Patel v. Patel

Opinion

CHANNELL, J. Appellants P. V. and Kirit Patel sued for specific performance of a real estate contract and incidental damages from respondents and sellers L. G., S. L., and Rajeshkumar Patel. The sellers successfully defended the specific performance action at trial, although they were ordered to compensate P. V. and Kirit for all expenses incurred to execute the contract. P. V. and Kirit Patel appeal, contending that (1) as bona fide purchasers for value, they were entitled to specific performance and (2) the trial court should have awarded them damages, costs, and attorney fees. We affirm the judgment.

I. Facts

Respondents L. G. and S. L. Patel, husband and wife, own and operate the City Center Motel in Eureka. Appellants P. V. and Kirit Patel, father and son, own and operate another motel in the same community. On April 16, 1986,1 Rajeshkumar, the son of L. G. and S. L., formed a partnership with his parents and became owner of 35 percent of the City Center Motel. The partnership agreement required that Rajeshkumar approve any sale of the motel. Record title to the motel was not changed to reflect his interest.

On April 21, L. G. and S. L. listed their motel for sale with a real estate broker. On May 2, P. V. and Kirit Patel made an offer on the motel, which L. G. and S. L. accepted. Neither the broker nor the purchasers knew of the son’s interest in the motel. When L. G. and S. L. notified Rajeshkumar of their plans, to their surprise, he refused to sell his 35 percent of the motel. On May 4, L. G. and S. L. notified P. V. and Kirit that they wished to withdraw their acceptance. They offered to pay $10,000 in damages and to give them a right of first refusal for five years.

Instead, on May 29, P. V. and Kirit filed an action for specific performance and incidental damages. L. G., S. L., and Rajeshkumar responded that [9]the contract could not lawfully be enforced. After trial, the court found that, but for Rajeshkumar’s undisclosed partnership interest, P. V. and Kirit would be entitled to specific performance of the contract. However, the trial court found the sale, which would make it impossible to continue the partnership business, was barred unless all partners agreed to it. The trial court held the contract unenforceable and denied specific performance. It also denied damages for the alleged “ ‘run-down’ ” condition of the motel and for loss of profits. However, because L. G. and S. L. lured P. V. and Kirit into spending money to perfect the sale, the trial court ruled that P. V. and Kirit were entitled to be compensated for those expenses—down payments, real estate commission, escrow fees, title insurance fees, loan fees, and any other costs—restoring them to the position occupied before the unenforceable contract was executed. Although the respondents were held to be the prevailing parties, their failure to disclose the existence of the partnership before executing the agreement resulted in an order that each party pay its own costs and attorney fees.