Appellate Procedure Rule (RAP) 2.5(a)(2) allows an appellant to assert errors not previously raised if they pertain to the failure to establish trial facts necessary for relief. However, this rule is limited to cases where proof of specific facts is required to uphold a claim. Mukilteo Retirement Apartments LLC (MRA) initiated legal action to enforce an option agreement for purchasing a retirement facility from Mukilteo Investors LP (MILP). MILP counterclaimed, alleging MRA breached the agreement by rejecting MILP's proposed price. The trial court ruled that MILP, not MRA, had breached the option agreement and ordered specific performance requiring MILP to sell the facility to MRA.
On appeal, MILP argued, for the first time, that the option agreement was unenforceable due to a lack of mutual assent on the purchase price determination method. This issue was not raised during the trial, meaning MRA did not need to present evidence to prove the contract's enforceability. Consequently, RAP 2.5(a)(2) does not permit MILP to introduce this argument at the appellate level. The court found MILP's additional arguments also lacking merit, affirming the trial court’s decision.
The background reveals that in 1997, Ron Struthers and Duane Clark acquired undeveloped property in Mukilteo and formed MRA to develop an independent and assisted living facility. After realizing funding shortfalls, they engaged Campbell Homes Construction Inc. to build the facility, leading to the formation of MILP to manage the purchase and construction. On October 21, 1999, after negotiations, MILP agreed to construct the facility, while MRA signed a long-term lease that included an option to purchase, despite concerns over rental costs exceeding market rates.
An option agreement was established between the parties, granting MRA the right to purchase a defined facility after eight years, encompassing both real and certain personal property. The purchase price would be determined by the highest of three methods: the facility's fair market value at the time of option exercise, its replacement cost, or the prospective fair market value with annual increases specified in an attached exhibit. Upon MRA exercising the option, a 15-day period was allowed for the parties to agree on the fair market value. If an agreement was not reached, each party had five additional days to appoint a disinterested appraiser, who would have 30 days to complete the appraisal, with the outcome being binding if only one appraiser was appointed or completed the appraisal on time. The replacement cost would be determined by an appraiser selected by MILP, following the same appointment procedure as for the fair market value. MRA had to exercise the option between the eighth anniversary of the lease agreement's commencement and the end of the twelfth month following that anniversary. The lease term began upon the earlier of a certificate of occupancy issuance or MRA taking possession for installation purposes. MRA took possession around June 1, 2000, with the certificate issued on June 15, 2000. MRA believed the option could be exercised starting October 21, 2007, and notified MILP of its intention on November 14, 2007, expressing urgency in negotiating a closing date. MILP did not respond, leading MRA to follow up with a second letter on December 9, 2007, proposing a purchase price based on the exhibit. MILP replied on December 28, asserting the option could not be exercised until June 15, 2008. Subsequently, MILP engaged an appraiser without informing MRA, who was later not provided a report. On February 21, 2008, MRA sent a draft purchase agreement to MILP, which was rejected as premature in MILP's response on March 14, 2008.
Ownership of MILP underwent significant changes, with Kris Campbell and Campbell Homes divested and Thomas Dye's Cimco Properties becoming the new general partner. Attorneys Keith Therrien and Les Powers secured substantial ownership in MILP. Throughout spring and summer 2008, Struthers and Clark communicated with Dye about MRA's interest in purchasing the facility. Despite Dye's acknowledgment of MRA's concerns regarding price and financing, he did not propose an outright sale but instead offered MRA a 20% ownership stake, which they declined. On June 20, 2008, a revised proposal valued the facility at $16.75 million, allowing MRA to acquire a larger stake and offering a future option to purchase the remaining 60%. After negotiations, MRA agreed to a 40% interest with an option for the rest after ten years. However, communication faltered, and on August 4, 2008, Dye presented a new proposal that excluded the option to purchase the remaining 60%. MRA filed suit on August 28, 2008, seeking specific performance and damages. In September, MILP engaged James Brown for a fair market valuation, which was altered by Therrien to exclude depreciation, raising the estimated value by approximately $3 million. James Brown's final report, backdated to October 10, 2008, valued the facility at $24 million and the undepreciated replacement cost at $27 million. On November 10, MILP offered to sell the facility to MRA for $27 million, asserting the price was non-negotiable. In March 2012, both parties sought summary judgment regarding the option agreement, but the trial court denied their motions. Following a bench trial in May 2012, the court ruled in favor of MRA, finding that MILP breached the implied covenant of good faith and fair dealing and the option agreement, entitling MRA to specific performance and consequential damages.
