Court Opinion

ID: 4580624
Source: CourtListenerOpinion
Date Created: 2020-10-26 19:17:30.685222+00
Date Added: 2024-06-11T08:47:56.551667
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
                       DIVISION ONE

LM15 LLC, a Washington limited liability )        No. 80112-1-I
company; AJMER SINGH, an individual; )
VARINDERPAL TOOR, an individual, )
                                         )
                   Respondents,          )
                                         )
              v.                         )
                                         )
GIRMAY, INC., a Washington               )        UNPUBLISHED OPINION
corporation; AMARE GIRMAY and            )
JANE DOE, husband and wife, and the )
marital community composed thereof, )
                                         )
                   Appellants,           )
                                         )

       VERELLEN, J. — The testimony of the purchasers who signed an option to

purchase property the same day they signed a lease as a tenant of that property

substantially supports the trial court’s finding that the option and lease were part of

the same transaction, and that finding in turn supports the trial court’s conclusion that

the option was supported by adequate consideration. Substantial evidence also

supports the trial court’s determination that the purchasers did not materially breach

the lease or the option agreement and that strict enforcement of the option

requirements would result in an inequitable forfeiture of the option.

       As the prevailing party at trial and now on appeal, the purchasers are entitled

to attorney fees under the lease and option agreements.
No. 80112-1-I/2

      Therefore, we affirm the trial court’s order for specific performance of the

option to purchase and its award of attorney fees. We also award the purchasers

attorney fees on appeal.

                                       FACTS

      Varinderpal Toor, Reena Toor, and Ajmer Singh formed LM15, a limited

liability company.1 In 2015, the Toors and Singh learned Amare Girmay was selling

commercial property. The property was in disrepair and was occupied by an

unbranded gas station, a mini-mart, an auto repair shop, and an espresso stand.

After the Toors and Singh met with Girmay, LM15 executed three documents

regarding the property: a “Commercial Lease Agreement”, an “Option to Purchase

Commercial Real Property, and a “Notice to Remodel.” Soon after, Singh sold his

interest in LM15 to Varinderpal but remained involved in the interactions with Girmay.

      The lease term began on November 1, 2015 and ended on October 31, 2020.

The lease prohibited subletting without Girmay’s prior written consent. The option to

purchase document provided that the option had to be exercised before October 31,

2020, the purchase price was $1,150,000, and LM15 had to submit a letter of loan

approval. The option would automatically terminate in the event that LM15 breached

the lease. The notice to remodel provided for unlimited remodeling by LM15.

      1 Because Varinderpal and Reena have the same last name, we refer to them
individually by their first names for clarity.

                                           2
No. 80112-1-I/3

       The Toors communicated often with Girmay about LM15’s plans to remodel

the mini-mart and brand the gas station. Girmay approved of the plans and offered

his suggestions. LM15 invested approximately $550,000 in renovating the property.

       In 2017, LM15 decided to exercise the option to purchase. The Toors

presented Girmay with LM15’s written notice of its intention to exercise the option

and told him LM15 intended to pay cash. Girmay acknowledged receipt of the notice

and did not express any concerns, but he was not ready to close on the sale because

he wanted to locate another property to use in a 1031 tax free exchange.2 Girmay

encouraged LM15 to complete the remodeling while it waited. LM15 branded the gas

station as a Shell station.

       The Toors were concerned about waiting to close on the purchase of the

property because LM15 was paying for utilities and other overhead. Girmay

suggested renting space to a car wash or a food truck to collect rent in the meantime.

As a result, in January 2018, LM15 sublet a portion of the property to a taco truck.

Girmay was aware of the sublease and helped arrange a power connection for the

taco truck.

       In March 2018, Girmay terminated the option to purchase because LM15

breached the lease agreement. LM15 sued Girmay to enforce the option to

purchase. The trial court ordered Girmay to close on the option and to convey the

property to LM15. The trial court also awarded attorney fees to LM15.

       2A 1031 exchange requires “that property be identified and that [the]
exchange be completed not more than 180 days after transfer of exchanged
property.” 26 U.S.C.A. § 1031(3) (2017).

                                           3
No. 80112-1-I/4

       Girmay appeals.

                                        ANALYSIS

I. Consideration for the Option to Purchase

       Girmay contends the option to purchase lacked consideration because the

lease and the option were separate contracts.

