This is an appeal from a judgment entered on a jury verdict in favor of the Trimbles for damages for breach of contract. In the trial court, appellees were plaintiffs and appellant was the defendant. (Although Phoenix Title and Trust Company was a defendant and counterclaimant and Valley National Bank of Phoenix was an additional counter-defendant, neither is a party to this appeal.) Appellees will hereinafter be referred to as the Trimbles, appellee Lyle Trimble will be referred to as Trimble and appellant will be referred to as O'Malley.
This litigation arose out of two agreements relating to the same property: (1) A Purchase and sale agreement with the Trimbles as seller and O'Malley as buyer; and (2) a lease of the subject property between O'Malley as lessor and Trimble as lessee. The Trimbles sought to recover the following:
O'Malley admitted that the Trimbles were entitled to recover the $25,000.00 as liquidated damages because O'Malley had not fulfilled its obligations under the realty purchase contract and the Trimbles were awarded judgment in said amount. It contended, however, that its liability to the Trimbles was limited to the $25,000.00 for the reason that the lease agreement, as to which additional damages were sought, had never become effective. The sole issues submitted to the jury were whether O'Malley had breached the farm lease agreement and, if so, what damages, if any, were sustained by the Trimbles by virtue of said breach. The jury found in favor of the Trimbles on these issues and fixed their total damages in the sum of $71,424.61. In response to interrogatories, the jury stated that these damages consisted of $13,547.09 for removal of cattle, $32,877.52 for the construction of improvements, and $25,000.00 for loss of profits.
After O'Malley filed motions for judgment in accordance with its motion for a directed verdict and for a new trial, the court set aside the award of $25,000.00 for loss of profits, but in all other respects denied the motions. Thereafter, an amended judgment was entered awarding the Trimbles, inter alia, $46,424.61
The Trimbles were the owners of a property in Yavapai County known as Chino Valley Ranch. In the spring of 1959, they entered into negotiations with Mr. Witty and Mr. Sollenberger, salesmen for O'Malley, for the sale of the ranch property to O'Malley. On or about July 7, 1959, the Trimbles and O'Malley entered into a purchase agreement wherein the Trimbles agreed to sell and O'Malley agreed to buy the ranch property for the sum of $460,150.00.
The purchase agreement called for an earnest money deposit represented by a non-interest bearing note for $25,000.00, payable at the close of the escrow on or before November 7, 1959. The acknowledgment of receipt of the earnest money promissory note recited:
The portion of this provision following the word "option", that is, "may demand specific performance of this contract", was deleted.
Escrow instructions to Phoenix Title and Trust Company were subsequently prepared and executed by the parties. One part thereof recited:
Another part thereof, relative to subsequent execution of an agreement for sale as evidence of part of the total purchase price recited:
A letter to the escrow agent, dated August 12, 1959, signed by both the vice president and general manager of O'Malley and the Trimbles, stated:
At the time set for closing the realty purchase transaction, O'Malley was unable to perform, and after granting a 30-day extension of time for performance the Trimbles, on December 8, 1959, elected to cancel the escrow. The written notice of cancellation to the escrow agent stated:
In May 1960, the Trimbles sold the property, together with the improvements thereon, to another purchaser for the sum of $495,000.00. Subsequently this lawsuit was instituted by the Trimbles. This appeal is concerned solely with the portion of the judgment awarding the Trimbles damages for breach of the lease agreement by O'Malley and the portions thereof awarding $25,000.00 for breach of the purchase agreement and attorney's fees are not disputed.
