Opinion
No. 36414-0-II.
August 12, 2008.
Appeal from a judgment of the Superior Court for Lewis County, No. 06-2-00394-1, Nelson E. Hunt, J., entered June 1, 2007.
Affirmed by unpublished opinion per Houghton, J., concurred in by Penoyar, A.C.J., and Hunt, J.
The trial court denied Sovran LLC's motion for summary judgment and granted Mickelsen Dairy, Inc. (the Mickelsens), its motion for summary judgment dismissing Sovran's claims against the Mickelsens. Sovran appeals, arguing trial court error. We affirm.
Respondents also include: Mickelsen Properties, a Washington general partnership; its general partners, Clinton P. Mickelsen, Dennis H. Mickelsen, William W. Lindeman and Susan J. Lindeman, and their respective marital communities; and Mickelsen Land Timber, a Washington general partnership; and its general partners, Clinton P. Mickelsen, Dennis H. Mickelsen, and Susan J. Lindeman, and their respective marital communities.
FACTS
The Mickelsens own three contiguous parcels of agricultural property totaling approximately 200 acres in the Winlock area. They also own the accompanying water rights. Sovran performs commercial land development and specializes in increasing real property value through regulatory action to permit development.
According to the Mickelsens, in late 2002, they entered into discussions with Sovran regarding the possible sale of their property, provided that Sovran met certain conditions ensuring that the Mickelsens reaped full value for their water rights. The Mickelsens believed that receiving full value required converting their water rights from agricultural to domestic use, transferring the rights to the City of Winlock (City), and developing their property so as to generate significant domestic water demand and resulting user fees. In July 2002, Sovran acknowledged the Mickelsens' concerns regarding their water rights, estimated the domestic water supply needed for its planned development, and proposed a contract to transfer the water rights to the City.
The Mickelsens assert that they had multiple concerns regarding their water rights from the outset of negotiations and were unwilling to sell to Sovran unless it met certain conditions. Their concerns included (1) the City's not having sufficient funds to buy their water rights and Sovran's not wanting to pay cash for them; (2) the Department of Ecology's having to approve a water rights transfer, a long process with no guarantee of success; (3) their water rights reverting to the state if not used within five years; and (4) their desire to ensure that Sovran could secure all needed development approval and that its proposed development actually occurred.
On September 9, 2002, Sovran entered into real estate purchase and sale agreements (PSAs) for the Mickelsens' property. PSAs paragraph 18 set forth five conditions precedent, the failure of any one of which would terminate the agreements. Two conditions precedent, PSAs paragraphs 18.3 and 18.4, relate to the current dispute.
PSAs paragraph 18.3 addressed water rights transfer:
Buyer shall be satisfied that a bonafide water right exists on the property and that such right is transferable to a municipality for use as domestic, commercial and/or industrial water. Buyer and Seller shall remove such contingency no later than two hundred forty (240) days from the date of this Agreement.
Any transfer of water rights is conditioned on the ability of Buyer and Seller to enter into an agreement with the City of Winlock or other water purveyor that adequately provides for the use of and financial reimbursement for the water rights transferred. The terms of the agreement with the City of Winlock or other water purveyor must be satisfactory to the Seller and Buyer.
Buyer shall provide Seller with written termination of this Agreement in the event the conditions of the water right transfer to the City of Winlock is not satisfactory to Buyer, in Buyer's sole opinion. Failure of Buyer to provide written termination shall be deemed a satisfaction of this condition to closing.
Seller shall provide Buyer with written termination of this Agreement in the event the conditions of the water right transfer to the City of Winlock is not satisfactory to Seller, in Seller's sole opinion. Failure of Seller to provide written termination shall be deemed a satisfaction of this condition to closing.
Clerk's Papers (CP) at 342-43.
PSAs paragraph 18.4 addressed authorization for property development and stated in relevant part:
Buyer, at its sole cost and expense, shall apply for and diligently prosecute governmental authorization for Buyer's intended development with the appropriate governmental agencies.
