Stevens v. Foren

• Jurisdiction: Oregon
• Parties: Donald L. STEVENS and Wave J. Stevens, husband and wife, Appellants-Cross-Respondents, v. Terry FOREN and Hildur Foren, Respondents, and John or Jane Doe, as personal representative of the Estate of Milton Foren, deceased, Defendant, and Arthur P. Lindsay and Linda L. Lindsay, husband and wife, Respondents-Cross-Appellants. CV 96 063; CA A96560.
• Citation: 959 P.2d 1008,154 Or.App. 52
• Court: Oregon Court of Appeals
• Decision Date: 20 May 1998

Page 1008

959 P.2d 1008

154 Or.App. 52

Donald L. STEVENS and Wave J. Stevens, husband and wife Appellants-Cross-Respondents, v. Terry FOREN and Hildur Foren, Respondents and John or Jane Doe, as personal representative of the Estate of Milton Foren, deceased, Defendant and Arthur P. Lindsay and Linda L. Lindsay, husband and wife Respondents-Cross-Appellants.

CV 96 063; CA A96560.

Court of Appeals of Oregon.

Argued and Submitted Feb. 10, 1998.

Decided May 20, 1998.

Michael Mills, Heppner, argued the cause for appellants-cross-respondents.

Eli Stutsman, Portland, argued the cause and filed the brief for respondents Terry Foren and Hildur Foren.

John W. Lundeen, Lake Oswego, argued the cause and filed the briefs for respondents-cross-appellants Arthur P. Lindsay and Linda L. Lindsay.

Before De MUNIZ, P.J., and HASELTON and LINDER, JJ.

LINDER, Judge.

This is an action seeking interpretation of a contractual right of first refusal to buy real property and specific performance of that right. The trial court granted judgment for defendants, and plaintiffs appeal. Defendants Lindsays cross-appeal the denial of their request for attorney fees. We affirm on both the appeal and the cross-appeal.

The property in question is a 40-acre parcel in Yamhill County bordering property owned by plaintiffs, the Stevens. In 1994, the Stevens and the owners of the neighboring property, the Forens, negotiated an easement agreement. As part of that agreement, the Forens granted to the Stevens a written right of first refusal to purchase the Forens' property. To invoke the right of first refusal, the Stevens were required to "match all terms of the offer, including, without limitation, the amount of earnest money tendered and the date of closing."

At that point in time, the Forens were anticipating developing and residing on the property in question. To that end, they had established a vineyard on the property, obtained building permits, installed a septic tank, and laid a concrete foundation for a residence. In the fall of 1995, however, the Forens changed their minds and decided to sell the property to friends, the Lindsays. They and the Lindsays negotiated the terms of the sale and entered into an earnest money agreement. Included in its terms was a requirement that the Lindsays "maintain the existing building permit and * * * complete a home on the property within 18 months of transfer and recording." The agreement also specified that the Lindsays would pay for the property with monthly payments of principal and interest for five years, followed by a balloon payment of the principal balance. The earnest money agreement explicitly stated that it was subject to the Stevens' right of first refusal. Consistent with the right of first refusal, the Forens presented the Stevens with the earnest money agreement and gave them the opportunity to match it.

Through counsel, the Stevens advised the Forens that they would exercise their right of first refusal and purchase the property. The Stevens indicated that they were willing to maintain the building permits for the life of the contract. They were unwilling, however, to agree to the term requiring completion of the residence. Nor did they agree to the payment schedule. The Stevens instead offered to tender the full price in cash at the time of sale.

After the Stevens responded, the Forens amended the earnest money agreement with the Lindsays. The amended agreement provided that the Lindsays would pay only interest (rather than principal and interest) for five years, followed by a balloon payment of the entire amount of the principal. It prohibited prepayment of the principal. The amended agreement continued to require completion of a residence within 18 months. The Stevens were again given the opportunity to meet the terms of the agreement. They indicated that they were willing to accept the payment terms, but they remained unwilling to agree to the condition that they complete a residence on the property in 18 months.

Negotiations reached a standstill. The Forens sent a letter to the Stevens on January 22, 1996, imposing a 10-day deadline for them to agree to the requirement. When the Stevens did not timely respond, the Forens sold the property to the Lindsays.

