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Western Hills v. Pfau

April 2, 1973


Appeal from Circuit Court, Yamhill County. Kurt C. Rossman, Judge.

Richard D. Barber, Salem, argued the cause for appellants. On the brief were DeArmond, Sherman & Barber.

Malcolm F. Marsh, Salem, argued the cause for respondent. On the brief were Clark & Marsh and Michael C. McClinton.

In Banc. McAllister, J.


This is a suit to compel specific performance of an agreement to purchase real property. The plaintiff, the owner of the property, is a limited partnership. Defendants are members of a joint venture, formed for the purpose of purchasing the property from plaintiff and developing it. The trial court found that plaintiff was entitled to specific performance of the

agreement, and entered its decree accordingly. Defendants appeal, contending that they were excused from performing by a failure of a condition contained in the agreement, and that the agreement is too indefinite to permit specific enforcement.

Plaintiff Western Hills owned a tract of approximately 286 acres in Yamhill County which it had listed for sale with a Salem real estate firm. Defendant Pfau, who is also a real estate broker, heard about this listing early in 1970. He contacted the other defendants, and they jointly submitted a proposal to purchase the property. Their original proposal was not accepted, but negotiations with Western Hills took place which culminated, on or about March 6, 1970, in the execution of the written agreement which is the subject of this suit. The agreement consists of a filled-in form entitled "Exchange Agreement" together with several attached documents. Generally, it provides that in exchange for the Yamhill County property, defendants agreed to pay Western Hills $15,000 in cash, to convey to Western Hills four parcels of real property "subject to appraisal and acceptance" by Western Hills, and to pay a balance of $173,600 on terms specified in the agreement. In addition to other terms not material to this appeal, the agreement provides:

"Closing of transaction is subject to ability of purchasers to negotiate with City of McMinnville as to a planned development satisfactory to both first and second parties within 90 days from date. A reasonable extension not to exceed 6 months to be granted if necessary."

Defendants made preliminary proposals for a planned development to the McMinnville Planning

Commission, but, although the Commission's reaction to these proposals was favorable, defendants abandoned their attempts to secure approval of a development plan. In September, 1970, defendant Pfau, who represented the other defendants in the transaction, met with some of the partners in Western Hills and notified them that defendants did not wish to go through with the purchase. Western Hills refused to release defendants from the agreement. This suit followed.

Defendants contend that their obligation to purchase the property never became absolute because the condition quoted above was never fulfilled. It appears from the evidence that defendants did not proceed with their application for Planning Commission approval of a planned development because they believed the development would be too expensive, primarily because city sewers would not be available to serve the property for several years. Immediate development would have required the developers to provide a private system of sewage treatment and disposal.

It also appears that at the time they executed the agreement, defendants knew that city sewers would not be available for some time. Defendants' initial offer of purchase included a proposal that the closing of the transaction be subject to satisfactory sewer development. This term was deleted from the final agreement because, according to plaintiff's witnesses, the parties knew that sewers would not be available. Pfau testified that he agreed to the deletion of that term because he was led to believe that the provision for approval of a planned development accomplished the same thing.

The question is whether defendants were excused from performing their agreement to purchase the property because they never secured the city's approval of a "satisfactory" planned development, when the evidence shows that they abandoned their application for an approved planned development because the expense of providing an alternative sewer system made the development financially unattractive. In Anaheim Co. v. Holcombe, 246 Or 541, 426 P2d 743 (1967) we considered an earnest money agreement which contained a provision making the purchaser's offer "contingent on obtaining a loan of $25,000." We held that when an agreement contains such a term, it imposes upon the vendee an implied condition that he make a reasonable effort to procure the loan. 246 Or at 547. See, also, Aldrich v. Forbes, 237 Or 559, 570, 385 P2d 618, 391 P2d 748 (1964). In the present case defendants had a similar duty, arising by implication, to make a reasonable effort to secure the city's approval of a planned development. As related above, defendants abandoned their attempt to secure the approval of the city Planning Commission in spite of that body's favorable reaction to their initial proposals. There was never any indication that defendants' plan was likely to be rejected.

The condition required, however, not only approval of a planned development, but of a development which was "satisfactory" to the parties. When a contract makes a party's duty to perform conditional on his personal satisfaction the courts will give the condition its intended effect. See, generally, 3A Corbin on Contracts, 78-109, ยงยง 644-648; 5 Williston on Contracts ...

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