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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Adams v. Adams (02/24/2006) sp-5991

Adams v. Adams (02/24/2006) sp-5991, 131 P3d 464

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,


) Supreme Court No. S- 11716
Appellant, )
) Superior Court No. 3AN-00-5519 CI
v. )
) O P I N I O N
DON ADAMS, Individually and on )
behalf of ALASKA RUBBER & ) No. 5991 - February 24, 2006
Appellees. )

          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Mark Rindner, Judge.

          Appearances:  Steven D. Smith, Anchorage, for
          Appellant.   Wevley William Shea,  Anchorage,
          for Appellees.

          Before:    Bryner,  Chief Justice,  Matthews,
          Eastaugh, Fabe, and Carpeneti, Justices.

          EASTAUGH, Justice.

          Michael  Adams, the lessor of real property,  sent  his
lessee  a  signed extension for a lease that gave the  lessee  an
option  to purchase.  The clause was unenforceable unless Michael
Adams  actually knew of the option to purchase when he  sent  the
lessee the signed lease extension.  We conclude that the superior
court  did  not  clearly err in finding that  Michael  Adams  had
actual knowledge; we therefore affirm the order that the property
be conveyed to the lessee, Don Adams.
          Because  there  was  clear  and  convincing  supporting
evidence, we also affirm the superior courts reformation  of  the
lease, making the entire property subject to the purchase option.
But  we agree with Michael Adams that he should have been awarded
interest.   We  therefore remand with instructions to  amend  the
judgment  accordingly.  We reject Michael Adamss contention  that
Don Adamss attorneys fee award should be reduced.
          This is the second time this matter has come before us.
Because  the facts were set out in detail in Adams v. Adams,1  we
only  briefly recount them here to set the stage for this appeal.
In 1996 Michael Adams agreed to lease property to Alaska Rubber &
Supply,  Inc.  and  to Alaska Rubbers principal,  Don  Adams  (no
relation  to Michael).2 After several exchanges of draft  leases,
Don  Adamss attorney replaced a right-of-first-refusal  provision
with  an option-to-purchase provision in the final draft  of  the
proposed lease, but no one notified Michael Adams of the  change.
Michael Adams signed the lease without reading it.  Approximately
three years later, in August 1999, after discussing the terms  of
the  signed  lease  twice  with a representative  of  Don  Adams,
Michael  Adams  sent  a  signed lease  extension  to  Don  Adams.
Shortly thereafter, Don Adams attempted to exercise the option to
purchase, but Michael Adams refused to sell. Don Adams  sued  for
specific performance.  Michael Adams counterclaimed, arguing that
the lease was void due to Alaska Rubbers fraudulent conduct.
          Following trial, the superior court found that  Michael
Adams  had  reason to know that the lease contained an option  to
purchase  when  he  sent  the signed lease  extension  to  Alaska
Rubber.   It  also concluded that the parties intended  that  the
entire property would be conveyed if a sale took place, including
a  portion  that Michael Adams claimed was not subject  to  sale.
Michael  Adams appealed.  In Adams, we remanded for two  specific
findings.   We  first  requested findings as to  whether  Michael
Adams had actual knowledge that the lease contained an option [to
purchase] when he agreed to extend it.3  Assuming he did, we then
instructed  the  superior  court to  explicitly  address  whether
grounds  for reformation of the property description  as  to  the
option  are  present, and if so, whether the clear and convincing
evidence standard has been satisfied.4
          The  superior court found on remand that Michael  Adams
did have actual knowledge of the option-to-purchase provision and
that  reformation was supported by clear and convincing evidence.
It  entered an amended final judgment that ordered conveyance  of
the  entire property and awarded interest and attorneys  fees  to
Don Adams.
          Michael Adams appeals.
     A.   Standard of Review
          We  review  the  superior courts factual  findings  for
clear  error.5  A finding is clearly erroneous if  it  leaves  us
with  a definite and firm conviction on the entire record that  a
mistake  has  been  made.6   Issues of lease  interpretation  are
reviewed de novo.7  Questions of law are also reviewed de novo.8
     B.   The Superior Courts Finding of Actual Knowledge Was Not
     Clearly        Erroneous.

