked the title company to cancel
escrow and told Steiner he no longer wanted to sell the property. Steiner
(Footnote continued from previous page.)
“6. Buyer shall indemnify and hold Seller harmless for any costs associated
with Buyer‟s investigations. In the event that this contract is terminated prior to
the close of escrow, Buyer shall deliver to Seller the originals or copies of all
information, reports, tests, [etc.]
“7. It is the intent of Buyer that the time period from execution of this
contract until the closing of escrow is the time that will be needed in order to be
successful in developing this project. It is expressly understood that the Buyer
may, at its absolute and sole discretion during this period, elect not to continue in
this transaction and this purchase contract will become null and void.
“CLOSE OF ESCROW:
“Upon successful completion of subdividing the 10 acres from the existing
parcel, Buyer will pay Seller the balance of the purchase price to escrow and close
immediately.
“Buyer will move expeditiously with the parcel split. It is anticipated it
will take one to three years, due to existing governmental requirements.
“Buyer will give quarterly reports to Seller as to progress of the parcel split.
“If parcel split is not completed by September 1, 2006 this real estate
purchase contract will be cancelled.”
3
In January 2004, the parties executed an addendum allowing Steiner to
purchase up to 10.17 (instead of 10) acres and eliminating several requirements
the original agreement had imposed on Steiner.
4
Plaintiffs alleged (and the Court of Appeal assumed without deciding) that
they had spent $60,000 on efforts to obtain the parcel split.
4
nevertheless proceeded with the final hearing of the parcel review committee and
apparently obtained approval for a tentative map. Steiner opposed cancelling
escrow and filed suit seeking specific performance of the agreement. In his
answer, Thexton asserted various defenses, including that the agreement
constituted an option unsupported by consideration.5
Following a bench trial, the trial court entered judgment in favor of
Thexton. It concluded the agreement was unenforceable against Thexton “because
it is, in effect, an option that is not supported by any consideration.” First, it
pointed out that the agreement bound Thexton to sell the property to Steiner for
$500,000 for a period of up to three years while Steiner retained “ „absolute and
sole discretion‟ ” to cancel the transaction. “The unilateral nature of this
agreement,” the trial court explained, “is the classic feature of an option.”
Second, in concluding, “[b]ased on the evidence and the language of the
contract itself, . . . that the option was not supported by consideration,” the trial
court noted no money was paid to Thexton for his grant of the option to purchase
the property, nor did he receive any other benefit or thing of value in exchange for
the option.6 The trial court rejected plaintiffs‟ claim that the agreement obligated
them to expeditiously proceed with the parcel split and that their work and
expenses constituted sufficient consideration for the option. The trial court
reasoned that the adequacy of consideration is measured as of the time a contract
is entered into and pointed out the agreement did not bind plaintiffs to do
anything; rather, it gave them the power to terminate the transaction at any time.
5
Siddiqui, with leave of court, intervened based on Steiner‟s partial
assignment of his rights.
6
The agreement required Steiner to pay $1,000 into an escrow account, but
the trial court concluded the payment did not constitute consideration.
5
Finally, the trial court rejected plaintiffs‟ claim that, in the absence of
consideration for the option, their efforts merited applying the doctrine of
promissory estoppel. The Court of Appeal affirmed for the reasons given by the
trial court and we granted review.
II. DISCUSSION
We consider whether the agreement was an option and, if so, whether the
option was irrevocable because it was supported by sufficient consideration. We
conclude, for the following reasons, that the agreement is an irrevocable option.7
A. The Sales Agreement Constitutes an Option
Plaintiffs contend the Court of Appeal erred when it concluded the sales
agreement constituted an option. We disagree. We begin by briefly setting forth
the established law concerning what constitutes an option.
As this court explained long ago, “When by the terms of an agreement the
owner of property binds himself to sell on specified terms, and leaves it
discretionary with the other party to the contract whether he will or will not buy, it
constitutes simply an optional contract.” (Johnson v. Clark (1917) 174 Cal. 582,
586.) Thus, an option to purchase property is “a unilateral agreement. The
optionor offers to sell the subject property at a specified price or upon specified
terms and agrees, in view of the payment received, that he will hold the offer open
for the fixed time. Upon the lapse of that time the matter is completely ended and
the offer is withdrawn. If the offer be accepted upon the terms and in the time
specified, then a bilateral contract arises which may become the subject of a suit to
7
The interpretation of the agreement is subject to de novo review. (Parsons
v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866.) We review the trial
court‟s conclusion that no consideration supported the option under the substantial
evidence test. (Bard v. Kent (1942) 19 Cal.2d 449, 452; see Crocker National
Bank v. City and County of San Francisco (1989) 49 Cal.3d 881, 888.)
