Opinion
111,445.
06-26-2015
R. Dwight CLAASSEN; Connie J. Claassen; Stanley L. Claassen; and Stanley L. Claassen and Janice D. Claassen, as Trustees of the Stanley L. Claassen Revocable Trust Dated June 6, 2008, Appellees, v. The CITY OF NEWTON, Kansas, a Municipal Corporation, Appellant.
Neil R. Shortlidge, of Stinson Leonard Street LLP, of Kansas City, Missouri, and Patrick A. Edwards, of the same firm, of Wichita, for Appellant. Lee Thompson and Deborah Thompson, of Thompson Law Firm, LLC, of Wichita, for Appellees.
Neil R. Shortlidge, of Stinson Leonard Street LLP, of Kansas City, Missouri, and Patrick A. Edwards, of the same firm, of Wichita, for Appellant.
Lee Thompson and Deborah Thompson, of Thompson Law Firm, LLC, of Wichita, for Appellees.
Before MALONE, C.J., PIERRON and ATCHESON, JJ.
MEMORANDUM OPINION
PER CURIAM.
Following a bench trial, the Harvey County District Court found that an option contract the Defendant City of Newton entered into with the Claassen plaintiffs to buy some of their farmland for an industrial park was ambiguous as to the City's obligation to increase the purchase price to match what it later paid for other land for the project. The district court construed the option contract using extrinsic evidence and ordered the City to pay the Claassens based on a per-acre price for other land it bought after exercising the option. Although the pertinent part of the contract may have been difficult for someone without legal training to understand, the language was unambiguous. The contract provision required the City to buy the Claassens' property at the highest per-acre price it had paid for other land at the time it exercised the option. The district court, therefore, erred. We reverse and remand with directions that the district court enter judgment for the City on the Claassens' claim for a higher purchase price.
Factual and Procedural History
In late 2008, the City engaged Stanley Brodhagen, a local real estate agent, to acquire land to expand an industrial park to attract additional businesses. Brodhagen approached brothers Dwight Claassen and Stanley Claassen about purchasing 120 acres of farmland the Stanley L. Claassen Revocable Trust owned. [*] Given the controlling legal issues on appeal, we need not render a detailed factual narrative reflecting the trial evidence. The parties are well acquainted with those details.
[*]Plaintiffs in this case include the Trust and R. Dwight Claassen, Connie J. Claassen, Stanley L. Claassen, and Janice D. Claassen, all of whom have some interest in the land or the Trust. The plaintiffs are united in interest and have been jointly represented throughout these proceedings. We have no particular need to distinguish among them. We refer to the plaintiffs collectively as the Claassens.
The Claassen plaintiffs, acting through Dwight and Stanley, negotiated with Brodhagen and agreed to give the City a 6–month option to purchase the 120 acres at a price of $7,500 an acre. The City would pay $2,000 for the option. Brodhagen later characterized the per-acre price as well above market value for farmland. Nobody disagrees. The Claassens were aware the City intended to enter similar option contracts for other land in the vicinity, also to expand the industrial park. The Claassens wanted some assurance that as the first to contract with the City, they would not be stuck with the lowest per-acre price as other landowners successfully held out for more. They told Brodhagen they wanted a contract term that would require the City to compensate them using the highest per-acre price paid anyone else selling land for the project, regardless of when that sale took place. The parties have referred to such a contract provision as a “most favored nations” clause. Basically, a most favored nations provision requires Party A to modify its contract with Party B to include more beneficial terms Party A agrees to in later contracts with other parties. See Paulsen ex rel. N.L.R.B. v. All American Sch. Bus, 986 F.Supp.2d 142, 145 (E.D.N.Y.2013) ; Fisher Bros. v. Phelps Dodge Industries, Inc., 614 F.Supp. 377, 381 (E.D.Penn.1985).
The trial testimony indicated Brodhagen passed that information on to Robert Myers, the city attorney for Newton. Myers then drafted an option contract for the Claassen property. The relevant portion of the contract, as drafted, stated:
“Throughout the term of this Agreement, [the City] shall have the exclusive option to purchase the below-described real estate (‘Property’) for the sum of $7,500.00 per acre, said real estate being described as follows, to wit:
“[description omitted];
provided, however, that if [the City] also acquires other unimproved agricultural land in said Section at a per-acre price in excess of the per-acre price herein, then the per-acre price herein shall be increased to match the higher per-acre price.”
Brodhagen presented the option contract to the Claassens. They asked that the clause include any land the City purchased in Section 26 or Section 27 in addition to Section 22, where their property was located. The City agreed, and the necessary parties signed the revised option contract.
The City twice extended the option, paying the Claassens an additional $2,000 each time. During that period, the City acquired options to buy other land for the industrial park at $8,000 an acre. On February 17, 2010, the city commission authorized the exercise of those options and the option for the Claassen property—all at a price of $8,000 an acre. The City closed on the sales of the other tracts and then closed on May 3 with the Claassens.
