Wabol v. Camacho

Wabol v. Camacho, 4 N.M.I. 388 (1996) Francisco T. Wabol, Plaintiff/Appellee, v. Teresita T. Camacho, Defendant/Appellant. Appeal Nos. 94-036 & 94-047 Civil Action No. 94-0140 June 4, 1996 Argued and Subm itted April 11, 1996 Counsel for appellant: G. Anthony Long, Saipan (Long & Brown). Counsel for appellee: Tim othy H. Skinner, Saipan. BEFORE: VILLAGOM EZ and ATALIG, Justices, and SALAS, Special Judge. ATALIG, Justice: The defendant, Teresita T. Camacho (“Camacho”), appeals from the grant of summ ary judgment in which she was ordered specifically to pursue litigation against third parties, and to pay attorney’s fees to the plaintiff, Francisco T. W abol (“W abol”). This Court has jurisdiction pursuant to 1 CM C § 3102(a). W e hold that the trial court erred in concluding that W abol was entitled to sum m ary judgm ent. Accordingly, we reverse both the grant of sum m ary judgm ent and the award of attorney’s fees. ISSUES PRESENTED AND STANDARDS OF REVIEW The dispositive issues on appeal are whether the trial court erred in: (1) granting sum m ary judgm ent in favor of W abol; (2) ordering Cam acho specifically to pursue litigation against third parties; and (3) awarding W abol attorney’s fees in the am ount of $11,340.80.1 Since the first two issues arise within the context of a grant of sum m ary judgm ent, they are reviewed de novo. Rios v. Marianas Pub. Land Corp., 3 N.M .I. 512, 518 (1993). In our review, we exam ine the evidence in the light m ost favorable to the nonm oving party and affirm if “there was no genuine issue of m aterial fact and . . . 1 Camacho also contends that the matter was not ripe for summary judgment because there are genuine disputed issues of material fact with respect to W abol’s compliance with his duty to negotiate in good faith. Specifically, these issues are whether W abol: (1) was ready, willing, and able to perform under the contract; (2) undertook any act to seek release or assignment of Parcel B; (3) breached his duty of good faith and fair dealing; and (4) sought specific performance for speculative purposes. However, these factual issues are not relevant to our disposition of this matter. Accordingly, the issues are not “genuine.” See Castro v. Hotel Nikko Saipan, Inc., 4 N.M.I. 268, 272 (1995), appeal dismissed, 96 F.3d 1259 (9th Cir. 1996). the trial court correctly applied the substantive law.” Id. W e review the award of attorney’s fees for an abuse of discretion. Pangelinan v. Itaman, 4 N.M .I. 114, 117 (1994). FACTUAL AND PROCEDURAL BACKGROUND On August 12, 1988, Camacho (seller) and W abol (buyer) executed an “Agreement for Purchase of Real Property” (“Agreem ent”) for two parcels of land, referred to as Parcel A and Parcel B, on Saipan. See Excerpts of Record at 121-28. Parcel B, the lot in dispute, is currently leased by Cam acho to third parties Jam es Edwin M usick and M axine Lee M usick (“M usicks”). The lease was executed on July 14, 1980. Id. at 122. Paragraph 2.3 of the Agreem ent provides that the [s]ale and purchase of [Parcel B is] specifically conditioned upon obtaining a release of the lease or an assignm ent of the leasehold unto [W abol], and the parties covenant and agree that they will attem pt in good faith and use best efforts within reason to obtain such release or assignm ent within sixty (60) days of the date [of the Agreem ent]. Id. at 123. Under the Agreem ent, the purchase price of Parcel B was $50,000, of which $10,000 was paid by W abol as earnest m oney. The rem aining $40,000 was to be paid upon the closing of the sale of Parcel B. Id. Paragraph 3.2 of the Agreem ent provides for title insurance and the exam ination of title, and [i]n the event that the com m itm ent for the title insurance policy, or any other title search or report, discloses any defect in [Cam acho’s] title affecting [her] ability to transfer clear, good, and m arketable title, then . . . [W abol] shall have the right at [his] sole option to (a) waive the defect and require [Cam acho] to specifically perform the transaction . . . (b) require [Cam acho] at [her] expense to cure such defect with[in] a reasonable tim e . . . and thereafter to specifically perform this agreem ent, or rescind this agreem ent and recover the earnest money back from [Cam acho] and any consequential and incidental dam ages to which [W abol] may be entitled. Id. at 124. Paragraph 4.1 of the Agreem ent states that if Cam acho was unable to fulfill any of her obligations or failed to perform under the Agreem ent, W abol would have the option of either: (1) term inating the Agreem ent and having