       Determining the parties’ intentions is a question of fact.3 “Our review is limited

to determining whether substantial evidence supports the challenged findings of fact

and, in turn, if the supported findings and unchallenged findings support the court’s

conclusions of law.”4 “‘Evidence is substantial if it is sufficient to convince a

reasonable person of the truth of the finding.’”5 “‘So long as this substantial evidence

standard is met, a reviewing court will not substitute its judgment for that of the trial

court even though it might have resolved a factual dispute differently.’”6 The trier of

fact is solely responsible for making credibility determinations.7 Unchallenged

findings are verities on appeal.8 We review conclusions of law de novo.9

       3   Martinez v. Miller Indus., Inc., 94 Wash. App. 935, 943, 974 P.2d 1261 (1999).
       4   State v. Coleman, 6 Wash. App. 2d 507, 516, 431 P.3d 514 (2018).
       5 Id. (quoting State v. Klein, 156 Wash. 2d 102, 115, 124 P.3d 644 (2005)).
       6 Id. (internal quotation marks omitted) (quoting Sunnyside Valley Irrig. Dist. v.
Dickie, 149 Wash. 2d 873, 879-80, 73 P.3d 369 (2003)).
       7   Morse v. Antonellis, 149 Wash. 2d 572, 574, 70 P.3d 125 (2003).
       8   Cowiche Canyon Conservancy v. Bosley, 118 Wash. 2d 801, 819, 828 P.2d 549
(1992).
       9   In re Estate of Haviland, 162 Wash. App. 548, 561, 255 P.3d 854 (2011).

                                             4
No. 80112-1-I/5

       “‘An option to purchase property is a contract wherein the owner, in return for

valuable consideration, agrees with another person that the latter shall have the

privilege of buying the property . . . upon the terms and conditions expressed in the

option.’”10

       “[T]he terms of agreement may be expressed in two or more separate
       documents, some of these containing promises and statements as to
       consideration, and others . . . embodying performances . . . . In every
       such case, these documents should be interpreted together, each one
       assisting in determining the meaning intended to be expressed by the
       others.”[11]

When an option contract is supported by consideration, the result is an agreement

binding upon the optionor.12 “[C]onsideration will support and render a promise

enforceable if [there] was something bargained for.”13

       Girmay challenges two findings of fact related to consideration. Finding of

fact 8 is that “[everyone] understood that the Toors and Mr. Singh were only

interested in purchasing the gas station business . . . if they would be allowed to

buy the property.”14 Finding of fact 10.6 is the “[l]ease and [o]ption [a]greement

       10
        RSD AAP, LLC v. Alyeska Ocean, Inc., 190 Wash. App. 305, 318, 358 P.3d
483 (2015) (quoting Whitworth v. Enitai Lumber Co., 36 Wash. 2d 767, 770, 220 P.2d
328 (1950)).
       11 Pelly v. Panasyuk, 2 Wash. App. 2d 848, 868, 413 P.3d 619 (2018) (first
alteration in original) (quoting Kelley v. Tonda, 198 Wash. App. 303, 311-12, 393 P.3d
824 (2017)).
       12   RSD AAP, 190 Wash. App. at 318.
       13 Huberdeau v. Desmarais, 79 Wash. 2d 432, 440, 486 P.2d 1074 (1971)
(internal quotation marks omitted).
       14   Clerk’s Papers (CP) at 304.

                                            5
No. 80112-1-I/6

were part of the same transaction . . . . [E]ach contract was dependent on, and

provided consideration for, the other.”15

       Here, there was substantial evidence to support the finding that the

members of LM15 always intended to exercise the option and that the lease and

the option to purchase documents were part of the same transaction. Reena

testified that the option was “part of the deal . . . that everyone [understood LM15

would be] able to buy the property.”16 Both Varinderpal and Singh testified they

were interested in entering the lease only if there was an option to purchase the

property. The court found their testimony credible.

       Section 15.24 of the lease agreement included a section titled “Option to

Purchase” but did not include any text about the option. The option to purchase

document provided that the lease was “attached hereto and incorporated herein

by reference.”17 And the parties signed the lease and option documents on the

same day. Substantial evidence supports findings of fact 8 and 10.6. And those

findings in turn support the conclusion of law that there was adequate

consideration for the option.

       Girmay relies on Ledaura, LLC v. Gould for the proposition that the

consideration provided by the lease was insufficient to support the option.18 But

Ledaura is inapposite. Unlike here, the lease and the option to purchase were

       15   CP at 306.
       16   RP (May 8, 2019) at 33.
       17   CP at 26.
       18   155 Wash. App. 786, 789-90, 237 P.3d 914 (2010).

                                            6
No. 80112-1-I/7

executed separately, each requiring separate consideration.19 Additionally, the

option in Ledaura mentioned neither the lease nor any of its terms.20

       Girmay’s challenge to the adequacy of consideration fails.

