Seawest Investment Assoc., App. v. George Charles, Et Ano., Resps.

• Court: Court of Appeals of Washington
• Decided: October 28, 2013
• Docket: 69305-1
• Status: Unpublished

Opinion

COURT OF APPEALS Dlv i STATE OF WASHINGTON

2013 OCT 28 AH 10= 35

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

SEAWEST INVESTMENT No. 69305-1-1 ASSOCIATES LLC, a Washington Limited Liability DIVISION ONE Company,

Appellant,

GEORGE CHARLES and WENDY CHARLES and the marital community UNPUBLISHED OPINION composed thereof, SAM DIBELLO and RENEE DIBELLO and the marital community composed thereof, JILL JENSEN and JEREMY AMES and the marital community composed thereof, EMO ROWE and CAT ROWE and the marital community composed thereof, and NWREA, LLC, a Washington limited liability company,

Respondents. FILED: October 28. 2013

Spearman, A.C.J. — The trial court granted summary judgment to the

respondents in an action for past due rent, common area maintenance charges,

and late fees under a lease agreement with landlord, Seawest Investment

Associates LLC. Finding that genuine issues of material fact exist with respect to

the respondents' contractual obligations under the amendment to the lease, we

reverse and remand for further proceedings consistent with this opinion. We also

deny Seawest's request for an award of attorney fees and costs on appeal. No. 69305-1-1/2

FACTS

The parties to this appeal are George and Wendy Charles, Sam and

Renee DiBello, Jill Jensen, Jeremy Ames, and Emo and Cat Rowe (the

Members), a limited liability corporation formed by the Members, NWREA, LLC

(NWREA) respondents, and Seawest Investment Associates, LLC (Seawest)

appellant. In 2007, the Members negotiated for the lease of office space owned

by Seawest. Representing Seawest in the negotiations was its principal,

Massoud M. Aatai.

During the course of negotiations, Aatai prepared the written lease

agreement which is the subject of this litigation (the Lease). The Lease,

which was for a term of five years, contained a provision that required that

negotiations be concluded and the Lease "executed" by all parties by a

certain date and time. Section 1.2 of the Lease provides in part:

LEASE AND RENT COMMENCMENT: This lease will become null and void unless it is executed by all parties by 5 p.m. September 26, 2007. Lease Commencement shall be upon mutual execution of this lease agreement....

Clerk's Papers (CP) at 34.

It is undisputed that the Members' signatures, acknowledged by a notary,

were affixed to the Lease, before 5:00 p.m. on September 26, 2007. The

signature of Aatai, who signed on behalf of Seawest, is also dated September

26, 2007. However, it is uncontested that Aatai's signature was not

acknowledged by a notary until the following day, September 27, 2007. There is

also no dispute that for nearly two years thereafter, the Members paid rent,

tenant improvement charges, common area maintenance (CAM) fees, and all No. 69305-1-1/3

other payments specified by the Lease with checks drawn on the NWREA

operating account.

In May 2009, the Members requested a reduction in rent. Seawest offered

to reduce the monthly payment immediately due, with the shortfall accumulated

and payable at the end of the Lease, subject to an interest rate of eight percent

per annum. This offer was memorialized in a document titled "Amendment to the

Lease dated September 10, 2007 between Seawest Investment Associates, LLC,

(Landlord) and Keller Williams Realty Kirkland (Tenant)" (the Amendment).1 The

Amendment provided, in part:

The Guarantors'21 subject to the original lease will be subject to this amendment with their signatures provided below. Except to the extent that this amendment modifies the original lease, all terms and conditions of the original lease shall remain in force.

CP at 568-69. The Amendment was signed on May 8, 2009 by the Members and

Aatai. None of the signatures was acknowledged.

On October 5, 2010, George Charles, emailed Aatai explaining that

NWREA could not make the rent payments "owed under the Lease." CP at 436.

In the email, Charles requested a renegotiation of the rent obligation or consent

to an assignment of NWREA's "interest in the Lease" as required by "Section

21.1 of the Lease." Id. Seawest declined to offer further relief and instead

1The September 10, 2007 date referenced in the Amendment's title appears to be a drafting error on the part of Aatai. It is uncontested that the document is meant to amend the Lease at issue in this case.

2In addition to the Lease, each of the Members signed personal guaranty agreements in which they agreed to act as "guarantors" for the obligations of the "tenant" for the first three years of the five-year term. CP at 560-63. No. 69305-1-1/4

initiated this lawsuit, in which it claims back rent, CAM charges, and late fees for

the period of October 2010 to March 2012.

