Opinion ID: 4032529
Heading Depth: 2
Heading Rank: 2

Heading: Options

Text: “Well-known principles of contract law guide us in the proper construction of federal contracts.” Wapato Heritage, LLC v. United States, 637 F.3d 1033, 1039 (9th Cir. 2011). “A written contract must be read as a whole and every part interpreted with reference to the whole, with preference given to reasonable interpretations.” Klamath Water Users Protective Ass’n v. Patterson, 204 F.3d 1206, 1210 (9th Cir. 1999). Under general principles of contract law, an optionee to an option contract can only exercise the option “strictly in accordance with its terms.” 15 Williston on Contracts § 46:12 (4th ed. 2010); see New Eng. Tank Indus. of N.H., Inc. v. United States, 861 F.2d 685, 687 (Fed. Cir. 1988) (“It is well 14 USPS V. BELLEVUE POST OFFICE settled that to properly exercise [an] option, the government’s acceptance of the offer had to be unconditional and in exact accord with the terms of the contract being renewed.”); Lockheed Martin IR Imaging Sys., Inc. v. West, 108 F.3d 319, 323 (Fed Cir. 1997) (similar) (citing Corbin on Contracts, § 284 (1963)).4 Thus, Bellevue is correct about one thing: USPS must be held to the exact terms of the 1963 lease, as amended. However, we note that this standard of exactitude is calibrated to what the contract actually requires, not an indefinite standard of scrupulous paperwork or best practices. See Lockheed, 108 F.3d at 323 (“[A]n option, like any contract, is circumscribed by its terms.”). The terms of the 1963 lease require USPS’s notice to be “given in writing to the Lessor.”5 Bellevue contends that the 4 USPS suggests that the strict compliance requirement only applies to the option to purchase the property, and is irrelevant to the “earlier duties under the contract, including its lease-renewal notices.” This is not the case; the requirement applies to contractual options generally, including options to renew a lease. See New Eng. Tanks, 861 F.2d at 687; Wapato Heritage, 637 F.3d at 1033. 5 “Lessor” is defined as “Baugh Construction Company, . . . its successors, and assigns.” Bellevue argued to the district court below, and implies in its appellate briefing that perhaps the proper meaning of the“Lessor” for option purposes is as it was defined in the 1968 amendment: “Edward R. Ester and Lorraine Ester, his wife; and Josef Diamond and Violett Diamond, his wife.” According to this interpretation, USPS would have had to give notice to these four individuals and not their successors and assigns, apparently even after they transferred their interests in the property or passed away. This is not a reasonable interpretation of the contract language. As an initial matter, it conflicts with the clear language of the 1968 amendment, in which the parties made one specific change with regard to the payment of rent and property taxes USPS V. BELLEVUE POST OFFICE 15 1983 lease renewal was ineffective because it was addressed to “Edward R. Ester and Josef Diamond Attorneys-in-Fact under Lease,” when the actual Lessors at the time were Edward Ester, Lorraine Ester, and the four Diamond trusts. It contends that because the delivery receipt is illegible, USPS is unable to “prove actual receipt . . . by either of its two addressees, Edward Ester or Josef Diamond.” It further contends that the 1993 lease renewal was ineffective because although the notice named all of the Lessors, USPS only sent a single notice rather than separate copies to each owner, and the delivery receipt was signed only by Edward Ester. Similarly, the 1998 renewal notice included the names of the Diamond grandchildren, even though they had transferred their interests in the property a few years earlier. The 2001 renewal notice, addressed to “Lorraine Ester, Pers. Rep. Estate of Edward Ester” and the four Diamond grandchildren also does not specifically note that Lorraine Ester was a Lessor in her individual capacity. Finally, in 2005, USPS’s notice was addressed to “Lorraine Ester, Pers. Rep. Estate of Edward Ester” and the four Diamond grandchildren, instead of Lorraine Ester in her personal capacity and Lorraine Ester as the trustee of the Ester Trust. According to Bellevue, each and every one of the “attempted” exercises of an option to extend the term of the lease was fatal to the continuing viability of the lease, because notice was not “given in writing to the Lessor.” We disagree. The option terms do not require that USPS prepare multiple copies of the written notice to be specifically and agreed that “in all other respects, the [1963] lease shall remain the same and is hereby confirmed.” Moreover, such a result would be, as the district court noted, an “absurdity.” 