Northwood Estate, LLC v. Lennar Nw., Inc.

NORTHWOOD ESTATE, LLC, a Washington State limited liability company, Respondent, v. LENNAR NORTHWEST, INC., a Delaware corporation, Appellant.

No. 52000-1-II

COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION II

March 3, 2020

UNPUBLISHED OPINION

GLASGOW, J.—Northwood Estate LLC contracted to sell 33 residential lots to Lennar Northwest, Inc. In relevant part, an amendment to their agreement provided that if Northwood successfully recorded an approved plat modification by a specified deadline, the number of lots would increase by five and Lennar would pay Northwood an additional $765,000. When the deadline passed without successful approval and recording, Lennar assumed control of the modification application and refused to pay Northwood the additional $765,000. Northwood sued Lennar for breach of contract and included alternative claims of quantum meruit and unjust enrichment.

Lennar argued the relevant provision was an unsatisfied condition precedent excusing Lennar from payment. The trial court ultimately agreed with Northwood that the plat modification provision was instead a contractual obligation, and so Lennar was not excused from payment, but it could seek damages for Northwood's delay. The court granted summary judgment to Northwood on its breach of contract claim and granted summary judgment to Lennar rejecting the quantum meruit and unjust enrichment claims.

Lennar obtained discretionary review of the breach of contract decision. Northwood counters that the trial court was correct to rule in its favor because treating the provision as a condition precedent would result in forfeiture, and forfeitures are disfavored. In the alternative, Northwood argues that if the provision was a condition precedent, we should employ equitable remedies to prevent the forfeiture of $765,000 that would result from enforcement of the condition. In that event, Northwood asks that we reinstate its equitable claims.

We reverse the trial court's conclusion that the plat modification provision was a contractual promise and its grant of summary judgment to Northwood on this basis. We hold that the relevant provision created a condition precedent and recognize that conditions precedent should not be strictly enforced if they effectuate a harsh forfeiture. We remand to the trial court to determine whether any equitable relief is appropriate to prevent forfeiture in this case and, if so, what form that relief should take.

FACTS

In December 2015, Northwood entered into a purchase and sale agreement to sell 33 residential lots in the city of Edgewood, Washington to Lennar for $153,000 per lot. Paragraph 2.3 of the agreement provided that Northwood would obtain, at its expense, a plat modification to convert 8 of the lots into 13 separate lots, increasing the total number of lots by 5. If the plat modification was recorded within a year after closing, Lennar would pay Northwood an additional $765,000. If Northwood could not meet that deadline, it could extend the plat modification deadline once for up to three months.

Paragraph 2.3 also provided that if Northwood could not obtain finished lots prior to closing, then it would be in default. Paragraph 7.1 defined "default" as the "failure of either party to perform any act to be performed by such party" if the failure continued for 10 days after written notice by the nondefaulting party. Clerk's Papers (CP) at 29. Paragraph 10.14 also provided, "Time is of the essence with respect to the performance by Buyer and Seller of each and every obligation under each and every provision of this Agreement." CP at 33.

On December 6, 2016, the parties amended the agreement's plat modification provision, changing the modification deadline to December 1, 2017, and removing Northwood's right to extend the deadline any further. The second amendment reaffirmed, "If the Plat Modification has recorded not later than the Plat Modification Deadline, the number of Lots will increase by five (5) and Buyer shall pay Seller an additional Seven Hundred Sixty Five Thousand and No/100 Dollars ($765,000)." CP at 38. It then continued, "If Seller does not obtain the Plat Modification by the Plat Modification Deadline, Seller shall assign and turn over to Buyer Seller's applicant status to the Plat Modification and all other entitlements, development rights, and permits related thereto." CP at 38.

Closing occurred on December 8, 2016, and Northwood had almost a year to fulfill its remaining obligation to obtain approval for and record the plat modification by the new deadline of December 1, 2017.

