Lm15 Llc, Res. v. Girmay, Inc., And Amare Girmay And Jane Doe, Apps. ( 2020 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION ONE
LM15 LLC, a Washington limited liability ) No. 80112-1-I
company; AJMER SINGH, an individual; )
VARINDERPAL TOOR, an individual, )
)
Respondents, )
)
v. )
)
GIRMAY, INC., a Washington ) UNPUBLISHED OPINION
corporation; AMARE GIRMAY and )
JANE DOE, husband and wife, and the )
marital community composed thereof, )
)
Appellants, )
)
VERELLEN, J. — The testimony of the purchasers who signed an option to
purchase property the same day they signed a lease as a tenant of that property
substantially supports the trial court’s finding that the option and lease were part of
the same transaction, and that finding in turn supports the trial court’s conclusion that
the option was supported by adequate consideration. Substantial evidence also
supports the trial court’s determination that the purchasers did not materially breach
the lease or the option agreement and that strict enforcement of the option
requirements would result in an inequitable forfeiture of the option.
As the prevailing party at trial and now on appeal, the purchasers are entitled
to attorney fees under the lease and option agreements.
No. 80112-1-I/2
Therefore, we affirm the trial court’s order for specific performance of the
option to purchase and its award of attorney fees. We also award the purchasers
attorney fees on appeal.
FACTS
Varinderpal Toor, Reena Toor, and Ajmer Singh formed LM15, a limited
liability company.1 In 2015, the Toors and Singh learned Amare Girmay was selling
commercial property. The property was in disrepair and was occupied by an
unbranded gas station, a mini-mart, an auto repair shop, and an espresso stand.
After the Toors and Singh met with Girmay, LM15 executed three documents
regarding the property: a “Commercial Lease Agreement”, an “Option to Purchase
Commercial Real Property, and a “Notice to Remodel.” Soon after, Singh sold his
interest in LM15 to Varinderpal but remained involved in the interactions with Girmay.
The lease term began on November 1, 2015 and ended on October 31, 2020.
The lease prohibited subletting without Girmay’s prior written consent. The option to
purchase document provided that the option had to be exercised before October 31,
2020, the purchase price was $1,150,000, and LM15 had to submit a letter of loan
approval. The option would automatically terminate in the event that LM15 breached
the lease. The notice to remodel provided for unlimited remodeling by LM15.
1 Because Varinderpal and Reena have the same last name, we refer to them
individually by their first names for clarity.
2
No. 80112-1-I/3
The Toors communicated often with Girmay about LM15’s plans to remodel
the mini-mart and brand the gas station. Girmay approved of the plans and offered
his suggestions. LM15 invested approximately $550,000 in renovating the property.
In 2017, LM15 decided to exercise the option to purchase. The Toors
presented Girmay with LM15’s written notice of its intention to exercise the option
and told him LM15 intended to pay cash. Girmay acknowledged receipt of the notice
and did not express any concerns, but he was not ready to close on the sale because
he wanted to locate another property to use in a 1031 tax free exchange.2 Girmay
encouraged LM15 to complete the remodeling while it waited. LM15 branded the gas
station as a Shell station.
The Toors were concerned about waiting to close on the purchase of the
property because LM15 was paying for utilities and other overhead. Girmay
suggested renting space to a car wash or a food truck to collect rent in the meantime.
As a result, in January 2018, LM15 sublet a portion of the property to a taco truck.
Girmay was aware of the sublease and helped arrange a power connection for the
taco truck.
In March 2018, Girmay terminated the option to purchase because LM15
breached the lease agreement. LM15 sued Girmay to enforce the option to
purchase. The trial court ordered Girmay to close on the option and to convey the
property to LM15. The trial court also awarded attorney fees to LM15.
2A 1031 exchange requires “that property be identified and that [the]
exchange be completed not more than 180 days after transfer of exchanged
property.” 26 U.S.C.A. § 1031(3) (2017).
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No. 80112-1-I/4
Girmay appeals.
ANALYSIS
I. Consideration for the Option to Purchase
Girmay contends the option to purchase lacked consideration because the
lease and the option were separate contracts.