This Agreement is expressly conditioned on Buyer securing from Lewis County approvals necessary for Buyer's planned development. Seller shall cooperate with Buyer in Buyer's application for governmental approvals and shall sign any documents reasonably requested by Buyer.
Buyer shall have a period of two hundred forty (240) days from the date of this Agreement to satisfy this condition and provide Seller with written notification that this condition has been satisfied. Failure to secure the approvals and provide such notification within such two hundred forty (240) days shall terminate the Agreement.
CP at 343.
PSAs paragraph 17 addressed failure of the conditions and provided:
If any of the conditions precedent to Buyer's obligation to close have not occurred or been satisfied on or before any specified deadlines prior to the closing date, Buyer, at his sole option, may a) terminate this Agreement by written notice delivered to Seller on the closing date or on such earlier deadline, in which event, Buyer shall be entitled to a full return of any deposits made, or b) waive such condition precedent and proceed to closing. Buyer shall provide Seller with copies of all inspections reports and governmental submittals.
If Seller is deemed to be in default hereunder for failure to comply with any one or more of the terms or conditions of the Agreement, Buyer, at his sole option may a) terminate this Agreement by written notice delivered to Seller on the closing date or on such earlier deadline, in which event, Buyer shall be entitled to a full return of any deposits made, b) waive such condition precedent and proceed to closing, c) enforce specific performance of this Agreement, or d) exercise any of the rights or remedies available at law or equity.
If Buyer is deemed to be in default hereunder, Seller, at its sole option may a) terminate this Agreement by written notice delivered to Seller on the closing date or on such earlier deadline, in which event, all earnest money and deposits shall be forfeited to Seller, b) enforce specific performance of this Agreement, or c) exercise any of the rights or remedies available at law or equity.
CP at 341.
In March 2003, the parties signed the Grand Prairie-Winlock Water Service Agreement (WSA) with the City, converting the Mickelsens' water rights to domestic use and transferring them to the City for use within a specified benefit area not currently served by city utilities. According to the Mickelsens, the parties conditioned the WSA on obtaining approval of the proposed service area expansion and executing the water rights transfer within two years because it was uncertain whether the City could or would ultimately expand the service area and the Mickelsens were unwilling to give an open-ended right to their water rights' transfer. According to Sovran, it understood that the signed WSA satisfied PSAs paragraph 18.3 as to both parties.
In October 2003, Sovran determined that, due to the City's delays, it could not meet the PSAs' 240-day deadline to complete the water rights transfer or to secure the necessary government approvals. It asked the Mickelsens to extend the deadline to December 31, 2004. The Mickelsens agreed to do so for no compensation. In November 2003, the parties executed amendments to the PSAs extending the performance and/or waiver deadlines of PSAs paragraphs 18.3 and 18.4 to December 31, 2004.
According to the Mickelsens, by the end of 2004, Sovran had made little progress toward fulfilling the PSAs' conditions and asked them to suspend the PSAs for an additional 18 months, allowing it time to satisfy the conditions. The Mickelsens refused. In late December 2004, Sovran acknowledged that it had not completed its work under PSAs paragraph 18 and, using PSAs' paragraph 19, it purchased four 90-day extensions that extended the PSAs' termination date to December 26, 2005.
PSAs paragraph 19 provided for extension of time, stating:
If the Buyer determines that any of the conditions precedent set out in Section 18 cannot be made within the allocated time periods an additional ninety (90) days will be granted with the payment of an additional $15,000 to the Seller. This time extension period may be repeated three additional times with same payment. These payments will be applicable to the purchase price and are nonrefundable.
CP at 344.
In April 2005, the WSA expired because the proposed service area expansion was not approved. Thus, the Mickelsens' water rights were not converted to domestic use and transferred to the City within the required two years.
On December 6, Sovran secured a government authorization for development from Lewis County (County) when the County approved an expanded Urban Growth Area (UGA).
