1 Filed 8/13/14 Tolani v. International Fidelity Ins. CA3 NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA THIRD APPELLATE DISTRICT (Placer)

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TONY TOLANI et al., Plaintiffs and Respondents,

v.
INTERNATIONAL FIDELITY INSURANCE COMPANY, Defendant and Appellant. C071354 (Super. Ct. No. SCV27567)

Plaintiffs, several individuals, entered in to contracts to purchase luxury penthouse condominiums at Lake Tahoe, and made earn est money deposits. In accordance with state law, these deposits were covered by surety bonds, and th en released to the developer. The developer defaul ted on the construction loan, and, at the close of escrow of the condominiums, was unable to deliver clear title. Plaintiffs demanded of the developer and the sureties the return of thei r earnest money deposits. They received no

return.2 Plaintiffs brought suit against the develo per and the two sureties. They sought declaratory relief to resolve wh ether the surety defendant In ternational Fidelity Insurance Company (IFIC) was obligated to pay them the proceeds of the surety bond equal to their earnest money deposits. The trial cour t granted plaintiffs’ motion for summary adjudication as to IFIC. IFIC appeals, contending the trial court erred in granting summary adjudication because plaintiffs failed to show they were ready, willing, and able to perform their obligations under the purchase contracts. As we explain, the contracts provided that the purchaser’s sole remedy for a seller’s failure to meet its ob ligations under the contract that was not cured within 10 days was rescission of the contract and refu nd of moneys paid. Because the seller’s default and inability to cure was undisputed, the trial court properly granted the motion for summary adjudication. Accordingly, we shall affirm. FACTUAL AND PROCED URAL BACKGROUND Plaintiffs are 10 individuals who, in the fall of 2007 or the spring of 2008, entered into purchase and sale agre ements with Highlands Hotel Company to purchase seven condominium units at the Highlands development at North Star. Pursuant to the terms of the purchase agreements, each purchaser depo sited into escrow a certain amount of earnest money. The purchase agreements contemplated close of escrow within 30 months after Highlands accepted the agreement. They also pr ovided that time is of the essence. The purchase contracts provided th at title to the property would be conveyed subject only to permitted exceptions, such as property taxes not yet delinquent and liens approved by the purchaser.3 In accordance with state law, Highlands obtained a $3 million blanket surety bond from IFIC to protect the purchasers. 1 The surety bond prov ided: “Whereas, Principal [Highlands] has elected, in lieu of individual tr act bonds, to give this surety bond to the State of California in compliance with Sec tion 11013.2(c) and/or Section 11013.4(b) of the Business and Professions Code of the Stat e of California, as a pplicable, as a blanket and continuing obligation for the benefit and protection of each and every purchaser of any lot or lots within each and every subdivision now or he reafter offered for sale or lease, or sold or leased by Principal direc tly or through his agents in the State of California.” The escrow agent released the earne st money deposits to Highlands. Highlands defaulted on the construc tion loan and Bank of America, as administrative agent for the lenders, refuse d to release the lien on the development. Accordingly, Highlands was unable to deliver clean title to the purcha sers at the time for close of escrow as required by the purch ase agreements. The purchase agreements provided in part: “If Seller has not comp lied with Seller’s obligations under this Agreement, Purchaser must send Seller a notice that Purchaser considers Seller to be in default and providing a reasonabl y detailed statement of the natu re of the default. Upon receipt of that notice, Seller shall have ten (10) days in wh ich to fulfill Seller’s obligations. Purchaser agrees that Purchaser’s sole remedy in the event that Seller does not fulfill its obligations prior to the expiratio n of the ten (10) day cure period is to rescind this Agreement and to receive a refund of all monies that Purchaser has paid to Seller.”

