Smith v. Melson, Inc., 16088-PR

Decision Date25 January 1983
Docket NumberNo. 16088-PR,16088-PR
Citation659 P.2d 1264,135 Ariz. 119
PartiesJohn E. SMITH and Mary Lou Smith, his wife, Plaintiffs/Appellants, v. MELSON, INC., an Arizona corporation, Joseph Fallini, the State Land Commissioner, and Arizona State Land Department, an Agency of the State of Arizona, Defendants/Appellees.
CourtArizona Supreme Court

Ellis & Baker, P.C. by William D. Baker, Robert S. Porter, Phoenix, for plaintiffs/appellants.

Black, Robertshaw, Frederick, Copple & Wright, P.C. by Frederick O. Robertshaw, Robert K. Corbin, Atty. Gen. by Kathy W. Rand, Asst. Atty. Gen., Phoenix, for defendants/appellees.

HOLOHAN, Chief Justice.

Appellants John E. and Mary Lou Smith appeal from a judgment denying specific performance of a contract. The court of appeals affirmed the judgment of the superior court, Howard, C.J., dissenting. We granted the Smiths' petition for review.

The essential facts are not in dispute, and they show that in October, 1972, Smith became interested in purchasing a portion of the Willow Springs Ranch including 600 acres along the San Pedro River. In November, the owner, Lazy V-P Ranches (Appellee Melson's predecessor in title), applied to the State Land Department to exchange 5,000 acres of patented land for 5,000 acres of state land. Included in the 5,000 acres of patented land were the 600 acres desired by Smith. The land exchange application was given the number 61-14.

In December, Smith offered to buy a part of the ranch. He was informed that 600 acres of the land he sought were part of a land exchange application. An agreement was reached whereby Smith would buy the east end of the ranch excluding the 600 acres in the land exchange, and a separate agreement was to be negotiated concerning the 600 acres. The parties entered into a "range and pasturing agreement" concerning the 600 acres. This agreement referred to the escrow for the purchase of the east end of the ranch. It stated that it was written to establish "continuing range and pasturing rights during the term of the note and mortgage which is the security for the unpaid balance of the purchase price." Payment of the purchase price on the east end transaction was not fully due until 1980.

The agreement concerning the 600 acres provided that Smith was to have grazing rights on the 600 acres during the term of the note and mortgage. It stated that Lazy V-P "contemplate[d] disposing of this 600 acres" before the note was fully paid. If title to "these 600 acres" was acquired by the State of Arizona, Lazy V-P was to exercise its preferential rights to a grazing lease and to assign such rights to Smith without additional compensation. "If the Exchange with the State of Arizona for the 600 acres ... is not approved, or for any reason fails or is withdrawn," Lazy V-P was to sell the "said 600 acres" to Smith for $24,000. If "the Exchange with the State of Arizona is not consummated at the time the purchase price [on the east end of the ranch] is paid in full," Lazy V-P was to sell and Smith to buy the "said 600 acres" for $24,000 under stated terms. Finally, the agreement provided for stock watering rights for both parties during the term of the note and mortgage.

The "Range and Pasturing Agreement" was later amended to more accurately describe the 600 acres. Application 61-14 was also amended several times, always decreasing the total acreage involved but always retaining the 600 acres in the amendments. In 1979, the State Land Department rejected application 61-14 and all amendments thereto. It also reclassified the state land described in application 61-14 leaving no identifiable state lands available for an exchange.

Melson, which had succeeded to Lazy V-P's interest, requested a rehearing on the denial of the application. Rehearing was denied. Melson filed a notice of appeal from these orders but did nothing more.

Shortly thereafter Smith tendered escrow instructions and demanded specific performance of the sale of the 600 acres. Melson refused. Melson instead submitted a proposal to the State Land Department offering to transfer the 600 acres for a four-year extension of another Melson state land lease. The State rejected the plan. Melson then proposed to deed the 600 acres to the State in return for rental credit on two existing leases and a new ten-year lease on other state land. As a result of this last proposal, Melson and the State finally reached an agreement whereby the 600 acres was deeded to the State for a one-year, rent-free extension of a grazing lease. Melson dismissed his appeal.

Smith sued for specific performance of the contract. The action was tried to the court which concluded that the "Range and Pasturing Agreement" was not ambiguous, that the term "the Exchange" referred to any exchange involving the 600 acres, that the express purpose of the agreement was to provide grazing rights to Smith and that the State's order of exchange terminated Smith's option to purchase the 600 acres. The court therefore denied specific performance and Smith appealed. The court of appeals by a 2-1 decision affirmed.

The only issue presented is whether the Smiths were entitled to specific performance under the agreement between them and the Lazy V-P Ranches. The parties do not contest Smith's position that the agreement is binding on the successor in interest and the State.

The construction of a contract is a question of law where the terms of the agreement are plain and unambiguous. Shattuck v. Precision-Toyota, Inc., 115 Ariz. 586, 566 P.2d 1332 (1977), Ridara Livestock Co. v. Agricultural Products Co., 61 Ariz. 473, 150 P.2d 761 (1944). See also, Restatement (Second) of Contracts § 212(2) (1981).

Although we must accept the trial court's findings of fact on appeal unless they are clearly erroneous or unsupported by any credible evidence, we are free to draw our own legal conclusions from the facts in evidence. McCormack v. Kirtley, 115 Ariz. 25, 563 P.2d 280 (1977); Owen v. Mecham, 9 Ariz.App. 529, 454 P.2d 577 (1969).

A contract should be read in light of the parties' intentions as reflected by their language and in view of all the circumstances. If the intention of the parties is clear from such a reading, there is no ambiguity. Arkansas Amusement Corp. v. Kempner, 57 F.2d 466 (8th Cir.1932); Ness v. Greater Arizona Realty, 117 Ariz. 357, 572 P.2d 1195...

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