McGuire v. More-Gas Invistment, LLC
163 Cal. Rptr. 3d 225
Cal. Ct. App.2013Background
- Plaintiffs bought Orchard property for $1,050,000; More-Gas failed to amend CC&Rs to include a 900-foot building restriction and offered $80,000 refund if not done.
- Plaintiffs bought Jahant property for $2,000,000 with an addendum requiring road construction and a final map; a repurchase option was set at $2,500,000 with a $500,000 premium.
- Road construction for Jahant was to be completed within 12 months; final map recording did not occur within that period.
- Plaintiffs later sought $80,000 refund for Orchard and $2.5 million repurchase relief for Jahant as damages; More-Gas moved for summary adjudication arguing these were unenforceable penalties.
- Trial court granted summary adjudication on Orchard refund and Jahant repurchase as penalties, and the judgment was entered for More-Gas; postjudgment reconveyance order was issued under the partial settlement agreement.
- The Court of Appeal reversed, holding the trial court failed to eliminate the possibility that these provisions were valid for alternative performance and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Orchard refund is a penalty or alternative performance | Refund was an alternative performance not a penalty | Refund was a penalty, not valid as alternative performance | Issue not decided here; court holds More-Gas failed to prove refund was a penalty; must re-evaluate on remand |
| Whether Jahant repurchase premium is a penalty or alternative performance | Premium provided a rational option to complete or repurchase | Premium is a penalty, not valid as alternative performance | Issue not decisively resolved; court finds More-Gas failed to negate alternative-performance theory; remand for further facts |
| Whether postjudgment reconveyance order was proper given reversal | Reconveyance should be reversed if judgment reversed | Order should stand independent of damages outcome | Reconveyance order reversed on account of no final judgment after appellate reversal |
Key Cases Cited
- Stevens v. Los Angeles Dock & Terminal Co., 20 Cal.App.743 (Cal. App. 1912) (recognizes true option/alternative performance not a penalty)
- Blank v. Borden, 11 Cal.3d 963 (Cal. 1976) (validates alternative performance where rational future choice exists)
- Garrett v. Coast & Southern Federal Sav. & Loan Assn., 9 Cal.3d 731 (Cal. 1973) (limits penalties where contract contemplates rational choice; distinguishes penalties vs alternative performance)
- Cellphone Termination Fee Cases, 193 Cal.App.4th 298 (Cal. App. 2011) (evaluates true function of alternative-performance provisions vs penalties)
- Ridgley v. Topa Thrift & Loan Assn., 17 Cal.4th 970 (Cal. 1998) (liquidated damages analysis; reasonableness under Civil Code 1671)