Pinnacle Peak Developers v. TRW Inv. Corp.

• Court: Arizona Court of Appeals
• Writing for the Court: O'CONNOR; EUBANK, P. J., and HAIRE
• Citation: Pinnacle Peak Developers v. TRW Inv. Corp., 631 P.2d 540, 129 Ariz. 385 (Ariz. App. 1980)
• Decision Date: 28 October 1980
• Docket Number: CA-CIV,No. 1,1
• Parties: PINNACLE PEAK DEVELOPERS, a joint venture; Amtitle Trust Co., an Arizona corporation, as Trustee of Trust 6177; Nichimen Co., a New York Corporation; Toyo Real Estate Company, U. S. A., Inc., a California Corporation; Jerry Nelson and Florence E. Nelson, husband and wife, Plaintiffs-Appellees, v. TRW INVESTMENT CORPORATION, an Arizona Corporation, Defendant-Counterclaimant-Appellant. 4577.

Page 540

631 P.2d 540

129 Ariz. 385

PINNACLE PEAK DEVELOPERS, a joint venture; Amtitle Trust Co., an Arizona corporation, as Trustee of Trust 6177; Nichimen Co., a New York Corporation; Toyo Real Estate Company, U. S. A., Inc., a California Corporation; Jerry Nelson and Florence E. Nelson, husband and wife, Plaintiffs-Appellees, v. TRW INVESTMENT CORPORATION, an Arizona Corporation, Defendant-Counterclaimant-Appellant.

No. 1 CA-CIV 4577.

Court of Appeals of Arizona, Division 1, Department B.

Oct. 28, 1980.

Review Denied Nov. 18, 1980.

Snell & Wilmer by George H. Lyons, Phoenix, for plaintiffs-appellees.

Behrens, MacLean & Jacques, Ltd. by William F. Behrens, Phoenix, for defendant-counterclaimant-appellant.

SUPPLEMENTAL OPINION ON REHEARING

O'CONNOR, Judge.

Appellees' motion for rehearing of the unpublished Memorandum Decision filed in this case on June 3, 1980, has been granted. Because of the confusion which exists in the judicial opinions in this state and elsewhere on the question of application of the parol evidence rule to allegations of promissory fraud when it contradicts or varies the terms of the written agreement of the parties, we have decided to expand and modify in part our previous decision.

This appeal is from a partial summary judgment quieting title to a 131 acre parcel of real property in appellees, and awarding attorneys' fees to appellees. The trial court determined that appellant's option to purchase the land had expired. Appellant alleges there was evidence before the trial court that the appellees prevented appellant from complying with the terms of the option, and that appellees fraudulently induced appellant's delay in performance, thereby excusing a delay in appellant's performance.

In January, 1976, one of the appellees, Pinnacle Peak Developers, sold forty acres of land to appellant for a residential subdivision development. At the same time, appellee, Pinnacle Peak Developers, entered into a written option agreement with appellant, TRW Investment Corporation, in which appellant was granted an option to purchase approximately 131 additional acres of land in three stages and on certain express terms and conditions. The first stage of the option was to expire June 15, 1977, and could be exercised by appellant "if, and only if, (appellant) has installed the off-site improvements required by Section XXXIII of (the) Trust Agreement ... on not less than fifty percent (of the forty acre parcel)." Failure to exercise the first stage of the option was to terminate the balance of appellant's option rights. The off-site improvements to be provided by appellant included electrical and telephone lines, marking of boundaries of the lots, grading, roads, and a water distribution system. Appellant did not complete the required off-site improvements until July 15, 1977, some thirty days after the deadline in the option agreement.

Appellant attempted to exercise the first stage of the option. Appellees refused to allow it on the grounds that the option had expired without completion of the required improvements. After the refusal, appellant recorded the option agreement in the office of the Maricopa County recorder. Appellees then filed suit against appellant, alleging in Count I of the complaint a cause of action for slander of title and interference with business relations, and in Count II a cause of action to quiet title to the property covered by the option. Appellant answered and counterclaimed for specific performance of the option and for damages for fraud in the inducement.

After various motions made in the trial court, the court granted partial summary judgment to appellees by quieting title to the property covered by the option in Pinnacle Peak Developers and awarding attorneys' fees of $19,595.25 for the quiet title claim.

A motion for summary judgment should be granted only where the pleadings, depositions, admissions on file, and affidavits, if any, show that there is no genuine issue as to any material fact. Northen v. Elledge, 72 Ariz. 166, 232 P.2d 111 (1951). As stated in Dutch Inns of America, Inc. v. Horizon Corp., 18 Ariz.App. 116, 118-19, 500 P.2d 901, 903-04 (1972):

(T)here are two prerequisites that must be met before entry of summary judgment is appropriate: (1) The record before the court must show that there is no genuine dispute as to any material fact and that only one inference can be drawn from those undisputed material facts and (2) that based on the undisputed material facts the moving party is entitled to judgment as a matter of law. (Citation omitted)

In reviewing the granting of a motion for summary judgment, we must view the evidence in the light most favorable to the party opposing the motion, and the motion should be denied if there are any material issues of fact to be litigated.

