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Borton & Sons, Inc. v. Burbank Properties, LLC

Court of Appeals of Washington, Division 3

July 16, 2019

BORTON & SONS, INC., a Washington State corporation, Appellant,
v.
BURBANK PROPERTIES, LLC, a Washington State limited liability company, Respondent.

          KORSMO, J.

         Equity will permit an option to purchase property to be exercised late in order to avoid a forfeiture when significant improvements have been made to the property. The trial court ruled that respondent Burbank Properties satisfied this condition and allowed the option to be exercised a mere eight days late. We disagree and reverse.

         FACTS

         Burbank farmed approximately 164 acres it owned in Walla Walla County adjacent to orchards owned by appellant Borton & Sons. Burbank, whose sole owner is Eric Rogers, purchased the property in 2012 after having leased the land for farming since 2000. Burbank used the land to grow early season potatoes. Potatoes deplete the soil of nutrients and are subject to diseases that require strict crop rotation. Potatoes are grown one year and then the land is given over to other crops for at least one to two years. Historically, Burbank had followed one year of potato planting with two years of grass or hay planting.

         After years of depressed potato prices, Burbank faced financial difficulties that threatened its operation. A settlement with one of its lenders required Burbank to sell the potato farm land. However, Burbank's early season potato contracts were a significant component of its operations. Accordingly, it settled on a plan to sell the land at a reduced rate, farm the land on lease terms during the interim, and repurchase the property at a reasonable sum. In essence, the land was being used to secure a short-term loan.

         An appraisal valued the land at $1, 875, 000 and Burbank offered the land for sale for $300, 000 less. The following day, desiring to purchase the land that bordered its apple orchards, Borton offered $1, 550, 000 for the land. The parties rapidly reached an agreement that included the following terms relevant to this appeal: Burbank could repurchase the land for $1, 800, 000 by December 31, 2018; Burbank had to exercise its repurchase option prior to December 31, 2017, by sending notice to Borton by certified or registered mail; Burbank would lease and farm the land during 2016, 2017, and 2018 at an annual rent of $78, 775. Borton required the one year notice because it needed to order trees for its orchard one year in advance of its need for the trees.

         In 2017, Burbank harvested a potato crop and thereafter planted Timothy hay that it expected to harvest in 2018 and 2019. At least twice during 2017, Burbank advised Borton representatives that it intended to exercise the repurchase option. On December 28, 2017, Eric Rogers prepared a written notice to Borton that Burbank would exercise its offer to repurchase the land. However, he did not mail the notice until January 4, 2018, and sent it by regular mail instead of by registered mail. Borton received the notice January 8, 2018. Believing the notice ineffectual, Borton wrote Burbank and demanded that it sign a notice that the option was terminated. Burbank responded that it had exercised the option and was planning to close on the property by December 31, 2018.

         Borton initiated a declaratory judgment action to determine the status of the purchase option. Burbank answered and counterclaimed for its own declaratory judgment, arguing both that it properly exercised its option and that it was entitled to an equitable grace period to do so. Discovery was rapidly conducted and both parties soon sought summary judgment. The competing motions then were argued to the trial court. Burbank contended that it would lose the value of the Timothy hay and the equity it would obtain by repurchasing the property. Borton argued that Burbank had failed to timely or properly give notice, was unable to perform the purchase, and had not made any improvements justifying equitable relief.

         The trial court concluded that an equitable grace period was called for due to the potential loss of hay and equity. Report of Proceedings at 16. An order was entered granting summary judgment for Burbank and authorizing it to close on the property by December 31, 2018. Burbank was also awarded its attorney fees based on the lease agreement. Borton's motion for summary judgment was denied, as was its subsequent motion for reconsideration.

         Borton then timely appealed to this court. A panel heard oral argument of this case at Whitman College in Walla Walla.

         ANALYSIS

         The dispositive issue is whether the trial court erred in its respective summary judgment rulings by awarding equitable relief. We address that issue before briefly turning to the question of attorney fees.

