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D. Klosterman & F. Dahl v. Hickel Investment Co. (7/19/91), 821 P 2d 118
<![CDATA[
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
DAVID A. KLOSTERMAN and ) Supreme Court File No.
FRANK DAHL, ) S-3560
) Superior Court No.
) 3AN-87-11887
Appellants, )
)
v. ) O P I N I O N
)
HICKEL INVESTMENT COMPANY, )
) [No. 3716 - July 19, 1991]
Appellee. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage, J. Justin Ripley, Judge, on appeal
from the District Court, Third Judicial
District, Anchorage, Ralph Stemp, Judge.
Appearances: Peter W. Giannini,
Giannini & Associates, Anchorage, for
Appellants. Donald D. Hopwood and David J.
Schmid, Kay, Saville, Coffey, Hopwood &
Schmid, Anchorage, for Appellee.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton and Moore, Justices.
MOORE, Justice.
This appeal arises from Hickel Investment Company's
(HIC) action to recover rent and possession of premises leased to
Keystar, Inc., a/k/a Doubleday's, Inc. (Doubleday's), a
corporation owned and operated by appellants David A. Klosterman
and Frank Dahl. The superior court found that HIC's re-entries
of the premises on November 27 and December 15, 1987, were in
compliance with the lease agreement between the parties. It then
determined that Doubleday's anticipatorily breached the agreement
and awarded HIC lawful possession of the premises as well as all
rent due over the ten year term of the lease. The court also
awarded HIC the improvements and chattels remaining on the
premises after February 1, 1988, the date Doubleday's abandoned
the property. Klosterman and Dahl, the guarantors of
Doubleday's' obligations under the lease, appeal. They
additionally appeal a district court order granting HIC an ex
parte writ of attachment as well as the district court's finding
that HIC's manner of executing on an aircraft owned by Klosterman
was permissible.
We affirm the superior court's order regarding
Doubleday's' anticipatory repudiation of the lease. We reverse
its findings regarding HIC's re-entries, its award of accelerated
rent and its disposition of the property remaining in the leased
premises, and we remand the case to the trial court for
reconsideration of these issues. We further affirm the district
court's order issuing an ex parte writ of attachment, but reverse
its decision validating HIC's execution procedure on Klosterman's
aircraft.
I.
On October 9, 1986, Keystar, Inc., a/k/a Doubleday's,
Inc.,1 entered into a ten year lease of commercial space in the
Fifth Avenue Building in Anchorage for the purpose of operating a
bar and restaurant called "Doubleday's." David A. Klosterman and
Frank Dahl, the two shareholders and principals of Doubleday's,
each personally guaranteed the lease.
HIC purchased the Fifth Avenue Building in July 1987.
In that transaction, the Doubleday's lease and the personal
guarantees of Klosterman and Dahl were assigned by the prior
lessor, Anders Corporation, to HIC.2 During the closing, HIC
learned that Doubleday's was having difficulty meeting its rental
obligations and that it was, in fact, delinquent with its rent.
HIC agreed to reduce Doubleday's' rent by $2000 per month for the
year July 1987 through June 1988.
Due to ongoing delinquencies in the Doubleday's
account, HIC's credit manager sent Doubleday's a letter on
November 10, 1987, which demanded payment of all accrued rent and
stated HIC's intention to re-enter the property pursuant to the
default remedies set forth in the lease if the accrued rent was
not paid by November 25. After receiving a partial rent payment
of $2500, HIC sent a second letter on November 24 which restated
its intention to commence default remedies unless the account was
made current.
Having received no further payments, HIC re-entered the
premises on November 27, changed the locks and turned off the
natural gas. Klosterman later re-entered the premises and
resumed operations, although the kitchen was not operable since
there was no gas.
On November 30, Klosterman and Dahl met with HIC. At
this meeting, HIC agreed to allow Doubleday's to remain in
possession of the premises. It also agreed to restore the gas
service to the property.
However, although Doubleday's made a partial rent
payment on December 4, it failed to pay the full rent which
became due on December 1. HIC apparently learned on December 9
that Doubleday's did not have any public liability insurance on
its operations as required by the lease. On December 10, it
initiated this action to recover rent and possession of the
premises.
