Property Assistance Corp. v. Roberts, 870489-CA

• Decision Date: 31 January 1989
• Docket Number: No. 870489-CA,870489-CA
• Parties: PROPERTY ASSISTANCE CORPORATION, a Utah corporation, Plaintiff and Respondent, v. Douglas C. ROBERTS and Betty J. Roberts, Defendants and Appellants.
• Court: Utah Court of Appeals

Page 976

768 P.2d 976

PROPERTY ASSISTANCE CORPORATION, a Utah corporation Plaintiff and Respondent, v. Douglas C. ROBERTS and Betty J. Roberts, Defendants and Appellants.

No. 870489-CA.

Court of Appeals of Utah.

Jan. 31, 1989.

M. David Eckersley, Salt Lake City, for defendants-appellants.

Ellen M. Maycock, Salt Lake City, for plaintiff-respondent.

Before DAVIDSON, BENCH and JACKSON, JJ.

BENCH, Judge:

Defendants seek reversal of a decree of specific performance for the sale of real property. On appeal, defendants claim error in the trial court's finding that the contract at issue was not an option contract. We affirm.

Plaintiff Property Assistance Corporation (Property Assistance) is a Utah corporation in the business of investing in distressed real estate. In January 1986, William Oelerich, president and sole employee of Property Assistance, learned that the Sandy, Utah, home of defendants Douglas C. Roberts and Betty J. Roberts was to be sold at a trustee's sale. On behalf of Property Assistance, Oelerich approached the defendants and offered to save their home from the trustee's sale. The agreement that was ultimately signed on February 2, 1986, is the subject of this dispute.

The agreement form, which had been furnished by Oelerich, provided that: 1) Property Assistance would assume responsibility for two outstanding obligations secured by trust deeds on defendants' home; 2) Property Assistance would market the home and attempt to sell it at a fair price; 3) Property Assistance would pay defendants one-quarter of the net proceeds of the sale of the house; 4) defendants would continue to occupy the house and pay rent to Property Assistance until the house was sold; 5) Property Assistance would pay defendants $2,000 in consideration; and 6) settlement would occur on February 4, 1986.

The agreement was executed and the $2,000 consideration paid just three days before the scheduled trustee's sale. Oelerich then deposited $40,000 with the holder of the trust deed in order to postpone the trustee's sale. He also arranged to assume the obligation secured by another trust deed.

On February 7, the parties signed a document extending the date of settlement to February 26. On February 13, Property Assistance accepted an offer to purchase the house for $82,500. Property Assistance and the defendants agreed that it was desirable to avoid two closings on the property.

On February 21, Property Assistance paid off the obligation in default in the amount of $40,069.87. ¹ Oelerich met with the defendants on February 26, again seeking to extend the settlement date. Douglas Roberts refused to sign the extension, stating that he wanted to increase his share of the net proceeds of the sale from one-quarter to one-third. Oelerich accepted a $500 check from the defendants for February rent and told them he would discuss their proposal with counsel. No further rent payments were made and defendants refused to perform under the agreement.

Property Assistance's original complaint sought specific performance of an "option agreement" or, in the alternative, damages. Defendants moved to dismiss the complaint under Utah R.Civ.P. 12(b) on the grounds that Property Assistance had failed to plead all the elements of an option contract. Although the court denied defendants' motion, the parties subsequently stipulated to an amended complaint which omitted all reference to an "option." Cross-motions for summary judgment were denied. In a trial to the court on June 16, 1987, Oelerich testified and was cross-examined. Defendants did not present evidence. The court then entered a decree of specific performance, finding that the agreement was not an option contract, but merely a contract which was "clear and enforceable."

On appeal, defendants dispute the trial court's finding that the original agreement between the parties was not a "true" option contract, but the "equivalent of an earnest money receipt and offer to purchase." They argue that the evidence suggests the agreement was a typical option contract which expired by its terms. Defendants claim that the trial court impermissibly rewrote an unambiguous agreement to incorporate terms which were absent from the contract.

The threshold question of whether or not a contract is ambiguous is a question of law for the court. Faulkner v. Farnsworth, 665 P.2d 1292, 1293 (Utah 1983); Wilburn v. Interstate Elec., 748 P.2d 582, 585 (Utah App.1988), petition for cert. granted 765 P.2d 1277 (Utah 1989). Language may be ambiguous if "the words used to express the meaning and intention of the parties are insufficient in a sense that the contract may be understood to reach two or more plausible meanings." Central Sec. Mut. Ins. Co. v. DePinto, 235 Kan. 331, 681 P.2d 15, 17 (1984) (quoting Western Casualty & Sur. Co. v. Budig, 213 Kan. 517, 519, 516 P.2d 939, 941 (1973)). Once the trial court makes the determination that a contract is ambiguous, "because of the uncertain meaning of terms, missing terms, or other facial deficiencies, parol evidence is admissible to explain the parties' intent." Faulkner, 665 P.2d at 1293. See also Honeyman v. Clostermann, 90 Or.App. 615, 753 P.2d 1384, 1387 (1988) (involving specific performance of earnest money agreement).

Since the trial court heard the parol evidence of William Oelerich regarding the parties' intentions, the court necessarily made the initial determination that the agreement was ambiguous. We review that determination under a correctness standard, Kimball v. Campbell, 699 P.2d 714, 716 (Utah 1985), and conclude as a matter of law that the agreement was ambiguous. The use of a preprinted form with "option" language was confusing and created two plausible meanings, i.e., an option to sell or a contract to sell.

After receiving that parol evidence and apparently resolving the ambiguity, the trial court concluded that the agreement was "clear and enforceable." When a contract is determined to be ambiguous and the trial court resorts to extrinsic evidence respecting the intention of the parties, our review is strictly limited. Wilburn, 748 P.2d at 585. The findings and judgment based on extrinsic evidence will not be disturbed unless "clearly erroneous." Utah R.Civ.P. 52(a). See also Porter v. Groover, 734 P.2d 464, 465 n. 1 (Utah 1987).

After reviewing the record, we are unable to say that the trial court's findings with respect to the parties' intentions are clearly erroneous. The record supports the trial court's view that this was an enforceable contract rather than an expired option contract. The mere fact that Oelerich used a form with "option" language in it to memorialize the agreement does not establish the existence of an option contract. "It is the purpose of the law, and of the court in administering it, to do justice and to look through form to substance when necessary to accomplish that purpose." Dixon v. Stoddard, 627 P.2d 83, 87 (Utah 1981).

An option contract is "a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer." Restatement (Second) of Contracts § 25 (1981). Two elements exist in such a contract: (1) an offer to sell, which does not become a contract until accepted; and (2) a contract to leave the offer open for a specified time. Bonde v. Weber, 6 Ill.2d 365, 128 N.E.2d 883, 888 (1955). See generally 91 C.J.S. Vendor & Purchaser § 4 (1955). Thus, by its terms, an option contract for real property requires one...