16 USPS V. BELLEVUE POST OFFICE delivered to each and every Lessor.6 The lease does not specify whether the notice of exercise must be delivered by hand service or certified mail; whether it can be delivered to an agent, attorney, or employee; whether a Lessor must personally sign the delivery receipt; or that the name-andaddress box on the form notice must accurately state the names and legal role of each and every Lessor. It only says that written notice must be “given in writing to the Lessor.” A reasonable interpretation of the word “given” does not imply the degree of punctiliousness Bellevue insists is required. See Give, WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY (1961) (third definition, “to put into the possession of another for his use”); give, THE AMERICAN HERITAGE DICTIONARY (4th ed. 2000) (fourth definition, “to convey by a physical action”). For each lease renewal, USPS “gave” written notice via certified mail of its intention to exercise its option to at least one person who was a Lessor at the time of the renewal, and Bellevue has provided no evidence indicating that the notice was not delivered to, or put into the possession of, all Lessors accordingly. 6 Our opinion in Wapato Heritage does not create such a requirement. In Wapato, the Department of the Interior held land in trust on behalf of an Indian tribe, and executed a lease on behalf of the trust beneficiaries. 637 F.3d at 1035. The lease stated that the lessee had an option to renew the lease “provided that notice of the exercise of such option shall be given by the Lessee to the Lessor and the Secretary in writing.” Id. (emphasis added). The lessee only provided notice to the Secretary, and not the Lessor. We held that the contract unambiguously required the lessee to give written notice to both the Lessor and the Secretary (and that the Secretary was, by implication, not the Lessor). Id. at 1040. It failed to do so, and the option was therefore invalid. Id. The contract here, unlike in Wapato, did not by its terms require separate notice to be given to more than one party. USPS V. BELLEVUE POST OFFICE 17 Furthermore, the parties’ actions over the decades unambiguously demonstrate that the notice was given to the Lessors, because everyone involved continued to perform the lease as agreed upon for thirty years after the first alleged defect. USPS continued to pay rent, which Bellevue and its predecessors continued to accept. USPS continued to pay property taxes on Bellevue’s behalf (which is consistent with the lease as amended in 1968, and not a tenancy at sufferance). In 1987, the owners refused USPS’s request that they paint the building on the property, and an attorney acting on behalf of Edward Ester and Josef Diamond represented that USPS’s remedies in the matter were “limited to terminating the lease.” The owners further affirmed the existence of the lease when they twice offered USPS $1,000,000 to strike the purchase option from the lease. Lorraine Ester’s son John described the purchase offer in a press interview with the King County Journal. All of this is strong circumstantial evidence that at each juncture, USPS’s written notice was effectively “given” to the “Lessors.” See Dynamics Corp. of Am. v. United States, 389 F.2d 424, 430 (Ct. Cl. 1968) (“[T]he practical interpretation of a contract, as shown by the conduct of the parties, is of great weight in interpreting the contract.”). Thus, there is no material dispute that all Lessors were “given” written notice, as evidenced by their continued recognition of the lease for nearly thirty years after the first alleged termination. Even under Washington law’s high standard for awarding specific performance, USPS successfully provided “clear and unequivocal evidence” that it exercised its options to extend the term of the lease in strict compliance with the terms of the lease, and that the lease therefore continued to exist through the time it also properly exercised its purchase option. See Kruse, 853 P.2d at 1377. 18 USPS V. BELLEVUE POST OFFICE