Naylor v. Hall

No. 81-194

I N THE SUPREME COURT O THE STATE O MONTANA
F F

1982

I R V I N S . NAYLOR,

Plaintiff and A p p e l l a n t ,

VS.

J O H N P . HALL, SHERRILL HALL,
and SKI YELLOWSTONE, I N C . ,

Defendan.ts and R e s p o n d e n t s .

Appeal from: G i s t r i c t C o u r t of t h e E i g h t e e n t h J u d i c i a l D i s t r i c t ,
I n and f o r t h e County o f G a l l a t i n
H o n o r a b l e W. W. L e s s l e y , Jud-qe p r e s i d i n g .

C o u n s e l o f Record:

For Appellant:

G r e g o r y 0 . Morgan a r g u e d , Bozeman, Montana
A l b e r t G. B l a k e y , I11 a r q u e d , v o r k , Pa.

For Respondents :

Landoe, Brown Law F i r m , Bozeman, Montana
J . R o b e r t P l a n a l p a r g u e d , Bozeman, Montana

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Submitted: ~ u l y , 1982
8

Decised: O c t o b e r 7 , 1982

F i l e dJ
. t .~82
Mr. Justice Fred J. Weber delivered the Opinion of the
Court.

Plaintiff, Irvin Naylor (Naylor), sought specific
performance of a contract for the purchase of real property
from defendants Hall, and Ski Yellowstone, Inc., herein
referred to as Hall. The District Court of the Eighteenth
Judicial District, Gallatin County, tried the case without a
jury, and refused to grant Naylor specific performance. We
reverse the District Court.

This case is a companion to Supreme Court case No. 81-
222, Ski Roundtop, Inc., individually and derivatively in
behalf of Ski Yellowstone, Inc. v. John P. Hall and others,
to be decided at a later date by this Court.
Naylor raises a single issue on review: Whether the
agreements between the parties constituted a specifically

enforceable, valid option contract.
The individuals involved in this action were all
shareholders and officers in the Montana corporation, Ski

Yellowstone, which is developing a four-seasons resort in
the Hebgen Lake area in Gallatin County. Plaintiff Naylor
was chairman of the board of directors in 1975-76. Defendant
John Hall was a director and is presently the chief executive
officer and majority stockholder. Hans Geier was president
at the time the disputed agreements were made and, under the
corporation's bylaws, was authorized to execute contracts
for the corporation. Fred Pack is a Bozeman realtor, whose
agency was authorized to sell lots in the Bear Trap Subdivision
owned by Ski Yellowstone.
Fred Pack wrote Naylor and offered him the opportunity
to purchase lots in the Bear Trap Subdivision at the listed
price less a ten percent commission. On February 25, 1975,
Naylor replied:

"Thank you for your letter of February 20, in-
viting me to acquire at a 10% discount any of
the lots that are shown on the plats that were
enclosed with that letter. I am pleased to
make the following offer on lot #7 in Sear Trap
Ranch subdivision #1:
"1. A purchase price of $11,700.

"2. A deposit now of $500.00 cash.
"3. $5,000 to be paid at the time my $5,000
'bonus' has been offered to me by Ski Yellow-
stone, Inc.
"4. The balance of $6,200 to be paid in cash
within 90 days of the accomplishment of ?!3
above. At this time the lot is to be trans-
ferred to me with good, insurable, fee-simple,
marketable title.
"If this proposal is acceptable as presented,
please have Hans sign the enclosed copy of
this letter as President of Ski Yellowstone,
Inc., and return it to me in the enclosed
self-addressed and stamped envelope, upon
receipt of which I will promptly send you
the $500.00 deposit."