1 Highlands also obtained a surety bond from another surety. That surety bond is not at issue in this appeal.4 Plaintiffs brought suit agai nst Highlands, IFIC, and ot hers for return of their earnest money deposits. The first amended complaint (FAC ) alleged that “[b]y this Complaint--and prior written noti ce--plaintiffs notify Highlands of breach of contractual and other legal obligations an d plaintiffs’ terminating and rescinding the real estate purchase and sale contracts with Highlands based on its breach of contract, its fraudulent non-disclosures of material fa cts, and failure of considera tion.” The FAC also alleged that plaintiffs had notified IFIC of their cl aims against Highlands and against the surety bond. The FAC alleged only a cause of action for declaratory relief against IFIC. The FAC alleged that plaintiffs had notified IFIC of their claims on the surety bond and IFIC had not responded. Plaintiffs anticipated th at IFIC would deny the claims. Plaintiffs asked the court to resolve the dispute with IFIC as to whether IFIC “must pay to Plaintiffs surety bond proceeds equal to their earnest money deposits , prejudgment interest, and costs of suit.” Subsequent to the filing of the FAC, th e court-appointed rece iver for Highlands received confirmation from Bank of America that the blanket en cumbrance on the Highlands development would not be released. The receiver then executed a series of notices of termination for the purchase agreem ents for the sale of units at the Highlands Hotel Residences at North Star. Plaintiffs obtained a default judgment against Highlands, in the amount of the earnest m oney deposits plus interest. Plaintiffs moved for summary adjudica tion against IFIC. They set forth as undisputed various facts about the purchase ag reements, the surety bond issued by IFIC, and Highlands’s inability to de liver a clean title in order to close escrow within the 30- month deadline. Plaintiffs argued they we re entitled as a matter of law to an order directing IFIC to return th eir earnest money deposits.5 In response, IFIC accepted most of the facts as undis puted for purposes of the motion, but claimed those facts were insufficien t to establish plaintiffs’ right to a refund of the earnest money deposits. 2 IFIC contended that to r ecover, “plaintiffs must show that they were ready, willing, and able to perform under their individual purchase contracts.” The trial court granted the motion for su mmary adjudication and entered judgment against IFIC. DISCUSSION “An action for declaratory relief is appr opriate to determine the legal rights and duties of the parties to a written contract. (C ode Civ. Proc., § 1060.) Where, as here, the only cause of action [against a particular defe ndant] is one for declaratory relief, a motion for summary [adjudication] likewise is appropriate. [Citations.]” ( Shaw v. Regents of University of California (1997) 58 Cal.App.4th 44, 52.) A ruling on a motion for summary adjudication involves a pure question of law and is subject to de novo review on appeal. ( Certain Underwriters at Lloyd’s of London v. Superior Court (2001) 24 Cal.4th 945, 972.) The contracts at issue here are the surety bond and th e purchase agreements. The surety bond, by its express terms, was issued to comply w ith Business and Professions Code section 11013.2. Generally, it is illegal to sell lots or parcels that are subject to a blanket encumbrance unless such encumbrance has a release clause. (Bus. & Prof. Code, § 11013.1.) Section 11013 .2 permits a developer to sell lots or parcels that are subject to

