Andrews v. Blake

IN THE SUPREME COURT OF THE STATE OF ARIZONA

JEFFREY L. ANDREWS, ) Arizona Supreme Court
) No. CV-02-0233-PR
Plaintiff/Counterdefendant/ )
Appellant, ) Court of Appeals
) Division One
v. ) No. 1 CA-CV 01-0363
)
LESLIE W. BLAKE and MOON ) Maricopa County
VALLEY NURSERY, INC., an ) Superior Court
Arizona corporation, ) No. CV 99-20140
)
Defendants/Counterclaimants/ ) O P I N I O N
Appellees. )
)

Appeal from the Superior Court of Maricopa County
The Honorable Barry C. Schneider, Judge
The Honorable Roland J. Steinle III, Judge

REVERSED AND REMANDED

Memorandum Decision of the Court of Appeals
Division One
Filed April 5, 2002
VACATED

Law Office of Curtis D. Drew Scottsdale
by Curtis D. Drew
and
Ulrich & Anger, P.C. Phoenix
by Paul G. Ulrich
Attorneys for Plaintiff/Counterdefendant/Appellant

Mariscal, Weeks, McIntyre & Friedlander, P.A. Phoenix
by Timothy J. Thomason
and
Law Offices of Neil Vincent Wake Phoenix
by Neil Vincent Wake
and
Quarles & Brady Streich Lang LLP Phoenix
by Michael E. Korenbalt
Attorneys for Defendants/Counterclaimants/Appellees

P E L A N D E R, Judge.
¶1 Defendants Leslie Blake and Moon Valley Nursery, Inc.,

(collectively, Blake) petitioned us to review a decision of the

court of appeals that reversed the trial court’s summary judgment

in favor of Blake and that, instead, directed entry of summary

judgment in favor of plaintiff Jeffrey Andrews. We granted

review to examine important questions concerning acceptable

methods for a lessee to exercise an option to purchase leased

property and the availability of equitable relief to excuse the

lessee’s failure to timely exercise the option. See Ariz. R.

Civ. App. P. 23, 17B A.R.S. We have jurisdiction pursuant to

article VI, § 5(3) of the Arizona Constitution and A.R.S. § 12-

120.24. Finding multiple issues of fact that preclude summary

judgment for either party, we vacate the court of appeals’

decision, reverse the trial court’s judgment, and remand the case

for further proceedings.

FACTS AND PROCEDURAL HISTORY

¶2 Andrews owns a 2.33-acre parcel of land in Phoenix

that he leased to Blake, who operated a plant and tree nursery on

the property through his company, Moon Valley Nursery. After the

parties operated under a one-year lease in 1995, they entered

into a three-year lease, prepared by Andrews, in 1996. Although

that lease was to terminate by its terms on January 31, 1999, it

also provided an option for Blake to purchase the property for

$300,000 “at any time within the calendar year 1999.” In

2
consideration for that option, Blake agreed to pay significantly

increased rent during the lease term.

¶3 As of January 1999, both Blake and Andrews were under

the mistaken impression that the option as well as the lease

would expire at the end of January. Accordingly, in early

February, the parties executed an “Addendum to Lease” that

extended the lease term through the end of 1999 and purportedly

“extended” the option to purchase the property for the same

$300,000 option price until October 1, 1999. Pursuant to the

addendum, Blake paid Andrews $10,000 for that “extension.”

¶4 The addendum deleted provisions in the underlying

three-year lease relating to notices and Blake’s option to

purchase, replacing them with new provisions on those topics.

The addendum’s new “Notices” provision stated that “[a]ll notices

. . . required or permitted under this Lease (a ‘Notice’) shall

be deemed given if given in writing and delivered personally,

delivered by commercial delivery service, delivered by courier,

or mailed by certified mail return receipt requested, postage or

delivery charges prepaid, to the party to receive the Notice.”

That new provision also stated that “[a]ll Notices shall be

deemed given when received, as evidenced by the acknowledgment of

receipt issued with respect thereto by the entity making the

delivery.” The addendum’s replacement provision concerning

Blake’s option to purchase stated that “[t]he option granted

hereby shall terminate if not exercised in writing before October

1, 1999.”

3
¶5 The record contains conflicting evidence on when and

how Blake first attempted to exercise the option to purchase in

the fall of 1999.1 In his affidavit, Blake stated he had told

Andrews in a telephone call on September 17, 1999, that he was

unconditionally exercising the option. Andrews, however,

testified in his deposition that Blake had called him on or about

September 17 and had said he wanted “to talk about the property”

but had not specifically stated he “wanted to talk about

purchasing the property.” In his subsequent affidavit, Andrews

acknowledged having had a telephone conversation with Blake

sometime in September 1999, in which “Blake said something to the

effect that he wanted to get together to talk about buying the

Property,” but Andrews stated he had told Blake he was too busy

to talk and Blake should call again the following week, which he

never did.

¶6 In his affidavit, Blake further claimed that, three

days later, on September 20, he had “caused a letter to be sent

to Andrews, confirming [his] conversation with Andrews on

September 17, 1999 exercising the Option to purchase the

Property.” According to the affidavits of Blake and Moon

1
In addition to events in late 1999, Blake also stated in his
affidavit that he had informed Andrews in December 1998 that he
intended to exercise his option to purchase the property during
early 1999, but that Andrews had asked him to wait so Andrews could
arrange a property exchange for tax purposes. As noted above,
because the parties incorrectly believed that the option to
purchase under the existing lease would expire at the end of
January 1999, the parties executed the addendum and thereby
“extended” the option.

4
Valley’s chief financial officer (CFO), the September 20 letter

was drafted by the CFO at Blake’s instruction and “was sent by

ordinary mail.” Andrews denies having received any such letter

until he received a copy after he commenced this litigation.

¶7 In a letter to Blake dated October 13, Andrews stated

Blake had “not compl[ied] with that part of our lease agreement,

which required [him] to notify [Andrews], in writing and by

certified mail, of [his] intent to exercise the option to

purchase the property” before October 1, 1999, and, therefore,

Andrews “consider[ed] the option to purchase as expired.”

According to Moon Valley’s CFO, after Blake received that letter

on October 18, the CFO had immediately called Andrews, informed

him that he already had sent notice of Blake’s exercise of the

option, and offered to immediately provide a copy of the

September 20 letter to Andrews. Andrews testified in deposition

that he had spoken by telephone around October 18 with Blake’s

CFO and that the CFO had stated he previously had sent a letter,

but not by certified or registered mail. Andrews further

testified that he had told the CFO that he had not received any

such letter.

¶8 Blake’s counsel also sent a second letter to Andrews

dated October 21, purportedly exercising the option again and

urging Andrews to “acknowledge, in writing, [his] intent to honor

Mr. Blake’s valid exercise of the option.” Andrews admittedly

received that letter around October 23. On December 3, 1999,

Blake sent another letter to Andrews, this time by certified

5
mail, return receipt requested, again confirming that Blake was

exercising his option to purchase the property. Andrews also

admits having received that letter.

