Coulter & Smith, Ltd. v. Russell

925 P.2d 1258, 300 Utah Adv. Rep. 7, 1996 Utah App. LEXIS 95, 1996 WL 552713

• Court: Court of Appeals of Utah
• Decided: September 26, 1996
• Docket: 950726-CA
• Status: Published

Opinions

OPINION

WILKINS, Judge:

Coulter & Smith, Ltd. (Coulter) challenges the trial court’s summary judgment in favor of Roger Russell, Roger Richards, and Kristen Russell (Russell). We affirm.

BACKGROUND

Coulter owned a parcel of undeveloped real estate in an unincorporated area of Salt Lake County. Russell controlled about 3.67 acres (Russell property) several hundred yards north of Coulter’s property. Between Coulter’s and Russell’s properties were four parcels owned by four unrelated parties. Independent of each other, Coulter and Russell made plans to develop subdivisions on their respective properties.

Discovering their similar development plans, Coulter and Russell discussed joint development of their properties and the possibility of Coulter buying the Russell property. Coulter hoped to buy the intervening properties and develop all the properties together as a single subdivision. Based on their negotiations, Coulter prepared an option agreement on its letterhead memorializing Russell’s offer to sell subdivision lots to be developed by Coulter on the Russell property. On April 27, 1991, Russell signed the following option agreement:

Dear Dr. Russell:

In response to your request for a written proposal to purchase your lots west of 1700 East at 10800 South, I submit the following offer which you may accept by signing below:

Price: $26,500 per lot during the 1st month following completion of the lots; price of each lot to increase $100 per lot each month thereafter until each lot is closed.

Upon completion of the subdivision development we offer to pay you $1,500 per.loathe balance of the purchase price ($25,000 at the outset) to be paid upon closing of each lot. We understand that the cost of the land and lot improvements will be paid upon closing of each lot.

The enclosed Work Exchange Agreement will initiate our cooperative efforts. We will proceed posthaste to annex and develop our tracts jointly. I believe that working in concert will greatly facilitate zoning and all other development concerns.

Respectfully,

/s/Nathan Coulter

Nathan Coulter

pmp

Coulter & Smith Ltd. is hereby granted an option to purchase lots as per terms detailed above: This option terminates 2 years from the date of completion of the subdivision.

/s/Roger Russell 4-27-911991

Dr. Roger Russell Date

The last sentence was inserted above Russell’s signature line and was handwritten, in contrast to the rest of the document which was typed. In his affidavit, Russell asserts it was not on the document he signed. Meanwhile, Nathan Coulter states in his affidavit: “At Russell’s request before the -Option Agreement was signed, and for his benefit, I added the handwritten language at the bottom of the Option Agreement indicating that the option was to terminate 2 years from the date of completion of the subdivision.”

Another version of the document apparently shows similar handwritten language, but states the option terminates in twenty years, instead of two. Both parties deny the twenty-year language was ever part of their agreement.

At the time Russell signed the option agreement, no lots existed on the Russell property. Further, the parties did not know how many lots could eventually be developed on the property because they had not yet attempted to annex the property to Sandy City and obtain zoning.

Although the parties believed the development could be finished by the spring of 1992, by that time Coulter had not substantially progressed toward completion — e.g., Coulter had not yet submitted a formal annexation petition, bought the four intervening parcels, or worked on the Russell property itself. Even so, Coulter had been laying groundwork for the development by negotiating to buy the four intervening parcels, hiring an engineering firm to design a subdivision including the Russell property, and enlarging a master drain system on the Coulter property to accommodate development on the Russell property. However, having failed to meet the parties’ time expectations, Coulter began regularly reporting to Russell regarding Coulter’s efforts to overcome several obstacles to the development.

In November 1992, Coulter was still attempting to facilitate the development of the properties, but had yet to achieve such crucial objectives as obtaining two of the four intervening properties and filing an annexation petition. At that time, Russell told Coulter he intended to sell the Russell property to a third party. “Problems and disputes” arising from Russell’s proposed sale prompted Coulter and Russell to engage in three-way negotiations with the third party. They reached a preliminary agreement that eventually fell through. Coulter maintains that it then attempted to continue to pursue its development plans with Russell, but that Russell refused to return phone calls, to discuss the development, and to cooperate, and that Russell “completely frustrat[ed] Coulter & Smith’s ability to proceed with the development.”

In May and June of 1994, a competing developer offered to buy the Russell property and filed an annexation petition with Sandy City. The city annexed the property on September 13, 1994. The next day, Coulter filed suit against Russell, requesting spe-eific performance of their option agreement. The trial court granted summary judgment for Russell.

Coulter asserts the trial court erred on four grounds as a matter of law in ruling: (1) Coulter furnished no consideration for the option agreement; (2) the option agreement violates the rule against perpetuities; (3) a reasonable time for exercise of the option had passed; and (4) the option agreement is unenforceable under the Statute of Frauds.