On May 22, 2012, the Members filed the motion for summary judgment at

issue in this appeal.3 The Members argued that Seawest's claim was barred by Seawest's failure to satisfy a condition precedent to the formation of the Lease,

i.e., that Seawest had failed to timely execute the Lease as required by Section

1.2. On June 29, 2012, the trial court heard oral argument on the motion.

Subsequently, an order on supplemental briefing was issued in which the trial

court solicited the parties' input on "whether Seawest ha[d] made a showing

sufficient to survive a summary judgment establishing that the [Ljease was

executed" timely under Section 1.2. CP at 764-66. On August 10, 2012, the trial

court entered a final order granting the "defendants'" motion for summary

judgment, dismissing Seawest's claims against "defendants" with prejudice, and

ordering judgments against Seawest for attorney fees and costs. Final judgments

were entered on September 6, 2012; the respondents were awarded attorney

fees. Seawest appeals.

DISCUSSION

Summary Judgment

Seawest contends that the trial court erred because it improperly placed

the burden of proof on Seawest, the non-moving party, at summary judgment.

3The early stages ofthis litigation were dominated by a series ofcross-motions for summary judgment related to the identity of the tenant. The trial court rejected both Seawest's and the Members' motions, finding that factual disputes concerning the intention of the parties at the time the Lease was signed precluded summary judgment for all parties. Thereafter, NWREA was joined as a defendant in the lawsuit. No. 69305-1-1/5

Seawest also argues that summary judgment was precluded because it

successfully raised genuine issues of material fact regarding the respondents'

contractual obligations, in particular under the Amendment. We agree with the

latter contention and reverse.4

We review summary judgment decisions de novo. Ranger Ins. Co. v.

Pierce County. 164 Wn.2d 545, 552, 192 P.3d 886 (2008). Summary judgment is

proper ifthere is no genuine issue of material fact and the moving party is

entitled to judgment as a matter of law. CR 56(c). A genuine issue of material fact

exists if "reasonable minds could differ on the facts controlling the outcome of the

litigation." Ranger Ins. Co.. 164 Wn.2d at 552. When determining whether an

issue of material fact exists, the court must construe all facts and inferences in

favor of the nonmoving party. ]d.

Summary judgment is subject to a burden-shifting scheme, jd. The initial

burden to show the nonexistence of a genuine issue of material fact is on the

moving party. Id; see also Vallandigham v. Clover Park School Dist. No. 400, 154

Wn.2d 16, 26, 109 P.3d 805 (2005). For example, a defendant may move for

summary judgment by showing that there is an absence of evidence to support

the plaintiff's case. Sligarv. Odell. 156 Wn. App. 720, 725, 233 P.3d 914 (2010),

review denied, 170 Wn.2d 1019, 245 P.3d 772 (2011) (citing Young v. Key

Pharm.. Inc.. 112 Wn.2d 216, 225 n.1, 770 P.2d 182 (1989) (citing Celotex Corp.

v. Catrett. 477 U.S. 317, 325, 106 S.Ct. 2548, 91 LEd.2d 265 (1986))). Once this

4Seawest also asserts that the respondents waived the right to enforce Section 1.2 of the Lease, that they are equitably estopped from denying the Lease is enforceable, and that the trial court erred in sua sponte granting summary judgment to NWREA, LLC, which neither moved for summary judgment nor joined in the Members' motions. Because we reverse on other grounds, we do not reach these issues. No. 69305-1-1/6

initial showing is made, the inquiry shifts to the plaintiff to "make a showing

sufficient to establish the existence of an element essential to [its] case." Id. at

725 (citing Celotex, 477 U.S. at 322).

When a party brings an action to enforce a contract, proof of satisfaction

of all conditions precedent contained in the contract is an essential element of

the case. See Ross v. Harding. 64 Wn.2d 231, 240-41, 391 P.2d 526 (1964).

"That is to say, a breach by a plaintiff of a material condition precedent relieves a

defendant of liability under a contract." l± (citing Restatement (Second) of

Contracts § 395 at 746; 3 Samuel Williston &George J. Thompson, A

Treatise on the Law of Contracts § 674 (rev. ed. 1936); 6 Arthur Linton

Corbin, Corbin on Contracts § 1252, at 2 (1951); Atkinson v. Thrift Super

Markets. Inc.. 56 Wn.2d 593, 594, 354 P.2d 709, 710 (1960)).

Seawest first contends that the trial court improperly shifted the burden on

the summary judgment motion to it, the nonmoving party. The claim is without

merit. By its own terms, the Lease, drafted by Seawest, explicitly stated that it

would become "null and void unless it is executed by all parties by 5 p.m.