While the City continued to hold the option for the Claassen property, a manufacturer expressed strong interest in relocating to the expanded industrial park if the City could acquire a particular tract of land owned by the Entz Trust. On January 8, 2010, the City entered into an option contract for the 77–acre Entz parcel at a price of $10,000 an acre. The City held the option for the Entz land through September 30, 2010.
The Claassens learned of the Entz option contract before closing their sale with the City and made a demand under the most favored nations clause for an adjusted price of $10,000 an acre. The City said the provision did not apply because it had not yet acquired the Entz land when it exercised the option to purchase the Claassens' land. Rather than hold up the sale and delay the expansion of the industrial park, the Claassens and the City agreed to close their deal, reserving the dispute over the application of the most favored nations clause and the proper purchase price—either $8,000 or $10,000 an acre. The City exercised its option to purchase the Entz property for $10,000 an acre on August 13, 2010, and closed that sale on August 20.
The Claassens filed this action in the district court in late 2010 alleging the City failed to comply with the terms of their option contract. The parties engaged in discovery and traded various pretrial motions. The district court held a 2–day bench trial in August 2013 and issued a detailed letter ruling about 5 months later. The district court found the governing contract language ambiguous and turned to extrinsic evidence to discern the parties' intent. The district court concluded that the most favored nations clause should be construed strictly against the City and in a way fulfilling the Claassens' expressed expectation to be paid based on a per-acre price matching the highest figure the City agreed to in buying any other land. The district court also found the City did not intentionally delay or otherwise manipulate the timing of the purchase of the Entz property to thwart the Claassens' contractual rights. The district court entered judgment for the Claassens for $240,000, reflecting an additional $2,000 an acre for their land. The City has appealed.
Legal Analysis
On appeal, the City presents several distinct grounds for reversal. The City first argues the most favored nations clause is unambiguous and did not require matching any per-acre price it paid after exercising the option to purchase the Claassen property. We begin there. And because we agree, we also end there. The City's other arguments are, as a result, superfluous, so we don't address them.
A contract is unambiguous “if the language ... is clear and can be carried out as written.” Simon v. National Farmers Organization, Inc., 250 Kan. 676, Syl. ¶ 2, 829 P.2d 884 (1992). Conversely, an ambiguous contract “must contain provisions or language of doubtful or conflicting meaning.” 250 Kan. 676, 829 P.2d 884, Syl. 2. Typically, the words used in a contract should be given their common or customary meaning. Pfeifer v. Federal Express Corporation, 297 Kan. 547, 550, 304 P.3d 1226 (2013) ; Gold Mine Investments v. Mount Vernon Fire Ins. Co., 48 Kan.App.2d 818, 824, 300 P.3d 1113 (2013). The parties to a contract may ascribe a peculiar or idiosyncratic meaning to the language of their bargain so long as they share that understanding. Am Intern. v. Graphic Management, Inc., 44 F.3d 572, 575 (7th Cir.1995). Ambiguity arises only if “the face of the instrument leaves it genuinely uncertain which one of two or more meanings is the proper meaning.” Catholic Diocese of Dodge City v. Raymer, 251 Kan. 689, 693, 840 P.2d 456 (1992) ; Kincaid v. Dess, 48 Kan.App.2d 640, 647, 298 P.3d 358 (“A contract is ambiguous when the words ... may be understood in two or more ways.”), rev. denied 297 Kan. 1246 (2013); Antrim, Piper, Wenger, Inc. v. Lowe, 37 Kan.App.2d 932, 937–38, 159 P.3d 215 (2007). A contract, therefore, is not ambiguous simply because the parties disagree about its meaning. Waste Connections of Kansas, Inc. v. Ritchie Corp., 296 Kan. 943, 964, 298 P.3d 250 (2013) ; Antrim, 37 Kan.App.2d at 938, 159 P.3d 215.
Whether a written contract is ambiguous presents a question of law for a court rather than an issue of fact for the finder of fact. Waste Connections, 296 Kan. at 964, 298 P.3d 250. If a contract is unambiguous, it may be construed as a matter of law. Osterhaus v. Toth, 291 Kan. 759, 768, 249 P.3d 888 (2011) ; Levin v. Maw Oil & Gas, 290 Kan. 928, Syl. ¶ 2, 234 P.3d 805 (2010) (“The interpretation and legal effect of a written instrument are matters of law....”). Likewise, a court may discern the parties' intent from the clear language of the document. Iron Mound v. Nueterra Healthcare Management, 298 Kan. 412, 418, 313 P.3d 808 (2013) ; Levin, 290 Kan. 928, Syl. ¶ 2, 234 P.3d 805 ; Liggatt v. Employers Mut. Casualty Co., 273 Kan. 915, 921, 46 P.3d 1120 (2002) (“If the terms of the contract are clear, there is no room for rules of construction, and the intent of the parties is determined from the contract itself.”).
