A Cup of Joe and a Contract

In the case of Tiffany Builders, LLC v. Delrahim, Case No. B384161, the California Court of Appeals addressed the age-old issue of what constitutes a valid contract. A deal made in a coffee shop and written in a notebook that was handy at the time may qualify as a valid agreement if all the basic contract principles are accomplished in the writing. Here we examine this case and the various contract theories it addressed.

Background of the Case

The case of Tiffany Builders, LLC v. Delrahim concerned the sale and purchase of 13 gas stations. The gas stations belonged to Ibrihim Mekhail who was not a party to the 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. The four without the land were referred to as "dealer sites."

Edwart Rostamian, through his business Tiffany Builders LLC, had been working to button down a deal with Mekhail, but struggled to close it. He had tried various avenues by assembling investors and obtaining other means of funding, but escrow never closed for a variety of reasons. Rostamian was then introduced to David Delrahim, who was interested in the stations and owned a company called Blue Vista Partners. Over a period of nine months, Rostamian and Delrahim met twice in person and continued to discuss the deal in text and emails. In November 2015, Delrahim approached Rostamian with a proposal and asked to meet at a coffee shop. Delrahim proposed that Rostamian should withdraw his company from the pending escrow so that Delrahim could purchase the stations. He offered to pay Delrahim $500,000 if he accepted his offer as well as giving him ownership of four of the dealer sites. Delrahim would then charge Rostamian a monthly fee to run the stations.

There’s still time: Register for the 2024 CLM Annual Conference

In this coffee shop deal, the two produced a hand-written document reflecting the details of their agreement, The Court referred to it as "the Writing." A summary of the Writing is as follows:

“[1] From $12,400,000, bring the value to X amount difference between $12.4 million and X amount will be allocated based on the following. “[2] $500,000 to Tiffany Builders to get out of the Glen Oaks escrow. “[3] Balance will be charged against purchase of 4 dealer sites from 3rd party based on existing allocated price. That is provided the X amount covers the entire value. “[4] 4 stations will be run 100% by David Delrahim (buyer of the 13 stations) in behalf of Edward Rostamian for 24 months or sooner with $4,000 per month cost for the 4 stations.” “X Edward Rostamian [handwritten signature] “X David Delrahim [handwritten signature]”

Rostamian later explained in his declaration that Section [1] referred to the $12.4 million Delrahim was willing to pay for the 13 stations. The men inserted the “X amount” because they thought they could negotiate the price to less than $12.4 million.

In reality, none of the Writing came to pass. Instead, Rostamian was cut out of the deal completely as Delrahim ultimately decided to buy the 13 stations for $11 million and Rostamian received nothing. Rostamian and Tiffany Builders brought a claim against Delrahim and Blue Vista Partners for breach of contract, specific performance, intentional and negligent interference with prospective economic advantage and unfair business practices.

The trial court ruled that the Writing was too indefinite to be a contract. It considered parol evidence from Rostamian's declaration but found that the "evidence failed to clarify the terms to a legally acceptable degree." Rostamian appealed the decision.

Parol/Extrinsic Evidence

On appeal the court concluded that the Writing was definite enough to be an enforceable contract. According to Black's Law Dictionary the definition of extrinsic evidence is evidence relating to an agreement that is not contained within the written contract. Agreements made outside of the contract are inadmissible unless there is evidence of fraud, duress, or a mutual mistake. "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." Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co (1968) 69 Cal.2d 33, 37.

The court found that the evidence presented in Rostamian's declaration satisfied this test as it "was relevant to prove a meaning to which the Writing was reasonably susceptible." Rostamian's explanation of the Writing was both relevant and admissible for purposes of better understanding the agreement made between the parties in the coffee shop that day.