Determining the parties’ intentions is a question of fact.3 “Our review is limited
to determining whether substantial evidence supports the challenged findings of fact
and, in turn, if the supported findings and unchallenged findings support the court’s
conclusions of law.”4 “‘Evidence is substantial if it is sufficient to convince a
reasonable person of the truth of the finding.’”5 “‘So long as this substantial evidence
standard is met, a reviewing court will not substitute its judgment for that of the trial
court even though it might have resolved a factual dispute differently.’”6 The trier of
fact is solely responsible for making credibility determinations.7 Unchallenged
findings are verities on appeal.8 We review conclusions of law de novo.9
3 Martinez v. Miller Indus., Inc., 94 Wash. App. 935, 943, 974 P.2d 1261 (1999).
4 State v. Coleman, 6 Wash. App. 2d 507, 516, 431 P.3d 514 (2018).
5 Id. (quoting State v. Klein, 156 Wash. 2d 102, 115, 124 P.3d 644 (2005)).
6 Id. (internal quotation marks omitted) (quoting Sunnyside Valley Irrig. Dist. v.
Dickie, 149 Wash. 2d 873, 879-80, 73 P.3d 369 (2003)).
7 Morse v. Antonellis, 149 Wash. 2d 572, 574, 70 P.3d 125 (2003).
8 Cowiche Canyon Conservancy v. Bosley, 118 Wash. 2d 801, 819, 828 P.2d 549
(1992).
9 In re Estate of Haviland, 162 Wash. App. 548, 561, 255 P.3d 854 (2011).
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No. 80112-1-I/5
“‘An option to purchase property is a contract wherein the owner, in return for
valuable consideration, agrees with another person that the latter shall have the
privilege of buying the property . . . upon the terms and conditions expressed in the
option.’”10
“[T]he terms of agreement may be expressed in two or more separate
documents, some of these containing promises and statements as to
consideration, and others . . . embodying performances . . . . In every
such case, these documents should be interpreted together, each one
assisting in determining the meaning intended to be expressed by the
others.”[11]
When an option contract is supported by consideration, the result is an agreement
binding upon the optionor.12 “[C]onsideration will support and render a promise
enforceable if [there] was something bargained for.”13
Girmay challenges two findings of fact related to consideration. Finding of
fact 8 is that “[everyone] understood that the Toors and Mr. Singh were only
interested in purchasing the gas station business . . . if they would be allowed to
buy the property.”14 Finding of fact 10.6 is the “[l]ease and [o]ption [a]greement
10
RSD AAP, LLC v. Alyeska Ocean, Inc., 190 Wash. App. 305, 318, 358 P.3d
483 (2015) (quoting Whitworth v. Enitai Lumber Co., 36 Wash. 2d 767, 770, 220 P.2d
328 (1950)).
11 Pelly v. Panasyuk, 2 Wash. App. 2d 848, 868, 413 P.3d 619 (2018) (first
alteration in original) (quoting Kelley v. Tonda, 198 Wash. App. 303, 311-12, 393 P.3d
824 (2017)).
12 RSD AAP, 190 Wash. App. at 318.
13 Huberdeau v. Desmarais, 79 Wash. 2d 432, 440, 486 P.2d 1074 (1971)
(internal quotation marks omitted).
14 Clerk’s Papers (CP) at 304.
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No. 80112-1-I/6
were part of the same transaction . . . . [E]ach contract was dependent on, and
provided consideration for, the other.”15
Here, there was substantial evidence to support the finding that the
members of LM15 always intended to exercise the option and that the lease and
the option to purchase documents were part of the same transaction. Reena
testified that the option was “part of the deal . . . that everyone [understood LM15
would be] able to buy the property.”16 Both Varinderpal and Singh testified they
were interested in entering the lease only if there was an option to purchase the
property. The court found their testimony credible.
Section 15.24 of the lease agreement included a section titled “Option to
Purchase” but did not include any text about the option. The option to purchase
document provided that the lease was “attached hereto and incorporated herein
by reference.”17 And the parties signed the lease and option documents on the
same day. Substantial evidence supports findings of fact 8 and 10.6. And those
findings in turn support the conclusion of law that there was adequate
consideration for the option.
Girmay relies on Ledaura, LLC v. Gould for the proposition that the
consideration provided by the lease was insufficient to support the option.18 But
Ledaura is inapposite. Unlike here, the lease and the option to purchase were
15 CP at 306.
16 RP (May 8, 2019) at 33.
17 CP at 26.
18 155 Wash. App. 786, 789-90, 237 P.3d 914 (2010).
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No. 80112-1-I/7
executed separately, each requiring separate consideration.19 Additionally, the
option in Ledaura mentioned neither the lease nor any of its terms.20
Girmay’s challenge to the adequacy of consideration fails.
