Anderson v. Divito

• Decision Date: 13 December 1995
• Citation: 908 P.2d 315,138 Or.App. 272
• Parties: Robert F. ANDERSON, Respondent--Cross-Appellant, v. Anthony F. DIVITO, Appellant--Cross-Respondent. 9203-01908; CA A82253.
• Court: Oregon Court of Appeals

Page 315

908 P.2d 315

138 Or.App. 272

Robert F. ANDERSON, Respondent--Cross-Appellant, v. Anthony F. DIVITO, Appellant--Cross-Respondent.

9203-01908; CA A82253.

Court of Appeals of Oregon.

Argued and Submitted Oct. 4, 1995.

Decided Dec. 13, 1995.

Barbee B. Lyon, Portland, argued the cause for appellant-cross-respondent. With him on the opening brief were William F. Martson, Jr., Scott G. Seidman, and Tonkon, Torp, Galen, Marmaduke & Booth, Portland. With him on the reply brief and response on cross-appeal were William F. Martson, Jr., and Tonkon, Torp, Galen, Marmaduke & Booth.

Jacob Tanzer, Portland, argued the cause for respondent-cross-appellant. With him on the brief was John M. Berman, Beaverton.

Before RIGGS, P.J., and LANDAU and LEESON, JJ.

LEESON, Judge.

Plaintiff brought an action for declaratory judgment to interpret the terms of a contract. The trial court entered judgment for plaintiff, after ruling that one of defendant's options to purchase plaintiff's interest in real property had expired. Defendant submits nine assignments of error related to that ruling. Plaintiff cross-appeals the trial court's denial of his request for prejudgment interest. We affirm on the appeal and the cross-appeal.

Plaintiff and defendant went into business together in 1983 as equal owners of the corporate stock in an automobile dealership in Gresham. They participated equally in the management of the dealership and later jointly purchased the real property on which it is located. In 1986, they purchased a dealership in Vancouver, Washington, which they operated as a wholly-owned subsidiary of the Gresham dealership. Thereafter, plaintiff managed the Vancouver dealership and defendant managed the Gresham dealership. After the Gresham dealership's poor economic performance in 1989, plaintiff became disenchanted with defendant's management ability and demanded that the parties sever their business relationship. Lengthy and occasionally acrimonious negotiations eventually resulted in a "Separation Agreement" that was signed on October 16, 1990.

Under that agreement, the two dealerships were considered to be operating as independent entities as of August 1, 1990, with plaintiff receiving the Vancouver dealership and defendant receiving the Gresham dealership. To effect a fair division of assets, however, the value of each business was to be appraised as of July 31, 1990, and an equalization payment of one-half of the difference was to be made by plaintiff to defendant when the capital stock was exchanged. The agreement provided that each party would appoint a business appraiser who in turn would appoint a third appraiser if the two could not agree on the value of both businesses. The agreement also required the parties to cooperate to restructure the corporate entities and delayed closing of the transaction so that a tax-free exchange of capital stock could be accomplished:

"Section 6. Closing. The Closing of the exchange [of capital stock] described in Section 5 of this Agreement shall take place * * * at 10:00 a.m., on May 1, 1991, or such later date as the parties mutually agree, but in no event later than July 1, 1991." (Emphasis supplied.)

The separation agreement contained a similar appraisal procedure for determining the fair rental value of the Gresham real property, so that defendant could compensate plaintiff for its use. Additionally, the agreement gave defendant the right to purchase plaintiff's interest in the Gresham real property by granting defendant two options:

"Section 11. Purchase Option on Gresham Real Property.

"11.1 Initial Option by [Defendant]. Prior to Closing as specified in Section 6, [Defendant] will have the option to purchase the equity of [Plaintiff] in the Gresham Real Property ('[Plaintiff]'s Equity'). [Plaintiff]'s Equity will be equal to one-half ( 1/2) of the fair market value of the Gresham Real Property, as determined pursuant to Section 9 [establishing procedures to determine the fair rental value and the fair market value at July 31, 1990 ], less one-half ( 1/2) of the unpaid balance owed [on the financing and other mutual debt] * * * If [Defendant] exercises his option to purchase [Plaintiff]'s Equity, the purchase price must be paid in cash at a closing to be held no later than sixty (60) days after written notice of the election has been delivered to [Plaintiff] by [Defendant].

