Kofmehl v. Baseline Lake, LLC

FILE
THE SUPREME COURT OF THE STATE OF WASHINGTON
PATRICK H. KOFMEHL, an individual, )
)
Petitioner, ) No. 87395-0
)
V. ) En Bane
)
BASELINE LAKE, LLC, a Washington )
limited liability company, ) Filed _ _O_O_N_2_0_20_13_ _
)
Respondent. )
)
WIGGINS, J.-Patrick H. Kofmehl contracted to buy a piece of land from
Baseline Lake LLC. By the time of closing, the parties disputed the amount of
land covered by the sale agreement. Kofmehl was willing to close the transaction
only if the disputed portion was included in the sale. Baseline was willing to close
the transaction only if the disputed portion was excluded, and so the sale failed to
close. The trial court invalidated the contract for failure to comply with the statute
of frauds and denied specific performance to either party.
The issue before us is whether Kofmehl is entitled to recover the down
payment he paid before the dispute arose. Under this court's prior cases, a
buyer in a land sale contract that is unenforceable under the statute of frauds
may not recover restitution if the vendor is ready, willing, and able to perform
No. 87395-0
under the terms of the contract. Schweiter v. Halsey, 57 Wn.2d 707, 711, 359
P.2d 821 (1961 ). The trial court made no finding that either party had breached-
let alone repudiated-and probably could not do so without making
determinations of fact. Therefore, we affirm the Court of Appeals, which reversed
the summary judgment granting restitution.
FACTS AND PROCEDURAL HISTORY
I. The Transaction
Baseline acquired title to a property described as "Farm Unit 182, Irrigation
Block 73, Columbia Basin Project, Grant County, Washington, according to the
plat thereof filed November 29, 1951." Clerk's Papers (CP) at 88. Farm Unit 182,
Irrigation Block 73 (FU 182, Block 73), consists of approximately 43 acres. CP at
69.
Baseline subsequently listed for sale two parcels within FU 182, Block 73
totaling 30.12 acres. CP at 99. The listed property consisted of a parcel of 17.40
acres, priced at $935,000, and a parcel of 12.72 acres, priced at $750,000, and
purchasers could buy either parcel separately or both parcels for $1,650,000. /d.
Baseline intended to retain the northwest 3.93 acres of the property to build a
private school. CP at 69. Baseline's survey map, CP at 74, indicates the 17.40-
acre parcel, the 12. 72-acre parcel, and the 3.93-acre parcel labeled
"EXCLUDED." 1
1
The survey map was circulated among the parties prior to the signing of the final
purchase and sale agreement (Agreement). Kofmehl's broker highlighted the map for
Kofmehl to indicate what property was subject to the Agreement.
2
No. 87395-0
li.l'il)AC'ru:!:S
:f'l!"(i#I:D{b.
FU
8U
IIJ'l.``A'"-'L:
f.J'' ,~.
``·\ .. ;,.-.~-~wAAw~"'"'"' ·-~- .. 'f"'- ~f-.;.,__,...,,.. -.~--· "'t~· ._
.tff.fl:f'lU:(>57 Wn.2d at 711. However, the trial
judge reasoned that the parties could not have perform~d "as agreed" because
the parties failed to reach a meeting of the minds. The trial judge reasoned that
because neither party was clearly in breach, but both parties were responsible for
the failure of the contract, equity demanded that the parties be returned to their
pre-Agreement state-Kofmehl should recover his money, and Baseline should
recover its land. The trial court awarded Kofmehl $87,842.78 in restitution
(including earnest money, engineering fees, and title fees), as well as attorney
fees and costs. CP at 850-52.
