Judge: Kristin S. Escalante , Case: BC540028, Date: 2023-03-30 Tentative Ruling
Case Number: BC540028 Hearing Date: March 30, 2023 Dept: 24
MOVING PARTY: Jesus Naranjo (Plaintiff); Maria
Blanca Naranjo (Plaintiff)
RESP. PARTY: Albert Lon Chaney, III
(Defendant); Kay S. Chaney (Defendant)
NATURE OF PROCEEDINGS: Hearing on Motion for Order
cancelling Defendants' Option to Purchase Real Property for Failure to Open
Escrow and Proceed with purchase of said Real Property;
The
above-captioned matters are called for hearing.
The Court has
read the moving papers in the above-captioned motions and announces its
tentative rulings in open Court.
The Motion for Order Re Failure to Open Escrow; reservation
no.: 376537619213 filed by Plaintiffs Jesus Naranjo and Maria Blanca Naranjo on
03/01/2023 is GRANTED.
ANALYSIS
Plaintiffs
Jesus Naranjo and Maria Blanca Naranjo (collectively “Plaintiffs”) move for an
order to be included in the final judgment of this matter cancelling Defendants
Albert Lon Chaney, III’s and Kay S. Chaney’s (collectively “Defendants”) option to purchase
the real property located at 5506-5510 Meridian Street, Los Angeles California
(“subject property”) since Defendants do not timely open and close escrow. (Notice
of Motion at p. 2.)
The parameters
of the proposed order are that the court require “Defendants to make good
faith efforts to open escrow withing thirty (30) days from the date the Order
is signed; that the Defendants participate in said escrow in a good faith
manner; and purchase the Real Property and close escrow within ninety (90) days
from the date the Order is signed. If the Defendants fail to comply with the
Order, the Defendants option to purchase the Real Property shall be immediately
cancelled, and the Defendants shall immediately relinquish to Naranjo the Real
Property’s management and control.” (Mtn. at p. 5.)
By way of
background, this case came before the court in March 2014. (Compl.) Two years
later, on May 24, 2016, the parties entered into a settlement agreement which
was recited on the record in open court, and which incorporated the terms of an
Option Agreement for the purchase of the subject property executed on December
6, 2011. (Declaration of Albert Lon Chaney III [Chaney Decl.,], ¶3, Ex. A.) On
November 18, 2021, the court entered judgment on the terms of the settlement
agreement as reflected in the reporter’s transcript of the court proceedings
dated May 24, 2016, and the Option Agreement as incorporated therein.
The Option
Agreement provided Defendants the opportunity to purchase the subject property
at any time up to and including December 31, 2018. In the event Defendants
exercised the option, certain credits were to be awarded to Defendants as set
out in the court reporter’s transcript of May 24, 2016. Defendants exercised
the option. As a result, and through an effort to enforce the settlement under
Code of Civil Procedure section 664.6, on February 3, 2023, the court held an
evidentiary hearing regarding the amount of credits to award Defendants.
At the hearing
the court requested Plaintiff present what should happened if escrow was not
timely opened and closed. (Chaney Decl., Ex. B, at p. 1.) The court expressed
concern that the subject property should not be tied up in litigation in
perpetuity. (Chaney Decl., Ex. B, at p. 1.) Not having a clear order before it
at that time, the court instructed Plaintiffs to bring a motion regarding
alternative relief regarding what happened if escrow is not completed. (Chaney
Decl., Ex. B, at p. 3.) Plaintiffs have now done so.
Defendants
argues the motion was brought in bad faith because defense counsel previously
provided notice that he was unavailable during the period the motion was
served. Plaintiffs properly and timely served the notice upon Defendants
pursuant to the Code of Civil Procedure.
Defendants’ citation to Tenderloin Housing Clinic, Inc. v. Sparks (1992)
8 Cal.App.4th 299, 304 is inapposite. The conduct in Tenderloin which amounted
to harassing bad faith service of motions included scheduling multiple
discovery motions during a period defense counsel was unavailable, refusing to
reschedule despite defense counsel’s request, serving “eleventh hour”
unnecessary trial subpoenas, scheduling multiple deposition during defense
counsel’s long planned vacation, and failing to produce said witnesses for
deposition when defense counsel returned early from vacation.
Here,
Plaintiffs served the motion 29 days prior to the hearing date. Defendants were
on notice based on the discussion at the February 3, 2023, hearing that the
motion may be served during the period defense counsel had noted being unavailable.
Defense counsel had the option to arrange for the handling of the motion in the
event it was served during this period. The motion does not appear to have been
made in bad faith or have denied defense counsel the opportunity to reply
timely.
Defendants also
argue that any judgment including a cancelation of the option if Defendants do
not timely open and close escrow is an improper modification of the Option
Agreement or an unlawful and disproportionate forfeiture.
The Option Agreement states
that the “ ‘closing term’ shall mean the 180 day period of time immediately
following the Option Exercise Date.” (Chaney Decl., Ex. B, at p. 41.) The
Option Agreement also states, “FAILURE TO EXERCISE OPTION: In the event
Optionees do not exercise the Option within the Option Term, the Option shall
automatically expire, unless Optionees and Optionors have agreed in writing to
extend the Option Exercise date.” (Chaney Decl., Ex. B, at p. 41.) The
agreement does not state a time limit beyond the closing term for how long the
purchase of the subject property However, the agreement contemplates that the
purchase will occur. Defendants argue that setting any time limit for the
escrow period and permitting the option to cancel is an improper modification
of the Option Agreement. Instead, a delay in escrow it is tantamount to a
material breach for which the parties can obtain damages.
However, the Option Agreement
does not contemplate that Defendants can “exercise” the option to purchase the
subject property by providing notice but then proceed in perpetuity without
completing the purchase. Indeed, the agreement states the closing term shall
mean the 180-day period immediately fowling the option exercise date, i.e.,
after exercising the option, the closing of the purchase should have taken
place in approximately six months. It has not and litigation has proceeded for
years. Setting constraints for escrow to take place is consistent with
agreement and the general purpose of an option contract to give someone the right
to either exercise or decline an opportunity.
As to forfeiture, “[f]orfeitures are not favored by the courts; and, if an
agreement can be reasonably interpreted so as to avoid a forfeiture, it is the
duty of the court to avoid it. The burden is upon the party claiming a
forfeiture to show that such was the unmistakable intention of the instrument.”
(Nelson v. Schoettgen (1934) 1 Cal. App. 2d 418, 423.) Here, as discussed, the
requirement to open and close escrow within a certain time is appropriate and
necessary based on the parties’ agreement. Assuming without deciding this
interpretation constituted a forfeiture, the section for relief from forfeiture
provides protects Defendants rights should they act in good faith. (Civ. Code,
§3275.) When default by purchaser under option contract has not been serious
and purchaser is willing and able to continue with their performance of
contract, and seller suffers no damage by allowing purchaser to do so, Section
3275 provides for relief against forfeiture. (Holiday Inns of America, Inc. v.
Knight (1969) 70 Cal.2d 327, 332.)
The proposed order in not
punitive under Civil Code Section 3294 (“Section 3294”). Section 3294 deals
with the standard for establishing entitlement to punitive damages in a
non-contract action.
Accordingly, the motion is
granted.
Moving party is directed to
give notice.