Sullivan v. Homes

NOTICE: NOT FOR PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION DOES NOT CREATE
LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

CHARLES SULLIVAN, an unmarried man,
Plaintiff/Counterdefendant/Appellant,

v.

HOMES ETC . . . , LLC, an Arizona limited liability company,
Defendant/Counterclaimant/Appellee,

J&T PROPERTIES, LLC, an Arizona limited liability company;
ROSEMARIE FERNANDEZ, a widowed woman, Defendants/Appellees.

No. 1 CA-CV 13-0424
FILED 07-15-2014

Appeal from the Superior Court in Maricopa County
No. CV2011-050275
The Honorable Alfred M. Fenzel, Judge

AFFIRMED

COUNSEL

Barski Drake PLC, Scottsdale
By Chris D. Barski
Counsel for Plaintiff/Counterdefendant/Appellant

Thomas N. Swift II, PC, Mesa
By Thomas N. Swift
Counsel for Defendants/Counterclaimants/Appellees
 SULLIVAN v. HOMES ETC., LLC et al.
Decision of the Court

MEMORANDUM DECISION

Judge Donn Kessler delivered the decision of the Court, in which
Presiding Judge Kenton D. Jones and Judge Margaret H. Downie joined.

K E S S L E R, Judge:

¶1 Charles Sullivan appeals the superior court‟s judgment in
favor of Homes Etc. for his breach of an option agreement. For the
following reasons, we affirm.

FACTUAL AND PROCEDURAL HISTORY

¶2 Homes Etc. owns rental property which is managed by J&T
Properties, LLC (“the Rental Agent”). Rosemarie Fernandez is the
manager of Homes Etc., and is the sole member of both Homes Etc. and
the Rental Agent.

¶3 In 2010, Sullivan entered into a short term lease for a single
family home (“the Property”) with the Rental Agent. Sullivan then
approached Fernandez about leasing the Property for a longer term and
expressed an interest in purchasing the Property. Fernandez had already
committed to a two-year lease with other tenants, but was willing to rent
to Sullivan if he might purchase the Property. In April 2010, Sullivan and
the Rental Agent executed a form rental agreement for one year, and
Sullivan and Homes Etc., as owner of the Property, executed an option to
purchase agreement (“the Agreement”).

¶4 The Agreement provided that upon payment of $2000 per
month during the one-year option term, Homes Etc. would grant Sullivan
the option to purchase the Property for a designated price. At Homes
Etc.‟s request, a provision was inserted requiring Sullivan to be current
with the monthly rental payments to exercise the option to purchase. The
Agreement did not provide it would terminate if the lease was terminated.
Rather, it provided the option period would terminate upon the earlier of
the stated date for termination (May 1, 2011), closing of the purchase, or a
mutual written agreement by the parties to terminate the option. The
Agreement also provided that it was a “binding contract” and that there
were no other oral promises, conditions, or representations. Fernandez

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then notified the prospective tenants of the decision to rent to Sullivan and
returned their deposit.

¶5 In January 2011, approximately eight months into the lease,
Fernandez obtained a judgment for unlawful detainer in justice court
based upon Sullivan violating the lease by subletting the Property.
Sullivan filed a complaint in superior court alleging the unlawful detainer
action was a substantial and material breach of the lease. Homes Etc., the
Rental Agent, and Fernandez answered and filed a counterclaim alleging
Sullivan: (1) breached the lease by subletting the Property, and (2)
breached the Agreement by failing to make the $2000 option premium
payments. The matter was sent to court-mandated arbitration. The
arbitrator held Sullivan‟s claim was barred by collateral estoppel, and
awarded Homes Etc. $24,000 for the unpaid option premiums. Sullivan
appealed, and after a one-day bench trial, the superior court found in
favor of Homes Etc. on all claims and awarded Homes Etc. $39,587.34,
including the principal on the option premium payments, pre-judgment
interest, costs, and reasonable attorneys‟ fees.

