Court Opinion

ID: 9549034
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:12:24.42208+00
Date Added: 2024-06-11T15:19:45.789483
License: Public Domain

CAMPBELL, J.,
dissenting.
I dissent from the result reached by the majority. I would hold that the option to purchase the real property for $425,000 contained in the final earnest money agreement executed by the parties on February 21, 1972, together with the amendments of February 29,1972, and March 1,1972 can be enforced by specific performance.
The trial court found the “gaps were just too plentiful” to allow specific performance. The Court of Appeals held there were no missing terms and granted specific performance. The majority opinion holds “there are just too many unresolved terms here to permit a decree of specific performance in equity.”
The question is not the number of the terms omitted from the option, but rather the nature of the omitted terms. The general theme that runs through the cases and authorities is a court cannot make a contract for the parties. The court *752cannot supply essential or material terms, but can fill in the gaps in a valid contract with subordinate or non-essential terms.1
The essential terms of a contract to sell real property are:
“(1) The parties; (2) the subject matter; (3) the mutual promises; and (4) the price and consideration and terms of payment if the sale is not for cash.” Friedman, Contracts and Conveyances of Real Property, at 95 (4th ed 1984).
It is my position that the option agreement in question plus the conduct of the parties have supplied all the essential or material terms for an option to sell the real property. Down the road, this court or the trial court on remand should only be required to fill in the gaps in the sale with subordinate or non-essential terms.
To explain this position it is necessary to re-examine some of this court’s recent decisions on specific performance. The majority has already discussed these decisions, but the emphasis of this dissent is different.
A part of the difficulty in this area of the law is the dicta in Smith v. Vehrs, 194 Or 494, 242 P2d 586 (1952). This case has been the starting point in the recent history of this court’s consideration of cases dealing with the specific performance of real estate contracts. There we said:
“It is a well-established rule of law in this state that equity will not decree specific performance unless the contract is definite, certain and complete. The court cannot make a contract for the parties, nor can it make clear that which is left in doubt and uncertainty.” 194 Or at 499.2
*753The opinion continued by quoting from Berry v. Wortham, 96 Va 87, 89, 30 SE 443 (1898), as follows:
“It is an elementary doctrine of courts of equity that they will not specifically enforce any contract unless it be complete and certain * * * it must be complete in all its parts; that is, all the terms which the parties have adopted, as portions of their contract, must be finally and definitely settled, and none must left to be determined by future negotiations; and this is true without any regard to the comparative importance or unimportance of these several terms.”
In Phillips v. Johnson, 266 Or 544, 514 P2d 1337 (1973), the earnest money receipt did not provide whether the transaction was to be completed by a deed and mortgage or a land sale contract. The receipt did provide for annual payments “on or before July 30” of each year. This court held that the earnest money receipt was not sufficiently definite to be enforced as an installment sale, but that it could be enforced as a cash sale because of the purchaser’s privilege to pay “on or before” a date certain. We also mentioned that it had been suggested that the part of Berry v. Wortham, supra, quoted in Smith v. Vehrs, supra, applied only to essential contract provisions and had no application to “mere details,” but that we need not decide the question at that time.
In Howard v. Thomas, 270 Or 6, 526 P2d 552 (1974), this court affirmed a decree requiring specific performance of an earnest money receipt. Among other things the defendants sellers complained that the earnest money receipt made no provision as to the rights of the parties in the event a third party defaulted on a timber contract on the property. This court found that on trial the plaintiffs counsel had by a judicial admission stated that, in the event of default, the balance of the timber should belong to the defendants and that the decree should so provide. We said that with “respect to a specific performance of contracts for the sale of land we prefer a less restrictive rule than that announced in dicta in Smith v. Vehrs, supra.” 270 Or at 10.
This court also said:
“We believe that the earnest money receipt was sufficiently definite and certain to justify specific performance. The problems of any consequence which seemed to bother defendants at the time of trial were * * * resolved in favor of *754defendants by the decree of the court. The law is well established that the court, under proper circumstances, may in its decree providing for specific performance will [sic] in any ‘gaps’ appearing in the contract. As Professor Williston states: ‘If there is sufficient intent expressed to make a legally valid contract, a court of equity can make certain by its decree, within reasonable limits, subordinate details of performance which the contract itself does not state. * * *’ 11 Williston on Contracts (3d ed) 814, § 1424.” 270 Or at 13.