2 IFIC disputed that its bond was to protect the purchasers of the Highlands development, asserting the bo nd was for the benefit of only certain purchasers identified in the bond. IFIC offered no f acts in support of this asserti on, other than the terms of the bond. The bond identifies no specific purchasers and states it is “for the benefit and protection of each and every purchaser of an y lot” offered for sale or sold by the Principal, Highlands.6 a blanket encumbrance without a release clause if: “A bond to the State of California is furnished to the commissioner for the benefit a nd protection of purcha sers or lessees of such lots or parcels, in such amount and s ubject to such terms as may be approved by the commissioner, which shall provide for the return of the moneys paid or advanced by any purchaser or lessee, for or on account of the pu rchase or lease of any such lot or parcel if a proper release from such bl anket encumbrance is not obta ined; provided, however, that if it should be determined that such purchaser or lessee, by reason of default or otherwise, is not entitled to the return of such moneys, or any portion thereof, then su ch bond shall be exonerated to the extent of the amount of such moneys to whic h such purchaser or lessee is not entitled.” (Bus. & Pr of. Code, § 11013.2, subd. (c).) Although IFIC did not dispute that Highl ands was unable to obt ain release of the condominium units from the blan ket encumbrance, it contends plaintiffs are not entitled to return of their earnest money deposits becaus e they have failed to show they are ready, willing, and able to perform under the purchase contract. IFIC argues plaintiffs have not- -and likely cannot--show they were ready, willing, and able to fund the purchase of the condominiums. IFIC relies on Ersa Grae Corp. v. Fluor Corp. (1991) 1 Cal.App.4th 613 ( Ersa Grae ).
In Ersa Grae , that company sued Fluor for damage s for breach of a contract to sell real property to Ersa Grae. ( Ersa Grae, supra , 1 Cal.App.4th at p. 616.) The contract contemplated that, within 120 days of execution of the agreement, Ersa Grae would form a consortium to provide the funding to fi nance construction on the property. ( Id . at p. 618.) Fluor decided to sell the property to another company instead of Ersa Grae. ( Id . at pp. 619-620.) The jury found that a contra ct had been formed between Ersa Grae and Fluor and that Fluor br eached the contract. ( Id . at p. 620.) In the second phase of the trial, the jury awarded Ersa Grae substantia l damages based on the difference between the purchase price and the value of the prop erty at the time of the breach. ( Id . at pp. 621, 626-627.)7 In reversing the judgment and remanding the case for a new trial on damages, the appellate court agreed with Fluor that the tr ial court should have required Ersa Grae to prove it was ready, willing, and able to perform the contract. “Although it is true that an anticipatory breach or repudia tion of a contract by one part y permits the other party to sue for damages without perform ing or offering to perform its own obligations [citation], this does not mean damages can be rec overed without evidence that, but for the defendant's breach, the plainti ff would have had the ability to perform. [Citation.]” ( Ersa Grae, supra , 1 Cal.App.4th at p. 625.) The Ersa Grae court explained that Ersa Grae was not required to actually put together the consortium for financing the purchase, but “evidence should have been presented by Ersa Grae to prove that, but for Fluor's breach, Ersa Grae had the ability (by way of [it’ s broker’s] contacts or otherwise) to form the consortium and fund the deal.” ( Id . at p. 626.) Plaintiffs contend Ersa Grae is not applicable because they sought only return of their deposits, not damages for breach of cont ract. IFIC responds that the rule of Ersa Grae applies because plaintiffs did not sue for rescission; instead, they sued Highlands for breach of contract. IFIC argues that th e FAC “does not mention the term rescission.” The FAC does, however, allege that the complaint and prior written notice notified Highlands of its breach of contractual and other legal obligations and of plaintiffs’ terminating and rescinding the real estate pur chase and sale contracts. Further, in moving for summary adjudication, plain tiffs offered the declaration of the receiver that he had executed notices of terminati on of the purchase agreements, “releasing Plaintiffs in the instant action from their Purchase and Sale Agreements with Highlands.” In arguing that plaintiffs sued for breach of contract and thus Ersa Grae applies, IFIC ignores the language of the purchase co ntracts which set forth the exclusive remedy where the Seller fails to meet its obligations (such as delivering clean title). The sole remedy is rescission and return of monies paid . Plaintiffs’ cause of action against IFIC was for declaratory relief and sought only return of their deposits plus interest and costs.8 Under the provisions of both the surety bond a nd the purchase contracts, plaintiffs are entitled to return of their earne st money deposits due to Highlands’s undisputed inability to deliver clean title. Rescission is an a ppropriate remedy where there is a material failure of consideration. (C iv. Code, § 1689, subd. (b)(2).) IFIC contends the rule of Ersa Grae has been applied in cases involving specific performance and declaratory relief, as well as those for damages for breach of contract. In all of the cases it cites, however, the remedy sought was for specific performance. ( Henry v. Sharma (1984) 154 Cal.App.3d 665, 669; Am-Cal Inv. Co. v. Sharlyn Estates , Inc. (1967) 255 Cal.App.2d 526, 539; Ninety Nine Investments v. Overseas Courier Service (Singapore) Private (2003) 113 Cal.Ap p.4th 1118, 1126; C. Robert Nattress & Assocs. v. CIDCO (1986) 184 Cal.App.3d 55, 63-64.) In those cases the plaintiffs sought to affirm the contract and thus had to show an ability to perform under it. IFIC cites to no authority--and we have found none--that a plaintiff must show ability and willingness to perform as a prerequisite to de claratory relief of rescission an d restitution. As we discuss

