In Patel v. Liebermensch, (— Cal.Rptr.3d —, 2008 WL 5273686, Cal., Dec. 22, 2008), the California Supreme Court considered an appeal by a buyer of real property to enforce a contract for the sale of the property, even though the buyer and seller subsequently disagreed about escrow terms, resulting in the seller’s refusal to proceed. The court ruled that a disagreement over escrow terms did not void the contract. The parties signed a valid contract and the escrow disagreement was incidental and did not bear on the ultimate payment to be received.
In 2003, Sunil Patel and Morris Liebermensch entered into a contract allowing Patel to lease a condominium owned by Liebermensch, with an option to buy.
In 2004, Patel informed Liebermensch that he was exercising his option and would buy the property for the previously agreed-upon price. Liebermensch responded that he desired a 90-day escrow with the right to extend it by another 30 days if necessary to arrange a tax-deferred exchange. Patel rejected this proposal, explaining that he wanted a 30-day escrow to ensure that the interest rate on his mortgage did not increase. Liebermensch rejected this proposal and refused to proceed with the sale.
Patel filed suit, seeking specific performance of the option agreement. A jury ruled that the parties entered into a valid purchase contract that clearly gave Patel the right to purchase the property and the trial court entered judgment ordering the sale to proceed. A California Court of Appeal reversed that judgment ruling that Liebermensch was bound by the option agreement only if it included the essential terms of a real estate purchase and opining that the escrow dispute left the time and manner of payment insufficiently clear. Patel appealed to the California Supreme Court.
Although a contract cannot be enforced if its terms are not certain enough for the court to know what to enforce, that was not the case here. Further, the law leans toward enforcing contracts, rather than destroying them, if reasonable intentions of the parties can be ascertained. “An agreement for the purchase of sale of real property does not have to be evidenced by a formal contract drawn with technical exactness in order to be binding,” the court quoted King v. Stanley (1948) 32 Cal.2d 584, 588. It is settled that if the contract does not specify a time frame for payment, “a reasonable time is allowed,” and that the manner of payment “may be supplied by implication.”
The Court of Appeal erred when it construed the escrow dispute as rendering the contract insufficiently clear. While parties are free to include escrow provisions in a contract, they are not necessary terms of a property purchase. Rather, the court added, a legion of cases establishes that a reasonable time for payment may be implied in a contract if the specifics are lacking. The contract did not specify escrow terms, but by signing the purchase contract, Liebermensch was nonetheless bound to its terms. The essential terms of the contract were easily ascertainable and the escrow dispute did not cloud them, but rather was incidental to them.
The Court of Appeal erred by failing to enforce a straightforward option contract and its judgment was reversed.
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