RIVERSIDE HOMES, INC. v. Murray

EDMONDS, P. J.,

dissenting.

The majority holds that the trial court erred by granting defendants’ motion for involuntary dismissal of plaintiffs complaint for specific performance under ORCP 54 B(2). It reasons that the parties’ agreement regarding when closing is to occur is ambiguous and that extrinsic evidence offered by plaintiff at trial supports a reasonable interpretation of the agreement that the time of the closing of the transaction was intended to be indefinite and based on a future contingency. I disagree that the agreement is subject to more than one reasonable interpretation and that extrinsic evidence was admissible to prove the parties’ intention. I would also reach defendants’ cross-appeal and would reverse the trial court’s judgment awarding plaintiff damages for unjust enrichment. Accordingly, I dissent for the reasons expressed more fully below.

The threshold issue is whether the trial court erred in granting defendants’ motion for judgment of dismissal under ORCP 54 B(2). That rule authorizes a trial court in a nonjury proceeding to enter a judgment of dismissal based on the insufficiency of the evidence at the close of the plaintiffs case. For purposes of this case, the controlling issue is whether the parties’ agreement is ambiguous, a determination that is made as a matter of law. Yogman v. Parrott, 325 Or 358, 361-64, 937 P2d 1019 (1997).

At trial, plaintiff offered evidence that, on November 12, 2003, it entered into an agreement with defendants to purchase undeveloped land owned by defendants. Paragraph 6 of the original agreement provided that the transaction would close within six months of the earnest money deposit but allowed plaintiff to purchase up to six one-month extensions of the closing date for a fee of $5,000 per extension.

After the initial agreement was signed, plaintiff undertook a feasibility study for the development of the property and learned that a zone change would be necessary as well as the dedication of access to the property through a neighboring subdivision. Accordingly, the parties entered into Addendum A to the agreement on December 8, 2003. It provides:

“Sellers understand that property currently has 2 different zonings and may have to go through a comprehensive plan amendment to remove industrial zoning prior to submission of any land use or zone change applications. Therefore, the first sentence of paragraph 6 of purchase and sale agreement is to be changed to:

“This transaction shall close within six (6) months of notification by City of Hillsboro that the entire property is zoned residential.

“All other terms and conditions to remain the same.”

After Addendum A was executed, the parties entered into further negotiations regarding modification of paragraph 6 of the original agreement. On January 27,2004, the parties executed Addendum B to the original agreement which again modified paragraph 6 as well as other provisions of the agreement. In its entirety, Addendum B provides:

“This addendum contains additional terms and conditions of sale. If the terms and conditions of sale conflict with or vary from the terms contained in the Agreement, the terms contained in this Addendum B shall govern.

“Buyer hereby removes the feasibility contingency contained in paragraph 4 of the Agreement subject to Seller’s agreement to the following:

“1. The legal description for the subject property is correctly shown on the attached Exhibit ‘A’ * * *.

“2. The following is hereby added to paragraph 6 of the Agreement:

“The Closing of this transaction is contingent upon dedication of a future improved and dedicated street connection at the southeast corner of the property from the adjacent subdivision known as the ‘Roses Subdivision!’]

“3. The second sentence of paragraph 6 of the Agreement is hereby deleted and replaced with the following:

“In the event that Buyer has not received final engineering approval from the City of Hillsboro by December 29, 2004, Buyer may exercise up to ten (10) one month extensions of the closing date, for a monthly extension fee of $10,000.00 which shall be paid prior to each month, half of which ($5,000.00) shall be applied towards the purchase price at closing.

“4. Buyer agrees to notify Seller on or before December 1, 2004[,] if Buyer will be using closing extensions.

“5. Earnest Money to be deposited with five business days of mutual acceptance of this addendum. Earnest Money and all extension payments to be released to Seller and become non-refundable (except in event of Seller default).

“6. Buyer to submit for comprehensive plan amendment no later than February 20, 2004.

“All other terms and conditions of the Agreement shall remain unchanged and continue in full force and effect.”

In the summer of2004, the City of Hillsboro changed its zoning requirements, eliminating plaintiffs concern that had prompted Addendum A. However, the connecting street contingency remained an issue, and, before December 2004, plaintiff notified defendants that it intended to exercise its extension rights under Addendum B. Plaintiff exercised all 10 monthly extensions. When plaintiff failed to close the transaction within the time period allotted by the agreement for those extensions, defendants declared plaintiff in default. That declaration prompted plaintiff to file this action for specific performance of its agreement with defendants as modified by addendums A and B.

