The legendary folksinger, Pete Seeger, once offered these words of wisdom about written contracts: "Education is when you read the fine print. Experience is what you get if you don't."
In recent years, many individuals and companies decided to obtain experience instead of education by signing loan documents or issuing mortgage backed securities without reading the fine print.
But what if a written contract is silent on an important deal point? You cannot read what isn't there, whether it is in bold or fine print. In late December 2008, the California Supreme Court told us "it ain't necessarily so" in Patel v. Liebermensch (filed 12/22/08) S156797.
In that case, the parties (apparently acting without lawyers) entered into a written lease of a condo with an option for the tenant to buy. The written option contained the essential terms of the purchase except for the time of payment. It was also silent about using an escrow for the purchase. A dispute arose between the parties after the tenant exercised the option to buy, and they could not agree to the terms of a purchase agreement. The tenant, Patel, brought a specific performance action to enforce the option agreement. Patel won at trial and lost before the Court of Appeal which ruled the option agreement was too uncertain to specifically enforce. (See, August 23, 2007 post about the Court of Appeal opinion in this case.)
The Supreme Court had little trouble filling in the blanks. First the Court reasoned, " . . . while the parties are obviously free to include escrow specifications in the contract of sale, they are not necessary terms." Once you assume the parties implicitly decided to have an escrow, the rest is easy. "In the absence of a specified time of payment, a reasonable period is allowable under Civil Code section 1657." In other words, the Court concluded that it is reasonable to assume the purchase price would be paid when the implied escrow closed.
This opinion offers both education and experience for parties to a real estate contract in California. If you are willing to invest the time and money to take your case to trial, then to the Court of Appeal and finally to the Supreme Court, you can get a definitive opinion about what the parties did (and did not) agree to. This took about 3 years in the Patel case. During that time, the real estate market declined substantially and it became much more difficult to obtain financing.
If you want to save time and money, it is better to hire a lawyer at the outset so that your agreement covers the essential points of agreement and the incidental points as well. In the case of an option to buy real estate, you can agree to the form and content of the purchase agreement itself to avoid problems down the road.
