Opinion
No. 63217-5-I.
March 1, 2010.
Appeal from a judgment of the Superior Court for What-com County, No. 08-2-00218-3, Steven J. Mura, J., entered February 27, 2009.
Affirmed by unpublished opinion per Cox, J., concurred in by Becker and Ellington, JJ.
Bellingham BSC, LLC ("BSC"), appeals the trial court's order summarily dismissing its claims arising from a commercial lease with its tenant, Ambulatory Resource Centres of Washington, Inc. ("ARC-W"). There are no genuine issues of material fact and ARC-W and related parties are entitled to a judgment as a matter of law. We affirm.
In May 1999, ARC of Bellingham, LP ("ARC-B"), entered into a 10-year commercial lease for Suite 202 of the Bellingham Day Surgery Condominium with Northwest Washington Medical Bureau ("NWMB"), the owner of the premises. At the time, Symbion, Inc. was the parent organization of ARC-W, which was the general partner of the partnership that owned ARC-B.
The terms of the original lease provided for base monthly rent of $20,795, subject to periodic adjustments based on the consumer price index. The term of the lease was to expire on April 30, 2009, subject to the right of renewal or extension. There were three amendments to the lease as of July 1, 2003.
Joan Schwindt purchased NWMB's building in 2003. As part of that transaction, she took an assignment of the ARC-B lease.
In May 2004, Schwindt executed a Fourth Amendment to Lease Agreement with ARC-B, ARC-W, and Symbion (collectively "ARC"). This fourth amendment extended the term of the original lease from April 30, 2009 to December 31, 2013. It also modified the terms of the base monthly rent, commencing on May 1, 2009. ARC-B assigned its rights and obligations as tenant under the lease to ARC-W. ARC-B then became a subtenant. Symbion was added to the lease as a guarantor of the tenant's obligations as part of this amendment.
In 2005, Schwindt sold the building to BSC. Thereafter, disputes arose between BSC and ARC over the calculation of monthly rent due on May 1, 2009 and thereafter.
In 2008, BSC commenced this action for declaratory relief, seeking a declaration as to the amount of rent due on May 1, 2009, and thereafter under the fourth amendment to the lease. ARC counterclaimed, also seeking declaratory relief as to the amount of rent due under that amendment.
ARC moved for summary judgment, which the trial court granted. The trial court's order also sets forth the court's interpretation of the terms of the fourth amendment to the lease and awards fees. BSC appeals.
MISTAKE
BSC argues that genuine issues of material fact exist whether the parties to the fourth amendment of the lease made a mutual mistake regarding the calculation of base monthly rent, commencing May 1, 2009. Alternatively, BSC claims that there are genuine issues of material fact whether there was a unilateral mistake regarding that rent calculation. We disagree with both claims.
A motion for summary judgment may be granted when there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. We review a summary judgment order de novo, viewing the facts and reasonable inferences in the light most favorable to the nonmoving party.
Khung Thi Lam v. Global Med. Sys., 127 Wn. App. 657, 661 n. 4, 111 P.3d 1258 (2005).
Washington follows the objective manifestation theory of contracts. Under this approach, the court attempts "to determine the parties' intent by focusing on the objective manifestations of the agreement, rather than on the unexpressed subjective intent of the parties." The court "impute[s] an intention corresponding to the reasonable meaning of the words used." "Thus, when interpreting contracts, the subjective intent of the parties is generally irrelevant if the intent can be determined from the actual words used." The court "do[es] not interpret what was intended to be written but what was written."
Hearst ComMc'ns, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503, 115 P.3d 262 (2005).
Id.
Id.
Id. at 503-04.
Id. at 504.
Parol, or extrinsic, evidence is not admissible for the purpose of adding to, modifying, or contradicting the terms of a written contract, in the absence of fraud, accident, or mistake. But extrinsic evidence is admissible to show the situation of the parties and the circumstances under which a written instrument was executed, for the purpose of ascertaining the intention of the parties and properly construing the writing. "'Such evidence, however, is admitted, not for the purpose of importing into a writing an intention not expressed therein, but with the view of elucidating the meaning of the words employed.'" Extrinsic evidence is not admitted "'for the purpose of showing intention independent of the instrument.'" If the evidence goes no further than to show the situation of the parties and the circumstances under which the instrument was executed, then it is admissible.
Berg v. Hudesman, 115 Wn.2d 657, 669, 801 P.2d 222 (1990) (quoting J.W. Seavey Hop Corp. v. Pollock, 20 Wn.2d 337, 348-49, 147 P.2d 310 (1944)).
