Opinion
No. 57478-7-I.
April 2, 2007.
Appeal from a judgment of the Superior Court for King County, No. 04-2-09599-9, Steven C. Gonzalez, J., entered December 19, 2005.
Affirmed by unpublished opinion per Ellington, J., concurred in by Schindler, A.C.J., and Dwyer, J.
The question here is the availability of specific performance after breach of a contract for sale of land. The seller, who refused to complete the sale, claims the agreement terminated, and in any event, the buyer's remedy in case of breach was limited to a return of earnest money. The buyer claims the seller waived the termination date, and the limitation on remedy applied only if the seller could not resolve litigation with a third party concerning the land. The court awarded specific performance to the buyer. The court did not abuse its discretion, and we affirm.
BACKGROUND
This appeal arises out of a real estate purchase and sale agreement between Dale Alan Land Development Company and Sound Built Homes. In 2003, Dale Alan agreed to buy a 22-lot plat in Covington from Phil Kitzes and Tim Powers, who were buying it from Sue Miller. Dale Alan never completed its deal with Kitzes and Powers, and instead bought the property directly from Miller. Kitzes and Powers filed suit against Dale Alan and placed a lis pendens against the property.
Before resolving the dispute with Kitzes and Powers, Dale Alan agreed to sell the property to Sound Built. Sound Built knew of the Kitzes/Powers litigation, and the parties extensively negotiated what would happen in the event Dale Alan was unable to clear title to the property.
The purchase and sale agreement required Dale Alan to finish various projects related to plat development before closing would occur, and also provided that if these conditions were not completed by February 28, 2004, the transaction was null and void. The agreement also contained three provisions entitling Sound Built to waive the conditions at any time and proceed straight to closing.
At the end of March 2004, Dale Alan falsely informed Kitzes and Powers that the agreement with Sound Built would expire on April 9 unless their litigation was resolved. The parties then reached a mediated agreement under which Dale Alan was to conduct sale of the property in a commercially reasonable manner. Sound Built's purchase price of $1,980,000 was deemed commercially reasonable, but if the property sold for more than $1,980,000, Kitzes and Powers were entitled to 35 percent of the additional proceeds.
Dale Alan then solicited offers from new parties. According to Kurt Wilson of Sound Built, Derek Sinclair of Dale Alan told him the solicitations were simply intended to verify the value of the property in order to satisfy requirements of the mediated agreement. Some of the offers were higher than Sound Built's purchase price.
On May 20, 2004, Dale Alan informed Sound Built it could purchase the property only if it matched the highest offer. Sound Built refused, and exercised its right under to waive all conditions and proceed straight to closing. Dale Alan tendered Sound Built its earnest money. Sound Built rejected the tender and filed suit and notice of lis pendens.
Dale Alan sold the property to Chelan Homes, Inc. Dale Alan and Sound Built went to trial.
The trial court concluded that Dale Alan breached the purchase and sale agreement, that the interests of Chelan Homes and its successors were subject to the legal effects of the decisions, orders and judgments in the suit; and that damages were an inadequate and ineffective remedy. It ordered specific performance and awarded Sound Built attorney fees and costs. Dale Alan appeals.
As a preliminary matter, Dale Alan submitted a motion to disregard a statement of supplemental authorities offered by Sound Built on the ground that it raises a new argument. Because we do not rely on the authorities, we deny the motion.
ANALYSIS
Specific performance is an equitable remedy. Chan v. Smider, 31 Wn. App. 730, 735, 644 P.2d 727 (1982). We review a grant of specific performance for abuse of discretion. Egbert v. Way, 15 Wn. App. 76, 81, 546 P.2d 1246. A trial court abuses its discretion if its decision or order is manifestly unreasonable, exercised on untenable grounds, or exercised for untenable reasons. State v. Brown, 132 Wn.2d 529, 572, 940 P.2d 546 (1997).
To determine whether the trial court abused its discretion, we must look to its interpretation of the purchase and sale agreement. If, as Dale Alan contends, the agreement became null and void on February 28, 2004, or prohibited all remedies in case of Dale Alan's breach except a return of Sound Built's earnest money, the trial court's order for specific performance would be an abuse of discretion.
The primary goal in interpreting a contract is to ascertain the parties' intent. Paradise Orchards v. Fearing, 122 Wn. App. 507, 516, 94 P.3d 372 (2004). The court determines intent by "`viewing the contract as a whole, the subject matter and objective of the contract, all the circumstances surrounding the making of the contract, the subsequent acts and the conduct of the parties to the contract, and the reasonableness of respective interpretations advocated by the parties.'"
Scott Galvanizing, Inc. v. Northwest EnviroServices, Inc., 120 Wn.2d 573, 580, 844 P.2d 428 (1993) (quoting Berg v. Hudesman, 115 Wn.2d 657, 667, 801 P.2d 222 (1990)). Even if the contract language is clear and unambiguous, the court may consider extrinsic evidence for the limited purpose of determining the intent of the parties. Berg, 115 Wn.2d at 668. The purpose of such evidence is to aid the court in interpreting what is contained in the contract and not for the purpose of proving intent independent of the contract. Id. When interpretation depends on factual determinations such as the credibility of extrinsic evidence or a choice among reasonable inferences to be drawn from extrinsic evidence, we review for substantial evidence. Id. Otherwise contract interpretation is a question of law, which we review de novo. Id.
