Harris v. Warren Family Properties, LLC.

• Decision Date: 20 September 2006
• Docket Number: A125536.,0303-02848.
• Citation: 207 Or. App. 732,143 P.3d 548
• Parties: Rod A. HARRIS, an individual, and Harris Soup Company, an Oregon corporation, Appellants-Cross-Respondents, v. WARREN FAMILY PROPERTIES, LLC, an Oregon limited liability corporation, dba Parkrose Business Center, Respondent-Cross-Appellant, Warren Family Properties, LLC, Cross-Appellant, v. Jan Harris, Cross-Respondent.
• Court: Oregon Court of Appeals

143 P.3d 548

207 Or. App. 732

Rod A. HARRIS, an individual, and Harris Soup Company, an Oregon corporation, Appellants-Cross-Respondents, v. WARREN FAMILY PROPERTIES, LLC, an Oregon limited liability corporation, dba Parkrose Business Center, Respondent-Cross-Appellant, Warren Family Properties, LLC, Cross-Appellant, v. Jan Harris, Cross-Respondent.

0303-02848.

A125536.

Court of Appeals of Oregon.

Argued and Submitted December 14, 2005.

Decided September 20, 2006.

John W. Stephens, Portland, argued the cause for appellants-cross-respondents Rod A. Harris and Harris Soup Company and cross-respondent Jan Harris. With him on the briefs was Esler, Stephens & Buckley.

Stephen Griffith, Portland, argued the cause for respondent-cross-appellant. With him on the opening brief were Charles F. Adams, Matthew J. Kalmanson, and Stoel Rives LLP.

Before HASELTON, Presiding Judge, and ARMSTRONG and ROSENBLUM,^* Judges.

ARMSTRONG, J.

Plaintiffs appeal a judgment that denied their requested declaratory relief and awarded damages to defendant on its counterclaim for breach of contract. Defendant cross-appeals the court's failure to award all of the relief that it sought on its counterclaim. Plaintiffs occupied progressively greater amounts of space in defendant landlord's properties under sequential leases dating back without interruption for roughly 13 years. Plaintiffs' action sought a declaration that they had no duty on terminating the final leases and vacating the properties to restore the premises to the condition in which existed at the commencement dates of earlier leases. Defendant counterclaimed for breach of contract, alleging as damages the cost to restore the premises to condition when first occupied by plaintiffs.¹ The trial court entered judgment in favor of defendant for damages of about $300,000 and attorney fees of $230,000. We vacate and remand the judgment, and dismiss defendant's cross-appeal as moot.

Undisputed facts provide the context for this case. Defendant Warren Family Properties leases space in a multi-building office park to numerous tenants. Plaintiff The Harris Soup Company (Harris Soup) produces packaged foods, and plaintiff Rod Harris is its president and guarantor of its leases. Harris Soup first executed a lease for space in Building 4 of the office park in 1990 (the 1990 Lease). The parties amended and extended the original 1990 Lease, and then executed successive replacement leases for progressively greater amounts of space in Buildings 3 and 4: one lease in 1995 (the 1995 Lease) and two in 2000 that were coterminous (the 2000 Leases). Over the successive lease terms, Harris Soup made cumulative alterations and trade fixture installations in Buildings 3 and 4 to create a corporate office headquarters, an operations and warehousing center, and a USDA-approved food-preparation facility.

In 2002, Harris Soup exercised rights under the 2000 Leases to terminate the leases, paid required early termination fees, and vacated the premises. On termination, defendant asked Harris Soup to remove all alterations, trade fixtures, and equipment. Harris Soup removed trade fixtures and equipment but refused to remove other alterations made under earlier leases. Plaintiffs admitted liability for the cost to remove alterations made during the term of the 2000 Leases and for damages beyond reasonable wear and tear, but did not undertake any removal or repairs because this dispute arose. Following a bench trial, the court ruled that defendant had established plaintiffs' liability to return the premises to their condition as of plaintiffs' first occupancy.

Plaintiffs argue that the trial court erred in construing the leases to mean that they had an obligation to remove all alterations, whenever made, and to restore the premises to their condition as of the time that plaintiffs first occupied each leased space. The disputed sentence in the 2000 Leases reads:

"All such alterations shall become part of the Building but Landlord reserves the right to require Tenant to remove the same upon termination of this Lease and restore the Premises to their original condition."

