Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC342209, Ernest M. Hiroshige, Judge.
Law Office of Barry J. Jacobs and Barry Jacobs; Law Office of Linda Pethick and Linda Pethick for Plaintiff and Appellant.
Wendy L. Slavkin for Defendants and Respondents.
CHAVEZ, J.
Jason Gulvartian (appellant) appeals from a judgment entered after the trial court granted a motion for summary judgment filed by Andy Fakhoury, Jamal Sayegh, and Hiam Sayegh (respondents) as to appellant’s causes of action against them for breach of contract and specific performance. We reverse.
CONTENTIONS
Appellant contends that the trial court erred in granting summary judgment because the plain language of the lease agreement between respondents and H & M One Stop, Inc. (One Stop) did not prohibit One Stop’s assignment to appellant of One Stop’s option to purchase. In addition, appellant argues that California law permits the assignment of options to purchase where no specific contractual prohibition exists.
FACTUAL BACKGROUND
In May 2003 respondents leased their property, located at 3160 Riverside Drive, Los Angeles, California 90027 (the property), to One Stop. The property was laid out as a gas station. The written lease agreement between respondents and One Stop (lease) provided for an initial term of 60 months, until April 30, 2008, and an option to extend for another three years. The lease included the following “Option to Purchase”:
“Lessee is hereby granted the first right to purchase the property if Lessor elects to sell the property during the lease term or the option period. Should Lessor receive an offer to purchase, Lessor shall notify Lessee and Lessee shall have 72 hours to match the offer in writing. If Lessee matches the offer but fails for any reason to thereafter make the purchase, Lessee shall pay Lessor $10,000 to compensate Lessor for the expenses, losses, and inconvenience suffered.”
In June 2005, respondents elected to sell the property to Morton LaKretz (LaKretz) for a purchase price of $2,090,000. Thereafter, notice of LaKretz’s offer was prepared and served on One Stop as required under the lease. On September 9, 2005, One Stop exercised its option to purchase the property “on terms and conditions matching those” set forth in the standard offer, agreement and escrow instructions between respondents and LaKretz. One Stop assigned its exercised option to purchase to appellant by written assignment dated September 10, 2005.
PROCEDURAL BACKGROUND
On October 28, 2005, appellant filed a complaint for specific performance and breach of contract against respondents. Respondents demurred, and on March 28, 2006, appellant filed his first amended complaint, alleging the same causes of action. Respondents again demurred, but the trial court overruled the demurrer. Respondents filed their answer to the first amended complaint on July 25, 2006.
On November 14, 2005, LaKretz filed a complaint against respondents seeking specific performance of his alleged sale agreement with respondents. By a stipulation entered on January 9, 2007, appellant’s case against respondents was consolidated with LaKretz’s case against respondents. Because of the consolidation, the trial date was continued from January 24, 2007 to March 21, 2007.
Prior to the March 21, 2007 trial date, respondents and LaKretz filed motions in limine arguing that appellant’s assignment was invalid as a matter of law and asking the trial court to preclude any evidence of appellant’s rights or damages at trial. At the final status conference on March 9, 2007, the trial court continued the trial date to April 11, 2007, but stated: “This is without prejudice to a possible motion being brought by the parties to continue trial in order to bring a motion for summary judgment. [¶] The Court indicates that it would grant leave to bring an ex parte application if necessary to allow the parties to have the Court ruling on certain motions in limine prior to the trial.”
On March 23, 2007, respondents made an ex parte application to continue the trial date in order to allow the court to hear their motion for summary judgment. The court, finding that “good cause” existed, granted the ex parte application and set the motion for hearing on June 13, 2007. The court continued the trial date to July 18, 2007.
After the June 13, 2007 hearing on respondents’ motion for summary judgment, the court took the motion under submission. On July 11, 2007, the court adopted its tentative ruling and denied the motion. The ruling explained: “The prohibition against assignments found in section 14.01 of the agreement is limited to any assignment or sublease as to the ‘Leased Property’ covered under the agreement. The assignment in this case was made not as to any ‘Leased Property,’ but was only exercised as to the option to purchase under the lease. Moreover, section 14.01 only provides that the Lessee ‘may not mortgage, pledge or otherwise encumber its interest in this lease.’ . . . Here, the option to purchase cannot be said to diminish the value of the property itself, but only the purchase price and the parties to which Defendants are capable of selling under the agreement. The option is not akin to an easement or other limitation on the use of real property which naturally may be described as an ‘encumbrance’ limiting the value of the property. . . .”