          Michael  Adams argues that the record does not  support
the superior courts finding that he had actual knowledge that the
lease  contained the option-to-purchase provision before he  sent
the signed lease extension to Don Adams.  We disagree.
          At  the  outset, we note that actual knowledge  can  be
inferred  from circumstantial evidence.9  Otherwise, it would  be
nearly impossible to establish actual knowledge in the context of
a  claim  of  fraudulent misrepresentation unless  the  affirming
party admitted that it knew of the fraud.10  In this case, Michael
Adams did not admit that he knew the lease contained an option to
purchase.  But there was sufficient circumstantial evidence  here
for  us  to conclude that a finding of actual knowledge  was  not
clearly erroneous.
            The superior court noted that Michael Adams certainly
would  have  carefully  reviewed  the  original  lease  prior  to
drafting,  signing and sending the lease extension  agreement  to
Don  Adams.   Michael Adams testified that he did  not  read  the
lease   before  sending  the  extension.   When  asked  why,   he
responded: I knew what the lease said. . . . After reading  three
[draft]  leases in a row, I know exactly what it  said,  I  didnt
have  to refresh my memory, I knew what it said. . . . I  had  no
suspicion that it was changed . . . .  He testified that  it  was
not  until  he  received  a  certified  letter  from  Don  Adams,
approximately  three  months after he sent the  lease  extension,
that  he  discovered  that  the  lease  contained  an  option  to
purchase.   The  superior court found this testimony  to  be  not
credible and rejected it.  Because the superior court was in  the
best  position to assess the demeanor and credibility of all  the
witnesses,  we  will follow our normal practice of   consistently
grant[ing]  deference  to trial courts where  credibility  is  at
          The superior court noted that it was inconceivable that
Michael Adams would not have carefully reviewed [the lease] after
two  conversations  he had with Janeece Higgins,  Alaska  Rubbers
general  manager.   The lease extension was sent  on  August  30,
1999.  Higgins testified that she spoke with Michael Adams  at  a
company  picnic  on August 13, 1999 and told  him  that  Don  was
interested  in exercising his option to purchase.   According  to
her testimony, Higgins telephoned Michael Adams shortly after the
picnic  and told him again that Don Adams wanted to exercise  his
option  to purchase.  When Michael Adams stated that he  did  not
think  he  had to sell the property, Higgins testified  that  she
told  him  she was pretty sure that theres wording in  the  lease
that  says you have  that we have the option to purchase and that
you  have  to  sell  it  to us.  Michael Adams  denied  that  the
conversations with Higgins even took place.  The superior  court,
however, found that Higginss testimony was more credible.
          We  think that the conversations with Higgins  were  of
such a nature that one would reasonably anticipate that the lease
contained  an  option  to purchase.12  Michael  Adams  failed  to
provide  a  credible explanation for why these conversations  did
not  provide him with actual knowledge; rather, he simply denied,
          unconvincingly to the trial court, that they ever occurred.13
          As  stated  above, the superior court did  not  believe
Michael  Adams  when he testified that he was not  aware  of  the
provision until after he sent the lease extension.  Moreover, the
option-to-purchase  provision  was  mentioned   by   Higgins   in
conversations   with  Michael  Adams  on  two  occasions.    This
circumstantial evidence, which Michael Adams failed to adequately
refute,  supports the superior courts credibility  determination.
We  therefore conclude that it was not clear error to  find  that
Michael  Adams  actually knew the lease contained  an  option  to

     C.    The Superior Court Did Not Clearly Err in Finding that
Reformation           Was  Supported  by  Clear  and   Convincing