¶6 Sullivan timely appealed. We have jurisdiction pursuant to
Arizona Revised Statutes (“A.R.S.”) section 12-2101(A)(1) (Supp. 2013).

DISCUSSION

¶7 On appeal, Sullivan argues: (1) the Agreement was revocable
for lack of consideration; and (2) the appropriate remedy was rescission
and, as a result, Homes Etc. was not entitled to actual damages.

¶8 Contract interpretation is a question of law which we review
de novo. Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, 593, ¶ 9, 218
P.3d 1045, 1050 (App. 2009). The purpose of contract interpretation is to
determine and enforce the parties‟ intent. Id.; see also Goodman v. Newzona
Inv. Co., 101 Ariz. 470, 472, 421 P.2d 318, 320 (1966) (“The intent of the
parties . . . must control the interpretation of a contract. It is not within the
province or power of the court to alter, revise, modify, extend, rewrite or
remake an agreement.”). “A general principle of contract law is that when
parties bind themselves by a lawful contract the terms of which are clear
and unambiguous, a court must give effect to the contract as written.”
Grubb & Ellis Mgmt. Servs., Inc. v. 407417 B.C., L.L.C., 213 Ariz. 83, 86, ¶ 12,
138 P.3d 1210, 1213 (App. 2006). To determine intent, we “will look to the
plain meaning of the words as viewed in the context of the contract as a
whole.” United Cal. Bank v. Prudential Ins. Co., 140 Ariz. 238, 259, 681 P.2d
390, 411 (App. 1983). We review an award of damages for abuse of

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discretion. Gonzales v. Ariz. Pub. Serv. Co., 161 Ariz. 84, 90, 775 P.2d 1148,
1154 (App. 1989).

I. CONSIDERATION

¶9 Sullivan argues the Agreement is unenforceable for lack of
consideration because payment of the option premiums was a condition
precedent to making the offer irrevocable. We disagree.

¶10 “An option contract is a promise which meets the
requirements for the formation of a contract and limits the promisor‟s
power to revoke an offer.” Restatement (Second) of Contracts § 25 (1981);
see McLamb v. T.P. Inc., 619 S.E.2d 577, 580 (N.C. App. 2005) (“[A]n
„option‟ [contract] is a contract by which the owner agrees to give another
the exclusive right to buy property at a fixed price within a specified
time.” (internal quotation marks and citation omitted)). “An option
contract has two elements: 1) the underlying contract which is not binding
until accepted; and 2) the agreement to hold open to the optionee the
opportunity to accept.” Plantation Key Developers, Inc. v. Colonial Mortg.
Co., 589 F.2d 164, 168 (5th Cir. 1979). Here, the option contract was
composed of: (1) the underlying option to purchase the Property if
Sullivan later decided to exercise the option to buy, and (2) the offer to
hold the option open for a year-long term. The only issue before us is
whether the offer to hold open was a binding agreement.

¶11 Sullivan drafted the Agreement and presented the offer to
Fernandez. The Agreement provided Sullivan would pay $2000 per
month during the option term in exchange for the option to purchase the
Property for a designated price. Both parties acknowledge Sullivan never
made any of the option premium payments. We must therefore decide
whether the Agreement is enforceable without actual payment of the
premiums.

¶12 “The validity of an option contract is determined by
ordinary contract rules,” Stanwood v. Welch, 922 F. Supp. 635, 640 (D. D.C.
1995), and both the underlying contract and the agreement must be
supported by consideration, Plantation Key Developers, 589 F.2d at 168; see
K-Line Builders, Inc. v. First Fed. Sav. & Loan Ass’n, 139 Ariz. 209, 212, 677
P.2d 1317, 1320 (App. 1983) (“For an enforceable contract to exist, there
must be an offer, an acceptance, consideration, and sufficient specification
of terms so that obligations involved can be ascertained.”). In Arizona,
“[e]very contract in writing imports a consideration.” A.R.S. § 44-121
(2013). “Failure of consideration is an affirmative defense and the burden