In its complaint for specific performance, plaintiff alleges that it has paid the 10 extension payments under the agreement and “has performed all conditions precedent to be performed on its part pursuant to the Sale Agreement” but that “there has not been a dedication of a future improved and dedicated street connection at the southeast corner of the Property.” In plaintiffs view of the agreement, it is entitled to specific performance because the time for closing under the agreement has not yet expired and will not occur until after the dedication of the street connection.¹ Defendants counter that the agreement expired when plaintiff did not purchase the property on October 29, 2005, the date when the final extension purchased by plaintiff expired.

The majority concludes that the parties’ agreement as modified by the addendums is susceptible to more than one reasonable interpretation. Consequently, it evaluates the extrinsic evidence presented by plaintiff and concludes that the evidence establishes that closing was not required under the contract until the street contingency was satisfied. It bases that conclusion on the testimony of plaintiff s witnesses that Addendum B was intended to extend the closing date until such time as the connecting street was dedicated.

Generally, in the interpretation of a contractual provision, courts follow a three-step process. First, we examine the text of the disputed provision in the context of the agreement itself. Yogman, 325 Or at 362-64. If the provision is clear on its face, then the analysis ends. Id. If the provision is susceptible to more than one reasonable interpretation after reading it in the context of the other provisions of the agreement, we seek to ascertain the intent of the parties by resorting to extrinsic evidence of their intent. Id. If the meaning of the contractual provision remains ambiguous after the first two steps of the analysis have been applied, we rely on appropriate maxims of construction to ascertain the intent of the parties. Id. at 364.1 would hold that, when the provisions of the agreement and the addendums are read together, they are susceptible to only one reasonable interpretation in light of controlling contract interpretation principles. Accordingly, in my view, the majority improperly relies on extrinsic evidence of the parties’ intent in reaching its conclusion.

The particular provision of the parties’ agreement to be interpreted in this case is paragraph 2 of Addendum B, which, as set forth above, provides that “[t]he Closing of this transaction is contingent upon the dedication of a future improved and dedicated street connection at the southeast corner of the property from the adjacent subdivision known as the ‘Roses Subdivision. [’]”

Paragraph 4 of the agreement, to which Addendum B refers, provides that the agreement by plaintiff to purchase defendants’ real property is subject to a feasibility study for the development of the property. The first sentence of paragraph 6 of the original agreement, to which Addendum B refers, provides for the closing of the transaction “within Six (6) months of the Earnest Money Deposit.” Paragraph 6 was initially amended by Addendum A, which provides in pertinent part, “This transaction shall close within six (6) months of notification by City of Hillsboro that the entire property is zoned residential.” Paragraph 3 of Addendum B deletes the second sentence of paragraph 6, which had provided for six one-month extensions for a monthly purchase fee of $5,000, and replaces it with a provision that allows plaintiff to purchase up to 10 one-month extensions of the closing date for $10,000 per extension. When read together as amended, the agreement and the addendums provide for closing within six months of notification by the City of Hillsboro that the entire property is zoned residential, with the right of plaintiff to extend the closing date for an additional 10-month period by paying additional consideration.

Defendants’ position in this case is predicated on the legal principle that, if “a covenant in the contract for the sale of land [provides] that the time of payment shall be of the essence of the contract!, then] upon [the] failure of the vendee to comply therewith, the contract becomes null and void[.]” Rynhart v. Welch, 156 Or 48, 53, 65 P2d 1420 (1937). In defendants’ view, paragraph 2 of Addendum B functions independently of any of the other revisions to the agreement and does not, by its terms or by implication, extend the date for closing under the agreement. When plaintiff did not close the transaction within the time contemplated by Addendum B, its right to purchase the property expired. Conversely, plaintiff asserts that paragraph 2 of Addendum B operates to extend the closing date beyond the extensions expressed in paragraph 3 of Addendum B to an indefinite date that occurs when the connecting street is dedicated. Based on my reading of the text of the relevant contractual provision in context, I conclude that defendant’s understanding is the only plausible interpretation of the agreement in light of contract interpretation principles.

