Date: 10-28-2019

Case Style:

Case Number: G056896

Judge: Fybel, J.

Court: California Court of Appeals Fourth Appellate District, Division Three on appeal from the Superior Court, County of Orange

Plaintiff's Attorney: David A. Van Riper

Defendant's Attorney: Scott Sayre

Description: Defendant and Appellant Rugger Investment Group LLC (Rugger) entered
into a contract to sell an airplane to Plaintiffs and Respondents Magic Carpet Ride, LLC
(MCR) and Kevin T. Jennings. Rugger deposited a lien release into escrow eight days
after the expiration of a 90-day period in which it was required to do so. The trial court
found Rugger could not claim substantial performance because it had violated the plain
language of the contract. For that reason, the court granted the motion of MCR and
Jennings for summary adjudication of their breach of contract cause of action and for
summary adjudication of Rugger’s rescission and breach of contract causes of action.
Voluntary dismissal of other causes of action produced an appealable final judgment.
We reverse and remand. Whether Rugger substantially performed its
contract obligations is a triable issue of material fact that defeats summary adjudication.
We hold that a provision in the parties’ contract making time of the essence does not
automatically make Rugger’s untimely performance a breach of contract because there
are triable issues regarding the scope of that provision and whether its enforcement would
result in a forfeiture to Rugger and a windfall to MCR.
FACTS
In September 2015, Jennings and Rugger entered into a purchase and sale
agreement (the Agreement) by which Jennings agreed to purchase from Rugger an
aircraft, identified as a pre-owned 2000 JetProp DLX Conversion of 1989 Malibu JetProp
(the Aircraft). The purchase price was $610,000. Jennings made a $50,000 down
payment. Jetstream Escrow & Title Service, Inc. was the escrow agent for the
transaction. Paragraph 6.14 of the Agreement states: “Unless specifically stated to the
contrary herein, time shall be of the essence for all events contemplated hereunder.”
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Paragraph 2.6 of the Agreement required Rugger to transfer the Aircraft on
the closing date free and clear of all liens and encumbrances. Rugger was not able to
comply with this requirement due to a mechanic’s or materialman’s lien filed against the
Aircraft by Cutter Aviation Phoenix, Inc. (Cutter).
As a consequence, MCR and Rugger entered into an amendment to the
agreement (the Amendment). The Amendment identified MCR as the buyer instead of
Jennings. The Amendment gave Rugger 90 days from the date of closing in which to
provide one of three means of releasing the Cutter lien, including, “Lien Release fully
executed by Cutter . . . in original form delivered to Escrow Agent, recognized and
accepted by the FAA [Federal Aviation Administration ].” Rugger agreed to hold back
$90,000 with escrow for a period of 90 days.
Paragraph 3a. of the Amendment states that if Rugger can obtain a lien
release by any one of the three ways identified in paragraph 2 within the 90-day term,
then the entire amount of the holdback would be released to Rugger on the 90th day.
Paragraph 3b. of the Amendment states that if Rugger cannot obtain a lien release by any
one of the three ways identified in paragraph 2 within the 90-day term, then Rugger
“agrees to release entire amount of holdback to Buyer at the expiration of the 90-day
term.”
Jennings, on behalf of MCR, and Rugger agreed the closing date would be
February 23, 2016. An aircraft bill of sale dated February 23, 2016 passed title to the
Aircraft from Rugger to MCR, and Jennings accepted the Aircraft on that date.
Rugger did not obtain a lien release within 90 days of February 23, 2016.
Rugger obtained a lien release from Cutter on May 31, 2016, eight days after the
expiration of the 90-day period, and delivered the lien release to escrow. The lien release
was on an FAA form entitled “Notice of Recordation—Aircraft Security Conveyance.”
The lien release was not filed with the FAA. Rugger asked that $38,000 be released to it
from escrow to cover the amount that Jeffrey Brannon (Rugger’s managing member, not
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a party to this appeal) had paid to Cutter to get the lien released. Jennings did not agree
to that request.
PROCEDURAL HISTORY
Jennings filed a complaint against Rugger for breach of contract and breach
of the implied covenant of good faith and fair dealing. An amended complaint added
MCR as a plaintiff. The amended complaint alleged Rugger breached the Amendment by
failing to obtain a release of the Cutter lien within the requisite 90-day time period and by
refusing to release the $90,000 holdback.
An amended cross-complaint brought by Rugger and Brannon asserted
causes of action against Jennings for breach of contract, breach of implied contract, and
rescission of the Amendment. The amended cross-complaint alleged Jennings breached
the Amendment by refusing to allow the escrow to release the $90,000 holdback to
Rugger. The trial court sustained without leave to amend Jennings’s demurrer to the
breach of implied contract cause of action, and sustained with leave to amend the
demurrer to the rescission cause of action. Rugger and Brannon did not amend.
Jennings and MCR brought a motion for summary judgment on the
amended complaint and the amended cross-complaint. In the alternative, Jennings and
MCR moved for summary adjudication of causes of action. The trial court denied the
motion for summary judgment but granted summary adjudication in favor of MCR on the
