Pardee v. Jolly

• Decision Date: 08 May 2008
• Docket Number: No. 80066-9.,80066-9.
• Citation: 163 Wn.2d 558,182 P.3d 967
• Court: Washington Supreme Court
• Parties: Gary PARDEE, a single person, Petitioner, v. Willis JOLLY, a single person, Respondent.

182 P.3d 967

163 Wn.2d 558

Gary PARDEE, a single person, Petitioner, v. Willis JOLLY, a single person, Respondent.

No. 80066-9.

Supreme Court of Washington, En Banc.

Argued February 28, 2008.

Decided May 8, 2008.

Garold Edwin Johnson, Mann Johnson Wooster & McLaughlin, Tacoma, for Petitioner.

David C. Hammermaster, Sumner, for Respondent.

FAIRHURST, J.

¶ 1 Petitioner Gary Pardee, the optionee, filed suit against respondent, Willis Jolly, the optionor, seeking specific performance of an option to purchase real property. The trial court found Pardee performed in accordance with the terms of the contract and ordered Jolly to sell the property to Pardee. Jolly appealed and the Court of Appeals reversed. Pardee petitioned this court for discretionary review, which we granted.

¶ 2 We affirm the Court of Appeals in part and reverse in part. We hold substantial evidence supports the trial court's finding that Pardee made the final option payment a couple of weeks after December 21, 2004, but the trial court's finding that this payment was at the same time Pardee notified Jolly of his intent to exercise the option is not supported by substantial evidence. Thus, we hold Pardee did not perform according to the terms of the option contract. We also hold Pardee may be entitled to an equitable grace period and remand the case to the trial court to determine whether such a grace period should be extended and whether specific performance should be ordered.

I. STATEMENT OF THE CASE

¶ 3 Pardee and Jolly entered into an option to purchase real estate on January 18, 2004. By the terms of the contract, Pardee was required to pay an initial $10,000 plus $500 per month for one year, for a total payment of $16,000. The $16,000 in option payments would be deemed a partial down payment on the $300,000 purchase price of the property.¹ The option could be exercised by Pardee in the following manner:

Once the purchaser has paid the full amount of option money, the option shall terminate unless the Purchaser notifies the Seller in writing at the time the Purchaser makes the last option payment that the Purchaser is exercising its option to purchase. If the Purchaser exercises the option, then the sale shall close pursuant to the terms of this Agreement. If the Purchaser does not exercise the option, then this Agreement shall terminate. At any time during the term of the option, the Purchaser may pay the full amount of the option money due and must, at the same time, exercise its option to purchase the Property by giving written notice to the Seller at the address to which the monthly option payments are made. However, if the Purchaser does not exercise its option to purchase the Property prior to termination of the option term, this Agreement shall terminate without further notice to Purchaser, and the Purchaser shall lose all interest and rights in the property.

Ex. 1, ¶ 3.

¶ 4 The contract also provided Pardee with the right to occupy and improve the property during the option period but did not explicitly provide to whom the benefit of the improvements would inure if the option terminated.² The property in question included a dilapidated, vandalized house and a barn. After entering into the agreement, Pardee began making extensive repairs to the house, including installing new windows and doors, replacing the roof and siding, installing kitchen cabinets, procuring running water, adding fixtures to the kitchen and bathroom, replacing interior walls and floors, painting, and installing fireplaces and skylights. Pardee testified that the materials used in renovating the house cost $20,669.58. He also testified that he worked at least 2,500 hours in repairing the house. Pardee eventually moved into the house and appears to still be living there.

¶ 5 Pardee tendered one check for $10,000 and another for $1,000 when he signed the agreement on January 18, 2004. He continued to make timely payments by writing $1,000 checks every two months and tendered the final check on November 10, 2004. Pardee did not notify Jolly in writing that he intended to exercise the option in November.³ Jolly then realized he needed to cash two of Pardee's earlier checks. When Jolly went to the bank to cash the $10,000 check from January, the bank dishonored it because it was stale. Jolly contacted Pardee, who voluntarily replaced the stale check with a new check for $10,000 on December 21, 2004. Jolly then tried to cash a $1,000 check from the previous spring, which was also dishonored by the bank because it was stale. "[A] couple of weeks" after December 21, 2004, Pardee wrote Jolly a new check to replace the $1,000 check.⁴ Clerk's Papers (CP) at 103.

¶ 6 On January 14, 2005, Pardee sent a letter expressing his intent to exercise the option by certified mail. Jolly acknowledged receiving the letter on either January 15 or 16. After receiving the letter, Jolly told Pardee the option terminated the previous November and refused to sell the property. Pardee sued Jolly for specific performance of the contract or, in the alternative, reimbursement for the improvements he made to the property under the theory of quantum meruit. Jolly counterclaimed for a writ of restitution or ejectment and for reasonable rent for the time that Pardee occupied the premises.