Again, the text of paragraph 2 of Addendum B provides that the “Closing of this transaction is contingent upon dedication of a future improved and dedicated street connection[.]” The issue is whether that language constitutes a contingency or condition precedent to the obligations to consummate the property sale or whether it constitutes a promise to extend the closing date agreed to in paragraph 3 of Addendum B, as the majority posits. To distinguish between a contingency that operates as a condition precedent to the obligation to perform a promise and a promise itself, a review of the controlling Supreme Court cases is helpful. In Dan Bunn, Inc. v. Brown, 285 Or 131, 142-43, 590 P2d 209 (1979), the court observed generally that “conditions precedent” are those facts that occur subsequently to the making of a valid contract that must come into existence before there is a right to performance, before there is any breach of a contract duty, and before the remedy of specific performance is available. Whether a provision constitutes a condition, the nonfulfillment of which will excuse performance of the obligations under the contract, depends on the intent of the parties as expressed by the terms of the contract.² For example, the Bunn court noted that the words “subject to” in a contract clearly indicates intent to impose a condition precedent, which, unless the event occurs, operates to prevent specific performance of the contract.

Similarly, in The Simms Co. v. Wolverton et al, 232 Or 291, 297, 375 Or 87 (1962), the Supreme Court held that the provision of an earnest money receipt, which referred to certain mortgages and provided, “Obtaining of these mortgages as specified on the sheet hereto attached is a condition of this offer. If not obtained, earnest money to be refunded,” constituted a condition precedent to the promise to purchase a parcel of real property that became unenforceable when the purchaser was unable to obtain the mortgages. See also 81 ALR 2d 1338 (1962) (clauses making a real estate transaction contingent on financing generally “create a condition precedent to the performance of the primary contractual obligations to buy and sell the property”).

In their agreement, the parties used language similar to that interpreted in Bunn and Wolverton to constitute conditions precedent rather than promises. Paragraph 2 of Addendum B provides that “[t]he Closing of this transaction is contingent upon dedication of a future improved and dedicated street connection.” (Emphasis added.) The plain meaning of the word “contingent,” as used in paragraph 2 means “dependent on, associated with, or conditioned by something else.” Webster’s Third New Int’l Dictionary 493 (unabridged ed 2002); see also Black’s Law Dictionary 338 (8th ed 2004) (“[dependent on something else; conditional, <her acceptance of the position was contingent upon the firm’s agreeing to guarantee her husband a position as well>”).

In direct contrast to paragraph 2 of Addendum B, paragraph 3, which was negotiated at the same time and included in the same document, expressly operates as a promise by defendants to extend the closing date so that final engineering approval may be obtained from the City of Hillsboro. Paragraph 2 of Addendum B does not refer to the date of closing, unlike paragraph 3 of the same document. Rather, paragraph 2 expressly refers to an event, “[t]he Closing of this transaction.” The absence of any express reference to an extension of the closing date in paragraph 2 clearly demonstrates that the parties did not intend the provision to constitute a promise to extend the closing date.

Indeed, Addendum B constitutes an addendum to a previously existing set of mutually agreed promises to perform certain obligations at the time of closing. Generally, the purpose of an additional promise in an addendum is to create an obligation to be performed in the future that had not previously existed, whereas the purpose of an added contingency to an existing agreement is to discharge the obligation to perform an existing promise unless the condition occurs. Under the agreement and the addendums, plaintiff promises to purchase and defendants promise to sell the property within a specified time period. Paragraph 2 of Addendum B makes the closing of that agreement contingent on a particular event— the dedication of a street; no additional promise is embodied in its terms. Rather, the paragraph functions to discharge a previously stated obligation of the parties to purchase and sell the property in the event the contingency does not occur.³

Significantly, paragraph 2 does not state an obligation or duty on the part of either party for which they could be held liable for breach of contract. Until the contingency occurs, the obligations of both parties are not subject to specific performance. Rather, the time limitations for performance, found in paragraph 3 of Addendum B and in the “time of the essence clause,” continued in effect. Indeed, those provisions were expressly affirmed by the parties in Addendum B to “remain unchanged and continue in full force and effect.”⁴

Recently, this court in Phoenix Talent School Dist. v. Hamilton, 229 Or App 67, 77, 210 P3d 908 (2009), decided an issue similar to the issue in this case. The parties entered into an agreement for the purchase of real property. Section 6 of the agreement was captioned “Conditions” and stated that the buyer’s obligation to purchase the property “is contingent on satisfaction of each of the following conditions on or before Closing.” One of the conditions involved a lot line adjustment, an event which did not occur within the time established for closing by the agreement. The issue before us was whether the contingency constituted a promise by the seller to obtain the lot line adjustment, a promise the performance of which the buyer was willing to waive, or a condition precedent that prevented the buyer from waiving the time for performance and unilaterally extending the closing date. We held that the provision, according to its terms, constituted a condition precedent that terminated the defendants’ obligations to perform under the agreement. The language in paragraph 2 of Addendum B is strikingly similar to the language in the parties’ agreement in Phoenix and should be interpreted consistently with our holding in that case.