The letter was marked "Approved March 5, 1975, Hans
Geier, President, Ski Yellowstone, Inc." and returned to
Naylor. On May 8, 1975, Pack acknowledged receipt of the

$500 deposit forwarded by Naylor, and informed Naylor that
he (Pack) had placed the deposit in a trust account "to be

held there until the conditions as set forth in your letter
of February 25, 1975 have been complied with and we will be
able to deliver to you a title to said lot free of all
encumbrances."
On March 29, 1976, Naylor mailed the following "clar-
ification" to Hans Geier:
"It occurred to me a couple of days ago that a
point of clarification in my proposal to you
of February 25, 1975 referring to my offer
(which you accepted) on lot #7 in Bear Trap
Ranch subdivision #1 should be noted:
 "If by January 1, 1980 the '$5,000 bonus has
(not) been offered to me by Ski Yellowstone,
Inc.', then I should have the prerogative of
either acquiring the lot for a cash payment of
$11,200 within 90 days of January 1, 1980 or
a return of my $500.00 cash deposit (without
interest) .
"I selected the date of January 1, 1980 as
being totally arbitrary - a time by which I
hopefully assume the problems relating to the
obtainment of the Forest Service Permit will
have been resolved.
"If you agree to this clarification of our
agreement as reflected in my letter of Feb-
ruary 25, 1975, I would appreciate it if you
would execute the enclosed copy of this letter
and return it to me in the self-addressed and
stamped, enclosed envelope."
The letter was returned to Naylor with Geier's approval
written on it as follows:
"I accept the above clarification.
Hans Geier, President
Ski Yellowstone, Inc.
April 11, 1976
Verbal Approval by F. L. Pack. . ."
On January 10, 1977, John Hall, who had in 1976 gained
control of Ski Yellowstone, and was Executive Vice-President
of the corporation, agreed to purchase the same lot (Lot 7,

in Block 2) from Ski Yellowstone for $11,000. Payment was
to be settled within six months by the application to the
purchase price of corporate credit issued to John Eall for
services rendered. A $10,300 corporate credit was sub-
sequently applied to the purchase price of the lot.
On May 2, 1977, Naylor filed a notice of purchaser's
interest with the Gallatin County Clerk and Recorder.
On June 21, 1977, John and Sherrill Hall, acting as
officers of Ski Yellowstone, conveyed the Rear Trap lot to
themselves as joint tenants, by warranty deed, and the next
day filed the deed with the Gallatin County Clerk and Recorder.
 The Forest Service permit had not issued by January 1,
1980. On January 7, 1980, Naylor, through his attorney,

notified Pack that he "elected to exercise his option to

purchase the lot in Bear Trap Ranch Subdivision." Naylor
demanded that Ski Yellowstone specifically perform its
contract for the sale of the lot, and supply him with "a
copy of a title report showing a marketable title." Ski
Yellowstone did not meet Waylor's demands, and on ?4arch 7,
1980, Naylor filed this action for specific performance in
the District Court.
The case was heard, in combination with several connected
cases, in September of 1980. The District Court entered
findings of fact and conclusions of law on January 2, 1981-
The District Court held that following the "clarification"
of March 29, 1976, there was no mutually binding contract

because Naylor could, "at his sole prerogative, relieve
himself from any liability to purchase the lot." In addition,
the District Court concluded that there was no consideration
because Naylor could, at his election, demand the return of
the $500 deposit. An analysis of the contract compels a
different conclusion.
Under the February 25, 1975, letter agreement, Naylor

was obligated to purchase the lot when Ski Yellowstone paid
him his $5,000 bonus, which in turn depended upon the
issuance by the Forest Service of its permit for S c Yellowstone.
li
This obligation continued as to Naylor without limit in
time. In addition, there was no means by which he could
purchase at an earlier date than the date on which Ski
Yellowstone offered him his bonus. As to Ski Yellowstone,

