Firth v. Lu

• Decision Date: 27 June 2002
• Docket Number: No. 70702-2.,70702-2.
• Citation: 49 P.3d 117,146 Wash.2d 608
• Court: Washington Supreme Court
• Parties: Donald R. FIRTH and Barbara A. Palecek, husband and wife, Petitioners, v. Hefu LU and Qian Sun, husband and wife, Respondents.

49 P.3d 117

146 Wash.2d 608

Donald R. FIRTH and Barbara A. Palecek, husband and wife, Petitioners, v. Hefu LU and Qian Sun, husband and wife, Respondents.

No. 70702-2.

Supreme Court of Washington, En Banc.

Argued November 8, 2001.

Decided June 27, 2002.

Law Offices of J. Richard Aramburu, Jeffrey Eustis, Seattle, for Petitioners.

Edwards, Sieh, Smith & Goodfriend, Howard Goodfriend, Seattle, Kenton Longley, Kenmore, for Respondents.

J. Anthony Hoare, Seattle, Amicus Curiae on Behalf of Maryland Apartments, Inc.

SANDERS, J.

We here consider whether an agreement to transfer shares in a corporation that operates a housing cooperative is subject to the real estate statute of frauds, RCW 64.04.010. We hold that it is not because stock in a cooperative corporation is not an interest in real property transferable by deed.

FACTS

In 1977 Donald Firth and Barbara Palecek moved into the Maryland Apartments, a housing cooperative on Seattle's Capitol Hill. The housing cooperative was organized in 1948 by the filing articles of incorporation for the Maryland Apts. Inc., the corporation that owns the land and building commonly referred to as the Maryland Apartments. The building contains 19 apartment units, each associated with a separate block of shares in the corporation. These cooperative units are rented out by the corporation to its shareholders under long-term proprietary leases. One may become a resident of the Maryland Apartments only by acquiring the block of shares associated with a particular unit—i.e., by becoming a shareholder of the corporation Maryland Apartments, Inc.¹

A key component of any cooperative housing is the ability of its management to exercise control over who may become a member and resident. In the case of the Maryland Apartments, the board of directors of the corporation exercises this control by virtue of the corporate bylaws, which restricts shareholders' ability to transfer their shares. A shareholder may transfer his or her stock only upon the approval of the board of directors. If the board approves the proposed transfer, the departing shareholder surrenders his or her share certificate to the corporation, which issues a new certificate to the entering shareholder. Only after the proposed stock transfer has been, approved is the entering shareholder entitled to a proprietary lease for the apartment unit to which the shareholder's block of shares is associated.

Donald Firth has had paralysis of the legs since being struck with polio at the age of two. He and his wife Barbara Palecek (the Firths) therefore moved into apartment 3, one of the ground-floor units at the Maryland Apartments. In 1994, Hefu Lu and Qian Sun (the Lus) moved into the other ground-floor unit, apartment 2. Some two years later Lu approached Palecek to ask if she and her husband were interested in buying his and Sun's interest in apartment 2 for $165,000. The Firths were interested because apartment 2 was the bigger of the two ground-floor units, but Lu left the country on business before a written agreement could be prepared. Negotiations continued while Lu was in Europe, with Lu's business partner John Swaner acting as an intermediary.

The parties eventually settled on the purchase price of $180,000, at which point Swaner and the Firths drew up the following agreement:

April 18, 1997

Barbara A. Palecek and Donald R. Firth agree to purchase Apartment 2 (626 13th Avenue East) from Hefu (Max) Lu and Qian (Jeanette) Sun for $180,000. Possession to take place on October 15, 1997 after exchange of remainder of purchase price and receipt of stock certificate.

Enclosed are checks for $500 given in earnest.

Clerk's Papers (CP) at 153. The Firths signed the agreement the day it was drafted and provided Swaner with deposit checks for the Lus in the amount of $500. The Lus signed on the 23rd of April when Swaner met up with them in Europe, but only after the Firths agreed to provide an additional $1,500 in deposit.

When the Lus returned from Europe in September 1997 Sun was reluctant to sell at the agreed-on price of $180,000. She wanted an additional $50,000 and convinced her husband to approach the Firths to request an extension of the date on which the Firths were to take possession of apartment 2. Unaware of Sun's reluctance to go through with the deal, the Firths agreed in early October to extend the date one month to November 15, 1997, and again in early November to extend the date to the end of December. In early January 1998, Lu informed the Firths of his wife's dissatisfaction with the purchase price and that she wanted to raise it to $230,000.