Appellant contends that summary judgment was not proper because there was an issue of material fact as to its affirmative defense of fraudulent inducement. Specifically, appellant alleged that appellees falsely and fraudulently stated to appellant in December, 1975, prior to execution of the option agreement, that the deadline of June 15, 1977, for completion of the off-site improvements "would not present a problem as long as TRW made reasonable progress." Appellant alleged that the representation was false when it was made, and that in reliance upon the representation, it decided to enter into the purchase of the forty acres and the option agreement, and that the agreements would not have been made but for the representation.

Arizona courts require strict compliance by the holder of an option with the terms of the option. Oberan v. Western Machinery Co., 65 Ariz. 103, 174 P.2d 745 (1946); University Realty & Development Co. v. Omid-Gaf, Inc., 19 Ariz.App. 488, 508 P.2d 747 (1973). The requirements of completion of the off-site improvements and exercise of the option by June 15, 1977, are clear and unambiguous. The express terms and conditions precedent of a contract will be enforced by the courts regardless of the harshness or severity of the result. Arizona Land Title & Trust Co. v. Safeway Stores, Inc., 6 Ariz.App. 52, 429 P.2d 686 (1967); 5 Williston on Contracts § 669, at 154 (3d ed. 1961 & Supp. 1979).

Appellees argue that evidence of the alleged oral representation made prior to execution of the option agreement would be barred by the parol evidence rule, citing Standage Ventures, Inc. v. State, 114 Ariz. 480, 562 P.2d 360 (1977); Sun Lodge, Inc. v. Ramada Development Co., 124 Ariz. 540, 606 P.2d 30 (App. 1979); 7-G Ranching Co. v. Stites, 4 Ariz.App. 228, 419 P.2d 358 (1966); and Apolito v. Johnson, 3 Ariz.App. 358, 414 P.2d 442 (1966). Appellant cites authorities for the proposition that parol evidence is admissible to show fraud in the inducement even though it has the effect of varying the terms of the written agreement of the parties. See Lusk Corp. v. Burgess, 85 Ariz. 90, 332 P.2d 493 (1958); Lutfy v. R.D. Roper & Sons Motor Co., 57 Ariz. 495, 115 P.2d 161 (1941); Dowdle v. Young, 1 Ariz.App. 255, 401 P.2d 740 (1965).

The appellant urges the admissibility of evidence of an oral promissory representation by appellee, which was made prior to the execution of the written option agreement and which is contrary to an express provision of the written agreement. Appellant offers the evidence and alleges that appellee's promissory representation was false when made, was made with an intention not to honor it, and that appellant relied upon it. Appellant seeks to use the allegation of fraud in the inducement as a defense to appellee's quiet title claim. Appellant does not seek to void the option agreement; it seeks to enforce it, and to excuse appellant's failure to fulfill an express condition of the written option agreement.

A promise, when made with a present intention not to perform it, is a misrepresentation which can give rise to an action of fraud. Restatement of Contracts § 473 (1932); Restatement of Torts § 530 (1938). As stated in Waddell v. White, 56 Ariz. 420, 428, 108 P.2d 565, 569 (1940):

Representations which give rise to an action of fraud must, of course, be of matters of fact which exist in the present, and not merely an agreement or promise to do something in the future, or an expression of opinion or judgment as to something which has happened or is expected to happen. To this there is one exception, that when a promise to perform a future act is made with the present intention on the part of the promisor that he will not perform it, it is such a representation as will give rise to an action of fraud. Law v. Sidney, 47 Ariz. 1, 53 P.2d 64.

See also Jamison v. Southern States Life Insurance Co., 3 Ariz.App. 131, 412 P.2d 306 (1966); James and Gray, Misrepresentation (pt. II), 37 Md.Law Rev. 488 (1978).

A good statement of the parol evidence rule is found in Childres and Spitz, Status in the Law of Contract, 47 N.Y.U.L.Rev. 1, at 6-7 (1972):

The parol evidence rule, as traditionally stated, renders inadmissible any evidence of prior or contemporaneous oral understandings and of prior written understandings, which would contradict, vary or add to a written contract which was intended as the final and complete statement or integration of the parties' agreement. There are three situations in which it is said that the above rule does not apply and parol evidence is admissible: (1) to show that no contract was in fact made (e.g., because of non-delivery or conditional delivery), or that the contract is voidable for fraud, mistake, duress, undue influence, incapacity or illegality; (2) to demonstrate that the parties intended the writing to be only a partial integration of their agreement, thereby permitting the existence of non-contradictory collateral agreements to be proved; and (3) to assist in the interpretation of the contract, or to prove the usages and customs in relation to which the parties contracted, thus allowing the addition...