In Van v. Fox, 278 Or 439, 564 P2d 695 (1977), this court affirmed a decree granting specific performance of a joint venture agreement to develop real property.3 It was observed that the plaintiffs had expended considerable time and money in performing their obligations under this agreement. For the first time, in this line of cases, we took into consideration a situation where the contract has been partly performed. We quoted from Pomeroy, Specific Performance of Contracts, 378-79, §145 (3ded 1926):
“* * * [W]hen a contract has been partly performed by the plaintiff, and the defendant has received and enjoys the benefits thereof, and the plaintiff would be virtually remediless unless the contract were enforced, the court, from the plainest considerations of equity and common justice, does not regard with favor any objections raised by the defendant merely on the ground of the incompleteness or uncertainty of the agreement. Even if the agreement be incomplete, the court will then, in furtherance of justice and to prevent a most inequitable result, decree a performance of its terms as far as possible, although, perhaps, with compensation or allowance.” (Emphasis in original.)
In Oates v. Stump, 279 Or 397, 569 P2d 7 (1977), this court reversed the trial court and granted specific performance of an option contained in a lease. The defendants leased the plaintiff a residence and gave her an option to purchase the residence plus a machine shed and three acres of adjoining land for $36,300 on the expiration of the lease. The rent was $250 per month of which $100 was to be allowed as a credit on the purchase price. The defendants refused to honor the *755option on grounds that the description of the property was too indefinite to allow a decree of specific performance. The plaintiff had made improvements to the property in reliance upon the option and had paid sufficient rent to be entitled to a credit of $2,400. This court required the defendant sellers to have the property surveyed. We said:
“Recently, in the case of Van v. Fox, 278 Or 439, 564 P2d 695 (1977), we pointed out that equity courts have been reluctant to declare a contract too indefinite to allow for specific performance when the plaintiff has partially performed the agreement.” 279 Or at 401.
We also again quoted the above rule from Pomeroy, Specific Performance of Contract, 378-79, §145 (3d ed 1926).
In Seal v. Polehn, 284 Or 259, 586 P2d 345 (1978), this court held that a complaint asking for the specific performance of an earnest money receipt stated a cause of suit when tested by a demurrer alleging that the receipt was too indefinite. We quoted from 11 Williston on Contracts 813, §1424 (3d ed 1968):
“The law does not favor, but leans against the destruction of contracts because of uncertainty; and it will, if feasible, so construe agreements as to carry into effect the reasonable intentions of the parties if that can be ascertained.”
In Southworth v. Oliver, 284 Or 361, 586 P2d 994 (1978), the defendants sellers contended that there was no binding contract capable of specific enforcement because there was no provision for a “security device.” This court held:
“Under the facts and circumstances of this case, the absence of agreement upon terms of ‘security provisions’ was a ‘gap’ in ‘subordinate details of performance’ of such a nature as to be properly ‘made certain’ by a decree of specific performance in a court of equity.” 284 Or at 380.
This court went on to affirm the trial court which required the parties to sign a printed sale contract form providing for installment payments and standard security provisions.
In David M. Scott Construction v. Farrell, 285 Or 563, 592 P2d 551 (1979), the plaintiff filed a suit for the specific performance of an earnest money agreement. One of the provisions of the agreement provided that if a financial *756institution required subordination to a first mortgage the seller agreed to do so on mutually agreeable terms. The plaintiff buyer tendered to the defendant seller a proposed contract that required the defendant to subrogate his interest to any mortgage the plaintiff obtained regardless of the terms or amount of the mortgage. The defendant rejected this offer and countered with four other alternatives which were unacceptable to the plaintiff. This court denied specific performance. We cited Smith v. Vehrs, supra; Phillips v. Johnson, supra; Southworth v. Oliver, supra and Seal v. Polehn, supra; and said:
“It follows that the important distinction to be made is between the ‘material’ terms of a contract, which must be agreed upon in sufficiently definite terms before there exists a valid contract which may be enforced by a decree of specific performance, and the non-material terms or ‘subordinate details of performance.’ ” 285 Or at 572.