Guided by those principles, we owe no particular deference to the district court's determination that the option contract was ambiguous or to the meaning of the contractual terms themselves.
The Claassens identify two ways they say the most favored nations provision is ambiguous. We look at those ways as a means of showing the language is actually unambiguous.
First, the Claassens suggest the meaning of the word “acquires” should be extended from “purchases” or “attains possession or ownership of” to include “entering into an option contract for.” Defining “acquires” in that way, the City would have acquired the Entz property, at a price of $10,000 an acre, in January 2010 when it entered into the option contract for that parcel. In turn, that would have upped the per-acre price in the option contract with the Claassens, since it remained in effect until at least February 17, when the city commission voted to exercise the option.
The Claassens' argument falters on two insurmountable obstacles. The definition they impute doesn't conform to the common or customary meaning of “acquire,” and it substantially distorts the legal effect of option contracts. By common definition, “acquire” means “to get as one's own” or “to come into possession or control of.” Merriam–Webster's Collegiate Dictionary 11 (11th ed.2003); see also The American Heritage Dictionary 15 (5th ed.2011) (defining “acquire” as “to gain possession of”). Simply entering into an option contract to purchase land or anything else doesn't imbue the party holding the option with an ownership or possessory interest in the object of the agreement. In Letzig v. Rupert, Executor, 209 Kan. 143, 147, 495 P.2d 955 (1972), the Kansas Supreme Court described an option contract as an agreement “whereby for a stated sum a person is given the right to purchase property at a stated figure for a limited time.” But, as the court noted, the “option holder in this arrangement acquires no equitable interest in the property[.]” 209 Kan. at 147, 495 P.2d 955. That reflects the customary legal understanding of an option contract—it is an irrevocable offer to sell property for a stated price during a stated time period that the option holder may chose to accept. But that's all it is. See Restatement of Contracts (Second) § 25 –Option Contracts (1979); 77 Am.Jur.2d, Vendor and Purchaser § 27, p. 145 (An option contract for land “is not a sale of the property but is a sale of the right to purchase” and “does not create a vested interest in the land itself.”); R. Olsen Oil Co. v. Fidler, 199 F.2d 868, 871 (10th Cir.1952) (“[A]n option to purchase does not constitute a vested interest in the land itself[.]”). The Washington Supreme Court neatly summed up the law:
“In a pure option contract, ‘[t]he optionor parts only with the right to sell the property to any other person during the time limited, and the optionee acquires only the right to purchase the property in futuro, upon the terms and conditions prescribed by the option contract.’ Hopkins v. Barlin, 31 Wash.2d 260, 266, 196 P.2d 347 (1948). A pure option contract does not include the right to possess and improve the land during the option period.” Pardee v. Jolly, 163 Wash.2d 558, 573, 182 P.3d 967 (2008).
Nothing in the evidence here suggests the parties either intended an odd meaning for the word acquires or sought to change the common understanding of how option contracts work. By holding option contracts for the Claassen land, the Entz land, and the other parcels, the City had no more than a right to buy some or all of those tracts as it might elect. Until the City made an election to buy and successfully closed, it acquired no interest in those properties. The option contracts conferred no rights on the City to enter the Claassen land or the Entz land let alone to make temporary use of those tracts during the option periods. In short, we reject the Claassens' argument that would redefine the option contract language and the purpose of those agreements. The argument depends upon a circularity of reasoning in which the Claassens simply jigger common understandings of words and legal relationships to make a contract conform to their expectations when it otherwise would not.
Put another way, the Claassens effectively want us to construe the option contract as if the most favored nations clause stated: “provided, however, that if [the City] also acquires or obtains an option to acquire other unimproved agricultural land ... at a peracre price in excess of the per-acre price herein, then the per-acre price herein shall be increased to match the higher per-acre price.” The district court basically agreed to do so and, thus, functionally rewrote the contract to insert an implied condition supporting the Claassens' interpretation. But courts are to enforce unambiguous contracts as they are written and cannot refashion the language to favor a disappointed party's mistaken expectations. Quenzer v. Quenzer, 225 Kan. 83, 85, 587 P.2d 880 (1978) (court may not rewrite contract or make new contract for parties under guise of construing their agreement); Lauck Oil Co. v. Breitenbach, 20 Kan.App.2d 877, 879, 893 P.2d 286 (1995) (When a contract is unambiguous, the court's “function is to enforce the contract as made” and “not [to] make another contract for the parties.”).