Ill. Court of Appeals Proceedings
Baseline appealed all decisions of the trial court to Division Three of the
Court of Appeals. The Court of Appeals took review and subsequently issued a
7
No. 87395-0
partially published opinion, Kofmehl v. Baseline Lake, LLC, 167 Wn. App. 677,
275 P.3d 328 (2012).
The Court of Appeals affirmed the trial court's holding that the Agreement
fell afoul of the statute of frauds, as the parties had not contested that issue. /d.
at 690. Turning to the award of restitution, the Court of Appeals drew on the well-
established Washington principle that
"a vendee under an agreement for the sale and ·purchase of property
which does not satisfy the statute of frauds, cannot recover
payments made upon the purchase price if the vendor has not
repudiated the contract but is ready, willing, and able to perform in
accordance therewith, even though the contract is not enforceable
against the vendee either at law or in equity."
Schweiter, 57 Wn.2d at 711 (quoting Dubke v. Kassa, 29 Wn.2d 486, 487, 187
P.2d 611 (1947)).
Pointing to this court's decision in Johnson v. Puget Mill Co., 28 Wash.
515, 68 P. 876 (1902), the Court of Appeals held that the vendor's repudiation or
failure to perform must be established before the purchaser may recover
restitution. Kofmeh/, 167 Wn. App. at 692. That is, "[t]o demonstrate that
Baseline's retention of the earnest money was unjust, [Kofmehl] must prove that
Baseline was unwilling to perform its obligations under the Agreement.
Establishing the meaning of the Agreement is an essential part of his proof." /d.
at 695-96.
The Court of Appeals then determined that Kofmehl had not carried his
burden. Pointing to the plain language of Kofmehl's offer and the Agreement, the
8
No. 87395-0
testimony of the parties' brokers, and other evidence in the record, the Court of
Appeals held that Kofmehl had not established as a matter of law that the
Agreement envisioned the sale of the 3.93 acres, or that Baseline would actually
construct a sewer line to the property. /d. at 696~97. Therefore, the Court of
Appeals held that summary judgment in Kofmehl's favor was improper.
Finally, in the unpublished portion of its opinion, the Court of Appeals held
that Baseline was not entitled to summary judgment either. Rejecting Baseline's
claim that the term "accessibility of sewer" had a plain and ordinary meaning, the
Court of Appeals held that it could not determine as a matter of law that Baseline
had been ready, willing, and able to perform on the Agreement. State v. Kofmeh/,
No. 29683-1-111, slip op. (unpublished portion) at 25-26 (Wash. Ct. App. Apr. 12,
2012). The Court of Appeals reversed the trial court's grant of summary
judgment, reversed the trial court's orders of restitution and attorney fees, and
remanded for further proceedings.
Kofmehl timely filed a petition for review by this Court. We granted review.
Kofmehl v. Baseline Lake, LLC, 175 Wn.2d 1005, 285 P.3d 885 (2012).
ANALYSIS
I. Standard of Review
This court reviews a grant or denial of summary judgment de novo, and the
appellate court performs the same inquiry as the trial court. Sheikh v. Choe, 156
Wn.2d 441, 447, 128 P.3d 574 (2006). However, the appellate court may
9
No. 87395-0
consider only the evidence and issues called to the attention of the trial court.
RAP9.12.
A question of contract interpretation may be determined as a matter of law
if it does not turn on the "credibility of extrinsic evidence or ... a choice among
reasonable inferences to be drawn from extrinsic evidence." Berg v. Hudesman,
115 Wn.2d 657, 668, 801 P.2d 222 (1990) (quoting RESTATEMENT (SECOND) OF
CONTRACTS § 212 ( 1981)). If interpretation of the contract depends on either,
then the contract must be interpreted by a trier of fact. /d.
Summary judgment is proper only if there is no genuine issue of material
fact. CR 56(c). A party moving for summary judgment bears the initial burden of
showing the absence of an issue of material fact. Young v. Key Pharm., Inc., 112
Wn.2d 216, 225, 770 P.2d 182 (1989). In addition, we construe the facts and
draw all factual inferences in the light most favorable to the nonmoving party.
