Pollard v. City of Bozeman

• Decision Date: 20 August 1987
• Docket Number: No. 87-01,87-01
• Citation: 741 P.2d 776,228 Mont. 176
• Parties: Dean POLLARD and Pollard Finance Corporation, Plaintiffs and Appellants, v. CITY OF BOZEMAN, Gallatin County Tax Assessor's Office, the County of Gallatin, and Does I through XX, Defendants and Respondents.
• Court: Montana Supreme Court

Page 776

741 P.2d 776

228 Mont. 176

Dean POLLARD and Pollard Finance Corporation, Plaintiffs and Appellants, v. CITY OF BOZEMAN, Gallatin County Tax Assessor's Office, the

County of Gallatin, and Does I through XX,

Defendants and Respondents.

No. 87-01.

Supreme Court of Montana.

Submitted on Briefs June 4, 1987.

Decided Aug. 20, 1987.

Jerry R. Bechhold, Bozeman, for plaintiffs and appellants.

A. Michael Salvagni, Co. Atty., Landoe, Brown, Planalp, Kommers & Johnstone, Robert Planalp, Bozeman, for defendants and respondents.

SHEEHY, Justice.

Plaintiff-Appellant Pollard Finance Corporation (Pollard) appeals an order of the District Court of the Eighteenth Judicial District, Gallatin County, granting defendant/respondent City of Bozeman's motion for summary judgment.

The City of Bozeman (City) entered an agreement with Pollard Finance in November 1981 for the construction and lease of a vehicle storage building on City-owned land. The agreement provided that in consideration for construction and use the City would pay Pollard rent in the amount of $2,888 per month for five years with options to renew the agreement for three additional five year periods. The agreement included an option to purchase throughout the term of the lease, with a provision that after 20 years of leasing the City could purchase the building for $10.00.

The City apparently occupied the building in March 1982. In 1984 Pollard received notice that taxes had been assessed against the building and were owing. Pollard responded by filing a complaint for declaratory relief, attorneys' fees and damages, asserting that the City had, by the terms of the lease agreement, purchased the building and that he was not responsible for taxes assessed against it. His argument before the District Court relied primarily on a citation of this Court's dicta in Hunter v. City of Bozeman (Mont.1985), 700 P.2d 184, 42 St.Rep. 784 where, in referring to the same building at issue here, it was said:

There is substantial credible evidence to support the finding by the trial court that the "lease" was in fact a sale of the building to the City and that this was in effect a public works project.

Id. at 187, 42 St.Rep. at 787.

Pollard did not respond to the City's argument, contained in its motion for summary judgment, that the lease clearly and unambiguously provided that Pollard was the owner of the building. The City also distinguished Hunter as addressing only the issue of prevailing wage rates, not ownership. The District Court agreed with the City's assertions and granted its motion for summary judgment.

Pollard raises seven issues on appeal, three of which we will not address because they were not discussed at the trial court level. State v. Armstrong (1977), 172 Mont. 296, 562 P.2d 1129.

The remaining four issues can be consolidated as follows:

1. Did the District Court err in finding that Pollard was the owner of the building under the terms of the lease for purposes of assessment of taxes?

2. Did the District Court properly award the City of Bozeman attorneys' fees?

The language of the lease central to the first issue reads:

WHEREAS, the Landlord [Pollard] has agreed to construct and own in its own name solely a vehicle storage building for the various utilities of the City of Bozeman, ....

NOW, THEREFORE, in mutual consideration of the covenants contained herein, it is hereby agreed as follows:

1. Description of Premises. Landlord leases to Tenant the structure to be construed [sic] and owned by the Landlord and more specifically described and set out in Exhibit "A".... This structure, which shall be constructed by the Landlord, shall be located on real property owned by the Tenant ...

