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Perl Island Lodge v. Perl Island Ranch Committee (11/6/92), 841 P 2d 164
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Notice: This is subject to formal
correction before publication in the Pacific
Reporter. Readers are requested to bring
typographical or other formal errors to the
attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska
99501, in order that corrections may be made
prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
WILLIAM L. FOSTER, MARTY )
MIKSCH, FAR WEST ENTERPRISES, ) Supreme Court File No. S-4347
LTD., a Limited Partnership, ) Superior Court File No.
d/b/a PERL ISLAND LODGE, ) 3AN-89-4248 Civil
(Consolidated)
)
Appellants, )
)
v. ) O P I N I O N
)
WALTER G. HANNI, STEPHEN W. )
ANDERSON, ERVIN K. TERRY, )
individually and as members )
of the Perl Island Ranch )
Committee, PERL ISLAND RANCH )
COMMITTEE, PERL ISLAND RANCH, )
a General Partnership, and )
HARLEY D. HESS, )
)
Appellees. ) [No. 3894, November 6, 1992]
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage, Victor D. Carlson, Judge.
Appearances: James L. Hopper,
Anchorage, Arthur R. Langvardt, Hastings,
Nebraska, and James S. Mitchell, Omaha,
Nebraska, for Appellants William L. Foster,
Marty Miksch and Far West Enterprises, Ltd.
Michael W. Sewright, Burr, Pease & Kurtz,
Anchorage, for Appellees Walter G. Hanni,
Stephen W. Anderson, Ervin K. Terry, Perl
Island Ranch Committee, and Perl Island
Ranch.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton and Moore, Justices.
MOORE, Justice.
This case involves a challenge by Walter Hanni, Stephen
Anderson, Ervin Terry, the Perl Island Ranch and the Perl Island
Ranch Committee (collectively referred to as "Hanni") to the sale
of a leasehold property interest by Harley Hess to William Foster
and others. Hanni originally sold the property at issue, a
remote lot on which a lodge is built, to Hess. As part of this
sale, Hanni was given a right of first refusal to purchase the
property interest should Hess ever offer to sell it.
The superior court granted Hanni's motion for summary
judgment, holding that the transfer from Hess to Foster was void
because Hanni was not accorded the right of first refusal.
Because we conclude that several genuine issues of material fact
exist, and that the superior court misapplied the law in several
instances, we reverse the superior court's entry of summary
judgment and remand this case for further proceedings.
I. FACTS AND PROCEEDINGS
In 1977 and 1978, Hess sold a portion of his Perl
Island real property to Hanni, Anderson and Terry, who formed
Perl Island Ranch, a general partnership. Hanni, Anderson and
Terry created a development plan for the real property they had
purchased. In September 1978, Hess, Hanni, Anderson and Terry
executed a declaration which created the Perl Island Ranch
Committee ("Ranch Committee"), consisting of all four declarants.
The declaration also established 35 undivided interests in the
Ranch Development. The owner of each interest was entitled to an
"Area Use Lease,"which entitled the holder to approximately one
acre which could be used for the construction of a single-family
dwelling, for up to 100 years.
As a result of an exchange of deeds with Perl Island
Ranch, Hess acquired two 1/35th interests in the Ranch
Development. Only one of these interests, that which entitled
Hess to the lease for Use Area No. 1, is at issue in this case.
When the Ranch Committee delivered to Hess the lease for Use Area
No. 1, it also delivered a "Lodge Lease"which granted Hess the
right to use the Ranch Development, except for other use area
parcels, for lodge operations. Paragraph 5 of the Lodge Lease
provided that "[t]his lease is deemed personal to Lessee and
shall not be hypothecated, sold, assigned, or in any way
encumbered by Lessee without the express consent of Lessor in
writing." Paragraph 6 stated that "Lessor shall have the first
right to meet any bona fide offer to purchase Lessee's undivided
interest related to the lodge operation." The Lodge Lease ran
from year to year, with Hess to retain all income realized.
Hess built a lodge on Perl Island in 1985. In May
1988, Hess listed his interest in Use Area No. 1 for sale with
Active Realty. Foster, who is general partner of Far West
Enterprises, Ltd. ("Far West"), a Nebraska limited partnership,
made a written offer to purchase Hess's property for $115,000,
conditioned upon bank financing and other terms set forth in that
offer. Hess accepted this offer on September 11, 1988. On
September 15, Hess notified Hanni, Anderson and Terry of his
listing agreement with Active Realty. This agreement stated that
Hess would provide owner financing. On September 19, Terry sent
to the realtor copies of the Declaration, Area Use Lease No. 1,
Lodge Lease and other documents pertaining to the Ranch
Development, and requested that the realtor provide a copy of the
earnest money agreement between Hess and Foster. On September
20, the realtor gave Terry a copy of the earnest money agreement.
Hanni, Anderson and Terry elected not to meet the terms of the
offers which were described in the listing agreement and the
earnest money agreement.
