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Terra Firma Development Co. v. Duce

April 7, 1997


Appeal from Superior Court of Snohomish County. Docket No: 93-2-03148-1. Date filed: 06/13/95. Judge signing: Hon. Richard J. Thorpe.

Authored by Faye C. Kennedy. Concurring: Walter E. Webster, H. Joseph Coleman.

The opinion of the court was delivered by: Kennedy

KENNEDY, A.C.J. -- John Duce, Lee Duce and Cascade Improvement Company (referred to from time to time in this opinion collectively as "Duce") appeal the trial court's order on summary judgment in favor of Terra Firma Development Company, Ltd., contending that material issues of fact exist with respect to whether Terra Firma manifested an unequivocal intent to exercise an option to purchase an interest in real property owned by Duce, and whether Duce was thus relieved of all repayment obligations on loans made to Duce by Terra Firma's assignor, Devon Farms. Because the attempted assignment of the purchase option to Terra Firma was void, Terra Firma lacked the authority to exercise the option in the first instance. We thus affirm the trial court's order on summary judgment, and deny Duce's request for an award of attorney fees on appeal.


John Duce and Lee Duce formed a general partnership, known as Cascade Improvement Company, for the purpose of developing real property for both commercial and residential uses. In the 1970's and early 1980's, Cascade acquired an interest in four parcels of property located near Interstate 5 in Snohomish County. Although Cascade intended to develop the property, it lacked the financial resources following the acquisition to undertake development.

In late 1984, Devon Farms, a Washington corporation formed by Noordin Sayanni, expressed an interest in the proposed development of the property.

On July 3, 1985, Devon Farms, Cascade Improvement Company and John and Lee Duce entered into an agreement forming the general partnership of Devon Farms/Duce Associates. The express purpose of the partnership was: "to acquire, develop, operate, finance, mortgage, encumber, sell, transfer, convey, or otherwise deal with [the same four parcels of property above mentioned]." Clerk's Papers at 349. Each partner made an initial capital contribution to the partnership. In addition, Devon Farms agreed to make an additional capital contribution in the form of payment of the installment obligations due on the real estate contracts encumbering the four parcels. The partnership agreement limited Devon Farms' additional contribution to $50,000. Devon Farms also agreed to loan the partnership up to $50,000 for the purpose of accomplishing a feasibility study for development of the property. The loan was secured by an assignment of the purchaser's interest in the real estate contracts by which the property had been acquired, and the partnership was to repay the loan on the earlier of January 2, 1991, or the exercise by Devon Farms of its purchase option.

The partnership agreement also granted Devon Farms an option to acquire an undivided one-half interest in the four parcels. The agreement required Devon Farms to exercise the option on or before January 2, 1991, and set the purchase price at $700,000, subject to adjustment based on the actual size of the property. In the event that Devon Farms exercised the option, $25,000 of its $50,000 additional capital contribution would be credited against the purchase price. The partnership agreement further specified:

This option is assignable in whole or in part by Devon, at any time, and exercisable in whole or in part, at the sole and absolute discretion of Devon, subject only to the advanced approval of Duce, which approval shall not be unreasonably withheld.

Clerk's Papers at 373.

On March 26, 1987, the parties executed an addendum and amendment to the partnership agreement. Under the addendum, Devon Farms agreed to loan Duce $40,000. The loan was to be repaid on or before January 2, 1991, and was again secured by an assignment of the real estate contracts on the four parcels. If Devon Farms chose to exercise its purchase option, however, the addendum provided that the loan would be deemed partial payment of the option price and the partnership would be relieved of all repayment obligations. With respect to the purchase option, the addendum clarified that if Devon Farms elected to exercise the option, it was required to notify Duce in writing before January 2, 1991.

On November 19, 1987, Devon Farms assigned to Terra Firma Development Company "all of its right, title and interest" in the initial $50,000 loan to the partnership as well as the subsequent $40,000 loan to Duce, "together with all security given to secure said loans." Clerk's Papers at 392. Devon Farms was administratively dissolved on February 16, 1988.

In a letter dated December 31, 1990, Terra Firma notified Duce of its intention to exercise the purchase option. The letter stated in pertinent part:

The undersigned represents Terra Firma Development Co., Ltd. ("Terra Firma"), the assignee of the option interest held by Devon Farms U.S.A., Inc., under the terms of the Partnership Agreement for the above-referenced partnership. Pursuant to paragraph 19 of the Partnership Agreement and paragraph 13 of the Addendum thereto, Terra Firma herewith gives written notice of its intent to exercise the option to purchase an undivided one-half interest in the partnership property.

Terra Firma is prepared to tender the purchase price upon reaching agreement with respect to the amount owing. The Partnership Agreement provides that the purchase price is subject to adjustment and is predicated upon the parties' belief that the partnership property is equivalent to 20 acres. (Partnership Agreement paragraph 19.1).

Furthermore, upon execution of the Partnership Agreement, the property was to have been surveyed by Group Four, Inc. (Partnership Agreement, paragraph 18.3). It is Terra Firma's understanding that despite this requirement, the property has not been surveyed. In order to calculate the purchase price, please provide the undersigned with a survey of the property by Group Four, Inc., along with a certification of the total buildable area.

Clerk's Papers at 413.

Upon receiving Terra Firma's letter, Duce questioned the validity of the assignment of the purchase option to Terra Firma, as well as its attempted exercise of the option. In a ...

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