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Western Pioneer, Inc. v. Harbor Enterprises, Inc. (10/11/91), 818 P 2d 654
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
WESTERN PIONEER, INC., )
a Washington Corporation, ) Supreme Court File No. S-3967
) Superior Court File No.
) 3AN-88-411 Civil
v. ) O P I N I O N
HARBOR ENTERPRISES, INC., )
Appellee. ) [No. 3761 - October 11, 1991]
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage, Dana A. Fabe, Judge.
Appearances: Jeffrey M. Feldman, Young,
Sanders & Feldman, Anchorage, for Appellant.
Robert C. Erwin, Erwin & Smith, Anchorage,
Before: Rabinowitz, Chief Justice,
Matthews, Compton and Moore, Justices.
[Burke, Justice, not participating]
This appeal arises from an action filed by Western
Pioneer, Inc. (Western Pioneer) against Harbor Enterprises, Inc.
(Harbor Enterprises) to enforce payment provisions of a lease
agreement. Western Pioneer moved for summary judgment, claiming
that the payment provisions require Harbor Enterprises to pay it
a percentage of all fuel sales from certain property in Dutch
Harbor, including sales from a dock owned by the City of
Unalaska. Harbor Enterprises cross-moved, claiming that it had
no obligation under the lease because a condition precedent to
its duty was never satisfied. The superior court denied both
summary judgment motions. The matter was tried to a jury which
found in favor of Harbor Enterprises. Western Pioneer appeals,
claiming that the superior court erred in denying its motion for
summary judgment. We reverse.
I. Factual and Procedural History
In early 1984, Harbor Enterprises entered into
negotiations with Sea-Alaska Products, Inc. (Sea-Alaska) to lease
a parcel of land owned by Sea-Alaska at Dutch Harbor, Alaska.
The lease was negotiated by Dale Lindsey, owner of Harbor
Enterprises, and William Woods, vice-president of Sea-Alaska.
Harbor Enterprises sought the property to establish operation of
two fuel terminals from which to sell fuel and supplies to
fishing boats. One terminal was to be located on the leased
premises (the Sea-Alaska Dock); the other on property which
Harbor Enterprises was to lease from the City of Unalaska (the
City Dock). Harbor Enterprises planned to construct a warehouse
and fuel tank farm on the property leased from Sea-Alaska and to
run pipelines from the tank farm to both the Sea-Alaska Dock (the
Sea-Alaska Pipeline) and the City Dock (the Harbor-City Dock
In the summer of 1984, Harbor Enterprises entered into
negotiations with the City of Unalaska (Unalaska) to sell fuel
from the City Dock. As a result of these negotiations, Unalaska
passed resolutions authorizing Harbor Enterprises to construct
the Harbor-City Dock Pipeline. On September 13, 1984, Harbor
Enterprises and Sea-Alaska executed their lease agreement. By
early 1985, Harbor Enterprises had constructed the warehouse,
fuel farm, and the Sea-Alaska Pipeline. The Harbor-City Dock
Pipeline, however, was never constructed.
0n November 10, 1986, Sea-Alaska sold the Dutch Harbor
property to a competitor of Harbor Enterprises, Appellant Western
Pioneer. As part of this sale, Sea-Alaska assigned to Western
Pioneer its rights under the lease with Harbor Enterprises.
In 1987, Harbor Enterprises entered into an agreement
with Unalaska to lease land located near the City Dock. On this
land, Harbor Enterprises constructed a second tank farm and a
pipeline from the second farm to the City Dock. Harbor
Enterprises sells fuel from this facility at the City Dock.
Western Pioneer then notified Harbor Enterprises that
it was not submitting full royalty payments for its City Dock
fuel sales as required by Section 3.1 of the lease. Harbor
Enterprises responded that it is not required to make the royalty
payments. On December 9, 1987, Western Pioneer notified Harbor
Enterprises that it was in breach of the lease agreement.
On January 19, 1988, Western Pioneer filed this action
seeking possession of the leased property as well as payment of
unpaid rent and utilities relating to Harbor Enterprises' sale of
fuel from the City Dock. Harbor Enterprises counterclaimed that
Western Pioneer interfered with its quiet enjoyment of the leased
Both Western Pioneer and Harbor Enterprises filed
motions for summary judgment. Western Pioneer argued that under
Section 3.1 of the lease, Harbor Enterprises' royalty payment
obligation was clear and unambiguous, requiring payment for all
fuel sales including those from the City Dock pursuant to Harbor
Enterprises' agreement with Unalaska. Harbor Enterprises argued
that it intended its City Dock royalty payment obligation to be
conditioned upon its construction of the Harbor-City Dock
Pipeline. Harbor Enterprises asserted that Section 3.1 did not
apply to its City Dock fuel sales because the pipeline was never
constructed.1 After oral argument, the superior court
denied both motions. Construing the lease in light of Alaska
Diversified Contractors v. Lower Kuskokwim School Dist., 778 P.2d
581, 583-84 (Alaska 1989), cert. denied, 110 S. Ct. 725 (1990),
the court found that: (1) the lease agreement was integrated;
(2) there was conflicting extrinsic evidence concerning whether
Section 3.1 was intended to include City Dock fuel sales; and (3)
the meaning of the lease was a question for the jury because
Section 3.1, when read in context with the other provisions, was
susceptible to two reasonable but differing interpretations.2
The case was tried to a jury, which found in favor of Harbor
Western Pioneer claims that the superior court erred in
denying its motion for summary judgment. Western Pioneer argues
that the language of Section 3.1 is clear and unambiguous and
that the superior court erred in concluding it was "reasonably
susceptible" to different meanings. Harbor Enterprises argues
that the trial court correctly applied Lower Kuskokwim in
determining that Section 3.1, when read in context with the other
provisions of the lease, was susceptible to different meanings.