Following a second unsuccessful HIC attempt to lock
Doubleday's out of the building on December 15, Doubleday's
sought protection under Chapter 11 of the Bankruptcy Code, 11
U.S.C. 1101 (1988). The bankruptcy court ordered Doubleday's
to pay HIC $1600 by January 29, 1988, and to obtain $200,000 in
additional liability insurance by February 1.3 If it could not
comply with both of these obligations, Doubleday's was to vacate
the premises and return possession to HIC.
Doubleday's was unable to comply with the bankruptcy
court's order, and it ceased operations on January 31, 1988.
Doubleday's agents then began removing property from the
premises. However, HIC soon intervened, requesting that
Klosterman and Dahl stop removing property. After discussion,
the parties agreed that HIC would employ a security guard to
assure that neither HIC nor Doubleday's employees removed other
items from the bar.
At a February 2 meeting, the parties were unable to
arrive at an agreement regarding the property remaining in the
bar. On February 3, HIC filed an ex parte motion for a
prejudgment writ of attachment in the amount of the accrued rent
plus interest, costs and attorney's fees. Although counsel for
Klosterman and Dahl objected to the ex parte nature of the
proceeding and demanded a continuance, the district court granted
HIC's motion. HIC later levied on an aircraft registered in the
name of David Klosterman by removing and storing the aircraft's
engines, propellers, radio and cowlings.
In August 1988, HIC amended its complaint, seeking rent
accrued through August 31, 1988. It also moved to increase the
prejudgment writ of attachment to $107,557.73 to reflect
Klosterman and Dahl's liability through September 30, 1988. The
superior court granted HIC's motion.
This matter came to trial on May 30, 1989. The trial
court determined that both the law and the lease permitted HIC's
re-entry actions in response to Doubleday's' default, that
Klosterman and Dahl were liable for rent over the entire term of
the lease on an accelerated basis, and that HIC was entitled to
property left on the premises after February 1, 1988. The court
then entered judgment against Klosterman and Dahl in the
principal amount of $735,789.12.
Klosterman and Dahl appeal the superior court's
rulings. They also appeal the district court's order granting
HIC an ex parte writ of attachment and its finding that HIC's
execution on the aircraft parts was permissible.
II.
We will not set aside a lower court's factual findings
unless they are clearly erroneous. A clearly erroneous finding
is one which leaves this court with "a definite and firm
conviction on the entire record that a mistake has been made."
Parker v. Northern Mixing Co., 756 P.2d 881, 891 n.23 (Alaska
1988). In reviewing factual findings, we must view the evidence
in the light most favorable to the prevailing party below. Id.
We generally review questions of law de novo. Langdon
v. Champion, 745 P.2d 1371 (Alaska 1987). However, although we
will apply our independent judgment to a trial court's
interpretation of a written contract based exclusively on
documentary evidence, we will apply the clearly erroneous
standard when the trial court has relied on extrinsic testimonial
evidence. Ursin Seafoods v. Keener Packing Co., 741 P.2d 1175,
1178 (Alaska 1987).
III.
Klosterman and Dahl first argue that HIC's sole
recourse for Doubleday's' failure to pay rent was to bring a
forcible entry and detainer action under AS 09.45.070(a).4
However, the language of AS 09.45.690 expressly retains a
landlord's self-help remedy, and we therefore reject this claim.
Alaska Statute 09.45.690 provides in relevant part:
Unless otherwise provided in the lease,
a landlord has a right to re-enter leased
premises when a tenant fails to pay rent, and
may bring action to recover the possession of
the premises and the action is equivalent to
a demand of the rent.
(Emphasis added.) Although the statute refers to a landlord's
right to initiate judicial action, it clearly does not make such
action mandatory.5
Alaska case law further supports a lessor's right to re-
enter leased premises when a lease agreement provides for such
action. E.g., Klinger v. Peterson, 486 P.2d 373 (Alaska 1971);
King v. Petroleum Services Corp., 536 P.2d 116 (Alaska 1975).
There is no dispute that the Doubleday's lease expressly permits
the lessor to re-enter the property upon the lessee's failure to
pay rent. Klosterman and Dahl's claim on this issue is therefore
without merit.