under this letter agreement, it was obligated to hold open
the purchase of the lot until such time as the permit was
issued by the Forest Service, which again had no limit in
the future, and therefore left Ski Yellowstone with an
obligation to sell not limited in time.
-5-
 By the letter agreement of Xarch 29, 1976, several
changes were introduced into the contract relationship.
Through December 31, 1979, the arrangement was the same as
between the parties, as it had been under the old agreement.
However, the effect of the agreement was to terminate this
obligation on the part of Ski Yellowstone to sell in the
event that by January 1, 1980, the Forest Service permit had
not been issued. At that point in time, an option arrange-
ment came into effect, under which Naylor could either have
his $500 back or purchase the lot for an additional cash
payment of $11,200. Clearly, the March 29, 1976, letter
agreement was mutually beneficial to the parties. As to Ski
Yellowstone, its obligation to continue to hold the lot for
the future purchase was terminated as of January 1, 1980,
unless, within ninety days, Naylor elected to purchase. In
addition, if Naylor did elect to purchase, he was required

to pay $11,200 of his own cash, without applying a $5,000
bonus which would have been furnished by Ski Yellowstone
upon issuance of the Forest Service permit under the prior
agreement. As to Naylor, he now acquired for the first time
the capacity to purchase the lot immediately for cash after
January 1, 1980, even though no Forest Service permit had

been issued. He also acquired the right to elect to have
his $500 cash deposit returned if he wished to surrender his
right to purchase the lot.
We find that the benefits and obligations on the part
of each of the parties under the letter agreement of March
29, 1976, were sufficient to constitute a mutually binding
contract between the parties.
We also find that there was consideration for the Pqarch

29, 1976, letter agreement. The relinquishment of a legal

or contract right is sufficient consideration to support a
contract. Rickett v. Doze (1979), Nont. -- I
603 P.2d
679, 36 St.Rep. 2170; 17 Arn.Jur.2d Contracts § 119, at 465;
S~nburstOil and Gas Company v. Neville (1927), 79 Yont.
550, 257 P. 1016. It is also well-established that a
contract may be modified by subsequent agreement if that

subsequent agreement also complies with the requirements of
a contract. Edwards v. Peavey Company (1976), 170 Nont. 45,
549 P.2d 1082. The 1976 letter agreement, as proposed by
Naylor and accepted by Ski Yellowstone, was a mutually
acceptable modification of the 1975 contract. The consideration
in terms of the changes in rights and obligations on the
part of both Naylor and Ski Yellowstone constitutes adequate
consideration for the 1976 agreement. We find that the 1976
agreement was supported by consideration and sufficiently
complied with contract requirements to constitute a modification
of the original agreement. That agreement was in effect
when John and Sherrill Hall purchased the lot from Ski
Yellowstone.

Upon the failure of the Forest Service to issue its
permit by January 1, 1980, the option rights of Naylor came
into effect. At that time, Naylor properly exercised his
right to purchase the lot for a cash purchase price of
$11,200 (in addition to the $500 deposit) as authorized
under the 1976 letter agreement. Hall has argued at length
that Naylor had no right to specific performance by Ski
Yellowstone under the 1976 agreement because it could not
compel Naylor to purchase, and because Naylor had the right
to ask for his money back, and that as a result, specific
~erformancecould not be awarded to Naylor because Ski
Yellowstone was not also entitled to specific performance.
This argument, based upon the original 1976 agreement,
i g n o r e s t h e p o s i t i o n i n which t h e p a r t i e s found t h e m s e l v e s

on J a n u a r y 1, 1980. The p o r t i o n of t h e c o n t r a c t u n d e r which

N a y l o r t h e n a c t e d i s t h e o p t i o n p o r t i o n which came i n t o

e f f e c t o n J a n u a r y 1, 1980. A s i s t r u e with a l l option

a g r e e m e n t s , t h e p a r t y t o whom t h e o p t i o n i s g r a n t e d h a s t h e

power t o d e t e r m i n e when a n d i f h e w i l l p u r c h a s e i n a c c o r d a n c e

with t h e option. U n t i l a d e c i s i o n t o p u r c h a s e i s made by

t h e o p t i o n h o l d e r , t h e owner o f t h e p r o p e r t y d o e s n o t h a v e a

r i g h t o f s p e c i f i c p e r f o r m a n c e , a l t h o u g h a s was t h e c a s e