The central question thus is whether Harbor Enterprises
is obligated under section 3.1 of the lease to pay royalties to
Western Pioneer for its City Dock fuel sales.3
In interpreting a contract, the court's duty is to
ascertain and give effect to the reasonable intentions of the
contracting parties. Fairbanks North Star Borough v. Tundra
Tours, Inc., 719 P.2d 1020, 1024 (Alaska 1986); Norton v. Herron,
677 P.2d 877, 879-80 (Alaska 1984). The parties' reasonable
expectations are assessed through resort to the language of the
disputed provision and other provisions, relevant extrinsic
evidence, and case law interpreting similar provisions. Peterson
v. Wirum, 625 P.2d 866, 872 n.10 (Alaska 1981).
We turn first to section 3.1 of the lease which
Base Rent. Lessee shall pay to Lessor
as Base Rent for the Premises and its right
to the limited use of the other docks located
at the Dutch Harbor Property an amount equal
(i) 1.2 cents per gallon for every
gallon of bulk fuel sold in, upon and/or from
the Premises, any of the docks located at
the Dutch Harbor Property, or the City Dock,
as defined below;
(ii) plus 1.5% of the gross sales price
of all packaged goods and other petroleum and
fuel products sold in, upon and/or from the
Premises, any of the docks located at the
Dutch Harbor Property, or the City Dock, as
(iii) less a discount of .6 cents per
gallon for each gallon of bulk fuel sold from
the dock owned by the city of Unalaska,
located in Dutch Harbor (the "City Dock");
provided, however, that said discount shall
be limited to ten percent (10%) of the total
gallons of bulk fuel sold from the Premises
and/or the City Dock. . . .
(Emphasis added). This language clearly states that Harbor
Enterprises is required to pay Western Pioneer 1.2 cents per
gallon, less a 0.6 cents per gallon discount, for each gallon of
bulk fuel sold from the City Dock. Reviewing the other lease
provisions, we find that none of them mentions or contemplates
the Harbor-City Dock Pipeline or that Harbor Enterprises' rental
payment obligation is in any way conditioned on its construction.
We next look to relevant extrinsic evidence. In support of its
position, Western Pioneer offers the deposition testimony of
Woods and the affidavit of Ronald Jensen, president of Sea-Alaska
at the time the lease was negotiated. In his deposition, Woods
states that during the parties' negotiations, it was clear that
section 3.1 was intended to cover any sale of fuel from the City
Dock. Jensen indicates in his affidavit that the lease was
written to include all City Dock fuel sales regardless of whether
the Harbor-City Dock Pipeline was built.
In support of its position, Harbor Enterprises points
to Woods' deposition where he states that: (1) during the lease
negotiations, Lindsey said he intended to construct the Harbor-
City Dock Pipeline, and (2) the pipeline was the only means by
which the parties ever discussed delivering the fuel to the City
Dock. Harbor Enterprises points to Lindsey's deposition where he
states that the rental provisions of Section 3.1 were conditioned
upon Harbor Enterprises constructing the Harbor-City Dock
Pipeline. The superior court found this evidence to be
conflicting and proceeded to interpret the lease in light of the
parol evidence rule as set forth in Lower Kuskokwim.4 The court
ruled that the testimony of Lindsey and Woods supported Harbor
Enterprises' contention that its obligation under section 3.1 for
City Dock fuel sales was conditioned on it constructing the
Harbor-City Dock Pipeline, while Jensen's affidavit indicated
that section 3.1 was intended to include all City Dock fuel sales
regardless of how the fuel reached the dock.
In our opinion, Lindsey's testimony reflects only a
restatement of his position in this litigation to which little,
if any, weight should be given. Extrinsic evidence of parties'
subjective intent, expressed during the course of litigation,
does not establish an issue of fact regarding the parties'
reasonable expectations. Peterson, 625 P.2d at 870; see also Day
v. A & G Constr. Co., 528 P.2d 440, 444 (Alaska 1974) (rejecting
subjective intent as a standard for contract interpretation
because evidence of subjective intentions or understandings
normally accomplish no more than a restatement of the parties'
conflicting positions). Although Jensen is no longer employed by
Western Pioneer, a similar argument may be made that his
testimony reflects only a restatement of his former employer's
position in this case and therefore should be discounted.
