[No. 80066-9. En Banc.]
Argued February 28, 2008. Decided May 8, 2008.
[1] Appeal — Findings of Fact — Review — Substantial Evidence — What Constitutes. A trial court's findings of fact are reviewed to determine whether they are supported by substantial evidence. Substantial evidence is a sufficient quantum of evidence in the record to persuade a reasonable person that the finding is true. If substantial evidence supports a finding of fact, the reviewing court should not substitute its judgment for that of the trial court. [2] Appeal — Review — Issues of Law — Standard of Review. Questions of law are reviewed by an appellate court de novo. [3] Contracts — Construction — Intent of Parties — Question of Law or Fact — Intent and Effect. The intentions of the parties to a contract are questions of fact, while the legal consequences of such intentions are questions of law. [4] Frauds, Statute of — Real Estate Statute of Frauds — Scope — Real Property Conveyances and Encumbrances. The real estate statute of frauds, RCW 64.04.010, by its terms, applies to "[e]very conveyance of real estate, or any interest therein, and every contract creating or evidencing any encumbrance upon real estate." [5] Frauds, Statute of — Description of Land — Legal Description — Necessity. A contract for the sale or conveyance of real property must include a legal description of the property to satisfy the statute of frauds, RCW 64.04.010. [6] Frauds, Statute of — Description of Land — Platted Land — Necessary Elements. A contract for the sale or conveyance of platted real property must include a description of the property with the correct lot number, block number, addition, city, county, and state to satisfy the statute of frauds, RCW 64.04.010. [7] Vendor and Purchaser — Option To Purchase — Statute of Frauds — Applicability. An option to purchase real estate is subject to the statute of frauds, RCW 64.04.010. [8] Frauds, Statute of — Part Performance — Conveyance of Interest in Real Property. A contract to convey an interest in real property may be removed from the statute of frauds by part performance if a party shows (1) delivery and assumption of actual and exclusive possession of the property; (2) payment or tender of consideration; and (3) the making of permanent, substantial, and valuable improvements, referable to the contract. A strong case for the application of the part performance doctrine exists if all three factors are established. [9] Vendor and Purchaser — Option To Purchase — Statute of Frauds — Part Performance — Proof — Effect. Part performance will remove an option to purchase real property from the statute of frauds if the optionee (1) has taken delivery and assumed actual and exclusive possession of the property, (2) has paid or tendered consideration for the option, and (3) has made permanent, substantial and valuable improvements, referable to the contract. [10] Vendor and Purchaser — Option To Purchase — Exercise of Option — Failure To Comply With Contractual Terms — Effect. An optionee may exercise the option by complying with the terms of acceptance set forth in the option contract. When an optionee fails to exercise the option within the time specified or in the manner provided in the option contract, all rights under the contract, along with any consideration given, are forfeited. [11] Specific Performance — Vendor and Purchaser — Option To Purchase — Violation — Remedies — Specific Performance — In General. When an optionee exercises the option under the terms of the option contract and the optionor refuses to sell the property, the optionee may be entitled to specific performance of the contract. [12] Vendor and Purchaser — Option To Purchase — Construction — Strict Construction. The terms of an option contract are strictly construed. [13] Vendor and Purchaser — Option To Purchase — Exercise of Option — Time of Performance — Essential Nature. In the exercise of an option to purchase real property, time is of the essence. [14] Contracts — Specific Performance — Purpose. When, in a contract dispute, the court's legal powers cannot adequately compensate a party's loss with money damages, the court may use its broad equitable powers to compel specific performance of a promise made. [15] Specific Performance — Real Property Contract — In General. Specific performance frequently is the only adequate remedy for the breach of a contract regarding real property because land is unique and difficult to value. [16] Contracts — Specific Performance — Elements — Test. Specific performance is a proper remedy only if (1) a valid contract exists, (2) a party has breached or is threatening to breach the contract, (3) the terms of the contract are clear, and (4) the contract is not the product of fraud or unfairness. [17] Contracts — Specific Performance — Performance of Act Required by Contract — Fulfillment of Contract Terms — Questions of Law or Fact. Whether a party performed an act required by a