Ban-Co Inv. Co. v. Loveless

• Decision Date: 06 November 1978
• Docket Number: No. 5390-I,BAN-CO,5390-I
• Citation: 22 Wn.App. 122,587 P.2d 567
• Court: Washington Court of Appeals
• Parties: INVESTMENT CO., a Washington Corporation, L. R. Chester and Alice C. Chester, his wife, and Woodrow C. Button and Helen D. Button, his wife, Respondents, v. C. E. LOVELESS and Joan E. Loveless husband and wife, and Leo E. Loveless and Jewell Loveless, husband and wife, and C & L Development Co., Appellants.

Page 122

22 Wn.App. 122

587 P.2d 567

BAN-CO INVESTMENT CO., a Washington Corporation, L. R Chester and Alice C. Chester, his wife, and Woodrow C. Button and Helen D. Button his wife, Respondents, v. C. E. LOVELESS and Joan E. Loveless husband and wife, and Leo E. Loveless and Jewell Loveless, husband and wife, and C & L Development Co., Appellants.

No. 5390-I.

Court of Appeals of Washington, Division 1.

Nov. 6, 1978.

As Modified Dec. 5, 1978.

Karr, Tuttle, Koch, Campbell, Mawer & Morrow, Joseph D. Holmes, Jr., Seattle, for appellants.

Inslee, Best, Chapin & Doezie, Evan E. Inslee, Bellevue, for respondents.

ANDERSEN, Acting Chief Judge.

FACTS OF CASE

The plaintiffs, owners of undeveloped land near Longview, recovered a judgment against the defendants, developers who developed a shopping center on the owners' land. ¹ The developers appeal.

The case deals with the intricacies of the business of developing land into shopping centers, and particularly with the land acquisition and financing aspects of that business.

The parties signed numerous documents in connection with putting together a shopping center on the owners' land. We refer only to those pertaining directly to the present dispute.

Two straight option agreements were entered on March 5, 1971 and amended on August 30, 1971. Under their terms, the owners, for a stated consideration, granted the developers an option to purchase the owners' land for $165,000. It should be noted that a separate agreement was signed with respect to each of the owners' two parcels of land. Later, two other agreements dated October 5, 1971, were signed with respect to these parcels of land, and under these new agreements the owners ground leased the land to the developers and also granted the developers the option to purchase it for a total of $165,000 for the two parcels. Prior to the execution of the ground leases (with options to purchase land), the developers had been successful in obtaining a 25-year lease from a major tenant and in securing financing, and they had also let a contract for construction of a shopping center on the property.

The present dispute arose at the end of the term of the 3-year ground lease when the developers informed the owners that they were not going to exercise their options to purchase which were contained in the ground leases. The owners thereupon commenced the present action. Basically, the owners sought a decree of specific performance to compel the developers to purchase the land on the terms set forth in the options to purchase contained in the ground leases, and an accounting of all mortgage proceeds not spent by the developers on the construction and development of the shopping center.

It was the owners' claim that the developers asked for the ground leases (with options to purchase land) in order to obtain certain tax advantages and that in order to get them, they orally agreed with the owners that they (the developers) would exercise the options to purchase the land before the 3-year ground lease expired. The developers denied any such oral agreement.

The case was tried to the court between November 10, and December 3, 1976. Findings of fact, conclusions of law and judgment were entered on January 28, 1977.

The judgment decreed that the developers must specifically perform by purchasing the owners' land at the price and on the terms stated in the options to purchase contained in the ground leases. The developers were also ordered to pay $22,590.87 costs and attorneys' fees to the owners. The judgment contained an alternative provision to the effect that if the developers should default in the purchase obligations they were ordered to specifically perform, then they would have to pay the owners a money judgment in the sum of $88,100 plus interest.

Additional facts will be noted in connection with our discussion of the issues.

BACKGROUND ON THE BUSINESS ASPECTS OF SHOPPING CENTER DEVELOPMENT

Although not essential to our decision, it is helpful to understand certain aspects of the business of developing shopping centers in order to more fully understand the nature of this controversy.

One of the Practising Law Institute's monographs on real estate law and practice explains various aspects of the shopping center business, particularly from the standpoint of the developer. 10 N. Kranzdorf & N. Underberg, Real Estate Law and Practice, Business and Legal Problems of Shopping Centers 2d (Practising Law Institute, Transcript Series 1970).