II. Material Breach of the Lease and Option to Purchase

       Girmay argues that LM15 materially breached the lease, constituting a default

and precluding the exercise of the option. Specifically, Girmay contends that LM15

failed to obtain permits for the renovations to the mini-mart, failed to obtain loan

approval before giving its notice to exercise the option, and failed to receive his

permission before entering the sublease with the taco truck.

       A material breach is one that “‘substantially defeats the purpose of the

contract.’”21 “The question of materiality depends on the circumstances of each

particular case.”22

              In determining whether a failure to render or to offer performance
       is material, the following circumstances are significant:

              (a) the extent to which the injured party will be deprived of the
       benefit which he reasonably expected;

            (b) the extent to which the injured party can be adequately
       compensated for the part of that benefit of which he will be deprived;

             (c) the extent to which the party failing to perform or to offer to
       perform will suffer forfeiture;

       19 Id. at 790-91.
       20 Id. at 790.
       21
        DC Farms, LLC v. Conagra Foods Lamb Weston, Inc., 179 Wash. App. 205,
230, 317 P.3d 543 (2014) (quoting Mitchell v. Straith, 40 Wash. App. 405, 410, 698
P.2d 609 (1985).
       22 Id. at 221.

                                            7
No. 80112-1-I/8

              (d) the likelihood that the party failing to perform or to offer to
       perform will cure his failure, taking account of all the circumstances
       including any reasonable assurances;

               (e) the extent to which the behavior of the party failing to perform
       or to offer to perform comports with standards of good faith and fair
       dealing.[23]

“The ‘standard of materiality’ . . . is necessarily imprecise and flexible.’ However, it ‘is

to be applied . . . in such a way as to further the purpose of securing for each party

his expectation of an exchange of performances.’”24

       Girmay challenges findings of fact 13 and 13.1. Finding of fact 13 states,

“LM15 proceeded to invest substantial sums of money, as well as a great deal of

. . . time and energy, in performing substantial renovations and improvements on

the subject property.”25 Finding of fact 13.1 states Girmay “told [the Toors and

Singh] not to apply for permits, as he was concerned that the [c]ity would

discover that other work had been done on the subject property without obtaining

permits.”26

       Varinderpal testified that he “did most of the construction” and “put a lot of

time into it.”27 He also stated that in total they spent about $550,000 on the

remodel. Reena testified that when she questioned Girmay about the ability to

       23   RESTATEMENT (SECOND) OF CONTRACTS § 241 (1981).
       24Bailie Commc’ns, Ltd. v. Trend Bus. Sys., 53 Wash. App. 77, 84, 765 P.2d 339
(1988) (alterations in original) (quoting id., cmt a).
       25   CP at 307.
       26   CP at 307-08.
       27   RP (May 8, 2019) at 110.

                                             8
No. 80112-1-I/9

renovate the property, he responded, “[Y]eah, [this is] your land, no problem.

You can do what you . . . want to do.”28 Reena also testified they executed the

notice to remodel after she asked Girmay to confirm their ability to renovate the

property. The notice to remodel provided “that LM15 has the full authority to

remodel the business.”29 Varinderpal also testified that Girmay often provided

them with “guidance” on remodeling decisions.30 Further, the Toors and Singh all

testified that Girmay told them not to obtain permits for the remodeling, stating,

“[N]o, no, no, don’t go to the [c]ity.”31 Substantial evidence supports findings of

fact 13 and 13.1.

       Girmay challenges finding of fact 15, that “LM15 originally had planned to

purchase the subject property from [him] via a bank loan . . . [but] discovered that

none of the commercial banks they contacted would make a loan secured by the

subject property, because of contamination issues [with the property.]”32

       Reena testified that they provided Girmay with written notice stating they

were ready to exercise the option at a September 2017 meeting.33 She testified

that at the meeting they explained to Girmay that they were unable to obtain

bank financing due to the contamination on the property but showed Girmay

       28 Id. at 34.
       29   CP at 24.
       30   RP (May 8, 2019) at 103.
       31 Id. at 42-43.
       32   CP at 308-09.
       33   RP (May 8, 2019) at 45.

                                            9
No. 80112-1-I/10

$1,200,000 in cash.34 Undisputed finding of fact 17 provides Girmay did not

express any concerns about the impending cash payment. Substantial evidence

supports finding of fact 15.