" * * * * *

"11.2 Subsequent Option by [Defendant]. In the event [Defendant] fails to exercise the option set forth in Section 11.1, [Defendant] shall thereafter have the option to purchase from [Plaintiff] the [Plaintiff's] Equity at its then fair market value until such time as the lease described in Section 9.1 terminates; provided, however, that the lease at the time of exercise of the option is not in default by the lessee. The exercise of the option shall be made by [Defendant] giving [Plaintiff] written notice of such exercise at least thirty (30) days prior to the effective date of purchase. Upon exercise of the option to purchase, the fair market value shall be established by mutual agreement of [Defendant] and [Plaintiff]. If they are unable to agree on a purchase price by the effective date of purchase, then the fair market value of [Plaintiff]'s Equity shall be determined by binding arbitration pursuant to the procedure set forth in Section 9 of this Agreement. Once the purchase price is determined, a closing of the sale will take place in escrow [in Portland, Oregon]. Payment of the purchase price will be in cash at the time of closing which will be within sixty (60) days following the determination of the fair market value." (Emphasis supplied.)

Despite clear time lines that had been established for determining the July 31, 1990, values of the real property and the businesses, the appraisals were not completed until April 10, 1991, and July 26, 1991, respectively. Disputes between the parties further delayed closing of the business exchange, which did not occur until October 2, 1991.

The day before that closing, defendant attempted to exercise the Gresham real property purchase option described in section 11.1 of the separation agreement. According to defendant, that option--to purchase the property at the July 31, 1990 fair market value--did not expire until the actual closing of the business exchange, even though that closing had been delayed three months past the July 1, 1991, deadline. Plaintiff opposed defendant's exercise of that option, contending that the section 11.1 option had expired on July 1, 1991, and that the section 11.2 option required a new appraisal to establish a revised fair market value. Despite their disagreement on this point, the parties closed the business exchange and agreed to close the real property transaction via a separate "Closing Agreement," executed on November 27, 1991. Under that agreement, plaintiff conveyed his interest in the Gresham real property to defendant on November 27, 1991, at the July 31, 1990 (section 11.1) fair market value, and the parties agreed to litigate the disputed option provisions to determine whether plaintiff was entitled to any additional payment. Plaintiff then brought this declaratory judgment action.

After a trial to the court, it held that the section 11.1 option had expired on July 1, 1991, and ordered a new appraisal pursuant to section 11.2 of the separation agreement. The new appraisal was received on August 10, 1993. Final judgment was entered on November 12, 1993, requiring defendant to pay plaintiff an additional $125,000, which, under section 11.2, had been due by October 9, 1993, 60 days after the appraisal. The trial court also ordered defendant to pay interest on that sum from October 9, 1993.

Defendant's overarching argument is that the court erred in concluding that the option under section 11.1 expired on July 1, 1991. We apply the standard rules of contract construction to determine whether the option to purchase the Gresham real property expired on July 1, 1991 or whether defendant's right to exercise that option extended until the actual closing of the business exchange.

Defendant asserts that the trial court "erred in holding that the Separation Agreement was ambiguous" and "erred in resorting to parol evidence when there was no ambiguity in the Separation Agreement." According to defendant, the separation agreement was clear that the timing of the real property option was tied to the business closing and, therefore, the trial court should not have admitted extrinsic evidence of the parties' negotiations. He argues that the trial court compounded those errors by resorting to parol evidence to "write into the Separation Agreement a provision that the option expired absolutely on July 1, even if closing was extended beyond July 1." Plaintiff responds that the trial court properly considered evidence of the circumstances at the time of execution of the separation agreement in determining whether the contract was ambiguous, but that the trial court did not rely on parol evidence to determine the parties' intent, because there was no evidence that before execution of the separation agreement either party had contemplated that closing of the business exchange would occur after July 1, 1991. According to plaintiff, the trial court did not add a term to the contract; it merely interpreted the words used by the parties in accordance with the general intent of the agreement as a whole. ¹ Alternatively, plaintiff, like defendant, contends that the agreement is unambiguous, but reads section 6 differently than does defendant.

In general, the construction of a contract is a question of law for the court. Timberline Equipment v. St. Paul Fire & Mar. Ins., 281 Or. 639, 643, 576 P.2d 1244 (1978). If contract language is ambiguous, extrinsic evidence of the parties' intent may be admitted, and interpretation of that language becomes a question of fact. Adams v. Knoth, 102 Or.App. 238, 243, 794...