Klosterman and Dahl next argue that, even if HIC
lawfully could seize the premises without a court order, its
conduct violated the default and re-entry provision of the lease.
Specifically, they claim that HIC failed to give sufficient
notice of its intention to re-enter the bar before doing so on
November 27 and again on December 15, 1987.
The default and re-entry provision of the lease
provides for re-entry upon Doubleday's' failure to pay rent. It
states in relevant part:
If any rents above reserved, or any part
thereof, shall be and remain unpaid when the
same shall become due, or if Lessee shall
violate or default in any of the agreements
herein contained, then the Lessor may at its
sole option, upon fifteen (15) days written
notice to Lessee, elect to (1) cancel this
Lease or (2) without cancellation, re-enter
said premises for the purpose of reletting .
. . . Lessee agrees to vacate the premises
within said ten (10) day notice period except
that such notice need not be given in case of
emergency. Said notice shall be deemed a
notice to quit pursuant to AS 09.45.110.
Abandonment by Lessee shall be deemed a
default for which no notice of re-entry is
required.
First, we observe that the lease contemplates a fifteen
day notice period before the landlord may invoke the remedies set
forth in the agreement, but it then refers to "said ten (10) days
notice." Due to the reference to two different notice periods,
we will review this case applying a fifteen day notice
requirement.6 Based on the record before us, we conclude that
HIC failed to give Doubleday's sufficient notice of its intention
to re-enter the premises on both November 27 and December 15.
With regard to the November 27 re-entry, Doubleday's
received HIC's first letter, notifying it of HIC's intention to
re-enter the premises, on November 12, 1987.7 Viewing the facts
in the light most favorable to HIC, its re-entry therefore
occurred on the fifteenth day after Doubleday's received notice.8
On that date, Doubleday's still had one day to cure its default
under the terms of the lease.
The trial court did not adopt this view of the case.
We therefore remand the issue of HIC's insufficient notice to
that court with instructions to fashion a remedy adequately
compensating Doubleday's for HIC's premature re-entry. Because
HIC substantially complied with the terms of the lease, however,
we note that the remedy for HIC's early entry may be nothing more
than a one day abatement of rent. That is, unless Doubleday's
can show it would have cured its arrearage on the fifteenth day
of notice, it is unlikely to have incurred any significant harm
due to HIC's action.
We similarly remand the issue of HIC's December 15 re-
entry for consideration of an appropriate remedy. In spite of
HIC's argument that an emergency situation justified its action
on that day since it had recently learned that Doubleday's held
no public liability insurance, the trial court failed to
articulate a factual basis for concluding that an emergency
existed. The record and findings are not adequate to determine
whether the failure to maintain insurance as required by the
lease rises to the level of emergency as contemplated by the
parties at the time they entered into the lease agreement.9
At most, HIC's institution of this action on December
10, 1987, serves as notice of its intention to re-enter the
premises a second time. Thus, the December 15 re-entry did not
comply with the fifteen day notice period required by the lease.
On remand, the trial court is instructed to formulate a remedy
which appropriately compensates Doubleday's for HIC's conduct.
In so doing, it may reevaluate Klosterman and Dahl's contention
that HIC's action breached the covenant of quiet enjoyment
contained in the lease.
IV.
The superior court concluded that HIC had not
terminated the lease even after Doubleday's abandoned the
premises; therefore, Doubleday's had anticipatorily repudiated
the agreement. It then found Klosterman and Dahl liable for
Doubleday's' rent, including accelerated future rent due over the
ten year lease term.
Klosterman and Dahl argue that HIC terminated the
lease, thus terminating their obligation to pay rent. They
contend that HIC accepted Doubleday's' offer of surrender by
taking possession of and occupying the premises for its own uses.
They also contend that the court's ruling improperly accelerates
the rent owed by Doubleday's in the absence of any agreement
between the parties to do so.