September 26, 2007." CP at 34. The Members argued on summary judgment

that timely execution of the Lease by all parties was a condition precedent to

formation of a valid lease agreement and that in the absence of evidence to show

the condition was met, the Lease was void. The Members supported their motion

with undisputed evidence that Aatai's signature on the Lease was not

acknowledged by a notary until September 27, 2007, and that Aatai had also stated under oath on several occasions that the Lease was entered into "on or No. 69305-1-1/7

about September 27, 2007."5 On these facts, the trial court reasonably concluded that the Members had met their initial burden of establishing the absence of a

material fact regarding Seawest's breach of a material condition precedent to the

formation of the Lease. The trial court's inquiry to the parties, upon which

Seawest's contention is based, properly reflected that the burden had shifted to

Seawest to demonstrate the existence of a disputed material fact on this issue in

particular or, more broadly, on the issue of whether an enforceable agreement

existed between the parties. Sligarv. Odell. 156 Wn. App. at 725. There was no

error.

The Timeliness of the Execution of the Lease

Seawest next asserts that the trial court erred when it determined there

were no material factual disputes about whether it executed the Lease in

compliance with Section 1.2. It argues that the trial court failed to view Aatai's

testimony that he timely signed the Lease on September 26 in the light most

favorable to Seawest, the nonmoving party. The argument is unpersuasive.

Whether Aatai signed the lease on September 26 is only material if his signature

alone is sufficient to constitute "execution" of the Lease. The trial court correctly

concluded that it did not.

To execute means "[t]o make (a legal document) valid by signing; to bring

(a legal document) into its final, legally enforceable form . .. ." Black's Law

Dictionary 649 (9th ed. 2009). Similarly, execution is defined as "2. Validation of

5See e.g.. Declaration of Massoud M. Aatai in Support of Seawest's Cross-Motion for Summary Judgment; Declaration of Massoud M. Aatai in Opposition to Charles' Motion for Summary Judgment; Supplemental Declaration of Massoud M. Aatai in Support of Plaintiff Seawest Investment Associates L.L.C.'s Opposition to Charles', Dibellos' and Rowes' Motion for Summary Judgment. No. 69305-1-1/8

a written instrument, such as a contract or will, by fulfilling the necessary legal

requirements ... ." jd. at 650. These definitions support the proposition that

execution, as distinguished from signing, is the act of bringing legal validity to a

document, rather than merely affixing a name to it.6

Additionally, in order to be valid in Washington, leases for a fixed term

over one year must be in writing with the landlord's acknowledged signature.

RCW 64.04.010, .020; Haqgen v. Burns. 48 Wn.2d 611,613-14, 295 P.2d 725

(1956) (an unacknowledged lease for a term exceeding one year creates only a

tenancy from rent period to rent period); Labor Hall Ass'n v. Danielsen, 24 Wn.2d

75, 93, 163 P.2d 167 (1945) (an unacknowledged lease is void in so far as the

contemplated term is concerned). Since an unacknowledged signature is

insufficient to render a multi-year lease valid, it is also insufficient to render the

lease executed. Here, the Lease was for a term of five years. It is undisputed that

Aatai's signature was not acknowledged until September 27, 2007, after the

deadline set out in Section 1.2. Thus, even if there is some dispute about

whether Aatai signed the Lease before the deadline, it is a dispute about an

immaterial fact that could not defeat the Members' summary judgment motion.

The trial court did not err.

6 See also Northwest Steel Rolling Mills v. Commissioner of Internal Revenue. 110 F.2d 286, 290 (9th Cir. 1940) (quoting 23 Corpus Juris 278) ("The words 'execute', 'executed' and 'execution' when used in their proper sense, convey the meaning of carrying out some act or course of conduct to its completion. Thus when the terms are applied to a written instrument, they include the performance of all acts... necessary to render it complete as an instrument importing the intended obligation, of every act required to give the instrument validityor to carry it into effect or to give it the forms required to render it valid."').

8 No. 69305-1-1/9

The Amendment

Seawest next contends that even ifthe original Lease was void, there are

disputed issues of material fact as to whether "the parties' written Amendment to

the Lease incorporated the terms of the original Lease and bound the parties."

Appellant's Reply Brief at 2. We agree.

In Washington, a subsequent contract made by the same parties and

covering the same subject matter has the legal effect of rescinding, and

becoming a substitute for, the earlier contract. A substituted contract, or novation,

"'is a new contractual relation. It is based upon a new contract by all the parties

interested. It must have the necessary parties to the contract, a valid prior

obligation to be displaced, a proper consideration, and a mutual agreement.'"

