Oregon Southwest, LLC v. Kvaternik

• Decision Date: 08 August 2007
• Docket Number: 04CV0408; A127567.
• Citation: 214 Or. App. 404,164 P.3d 1226
• Parties: OREGON SOUTHWEST, LLC, an Oregon limited liability company, Plaintiff-Respondent, v. Joseph KVATERNIK and Carolynn Kvaternik, husband and wife, Defendants-Appellants.
• Court: Oregon Court of Appeals

164 P.3d 1226

214 Or. App. 404

OREGON SOUTHWEST, LLC, an Oregon limited liability company, Plaintiff-Respondent, v. Joseph KVATERNIK and Carolynn Kvaternik, husband and wife, Defendants-Appellants.

04CV0408; A127567.

Court of Appeals of Oregon.

Argued and Submitted April 18, 2007.

Decided August 8, 2007.

Clayton C. Patrick, Portland, argued the cause and filed the briefs for appellants.

Bruce L. Campbell, Portland, argued the cause for respondent. With him on the brief was Miller Nash LLP.

Before LANDAU, Presiding Judge, and SCHUMAN, Judge, and SIMPSON, Judge pro tempore.

SCHUMAN, J.

Having determined that an "Owner's Sale Agreement and Earnest Money Receipt" for the sale of real property contained all of the essential terms of a complete agreement and that no unsatisfied condition precedent existed, the trial court granted plaintiff's motion for summary judgment and ordered specific performance. On appeal, defendants contend that a condition precedent — defendants' attorney's review and approval of all documents relevant to the transaction — was never satisfied. We agree with defendants that performance of the sale agreement was contingent on defendants' attorney's review and approval of the documents, that the approval did not occur, that specific performance was inappropriate, and that the court erred in granting plaintiff's motion for summary judgment and denying defendants'. Consequently, we reverse and remand.

Plaintiff Oregon Southwest, LLC, is the successor in interest of Guy Gelbron, the asserted purchaser of two adjacent parcels of property in Curry County.¹ Defendants are the asserted sellers. Three documents are relevant to the parties' dispute. The first document, prepared by Gelbron (an attorney) and signed by defendant Joseph Kvaternik on October 29, 2003, after brief negotiations, is captioned "Terms of Sale" and provides in its entirety:

"Transaction subject to review and approval of all documents by the attorney for Seller and due diligence by Buyer.

"Purchase Price: $650,000.00

"Down Payment: 25%

"Balance of Price: Amortized over 10 years. 6% annual interest rate."

After further discussion, the parties on November 17, 2003, signed a second document, also prepared by plaintiff, entitled "Additional Terms of Sale." That document contained no term regarding attorney review and approval; rather, it changed the amortization period from 10 to 20 years, introduced a balloon payment, gave defendants' attorney the option of choosing between a mortgage and a deed of trust, and added some details about zoning and investigations.

The third and final document, signed on November 29, 2003, is a legal publishing company's fill-in-the-blanks form entitled "Owner's Sale Agreement and Earnest Money Receipt" (the Sale Agreement). In addition to filling in the standard details of the particular transaction — purchase price, down payment, interest rate, loan terms, property description, etc. — the parties also added a notation that referred to and incorporated a new attorney review and approval term, as well as the terms of the first two agreements. The notation read: "See Exhibits `B,' `C,' + `E' — all terms incorporated into this agreement and survive the closing." Exhibit B is the first agreement (October 29 Terms of Sale). Exhibit C is the second agreement (November 17 Additional Terms of Sale). Exhibit E contains new terms, one of which is relevant to this dispute:

"The final language of the promissory note and deed of trust to be executed by Purchaser for the benefit of Seller shall be subject to the review of Seller's attorney to assure that the documents (i) are consistent with the provisions of this agreement, (ii) bestow to Seller a SENIOR FIRST LIEN on the property to secure the balance of the purchase price and (iii) provide that, in the event of Purchaser's default in his payment of the remainder of the purchase price, Seller shall have the exclusive remedy to foreclose and take the property back and retain all prior funds, including the down payment, which had already been paid by Purchaser to Seller."