Finally, not only is the majority’s alternative interpretation unsupported by express language of the parties’ agreement and therefore unreasonable, but it also runs afoul of our statutory obligation in interpreting instruments as set forth in ORS 42.230:

“In the construction of an instrument, the office of the judge is simply to ascertain and declare what is, in terms or in substance, contained therein, not to insert what has been omitted, or to omit what has been inserted; and where there are several provisions or particulars, such construction is, if possible, to be adopted as will give effect to all.”

The majority’s reasoning would add language to paragraph 2 that is not in the paragraph — language that provides that the closing is indefinitely extended until the contingency occurs.

The majority is also critical of my analysis because of the existence of another paragraph in the agreement. It points to the fact that “the third sentence of paragraph 6 provides for an extension of all ‘closing dates, Earnest Money payment dates, and Extension dates and payments’ in the event that the preliminary plat is appealed.” 230 Or App at 305 (emphasis added). But the language in that sentence demonstrates my point — that when the parties mutually contemplated an extension of the closing date because of the occurrence of a contingency, they knew how to reduce the promise to writing in their agreement. In that context, the contrast between a promise to perform in the future, i.e., to extend the closing date in the event that the preliminary plat is appealed, and an addition of a contingency that must occur before the duty to close comes into effect becomes apparent.

In summary, for all of the above reasons, I would hold that, as a matter of law, the obligations of the parties under the agreement and its addendum expired by their terms when the transaction was not closed within the 10-month extension period. It necessarily follows that the trial court correctly ruled under ORCP 54 B(2) that plaintiffs evidence did not demonstrate that it was not entitled to specific performance of the parties’ agreement.

Alternatively, plaintiff argues that it was entitled to waive the contingency that triggered the obligation of the parties to close the transaction and to seek specific performance because the contingency was only for its benefit. However, plaintiff filed this action for specific performance two days after the time for closing the transaction under the agreement expired on October 29, 2005. Moreover, according to the evidence, plaintiff tendered the necessary funds to close the transaction on June 16, 2005, and waived the connecting street contingency in writing at that time — long after the agreement expired by its terms. Defendants counter that, although plaintiff could have waived the contingency during the life of the agreement and requested that they close the transaction before the agreement expired, it failed to do so. In their view, a waiver of a contractual right cannot occur after the contract is no longer in existence.

I agree with defendants’ argument. A waiver is a voluntary and intentional relinquishment of a known right. Waterway Terminals v. P.S. Lord, 242 Or 1, 26, 406 P2d 556 (1965). A party may waive the occurrence of any condition in a contract that is for its sole benefit. Contractors, Inc. v. Tri-Met, 94 Or App 392, 401, 766 P2d 389 (1988), rev den, 307 Or 571 (1989). Here, the dedication of the connecting street was for plaintiffs benefit. Indeed, along with the zoning approval by the City of Hillsboro, it was the contingency that had to occur before plaintiff could develop the property. However, once the parties’ agreement expired, there no longer existed any contractual right that could be voluntarily and intentionally relinquished by plaintiff. Based on those circumstances, I would conclude that plaintiff has not demonstrated that it had a valid, legally enforceable agreement at the time that it tendered performance and sought to waive the contingency.

Plaintiff also assigns error to the award of attorney fees to defendants. Defendants, in turn, cross-appeal the trial court’s judgment awarding damages to plaintiff for unjust enrichment. In my view, resolution of the cross-appeal also controls the outcome of plaintiffs assignment of error. Plaintiff argues that it is the prevailing party and not defendants, because the trial court awarded $136,024.66 as reimbursement for the expenditure of development costs on an unjust enrichment theory. Defendants respond that the trial court lacked authority to award plaintiff damages on a theory not pleaded and, alternatively, that plaintiff failed to prove that defendants had been unjustly enriched.

