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Guest Commentary by Carl Kanowsky, Esq.
| Sunday, Nov 4, 2012

Carl Kanowsky, Esq.

You know how your mother always told you things like, “Be careful with that – you could put someone’s eye out?”  Or one of my favorites: “If everyone else were jumping off of a bridge, would you do that, too?” Well, my mom, foreseeing my career choice, had other truisms to teach me, such as, “Be sure to read everything before you sign it.  Make sure the document correctly states what you understand to be the agreement.  And if you don’t understand something, ask.”

Wow. I was to learn later that I could have saved tens of thousands of dollars by skipping law school, and still be the brilliant esquire I am today.

Also, my mom could have made hundreds of thousands of dollars advising big companies before they make bonehead moves.  Two recent cases illustrate this clearly.

In RC Royal Development and Realty Corp. vs. Standard Pacific Corp. (177 Cal.App.4th 1410), a major developer, Standard Pacific, apparently believed the housing market near downtown Los Angeles was ripe for new condos.  So Standard hired a real estate broker to find some likely projects, promising to pay 1½-percent commission if the broker located something to Standard’s liking.

The problem: It doesn’t look like Standard read the broker agreement very carefully.  Under the agreement, RC Royal (the broker) earned the commission as soon as Standard signed any agreement that gave it “any direct or indirect beneficial interest in (a property).”

Well, RC Royal found Standard some units near Union Station that Standard agreed to buy for more than $100 million.  Escrow opened, and Standard did its due diligence.  Unfortunately, that took so long that the housing market took a nosedive, causing Standard to decide to not buy the property.

RC Royal said, “That’s fine, but pay us our commission.”  Standard said, “We only owe you a commission if escrow closes.”

RC Royal sued, and the courts agreed with them.  The court of appeals reasoned: “The obligation to pay the commission, as distinguished from the timing of the payment, became fixed at the time a ready, willing and able (property) was produced.”

But what about the agreement about not having to pay the commission until escrow closed?  That’s only a timing issue. Once RC Royal found the property and Standard signed the purchase agreement, the commission was earned.

Maybe next time, Standard will read the agreements to make sure they say what they’re supposed to.

In a case that came down Feb. 1, First National vs. Federal Realty, another big-time developer learned a $16 million lesson because it did not listen to what my mom preached.

First National is a mortgage company that was leasing a large area in San Jose that Federal Realty (a real estate investment trust, or REIT) coveted.  Federal’s plan was to take over the property, either by way of lease or buying it outright, and then develop the property into one of the largest mixed-use projects in the United States.

First National and Federal negotiated for a long time, exchanging proposals but not reaching agreement.  They did proposals, counter-proposals, revised proposals, etc., until finally the parties signed a document termed a “final proposal.”  It provided that Federal would lease the land for $15 million.

It was one page, signed by the CEOs of both companies, and stated that it was subject to a more formal written contract.

Before agreeing to the final proposal, the CEO of Federal had grown weary of negotiating and said he wanted “an enforceable contract” signed by both sides.  After signing the final proposal and then negotiating unsuccessfully on the written contract, Federal’s CEO learned to his dismay that he had signed an enforceable contract.

The court held that if Federal didn’t want the final proposal to be binding, then it should have said so in the document rather than try to wiggle out of it later.

The lesson?  Read your contracts carefully, make sure they say exactly what you want them to say and nothing more, and if you don’t understand something or don’t like what you see, say something.

Don’t sign it until it says what you want it to say or are willing to live with.  Otherwise, you’ll be like Standard and Federal, stuck with the Million Dollar Signature.

 

Carl Kanowsky is an attorney in Santa Clarita. He can be reached at cjk@kanowskylaw.com. Visit him online at www.kanowskylaw.com.

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