According to Sovran, this government action gave it "confidence that the property use would change" such that it sought to move forward with its purchase of the Mickelsens' property. CP at 334.
On December 14, the Mickelsens gave written notice terminating the PSAs effective December 31. The notice stated that Sovran failed to timely satisfy PSAs paragraph 18.3 because the WSA expired and no current water rights transfer agreement was in place, and it failed to satisfy PSAs paragraph 18.4 by not obtaining the necessary government approvals for planned development.
Sovran received the Mickelsens' termination notice on December 16.
On December 20, Sovran asked the Mickelsens to renew an amended version of the WSA. The Mickelsens declined to do so and repeated their understanding that the PSAs would terminate. In a December 28 letter, Sovran contested the Mickelsens' ability to terminate the PSAs, asserting that (1) the original WSA satisfied PSAs paragraph 18.3; (2) it obtained the necessary approvals from the County and notified the Mickelsens of that fact on December 6, thereby satisfying PSAs paragraph 18.4; and (3) the Mickelsens should have terminated the PSAs before accepting Sovran's nonrefundable payments to extend its time to fulfill the conditions precedent.
The Mickelsens asserted that the amended WSA offered them no protections and set no deadlines for any regulatory steps Sovran was required to accomplish, putting their water rights and related profits "in limbo perpetually." CP at 265. They also asserted that, by late 2005, Sovran had changed its development plans substantially, reducing the area to be benefited by their water rights and resulting user fees, so the amended WSA was no longer in their business interest.
On January 13, 2006, Sovran informed the Mickelsens that the City adopted changes extending the UGA to include the Mickelsens' properties. It stated that the City would next review and adopt the appropriate zoning and development standard ordinances and that "[n]ow is the time to modify the water service agreement and begin the process to convert the Mickelsen water rights to municipal use." CP at 290.
On February 16, the City's mayor informed the parties that the City was now in a position to accept the Mickelsens' water rights under the previous agreement or, if necessary, enter into a new agreement.
On March 28, Sovran sued the Mickelsens seeking a declaratory judgment, specific performance or damages for breach of contract, and attorney fees. The Mickelsens counterclaimed, seeking dismissal of Sovran's complaint with prejudice, a declaratory judgment, and attorney fees.
On April 28, Sovran moved for partial summary judgment on its declaratory relief claim that it had satisfied PSAs paragraph 18.3 and waived PSAs paragraph 18.4 and that the Mickelsens' untimely termination notice was untimely. The Mickelsens filed a cross motion for summary judgment.
The trial court denied Sovran's partial summary judgment motion and granted the Mickelsens' cross motion, ruling as a matter of law that the PSAs terminated because Sovran failed to satisfy PSAs paragraphs 18.3 and 18.4. The trial court denied Sovran's motion for reconsideration. It also granted the Mickelsens' motion for summary judgment on Sovran's remaining breach of contract claims and awarded them attorney fees, finding that nothing showed evidence of their bad faith.
Sovran appeals the trial court's orders (1) dismissing its claims and awarding the Mickelsens attorney fees, (2) denying its motion for partial summary judgment, (3) granting the Page 8 Mickelsens' cross motion for partial summary judgment, and (4) denying its motion for reconsideration.
ANALYSIS
We review summary judgment orders de novo, performing the same inquiry as the trial court. Atherton Condo. Apartment-Owners Ass'n Bd. of Dir. v. Blume Dev. Co., 115 Wn.2d 506, 515-16, 799 P.2d 250 (1990). Summary judgment is proper where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CR 56(c).