6
compel specific performance, if performance by either party thereafter be
refused.” (Auslen v. Johnson (1953) 118 Cal.App.2d 319, 321-322.)
In the present case, although the agreement was titled “REAL ESTATE
PURCHASE CONTRACT,” the label is not dispositive. Rather, we look through
the agreement‟s form to its substance. (Mahoney v. San Francisco (1927) 201
Cal. 248, 258.) Viewing the substance, we conclude, as did the trial court, that the
agreement between Steiner and Thexton contained “the classic feature[s] of an
option.” First, the agreement obliged Thexton to hold open an offer to sell the
parcel at a fixed price for three years. (Ante, at p. 2, fn. 2 [close of escrow
provisions].) Second, Steiner had the power to accept the offer by satisfying or
waiving the contingencies and paying the balance of the purchase price; however,
because of the escape clause, Steiner was not obligated to do anything. The
relevant term provided “It is expressly understood that [Steiner] may, at [his]
absolute and sole discretion during this period, elect not to continue in this
transaction and this purchase contract will become null and void.” (Ibid.
[contingencies provision 7], italics added.)
Moreover, it appears that the term‟s broad and express language permitted
Steiner to terminate the agreement even if all contingencies had been satisfied —
indeed, Steiner testified at trial that the term gave him the power to terminate the
agreement at any time for any reason, including if he had found a better deal. For
that reason we reject the notion, advanced by Steiner and various amici curiae, that
the agreement should instead be construed as a bilateral contract subject to a
contingency. It is true, as amicus curiae California Association of Realtors
explains, that a common form of real estate contract binds both parties at the
outset (rendering the transaction a bilateral contract) while including a
contingency, such as a loan or inspection contingency, that allows one or both
parties to withdraw should the contingency fail. However, withdrawal from such a
7
contract is permitted only if the contingency fails. By contrast, the agreement here
placed no such constraint on Steiner. Rather, it limited Thexton’s ability to
withdraw, but explicitly allowed Steiner to terminate at any time for any reason.8
Even had the agreement obligated Steiner, as he contends, to move expeditiously
to remove the contingencies, we would nonetheless conclude that the “absolute
and sole” right to withdraw he enjoyed means the agreement is an option.
We briefly address a number of plaintiffs‟ other arguments, finding none
persuasive. First, plaintiffs argue that in the event of ambiguity, California law
presumes a contract to be bilateral rather than an option. (Perry v. Berryman
(1949) 95 Cal.App.2d 159.) But no ambiguity exists here. The agreement plainly
gave him “absolute and sole discretion” to cancel the transaction. Second, in
contending the agreement did not unilaterally bind Thexton, plaintiffs assert
“nothing in the Contract required Thexton to keep his Property off the market for
any defined period of time.” Not so. The agreement explicitly obligated Thexton
to hold open the offer for up to three years.9
Third, plaintiffs contend the agreement obliged them to act expeditiously.
Even if true, it is irrelevant to whether the agreement constituted an option.
Steiner‟s unfettered power to withdraw at any time for any reason overrode any
other obligations. Fourth, plaintiffs argue the Court of Appeal should have applied
the implied covenant of good faith and fair dealing to narrow the escape clause to
give Steiner only a limited power to terminate the agreement. We disagree. While
this court has held that all contracts impose a duty of good faith and fair dealing
8
Thus, bilateral contracts subject to a contingency, which are widely used in
real estate transactions, are not affected by our holding.
9
Indeed, plaintiffs contradict themselves, later arguing “nothing in the
Contract suggests that Thexton reserved the right to revoke, withdraw, or
terminate his promise to sell the Property to Steiner . . . .”
8
and that the covenant particularly applies when “one party is invested with a
discretionary power affecting the rights of another” (Carma Developers (Cal.),
Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 372), it has
also noted the implied covenant does not trump an agreement‟s express language
(id. at p. 374). “ „The general rule [regarding the covenant of good faith] is plainly
subject to the exception that the parties may, by express provisions of the contract,
grant the right to engage in the very acts and conduct which would otherwise have
been forbidden by an implied covenant of good faith and fair dealing.‟ ” (Ibid.)
Given the broad and express language of the escape clause, Steiner‟s power to
withdraw was not constrained by the implied covenant of good faith and fair
dealing.