In late November, Anderson and Terry telephoned Foster
to indicate their approval of the transfer of the Lodge Lease to
him, their eagerness to have him as the new lodge owner, and
their desire to have him implement certain wildlife programs.
According to Foster, they urged him to further develop the lodge
property. On December 27, Hanni wrote the other Perl Island lot
owners, stating that "we feel that it may be an asset to the
island to have a lodge operating. We, therefore, are in favor of
approving the issuance of the Lodge Lease to Bill Foster at no
cost." Hanni then wrote to Hess's attorney, asking him to draft
a new Lodge Lease in favor of Foster. The Ranch Committee
retained attorney Michael Sewright, also a lot owner, to handle
revision of the Lodge Lease in accordance with their prior
discussions with Foster.
Because Foster was unable to arrange bank financing,
Hess offered to finance Foster's purchase, as he had offered in
the listing agreement. Foster accepted this offer and agreed to
pay $30,000 as a down payment. The original purchase price was
allocated as follows: (a) $60,000 for Hess's undivided 1/35th
interest in the Ranch Development, together with all buildings
and improvements located in Use Area No. 1, with Foster's $30,000
down payment to be credited toward this portion of the purchase
price, and (b) $55,000 for the assignment by Hess of Area Use
Lease No. 1 and the Lodge Lease, this sum evidenced by a separate
agreement requiring 10 annual installments of $7,495 each.
On March 21, 1989, Hess and Foster executed an
Agreement of Sale of Real Property to Foster for Hess's interest
in Use Area No. 1. A subsequent agreement, dated April 2, 1989,
obligated Hess to "secure all necessary consents to the
assignment of said leases to Buyer, and to the Buyer's future
exercise of Seller's rights under said leases."1 On April 2,
Foster paid Hess $10,000 of the down payment to enable Hess to
remove an encumbrance and forestall a pending judicial sale of
the property. After receipt of this money, Hess gave possession
of the property to Foster who assumed possession on or about
April 16. Foster paid the $20,000 balance on the down payment on
April 28, and Hess delivered to Foster his warranty deed
conveying his undivided 1/35th interest in the Ranch Development.
On April 15, Foster met with Terry in Anchorage. They
discussed Foster's plans for the lodge operation, details
involving ownership of Perl Island Ranch property, and the
financial commitments which Foster had made and was intending to
make concerning further lodge development. Terry reiterated that
the Ranch Committee wanted a new Lodge Lease rather than merely
an assignment by Hess of the old lease. Foster agreed to this.
Terry later learned from an agent of a title insurance
company that the terms of Foster's impending purchase might be
different from the terms which were stated on the earnest money
agreement. On April 19, Sewright wrote to Foster's attorney,
Arthur Langvardt, expressing his clients' belief "that Mr.
Foster's present offer is different than the one my clients were
informed of last fall, when I understood Mr. Foster talked with
them." Following receipt of this letter, Langvardt and Sewright
had several telephone conversations concerning Perl Island Lodge.
On May 3, they apparently spoke twice concerning the provisions
of the new Lodge Lease. During these discussions, the parties
agreed that Hanni, Anderson and Terry would enter into a new
Lodge Lease with Foster upon Foster's fulfillment of certain
conditions such as increasing his aviation liability insurance to
$5 million, executing an indemnity agreement in favor of the
Ranch Committee, providing the Ranch Committee with copies of the
conveyance and purchase documents, and stocking one of the ponds
on the island with fish to prevent depletion by guests of the
lodge. Sewright did not indicate that his clients had an
interest in acquiring the property.
Shortly after Foster took possession of the lodge, the
oil slick caused by the wreck of the Exxon Valdez spread to the
island. On April 20, Exxon expressed to Foster its interest in
using the lodge property during its clean-up operations. Exxon
subsequently agreed to pay Foster $4,500 per day for use of the
lodge to accommodate Exxon personnel and to establish a
communications site.
On May 8, Foster and the Ranch Committee entered into
an "Agreement Re: Interim Use of Perl Island Property by William
L. Foster." In this agreement, the Ranch Committee recognized
and approved Exxon's use of the lodge facility and the common air
strip. Foster was required to deliver to Sewright "all
documentation of agreements, including deeds, contracts, and
memoranda of understanding, between himself and Mr. Hess and
Exxon or any of Exxon's contractors relating to the use of or an
interest in the Perl Island property . . . ." Foster was also
required to maintain and repair the island's airstrip in safe and
suitable condition, provide additional insurance at a cost of
$5,000, and prevent waste or damage to any of the Perl Island
Ranch property. Foster did all of these things. The parties
disagree over whether Foster delivered the documents before or
after he was given the agreement for interim use of the property.
According to Foster, Hanni told him on May 15 that
"we've decided to go 180 degrees on you . . . and that [Hanni]
was envious of [Foster's] contract with Exxon." Foster claims
that Hanni further stated that Foster was a "Johnny come lately"
who was going to make a "windfall profit"by "falling into a pile
of $1,000 bills." Hanni advised him that Hanni, Anderson and
Terry wanted a "split of the proceeds"for themselves or else
they were going to cause legal troubles by whatever means they
could. Hanni handed him a document which purported to terminate
the permit for Exxon's use of the property. Hanni also produced,
and unsuccessfully attempted to have Foster sign, an "amended"
interim permit which was exactly the same as the existing permit
except that it gave one-half of the gross receipts from Exxon to
Hanni, individually.
After threatening to terminate Foster's interim use
permit if he would not sign the new permit giving Hanni, Anderson
and Terry one-half of the Exxon money, Sewright wrote the legal
department of Exxon on May 19 and May 23, instructing Exxon to
pay Hanni, Anderson and Terry the compensation earned under the
agreement between Foster and Exxon. In response, Foster filed a
complaint in superior court which sought to enjoin Hanni,
Anderson and Terry, individually and as members of the Perl
Island Ranch Committee, from further interference with his Exxon
contract, compel them to consent to the assignment of Hess's
Lodge Lease, and enjoin them from further interference with
Foster's peaceable enjoyment of the property. Foster also sought
a declaratory judgment as to the legal relationships between the
parties. Hanni simultaneously filed a complaint for injunctive
relief and damages against Foster, Marty Miksch,2 Far West and
Exxon, alleging that they were trespassers and possessed the
island property "contrary to plaintiffs' ownership interests in
the property and reserved rights of consent, first right of
refusal, and reserved rights to commercially develop the property
for lodging." The actions were consolidated by order of the
trial court.
Following a hearing, the superior court denied cross-
motions for temporary restraining orders. Hanni then filed an
answer and a counterclaim which incorporated the allegations in
his original complaint. Hanni also filed a motion requesting
summary judgment on several different issues. Foster, Miksch and
Far West (hereinafter "Foster") filed their answer and a
counterclaim for tortious interference. They also filed a motion
for partial summary judgment, requesting the court to find that
Hanni had no claim to the "specific monies owed by Exxon
Corporation"to Foster.
Judge Victor Carlson heard oral argument on the motion
for summary judgment, and announced from the bench that Hanni's
motion for summary judgment was granted, and that Foster's motion
for partial summary judgment was denied. Judge Carlson did not
provide an explanation for these decisions. Judge Carlson then
signed an order of summary judgment which ordered Exxon to
immediately deposit with the court the full amount it owed for
its use of the Perl Island Property, including prejudgment
interest. He ordered that all of that sum in excess of $130,000,
and accrued prejudgment interest on $130,000, was to be paid to
the Perl Island Ranch Committee and charged against the court
account for this matter. The sum remaining in the court registry
was to be placed in an interest-bearing account and was subject
to further application by the parties. Exxon Corporation
deposited a sum of $238,584.16 with the court. Soon thereafter,
$85,000 of that sum was disbursed to Hanni in accordance with the
court's instructions.3
Hess first appeared in this case with his "Stipulation
for Entry of Judgment"dated May 30, 1990. This document, signed
by Hess and Sewright, purports to allow judgment to be entered
against Hess to the same extent as would be entered against
Foster, Miksch, Perl Island Lodge and Far West Enterprises.
Upon Hanni's "Motion for Entry of Judgment"and this stipulation,
the trial court entered a judgment against Foster, Miksch, Far
West and Hess.4 The court held that the transfer of the property
by Hess to Foster was in violation of the right of first refusal
contained in the Lodge Lease, and that the transfer was therefore
null and void. The court also found that the transfer resulted in
an irrevocable option at law in Hanni to elect to purchase the
property, that Hanni had elected to exercise that option, and
that Hanni was therefore entitled to specific performance of the
right of first refusal. Hanni was given the right to receive
legal assignment of the Lodge Lease by consenting to that
assignment. Hess was ordered to execute all documents required
to accomplish the specific performance to which Hanni was found
entitled. The appellants were also "permanently enjoined and
forever prevented from entering, using, or possessing any part"
of the property at issue in this case.
By application dated August 29, 1990, Hanni asked that
the balance of the Exxon money be awarded to him. The court
granted Hanni's application in a supplemental judgment dated
October 26, 1990. On that same date, the court denied Miksch's
motion for summary judgment that, as a limited partner, he was
not individually liable. By order of September 5, 1990, the
court summarily awarded various items of "expense"to Hanni, as
well as $20,000 in "punitive sanctions." The court also signed
another order imposing sanctions upon Foster pursuant to Alaska
Rule of Civil Procedure 37(a)(4).
The trial court directed the entry of final judgment.
The trial court also entered an order confirming its entry of
judgment against Miksch. The court awarded $2,500 in costs and
attorney's fees to Hanni, and $1,200 in costs and attorney's fees
to Hess. This appeal followed.
II. DISCUSSION
Foster challenges several aspects of the superior
court's handling of this case. He argues that the court erred in
awarding summary judgment, in denying his motion for partial
summary judgment, in entering the judgment, in entering the
supplemental judgment, in denying Miksch's motion for summary
judgment as to Miksch, and in ordering him to pay certain
"expenses and sanctions."
A. DID THE SUPERIOR COURT ERR IN GRANTING SUMMARY JUDGMENT
TO HANNI ON THE BASIS THAT HIS RIGHT OF FIRST REFUSAL IN
THE LODGE LEASE WAS VIOLATED?
Hanni's motion for summary judgment alleged that the
assignment by Hess to Foster was void because it violated Hanni's
right of first refusal. Hanni asserted that the assignment
therefore gave him an irrevocable option at law to purchase
Hess's rights upon the same terms as the purported purchase of
Foster. Hanni declared his intention to exercise this option.
He claimed that he was entitled to "receive all right, title and
interest in said property as of the date of Mr. Hess' [sic] sale
of the property to Mr. Foster in 1989, including any and all
compensation owed for use of the property by the plaintiffs
thereafter."
Despite Foster's defenses,5 Judge Carlson summarily
granted Hanni's request for summary judgment, stating that "there
are no genuine issues of material fact with regard to [Hanni's]
motion" for summary judgment. Foster challenges that decision,
claiming that there existed several genuine issues of material
fact, and that the appellees were not entitled to judgment as a
matter of law. In reviewing an order of summary judgment, this
court must reverse the order if the pleadings and evidence
presented reveal either the existence of any genuine issues of
material fact or that the moving party is not entitled to
judgment as a matter of law. Jennings v. State, 566 P.2d 1304,
1308 (Alaska 1977); Moore v. State, 553 P.2d 8, 15 (Alaska 1976).6
1. Did there exist genuine issues of material fact?
a. Is Hanni estopped from asserting the right of
first refusal?
Foster asserts that Hanni is estopped from asserting
the right of first refusal. Before examining whether Hanni is
estopped, it is necessary to consider whether Hess's offer to
finance Foster's purchase actually constituted a second offer to
which Hanni had a new right of first refusal. The parties cited
no cases which dealt with the precise question of whether an all
cash offer is so different from a later offer at the same price,
but with owner financing, that the latter offer would have to be
resubmitted to the holder of the right of first refusal. Several
courts have examined whether the offer of the holder of the right
of first refusal was on the same terms as that of the third party
offeror. See, e.g., Northwest Television Club, Inc. v. Gross
Seattle, Inc., 634 P.2d 837, 841 (Wash. 1981). In such cases,
courts will generally find that the offers were not on the same
terms only if their terms are materially different. See id.
Foster argues that there was but one offer, claiming that the
financing provision was not a condition precedent to the
existence of a valid contract, "but only a condition precedent to
the duty of both parties to render their promised performances."
Foster also notes that he originally sent Hanni his listing
agreement, the terms of which stated Foster's willingness to
provide owner financing, and that Hanni refused to accept these
terms. Hanni responds that "different financing arrangements,
interest rates, and periods of payment make for a very different
real _total_ purchase price." He claims that as a matter of law
and undisputed fact, the finance terms differed greatly between
Foster's September 1988 offer and his April 1989 offer.
After reviewing the terms of the alleged second offer,
we conclude that there were two offers. Among other differences
in the offers, the second offer provided for long-term seller
financing instead of requiring a cash payment. This difference,
particularly in view of the fact that banks were unwilling to
finance the transaction, made the second offer substantially more
attractive to a potential buyer than the first offer. As such,
we find that Hess's offer to finance Foster's purchase actually
constituted a second offer to which Hanni had a new right of
first refusal.
Having concluded that Hess's offer to finance Foster's
purchase constituted a second offer to which Hanni was accorded a
right of first refusal, we proceed to examine whether Hanni acted
in such a way as to warrant estoppel of that right. Courts in
many other jurisdictions have recognized that a litigant can be
estopped from claiming a right of first refusal. See, e.g.,
Katskee v. Nevada Bob's Golf of Neb., Inc., 472 N.W.2d 372, 376
(Neb. 1991); Urban Hotel Management Corp. v. Main and Washington
Joint Venture, 494 N.E.2d 334, 338 (Ind. App. 1986). We agree
with these courts.7
In Alaska, the general requirements for application of
the doctrine of equitable estoppel are the assertion of a
position by conduct or word, reasonable reliance thereon by
another party, and resulting prejudice. Arctic Contractors, Inc.
v. State, 564 P.2d 30, 40 (Alaska 1977). The record indicates
that Hanni may have failed to assert his right of first refusal
despite his knowledge of the terms of the second offer, and
Foster may have detrimentally relied upon Hanni's apparent
consent to the sale. The letter sent by Sewright to Langvardt on
April 19, 1989, clearly reveals that Sewright knew that there had
been a modification of the offer which his clients had earlier
declined to meet. Moreover, if Foster's account is correct,
Hanni was aware of the specific terms of the Foster-Hess deal
before he gave Foster written permission to lodge the Exxon
workers on the property.8 As to the question of Foster's
reliance, it appears as if Foster expended great sums in making
Exxon's requested improvements and providing services to Exxon,
in apparent reliance upon Hanni's approval of the sale to Foster.9
Because of the existence of these genuine issues of material
fact, the superior court erred in awarding summary judgment. On
remand, the court must resolve these issues to determine whether
Hanni is estopped from asserting his right of first refusal.10
b. Did Hanni tender performance?
Foster next argues that the trial court failed to
consider whether Hanni had tendered performance of the purchase
price to Hess before the court ordered specific performance of
the right of first refusal. In C. Robert Nattress & Assocs. v.
Cidco, 229 Cal. Rptr. 33 (Cal. App. 1986), which involved a claim
for specific performance of a right of first refusal, the court
stated:
[I]t is axiomatic that to obtain
specific performance, a buyer must prove not
only that he was ready, willing and able to
perform at the time the contract was entered
into but that he continued ready, willing and
able to perform at the time suit was filed
and during the prosecution of the specific
performance action.
Id. at 37. Despite this recognized requirement, Judge Carlson
apparently awarded specific performance without considering
whether Hanni tendered performance.11 Because of this mistake,
the court on remand should determine whether Hanni was ready,
willing and able to perform Foster's contract from the time that
Foster and Hess entered into their contract until the termination
of the prosecution of the specific performance action.
c. Does equity require specific performance?
Foster's final argument is that the trial court failed
to weigh equitable issues concerning the propriety of specific
performance in light of the involvement of a third party buyer
such as Foster. We agree. The Restatement (Second) of
Contracts, 364 (1981) provides that specific performance should
be refused if it would cause unreasonable hardship or loss to the
party in breach or to third persons. If the trial court
determines that specific performance is otherwise appropriate, it
should consider whether specific performance should be refused
because it would cause unreasonable hardship or loss to Foster.12
2. Were appellees entitled to judgment as a matter of
law?
Perhaps the most serious problem with this case is that
Hanni is attempting to enforce a contractual provision in his
lease with Hess, the right of first refusal provision, against a
person who is not a party to that agreement. As Foster states in
his brief, "Hanni is simply seeking the wrong person's money."
While Hanni might have a case against Hess for breaching the
right of first refusal provision, he does not have a claim
against Foster, Miksch, Far West Enterprises or Perl Island Lodge
for breaching that provision, since Hanni did not contract with
Foster. As such, Hanni was not entitled to summary judgment as a
matter of law. On remand, the court should consider whether
Hanni has a case against Hess for breaching the right of refusal.13
Foster also argues that summary judgment was
inappropriate because Hanni's complaint requested only damages
for trespass, while his motion for summary judgment requests
specific performance and the money owed to Foster by Exxon.
Foster mischaracterizes the complaint when he states that it only
alleges trespass. Count I states: "The defendants are and have
been in continuing trespass upon plaintiffs' property and in
contravention of plaintiffs' rights of consent and first refusal
and reserved right to operate a commercial lodge . . . ." Even
if Hanni's complaint had not put Foster on notice of the relief
sought by Hanni, Hanni's motion for summary judgment certainly
gave Foster that notice and an opportunity to respond to those
claims. This argument lacks merit.
B. DID THE SUPERIOR COURT ERR IN DENYING THE APPELLANTS'
MOTION FOR PARTIAL SUMMARY JUDGMENT?
Foster's motion for partial summary judgment requested
the trial court to hold that Hanni had no claim to the "specific
monies owed by Exxon Corporation"to Foster. After hearing
arguments on this motion, Judge Carlson denied the motion from
the bench without giving a reason for his decision.
Hanni asserts that this denial was correct because the
adoption of Foster's position "would be an announcement to the
world that any trespasser or similar person such as Foster who
disregards the rights of the equitable owner of the property is
entitled to the mesne profits from the land even though it is not
rightfully his land." This argument lacks merit. As discussed
below, Hanni was not entitled to the specific money owed by Exxon
to Foster, under either the theory of trespass or specific
performance of the right of first refusal. Even if Foster owed
Hanni damages or restitution, Foster would not owe the payments
from Exxon. The trial court therefore erred in denying Foster's
motion for partial summary judgment.
C. THE SUPERIOR COURT'S AWARD OF DAMAGES
1. Did the superior court properly award to
Hanni the Exxon monies as lost profits?
Foster argues that even if Hanni had articulated a
plausible claim for an award of damages, Hanni was not entitled
to all of the Exxon money as "lost profits." Citing 351 of the
Restatement (Second) of Contracts, Foster observes that damages
are not recoverable for a loss that the breaching party did not
have reason to foresee as a probable result of the breach when
the contract was made. He claims that the parties to the Lodge
Lease could not foresee in 1978 that an oil spill ten years later
would destroy the fishing season and bring clean-up crews to the
area, and that the premises would be leased to an oil company at
a high rate. We agree. In addition, Foster correctly notes that
the expectation interest damages awarded an injured party must be
reduced by those costs that he has avoided by not having to
perform. Judge Carlson inexplicably failed to take into account
the sums expended by Foster prior to Exxon's renting the
property.
Hanni maintains that normal restitution damages are
inappropriate for the alleged breach of the lease provisions
"[i]n that Foster had forced himself upon the Perl Island
property in violation of Hanni, et al.'s rights in order to
unjustly enrich himself . . . ." Judge Carlson seems to have
shared this view, as indicated by his statement that "I don't
understand how you can say that the person who plants barley on
somebody else's ranch gets to keep the proceeds of the barley
crop." The problem with this view is that Foster was not a
conscious wrongdoer. Foster occupied the land pursuant to an
apparently valid contract, and received a deed and agreement for
assignment of the leases from Hess, the undisputed owner of the
interests. As recognized in the Restatement of Restitution
203, when a person innocently converts the property of another,
the true owner is entitled only to the value of the property
converted, and not to the profits which the converter has made by
a disposition of the property.14 While conversion generally
involves chattels, and not real property, the general principle
asserted in 203 is applicable in this case. Because Foster was
not a conscious wrongdoer he is liable, if at all, for only the
normal rental value of the property converted, not for the
abnormally large rent payments which he received as a result of
both the unusual circumstances which arose after he took
possession and his efforts in persuading Exxon to rent the
premises.15 See Alyeska Pipeline Serv. Co. v. Anderson, 629 P.2d
512, 526-28 (Alaska 1981) (recognizing that in trespass-
conversion cases, the trespasser will be liable for a larger
damage award if the trespass is unsuccessful), cert. denied, 454
U.S. 1099 (1981); Rollins v. Leibold, 512 P.2d 937, 945-46
(Alaska 1973) (where defendant was an "innocent converter" of a
crane, plaintiff could recover the value of the crane plus
interest, but not the net lost profits).
2. Did the superior court correctly determine that
Miksch was individually liable for the damages
awarded?
Miksch argues that because he is a limited partner of
Far West, the court erred in entering judgment against him. The
trial court entered summary judgment against Miksch, together
with Foster and Far West, on August 3, 1990. Miksch then filed a
motion for summary judgment on the ground that as a limited
partner, he was not individually liable. Judge Carlson denied
this motion.
Because Judge Carlson did not provide an explanation
for his decision to deny Miksch's motion, we do not know the
basis for his decision.16 The pleadings suggest two possible
grounds. First, the trial court might have relied upon Hanni's
arguments that the Far West limited partnership did not comply
with Alaska law governing the formation of limited partnerships,
including recordation of the appropriate certificate in the
manner mandated by statute, and that Miksch was therefore
individually liable. This argument is problematic. Contrary to
Hanni's characterization of the law, AS 32.10.010 does not
clearly require foreign limited partnerships to comply with the
Alaska law regarding formation of partnerships. Alaska's version
of the Uniform Limited Partnership Act makes no provision for
recognizing a foreign limited partnership. The fact that the
statutes do not clearly require foreign limited partnerships to
comply with state formation laws suggests that Far West could
operate in Alaska as a limited partnership.17
The other possible ground for the court's decision to
enter judgment against Miksch is that the Far West limited
partnership did not qualify as a limited partnership during the
period of events at issue, since Far West did not file a limited
partnership certificate in Nebraska until May 1990. Foster
concedes that the Nebraska limited partnership certificate was
not filed with the Nebraska Secretary of State for a year after
the agreement was signed by all the partners, but claims that
this does not prevent those who signed the certificate as limited
partners from enjoying limited liability. The validity of this
argument seems to depend upon whether Far West was a limited
partnership under Nebraska law at the time of the material acts
in this case. Section 67-240 of the Revised Statutes of Nebraska
requires a filing of the partnership certificate with the
Secretary of State, but Neb. Rev. Stat. 67-244(a) (1990)
provides for "filing by judicial act"if "the court finds that it
is proper for the certificate to be executed and that any person
so designated has failed or refused to execute or file the
certificate, it shall order the Secretary of State to execute and
record an appropriate certificate." Although the record before
us remains unclear on the issue of limited partnership status, it
appears that Miksch may not have been a limited partner before
the certificate was validly filed in May of 1990. Nonetheless,
there may have been damages awarded against Miksch, as a general
partner, which arose from actions taken after a valid limited
partnership was formed in Nebraska. These same awarded damages
against Foster must be reversed for the reasons mentioned above
and this same result pertains also to Miksch in his status as
either a general partner or a limited partner.
Because both grounds suggested by the pleadings for the
court's decision to hold Miksch individually liable are of
questionable merit, we reverse the court's entry of judgment
against Miksch. We do not reverse the court's denial of Miksch's
motion for summary judgment, for our review revealed the genuine
issues of material fact and questions of law which are discussed
above.
III. CONCLUSION
For the reasons discussed above, we REVERSE the
superior court's order of summary judgment against Foster,
Miksch, Far West Enterprises, Ltd. and Perl Island Lodge based
upon a breach of the lease provision granting Hanni the right of
first refusal. We REMAND for further proceedings consistent with
the matters discussed in this opinion. Whether Hanni's motion of
summary judgment should be entered against Hess for allegedly
breaching the right of first refusal should also be considered on
remand. We also REVERSE the superior court's denial of Foster's
motion for partial summary judgment, and order the court to enter
judgment on this motion that Hanni, as a matter of law, had no
claim to the specific monies owed by Exxon Corporation to Foster
for daily use of the lodge facilities. Furthermore, we REVERSE
the superior court's ruling that Miksch is not a limited party
entitled to summary judgment. All other orders and judgments
entered by the superior court, including the supplemental
judgment and the order which require Foster to pay certain
"expenses and sanctions,"are VACATED.
_______________________________
1. Foster's attorney, Arthur Langvardt, wrote a letter to
Hanni's attorney, Michael Sewright, on March 3, 1989, which
stated:
I believe Mr. Foster spoke to the
members of the committee on October 7, 1988.
He still has received no word that assignment
of the lease is approved (or disapproved, for
that matter).
The sale is contingent on Mr.
Foster's obtaining the lease, and is
scheduled for closing. It is essential,
because of the timing of the lodge season,
that he know right away if there is a problem
with the lease.
2. Marty Miksch, of Anchorage, is one of the limited
partners of Far West.
3. According to Hanni's counsel, the sum of $153,584.16
plus interest remains subject to disbursement.
4. Hess's status as a party to this case is somewhat
uncertain. The appellees filed a motion to amend their complaint
to add Hess as a defendant. Subsequent to the filing of that
motion, on December 1, 1989, appellants' counsel was seemingly
assured by Judge Carlson that the complaint would not be amended
for purposes of the summary judgment hearing on that date. The
parties later discovered that Judge Carlson, on November 30,
1989, had written on the bottom of the motion to file an amended
complaint that it was allowed. This "order"was not circulated
until December 28, 1989.
5. Foster asserted many defenses to Hanni's motion for
summary judgment. His primary defenses were that Hanni had
waived any right he had to refuse consent to Hess's assignment of
his lodge lease and to insist upon a right of first refusal, and
that Hanni was estopped by Hess's reliance from asserting his
right of first refusal.
6. Hanni argues that Miksch, Perl Island Lodge and Far West
Enterprises waived opposition to Hanni's motion for summary
judgment because they presented no opposition to that motion. In
the case upon which Hanni relies most heavily in making this
argument, Jerrel v. Kenai Peninsula Borough Sch. Dist., 567 P.2d
760 (Alaska 1977), no briefs were filed in opposition to summary
judgment, thus disrupting the court's calendar and the "prompt
handling of litigation."Id. at 764-65. In the case at bar,
briefs in opposition to the motion were timely filed by Foster.
Even more importantly, Foster's interests are almost exactly the
same as the interests of the parties alleged to have waived
opposition, since he is the only general partner in Perl Island
Lodge and Far West Enterprises. For these reasons, and in light
of the fact that the law firm employed by Foster was clearly
representing these parties at the time it filed Foster's
opposition, that firm's failure to list the other parties on its
opposition does not constitute a waiver of their opposition. See
Alaska R. Civ. P. 94.
7. Hanni argues that an estoppel analysis is inappropriate
because "no duty to exercise [a right of first refusal] arises
until the offer is squarely presented to the holder of the right
by the party obligated, in its complete, clear and unequivocal
terms. . . ." In support of this argument, Hanni cites several
cases from other jurisdictions which state that the holder of a
right of first refusal is entitled to notice of the terms of a
proposed sale and an opportunity to purchase under those terms.
See, e.g., Prince v. Elm Inv. Co., Inc., 649 P.2d 820, 826 (Utah
1982).
We recognize that the holder of a right of first
refusal is generally entitled to notice of the terms of a
proposed sale and an opportunity to purchase under those terms.
Nonetheless, in those cases where the holder of a right of first
refusal has knowledge of the terms of an offer and apparently
waives his right, and where the seller reasonably relies on this
waiver, it is not inappropriate to estop the holder from
asserting the right of first refusal.
8. Hanni claims that the agreement "does not recognize (and
in fact disclaims) any right in Foster material to the right of
first refusal, implicitly or otherwise, and does not waive
compensation for Exxon's use of the type that later became
known." He argues that the agreement was executed only after
Foster "thrust himself upon the island,"misrepresented the use
and compensation being paid, and commenced unauthorized air
operations on the island. Again, this disagreement with Foster
shows the existence of a genuine issue of material fact.
9. Hanni argues that Foster had already begun making
improvements to the island prior to Hanni's alleged acquiescence
to the terms of the Foster-Hess deal, and that Foster therefore
"cannot now be taken seriously when he claims that he _changed
his position in reliance_ on the interim use document." This
argument raises another genuine issue of material fact.
10. Foster also claims that there exist genuine issues of
material fact as to whether Hanni waived the right of first
refusal. In Milne v. Anderson, 576 P.2d 109 (Alaska 1978), we
stated that "[a]n implied waiver arises where the course of
conduct pursued evidences an intention to waive a right, or is
inconsistent with any other intention than a waiver, or where
neglect to insist upon the right results in prejudice to another
party." Id. at 112. Applying this test, the record suggests
that Hanni may have waived the right of first refusal. When
Foster contacted Terry and Anderson by telephone to discuss his
plans for the lodge, they voiced no objections to his acquiring
and operating the lodge. Terry and Anderson later telephoned
Foster to discuss their desire to have him operate the lodge. In
December 1988, Hanni sent a letter to all lot owners saying he
was in favor of issuing the Lodge Lease to Foster at no cost and
would "probably"issue the lease to Foster if no one objected.
There is no evidence that Foster was ever informed of any
objection to the assignment. Because there exist genuine issues
of material fact with regard to the question of whether Hanni
waived his right of first refusal, the superior court erred in
entering summary judgment against Foster.
11. In Hanni's Reply to Opposition to Motion for Summary
Judgment, dated September 29, 1989, Hanni stated that he was
ready, willing and able to meet the terms contained within
Foster's second offer. A mere assertion in a pleading is
insufficient to prove that he was ready, willing and able to
perform at the time the contract was executed.
12. Foster maintains that the superior court should have
conducted an evidentiary hearing to determine whether
reimbursement was due him when specific performance was granted.
Hanni disagrees, claiming that Foster's argument simply dredges
up issues of damages appropriately dealt with in the court's
supplemental judgment.
The affidavits and exhibits in the record show that
extensive evidence concerning the parties' damages was introduced
by both parties. If the trial court determines upon remand that
specific performance is called for, it should also determine
whether to hold an evidentiary hearing for purposes of fashioning
a proper remedy.
13. As discussed in footnote 4, supra, Hess's status as a
party in this case is somewhat uncertain. Assuming that Judge
Carlson added Hess as a defendant as a result of the appellees'
motion to amend their complaint, it is proper for the superior
court to consider the motion for summary judgment against Hess
only. While Hess has apparently aligned with Hanni since the
appellees moved to have Hess added as a defendant, that
realignment does not preclude the superior court from considering
the motion for summary judgment against Hess.
14. Section 203 of the Restatement of Restitution (1937)
provides in part:
203. INNOCENT CONVERTER
Where a person converts the
property of another without notice of the
facts which make him a converter and being
still without such notice exchanges it for
other property, the other is entitled to an
equitable lien upon the property received in
exchange to secure his claim for restitution,
but is not entitled to enforce a constructive
trust of the property.
Caveat: It is not
intended to express any opinion on
the question whether a constructive
trust can be enforced against a
converter who has disposed of the
property converted and acquired in
exchange other property without
knowledge but with notice of the
facts which make him a converter .
. .
Comment:
a. Reason for the rule. Where the
converter is a conscious wrongdoer, he can be
compelled to surrender any profit which he
makes by a disposition of the claimant's
property, and not merely to restore to the
claimant the value of his property, since if
he were permitted to keep the profit there
would be an incentive to wrongdoing, and
compelling him to surrender the profit
operates as a deterrent upon the wrongful
disposition of the property of others. . . .
This reason is not applicable to persons who
are not conscious wrongdoers. A person who
innocently converts the property of another
is liable to the other for the value of the
property converted, and if through the
disposition of this property he acquires
other property, the other can enforce an
equitable lien upon the property so acquired
as security for his claim against the
converter for the value of the property
converted, and if the property so acquired is
of less value than the property converted,
the other can hold the converter personally
liable for the balance of his claim. If the
property so acquired is of greater value than
the property converted, the other cannot
reach the profit by enforcing a constructive
trust of the property so acquired. The owner
of property converted is entitled to be made
whole but not to reach the profit.
15. In his memorandum in support of the motion for summary
judgment, Hanni offered additional theories to justify his claim
for all the money which Foster received from Exxon. He asserted
that "[w]here the property has been placed in the possession of a
third party, recovery is afforded under the equitable doctrines
of quasi-contract or assumpsit or unjust enrichment." On remand,
the superior court should consider the validity of these
arguments.
16. While Miksch's motion might appear untimely, because he
did not file his motion until after summary judgment had been
ordered and entered against him, the motion probably was not
untimely. Miksch filed his motion prior to the court's
supplemental judgment, giving the court an opportunity to dismiss
Miksch prior to its disposition of the interpled funds and its
order that the appellants pay certain expenses incurred by Hanni.
Judge Carlson apparently did not view Miksch's motion as
untimely, for he expressly considered the motion and the parties'
arguments as to its merits before denying the motion.
17. American Jurisprudence provides:
Case authority as to when a foreign
limited partnership must register in the
state is sparse and corporation law has been
looked to for guidance. On that basis the
rule that a foreign corporation is not doing
business in a state when it only engages in
casual, occasional or isolated acts and
transactions, such as the purchase or leasing
of property, has been applied to a foreign
limited partnership.
Since the original (1916) Uniform
Act does not provide for the recognition of
out-of-state limited partnerships, firms
often refile their certificates in each state
in which they do business, if the original
Act is in force there. However, courts have
recognized their right to do business without
having filed at all.
Caution: Such is not
likely to be the rule in a state
which has adopted one of the
provisions specifically requiring a
foreign limited partnership to
file.
59A Am. Jur. 2d Partnership 1248 (2d ed. 1987) (citations
omitted).
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