We draw all reasonable inferences from the facts in the light most favorable to the nonmoving party. Vallandigham v. Clover Park Sch. Dist. No. 400, 154 Wn.2d 16, 26, 109 P.3d 805 (2005). The moving party bears the burden of demonstrating that there are no genuine issues of material fact and that summary judgment is proper as a matter of law. Atherton Condo., 115 Wn.2d at 516. The nonmoving party must then present evidence that material facts are in dispute; if it fails to do so, summary judgment is appropriate. Atherton Condo, 115 Wn.2d at 516. In demonstrating disputed material facts, the nonmoving party "may not rely on speculation, argumentative assertions that unresolved factual issues remain, or having its affidavits considered at face value." Seven Gables Corp. v. MGM/UA Entertainment Co., 106 Wn.2d 1, 13, 721 P.2d 1 (1986).
Waiver and/or Satisfaction of PSAs Paragraph 18.4
We first address Sovran's contention that it is entitled to judgment as a matter of law that it satisfied PSAs paragraph 18.4. It argues that PSAs paragraph 18.4's condition precedent is for its sole benefit and that PSAs paragraph 17 allowed it to waive that condition precedent. It also argues that it waived PSAs paragraph 18.4 here because it was satisfied that it would obtain all necessary approvals following the County's December 6 approval of the UGA. It further argues that, at a minimum, there is a disputed issue of material fact as to who benefits from PSAs paragraph 18.4.
We interpret a contract according to the parties' intent as manifested by the words used. Wagner v. Wagner, 95 Wn.2d 94, 101, 621 P.2d 1279 (1980). We may not disregard language the parties employed nor revise the contract's terms in construing it. Wagner, 95 Wn.2d at 101. We interpret clear and unambiguous contract terms de novo as a question of law, and we give undefined terms their plain and ordinary meaning. Wm. Dickson Co. v. Pierce County, 128 Wn. App. 488, 493, 116 P.3d 409 (2005). We may refer to standard English dictionary definitions of terms. Wm. Dickson Co., 128 Wn. App. at 493. We favor an interpretation giving effect to all of a contract's provisions over one that renders some language meaningless or ineffective. Newsom v. Miller, 42 Wn.2d 727, 731, 258 P.2d 812 (1953). Similarly, we do not give effect to interpretations that render contract obligations illusory. Taylor v. Shigaki, 84 Wn. App. 723, 730, 930 P.2d 340 (1997).
Although a provision may be ambiguous where it is fairly susceptible to two different reasonable interpretations, "a contract is not ambiguous simply because the parties suggest opposing meanings." Wm. Dickson Co. 128 Wn. App. at 493-94.
A condition precedent is a fact or event that occurs after the making of a valid contract and "must exist or occur before there is a right to immediate performance, before there is a breach of contract duty, before the usual judicial remedies are available." Ross v. Harding, 64 Wn.2d 231, 236, 391 P.2d 526 (1964). A condition precedent to a contract is a material term that may not be unilaterally waived where made for the benefit of both parties. CHG Int'l, Inc. v. Robin Lee, Inc., 35 Wn. App. 512, 514, 667 P.2d 1127 (1983). It is well established that the term "shall" denotes a mandatory contract obligation, while the term "may" indicates that a contract provision is permissive and not binding. Agnew v. Lacey Co-Ply, 33 Wn. App. 283, 289, 654 P.2d 712 (1982).
Here, PSAs paragraph 18.4's first sentence imposed an affirmative obligation on Sovran that, at its sole cost and expense, it "shall apply for and diligently prosecute governmental authorization for Sovran's intended development with the appropriate governmental agencies." CP at 343. The second sentence stated that the PSAs were "expressly conditioned on [Sovran] securing from Lewis County approvals necessary for [Sovran's] planned development." CP at 343. The paragraph further provided that Sovran "shall have a period of two hundred forty (240) days . . . to satisfy this condition and provide [the Mickelsens] with written notification that this condition has been satisfied." CP at 343.
By its plain language, PSAs paragraph 18.4's condition precedent imposed a mandatory obligation on Sovran to secure the necessary government approvals and to provide the Mickelsens with written notice that it had done so. Sovran's interpretation that the parties intended the provision for Sovran's sole benefit would require us to ignore this contract language or find it meaningless. Newsom, 42 Wn.2d at 731.
