Graham v. Park Sang Ho

TIM GRAHAM, Respondent, v. PARK SANG HO and PARK JUNG MYUNG, and their marital community, Appellants.

No. 79523-6-I

COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION ONE

March 23, 2020

UNPUBLISHED OPINION

CHUN, J. — On May 13, 2016, Tim Graham entered into a real estate transaction (Transaction) to lease, with an option to purchase, a property in Sedro-Wooley (Property) from Park Sang Ho for $1,024,000. Under the agreements comprising the Transaction, Graham would make a $60,000 option payment, lease the Property for two years, and take full ownership by July 1, 2018, should he exercise the option and pay the purchase price. The parties agreed that Graham's obligations were contingent on his assumption of Park's $450,000 mortgage on the Property with Pacific City Bank (Bank). However, after Graham took possession of the Property under the lease, he learned that the Bank would not allow the assumption. After unsuccessfully seeking alternative modes of financing the purchase, Graham informed Park that he sought rescission of the agreements and refund of his $60,000 option payment. Park denied his request.

Graham sued Park seeking rescission and a refund. The parties brought cross-motions for summary judgment. The trial court denied Park's motion and granted Graham's. The trial court concluded that Graham's claim justified rescission and ordered refund of the $60,000 option payment. It reasoned that the Bank's unwillingness to allow assumption of the mortgage constituted a failure of a material term of agreements comprising the Transaction. The trial court also awarded Graham attorney fees and costs. Park appeals.

Because the Bank's unwillingness to allow an assumption of the mortgage rendered a basic understanding¹ of the Transaction impossible, we affirm. We also affirm the trial court's award of attorney fees and costs, and award Graham fees and costs on appeal.

I. BACKGROUND

On May 13, 2016, Graham and Park entered into several agreements regarding the purchase of the Property: (1) a lease agreement; (2) an option agreement; and (3) a purchase and sale agreement (PSA), including a "Financing Addendum" and a "First Addendum." The option agreement was part of the lease, and the PSA was attached to the option agreement as Exhibit B. On August 7, 2016, the parties entered into a "Second Addendum" to the lease agreement. Graham initially planned to redevelop the Property after purchase.

A. Lease Agreement

Under the lease agreement, Graham agreed to rent the Property until theJuly 1, 2018 closing date. Graham agreed to make 24 monthly payments of $1,000 to Park. The parties additionally agreed that the rent payments under the lease would go towards the purchase price.

B. Option Agreement

As a part of the lease agreement, the parties also executed an option agreement under which Graham agreed to pay $60,000 towards the purchase price of the Property. The parties agreed that a $10,000 earnest money payment from the PSA—addressed below—would become part of the $60,000 option payment. The option agreement provided that the $60,000 payment would be retained by Park in the event that the sale failed to close prior to the closing date. The option agreement stated that if the buyer exercises the option, the parties shall proceed with the transaction according to the terms and conditions set forth in the PSA. Finally, the option agreement stated that it is "accompanied by a Lease and Purchase and Sale Agreement between the parties and dated May 13, 2016."

C. Purchase and Sale Agreement

Under the PSA, which was Exhibit B to the option agreement, Graham agreed to a purchase price of $1,024,000 for the Property. The parties set closing for July 1, 2018. Graham agreed to extend $10,000 in earnest money as a part of the PSA. The PSA stated that "[i]n the event [Park] fails, without legal excuse, to complete the sale of the Property, then . . . [Graham] may . . . terminate this Agreement and recover all earnest money or fees paid by [Graham] whether or not the same are identified as refundable or applicable tothe purchase price." This agreement also contained a feasibility contingency. The feasibility contingency gave Graham 45 days—the "Feasibility Period"—to inspect all aspects of the Property and its feasibility for his desired purpose. The contingency provided that unless Graham gave written notice that the feasibility contingency was satisfied within 45 days of the mutual acceptance of their agreements—in this case, 45 days from May 13, 2016—the agreement would terminate and Graham would receive a refund of his earnest money.