On November 13, 2017, Northwood submitted the plat modification application to the city of Edgewood. The city then informed Northwood that the city council would not review the application until January 9, 2018 due to holiday schedules. On December 4, 2017 Lennar informed Northwood that it would not pay the $765,000 and that it would take over as the applicant with allrelated entitlements, development rights, and permits, as outlined in the second amendment. Northwood did not receive a 10-day notice of default and opportunity to cure, as is provided for in the agreement where one party is in default. On December 13, 2017, Lennar received a notice of incomplete application. The notice requested that Lennar correct and resubmit the final plat drawing by removing buffer setback lines. The notice also requested that Lennar submit a corrected application with the signatures of parties authorized to act on its behalf. On January 9, 2018, Lennar submitted a revised application. The city deemed the application complete on January 10, 2018, granted the application, and recorded it on January 25, 2018.

Lennar refused to pay Northwood for the additional five lots because Northwood had not complied with the deadline established in the second amendment. Northwood sued Lennar for breach of contract. It alternatively sought recovery under quantum meruit and unjust enrichment. In a declaration, Northwood's managing member stated that Northwood had spent approximately $260,000 and 750 hours on modifying the plat and preparing the application. This included, for example, engineering, surveying, excavation, and the reworking of driveway approaches, curbing, and gutters. He further stated that he had not intended to assume the risk of the modification not being recorded in time, and that he was no longer in control of the application once it was submitted to city officials, who informed him after submission that recording may be delayed by its holiday schedule.

Both parties moved for summary judgment. Lennar argued that the amended plat modification provision established a condition precedent—that Northwood would obtain the modification by the deadline—and so once Northwood failed to meet that condition, Lennar was excused from payment. Northwood countered that the provision should instead be read as acontractual promise in order to avoid a forfeiture, such that Northwood's failure to meet the deadline constituted a minor breach but did not excuse Lennar from paying the $765,000. In the alternative, Northwood argued that if the provision was a condition precedent, Northwood was entitled to recovery under unjust enrichment or quantum meruit.

The trial court initially concluded there was a condition precedent, but indicated that unjust enrichment or quantum meruit may be available to avoid enforcement because enforcement would result in a forfeiture. The court dismissed the breach of contract claim but concluded that issues of fact existed with respect to Northwood's claims for unjust enrichment and quantum meruit. The parties would therefore proceed to trial on those claims.

Both parties moved for reconsideration. Lennar argued that the trial court should have dismissed Northwood's unjust enrichment and quantum meruit claims, while Northwood argued the court should have interpreted the plat modification provision as a contractual promise. On reconsideration, the trial court agreed with Northwood that the provision was not, in fact, a condition precedent. The court also granted Lennar's motion to dismiss Northwood's quantum meruit and unjust enrichment claims. The court determined that the only remaining issue for trial would be the amount of offset damages to Lennar caused by Northwood's delay, even though Lennar had not filed a counterclaim for damages.

Lennar sought discretionary review on the condition precedent issue, which we granted.

ANALYSIS

I. INTERPRETATION OF THE PLAT MODIFICATION PROVISION

A. Standard of Review

In reviewing a grant of summary judgment, we apply the same standard as the trial court. Summary judgment is appropriate "'if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" DeVeny v. Hadaller, 139 Wn. App. 605, 616, 161 P.3d 1059 (2007) (quoting CR 56(c)). We consider the evidence and the reasonable inferences therefrom in the light most favorable to the nonmoving party. Sutton v. Tacoma Sch. Dist. No. 10, 180 Wn. App. 859, 864, 324 P.3d 763 (2014). "'We review the trial court's conclusions of law de novo.'" DeVeny, 139 Wn. App. at 616 (quoting Bingham v. Lechner, 111 Wn. App. 118, 127, 45 P.3d 562 (2002)).

"The moving party bears the burden of first showing that there is no genuine issue of material fact." State v. Grocery Mfrs. Ass'n, 5 Wn. App. 2d 169, 185, 425 P.3d 927 (2018), review granted, 193 Wn.2d 1001 (2019). Where reasonable minds could reach only one conclusion from the admissible facts in evidence, that issue may be determined on summary judgment. Sutton, 180 Wn. App. at 864-65.

"When interpreting a contract, our primary objective is to discern the parties' intent." Wm. Dickson Co. v. Pierce County, 128 Wn. App. 488, 493, 116 P.3d 409 (2005). Contract interpretation is a question of law reviewed de novo where,...