Offerman v. Granada ( 2017 )

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
DOUGLAS OFFERMAN, Plaintiff/Appellee,
v.
GRANADA LLC, Defendant/Appellant.
No. 1 CA-CV 16-0407
FILED 11-14-2017
Appeal from the Superior Court in Maricopa County
No. CV2014-015038
The Honorable Karen A. Mullins, Judge
The Honorable Katherine M. Cooper, Judge
REVERSED AND REMANDED
COUNSEL
Law Office of Lawrence K. Lynde, PLLC, Phoenix
By Lawrence K. Lynde
Counsel for Plaintiff/Appellee
Manning & Kass, Ellrod, Ramirez, Trester, LLP, Phoenix
By Richard V. Mack
Counsel for Defendant/Appellant
OPINION
Judge Michael J. Brown delivered the opinion of the Court, in which
Presiding Judge Diane M. Johnsen and Judge Jennifer B. Campbell joined.
OFFERMAN v. GRANADA
Opinion of the Court
B R O W N, Judge:
¶1 Granada, LLC ("Granada") appeals the superior court's
judgment in favor of Douglas Offerman ordering specific performance of
an alleged option to purchase a home owned by Granada. Because the
option was not sufficiently definite to support specific performance, we
reverse and remand for further proceedings consistent with this decision.
FACTUAL AND PROCEDURAL BACKGROUND
¶2 Offerman leased a home from Granada from August 2012
through August 2014. Granada's principal Gilbert Houseaux, a licensed
real estate agent, acted as the agent for both Offerman and Granada in the
transaction. Before the lease began, Offerman expressed an interest in
purchasing the property, but Granada declined to sell at that time. The
parties, however, added the following language to their lease agreement,
which Houseaux drafted:
At the completion of the 24 month lease, the Tenant has the
option to purchase [the] property . . . for a sales price to be
determined at that time by an independent appraiser
acceptable to both Tenant and Landlord. (Terms and
Conditions to be stipulated by both parties at such time).
If the Tenant chooses to exercise his right to purchase this
property at the end of the 2 year lease agreement, he shall be
credited $200.00 of each $1900.00 of monthly rent paid
towards purchase.
The acceptable condition of the property when Tenant takes
occupancy will be considered the condition Tenant agrees to
accept at time of closing. All inspections and contingencies to
be performed and satisfied prior to initial move-in. Property
to be sold AS-IS.
¶3 As the end of the lease term neared, believing this language
gave him an option to purchase the property, Offerman told Houseaux he
intended to exercise the option and asked Granada to name an independent
appraiser. Receiving no response from Houseaux, Offerman retained an
appraiser who valued the property at $240,000 and shared the appraisal
with Granada. Granada did not name an appraiser or obtain an additional
appraisal. Instead, Granada sent Offerman a draft purchase contract with
a proposed $350,000 sale price, which Offerman rejected. Granada later
notified Offerman it would not renew the lease, but Offerman remained in
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OFFERMAN v. GRANADA
Opinion of the Court
the house, paying the monthly rent of $1,900 for several months after the
original lease term ended.
¶4 Offerman sued Granada for breach of contract, alleging
Granada had failed to agree on an independent appraiser, refused to
respond to Offerman's efforts to exercise the option by proposing a "grossly
inflated" cash purchase price, and served him with an eviction notice rather
than engaging in the purchase process. Offerman asked the court to (1)
order Granada to "specifically perform pursuant to the terms of the
purchase option"; (2) set the purchase price at $240,000; (3) compel Granada
to open escrow at a title company of Offerman's choosing and to "cooperate
in the purchase process, the establishment and completion of escrow and
the closing"; and (4) order all of the $1,900 payments Offerman made after
September 1, 2014, be applied toward the purchase price.
¶5 After a bench trial, the superior court found that Offerman
was entitled to specific performance of the option. The court then held an
evidentiary hearing "on all issues" relating to the form of judgment.
Following that hearing, the court entered judgment ordering Granada to
sell the property to Offerman for $240,000. The court also, inter alia, named
a title agency to hold escrow, determined the date for close of escrow,
divided the various transaction fees between the parties, and ordered
Granada to arrange for a property inspection. The court further directed
the title agency to use the judgment "as the escrow instructions" and
ordered Granada to "convey clear and unencumbered fee simple title to the
Property to [Offerman] at close of escrow."
¶6 Granada moved for a new trial, arguing the option could not
be specifically performed because it lacked numerous material terms. The
superior court denied Granada's motion, awarded Offerman attorney’s fees
and costs, and entered final judgment. Granada timely appealed.
DISCUSSION
¶7 Granada argues the superior court erred in ordering specific
performance because the option did not contain sufficiently definite terms.1
Offerman counters that his timely exercise of the option created an
1 Granada also contends the option is unenforceable under the statute
of frauds; however, because we hold the option is too indefinite to be
specifically performed, we do not address whether it comports with the
statute of frauds.