The new price was unacceptable to the Firths, who initially attempted to resolve the matter out of court. When those attempts fell through the Firths commenced the instant action to obtain an order compelling the Lus to specifically perform the agreement and transfer the block of shares associated with apartment 2 to the Firths. The Lus moved to dismiss for failure to state a claim upon which relief can be granted, arguing the agreement did not comply with the real estate statute of frauds and was therefore unenforceable. The Lus' motion was denied, after which the Firths filed their own motion for summary judgment. In opposition the Lus again argued the agreement was unenforceable for failure to comply with the statute of frauds. They also claimed the contract was unenforceable because it lacked essential material terms and the Firths were allegedly unable to perform. The trial court granted the Firths' motion for summary judgment and directed the Lus to specifically perform the agreement by transferring to the Firths the shares associated with apartment 2 upon the Firths' tender of the $180,000 purchase price.

The Lus deposited the purchase money into a blocked trust account² and appealed. The Court of Appeals reversed, concluding the contract lacked a legal description of apartment 2 and was therefore unenforceable under the real estate statute of frauds, RCW 64.04.010. Firth v. Lu, 103 Wash.App. 267, 268, 12 P.3d 618 (2000). The Court of Appeals did not address the Lus' arguments the contract was unenforceable because it lacked essential material terms or that the Firths were allegedly unable to perform. The Firths then petitioned this court to review the applicability of the statute of frauds to this contract. We granted review and reverse, remanding to the Court of Appeals for further proceedings pursuant to RAP 13.7(b).³

DISCUSSION

We review a summary judgment, making the same inquiry as did the trial court. Kruse v. Hemp, 121 Wash.2d 715, 722, 853 P.2d 1373 (1993). Summary judgment is proper only when pleadings, depositions, admissions, and affidavits show there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c); Barrie v. Hosts of Am., Inc., 94 Wash.2d 640, 642, 618 P.2d 96 (1980). The applicability of the statute of frauds to this transaction is a question of law.

I.

The real estate statute of frauds provides in part:

Every conveyance of real estate, or any interest therein, and every contract creating or evidencing any encumbrance upon real estate, shall be by deed....

RCW 64.04.010. Although the general statute of frauds, RCW 19.36.010, differs from the real estate statute of frauds, the two share common theoretical underpinnings. For example, the main purpose of both statutes is to prevent fraud in contractual undertakings. Miller v. McCamish, 78 Wash.2d 821, 828, 479 P.2d 919 (1971). We previously said RCW 19.36.010 must be narrowly construed to achieve its purpose to prevent fraud or avoidance of otherwise enforceable agreements. See Bell v. Hegewald, 95 Wash.2d 686, 691, 628 P.2d 1305 (1981) (citing Chambers v. Kirkpatrick, 145 Wash. 277, 280, 259 P. 878 (1927)). Since RCW 64.04.010 shares the same purpose it too must be narrowly construed and not applied to agreements that are not "strictly within its terms." Chambers, 145 Wash. at 280, 259 P. 878. By its plain language RCW 64.04.010 applies only to the following agreements: (1) actual conveyances of title or interests in real property; and (2) agreements that create or evidence an encumbrance of real property. If an agreement falls into either of these categories, it is enforceable only if executed in the form of a deed. RCW 64.04.010, .020; State ex rel. Wirt v. Superior Court, 10 Wash.2d 362, 366, 116 P.2d 752 (1941). Conversely, if an agreement does not fall within any of these three categories, RCW 64.04.010 does not apply and the agreement may be enforced even if not executed by a deed.

This agreement is for the purchase of apartment 2 in the Maryland Apartments by exchange of cash for stock. Title to the land on which that cooperative unit is located is held by the Maryland Apartments, Inc., and is not affected per se. A grantor of property can convey no greater title or interest than the grantor has in the property. Sofie v. Kane, 32 Wash.App. 889, 895, 650 P.2d 1124 (1982). The agreement between the Lus and the Firths therefore does not convey real property.

Nor does the agreement create or evidence an encumbrance of real property. An agreement to lease property for more than one year is within the real estate statute of frauds because long-term leases encumber real property. Family Med. Bldg., Inc. v. Dep't of Soc. & Health Servs., 104 Wash.2d 105, 108, 702 P.2d 459 (1985); Tibbals v. Iffland, 10 Wash. 451, 455, 39 P. 102 (1895). But cf. Presten v. Sailer, 225 N.J.Super. 178, 542 A.2d 7, 12 (1988) (indicating a proprietary lease grants an interest in real property). But this agreement was neither one to lease property for more than one year nor was it an agreement to transfer a long-term proprietary lease. Although the Lus did hold a long-term proprietary lease for apartment 2, they had no right or ability to transfer that lease to the Firths.⁴ Their lease was expressly tied to the block of shares associated with...