Carpenter v. Folkerts, 3698-III-7

Decision Date21 April 1981
Docket NumberNo. 3698-III-7,3698-III-7
Citation29 Wn.App. 73,627 P.2d 559
PartiesThomas CARPENTER, Jr., and Betty Jo Carpenter, husband and wife, Respondents, v. Henry FOLKERTS and Doris R. Folkerts, husband and wife, Appellants, and Archie L. Long and Magdalene Long, husband and wife, and all other persons or parties claiming any right, title, estate, lien or interest in the real estate described in the Complaint, Defendants.
CourtWashington Court of Appeals

John S. Moore, Velikanje, Moore & Shore, Yakima, for appellants.

Douglas D. Peters, Peters, Schmalz, Leadon & Fowler, Selah, for respondents.

McINTURFF, Chief Judge.

Mr. and Mrs. Henry Folkerts appeal a decree of specific performance resulting from a lease-option contract for real property.

In 1975 the Folkerts (lessors) executed a lease-option agreement with Mr. and Mrs. Thomas Carpenter, Jr. (lessees) for approximately 62 acres of agricultural land. The contract provided for a yearly payment of $6,300 with an option to purchase at the end of 3 years for $95,000. Unknown to the Carpenters, the Folkerts had heavily encumbered the land. In addition to owing in excess of $20,000 on their purchase of the property, the Folkerts acquired a $30,000 personal loan and a Small Business Administration loan financed through the Bank of Yakima for approximately $185,000. 1 Mr. Folkerts testified the Small Business Administration loan was for the purpose of beginning production on his patented chemical sprayer units. The lease provided:

In the event that Lessees should exercise the said option, Lessors, upon payment of the purchase price by Lessees, shall convey a good and marketable title to the said premises to the Lessees free and clear of all encumbrances ...

Mr. Carpenter said he had no actual knowledge of the encumbrances prior to entering into the lease. 2

In 1978, the Carpenters attempted on several occasions to properly exercise their options; however, Mr. Folkert refused tender and seemingly evaded opportunities to close the transaction because he had insufficient assets to pay off the encumbrances. At the time of trial the property, due to appreciation, was appraised near $179,000.

The trial court ordered the Folkerts to specifically perform under the lease-option and in the event they were unable to do so, awarded judgment in favor of the Carpenters for any additional sums that might be needed to obtain clear title.

Initially, the Folkerts set forth a three-pronged argument in support of their contention the trial court erred in granting specific performance: (1) the Carpenters had an adequate remedy at law; (2) the Folkerts were financially unable to convey title free and clear of the secured obligations; and (3) the Carpenters were bound in equity with knowledge of encumbrances through constructive notice of the secured obligations at the time of the execution of the lease-option.

It is accepted in Washington that a lease containing a lessee's option to purchase is enforceable by specific performance. Paullus v. Fowler, 59 Wash.2d 204, 213, 367 P.2d 130 (1961); Time Oil Co. v. Palmer, 28 Wash.2d 272, 274-75, 182 P.2d 695 (1947). It is also well settled that specific performance is not a matter of right in equity but a remedy which rests in the sound discretion of the court. Hallauer v. Certain, 19 Wash.App. 372, 379, 575 P.2d 732 (1978); Egbert v. Way, 15 Wash.App. 76, 79, 546 P.2d 1246 (1976).

Since real estate is considered unique, damages do not adequately compensate a purchaser for a seller's breach of a contract to purchase specific land. Egbert v. Way, supra, at 79, 546 P.2d 1246. See generally, Washington Real Property Deskbook, Vol. 2 § 51.11 at 51-6 (1979). No piece of land has its counterpart anywhere else and it is impossible to duplicate by the expenditure of any amount of money. 71 Am.Jur.2d Specific Performance § 112 (1973). Mr. Carpenter was only interested in leasing the land if he were also to receive an option to purchase all of the property since his son was moving into the residence located on the land after college. Moreover, the Carpenters had purchased 8,000 fruit trees with the expectation of converting a portion of the property into an apple orchard. They also committed themselves to sell hops through 1982. In view of the foregoing circumstances, we conclude there is no adequate remedy at law and equity is the only basis to facilitate approximate justice between the parties. Additionally, we note the Folkerts are financially insolvent; consequently, an action in damages against them is not such an adequate remedy at law to preclude specific performance. Restatement of Contracts § 362 (1932).