Plaintiffs' thesis on appeal is that the phrase "original condition," when construed in context, can only mean the condition of the premises when the 2000 Leases began. The trial court did not expressly address its construction of the 2000 Leases or the meaning of the phrase "original condition." Because the court did not explain how it construed the leases, plaintiffs frame the error in three forms. First, plaintiffs contend that the court erred if it construed the 2000 Leases to obligate them to remove alterations made to the premises before the execution date of the 2000 Leases, because the 2000 Leases contained no such terms. Second, they contend that the court erred if it construed the removal obligation to derive instead from the 1995 Lease, because defendant failed to exercise its right to require removal of alterations made during the 1995 Lease term when that lease terminated. Finally, they contend that the court erred if it construed the removal obligation to derive from the 1990 Lease, because that lease did not obligate them to remove alterations. Defendant, in addition to cross-appealing the damages award, argues that the lease terms should be construed in its favor, or that it prevails based on an asserted presumption under Oregon law that a party's removal rights in an earlier lease are implicitly incorporated into successive leases for the same property.

Our first step is to determine the standard of review based on the underlying nature of the claim for declaratory relief. L E Farms v. Leonard, 170 Or.App. 528, 532-33, 13 P.3d 527 (2000). "Declaratory judgment proceedings seeking the construction of a contract are legal in nature, and the factual determinations of the trier of fact are binding on appeal if there is evidence to support them." Wadsworth v. WWDM, Ltd., 162 Or.App. 622, 628 n. 4, 986 P.2d 1197 (1999), rev. den., 330 Or. 71, 994 P.2d 133 (2000). We review the construction of a contract, including whether it is ambiguous, as a matter of law. Yogman v. Parrott, 325 Or. 358, 361, 937 P.2d 1019 (1997). Where the construction of a contract may depend on extrinsic evidence, "we review the court's explicit and implicit findings of fact for any evidence in the record to support them, and the legal consequences of those facts for legal error." Batzer Construction, Inc. v. Boyer, 204 Or. App. 309, 319, 129 P.3d 773 (2006), rev. den., 341 Or. 366 (2006).

We present the facts as favorably as possible to defendant, who was the prevailing party at trial. Here, the court stated in its letter ruling that it relied on evidence that plaintiffs had continuous possession over the duration of the sequential leases and gave considerable weight to certain other evidence:

"(1) Tim Warren and Greg Murphy's discussion during the negotiations of the 2000 lease; (2) Murphy's later request for the cost of the restoration; (3) the discussion between Tim Warren and Mr. Harris in late October 2002; (4) the failed opportunity to respond to Tim Warren's letter of November 7, 2002 * * * by Mr. Harris or Mr. Murphy; and (5) Mr. Harris's request for a bid from Harding on restoration to the original conditions."²

The first two aspects of evidence in the trial court's summation, namely, continuing possession and a "discussion during the negotiations of the 2000 lease," occurred before or during contract formation. Based on the timing, that evidence may be evidence of the circumstances of contract formation that bears on the parties' intent and on whether a disputed contract provision is ambiguous. To determine whether a provision is ambiguous, a court generally focuses on analysis of the disputed text and its context, including maxims of textual construction, Yogman, 325 Or. at 361, 937 P.2d 1019; however, a court may consider extrinsic evidence of the parties' intent that is "limited to the circumstances under which the agreement was made," City of Eugene v. Monaco, 171 Or. App. 681, 687, 17 P.3d 544 (2000), rev. den., 332 Or. 240, 28 P.3d 1175 (2001) (applying Abercrombie v. Hayden Corp., 320 Or. 279, 883 P.2d 845 (1994)). See Batzer, 204 Or. App. at 314-17, 129 P.3d 773 (harmonizing Yogman and Abercrombie); see also ORS 42.220 (controlling a judge's construction of an instrument). We also adhere to the rule that such extrinsic evidence "may only affect the interpretation * * * when there is language in the agreement that is susceptible to being construed to carry out that intent." Criterion, Interests, Inc. v. The Deschutes Club, 136 Or.App. 239, 246, 902 P.2d 110 (1995). We thus consider the evidence of plaintiffs' possession and the negotiation of the 2000 Leases in construing the contract but, for reasons that we will explain, we conclude that those facts do not establish that the 2000 Leases are ambiguous or can be construed in defendant's favor.

The other evidence on which the trial court relied concerns events that occurred in 2002. The extrinsic evidence available to resolve a contract ambiguity includes evidence of the circumstances and conduct of the parties during the life of the agreement. Yogman, 325 Or. at 364, 937 P.2d 1019 (citing Tarlow v. Arntson, 264 Or. 294, 300, 505 P.2d 338 (1973) (when agreement was ambiguous, court examined what parties did under it)). In contrast, where an agreement is reduced to writing and there is no ambiguity to be explained, the writings are "considered as containing all those terms, and therefore there can be, between the parties and their representatives or successors in interest, no evidence of the terms of the agreement, other than the contents of the writing." ORS 41.740 (parol evidence rule).³ Because we conclude that the written contract provisions are unambiguous, we also conclude that the parties' conduct in 2002, during the life of the 2000 Leases, is not evidence of intent that is...