In light of the foregoing reasons, we conclude the Court of Appeal correctly
construed the so-called “purchase contract” as an option. We next consider
whether the option was irrevocable.
B. Sufficient Consideration Rendered the Option Irrevocable
“An option is transformed into a contract of purchase and sale when there is
an unconditional, unqualified acceptance by the optionee of the offer in harmony
with the terms of the option and within the time span of the option contract.
[Citation.]” (Erich v. Granoff (1980) 109 Cal.App.3d 920, 928.) At the time
Thexton terminated the agreement, plaintiffs had not unconditionally accepted the
offer within the terms of the option. Plaintiffs had not satisfied or waived all of
the contingencies and deposited the balance of the purchase price into the escrow
account. Therefore, the option never ripened into a purchase contract. However,
even if an option has not yet ripened into a purchase contract, it may nonetheless
be irrevocable for the negotiated period of time if sufficient bargained-for
consideration is present.
9
“[A]n option based on consideration contemplates two separate [contracts],
i.e., the option contract itself, which for something of value gives to the optionee
the irrevocable right to buy under specified terms and conditions, and the
mutually enforceable agreement to buy and sell into which the option ripens after
it is exercised. Manifestly, then, an irrevocable option based on consideration is a
contract . . . .” (Torlai v. Lee (1969) 270 Cal.App.2d 854, 858.) Conversely, an
option without consideration is not binding on either party until exercised (id. at
pp. 858-859); until then, the option “ „is simply a continuing offer which may be
revoked at any time.‟ [Citation.]” (Thomas v. Birch (1918) 178 Cal. 483, 489.)
Civil Code section 1605 defines consideration as “Any benefit conferred, or
agreed to be conferred, upon the promisor, by any other person, to which the
promisor is not lawfully entitled, or any prejudice suffered, or agreed to be
suffered, by such person, other than such as he is at the time of consent lawfully
bound to suffer, as an inducement to the promisor . . . .” Thus, there are two
requirements in order to find consideration. The promisee must confer (or agree to
confer) a benefit or must suffer (or agree to suffer) prejudice. We emphasize
either alone is sufficient to constitute consideration; “it is not necessary to the
existence of a good consideration that a benefit should be conferred upon the
promisor. It is enough that a „prejudice be suffered or agreed to be suffered‟ by
the promisee. [Citation.]” (Bacon v. Grosse (1913) 165 Cal. 481, 490-491.)
It is not enough, however, to confer a benefit or suffer prejudice for there to
be consideration. As we held in Bard v. Kent, supra, 19 Cal.2d at page 452, the
second requirement is that the benefit or prejudice “ „must actually be bargained
for as the exchange for the promise.‟ ” Put another way, the benefit or prejudice
must have induced the promisor‟s promise. In Bard, the property owner indicated
she was willing to grant an extension of a lease for four years if the lessee‟s
sublessee undertook $10,000 of improvements to the property. The owner
10
suggested that the lessee have an architect draw sketches to get a cost estimate.
The owner then granted an option to extend the lease in return for consideration of
$10; however, the $10 was never paid to the owner and she died before the option
was exercised. (Id. at p. 451.) The lessee nonetheless argued the money he spent
for the architect‟s drawing was sufficient consideration to make the option
irrevocable. The trial court disagreed, concluding the owner agreed to be bound in
exchange for the unpaid $10, not for the lessee engaging the architect. (Id. at
pp. 452-453.) We affirmed, quoting the Restatement of Contracts, section 75:
“ „The fact that the promisee relies on the promise to his injury, or the promisor
gains some advantage therefrom, does not establish consideration without the
element of bargain or agreed exchange.‟ ” (Bard, at p. 452.) In sum, in
determining here whether sufficient consideration rendered the option to purchase
the 10-acre parcel irrevocable, we consider whether Steiner conferred or agreed to
confer a benefit or suffered or agreed to suffer prejudice that was bargained for in
exchange for the option.
The lower courts concluded no such consideration supported the option.
They reasoned no money was paid for the grant of the option nor did the work
performed and expenses incurred by plaintiffs in pursuit of a parcel split benefit
Thexton. Citing O’Connell v. Lampe (1929) 206 Cal. 282, 285, and Drullinger v.