        Girmay objects to findings of fact 17.2, that he “suggested that LM15 could

rent space to organizations doing weekend car washes, and/or to a food truck in

order to generate some additional revenue” and finding of fact 17.3, that he

“assisted LM15 in contacting the auto repair shop owner to arrange for access so

that power could be provided for the taco truck.”35

        But Reena testified that when Girmay asked LM15 to delay the option for his

own benefit, he suggested subleasing to either a car wash or a food truck so that

they could collect rent in the meantime.36 Singh proposed that LM15 sublease to a

taco truck, and Girmay expressed his approval.37 Varinderpal also testified that

Girmay helped them arrange a power connection from the auto repair shop to

operate the taco truck.38 Substantial evidence supports findings of fact 17.2 and

17.3.

        Girmay challenges finding of fact 21, that “[a] preponderance of the evidence

established that Girmay’s allegations of breach of the [l]ease and the [o]ption

        34 Id.
        35   CP at 310.
        36   RP (May 8, 2019) at 49.
        37 Id.
        38   RP (May 8, 2019) at 107.

                                          10
No. 80112-1-I/11

[a]greement by LM15 were pretextual.”39 Reena testified that Girmay would often

stop by the property during the remodel stating in part, “I’m so happy for you guys,

this is looking great.”40 Varinderpal and Singh also testified that Girmay never

objected or stated any concerns as to the renovations they were doing on the

property.41 Undisputed finding of fact 23 provides Girmay admitted he made a

mistake in agreeing to sell the property for $1,150,000, the property was now worth

considerably more, and he would require more money to sell the property.

Substantial evidence supports finding of fact 21 that Girmay’s allegations of a breach

were pretextual.

      The trial court found that the Toors and Singh were credible that Girmay told

them he did not want them to obtain permits, did not object to a cash payment to

exercise the option, and did not oppose the sublease to the taco truck.42 Because

LM15 had permission from Girmay for its actions that diverged from the lease, as the

      39   CP at 311.
      40   RP (May 8, 2019) at 57.
      41   RP (May 8, 2019) at 209-10; RP (May 9, 2019) at 234.
      42  The trial court’s conclusion of law 8.4 states, “[T]he Court finds the
testimony of Reena Toor, Varinderpal Toor and Ajmer Singh, that Mr. Girmay
specifically told them they should proceed with the renovation and remodel without
seeking permits, to be credible.” CP at 316. The trial court’s conclusion of law 12
states, “The Court found testimony from Varinderpal Toor and Ajmer Singh, that Mr.
Girmay was aware and approved of all the work that was being done, and even
participated in making suggestions regarding some of the changes, to be credible."
CP at 318. Credibility determinations are findings of fact. In re Estate of Palmer, 145
Wash. App. 249, 266, 187 P.3d 758 (2008). “‘Findings of fact labeled as conclusions of
law will be treated as findings of fact when challenged on appeal.’” Karanjah v. Dep’t
of Soc. & Health Servs, 199 Wash. App. 903, 916, 401 P.3d 381 (2017) (quoting
Morgan v. Dep’t of Soc. & Health Servs., 99 Wash. App. 148, 152, 992 P.2d 1023
(2000).

                                          11
No. 80112-1-I/12

trial court concluded, it did not materially breach the lease. The court’s legal

conclusions are supported by its findings of fact 13, 13.2, 15, 17.2, 17.3, and 21.

III. Equitable Discretion to Prevent Forfeiture

       Girmay contends LM15 forfeited its rights to exercise the option because it

failed to exercise the option “in the manner provided” by the agreement.43 Girmay

argues that because LM15 failed to provide a letter of loan approval to confirm its

financing and was in default under the lease, its exercise of the option was invalid.

       “Because the trial court has broad discretionary authority to fashion equitable

remedies, we review such remedies under the abuse of discretion standard.”44 A trial

court abuses its discretion when its exercise of discretion is based upon untenable

grounds or reasons.45

       As a general rule, option contracts “are to be strictly construed and . . . time is

of the essence.”46 However, equitable relief from such strict construction may be

warranted in limited circumstances where an inequitable forfeiture would otherwise

result.47 This is because “‘forfeitures are not favored in law and are never enforced in

equity unless the right thereto is so clear as to permit no denial.’”48 When the holder

       43   Appellant’s Br. at 29.
       44
        Cornish Coll. of the Arts v. 1000 Virginia Ltd P’ship, 158 Wash. App. 203, 221,
242 P.3d 1 (2010).
       45 Id.
       46   Pardee v. Jolly, 163 Wash. 2d 558, 568, 182 P.3d 967 (2008).
       47   Wharf Rest., Inc. v. Port of Seattle, 24 Wash. App. 601, 611, 605 P.2d 334
(1979).
       48Pardee, 163 Wash. 2d at 574 (internal quotation marks omitted) (quoting
Hykras v. Knight, 64 Wash. 2d 733, 734, 393 P.2d 943 (1964)).