¶9 While those events unfolded in the fall of 1999,

unbeknownst to Blake, Andrews negotiated a sale of the property

to Albertson’s grocery stores for approximately $950,000. During

those negotiations, Andrews offered to sell the property to Blake

in December 1999 for $1,000,000. Blake refused and did not make

a counteroffer. According to Blake, Andrews and Albertson’s

subsequently executed a purchase and sale agreement that was

conditioned on the outcome of this litigation.

¶10 In November 1999, Andrews filed this declaratory

judgment action seeking a ruling that Blake’s option to purchase

had expired without being exercised and that Blake therefore had

no further interest in the property that would prevent Andrews

from selling it to a third party. Blake counterclaimed for

specific performance, claiming he had validly exercised the

option. On the parties’ cross-motions for summary judgment, the

trial court granted summary judgment in favor of Blake, invoking

equitable principles to excuse Blake’s late exercise of the

option. Accordingly, the court entered a judgment permitting

Blake to purchase the property at the $300,000 option price.

¶11 On Andrews’s appeal, the court of appeals reversed and

directed entry of summary judgment in his favor. Noting that

Arizona law requires strict compliance with options and does not

6
afford equitable relief to a party such as Blake who negligently

failed to timely and properly exercise an option, the court of

appeals ruled as a matter of law that “Blake’s failure to timely

exercise the option was due solely to his own lack of diligence.”

Accordingly, the court held that Blake’s late exercise of the

option was not excused on equitable grounds and that, because

Andrews denied having received the September 20 letter Blake

allegedly had sent by regular mail, Blake could not “ignore his

failure to provide the type of notice required in the addendum,

which would have established unequivocally that notice had been

given.”

DISCUSSION

I. Standard of Review

¶12 We review de novo a grant of summary judgment, viewing

the evidence and reasonable inferences in the light most

favorable to the party opposing the motion. Wells Fargo Bank v.

Arizona Laborers, Teamsters & Cement Masons Local No. 395 Pension

Trust Fund, 201 Ariz. 474, ¶13, 38 P.3d 12, ¶13 (2002). Because

interpretation of leases and other contracts involves questions

of law, we also review de novo any issues relating thereto. See

Gutmacher v. H & J Constr. Co., 101 Ariz. 346, 347, 419 P.2d 525,

526 (1966); Willamette Crushing Co. v. State ex rel. Dep’t of

Transp., 188 Ariz. 79, 81, 932 P.2d 1350, 1352 (App. 1997).

Similarly, the determination of whether equitable relief is

available and appropriate is subject to our de novo review. See

7
SDG Macerich Properties, L.P. v. Stanek, Inc., 648 N.W.2d 581,

584 (Iowa 2002); see also Pelletier v. Johnson, 188 Ariz. 478,

480, 937 P.2d 668, 670 (App. 1996).

¶13 As noted above, the parties filed cross-motions for

summary judgment, and both the trial court and court of appeals

decided the case as a matter of law based on those motions. Also

as noted above, in determining whether either party is entitled

to summary judgment, we must view the facts and reasonable

inferences therefrom in the light most favorable to the party

opposing the motion. See Wells Fargo Bank, 201 Ariz. 474, ¶13,

38 P.3d 12, ¶13. “Summary judgment is appropriate only if no

genuine issues of material fact exist and the moving party is

entitled to judgment as a matter of law.” Id. at ¶14; see also

Ariz. R. Civ. P. 56(c), 16 A.R.S., Pt. 2; Orme School v. Reeves,

166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990). Thus, summary

judgment in favor of either party is appropriate only “if the

facts produced in support of the [other party’s] claim or defense

have so little probative value, given the quantum of evidence

required, that reasonable people could not agree with the

conclusion advanced by the proponent of the claim or defense.”

Orme School, 166 Ariz. at 309, 802 P.2d at 1008.

II. Interpretation of Addendum

¶14 The parties’ February 1999 addendum to the lease

contained the following, new provisions relating to notice and

the option to purchase:

8
 NOTICES

All notices, requests, demands and other
communications required or permitted under
this Lease (a “Notice”) shall be deemed given
if given in writing and delivered personally,
delivered by commercial delivery service,
delivered by courier, or mailed by certified
mail return receipt requested, postage or
delivery charges prepaid, to the party to
receive the Notice . . . .

. . . .

All Notices shall be deemed given when
received, as evidenced by the acknowledgment
of receipt issued with respect thereto by the
entity making the delivery.

. . . .

TENANT’S OPTION TO PURCHASE

Landlord [Andrews] grants to
Tenant [Blake] the option to
purchase the Property described in
Exhibit A hereto at the term [sic]
of this Lease for the price of
Three Hundred Thousand Dollars
($300,000). . . . The option
granted hereby shall terminate if
not exercised in writing before
October 1, 1999 . . . .

¶15 Blake contends the above provisions did not “purport

to set exclusive methods of giving effective notice” of his

exercise of the option or “nullify actual notice received by

methods other than those listed.” According to Blake, the

addendum’s notice clause was merely a “safe harbor” provision

that did not exclude written notice actually received by other

means. Therefore, he argues, his September 20 letter to Andrews,

although sent by ordinary mail, was both timely and effective.

9
¶16 In contrast, Andrews contends the addendum’s notice

provision set forth the exclusive means of effectively giving

notice and neither stated nor implied that it was merely a “safe

harbor.” Andrews further asserts that Blake failed to timely and

properly exercise the option because he did not send the

September 20 letter by one of the means specified in the addendum

and, in any event, Andrews did not receive that letter.

¶17 The trial court did not resolve this issue but,

rather, resorted to equitable principles to grant relief to

Blake, implicitly assuming his exercise of the option was

untimely. The court of appeals, however, concluded “as a matter

of law that Blake did not timely and effectively exercise the

option to purchase” and that Blake’s September 20 letter could

not “be treated as effective notice” because Andrews disputed

ever having received that notice. We disagree with the court of

appeals’ reasoning and conclusion on this point.

¶18 The addendum’s notice provision, as Blake correctly

argues, did not establish the sole or exclusive means of

effectively exercising the option to purchase set forth in the

addendum. The option to purchase provision in the addendum

merely stated that the option “shall terminate if not exercised

in writing before October 1, 1999.” That provision implicitly

required Andrews’s actual receipt, before October 1, of Blake’s

written exercise of the option. See Korey v. Sheff, 327 N.E.2d

896, 897 n.5 (Mass. App. Ct. 1975) (“[T]imely notice of intent to

10
exercise an option to renew is effective upon receipt of such

notice.”); see also Salminen v. Frankson, 245 N.W.2d 839, 840

(Minn. 1976) (“notice of the exercise of an option must be

received within the option period in order to be effective”;

notice of exercise of option mailed by optionee on option’s

expiration date but received by optionor two days later not

effective); Restatement (Second) of Contracts § 63 (1979) (unless

the offer provides otherwise, “an acceptance under an option

contract is not operative until received by the offeror”). But

the option to purchase provision in the addendum neither referred

to the addendum’s notice provision nor required the “exercise[]

in writing” to be accomplished in any particular manner.

¶19 Moreover, the addendum’s notice provision did not

clearly require all notices or other communications to be

delivered by one of the methods specifically prescribed therein.