The trial court determined that the purchase and sale agreement did not terminate on February 28, 2004 as Dale Alan contends, and did not preclude specific performance. In this process the court considered extrinsic evidence, including the testimony of Kurt Wilson from Sound Built and Derek Sinclair from Dale Alan. The court found Wilson credible, but that Sinclair's testimony was not credible, particularly when it conflicted with Wilson's testimony. We will not set aside a trial court's evaluation of credibility. Revier v. Revier, 48 Wn.2d 231, 233, 292 P.2d 861 (1956).
Termination Date
According to the agreement, Dale Alan was to finish certain development preparations by February 28, 2004:
13. COMPLETION DATE: If Seller fails to achieve Completion on or before February 28, 2004 then this transaction will be deemed null and void and Earnest Money will be returned to Purchaser within 10 days.
Ex. 1. The trial court read this section in conjunction with section 16, which limited Sound Built's remedies and gave Sound Built the option to waive any conditions in the agreement:
16. LIQUIDATED DAMAGES: Purchaser and Seller agree that if Purchaser defaults on its obligations under this Agreement, Seller's damages shall be limited to Earnest Money and shall be Seller's sole remedy in the event of default by Purchaser. Purchaser and Seller agree that if Seller defaults on its obligations under this Agreement, Purchaser's damages shall be limited to reclaiming Earnest Money deposited with the escrow agent and shall be Purchaser's sole remedy in the event of default by the Seller. Buyer, at its option, may elect to waive the performance of any condition, contingency or provision in the Buyer's favor set forth in this Agreement.
Ex. 1.
The trial court determined that sections 13 and 16 were inconsistent and ambiguous. We agree. Under section 13, the agreement terminated if any of the conditions of completion had not been met by February 28, 2004. But under section 16, Sound Built could waive the conditions of completion at any time and proceed to close. Section 21 of the purchase and sale agreement reiterated this right: "Purchaser shall have the right and option at any time to waive any of the conditions and proceed with Closing." Ex. 1. The self-executing termination clause is inconsistent with the right to waive conditions and proceed with closing.
Relying on testimony and exhibits, the trial court found that the parties did not intend "that the February 28, 2004 date . . . would control the rights of the parties in the event [Dale Alan] resolved the pending suit and was otherwise capable of closing." Clerk's Papers at 96. The court also found the parties intended that "the termination of the [purchase and sale agreement] could only be effectuated by a tender of the earnest money by [Dale Alan]," and that tender of the earnest money would oblige Sound Built to "either accept the tender or to waive any and all remaining conditions to closing within 10 days of the tender." Clerk's Papers at 97. The termination provision was "subject to the condition that the earnest money be returned or at least tendered to [Sound Built]." Clerk's Papers at 97.
We have reviewed the record, and substantial evidence supports these findings. Both parties were experienced real estate developers. Both parties knew that an escrow holder would not release the earnest money without specific written instructions from both parties. Both parties acted before and after February 28, 2004 as if the transaction would proceed to closing so long as Dale Alan could clear title.
In any event, we agree Dale Alan waived the termination date. Whether actions constitute waiver is a conclusion of law reviewed de novo. Mid-Town Ltd. P'ship v. Preston, 69 Wn. App. 227, 232, 848 P.2d 1268 (1993). Waiver is the intentional abandonment or relinquishment of a known right. Dep't of Revenue v. Puget Sound Power Light Co., 103 Wn.2d 501, 505, 694 P.2d 7 (1985). A party may imply waiver by evincing an intent to waive or by acting in a manner inconsistent with any other intent. Nadeau v. Beers, 73 Wn.2d 608, 611, 440 P.2d 164 (1968) (quoting Reynolds v Travelers Ins. Co., 176 Wash. 36, 28 P.2d 310 (1910)).
In its oral findings of fact, the trial court noted three acts before February 28 demonstrating waiver: (1) an e-mail from Derek Sinclair of Dale Alan to Kurt Wilson of Sound Built about keeping an acquisition and a closing together; (2) a February 20 e-mail exchange between Wilson and Sinclair about water approval, where Wilson asked when Dale Alan expected to post its bond and pay facilities fees to the water company, and Sinclair responded that bonds were "delivered on Friday and because we are set for the March 3 commissioners meeting, we will be paying our fees this week;" Ex. 2 at 29, and (3) a February 26 e-mail in which Wilson wrote that items related to final water permit approval were "submitted yesterday afternoon, with a personal assurance that we are on the agenda for Mar[ch] 3 commissioners meeting (I have absolutely no idea how Murray talked us into the first meeting of the month). You should be good to go, Kurt." Ex. 2 at 28.
Dale Alan claims these communications do not constitute waiver. The company contends the first relates to a different transaction, and that the second and third "simply indicated that [Dale Alan] was proceeding with its obligations under the [purchase and sale agreement] by coordinating with the water district." App. Br. at 24. According to Dale Alan, it was merely acting in good faith up until the termination date, waiting to see if Sound Built exercised its right to waive any conditions and proceed to close.