h e r e , t h e o p t i o n h o l d e r may be r e q u i r e d t o c h o o s e between

t h e options within a given period. When, a s N a y l o r d i d , t h e

option holder exercises h i s option t o purchase, w e then

f i n d a b i n d i n g c o n t r a c t u a l a r r a n g e m e n t u n d e r which t h e

o p t i o n h o l d e r (Naylor) i s o b l i g a t e d t o purchase and t h e

owner ( S k i Y e l l o w s t o n e ) i s o b l i g a t e d t o s e l l . A t that

p o i n t , both p a r t i e s have a binding c o n t r a c t u a l o b l i g a t i o n

u n d e r which s p e c i f i c p e r f o r m a n c e c a n b e awarded u n d e r s e c t i o n

27-1-414, MCA, a n d c a s e s i n t e r p r e t i n g t h e same.

W e t h e r e f o r e c o n c l u d e t h a t t h e r e was a m u t u a l l y b i n d i n g

c o n t r a c t u n d e r t h e March 29, 1 9 7 6 , l e t t e r a g r e e m e n t f o r

which t h e r e was a d e q u a t e c o n s i d e r a t i o n , and which was of a

n a t u r e which would a l l o w s p e c i f i c p e r f o r m a n c e on t h e p a r t o f

either party.

H a l l a r g u e s t h a t t h e 1976 a g r e e m e n t i s t o o u n c e r t a i n t o

be s p e c i f i c a l l y e n f o r c e d b e c a u s e i t was n o t known when, i f

e v e r , t h e F o r e s t S e r v i c e p e r m i t would i s s u e , and it was n o t

c l e a r which o p t i o n N a y l o r would e l e c t i f t h e p e r m i t was n o t

i s s u e d by J a n u a r y 1, 1980.

Absolute c e r t a i n t y i n every d e t a i l i s n o t a p r e r e q u i s i t e

f o r s p e c i f i c performance. K e a s t e r v . Bozik ( 1 9 8 1 ) , - Mont.
 , 623 P.2d 1376, 1381, 38 St.Rep. 194, 201; Gropp v.
Lotton (1972), 160 Mont. 415, 503 P.2d 661; Steen v. Rustad
(1957), 132 Mont. 96, 313 P.2d 1014. Here the parties and
property are identified, the price is established, and the
substantive terms of the agreement are clear. Indeed, the
1976 clarification renders the agreement more certain and
more easily enforceable. We do not find the agreement to be
so uncertain as to preclude specific performance.

This Court has recognized specific performance as an
appropriate remedy for the breach, by the seller, of a
contract to sell real property. Brown v. Griffin (1968),
150 Mont. 498, 436 P.2d 695; Section 27-1-419, MCA.
In Myhre v. I l h e (1976), 170 Mont. 410, 419, 554 P. 2d
vyr
276, 281, we stated:

"The rule seems to be that one who acquires
or purchases property, knowing that the prop-
erty is subject to a contract to be sold to
another, may be compelled to perform the con-
tract in the same manner and to the same ex-
tent as his grantor would have been liable to
do had the grantor not made the transfer to
him. Moore v. Crawford, 130 U.S. 122, 32 L.Ed.
878, 9 S.Ct. 447; 71 Am.Jur.2d Specific Perfor-
mance. "
Here the record shows that Hall, managing officer,
director and stockholder of Ski Yellowstone, in those capacities,

as well as individually, was aware of the agreement between
Ski Yellowstone and Naylor. Notwithstanding that knowledge,
Hall and his wife, acting as executive officers of Ski
Yellowstone, sold and conveyed the property to themselves as
individuals. As a result, they individually are liable to
perform the contract in the same manner that Ski Yellowstone
was obligated prior to the sale of the lot to Hall. Naylor
therefore is entitled to specific performance against
defendants Hall.
We reverse the District Court and remand the case for
judgment by the District Court which is consistent with this
opinion.
W e Concur:

-
Chief J u s t i c e