For example, the notice clause did not state that any notices

“shall be deemed given only if given in writing and delivered” by

one of those methods. As the drafter of the addendum, Andrews,

had he intended that construction, could and should have stated

that any notice had to be sent by one of the listed methods in

order to be valid and effective. See Central Housing Inv. Corp.

v. Federal Nat’l Mortgage Ass’n, 74 Ariz. 308, 311, 248 P.2d 866,

868 (1952) (“[A] contract is to be construed most strongly

against the party who prepared it.”); cf. Bothell v. Two Point

Acres, Inc., 192 Ariz. 313, ¶14, 965 P.2d 47, ¶14 (App. 1998).

11
¶20 The language in the addendum’s notice provision that

notices “shall be deemed given” merely means that notice

automatically is effective if given by one of the methods

prescribed therein. But that clause does not necessarily mean

that notice is effective if and only if one of those prescribed

methods is used. Construing the notice and option to purchase

provisions in the addendum together, and seeking to harmonize

those clauses, we conclude that they neither preclude nor

automatically render ineffective written exercise of the option

to purchase sent by regular mail. See, e.g., Korey, 327 N.E.2d

at 897 (notice provision in lease that stated “‘any such notice

to the Lessor shall . . . be deemed duly given if and when mailed

by registered mail’ . . . [did] not require that written notice

be sent by registered mail, to the exclusion of other modes of

transmission, in order effectively to exercise the option to

renew”); Osprey L.L.C. v. Kelly-Moore Paint Co., 984 P.2d 194,

199 (Okla. 1999) (lease provision stating option notice “may” be

delivered personally or by certified or registered mail “does not

bar other modes of transmission which are just as effective”).

¶21 We find support for our conclusion in University

Realty & Development Co. v. Omid-Gaf, Inc., 19 Ariz. App. 488,

508 P.2d 747 (1973), which both parties cite in support of their

positions and which the court of appeals distinguished. The

court in University Realty held that personal, hand delivery of a

written notice exercising an option to renew a lease was

12
effective although the lease called for delivery by registered

mail. Even when a lease “requires notice to be made in a

particular way,” the court ruled, “generally speaking any method

of transmission of notice of renewal of a lease may be employed

which is effective to bring such notice home to the lessor and

serves the same function and purpose as the authorized method.”

Id. at 490, 508 P.2d at 749.

¶22 Andrews contends, and the court of appeals agreed,

that University Realty is distinguishable and inapplicable here

because, unlike Andrews, the lessor there admittedly received the

timely notice. But Andrews’s denial of having received the

letter that Blake and his CFO state “was sent by ordinary mail”

on September 20 does not necessarily entitle Andrews to summary

judgment. See Nafstad v. Merchant, 228 N.W.2d 548, 550 (Minn.

1975) (issue of whether optionor had received optionee’s timely

letters exercising option to purchase property submitted to jury

pursuant to special interrogatory). Rather, triable questions of

fact exist on whether Andrews received that letter.2 If the

2
In his response to Blake’s petition for review in this court,
Andrews for the first time challenged the sufficiency of Blake’s
evidence relating to the September 20 letter, contending that the
affidavits of Blake and his CFO did not establish that that letter
“in fact was mailed” or that the business had an “office routine
for handling outgoing mail.” Blake counters that the affidavits
“plainly mean that under [his] office routine the letter was mailed
when signed” and that, in any event, Andrews waived his new
argument by failing to challenge Blake’s affidavits on evidentiary
grounds below. See A. Uberti & C. v. Leonardo, 181 Ariz. 565, 568,
892 P.2d 1354, 1357 (1995) (evidentiary objections to affidavits
must be made in trial court to preserve issue for appeal). Blake’s
affidavits, however, do not clearly or conclusively establish that

13
trier of fact finds that Andrews received the September 20 letter

before the October 1 deadline, then as a matter of law, Blake

timely and adequately exercised the option to purchase.3 See id.

And, in that event, the trial court should direct judgment in

favor of Blake based on any such finding.

¶23 On the other hand, if the trier of fact determines

that Andrews did not receive Blake’s September 20 letter, the

inquiry does not end there. Rather, in that event, another issue

surfaces: may Blake be equitably excused from his failure to

his September 20 letter actually was mailed. See Goodman’s Market,
Inc. v. Ward, 4 Ariz. App. 456, 459, 421 P.2d 538, 541 (1966). In
any event, because we conclude that neither party is entitled to
summary judgment on the issue of whether that letter constituted a
timely, effective exercise of the option to purchase, we do not
foreclose further discovery on and litigation of the mailing issue
on remand.
3
Any eventual finding that Blake’s September 20 letter, in
fact, was properly addressed and mailed with proper postage would
give rise to a rebuttable presumption of receipt by the addressee.
See State v. Mays, 96 Ariz. 366, 367-68, 395 P.2d 719, 721 (1964)
(“[T]here is a strong presumption that a letter properly
addressed, stamped and deposited in the United States mail will
reach the addressee.”). The presumption is rebutted, however, when
the addressee denies receipt, as Andrews did here. See Government
Employees Ins. Co. v. Superior Court, 27 Ariz. App. 219, 220, 553
P.2d 672, 673 (1976) (“[D]enial of receipt rebuts a prima facie
case of mailing and creates an issue of fact for resolution by the
trier of fact.”). Thus, the issues surrounding the mailing and
receipt of the September 20 letter are questions of fact to be
determined by the trier. Id.; see also Pizitz v. Ryan, 403 So. 2d
222, 223 (Ala. 1981); Liquorama, Inc. v. American Nat’l Bank &
Trust Co., 408 N.E.2d 373, 375 (Ill. App. Ct. 1980); D & L Enters.,
Inc. v. Davenport, 507 P.2d 373, 374 (Utah 1973). Equitable
considerations aside, as noted in ¶18, supra, a finding of actual
receipt of a notice of intent to exercise an option ultimately is
critical, in that “the notification that the option has been
exercised must be received by the offeror” by the agreed-upon time.
Restatement (Second) of Contracts § 63 cmt. f (1979).

14
timely exercise the option and, if so, under what conditions? We

therefore turn to that issue.

III. Availability of Equitable Relief

A.

¶24 Generally, Arizona courts have strictly construed

options in lease agreements because such provisions allow the

optionee freedom to exercise or not exercise the option, whereas

the optionor is bound by the option. See Oberan v. Western

Machinery Co., 65 Ariz. 103, 109, 174 P.2d 745, 749 (1946) (“The

general rule seems to be that an option must be exercised

strictly according to the terms and conditions in the option.”);

Rogers v. Jones, 126 Ariz. 180, 182, 613 P.2d 844, 846 (App.

1980) (“‘Since the optionor is bound while the optionee is free

to accept or not as he chooses, courts are strict in holding an

optionee to exact compliance with the terms of the option.’”),

quoting Hayward Lumber & Inv. Co. v. Construction Prods. Corp.,

255 P.2d 473, 478 (Cal. Dist. Ct. App. 1953); University Realty,

19 Ariz. App. at 490, 508 P.2d at 749 (recognizing rule of

“strict compliance” governing exercise of options to extend or

renew leases).