The Stevens filed this action, seeking declaratory relief and specific performance. The complaint essentially alleged that the requirement to build a residence was not reasonably within the contemplation of the parties in negotiating the right of first refusal and that the Stevens therefore did not have to match that term to exercise their right. ¹ The complaint also alleged that the Stevens did not have to meet the modified terms for payment of the purchase price (i.e., interest for five years, followed by a balloon payment of all principal) because they effectively had exercised the right of first refusal and offered cash before negotiation of the amended earnest money agreement. Accordingly, the Stevens asked the court to declare that they had exercised the right of first refusal and to grant specific performance of the right, thus permitting them to purchase the property. ²

The trial court approached the dispute between the parties as turning on whether the requirement to build a residence was negotiated in good faith and was a legitimate condition on the sale of the property. The court found:

"Foren wanted the residence built because he felt that the purchase price of $187,500 was predicated on a residence being approved and built on the property and he wanted to secure the balance of the purchase price with a residence on the property. Lindsay agreed to this condition in an arm's length transaction because he also wanted to build his home on the property."

The court therefore held that the requirement to build a home was negotiated in good faith between the parties and that the Forens "could and did legitimately condition the sale upon enhancing the property's value for [their] own benefit." The Stevens, the court concluded, were entitled to purchase the property on those same terms, but they were not free to renegotiate those terms. The court held that when the Stevens declined to meet that term, the right of first refusal was extinguished and, thus, the Stevens were not entitled to specific performance. The court awarded attorney fees to the Forens as the prevailing party pursuant to the easement agreement but declined to award them to the Lindsays, ruling that the Lindsays were not parties to the right of first refusal and therefore were not entitled to attorney fees under the contract.

On appeal, the Stevens assert that the right of first refusal should not be interpreted to require them, in matching the terms of the earnest money agreement, to have to agree to complete a residence on the property. They advance several arguments in support of that contention, which we understand to distill to three contentions: (1) that the plain language of the right of first refusal requires the Stevens only to match terms pertaining to real property or those that normally and reasonably pertain to real property, and this is not such a term; (2) that this is not a term reasonably within the contemplation of the parties in negotiating the right of first refusal; and (3) that the Forens breached their duty of good faith and fair dealing in requiring construction of a residence. ³

In the absence of ambiguity, we construe the words of a contract as a matter of law, which in turn means that the question of the contract's meaning is for this court to determine. Eagle Industries, Inc. v. Thompson, 321 Or. 398, 405, 900 P.2d 475 (1995). Here, we have no difficulty concluding that the right of first refusal is unambiguous. It states: "In order to match the offer, [the Stevens] must match all terms of the offer, including, without limitation, the amount of earnest money tendered and the date of closing." The words the parties used are plain and encompassing: The Stevens, to invoke their right, must "match all terms * * *without limitation," of any other offer to buy the property that the Forens are prepared to accept. Contrary to the Stevens' assertion, we find no basis in the language to limit the right of first refusal to terms that are ordinary and commonplace in real estate purchases. See Aylett v. Universal Frozen Foods Co., 124 Or.App. 146, 861 P.2d 375 (1993) (customary practice in potato industry as it relates to release of right of first refusal does not control over actual language of the parties' contract). Nor do we find any basis in the language to go behind the contract to examine whether the parties intended something other than what the contract provides.

That is not necessarily the end of the inquiry, however. Every contract contains an implied covenant of good faith and fair dealing. Uptown Heights Associates v. Seafirst Corp., 320 Or. 638, 645, 891 P.2d 639 (1995). The implied covenant serves to protect the objectively reasonable contractual expectations of the parties. Id. Accord Slover v. State Board of Clinical Social Workers, 144 Or.App. 565, 572, 927 P.2d 1098 (1996). Here, the trial court understood the gravamen of the Stevens' claim to go to whether that implied covenant was breached, thus relieving the Stevens from matching all terms of the earnest money agreement. We understand that to be the central point of their arguments on appeal as well.

In examining whether, on the basis of a breach of the duty of good faith and fair dealing, the Stevens should be relieved from meeting the term requiring completion of a residence, the focus is on the objectively reasonable expectations of the parties. Tolbert v. First National Bank, 312 Or. 485, 494, 823 P.2d 965 (1991). Significantly, the duty of good faith and fair dealing cannot contradict an express contractual term, nor does it provide a remedy for an unpleasantly motivated act that is permitted expressly by contract. Pacific First Bank v....