The second and third e-mails alone indicate waiver. Dale Alan communicated its intent to continue working towards completion after February 28, and Sound Built endorsed those actions. Until it attempted to tender the earnest money in May, Dale Alan did nothing but act as though it intended to close the deal.
Dale Alan relies on three cases, Mid-Town Ltd Partnership v. Preston, 69 Wn. App. 227, 848 P.2d 1268 (1993), Nadeau v. Beers, 73 Wn.2d 608, 440 P.2d 164 (1968), and Local 112, I.B.E.W. Bldg. Ass'n v. Tomlinson Dari-Mart, Inc., 30 Wn. App. 139, 632 P.2d 911 (1981). All are distinguishable. In all three, no conduct suggesting waiver occurred before the contracts' termination dates. Mid-Town, 69 Wn. App. at 234; Local 112, 30 Wn. App. at 142; Nadeau, 73 Wn.2d at 610. Moreover, the sellers in Nadeau, unlike Dale Alan, engaged in conduct inconsistent with an intention to waive. Id. at 611.
Specific Performance
Because the purchase and sale agreement was still in effect in May 2004, Dale Alan breached the agreement by refusing to close once Sound Built waived all conditions and stated it wanted to close. Thus the second issue on appeal is whether the trial court's award of specific performance after Dale Alan's breach was an abuse of discretion.
The parties negotiated a limitation of remedy provision in section 16 of the agreement: "Purchaser and Seller agree that if Seller defaults on its obligations under this Agreement, Purchaser's damages shall be limited to reclaiming Earnest Money." Ex. 1. The trial court found that the parties did not intend the termination date "or any other provision of Section 16" to control the rights of the parties if Dale Alan resolved the pending litigation and was capable of closing. Clerk's Papers at 96. The court found that the limitation on remedies was intended to protect Dale Alan in the event it could not clear title.
Dale Alan contends this finding ignores the plain language of section 16, which expressly limits Sound Built's damages to a return of its earnest money in case of breach. Dale Alan points out that in negotiations between the parties, Dale Alan consistently rejected Sound Built's efforts to include a remedy of specific performance in the contract. Kurt Wilson, who negotiated the agreement for Sound Built, admitted that he "knew [Dale Alan] would not sign an agreement with Sound Built . . . that would give Sound Built the right of specific performance." Report of Proceedings (RP) (Nov. 15, 2005) at 153. Wilson also testified that Sinclair told him, "they [Dale Alan] just don't put that [specific performance] language in their agreements." RP (Nov. 15, 2005) at 119. Dale Alan also refused to put language in the agreement allowing for a legal remedy in the event of breach.
But Wilson recognized during negotiations that "the way the agreement was written, it really gave us no rights. It wasn't really an agreement, because we would be putting up cash that would be — borrowing it, and at any time they could come to us and say, here's your money back." RP (Nov. 15, 2005) at 118. Acting on this realization, Wilson "pursued to negotiate other provisions," RP (Nov. 15, 2005) at 119, in particular the waiver provision, which Wilson characterized as a substitute for specific performance:
The provision added allowing us to have a waiver was in lieu of the specific performance or the remedies provision, because at a point in time, when we were told that we were out of contract or they didn't want to proceed with us, we could waive the conditions of closing or conditions of completion, as defined in the agreement, and close.
RP (Nov. 15, 2005) at 156.
"When a provision is subject to two possible constructions, one of which would make the contract unreasonable and imprudent and the other of which would make it reasonable and just, we adopt the latter interpretation." Berg v. Hudesman, 115 Wn.2d 657, 672, 801 P.2d 222 (1990) (citing Dickson v. United States. Fid. Guar. Co., 77 Wn.2d 785, 790, 466 P.2d 515 (1970)). Under Dale Alan's proposed interpretation of section 16, the company could walk away from the contract at any time and simply return Sound Built's earnest money. This interpretation renders the agreement illusory because Dale Alan's performance becomes entirely optional. Restatement (Second) of Contracts §§ 2, cmt. e (1979). Moreover, if Dale Alan could walk away at any time with no consequence, Sound Built's right to waive conditions and proceed to closing was worthless. Sound Built's interpretation precluding specific performance only in the event Dale Alan could not clear title is more reasonable and creates an enforceable purchase and sale agreement. We adopt it here.
Having determined that specific performance is an available remedy, we must determine if its award was an abuse of discretion. Specific performance is an equitable remedy available to an aggrieved party for breach of contract when legal remedies are inadequate. Egbert v. Way, 15 Wn. App. 76, 79, 546 P.2d 1246 (1976). It is usually granted in disputes over purchase and sale agreements. See, e.g., Sheldon v. Hallis, 72 Wn.2d 993, 997, 435 P.2d 988 (1967); Streater v. White, 26 Wn. App. 430, 433, 613 P.2d 187 (1980). We find no abuse of discretion in the court's award of specific performance here.
Under the purchase and sale agreement, Sound Built, as the prevailing party, is entitled to fees and costs.
Affirmed.