Although PSAs paragraph 18.4 also stated that the Mickelsens "shall cooperate with [Sovran] in [its] application for governmental approvals," this at most demonstrated that both parties had obligations under the provision and that neither party could unilaterally waive it. CP at 343; CHG Int'l, 35 Wn. App. at 514.
Further, we do not agree with Sovran's argument that the PSAs paragraph 17 entitled it to waive PSAs paragraph 18.4. PSAs paragraph 17 stated that if any condition precedent to Sovran's obligation to close was not satisfied, Sovran could opt to waive the condition and proceed to closing. As noted, a "condition precedent" is "[a]n act or event . . . that must exist or occur before a duty to perform something promised arises." black's law dictionary 312 (8th ed. 2004).
PSAs paragraph 18.4 did not provide for waiver of its condition.
A condition precedent to Sovran's obligation to close refers to an act that the Mickelsens had to perform before a duty by Sovran would arise. As shown by PSAs paragraph 17's language, where the Mickelsens were deemed to have failed to comply with any condition of the agreement, Sovran could choose to waive that condition and proceed to closing. Sovran's interpretation of PSAs paragraph 17 is illogical in that under that reading, its satisfaction of its own act would give rise to its greater obligation under the contract. Likewise, Sovran's failure to perform an act would allow it to terminate the agreement. Its interpretation also would render illusory its mandatory contract obligations to the Mickelsens under PSAs paragraph 18.4. Taylor, 84 Wn. App. at 730.
In sum, as a matter of law, Sovran could not unilaterally waive the conditions precedent of PSAs paragraph 18.4. Similarly, PSAs paragraph 17 did not otherwise entitle Sovran to waive those obligations. Standing alone, Sovran's failure to comply with PSAs paragraph 18.4 terminated the PSAs. Thus, we affirm the trial court's order granting summary judgment for the Mickelsens on that basis.
At the trial level, Sovran argued only that it waived PSAs paragraph 18.4's conditions and, in doing so, in essence it conceded that it did not meet the conditions. See Wingert v. Yellow Freight Systems, Inc., 146 Wn.2d 841, 853, 50 P.3d 256 (2002) (arguments not raised at the trial level are generally not considered on appeal). To the extent Sovran now argues in the alternative that it satisfied PSAs paragraph 18.4, we disagree. It is undisputed that Sovran secured a single government approval before the PSAs expired. PSAs paragraph 18.4's plain language stated that many government approvals were required; Sovran's interpretation to the contrary requires us to disregard or revise that contract language. Wagner, 95 Wn.2d at 101. Even if the PSAs only required approval from the County (forcing us to disregard PSAs paragraph 18.4's provision mandating that Sovran obtain authorization from "the appropriate governmental agencies"), the contract language required "Lewis County approvals." And the record demonstrates Sovran's own understanding that more County authorization was required than its single approval of the UGA and that the process of obtaining the necessary government authorization was not complete at the time the PSAs expired. Finally, Sovran's attestations of its unilateral confidence that the property use would ultimately change are clearly insufficient to meet PSAs paragraph 18.4's requirement that Sovran secure the necessary government approvals within 240 days of the agreement.
Satisfaction of PSAs Paragraph 18.3
Sovran next contends that the trial court erred in denying its motion for partial summary judgment. It argues that it satisfied PSAs paragraph 18.3's conditions or that a genuine issue of fact remained whether the Mickelsens were or should have been satisfied that Sovran met PSAs paragraph 18.3's conditions.
PSAs paragraph 18.3 provided that any transfer of water rights would be conditioned on the parties' ability to "enter into an agreement with the [City] or other water purveyor that adequately provides for the use of and financial reimbursement for the water rights transferred. The terms of the agreement . . . must be satisfactory to the Seller and Buyer." CP at 343. This language required an existing agreement for the Mickelsens to review in order to determine whether its terms were satisfactory. Again, Sovran's interpretation that PSAs paragraph 18.3 required only its own satisfaction that a transferable water right existed would render the contract terms meaningless. See Am. Agency Life Ins. Co. v. Russell, 37 Wn. App. 110, 114, 678 P.2d 1303 (1984) (courts have a duty to read contracts in such a manner that every section is given effect and none is rendered superfluous).
