Why Written Agreements Without Legal Advice Can Cause Disputes?

The recent case of Tiffany Builders v. Delrahim concerned an agreement at a coffee shop in Calabasas when David Delrahim made Edwart Der Rostamian a business proposal. Rostamian got his notebook, asked a server for a pen, and worked with Delrahim to compose two pages of text.

When they were done, each man signed the paper. Rostamian later sued Delrahim on contract claims.

The trial court granted Delrahim’s motion for summary judgment, ruling the Calabasas writing was too indefinite to be a contract.

The appellate court reversed that point, but affirmed the ruling against Rostamian’s claims for tortious interference with a contract.

According to Rostamian, the Calabasas discussion concerned the purchase of 13 gas stations. He argued that, if considered in the context of his and Delrahim’s ongoing negotiations, their signed writing was a binding contract.

This account was one-sided because Delrahim chose not to offer declarations giving his version of the facts. This one-sided account was the record in the trial court.

The gas stations in question belonged to seller Ibrihim Mekhail, operating through a family trust. Mekhail was not at the coffee shop and is not a party to this case.

Mekhail was selling the 13 stations as a block. He was offering nine of the 13 with their attached land and the other four without the land: only the businesses were for sale. The parties called the four the “dealer sites.”

Rostamian had been seeking to complete a deal with Mekhail through Rostamian’s company Tiffany Builders LLC, but the deal bogged down. Tiffany had signed a purchase agreement with Mekhail for the 13 stations. Rostamian assembled a group of other investors, including one Carol International, Inc., willing to buy Mekhail’s stations for about $12.8 million.

Rostamian opened an escrow to which Carol had contributed about $250,000, but the escrow did not close for various reasons. Rostamian eventually would assign Tiffany’s rights in the deal to Carol International, although it is not clear exactly when this happened.

In any event, Rostamian kept searching for a way to consummate the transaction and to profit from his efforts.

A mutual acquaintance introduced Rostamian to Delrahim, who expressed interest in the stations. Delrahim owned a company named Blue Vista Partners. Over an interval of some nine months, Rostamian and Delrahim met twice in Studio City and then continued to discuss, via email and text, ways to make a deal.

Then in November 2015, Delrahim said he had a proposal to discuss in person with Rostamian. The two met at the Calabasas coffee shop.

Delrahim proposed Rostamian should back his company out of the pending escrow so Delrahim could buy the stations from Mekhail for $12.4 million, or less if Delrahim and Rostamian could negotiate a lower price. Delrahim would pay Rostamian $500,000 to do this.

Delrahim also proposed Rostamian would own the four dealer sites. Delrahim would charge Rostamian a monthly fee to run these dealer sites, and Rostamian would reap their profit.

Delrahim and Rostamian worked together to word their deal. This two-page hand-written document is central to this appeal, and was termed the Writing.

Delrahim would take the lead in the stations deal in return for guaranteeing benefits for Rostamian. Delrahim would rescue Rostamian’s foundering escrow for Delrahim’s own benefit: Delrahim would buy the 13 stations at a price the two hoped they could negotiate down from the $12.4 million figure.

Delrahim would own nine stations that were not dealer sites, and would gain a $4,000 a month fee for operating the four dealer sites. Delrahim would pay Rostamian $500,000 and would give Rostamian ownership of, and profits from, the dealer sites.

None of that happened. To Rostamian’s dismay, Delrahim decided to deal directly with Mekhail and to cut Rostamian out of the picture. Delrahim bought the 13 stations for about $11 million. Rostamian got nothing.

Rostamian and Tiffany sued Delrahim and Blue Vista for breach of contract, specific performance, intentional and negligent interference with prospective economic advantage, and unfair business practices. Delrahim and Blue Vista moved for summary judgment.

The trial judge granted Delrahim’s summary judgment motion. The court reasoned the Writing was too indefinite to be a contract.

The court considered the parol evidence from Rostamian’s declaration but concluded this evidence failed to clarify the terms to a legally acceptable degree. The court ruled the most critical omission was who would own the 13 gas stations upon completion of the deal. Delrahim had argued Rostamian’s declaration was a sham because it contradicted Rostamian’s deposition testimony.

Rostamian and Tiffany appeal the judgment against them.

As supplemented by parol evidence, the Writing was definite enough to be an enforceable contract. The grant of summary judgment was error.