Jones v. Allstate Ins. Co., 146 Wn.2d 291, 300, 45 P.3d 1068 (2002). Therefore,
in reviewing the trial court's grant of summary judgment to Kofmehl, we construe
the facts in Baseline's favor. However, in reviewing the Court of Appeals' denial of
summary judgment to Baseline, we construe the facts in Kofmehl's favor.
II. Kofmehl Cannot Recover if Baseline Was Ready, Willing, and Able To
Perform on the Agreement
Established Washington case law does not provide restitution to a buyer
under a sale contract within the statute of frauds unless the seller has repudiated
the contract. In Schweiter, the parties entered into an earnest-money land sale
agreement that did not contain a legal description of the land, although a
10
No. 87395-0
sufficient legal description was later circulated to the parties. 57 Wn.2d at 708.
The buyer refused the seller's tender of performance and attempted to rescind
the contract. We held that if the seller has performed "as far as he could by his
own acts," whereas the buyer had "voluntarily and causelessly refused to
proceed," then the buyer has no equitable claim to his earnest money; he may
not benefit from his own breach. /d. at 712. Therefore, we reaffirmed common
law principles we had earlier explored in Dubke:
The applicable rule is that a vendee under an agreement for
the sale and purchase of property which does not satisfy the statute
of frauds, cannot recover payments made upon the purchase price if
the vendor has not repudiated the contract but is ready, willing, and
able to perform in accordance therewith, even though the contract is
not enforcible against the vendee either at law or in equity.
29 Wn.2.d at 487.
Kofmehl raises two arguments against application of the Schweiter rule
here. First, Kofmehl argues that the Agreement was void under the statute of
frauds and proving that Baseline repudiated the Agreement would improperly
reform the contract and defeat the purpose of the statute of frauds. This theory
disregards the common law principle that a contract made unenforceable by the
statute of frauds is still admissible in evidence for any purpose other than
enforcement. RESTATEMENT (SECOND) OF CONTRACTS § 143; see Costco
Vllho/esa/e Corp. v. World Wide Licensing Cotp., 78 Wn. App. 637, 648, 898 P.2d
347 (1995). We would not be reforming or enforcing the Agreement in violation of
the statute of frauds; we look to the Agreement to establish whether Baseline
11
No. 87395-0
repudiated or was ready, willing, and able to perform. This is a permissible use
under the Restatement (Second) of Contracts. 2
Second, Kofmehl points to the trial court's statements implying there was
never any agreement in the first instance. Whether or not the parties reached an
enforceable agreement initially, as in Schweiter, the parties received an extrinsic
description of the land prior to closing. This description may not be enough to
make the Agreement enforceable, but it suffices to determine whether or not
Baseline was ready, willing, and able to perform. As in Schweiter, then, our role is
to consider whether Baseline repudiated the Agreement.
We hold that the Court of Appeals correctly held that the Schweiter rule
applies here: restitution will not be available if Baseline did not repudiate the
Agreement but remained ready, willing, and able to perform. 3 57 Wn.2d at 711.
Ill. Kofmehl Bore the Burden of Proving that Baseline Was Not Ready, Willing,
and Able to Perform
Kofmehl argues that even if Schweiter applies, it is not his burden to prove
that Baseline repudiated or that Baseline was not ready, willing, or able to
perform. In the past, this court has required a purchaser to prove the vendor's
breach when attempting to recover earnest money on a land sale contract.
2
See a/so RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 31 cmt. f
(2011) (an agreement that is unenforceable under the statute of frauds may
nevertheless be evidence establishing unjust enrichment for the purposes of calculating
the proper amount of restitution).
3
This is not a two-part test; one who repudiates a contract is necessarily not "ready,
willing, and able to perform." See BLACK'S LAW DICTIONARY 1418 (9th ed. 2009) (defining
"repudiate" as "[t]o reject or renounce (a duty or obligation); esp., to indicate an intention
not to perform (a contract)").
