Best v. Miranda – 3/15/2012

April 2, 2012

Arizona Court of Appeals Division One Holds that Courts Will Narrowly Construe Option Contracts and that the Duty of Good Faith and Fair Dealing Does Not Require a Party to Accept an Attempt to Exercise an Option Contract that Fails to Comply With the Terms of the Contract.

In March 2004, Gregory Best and Arturo Miranda signed an option contract giving Best the right to purchase property owned by Miranda in South Phoenix by paying $165,000 on or before March 31, 2005. Best tried to exercise his option by sending two written notices to Miranda, but Miranda denied receiving the notices. Best never paid the purchase price to Miranda. In December 2006, Best sought specific performance of the contract by suing Miranda. The suit was stayed until January 2010 pending resolution of separate action by the Arizona Attorney General against Best regarding thirty-seven option contracts Best entered into with homeowners in south Phoenix (including Miranda). When the stay was lifted, Best filed a motion for summary judgment and Miranda filed a cross-motion for summary judgment. Because Best had not tendered the full purchase price as required by the option contract, the trial court denied Best’s motion and granted Miranda’s motion. Best appealed.

The Court of Appeals affirmed the trial court’s entry of judgment in favor of Miranda. The Court explained that Arizona courts “construe option agreements narrowly, and ‘an option must be exercised strictly according to the terms and conditions in the option.’” The option contract required that Best exercise his option by tendering the full purchase price before the contract’s deadline. The Court held that, as a matter of law, Best failed to properly enforce the option contract because he did not tender the full purchase price as required by the contract. The Court rejected Best’s argument that Miranda violated the duty of good faith and fair dealing when he failed to respond to Best’s written notices of his intent to exercise the option. The Court pointed out that the contract did not provide for any alternate means of exercising the option and held that the duty of good faith and fair dealing “does not require a party to accept a purported exercise of an option to purchase that does not comply with the terms of the option agreement.” The Court rejected Best’s argument that the trial court should have considered evidence about the parties’ oral agreement about the contract’s terms because such evidence would be inadmissible under the statute of fraud. The court also rejected Best’s argument that Miranda had a duty to alert Best that his written notices were insufficient to exercise the option.

Judge Brown authored the opinion; Judges Swann and Thompson concurred.