Opinion
No. 26550-1-III.
August 21, 2008.
Appeal from a judgment of the Superior Court for Grant County, No. 05-2-00051-8, Evan E. Sperline, J., entered July 5, 2007.
Affirmed by unpublished opinion per Korsmo, J., concurred in by Schultheis, C.J., and Sweeney, J.
Appellant Bravo Farms challenges a trial court ruling that denied its request for specific performance of an alleged contract to purchase farmland. While we agree with the trial court that respondents had not accepted an offer to buy the land, we decide the case on a different basis. Concluding that the evidence did not support the existence of a right of first refusal to purchase the land in question, we affirm the judgment below.
FACTS
Bravo Farms leased 123 acres of farmland from respondents Richard and Judy Battin. From 1984-1992, Victor and Maxine Bassani had leased the land via an oral agreement. In 1992 and 1997 the parties entered into written lease agreements. There were no first right of refusal clauses in those documents. Victor Bassani died in 2001 and the 1997 lease then was assigned to Bravo Farms, which was managed by Alan Bassani. In 2002, Bravo prepared a three-year lease agreement that included a right of first refusal to purchase the land in the event the Battins decided to sell. The Battins declined to agree to the provision, and the two sides discussed the idea during a telephone conversation. Bravo later claimed that the Battins agreed to the provision during the conversation. The Battins denied that they did. The parties did not enter into a written lease agreement.
In 2004, Lucky Bohemian Farms offered to purchase the land from the Battins for $4,000 an acre by paying $100,000 down and the balance on a 20-year contract at 6.5 percent interest. The Battins told Bravo about the offer and Bravo said it would match the offer. Lucky Bohemian then offered to increase the price to $4,500 per acre but did not mention other contract terms. Bravo said it would match the increased offer, depending upon the other purchase terms. Bohemian then made offers of $4,750 and $5,000 per acre, again without specifying any other terms. Bravo again indicated that it would match the offers depending upon the other terms.
The Battins then asked the parties to submit sealed bids for the land. Lucky Bohemian submitted an offer of $6,010 per acre and asked that the owner carry a contract, the details of which would be worked out later. Bravo refused to participate, indicating that it had a right of first refusal which it intended to exercise on the original $4,000 per acre offer.
Bravo then filed suit against the Battins, alleging that it had a valid right of first refusal and requesting specific performance of the right. The matter proceeded to bench trial. The Battins and the principals from Bravo and Lucky Bohemian all testified. The trial court found that Bravo Farms did have an oral right of first refusal to purchase the land based on the conduct of the parties. The court also found that there was no completed agreement to purchase the land because terms were left to negotiation and, therefore, there was nothing on which to exercise the right of first refusal. The court found that both sides prevailed on substantial issues and declined to award attorney fees and costs. Bravo Farms then appealed to this court. A Commissioner of this court dismissed the Battins' untimely notice of cross appeal.
ANALYSIS
The existence of a contract and construction of any ambiguous terms is a legal question that is subject to de novo review. Yeats v. Estate of Yeats, 90 Wn.2d 201, 204, 580 P.2d 617 (1978); Keystone Masonry, Inc. v. Garco Constr., Inc., 135 Wn. App. 927, 932, 147 P.3d 610 (2006). Under the real estate version of the statute of frauds, contracts for the sale or lease of real property are required to be in writing. Pardee v. Jolly, 163 Wn.2d 558, 566-567, 182 P.3d 967 (2008) (sales agreement); Powers v. Hastings, 93 Wn.2d 709, 711 n. 1, 612 P.2d 371 (1980) (lease). Washington's codification of that requirement is found in RCW 64.04.010, which states in relevant part: "Every conveyance of real estate, or any interest therein, and every contract creating or evidencing any encumbrance upon real estate, shall be by deed." (Emphasis supplied). The broad language of the statute, reaching any encumbrance, also applies to easements and other lesser interests in realty. E.g., Berg v. Ting, 125 Wn.2d 544, 886 P.2d 564 (1995) (easement).