Erskine (1945) 71 Cal.App.2d 492, 495, the lower courts explained that the
“adequacy of consideration” must be measured at the time an agreement was
entered into. The lower courts concluded that, at the time Steiner and Thexton
struck their bargain, the promise to seek the parcel split was unenforceable
because the escape clause gave plaintiffs the power to terminate the transaction at
any time for any reason. Thus, the lower courts held, Steiner‟s promise was
illusory and did not constitute valid consideration. The courts found it immaterial
that plaintiffs had begun to perform because plaintiffs were under no actual
11
obligation to do so. To the contrary, we conclude as a matter of law that plaintiffs‟
part performance of the bargained-for promise to seek a parcel split created
sufficient consideration to render the option irrevocable.
It is true that Steiner‟s promise to undertake the burden and expense of
seeking a parcel split may have been illusory at the time the agreement was
entered into, given the language of the escape clause. However, there can be no
dispute that plaintiffs subsequently undertook substantial steps toward obtaining
the parcel split and incurred significant expenses doing so.10 Among other things,
plaintiffs paid for the required civil engineering and surveying for the parcel and
spent a number of months applying to the county planning department for a
tentative parcel map, proceeding with the final hearing of the parcel review
committee, and obtaining approval of the tentative map. On this record, the only
possible conclusion is that Steiner both conferred a bargained-for benefit on
Thexton and suffered bargained-for prejudice unaffected by his power to cancel,
making up for the initially illusory nature of his promise.
It is undisputed that a parcel split of the 12.29 acres was necessary for
Thexton to be able to sell a portion of his land to anyone while still retaining a
two-acre parcel for himself to live on. There is also no dispute that Thexton did
not want to have to go through the process of obtaining the parcel split himself.
Indeed, he had previously rejected an offer of $750,000 for the 10 acres ($250,000
more than Steiner was to pay for the parcel) because that buyer wanted Thexton to
obtain the required approval. It is clear then that a critical part of Thexton‟s
10
Plaintiffs completed 75 to 90 percent of the work needed to obtain the
parcel split and county approvals and alleged they collectively spent $60,000 in
doing so. We have no occasion to consider whether any act, no matter how small,
would be sufficient part performance to make an option irrevocable.
12
willingness to sell was that Steiner would bear the expense, risk, and burden of
seeking the parcel split. Indeed, there is evidence that Thexton told Steiner it was
important to him that any interested buyer undertake the process of obtaining the
parcel split. Thus, both elements of consideration were present. First, the effort to
obtain the parcel split clearly conferred a benefit on Thexton and constituted
prejudice suffered by plaintiffs.11 Second, the promise to pursue the split was
plainly bargained-for and induced Thexton to grant the option. Accordingly,
plaintiffs‟ part performance cured the illusory nature of their promise.12
Two cases illustrate the point. In Burgermeister Brewing Corp. v. Bowman
(1964) 227 Cal.App.2d 274, a brewery entered into an oral contract with a
distributor whereby the distributor would sell the brewer‟s product. (Id. at p. 278.)
The brewer agreed to give the distributor all the beer the distributor could sell
using its best efforts. Nineteen years later, after the distributor had spent
significant time and resources selling the beer, the brewer cancelled the
agreement. (Id. at pp. 278-280.) When sued, the brewer argued the contract was
11
As Steiner‟s counsel acknowledged at oral argument, the outcome may
have been different had plaintiffs‟ efforts been exclusively in their own interest,
such as only securing county approvals to develop the 10-acre parcel.
12
Although our conclusion is based upon plaintiffs‟ part performance of the
promise to obtain a parcel split, we also note the agreement required Steiner to
deposit $1,000 into escrow, which he did. The trial court concluded the payment
did not constitute consideration because Steiner would recover the money if he
terminated the agreement; thus, the money did not confer a benefit on Thexton.
However, even assuming the trial court‟s interpretation of the agreement is
accurate, it is not clear its ultimate conclusion is correct. As previously discussed,
for consideration to exist it is sufficient that a promisee suffers bargained-for
prejudice. By placing the money in escrow, Steiner gave up use of the money for
as much as three years. This arguably constituted prejudice to Steiner even if he
ultimately got the money back. In light of our conclusion regarding plaintiffs‟ part
performance, we need not resolve the effect of the escrow payment.
13
illusory, lacking mutuality; it bound the brewer to provide the beer but did not
bind the distributor to use its best efforts. (Id. at p. 280.) In ruling for the
distributor, the Court of Appeal explained that, even if the distributor had not
promised to use its best efforts, its subsequent performance gave the brewery
consideration not affected by the distributor‟s power to cancel and thereby made
up for any defects in the original consideration. (Ibid., citing 1A Corbin on
Contracts, § 163, p. 76.)