D. Financing Addendum

The parties also entered into a Financing Addendum comprising a part of the PSA. Park had taken out a mortgage with the Bank on April 22, 2016, not long before the parties executed the May 13, 2016 agreements. The mortgage contained a due-on-sale clause. Under the Financing Addendum, Graham's obligations under the PSA were contingent on his assumption of the mortgage, with Park remaining liable on the loan. The Financing Addendum stated:

a. Approval of Documents. [Graham's] obligations under the Agreement are contingent on [Graham's] assumption of a note and mortgage or deed of trust, or a real estate contract. [Park] shall deliver to [Graham] within five (5) days after mutual acceptance of the Agreement a copy of all documents relating to the obligations that [Graham] will assume, including the note, deed of trust, mortgage or real estate contract . . . [Graham] shall be deemed to have approved the Underlying Loan Documents unless [Graham] gives notice of disapproval during the Feasibility Period . . .

b. Consent to Assumption. [Graham] shall submit a complete application for assumption of the Underlying Loan Documents together with any required application fee no later than five (5) days after the end of the Feasibility period. Upon [Graham's] request, [Park] shall assist [Graham] by requesting the lender's consent to the assumption on [Graham's] behalf . . . Unless [Graham] has obtained consent [from the lender] or waived thiscondition within [30 days] after the end of the Feasibility Period and provided [Graham] has timely complied with [his] obligations under this Addendum, this Agreement shall terminate and, [Graham] shall receive a refund of the earnest money.

The Financing Addendum also stated that the assumption constituted a portion of the value of the purchase price of the Property. Graham and his broker, Richard Nord, later claimed that the assumption would be necessary for the financing for the redevelopment of the Property. Accordingly, Graham claimed that he would not have entered into the Transaction without the assumption provision.

E. First Addendum

The First Addendum to the PSA provided for Graham to make the $60,000 option payment by the end of the feasibility period, and only upon the execution of the lease and acceptance of the PSA.

F. Second Addendum

After taking possession, Graham claimed the Property had numerous physical defects. As a part of the Second Addendum—this addendum being attached to the lease agreement—the parties agreed that the $60,000 option payment would be disbursed to Park, with some portion of that payment going directly towards repairs to the Property. While the copies of the Second Addendum in the record are largely illegible, the Chicago Title ledger shows that Park received $46,365.34 from Chicago Title.² It is unclear exactly when the parties came to an agreement on the Second Addendum, and when the optionpayment was disbursed.³

G. Failure of the Assumption

Graham claimed still not to have received the Underlying Loan Documents identified by the Financing Addendum by December 2016, which had been due around a half year before.⁴ Welling put Graham in contact with Park's son, Park Juhong; Park Juhong said he would assist Graham in obtaining the Underlying Loan Documents from the Bank. On January 6, 2017, the Bank told Graham in an e-mail that they would not release the loan documents to him without Park's written permission. On January 10, Graham e-mailed Park Juhong twice, first requesting "the copy of the mortgage documents and approval letter from [Park]," and next saying that the "mortgage company will deal with us only when I have letter signed by your mom and dad." Park Juhong encouraged Graham to call the Bank again. Graham claims that he called again, and that the Bank told him they would not assign or subordinate the loan. On January 14, Park Juhong emailed Graham, stating: "I was informed that you have talked with the bank person, Mr. Lee. I understood he gave you [a] sufficient answer. I and my father need to consider and respect the Bank's opinion. If there's anything to help you,please let us know." Graham emailed Welling, stating that the Bank representative told him they were not willing to allow anyone to assume the mortgage on the Property and that, "according to our contract, the mortgage is assumable."⁵

Graham claims he then made attempts to obtain alternative modes of financing to no avail. Graham also sent two letters to Park in 2017 about securing alternative modes of financing, to which he claims he received no response. On November 27, 2017, Welling sent another email to Park Juhong, in which he said that "[t]his entire contract was dependent on [Graham] assuming the $450,000 loan of your fathers [sic]. They were not able to do that, because the loan is not assumable." On December 4, 2017, Nord sent an email to Welling, asking if Park would be willing to influence the Bank to allow an assumption; Welling replied that Park would not. Graham, via counsel, then sent a letter to the Bank, requesting they provide a statement in writing that they would not allow an assumption of the mortgage, and a statement of whether they intended to enforce the mortgage's due-on-sale clause. The record does not show that Graham received a reply. A declaration from a Bank employee states that "[a]ny and all successions or...