However, on July 20, 2007, the trial court issued a different tentative ruling regarding the summary judgment motion. Citing Le Francois v. Goel (2005) 35 Cal.4th 1094, the court found that it had inherent power to reconsider its prior ruling. The court explained that it had reviewed all the relevant briefs a second time and determined that it should reconsider the issues presented in the summary judgment motion. The court concluded that the assignment was prohibited because “selling the option to purchase to a third party would be an encumbrance upon Lessee’s interest under the lease.”
On July 24, 2007, after allowing additional briefing, the trial court granted respondents’ summary judgment motion on the ground that “the plain language . . . indicates an intent to prohibit any assignment of the option to purchase.” On July 27, 2007, the trial court dismissed appellant’s case. On August 24, 2007, appellant filed this appeal.
DISCUSSION
I. Standard of Review
We review a grant of summary judgment de novo, and decide independently whether the facts not subject to triable dispute warrant judgment for the moving party as a matter of law. (Intel Corp. v. Hamidi (2003) 30 Cal.4th 1342, 1348.) The trial court’s stated reasons for granting summary judgment are not binding on the reviewing court. (Kids’ Universe v. In2labs (2002) 95 Cal.App.4th 870, 878.)
II. The Contract
The parties agree that the contractual language at issue consists of the following two sentences, found in section 14.01 of the lease:
“Lessee may not mortgage, pledge or otherwise encumber its interest in this lease. Lessee may not assign or sublet the Leased Property without the prior written consent of Lessor.”
The first question we must address is whether the plain language quoted above prohibited One Stop’s assignment of its exercised option to purchase the property.
A. Principles of Contractual Interpretation
The fundamental goal of contract interpretation is to give effect to the mutual intention of the parties. (Civ. Code, § 1636.) If a contract is reduced to writing, “the intention of the parties is to be ascertained from the writing alone, if possible.” (§ 1639.) The “clear and explicit” meaning of the provisions, interpreted in their “ordinary and popular sense,” (§ 1644) controls judicial interpretation. However, “‘[i]f the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.’ [Citations.]” (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264-1265.) We must interpret the terms of the contract “‘in context’” with “‘each clause helping to interpret the other.’” (Palmer v. Truck Ins. Exch. (1999) 21 Cal.4th 1109, 1115.)
B. The Language of the Contract Does Not Prohibit Assignment of the Option to Purchase
The language of the contract does not explicitly prohibit assignment of the option to purchase. However, respondents argue that One Stop’s option to purchase should be considered part of One Stop’s “interest in” the lease. Thus, respondents claim, the restriction on One Stop’s right to “mortgage, pledge, or otherwise encumber” its interest in the lease prevented One Stop’s assignment of the option to purchase.
Assuming that the option to purchase is properly categorized as an “interest in the lease,” the contract only forbids mortgaging, pledging, or otherwise encumbering that interest. It does not prohibit assignment of that interest, or any portion of that interest. Unless the words “mortgage, pledge, or otherwise encumber,” as those terms are used in their “ordinary and popular sense” (Civ. Code, § 1644), encompass the term “assignment,” then the sentence restricting One Stop’s interest in the lease does not prevent assignment of One Stop’s option to purchase.
Respondents have not directed us to any case law equating the term “assignment” with any of the actions specifically forbidden by the contract. They provide the definition of “encumbrance” from Black’s Law Dictionary, which defines the term as “Any right to, or interest in, land which may subsist in another to diminution of its value, but consistent with the passing of the fee by conveyance.” (See Black’s Law Dict. (6th ed. 1990) p. 527, col. 1.) Respondents argue that One Stop’s “purported” assignment of the lease to appellant was an attempt to “encumber and diminish [One Stop’s] interest in the Lease Agreement.” Respondents conclude that “Such an encumbrance is prohibited by the plain language of the Lease Agreement.”
