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Friday, September 29, 2017


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C.A. Dissent Spawns Novel Theory As to Date When Option Is Exercised

Justice Ikola Asserts That Proviso in Option Agreement That Exercise Must Occur On Specific Date Was Satisfied by a Letter Sent a Month Early


By a MetNews Staff Writer



Court of Appeal Justice

The Fourth District Court of Appeal has held that where an agreement specified that an option “must be exercised on, and not before August 20, 2009,” a purported exercise of that option one month earlier was ineffective—drawing a dissent saying that the option was, in effect, exercised on the date specified because it was then still on the desk of the optionor.

Div. Three’s majority opinion was written by Justice Richard D. Fybel and was joined in by Justice William W. Bedsworth. Penning the dissent was Justice Raymond J. Ikola.

The opinion was not certified for publication.

The majority’s opinion affirmed the decision of Orange Superior Court Judge Deborah C. Servino in favor of defendant Jean Victor Peloquin, sued by Terry L. Fleming Jr. for breach of contract based on declining to recognize the efficacy of a purported exercise of the option, by letter, on July 9, 2009.

The agreement also provided:

“If this option is not exercised on August 20, 2009, it will automatically terminate.”

It specified that such termination “ends all rights” the optionees have under the agreement,; declared that “[n]o notice of termination is required,” and provided that the agreement could “be amended only by written agreement.”

The majority and the dissenter agreed that no written amendment was created, as asserted by Fleming, simply by virtue of minutes of a business meeting at which the existence of the option agreement, relating to the purchase of shares, was revealed.

Fybel said:

“Where a written contract expressly requires that an option be exercised on and not before a specific date, and the option holder purports to exercise the option before the specified date, we hold that the option has not been properly exercised. In this case, we conclude substantial evidence supports the trial court’s findings that the contract’s language was clear in its requirement that the exercise of an option take place on a date certain, and that the option holder failed to exercise the option as specified by the contract.”

He continued:

“We further hold that an equitable duty to advise the option holder of the imperfection of the purported exercise cannot be imposed when the contract’s language removes any such duties. We therefore affirm the trial court’s judgment that the option was not exercised.”

Ikola’s Dissent

Disagreeing, Ikola wrote:

“The inescapable fact is that Peloquin had Fleming Jr.’s exercise of the option on his desk on August 20, 2009, the exercise date. According to the majority, that was ineffective merely because it had been received the month before, rather than on that exact date. In my view, and in the view of every case I found addressing the premature exercise of an option, the exercise took effect on August 20, 2009.”

Ikola acknowledged that he could not point to any California case in which an option that was exercised prematurely was recognized as valid despite a proviso in the option agreement that it could only be exercised on a specific date.

“I found no California cases that address this issue,” he said, but added that “two out of state cases are helpful.”

He cited a New Jersey Superior Court Appellate Division case and a Missouri Court of Appeals decision.

Objection Forfeited

Ikola also insisted:

“Peloquin forfeited any objection to the premature exercise. Peloquin had an affirmative duty to inform Fleming Jr. of any objection he had to the form of the exercise of the option. The evidence shows Peloquin was simply not picking up his business mail around that time. He thus failed his duty and forfeited his objection. The majority largely ignores this doctrine.”

The case is Fleming v. Peloquin, G052319.

Attorneys on the appeal were Randall S. Waier for Fleming and Grant G. Teeple, Gregory M. Garrison, Frederick M. Reich and Julia M. Williams of Teeple Hall, LLP, for Peloquin.

Peloquin’s Lawyer Comments

Teeple commented yesterday:

“We obviously agree with the result and the Majority opinion reflects our thinking very well.

 “In addition to their analysis I’d also point out that those who develop real property for their living use ‘credit’ as one of the main tools to earn a profit. Allowing an early exercise would deprive a developer of the ability to get credit prior to the option exercise date.

 “If Peloquin were required to treat an early tender of an option to convert the investment into debt as valid, then he is being deprived of his ability to get credit. Said differently, when a real property investor goes to get a loan, they must disclose all existing debt to the lenders. Peloquin bargained to ‘not’ have a loan prior to the option period for just this reason. The dissent misses the point that treating a premature exercise of debt as ‘valid’ creates a premature liability for someone like Peloquin. Thus, a bargained for option with a future exercise date becomes worthless if it can be exercised prematurely and exposes a party like Peloquin to great prejudice financially.”


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