¶25 Other courts are in accord. See, e.g., Brent Liquid

Transport, Inc. v. GATX Leasing Corp., 650 F. Supp. 467, 472

15
(N.D. Miss. 1986) (“Option contracts do not come within the

equitable rule against forfeiture, inasmuch as failure to comply

strictly with the conditions of the option deprives no party of

any right and abrogates no contract.”); Duncan v. G.E.W., Inc.,

526 A.2d 1358, 1364 (D.C. 1987) (“[A]n optionee is required to

comply strictly with the terms of the option agreement.”); SDG

Macerich Properties, 648 N.W.2d at 586 (option provision in lease

agreement “will be strictly construed if its words are clear and

unambiguous”); Guy Dean’s Lake Shore Marina, Inc. v. Ramey, 518

N.W.2d 129, 131 (Neb. 1994) (“[A]cceptance of an option to extend

a lease must be strictly in accordance with the terms of the

option.”); Utah Coal & Lumber Restaurant, Inc. v. Outdoor

Endeavors Unlimited, 40 P.3d 581, ¶11 (Utah 2001) (“[I]n order to

exercise an option to renew a lease, a lessee must strictly

comply with the terms of the lease’s option renewal

provisions.”).

¶26 Notwithstanding that general rule, the trial court

invoked its equitable power and ordered specific performance of

Blake’s option to purchase the property. In so ruling, the trial

court adopted and applied a three-prong test set forth in

Corbin’s treatise on contract law. In a section entitled “Missed

Deadlines in Option Contracts,” that treatise states:

Where the option is not a “mere”
option, but part of a more complex
transaction such as an option to renew a
lease, a lessee’s option to purchase, . . .
or some other transaction involving an on-

16
going relationship, other considerations come
into play.

Thus, it has been held that the power
of the holder of an option to buy or renew,
contained in a lease, is not necessarily
terminated by failure to give notice of
exercise within the specified time. If, in
expectation of exercising the power, the
lessee has made valuable improvements, and
the delay is short without any change of
position by the lessor, the lessee will be
given specific performance of the contract to
sell or to renew. This is often for the
purpose of avoiding an inequitable
forfeiture, but even where no inequitable
forfeiture will occur, specific performance
or other appropriate remedy will nevertheless
be given if there has been such reliance on
the promise as to make literal compliance
with the option limitation unconscionable.
And even beyond unconscion-ability, it is to
be remembered that where the option is part
of a larger contract, notions of substantial
performance normally apply to time periods
stated in the contract. General rules
governing the construction and operation of
contracts should override the rules of offer
and acceptance in such cases.

At times, courts pronounce a formula to
explain when the late exercise of an option
will be excused. Commonly, one finds a three
part test: (a) that the delay be slight, (b)
that the delay has not prejudiced the other
party by a change of position, and (c) that a
failure to grant relief would result in such
hardship as to make literal enforcement of
the renewal provision unconscionable. While
such formulas can be the beginning of
analysis, the following statement more
accurately reflects the law-in-action: “In
all of these cases, however, the
determination of the court turns not on a
single factor but on balancing the equities
between the parties.” In no event will
relief be given if it appears that the
optionee delayed acceptance to speculate
without risk.

17
1 Arthur Linton Corbin, Corbin on Contracts § 2.15, at 201-03

(Joseph M. Perillo ed., rev. ed. 1993), quoting Gardner v. HKT

Realty Corp., 744 S.W.2d 735, 738 (Ark. Ct. App. 1988).

¶27 Thus, under the so-called “Corbin rule,” in certain

cases, a court may intervene and equitably excuse an optionee’s

untimely notice of intent to exercise an option when (1) the

delay in giving notice is short or slight, (2) the delay does not

prejudice the optionor by a change of position, and (3) because

of the lessee’s valuable improvements to the property, refusal to

permit exercise of the option would result in such hardship as to

make strict, literal enforcement of the option provision

unconscionable. That rule apparently stems from F.B. Fountain

Co. v. Stein, 118 A. 47 (Conn. 1922). The court there excluded

from equitable relief an optionee’s failure to timely exercise an

option due to willful or gross negligence. But, the court

stated,

[I]n cases of mere neglect in fulfilling a
condition precedent of a lease [for
exercising a lease renewal option], which do
not fall within accident or mistake, equity
will relieve when the delay has been slight,
the loss to the lessor small, and when not to
grant relief would result in such hardship to
the tenant as to make it unconscionable to
enforce literally the condition precedent
[the option] of the lease.

Id. at 50.

¶28 In the eighty-plus years since the F.B. Fountain case,

courts across the country have split fairly evenly on the issue

of whether equitable relief potentially is available to an

18
optionee who negligently failed to timely or properly exercise an

option to renew a lease or to purchase the leased property. See

generally William B. Johnson, Annotation, Circumstances Excusing

Lessee’s Failure to Give Timely Notice of Exercise of Option to

Renew or Extend Lease, 27 A.L.R.4th 266 (1984). Some courts

permit equitable relief even in cases of negligence,4 while other

courts do not.5

4
See, e.g., Record Club of America, Inc. v. United Artists
Records, Inc., 890 F.2d 1264, 1272-74 (2d Cir. 1989) (on remand,
equitable intervention appropriate if delay was result of
negligence or inadvertence, there is no prejudice to the optionor,
and denial of relief would result in forfeiture to optionee);
Aickin v. Ocean View Invs. Co., 935 P.2d 992, 1000 (Haw. 1997)
(“only willful, intentional, indifferent, or grossly negligent
conduct bars equitable relief—mere negligence does not”; relief
granted despite negligent four-month delay in giving notice due to
“oversight”); Trollen v. City of Wabasha, 287 N.W.2d 645, 647
(Minn. 1979) (granting equitable relief when delay was due to
tenant’s negligent failure to ascertain his formal obligations
under the lease and adopting the “modern rule” permitting “a court
of equity to relieve against loss of an option to extend a lease
when there has been excusable and inconsequential tardiness”);
Fletcher v. Frisbee, 404 A.2d 1106, 1108-09 (N.H. 1979) (Corbin
rule applies if delay resulted from accident or honest mistake;
equitable relief granted when lessee’s attorney sent notice by
regular mail a week late, although option clause required notice by
registered mail); Soho Dev. Corp. v. Dean & DeLuca, Inc., 517
N.Y.S.2d 498, 500 (N.Y. App. Div. 1987) (negligent delay excusable
if tenant otherwise would suffer a forfeiture).
5
See, e.g., Bekins Moving & Storage Co. v. Prudential Ins.
Co., 221 Cal. Rptr. 738, 742 (Ct. App. 1985); Simons v. Young, 155
Cal. Rptr. 460, 470-72 (Ct. App. 1979); SDG Macerich Properties,
L.P. v. Stanek, Inc., 648 N.W.2d 581, 585-86, 589 (Iowa 2002);
Rounds v. Owensboro Ferry Co., 69 S.W.2d 350, 356 (Ky. Ct. App.
1934) (“[T]he right to renew the lease was lost by plaintiff’s
failure to give the notice which was due entirely to the neglect of
its agents and officers and not to any misleading conduct or act on
the part of any of the lessors.”); Koch v. H. & S. Dev. Co., 163
So. 2d 710, 724 (Miss. 1964); Guy Dean’s Lake Shore Marina, Inc. v.

