Pacific Northwest Group A v. Pizza Blends, Inc.

• Decision Date: 02 March 1998
• Docket Number: No. 39994-2-I,39994-2-I
• Citation: 951 P.2d 826,90 Wn.App. 273
• Parties: PACIFIC NORTHWEST GROUP A, a joint venture, Respondent/Cross Appellant, v. PIZZA BLENDS, INC., dba Flavor Blends, Inc. a Washington corporation, Appellant/Cross Respondent.
• Court: Washington Court of Appeals

Page 273

90 Wn.App. 273

951 P.2d 826

PACIFIC NORTHWEST GROUP A, a joint venture, Respondent/Cross Appellant, v. PIZZA BLENDS, INC., dba Flavor Blends, Inc. a Washington corporation, Appellant/Cross Respondent.

No. 39994-2-I.

Court of Appeals of Washington,

Division 1.

March 2, 1998.

Michael J. Warren, Warren & Samples, Seattle, for Respondent/Cross Appellant.

David C. Lundsgaard, Graham & Dunn, Seattle, for Appellant/Cross Respondent.

ELLINGTON, Judge.

This case requires us to decide whether summary judgment was properly granted to Pacific Northwest Group for outstanding rent allegedly incurred by Pizza Blends as a holdover tenant. The fundamental issue is whether the parties could orally contract to extend Pizza Blends' tenancy on a month-to-month basis at the original rate, despite a holdover rent requirement in the original written lease and a clause prohibiting oral modification. Long-standing precedent dictates that such clauses are unenforceable because they can be orally abrogated. It is a question of fact whether the clause was abrogated here. Summary judgment was therefore improper.

Facts

Pizza Blends leased a commercial space from Pacific Northwest Group. The parties' original written five-year lease prohibited oral modification, and provided that if Pizza Blends "held over" beyond the five-year term, rent would be assessed at 1.5 times the normal monthly rate.

Trammel Crow Company managed the property on behalf of Pacific and attempted to negotiate a new lease with Pizza Blends as the September 30, 1995 expiration date approached. No new written lease was ever executed, however, because the parties could not agree to a term: Pacific wanted a one year lease; Pizza Blends wanted a six-month lease.

On summary judgment, Dave Hoffman, a vice president of Pizza Blends, testified that he and Terry McAleer, the marketing director of Trammel Crow, negotiated new lease terms in early September. Hoffman testified that they discussed the possibility that Pizza Blends could pay the normal rent on a month-to-month basis after the written lease expired. According to Hoffman, McAleer was amenable to such an arrangement because no other party was interested in leasing the space. McAleer was to obtain permission from his supervisor to authorize such an agreement and was to call Hoffman if there was a problem. Hoffman never heard from McAleer again.

Mark Schuur, Pizza Blends' former chief financial officer, testified that he had numerous discussions with McAleer as to the effect of a holdover tenancy. According to Schuur, McAleer "expressly agreed" that Pizza Blends could hold over and pay the normal rent. A letter Schuur wrote to McAleer on the day before the written lease expired purports to document this agreement:

We are disappointed that you have refused our offer for a six month lease with an option to renew for three years on our space at Northwest Corporate Park-Kent.

This letter documents your desire to continue with us on a month to month basis with 30 days notice to vacate. We will continue to make our normal monthly rent payment until either party gives notice.

Schuur testified that he called McAleer to verify that he received this letter, and that McAleer accepted its terms. ¹

Schuur testified that without the "normal rent" agreement, Pizza Blends would have timely vacated. McAleer denied telling either Hoffman or Schuur that Pizza Blends could extend its tenancy without being obligated to pay the written holdover rate.

On the first business day that followed McAleer's receipt of Schuur's letter, Tom Gehrig, a Trammel Crow property manager, wrote to Hoffman and explained that the holdover rent specified by the written lease would be assessed. Gehrig's letter does not mention Schuur's, but McAleer is listed on the "cc line." ²

There is no unequivocal evidence in the record documenting that the parties had any discussions during the next three months. In January 1996, however, Pacific sent at least two notices to Pizza Blends complaining about the alleged rent delinquency. Schuur became aware of this dispute and called John Robertson, Trammel Crow's property manager responsible for landlord-tenant relations. Schuur testified he left several voice mail messages explaining Pizza Blends' position before he was able to schedule a meeting with Robertson. The two apparently met in February, at which time Robertson maintained Pacific's position that the holdover rate applied. Pizza Blends vacated the premises on March 31, 1996.

Pacific brought this suit to recover the holdover rent and associated late fees. The trial court granted summary judgment to Pacific, finding that there was no issue of fact as to the enforceability of the holdover provision.