12
No. 87395-0
Soules v. Cox, 53 Wn.2d 598, 600, 335 P.2d 476 (1959). In Soules, we held that
even assuming the purchaser's reading of the contract was correct, the
purchaser had failed to prove that the vendor breached the agreement. Such
proof, we held, was "essential to entitle appellant to rescind the earnest-money
agreement." /d. at 601.
Although the contract in Soules did not fall within the statute of frauds, the
Schweiter test involves essentially the same inquiry. Schweiter held that the
buyer cannot recover restitution if the vendor has not repudiated the contract; this
means that as in Soules, it is necessary to establish the vendor's repudiation
before restitution will be available. Kofmehl has not provided a reason why we
should allocate the burden of proof differently than we did in Soules. Rather,
whenever a contract is invalidated by force of statute, the restitution analysis
must be keyed to the policy goals of that statute. RESTATEMENT (THIRD) OF
RESTITUTION AND UNJUST ENRICHMENT§ 32 (2011 ). In Washington, the policy goal
of the statute of frauds is to protect the vendor-that is, Baseline. Home Realty
Lynnwood, Inc. v. Walsh, 146 Wn. App. 231, 240, 189 P.3d 253 (2008) (quoting
73 AM. JUR. 2D Statute of Frauds § 450 (2001 )). In keeping with that policy, we
require Kofmehl to show something more than unenforceability of the Agreement
under the statute of frauds if he is to gain restitution.
Placing the burden of proof on Kofmehl would also be consistent with
practice in other jurisdictions. California, for example, demands "pleading or proof
that the [sellers] have on their part violated any of the terms of said agreement,"
13
No. 87395-0
Walbridge v. Richards, 212 Cal. 408, 413, 298 P. 971 (1931), as well as a
showing that the buyer actually performed (that is, tendered the balance of the
purchase price), Laffey v. Kaufman, 134 Cal. 391, 393, 66 P. 471 (1901 ).
Minnesota has adopted a similar rule-if buyers fail to plead on the face of the
complaint that they tendered performance, there is no cause of action and the
complaint should be dismissed. Sennett v. Shehan, 27 Minn. 328, 330, 7 N.W.
266 (1880). The rationale of this rule is that a buyer voluntarily pays earnest
money as consideration for the agreement to convey the land. Laffey, 134 Cal. at
393. So long as the contract is not unlawful or against public policy, and the seller
is not at fault, the buyer has received what he paid for. /d. Similarly, here Kofmehl
paid the earnest money as consideration supporting the Agreement. On the force
of that Agreement, Baseline removed the property from the market and rejected a
competing offer to purchase the property for $1.625 million. The Agreement was
not unlawful or against public policy. Therefore, to get back his earnest money,
Kofmehl must show that he did not receive what he paid for, that is, the promise
to sell him the land.
IV. There Is a Genuine Issue of Material Fact as to whether Kofmehl Is
Entitled to Restitution
Kofmehl must show that Baseline was not ready, willing, and able to
perform on the Agreement. He does not contest that Baseline was ready, willing,
and able to perform on the Agreement as Baseline saw it. But to prevail on
summary judgment, Kofmehl must prove that his interpretation of the Agreement
is correct. He has failed to do so. Rather, construing the facts in the light most
14
No. 87395-0
favorable to Baseline-as we must do on appeal of a summary judgment against
Baseline-leads to the conclusion that Kofmehl, not Baseline, breached the
Agreement.
A finder of fact could find that Baseline tendered the property contemplated by
the Agreement
1. The Agreement provided for the sale of 30.12 acres, which is what
Baseline tendered
Kofmehl's main complaint with the closing documents was that the legal
description was based on the short plat filed after the parties entered into the
purchase and sale agreement, in contrast to the legal description contained in
the Agreement. Kofmehl relies on Park v. McCoy, 121 Wash. 189, 192, 208 P.