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OFFERMAN v. GRANADA
Opinion of the Court
enforceable contract.2 The court's interpretation of an agreement presents
a question of law that we review de novo. United Cal. Bank v. Prudential Ins.
Co. of Am., 140 Ariz. 238, 257 (App. 1983).
¶8 Specific performance is an equitable remedy. Shreeve v. Greer,
65 Ariz. 35, 39 (1946). A court may properly order "specific performance of
an agreement for the sale of land if the agreement is in writing, signed by
the parties to be charged, . . . and is definite in its terms." Daley v. Earven,
131 Ariz. 182, 185 (App. 1981). But a court may not order specific
performance if the parties did not agree on one or more "important,
essential or material terms." Id.; see also Restatement (Second) of Contracts
("Restatement") § 362 (1981) ("Specific performance or an injunction will not
be granted unless the terms of the contract are sufficiently certain to provide
a basis for an appropriate order."); T.D. Dennis Builder, Inc. v. Goff, 101 Ariz.
211, 213 (1966) (stating that essential terms include "identification of the
parties, a description of the subject matter of the contract, the purchase price
and the time and conditions of payment").
¶9 An option does not require "completeness in every detail."
Daley, 131 Ariz. at 185. Nevertheless, "[t]he necessity for clearly defined
terms is even more critical when an option is concerned." Christmas v.
Turkin, 148 Ariz. 602, 603 (App. 1986). "The more terms the parties leave
open, the less likely it is that they have intended to conclude a binding
agreement." Restatement § 33 cmt. c. In some circumstances, terms may be
"certain enough to provide the basis for the calculation of damages but not
certain enough to permit the court to frame an order of specific performance
. . . and to determine whether the resulting performance is in accord with
what has been ordered." Restatement § 362 cmt. a; see also Restatement § 33
cmt. b (explaining that "greater definiteness may be required for an order
of specific performance than for an award of damages"). Accordingly, the
narrow issue we decide is whether the superior court properly ordered
specific performance as a remedy for Offerman's breach of contract claim.
¶10 Offerman argues specific performance was proper under
Restatement § 87(2), which states that "[a]n offer which the offeror should
reasonably expect to induce action or forbearance of a substantial character
on the part of the offeree before acceptance and which does induce such
2 Offerman also suggests that Houseaux breached his fiduciary duty
and that Granada breached the implied covenant of good faith and fair
dealing. Offerman, however, did not name Houseaux as a defendant, nor
did he allege a breach of the implied covenant of good faith and fair dealing
against Granada. Thus, we do not address those assertions on appeal.
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OFFERMAN v. GRANADA
Opinion of the Court
action or forbearance is binding as an option contract to the extent necessary
to avoid injustice." But Offerman cites no authority suggesting that action
or forbearance based on an option whose terms are not definite, even if that
action or forbearance is substantial, entitles a party to specific performance.
See Restatement § 87 cmt. e (explaining that "[f]ull-scale enforcement of the
offered contract is not necessarily appropriate" in cases falling within the
scope of Restatement § 87(2)).
¶11 Offerman also contends, under Holaway v. Realty Assoc., 90
Ariz. 289 (1961), that his option with Granada could be specifically
performed because it established a clear method for determining a purchase
price. Holaway involved an action for cancellation of an option contract in
which the plaintiff asserted the option was void because it lacked a legal
description of the property at issue. 90 Ariz. at 290. Our supreme court
affirmed the superior court's order rejecting the plaintiff's claim, concluding
the contract "furnished ample means to identify the particular real property
intended to be charged." Id. at 292. The court explained that although the
option failed to describe the parcels of land subject to the option, the parties
"understood and agreed" that the descriptions were to be determined by a
plat prepared by the defendants' agent. Id.
¶12 Holaway does not help Offerman's position. First, nothing
indicates that the remedy of specific performance was at issue in that case.
Second, the agreed-upon mechanism for establishing a legal description in
Holaway is significantly different from this case. Although Offerman and
Granada agreed on a mechanism to establish price by selecting an
"independent appraiser," the selected appraiser had to be "acceptable to
both Tenant and Landlord." The parties failed to provide an alternative
method for selecting an appraiser for the impasse that ultimately occurred.3
Third, the parties did not establish a means to determine the many other
remaining undefined terms. For example, the option is silent as to the
timing of payment or closing, terms of payment (earnest money, down
payment, financing, and allocation of closing costs), condition of title upon
conveyance, method of conveyance, and whether escrow would be handled
by a title agency. Unlike in Holaway, the option did not specify a method
3 Because it was not addressed by the parties on appeal, we do not
decide whether the superior court could properly enter an order for specific
performance (or an injunction) compelling Granada to engage in the
agreed-upon process of selecting an independent appraiser to determine
purchase price. See generally Restatement § 357 (explaining when specific
performance is an available remedy).