Id. (quoting Pollock, 20 Wn.2d at 348-49).
Id. (quoting Pollock, 20 Wn.2d at 348-49).
Id. (quoting Pollock, 20 Wn.2d at 348-49).
Id. (quoting Pollock, 20 Wn.2d at 348-49).
Mutual Mistake
A mistake, for contract purposes, is a belief not in accord with the facts. The belief must be held at the time the contract is made. The mistake must relate to a basic assumption on which both parties relied when making the contract. It must have a material effect on the agreement. Finally, a party may invoke the mistake doctrine only if the party did not bear the risk of mistake.
Denaxas v. Sandstone Court of Bellevue, LLC, 148 Wn.2d 654, 668, 63 P.3d 125 (2003).
Id.
Id.
Id.
Id.
The fourth amendment to the lease provisions at issue state the amount of base monthly rent and the method of adjustment of that rent, commencing May 1, 2009:
3. Basic Monthly Rent
Base Monthly Rent, as set forth in Section 4.1 of the Lease, shall be reduced as follows, commencing May 1, 2009, through and including December 31, 2013. The starting computation for the reduced rent shall be $11,040.00. This amount shall then be adjusted in accordance with Section 4.3 below except that the beginning date for the adjustment shall be January 1, 2004. The amount so determined shall constitute the reduced Monthly Base Rent commencing on May 1, 2009. Thereafter, the Base Monthly Rent shall be adjusted in accordance with Section 4.3 below.
Clerk's Papers at 268.
Section 4.3 of the fourth amendment states the terms of periodic adjustments to the base monthly rent described in Section 3:
Commencing January 1, 2009, and on January 1 of each year thereafter during the term of the Lease, monthly rent exclusive of additional rent shall be adjusted pursuant to the change in the Consumer Price Index for all Urban Consumers (CPI-U) for the Seattle-Tacoma Metropolitan Area ALL ITEMS (1982-1984 = 100), published by the United States Department of Labor, Bureau of Labor Statistics (the "Index"), which is published for the month of December, 2003 ("Beginning Index"). If the Index published for the month of December preceding the Rent Adjustment Date ("Extension Index") has increased as compared to the Beginning Index, the Base Rental set forth in Section 4.1 shall be increased to an amount equal to the product of the Base Rental set forth in Section 4.1 and a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index. In no event will the new Base Monthly Rent be less than the Base Monthly Rent in effect immediately prior to the Adjustment Date.
Id.
BSC argues that extrinsic evidence shows that the parties to the fourth amendment made a mutual mistake as to the amount of rent to be paid, commencing May 1, 2009. It claims the rent was to be either $11,040 plus a CPI adjustment or an amount representing the then fair market rental value (FMV) of the premises. BSC takes this position although the fully executed fourth amendment unambiguously states that rent is to be based only on the first option: $11,040 plus a CPI adjustment.
In support of its position, BSC primarily relies on the declarations of Dennis Williams, Pat Rooney, and Joan Schwindt. Williams represented Schwindt, the owner of the building in 2004. He negotiated the fourth amendment on her behalf. Rooney represented ARC during the same lease negotiations.
Bellingham BSC's Opening Brief at 21-23.
More specifically, BSC points to a May 12, 2004 e-mail from Williams to Rooney. That e-mail, written 12 days before Schwindt executed the fourth amendment to the lease, discusses several matters. One is the rent calculation that the parties were then negotiating, stating, "When the revised rent schedule begins on May 1, 2009, we can either determine fair rental value at that date, or we can adjust the $11,040 by the CPI adjustment called for in the lease, from January 1, 2004." The other matter discussed in the e-mail is Schwindt's insistence on the guaranty of the lease by Symbion. The e-mail then states, "With these two modifications, my client is prepared to accept your proposal. . . ." According to BSC, this May 12 e-mail evidences Schwindt's intent that rent would be decided by either of the two methods specified in the e-mail.
Clerk's Papers at 140 (Declaration of Dennis R. Williams).
Id.
Id.
Id.
As evidence of ARC's "identical intent" that rent would be decided by either of the two methods specified in the May 12 e-mail from Williams, BSC relies on the Declaration of Dennis R. Williams. That declaration includes a May 18, 2007 letter from Rooney to BSC's asset manager. The portion of the letter on which BSC relies states,
The reduction of rent in 2009 is a reflection that the sums necessary to "buy down" the lease have been paid and the new rent reflects that "buy down" of rent. See attached e-mail from Dennis Williams, Esq. counsel to Ms. Schwindt to me which explains the structure. Essentially the rent all along has been $11,040. For May 1, 2009 we would decide what FMV rent was or use the $11,040 plus CPI increases to establish the new rent. We agree that rent would not fall below $11,040 but it is not the greater of $20,795 or $11,040 plus CPI adjustments. The provisions of Section 3 of the Fourth Amendment are clear on this point, and I do not understand the basis of your version of the rent calculation.