Booras v. Uyeda, 295 Or 181, 666 P2d 791 (1983), is this court’s most recent case on specific performance of an agreement to convey real property. The earnest money agreement provided that the purchaser Booras and the seller Uyeda were to enter into a land sale contract. It was to provide for the gradual release of property as the contract balance was reduced and for a security interest in other property because Uyeda was subordinating her security interest to a first mortgage from Booras on the property being sold. The parties were unable to agree on the terms of these additional provisions. We held that the earnest money agreement was not specific enough to be enforced. We said:
“To be entitled to specific performance, a contract must be definite in all material respects, with nothing left for future negotiation. Phillips v. Johnson, 266 Or 544, 556, 514 P2d 1338 (1973). The foregoing proposition is subject to an exception that ‘* * * [i]f there is sufficient intent expressed to make a legally valid contract, a court of equity can make certain by its decree, within limits, subordinate details of performance which the contract itself does not state.’ Howard v. Thomas, 270 Or 6, 13, 526 P2d 552 (1974); accord, David M. Scott Construction v. Farrell, 285 Or 563, 572, 592 P2d 551 (1979).” 295 Or at 191-92.
We then continued:
“True, this court in recent years has adopted a ‘less *757restrictive rule’ (less restrictive than the rule announced in Smith v. Vehrs, 194 Or 492, 242 P2d 586 (1952)) in favor of construing agreements so as to carry into effect the reasonable intentions of the parties. Howard v. Thomas, 270 Or 6, 10, 526 P2d 552 (1974).” 295 Or at 193.
The above cases starting with Phillips v. Johnson, supra, and running through Booras v. Uyeda, supra, are basically consistent. They demonstrate the statement in 11 Williston on Contracts §1424 at 819 and note 15: “The decisions reveal a trend toward greater liberality in enforcement * * They also fit into the following observations in 5A Corbin on Contracts Section 1174 at 283:
“There are cases in which the court made a mountain out of a molehill and refused a decree that might well have been granted. Apparent difficulties of enforcement that arise out of uncertainties in expression often disappear in the light of courageous common sense and reasonable implication of fact.”4
Our treatment and interpretation of Smith v. Vehrs, supra, has not always been consistent. As we previously pointed out in footnote 2, supra, all of the statements in that case referring to the specific performance of uncertain and indefinite contracts are dicta. The most often quoted portion of Smith v. Vehrs, supra, is:
“It is a well-established rule of law in this state that equity will not decree specific performance unless the contract is definite, certain and complete. The court cannot make a contract for the parties, nor can it make clear that which is left in doubt and uncertainty.” 194 Or at 499. See Howard v. Thomas, supra; Landura Corp. v. Schroeder, 272 Or 644, 539 P2d 150 (1975); David M. Scott Construction v. Farrell, supra; Fleck v. Steinbeck, 44 Or App 161, 165, 605 P2d 717 (1979).
In light of our more recent cases the above statement from Smith v. Vehrs, supra, would be correct if it were interpreted to read:
It is a well-established rule of law in this state that equity *758will not decree specific performance unless the material or essential terms of a contract are definite and certain. The court cannot make a contract for the parties.
The other parts of Smith v. Vehrs, supra, on this subject including the quote from Virginia case of Berry v. Wortham, supra, should not be the law of Oregon.
This dissent now returns to the merits of this case. To support their position, the defendants call our attention to the trial court’s findings that the earnest money receipt was too uncertain to be enforced because it omitted:
(1) The payment schedule;
(2) The interest rate;
(3) Form of sale (deed with a note and mortgage back or a land sale contract);
(4) The seller’s security interest;
(5) The allocation of real property taxes, insurance and maintenance;
(6) The subordination of existing mortgages.5
I agree that a payment schedule is a material element of the contract. See 11 Williston on Contracts § 1424 p 816 (3d ed 1968), post at 19; Friedman Contracts and Conveyances of Real Property, at 95 (4th ed 1984). However, there is no disagreement between these parties. The plaintiff by his tender in December 1978, offered to pay the principal balance “at whatever time and in whatever manner” the defendants directed.6 That is, the plaintiff would pay all cash, or would pay the principal balance in whatever installment amounts the defendants chose. It is up to the defendants to make a choice as to how they want to receive the payments. This is no different than Howard v. Thomas, supra, where we approved a decree by the trial court which gave the defendants sellers the *759election “to have the promissory note [representing the unpaid balance] * * * paid on a monthly, quarterly, semiannual or annual basis.”
5A Corbin on Contracts Section 1174, at 289, deals with this problem as follows:
“The fact that the defendant is given a choice between alternative modes of performance does not make the contract too indefinite or uncertain for specific performance. This is true whether the contract is in form an alternative contract or otherwise. The court may properly order the defendant to make a choice, and in default of his doing so may make the choice and compel specific performance in accordance therewith.”
The Restatement Second Contracts Section 362 in Comment b states in part:
“A contract is not too uncertain merely because a promisor is given a choice of performing in several ways, whether expressed as alternative performances or otherwise. He may be ordered to make a choice and to perform accordingly, and, if he fails to make the choice, the court may choose for him and order specific performance. Even though subsidiary terms have been left to the determination by future agreement, if performance has begun by mutual consent, equitable relief may be appropriate with the court supplying the missing terms so as to assure the promisor all advantages that he reasonably expected.”
The option was given in February 1972. It could not be exercised during the first five years of the lease. It may be that the parties could not see five years into the future and left the details of the option to be worked out at the time it was exercised. In Van v. Fox, supra, 278 Or at 450, this court commented:
“It is not unusual for parties involved in complicated business transactions to allow subsidiary details to remain unspecified until such time as the need for agreement actually arises.”
The second omitted item on the defendants’ list is the “interest rate.” The payment of interest was not an essential term of the contract — the parties could have contracted to sell and buy the property without the payment of interest. However, it is obvious that the parties intended to charge and *760pay interest if this is not a cash sale. The same earnest money receipt provided for seven percent interest on the sale of personal property and goodwill of the restaurant business. The parties were strangers who never met face to face. 11 Williston on Contracts, supra, Section 1424 at page 816 (3rd ed 1968) states:
“It is generally held that uncertainty in the terms of payment is a defect in an essential rather than a subordinate provision; however, where the contract contains no provision as to rate of interest, it will be presumed that the legal rate was intended.”
If the defendant sellers elect under the option to receive cash there will be no interest due. On the other hand, if the defendants sellers elect to receive the balance due in installments, then interest will start to run from the date the sale is closed. However, I would hold that the legal interest rate should be determined as of the date on which the parties entered into the earnest money agreement — February 21, 1972. At that time ORS 82.010 provided:
“(1) The legal rate of interest is six percent per annum and payable on:
* * * *
“(e) Money due or to become due where there is a contract to pay interest and no rate specified.”7
I would interpret the meaning of ORS 82.101(l)(e) to include that the legal interest rate shall be six percent when money is to become due on an implied contract to pay interest.
The third omitted item on defendants’ list is the “form of sale” — that is , should the defendant sellers give the plaintiff buyer a deed and take back a promissory note secured *761by a mortgage on the property sold, or should the parties execute a land sale contract wherein the sellers would retain title until the balance of the purchase price is paid? This exact question was before this court in Southworth v. Oliver, supra. There the defendants contended that the contract could not be specifically enforced because “ ‘all of the elements essential to a contract were not agreed upon by the parties’ in that ‘the security device was not agreed upon.’ ” 284 Or at 378.
The trial court required the parties to sign a printed form land sales contract providing for standard security provisions. This court affirmed the trial court:
“We also believe that the terms stated in defendants’ written offer, as accepted by the plaintiff, resulted in a contract which was sufficiently definite and certain to justify specific performance. Under the facts and circumstances of this case, the absence of agreement upon terms of ‘security provisions’ was a ‘gap’ in ‘subordinate details of performance’ of such a nature as to be properly ‘made certain’ by a decree of specific performance in a court of equity.” 285 Or at 380.
We mentioned that previously in Howard v. Thomas, supra, we affirmed a trial court that required the defendant sellers accept a standard printed form mortgage.
I would hold that in this case the parties be required to execute a standard land sale contract. If there is any dispute as to the form of land sale contract, I would allow the trial judge to make that choice on remand.8 I would require a contract instead of a mortgage because it is simpler and fits the circumstances of this situation. Also the defendants, by their counter-offer in January 1979, indicated that they preferred the balance of the purchase price be “carried on a contract.” Everything else being equal, a seller of real property is provided with more protection if the sale is by a conditional sales contract instead of conveying the property by deed and receiving a mortgage for security.