Camacho refund the m oney advanced as well as com pensation for “all incidental and consequential dam ages incurred . . . as a result of the breach,” or (2) seeking specific perform ance of the Agreem ent. Id. at 125. Finally, Paragraph 5.2 of the Agreem ent states that “[i]n the event either party shall bring an [sic] court proceeding for interpretation or enforcement of this Agreement the prevailing party shall be entitled to recover from the other as part of the judgm ent of the court the party’s reasonable attorneys fees, expenses, and costs of the action.” Id. at 125-26. On or around October 12, 1988, the end of the term of the Agreem ent, Cam acho had not secured either a release or an assignm ent of the lease on Parcel B. On February 3, 1989, Cam acho and W abol executed a “M em orandum Extending Agreem ent for Sale of Real Property” (“M em orandum ”). Id. at 118-20. Under the M emorandum, the parties agreed to “continue in good faith to use best efforts within reason to satisfy the special condition at Paragraph 2.3 upon reasonable term s.” Id. at 119. Cam acho also acknowledged receipt of the $10,000 which W abol had previously paid as earnest m oney to be applied to the purchase of Parcel B. Id. Paragraph 3 of the M em orandum states that: If it becom es apparent to Buyer that negotiations with [the M usicks] are not likely to succeed in resolving the special condition at Paragraph 2.3, then [W abol] may, at [his] option, cancel and term inate the Agreem ent as to Parcel B. If the transaction has not been executed within five years from [February 3, 1989], the Agreem ent shall autom atically expire and term inate as to all land not by then actually conveyed.  Wabol v. Camacho, 4 N.M.I. 388 (1996) Id. Paragraph 4 of the M em orandum provides “[i]n the event the Agreem ent shall be term inated or canceled, [Camacho] shall repay [the $10,000] to [W abol] forthwith.” Id. Subsequently, Cam acho twice wrote to W abol attem pting to term inate the M em orandum . W abol responded by stating that only he had the option of term inating their agreem ent. Id. at 45-47. On February 19, 1991, Cam acho filed suit against the M usicks for having breached the lease agreem ent. Id. at 38. On February 3, 1994, one day after the expiration of the M em orandum , Cam acho notified W abol that she was willing to return the $10,000. Id. at 115-16. On February 14, 1994, W abol filed a com plaint for breach of contract. The com plaint sought to com pel Cam acho to expedite the resolution of the action against the M usicks and to com pel Cam acho to transfer title to Parcel B to him if she was successful in that action. He also sought attorney’s fees and costs. Cam acho filed her answer on M arch 10, 1994. W abol then moved for sum m ary judgm ent. The trial court concluded that Cam acho breached the M em orandum by failing to use her best efforts to secure either a release or an assignm ent of the M usicks’ lease. The court also found that she breached her im plied duty of good faith by attem pting unilaterally to cancel the agreem ent and by failing to use her best efforts to obtain a release or assignm ent. Id. at 22-23. In granting summ ary judgm ent in favor of W abol, the trial court held that the M em orandum could be specifically perform ed and ordered Cam acho to “expeditiously resolve the litigation she com m enced” against the M usicks and, if she was successful, to transfer Parcel B to W abol. Id. In a separate order filed on October 13, 1994, the trial court also awarded W abol attorney’s fees in the am ount of $11,340.80. Id. at 18. Cam acho tim ely appealed from both orders. ANALYSIS I. W hether the Summary Judgment Granting Specific Performance was Proper W abol conceded at oral argum ent that the Agreem ent as extended by the M em orandum was an option contract which gave him the option to purchase Parcel B notwithstanding the M usicks’ lease. An “option” constitutes “a prom ise which meets the requirem ents for the formation of a contract and lim its the prom isor’s power to revoke an offer.” R ESTATEM ENT (S ECO N D ) O F C O N TRACTS [“C O N TRACTS ”] § 25 (1981).2 During the option period, the prom isee may either accept or reject the offer. At the end of the period, the prom isee’s power of acceptance term inates autom atically. Id., §§ 25, 37, and 41. The party seeking specific perform ance of an option contract bears “the burden of proving the existence of a valid, enforceable, and properly exercised option.” Eurotex (Saipan), Inc. v. Muna, 4 N.M .I. 280, 283 (1995). This is because an “option ripens into a bilateral contract