MacPherson v. Franco. 34 Wn.2d 179, 182. 208 P.3d 641 (1949), (quoting Sutter

v. Moore Inv. Co.. 30 Wash. 333, 70 P. 746 (1902)). Here, Seawest has offered

evidence of a mutual agreement to the Amendment by the necessary parties; a

valid prior obligation as a result of the month to month tenancy created by the

failed lease; and proper consideration when the Members promised to pay

interest on the deferred rental payments and Seawest agreed to forgo its right to

demand immediate payment of the full amount owed or vacation of the premises.

The Members and NWREA argue that even if the Amendment constitutes

a new agreement between the parties, it is unenforceable under the statute of

frauds because the agreement is for a term exceeding one year and none of the

signatures to the agreement was acknowledged. But, Seawest correctly

responds that the doctrine of part performance allows courts to enforce a lease No. 69305-1-1/10

that does not satisfy the statute of frauds if equity and justice so require. Miller v.

McCamish, 78 Wn.2d 821, 479 P.2d 919 (1971); Losh Family. LLC v. Kertsman.

155 Wn. App. 458, 228 P.3d 793 (2010); Ben Holt Ind.. Inc. v. Milne. 36 Wn. App.

468, 675 P.2d 1256 (1984). "This doctrine prevents a party from asserting the

invalidity of a contract where the other party has acted in conformity with the

contract and thus placed himself in a position where it would be intolerable in

equity to deny its enforcement." Stevenson v. Parker. 25 Wn. App. 639, 643-44,

608 P.2d 1263 (1980); Miller. 78 Wn.2d at 827.

Washington courts may grant relief under the doctrine of part performance

in order to give effect to the legislative intent of the statue of frauds. See Losh,

155 Wn. App. at 465. The purpose of the statute of frauds is "the prevention of

fraud arising from uncertainty inherent in oral contractual undertakings. Where no

uncertainty exists in the oral agreement, the reason for the statute's application

similarly disappears." Miller, 78 Wn.2d at 829.

Typically, we consider three factors in determining whether, in the

absence of a valid writing, a contract existed and its terms are as claimed: "(1)

delivery and assumption of actual and exclusive possession; (2) payment or

tender of consideration; and (3) the making of permanent, substantial, and

valuable improvements, referable to the contract." Losh. 155 Wn. App. at 465-66;

see also Pardee v. Jolly. 163 Wn.2d 558, 568, 182 P.3d 967 (2008); Miller. 78

Wn.2d at 826. The record in this case contains at least some evidence of each of

these factors. First, after the Amendment was signed in 2009 the Members

and/or NWREA continued to possess and occupy the property for over three

10 No. 69305-1-1/11

years. Second, after signing the Amendment the Members and/or NWREA

rendered payments to Seawest, which they purportedly believed to be "owed

under the Lease" and paid in "good faith." CP at 436. Third, it appears that the

Lease called for permanent and valuable improvements to be made to the

property and that such terms were incorporated in the Amendment.

Additionally, based on George Charles' October 4, 2010 e-mail, in which

he repeatedly refers to NWREA and Seawest's rights and obligations under "the

Lease," it is evident that while in possession of the property, the Members and

NWREA actually treated the Lease as the measure of the parties' rights. "This

long acquiescence, in itself, has been held to be a sufficient waiver of the right to

avoid a lease for lack of an acknowledgment." Stevenson. 25 Wn. App. at 644;

see also Gattavara v. Cascade Petroleum Co., 27 Wn.2d 263, 265-66, 177 P.2d

894 (1947); Metropolitan Bldg. Co. v. Curtis Studio of Seattle. 138 Wash. 381,

386-87, 244 P. 680(1926).

Because the conduct of the parties in this case raises issues of fact about

whether the parties reached a new agreement, memorialized by the Amendment,

and whether that agreement is enforceable under the doctrine of part

performance, summary judgment was improperly granted.

Attorney Fees

Given our disposition of this case, we reverse the trial court's award of

attorney fees to the Members. Seawest's requests attorney fees and costs on

appeal under RAP 18.1, and the prevailing party provision of the Lease is denied as premature because neither party has yet prevailed on the merits. Landis &

11 No. 69305-1-1/12

Landis Const.. LLC v. Nation. 171 Wn. App. 157, 168, 286 P.3d 979 (2012)

review denied. 177Wn.2d 1003(2013).

Reversed and remanded.

WE CONCUR: \fCot f*\s A> n.CvO s

t