breach of contract cause of action of the amended complaint. The court granted summary
adjudication in favor of Jennings and MCR on the breach of contract and rescission
causes of action of the amended cross-complaint.
Jennings dismissed the amended complaint as to himself, and MCR
dismissed the breach of the implied covenant cause of action. Judgment awarding MCR
$90,000 in damages was entered. Rugger appealed.
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DISCUSSION
I.
Standard of Review
“‘We review orders granting summary judgment or summary adjudication
de novo. [Citations.] A motion for summary judgment or summary adjudication is
properly granted if the moving papers establish there is no triable issue of material fact
and the moving party is entitled to judgment as a matter of law.’” (Taswell v. Regents of
University of California (2018) 23 Cal.App.5th 343, 350.)
II.
Rugger’s Failure to Properly Cite to the Record.
MCR and Jennings assert that Rugger’s appellate briefs, with but a few
exceptions, fail to support any factual assertions with citation to the clerk’s transcript.
California Rules of Court, rule 8.204(a)(1)(C) states an appellate brief must “[s]upport
any reference to a matter in the record by a citation to the volume and page number of the
record where the matter appears.” Rule 8.204(a)(1)(C) requires accurate record
references. We may decline to consider factual assertions that do not comply with this
rule. (Rybolt v. Riley (2018) 20 Cal.App.5th 864, 868; Ragland v. U.S. Bank National
Assn. (2012) 209 Cal.App.4th 182, 195; Doppes v. Bentley Motors, Inc. (2009) 174
Cal.App.4th 967, 989-990.)
Although Rugger’s appellate briefs do not strictly comply with California
Rules of Court, rule 8.204(a)(1)(C), Rugger does cite to the statement of undisputed facts
filed in support the motion for summary judgment. We do not approve of that practice,
but here the record is not particularly long so we can easily locate in the record Rugger’s
references to the statement of undisputed facts.
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III.
Whether Rugger Substantially Performed Is a Triable
Issue of Material Fact.
The pleadings framed the issue for the summary judgment motion as which
party breached the Amendment—Rugger, by not timely obtaining a lien release and
depositing it into escrow, or MCR, by not allowing the $90,000 holdback to be released
from escrow to Rugger. The trial court found that Rugger breached and “as [Rugger]’s
conduct violates the plain language of the Agreement, ‘substantial compliance’ cannot be
shown.” Rugger argues it substantially performed because its delay of only eight days in
depositing the lien release into escrow was immaterial. MCR and Jennings argue
Rugger’s delay was a material breach because the Agreement and the Amendment
required strict compliance.
A. Delayed Performance as Substantial Performance
We conclude there is a triable issue as to whether Rugger substantially
performed its obligations under the Amendment. “[S]ubstantial performance is
sufficient, and justifies an action on the contract, although the other party is entitled to a
reduction in the amount called for by the contract, to compensate for the defects.”
(Posner v. Grunwald-Marx, Inc. (1961) 56 Cal.2d 169, 186-187, italics omitted.) “What
constitutes substantial performance is a question of fact, but it is essential that there be no
wilful departure from the terms of the contract, and that the defects be such as may be
easily remedied or compensated, so that the promisee may get practically what the
contract calls for.” (Id. at p. 187; see 1 Witkin, Summary of Cal. Law (11th ed. 2017)
Contracts, § 843, p. 894.) The doctrine of substantial performance also applies when a
party performs but misses a deadline. “[W]here time is not of the essence of a contract,
payment made within a reasonable time after the due date stated in the contract
constitutes compliance therewith.” (Walsh v. Walsh (1940) 42 Cal.App.2d 287, 292; see
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Harvey v. White (1963) 213 Cal.App.2d 275, 280-281 [“‘a substantial compliance meets
the requirements of any obligation’”].)
The evidence submitted in connection with the summary adjudication
motion shows that Rugger did not willfully depart from the terms of the contract but
diligently sought to obtain a lien release from Cutter. But Cutter resisted, and as a
consequence Rugger was not able to deposit the lien release into escrow until eight days
after the expiration of the 90-day period. MCR received what it contracted for—an
aircraft free and clear of liens and encumbrances—the lien release just came eight days
late.
Rugger was not required to file the lien release with the FAA. Paragraph
2a. of the Amendment requires Rugger to provide a lien release “fully executed by Cutter
. . . in original form delivered to Escrow Agent, recognized and accepted by the FAA.”
We issued an order requesting supplemental briefing from the parties on several issues,
including whether Rugger was required to file or record the lien release with the FAA.
We agree with Rugger that the phrase “recognized and accepted by the FAA” refers to
and modifies the phrase “original form.” In other words, the Amendment required a lien
release on a form recognized and accepted by the FAA; the Amendment did not require
the lien release to be filed or recorded with the FAA.1
There is no contention that the lien
release deposited into escrow was not on a FAA-accepted form.
MCR and Jennings presented no evidence of damages caused by Rugger’s
eight-day delay in depositing the lien release into escrow. In our supplemental briefing