*762Still left for consideration are the omitted items of “sellers’ security interest, allocation of real property taxes, insurance and maintenance,” and “subordination of existing mortgages.” A standard form land sale contract should provide that the sellers are not required to convey the property until the purchase price is paid in full. The fact that the sellers will keep the title to the property solves any “security interest” problem. The same contract should provide that the purchasers will pay the taxes when due and keep the property insured at their expense. Standard form contracts provide that the purchaser will keep the property in “good condition and repair and will not suffer or permit waste.” By virtue of the execution of a sale contract there is no “subordination of existing mortgages” problem. Any existing mortgage is still a lien on the property and sellers should be required to make the mortgage payments promptly when due. This demonstrates that a standard form contract is a “gap filler.” No one has ever argued that a party can buy a standard form contract that has the essential terms of the agreement previously “filled in” or completed.
In addition to the omitted items relied upon by the trial court, the majority asks: “What did the parties intend to be the ‘year’ to which the 29% limitation applies?” This does not involve an essential term. The option agreement provides: “Down payment and principal payments may not exceed 29 percent in year option is exercised.” The majority wonders if the parties intended a calendar year or a fiscal year. At best the majority points out that “year” may be a latent ambiguity that may be cured by extrinsic evidence. The plaintiff has agreed to make the payments “at whatever time and in whatever manner” the defendants desire. The provision of “not more than 29%” was previously included in contracts for the sale of real estate to qualify the transaction for installment sale treatment under the federal income tax provisions. That provision of the Internal Revenue Code limiting the amount of principal received in the year of the sale to not more than 30 percent of the sale price has been repealed.
At the risk of being redundant it is important to say this case boils down to whether the option contained in the earnest money receipt in question omitted any of the essential or material terms. As previously set out in Friedman, Contracts and Conveyances of Real Property, supra, there are four *763essential terms for an enforceable contract: “(1) the parties; (2) the subject matter; (3) the mutual promises; and (4) the price and consideration and the terms of payment if the sale is not for cash.” The trial court, the Court of Appeals, the majority opinion and this dissent all in effect agree that there is no question as to the parties, the subject matter, mutual promises, price and consideration. That leaves only “the terms of payment” in question.9
In both Oates v. Stump, supra, and Van v. Fox, supra, this court quoted from Pomeroy, Specific Performance of Contracts, supra, to the effect that when a contract has been partly performed, the defendant has received the benefits and the plaintiff is without a remedy unless the contract is enforced, a court of equity will not favor objections merely on the ground of the incompleteness or uncertainty of the agreement. Professor Pomeroy has described this case. The plaintiff testified that he would not have purchased the restaurant business without an option to purchase the real property. At the time of trial, 15 percent of the lease payments previously made by the plaintiff would have given him a credit of $74,123.72 toward the purchase price under the option. Both the trial court and the majority have held that the plaintiff has no remedy by way of restitution. This leaves the plaintiff virtually remediless unless the contract is enforced. Pomeroy, Specific Performance of Contracts, supra.
In some of its previous cases, including Howard v. Thomas, supra, and Van v. Fox, supra, this court has considered the defendant seller’s motives in refusing to comply with the terms of the contract. In this case the Court of Appeals said:
“The problem of the missing terms is only an apparent one, used by the defendants as an excuse to avoid a contractual obligation.” 62 Or App at 569.
The Court of Appeals was correct. The defendants have been falling trees and blowing up bridges along their retreat route into the safe haven of higher prices.
*764I am not saying that part performance and lack of another remedy by the buyer or the motive of the seller should be controlling factors in a specific performance case. I think that they should be taken into consideration and in a close case they should tip the scales in favor of specific performance. In this case to do otherwise would create a gross injustice.
For all these reasons I would grant specific performance.
Linde, J. and Roberts J. join in this dissent.