As to the significance of the developers' acquisition of the land by a ground lease, rather than outright purchase, the monograph (at page 53) explains:

Why would you want a ground lease? You can acquire control over a valuable piece of property without a large outlay of cash. Even if you have the money to purchase the property, it might be more profitably used in connection with the operation of the center. If you purchase the property, you can only deduct interest payments on your The monograph notes (at page 51) with respect to the terms of a ground lease:

tax return; you would not be permitted to deduct payments in reduction of principal. Rents under the ground lease, on the other hand, are fully deductible, and the tenant on the ground lease has the added advantage of depreciating his improvements.

How long do you ground lease a piece of ground? The rule of thumb is: long enough to complete the requirements of permanent financing. You should have the right to renew or options to extend the term, as well as the right to cancel in the event the shopping center business goes bad. You ought to have the right to get out at the end of any given period of time.

In connection with obtaining the financing, the owners in the present case subordinated their fee title in the land to the construction mortgage as required by the terms of the ground leases (with options to purchase land). As to this, the monograph points out (at page 47) for the developers' guidance:

If the fee owner is unwilling to subordinate, however, then you have problems. The only other alternative in such a case is to try to finance through an unsubordinated leasehold mortgage. In this type of financing, the amount of the mortgage will be lower, the interest rates higher, the term shorter, and the occupancy requirements more formidable.

The developers' appeal presents two principal issues.

ISSUES

ISSUE ONE. Did the trial court violate the parol evidence rule or the statute of frauds in holding that the developers were bound by their oral promise to exercise the options to purchase the owners' land, which options were contained in the written and signed ground leases?

ISSUE TWO. Where the owners subordinated their fee title in the land to a construction loan obtained by the shopping center developers, did the trial court err in determining that under the agreements of the parties the developers had no right to use the construction loan proceeds for purposes

unconnected with construction and improvements on the property?

DECISION

ISSUE ONE.

CONCLUSION. The determination of the admissibility of parol evidence, and whether it established an oral agreement, was a factual determination under the circumstances presented. The trial court did not err in finding an oral agreement, as it did, based on all relevant, extrinsic evidence available to it and in then specifically enforcing that oral agreement.

The developers argue that evidence of the oral promise not expressed in the written agreements of the parties was barred by the parol evidence rule and that the trial court violated that rule in deciding as it did. See the statements of the rule in Truck-Trailer Equip. Co. v. S. Birch & Sons Constr. Co., 38 Wash.2d 583, 590, 231 P.2d 304 (1951) and Lynch v. Higley, 8 Wash.App. 903, 908, 510 P.2d 663 (1973). They further argue that even if we uphold the trial court's finding of an oral agreement, such an agreement would constitute an oral agreement to purchase real estate and is therefore barred by the statute of frauds. See RCW 19.36.010; RCW 64.04.010.

Here the trial court also found as facts that: the developers wanted a ground lease with an option to purchase the land because of tax advantages the ground lease would give them; the developers did make a collateral oral agreement whereby they promised the owners that if the owners leased them the land, the developers would exercise the option to purchase contained therein during the 3-year lease term; and the owners would not have executed the ground leases but for this promise made to them by the developers.

As we have often stated, the power of this court is appellate only and in factual matters is limited to ascertaining whether or not the findings are supported by substantial evidence. Stringfellow v. Stringfellow, 56 Wash.2d 957, 959, 350 P.2d 1003, 353 P.2d 671 (1960); Charles Pankow, Inc. v. Holman Properties, Inc., 13 Wash.App. 537, 542, 536 P.2d 28 (1975). In the present case there is substantial evidence to support the trial court findings. Furthermore, since the findings of fact have not been excepted to on appeal, we must in any event accept them as verities. Selah v. Waldbauer, 11 Wash.App. 749, 753, 525 P.2d 262 (1974). We therefore fully accept the trial court's findings with respect to the existence and terms of the oral agreement between the parties.

The developers present a strong argument buttressed by case authority that this court should hold that the parol evidence rule prohibited the trial court from reading anything into the ground leases (with options to purchase land) that is not contained within the four corners of those documents.

Unquestionably, anyone with an orderly bent of mind will find scant satisfaction in endeavoring to reconcile the several hundred parol evidence holdings of the appellate courts of this State. Apparently it has ever been thus with all appellate courts in their struggle to enunciate a rational, consistent,...