II. Material Breach of the Lease and Option to Purchase
Girmay argues that LM15 materially breached the lease, constituting a default
and precluding the exercise of the option. Specifically, Girmay contends that LM15
failed to obtain permits for the renovations to the mini-mart, failed to obtain loan
approval before giving its notice to exercise the option, and failed to receive his
permission before entering the sublease with the taco truck.
A material breach is one that “‘substantially defeats the purpose of the
contract.’”21 “The question of materiality depends on the circumstances of each
particular case.”22
In determining whether a failure to render or to offer performance
is material, the following circumstances are significant:
(a) the extent to which the injured party will be deprived of the
benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately
compensated for the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to
perform will suffer forfeiture;
19 Id. at 790-91.
20 Id. at 790.
21
DC Farms, LLC v. Conagra Foods Lamb Weston, Inc., 179 Wash. App. 205,
230, 317 P.3d 543 (2014) (quoting Mitchell v. Straith, 40 Wash. App. 405, 410, 698
P.2d 609 (1985).
22 Id. at 221.
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No. 80112-1-I/8
(d) the likelihood that the party failing to perform or to offer to
perform will cure his failure, taking account of all the circumstances
including any reasonable assurances;
(e) the extent to which the behavior of the party failing to perform
or to offer to perform comports with standards of good faith and fair
dealing.[23]
“The ‘standard of materiality’ . . . is necessarily imprecise and flexible.’ However, it ‘is
to be applied . . . in such a way as to further the purpose of securing for each party
his expectation of an exchange of performances.’”24
Girmay challenges findings of fact 13 and 13.1. Finding of fact 13 states,
“LM15 proceeded to invest substantial sums of money, as well as a great deal of
. . . time and energy, in performing substantial renovations and improvements on
the subject property.”25 Finding of fact 13.1 states Girmay “told [the Toors and
Singh] not to apply for permits, as he was concerned that the [c]ity would
discover that other work had been done on the subject property without obtaining
permits.”26
Varinderpal testified that he “did most of the construction” and “put a lot of
time into it.”27 He also stated that in total they spent about $550,000 on the
remodel. Reena testified that when she questioned Girmay about the ability to
23 RESTATEMENT (SECOND) OF CONTRACTS § 241 (1981).
24Bailie Commc’ns, Ltd. v. Trend Bus. Sys., 53 Wash. App. 77, 84, 765 P.2d 339
(1988) (alterations in original) (quoting id., cmt a).
25 CP at 307.
26 CP at 307-08.
27 RP (May 8, 2019) at 110.
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No. 80112-1-I/9
renovate the property, he responded, “[Y]eah, [this is] your land, no problem.
You can do what you . . . want to do.”28 Reena also testified they executed the
notice to remodel after she asked Girmay to confirm their ability to renovate the
property. The notice to remodel provided “that LM15 has the full authority to
remodel the business.”29 Varinderpal also testified that Girmay often provided
them with “guidance” on remodeling decisions.30 Further, the Toors and Singh all
testified that Girmay told them not to obtain permits for the remodeling, stating,
“[N]o, no, no, don’t go to the [c]ity.”31 Substantial evidence supports findings of
fact 13 and 13.1.
Girmay challenges finding of fact 15, that “LM15 originally had planned to
purchase the subject property from [him] via a bank loan . . . [but] discovered that
none of the commercial banks they contacted would make a loan secured by the
subject property, because of contamination issues [with the property.]”32
Reena testified that they provided Girmay with written notice stating they
were ready to exercise the option at a September 2017 meeting.33 She testified
that at the meeting they explained to Girmay that they were unable to obtain
bank financing due to the contamination on the property but showed Girmay
28 Id. at 34.
29 CP at 24.
30 RP (May 8, 2019) at 103.
31 Id. at 42-43.
32 CP at 308-09.
33 RP (May 8, 2019) at 45.
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No. 80112-1-I/10
$1,200,000 in cash.34 Undisputed finding of fact 17 provides Girmay did not
express any concerns about the impending cash payment. Substantial evidence
supports finding of fact 15.