contract is a question of fact. Whether the party fulfilled the terms of the contract and is entitled to specific performance thereof is a question of law. [18] Bills and Notes — Contractual Obligation — Issuance of Check — Effect. Under RCW [19] Bills and Notes — Contractual Obligation — Issuance of Check — Dishonor of Check — Enforcement of Instrument or Obligation — Election by Obligee. Under RCW [20] Vendor and Purchaser — Option To Purchase — Exercise of Option — Notice Required "at the Same Time" as Final Payment — Timeliness. For purposes of an option contract stating that the optionee may pay the remaining balance owed on the option at any time and "must, at the same time, exercise its option to purchase the [p]roperty by giving written notice to the [s]eller at the address to which the [periodic] option payments are made," if the optionee gives notice more than one week after making final payment, the notice is ineffective and the option is not exercised. [21] Contracts — Construction — Title to Contract. The title to a contract is not determinative of its legal effect. [22] Contracts — Nature of Obligation — Determination — Intent of Parties — Contract Considered as a Whole. In classifying a contract, the intent of the parties, as expressed in the language of the entire contract rather than a particular provision, is determinative. [23] Vendor and Purchaser — Option To Purchase — What Constitutes — "Pure" Option. In a pure option contract, the optionor parts only with the right to sell the property to any other person during the time limited and the optionee acquires only the right to purchase the property in the future, upon the terms and conditions prescribed in the option contract. A pure option contract does not include the right to possess and improve the land during the option period. [24] Vendor and Purchaser — Real Estate Contract — What Constitutes — In General. A real estate contract is any written agreement for the sale of real property in which legal title to the property is retained by the seller as security for payment of the purchase price. [25] Vendor and Purchaser — Lease-Purchase Agreement — What Constitutes — In General. A lease of property with an option to purchase involves a lease for a certain period of time and an option for the lessee to purchase the property from the lessor. [26] Vendor and Purchaser — Option To Purchase — Lease-Purchase Agreement — Hybrid Agreement — Failure To Exercise Option — Forfeiture — Equitable Principles — Applicability. When an option contract provides the optionee with the right to occupy and improve the property during the option period, the contract is a hybrid between a lease with an option to purchase and a pure option contract. Where the optionee fails to exercise the option as called for in the hybrid contract, the equitable principles regarding forfeitures apply. [27] Forfeitures — Real Property — Disfavored Status. The forfeiture of an interest in real property is disfavored in the law and will not be enforced in equity unless the claimant's right to forfeiture is so clear as to permit no denial. [28] Forfeitures — Real Property — Grace Period — Equitable Basis. In order to avoid the harshness of forfeiture and the hardship that often results from strict enforcement thereof, a court may grant a period of grace to the party whose interest is at stake before a forfeiture will be decreed. Whether a grace period is warranted depends on the equities of the particular case. [29] Forfeitures — Real Property — Grace Period — Factors. In determining whether a party with an interest in real property should be given a grace period before the party forfeits its interest, a court should consider (1) whether the party's failure to give timely notice was inadvertent as opposed to intentional, culpable, or grossly negligent; (2) whether the party made valuable permanent improvements to the property; (3) whether the claimant was prejudiced by the party's untimely notice; (4) the length of the party's occupation of the property; and (5) whether the claimant contributed to the delay. SANDERS and J.M. JOHNSON, JJ., concur by separate opinion. Nature of Action: The optionee under an option to purchase real property sought specific performance of the option contract or, in the alternative, reimbursement for improvements made to the property under a theory of quantum meruit. Superior Court: The Superior Court for Pierce County, No. 05-2-06289-0, Katherine M. Stolz, J., on October 31, 2005, entered a judgment in favor of the plaintiff, ruling that the plaintiff had performed in accordance with the terms of the contract. Court of Appeals: The court reversed the judgment by an unpublished opinion noted at 136 Wn. App. 1055 (2007). Supreme Court: Holding that substantial evidence supported the trial court's finding as to when the plaintiff made the final option payment, but that substantial evidence did not support the trial court's finding