Memorandum of Decision Re: Breach of Contract
In early 1987, the Trustee received an offer to purchase a leasehold interest owned by the debtors' estate. The Trustee proceeded to notice a hearing in order to obtain court approval of the sale. The hearing was set for March 13, 1987. Prior to the hearing, plaintiff Noyer-More made the Trustee an offer for the leasehold which was for more money than that of the original offeror. Noyer-More's offer was in writing and provided, among other things:
1. Upon acceptance with court approval a deposit check for $14,300.00 was to be deposited into an escrow at a title company selected by Noyer-More.
2. Close of escrow was to be on March 13, 1987.
3. The offer would expire on March 13, 1987, at noon, unless it was accepted by the Trustee and approved by the court before then.
On March 9, 1987, Noyer-More extended the dates referred to above to March 31, 1987. Just prior to the matter being called for hearing on March 13, the original offeror told the Trustee that it did not wish to enter into a bidding war over the lease. The Trustee then informed Noyer-More that he would accept its offer. With a principal of Noyer-More in attendance, the Trustee proceeded to seek approval of the Noyer-More contract. An interested party objected to the sale to Noyer-More on the ground that the lease was actually worth much more than the $143,000.00 offered by Noyer-More. The Trustee informed the Court that he intended to close the sale escrow on April 1, 1987; the Court then ruled that the sale to Noyer-More was approved, but that if an actual offer for a higher amount was received by the Trustee before April 1 then the approval would be vacated and a further hearing held. The Trustee never actually signed the Noyer-More offer. On March 30, 1987, Noyer-More hand delivered its letter to the Trustee rescinding its offer. The lease was subsequently sold for much less than $143,000.00; the present dispute is over the $14,300.00 deposit which the Trustee has retained.
LAW AND ANALYSIS
The Court first rejects the argument of Noyer-More that the Trustee' failure to open an escrow at a title company meant that there was no contract. This term was not a condition of acceptance nor was it specified as the only means of acceptance. While the Trustee may have been in breach of the agreement by acting as the escrow holder himself instead of using a title company, The breach did not go to the heart of the agreement and did not indicate that the Trustee would have any difficulty performing. It therefore did not justify Noyer-More's repudiation of the contract. See 7 Witkin, Summary of California Law (Ninth Ed.) Contracts, sec. 795. The real issue in this case is not whether the contract was breached, but rather whether a binding contract was ever formed. For the reasons stated below, the Court does find that a contract was formed. The Court finds that the Trustee accepted Noyer-More's offer by informing Noyer-More that he would accept its offer and proceeding to obtain court approval of it. A written offer need not be signed in order to be accepted, unless the offer specifically recites that this is the only means of acceptance. The Court may find acceptance where the offeree communicated his acceptance orally and proceeded to act upon it. Dallman Supply Co. v. Smith-Blair, Inc. (1951) 103 Cal.App.2d 129, 132; Beatty v. Oakland Sheet Metal Co. (1952) 111 Cal.App.2d 53, 62. The real problem here is that the offer, by its terms, expired at noon on March 31 unless approved by the court by then. While the Court did approve the sale to Noyer-More on March 13, it made the approval subject to vacation until April 1, twelve hours past the deadline in the offer. Thus, the real issue is whether or not a revocable approval satisfied the terms of the offer.* Noyer-More mistakenly characterizes the court's approval as part of the acceptance of its offer, as if the court were a party to the sale. The court's approval of the contract was, at contract law, an "external condition precedent" to the creation of a binding contract. See 1 Witkin, Summary of California Law (Ninth Ed.) Contracts, sec.144. Resolution of this case depends on whether the the condition is interpreted strictly or with some leeway. However, Noyer-More cannot prevail unless it is interpreted both ways. Noyer-More argues that the condition should be interpreted strictly, so that approval by the court at midnight was unacceptable where the condition specified noon. However, to reach this result the Court must interpret the approval requirement liberally as meaning "irrevocable" approval; technically, the contract was approved on March 13. It is inconsistent for Noyer-More to seek both a strict interpretation of the time deadline and a liberal interpretation of the term "approval." To be consistent, the Court must find that approval was obtained on March 13, even though it was subject to revocation until twelve hours after the time specified for approval. Where the twelve-hour delay caused no demonstrated prejudice to Noyer-More, the Court has no problem interpreting the approval term against it, as the party who drafted the term. The Court may look to the circumstances surrounding the contract in order to divine its meaning. 1 Witkin, Summary of California Law (Ninth Ed.) Contracts, sec. 688. Given the very short time between the deadline for approval and the time court approval became irrevocable, there is no reason for the court to read the word "irrevocable" into the terms of theagreement. Once the Trustee accepted the offer, as the Court has found he did on March 13, Noyer-More lost its power to revoke it. The external condition precedent, approval by the Court, having also occurred on March 13, Noyer-More can prevail only if relieved of its responsibilities due to failure of the Trustee to close escrow on March 31. However, failure of the escrow to close cannot excuse Noyer-More's performance because time was not the essence of the contract and because Noyer-More had already repudiated the contract on March 30, thereby excusing the Trustee's performance. Delay in performance is a material failure of consideration sufficient to permit repudiation of a contract only if by the express language of the contract or its nature time is of the essence. Witkin, supra, Contracts sec. 759. Neither is present here. Likewise, nonperformance by a certain date is no defense where before performance is due the other party repudiates the contract. Witkin, supra, Contracts sec. 760. Noyer-More repudiated the contract the day before escrow was to close, thereby excusing performance the next day by the Trustee even if time had been of the essence. It is no compelling excuse for Noyer-More to say that it was entitled to repudiate the contract because the Trustee could not perform under the terms of the Court's order. At any time, the Trustee could have easily obtained a modification of the order to allow a closing of escrow twelve hours earlier; he did not obtain such a modification only because Noyer-More did not inform him that it deemed the date critical before repudiating the contract. By repudiating the contract without giving the Trustee the opportunity to obtain a modified order, Noyer-More lost its right to insist on timely close of escrow. For the above reasons, Noyer-More will take nothing by its complaint, which shall be dismissed. The Trustee shall recover his costs of suit. This memorandum constitutes findings and conclusions pursuant to FRCP 52(a) and Bankruptcy Rule 7052. Counsel for the Trustee shall submit a form of judgment consistent with this decision.
Dated: January 22, 1988 _______________________ ALAN JAROSLOVSKY U.S. BANKRUPTCY JUDGE
* The written order signed by the Court provided that escrow was to close on or before April 8, 1987. Noyer-More argues that this was an attempt by the Court to change the terms of its offer, notwithstanding the previous part of the same sentence which approved the sale according to the terms of the offer. This reading is clearly in error; the Court merely set a deadline for Noyer-More's performance, after which the Trustee was authorized to sell the lease to the original offeror at a lower