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is upon one who pleads it to establish such defense by a preponderance of
the evidence.” Chernov v. Sandell, 68 Ariz. 327, 334, 206 P.2d 348, 352
(1949); see Ariz. R. Civ. P. 8(c). “It is also a general rule that a promise for
a promise is adequate consideration.” Lessner Dental Labs., Inc. v. Kidney, 16 Ariz. App. 159, 160, 492 P.2d 39, 40 (1971); see also K-Line Builders, 139
Ariz. at 212, 677 P.2d at 1320 (“Consideration is a benefit to the promisor
or a loss or detriment to the promisee . . . .”).

¶13 The express terms of the Agreement refute Sullivan‟s
argument that the Agreement was not enforceable on the theory that
payment of the option premiums was a condition precedent to the
formation of a contract. His promise to be bound is adequate
consideration, and his obligation to make payments is stated in clear
positive language: “Optionee hereby agrees to obtain from Owner, the
exclusive option to acquire the [Property] . . . on the terms and conditions
set forth herein” with the initial payment of the option price due upon
execution of the Agreement and monthly installments to be made
thereafter. The Agreement also expressly provides that it was a binding
contract and there were no oral promises or conditions not contained in
the written Agreement itself. Furthermore, the Agreement also states that
the option commencement date is May 1, 2010, not the date of the initial
option premium payment, and the first payment was due upon execution
of the Agreement.

¶14 In addition, the court found evidence of consideration
through parol evidence that Fernandez changed her position on a longer
lease to other parties in exchange for Sullivan‟s option to purchase the
Property. “The parol evidence rule, as traditionally stated, renders
inadmissible any evidence of prior or contemporaneous oral
understandings and of prior written understandings, which would
contradict, vary or add to a written contract which was intended as the
final and complete statement or integration of the parties‟ agreement.”
Pinnacle Peak Developers v. TRW Inv. Corp., 129 Ariz. 385, 389, 631 P.2d 540,
544 (App. 1980) (internal quotation marks and citation omitted). The rule
does not, however, prevent the admission of evidence of the true
consideration for a contract. See State ex rel. Herman v. Wilson, 103 Ariz.
194, 198, 438 P.2d 760, 764 (1968). Thus, the parol evidence rule is not
violated when the evidence offered does not vary or contradict the
meaning of an agreement, but is instead offered to explain what the
parties truly intended. Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz.
148, 154, 854 P.2d 1134, 1140 (1993). The evidence Fernandez changed her
position as to other tenants was properly considered. In any event,
Sullivan waived the parol evidence rule by failing to object to the

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allegedly improper testimony below. See Cedic Dev. Corp. v. Sibole, 25 Ariz.
App. 185, 187-88, 541 P.2d 1169, 1171-72 (1975) (“[A]lthough counsel
showed an awareness of the applicability of the parol evidence rule, no
intention was demonstrated by these comments that the court consider a
formal, specific objection to have been made. Therefore, the court was
entitled to consider parol evidence in reaching its decision, and when
considered, it supplies a sufficient foundation for the trial court‟s
decision.”).

¶15 Fernandez was originally unwilling to renew Sullivan‟s lease
for a longer term because she had already committed to a two-year lease
with other tenants. Fernandez only reconsidered when Sullivan
expressed an interest in purchasing the Property and claimed he would
pay $2000 a month for the option to do so. Based on Sullivan‟s
representations, Fernandez contacted the tenants, obtained permission to
cancel the proposed lease so she could rent to Sullivan as a prospective
buyer, and returned their deposit. But for the promise to enter into the
option contract, Fernandez would not have canceled the arrangement
with the prospective tenants and entered into the lease with Sullivan.
Therefore, in addition to the promise to pay, we find this agreement to be
part of the true consideration.

