Opinion ID: 2567473
Heading Depth: 2
Heading Rank: 4

Heading: Pardee may be entitled to an equitable grace period and specific performance of the contract

Text: ¶ 23 Pardee argues the Court of Appeals erred in refusing to address his argument regarding whether he is entitled to an equitable grace period. This section begins with a discussion of whether the termination provision in this option contract may be treated like a forfeiture. The second section addresses the law regarding equitable grace periods. 1. The termination of the option to purchase in this case is analogous to a forfeiture because the optionee was allowed to occupy the property and make substantial improvements thereon ¶ 24 A contract's title is not determinative of its legal effect. Lahn & Simons v. Matzen Woolen Mills, 147 Wash. 560, 564, 266 P. 697 (1928). In classifying a contract, the intent of the parties, as expressed in the language of the entire contract rather than a particular provision, is determinative. Id. at 564-65, 266 P. 697. The parties in this case argue the contract in question should be classified as a pure option contract, a real estate contract, or a lease with an option to purchase. ¶ 25 In a pure option contract, [t]he optionor parts only with the right to sell the property to any other person during the time limited, and the optionee acquires only the right to purchase the property in futuro, upon the terms and conditions prescribed by the option contract. Hopkins v. Barlin, 31 Wash.2d 260, 266, 196 P.2d 347 (1948). A pure option contract does not include the right to possess and improve the land during the option period. A real estate contract is any written agreement for the sale of real property in which legal title to the property is retained by the seller as security for payment of the purchase price. RCW 61.30.010(1). A lease with an option to purchase involves a lease for a certain period of time and an option for the lessee to purchase the property from the lessor. See Powers, 93 Wash.2d at 710-11, 612 P.2d 371. ¶ 26 The contract in question is not a real estate contract because it does not provide for the actual sale of real property. [12] While the boilerplate form used by the parties proclaims the contract to be an option to purchase real estate, a handwritten provision provides Pardee with the right to occupy and improve the property during the option period. Because of this provision, the contract is a hybrid of a lease with an option to purchase and a pure option contract. Because of the unique facts and contractual provisions in this case, the equitable principles regarding forfeitures apply. 2. On remand, the trial court should determine whether Pardee is entitled to an equitable grace period ¶ 27 `[F]orfeitures are not favored in law and are never enforced in equity unless the right thereto is so clear as to permit no denial.' Hyrkas v. Knight, 64 Wash.2d 733, 734, 393 P.2d 943 (1964) (quoting State ex rel. Foley v. Superior Court, 57 Wash.2d 571, 574, 358 P.2d 550 (1961)). In order to avoid the harshness of forfeitures and the hardship that often results from strict enforcement thereof, the courts have frequently granted a `period of grace' to a purchaser before a forfeiture will be decreed. Moeller v. Good Hope Farms, Inc., 35 Wash.2d 777, 783, 215 P.2d 425 (1950); see also Dill v. Zielke, 26 Wash.2d 246, 252-53, 173 P.2d 977 (1946). Whether a grace period is warranted depends on the equities in each particular case. Moeller, 35 Wash.2d at 783, 215 P.2d 425. ¶ 28 In Wharf Restaurant, Inc. v. Port of Seattle, 24 Wash.App. 601, 603, 605 P.2d 334 (1979), a long term lessee of real property failed to timely exercise an option to renew its lease, although it had made substantial improvements to the property and intended to renew. The Court of Appeals determined, based on the equities of the case, a grace period should be extended to the lessee and, as such, the lessee was entitled to specific performance of the option to renew. Id. at 612, 605 P.2d 334. The court noted it was necessary to balance equity's abhorrence of forfeitures with excusing a party from negligently failing to exercise an option and determined equitable relief was appropriate in limited circumstances. Id. at 610, 605 P.2d 334. In determining whether relief was appropriate, the court considered the following factors: (1) whether the lessee's failure to give timely notice was inadvertent rather than intentional, culpable, or grossly negligent; (2) whether the lessee made valuable permanent improvements; (3) whether the lessor was prejudiced by the untimely notice; (4) the length of the lease; and (5) whether the lessor contributed to the delay. Id. at 612-13, 605 P.2d 334. ¶ 29 In a subsequent case, the Court of Appeals followed the reasoning in Wharf Restaurant, noting that whether an equitable grace period is appropriate depends on the facts and circumstances of a case and is largely within a trial court's discretion. Heckman Motors, Inc. v. Gunn, 73 Wash. App. 84, 88, 867 P.2d 683 (1994). In Heckman Motors, the court held an equitable grace period did not apply because the lessee had not made substantial valuable improvements on the property, there was a substantial delay in exercising the notice to renew the lease, and the lessor had not done anything to induce or contribute to the delay. Id. at 88-89, 867 P.2d 683. ¶ 30 The trial court in this case did not address whether an equitable grace period applied because it determined Pardee complied with the terms of the contract. However, it noted Jolly was trying to have his cake and eat it too by allowing Pardee to transform the house from a burnt out hulk into a livable residence and procuring his assistance in reissuing the checks, all the while believing that the option had already terminated. Verbatim Report of Proceedings at 174. The Court of Appeals, although the equitable issue was properly raised, declined to address this argument. ¶ 31 Pardee argues that the Court of Appeals erred in failing to consider this issue and equity demands that he be granted a grace period. Jolly argues Wharf Restaurant does not apply because Pardee did not forfeit ownership in an asset; instead, the option merely terminated. As we noted earlier, the law regarding equitable forfeitures applies in this case because of the unique provisions of the option. Furthermore, contrary to Jolly's assertions, this case involves a substantial forfeiture. If the option is deemed terminated, Pardee not only loses $16,000, which would be an acceptable result for the termination of an option, he also loses the $20,669.58 he invested in repairing the house and the 2,500 hours that he spent working on the house so that he could use it as collateral for a mortgage. This is a significant forfeiture that should be analyzed using the equitable principles set forth in Wharf Restaurant and Heckman Motors. ¶ 32 Because the record contains insufficient findings of fact related to whether equity demands that a grace period be extended to Pardee, we remand this case to the trial court. The trial court should consider whether Pardee is entitled to an equitable grace period using the Wharf Restaurant considerations. In addition, the trial court should consider whether Pardee is entitled to attorney fees under the terms of the contract.