The trial court established the purchase price of a facility at $18.725 million, reflecting the midpoint of fair market value appraisals dated June 15, 2008. MRA was given nine months from July 15, 2012, to finalize the purchase. The court awarded MRA consequential damages equivalent to its rental payments to MILP from June 15, 2008, to July 15, 2012. MILP is appealing the decision, arguing that the trial court improperly enforced the option agreement despite a purported lack of consensus on the "replacement cost" valuation method. MILP claims it is entitled to raise this issue on appeal under RAP 2.5(a)(2), which allows raising a "failure to establish facts" for the first time on appeal. However, since MILP acknowledged the option agreement as valid in its answer and did not contest its enforceability during the trial, the court found no error in enforcing the agreement. The Supreme Court's procedural rule adoption indicates an intention for harmony among rules, and the importance of a clear and concise answer in civil proceedings is emphasized. MILP's answer confirmed the agreement's validity and limited the trial issues to breach and damages, indicating that the enforceability of the contract would not be contested at trial.
The contract's enforceability was not contested in the pleadings, and CR 15(b) allows for issues not raised to be treated as if they were if both parties consent to their trial. Amendments to pleadings can occur at any stage, but only if there is actual notice of the unpleaded issue and an opportunity to address any surprise resulting from the change. The appellate court assesses implied consent based on the complete record, including pre-trial mentions and opening arguments. In this case, neither MRA nor MILP consented to litigate the option contract's enforceability, with both parties asserting the contract should be enforced. MILP explicitly stated it would not contest MRA's breach of contract claim on the grounds of unenforceability and relied on the contract's validity for its own counterclaim. The absence of any challenge to the contract's enforceability in motions, trial briefs, or arguments indicates that both parties treated it as valid. Although they disputed the meaning of "replacement cost," this disagreement did not question the contract's enforceability. The trial court enforced the contract without addressing its validity, suggesting that the enforceability was accepted as established. If the enforceability had been contested, it would have raised additional issues, such as the impact on the lease agreement and the potential for unjust enrichment claims, none of which were discussed during the trial.
MILP seeks to raise the enforceability of an option contract for the first time on appeal, claiming it falls under RAP 2.5(a)(2), which allows for the assertion of errors related to the failure to establish necessary facts for relief. Typically, issues not presented at trial cannot be reviewed on appeal, but this rule has exceptions. However, the court disagrees with MILP's assertion that RAP 2.5(a)(2) negates established pleading rules, asserting that the rule only applies when specific facts must be proven at trial for relief. In this case, since MILP did not contest the enforceability of the option contract during trial, it cannot argue on appeal that essential facts supporting a valid contract were not established.
Moreover, even if MILP had contested the validity of the agreement, the trial court's enforcement of the contract was justified. MILP argues that there was no mutual assent regarding the facility's price, labeling the option agreement as an unenforceable "agreement to agree." However, the contract explicitly allowed for circumstances where replacement cost would not be considered in pricing, providing a detailed mechanism for determining the purchase price. Thus, MILP's claim lacks merit, as the contract's essential terms—parties, property description, and pricing mechanism—were clearly defined. The stipulated purchase price was based on the greater value of "fair market value," "replacement cost," or "prospective fair market value" as outlined in Schedule D.
MILP argues that the agreement's language mandates consideration of three valuation methods for the final purchase price and claims the trial court's finding of "no meeting of the minds" regarding "replacement cost" indicates a lack of mutual assent on the price, rendering the option contract unenforceable. However, the court disagrees, clarifying that the agreement allows for as few as one pricing method to determine the final price. Specifically, if MILP and MRA could not agree on a "fair market price" within 15 days after MRA exercised its option, each party had five days to appoint a disinterested appraiser. If neither appointed an appraiser, the price would default to Schedule D, which outlines the "prospective fair market value."
