Jennifer L. Habu v. Conrado A. Topacio

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

JENNIFER L. HABU and RICHARD Y. ) No. 791 52-4-I
CHINN, husband and wife, )
) DIVISION ONE
Appellants,
) UNPUBLISHED OPINION
v.

CON RADO A. TOPACIO (also known as )
Conrad A. Topacio and Conrado Jesus )
Topacio), individually; )
CARRIE L. TOPACIO (also known as )
CARRIE LYNN FIELD), individually; the )
marital community of CON RADO A. )
TOPACIO and CARRIE L. TOPACIO; )
HENRY L. JACKY, individually; )
JENNIFER E. JACKY, individually; )
the marital community of HENRY L. )
JACKY and JENNIFER E. JACKY; )
JAMES P. KOORY, individually, and the )
marital community of JAMES P. KOORY )
and CRYSTAL B. KOORY; )
SANDRA E. TUREK, individually; )
CHJ PROPERTIES LLC, a Washington )
limited liability company; )
CHJ FOOD SERVICES LLC, a dissolved )
Washington limited liability company; )
DALAWA LLC, a Washington limited )
liability company doing business as )
Vantage Commercial Partners; )
GREEN SKY NW LLC, a Washington )
limited liability company doing business as )
Man J’s Highway Pot Shop; )
JESSICA ELIZABETH-ANN JORDAN, )
individually; MERCHANTS BONDING )
COMPANY (MUTUAL), a surety )
bond company registered in the State of )
Washington; )
 No. 79152-4-1/2

GEORGINA GAIL LUKE (also known )
Ginger Luke), individually and the marital )
community comprised of her and HANS )
JAKOBLUECK, )
)
Respondents. )
) FILED: February 3, 2020
HAZELRIGG-HERNANDEZ, J. — Jennifer Habu and Richard Chinn seek

reversal of an order enforcing a CR 2A term sheet drafted after a two-day

mediation. They contend that the term sheet was not a final expression of all

material terms of the settlement and therefore they are not bound by the document.

Because the term sheet does not fix all of the material obligations of all parties, we

reverse.

FACTS

The underlying dispute in this case arose from the purchase and sale of a

commercial property in Everett, Washington. In 2014, Jennifer Habu and Richard

Chinn sold the property to CHJ Properties, a limited liability company owned by

Conrad Topacio, Henry Jacky, and James Koory. Habu and Chinn alleged that

the defendants defrauded them during the sale of the property, thereby

discouraging other buyers and causing Habu and Chinn to accept less than the

fair market value of the property as a purchase price.

In late 2017, Habu and Chinn brought suit against Conrad Topacio, Carrie

Topacio, Henry Jacky, Jennifer Jacky, James Koory, Crystal Koory, CHJ

Properties LLC, CHJ Food Services LLC, and Dalawa LLC (collectively, CHJ);

Sandra Turek and Merchants Bonding Company (collectively, Merchants); and

Green Sky NW LLC and Jessica Jordan (collectively, Green Sky). The complaint

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detailed claims for fraud, negligence, negligent misrepresentation, violations of the

Consumer Protection Act1 and Criminal Profiteering Act,2 breach of contract, unjust

enrichment, equitable indemnification, recovery of remedial action costs under the

Model Toxics Control Act (MTCA),3 and a request for declaratory relief.

The parties engaged in a two-day mediation in February 2018. The

negotiation resulted in the drafting of a document entitled “CR 2A Term Sheet” by

Habu and Chinn’s counsel. The document provided that the defendants would

immediately withdraw their pending motions for summary judgment, for more

definite statement, and to dismiss under CR 12(b)(6), and that “[t]he parties agree

to memorialize and use their best efforts to fully execute a final Settlement

Agreement within thirty (30) days of the mediation.”

The term sheet listed the following provisions that the settlement agreement

“shall contain.” Habu and Chinn would receive a “$200,000 initial settlement

payment” within 60 days of the effective date of the agreement. On receipt of the

“$200,000 portion of the settlement funds,” Habu and Chinn would dismiss all of

their claims against all parties with prejudice, except the claims against CHJ under

the MTCA, which would be dismissed without prejudice.

After CHJ obtained an appraisal of the property and Habu and Chinn

compiled environmental reports for the property, “the property shall be listed with

a mutually agreeable listing agent.” Habu and Chinn were to be kept informed of

any inquiries or offers to purchase the property, and ‘[ajIl purchase and sale terms

I Chapter 19.86 RCW.
2 Chapter 9A.82 RCW.
~ Chapter 70.105D, 82.21 RCW.