that the plaintiff's notification to the defendant of his intent to exercise the option was made contemporaneously with the final payment as required by the contract, and that the plaintiff may be entitled to an equitable grace period within which to exercise the option, the court affirms in part and reverses in part the decision of the Court of Appeals and remands the case to the trial court for further proceedings. Garold E. Johnson- (of Mann Johnson Wooster & McLaughlin), for petitioner. David C. Hammermaster-, for respondent. EN BANC ¶1 FAIRHURST, J. — Petitioner Gary Pardee, the optionee, filed suit against respondent, Willis Jolly, the optionor, seeking specific performance of an option to purchase real property. The trial court found Pardee performed in accordance with the terms of the contract and ordered Jolly to sell the property to Pardee. Jolly appealed and the Court of Appeals reversed. Pardee petitioned this court for discretionary review, which we granted. ¶2 We affirm the Court of Appeals in part and reverse in part. We hold substantial evidence supports the trial court's finding that Pardee made the final option payment a couple of weeks after December 21, 2004, but the trial court's finding that this payment was at the same time Pardee notified Jolly of his intent to exercise the option is not supported by substantial evidence. Thus, we hold Pardee did not perform according to the terms of the option contract. We also hold Pardee may be entitled to an equitable grace period and remand the case to the trial court to determine whether such a grace period should be extended and whether specific performance should be ordered. I. STATEMENT OF THE CASE ¶3 Pardee and Jolly entered into an option to purchase real estate on January 18, 2004. By the terms of the contract, Pardee was required to pay an initial $10,000 plus $500 per month for one year, for a total payment of $16,000. The $16,000 in option payments would be deemed a partial down payment on the $300,000 purchase price of the property. Once the purchaser has paid the full amount of option money, the option shall terminate unless the Purchaser notifies the Seller in writing at the time the Purchaser makes the last option payment that the Purchaser is exercising its option to purchase. If the Purchaser exercises the option, then the sale shall close pursuant to the terms of this Agreement. If the Purchaser does not exercise the option, then this Agreement shall terminate. At any time during the term of the option, the Purchaser may pay the full amount of the option money due and must, at the same time, exercise its option to purchase the Property by giving written notice to the Seller at the address to which the monthly option payments are made. However, if the Purchaser does not exercise its option to purchase the Property prior to termination of the option term, this Agreement shall terminate without further notice to Purchaser, and the Purchaser shall lose all interest and rights in the property. Ex. 1, ¶ 3. ¶4 The contract also provided Pardee with the right to occupy and improve the property during the option period but did not explicitly provide to whom the benefit of the improvements would inure if the option terminated. ¶5 Pardee tendered one check for $10,000 and another for $1,000 when he signed the agreement on January 18, 2004. He continued to make timely payments by writing $1,000 checks every two months and tendered the final check on November 10, 2004. Pardee did not notify Jolly in writing that he intended to exercise the option in November. ¶6 On January 14, 2005, Pardee sent a letter expressing his intent to exercise the option by certified mail. Jolly acknowledged receiving the letter on either January 15 or 16. After receiving the letter, Jolly told Pardee the option terminated the previous November and refused to sell the property. Pardee sued Jolly for specific performance of the contract or, in the alternative, reimbursement for the improvements he made to the property under the theory of quantum meruit. Jolly counterclaimed for a writ of restitution or ejectment and for reasonable rent for the time that Pardee occupied the premises. ¶7 The trial court determined Pardee was entitled to specific performance because the written notice was "contemporaneous with the re-issuance of the $1,000.00 check." CP at 104. The court also found the agreement contained no lease provisions and Jolly failed to provide adequate evidence as to the reasonable rental value of the residence. The court awarded Pardee attorney fees under the terms of the contract. Jolly moved for a new trial or reconsideration on the basis of newly discovered evidence. ¶8 The Court of Appeals reversed, holding Pardee's notice of his intent to exercise the option was not contemporaneous with his final payment on November 10, 2004. Pardee v. Jolly, noted at 136 Wn. App. 1055, slip op. at 4 (2007). The court noted that even if the reissued $1,000 check was the final payment, it was cashed sometime in December. On reconsideration, the Court of Appeals considered the evidence submitted by Jolly postverdict and stated that even if the last payment was on January 11, 2005, the payment and notification were not contemporaneous. The Court of Appeals did not address Pardee's equitable arguments. Pardee petitioned for discretionary review from this court, which we granted. Pardee v. Jolly, 162 Wn.2d 1011, 175 P.3d 1094 (2008). II. ISSUES (1) Whether the contract violates the statute of frauds and, if so, whether it is enforceable. (2) Whether Pardee is entitled to specific performance under the terms of the contract. (3) Whether Pardee is entitled to an equitable grace period and specific performance of the contract. III. ANALYSIS A. Standard of review B. The contract is enforceable under the part performance exception to the statute of frauds ¶12 In this case, the contract contains an inadequate legal description of the property. The contract describes the property as "Parcel # 3 of Short Plat-8111120215 (7.37 Acres) Section 24 Twp 19N Range 5E. See attached For Full legal description." Ex. 1, ¶ 1. No legal description was attached to the option. The option does not identify the addition or city where the property is located and, consequently, violates the statute of frauds. ¶13 The option is enforceable despite the inadequate legal description because all three elements of the part performance doctrine are present. First, Pardee maintained actual and exclusive possession of the property beginning January 18, 2004. Second, Pardee paid $16,000 for the option. Third, the contract provides Pardee with the right to improve the property and testimony established that Pardee made permanent, substantial, valuable improvements to the house. The option contract is enforceable. C. Pardee failed to perform under the terms of the contract 1. The Court of Appeals erred in reversing the trial court's finding of fact regarding the date on which the final payment was made ¶17 Findings of fact are reviewed under a substantial evidence standard, which requires that there be a sufficient quantum of evidence in the record to persuade a reasonable person that a finding of fact is true. Sunnyside Valley Irrigation Dist., 149 Wn.2d at 879. If substantial evidence supports a finding of fact, an appellate court should not substitute its judgment for that of the trial court. Id. at 879-80. ¶18 The trial court found the $1,000 check was reissued to Jolly "a couple of weeks" after December 21, 2004. CP at 103. The Court of Appeals reversed, stating Pardee made the final option payment on November 10, 2004. The Court of Appeals subsequently amended its opinion, determining that the last check was cashed on January 11, 2005 based on evidence presented to the trial court postverdict in a motion for a new trial. The time of the final payment is a question of fact, and our review is whether the trial court's finding was supported by substantial evidence. ¶19 Pardee argues the trial court's finding that the final payment was made a couple of weeks after December 21 was supported by substantial evidence and the Court of Appeals erred by substituting its own judgment for that of the trial court. Pardee also argues that the final option payment occurred in January 2005 because the issuance of a check merely suspends an underlying obligation. Jolly argues the final payment was made in November because Pardee's obligation was discharged when he tendered the checks, not when he reissued the checks. 2. The Court of Appeals did not err in reversing the trial court's finding that Pardee notified Jolly of his intent to exercise the option contract at the same time as the final payment and, in turn, properly reversed the trial court's conclusion that Pardee exercised the option in accordance with the terms of the option contract ¶22 Pardee failed to strictly comply with the terms of the option. Pardee's final payment was made "a couple of weeks" after December 21, 2004. CP at 103. A couple of weeks after December 21, 2004 was approximately January 4, 2005. Notice was received around January 15, 2005. Option contracts are to be strictly construed and time is of the essence. Andersen, 181 Wash. at 280. Strictly construing the contract, it is clear that Pardee failed to provide notice of his intent to exercise the option when he made the final payment because more than a week elapsed between the two events. The trial court's finding that notice was given contemporaneous with the final payment was not supported by substantial evidence, and the Court of Appeals, although improperly modifying the finding of fact regarding the date of the final payment, did not err in holding Pardee did not provide written notice at the same time as the final payment. As such, the Court of Appeals correctly determined Pardee failed to properly exercise his option to purchase the real estate in question. D. Pardee may be entitled to an equitable grace period and specific performance of the contract ¶23 Pardee argues the Court of Appeals erred in refusing to address his argument regarding whether he is entitled to an equitable grace period. This section begins with a discussion of whether the termination provision in this option contract may be treated like a forfeiture. The second section addresses the law regarding equitable grace periods. 