Purchase And Sale Option To Purchase

Law Talk

Although this case dealt with an option to purchase, it is really a straight contract issue in that the terms of the option were in dispute. The decision was a unanimous decision by the Supreme Court, which overturned the judgment of the Court of Appeal.

The Defendant and his wife owned a condominium in San Diego. The Plaintiff expressed an interest in leasing the property with an option to buy. The Defendant signed the following proposal:

"We propose to rent our condominium... 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."

The Plaintiff signed the proposal, with a handwritten amendment providing an option to renew until August 2005. It also contained a paragraph "option to buy is attached."

In July 2004, the Plaintiff sent the Defendant a letter enclosing a notice that he was exercising the option at the agreed price of $298,700.00. The Defendant then sent the Plaintiff a Purchase Agreement referring to the option agreement and included an "as is" clause, a requirement of a 10% deposit and some other information. After some additional matters, the Defendant stated, "if you want to buy the condominium, you buy it on my bid." Plaintiff filed suit seeking specific performance (specific performance is requiring someone to do something that is set out).

The trial court made a decision that the right to purchase the property and the terms of the contract were sufficiently clear to carry out the objective.

The Court of Appeal reversed it in a split decision.

The Supreme Court then held that the equitable remedy of specific performance couldn't be granted if the terms of the contract are not certain enough for the court to know what to enforce. "However, the law does not favor but leans against the destruction of contracts because of uncertainty; and it will, if feasible, so construct the agreements as to carry into effect the reasonable intention of the parties if it can be ascertained."

The Supreme Court went on to state that the law does not require that all terms and conditions of the proposed agreement be set forth in the contract. The usual and reasonable conditions of such contracts are in the contemplation of the parties, a part of the agreement. The Court found that there was no substantial dispute or uncertainty over the manner of payment. Disputes were in fact minor. That was the 10% deposit. Another area of dispute was the length of the escrow period, in that it was unspecified. However, there is a case called "King" which states that the escrow period is not a necessary term in the contract of sale... by implication... the court stated that this could be done by implication.