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shall be subject to the Plaintiffs’ approval, including but not limited to the sales

price. In the course of the negotiations, the parties will act in good faith.” The term

sheet also stated that:

17. Upon closing, any debt owed to 9506 LLC [4] (and for which 9506
LLC is not requested to carry the note) shall be paid in full, and the
first $350,000 of the sale proceeds over and above the debt
repayment shall be paid to Plaintiffs. The balance of any net sale
proceeds shall be disbursed to CHJ Properties LLC.

Habu and Chinn were not to be responsible for any sale commissions. If the

property did not sell within two years of listing, the remaining parties would be free

to assert their MTCA claims against each other.

The parties agreed to return to mediation in the event that a dispute arose

while negotiating the final settlement agreement and “to make a good faith effort

to mediate and resolve those disagreements or disputes.” Additionally, the term

sheet stated that “[a}II parties executing this Term Sheet represent and warrant

that they have authority to sign on behalf of the person or entity upon whose behalf

they are signing.” It also contained a provision that “[t]he final Settlement

Agreement shall be signed by each of the parties before an independent notary

public unaffiliated with any of the parties.” The term sheet was signed by all parties

except Green Sky NW LLC and Jessica Jordan, with Henry Jacky signing on behalf

of his wife, Jennifer Jacky, and James Koory signing on behalf of his wife, Crystal

Koory.

Over the next six months, the parties exchanged drafts of a final settlement

agreement based on this term sheet but were unable to agree on terms related to

In September 2016, 9506 LLC purchased CHJ’s loan from Coastal Community Bank.
~‘

9506 LLC is owned by Habu and Chinn but is not a party to the case.

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paragraph 17 of the term sheet. CHJ contended that the $350,000 post-sale

payment was contingent on the property selling for a sufficient price, while Habu

and Chinn wanted to write the payment into the final agreement as an

unconditional obligation.

CHJ filed a motion to enforce the CR 2A term sheet, which Merchants and

Green Sky joined. Habu and Chinn submitted declarations in opposition to the

motion to enforce the term sheet asserting that they did not intend the term sheet

to be binding when they signed it and did not understand the $350,000 payment

to be conditioned on the proceeds of the sale being sufficient to cover the sum. In

an order setting an evidentiary hearing on the motion, the court indicated that it

would “apply summary judgment procedures to determine whether there is a

genuine dispute regarding the existence and/or material terms of the CR 2A

agreement.” It also ruled that “[n]o party may file or serve additional briefing or

materials in support of or in opposition to the Motion to Enforce prior to the

evidentiary hearing without leave of Court.” The court clarified that the parties

would be permitted to present material facts through live testimony at the hearing

if they desired but noted “that it is unlikely that the Court would allow the parties to

try to introduce into evidence through live witnesses any documents or other

materials that have not already been filed and served in connection with the motion

to enforce.”

At the hearing, Habu and Chinn attempted to introduce a statement of facts

to which they and Merchants had stipulated concerning other negotiated

documents that had been signed at the mediation with the documents attached as

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exhibits. They noted that the stipulation had been prepared as a substitute for

Merchants’ live testimony because those defendants were not present at the

hearing. CHJ objected, and the court ruled that it would not consider the stipulation

because all parties had not agreed to permit it to be filed and the court had not

granted leave to consider the additional documents.

The court granted the motion to enforce the CR 2A term sheet. The court

found that the parties had entered into a binding CR 2A settlement agreement that

did not impose an unconditional obligation on CHJ to pay Habu and Chinn

$350,000. The court also ordered the parties to enter into a long-form settlement

agreement consistent with the CR 2A agreement. Habu and Chinn moved for

reconsideration, which was denied. Habu and Chinn appealed. Merchants and

Green Sky joined in CHJ’s opening brief to this court.

ANALYSIS

Habu and Chinn argue that the court erred in finding the term sheet to be

binding and enforceable. They contend that the term sheet was not final as a

matter of law because on its face it contemplates negotiation of additional material

terms and future dispute resolution.

Standard of Review

When a moving party relies on affidavits or declarations to show that a

settlement agreement is not genuinely disputed, the trial court follows summary

judgment procedures. Condon v. Condon, 177 Wn.2d 150, 161, 298 P.3d 86

(2013). Accordingly, the party moving to enforce an alleged agreement bears the

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burden to prove that there is no genuine dispute as to its existence and material

terms. j~ at 162. The court reads the parties’ submissions in the light most

favorable to the nonmoving party to determine whether reasonable minds could

reach only one conclusion. j4~ “[hf the nonmoving party raises a genuine issue of

material fact, a trial court abuses its discretion if it enforces the agreement without

first holding an evidentiary hearing to resolve the disputed issues of fact.”

Brinkerhoff v. Campbell, 99 Wn. App. 692, 697, 994 P.2d 911(2000).