Girmay objects to findings of fact 17.2, that he “suggested that LM15 could
rent space to organizations doing weekend car washes, and/or to a food truck in
order to generate some additional revenue” and finding of fact 17.3, that he
“assisted LM15 in contacting the auto repair shop owner to arrange for access so
that power could be provided for the taco truck.”35
But Reena testified that when Girmay asked LM15 to delay the option for his
own benefit, he suggested subleasing to either a car wash or a food truck so that
they could collect rent in the meantime.36 Singh proposed that LM15 sublease to a
taco truck, and Girmay expressed his approval.37 Varinderpal also testified that
Girmay helped them arrange a power connection from the auto repair shop to
operate the taco truck.38 Substantial evidence supports findings of fact 17.2 and
17.3.
Girmay challenges finding of fact 21, that “[a] preponderance of the evidence
established that Girmay’s allegations of breach of the [l]ease and the [o]ption
34 Id.
35 CP at 310.
36 RP (May 8, 2019) at 49.
37 Id.
38 RP (May 8, 2019) at 107.
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No. 80112-1-I/11
[a]greement by LM15 were pretextual.”39 Reena testified that Girmay would often
stop by the property during the remodel stating in part, “I’m so happy for you guys,
this is looking great.”40 Varinderpal and Singh also testified that Girmay never
objected or stated any concerns as to the renovations they were doing on the
property.41 Undisputed finding of fact 23 provides Girmay admitted he made a
mistake in agreeing to sell the property for $1,150,000, the property was now worth
considerably more, and he would require more money to sell the property.
Substantial evidence supports finding of fact 21 that Girmay’s allegations of a breach
were pretextual.
The trial court found that the Toors and Singh were credible that Girmay told
them he did not want them to obtain permits, did not object to a cash payment to
exercise the option, and did not oppose the sublease to the taco truck.42 Because
LM15 had permission from Girmay for its actions that diverged from the lease, as the
39 CP at 311.
40 RP (May 8, 2019) at 57.
41 RP (May 8, 2019) at 209-10; RP (May 9, 2019) at 234.
42 The trial court’s conclusion of law 8.4 states, “[T]he Court finds the
testimony of Reena Toor, Varinderpal Toor and Ajmer Singh, that Mr. Girmay
specifically told them they should proceed with the renovation and remodel without
seeking permits, to be credible.” CP at 316. The trial court’s conclusion of law 12
states, “The Court found testimony from Varinderpal Toor and Ajmer Singh, that Mr.
Girmay was aware and approved of all the work that was being done, and even
participated in making suggestions regarding some of the changes, to be credible."
CP at 318. Credibility determinations are findings of fact. In re Estate of Palmer, 145
Wash. App. 249, 266, 187 P.3d 758 (2008). “‘Findings of fact labeled as conclusions of
law will be treated as findings of fact when challenged on appeal.’” Karanjah v. Dep’t
of Soc. & Health Servs, 199 Wash. App. 903, 916, 401 P.3d 381 (2017) (quoting
Morgan v. Dep’t of Soc. & Health Servs., 99 Wash. App. 148, 152, 992 P.2d 1023
(2000).
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No. 80112-1-I/12
trial court concluded, it did not materially breach the lease. The court’s legal
conclusions are supported by its findings of fact 13, 13.2, 15, 17.2, 17.3, and 21.
III. Equitable Discretion to Prevent Forfeiture
Girmay contends LM15 forfeited its rights to exercise the option because it
failed to exercise the option “in the manner provided” by the agreement.43 Girmay
argues that because LM15 failed to provide a letter of loan approval to confirm its
financing and was in default under the lease, its exercise of the option was invalid.
“Because the trial court has broad discretionary authority to fashion equitable
remedies, we review such remedies under the abuse of discretion standard.”44 A trial
court abuses its discretion when its exercise of discretion is based upon untenable
grounds or reasons.45
As a general rule, option contracts “are to be strictly construed and . . . time is
of the essence.”46 However, equitable relief from such strict construction may be
warranted in limited circumstances where an inequitable forfeiture would otherwise
result.47 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.’”48 When the holder
43 Appellant’s Br. at 29.
44
Cornish Coll. of the Arts v. 1000 Virginia Ltd P’ship, 158 Wash. App. 203, 221,
242 P.3d 1 (2010).
45 Id.
46 Pardee v. Jolly, 163 Wash. 2d 558, 568, 182 P.3d 967 (2008).
47 Wharf Rest., Inc. v. Port of Seattle, 24 Wash. App. 601, 611, 605 P.2d 334
(1979).
48Pardee, 163 Wash. 2d at 574 (internal quotation marks omitted) (quoting
Hykras v. Knight, 64 Wash. 2d 733, 734, 393 P.2d 943 (1964)).