One exception to the statute of frauds is when a party performs in reliance upon an oral agreement to sell or lease land. Pardee, 163 Wn.2d at 566-567. In that circumstance, the court will enforce the sale agreement or leasehold on behalf of the party which acted in reliance upon the agreement after considering whether three requirements have been substantially met: (1) the party took possession of the real estate, (2) made payment of consideration, and (3) made substantial and valuable improvements in accord with the contract. Powers, 93 Wn.2d at 717.
It is not necessary that all three requirements be met. Powers, 93 Wn.2d at 721; Berg, 125 Wn.2d at 557-558.
"[G]eneral contract law governs the exercise of a right of first refusal." Nw. Television Club, Inc. v. Gross Seattle, Inc., 96 Wn.2d 973, 980, 640 P.2d 710 (1981). A right of first refusal is a right that is both personal to the grantee and also is an interest in the real estate which acts as a limitation on the authority of a property owner to sell. Manufactured Hous. Cmtys. v. State, 142 Wn.2d 347, 364-365, 13 P.3d 183 (2000). A purpose of a right of first refusal clause is to encourage leaseholders to invest in and improve the property without fear that their improvements will be passed on to another purchaser. Nw. Television Club, Inc., v. Gross Seattle, Inc., 26 Wn. App. 111, 612 P.2d 422 (1980), rev'd in part on other grounds, 96 Wn.2d 973, 640 P.2d 710 (1981). Because the right of first refusal acts as a limitation on the use and enjoyment of property, we believe it is required to be in writing just as easements and other limitations on real property must be. Prior Washington cases involving rights of first refusal, whether for real estate or personal property, have invariably involved written agreements. E.g., Robroy Land Co. v. Prather, 95 Wn.2d 66, 622 P.2d 367 (1980) (real estate); Superior Portland Cement, Inc. v. Pac. Coast Cement Co., 33 Wn.2d 169, 205 P.2d 597 (1949) (purchase of business operations); Nw. Television Club, 26 Wn. App. 111 (real estate); Bennett Veneer Factors v. Brewer, 73 Wn.2d 849, 441 P.2d 128 (1968) (timber); Dalton v. Balum, 13 Wn. App. 160, 534 P.2d 56 (real estate), review denied, 85 Wn.2d 1014 (1975); Chittick v. Boyle, 3 Wn. App. 678, 479 P.2d 142 (1970) (real estate).
The right of first refusal at issue here was required to be in writing by the statute of frauds. It was not. The question then presented is whether the performance of the parties took the matter outside of the statute. We conclude that it did not. Bravo Farms did continue in its possession of the real estate (as it had for the previous 18 years) and paid the appropriate rent, so arguably the first two requirements of the doctrine of partial performance are satisfied. Powers, supra. However, this was the same situation that Bravo was in before it offered the proposed 2002 lease. To the extent that these factors suggest the existence of partial performance, they are not very persuasive. Importantly, the third factor does not support finding partial performance. There is no indication in this record that Bravo made substantial and valuable improvements in accord with the 2002 lease agreement or, in particular, the first refusal clause. Rather, the parties essentially continued to operate as they had under the 1997 lease, paying essentially the same rent for farming the same land. There was no fundamental change in position or additional improvement to the land that would take the right of first refusal provision outside the statute of frauds. Accordingly, we conclude as a matter of law that there was no right of first refusal and reverse the trial court's conclusion that one existed.
The effect of our ruling, however, is to affirm the trial court's judgment for the Battins. We do not reach the question of whether or not the Battins ever accepted an offer from Lucky Bohemian, although we note that there is no factual finding that they did so. Respondents are entitled to statutory attorney fees and costs pursuant to RCW 4.84.030; 4.84.080.
A majority of the panel has determined this opinion will not be printed in the Washington Appellate Reports, but it will be filed for public record pursuant to RCW 2.06.040.
SCHULTHEIS, C. J. and SWEENEY, J., concur.