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Cutter had the legal obligation to file the lien release with the FAA. Business and
Professions Code section 9798.3, subdivision (f) states: “Upon payment to the
repairperson by or on behalf of the registered owner of the aircraft or other property
subject to the lien, or by the customer, the repairperson shall cause to be filed with the
FAA Aircraft Registry a notice of cancellation of lien. The filing of the notice of
cancellation of lien shall terminate all interest of the repairperson that was otherwise
subject to the notice of lien.”
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order we requested briefing on this issue: “Is there evidence in the record that
respondents incurred any loss or damage due to appellant’s failure to comply with
paragraph 2 of Amendment A to Aircraft Purchase and Sale Agreement within the 90-day
term identified in paragraph 3 of Amendment A to Aircraft Purchase and Sale
Agreement?” MCR and Jennings claim they were “damaged in the amount of the
$90,000.00 which Rugger refused to release from escrow . . . , but there remains a Lien
on the Aircraft which will be there until the Release is filed with the FAA.”
Neither of those claimed damages was caused by Rugger’s delay in
depositing the lien release into escrow. If Rugger had deposited the lien release into
escrow within the 90-day period, then the $90,000 holdback would have been released to
Rugger, not MCR or Jennings. Rugger was not required to file or record the lien release
with the FAA.
MCR and Jennings also argue the $90,000 would compensate them for
“their patience and forbearance in allowing Rugger to attempt to rectify the breach of the
Agreement.” But if that were the case, then the $90,000 would have been automatically
credited to them, regardless of Rugger’s performance, instead of being held in escrow.
The Restatement Second of Contracts analyzes substantial performance as a
category of failure to render performance (Rest.2d Contracts, § 237, com. d., p. 220) and
identifies five factors to consider in determining whether a failure to perform is material
(id., § 241, p. 237). Those factors are: (1) “the extent to which the injured party will be
deprived of the benefit which he reasonably expected”; (2) “the extent to which the
injured party can be adequately compensated for the part of that benefit of which he will
be deprived”; (3) “the extent to which the party failing to perform or to offer to perform
will suffer forfeiture”; (4) “the likelihood that the party failing to perform or to offer to
perform will cure his failure, taking account of all the circumstances including any
reasonable assurances”; and (5) “the extent to which the behavior of the party failing to
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perform or to offer to perform comports with standards of good faith and fair dealing.”
(Ibid.)
Consideration of factors identified in the Restatement Second of Contracts
supports our conclusion there is a triable issue of fact as to substantial performance. The
evidence submitted in connection with the motion for summary adjudication shows that
MCR and Jennings, the allegedly injured parties, received what they bargained for (an
aircraft free and clear of liens and encumbrances), any damage suffered by MCR and
Jennings due to the eight-day delay can be compensated, Rugger did in fact cure its
failure to perform, and Rugger’s behavior comports with standards of good faith and fair
dealing. We conclude in the following subsection there is a triable issue whether Rugger
faces a risk of forfeiture if strict compliance were required.
B. Effect of the Time Is of the Essence Provision in the Agreement
The Agreement has a time is of the essence provision. Paragraph 6.14 of
the Agreement states: “Unless specifically stated to the contrary herein, time shall be of
the essence for all events contemplated hereunder.”
The parties’ appellate briefs did not address, or even mention, the time is of
the essence provision. In our supplemental briefing order we requested briefing on three
issues related to paragraph 6.14 of the Agreement: “1. What is the scope and meaning of
paragraph 6.14 (‘Time of the Essence’) of the Aircraft Purchase and Sale Agreement and