                                            12
No. 80112-1-I/13

of an option makes valuable permanent improvements to the property with the

intention to give its notice to exercise or extend the option, equitable relief may be

appropriate.49

       In Cornish College of the Arts v. 1000 Limited Partnership, Cornish and

Virginia Limited executed a commercial sublease agreement with an option to

purchase.50 The agreement provided that Cornish had less than a year to exercise

the option but allowed Cornish to extend the option for an additional year by paying a

deposit.51 In the meantime, Cornish invested a substantial amount of money to

improve the property and always intended to extend the option period.52 The chief

financial officer of Cornish mailed a check to Virginia Limited to exercise the option.53

Virginia Limited’s representative rejected the check because it was a few days late

and failed to satisfy a multiple signature requirement.54 Virginia Limited delivered a

       49 Wharf, 24 Wash. App. at 611 (quoting 1 ARTHUR L. CORBIN ON CONTRACTS
§ 35, at 146-47 (1963)); see also Pardee, 163 Wash. 2d at 572 (holding that an
equitable grace period may be appropriate when “the optionee was allowed to
occupy the property and make substantial improvements thereon”); Borton & Sons,
Inc., v. Burbank Properties LLC, No. 97690-2-I, slip op. at 1 (Wash. Sept. 10, 2020),
http://www.courts.wa.gov/opinions/pdf/976902.pdf (holding that “granting an
equitable grace period is proper only when a lessee makes valuable improvements to
property that would result in an inequitable forfeiture if the lessee is not given a grace
period”).
       50   158 Wash. App. 203, 211, 242 P.3d 1 (2010).
       51 Id.
       52 Id. at 219.
       53  Id. at 212-13.
       54 Id. at 213.

                                           13
No. 80112-1-I/14

notice to terminate the lease and ordered Cornish to vacate the premises.55 This

court held that the circumstances justified granting Cornish an equitable grace

period.56 This court reasoned that “[if Cornish were] precluded from purchasing the

property, Cornish would forfeit a substantial investment. Given that Cornish at all

times intended to exercise the option to purchase, . . . such a substantial forfeiture

would be inequitable.”57

       The circumstances here are similar to Cornish College. Like Cornish, LM15

always intended to exercise the option to purchase the property, invested a

substantial amount of money in improving the property, and failed to strictly comply

with the option agreement. The trial court properly concluded that the breaches by

LM15 were minor and did not support forfeiture of the option to purchase.

       Girmay argues that granting equitable relief would contradict the Supreme

Court’s holding in Pardee v. Jolly58 that option contracts must be strictly construed.

But in Pardee, the option to purchase required that “the optionee . . . pay the

remaining balance [on the lease] and . . . at the same time, exercise its option to

purchase.”59 Instead, Pardee made his final payment and weeks later attempted to

exercise his option to purchase.60 Here, LM15 had until October 31, 2020 to exercise

       55 Id.
       56 Id. at 218-19.
       57   Id. at 219.
       58   163 Wash. 2d 558, 182 P.3d 967 (2008).
       59 Id. at 571.
       60  Id. at 570-71.

                                           14
No. 80112-1-I/15

the option. And Reena testified that in September 2017, they provided Girmay with

written notice of their intent to exercise the option. Because LM15 was within the

period to exercise the option, Pardee is distinguishable. Further, the court in Pardee

only held that Pardee failed to exercise the option within the terms of the contract.61

But the court remanded for a determination on whether Pardee was entitled to

equitable relief.62

       The record here reveals that LM15 had the funds necessary to purchase in

cash and showed it to Girmay. In this setting, the failure to strictly comply with

providing a letter of loan approval was minor and inconsequential. It was within the

discretion of the trial court to conclude it would be inequitable to grant Girmay the

windfall of the sizeable improvements made by LM15 in reliance upon Girmay’s

ongoing consent, approval, and encouragement to complete the improvements of the

property and the branding of the gas station.

IV. Attorney Fees

       Girmay argues the trial court erred by awarding attorney fees to LM15, and

LM15 requests attorney fees on appeal. The lease and the option to purchase both

provide for attorney fees to the prevailing party in litigation. Because LM15 prevailed

before the trial court, the court did not err by awarding attorney fees. And because

LM15 prevails on appeal, it is entitled to attorney fees on appeal, subject to

compliance with RAP 18.1(d).

       61 Id. at 574-75.
       62  Id. at 576.

                                           15
No. 80112-1-I/16

      We affirm.

WE CONCUR:

                   16