Id. at 141 (Declaration of Dennis R. Williams) (emphasis added).
We note that it is unclear from the Williams' declaration to which Rooney's May 18, 2007 letter is attached what the "attached e-mail from Dennis Williams, Esq. counsel to Ms. Schwindt to me which explains the structure" says. But the Declaration of William G. Knudsen, an attorney for BSC, makes this clear. Specifically, Exhibit A to the Knudsen declaration contains two pages. The first page is a copy of Rooney's May 18, 2007 letter. The second page is a copy of the attachment to which Rooney refers in his May 18 letter: the May 12, 2004 e-mail from Williams to Rooney.
Id. at 129 (Declaration of William G. Knudsen).
Id.
Focusing on the May 12, 2004 e-mail from Williams to Rooney and Rooney's May 18, 2007 letter, BSC argues that a genuine issue of material fact exists whether there was a mutual mistake of the parties as to the amount of rent that was to be paid, commencing May 1, 2009. BSC maintains that the parties to the amended lease intended that rent would be calculated on the basis of either "$11,040 plus CPI, or fair market value." This is a novel argument, but we are not persuaded by it.
As our supreme court stated in Berg v. Hudesman, extrinsic evidence is "'admitted, not for the purpose of importing into a writing an intention not expressed therein, but with the view of elucidating the meaning of the words employed.'" If we were to accept BSC's reading of Williams' May 12, 2004 e-mail and Rooney's May 18, 2007 letter, we would import into the written lease amendment matters not expressed in the amendment. It is undisputed that the terms of Sections 3 and 4.3 of the fully executed lease contain no reference to FMV as a factor that the parties would use in calculating base monthly rent, commencing May 1, 2009. These sections make clear that "$11,040, as adjusted by CPI," is the sole method for calculating the rent. Moreover, the Williams e-mail and Rooney letter do not aid in elucidating the unambiguous words in those sections.
115 Wn.2d 657, 801 P.2d 222 (1990).
Berg, 115 Wn.2d at 669.
Equally important to our analysis is the fact that we reject BSC's reliance on the e-mail and letter to establish mutual mistake. The only reasonable reading of Williams' May 12, 2004 e-mail and Rooney's May 18, 2007 letter, to which a copy of the May 12 letter is attached, is that during the course of negotiations between the parties as of May 12, 2004, they discussed alternatives to calculating rent. However, these documents do not show a mistake as to the method of calculating rent on which both parties relied when they fully executed the fourth lease amendment almost two weeks later. The critical time for determining whether a mutual mistake exists is when the contract is made.
Denaxas, 148 Wn.2d at 668 ("The belief must be held at the time the contract is made.").
Evidence showing there was no mutual mistake of the parties as to the method of calculating rent at the time of making of the contract is contained in the Declaration of Patrick R. Rooney. That declaration includes a May 18, 2004 e-mail from Williams reflecting further discussions and agreement as to the calculation of rent following the May 12 communication. The May 18, 2004 e-mail includes, as one of several attachments, a fourth amendment of lease.
In the e-mail, Williams states that the documents reflect his previous discussions with Rooney. He states that Section 3 [Basic Monthly Rent] "eliminate[s] the lump sum payment and provid[es] for the reduction of rent beginning on 5/1/09." The attached amended lease is consistent with Williams' statement, showing deletion of language referring to a $500,000 sum. Significantly, this attachment contains no language concerning calculation of rent by use of FMV. Rather, both Sections 3 and 4.3 track the language of the fully executed lease amendment: the sole method of calculating the reduced rent was to start with the fixed amount of $11,040 and adjust it according to CPI.
Clerk's Papers at 301 (Declaration of Patrick R. Rooney).
Id. (emphasis added).
Id. at 303.
Id.
In context, these May 18, 2004 documents show further negotiations between the parties after the May 12, 2004 e-mail on which BSC now relies. They also show Schwindt's intent as to the calculation of rent as of the time of her execution of the amended lease six days after the May 18 e-mail of her lawyer.