In order to ascertain the parties' intention, certain portions of the purchase agreement and the lease agreement are pertinent. The purchase contract recited the terms of the sale and, as we have previously indicated, provided that the seller might retain the earnest money deposit as liquidated damages if the buyer failed to comply with any of the terms of said agreement. In addition to the standard printed contract provisions, certain additional provisions were typed in. One such provision stated that the buyer and seller would enter into a lease agreement and outlined, generally, the planned lease agreement, including the leasehold term, the purpose of the lease, the sharing of expenses and income, the nature of the stock feeding operation, the parties' obligations as to equity capital, and the following specific provisions:
The lease agreement dated August 11, 1959, executed by Trimble as tenant and O'Malley as landlord, recited that the parties had entered into an agreement wherein the Trimbles were named as sellers and O'Malley or its nominee as buyer, for the purchase of the leasehold property by O'Malley. The general plan and intention was set forth:
Other provisions defined the tenant's duties respecting cultivation and care of the land crop-raising, pasturing stock, destruction of weeds, care of pigs and commission of waste. As to cattle, the lease provided:
One lease provision entitled "Financing" provided that until close of the escrow, the tenant would advance all equity capital required for the purchase of new cattle and would acquire same in his own name. Another provision entitled "Alterations and Improvements" stated:
Paragraph 37 of the lease agreement recited:
Paragraph 38 of the lease agreement entitled "Effective Date" recited:
Paragraph 22 of the lease agreement entitled "Maintenance of Improvements" provided:
Paragraph 36 of the lease agreement contained the following:
The farm management contract, dated August 11, 1959, between O'Malley and Western Farm Management Company, provided in part:
The aforesaid documents were prepared by Jarrett Jarvis, attorney for O'Malley and its "director of investments." Mr. Bryce Miller of Western Farm Management Company assumed the management duties set forth in the management contract and most of Trimble's dealings relative to the lease operation were with the said Miller. Although all the contracts were executed by the duly authorized officers of O'Malley, Trimble had no direct dealings with them. All negotiations and conferences pertaining to the contract and lease terms were with Witty and Sollenberger, salesmen for O'Malley, and Jarvis and Miller.
Everyone, including Trimble, fully understood that O'Malley did not contemplate the purchase and lease-back arrangement for itself. Its plan, as substantiated by the references to a "nominee" in all of the written agreements, was to interest potential investors in forming a syndicate to buy and operate the property with the hopes of procuring a substantial return on their investment. To promote the scheme, the parties entered into the lease arrangement, thereby making the whole plan more attractive to potential investors.
It is well established that a contract must be construed as a whole and the intentions of the parties thereto must be collected from the entire instrument and not from detached portions. Employer's Liability Assurance Corp. v. Lunt, 82 Ariz. 320, 326, 313 P.2d 393 (1957); Hamberlin v. Townsend, 76 Ariz. 191, 196, 261 P.2d 1003 (1953). When construed in this fashion, it is clear that the liability of O'Malley was limited to $25,000.00 and it had no obligation under the lease agreement until the close of the escrow. Indeed, Trimble did not deny that such was the intent of the parties when the purchase agreement was executed. He testified:
As indicated above, one paragraph of the lease provided for its effective date to be the close of the escrow. The paragraph dealing with alterations and improvements provided that O'Malley would make available at the close of escrow, such sums "as may have been required or shall thereafter be required" to make said improvements. This paragraph further recited the intention of the parties that certain improvements be made and certain equipment installed as soon as reasonably possible to accommodate the contemplated expanded operation. The lease further provided that on or before November 7, 1959, Trimble was to remove his own cattle from the lease premises and use due diligence to acquire and have delivered to said premises new cattle which were to be purchased in his name only.