This is not a question of counting the gaps. In Howard v. Thomas, 270 Or 6, 526 P2d 552 (1974), the defendant sellers’ answer set out “31 items which they contend are necessary elements in a contract to sell real property and which were not included in the earnest money receipt.” This court found that most of the 31 items were inconsequential or were eliminated by the decree entered by the trial court. We should not be engaged in trying to determine what a careful lawyer would have provided in an option to buy real estate, but rather what are the barebones essential terms that will bind the parties.

It appears that the quoted statement from Smith v. Vehrs, supra, is dicta. The case continues: “however, it is unnecessary for us to decide whether this particular contract is so indefinite and uncertain in its terms as not to be subject to specific performance, because we are of the opinion that, under the evidence in this case, that agreement was completely merged in the deed * * 194 Or at 500.

In footnote 4 of Van v. Fox, supra, we recognized that one of our conclusions “may be in conflict with dicta in Smith v. Vehrs, 194 Or 492, 500, 242 P2d 586 (1952).” However, the dicta were specifically rejected as too “restrictive” in Howard v. Thomas, 270 Or 6, 10, 526 P2d 522 (1974).

Comment b to § 362 of Restatement (Second) Contracts concerning specific performance states: “Apparent difficulties of enforcement due to uncertainty may disappear in the light of courageous common sense.”

The defendants in their brief in the Court of Appeals paraphrased the trial court’s findings and set out a list containing the above items. I have further paraphrased the trial court’s findings and have rearranged the order of the list of omitted items to fit the analysis in this dissent.

The majority implies that later when the plaintiff filed his complaint in this case, he withdrew this offer. I disagree. I find nothing inconsistent in the offer of December 1978 and the complaint filed in July 1979.

The result would be the same if we selected December 1978, when the plaintiff tendered the down payment to the defendants as the date on which the interest rate would be determined. The quoted portion of ORS 82.010 remained the same.
The defendants in their Petition for Review in this court have suggested that if this case is remanded for further proceedings, there should be an opportunity to “determine a rate of interest which bears some reasonable relationship to prevlanet market conditions.” The defendants cite French v. Boese, 50 Or App 369, 623 P2d 1070 (1981), which was remanded to determine among other things the “going rate” of interest. In the French case, there was testimony that the plaintiffs would be able to buy their property back for a principal sum to be determined plus the “going rate” of interest. There is no testimony in this case that the parties agreed to the “going rate.”

I agree with the majority that this court should not put its stamp of approval on any particular form of sales contract. That should be left for the trial court to determine under the particular circumstances of each individual case. The briefs in Howard v. Thomas, 270 Or 6, 526 P2d 552 (1974), disclose that the trial court ordered the defendants sellers to accept a “first mortgage prepared on Stevens-Ness Form No. 105 A” because the plaintiff buyer had tendered a mortgage on that particular form and it was not objected to be sellers.

No doubt there are other cases like Booras v. Uyeda, 295 Or 181, 666 P2d 791 (1983), and David M. Scott Construction v. Farrell, 285 Or 563, 592, P2d 551 (1979), where other terms peculiar to a contract to convey property are material. In both Booras and David M. Scott Construction, subordination agreements were essential to complete the sales. That problem does not exist in this case.