1. The termination of the option to purchase in this case is analogous to a forfeiture because the optionee was allowed to occupy the property and make substantial improvements thereon 2. On remand, the trial court should determine whether Pardee is entitled to an equitable grace period ¶29 In a subsequent case, the Court of Appeals followed the reasoning in Wharf Restaurant, noting that whether an equitable grace period is appropriate depends on the facts and circumstances of a case and is largely within a trial court's discretion. Heckman Motors, Inc. v. Gunn, 73 Wn. App. 84, 88, 867 P.2d 683 (1994). In Heckman Motors, the court held an equitable grace period did not apply because the lessee had not made substantial valuable improvements on the property, there was a substantial delay in exercising the notice to renew the lease, and the lessor had not done "anything to induce or contribute to the delay." Id. at 88-89. ¶30 The trial court in this case did not address whether an equitable grace period applied because it determined Pardee complied with the terms of the contract. However, it noted Jolly was trying to "have his cake and eat it too" by allowing Pardee to transform the house from "a burnt out hulk" into a livable residence and procuring his assistance in reissuing the checks, all the while believing that the option had already terminated. Verbatim Report of Proceedings at 174. The Court of Appeals, although the equitable issue was properly raised, declined to address this argument. ¶31 Pardee argues that the Court of Appeals erred in failing to consider this issue and equity demands that he be granted a grace period. Jolly argues Wharf Restaurant does not apply because Pardee did not forfeit ownership in an asset; instead, the option merely terminated. As we noted earlier, the law regarding equitable forfeitures applies in this case because of the unique provisions of the option. Furthermore, contrary to Jolly's assertions, this case involves a substantial forfeiture. If the option is deemed terminated, Pardee not only loses $16,000, which would be an acceptable result for the termination of an option, he also loses the $20,669.58 he invested in repairing the house and the 2,500 hours that he spent working on the house so that he could use it as collateral for a mortgage. This is a significant forfeiture that should be analyzed using the equitable principles set forth in Wharf Restaurant and Heckman Motors. ¶32 Because the record contains insufficient findings of fact related to whether equity demands that a grace period be extended to Pardee, we remand this case to the trial court. The trial court should consider whether Pardee is entitled to an equitable grace period using the Wharf Restaurant considerations. In addition, the trial court should consider whether Pardee is entitled to attorney fees under the terms of the contract. IV. CONCLUSION ¶33 We affirm the Court of Appeals in part and reverse in part. We reverse the Court of Appeals and hold the trial court's finding regarding the date of the final payment is supported by substantial evidence. We affirm the Court of Appeals holding that Pardee failed to exercise his option in accordance with the terms of the contract. We hold Pardee may be entitled to an equitable grace period and remand the case to the trial court to determine whether such a grace period should be extended and whether specific performance should be ordered. ALEXANDER, C.J., and C. JOHNSON, MADSEN, CHAMBERS, OWENS, J.M. JOHNSON, and STEPHENS, JJ., concur. ¶34 SANDERS, J. (concurring) — I concur in the majority's result, however, write separately to state my concern that the real estate statute of frauds, RCW 64.04.020 ("Every deed shall be in writing, signed by the party bound thereby, and acknowledged by the party before some person authorized by [ ]this act to take acknowledgments of deeds.") should not apply to this option agreement, as the option is obviously not a deed. Notwithstanding, the majority appears to follow the holding in Martin v. Seigel, 35 Wn.2d 223, 212 P.2d 107 (1949), which distorts and stretches the statute of frauds to cover real estate transactions other than deeds. For the reasons set forth in my concurring opinion in Key Design, Inc. v. Moser, 138 Wn.2d 875, 889-92, 983 P.2d 653, 993 P.2d 900 (1999) (Sanders, J., concurring), I would overrule Martin and repair to the plain text of the statute in question. ¶35 Therefore I concur in result. J.M. JOHNSON, J., concurs with SANDERS, J.