The other argument the Claassens advance for the ambiguity of the most favored nations clause depends on the notion that the option contract establishes no defined time limit on the clause's operation. In other words, according to the Claassens, the provision remained in effect after the City exercised the option to buy their land, so they would be entitled to the per-acre price the City eventually paid for the Entz property months later. The City counters that the Claassens' argument must fail because it leads to the absurd conclusion that the most favored nations clause would remain in effect forever. Neither the argument nor the counter is a winner. But, as a result, the Claassens effectively lose.
As to the City's riposte, a court may construe a contract to provide a “reasonable” time for some performance or other requirement when the agreement is silent or unclear on the matter. Arnold v. S.J.L. of Kansas Corp., 249 Kan. 746, Syl. ¶ 2, 822 P.2d 64 (1991) (“Where a contract does not specify the time of performance or for the occurrence of a necessary event, a reasonable time will be implied.”). So we doubt the City actually faced the prospect of having to give the Claassens some supplemental payment 20 years from now if it were to buy land then at $15,000 an acre.
More to the point here, perhaps, the premise of the Claassens' argument is faulty. The most favored nations clause does contain an outer limit on when it expires. The provision states that the “per-acre price herein shall be increased,” referring to what the City agrees to pay if and when it exercises the option. The most favored nations clause, then, was tied directly to setting the price at the time the City chose to buy the Claassen property—the price herein being the price the City would pay when it exercised the option. Once the City communicated its election to buy, the option contract had been fully performed. And there no longer was a “price herein” to be adjusted, since there no longer was an extant option contract. We, therefore, agree with the City's reading of the most favored nations clause that terminates its operation along with the expiration or exercise of the option itself.
We think that to be the only tenable construction of the contract language. As a legal document drafted by a lawyer—City Attorney Myer—sand interpreted by lawyers and judges, it cannot reasonably be read some other way. The City performed as it was obligated under the option contract when it paid the Claassens $8,000 an acre for their land.
But our conclusion prompts several related observations. The most favored nations clause isn't nearly as explicit as it might have been. As a result, a nonlawyer might find the language amorphous or difficult to comprehend. Abstruse, however, is not ambiguous. Themis Capital v. Democratic Republic of Congo, 35 F.Supp.3d 457, 486 (S.D.N.Y.2014) (“That a text is complex or imperfect does not make it ambiguous.”); Blue Hills Office Park v. J.P. Morgan Chase Bank, 477 F.Supp.2d 366, 372 (D.Mass.2007) (“The loan contract here, while complex, is not ambiguous.”); Humphries v. West End Terrace, Inc., 795 S.W.2d 128, 133 (Tenn.App.1990) (“Language in a contract which happens to be technical or complex to the layman, does not render it ambiguous.”); McDonald v. State Farm, 119 Wash.2d 724, 734, 837 P.2d 1000 (1992) (“The [contract] clause may be confusing, but it is not ambiguous.”).
The option contract could have been more direct. For example, it might have included a sentence at the end of the most favored nations provision saying: “This clause remains in effect through the date on which the City notifies the Claassens of its exercise of the option to purchase.” The contract contained a separate section governing notification to the Claassens. But the law does not require business and commercial contracts to be written in plain or simple English. Cf. K.S.A. 50–627(b)(1) (unconscionable practice violating Kansas Consumer Protection Act for merchant in consumer transaction to take advantage of buyer's “inability to understand the language of an agreement”).
Here, the Claassens asked for one thing—an agreement that would assure them a price equal to the highest price the City paid for land it purchased to expend the industrial park—and they got something else—an agreement to escalate the price that ended when the City exercised its option to buy their land. The written option contract presented to them did not embody the particular term they requested. The contract could have included a price escalator that continued after the City exercised its option. A provision like that might have said: “If the City acquires land for the industrial park at a per-acre price higher than the Claassens receive under this agreement, the City shall make a supplemental payment to the Claassens calculated using the difference in per-acre price.” But that didn't happen.
As a result, the written contract really was a counteroffer to and not an acceptance of the Claassens' initial proposal, although the City's agent never said as much. The Claassens apparently were mistaken about how the most favored nations clause would operate and didn't appreciate that it failed to do everything they wanted in this high-dollar land deal. But this case isn't about mistake, and the City wasn't mistaken about the most favored nations provision. See Albers v. Nelson, 248 Kan. 575, Syl. ¶ 4, 809 P.2d 1194 (1991) (“A party who signs a written contract is bound by its provisions regardless of the failure to read or understand the terms, unless the contract was entered through fraud, undue influence, or mutual mistake.”). This case is about contractual ambiguity, and the contract wasn't ambiguous.
The option contract between the City and the Claassens was unambiguous, and the City performed as it had agreed. The district court erred in finding otherwise. We, therefore, reverse the judgment for the Claassens and remand with directions that the district court enter judgment in favor of the City and take such further action as may be required consistent with this decision.
Reversed and remanded with directions.