McDonald v. Cosman , 299 Mont. 499 ( 2000 )

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No. 99-625
IN THE SUPREME COURT OF THE STATE OF MONTANA
2000 MT 126299 Mont. 4996 P. 3d 956SAM E. McDONALD, JR.,
Plaintiff and Respondent,
v.
ELBERT H. COSMAN and OLIVE LOCKIE,
Defendants and Appellants.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
Honorable Susan P. Watters, Judge Presiding
COUNSEL OF RECORD:
For Appellants:
Robert C. Smith, Cavan & Smith, Billings, Montana
For Respondent:
Randolph Jacobs, Jr., and Michael K. Rapkoch, Felt, Martin, Frazier,
Jacobs & Rapkoch, Billings, Montana
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Submitted on Briefs: April 13, 2000
Decided: May 9, 2000
Filed:
__________________________________________
Clerk
Chief Justice J. A. Turnage delivered the Opinion of the Court.
¶1 The Thirteenth Judicial District Court, Yellowstone County, granted Sam E. McDonald
summary judgment and awarded him specific performance in this action to enforce a
purchase option in a lease agreement. The lessors, Elbert H. Cosman and Olive Lockie,
appeal. We affirm and remand with instructions.
¶2 The issue is whether the District Court erred in ruling that the terms of the option to
purchase were sufficiently clear and unambiguous to compel specific performance.
¶3 In 1977, the predecessors in interest of the parties to this action entered into a twenty-
five-year lease on real property in Bozeman, Montana. The lessee, Sam E. McDonald,
constructed a Wendy's restaurant on the property.
¶4 The lease included a provision allowing McDonald a limited option to purchase the
property. The option provision read:
LESSOR hereby grants an option to purchase to LESSEE. Said option may only be
exercised after February 1, 1998 and the option period shall expire sixty (60) days
after that date. In the event LESSEE fails to exercise the option as provided below,
LESSOR may sell the premises subject to the remaining term of this Lease.
LESSEE shall exercise the option by giving LESSOR a written notice of intent to
exercise on or before the 60th day following February 1, 1998.
The purchase price of the land excluding buildings shall be established by three M.
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A.I. appraisers. One of the appraisers shall be chosen by LESSOR, one by LESSEE,
and the two appraisers so selected shall together select a third appraiser. The
decision of the majority of the appraisers shall be binding and shall be considered as
the decision of the three appraisers. In the event the appraisers or a majority of them
cannot agree on the appraisal herein provided for within thirty (30) days after the
third appraiser is selected, then LESSOR and LESSEE shall appoint new appraisers
in the manner provided for the appointment of the original appraisers. The three
appraisers so chosen shall promptly ascertain, appraise and determine the actual
value of the premises. The findings of the appraisers shall be in writing and made in
duplicate, one to be delivered to LESSOR and one to LESSEE. LESSOR and
LESSEE shall pay one-half each of the appraisers' fees.
In the event LESSEE exercises the option, LESSEE shall pay the purchase price as
determined above under the following terms:
(a) One-fourth of the purchase price is payable within sixty (60) days after the
purchase price is determined by appraisal;
(b) The remaining balance of the purchase price shall be paid in equal yearly
payments for ten (10) years. Interest shall accrue on the unpaid balance at 1% over
the prime rate as established by The First National Bank of Minneapolis,
Minneapolis, Minnesota, but in no event shall that rate be less than 9% per annum.
(c) Should LESSEE default on any payment of the purchase price and said default
shall remain uncured for sixty (60) days, LESSOR shall be entitled to reclaim the
premises and all prior payments shall be forfeited and applied as reasonable rental
charges.
On October 10, 1997, McDonald informed Cosman and Lockie that he intended to
exercise his option to purchase. Three appraisers chosen as required under the option
provision gave their unanimous opinion that the property was worth $325,000. On January
30, 1998, McDonald informed Cosman and Lockie that he was prepared to purchase the
property at that price. Cosman and Lockie refused to complete the transaction, resulting in
this action to enforce the agreement.