1098 (1922), where we held that the buyer could rescind an earnest-money
contract that contained a different legal description of the property than the prior
earnest-money receipt. We held that the buyer "had a right to rely upon the
description given in the earnest-money receipt ... " and that the seller's failure to
tender the property described in that receipt entitled the buyer to rescission and
restitution. /d.
Kofmehl interprets Park to mean that whenever the legal description in a
seller's tender differs from an earlier promised legal description, the buyer is
automatically entitled to rescission and restitution. But in Park, we relied on the
fact that the land actually tendered by the contract was a lesser amount than the
buyer had been promised in the earnest-money receipt. /d. The record does not
clearly establish that this is the case here. Drawing all inferences in Baseline's
15
No. 87395-0
favor, Kofmehl's theory that the Agreement promised him the additional 3.93
acres founders upon the plain language of the Agreement. Both the offer and the
Agreement provided for "30.12 acres" to be conveyed. This is the size of the "Lot
1" that Baseline offered to convey and that Kofmehl saw on Baseline's
preliminary map prior to signing the Agreement. Nothing on the face of the
Agreement suggests any intention to buy or sell 34 acres.
Kofmehl also argued to the trial court that he took the language "all
included inside FU 182, Block 73 to mean that he was purchasing the entirety of
Block 73. Baseline, on the other hand, understood the language to mean that all
30.12 acres were contained inside FU 182, Block 73. Baseline's reading of the
Agreement is consistent with the original listing, which listed FU 182, Block 73 in
the section "Farm Property Informative Data" under "How to get there." In other
words, Baseline meant "Approximately 30.12 acres" as the actual description of
the land and "All included inside of FU 182, Block 73" as an explanatory phrase.
This may reflect sloppy draftsmanship, but it does not require a finder of fact to
find that Baseline meant to sell the entirety of Block 73. Rather, if the Agreement
had been intended to sell all of Block 73, it would not have described the property
to be sold as 30.12 acres. Block 73 is 43 acres in area, not 30.12.
In the summary judgment proceedings, Kofmehl also relied on his addition
of $150,000 to the purchase price in his second offer, and the removal of the
language specifically excluding the 3.93 acres, between his initial offer and the
final Agreement. He suggests that between the offer and the Agreement, he
16
No. 87395-0
negotiated for the purchase of the 3.93 acres for $150,000. But it makes little
sense for Baseline to sell 3.93 acres for $150,000 (approximately $38,000 per
acre) when it had previously rejected Baseline's offer to purchase 30 acres for
$1.5 million ($50,000 per acre).
Reading the facts in the light most favorable to Baseline, the Agreement-
whatever its other flaws-clearly indicated that Kofmehl was to purchase 30.12
acres, and Kofmehl could not complain when the closing documents tendered
the only combination of parcels that exactly totaled 30.12 acres.
2. The record does not clearly establish that Baseline failed to ensure the
"accessibility of sewer"
Kofmehl complains that at the time of closing, Baseline had not complied
with the term "accessibility of sewer" in the Agreement. The word "accessibility"
does not have a plain and ordinary meaning. However, the dictionary defines it
as "the quality or state of being [capable of being reached or easily approached]."
WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 11 (2002).
According to the city of Quincy, there were "easements in place to provide
for sewer to the subject property." CP at 335. The sewer was legally capable of
being reached through these easements. Kofmehl did not outright deny the
existence of these easements but only complained that they were "not new, fresh
and recorded and exact." CP at 155.
Reading the facts in the light most favorable to Baseline, we must credit
the city's assertion that the easements existed and allowed for access to the
sewer-notwithstanding Kofmehl's misgivings. In addition, Kofmehl discussed
17
No. 87395-0
with his broker his plans for constructing the sewer line himself. This belies his
assertion that he meant the Agreement to require Baseline to construct the
sewer. Kofmehl has not foreclosed all genuine issues of material fact regarding
Baseline's compliance with the sewer provision.