The agreement includes a severability clause, ensuring that even if the replacement cost provision is invalidated, the contract remains enforceable with valid pricing methods still available. The trial court found MILP's appraiser, James Brown, was not disinterested due to his compromised integrity and violations of appraisal standards, leading to the disregard of his opinions. Consequently, MILP did not appoint a qualified appraiser in time for fair market value or replacement cost assessments. Thus, the trial court correctly severed the replacement cost provision and upheld the remainder of the agreement, which retains essential terms for a valid option contract, including the pricing mechanism. The opinion will be filed for public record as it holds no precedential value.
MILP argues that the trial court incorrectly awarded consequential damages to MRA, claiming MRA came into equity with unclean hands. The court disagrees, noting that specific performance often does not result in timely performance, allowing for consequential damages to make the nonbreaching party whole. For equitable relief, a party must exhibit good faith and clean hands, but the trial court found MRA acted in good faith in fulfilling its obligations under the option agreement.
MILP challenges this finding based on two points. First, MILP claims MRA acted in bad faith by exercising its option prematurely. However, the trial court determined that MRA's interpretation of the option agreement was reasonable, and its claim was not frivolous. The agreement's language led MRA to believe its right to purchase began eight years after the lease agreement was signed, not when a certificate of occupancy was issued.
Second, MILP contends MRA demonstrated bad faith by using an appraiser's definition of "replacement cost" that excluded land value, which MILP asserts was previously rejected. The court found insufficient evidence that MRA was aware of MILP's definition, as the lease agreement did not reference land value. The trial court, as the judge of credibility, could choose to disbelieve MILP's owner's testimony. Consequently, the record does not support MILP's claim of MRA having unclean hands, and the trial court correctly awarded MRA consequential damages.
MILP asserts that MRA's attorney originally suggested a definition of replacement cost that excluded land value, which MILP rejected. However, there is ambiguity regarding whether such a definition was proposed or rejected on those grounds. The language mentioned by MRA concerns "Alzheimer's facilities," which were not intended for inclusion in the agreement, as only Campbell Homes, MILP's general partner, operated such facilities. Therefore, the definition's reference to Alzheimer's residents may have rendered it inapplicable to the parties' contract, raising doubts about whether the rejection stemmed from its exclusion of land value or its irrelevance to the agreement.
Moreover, MILP argues the trial court improperly determined MRA's consequential damages by awarding lease payments from June 18, 2008, to July 18, 2012. The trial court found that those payments would have reduced MRA's mortgage had MILP not hindered the purchase. MILP challenges the award, claiming that MRA was not entitled to damages for the period leading up to November 30, 2010, as MRA maintained it had exercised its option in 2007, when the facility's value was lower. MILP contends that this dispute precluded agreement on a purchase price and thus, performance under the contract. However, the record does not support MILP's claim that MRA insisted on a 2007 price until November 2010. The court's broad discretionary powers in awarding equitable remedies were upheld, barring a demonstration of abuse of discretion.
In June 2009, MRA proposed to buy a facility for $19 million, exceeding the price stated in Schedule D for 2007. The trial court ruled that despite ongoing disputes over the initiation of the option period, MILP could still negotiate the purchase price and set a closing date. MILP did not contest these findings, making its claim that performance was impossible before November 30, 2010, invalid. Additionally, MILP's argument that MRA's investigation into Campbell Homes and its ties to James Brown hindered contract performance was unsupported; the trial court found that MRA's investigation was significant in evaluating MILP's appraiser's testimony.
The court noted longstanding relationships between MILP members and Campbell Homes, which were pertinent to assessing the credibility of Aaron Brown's opinions, leading to the rejection of MILP's assertions and upholding the award of consequential damages. MILP claimed it was erroneous for the court to award MRA the full amount of rental payments as consequential damages, arguing that had MRA exercised its option in June 2008, it would have incurred substantial loan payments. However, MILP did not dispute that MRA paid over $6 million in rent after the contractually obligated sale date, and it did not claim entitlement to these payments. The court determined that to restore MRA to the position it would have been in had the contract been honored, MILP had to return these rental payments to MRA, as they functioned as a down payment on the purchase price.