¶5 On McDonald's motion for summary judgment, the District Court ruled that the option
provision of the lease contains all material terms and is thus legally enforceable. The court
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also ruled that the requirements of the option had been met. It therefore granted summary
judgment and awarded specific performance to McDonald. Cosman and Lockie appeal.
Discussion
¶6 Did the District Court err in ruling that the terms of the option to purchase the property
were sufficiently clear and unambiguous to compel specific performance?
¶7 In determining whether a district court properly ordered summary judgment, this Court
applies the same criteria as the lower court used in reaching its decision. Hennen v. Omega
Enterprises, Inc. (1994), 264 Mont. 505, 508, 872 P.2d 797, 799. The moving party must
establish the absence of genuine issues of material fact and that he is entitled to judgment
as a matter of law. Rule 56(c), M.R.Civ.P.
¶8 The remedy of specific performance is allowed when (1) the act to be done is in the
performance of an express trust; (2) the act to be done is such that pecuniary compensation
for its nonperformance would not afford adequate relief; (3) it would be extremely
difficult to ascertain the actual damages caused by nonperformance; or (4) specific
performance was specifically agreed to in writing. Section 27-1-411, MCA. Contracts for
the sale of real property are specifically enforceable because "[i]t is to be presumed that
the breach of an agreement to transfer real property cannot be adequately relieved by
pecuniary compensation." Section 27-1-419, MCA.
¶9 Cosman and Lockie correctly point out that specific performance can be had only in
cases involving clear and specific agreements. Section 27-1-412(5), MCA. They argue that
the option clause in their contract with McDonald is ambiguous and therefore is not
subject to specific performance. They contend that the option clause represents only an
"agreement to agree," and that a further contract between the parties was anticipated and is
necessary if the option clause is to be enforced.
¶10 Cosman and Lockie rely on this Court's opinion in Quirin v. Weinberg (1992), 252
Mont. 386, 830 P.2d 537. In that case, this Court affirmed a district court ruling that the
parties' discussions regarding a land trade were insufficient to create a contractual
obligation. We stated that the sufficiency of acts to constitute part performance can be
decided as a matter of law, and we noted the distinction between acts which truly
constitute part performance and those merely undertaken "in contemplation of eventual
performance." Quirin, 252 Mont. at 393, 830 P.2d at 541.
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¶11Cosman and Lockie also rely upon this Court's opinion in Henkel v. Hewitt Agency
(1983), 206 Mont. 303, 671 P.2d 582. In that case, the Court reversed a judgment granting
specific performance of a buy-sell agreement for real property, on grounds that the
agreement did not include terms specific and definite enough to be specifically enforced.
The opinion noted that the agreed-upon monthly payments would not even cover the
annual interest and that there was no provision for payment of the principal of the
purchase price. Concluding that the option terms were so indefinite as to be without
meaning unless they were rewritten, this Court stated, "Only where all the terms of the
agreement are definite may a contract be specifically enforced." Henkel, 206 Mont. at 305,
671 P.2d at 583.¶
12 The facts of the present case are notably different from those in both of the above
cases. Unlike the present case, Quirin involved no written contract; but only oral
negotiations for a land sale. Unlike the option provision at issue in Henkel, the option
provision in the present case explicitly provides for the payment of both principal and
interest over a ten-year period.
¶13 Cosman and Lockie argue, nevertheless, that the option provision here is ambiguous
in that it does not provide for whether there shall be ten equal yearly installment payments
or ten payments of 1/10 of the principal plus the interest on the amount then remaining
due. They also cite the absence of provisions setting the contemplated dates for the down
payment and accrual of interest and the amount of the annual payments and interest.
¶14 Keaster v. Bozik (1981), 191 Mont. 293, 623 P.2d 1376, was another case in which
this Court considered whether a contractual option provision for the purchase of real
property was specific and definite enough to be enforceable by specific performance. It
was argued that the failure to specify a date for the down payment, the annual payments,
and the commencement of interest was fatal. Rejecting that argument, this Court ruled:
[T]he option contract as written and signed by the parties contains no ambiguity and
is sufficiently definitive to be capable of specific enforcement when one looks
solely to the four corners of the instrument. The option contract contains a legal
property description, expresses the consideration for the grant of the option, states
the terms for a revocation, provides the time in which the option is exercisable,
reveals the purchase price included in the amount of down payment and annual
payment, and states the interest rate.