Illusory Contract

The Writing in question here was not an illusory contract. As much as possible, courts strive to interpret agreements to carry out the reasonable intent of the parties. Patel v. Liebermensch (2008) 45 Cal.4th 344, 349. Here Rostamian and Delrahim drafted a document together and each signed their names to it. This was a mutual exchange of promises memorialized in writing, albeit in a notebook in a coffee shop. It is a cornerstone of contract law to enforce contracts like this as well as those formulated at board room tables with attorneys present. Civ. Code §3541 states, "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 intentions of the parties. An interpretation which gives effect is preferred to one which makes it void." The court concluded that the contract between the parties in this case was not illusory.

Indefiniteness of an Essential Term

Although indefiniteness of an essential term may result in a contract being rendered unenforceable, the court explained that indefiniteness is determined as a matter of degree. It reminded the parties that all contracts have some degree of indefiniteness and parties must be held to their agreements whenever possible. "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." Rivers v. Beadle (1960) 183 Cal.Ap.2d 691, 695-696. "The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach or for giving an appropriate remedy." Rest.2d of Contracts §33(2).

Generally, courts will not enforce an indefinite agreement for one of two reasons: 1. The agreement is to indefinite for the court to administer; or 2. The indefiniteness of the agreement shows a lack of contractual intent. 1 Corbin on Contracts §4.3

The lower court found that several parts of the contract were not specific enough to be enforced. First, the contract did not state the location of the gas stations. On appeal, however, the court reasoned that this was easily discoverable or already known to the parties at the time of the coffee shop agreement. Second, the lower court noted that the agreement did not make clear who would own the nine stations that were not dealer sites. According to Rostamian's declaration, however, the appeals courts reasoned that it was clear Delrahim would be "stepping into Rostamian's shoes as buyer" and thus concluded that it was reasonable to understand that Delrahim, as the buyer, would also be the owner. Third, the trial court found it ambiguous whether the deal was made just as to individuals or also as to their respective companies. However, both signatories were the sole owners of their respective companies.

Finally, the trial court did not approve of the use of "X" in place of the price. The higher court disagreed and found that the parties used the "X" with the intention that it would be a placeholder for the price as determined and this did not invalidate the contract. "The absence of a price provision does not render an otherwise valid contract void." Cal. Lettuce Growers v. Union Sugar Co. (1955) 45Cal.2d 474, 481-482. Price is frequently left open in agreements in this type as more information is gathered to settle on a final price. Here the court found that the use of the "X" in place of the price was certain enough to sustain the contract. The contract provided a formula for calculating X and outlined what future events would provide the information to make a final determination of X. It concluded that the "X" was not fatal to enforcement.

Thus, the parties exchange of promises was an enforceable contract and the trial court's ruling on this issue was incorrect.

Sham Declarations

The sham doctrine applies when a plaintiff makes a "clear and unequivocal admission in a deposition, but in a later declaration, contradicts that admission." D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d1, 21. "The question is not whether a declaration is inconsistent with earlier responses but whether in light of all of the evidence a reasonable trier could conclude the earlier responses were a mistake and declaration statements were credible." Ahn v. Kuhmo Tire USA, Inc. (2014) 223 Cal.App.4th 133, 144-146.

In the case at hand, the trial court found one inconsistency regarding Rostamian's right to ownership of the stations, but the trial court did not apply the doctrine against sham declarations correctly. It only applies if there is "no credible explanation for the supposed inconsistency. The doctrine does not apply when a reasonable explanation resolves the supposed discrepancy." Harris v. Thomas Dee Eng'g Co., 68 Cal.App.5th 594,605.

Here, the lower court disregarded Rostamian's declaration in which he explained the discrepancy. The appeals court reached a separate conclusion and looked more deeply at the context of the coffee shop conversation. The record is clear that the two men had been negotiating the deal for months with much back-and-forth discussion, emails, and texts. On the day in question, they both agreed to meet at a coffee shop and memorialized their agreement in writing with each of their signatures. Despite some discrepancy regarding ownership, Rostamian's deposition testimony and declaration matched on this point. The court concluded that the sham doctrine was inapplicable under these circumstances.

The appellate court reversed the summary judgment granted by the trial court, finding that the contract was enforceable and not illusory. This decision warrants the same outcome for the specific performance and other unfair competition claims.