MRA would have made significant progress in loan repayment had the sale occurred in June 2008, further necessitating a reduction in the purchase price due to MILP's delayed performance. Conversely, MILP argued that a seller breaching a real estate sale contract is entitled to interest on the purchase price during the delay. The court acknowledged previous rulings supporting this position but focused on MRA's need for reimbursement of rental payments to achieve the intended contractual outcome.
MILP did not request an accounting from MRA during the proceedings and failed to present any record evidence claiming the proposed award was inequitable. Reducing MRA's consequential damages would prevent the nonbreaching party from being made whole, contrary to the purpose of such damages. MRA had paid over $6 million in lease payments post-exercise of its option, and given the trial court's finding of MILP's bad faith in obstructing MRA's purchase attempt, a reduction in MRA's award would be inequitable. The trial court correctly awarded the full amount of MRA's rental payments as consequential damages.
MILP argued that MRA's motion to amend the trial court's findings was untimely, asserting it constituted an "entry of judgment" requiring a ten-day amendment window under CR 52(b). However, the law mandates that a trial court must specially find facts and separately state conclusions of law after a bench trial. A judgment, as defined by CR 54(a)(1), represents the final determination of rights in an action, and can be presented alongside findings of fact and conclusions of law. No order or judgment can be signed or entered without five days' notice to opposing counsel. Substance is prioritized over form in determining the status of a judgment, as established in case law.
An order can be regarded as a judgment despite its title, as established in case law. MILP claims that Judge Bowden's findings of fact and conclusions of law constituted a judgment, arguing that MRA's failure to amend these within the ten-day limit made their motion untimely. However, the nature of the document and how it was filed contradict this claim. Judge Bowden sent the findings in a letter, indicating that he prepared them to prevent further disputes and legal costs, and expressed openness to additional requests. The document lacked a formal notice of judgment entry and did not contain language requiring action from the parties. It simply stated the trial court's findings and did not finalize the parties' rights, as confirmed by Judge Bowden's clarification that he did not intend for it to be a judgment. Therefore, the ten-day amendment rule was not applicable, and the trial court correctly ruled that MRA's motion was timely.
MILP also asserts that the trial court incorrectly found Campbell Homes jointly and severally liable for MILP's breach of the option agreement, claiming Campbell Homes was not the general partner when MRA exercised its option. This is disputed, as general partners are jointly liable for partnership obligations unless otherwise agreed. Dissociation does not eliminate liability for obligations incurred prior to dissociation, and a partner cannot escape liability for past debts merely by exiting the partnership without the consent of creditors and continuing partners. An option contract is a binding agreement that keeps an offer open for a specified duration, obligating the grantor not to make performance impossible or difficult. The option becomes a contract before the holder decides to exercise it, affirming MILP's status as a limited partnership.
In a partnership, only the general partner holds individual liability for the partnership's obligations. A dissociated partner is released from liability for a partnership obligation if a creditor, aware of the dissociation and without the partner's consent, materially alters the obligation's nature or payment terms; however, MILP did not claim such an occurrence. On October 21, 1999, MRA and Campbell Homes, as the general partner, entered into an option agreement, obligating Campbell Homes to sell property upon MRA's exercise of the option. Even after Campbell Homes withdrew from the partnership on May 1, 2008, it remained jointly and severally liable for obligations under the option agreement, and the trial court rightly affirmed this liability.
MILP argued that the trial court erred in awarding MRA attorney fees related to discovery on the relationship between Campbell Homes and James Brown appraisers, claiming the discovery was unproductive. The trial court found that MRA's discovery efforts were significant in disregarding Aaron Brown's testimony, supporting the award of attorney fees.
Both parties requested attorney fees on appeal, with the option agreement specifying that the prevailing party is entitled to attorney fees and costs. MRA prevailed at both trial and appeal, thus is entitled to reasonable attorney fees, which a court commissioner will grant upon application. The trial court's decisions were affirmed.
