Law v. Law Co.

• Decision Date: 28 September 2012
• Docket Number: No. 100,497.,100,497.
• Citation: Law v. Law Co., 295 Kan. 551, 289 P.3d 1066 (Kan. 2012)
• Parties: Margaret Russell LAW, Appellant, v. LAW COMPANY BUILDING ASSOCIATES, a Kansas Limited Partnership, and The Law Company, Inc., a Kansas Corporation, Appellees.
• Court: Kansas Supreme Court

295 Kan. 551

289 P.3d 1066

Margaret Russell LAW, Appellant,

v.LAW COMPANY BUILDING ASSOCIATES, a Kansas Limited Partnership, and The Law Company, Inc., a Kansas Corporation, Appellees.

No. 100,497.

Supreme Court of Kansas.

Sept. 28, 2012.

Michael R. Levin, of Baker & Hostetler LLP, of Orlando, Florida, argued the cause, and F. James Robinson, Jr., of Hite, Fanning & Honeyman, LLP, of Wichita, was with him on the briefs for appellant.

Thomas D. Kitch, of Fleeson, Gooing, Coulson & Kitch, L.L.C., of Wichita, argued the cause, and Ron L. Campbell and Roarke R. Gordon, of the same firm, were with him on the briefs for appellees.

The opinion of the court was delivered by LUCKERT, J.:

The primary issue before this court is whether the Court of Appeals erred in holding that an action seeking reformation of an executory contract does not accrue until a party discovers a mutual mistake in the contract language. We conclude this holding is contrary to a long line of cases in which this court has held: (1) A claim for reformation of a contract is subject to the contract statute of limitations stated in K.S.A. 60–511(1), (2) a cause of action for reformation of a contract accrues when a mutual mistake is made, (3) the legislature has not provided a discovery exception in K.S.A. 60–511, (4) the courts cannot write a discovery exception into K.S.A. 60–511, and (5) the discovery exception of K.S.A. 60–513(a)(3) does not apply to reformation of a contract based on a mutual mistake because the exception only applies when a party alleges or proves fraud. Based on these principles, we hold a cause of action for reformation of a contract based on an alleged mutual mistake accrues when the mistake is made, not when the mutual mistake is discovered. We further conclude that the application of these rules does not depend on whether a contract is executed or executory and the rules do not vary just because the contract relates to the title of real property, contrary to the Court of Appeals' holding. Consequently, we reverse the Court of Appeals' holding and affirm the district court's order of summary judgment in which the district court found that the plaintiff's reformation claim was barred by K.S.A. 60–511(1) because the mutual mistake occurred when the contract was executed, which was more than 5 years before this case was filed.

The defendants raise three additional issues, but we do not resolve these issues because we conclude they are not properly before us for appellate review. The case is remanded for consideration of the plaintiff's remaining claims.

Facts and Procedural Background

This case was brought by Margaret Russell Law, who filed claims for breach of contract, breach of the implied duty of good faith and fair dealing, reformation of contract, and declaratory judgment against The Law Company, Inc. and Law Company Building Associates (LCBA) (collectively referred to as the Defendants). These claims arose from a financial agreement relating to a commercial building in Wichita.

Law entered into a contractual relationship with the Defendants through a series of transactions that occurred after Law received stock in The Law Company in 1979 as part of a property settlement with her former husband, who was a founder of The Law Company. The Law Company is a Wichita architectural, engineering, and construction firm. At the request of some of the principals in The Law Company, Law agreed to exchange her stock for ownership of the office building occupied entirely by The Law Company; this building is referred to as the “Market Street Building.” The Law Company and Law then entered into a 25–year landlord and tenant lease that expired on December 31, 2004. Under the lease, Law had the right to sell the Market Street Building or to lease the building to a third party at the conclusion of the 25–year lease term.

In 1980, seeking larger office space, The Law Company developed property known as the “Riverview Building” and leased a portion of the premises to tenants that were not affiliated with The Law Company. The building was developed with the use of industrial revenue bonds (IRBs), and a long-term leasehold interest was conveyed to LCBA, a limited partnership formed by The Law Company for the purpose of holding title to the Riverview Building.

On January 12, 1984, Law and the Defendants entered into a “Financing Agreement.” Under the terms of the Financing Agreement, Law sold her interest in the Market Street Building to LCBA and the lease on that property was cancelled. In exchange, LCBA granted Law “equity participation rights” in the Riverview Building, which entitled Law to, among other things, an agreement for LCBA to pay Law $406,836.19 and an 11 percent equity participation share in the gross proceeds of any future sale or refinancing or 11 percent of the liquidation proceeds upon the termination of LCBA. The parties also executed a promissory note, secured by a mortgage, which provided for periodic payments to Law until December 31, 2004.