A tenant does not end his or her obligation to pay rent
by abandoning leased property unless the landlord accepts what
is, in effect, the tenant's offer to surrender the leased
property, thereby terminating the lease. If a tenant abandons
leased property and the landlord takes possession and occupies it
for his or her own purposes, such retaking constitutes an
acceptance of the tenant's offer of surrender, and the lease is
terminated. Restatement (Second) of Property 12.1 comment i
(1977); see also Price v. S.S. Fuller, Inc., 639 P.2d 1003, 1005
(Alaska 1982) (termination of a lease relieves tenant of the duty
to pay rent). A lessor's re-entry into leased premises following
a breach by the lessee, however, does not, in itself, necessarily
result in a termination of the lease. King v. Petroleum Services
Corp., 536 P.2d 116, 120 (Alaska 1975) (citing Coffin v. Fowler,
483 P.2d 693 (Alaska 1971)). The landlord's intentions regarding
termination, as well as other significant indicia of termination,
must be examined before such a conclusion is warranted. See
King, 536 P.2d at 120.
It is clear that HIC had not terminated the lease prior
to Doubleday's' abandonment of the premises. Following the
abandonment, HIC took possession of the property and used it for
its own benefit in some small manner.10 However, applying the
clearly erroneous standard and viewing the facts in the light
most favorable to HIC, Parker v. Northern Mixing Co., 756 P.2d
881 (Alaska 1988), we affirm the superior court's finding that
HIC's actions did not constitute acceptance of Doubleday's' offer
of surrender.11 For this reason, we agree with the court's
determination that Doubleday's anticipatorily repudiated the
agreement.
We do not agree, however, with the court's decision to
accelerate the rent due over the full term of the lease. In
interpreting lease agreements, we must give effect to the
reasonable expectations of the parties. Where a contract
provision is unambiguous, we will ascertain the parties'
intention from the instrument itself. Port Valdez Co. v. City of
Valdez, 437 P.2d 768, 771 (Alaska 1968).
The default and re-entry provision of the lease clearly
identifies HIC's remedy upon Doubleday's' default when HIC has
elected to re-enter the premises for purposes of reletting. It
provides in relevant part:
If any rents above reserved, or any part
thereof, shall be and remain unpaid when the
same shall become due, or if Lessee shall
violate or default in any of the agreements
herein contained, then the Lessor may . . .
without cancellation, re-enter said premises
for the purpose of reletting; but
notwithstanding such re-entry by Lessor, the
liability of the Lessee for the rent provided
for herein shall not be extinguished for the
balance of the term of this Lease, and Lessee
covenants and agrees to make good to Lessor
any deficiency arising from a re-entry and
reletting of the premises at a lesser rental
than herein agreed to. The Lessee shall pay
such deficiency each month as the amount
thereof is ascertained by the Lessor.
(Emphasis added.)
Because the parties have contractually agreed that
Doubleday's will pay the rent due HIC over the term of the lease
as it accrues, we must give effect to the parties' agreement.
This court has upheld rent acceleration clauses in lease
agreements when the parties to those agreements have expressly so
provided. E.g., Amick v. Metropolitan Mortgage & Securities Co.,
453 P.2d 412 (Alaska 1969), rev'd on other grounds, Wickwire v.
Juneau, 557 P.2d 783 (Alaska 1976). Absent an express provision
in the lease for acceleration of unaccrued rent, however, it is
improper for the courts to impose such a remedy.12
Rather than accelerating the rent due over the full
term of the lease, the trial court properly should have ordered
Klosterman and Dahl to pay the rent accrued at the time of trial,
taking into account revenue received by HIC from its subsequent
reletting of the premises. Then, in future months, Klosterman
and Dahl must pay monthly any deficiency between Doubleday's'
rental obligation and the revenue received from HIC's mitigation
of its damages. Klosterman and Dahl, therefore, are only liable
for rent as it actually accrues and as the deficiency, if any, is
ascertained.13 This remedy contemplated by the parties obviates
the need to discount unaccrued rent to present value; it also
accounts for revenue received by HIC from its reletting of the
property.
For the reasons stated above, we therefore reverse the
trial court's decision accelerating the rent due over the ten
year term of the lease. We remand for calculation of the amount
of rent accrued to the present date and for implementation of a
rent schedule which allows Klosterman and Dahl to pay HIC the
deficiency in rent due as each month's rent accrues until the end
of the lease term.
V.