          Michael  Adams  argues  that the evidence  relevant  to
reformation  was not clear and convincing.14  We have  said  that
[r]eformation of a contract is available when the  words  of  the
writing  do  not correctly express the meaning that  the  parties
agreed  upon. 15  Among other circumstances, reformation  may  be
appropriate  when there is a  mutual mistake of  fact.   16   The
question here, then, is whether the superior court clearly  erred
in  finding that there was clear and convincing evidence that the
parties intended the entire property to be included in a sale.
          The  lease  reserved  a portion  of  the  property  for
Michael  Adams to use as his residence and for storage.  But  the
lease did not specify whether this reserved portion would also be
reserved  if  Don Adams exercised the option to  purchase.17   On
remand  the superior court found by clear and convincing evidence
that the portion of the property that was excluded from the lease
was  not  intended  by  the parties to  be  excluded  [from]  any
eventual sale of the property and that there was a mutual mistake
of  fact to the extent that the property description set  out  in
the  lease did not conform to the parties[] agreement as to  what
was to be sold.
          Michael Adams testified that the piece of property  was
important to him and that he would never sell it.  But our review
of the record convinces us that the superior court was correct to
afford  this testimony little persuasive value.  Most notable  is
the  superior  courts  observation that  the  property  appraisal
commissioned by Michael Adams in preparation for trial valued the
entire  parcel  without reference to any excluded  portion.   Don
Adamss  complaint  requested that Michael  Adams  be  ordered  to
convey  the  property  without  any  discussion  of  an  excluded
portion.   Michael Adamss answer did not contest this request  or
assert  that the reserved portion was to be excluded  from  sale.
Had  Michael Adams intended to exclude the reserved portion  from
sale,  we think it likely that his property appraisal and  answer
would have addressed the reserved portion.
          Other  evidence  supports the conclusion  that  Michael
Adams  intended  to  sell the entire property  at  the  time  the
contract  was formed.  He initially offered to sell, rather  than
lease,  the  property to Don Adams.  He wrote in an October  1995
          letter to Don Adams that he intended to move off the property
shortly  after the sale was completed. Thus, as of October  1995,
Michael Adams did not intend to exclude the reserved portion from
sale.   Almost a year later, in August 1996, Michael Adams  again
wrote  to  Don Adams and discussed leasing the property  to  him.
This  time  there was no mention of moving off the property,  but
there was also no mention of reserving a portion from sale.
          Michael  Adams  testified that his  intentions  changed
between  October 1995 and the initiation of negotiations  between
the  parties in 1996.  He testified that he learned the  reserved
portion  was  the  only place he could keep his trailer  because,
although  the property was zoned industrial, it was grandfathered
while other parcels he owned were not.  He testified that he told
Janeece  Higgins heres your lease.  This is where  Alaska  Rubber
is,  this  is  where you stay and this is where  I  stay  and  Im
staying there because Im going to stay here.  But Michael did not
testify whether he specified to her that this intent applied to a
sale as well as a lease.
          The  testimony of Janeece Higgins and Don Adams,  which
the superior court found to be fully credible, supports a finding
that  Michael  Adams  intended to stay on  the  reserved  portion
during  the  lease but not that he intended to  exclude  it  from
sale.   Both  Higgins and Don Adams testified that Michael  Adams
never  communicated to Alaska Rubber any intent  to  reserve  the
excluded  portion from sale.  Higgins was asked  whether  at  any
time  Michael Adams indicate[d] that he was going to do  anything
other  than move off the property when [Don] Adams exercised  the
option  to purchase; and she answered no, he did not.  Don  Adams
testified that he knew that we were going to let [Michael  Adams]
stay  there in his trailer where he lived during the term of  the
lease.   But Don Adams also testified that his understanding  was
that  he  would  be  purchasing the property,  period,  and  that
[t]here  was  never  any other discussion.  As  [Michael  Adamss]
letter stated, he was willing to sell and he had a place to  move
          The  superior court did not clearly err in finding that
there  was  clear  and  convincing evidence  that  Michael  Adams
intended to convey the entire property and to vacate the reserved
portion  if  and when it was sold.  Michael Adams commissioned  a
property  appraisal that made no mention of reserving  a  portion
from  sale.  His answer and counterclaim similarly did not  refer
to  any  such  exclusion.  It was only after the  superior  court
itself raised the issue that Michael Adams took the position that
he  did  not  intend for the reserved portion to be  sold.18   We
therefore affirm the reformation of the lease.
     D.   Michael Adams Should Have Been Awarded Interest.
          Michael Adams argues that the court, having found  that
he  was obliged to sell the property following Don Adamss attempt
to  exercise  the  option  to purchase,  erred  by  not  awarding
interest  to him on the amounts Don Adams had to pay to  buy  the
property.  The amended final judgment selected May 1, 2000 as the
date the property would have been purchased had Michael Adams not
refused  to  sell.  The superior court awarded  interest  to  Don
Adams  on  the  award  of  one-half the environmental  phase  two
          assessment, the rental payments made since May 1, 2000,19 and
attorneys  fees and costs. Michael Adams asserts that  he  should
have  been awarded interest on the $30,000 earnest money  payment
that would have been due on or about February 1, 2000 and on  the
$270,000  balance of the purchase price that would have been  due
on  May 1, 2000.  According to the lease, the balance was to have
been  paid  within  ninety days of the earnest  money  agreement.
Therefore,  February  1,  2000 is approximately  the  latest  the
earnest  money could have been paid to accomplish a May  1,  2000
          We  have  stated that [w]here the vendee  has  retained
possession,  .  .  . the vendor is entitled to  interest  on  the
unpaid  purchase money, even if the delay in performance  of  the
contract  is attributable to the vendor.20  The reason  for  this
rule  is  that, because we are attempting to enforce the contract
as  written, we will attempt to place the parties in the position
they  would  have been in had the contract been  performed  in  a
timely  manner.21   Michael Adams, therefore,  should  have  been
awarded interest.  We remand for adjustment of the amended  final
judgment accordingly.
     E.    Don  Adamss  Award of Attorneys  Fees  Should  Not  Be