ANALYSIS

In reviewing this summary judgment, we consider the evidence in a light most favorable to Coulter, the losing party. See Machan Hampshire Properties, Inc. v. Western Real Estate & Dev. Co., 779 P.2d 230, 231 (Utah App.1989). We will affirm only if no material fact is legitimately disputed and Russell is due judgment as a matter of law. See id. We accord no deference to the trial court’s legal determinations, but review them for correctness. Id.

I. Consideration

We first address Coulter’s argument that it did provide consideration to support the option agreement. The trial court found that “Coulter & Smith paid no money and furnished no consideration for the purported option at the outset of the option.” While we find no evidence that Coulter paid money for the option, we disagree with the conclusion that it furnished no consideration.

An option agreement consists of two elements: “(1) an offer to sell, which does not become a contract until accepted; and (2) a contract to leave the offer open for a specified time.” Property Assistance Corp. v. Roberts, 768 P.2d 976, 978 (Utah App.1989). The second element — the contract to leave the offer open for a specified time— must be supported by its own consideration, apart from the consideration that may support the potential future contract for the actual sale. See Jensen v. Anderson, 24 Utah 2d 191, 192, 468 P.2d 366, 367 (1970) (citing Walker v. Bamberger, 17 Utah 239, 246, 54 P. 108, 109 (1898)); Estate of Schmidt v. Downs, 775 P.2d 427, 431 (Utah App.1989) (citing Spokane School Dist. No. 81 v. Parzybok, 96 Wash.2d 95, 633 P.2d 1324, 1325 (1981)); see also Ide v. Leiser, 10 Mont. 5, 24 P. 695, 696 (1890) (“[T]here must be some consideration upon which the finger may be placed, and of which it may be said, ‘This was given by the proposed vendee to the proposed vendor of the lands as the price for the option, or privilege to purchase.’” (citation omitted)).

“Consideration sufficient to support the garden variety contract will likewise support an option.” 3 Eric M. Holmes, Corbin on Contracts § 11.7, at 508 (Joseph M. Perillo ed., 1996). It is well settled that consideration may be something other than money. Any “act or promise, bargained for and given in exchange for a promise” constitutes consideration. Resource Management Co. v. Weston Ranch, 706 P.2d 1028, 1036 (Utah 1985); accord Restatement (Second) of Contracts § 71 (1981); see also 2 Joseph M. Perillo & Helen H. Bender, Corbin on Contracts § 5.8, at 34 (1995) (stating consideration may involve “‘some right, interest, profit, or benefit, accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other’ ” (citation omitted)); 77 Am. Jur.2d Vendor & Purchaser § 35 (1975) (noting under general contract principles, consideration for option may be promise “to incur some trouble or expense, or to do or not to do some lawful act”).

In determining whether consideration existed to support the second element of the option agreement — the contract requiring Russell to leave the offer to sell lots open for a time — we look to the written agreement, which is clear and unambiguous as to the consideration issue. We interpret clear and unambiguous contract terms “according to their plain and ordinary meaning without resorting to extrinsic evidence.” Homer v. Smith, 866 P.2d 622, 629 (Utah App. 1993), cert. denied, 878 P.2d 1154 (Utah 1994); see also Anesthesiologists Assocs. v. St. Benedict’s Hosp., 852 P.2d 1030, 1035 (Utah App.1993) (“[T]o interpret a contract, we first look to the four corners of the document to determine the intent of the parties.”), vacated on other grounds, 884 P.2d (Utah 1994). Further, “[w]e accord a trial court’s interpretation of an unambiguous contract no deference, but review it for correctness.” Homer, 866 P.2d at 629.

Contrary to the trial court’s incorrect interpretation, we find the contract/letter at issue to contain the consideration provided by Coulter in return for the option to buy lots. In the letter, Coulter promised to “proceed posthaste to annex and develop our tracts jointly.” His promise to do something he was not otherwise required to do supplied the consideration necessary to support the contract to leave the offer open. See Resource Management Co., 706 P.2d at 1036. Accordingly, we reverse the trial court’s determination regarding consideration.

II. Rule Against Perpetuities

We next consider Coulter’s contentions that the trial court should not have applied the rule against perpetuities to invalidate the option agreement and should not have determined on summary judgment that a reasonable time had already passed for exercise of the option. These issues stem from the fact that the option agreement does not explicitly provide a deadline for Coulter to fulfill its promise to jointly develop the properties and thus does not provide a deadline by which Coulter must exercise its option following development.