Three streams of law converge to control this case.

The first rule concerns parol evidence, also called extrinsic evidence.

The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.

Rostamian’s declaration satisfied this test. It was relevant to prove a meaning to which the Writing was reasonably susceptible. The trial court did not rule to the contrary. It properly accepted Rostamian’s explanation of the Writing.

Delrahim incorrectly argues that Rostamian’s assertion that the contract is unambiguous estops him from arguing extrinsic evidence provides clarity. Briefing commonly, and acceptably, argues in the alternative.

The Writing, as explicated by Rostamian, was not too indefinite to enforce.

It was not an illusory contract. When people pen their names to a document they have drafted together, the law accords their act a potent meaning. Delrahim and Rostamian signed their joint creation, thereby enacting a ritual signifying commitment: an exchange of promises. Courts strive to effectuate designs like that. Powerful authority proves it.

The courts construe instruments to make them effective rather than void. This rule is of cardinal importance.

The law leans against destroying contracts because of uncertainty. If feasible, courts construe agreements to carry out the reasonable intention of the parties.

“An interpretation which gives effect is preferred to one which makes void.” (Civ. Code, § 3541.)

“A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.” (Civ. Code, § 1643.)

Courts will imply stipulations necessary to make a contract reasonable regarding matters to which the contract manifests no contrary intention. (Civ. Code, § 1655.)

Indefiniteness as to an essential term may prevent the creation of an enforceable contract, but indefiniteness is a matter of degree. All agreements have some degree of indefiniteness. People must be held to their promises.

If the parties have concluded a transaction in which it appears they intend to make a contract, courts should not frustrate their intention if it is possible to reach a just result, even though this requires a choice among conflicting meanings and the filling of gaps the parties have left. This rule comes nearer to attaining the purpose of the contracting parties than any other.

There are two reasons not to enforce an indefinite agreement. First, the agreement may be too indefinite for the court to administer—no remedy can be properly framed. Second, the indefiniteness of the agreement may show a lack of contractual intent. Courts should be slow to come to this conclusion. Many a gap in terms can be filled, and should be, with a result that is consistent with what the parties said and that is more just to both than would be a refusal of enforcement.

The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.

When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.

Rostamian’s explanation of the Writing made it definite enough for judicial enforcement. His version, which was binding on the trial court at the summary judgment stage, was a series of clear promises.

First, he would withdraw from the escrow to give Delrahim pride of place, allowing Delrahim to profit from Rostamian’s effort in finding and trying to exploit this business opportunity.

Second, Rostamian would cooperate with Delrahim’s effort to negotiate from Mekhail a price lower than $12.4 million.

Third, Rostamian would pay Delrahim $4,000 a month to operate the four gas stations referred to as dealer sites. In return, Delrahim made three clear promises of his own: to pay Rostamian $500,000; to grant Rostamian ownership of, and profits from, the four dealer sites; and to operate the four dealer sites for Rostamian.

This exchange of promises was an enforceable contract.

A contract need not specify price if price can be objectively determined. The absence of a price provision does not render an otherwise valid contract void.

In the process of negotiating an agreement, price is a term frequently left indefinite and to be settled by future agreement. If the parties provide a practical method for determining this price, there is no indefiniteness that prevents the agreement from being an enforceable contract.

Although the necessity for definiteness may compel the court to find that the language used is too uncertain to be given any reasonable effect, when the parties’ language and conduct evidences an intent to contract, and there is some reasonable means for giving an appropriate remedy, the court will strain to implement their intent.

For example, a bank signature card is a contract authorizing charges for processing checks drawn on accounts with insufficient funds and was not illusory, even though it did not specify the amount of the charges.

The Writing was definite enough to enforce contractually.

LESSONS:

1.         A written agreement prepared without legal assistance can include ambiguities and inconsistencies that may cause disputes.

2.         The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.

3.         The law leans against destroying contracts because of uncertainty. If feasible, courts construe agreements to carry out the reasonable intention of the parties.

4.         “An interpretation which gives effect is preferred to one which makes void.” (Civ. Code, § 3541.)

5.         “A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.” (Civ. Code, § 1643.)

6.         Courts will imply stipulations necessary to make a contract reasonable regarding matters to which the contract manifests no contrary intention. (Civ. Code, § 1655.)