          Michael  Adams  argues that Don Adams should  not  have
been reimbursed for attorneys fees related to the superior courts
reformation of the lease.  Paragraph 15 of the lease provides:
          In   the  event  either  party  shall  be  in
          material default in the performance of any of
          their  obligations under this Lease and costs
          and  attorneys fees are incurred by  the  non
          defaulting party in enforcement of this Lease
          or  in an action for eviction or damages,  or
          otherwise, the defaulting party shall pay  to
          the   other   all   the   expenses   incurred
          therefore,  including  reasonable  costs  and
          attorneys fees.
Michael  Adams suggests that reformation of the lease is  not  an
enforcement of the lease and that paragraph 15 should not apply.
          The  Utah  Supreme Court addressed a similar  situation
involving a provision similar to paragraph 15 in Jensen v. Manila
Corp. of the Church of Jesus Christ of Latter-Day Saints.22   The
plaintiff  there  sued  to  reform a real  estate  contract  that
incorrectly  described the size of the property that  was  to  be
sold.23   The  plaintiff  successfully argued  that  the  written
instrument  did  not  reflect the bargain the parties  previously
orally  agreed  upon.24  The court reasoned  that  the  plaintiff
pursued  a  proper remedy to obtain possession  of  the  premises
encompassed  within  the bargain previously  agreed  upon.   That
bargain  is  part of the subject matter of the contract  allowing
recovery of attorney fees.25
          In  this  case, there was clear and convincing evidence
that  Michael  Adams  had agreed to sell the  entire  property.26
Although  the  lease  itself  did  not  explicitly  reflect  that
          agreement, Michael Adams was in material default in the
performance  of  [one]  of [his] obligations  when  he  took  the
position that something less than the entire property was  to  be
sold.  He is therefore liable for reasonable attorneys fees  that
Don Adams incurred as a result of enforcing the parties agreement
that the entire property be sold.27
          For  these  reasons, we AFFIRM the  order  of  specific
performance  and  the reformation of the lease.   We  REMAND  for
adjustment  of the judgment in accordance with our discussion  of
     1    Adams v. Adams (Adams I), 89 P.3d 743 (Alaska 2004).