its effect on the issue of substantial performance? [¶] 2. Does paragraph 6.14 of the
Aircraft Purchase and Sale Agreement apply to Amendment A to Aircraft Purchase and
Sale Agreement? [¶] 3. Is paragraph 6.14 of the Aircraft Purchase and Sale Agreement
enforceable if doing so would result in a forfeiture in this case?” Rugger filed a
supplemental brief, as did MCR and Jennings.
It appears that paragraph 6.14 of the Agreement would apply to the
Amendment. Although the Amendment does not include its own time is of the essence
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provision, paragraph 4 of the Amendment states: “To the extent that the terms of the
Amendment conflict with the terms of the Agreement, the terms of this Amendment shall
control with all remaining terms of the Agreement in full force and effect.” But we
believe the scope of paragraph 6.14 presents a triable issue. A leading treatise explains:
“Merely putting into the contract the words ‘time is of the essence of this contract’ may
be effective for the purpose, because the context may make clear what the intention is and
what the expression means. What the court must know, however, in order to give effect
to such a cryptic provision, is: What performance at what time is a condition of what
party’s duty to do what? In some cases, the answer to this question is simple and
obvious. Often, however, it is not clear whether the provision is meant to limit the duties
of both parties, or to limit the duty of one and not the other.” (8 Corbin on Contracts
(rev. ed. 1999) § 37.3, p. 386.) We do not believe the scope of paragraph 6.14 is simple
and obvious as it relates to the Amendment. MCR took title to and possession of the
Aircraft the day after the Amendment was signed. MCR had possession of the Aircraft;
therefore, it is not clear from the record the parties intended time to be of the essence with
respect to Rugger’s obligation under the Amendment to provide clear title within the 90-
day period.
If paragraph 6.14 of the Agreement did apply to Rugger’s obligations under
paragraph 2 of the Amendment, then issues arise as to whether paragraph 6.14 renders
Rugger’s untimely performance a breach of contract. The traditional rule on the legal
effect of a time is of the essence provision was this: “[W]hen time is made of the essence
of a contract, a failure to perform within the time specified is a material breach of the
contract.” (Gold Min. & Water Co. v. Swinerton (1943) 23 Cal.2d 19, 27; see U.S. Hertz,
Inc. v. Niobrara Farms (1974) 41 Cal.App.3d 68, 78.) “Where a purchaser of land has
failed to make payment of the purchase price within the time specified and time is of the
essence of the sale agreement, equity follows the law and does not disregard such
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provisions but holds the buyer strictly to his obligation.” (Pitt v. Mallalieu (1948) 85
Cal.App.2d 77, 81; see Walsh v. Walsh, supra, 42 Cal.App.2d at p. 292.)
The traditional rule has been tempered so that including a time is of the
essence provision in a contract does not always make untimely performance a breach. In
Nash v. Superior Court (1978) 86 Cal.App.3d 690, 696, disapproved on another ground
in Malcolm v. Superior Court (1981) 29 Cal.3d 518, 528, footnote 5, the court concluded,
“Courts have recognized that the inclusion of language such as ‘time is of the essence’
does not necessarily require a court to conclude that the buyer’s rights would be so
strictly limited.” (See Stratton v. Tejani (1982) 139 Cal.App.3d 204, 211 [quoting
Nash].) A time is of the essence provision will not be enforced if doing so would work a
forfeiture: “Our review of the authorities reveals that California courts generally do
strictly enforce time deadlines in real estate sales contracts, permitting the seller to cancel
after the time specified where time is specifically made of the essence unless there has
been a waiver or potential forfeiture.” (Galdjie v. Darwish (2003) 113 Cal.App.4th
1331, 1341, some italics added.)
In Williams Plumbing Co. v. Sinsley (1975) 53 Cal.App.3d 1027, a contract
for the sale of a duplex made time of the essence; however, the court held the buyer’s