Although the lease clearly delineated that the obligations of O'Malley thereunder were to commence upon the close of the aforesaid escrow, the duties and obligations of Trimble were to commence immediately on August 11, 1959. A condition precedent to the obligation of O'Malley to perform under the terms of the lease was the close of the escrow. Such condition is a fact which
O'Malley contends that the purchase contract and lease are indivisible, while Trimble takes the contrary view treating the two as separate agreements. Whether a contract is entire or severable is a question of the intention of the parties, to be ascertained from the language employed and the subject matter of the contract. Leeker v. Marcotte, 41 Ariz. 118, 128, 15 P.2d 969 (1932). As stated in Waddell v. White, 51 Ariz. 526, 541, 78 P.2d 490 (1938):
Applying these principles to the O'Malley-Trimble transaction, we believe that the parties intended that the lease arrangement be dependent upon consummation of the sale of the ranch property. It is inconceivable that the parties would contemplate performance of the farm lease agreement if the sale fell through. When all of the documents pertinent to the transaction are reviewed, a common denominator is revealed — "the close of the escrow". The only construction of which the transaction is susceptible is that Trimble was to commence performance of certain duties and obligations to "get ready" for the planned venture. If the sale materialized, the lease thereupon became binding upon O'Malley, retroactive to August 11, 1959 as to division of costs and profits.
Trimble contends, however, that if the purchase contract and lease agreement were not initially separate obligations, the parties subsequently modified their agreement so as to render the lease, and the obligations of O'Malley thereunder, immediately effective and binding upon O'Malley. O'Malley argues that if there was such modification, it was not in writing and, therefore, violative of the Statute of Frauds;
We agree that there was no ambiguity to justify the admission of parol evidence, but parol testimony may be admitted to show that the contracting parties subsequently changed, altered or modified their previous agreement. In re Estate of MacDonald, 4 Ariz.App. 94, 417 P.2d 728, 731 (1966). As stated in Simpson on Contracts § 63:
See also American Eagle Fire Ins. Co. of New York v. McKinnon, 36 Ariz. 409, 414, 286 P. 183 (1930); Sitkin v. Smith, 35 Ariz. 226, 230, 276 P. 521, 66 A.L.R. 645 (1929); 17A C.J.S. Contracts § 377a.
The Trimbles argue that O'Malley failed to plead the affirmative defense of the Statute of Frauds and thereby waived it. Mallamo v. Hartman, 70 Ariz. 294, 297, 219 P.2d 1039, rehearing 70 Ariz. 420, 421, 222 P.2d 797 (1950). The record discloses, however, that O'Malley was permitted to amend its answer, after trial, to assert the defense of the Statute of Frauds. The question of the oral modification of the lease agreement was tried without objection by the Trimbles. In fact, their objection to the court's refusal to give their requested instruction on the manner in which modification of a written agreement could be effected expressly admits the existence of such issue. The trial court instructed the jury on the Statute of Frauds without objection by the Trimbles. On this state of the record, the amendment to the answer of O'Malley was properly granted after trial. Arizona Rules of Civil Procedure, Rule 15 (b), 16 A.R.S.; Spellman Lumber Co. v. Hall Lumber Co., 73 Ariz. 322, 325, 241 P.2d 196 (1952). This court is, therefore, not precluded from considering the issue on appeal.
The Trimbles further maintain that if the Statute of Frauds is applicable, it is no bar to the enforceability of an oral modification of the lease agreement because of their full performance of the modified agreement. It is well settled in this jurisdiction that a party may be estopped to assert the defense of the Statute of Frauds when he has induced or permitted another to change his position to his detriment in reliance upon an oral agreement within its operation. See Kammert Bros. Enterprises, Inc. v. Tanque Verde Plaza Co., supra; Custis v. Valley National Bank of Phoenix, 92 Ariz. 202, 375 P.2d 558 (1962); Waugh v. Lennard, 69 Ariz. 214, 211 P.2d 806 (1949); Cress v. Switzer, 61 Ariz. 405, 150 P.2d 86 (1944); Diamond v. Jacquith, 14 Ariz. 119, 125 P. 712, L.R.A. 1916D, 880 (1912). We agree that the doctrine of equitable estoppel would be available to the Trimbles to preclude assertion of the Statute if they acted solely in reliance upon a subsequent oral agreement or oral modification of the lease agreement.
