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Riley v. Spiral Butte Development, LLC

Supreme Court of Idaho, Pocatello

November 26, 2013

Norman RILEY and Robin Riley, husband and wife, Plaintiffs-Appellants,
v.
SPIRAL BUTTE DEVELOPMENT, LLC, an Oregon limited liability company and Jim Horkley, an individual, Defendants-Respondents, and Does I-V, Defendants.

Thomsen Stephens Law Offices, Idaho Falls, for appellants. Michael Joseph Whyte argued.

Swafford Law Office, Idaho Falls, for respondents. Ronald L. Swafford argued.

HORTON, Justice.

This is an appeal from the district court's grant of summary judgment in favor of respondents, Spiral Butte Development, LLC and Jim Horkley (collectively " Spiral Butte" ). Norman and Robin Riley initiated this action

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against Spiral Butte for breach of contract and sought specific performance of the parties' Lease Option Agreement. The district court granted Spiral Butte's motion for summary judgment and the Rileys timely appealed. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

In 2001, the Rileys filed for bankruptcy. As part of the Rileys' bankruptcy reorganization, a parcel of their real property known as the " Howe property" was deeded to W.R. Holdings. In order to redeem the Howe property, the Rileys and Horkley made an arrangement whereby Horkley would redeem the property on behalf of the Rileys and then lease the property back to the Rileys for commercial farming purposes.

On October 25, 2002, the Rileys and Horkley executed a Real Estate Purchase Agreement whereby Horkley purchased the Howe property from the Rileys for $950,000.00. Horkley then transferred the property to Spiral Butte Development, LLC.[1] On that date, Spiral Butte and the Rileys also executed a Lease Option Agreement (Agreement).[2] The Agreement provided that the Rileys would lease the Howe property from November 1, 2002, through December 31, 2007, for $102,500.00 per year. Specifically, the Rileys were to pay Spiral Butte $51,225.00 biannually on June 20 and December 20. The first payment was due on June 20, 2002.

In addition to the biannual rent payments, the Agreement included many other obligations that the Rileys agreed to perform. First, section four of the Agreement required the Rileys to " pay for all electricity, water, and all payments on any equipment" located on the Howe property. Additionally, the Rileys were to " pay as additional rent the cost of liability insurance and casualty insurance" as well as " all expenses of maintenance, operation and repair of the subject premises and the equipment thereon." Second, section five made the Rileys responsible for " all taxes and assessments on the real estate" . Third, section eleven required the Rileys " to maintain, keep in effect, furnish, and deliver to the Lessor liability insurance policies." Lastly, section six of the Agreement required the Rileys to " regularly occupy and use the [Howe property] for the conduct of the [the Rileys] business," and further stated that the Rileys " shall not abandon or vacate the premises for more than ten (10) days without prior written approval of Lessor."

Notwithstanding the Rileys' obligations under the Agreement, at his deposition, N. Riley stated that the Rileys did not: (1) make any rent payments on the property; (2) purchase insurance; (3) pay electrical bills; or (4) pay any taxes on the Howe property. Additionally, N. Riley testified that the Rileys made no payments towards maintenance, operating costs, or repair costs throughout the term of the Agreement. Furthermore, the Rileys never occupied the Howe property or used it in the conduct of their business.

Other relevant sections of the Agreement include sections nine and twenty-nine. Section nine, titled Right of Assignment, provided that the Rileys could not pledge, hypothecate or surrender the lease, or any interest in the lease without Spiral Butte's written consent first being obtained in writing. Section twenty-nine, titled Option to Purchase, granted the Rileys the exclusive right to purchase the Howe property, it provides:

It shall be a condition of the valid exercise of this option that, at the time such option is exercised, the Lease shall be in full force and effect and Lessees shall not be in default thereunder. Unless timely and validly exercised, this option shall expire at 11:59 p.m. on December 20, 2007 (" Expiration Date" ); provided, however, that if the Lease shall be earlier terminated by reason of the Lessees default thereunder,

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then this option shall expire upon such termination.

Lastly, the Agreement included a merger clause, which provided that the Agreement " contains the entire understanding and agreement between the parties hereto and may be modified or amended in whole or in part, only by a writing executed by each of the parties herein."

Despite the express terms of the parties' Agreement, N. Riley contends that he and Horkley entered into an oral sublease whereby a third party, the Jensens, would run the farming operations on the Howe property. At his deposition, N. Riley testified that he orally agreed with Horkley and the Jensens that the Jensens would pay $200.00 per acre of land they farmed and that the Rileys would not be responsible for any payments.

Not surprisingly, Horkley had a much different story to tell. According to Horkley, he and Riley, prior to the sale of the Howe property and the execution the Agreement, mutually decided that the Jensens would farm the Howe property because the Rileys were unable to do so because of the loss of their farming equipment in bankruptcy. Horkley testified that the parties orally agreed that the Jensens would pay approximately $79,000.00 toward the $102,500.00 rent required by the Agreement and that the Rileys would make up the difference and be responsible for all other payments and expenses on the property. Horkley testified that he repeatedly asked for money from the Rileys in order to take care of costs on the Howe property but that the Rileys either ignored his requests completely, or acknowledged the requests and failed to make any payments.

Neither of the parties' versions is corroborated by Mark Jensen's [3] deposition testimony. According to Jensen, he and Horkley agreed that the Jensens would pay Horkley $170.00 per acre of land that they farmed on the Howe property. This agreement, according to Jensen, was made orally between him and Horkley sometime in 2003. The Jensens did not pay any money to Horkley for their use of the property until January 13, 2004. Notably, the record is completely silent as to whether the parties ever discussed the Rileys' option to purchase the property at any point following the execution of the Agreement.

On December 11, 2007, the Rileys informed Spiral Butte of their intent to purchase the Howe property. In response, Spiral Butte, through counsel, declined to honor the Agreement's option provision stating, " it is our position that Riley's [sic] abandoned any right they might have had under the ...


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