ARC's intent was the same at the time of executing the lease, according to the record. Kenneth C. Mitchell, a senior officer of ARC with personal knowledge of the lease negotiations, states that the reduced rent was to be calculated on "a sum certain ($11,040 plus applicable CPI increases)," nothing else. Comparison of this evidence with the Williams' May 18, 2004 e-mail and attachment shows that there was no mutual mistake.
Id. at 313 (Declaration of Kenneth C. Mitchell).
BSC also relies on a declaration of Schwindt in an attempt to show there was a mutual mistake regarding calculation of rent. BSC claims that it is reasonable to infer that Schwindt would not have extended the term of the lease for five years using $11,040 plus CPI. This claim is based on the assertion that the figure was far less than fair market rent at the time of the May 2004 lease amendment.
A close reading of the Schwindt declaration shows nothing to support the existence of a mutual mistake about how to calculate rent, commencing May 1, 2009. She does not disavow any of the May 18, 2004 statements of Williams, her counsel at the time of the lease negotiations, which we have already discussed. Although she opines on her interpretation of the lease amendment, she does not contest the method of calculation of the rent set forth in Sections 3 and 4.3 of that document.
In sum, BSC fails to show the existence of any genuine issue of material fact whether there was a mutual mistake of the parties, at the time of the execution of the amended lease, concerning the method of calculating reduced rent, commencing May 1, 2009. The May 18, 2004 e-mail of Williams together with its attachment show a common intent of the parties to the lease over the calculation of rent, commencing May 1, 2009. There was no mutual mistake.
Unilateral Mistake
BSC argues, in the alternative, that there were genuine issues of material fact as to whether there was a unilateral mistake by Schwindt as to the calculation of rent. We disagree.
"A party to a contract is entitled to reformation of the contract if either there has been mutual mistake or one party is mistaken and the other party engaged in fraud or inequitable conduct." A party has engaged in fraud or inequitable conduct if it conceals a material fact from the other party. Concealment only constitutes fraud or inequitable conduct when the party possessing the knowledge has a duty to disclose that knowledge to the other party.
Wash. Mutual Savings Bank v. Hedreen, 125 Wn.2d 521, 525, 886 P.2d 1121 (1994).
Id. at 526.
Id.
Though BSC makes this argument, there is no evidence to show a genuine issue of material fact that ARC engaged in fraud or inequitable conduct by concealing a material fact. The contemporaneous communications between counsel for the parties that we have already discussed show both sides agreed to the same method of calculation of reduced rent as of May 18, 2004. There is no hint of fraud or inequitable conduct. Thus, there is no showing of a genuine issue of material fact regarding unilateral mistake.
BSC claims that the trial court "believed that [it] could not consider any extrinsic evidence" in interpreting the lease. It bases this argument on comments the court made during the oral arguments of the parties.
Bellingham BSC's Opening Brief at 18.
We note that the Order Granting Defendants' Motion for Summary Judgment that the court entered on February 27, 2009, following the arguments of the parties, expressly states that "The Court considered the following materials," listing declarations of Knudsen, Schwindt, Williams, and others. These and other materials constitute the extrinsic evidence on which BSC relies. This order, which is the final ruling of the court on the motion, is inconsistent with BSC's assertion. In view of the signed order, BSC's argument appears to be unsupported by the record.
Clerk's Papers at 17.
In any event, even if the trial court did not consider extrinsic evidence, BSC cannot show prejudice. In our de novo review of the summary dismissal, we have considered and discussed the extrinsic evidence of the parties.
DECLARATORY RULING
BSC argues that declaratory ruling as to the meaning of section 4.3 in the fourth amendment to the lease is incorrect. We again disagree. The fourth amendment to the lease states:
3. Basic Monthly Rent
Base Monthly Rent, as set forth in Section 4.1 of the Lease, shall be reduced as follows, commencing May 1, 2009, through and including December 31, 2013. The starting computation for the reduced rent shall be $11,040.00. This amount shall then be adjusted in accordance with Section 4.3 below except that the beginning date for the adjustment shall be January 1, 2004. The amount so determined shall constitute the reduced Monthly Base Rent commencing on May 1, 2009. Thereafter, the Base Monthly Rent shall be adjusted in accordance with Section 4.3 below.