In Kowal v. Day (1971) 20 Cal.App.3d 720, the plaintiff entered into an
agreement to purchase real property from the defendant. (Id. at p. 722.) The
escrow instructions required the plaintiff to give the defendant an automobile for
the defendant‟s use and permitted the plaintiff to terminate the sale within 45 days
after the close of escrow. The plaintiff subsequently gave the defendant the
automobile, however, the defendant ultimately refused to convey the property to
the plaintiff. In the resultant action, the trial court ruled in favor of the defendant,
because of the plaintiff‟s unconditional and unilateral right to terminate the
transaction. (Id. at pp. 722-723.) The Court of Appeal reversed, explaining that
although consideration is typically lacking when an exchange of promises does not
impose mutual obligations, the plaintiff‟s part performance in the form of
transferring possession of the car created sufficient consideration transforming the
agreement‟s termination clause into an enforceable option, even though the
plaintiff was entitled to return of the car upon disaffirmation of the transaction.
(Id. at pp. 724, 726.)
In sum, it is true that, where consideration for an agreement consists of an
exchange of promises, that one party‟s promise is illusory generally means there is
no consideration. (Mattei v. Hopper (1958) 51 Cal.2d 119, 122.) “A corollary to
that rule exists, however. An agreement that is otherwise illusory may be enforced
where the promisor has rendered at least part performance. [Citations.]” (Money
14
Store Investment Corp. v. Southern Cal. Bank (2002) 98 Cal.App.4th 722, 728-
729.) Moreover, as this court explained in Drennan v. Star Paving Co. (1958) 51
Cal.2d 409, 414, when an offer for a unilateral contract is made (as in the case of
an option) “ „and part of the consideration requested in the offer is given or
tendered by the offeree in response thereto, the offeror is bound by a contract, the
duty of immediate performance of which is conditional on the full consideration
being given or tendered within the time stated in the offer . . . .‟ ”13 (Italics
added.) Applied here, plaintiffs‟ substantial efforts and expenditures to perform
the bargained-for promise to seek a parcel split cured the initially illusory nature
of the promise and rendered the option irrevocable.
We address two final points. First, as noted above, the lower courts
concluded that the adequacy of consideration is to be determined at the time an
agreement is entered into. However, the two cases relied upon are inapplicable
here. In both cases, the parties had entered into option contracts for the purchase
of real property. (O’Connell v. Lampe, supra, 206 Cal. at p. 282; Drullinger v.
Erskine, supra, 71 Cal.App.2d at p. 494.) The parties agreed upon a price for the
properties when they entered into the option contracts; however, at the time the
buyers exercised their options, the sellers refused to perform, contending the
agreed-upon consideration was inadequate due to a subsequent increase in the
properties‟ value. (O’Connell, at p. 283; Drullinger, at pp. 494-495.) It was in
this context that the courts ruled in favor of the buyers, explaining that the
adequacy of consideration is determined at the time of the agreement. (O’Connell,
at p. 285; Drullinger, at p. 495.) Here, by contrast, we consider not whether the
13
Thus, we reject the contention made by Thexton‟s counsel at oral argument
that part performance can never constitute consideration for an option. (See also
Kowal v. Day, supra, 20 Cal.App.3d at p. 726.)
15
agreed-upon consideration for the purchase was adequate, but whether
consideration existed at all to support the option.
Second, we acknowledge that Prather v. Vasquez (1958) 162 Cal.App.2d
198 reached a seemingly different result. The case involved an agreement for the
sale of property. The escrow instructions called for the buyer to deposit money
and a trust deed. At the buyer‟s request, the agreement also required he pay all
escrow costs in the event he withdrew; he explained he did not wish to buy the
land if it could not be subdivided and he wanted to be protected from suit in that
event. The buyer then sought to obtain development approval, but the owners
cancelled the agreement before the buyer deposited money into escrow. The
buyer argued the option was irrevocable because it was supported by valid
consideration. (Id. at pp. 200, 202, 204.) In rejecting that argument, the Court of
Appeal concluded the buyer‟s effort to seek development approval did not
constitute consideration as it was not a bargained-for inducement for the offer of
an option; nor did the buyer‟s obligation to pay costs if he cancelled the agreement
provide consideration because it did not benefit the seller. (Id. at pp. 204-205.)
Even if Prather were correct, it is factually distinguishable. There can be no
dispute that Steiner‟s promise to seek the parcel split induced Thexton‟s offer of
the option. Moreover, the parcel split itself, unlike the development approval
sought in Prather, was necessary to Thexton‟s ability to sell the property because
he wanted to retain two acres of the parcel.
In conclusion, we hold plaintiffs‟ part performance of their bargained-for
promise to seek a parcel split cured the initially illusory nature of the promise and
thereby constituted sufficient consideration to render the option irrevocable.
16
III. DISPOSITION
The judgment of the Court of Appeal is reversed and the case is remanded
for further proceedings.14
MORENO, J.
WE CONCUR: GEORGE, C. J.
KENNARD, J.
BAXTER, J.
WERDEGAR, J.
CHIN, J.
CORRIGAN, J.
14
Thexton raised a number of affirmative defenses in addition to the ones
considered here. Among them were that plaintiffs‟ claims are barred by various
equitable doctrines and that their claims are barred by the applicable statute of
limitations. On remand, the lower courts can consider whether plaintiffs‟ claims
survive Thexton‟s other defenses and, if so, what the appropriate remedy might be.
Because the remedy of specific performance is equitable in nature (see, e.g., 13
Witkin, Summary of Cal. Law (10th ed. 2005) Equity, § 24, pp. 312-314), the
lower courts can consider whether ordering specific performance is warranted or
whether other relief might suffice.
17
See next page for addresses and telephone numbers for counsel who argued in Supreme Court. Name of Opinion Steiner v. Thexton
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 163 Cal.App.4th 359
Rehearing Granted
__________________________________________________________________________________
Opinion No.
S164928Date Filed: March 18, 2010
__________________________________________________________________________________
Court:
SuperiorCounty: Sacramento
Judge: Lloyd Allan Phillips, Jr.*
__________________________________________________________________________________
Attorneys for Appellant:
Law Office of Robert Vaughan and Robert Vaughan for Plaintiff and Appellant.Assembly Member Dave Jones as Amicus Curiae on behalf of Plaintiff and Appellant.
Law Office of Klaus J. Kolb and Klaus J. Kolb for Intervener and Appellant and for Plaintiff and
Appellant.
__________________________________________________________________________________
Attorneys for Respondent:
Law Office of David L. Price and David L. Price for Defendant and Respondent.June Babiracki Barlow and Neil Kalin for California Association of Realtors as Amicus Curiae.
*Retired judge of the Sacramento Superior Court, assigned by the Chief Justice pursuant to article VI,
section 6 of the California Constitution.
Counsel who argued in Supreme Court (not intended for publication with opinion):
Klaus J. KolbLaw Office of Klaus J. Kolb
400 Capitol Mall, 11th Floor
Sacramento, CA 95814
(916) 558-6160
David L. Price
Law Office of David L. Price
3300 Douglas Boulevard, Suite 125
Roseville, CA 95661
(916) 772-8600
This case presents the following issues: (1) When a contract contemplates the sale of real property but provides that the buyer may revoke the contract at any time and for any reason before its efforts to obtain county approvals and permits are completed, is the agreement an option agreement that is unenforceable (and may thus be revoked by the seller) because there is no consideration for the option, or does the implied covenant of good faith and fair dealing sufficiently eliminate the buyer's discretion to revoke so that the agreement is, in fact, a purchase agreement that may be enforced against the seller? (2) Did the trial court and the Court of Appeal err in declining to apply the doctrine of promissory estoppel where the buyer purportedly changed its position to its detriment in reliance on the seller's promise to sell, or would it be inequitable to find an implied promise by the seller not to revoke the agreement?