¶ 7 The trial court determined Pardee was entitled to specific performance because the written notice was "contemporaneous with the re-issuance of the $1,000.00 check." CP at 104. The court also found the agreement contained no lease provisions and Jolly failed to provide adequate evidence as to the reasonable rental value of the residence. The court awarded Pardee attorney fees under the terms of the contract. Jolly moved for a new trial or reconsideration on the basis of newly discovered evidence.⁵ The trial court denied Jolly's motion because the evidence produced in support of the motion could have been discovered before trial. Jolly appealed.

¶ 8 The Court of Appeals reversed, holding Pardee's notice of his intent to exercise the option was not contemporaneous with his final payment on November 10, 2004. Pardee v. Jolly, noted at 136 Wash.App. 1055, 2007 WL 274787, slip op. at 4 (2007). The court noted that even if the reissued $1,000 check was the final payment, it was cashed sometime in December. On reconsideration, the Court of Appeals considered the evidence submitted by Jolly postverdict and stated that even if the last payment was on January 11, 2005, the payment and notification were not contemporaneous. The Court of Appeals did not address Pardee's equitable arguments. Pardee petitioned for discretionary review from this court, which we granted. Pardee v. Jolly, 162 Wash.2d 1011, 175 P.3d 1094 (2008).

II. ISSUES

(1) Whether the contract violates the statute of frauds and, if so, whether it is enforceable.

(2) Whether Pardee is entitled to specific performance under the terms of the contract.

(3) Whether Pardee is entitled to an equitable grace period and specific performance of the contract.

III. ANALYSIS

A. Standard of review

¶ 9 Findings of fact are reviewed under a substantial evidence standard, which requires that there be a sufficient quantum of evidence in the record to persuade a reasonable person that a finding of fact is true. Sunnyside Valley Irrigation Dist. v. Dickie, 149 Wash.2d 873, 879, 73 P.3d 369 (2003). If substantial evidence supports a finding of fact, an appellate court should not substitute its judgment for that of the trial court. Id. at 879-80, 73 P.3d 369. Questions of law are reviewed de novo. Id. at 880, 73 P.3d 369. The parties' intentions are questions of fact, while the legal consequences of such intentions are questions of law. Id.

B. The contract is enforceable under the part performance exception to the statute of frauds

¶ 10 Jolly argues the option agreement is unenforceable because it violates the statute of frauds. The statute of frauds, by its terms, applies to "[e]very conveyance of real estate, or any interest therein, and every contract creating or evidencing any encumbrance upon real estate." RCW 64.04.010. Under the statute of frauds, contracts for the sale or conveyance of real property must include a legal description of the property. Key Design Inc. v. Moser, 138 Wash.2d 875, 881, 983 P.2d 653, 993 P.2d 900 (1999). A contract for the sale or conveyance of platted real property must include a description of the property with the correct lot number, block number, addition, city, county, and state. Martin v. Seigel, 35 Wash.2d 223, 229, 212 P.2d 107 (1949). An option to purchase real estate is subject to the statute of frauds. 4 CAROLINE N. BROWN, CORBIN ON CONTRACTS § 17.19, at 490 (rev. ed.1997); Powers v. Hastings, 93 Wash.2d 709, 711 n. 1, 612 P.2d 371 (1980) (noting that a three year lease with an option to purchase real property falls within either the statute of frauds for contracts over one year or the real estate statute); Woolen v. Sloan, 94 Wash. 551, 553, 162 P. 985 (1917) ("[t]he option contract, being for real estate, of course was required by the statute of frauds to be in writing"); Broadway Hosp. & Sanitarium v. Decker, 47 Wash. 586, 589-90, 92 P. 445 (1907) (applying the statute of frauds to a lease with an option to purchase property).

¶ 11 Part performance removes a contract from the statute of frauds if a party is able to show: "(1) delivery and assumption of actual and exclusive possession; (2) payment or tender of consideration; and (3) the making of permanent, substantial and valuable improvements, referable to the contract." Powers, 93 Wash.2d at 717, 612 P.2d 371; Berg v. Ting, 125 Wash.2d 544, 555, 886 P.2d 564 (1995) (applying doctrine of part performance to agreements containing inadequate legal descriptions). A strong case for the application of the part performance doctrine exists where all three factors are established. Berg, 125 Wash.2d at 557, 886 P.2d 564.

¶ 12 In this case, the contract contains an...