Reading the facts in the light most favorable to Baseline, Kofmehl had no
cause to refuse to sign the closing documents, and his refusal constituted a
breach of the Agreement. There are genuine issues of material fact as to
Kofmehl's right to restitution, and the Court of Appeals correctly reversed the trial
court's grant of summary judgment in his favor.
In order to prevail on remand, Kofmehl must satisfy the Schweiter test by
proving both the validity of his interpretation of the Agreement and that Baseline
repudiated that Agreement, or else revive and prevail on his alternative
arguments that there was no meeting of the minds or that there was a mutual
mistake of fact.
V. Baseline Is Not Entitled to Summary Judgment Granting Specific
Performance of the Agreement
We now turn to Baseline's request for summary judgment. The Court of
Appeals affirmed the trial court's denial of summary judgment for Baseline,
holding that "Baseline's evidence, while substantial, does not clearly establish the
absence of any genuine issue of material fact." Kofmehl, slip op. (unpublished
portion) at 26. The Court of Appeals was correct. Drawing all factual inferences in
Kofmehl's favor, Baseline has not established beyond dispute that Kofmehl was
in breach.
18
No. 87395-0
As we discussed above, the evidence points strongly to Baseline's reading
of the Agreement to cover only 30.12 acres of land-but the evidence is not so
strong as to foreclose all other interpretations. For instance, the $150,000
increase in the purchase price between Kofmehl's initial offer and the final
Agreement might be explained by the addition of more land to the Agreement-
although as discussed previously, four acres at $150,000 is significantly cheaper
than the $50,000 per acre rate previously offered by Kofmehl and rejected by
Baseline. In addition, Kofmehl's contemporaneous profit projections
contemplated a "net usable" area of 34.3 acres. CP at 378. While Kofmehl's
interpretation of the Agreement to encompass the 3.93 acres is unlikely, it is not
impossible on the record before us. A finder of fact must determine the credibility
of the competing evidence presented by Kofmehl and Baseline. See Berg, 115
Wn.2d at 668.
As for the sewer, Baseline argues that the term of the Agreement
concerning "Accessibility of city sewer," CP at 75, has a plain and ordinary
meaning that can be construed as a matter of law. In support of this assertion,
Baseline points to our holding in Goedecke v. Viking /nv. Corp., 70 Wn.2d 504,
424 P.2d 307 (1967). There, this court considered whether a contract term
providing "'that public sewers are available to property"' had been fulfilled. /d. at
505. We held that it had, through a public road running from the property to a
sewer facility. /d. at 506. But in that case, we did not interpret the term
"availability." Rather, the parties conceded that the presence of the road would
19
No. 87395-0
satisfy the availability condition and disputed whether the road actually existed.
As the Court of Appeals correctly held, we did not hold in Goedecke that an
easement to the sewer always makes sewer "available" or "accessible" to a
property. More fact-finding is necessary to determine the objective intent of the
parties in stipulating for the "accessibility" of the sewer.
VI. Attorney Fees
The Agreement provides that "[i]f Purchaser, Seller, or any Agent or Broker
included in this transaction is involved in any dispute relating to any aspect of this
transaction or this Agreement, any prevailing party shall recover their reasonable
attorneys' fees and costs." CP at 77. Because there are still genuine issues of
material fact, neither party has prevailed yet and we decline to award attorney
fees. See Schroeder v. Excelsior Mgmt. Grp., LLC, 177 Wn.2d 94, 115 n. 15, 297
P.3d 677 (2013). The parties may renew their motions for attorney fees upon
remand.
CONCLUSION
The record leaves genuine issues of material fact as to the meaning of the
Agreement and to which party breached the Agreement. Thus, neither party is
entitled to summary judgment on this record. We affirm the Court of Appeals and
remand this case for further proceedings consistent with this opinion.
20
No. 87395-0
WE CONCUR.
21