19
¶29 The trial court did not specifically characterize the

nature of Blake’s conduct but, rather, concluded as a matter of

law that all three prongs of the Corbin test were met, ruling

that “the delay was slight[,] the delay did not prejudice or harm

[Andrews,] . . . [and] loss of the opportunity to purchase this

property through the option would result in substantial economic

harm to [Blake].” In contrast, in reversing the trial court’s

judgment and directing entry of summary judgment in favor of

Andrews, the court of appeals concluded “as a matter of law

[that] Blake’s failure to timely exercise the option was due

solely to his own lack of diligence.” Based on Monihon v.

Wakelin, 6 Ariz. 225, 56 P. 735 (1899), the court rejected the

Corbin rule, noting that, “in Arizona, negligence on the part of

the optionee is not excused.” Thus, the court concluded, equity

could not excuse Blake’s negligent failure to timely and properly

exercise the option to purchase.

¶30 We reject the trial court’s blanket adoption of the

Corbin rule and that court’s disposition of this case as a matter

of law under that rule. And, although we agree with some aspects

of the court of appeals’ decision, we disagree with others. We

agree that the Corbin rule is not compatible with Monihon,

Ramey, 518 N.W.2d 129, 133 (Neb. 1994); Kern v. Clear Creek Oil
Co., 778 N.E.2d 115, ¶24 (Ohio Ct. App. 2002); American Oil Co. v.
Rasar, 308 S.W.2d 486, 491 (Tenn. 1957); Crown Constr. Co. v.
Huddleston, 961 S.W.2d 552, 558-59 (Tex. App. 1997); Utah Coal &
Lumber Restaurant, Inc. v. Outdoor Endeavors Unlimited, 40 P.3d
581, ¶14 (Utah 2001); Sentara Enters., Inc. v. CCP Assocs., 413
S.E.2d 595, 597-98 (Va. 1992).

20
insofar as it permits a court to equitably excuse an optionee’s

negligent failure to timely or properly exercise an option to

renew a lease or to purchase leased property.

¶31 In Monihon, the Territorial Supreme Court permitted a

tenant to enforce an option to renew a commercial lease after

missing the contractual deadline. The tenant had failed to

exercise the option to renew because he was physically and

mentally incapacitated from having been thrown from his horse two

days before the option expired. Upon his recovery approximately

one month later, the tenant served his landlord with notice that

he intended to exercise the option to renew. The landlord, who

in the interim had entered into negotiations with a third party

to rent the premises, refused to renew the lease, claiming that

the tenant had forfeited his right of renewal by failing to give

timely notice. In the tenant’s ensuing action for specific

performance to renew the lease, the trial court granted that

relief. The supreme court affirmed, stating:

[A] court of equity, in relieving against the
consequences of unavoidable failure to
perform the contract within the time
specified, does so upon the theory that it is
enforcing the contract in the true intent and
meaning of the parties; for it will not be
regarded that anything more is intended by
such a contract than that there should be
perfect good faith, and utmost diligence to
perform its terms within the time specified.
Anything short of the utmost good faith and
diligence on the part of the party seeking to
be relieved from the consequences of a
failure to conform strictly to the terms of
such contract will not be regarded as
sufficient; but where it appears that by the
act of the other party, or by unavoidable

21
 accident of such character as could not be
foreseen and guarded against, the performance
of the contract with the exercise of due
diligence was rendered impossible, and the
party at the earliest opportunity performed
his part of the contract, the court will
enforce it, provided this can be done, and
the parties be left in the same relative
position they would have been in, had no
delay occurred in the performance of the
contract according to its terms.

Id. at 233-34, 56 P. at 736-37.

¶32 Thus, under Monihon, the rule in Arizona is that an

optionee must exercise utmost diligence in performing the terms

of the option within the specified time. And, equity will

intervene and excuse a lessee’s failure to timely exercise an

option to renew or purchase only when the lessee’s incapacitation

or unavoidable accident or the lessor’s actions rendered timely

performance impossible.

¶33 Blake urges us to adopt the Corbin rule and to follow

the F.B. Fountain approach, as the trial court implicitly did, by

permitting equitable relief even in cases of negligent failure to

timely exercise an option to purchase leased property, as long as

the lessee’s conduct is neither willful nor grossly negligent.

According to Blake, the language in Monihon that requires “utmost

good faith and diligence on the part of the party seeking to be

relieved from the consequences of a failure to conform strictly

to the terms” of the option is mere dicta and now outdated. Id.

at 234, 56 P. at 736. But, even assuming that language in

Monihon is dicta, other Arizona case law and sound policy reasons

22
support a rule that precludes equitable relief for a party who

negligently failed to timely and properly exercise an option to

purchase leased property.

¶34 Several well-established principles in Arizona law

conflict with the broad equitable rule Blake urges. First, as

noted in ¶24 above, we have held that an option must be exercised

strictly according to the terms and conditions in the option.

See Oberan, 65 Ariz. at 109, 174 P.2d at 749; see also Christmas

v. Turkin, 148 Ariz. 602, 603, 716 P.2d 59, 60 (App. 1986);

Ensign v. Bohn, 1 Ariz. App. 386, 388, 403 P.2d 321, 323 (1965)

(denying equitable relief when plaintiff failed to exercise

option to purchase real estate within specified time period).

Second, this court has recognized that an option cannot be

extended beyond the contractual term in the absence of waiver,

estoppel, fraud, or misrepresentation. See Ernst v. Deister, 42

Ariz. 379, 384, 26 P.2d 648, 650 (1933) (denying equitable relief

to a party who tried to exercise a recently expired right of

redemption). As we stated in Ernst, “[t]he courts will go a long

way to protect persons . . . on the grounds of fraud, waiver, or

estoppel, or part performance . . . but they cannot, and will

not, make a new contract for the parties and specifically compel

its performance.” Id. Third, time is of the essence in option

contracts, even when the contract does not include an express

statement to that effect. Id. at 382, 26 P.2d at 649; see also

23
Monihon, 6 Ariz. at 233, 56 P. at 736 (recognizing that time is

of the essence in an option contract to renew a lease).

¶35 In short, a rule that would equitably excuse an

optionee’s negligent failure to timely and properly exercise an

option to purchase leased property is inconsistent with Arizona’s

jurisprudence. In addition, cogent policy reasons support an

equitable rule more narrow in scope than that adopted in F.B.

Fountain and its progeny. As the Utah Supreme Court recently

noted: “[A] broad exception that grants relief from a

[negligent] failure to comply with the lease anytime the delay is

slight, the lessor’s loss is small, and the lessee would suffer a

hardship comes close to swallowing the general rule of strict

compliance. Such an exception would apply equitable excuse in

almost all cases.” Utah Coal & Lumber Restaurant, 40 P.3d 581,

¶16. Accordingly, the Utah court held that “the failure to

strictly comply with a lease’s option renewal terms may be

equitably excused only when the failure is caused by instances of

fraud, misrepresentation, duress, undue influence, mistake, or

the lessor’s waiver of its right to receive notice.” Id. at ¶18.