In 1986, LCBA offered to prepay the promissory note in exchange for a release of the mortgage by Law. The parties could not agree on an interpretation of the prepayment clause in the promissory note. This dispute resulted in litigation that included an appeal to the Court of Appeals. See Law Co. Bldg. Assocs. v. Law, No. 67,545, 849 P.2d 150, unpublished opinion filed April 2, 1993, rev. denied 253 Kan. 859 (1993). Although the issues in that appeal have little relevance to the present litigation, the fact there was extensive litigation spanning several years serves as the basis for the Defendants to argue that any mistake in the Financing Agreement should have been discovered during that litigation, which would make Law's claims untimely under any interpretation or application of K.S.A. 60–511(1).

On June 24, 2002, Marc A. Porter, vice president of The Law Company and general partner of LCBA, executed a “Certificate of Amendment to Certificate of Limited Partnership of Law Company Building Associates” continuing the term of the LCBA limited partnership until December 31, 2024, unless dissolved sooner. The certificate was filed with the Kansas Secretary of State on June 27, 2002. Porter testified in a deposition that LCBA was extended because the Defendants had no intention of selling the Riverview Building and faced significant taxes if LCBA were liquidated or dissolved. The result of this extension was that the Defendants invoked Paragraph 4(a) of the Financing Agreement and maintained they were not obligated to discharge Law's equity participation.

Paragraph 4(a) provides: “[T]he Equity Participant [Law] shall be entitled to 11% of the liquidation proceeds upon expiration of the term of LCBA in 2004 or earlier dissolution. (Paragraph 4(e) shall apply if the term of LCBA shall be extended by the partners thereof to a date later than December 31, 2004.)” The referenced paragraph 4(e) of the Financing Agreement is entitled “Discharge of Equity Participation.” In that provision, the parties agreed that the “Equity Participation shall apply to each Refinancing but is discharged upon completion of one or more transactions which, taken together, amount to a Sale of all of the IRB Project or all LCBA partnership interests.” The remainder of the paragraph provides examples of how the equity participation would be calculated in the event of a series of partial sales. As the Court of Appeals stated, it “curiously ... does not speak to any such ‘discharge’ in the event of LCBA term extension beyond the December 2004 date.” Law v. Law Company Building Assocs., 42 Kan.App.2d 278, 280–81, 210 P.3d 676 (2009), rev. granted September 7, 2010. As we will discuss in more detail, this omission serves as the basis for Law's contract reformation claim.

Law made her claim for contract reformation after the promissory note matured, the term of LCBA was extended, and the Defendants refused to pay her equity participation. According to an affidavit submitted by Porter:

“(A) Pursuant to the terms of the Promissory Note, Law Company paid Margaret Law the principle [ sic ] sum of $406,836.19 when the note matured on December 31, 2004. The total amount of money paid to Margaret Law for the Market Street Property, including interest, during the period from April 10, 1984, through December 31, 2004, was approximately two and one-fourth million dollars ($2,250,000.00);

“(B) On June 24, 2002, the term of the LCBA limited partnership was extended to December 31, 2024. LCBA has not expired and has not been dissolved or liquidated;

“(C) The Riverview Building has not been sold or refinanced.”

In November 2006, Law filed her petition in the present case. Law attached to her petition an “Intermediate Draft” of the Financing Agreement. According to Law, this unexecuted draft memorialized the parties' intent that Law had the right to liquidation of the equity participation if the partners extended the term of LCBA. Paragraph 4(e) of the Intermediate Draft, entitled “Discharge of Equity Participation,” provides in part:

“Further, if (i) the partners of LCBA extend the term of LCBA to a date later than December 31, 2004, or the liquidation of LCBA does not commence by April 15, 2005 for any other reason, and (ii) the Equity Participation has not previously been discharged, then the Equity Participant shall then have a right to liquidation of the Equity Participation upon one hundred twenty (120) days' advance notice to LCBA.”

Law asserted that this provision was inadvertently omitted from the Financing Agreement as the result of a mutual mistake.

In Count I of her petition, Law alleged that the Defendants' refusal to pay her the fair liquidation value of the equity participation in 2005 constituted a breach of the Financing Agreement. Law also argued:

“LCBA and the Law Company have further breached and anticipatorily breached the Financing Agreement as properly construed by failing to pay the full amount due under the Promissory Note and...