An Oral Contract Or Written Contract

By Stephen B. Fainsbert, Esq.

The case of Garcia v. Roberts, decided by the Appellate Court in May 2009 involves a situation where a husband and wife, who could not read English, were taken advantage of by a “business associate” in the acquisition of a parcel of real estate (the “Property”).  The facts were that Johnny Garcia (“Johnny”) and his wife Omega Garcia (“Omega”) had for a number of years rented property in Sanger, California (the “Property”) from the Sasashima Family Trust (the “Trust”).  In 2001, Johnny entered into an agreement to purchase the Property from the Trust for $140,000 pursuant to which agreement Johnny made a $7,500 down payment and was given two years to pay the balance of $132,500.

When the time came to complete the purchase of the Property from the Trust, the Garcias were not able to obtain financing for the $132,500 balance of the purchase price.  Johnny then asked Ronald and Sherry Roberts (“Roberts”), who had previously employed Johnny to do some work for them, to help with the purchase of the Property.  Roberts and the Garcias entered into an oral agreement pursuant to which Roberts agreed to pay the $132,500 balance of the purchase price to the Trust, but insisted the title to the Property be placed in the Roberts’ name.  The Garcias were to pay approximately $1,330.27 per month for a period of two years at the end of which time the Garcias would secure financing to pay off the loan and receive title to the Property from the Roberts.  Thereafter on or about September 26, 2002, after escrow closed with the Trust, Roberts asked the Garcias to come to their home to sign paperwork which consisted of a lease with an option to purchase the Property (the ‘Lease Option Agreement”).  Johnny was limited in his comprehension of English and he could not read English.  Omega could not read or understand English.  Nevertheless Johnny and Omega signed the Lease Option Agreement as did the Roberts after Mrs. Roberts orally read the agreement to the Garcias.  The Lease Option Agreement provided that the Garcias were given two years beginning September 26, 2002 to exercise the option to purchase the Property.

Before the two year period to exercise the option to purchase the Property from the Roberts had expired, the Garcias were able to obtain a loan commitment through a loan broker to purchase the Property from Roberts.  The lender wanted a copy of the written purchase agreement.  The loan broker tried to set up a meeting with Roberts to review and sign the Purchase Agreement.  Roberts said that he was unavailable to meet because he was leaving for Europe for about a month.  When Roberts came back from Europe he went to escrow where he was given a Standard Purchase Agreement to sign but refused to sign it, because he “did not like the way the papers had been prepared”.  Roberts continued to make excuses for not coming to escrow with suggested changes to the Purchase Agreement that would make the Purchase Agreement acceptable to them.  Thereafter, time to exercise the option expired and Roberts said that it was too late and he would not sell the Property to the Garcias.  In case you wondered why the Roberts were uncooperative in closing the escrow for the conveyance of the Property to the Garcias, perhaps it should be pointed out that the value of the Property had meanwhile increased to between $400,000 to $500,000.

The Garcias sued the Roberts making a number of claims including a claim for breach of an oral agreement.  The Garcias complaint did not have a claim for breach of a written agreement (the Lease Option Agreement).  Before this case went to trial, Johnny died and Omega was substituted in as the sole plaintiff.

At the trial which was heard by a jury, the signed Lease Option Agreement was entered into evidence.  During the trial Garcias attorney brought a motion requesting the Trial Court to allow Omega to amend the complaint to add a cause of action for breach of a written agreement based on the Lease Option Agreement.  The Roberts attorney objected to this motion arguing that allowing an amendment to the complaint at this late date was highly prejudicial.  In his deposition before the trial, Johnny stated that he was relying on the oral agreement and did not know about any written agreement even though it looked like he signed the Lease Option Agreement.  Therefore Roberts’ attorney argued he did not prepare to defend against a claim for breach of a written agreement and would have taken the deposition of Johnny differently if he had known that Johnny, or Omega was going to allege a breach of the Lease Option Agreement.  Subsequently, it was learned that Johnny’s attorney was specifically told by Johnny not to argue that there was a written agreement, i.e., the Lease Option Agreement, and only to argue that there was a breach of an oral agreement.  The reason when one speculates why Johnny took this position is that Johnny did not want to admit that he could not read or write English and therefore instructed his attorney not to present or argue that there was a written agreement.  The trial court allowed Omega to amend the complaint to allege a breach of a written agreement based on the Lease Option Agreement.  The jury awarded a total of $366,000 to Omega on the breach of written contract, breach of an oral agreement and fraud.

There was a strange analogy to this factual situation in the movie, “The Reader” in which Kate Winslett won the 2009 Academy Award as the best leading actress.  In that situation, Kate Winslett’s character was being tried for Nazi war crimes committed when she worked at a German prison camp during World War II.  Kate Winslett’s character did not defend herself because of the fact that she did not want to admit that she could not read and in particular could not read an incriminating document which she had signed. The other defendants seeing how vulnerable she was, pointed the finger at Kate Winslett’s character and said she alone committed the alleged crimes.  She was convicted of war crimes and imprisoned.

On appeal Roberts again argued that they were prejudiced by the inclusion of the claim of breach of a written agreement. The Appellate Court reversed the trial court on the issue of the allowing the claim for the breach a written agreement.  Based on some technical rulings, the oral agreement between the Garcias and the Roberts was admitted even though generally a contract for the purchase or sale of real property has to be in writing to be enforceable.  However the Roberts attorney did not raise this defense at the trial level that the agreement had to be in writing to be enforceable and therefore it could not be argued at the appeal level.  In addition, since the Lease Option Agreement had been admitted into evidence without objection, the Appellate Court said that the Lease Option Agreement could be looked at to determine what the oral agreement was between Garcias and the Roberts. Are you all confused? What happened was that while the Garcias’ claim could not be based on a breach of a written contract (the Lease Option Agreement), the terms of the oral agreement were validated by reference to the Lease Option Agreement.  In summary, what the Appellate Court said is that while it was too late for Omega to allege a breach of a written agreement, the court could use the Lease Option Agreement to ascertain the terms of the oral agreement. Let’s take a vote – how many of you believe that the Appellate Court went out of its way to make sure that justice was served?  I vote yes, they did.  The yeses win.
Stephen B. Fainsbert is a partner in the West Los Angeles law firm of Fainsbert Mase & Snyder, LLP.  Mr. Fainsbert has practiced law in the real estate and real estate exchange area for over forty years and has extensively written and lectured on these subjects both for the real estate industry and for attorneys through the California Continuing Education of the Bar program.  Mr. Fainsbert is co-author of Real Property Exchanges, Second Edition, Continuing Education of the Bar, June 1994, which was published by the University of California Press and is recognized as the leading book on this subject.  Mr. Fainsbert has been designated one of Southern California’s “Real Estate Super Lawyers” in both Los Angeles Magazine and Southern California Super Lawyers magazine every year since 2004.  If you have any questions concerning this article or any other related matter, Mr. Fainsbert may be contacted at (310) 473-6400, by fax at (310) 473-8702 or “E” Mail at sfainsbert@fms-law.com.

Statements and opinions expressed in this article are solely those of the author, may not represent the views of this publication and may not be relied upon as legal advice  – if you desire or need legal advice, you should retain an attorney for that purpose.