The pivotal question is whether the Trimbles proved a modification of the lease agreement, the burden of which rested with them. See Yeazell v. Copins, supra. While mutual assent of the parties to a modification of their agreement is essential, such assent need not be express but may be implied from a course of conduct in accordance with its existence. Alexander v. O'Neil, 77 Ariz. 91, 98, 267 P.2d 730 (1954); 17A C.J.S. Contracts § 375.
In its relations with the public, a corporate entity such as O'Malley can act only through its duly authorized officers and agents. Lois Grunow Memorial Clinic v. Davis, 49 Ariz. 277, 284, 66 P.2d 238 (1937); 19 C.J.S. Corporations § 999. The Trimbles claim that all of their dealings and negotiations with O'Malley were conducted through its agents, Witty, Sollenberger, Jarvis and Miller. O'Malley claims that a modification of its agreement, if any, could not be executed by these agents since only the investment committee could approve such contracts. Further, that since all the formal documents were executed on behalf of O'Malley by officers of the corporation, the Trimbles were put on notice that only duly authorized officers could alter or modify them.
As a general rule, one dealing with an agent is bound to ascertain the extent of an agent's authority. Lois Grunow Memorial Clinic v. Davis, supra; Litchfield v. Green, 43 Ariz. 509, 512, 33 P.2d 290 (1934). A corporation, however, may be bound where its agent acts without or in excess of his actual authority if he acts
It behooves us to evaluate the events and occurrences upon which the Trimbles predicate their claim that the lease agreement had been modified so as to render it binding upon O'Malley even though the escrow did not close.
The following letter dated August 12, 1959, addressed to Mr. Trimble, is also in evidence:
Much emphasis is placed upon the letter of August 12 to the escrow agent, (to which we have referred earlier in this opinion), informing it that the lease was not to be attached to or considered part of the escrow instructions. Trimble's interpretation of the letter, according to his testimony, was that O'Malley "had bought a ranch." The escrow instructions, however, do not purport to make the lease a part of the escrow but merely recite that the parties would enter into a lease agreement dated August 11, 1959, a copy of which was "attached" thereto as an exhibit. The letter of August 12, from Jarvis to Trimble, suggesting that the letter to the title company be sent regarding the absence of the lease agreement as an exhibit, fully explains the import of the latter communication. Both letters were admitted into evidence by stipulation of the parties and, therefore, there is no dispute concerning them. Trimble did not deny receipt of the letter from Jarvis. Jarvis testified as follows concerning the letter he wrote to Trimble:
Trimble, however, testified at the trial that the letter of August 12, 1959 to the escrow agent was executed "taking this lease out of escrow and we proceeded on that basis to take it out of escrow instead of writing a new lease." Whether the lease was or was not a part of the escrow could not alter the obligations of the parties which were clearly defined in their formal written agreement. By signing the lease, Trimble obligated himself to immediate performance. If he believed, as he testified, that he could not operate under a lease "tied into escrow", he misconstrued the lease provisions. His obligations under the lease were not conditioned upon the close of the escrow.
Trimble argues that the execution of the letter of August 12, 1959, coupled with the conduct of the agents of O'Malley, "causing" him to proceed under the terms of the lease agreement, are referable to a modification of the lease in that O'Malley was thereby obligated to perform. We cannot agree. The acts performed by Trimble were in accordance with the obligations he had assumed. He had agreed to remove his own cattle on or before November 7, 1959. He had agreed that certain improvements would be installed as soon as reasonably possible in accordance with the mutual approval of the parties. When he expressed his concern about proceeding with the improvements program and requested written authorization from Mr. Miller, the following letter was sent to him by Miller:
Dear Mr. Trimble:
As Managers of the Chino Valley Farms, Inc., we hereby authorize you to go ahead with the improvement of the property as listed in the recent Sales Agreement whereby you were the Seller and O'Malley Investment & Realty Co. of Phoenix, Arizona, was the Buyer.