In C. A. M. Concepts, Inc. v. Gwyn, 206 Or App 122, 127, 136 P3d 60 (2006), we held that a trial court’s authority does not extend to the fashioning of remedies based on theories that are not put in issue by the pleadings. Here, plaintiff concedes that it did not specifically allege a claim for unjust enrichment. But, relying on our holding in Oshatz v. Goltz, 55 Or App 173, 637 P2d 628 (1981), plaintiff argues that “the complaint here ‘fairly raised’ the issue because it alleged that plaintiff had spent a significant amount of money on design and engineering services for the property and because it included a prayer for general relief.” In Oshatz, the plaintiff brought a suit in equity, seeking dissolution of an alleged oral partnership, an accounting, the appointment of a receiver, equal division of profits and losses, and general equitable relief. The complaint alleged that the plaintiff contributed cash and architectural services toward the construction of a building owed by the defendant. We held that the pleadings fairly raised the issue of recovery of the reasonable value for the plaintiffs services where there was no dispute that the plaintiff had performed extensive architectural services for the defendant and had paid certain direct costs himself. We observed that, once the claim of an oral partnership was decided against the plaintiff, there was no question that he was entitled to reasonable compensation for his services and the only question was what the amount of compensation should be. Id. at 180.

In contrast to the circumstances in Oshatz, in this case, plaintiffs complaint requested that the trial court enter judgment against defendants, directing them to proceed under the agreement “to convey the Property to plaintiff by deed on the terms set forth in the Sale Agreement upon [plaintiff’s] performance of all its obligations under the Sale Agreement” and “[a]warding plaintiff such further relief the Court deems just and proper.” Significantly, the complaint makes no allegations regarding, nor does it request as relief the reimbursement of, design and engineering costs. Rather, it alleges only that plaintiff has “expended approximately $75,000 on design and engineering costs,” an amount that is completely different from the amount of damages ($136,024.66) awarded by the trial court. Indeed, the parties’ agreement was structured in a manner that contemplated that plaintiff would make expenditures to determine if it would proceed to purchase and develop the property. That expectation is in direct contrast to the expectation of the defendant in Oshatz that the plaintiff would be paid for his services that contributed to the enhancement of the value of the property. For those reasons, I would hold that the trial court exceeded its authority in awarding plaintiff damages on an unjust enrichment theory that had not been pleaded, and I would reverse the trial court’s judgment awarding those damages. It would follow that defendants are the prevailing party on plaintiffs specific performance claim and are entitled to an award of attorney fees.

For all of the foregoing reasons, I dissent.

1 Plaintiff alleges that the street dedication contingency is clearly beyond its control because “[t]he adjacent property on which the street dedication is to occur is owned by others, under development, and awaiting final approvals from the City of Hillsboro.” Generally, the remedy of specific performance of an agreement to purchase real property will not be granted unless a condition upon which performance depends has already occurred. Deitz v. Stephenson, 51 Or 596, 605, 95 P 803 (1908). Here, it was unnecessary for the trial court to reach that issue because it ruled that plaintiffs right to close the transaction under the parties’ agreement and addendums expired as of October 29, 2005.

2 Those principles are not unique to Oregon law and are universally accepted by courts in other jurisdictions. See Arthur L. Corbin, 3A Corbin on Contracts § 628, 16 (1960); see also Samuel Williston, 5 Williston on Contracts § 663 (3d ed 1957).

3 See John Edward Murray, Murray on Contracts § 135, 274-75 (2d ed 1974) (describing the interpretative analysis for distinguishing between promises and conditions precedent).

4 In making its ruling, the trial court recognized the problem with plaintiffs argument. It told the parties with reference to paragraph 2,

“lilt’s simply putting Riverside in a position that all the way up through that period of time of the extensions, even at the last minute they can say, ‘Well, you know, it’s not worth the risk. Business is a calculated risk and we thought they were going to make the road, we think they probably still will, but since they haven’t done it yet, we’re not willing to plunk down another big chunk of change and make the bet.’ But this contract, then, you cannot just say, ‘Hey, you know, this is going to wait forever.’ You’ve got to fish or cut bait at some point, and there was nothing there to allow the circle to be closed to allow this to make sense. So the sellers aren’t required to wait for an unknown date without compensation, without any other remedy!.]”