Holdover Rent

Summary judgment is proper only when there is no question of material fact and the moving party is entitled to judgment as a matter of law. See CR 56(c). The issue here is whether the alleged oral modification of the existing lease creates a question of material fact.

A paradox of the common law is that a contract clause prohibiting oral modifications is essentially unenforceable because the clause itself is subject to oral modification. See, e.g., Martinsville Nylon Employees Council Corp. v. NLRB, 969 F.2d 1263, 1267 (D.C.Cir.1992). The common law rule has been lauded as allowing parties to quickly modify their contractual obligations when faced with unforeseen circumstances, see Cert'd Corp. v. Hawaii Teamsters & Allied Workers, 597 F.2d 1269, 1271 (9th Cir.1979); Martinsville, 969 F.2d at 1270-72 (Wald, J., dissenting), and has been consistently followed in Washington, see Kelly Springfield Tire Co. v. Faulkner, 191 Wash. 549, 554-56, 71 P.2d 382 (1937) (citing Ritchie v. State, 39 Wash. 95, 81 P. 79 (1905)); Consol. Elect. Distrib., Inc. v. Gier, 24 Wash.App. 671, 677-78, 602 P.2d 1206 (1979).

For example, in Kelly the issue was whether a guaranty could be orally modified despite a contractual prohibition of such modification. There the guarantor claimed that the respondent tire company orally agreed to release the guarantor from his obligations. The trial court precluded the presentation of such a defense, finding that it was barred by the written agreement, which required that "any variance be in writing [and] signed by specific officers ... of the [tire] company." The Supreme Court reversed, stating that

[I]t is well settled that ... a contract may be modified or abrogated by the parties thereto in any manner they choose, notwithstanding provisions therein prohibiting its modification or abrogation except in a particular manner.

Kelly, 191 Wash. at 556, 71 P.2d 382.

This court more recently addressed the issue in Consolidated Electrical, which like Kelly, asked whether a guaranty could be orally modified despite a clause prohibiting such modification. The guarantor claimed that the creditor orally absolved the guaranty. The trial court stated that "it [was] clear that the contract could be abrogated by a subsequent oral agreement[,]" but refused to enforce such an agreement finding no consideration. Summary judgment was then entered for the creditor. On appeal, this court found that the parties' mutual surrender of contract rights comprised adequate consideration. The summary judgment ruling was therefore reversed because the debtor's sworn testimony that the creditor waived the guaranty raised a question of material fact as to whether the guaranty was orally terminated. Consol. Elect., 24 Wash.App. at 672, 675, 677-78, 680-81, 602 P.2d 1206.

Other jurisdictions also follow the common law rule. For example, Wahlder v. Tiger Stop, Inc., 391 So.2d 535, 537-38 (La.Ct.App.1980), rev. denied, 396 So.2d 1351 (La.1981) presents facts similar to those alleged by Pizza Blends. In that case, a commercial tenant leased a space with the option to extend the lease term on a yearly basis so long as two months' written notice was provided. The corporate tenant neglected to provide the required written notice. The tenant's agent therefore telephoned the landlord and explained the situation. In their conversation, the parties agreed to extend the lease, and the tenant memorialized this agreement in two letters. Approximately two days later, however, the landlord attempted to rescind his earlier verbal agreement, instructing the tenant to vacate the premises. The tenant refused, and an eviction proceeding ensued. Despite a clause in the lease that prohibited oral modifications, the trial court found that the parties orally agreed to extend the lease. The appellate court upheld this finding, noting that the parties can orally agree to extend a lease despite such contradicting clauses. Wahlder, 391 So.2d at 536-38, 538 n. 3.

The above authorities notwithstanding, the common law rule has its detractors. It has been criticized because it denies, to even the most sophisticated parties, the ability to restrict the manner in which their agreements can be modified. See Martinsville, 969 F.2d at 1267-68 (dicta, 2-1 vote). In apparent recognition of this, our Legislature has abrogated the common law rule in limited circumstances, such as in contracts involving the sale and lease of goods. See RCW 62A.2A-209(2); RCW 62A.2A-208(2). With respect to leases, however, ineffective attempts at modification can still be considered as evidence of waiver. See RCW 62A.2A-208(3)( 4). Other legislatures have gone further. For example, New York and California have abrogated the common law rule for all executory agreements. See New York Gen'l Oblig. L. § 15-301(1); Cal. Civ.Code § 1698. Normal defenses, such as estoppel, waiver, and novation, continue to apply, however, and to the extent the oral agreement has been executed, it remains enforceable under the doctrine of part performance. See, e.g., Corson Corp. v. Frontier, Inc., 55 Wash.2d 652, 654-55, 349 P.2d 424 (1960); Cal. Civ.Code § 1698.

Our Legislature has not, however, abrogated the rule for...