The Supreme Court has defined the term “encumbrance,” as applied to “an estate in land,” to “include whatever charges, burdens, obstructs, or impairs its use or impedes its transfer.” (Johnson v. Bridge (1923) 60 Cal.App. 629, 632.) In Evans v. Faught (1965) 231 Cal.App.2d 698, 706, the court listed numerous restrictions on ownership which “the California courts have determined . . . to be encumbrances.” They include: covenants running with the land restricting use of the property; building restrictions; a reservation of right-of-way; an easement; an encroachment; a lease; a deed of trust; and pendency of a condemnation proceeding.
We find this position to be untenable. “To assign, in ordinary legal usage, . . . is to transfer legal title or ownership.” (Burkett v. Doty (1917) 176 Cal. 89, 92.) By assigning the option to purchase, One Stop transferred the option to appellant. This transfer did not burden One Stop’s interest in the option or diminish the value of the option.
Respondents argue that the assignment of the option to purchase created an encumbrance because it diminished the value of One Stop’s interest in the lease as a whole. We decline to adopt this position, primarily because the assignment did not create an encumbrance of any sort as that term is commonly used. Rather than encumbering its interest in the lease, One Stop simply transferred a portion of that interest. After the assignment, the option to purchase could no longer be considered part of One Stop’s overriding interest in the lease. That interest remained unencumbered.
Respondents’ argument is dependent upon its position that the words “interest in this lease” necessarily refer to a single overriding interest. We do not agree. Case law supports the severability of option to purchase provisions in leases. (Spaulding v. Yovino-Young (1947) 30 Cal.2d 138, 141 [such option may be separated from the lease and transferred by the lessee independently of the leasehold interest].) However, even if the words “interest in this lease” could only be interpreted to refer to One Stop’s entire interest in the lease, as we shall explain, the assignment of the option to purchase did not constitute an encumbrance on that interest.
The amount of consideration that One Stop was to receive in exchange for the assignment was redacted from the copy of the assignment agreement in the record. However, respondents have represented that “subsequent discovery revealed the amount was $300,000.”
For these reasons, we find that the plain language of the contract directing that One Stop may not “mortgage, pledge or otherwise encumber” its “interest in” the lease does not prevent One Stop’s assignment of its option to purchase.
We find it unnecessary to address appellant’s argument that, even if the exercise of the option to purchase could be considered an encumbrance on the property, it was specifically permitted under the lease.
The second clause at issue provides that “Lessee may not assign or sublet the Leased Property without the prior written consent of Lessor.” While this clause does prevent assignment, it specifies that the restriction on assignment is limited to the “Leased Property.” “Leased Property” is defined in section 1.02 of the lease as follows:
“Leased Property. The Real Property described in Section 1.01 above is referred [sic] as the ‘Leased Property.’”
Section 1.01 provides:
“Real Property. Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the real property situated in Los Angeles County, California, and described on Exhibit ‘A’ attached hereto and made a part hereof, together with all buildings, improvements, fixtures appurtenances, and hereditaments appertaining or belonging thereto (the ‘Real Property’), . . . .”
Neither of these definitions encompasses the option to purchase. It is clear that the term “Leased Property” was intended to mean the physical property itself -- not the right to purchase the fee interest of that property. Therefore, the contractual restriction on assignment does not include the option to purchase.
We have separately analyzed the two applicable sentences in section 14.01. Neither sentence prevents assignment of the option to purchase. However, we must also look at these sentences “‘in context’ . . . with ‘each clause helping to interpret the other.’” (Palmer v. Truck Ins. Exch., supra, 21 Cal.4th at p. 1115.) Our reading of the two sentences of section 14.01 in context also leads to the conclusion that the parties did not intend to restrict assignment of One Stop’s “interest” in the lease. The restriction on One Stop’s “interest” only forbids a mortgage, pledge, or other encumbrance on that interest. In the following sentence, an explicit restriction on assignment -- limited to “the Leased Property” -- is set forth. The parties’ omission of the word “assign” when describing the prohibited activities in the first sentence, juxtaposed with the specific use of that term in the next sentence, undermines respondents’ position that the first sentence was intended to prevent assignment.
In sum, we find that the clear and explicit language contained in section 14.01 of the lease does not, as a matter of law, prevent assignment of the option to purchase.
III. California Law Does Not Prohibit Assignment of the Option to Purchase
We have determined that the plain language of the lease does not prohibit One Stop’s assignment to appellant of the option to purchase. Next, we must determine whether such an assignment is permitted under California law. The parties have cited several controlling cases involving assignments of options to purchase. In sum, the case law shows that a lessee’s option to purchase is generally considered to be freely assignable unless either (1) the parties included specific contractual language prohibiting assignment of the option, or (2) specific provisions in the contract, such as an allowance for installment payments, make the option personal to the lessee.