ante , it appears to the contrary. In his treatise on contracts, Professor Williston distinguishes between suits to enforce a contract for the purchase of land or recover damages and those for rescission and restitution with respect to th e need to prove that plaintiff is ready, willing, and able to perform. 3 Noting the considerations of equity in rescission, the treatise indicates that if, as here, the contract provides the contingencies in which res titution shall be allowed, that provision will be enforced. (26 Williston on C ontracts (4th ed. 2003) § 68:10, p. 112.) The treatise cites as an exampl e the exact situation here: where a seller who has accepted deposits from buyers is then unable to de liver clean title. “Thus, where a defendant

3 In concluding that Ersa Grae had to prov e its ability to perform the contract, the court relied in part on Professor Willis ton’s treatise on contracts. ( Ersa Grae, supra , 1 Cal.App.4th at p. 625.)9 sought to resist a plaintiff’s demand for restitution of a down payment on land that the plaintiff had contracted to purchase and to which defendant could not convey good title by asserting that the plaintiff was motivated by a desire to avoid th e transaction in bad faith and had not shown himsel f willing and able to perform, the court ruled: [¶] ‘A contract for the purchase of lands may be re scinded, and the purchase moneys paid in advance may be recovered, on the failure of the seller to perfo rm, even though the purchaser could not have performed. In an action to rescind and recover payments made on account of the purchase price it is enough to show a breach by the seller. This is not the rule, however, when the actio n is to enforce the contract or to recover damages; for the seller’s breach, here, the one seeking dama ges for its breach must tender and prove his own readiness, willingness, and ability to perform.’ ” (26 W illiston on Contracts,

supra , § 68:10, pp. 114-115, quoting Weintraub v. Rungmar Realty Corp. (Sup.Ct.1962) 231 N.Y.S.2d 241, 244.) California law permits recovery of the bu yers’ deposits in this situation. In Rutherford Holdings, LLC v. Plaza Del Ray (2014) 223 Cal.App. 4th 221, the parties contracted for the purchase and sale of a mobile home park. Rutherford made a substantial deposit but the sale was never co mpleted and Rutherford sued to recover its deposit. ( Id . at pp. 226-227.) After sustaining de fendant’s demurrers, the trial court entered a judgment of dismissal. ( Id . at p. 227) On appeal, the court held Rutherford could state a cause of action for money had a nd received based on the total failure of consideration and it was not necessary to bring a formal action for rescission. ( Id . at p. 230.) “Where the failure of the considerati on is total, ‘the law implies a promise on the part of the other to repay what has been received by him under the contract . . . .’ [Citation.] Such a promise is implied because the ‘defendant cannot in equity and good conscience retain the benefits of the agr eement and repudiate its burdens . . . .’ [Citation.]” ( Ibid .)10 The trial court did not err in gran ting the plaintiffs’ motion for summary adjudication. DISPOSITION The judgment is affirmed. Plaintiffs shall recover their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(2).)

DUARTE , J.

We concur:

BLEASE , Acting P. J.

MURRAY , J.