We also note that Sovran's argument, that it was the party that needed to be satisfied of a transferable water right, is inconsistent with its argument that a genuine issue of material fact remained whether the Mickelsens were or should have been satisfied that PSAs paragraph 18.3's conditions were met.
No one disputes that at the time the parties entered into the WSA in March 2003, that agreement fulfilled PSAs paragraph 18.3's conditions. But the WSA expired in April 2005 and there was no later water rights transfer agreement in place before the PSAs terminated. More specifically, Sovran requested that the Mickelsens enter into an amended WSA on December 20 after receiving the Mickelsens' notice terminating the PSAs. Correspondence between the parties demonstrates that the Mickelsens declined Sovran's proposal based on reasonable business concerns and because the PSAs would terminate before a satisfactory agreement was in place.
Sovran's argument that PSAs paragraph 18.3's conditions were forever satisfied by the WSA and that the Mickelsens' are bound in perpetuity by an expired agreement likewise does not persuade us. That interpretation clearly contravenes the Mickelsens' contractual intent, recognized by both parties, to protect their water rights and contravenes basic contract law tenets. See Ferris v. Blumhardt, 48 Wn.2d 395, 402, 293 P.2d 935 (1956) ("A contractual duty is discharged by the unexcused failure of a condition to occur within the time necessary to create a right to immediate performance of the duty."); Restatement (First) of Contracts § 395 comment a (1932) (when a duty is conditional, and the seasonable occurrence of the event becomes impossible without excuse, such as from lapse of time, the duty is necessarily discharged); 17A Am.Jur. 2d Contracts § 466 (2004) ("Courts will not construe a contract as providing some perpetual right or option which one side can exercise against the other at any time in the future.").
In sum, Sovran failed to meet PSAs paragraph 18.3's conditions because there was no agreement for a water rights transfer in place at the time the PSAs expired that was satisfactory to the Mickelsens. The trial court did not err in denying Sovran's partial motion for summary judgment and granting the Mickelsens' cross motion for summary judgment on this basis.
Because the PSAs terminated due to Sovran's failure to satisfy either the conditions of PSAs paragraph 18.3 or paragraph 18.4, we need not address Sovran's argument that the Mickelsens' written notice of termination was untimely. Nevertheless, we note that the issue whether the PSAs terminated on December 26 or December 31 does not affect our analysis because Sovran failed to meet the conditions by either date. Likewise, because we agree that Sovran failed to fulfill these conditions precedent, the trial court properly granted summary judgment for the Mickelsens on Sovran's breach of contract claims. See Multi-Prods. Eng'g Co. v. Bellingham Steel Prods., Inc., 66 Wn.2d 82, 85-86, 401 P.2d 329 (1965); Colver v. Fraser, Goodwin Colver, 166 Wash. 398, 409, 7 P.2d 24 (1932).
Attorney Fees
Because we affirm the trial court's order granting summary judgment for the Mickelsens, we likewise affirm its award of attorney fees to them. We also award the Mickelsens attorney fees as the prevailing party on appeal under PSAs paragraph 24.
PSAs paragraph 24 states, "In the event either Buyer or Seller brings any action or other proceeding with respect to the subject matter or enforcement of this Agreement, the prevailing party as determined by the court, agency or other authority before which such suit or proceeding is commenced shall, in addition to such other relief as may be awarded, be entitled to recover attorney fees, expenses and cost of investigation as actually incurred." CP at 345.
Affirmed.
A majority of the panel having determined that this opinion will not be printed in the Washington Appellate Reports, but will be filed for public record pursuant to RCW 2.06.040, it is so ordered.
HUNT, J. AND PENOYAR, A.C.J., concur.