And, the court noted, “equity should not be applied in situations

where the lessee’s negligence, inadvertence, or neglect caused

the failure to exercise a lease renewal option.” Id. at ¶14; see

also U.S. Realty 86 Assocs. v. Security Inv., Ltd., 40 P.3d 586,

¶13 (Utah 2002) (“Negligence, regardless of the type, may not, by

itself, serve as grounds for equitable relief.”).

24
¶36 Similarly, the Iowa Supreme Court has held that

“equitable relief is not available for a commercial party who,

through its own carelessness, failed to timely exercise its

option to renew a lease agreement.” SDG Macerich Properties, 648

N.W.2d at 589. As that court noted: “To hold otherwise would do

nothing more than create instability in business transactions and

disregard commercial realities. ‘If the terms of options

involving property rights are not strictly construed, Pandora’s

Box is opened for serious property title problems to develop.’”

Id. at 588, quoting Robinson v. Martel Enters., Inc., 337 So. 2d

698, 704 (Miss. 1976) (footnote omitted). In order to avoid such

problems and to “preserve not only sanctity of contract but also

protect the integrity of the fundamental grounds upon which the

rules of equitable relief are founded,” the court “decline[d] to

jeopardize freedom of contract by stepping in and rewriting the

parties’ agreement to relieve the consequences of [the tardy

optionee’s] mere forgetfulness.” Id. at 589. As the court aptly

noted:

“While rules and principles of equity
jurisprudence are constantly expanding in the
aspiration for justice in the administration
of law by the courts, they should never
forget that ‘the sprout is to savor of the
root, and go the same way.’” Rounds [v.
Owensboro Ferry Co., 69 S.W.2d 350, 356 (Ky.
Ct. App. 1934)]. Even where strict
enforcement of the contract results in
hardship, we cannot change the rights of the
parties absent ameliorating circumstances.
Hard cases make bad law. “Hard cases must
not be allowed to make bad equity, any more

25
 than bad law.” Moore v. Pierson, 6 Iowa 279,
297 (1858).

SDG Macerich Properties, 648 N.W.2d at 589.

¶37 We concur with those observations and find the

approach taken in Utah and Iowa most in keeping with sound policy

and Arizona common law. Accordingly, we hold that a lessee’s

failure to strictly comply with the terms of a lease’s option to

renew or purchase may be equitably excused only when the failure

is caused by incapacity, fraud, misrepresentation, duress, undue

influence, mistake,6 estoppel, or the lessor’s waiver of its

right to receive notice. Limiting equitable relief in that

manner serves the important goal of giving finality and

predictability to a contract’s meaning. In contrast, permitting

equitable relief in cases of mere negligence would frustrate that

objective. We further hold that, if the optionee shows one of

the aforementioned circumstances under which equitable relief may

be available, an optionee’s nonnegligent failure to timely

6
We note that “in equity a mistake cannot be based on a
negligent act or omission.” Utah Coal & Lumber Restaurant, 40 P.3d
581, ¶20. Rather, “‘[a] mistake within the meaning of equity is a
non-negligent but erroneous mental condition, conception, or
conviction induced by ignorance, misapprehension, or
misunderstanding, resulting in some act or omission done or
suffered by one or both parties, without its erroneous character
being intended or known at the time.’” Id., quoting 27A Am. Jur.
2d Equity § 7, at 525 (1996). But see Duncan v. G.E.W., Inc., 526
A.2d 1358 (D.C. 1987) (granting relief on basis of “mistake” when
tenant so misread language of the contract that he believed he did
not have to give notice in a circumstance in which notice was
required). We also note that mere “[f]orgetfulness is not the
equivalent of a mistake.” SDG Macerich Properties, 648 N.W.2d at
587.

26
exercise an option to renew a lease or purchase leased property

may be excused only if the three prerequisites of the Corbin rule

are met, namely: (1) the delay was short, (2) the delay did not

prejudice the lessor/optionor, and (3) the lessee/optionee would

suffer a forfeiture or other substantial hardship if equitable

relief is not granted.7

B.

¶38 Having concluded that equity will not relieve an

optionee’s fault in failing to timely and effectively exercise an

option, the question remains how Blake’s conduct here should be

characterized. We disagree with the court of appeals that, as a

matter of law, Blake was negligent for allegedly having resorted

to regular mail to give notice of his intent to exercise the

option. See Gold Standard Enters., Inc. v. United Investors Mgmt.

7
Andrews contends that equitable relief under the Corbin rule
or a similar approach should extend, at most, to options to renew
leases, not options to purchase leased property. The Corbin rule,
however, draws no such distinction. Rather, it expressly includes
within its scope options “to buy or renew.” 1 Arthur Linton
Corbin, Corbin on Contracts § 2.15, at 201 (Joseph M. Perillo ed.,
rev. ed. 1993). And some courts have upheld equitable relief in
cases that directly or at least tangentially involved options to
purchase. See Hunt v. Carlson, 523 N.Y.S.2d 699, 701 (N.Y. App.
Div. 1988) (equitable rules for excusing tenant’s delayed exercise
of option “apply with equal force to a purchase option as well as
to an option to renew”); see also Gardner v. HKT Realty Corp., 744
S.W.2d 735 (Ark. Ct. App. 1988); Duncan, 526 A.2d at 1365; cf.
Temple Emanu-El v. Attorney General, 660 N.Y.S.2d 41 (N.Y. App.
Div. 1997). We are not persuaded by Andrews’s argument on this
point and, therefore, conclude that, in a proper case, equity may
excuse a nonnegligent failure to timely exercise an option to
purchase contained in a lease, as long as all requisite conditions
for equitable relief are met.

27
Co., 538 N.E.2d 636 (Ill. App. Ct. 1989) (notice timely mailed

but not received due to tenant’s alleged failure to apply proper

postage); Sy Jack Realty Co. v. Pergament Syosset Corp., 267

N.E.2d 462, 464 (N.Y. 1971) (letter exercising option mailed but

not received, and no prejudice to landlord; “[i]f reliance on the

mails could possibly be characterized as fault, it is ‘excusable

fault’ . . . and should not operate to deprive the [tenant] of a

valuable asset”); Southern Region Indus. Realty, Inc. v.

Chattanooga Warehouse & Cold Storage Co., 612 S.W.2d 162 (Tenn.

Ct. App. 1980) (notice timely mailed but not received).

¶39 The court of appeals’ view is inconsistent with our

conclusion that the addendum did not require Blake’s exercise of

the option, or even other notices, to be delivered by one of the

nonexclusive methods specifically prescribed in the addendum.

See ¶¶18-20, supra. And, as noted in ¶22 above, if the trier of

fact finds that Andrews received Blake’s September 20 letter

before October 1, 1999, then Blake is entitled to judgment as a

matter of law and need not resort to equitable relief.