         Equitable Relief

         The traditional interplay of law and equity provides a complicated puzzle on these facts. Principles of summary judgment and contract law inform our approach to this appeal.[1]

         This court reviews declaratory judgment actions the same as it does any other civil case. To-Ro Trade Shows v. Collins, 144 Wn.2d 403, 410, 27 P.3d 1149 (2001). Summary judgment rulings are reviewed de novo since an appellate court sits in the same position as the trial court. Hubbard v. Spokane County, 146 Wn.2d 699, 706-07, 50 P.3d 602 (2002). Summary judgment is proper when, after viewing the evidence in a light most favorable to the opposing party, there are no issues of material fact and the moving party is entitled to judgment as a matter of law. Trimble v. Wash. State Univ., 140 Wn.2d 88, 93, 993 P.2d 259 (2000). All facts and reasonable inferences are construed in the light most favorable to the nonmoving party. Id. Summary judgment should be granted if reasonable persons could reach but one conclusion based on all of the evidence. Id.

         An option contract is "a complete, valid and binding agreement" to which general contract principles apply. Bennett Veneer Factors, Inc. v. Brewer, 73 Wn.2d 849, 853, 441 P.2d 128 (1968). "In applying these general contract principles, our primary goal in interpreting the option contract is to ascertain the parties' mutual intent." Chevalier v. Woempner, 172 Wn.App. 467, 476, 290 P.3d 1031 (2012). Under the "objective manifestation" theory of contracts, we determine the parties' intent by focusing on the objective manifestations expressed in their contract rather than focusing on unexpressed subjective intentions. Hearst Commc'n, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503, 115 P.3d 262 (2005). Thus, courts will "impute an intention corresponding to the reasonable meaning of the words used" in the contract. Id. The parties' subjective intent "is generally irrelevant if the intent can be determined from the actual words used" in the contract. Id. at 504. Courts will interpret what was "written instead of what was intended to be written." Id. "Accordingly, we give language in the option contract its ordinary, usual, and popular meaning unless the contract clearly demonstrates a contrary intent." Woempner, 172 Wn.App. at 476. Ambiguities in a contract typically[2] are construed against the drafter. Rouse v. Glascam Builders, Inc., 101 Wn.2d 127, 135, 677 P.2d 125 (1984).

         The option holder may exercise an option by complying with the terms of acceptance set forth in the option agreement. Whitworth v. Enitai Lumber Co., 36 Wn.2d 767, 770, 220 P.2d 328 (1950). If the option is exercised unconditionally in accordance with the terms of the contract, the seller must sell the property in accordance with the terms of the option. Id. If the option is not exercised within the time or manner specified, all rights under the contract, along with any consideration given, are forfeited. Id. at 770-71. A court may order specific performance of the contract if the option is properly exercised and the seller refuses to convey the property. 3 Eric Mills Holmes, Corbin on Contracts § 11.13, at 570 (rev. ed. 1996). The terms of an option contract are to be strictly construed and, generally, time is of the essence. Pardee v. Jolly, 163 Wn.2d 558, 572, 182 P.3d 967 (2008).

         On the basis of this hornbook law, Borton correctly claims that it should have prevailed at summary judgment because Burbank did not exercise the option at the proper time and in the proper manner. However, Washington recognizes that in some instances equity will excuse the untimely exercise of an option to purchase real estate. An equitable remedy is an extraordinary, not ordinary, form of relief. Sorenson v. Pyeatt, 158 Wn.2d 523, 531, 146 P.3d 1172 (2006). A court will grant equitable relief only when there is a showing that a party is entitled to a remedy and the remedy at law is inadequate. Orwick v. City of Seattle, 103 Wn.2d 249, 252, 692 P.2d 793 (1984). Whether a party is entitled to equitable relief "is in large part a matter addressed to the discretion of the trial court, with discretion to be exercised in light of the facts and circumstances of the particular case." Heckman Motors, Inc. v. Gunn, 73 Wn.App. 84, 88, 867 P.2d 683 (1994).