“Appellate courts give deference to trial courts on a sliding scale based on

how much assessment of credibility is required; the less the outcome depends on

credibility, the less deference is given to the trial court.” Dolan v. King County, 172

Wn.2d 299, 311, 258 P.3d 20 (2011). When the trial court makes a decision based

on written documents and is not required to “assess the credibility or competency

of witnesses, and to weigh the evidence, nor reconcile conflicting evidence,” we

review the decision de novo. ~ at 310 (quoting Progressive Animal Welfare Soc’y

v. Univ. of Wash., 125 Wn.2d 243, 252, 884 P.2d 592 (1994)). When the court

hears live testimony, we review findings of fact for substantial evidence,

recognizing that the trial court is able to assess the credibility and demeanor of

testifying witnesses in a manner not afforded to appellate courts reviewing the cold

record. Garofalo v. Commellini, 169 Wash. 704, 705, 13 P.2d 497 (1932); Peterson

v. Big Bend Ins. Agency, Inc., 150 Wn. App. 504, 514, 202 P.3d 372 (2009).

Here, the trial court ordered an evidentiary hearing after the parties

submitted their initial written arguments and declarations. None of the parties

presented live testimony at the evidentiary hearing. The court ultimately resolved

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No. 791 52-4-1/8

the issue based on the arguments of counsel and declarations submitted with the

briefing. Although the court entered its findings after an evidentiary hearing, the

court relied entirely on written submissions in making these findings. Because of

this and because the parties do not dispute the standard of review, we review the

trial court’s order on the motion to enforce de novo.

II. Enforceability of CR 2A Term Sheet

The common law of contracts applies to settlement agreements. Condon,

177 Wn.2d at 161. Washington follows the objective manifestation theory of

contracts. Hearst Commc’ns.. Inc. v. Seattle Times Co., 154 Wn.2d 493, 503, 115

P.3d 262 (2005). For a contract to form, the parties must objectively manifest their

mutual assent to be bound and the terms assented to must be sufficiently definite.

Keystone Land & Dev. Co. v. Xerox Corn., 152 Wn.2d 171, 177—78, 94 P.3d 945

(2004). “[W]e attempt to determine the parties’ intent by focusing on the objective

manifestations of the agreement, rather than on the unexpressed subjective intent

of the parties.” Hearst, 154 Wn.2d at 503. The parties’ subjective intent is generally

irrelevant if we can determine their intent from the reasonable meaning of the

words used. ki. at 504. Whether there was mutual assent is normally a question

of fact but may be determined as a matter of law where reasonable minds could

reach but one conclusion. Keystone, 152 Wn.2d at 178 n.10.

An informal agreement may be “sufficient to establish a contract even

though the parties contemplate signing a more formal written agreement” in certain

circumstances. Morris v. Maks, 69 Wn. App. 865, 869, 850 P.2d 1357 (1993). To

determine whether the informal agreement is enforceable, we “consider whether

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(1) the subject matter has been agreed upon, (2) the terms are all stated in the

informal writings, and (3) the parties intended a binding agreement prior to the time

of the signing and delivery of a formal contract.” Id. (citing Loewi v. Long, 76 Wash.

480, 484, 136 P. 673 (1913)). “[IJf a term is so ‘indefinite that a court cannot decide

just what it means, and fix exactly the legal liability of the parties,’ there cannot be

an enforceable agreement.” Keystone, 152 Wn.2d at 178 (quoting Sandeman v.

Sayres, 50 Wn.2d 539, 541, 314 P.2d 428 (1957)).

Habu and Chinn cite Keystone in support of their argument that a contract

was not formed because the parties expressly left terms open to future resolution.

In Keystone, the Washington Supreme Court considered whether Washington

contract law would recognize and enforce an implicit or explicit agreement between

two or more parties to negotiate a future contract. k~. at 173—74.

The Keystone court explained the differences between three similar types

of agreements. ki. at 175. The first was an agreement to agree, which is not

enforceable in Washington. j~ at 175—76. “An agreement to agree is ‘an

agreement to do something which requires a further meeting of the minds of the

parties and without which it would not be complete.” ki. (quoting Sandeman, 50

Wn.2d at 541—42). The second type was an agreement with open terms, under

which “the parties intend to be bound by the key points agreed upon with the

remaining terms supplied by a court or another authoritative source.” ki. at 176.

The third was a contract to negotiate:

In a contract to negotiate, the parties exchange promises to conform
to a specific course of conduct during negotiations, such as
negotiating in good faith, exclusively with each other, or for a specific
period of time. Under a contract to negotiate, the parties do not intend

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to be bound if negotiations fail to reach ultimate agreement on the
substantive deal. In contrast to an agreement to agree, under a
contract to negotiate, no breach occurs if the parties fail to reach
agreement on the substantive deal. The contract to negotiate is
breached only when one party fails to conform to the specific course
of conduct agreed upon.

ki. (internal citations omitted).

