Scribbled contract over coffee is enforceable, panel rules

Two guys in a coffee shop in Calabasas talked business, scrawled some of the terms on paper with a borrowed pen, left some of the future terms unspecified, and ended up in appellate court.

The two-page contract concerned the purchase of 13 gas stations that plaintiff Edwart der Rostamian was trying to complete through his company, Tiffany Builders LLC, according to an opinion published this week by the 2nd District Court of Appeal.

The defendant, David Delrahim, proposed that Rostamian back out of the pending escrow so Delrahim could buy the gas stations, the opinion detailed. Delrahim would pay Rostamian $500,000 and allow him to own and operate four stations which don’t have land. Some of the terms, which were uncertain, were represented by an X in the coffee shop contract that the panel unanimously held to be enforceable and unambiguous.

MK Smith APC founding shareholders Jason K. Smith and Mark T. Kearney represented the plaintiff.

Smith said that the case had some interesting facts, similar to law school examples. And seeing as there has not been a solid sham doctrine case, this matter made it more narrow for courts to apply the doctrine, Smith noted.

“In California you can still use the testimony of the people to talk about intent and clarify ambiguity,” Smith said in an interview. “The trial court said the contract was too ambiguous to figure out what the parties wanted to do. Our position was, A., it’s not ambiguous, the key points are there; and B., even if it is ambiguous, you can look at the testimony of my client to fill in the gaps.”

BleauFox Law Firm partner Martin R. Fox and associate Svetlana Lukyanov represented the defendant. Fox was not immediately available for comment.

Three streams of law converged in this case, according to Division 8 Justice John Shepard Wiley Jr.: the rule concerning extrinsic evidence, writing, and sham doctrine.

The “test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible,” Wiley wrote, quoting from Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. (1968) 69 Cal. 2d 33, 37.

Plaintiff Edwart der Rostamian’s declaration satisfied this test, Wiley indicated.

The defendant, David Delrahim, “incorrectly argues that Rostamian’s assertion that the contract is unambiguous estops him from arguing extrinsic evidence provides clarity. Briefing commonly, and acceptably, argues in the alternative,” Wiley wrote.

The handwritten document was not “too indefinite” to enforce, nor was it an illusory contract.

“When people pen their names to a document they have drafted together, the law accords their act a potent meaning. Delrahim and Rostamian signed their joint creation, thereby enacting a ritual signifying commitment: an exchange of promises. Courts strive to effectuate designs like that. Powerful authority proves it,” Wiley wrote.

The use of X as a placeholder for the final contract price was acceptably certain because the contract had a formula to determine the unknown sum, which future events would determine exactly, he continued.

Los Angeles Superior Court Judge Ralph C. Hofer misapplied the doctrine against sham declarations, which comes into play when a plaintiff’s declaration contradicts his deposition.

“In its statement of decision concerning contract uncertainty, the court disregarded part of Rostamian’s declaration. That declaration, however, was consistent with the relevant portion of Rostamian’s deposition. On this issue, Rostamian’s declaration was not a sham,” Wiley wrote. Presiding Justice Maria E. Stratton and Justice Victor Viramontes concurred. Tiffany Builders LLC v. David Delrahim, B314861 (Cal. App. 2nd. Filed Nov. 28, 2023).