¶40 Conversely, however, we also reject Blake’s assertion

at oral argument that, as a matter of law, he was not negligent

and, therefore, is necessarily entitled to the equitable relief

of specific performance. As noted in ¶18 above, effective

exercise of the option required Andrews’s actual and timely

receipt of written notice from Blake. See Korey; Salminen; Sy

Jack Realty Co. Thus, if the trier finds that Andrews did not

28
receive Blake’s September 20 letter, despite Blake’s allegation

that he timely and nonnegligently attempted to give notice

through that letter, then Blake failed to effectively exercise

the option before the October 1 deadline. In that event, Blake’s

first, effective exercise of the option was untimely because it

occurred on October 23, when Andrews admittedly received Blake’s

October 21 letter. And, under that scenario, the trier of fact,

under proper instructions, must determine whether Blake acted

negligently, or rather, through mistake, in failing to timely and

effectively exercise the option.8

¶41 In our view, assuming Andrews did not receive Blake’s

September 20 letter, resolution of the issue of whether Blake was

negligent depends on evaluation of the parties’ prior dealings

and all other relevant circumstances. If Andrews did not timely

receive that first letter, of course, the ultimate question is

whether Blake acted as a reasonably prudent person under the

circumstances, despite his failure to timely exercise the option.

That fact-intensive inquiry is not susceptible to summary

resolution. Rather, the issues raise classic factual questions

for the trier of fact. To be sure, a court may find an absence

of negligence in some cases as a matter of law. See Coburn v.

City of Tucson, 143 Ariz. 50, 53, 691 P.2d 1078, 1081 (1984).

8
Because Blake has neither alleged nor presented evidence of
incapacity, fraud, misrepresentation, duress, undue influence,
estoppel, or waiver by Andrews of his right to receive timely
notice, none of those equitable exceptions applies, at least based
on the current record.

29
Generally, however, “the question of negligence is one of fact

for a jury to decide,” particularly when, as here, reasonable

minds could differ on whether a party has breached his or her

duty of exercising reasonable care. Markowitz v. Arizona Parks

Bd., 146 Ariz. 352, 358, 706 P.2d 364, 370 (1985); see also

Chambers v. Western Arizona CATV, 130 Ariz. 605, 638 P.2d 219

(1981).

¶42 Thus, depending upon the course of further proceedings

and the trier’s ultimate factual findings, analysis of the Corbin

factors may be required. Accordingly, we now turn to those

factors and the evidence of record relating thereto.

C.

¶43 Blake contends the evidence “undisputedly satisfie[s]

the Corbin Rule, as [Andrews] admitted receiving written notice

of [Blake’s] exercise of the Option by October 23, only 22 days

after the expiration date of October 1, there was no legal

prejudice to [Andrews] and [Blake’s] investment in and

improvements of the Property were substantial.” We agree with

Blake as to the first prong of the Corbin test but, unlike the

trial court, do not agree that Blake is entitled to summary

judgment on the second and third prongs.

¶44 Under Corbin’s first prong, the delay in exercising

the option must have been “short” or “slight.” Corbin on

Contracts § 2.15, at 202, 203. Assuming Andrews did not receive

Blake’s September 20 letter, he admittedly received actual,

30
written notice of Blake’s exercise of the option on October 23.

That relatively brief delay satisfies the first prong of the

Corbin test. Andrews does not contend otherwise, and case law

supports that conclusion. See Monihon (twenty-three-day delay in

exercising option to renew lease did not preclude equitable

relief); Aickin v. Oceanview Invs. Co., 935 P.2d 992, 998 (Haw.

1997) (equitable relief granted despite four-month delay in

giving notice); Ward v. Washington Distribs., Inc., 425 N.E.2d

420, 422 (Ohio Ct. App. 1980) (equitable relief granted despite

thirty-day delay in exercising option); Beltrone v. Danker, 643

N.Y.S.2d 720, 721 (N.Y. App. Div. 1996) (equitable relief granted

despite two-month delay in exercising option).

¶45 Under Corbin’s second prong, the delay in exercising

the option must not have prejudiced the optionor by inducing a

change of position. In granting summary judgment for Blake, the

trial court ruled that it was “almost beyond dispute” that “the

delay did not prejudice or harm [Andrews].” Although Andrews’s

argument on this point is unclear, he apparently claims prejudice

from having lost $650,000 in additional income if he is required

to sell the property to Blake at the option price of $300,000

rather than to Albertson’s at the negotiated contract price of

$950,000.

¶46 The test to determine whether a lessor suffered any

injury from tardy exercise of an option “is whether he changed

his position or suffered a detriment because of the Lessee’s

31
delay in giving notice.” Aickin, 935 P.2d at 1001. Thus, the

issue is not whether the lessor/optionor is prejudiced by the

lessee’s exercise of an option to renew or purchase but, rather,

whether the lessor is prejudiced “because of the delay” in that

exercise. Sy Jack Realty Co., 267 N.E.2d at 464. The mere fact

that a lessor negotiated with other prospective lessees during

the period of delay but with whom the lessor did not “enter[]

into any binding agreement” does not necessarily constitute

prejudice. Monihon, 6 Ariz. at 232, 56 P. at 736; see also

Southern Region Indus. Realty, Inc., 612 S.W.2d at 165 (that

lessor had begun looking for a new tenant when lease was not

renewed according to its terms did not preclude equitable

relief). But “[h]ardship would exist if active negotiations

regarding the sale of the property had been in progress when the

notice deadline arose and the landlord lost the sale because of

the lessee’s delay.” Fletcher v. Frisbee, 404 A.2d 1106, 1108

(N.H. 1979).

¶47 Although Andrews had some preliminary communications

with Albertson’s and its agent, he apparently had no firm

agreement or understanding that Albertson’s would purchase the

property as of October 23, 1999. Indeed, Andrews acknowledged

that, as late as November 10, he had “no real expectation” that

Albertson’s would purchase the property and conceded that

Albertson’s “could have walked away at any time.” Andrews

further admitted that, during October, his discussions with

32
Albertson’s were “all very, very preliminary-type stuff” in which

he did not “put a whole lot of stock.” Notwithstanding that

evidence, the record does not clearly reflect the precise status

of Andrews’s negotiations with Albertson’s as of late October or

the impact Blake’s tardy exercise of the option actually had on

Andrews’s prospective sale of the property. Accordingly, in view

of our remand of the case, we do not foreclose the parties’

further discovery and litigation on remand on the issue of

prejudice. At this juncture at least, we deem summary

disposition of that issue inappropriate.

¶48 The same is true with respect to Corbin’s third

prong—that a failure to grant equitable relief would result in

such hardship to the optionee as to make literal enforcement of

the option provision unconscionable. Pointing to the following

facts set forth in his affidavit, Blake contends he would suffer

substantial harm if the option were forfeited and he were forced

to vacate the property. First, Blake claims he would lose the

ability to conduct his business, which generates approximately

$6,000,000 in annual revenue, on the property. According to

Blake, he also would effectively lose the ability to conduct a

nursery business on some adjoining property that he purchased in

1997 for $300,000 in reliance on the option. Blake further

attested that he would have to incur approximately $100,000 in

expenses to relocate and store inventory currently on the

property. In addition to the $10,000 he paid pursuant to the

addendum to “extend” the option to October 1, 1999, Blake also

33
spent over $40,000 in improvements to the property in reliance on

his ability to purchase it. And he expended more than $19,000 in

legal fees to obtain and maintain a special use zoning permit to

allow him to continue to operate a plant and tree nursery on the

property when the City of Phoenix challenged that right.