Section 4.3 of the Lease is hereby amended in its entirety to read as follows:
4.3 Base Monthly Rent Adjustment Based on CPI. Commencing January 1, 2009, and on January 1 of each year thereafter during the term of the Lease, monthly rent exclusive of additional rent shall be adjusted pursuant to the change in the Consumer Price Index for all Urban Consumers (CPI-U) for the Seattle-Tacoma Metropolitan Area ALL ITEMS (1982-1984 = 100), published by the United States Department of Labor, Bureau of Labor Statistics (the "Index"), which is published for the month of December, 2003 ("Beginning Index"). If the Index published for the month of December preceding the Rent Adjustment Date ("Extension Index") has increased as compared to the Beginning Index, the Base Rental set forth in Section 4.1 shall be increased to an amount equal to the product of the Base Rental set forth in Section 4.1 and a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index. In no event will the new Base Monthly Rent be less than the Base Monthly Rent in effect immediately prior to the Adjustment Date.
Id. at 268.
In its Order Granting Defendants' Motion for Summary Judgment, the trial court construed the provisions as follows:
Under Section 3 of the Fourth Amendment, the specific amount of the new initial "reduced Base Monthly Rent" is to be calculated on May 1, 2009 as follows. First, the calculation starts with the new Base Monthly Rent of "$11,040.00." Second, that $11,040.00 Base is then adjusted by applying the Consumer Price Index ("CPI") formula contained in Section 4.3 of the Lease, as modified by the Fourth Amendment, using a beginning date of January 1, 2004 and applying the CPI adjustments between January 1, 2004 and May 1, 2009. By this calculation, the adjusted "reduced Base Monthly Rent commencing on May 1, 2009" is arrived at and used from May 1, 2009 until the next CPI adjustment on January 1, 2010.
Section 4.3 further provides that the May 1, 2009 CPI adjustment shall not result in the Base Monthly Rent being less than $11,040.00, in the event of a negative CPI: "In no event will the new Base Monthly Rent be less tha[n] the Base Monthly Rent in effect immediately prior to the adjustment date." That "adjustment date" is May 1, 2009, as noted in the third sentence of Section 3.
Id. at 18-19.
This construction of the amended lease is consistent with the plain words of that document.
BSC challenges the plain words of the lease by speculating about a $500,000 payment, which we have already explained was eliminated from consideration by Williams' May 18, 2004 e-mail and attachment to Rooney. Since it is clear from this record that the payment requirement did not become a part of the final fourth amended lease agreement, we do not further discuss this challenge to the court's ruling.
The other claim is that the last sentence of Section 4.3 is inconsistent with the court's interpretation that the rent was to be reduced from its previous amount, commencing May 1, 2009. BSC argues that the last sentence means that the rent was to remain at a level of no less than $20,795 per month after April 30, 2009.
That interpretation of the sentence is not reasonable in the context of Sections 3 and 4.3. The whole point of these sections is to specify the terms of the reduction of rent from the $20,795 level, commencing May 1, 2009. The most reasonable reading of the last sentence, in the context of the sections, is that annual adjustments of monthly rent in January of each year would not fall below the monthly rent in effect immediately prior to the adjustment. The starting computation for the initial adjustment as of May 1, 2009 was $11,040, a reduction from the April 2009 rent of $20,795. Accordingly, the last sentence of Section 4.3 could not apply to that first adjustment since it would be inconsistent with the expressed purpose of the paragraphs: reduction of rent. BSC's proposed interpretation makes no sense, and we reject it.
Even if we were to accept BSC's interpretation as a reasonable alternative to what we have just explained, there would be an ambiguity. Here, where it is undisputed that counsel to BSC's predecessor in interest drafted the document, we would construe any ambiguity against BSC. The trial court's declaratory ruling was correct.
Harding v. Warren, 30 Wn. App. 848, 850, 639 P.2d 750 (1982) ("A written instrument is ambiguous when its terms are uncertain or susceptible to more than one meaning.").
Queen City Sav. Loan Ass'n v. Mannhalt, 111 Wn.2d 503, 513, 760 P.2d 350 (1988) ("Where a contract is ambiguous and parol evidence is not available to resolve the ambiguity, the ambiguity is construed against the drafter of the contract.").
ATTORNEY FEES
Both parties seek attorney fees on appeal under the terms of the lease that provide for an award to the prevailing party. BSC also requests that we reverse the trial court's award of fees to ARC as the prevailing parties below.
The amended lease states:
In the event of any litigation between the parties hereto arising out of this Lease . . . the prevailing party therein shall be allowed all reasonable attorney's fees expended or incurred in such litigation to be recovered as a part of the costs therein.
Clerk's Papers at 323.
Because ARC prevailed below and summary judgment was proper, the trial court correctly awarded fees. We do not disturb that ruling.
ARC also prevails on appeal. We grant its request for fees on appeal, subject to its compliance with RAP 18.1(d).
We affirm the order granting summary judgment.
WE CONCUR: