By Cori Badgley
In Peak-Las Positas Partners v. Bollag (2009) 172 Cal.App.4th 101, the court reminded the defendant, Michael Bollag, that the term “consent” in a contract does not give the party unbridled freedom to refuse consent. Instead, the implied requirement of good faith and fair dealing requires that the refusal of consent be reasonable and not merely based on “personal taste, convenience or sensibility.”
Peak-Las Positas Partners (“PLP”) entered into a purchase and sale agreement with defendant Bollag to purchase 4.5 acres of Bollag’s property. PLP owned the property next to Bollag, and the purchase agreement provided that escrow would close “upon approval of a lot line adjustment and no later ‘than two years after the Opening of Escrow, unless extended by mutual consent of Buyer and Seller.’ ” (Emphasis added.) PLP was delayed in acquiring the lot line adjustment because Santa Barbara County would not process the adjustment since the property lay within an area to be annexed into the City of Santa Barbara at the earliest opportunity. In addition to encountering delays with the County, the City required further, more complicated project changes. Although Bollag granted an initial five year extension, the lot line adjustment was still not completed at the end of the five year extension and Bollag refused his consent to further extend the agreement. PLP then brought suit against Bollag for breach of contract.
The trial court found in favor of PLP and ordered specific performance and payment of attorneys fees. On appeal, the Court of Appeal, Second Appellate District upheld the trial court’s decision.
In discussing the standard of review and interpretation of contracts, the appellate court stated the following long-standing rule:
Where a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing. [Citations omitted] Denying consent solely on the basis of personal taste, convenience or sensibility is not commercially reasonable.
The court held that the standard applied in these types of cases is one of good faith and objective reasonableness, unless the contract explicitly evidences intent to impose a subjective standard. In this case, no subjective intent was evidenced in the agreement, and thus, the issue was whether Bollag reasonably and in good faith refused to give his consent to extend the contract.
In applying this standard, the court found that Bollag acted unreasonably by telling PLP that he did not care how long the project took and then refusing his consent to extend escrow. Bollag provided a list of allegedly reasonable foundations for refusing consent such as landslide liability, PLP’s failure to diligently pursue the lot line adjustment and the cloud that existed on Bollag’s title due to the purchase and sale agreement. The court found that none of Bollag’s arguments supported a reasonable decision to refuse consent, and some of the arguments contradicted events that had actually occurred. Therefore, the appellate court upheld the trial court’s decision.
This case reminds us that the law imposes a duty of good faith and fair dealing into every contract. If the parties intend to allow one party to refuse consent for any reason, whether reasonable or unreasonable, language must be included in the contract explicitly evidencing this intent.
Cori M. Badgley is an associate at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.