Keystone contended that an exchange of letters between its broker and

Xerox’s broker created an enforceable contract to negotiate and commitment to

prepare a purchase and sale agreement because “all of the key terms of the

substantive agreement were settled.” jçj~ at 174—75. The court found that Keystone

had not identified “an offer and acceptance to be bound to specific standards of

negotiating conduct” sufficient to form a contract to negotiate. at 178.

Here, unlike Keystone, the term sheet did contain explicit agreements to

“use. . . best efforts to fully execute a final Settlement Agreement within thirty (30)

days of the mediation” and “negotiate in good faith.” This language arguably

created an enforceable contract to negotiate on those terms. However, as

Keystone makes clear, a contract to negotiate is not breached by failure to agree

on substantive provisions.

The Keystone court also determined that the statements made by Xerox’s

brokers did not amount to an unconditional commitment to prepare the purchase

and sale agreement. jçj~ at 178—79. Xerox’s brokers stated that “Xerox is prepared

to negotiate a Purchase and Sale Agreement with Keystone Development subject

to two modifications to your Proposal,” and, if Keystone acknowledged acceptance

of the modifications to its proposal, “[wje can then proceed immediately to draft

the Purchase and Sale Agreement for review and execution.” ~ (emphasis

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omitted). The court found that the statements did not create an unconditional

commitment:

At most, the statement is a manifestation of Xerox’s intention to
negotiate with Keystone. There is no objective manifestation by
Xerox of an intent to be bound if Keystone accepts the modifications.
See Pac. Cascade Corp. v. Nimmer, 25 Wn. App. 552, 556, 608 P.2d
266 (1980) (holding an intention to do something “is evidence of a
future contractual intent, not the present contractual intent essential
to an operative offer”). On the contrary, the statement evidences an
intent not to be bound by expressly referencing the need for further
negotiations. Arcadian Phosphates, Inc. v. Arcadian Corp., 884
F.2d 69, 72 (2d Cir. 1989) (holding “reference to a binding sales
agreement to be completed at some future date” is evidence of a
present intent not to be bound).

Keystone asks us to imply a duty to continue negotiations until a final
agreement is reached. In fact, Keystone argues that the question
before us is not whether the parties agreed to an enforceable duty to
negotiate. Instead, it argues the question is “whether the negotiations
between Keystone and Xerox had advanced to the point where the
law should impose on the parties a ‘duty to go forward [.1” We decline
to create and impose a duty to go forward in the absence of an
enforceable contract. No contract was formed between Keystone
and Xerox. At best, the circumstances of this case present an implied
agreement to agree.

j4~ at 179—80 (emphasis omitted).
Keystone is not precisely analogous to the factual situation in this case.

Unlike the more informal exchange of letters in Keystone, here, the parties signed

a term sheet drafted after two days of settlement negotiations. However, like

Keystone, the document expressly references the need for further negotiations on

certain terms, such as “a reasonable, mutual nondisparagement provision.”

Also, although the term sheet contains many specific provisions that are to

be included in the final settlement agreement, it is silent on a number of important

issues. The term sheet does not explicitly state which defendants would be

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responsible for the $200,000 initial payment to Habu and Chinn or what would

happen if the sale proceeds were insufficient to provide for the $350,000 payment

to Habu and Chinn. It also does not address the disposition of the property if it is

not sold within two years of listing or whether the $350,000 would still be owed. All

of the timelines within which the parties must act run from the effective date of the

final settlement agreement. It is also notable that the order enforcing the term

sheet simply directs the parties to enter into a long-form settlement agreement.

This seems to indicate that the term sheet obligated the parties only to engage in

further negotiation.

Viewed in the light most favorable to Habu and Chinn as the nonmoving

parties, the term sheet appears to be an unenforceable agreement to agree. The

court erred in finding the term sheet to be a binding and enforceable settlement

agreement and granting the motion to enforce the CR 2A term sheet.

Because we find the term sheet to be unenforceable, we need not consider

Habu and Chinn’s other assignments of error regarding the court’s refusal to

consider extrinsic evidence, the interpretation of paragraph 17 of the term sheet,

and whether CR 2A prevented enforcement of the agreement. Habu and Chinn

also request an award of costs on appeal. ‘A commissioner or clerk of the

appellate court will award costs to the party that substantially prevails on review,

unless the appellate court directs otherwise in its decision terminating review.”

RAP 14.2. We will leave this issue in the capable hands of our commissioner or

clerk.5

~ Habu and Chinn filed a statement of additional authority containing a citation to an
online news article from the Everett Herald describing the outcome of a criminal case involving

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Reversed.

WE CONCUR:

some of the parties. CHJ moved to strike the statement of additional authority. Habu and Chinn
filed a response to the motion to strike and CHJ filed a reply. After considering the briefing of both
parties, the motion to strike is granted.

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