* * *

21. Option of Tenant to Purchase. The Tenant shall have the option to purchase the leased premises at any time during the lease period or any renewals thereof. The purchase price shall be the total rent for one five-year period multiplied by four less all rent paid pursuant to this lease. If this lease is renewed for the third time, at the end of the twentieth year, the Tenant shall receive the building for the sum of $10.00 cash. The other consideration shall be the continuing of performance of this lease by the Tenant. The parties designate First Bank of Bozeman, Bozeman, Montana, as the escrow agent of this agreement. The Landlord shall deposit a copy of this lease together with a bill of sale and a quitclaim deed transferring the structure and improvements to the Tenant. The Landlord covenants not to allow any liens or encumbrances on the leased premises during the term of this agreement, and further covenants the transfer of the property to the Tenant shall be free and clear of all liens, encumbrances and restrictions of record.

Pollard argues on appeal that the arrangement agreed to in the lease in fact constituted a sale of the property. Proof of the sale is found, he argues, in the fact that Pollard granted the property to the City of Bozeman by quit claim deed deposited in the escrow account. Further proof is found, he asserts, from the dicta in Hunter, supra, stating that the lease was in fact a sale, and from other lease provisions, such as the liquidated damage clause.

The City responds asserting that the language of the contract was clear and unambiguous in establishing a landlord-tenant relationship and that there was no present intention to convey title, an essential factor distinguishing a sales contract from a lease with an option to purchase. The City also explains that a liquidated damage clause does not convert a lease agreement to a sales contract.

The City's assertions on appeal are based in large part on the reasoning and conclusions set out in the District Court's memorandum in support of its order granting summary judgment. The District Court considered the matter entirely one of contract interpretation, stating that the "crystal clear" language of the document indicated it was a lease with an option to buy. It distinguished Hunter, supra, as a Department of Labor case dealing with prevailing wage rates, and ruled that it was inapplicable. The liquidated damage provision, it explained, was common in lease agreements, not purchase contracts. Hence, the contract was a lease agreement, the District Court concluded, and Pollard, as landlord, was liable for taxes.

Although we agree with the District Court's conclusion that Pollard is liable for the tax, it is not necessary to conclude that the document at issue was a lease with an option to buy. The arrangement more nearly falls under the provisions regarding Retail Installment Sales Contracts.

An option to buy involves a contract wherein the owner agreed to give another the exclusive right to buy property at a fixed price within a specified time. Nielson v. Hendrickson (1922), 63 Mont. 518, 210 P. 905. The option is not a sale. It is not even an agreement for a sale. At best, it is but "a right of election in the party securing the same to exercise a privilege," and only when that privilege has been exercised by acceptance does it become a contract to sell. Ide v. Leiser (1890), 10 Mont. 5, 24 P. 695. In other words, a contract of sale and purchase imposes upon the vendee an obligation to buy. An option confers a privilege or right to elect to buy, but it does not impose any obligation to buy. Ide v. Leiser, 10 Mont. at 11, 24 P. 695; Miller v. Meredith, et al. (1967), 149 Mont. 125, 423 P.2d 595.

The rule pertaining to construing whether a writing transferring an interest in real estate is a contract for sale or an option to purchase depends not only on particular words and phrases, but on the intention of the parties to be derived from the instrument itself by consideration of its parts, and when that is doubtful, from the circumstances attending it. State Commissioner of Transportation v. Bakers Basin Realty Co. (1975), 138 N.J. Super 33, 350 A.2d 236; DeFeyter v. Riley (1979), 43 Colo.App. 299, 606 P.2d 453.

Central to our determination that the parties' agreement was not a lease with an option to purchase is the clause in the contract pertaining to liquidated damages.

23. Liquidated Damages. As an inducement to enter into this lease and to grant to Tenant the extensions and renewals of this lease, the Tenant agrees that in the event the Tenant fails to renew the lease at the end of the original terms of the lease or after the first and second renewal periods, the Tenant shall deposit with escrow agent the sum of $175,000.00...