An option to buy land is an interest in real estate, Coombs v. Ouzounian, 24 Utah 2d 39, 41, 465 P.2d 356, 358 (1970); Knight v. Chamberlain, 6 Utah 2d 394, 397, 315 P.2d 273, 275 (1957), which is invalidated by the rule against perpetuities ‘“unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest.’ ” Clark v. Shelton, 584 P.2d 875, 876 (Utah 1978) (quoting John C. Gray, The Rule Against Perpetuities § 201 (4th ed. 1942)); see also Anderson v. Anderson, 15 Utah 2d 7, 9, 386 P.2d 406, 407 (1963). Moreover, “[i]t is not necessary that the interest vest in possession but merely that ‘the persons to take it are ascertained and there is no condition precedent attached to the remainder other than the termination of the prior estates.’ ” Anderson, 386 P.2d at 407 (quoting J. Morris & W. Leach, The Rule Against Perpetuities 1 (2d ed. 1962)). Three narrow exceptions to the rule have been created by statute: Utah Code Ann. § 9-8-505 (1996) (relating to preservation easements pertaining to historically significant real property); §§ 22-6-1 & -2 (1991) (exempting retirement trusts from rale); and § .57-8-28 (1994) (exempting Condominium Ownership Act from rule).

There is a well recognized contract rule that “ ‘[w]hen a provision in a contract requires an act to be performed without specifying the time, the law implies that it is to be done within a reasonable time under the circumstances.’ ” Cooper v. Deseret Fed. Sav. & Loan Ass’n, 757 P.2d 483, 485 (Utah App.1988) (quoting Bradford v. Alvey & Sons, 621 P.2d 1240, 1242 (Utah 1980)). This rule has been applied by Utah courts in cases involving interests in land, and even in cases which also consider the application of the rale against perpetuities. See Fredericksen v. Knight Land Corp., 667 P.2d 34, 38 (Utah 1983) (land option); Catmull v. Johnson, 541 P.2d 793, 795 (Utah 1975) (royalties option); Cummings v. Nielson, 42 Utah 157, 168, 129 P. 619, 622 (1912) (land option). However, in none of these cases, nor in any other case of record, has this general rale of contract construction been applied to defeat the operation of the rule against perpetuities.

In Fisher v. Bailey, 14 Utah 2d 424, 385 P.2d 985 (1963), the supreme court concluded that the rule against perpetuities was not violated where an option to purchase lots was required to be exercised within a period of five years. Id. at 988. In Fisher, the option provided for the purchase of sixty-one lots, of which fifty-nine were clearly described and two were to be determined during the course of the development. The first twelve lots were to be developed and transferred within ninety days. The remaining forty-seven were to be provided as completed, although a completion schedule was not expressed in the agreement. Id. at 986-87. Standing alone, this arrangement would be very similar to the present case, and would appear to violate the rule against perpetuities. However, in Fisher, the option also provided for an additional twenty-one lots after completion and transfer of the first sixty-one. Id. at 987. These final twenty-one lots were to be transferred not later than a specified date five years from the date of the contract. Id.

Considering the question of the proper application of the rule against perpetuities in Fisher, the supreme court concluded that the document revealed the clear intention of the parties, as expressed in the words of the agreement, to complete the entire transaction regarding the first sixty-one lots prior to the transfer of any of the additional twenty-one lots. Id. at 987-88. Since the additional twenty-one lots were required to be transferred within five years, if at all, the court concluded the rule against perpetuities was not violated. Id. at 988. This conclusion was based upon an interpretation of the contract terms as expressed, and not upon an implied “reasonable time” to complete the contemplated transactions. “Although the contract does not expressly state that all of the lots must be transferred on or before July 1, 1964, it does definitely so indicate [by reference to the overall terms of the agreement].” Id. at 987.

In the present case, the language of the option agreement, even considered with the handwritten language alleged by Coulter to have been part of the agreement, does not expressly require the transfer of the interests in land to be completed, if at all, within the period of lives in being plus twenty-one years, as required by the rule. Admittedly, the agreement between Coulter and Russell requires Coulter to begin the development process “posthaste” and “immediately,” but it expresses no completion date. The process of development is expressly made a precondition to transfer. Arguably, this process could take a longer period of time than allowed by the rule, despite the best efforts of all concerned. Regulatory, economic, geologic, or other concerns could interfere with the expeditious completion of the development.

The rule against perpetuities mandates that for an option agreement to be enforceable, the interests in land contemplated “must vest, if at all” within the period of the rule. Such is not the case here, although it is certainly possible that such vesting could occur. With or without the addition of the handwritten provision by which the option expires two years after the completion of the development, the rule is not satisfied and the agreement is void.¹

Because the rule against perpetuities is dispositive, we need not and do not reach the other issues raised on appeal.

The judgment of the trial court is affirmed.

DAVIS, Associate P.J., concurs.

1 . Judge Jackson, in his eloquent dissent, offers an excellent argument for modification or revocation of the rule against perpetuities. While the result reached here may be disfavored by the courts of other jurisdictions, or for that matter, courts of Utah, it is for our supreme court, or the legislature of this state, to modify the law, not us.