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OFFERMAN v. GRANADA
Opinion of the Court
for determining these terms; instead, the option expressly deferred
negotiating the "Terms and Conditions" to the end of the lease term.
¶13 The present case is more akin to the facts and analysis in
Christmas. In that case, a landlord granted the tenant an option to purchase
the leased premises for a set price during the first two years of the lease
term and agreed to credit a portion of the tenant's rent payments toward
the down payment. 148 Ariz. at 602-03. The parties also agreed that "[t]he
remaining terms of the option to purchase shall be negotiated between
Tenant and Owner and memorialized in writing not later than March 1,
1985." Id. We held that the quoted language precluded specific
performance because, based on the plain language of the lease, the
purported option "was clearly an agreement to make an agreement." Id. at
603. We distinguished cases where "the parties have purported to agree on
a contractual provision and have done so in a vague and indefinite
manner," which are inappropriate for specific performance, from "cases in
which [the parties] have remained silent as to a material term" where "the
reasonable conclusion is that [the parties] understood the law would imply
the omitted term." Id. at 603-04 (quoting Kidd v. Early, 222 S.E.2d 392, 403
(N.C. 1976)).
¶14 Here, as in Christmas, the parties did not expect that the law
would imply the several remaining essential terms; their agreement
specified they would determine those terms at "the completion of the 24
month lease." Further, at trial, Offerman confirmed that when he signed
the lease, he intended to negotiate the option's additional terms and
conditions at a later time, stating he anticipated an additional written
purchase contract would be required to effectuate the sale of the property.
Thus, given the absence of essential terms in the option language agreed to
by the parties, an order of specific performance was not a proper remedy.
See The Power P.E.O., Inc. v. Employees Ins. of Wausau, 201 Ariz. 559, 563, ¶ 22
(App. 2002) (stating specific performance is unavailable if the contract
"leave[s] any material or essential term for future negotiation"); see also
Restatement § 362 cmt. b ("If specific performance or an injunction is to be
granted, it is important that the terms of the contract are sufficiently certain
to enable the order to be drafted with precision because of the availability
of the contempt power for disobedience.").
¶15 Indeed, to fashion the order of specific performance, the
superior court held a separate evidentiary hearing to determine not only
the purchase price but numerous other "Terms and Conditions," including
naming a title agency to hold escrow and determining how to divide the
various transaction fees, such as taxes, insurance, home warranty, lot
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OFFERMAN v. GRANADA
Opinion of the Court
survey, homeowners' association, home inspection, termite inspection, lien
release, and escrow fees. The court also directed the title agency to use the
judgment "as escrow instructions," and ordered Granada to "convey clear
and unencumbered fee simple title" to Offerman at close of escrow (on or
before April 29, 2016). Of particular concern, some of the terms the court
added are directly contrary to those specified in the parties' written
agreement, including (1) directing Granada to arrange for a property
inspection and provide disclosure statements and (2) permitting Offerman
to cancel the contract if estimated repairs exceeded $5,000, even though the
option stated the property would be sold in "AS-IS" condition as of the date
Offerman took occupancy.
¶16 On a claim for specific performance, it is not within the
superior court's authority to flesh out an option agreement that lacks
certainty. See Savoca Masonry Co., Inc. v. Homes & Son Const. Co., Inc., 112
Ariz. 392, 395 (1975) ("[T]he court's role is not that of contract maker. While
custom, usage and implications can be used to prove a contract's existence,
they cannot be the basis for providing numerous essential elements of an
agreement."); see also Cypert v. Holmes, 81 Ariz. 64, 66 (1956) (finding, in the
context of an incomplete agreement, that "no court will . . . make an
agreement for the parties respecting those matters that have been left
unsettled"). Therefore, we hold that the superior court erred in ordering
specific performance of the option, but offer no opinion as to whether
Offerman may yet pursue other remedies arising from his breach of
contract claim. See Restatement § 362 cmt. a (recognizing that contract
terms may be "certain enough to provide the basis for the calculation of
damages but not certain enough to permit the court to frame an order of
specific performance").
¶17 Based on our reversal of the superior court's judgment
ordering specific performance, we vacate the court's award of attorney's
fees and costs. On remand, the court shall consider the parties' requests for
fees and costs, including reasonable attorney's fees incurred in this appeal,
based on the ultimate outcome of the case. We award costs incurred on
appeal to Granada upon compliance with Arizona Rule of Civil Appellate
Procedure 21.
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OFFERMAN v. GRANADA
Opinion of the Court
CONCLUSION
¶18 Based on the foregoing, we reverse the superior court's order
directing specific performance of the option. We vacate the court's award
of attorney's fees and remand for further proceedings consistent with this
opinion.
AMY M. WOOD • Clerk of the Court
FILED: AA
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