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No. 80112-1-I/13
of an option makes valuable permanent improvements to the property with the
intention to give its notice to exercise or extend the option, equitable relief may be
appropriate.49
In Cornish College of the Arts v. 1000 Limited Partnership, Cornish and
Virginia Limited executed a commercial sublease agreement with an option to
purchase.50 The agreement provided that Cornish had less than a year to exercise
the option but allowed Cornish to extend the option for an additional year by paying a
deposit.51 In the meantime, Cornish invested a substantial amount of money to
improve the property and always intended to extend the option period.52 The chief
financial officer of Cornish mailed a check to Virginia Limited to exercise the option.53
Virginia Limited’s representative rejected the check because it was a few days late
and failed to satisfy a multiple signature requirement.54 Virginia Limited delivered a
49 Wharf, 24 Wash. App. at 611 (quoting 1 ARTHUR L. CORBIN ON CONTRACTS
§ 35, at 146-47 (1963)); see also Pardee, 163 Wash. 2d at 572 (holding that an
equitable grace period may be appropriate when “the optionee was allowed to
occupy the property and make substantial improvements thereon”); Borton & Sons,
Inc., v. Burbank Properties LLC, No. 97690-2-I, slip op. at 1 (Wash. Sept. 10, 2020),
http://www.courts.wa.gov/opinions/pdf/976902.pdf (holding that “granting an
equitable grace period is proper only when a lessee makes valuable improvements to
property that would result in an inequitable forfeiture if the lessee is not given a grace
period”).
50 158 Wash. App. 203, 211, 242 P.3d 1 (2010).
51 Id.
52 Id. at 219.
53 Id. at 212-13.
54 Id. at 213.
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No. 80112-1-I/14
notice to terminate the lease and ordered Cornish to vacate the premises.55 This
court held that the circumstances justified granting Cornish an equitable grace
period.56 This court reasoned that “[if Cornish were] precluded from purchasing the
property, Cornish would forfeit a substantial investment. Given that Cornish at all
times intended to exercise the option to purchase, . . . such a substantial forfeiture
would be inequitable.”57
The circumstances here are similar to Cornish College. Like Cornish, LM15
always intended to exercise the option to purchase the property, invested a
substantial amount of money in improving the property, and failed to strictly comply
with the option agreement. The trial court properly concluded that the breaches by
LM15 were minor and did not support forfeiture of the option to purchase.
Girmay argues that granting equitable relief would contradict the Supreme
Court’s holding in Pardee v. Jolly58 that option contracts must be strictly construed.
But in Pardee, the option to purchase required that “the optionee . . . pay the
remaining balance [on the lease] and . . . at the same time, exercise its option to
purchase.”59 Instead, Pardee made his final payment and weeks later attempted to
exercise his option to purchase.60 Here, LM15 had until October 31, 2020 to exercise
55 Id.
56 Id. at 218-19.
57 Id. at 219.
58 163 Wash. 2d 558, 182 P.3d 967 (2008).
59 Id. at 571.
60 Id. at 570-71.
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No. 80112-1-I/15
the option. And Reena testified that in September 2017, they provided Girmay with
written notice of their intent to exercise the option. Because LM15 was within the
period to exercise the option, Pardee is distinguishable. Further, the court in Pardee
only held that Pardee failed to exercise the option within the terms of the contract.61
But the court remanded for a determination on whether Pardee was entitled to
equitable relief.62
The record here reveals that LM15 had the funds necessary to purchase in
cash and showed it to Girmay. In this setting, the failure to strictly comply with
providing a letter of loan approval was minor and inconsequential. It was within the
discretion of the trial court to conclude it would be inequitable to grant Girmay the
windfall of the sizeable improvements made by LM15 in reliance upon Girmay’s
ongoing consent, approval, and encouragement to complete the improvements of the
property and the branding of the gas station.
IV. Attorney Fees
Girmay argues the trial court erred by awarding attorney fees to LM15, and
LM15 requests attorney fees on appeal. The lease and the option to purchase both
provide for attorney fees to the prevailing party in litigation. Because LM15 prevailed
before the trial court, the court did not err by awarding attorney fees. And because
LM15 prevails on appeal, it is entitled to attorney fees on appeal, subject to
compliance with RAP 18.1(d).
61 Id. at 574-75.
62 Id. at 576.
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We affirm.
WE CONCUR:
16