         Burbank argues that it is entitled to equitable relief in order to avoid an inequitable forfeiture. Washington recognizes that equitable relief may be warranted in limited circumstances where an inequitable forfeiture would otherwise result. Wharf Rest., Inc. v. Port of Seattle, 24 Wn.App. 601, 611, 605 P.2d 334 (1979). This is because forfeitures "are not favored in law and are never enforced in equity unless the right thereto is so clear as to permit no denial." Pardee, 163 Wn.2d at 574. When the holder of an option makes valuable permanent improvements to the property with the intention to give its notice to exercise or extend the option, but then fails to timely give such notice, an equitable period of grace may be appropriate. Wharf, 24 Wn.App. at 611 (emphasis added) (citing 1 Arthur l. Corbin, Corbin on Contracts § 35, at 146-47 (1963)). Wharf astutely noted:

The courts which have considered this problem have not found the solution simple. On the one hand is equity's abhorrence of a forfeiture. On the other hand is the general reluctance of courts to relieve a party from its own negligent failure to timely exercise an option, when to do so might tend to introduce instability into business transactions and disregard commercial realities.

Id. at 610.

         A forfeiture is:

1. The divestiture of property without compensation. 2. The loss of a right, privilege, or property because of a crime, breach of obligation, or neglect of duty. . . . 3. A destruction or deprivation of some estate or right because of the failure to perform some contractual obligation or condition.

Black's Law Dictionary 765 (10th ed. 2014).

         Burbank argues that it did not have to make a permanent improvement to the land in order to seek relief in equity and that it would constitute an inequitable forfeiture to forego the value it would have gained by selling the property at market value in 2016 and the value of the hay it had planted but could not harvest in 2019. We disagree with his first two arguments and conclude the other was unproved.

         Planting an annual crop as one has been doing for years does not constitute a permanent improvement in the land. Burbank has provided no authority to the contrary and tacitly seems to agree by, instead, arguing it had no need to establish permanent improvement. We disagree. All four of the Washington cases on this topic begin with, and continue to rely on, Wharf. And Wharf was very clear in its reliance on Professor Corbin's hornbook that the only cases in which equity might relieve a party from its negligent mistake was when "he had made valuable permanent improvements with intention to give the notice." 24 Wn.App. at 611 (quoting Corbin).

         The leaseholder in Wharf had an agreement with Port of Seattle and had exercised options to renew its prior lease agreements. Id. at 603. In 1977, after 25 years as leaseholder, Wharf inadvertently failed to exercise its option and had to sue to regain its lease after Port of Seattle found a new lessee. Id. at 604. After a trial, the court awarded an equitable grace period and ordered specific performance of the option to renew. Id. at 604-05. The court found that Wharf had made permanent improvements to the property "with the intention of exercising its option and remaining on the premises." Id. at 612. On appeal, Division One of this Court held that equitable relief period was proper under the special circumstances. Id. at 609. It summarized those circumstances: (1) failure to give notice was inadvertent, (2) an inequitable forfeiture would result, (3) the lessor had not changed its position in reliance on the failure to timely exercise the option, (4) the lease was long-term, having existed 25 years, and (5) there was no undue delay. Id. at 612-13. There was evidence that the restaurant was making improvements at the very time the option was supposed to be exercised. Id. at 612.

         The cases following Wharf similarly have involved significant levels of permanent improvements. In Heckman, the parties had jointly cleared land and built a building to house an automobile dealership. 73 Wn.App. at 85.[3] Like Wharf, the Heckman court relied on the same passage from Corbin indicating that equity stepped in only when a substantial permanent improvement might be forfeited. Id. at 87.

         Substantial permanent improvements also were at issue in Pardee. There, the trial court found that the plaintiff who had failed to timely exercise its option had put in 2, 500 hours of work and spent $20, 669.58 for repairs in order to build up equity as collateral for purchasing the property. 163 Wn.2d at 576. The court considered these figures "a significant forfeiture." Id. Since the trial court erroneously had granted relief on a different basis, the Supreme Court reversed and remanded for the trial ...


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