     2     We  will  refer  to Don Adams when  referring  to  the
lessees, unless context dictates otherwise.

     3    Adams I, 89 P.3d at 751.

     4    Id. at 752.

     5     Hallam  v.  Alaska Airlines, Inc., 91  P.3d  279,  283
(Alaska 2004).

     6    Id.

     7    Adams I, 89 P.3d at 748.

     8     Catalina  Yachts v. Pierce, 105 P.3d 125, 128  (Alaska

     9     See, e.g., Farmer v. Brennan, 511 U.S. 825, 842 (1994)
(Whether   a  prison  official  had  [actual]  knowledge   of   a
substantial  risk is a question of fact subject to  demonstration
in  the  usual  ways,  including  inference  from  circumstantial
evidence.);  In  re Su, 290 F.3d 1140, 1146 n.6 (9th  Cir.  2002)
(bankruptcy   court  can  consider  circumstantial  evidence   in
determining  whether debtor actually knew harm  to  creditor  was
substantially certain); Ingalls v. Florio, 968 F. Supp. 193,  199
(D.N.J.  1997) (actual knowledge of risk of harm can be  inferred
from  circumstantial evidence of obviousness of risk); Heigle  v.
Miller,  965  S.W.2d  116, 120 (Ark. 1998) (actual  knowledge  of
hidden  dangerous  conditions  can  be  shown  by  circumstantial
evidence);  Yuzon v. Collins, 10 Cal. Rptr. 3d 18, 29 (Cal.  App.
2004)  (landlords  actual knowledge of dangerous  animal  can  be
established  by  circumstantial  evidence);  Benjamin  v.   Union
Carbide  Corp.,  873  A.2d  463,  476  (Md.  App.  2005)  (actual
knowledge  in  context  of discovery rule  may  be  implied  from
circumstantial  evidence),  cert.  granted,  Georgia-   Pac.   v.
Benjamin,  879 A.2d 1086 (Md. 2005); Etherton v. Doe, 597  S.E.2d
87,  89  (Va. 2004) ([I]t is axiomatic that any fact that can  be
proved  by  direct  evidence  may  be  proved  by  circumstantial

     10     In the context of hit-and-run accidents, we observed:
It  is  rarely  possible . . . for the state  to  show  that  the
accused  actually  knew  that the injury had  occurred  and  such
knowledge must usually be proved by showing the surrounding facts
and  circumstances indicating such knowledge. Kimoktoak v. State,
584 P.2d 25, 32 (Alaska 1978).

     11    Whitesides v. State, Dept of Pub. Safety, Div. of Motor
Vehicles,  20 P.3d 1130, 1136 (Alaska 2001); see also  Alaska  R.
Civ.  P.  52 ([D]ue regard shall be given  to the opportunity  of
the trial court to judge the credibility of the witnesses.); Kohl
v.  Legoullon,  936 P.2d 514, 518 n.5 (Alaska  1997)  (The  trial
court  is  in  the  best position to assess  the  credibility  of
witnesses.   To  the extent there are conflicts in testimony,  we
normally defer to the superior courts resolution of such  factual
disputes.);  Crook v. Mortenson-Neal, 727 P.2d 297,  306  (Alaska
1986)  ([T]he superior court was in the best position to evaluate
the defendants demeanor and credibility.  We, therefore, defer to
the courts view.).

