Puget Sound Power & Light Co. v. Shulman

• Decision Date: 03 October 1974
• Docket Number: No. 43103,43103
• Court: Washington Supreme Court
• Parties: PUGET SOUND POWER & LIGHT COMPANY, a Washington corporation, Respondent, v. Alex SHULMAN and Freda Shulman, his wife, Respondents, Brittany House Apartment Company, a partnership, et al., Appellants.

Page 433

84 Wn.2d 433

526 P.2d 1210

PUGET SOUND POWER & LIGHT COMPANY, a Washington corporation, Respondent, v. Alex SHULMAN and Freda Shulman, his wife, Respondents, Brittany House Apartment Company, a partnership, et al., Appellants.

No. 43103.

Supreme Court of Washington, En Banc.

Oct. 3, 1974.

Rehearing Denied Dec. 17, 1974.

William M. Robinson, Hullin, Roberts, Mines, Fite & Riveland, John A. Roberts, Dale Riveland, Seattle, for appellants.

Perkins, Coie, Stone, Olsen & Williams, Omar S. Parker, Jr., Bogle, Gates, Dobrin, Wakefield & Long, Don Paul Badgley, Dale B. Ramerman, Seattle, for respondents.

ROSELLINI, Associate Justice.

This action was originally brought against Alex Shulman, holder of title to a property known as the Brittany House Apartment, to recover rentals due the Puget Sound Power & Light Company on water heaters located in apartments on the property. The former owners were later joined, as was the contractor who built two buildings which are the subject of the dispute before the court on this appeal and who at the time of the trial held the sellers' interest by assignment. The matter was tried to the court. Its disposition of the light company's claim has not been challenged.

The appellants Jack Nettleship and Consolidated General Company were the former owners of the Brittany House Apartment. They will be referred to herein as the sellers. They and others who together, in the spring of 1968, were constructing seven apartment projects in King and Snohomish Counties, approached Shulman seeking a loan of $250,000 as additional interim financing to complete the construction of these buildings. Shulman would not agree to make them a loan directly, but did agree to purchase their interest in one of the apartments, the Brittany House, for $110,000 and to guarantee an additional loan of $150,000. The agreement of sale covering the Brittany House project provided that Shulman would take title immediately but would not be obligated to pay the purchase price until 10 new units which were under construction were completed.

There were already upon the property 35 units housed in two buildings, and these units were rented or available for rental at the time of the transaction.

The agreement provided that the new units would be constructed

in a good and workmanlike manner in accordance with said plans and specifications and (would) be of a quality and class comparable to similar improvements presently situated on the property.

The agreement further provided that if the seller should fail to construct and install and complete the additional improvements the purchaser would suffer damages which would be difficult to ascertain with particularity. Accordingly, it provided that, as liquidated damages, the purchaser would be entitled to retain all rents he had received with respect to the property and the seller should pay to the purchaser the further sum of $44,000 within 30 days after the date provided in the instrument for the completion of the construction of the improvements, and that thereupon the purchaser would reconvey the property to the seller by quitclaim deed. The purchaser was given the right, at his option, to elect to waive any claim for damages and to retain the property and pay the purchase price of $110,000. The agreement provided that a mortgage or deed of trust should be executed by the sellers in favor of the purchaser to secure the payment of the $44,000 liquidated damages.

The agreement referred to an existing interim mortgage and to a commitment covering a long-term mortgage to be substituted for the interim mortgage upon the completion of the new units. Shulman took the properties subject to these mortgages and did not expressly agree to assume them.

This agreement was dated July 17, 1968. On December 27, 1968, a supplemental agreement was executed. This agreement recited that it was made for the purpose of resolving disputes which had arisen as to whether the former agreement was being performed. Among other revisions the purchase price was reduced from $110,000 to $90,000. The provision for liquidated damages was not altered.

Some months after the new buildings were built and ready for occupancy, Shulman, through his attorneys, notified the sellers that becuase of defects in the construction, he was exercising his option to demand payment of the liquiated damages. Thirty days passed, and the damages were not paid. Shulman continued in possession of the premises and continued to make the mortgage payments, using the rentals to the extent that they were available for that purpose, and was still in possession when this litigation was instituted.

In the meantime, the parties had continued to negotiate the terms and conditions for the obtaining of a loan, to be guaranteed by Shulman. Shulman acted as the sellers' representative in dealing with the lending agency, and an agreement was reached. However, it was then discovered that one of the major properties which was to serve as security was still subject to an interim loan, and that its completion date was not in sight, whereas the agreement had provided that upon the date the loan was disbursed, long-term financing should be in effect on that property. Long-term financing would not be a available until completion of the project. During the next few weeks, Shulman endeavored to find a way to provide the loan in spite of this problem, and eventually succeeded in arranging a commitment. By this time, however, the sellers' financial situation had deteriorated to the point that they were forced to sell their interest in the properties to another financing institution, and they could not take advantage of Shulman's offer.

In disposing of the claim of Puget Sound Power & Light Company, the trial court was faced with the necessity of resolving the disputes between these parties. It was the theory of Shulman, adopted by the trial court, that his damages resulting from the failure to complete the new units to his satisfaction were greater than the purchase price. In fact the trial court awarded Shulman a judgment in excess of $90,000, and decreed that if that amount were paid within 30 days after the judgment was entered, Shulman should reconvey the property to the sellers, but that if the judgment were not paid, Shulman would be entitled to retain title to the property. In that event, that judgment would be reduced in the amount of the liquidated damages, and the sellers would remain obligated to pay Shulman the balance, which represented mortgage payments he had made that had exceeded the amount of rentals received upon the new units prior to the date of trial.

Error is assigned to the trial court's conclusion that the sellers' failure to pay Shulman the sum of $44,000 within 30 days from the date of demand constituted a separate and distinct breach of contract for which Shulman was entitled to damages, which included not only the liquidated damages plus interest but also the sums in excess of $3,066 per month which became due upon the underlying mortgage after the new units were built and ready for occupancy, which the court found to be in the amount of $35,227.

This conclusion was based upon the trial court's interpretation of the following provision of the sale agreement:

(T)hat from and after the date of such conveyance and until such additional improvements shall be constructed and installed, the maximum monthly installments required to be paid upon said existing encumbrances or upon said new mortgage, as the case may be, shall not exceed $3,066.00 per month (including principal and interest), and that after such additional improvements shall be constructed and installed, the maximum monthly payments shall not exceed the monthly installments set forth in the aforesaid commitment attached hereto as Exhibit B; . . .

The monthly payments referred to in Exhibit B were in the amount of $5,249. The completion date provided in the agreement was February 28, 1970. However, the units were built, accepted by the long-term lender, and occupied by tenants on July 1, 1969. Shulman was required to make a $9,548.64 mortgage payment on February 1, 1969, and to pay $5,249 per month thereafter in order to avoid a default.

It appears certain from the language of the quoted provisions, read in the light of the circumstances and the contract as a whole, that the parties knew that when the new units were completed to the satisfaction of the long-term lender, the interim loan (payable on demand) would be replaced by the long-term loan (payable over a period of 25 years).

They also understood that the monthly payments would be increased when the new units were ready for occupancy, and that the rentals received would be available to apply against these payments. It is not clear whether the parties contemplated that, if the new units were completed in accordance with the specifications and were of the same quality and workmanship as the old units, the rentals realized from them could be expected to cover the increased payments. There was evidence that Shulman understood that income from this property would not always be sufficient to meet the mortgage payments. But we will assume that it was contemplated that the rentals would take care of these payments.

The evidence offered by Shulman, which was accepted by the trial court, tended to show that the materials used, particularly in details...