¶49 Blake’s expenditures relating to the property clearly

are substantial. But other evidence in the record suggests that

most of the $59,000 Blake spent on improvements and legal fees

resulted from a criminal misdemeanor citation against him for

violating the city zoning code and his consequent need to conform

the nursery to that code. In addition, Blake purchased two

parcels of adjoining and nearby property, six acres and 2.3 acres

in size, which arguably could be resold or used (as they have

been) for his nursery, even without the property leased from

Andrews. In short, conflicting evidence in the record may

support different findings and inferences relating to the

hardship issue.

¶50 A lessee who seeks equitable relief from an untimely

exercise of an option must show that he or she would suffer

substantial harm or hardship if evicted. Fletcher, 404 A.2d at

1109. Courts have weighed various factors in evaluating and

determining the hardship element, including substantial

expenditures in making improvements to the property;9 lack of

9
See Gardner, 744 S.W.2d at 738 (lessee made over $290,000 in
improvements to the property over a twenty-year period); Duncan,
526 A.2d at 1364 (lessee expended over $400,000 on fourteen

34
other available space;10 convenience of operation at the leased

premises;11 loss of advantage of the business’s strategic

location;12 loss of business goodwill;13 and cost and

inconvenience of any necessary move.14

¶51 Although the trial court noted several “disputed

facts” relating to the third prong of the Corbin test, the court

nonetheless concluded as a matter of law that that prong was

satisfied. Noting Blake’s reliance on Southern Region Industrial

Realty, the trial court ruled that “the exact amount of the harm

[to Blake] may not be known, [but] it is known that there will be

harm.” And, noting that Blake would “suffer harm if the option

is not exercised,” the trial court found it “obvious” that “loss

of the opportunity to purchase this property through the option

would result in substantial economic harm to [Blake].”

different properties); Aickin, 935 P.2d at 1001 (lessees expended
over $140,000 in improvements to the premises, which was also
“‘fully leveraged’”); J.N.A. Realty Corp. v. Cross Bay Chelsea,
Inc., 366 N.E.2d 1313, 1317 (N.Y. 1977) (lessee expended $55,000 on
improvements).
10
See Galvin v. Simons, 25 A.2d 64, 66 (Conn. 1942); Soho Dev.
Corp., 517 N.Y.S.2d at 500.
11
See Galvin, 25 A.2d at 65.
12
See Fletcher, 404 A.2d at 1109; Soho Dev. Corp.
13
See Fletcher; J.N.A. Realty Corp., 366 N.E.2d at 1317; Sy
Jack Realty Co. v. Pergament Syosset Corp., 267 N.E.2d 462, 464
(N.Y. 1971).
14
See Galvin, 25 A.2d at 66; Fletcher, 404 A.2d at 1109; Soho
Dev. Corp.

35
¶52 We disagree with the trial court’s summary resolution

of the hardship issue. In Southern Region Industrial Realty, the

Tennessee court concluded that a “complete loss of the business

operation” justified equitable relief. 612 S.W.2d at 165. In

that case, the lessee had been leasing the facilities for over

fifteen years, no equivalent facilities were available in the

area, and the cost of building a similar facility would have been

in excess of $6,000,000. Id. In contrast, viewed in the light

most favorable to Andrews, the record does not establish that

Blake would suffer a “complete loss of [his] business operation”

were he unable to exercise the option. Id. Indeed, as noted

above, Blake arguably could continue to operate his nursery on

the eight-plus acres of property he owns both adjacent to and

within 200 feet of the Andrews property.

¶53 The trial court erred in granting summary judgment on

the third Corbin prong because, as Corbin points out, the facts

must be fully developed and the court must then evaluate the

nature and degree of harm to the optionee, balance the equities,

and determine whether prohibiting exercise of the option would be

so unconscionable that equitable relief is appropriate. Corbin

on Contracts § 2.15, at 203. As far as we can tell, the trial

court did not conduct that type of balancing of the relevant

factors. Moreover, that Blake would suffer some harm if he were

unable to exercise the option is not the controlling test.

Rather, under the Corbin rule, the hardship must be so severe as

36
to make literal enforcement of the option provision

“unconscionable.” Id.

ATTORNEY’S FEE REQUESTS

¶54 Both parties have requested an award of attorney’s

fees pursuant to both A.R.S. § 12-341.01 and a mandatory fee

provision in their lease agreement.15 In his petition for

review, Blake did not request an award of attorney’s fees.

Rather, he first requested a fee award in his supplemental brief

filed with this court seven months later, shortly before oral

argument. Because that request was untimely, Blake would not be

entitled to an award of fees even if he were the prevailing

party. See Ariz. R. Civ. App. P. 21(c), 17B A.R.S. (“If a

petition or cross-petition for review is filed, a request for

allowance of attorneys’ fees shall be made in the petition or

cross-petition for review or response thereto.”).

¶55 Andrews requested an award of attorney’s fees in his

response to Blake’s petition for review. But Andrews has not

clearly prevailed in the proceedings before this court. And, at

this stage of the case, we cannot determine which party

ultimately will be “successful.” § 12-341.01. Accordingly, we

decline to grant attorney’s fees to either party at this point in

the litigation; any award of fees should abide completion of the

15
The lease provides: “If either party brings an action to
enforce the terms hereof or declare rights hereunder, the
prevailing party in any such action, on trial or appeal, shall be
entitled to his reasonable attorney’s fees to be paid by the losing
party as fixed by the court.”

37
proceedings on remand in the trial court. See Leo Eisenberg &

Co. v. Payson, 162 Ariz. 529, 535, 785 P.2d 49, 55 (1989).

CONCLUSION

¶56 In summary, we vacate the court of appeals’ decision,

reverse the trial court’s judgment, and remand the case for

further proceedings consistent with this opinion. If the trier

of fact finds that Blake mailed and Andrews received Blake’s

September 20 letter before the October 1 deadline, the trial

court should enter judgment in favor of Blake, without the need

for analysis of the Corbin factors. On the other hand, if the

trier finds that Andrews did not receive that letter, the trier

must then determine whether Blake’s failure to timely exercise

the option was negligent. If negligence is found, equitable

relief is precluded. But if Blake’s untimely exercise of the

option was due to mistake or other circumstance under which

equitable relief is permitted, rather than any fault on his part,

then the Corbin rule applies.

¶57 In that event, the trial court must conduct a

balancing test to evaluate and determine the second and third

Corbin factors—prejudice to Andrews caused by the delay and

whether a refusal to equitably permit Blake to exercise the

option would create such hardship on him as to make strict

enforcement of the option deadline unconscionable. In resolving

those issues, the trial court may deem an evidentiary hearing

necessary or helpful. We leave that option to the trial court’s

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sound discretion in exercising its equitable powers.

__________________________________
John Pelander, Judge*

CONCURRING:

_______________________________________
Charles E. Jones, Chief Justice

_______________________________________
Ruth V. McGregor, Vice Chief Justice

_______________________________________
Michael D. Ryan, Justice

_______________________________________
J. William Brammer, Jr., Judge*

*Pursuant to Ariz. Const. art. VI, § 3, the Honorable A. John
Pelander and the Honorable J. William Brammer, Jr., Judges of the
Arizona Court of Appeals, Division Two, were designated to sit on
this case.

39