     12     Kimoktoak,  584  P.2d  at 32 (holding  that  criminal
liability  attaches  to hit-and-run driver where  the  state  can
prove  by  direct  or  circumstantial evidence  that  the  driver
actually knew of the injury or that he knew that the accident was
of  such  a nature that one would reasonably anticipate  that  it
resulted in injury to a person).

     13     See  Farmer,  511 U.S. at 842, 843 n.8  (noting  that
obviousness  of risk is sufficient to prove that prison  official
was  conscious  of risk but that such obviousness is  not  always
conclusive  because prison official can show that it escaped  him
or  her);  see also Su, 290 F.3d at 1146 n.6 (noting that  debtor
has  to deal with any evidence  which would indicate that he must
have  had  a  substantially certain belief  that  his  act  would
injure,   notwithstanding   any   subjective   denial   of   such
knowledge. ) (quoting Spokane Ry. Credit Union v. Endicott (In re
Endicott), 254 B.R. 471, 477 n.9 (Bankr. D. Idaho 2000)).

     14     Adams  I, 89 P.3d at 752 (observing that elements  of
reformation must be supported by clear and convincing evidence).

     15     Id.  (quoting Arthur L. Corbin, 7 Corbin on Contracts
28.45, at 281 (2002)).

     16     Voss  v.  Brooks,  907 P.2d 465,  468  (Alaska  1995)
(quoting   6A   Richard  R.  Powell,  Powell  on  Real   Property
901[1][d], 81A-162-163).

     17    Even when earlier drafts of the lease contained a right-
of-first-refusal provision, the lease did not specify whether the
reserved  portion  would be included if Don Adams  exercised  the
right  of first refusal.  Therefore, the reformation question  is
independent of the dispute over whether Alaska Rubber had a right
of first refusal or an option to purchase.

     18    The superior court stated at trial that it noticed that
a portion of land was excluded from the lease and that whether it
was to be purchased or not . . . [is] a question thats arisen  in
my  mind.   The  court suggested that the parties might  want  to
produce some testimony on the topic if the issue was going to  be
a fight between them.

     19    Alaska Rubber apparently stopped making rental payments
when the superior court issued the initial final judgment in June

     20     Dillingham Commercial Co. v. Spears, 641 P.2d  1,  10
(Alaska 1982).

     21    Id.

     22    Jensen v. Manila Corp. of the Church of Jesus Christ of
Latter-Day Saints, 565 P.2d 63, 64 (Utah 1977).

          The attorneys fee provision in Jensen stated:

          Buyer and Seller each agree that should  they
          default in any of the covenants or agreements
          contained  herein, that the defaulting  party
          shall pay all costs and expenses, including a
          reasonable attorneys fee, which may arise  or
          accrue   from   the   enforcement   of   this
          agreement, or in obtaining the possession  of
          the  premises covered hereby, or in  pursuing
          any remedy provided hereunder by the statutes
          of  the State of Utah, such remedy is pursued
          by filing of a suit or otherwise.
Id. at 65.

     23    Id.

     24    Id. at 64.

     25    Id. at 65.

     26    See supra Part III.C.

     27     Our  conclusion does not conflict with our  dicta  in
Gamble v. Northstore Partnership, 28 P.3d 286 (Alaska 2001).   We
there  stated  that, for purposes of a similar clause  concerning
attorneys fees,

          [a]rguably  there is a difference  between  a
          suit to enforce an . . . agreement and a suit
          to  reform such an agreement.  An enforcement
          suit presupposes an alleged violation of  the
          agreement.   The  court must  then  determine
          whether  such  a violation has occurred.   By
          contrast   a   reformation  suit   does   not
          necessarily involve a violation.
Id.  at 289.  But in the present case the superior court did  not
merely  reform the lease.  By finding that Don Adams is  entitled
to  specific  performance under the reformed lease, the  superior
court effectively found that Michael Adams had violated the lease
by  refusing  to  sell the entire property.  This case  therefore
differs from the example we referred to in Gamble.

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