Master Builders, Inc. v. Cabbell , 95 N.M. 371 ( 1980 )

OPINION

LOPEZ, Judge.

This is an appeal from a judgment quieting title to certain land in Master Builders, Inc., and denying specific performance to the Cabbells on an option agreement between Mr. Cabbell and Master Builders to purchase that land. We affirm the judgment of the trial court.

The pivotal issue is whether two written agreements between the same parties, executed at different times but concerning part of the same subject matter should be read together as one contract when neither document refers to the other. We hold that, in the circumstances of this case, they should not be read together.

The first agreement was entered on February 27, 1976 by Master Builders and Pioneer Development, Inc. (Pioneer) for the purchase of certain undeveloped real property in Los Alamos County, part of which is the subject of this suit. The agreement provided that Pioneer would sell the land to Master Builders for $350,000 and that, among other things, the Jim Cabbell Agency would have the exclusive right to list and sell lots from the subdivision of the property and would receive a 41/2% commission on the sales. James Cabbell, Sr. was the sole shareholder in Pioneer and sole proprietor of the Jim Cabbell Agency, an unincorporated real estate brokerage agency. About the same time that the Pioneer purchase agreement was signed, Pioneer was dissolved, and Mr. Cabbell succeeded to all the right, title and interest in the assets of Pioneer. On purchasing the property, Master Builders divided it into four sections, called Units A, B, C, and D, and began to subdivide the units. The Jim Cabbell Agency received a 4'/2% commission on all lots sold in Units A, B, and C.

The second agreement was entered on April 21,1977 between Master Builders and James Cabbell, Sr. For consideration of $14,000, Cabbell was granted the option to purchase all 14 lots of Unit D subject to the final approval of the Plat by Los Alamos County. The agreement specified that Cab-bell would pay $16,000 per lot if he chose to exercise the option and that the $14,000 would be applied to the price of the lots as down payment. Although no time was specified for the exercise of the option, the court found that the parties intended the option to be exercised within a reasonable time, which it construed to be ninety days from the time Cabbell was notified that the county had approved the Plat. These findings are not challenged. Master Builders notified Cabbell by letter dated October 20, 1977 that the county had approved the Plat on October 6th. After the option was signed, a dispute arose concerning its terms, Cabbell asserting that he was entitled to his 4V2% commission on the sale of the lots to himself and Master Builders claiming the contrary. No reference to the Pioneer purchase agreement is found in the option agreement.

On February 6, 1978, Master Builders filed suit to quiet title on the property in Unit D. The Cabbells and Cabbell, Inc., now owners of the Jim Cabbell Agency, in turn sued Master Builders. The Cabbells sought specific performance on the option agreement; Cabbell, Inc. requested the real estate commission allegedly due on the sale; and Master Builders counterclaimed for damages for slander of title. The cases were consolidated for trial. Title was quieted in Master Builders, and all other claims were denied. Hereafter, unless clarity requires otherwise, James Cabbell, Sr., the Jim Cabbell Agency, or Cabbell, Inc., will be referred to simply as “Cabbell”.

Cabbell contests the trial court’s findings that he sought to modify the option and that he never agreed to exercise it according to its terms". He admits, however, that he never advised Master Builders that he would exercise the option without deducting a real estate commission from the agreed purchase price of $16,000 per lot, and that the commission as applied to this transaction, was not discussed by the parties until after the option agreement was signed. Before we can determine whether or not the court erred in finding that Cab-bell never agreed to exercise the option according to its terms, we must decide what those terms were.

The option agreement says nothing about a real estate commission; the Pioneer agreement specifies that a commission shall be paid on each lot sold. The question is whether the contracts should be construed as one instrument. Since James Cabbell was sole proprietor of Pioneer, we consider that both agreements were between the same parties.

In City of Clovis v. Southwestern Public Service Co., 49 N.M. 270, 161 P.2d 878 (1945), the Supreme Court said:

[T]he general rule is that in the absence of anything to indicate a contrary intention, instruments executed at the same time, by the same parties, for the same purpose, and in the course of the same transaction, are, in the eye of the law, one instrument, and will be read and construed together. . . .

49 N.M. at 279, 161 P.2d at 883. The rule enunciated there is not applicable to the instant case because the two instruments were not executed in the course of the same transaction, nor at the same time. One instrument involved the sale of a large parcel of land; the other involved the repurchase of part of that land by the original vendor fourteen months later.

Another situation in which two documents are properly construed together is when one or both documents refer to the other, as was the situation in Bass v. Occidental Life Insurance Co., 19 N.M. 193, 142 P. 798 (1914). Again the situation before us falls outside of the scope of that rule since neither document refer to “the other.

When as here, two documents are executed by the same parties and concern part of the same subject matter, although not involving the same transaction, the issue of whether they should be treated as a single contract is determined by considering the intent of the parties manifested at the time of contracting and viewed in light of the surrounding circumstances. See generally, Dynamics Corp. of America v. International Harvester Co., 429-F.Supp. 341 (D.C., 1977). The surrounding circumstances indicate that the parties did not intend the first contract to be incorporated into the second one.

Since in the second transaction, Cab-bell was the purchaser as well as the broker, any brokerage commission paid would have the effect of lowering the purchase price. His testimony that he knew that Master Builders would not accept less than $16,000 per lot as part of the option agreement indicates that Master Builders, at least, did not intend a brokerage commission would be paid. The fact that Cabbell accepted the $16,000 per lot purchase price without specifying that he would receive the 4V2% commission indicates that he agreed to pay a total of $16,000 per lot, if he should decide to exercise the option. Moreover, as the broker, Cabbell had a fiduciary duty to reveal all facts which he should realize would be likely to affect the judgment of his principal in deciding whether to agree to the specified terms of the transaction. Iriart v. Johnson, 75 N.M. 745, 411 P.2d 226 (1965). The fact that Cabbell, who drafted the option agreement, failed to mention a brokerage commission, either explicitly, or by reference to the earlier agreement, indicates that he did not intend, anymore than Master Builders did, that the commission would be forthcoming in this transaction. The court must consider the mutually expressed assent and not the secret intent of a party to be the intention of the contracting parties. State v. Pecos Construction Co., 86 N.M. 58, 519 P.2d 294 (1974). The circumstances indicate that the parties did not intend that the contracts should be construed together.

An option must be exercised strictly according to its terms. Richardson v. Casey, 6 Ariz.App. 141, 430 P.2d 720 (1967); Nance v. Schoonover, 521 P.2d 896 (Utah 1974); see, Cillessen v. Kona Co., 73 N.M. 297, 387 P.2d 867 (1964).

The terms of the option are fully set out in the option agreement. The payment of a brokerage commission is not one of the terms. By insisting that he would take his 41/2% brokerage commission when he exercised his option to purchase Unit D, Cabbell was changing the terms of the option agreement. The trial court’s findings to the effect that Cabbell sought to modify the option and never agreed to exercise it according to its terms are supported by substantial evidence. Failure to exercise an option results in its loss. Id. The trial court did not err in refusing to order specific performance on the option contract and in quieting title in Master Builders.

The judgment of the trial court is affirmed.

IT IS SO ORDERED.

ANDREWS, J., concurs. SUTIN, J., specially concurring.