For the most part, these improvements consist of running a natural gas line to the headquarters; purchasing and installing a boiler and barley roller; purchasing and installing a grain elevator; purchasing and installing a feed mill and blender; enlarging the present ensilage storage; and completing the south side of the cattle feed pens.
We would like to have these jobs started as quickly as possible so they will be completed in time to install the maximum operating program on the property just as soon as possible.
This letter of authorization from Miller cannot be construed as evidence of modification. The letter is in accord with the provisions of the lease itself, which provided that both O'Malley and Trimble were required to approve expenditures for capital improvements. Miller, in executing the letter, was acting for O'Malley in accordance with the express authority conferred upon him, i.e., to act for O'Malley "under the lease". Some fanciful legerdemain would be required to distort the letter into a binding agreement to pay for the improvements. Additionally, this letter did not motivate Trimble to remove his cattle, as he
The purchase agreement, the lease agreement, and the management contract clearly defined the extent of the authority of Western Farm Management, i.e., to act as the representative of O'Malley to conduct the planned operation and work out the details thereof, to deal with Trimble in accordance with the management contract, and to represent O'Malley in dealing with Trimble under the lease. We find neither actual nor apparent authority to modify the lease agreement with regard to the obligation of O'Malley to perform, notwithstanding Miller, as an employee of Western Farm Management, was endowed with broad powers to deal with Trimble concerning the contemplated program, subject of the lease. See Restatement of Agency 2d § 73.
As to Witty and Sollenberger, there is no evidence from which can be inferred authority to modify the lease for O'Malley. The scope of their authority was limited to negotiating realty transactions for the investment corporation, that is, "putting deals together". A mere salesman does not have authority to alter or modify a contract on the principal's behalf. Dubinsky v. Lindburg Cadillac Co., 250 S.W.2d 830 (Mo. App. 1952); Largent v. Ritchey, 38 Wn.2d 856, 233 P.2d 1019, 1022 (1951); Restatment of Agency 2d § 66.
Assuming arguendo that the agents of O'Malley had authority to modify the lease so as to bind O'Malley prior to the close of the escrow, we find nothing in the record to indicate an altered agreement. Trimble testified as to a November 7, 1959 meeting with Jarvis, Witty and Miller:
Mr. Trimble also testified to an October 15, 1959 meeting with Jarvis and Witty, at which time he discussed payment of these bills. He stated that he told them "these people wanted some money", to which Jarvis and Witty said:
Trimble testified that after this conversation he contacted one creditor and Miller contacted the other. He further testified about a meeting in Miller's office, with himself, Witty, Jarvis and Miller being present, prior to the execution of the letter of August 12, 1959 to the escrow agent:
When asked on direct examination why he moved his cattle prior to November 7, Trimble responded:
Mr. Moeur, Trimble's "financial adviser", testified in substance that Miller agreed with him and Trimble that nothing could be done under the lease until the lease and the escrow were severed completely and a separate agreement and mutual understanding of the parties was arrived at as to how it was to be proceeded upon. Assuming that such nebulous statements as to "taking the lease out of escrow" were in fact made, we cannot equate them to an agreement to
Viewing this testimony most favorably to Trimble's position, we cannot accept the construction he placed on these conversations and actions which accord with the provisions of the written agreements of the parties. We, therefore, conclude that Trimble failed to sustain his burden of proving a modification of the written lease agreement.
Since the obligations of O'Malley to perform were conditioned upon the occurrence of an event which did not come to pass, namely, the close of the escrow,
The cross-appeal by the Trimbles becomes moot in view of our reversal of the subject portion of the judgment.
For the reasons herein expressed, the judgment below is reversed as to the award of damages to the Trimbles for breach of the lease agreement and the lower court is directed to enter judgment in favor of O'Malley on the Trimbles' third cause of action.
HATHAWAY, C.J., and MOLLOY, J., concur.
NOTE: This cause was decided by the Judges of Division Two, as authorized by A.R.S. Section 12-120, subd. E.