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Keaster, 191 Mont. at 300, 623 P.2d at 1380. The Court stated that "[t]he fact that these terms [dates
for the down payment, annual payments, and commencement of interest on the unpaid balance] were not
specifically expressed in the option contract does not render the option unenforceable." Keaster, 191
Mont. at 302, 623 P.2d at 1381.
¶14 The option clause in the present case sets forth the time in which the option is
exercisable, the method for calculating the purchase price and the interest rate, the method
by which the purchase price shall be paid, and the parties' rights on default. We agree with
the District Court that under Keaster, the option in the present case contains all the
material terms to make the acts which must be done to purchase the property clearly
ascertainable.
¶15 Cosman and Lockie complain that the option provision is vague and ambiguous in that
it does not state who shall be responsible for paying property taxes and insurance during
the time McDonald is purchasing the property, and it does not provide fully for forfeiture
remedies. As the Court stated in Keaster, "absolute certainty in every detail is not a
prerequisite for specific performance" and "[t]hose matters which are collateral or which
go to the performance of the contract are not essential and need not be expressed in the
contract." Keaster, 191 Mont. at 302, 623 P.2d at 1381. As a collateral matter,
responsibility for taxes and insurance was not required to be addressed in the option clause
as a prerequisite for specific performance. Maxted v. Stenberg (1975), 166 Mont. 460,
468, 534 P.2d 864, 869. We note that the lease agreement provides that McDonald will be
responsible for paying these expenses during the term of the lease. It is reasonable
therefore to infer that he shall be responsible for these payments during the purchase
period, as well.
¶16 Cosman and Lockie's arguments do, however, illustrate the wisdom of this Court's
mandate in Keaster, 191 Mont. at 302-03, 623 P.2d at 1381, that a court ordering specific
performance of a land sale contract must set up a schedule for the performance of the
obligations and the commencement of interest in order to implement its decree. When the
time of performance is not specified, a reasonable time will be implied. Section 28-3-601,
MCA. Before this legal action was brought, payments could reasonably have begun one
year from the date of appraisal or one year from the down payment date. Because of the
delay which has since ensued, those dates are no longer reasonable. ¶17 The District Court
did not set up a schedule for the performance of the obligations and the commencement of
interest in order to implement its decree. We conclude that in order to implement the
decree of specific performance, this case must be remanded to allow the District Court to
determine the date on which the initial payment shall be made and on which interest shall
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commence, and the date on which subsequent yearly payments will be made.
¶18 Finally, Cosman and Lockie maintain that the method used for the appraisal of the
property was not standard and that therefore the purchase price is not clear and
unambiguous. The three appraisers used the sales comparison approach in valuing the
land.
¶19 McDonald points out that he bore all the expense of making improvements to the
property. The District Court concluded that it would be unjust to include the value of those
improvements in the purchase price he is to pay for the property. We agree. As to the
method used for the appraisal, the two appraisers originally selected by the parties each
averred that they conducted their individual appraisals in conformity with professional
appraisal standards and practices. The third appraiser gave a detailed explanation by letter
of the reasoning behind the subsequent unanimous conclusion that the market value of the
land was $325,000. Cosman and Lockie's criticism of the appraisal method used is not
persuasive.
¶20 In sum, the record establishes that the option in the present case is legally enforceable
and that McDonald satisfied the terms and conditions of the option. We affirm the District
Court's decision awarding him specific performance, but remand with instructions that the
court must set up a schedule for the performance of the obligations and the
commencement of interest in order to implement its decree of specific performance.
/S/ J. A. TURNAGE
We concur:
/S/ W. WILLIAM LEAPHART
/S/ JAMES C. NELSON
/S/ JIM REGNIER
/S/ TERRY N. TRIEWEILER
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