delay in depositing the balance of the purchase price did not give the sellers the right to
terminate the contract. (Id. at pp. 1031-1032.) The court concluded an unqualified rule
enforcing time is of the essence provisions and permitting default “is at odds with prior
and subsequent developments in California law.” (Id. at p. 1032.)
MacFadden v. Walker (1971) 5 Cal.3d 809, 811 dealt with an installment
land sale contract in which time was declared to be of the essence. The buyer made
payments for over ten years and then stopped. (Id. at pp. 811-812.) The seller terminated
the buyer’s rights under the contract and sued to quiet title. The buyer then offered to pay
the entire balance with interest and sought specific performance of the contract. (Id. at
p. 812.) Affirming the trial court, the Supreme Court held “the anti-forfeiture policy
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recognized in the Freedman [v. The Rector (1951) 37 Cal.2d 16] case also justifies
awarding even wilfully defaulting vendees specific performance in proper cases.” (Id. at
p. 814.) The court stated: “‘[W]hen the default has not been serious and the vendee is
willing and able to continue with his performance of the contract, the vendor suffers no
damage by allowing the vendee to do so. In this situation, if there has been substantial
part performance or if the vendee has made substantial improvements in reliance on his
contract, permitting the vendor to terminate the vendee’s rights under the contract and
keep the installments that have been paid can result only in the harshest sort of
forfeitures.’” (Ibid., quoting Barkis v. Scott (1949) 34 Cal.2d 116, 122.)
These authorities concern contracts for the purchase and sale of real
property. We see no reason why the rule regarding time is of the essence provisions and
forfeiture should be different for a contract for the purchase and sale of an airplane.
In sum, as stated in Corbin on Contracts: “An express provision can make
time of the essence. In this respect there is no limit upon our freedom of contract, as long
as no part performance has taken place. If the enforcement of an express provision
causes an excessive penalty or an unjust forfeiture, equity will prevent enforcement.
Thus equity limits our power to determine our own contractual rights and duties.”
(8 Corbin on Contracts, supra, § 37.3 at p. 385, fn. omitted.)
Rugger expended $38,000 to get the lien released. If strict compliance
were required, and the $90,000 holdback released to MCR, then Rugger would lose not
only the $90,000 holdback, in effect a price reduction, but it would not receive any
compensation for the $38,000 it had to pay Cutter to get the lien released. MCR, which
has had possession of the Aircraft since the closing date of February 23, 2016, would
receive an aircraft free of liens and encumbrances and a $90,000 reduction in price. The
Amendment contemplates MCR would get the Aircraft free and clear of liens and
encumbrances or a $90,000 price reduction by means of the holdback, but not both. As
we have explained, there is no evidence MCR and Jennings suffered damages caused by
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the eight-day delay in depositing the lien release into escrow. These facts raise triable
issues whether enforcement of paragraph 6.14 would result in an unjust forfeiture to
Rugger and a windfall for MCR.
In conclusion, evidence that Rugger deposited the lien release into escrow
only eight days after the expiration of the 90-period set forth in paragraphs 2 and 3 of the
Amendment, and that MCR and Jennings suffered no damages as a result, raises a triable
issue of material fact whether Rugger substantially performed its obligations under the
Amendment. Paragraph 6.14, the time is of the essence provision of the Agreement, does
not automatically render Rugger’s untimely performance a breach because there are
triable issues regarding the scope of that paragraph and whether its enforcement would
result in an unjust forfeiture to Rugger and a windfall for MCR.

Outcome: The judgment is reversed, and the matter is remanded. Appellant to recover
costs on appeal.

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Defendant's Experts:

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