After signing this November 29 Sale Agreement, defendants went on vacation; when they returned, and before the planned closing, they met with their attorney. He reviewed all of the documents described above, including an unsigned promissory note and trust deed prepared by plaintiff. After the meeting, defendants told plaintiff that they were not willing to sell the property under the terms of the Sale Agreement. Their attorney instead sent plaintiff an alternative agreement that contained financing details different from the ones to which parties had previously agreed. Plaintiff did not accept the new terms, and defendants did not appear at the scheduled closing. Plaintiff then filed this suit seeking specific performance.² Both sides filed motions for summary judgment. The trial court granted plaintiff's, thereby also denying defendants'. This appeal ensued.

"`A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due.'" Hill v. Oland, 61 Or.App. 85, 90, 655 P.2d 1088 (1982) (quoting Restatement (Second) of Contracts § 224 (1981)). To decide whether the court erred in granting plaintiff's motion for summary judgment, then, we must determine the meaning of any condition that the Sale Agreement contained, whether that condition remained unsatisfied, and (if not satisfied) whether it was waived or otherwise excused.³ If we determine that the Sale Agreement contained an unsatisfied and unwaived condition, we must then determine if that fact precluded specific performance.

We begin by focusing on the existence and import of the condition. Whether a condition precedent exists, and what it means, depends "`upon the intent of the parties, to be ascertained from a fair and reasonable construction of the language used in the light of all the surrounding circumstances.'" Dan Bunn, Inc. v. Brown, 285 Or. 131, 143, 590 P.2d 209 (1979) (quoting Ross v. Harding, 64 Wash.2d 231, 236, 391 P.2d 526, (1964)). Under that standard, plaintiff's first argument — that the attorney review and approval terms from the earlier agreements were attached to the Sale Agreement not as conditions but merely to show a complete record of previous writings — cannot be taken seriously. The unambiguous language of the Sale Agreement — "See Exhibits `B,' `C', + `E' — all terms incorporated into this agreement and survive the closing" (emphasis added) — refutes plaintiff's contention.

More plausible is plaintiff's argument that the Sale Agreement contains two attorney approval and review provisions, with the later superseding the former. The earlier provision comes from Exhibit B, the October 29 Terms of Sale agreement, which states, "Transaction subject to review and approval of all documents by the attorney for Seller * * *." (Emphasis added.) The later provision, Exhibit E, provides that "[t]he final language of the promissory note and deed of trust to be executed by [plaintiff] for the benefit of [defendants] shall be subject to the review of Seller's attorney * * *." (Emphasis added.) According to plaintiff, those two terms are inconsistent and, as we have held, when a contract contains inconsistent terms, the specific controls over the general. E.g., Portland Fire Fighters' Assn. v. City of Portland, 181 Or.App. 85, 95, 45 P.3d 162, rev. den., 334 Or. 491, 52 P.3d 1056 (2002). Therefore, plaintiff argues, the only operative attorney review and approval term requires review of only two documents, the promissory note and deed of trust (which review, according to plaintiff, actually occurred — a theory we need not and do not reach).

The problem with plaintiff's argument lies in the presumption that the two provisions are, in fact, inconsistent. They are not. Both provisions can be implemented without conflict. The first provision states that the "transaction" is "subject to," that is, will not occur without, approval and review of "all documents." When the parties agreed to that term, they had not yet decided whether the sale would be by a mortgage or by a deed of trust and promissory note. That decision occurred between the execution of Exhibit B on October 29 and the execution of the Sale Agreement on November 29. Thus, the second attorney review and approval provision supplements the first; it specifically refers to documents that were not in existence, and may not have been contemplated, when the first agreement was signed. The sequence of events, in other words, undercuts plaintiff's theory that the second agreement narrowed, limited, or superseded the first — a theory for which there is simply no textual or contextual support.

Further, adopting plaintiff's theory would require us to give effect to the second provision (requiring review only of the deed of trust and promissory note) but to ignore the first (requiring review of "all documents" relevant to the transaction), contrary to the mandate in ORS 42.230 that, in construing a contract "where there are several provisions or particulars, such construction is, if possible, to be adopted as will give effect to all." It would also, contrary to the same statute, require us to add the word "only," so that the attorney review provision in Exhibit E would state, "The final language of only the promissory note and deed of trust * * * shall be subject to the review of Seller's attorney." We therefore conclude that the Sale Agreement contains a provision under which the transaction cannot occur without defendants' attorney's review and approval of all the relevant documents.

Plaintiff's next argument appears to be that, even if the attorney review and approval clause in Exhibit B is an operative condition precedent, that clause "would not permit defendants to rewrite the terms of their bargain as they attempted to do" when their attorney made a counterproposal. According...