The Folkerts maintain it was inequitable to grant specific performance of the option when it was financially impossible for them to convey title free and clear of all secured obligations.

Financial inability is not the equivalent of legal impossibility. Cannon v. Huhndorf, 67 Wash.2d 778, 782, 409 P.2d 865 (1966); Liner v. Armstrong Homes of Bremerton, Inc., 19 Wash.App. 921, 926, 579 P.2d 367 (1978). Cf. Oneal v. Colton Consol. School Dist. 306, 16 Wash.App. 488, 491, 557 P.2d 11 (1976). The fact performance becomes more expensive than originally anticipated does not justify setting the contract aside. Streater v. White, 26 Wash.App. 430, 431, 613 P.2d 187 (1980); Liner, supra, 19 Wash.App. at 926, 579 P.2d 367; Restatement of Contracts §§ 454, 467 (1932); see also Cannon, supra, 67 Wash.2d at 782, 409 P.2d 865. In the case at bench the contract calls for tender of title to the Carpenters free and clear of all encumbrances. To obtain clear title the Folkerts must satisfy the liens on the property. 3 The record indicates about $36,000 is still owed by the Folkerts to their vendors on the original contract to purchase the property. It is thus obvious the $95,000 purchase price is adequate to satisfy the terms of that sales contract, thereby allowing the Folkerts title to the property. The encumbrances on the property through the actions of the Folkerts would not prevent transfer of title, Cannon, supra at 782, 409 P.2d 865; thus the Folkerts have the legal power to perform. Since they have an obligation to perform the condition precedent under the contract, i. e., provide "good and marketable title," they may not be excused because they have overextended themselves. See Liner, supra, 19 Wash.App. at 926, 579 P.2d 367.

The Folkerts, in contending specific performance should not have been awarded since the Carpenters had constructive notice of the encumbrances, fail to consider the Carpenters' right to rely on the covenant to convey clear title. Any expenses which the Folkerts will have to incur in clearing title to the land were within the foreseeable contemplation of the parties when the lease-option was executed. The Folkerts voluntarily assumed these self-induced obligations and performance was not prevented by an Act of God or through any fault of the Carpenters. The parties to complain of the lack of good and marketable title are the Carpenters it is their decision to accept the conveyance under these circumstances. Consequently, the Folkerts should not be permitted to avoid performance for reasons springing from their encumbrances on the property. Personal inability, under these circumstances, is no defense.

The next issue is whether the court erred in granting both the decree of specific performance and an award of damages in the event the Folkerts are unable to produce clear title.

A trial court, sitting in equity, may fashion broad remedies to do substantial justice to the parties and put an end to litigation. Esmieu v. Hsieh, 92 Wash.2d 530, 535, 598 P.2d 1369 (1979). Here, the court required the Folkerts to convey clear title and in the event they are unable to do so, the Carpenters may distribute the $95,000 purchase price to creditors of the Folkerts and receive a judgment against them for the balance. The court's oral decision set forth its rationale:

In Miller v. Dyer, an old California case reported in 20 Cal.2d 526, 127 P.2d 901, and also reported in 141 A.L.R. 1428, the rule was established in these words 'It is likewise well settled that if a vendor (that would be Mr. Folkerts) and his wife has any interest in the property he has contracted to convey, the vendee (Mr. and Mrs. Carpenter) at their option may enforce the contract with respect to whatever interest the vendor possesses, and may also receive compensation for the deficiency in performance.' (Parentheses added)

The cases cited again in Milkes v. Smith, 91 Cal.App.2d 79, 204 P.2d 419, which describes the...

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