In Mott v. Cline (1927) 200 Cal. 434, 450, the Supreme Court stated the general rule as to the assignability of options to purchase:
“Inasmuch as the contract contains no features of personal trust or confidence reposed in any of the parties and requires nothing more than a mere routine of paying money, it is assignable. [Citations.] The option provision is clearly severable from all other provisions of the lease and no injury could possibly come to the owner and lessor by receiving the cash purchase price . . . from the optionee’s assignee, rather than from the optionee.”
In specifying that the contract at issue contained “no features of personal trust or confidence,” the high court distinguished an earlier case, Prichard v. Kimball (1923) 190 Cal. 757. In Prichard, the Supreme Court found that an option to purchase contained in a lease was not assignable. However, the lease provided that if the option was exercised by the lessee, the purchase price of the property could be paid in installments. The high court concluded that, “In view of the provisions for installment payments . . . it cannot be said the lessors intended, as to the option, to deal with anyone whom the lessees might select.” (Id. at pp. 764-765.) Thus, the court concluded, no assignment of the option could be made without the written consent of the lessors.
The contract at issue does not provide for installment payments or any other conditions rendering it subject to the personal trust or confidence of One Stop. Instead, the option uses unconditional language, declaring that “Lessee is hereby granted the first right to purchase the property if Lessor elects to sell the property during the lease term or the option period.”
Gatley v. Shockley (1932) 215 Cal. 604, is also distinguishable. In that case, the lease read: “lessee agrees not to assign this lease or any part thereof or any interest therein.” (Id. at p. 607.) With such clear language preventing assignment of any part of the lease, the Supreme Court concluded that “the provision against assignment applied equally to the lease and to the option.” (Id. at p. 611.) Here, the language of the lease does not compel such a conclusion.
Boston Properties v. Pirelli Tire Corp. (1982) 134 Cal.App.3d 985 is distinguishable for the same reason. In that case, the lease specified: “‘Lessee will not assign this Lease in whole or in part, nor assign any option to lease or option to purchase additional property contained herein or granted in conjunction herewith . . . without the prior written consent of Lessor in each instance.’” (Id. at p. 990, fn. 1.) We disagree with respondents’ representation of this contractual language as “very similar to the language here.” The language of the lease agreement between respondents and One Stop simply did not include a similar prohibition on assignment of the option to purchase.
In Spaulding v. Yovino-Young, supra, 30 Cal.2d at page 141, the Supreme Court reiterated the general rule that “in the absence of a provision making the exercise of the option to purchase personal to the lessee [citation], such option may be separated from the lease and transferred by the lessee independently of the leasehold interest. [Citation.]” The Court of Appeal has considered this rule in the context of a lessee’s assignment of 50 percent of the lessee’s interest in an option to purchase. (C. Robert Nattress & Assocs. v. Cidco (1986) 184 Cal.App.3d 55.) Upon the lessor’s objection that the lessee did not have the right to purchase one-half of the property, the court concluded that “in effect, that he had assigned a one-half interest in the right of first refusal to [the assignee].” (Id. at p. 69.) The court pointed out that, “An option to purchase contained in a lease of real property is normally assignable [citations], and we are aware of no applicable rule of law that would limit the assignability of [the lessee’s] right of first refusal.” (Ibid.)
These principles of law are controlling here. We conclude that California law permits the transfer of an option to purchase absent a specific contractual restriction of that right. As we have discussed, no such restriction is apparent from the plain language of the lease at issue.
IV. Conclusion
We have determined that the plain language of the lease does not prohibit assignment of appellant’s option to purchase. We have also concluded that California law permits the assignment of an option to purchase under these circumstances. Thus, the assignment at issue is valid and fully enforceable. We therefore reverse the trial court’s decision.
Neither party has argued that the relevant language of the lease is ambiguous nor do we find it to be ambiguous.
DISPOSITION
The judgment granting respondents’ motion for summary judgment is reversed. Any associated award of attorney fees and costs is also reversed. Appellant is awarded costs on appeal.
We concur: BOREN, P.J., DOI TODD, J.