¶16 Furthermore, at oral argument before this Court, Sullivan
argued that although he was not bound under the Agreement to tender
payment, if he chose to make a payment, Fernandez was bound to accept
it. However, if Fernandez was obligated to accept the first $2000 option
premium payment, the intent must be for both parties to be bound.
Simply put, Sullivan‟s argument confuses the two aspects of the
Agreement. Although Sullivan could unilaterally decide whether to
exercise the option and purchase the Property at the end of the option
term, he could not unilaterally decide not to pay the monthly option
premiums without breaching the Agreement. For Fernandez to be bound
to accept the $2000 payments if made, there had to be a mutual obligation
on the part of Sullivan. That obligation was to make the payments. This
conclusion is consistent with the terms of the Agreement, which did not
provide that the contract would terminate upon Sullivan‟s failure to pay
the option premium payments and expressly provided that the
Agreement was binding. Based on the record, Sullivan made a binding
promise to have the offer kept open and that offer was supported by
consideration. The Agreement is therefore enforceable.

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II. DAMAGES

¶17 Sullivan claims the appropriate remedy for Homes Etc. was
to rescind the Agreement. In addition, he argues Homes Etc. was not
entitled to actual damages absent a showing of property depreciation and
forbearance in reliance on the option premium payments. We disagree.

¶18 “Upon the breach of a contract, the party seeking relief has
the choice of three remedies: rescind the contract, refuse to treat the breach
as a termination of the contract and request that the court compel
performance under the contract, or consider the breach to be a termination
of the contract and request damages resulting from the breach.” W. Pinal
Family Health Ctr., Inc. v. McBryde, 162 Ariz. 546, 548, 785 P.2d 66, 68 (App.
1989). Although Sullivan would have preferred for Homes Etc. to select
rescission over termination and damages as its remedy, the choice of
remedy ultimately belongs to Homes Etc. See id. at 550, 785 P.2d at 70
(finding untenable the notion that breaching parties are entitled to select
the remedies injured parties may pursue). Accordingly, Homes Etc. was
well within its rights to consider the breach a termination of the contract
and to pursue any damages.

¶19 “Arizona has long held that damages for breach of contract
are those damages which arise naturally from the breach itself or which
may reasonably be supposed to have been within the contemplation of the
parties at the time they entered the contract.” All Am. Sch. Supply Co. v.
Slavens, 125 Ariz. 231, 233, 609 P.2d 46, 48 (1980). “The purpose of money
damages is to put the injured party in as good a condition as that in which
full performance would have put him.” Fairway Builders, Inc. v. Malouf
Towers Rental Co., 124 Ariz. 242, 254, 603 P.2d 513, 524 (App. 1979)
(quoting Restatement (Second) of Contracts § 346(1) cmt. b (1932)).
Sullivan promised to pay $2000 per month for one year in exchange for an
exclusive option to purchase the Property for a designated price, and the
contract was enforceable for the reasons stated above. Pursuant to the
Agreement, if Sullivan remained current on his monthly rental payments
and paid the option premiums, he could have enforced the Agreement at
the end of the option term and purchased the Property. Sullivan stayed

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current on the rent through the lease‟s early termination.1 Ultimately, by
the end of the option term, Homes Etc. was entitled to a total of $24,000
regardless of whether Sullivan exercised the option. As a result, the
superior court did not err in awarding the damages.

CONCLUSION

¶20 For the foregoing reasons, we affirm. Because Homes Etc. is
the successful party on appeal, and because the action arises out of
contract, we grant its request for reasonable attorneys‟ fees pursuant to
A.R.S. § 12-341.01(A) (Supp. 2013). We will award Homes Etc. its costs on
appeal and reasonable attorneys‟ fees upon timely compliance with
Arizona Rule of Civil Appellate Procedure 21.

:gsh

1 Sullivan does not argue and we find no basis to hold that because
of Sullivan‟s breach and the ultimate termination of the lease, that such
termination affected either the damages or enforceability of the
Agreement. As noted above in ¶ 4, the Agreement would terminate at the
earlier of May 1, 2011, a mutual written agreement by the parties to
terminate the option, or closing of the purchase.

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