Klosterman and Dahl argue that the trial court clearly
erred in finding that HIC was entitled to and owned all
improvements and chattels remaining on the premises after
Doubleday's vacated on February 1, 1988. The court was
apparently persuaded by HIC's argument that it was entitled to
retain possession of the property under the repairs, alterations
and removal of property provisions of the lease.14
However, the three provisions of the lease on which the
court apparently relied to award the property to HIC do not
provide a basis for its decision. The lease's removal of
property clause states as follows:
In the event of any entry in, or taking
possession of, the leased premises as
aforesaid, the Lessor shall have the right,
but not the obligation, to remove from the
leased premises all personal property located
therein, and may place the same in storage at
a public warehouse at the expense and risk
of the owners thereof.
This provision does not confer ownership rights in the lessee's
property to HIC.
The repairs and alterations clauses do not support the
court's decision for two reasons.15 First, both provisions
expressly apply only upon termination of the lease, and the court
found there had been no termination. In addition, much of the
property in question is neither a repair nor an alteration of the
premises, but rather personal property.
The trial court's ruling on this issue was in error and
is therefore reversed and remanded.16
VI.
Klosterman and Dahl lastly contend that the district
court erred in granting HIC's motion for an ex parte writ of
attachment. Alaska Civil Rule 89(m) outlines the considerations
governing issuance of an ex parte writ of attachment.17 The court
determined that HIC adequately established that Klosterman and
Dahl were disposing or were about to dispose of property so as to
defraud creditors. It therefore issued the ex parte writ.
On the record before us, it is a close question whether
the requirements of Rule 89(m) were met. However, applying a
deferential standard of review to the district court's decision,
we conclude that the court did not abuse its discretion in
granting HIC's request for an ex parte writ. The ruling is
therefore affirmed.
We next address Klosterman and Dahl's argument that HIC
improperly executed on Klosterman's aircraft by removing its
engines, propellers, radio and cowlings. Alaska Civil Rule 89(f)
describes the procedure for proper execution of writs.18 Because
the aircraft was in the possession of a third party, we conclude
that Rule 89(f)(3) governs HIC's conduct in executing on the
airplane.
In order to comply with that subsection, HIC should
have attached the airplane by leaving a certified copy of the
writ with Alaska Bush Carriers, the third party in possession of
the craft. It failed to do so, thereby failing to comply with
the rule. We further conclude that HIC's conduct in dismantling
the airplane exceeded the scope and the spirit of Rule 89(f);
therefore, its actions were also unlawful in this regard.
HIC could have secured the airplane in the generally
accepted manner of posting it with a copy of the writ and then
chaining the propeller. It has failed to persuade us that the
circumstances justified a more drastic mode of execution on the
property. Because HIC has not made a persuasive showing that the
removal of aircraft parts was necessary to protect its interest
in the property, we find that its action exceeded the scope of
Civil Rule 89.
For this reason, we reverse the district court's ruling
on this issue, and we remand for consideration of Klosterman's
damages, if any, sustained due to HIC's dismantling of the
aircraft.
AFFIRMED in part, REVERSED in part and REMANDED.
_______________________________
1. Klosterman and Dahl apparently intended to change the
name of the tenant corporation from Keystar, Inc. to Doubleday's,
Inc. The corporation signed a number of documents using the
Doubleday's name. However, the principals never officially
changed the corporation name. HIC has brought suit only against
Klosterman and Dahl individually.
2. Anders Corporation held a master lease on the Fifth
Avenue Building and actually sublet to various tenants such as
Doubleday's. For convenience, the agreement between the parties
is called a lease.
3. Doubleday's had obtained $300,000 of insurance coverage
prior to the time it filed for bankruptcy.
4. That statute provides, "When a forcible entry is made
upon a premises, or when an entry is made in a peaceable manner
and the possession is held by force, the person entitled to the
premises may maintain an action to recover the possession." AS
09.45.070(a).
5. We note, however, that any self-help action must conform
to the requirement of AS 09.45.060 regarding entry in a peaceable
manner and without a breach of the peace.
6. The reference to two different notice periods creates an
ambiguity in the lease contract. See O'Neill Investigations v.
Illinois Employers Ins. of Wausau, 636 P.2d 1170, 1174 (Alaska
1981) (an ambiguity exists when a contract is reasonably subject
to differing interpretations). Applying an established rule of
contract construction, we will construe the ambiguity against the
party that supplied the contract. Wessells v. State, Dep't of
Highways, 562 P.2d 1042, 1050 (Alaska 1977). In this case, the
lessor provided the lease form; we will therefore resolve the
ambiguity in favor of the lessee, Doubleday's.
7. The November 10 letter stated that unless HIC received
the rent in arrears by November 25, 1987, HIC would "impose that
portion of [Doubleday's'] lease which pertains to default
remedies, specifically, paragraph 23; election (2), re-enter said
premises for the purpose of reletting."
8. At trial, it was contested whether HIC actually re-
entered the premises on the evening of November 26 or on the
morning of the 27th.
9. We further reject HIC's argument that its November 24,
1987 letter constituted notice that a continuing rent arrearage
would result in a second re-entry. The November 24 letter
preceded HIC's first re-entry. Although it clarified that HIC's
acceptance of a partial rent payment would not affect HIC's
intention to re-enter the premises as indicated in the earlier
November 10 letter, the second letter does not constitute notice
of HIC's intention to re-enter the premises yet another time
following the November 27 entry.
10. The record reveals that HIC posted a security guard to
restrict Doubleday's' ability to remove property from the
premises. It also temporarily used the space for storage and
allowed construction workers to cut sheetrock and other materials
on the premises. HIC additionally allowed employees from
adjacent offices to use the lavatories, for which Doubleday's'
rent paid lighting, service and maintenance expenses.
11. The court's conclusion is supported by the default and
re-entry clause of the lease. Under that provision, abandonment
by the lessee is "deemed a default for which no notice of re-
entry is required." Pursuant to this clause, re-entry could be
accomplished for the purpose of reletting without cancelling the
lease and without extinguishing the lessee's obligation to pay
rent.
12. See Long Island R.R. v. Northville Industries Corp., 393
N.Y.S.2d 925, 933 (N.Y. 1977); Jordan v. Nickell, 253 S.W.2d 237
(Ky. 1952) (acceleration of unaccrued rent after lessee's
anticipatory repudiation held improper when the lease provided
for payment of rent in fixed installments); Cf. Restatement
(Second) of Property 12.1 comment k (1977) (parties may provide
in lease for acceleration of unaccrued rent over the entire term
of a lease agreement).
13. In the event Klosterman and Dahl fail to pay the
deficiency as required by the lease, HIC may choose to reduce
their arrearage to judgment periodically.
14. At trial, HIC's only theories of ownership were based on
those paragraphs of the lease.
15. The repairs clause provides in pertinent part: "Any and
all improvements, reconditioning and remodeling, shall become the
property of the Lessor upon termination of this Lease."
The alterations clause reads in part:
Except for emergency repairs, Lessee
shall not make any change, alteration or
addition to the premises, or any part
thereof, without the consent of Lessor in
writing, being first had and obtained. All
improvements . . . shall, unless otherwise
agreed in writing, become the property of
Lessor and shall remain in and be surrendered
with the premises as part thereof at the
termination of this Lease . . . .
16. On remand, the trial court may reconsider Doubleday's'
claim that HIC's possession of the property constitutes
conversion as well as any HIC claim to a lien or to the remedy of
distraint which justifies its possession of the items in
question.
17. The rule states:
The court may issue a writ of attachment
in an ex parte proceeding . . . only in the
following extraordinary situations:
* * * *
(2) Imminence of Defendant Avoiding
Legal Obligations. The court may issue an ex
parte writ of attachment if the plaintiff
establishes the probable validity of his
claim for relief in his main action, and if
he states in his affidavit specific facts
sufficient to support a judicial finding of
one of the following circumstances:
* * * *
(v) The defendant is otherwise
disposing, or about to dispose, of the
property in a manner so as to defraud his
creditors, including the plaintiff.
Alaska R. Civ. Proc. 89(m).
18. Rule 89(f) states in pertinent part:
(2) Personal property capable of manual
delivery to the peace officer, and not in the
possession of a third party, shall be
attached by the peace officer by taking it
into his custody.
(3) Other personal property shall be
attached by leaving a certified copy of the
writ, and a notice specifying the property
attached, with the person having possession
of same, or if it be a debt, then with the
debtor.
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