when the offeree properly accepts it.” Id., 4 N.M .I. at 285-86. Only at this point is an option contract specifically perform able. Aldan-Pierce v. Mafnas, 2 N.M .I. 122, 145 (1991), rev’d, 31 F.3d 756 (9th Cir. 1994). Here, the M emorandum created a five-year extension of the option to purchase Parcel B. During the five- year period, Cam acho’s right to revoke the offer of sale was lim ited, and W abol had the option either to purchase the property as encum bered by the M usicks’ lease, or wait until after Cam acho obtained a release or assignm ent within the five-year period. Camacho’s duty to transfer Parcel B to W abol would not arise until the latter exercised his option. However, the five years ended without W abol having exercised either option. In order words, at the end of that period the M em orandum and Agreem ent and Cam acho’s obligations under them ended. 3 2 See Diamond Hotel Co,, Ltd. v. Matsunaga, 4 N.M.I. 213, 217 (1995), aff’d, 99 F.3d 296 (9th Cir. 1996). 3 W abol contends on appeal that “he stood ready and willing to deliver the remainder of the purchase price.” Excerpts of Record at 62. This declaration, made more than five months after the expiration of the five-year period, is irrelevant to the issue of whether he properly exercised the option. W abol’s stated preference of purchasing Parcel B without the M usicks’ leasehold interest did not serve to extend the tim e within which he was entitled to accept the offer under the M em orandum and the Agreem ent. It was error for the trial court to grant sum m ary judgment based on obligations which had extinguished prior to the com m encem ent of the action, and to order specific perform ance under an unexercised option agreem ent. Instead, the appropriate rem edy would have been to order the return of the earnest money. W e disagree with W abol’s contention that the M em orandum and Agreem ent im parted a duty upon Camacho to pursue litigation against the M usicks. “W ords . . . are interpreted in the light of all circum stances . . . [and] writings that are part of the same transaction are interpreted together.” C O N TRACTS § 202(1), (2). Viewing the facts in the light most favorable to Cam acho, and the “reasonable meanings” of contract terms against their drafter,4 W abol, we conclude that the M em orandum and Agreem ent im parted only a duty to negotiate with the M usicks. Neither the M emorandum nor the Agreement made any mention of litigation as a means by which Cam acho or W abol was to pursue a release, nor is litigation against the M usicks clearly contem plated by the contractual language “best efforts within reason.” Finally, Paragraph 3 of the M emorandum specifically referred to negotiation as the m eans of “resolving the special condition” of a release or assignm ent of the lease. The term s “negotiation” and “litigation” mean two different processes. Reading the M em orandum and Agreem ent together, they im parted no more than a duty of good faith to negotiate with the M usicks. This duty was extinguished at the end of the five-year term . W e hold that the court erred in concluding that, as a m atter of law, the M em orandum gave rise to a continuing duty on Camacho’s part to pursue litigation against the M usicks. M oreover, since W abol never exercised either of his options under the M emorandum or the Agreement, specific perform ance was an inappropriate rem edy. II. Attorney’s Fees In light of the above ruling, we need not reach the issue of whether the specific am ount of attorney’s fees awarded was excessive and constituted an abuse of the trial court’s discretion. Under Paragraph 5.2 of the Agreem ent, the parties agreed that if one of them brought a court proceeding for interpretation or enforcement of the Agreement, then the prevailing party would be entitled to recover attorney’s fees. Excerpts of Record at 125-26. Camacho has ultim ately prevailed on the issue of whether she was required to pursue litigation against the M usicks. Therefore, under the term s of the Agreem ent she is entitled to attorney’s fees.5 CONCLUSION Based on the foregoing, we REVERSE both the grant of summ ary judgment and award of attorney’s fees and REM AND this matter for the trial court to form ulate and enter an award of attorney’s fees in favor of Cama- cho, with no interest under Com. R. App. P. 37. The trial court may consider argum ents with respect to any offset of this award that may be m erited by the return of the earnest money. 4 R ESTATEM ENT (S ECO N D ) O F C O N TRACTS § 206 (1981). 5 See Camacho v. L & T Int’l. Corp., 4 N.M.I. 323, 330 (1996).