| Date: | Citation: | Docket Number: | Category: | Status: |
| Thu, 03/18/2010 | 48 Cal. 4th 411, 226 P.3d 359, 106 Cal. Rptr. 3d 252 | S164928 | Review - Civil Appeal | opinion issued |
| 1 | Steiner, Martin A. (Plaintiff and Appellant) Represented by Klaus John Kolb Attorney at Law 400 Capitol Mall, 11th Floor Sacramento, CA |
| 2 | Thexton, Paul (Defendant and Respondent) Represented by David L. Price Attorney at Law 3300 Douglas Boulevard, Suite 125 Roseville, CA |
| 3 | Siddiqui Family Partnership (Intervener and Appellant) Represented by Robert Charles Vaughan Attorney at Law 11879 Kemper Road, Suite 1 Auburn, CA |
| 4 | Siddiqui Family Partnership (Intervener and Appellant) Represented by Klaus John Kolb Attorney at Law 400 Capitol Mall, 11th Floor Sacramento, CA |
| 5 | California Association of Realtors (Amicus curiae) Represented by June Barlow California Association of Realtors 525 S. Virgil Avenue Los Angeles, CA |
| 6 | California Association of Realtors (Amicus curiae) Represented by Neil D. Kalin California Association of Realtors 525 S. Virgil Avenue Los Angeles, CA |
| 7 | Jones, Dave (Amicus curiae) Represented by David Evan Jones Assembly Judiciary Committee, State Capitol P.O. Box 942849 Sacramento, CA |
| Opinion Authors | |
| Opinion | Justice Carlos R. Moreno |
| Disposition | |
| Mar 18 2010 | Opinion: Reversed |
| Dockets | |
| Jul 8 2008 | Petition for review filed Martin A. Steiner, plaintiff & appellant, and Siddiqui Family Partnership, intervenor and appellant, by Klaus J. Kolb and Robert Vaughan, Counsel |
| Jul 9 2008 | Record requested |
| Jul 10 2008 | Received Court of Appeal record one doghouse |
| Jul 23 2008 | Answer to petition for review filed Paul Thexton, respondent by David L. Price, counsel |
| Jul 31 2008 | Received: Notice of non availability of counsel for appellant Siddiqui Family Partnership. by Klaus J. Kolb, counsel |
| Aug 1 2008 | Reply to answer to petition filed Siddiqui Famaily Partnershp, Intervener and Appellant by Klaus J. Kolb, counsel |
| Aug 22 2008 | Time extended to grant or deny review The time for granting or denying review in the above-entitled matter is hereby extended to and including October 6, 2008, or the date upon which review is either granted or denied. |
| Sep 17 2008 | Petition for review granted (civil case) Votes: George, C.J., Kennard, Baxter, Werdegar, Moreno, and Corrigan, JJ. |
| Sep 17 2008 | Letter sent to: counsel re: certificate of interested entities or persons |
| Sep 22 2008 | Certification of interested entities or persons filed David L. Price, counsel for respondent. |
| Oct 1 2008 | Certification of interested entities or persons filed Klaus John Kolb, counsel for appellant. |
| Oct 16 2008 | Request for extension of time filed Appellant requesting extension until November 17, 2008 to file opening brief on the merits. by Klaus J. Kolb, counsel |
| Oct 21 2008 | Extension of time granted On application of appellants' and good cause appearing, it is ordered that the time to serve and file the opening brief on the merits is extended to and including November 17, 2008. |
| Nov 18 2008 | Opening brief on the merits filed Martin A. Steiner and Siddiqui Family Partnership, appellants by Klaus J. Kolb, counsel crc.8.25(b) |
| Dec 4 2008 | Received application to file Amicus Curiae Brief Assembly Member Dave Jones in support of Martin Steiner. by Dave Jones, counsel |
| Dec 8 2008 | Received: word count statement for amicus curiae brief of atty Dave Jones for appellant Martin Steiner |
| Dec 10 2008 | Permission to file amicus curiae brief granted The application of Assembly Member Dave Jones for permission to file an amicus curiae brief in support of plaintiff and appellant is hereby granted. "Any party may file a single consolidated answer to all amicus curiae briefs within 20 days after the last date that an application to file an amicus curiae brief may be filed under rule 29.1(f)(2)." |
| Dec 10 2008 | Amicus curiae brief filed Assembly Member Dave Jones in support of plaintiff and appellant. |
| Dec 12 2008 | Request for extension of time filed Respondent requesting extension until february 2, 2009 to file answer to amicus curiae brief. by David L. Price, counsel |
| Dec 16 2008 | Answer brief on the merits filed Paul Thexton, respondent by David L. Price, counsel |
| Dec 17 2008 | Received application to file Amicus Curiae Brief California Association of Realtors ~Assistant General Counsel Neil D. Kalin |
| Dec 17 2008 | Extension of time granted On application of respondent and good cause appearing, it is ordered that the time to serve and file the answer to amicus curiae is extended to and including February 2, 2009. |
| Dec 30 2008 | Permission to file amicus curiae brief granted California Association of Realtors in support of appellant. by Neil Kalin, counsel |
| Dec 30 2008 | Amicus curiae brief filed The application of California Association of Realtors for permission to file an amicus curiae brief in support of appellant is hereby granted. An answer thereto may be served and filed by any party within twenty days of the filing of the brief. |
| Jan 7 2009 | Request for extension of time filed Appellants - Martin Steiner and Siddiqui Family Partnership requesting extension until January 12, 2009 to file reply brief on the merits. by Klaus J. Kolb, counsel |
| Jan 8 2009 | Extension of time granted On application of appellants and good cause appearing, it is ordered that the time to serve and file the reply brief on the merits is extended to and including January 12, 2009. |
| Jan 13 2009 | Received: Reply Brief on the Merits for appellants - Siddiqui Family Parnership and Martin Steiner by Klaus J. Kold crc.8.25(b) |
| Jan 15 2009 | Request for extension of time filed Respondent - Paul Thexton requesting extension until February 6, 2009 to file response to Amicus Curiae Brief. by David L. Price, counsel |
| Jan 16 2009 | Received additional record one doghouse ( volume 2 ) |
| Jan 16 2009 | Reply brief filed (case fully briefed) Siddiqui Family Partnership and Martin A. Steiner, appellants by Klaus J. Kolb, counsel with permission |
| Jan 20 2009 | Extension of time granted On application of respondent and good cause appearing, it is ordered that the time to serve and file its response to amicus curiae brief in support of respondent is hereby extended to and including February 6, 2009. |
| Jan 26 2009 | Response to amicus curiae brief filed Paul Thexton, respondent by David L. Price, counsel |
| Feb 5 2009 | Received: Received untimely response of appellants Steiner and Sddiqui Family Partnership to amicus briefs of California Association of Realtors and Assembly Member Dave Jones. by Klaus Kolb, counsel |
| Feb 11 2009 | Response to amicus curiae brief filed Martin A. Steiner, appellant by Klaus Kolb, counsel filed with permission. |
| Feb 26 2009 | Received additional record three (3) file jackets |
| Jan 6 2010 | Case ordered on calendar to be argued Wednesday, January 27, 2010, at 9:00 a.m., in San Francisco |
| Jan 8 2010 | Received: letter from Klaus J. Kolb, counsel for appellant requesting that oral argument be continued to a later date. |
| Jan 11 2010 | Letter sent to: Mr. Klaus J. Kolb, counsel for appellant in reponse to counsel's request for a continuance. |
| Jan 27 2010 | Cause argued and submitted |
| Mar 16 2010 | Notice of forthcoming opinion posted To be filed on Thursday, March 18, 2010 @ 10 a.m. |
| Mar 18 2010 | Opinion filed: Judgment reversed The judgment of the Court of Appeal is reversed and the case is remanded for further proceedings. Opinion by Moreno, J. ---joined by George, C.J., Kennard, Baxter, Werdegar, Chin and Corrigan, JJ. |
| Briefs | |
| Nov 18 2008 | Opening brief on the merits filed |
| Dec 10 2008 | Amicus curiae brief filed |
| Dec 16 2008 | Answer brief on the merits filed |
| Dec 30 2008 | Amicus curiae brief filed |
| Jan 16 2009 | Reply brief filed (case fully briefed) |
| Jan 26 2009 | Response to amicus curiae brief filed |
| Feb 11 2009 | Response to amicus curiae brief filed |
| Brief Downloads | |
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| May 25, 2010 Annotated by emissacs | Summary: Issues: Facts: The contract between the parties stated that Steiner would put $1,000 in escrow up-front, conduct all necessary procedures and studies for the county approval process at his own expense and, if satisfied at the end of these procedures, would pay $500,000 for the property. In return, Thexton agreed to keep the land available for Steiner's purchase until September 2006 and understood that Steiner could "at [his] absolute and sole discretion during this period, elect not to continue in this transaction and [void the purchase contract]." After signing the agreement in September 2003, Steiner proceeded to pursue the necessary approvals for the transaction and ultimately incurred roughly $60,000 in expenses. However, in October 2004, Thexton canceled escrow and told Steiner he no longer wanted to sell the property. Steiner then brought suit against Thexton seeking specific performance of the contract. Procedural History: Holding: Reasoning: If consideration is given to keep the option open, the seller is bound to do so for the specified time and cannot revoke the agreement. There are two requirements needed to find consideration: 1) the promisee must agree to confer a benefit or suffer some burden, and 2) the benefit or burden must actually induce the promisor's promise. Because Steiner had already taken steps toward fulfilling his promise to seek the required authorization for the transaction, it did not matter that he was not legally obligated to do so at the time of contracting. His investment of time and money on the matter constituted adequate consideration. Furthermore, Thexton was clearly induced to agree to the contract by Steiner's promise to pursue this authorization because he had refused an earlier offer for more money due to his reticence to go through this process himself. Result: Search Terms: consideration, option, revocation, revocable, option agreement, real property, purchase Annotation By: Eli Isaacs |