The only remaining relevant evidence comes from Woods.
We interpret this evidence as furthering Western Pioneer's
contention that section 3.1 of the lease was meant to include all
fuel sales from the City Dock. That Woods' testimony indicates
that the parties knew of or contemplated Harbor Enterprises'
desire to construct the Harbor-City Dock Pipeline is a far cry
from an express manifestation that the pipeline was a condition
precedent to the enforcement of section 3.1. Further, we are
reluctant to infer such a condition in view of our general
disapproval of conditions precedent.5
The superior court erred in finding there to be
conflicting extrinsic evidence which, in turn, caused it to
erroneously construe the lease in light of the parol evidence
rule. This is not a parol evidence rule case but one which may
be resolved by applying general principles of contract
interpretation. As such, we construe the lease to mean that
section 3.1 was intended by the parties to include all fuel sales
made by Harbor Enterprises at the City Dock regardless of whether
the Harbor-City Dock Pipeline was constructed. Fairbanks North
Star, 719 P.2d at 1024; Peterson, 625 P.2d at 872 n.10.
We find that there are otherwise no remaining issues of
material fact and that Western Pioneer is entitled to judgment as
a matter of law. Smith v. Krebs, 768 P.2d 124, 125 n.4 (Alaska
1989); Grand v. Municipality of Anchorage, 753 P.2d 141, 143 n.3
(Alaska 1988).6 The superior court erred in denying Western
Pioneer's motion for summary judgment.
1. Harbor Enterprises further argued that it was not
obligated to make the royalty payments because the fuel sold from
the City Dock was stored at and delivered from the fuel tank farm
on the land Harbor Enterprises leased from Unalaska.
2. The court noted that the lease recitals addressed the
parties' rights and interests with respect only to the leased
premises, making no reference to the City Dock, while Section 3.1
indicated the lease also was intended to include fuel sales from
the City Dock.
3. The applicable standard of review in a case involving an
appeal from a denial of summary judgment is de novo. Smith v.
Krebs, 768 P.2d 124, 125 n.4 (Alaska 1989). The trial court's
denial of summary judgment will be affirmed if there is a genuine
issue of material fact or it is clear that the moving party was
not entitled to judgment as a matter of law. Id. The burden is
on the moving party to show that there is no genuine issue as to
any material fact. Id. The court is required to draw all
reasonable inferences in favor of the non-moving party and
against the movant. Id.
4. The parol evidence rule is implicated when one party
seeks to introduce extrinsic evidence which varies or contradicts
an integrated contract. Alaska Diversified Contractors, Inc. v.
Lower Kuskokwim School District, 778 P.2d 581, 583 (Alaska 1989),
cert. denied, 110 S. Ct. 725 (1990). Once the rule is triggered,
the parties' reasonable expectations are determined by applying a
three-step test. Id. at 583-84; Alaska Northern Dev., Inc. v.
Alyeska Pipeline Serv. Co., 666 P.2d 33, 37-40 (Alaska 1983),
cert. denied, 464 U.S. 1041 (1984). The first step is to
determine whether the contract is integrated. Alaska
Diversified, 778 P.2d at 583. The second step is to determine
what the contract means. Id. Determining the meaning of a
contract is treated as a question of law for the court except
where there is conflicting extrinsic evidence on which resolution
of the contract's meaning depends. Id. at 584; Alyeska Pipeline
Serv. Co. v. O'Kelley, 645 P.2d 767, 771 n.2 (Alaska 1981).
Whether there is conflicting extrinsic evidence is a question
resolved by the court. Alaska Diversified, 778 P.2d at 584.
Even where there is conflicting extrinsic evidence the court
decides the question of meaning except where the written
language, when read in context with its subject matter, is
reasonably susceptible to both asserted meanings. Id. If the
language is susceptible to both asserted meanings, then
interpreting the contract is a question of fact for the jury.
Id. Extrinsic evidence may always be received in resolving these
first two inquiries. Id. at 583-84; O'Kelley, 645 P.2d at 771
n.1. The third step is to determine whether the prior agreement
conflicts with the integrated writing. Alaska Diversified, 778
P.2d at 583; Alaska Northern, 666 P.2d 39-40. Whether there is
conflicting extrinsic evidence depends on whether the prior
agreement is inconsistent with the integration. Alaska Northern,
666 P.2d 39-40. Inconsistency is defined as "the absence of
reasonable harmony in terms of the language and respective
obligations of the parties." Id. at 40. In Alaska Northern we
adopted, for purposes of section 2-202(b) of the Uniform
Commercial Code, the view of "inconsistency"set forth in Snyder
v. Herbert Greenbaum & Associates, Inc., 380 A.2d 618 (Md. App.
1977). While extrinsic evidence is important, nonetheless after
the transaction has been shown in all its length and breadth, the
words of an integrated agreement remain the most important
evidence of intention. Alaska Diversified, 778 P.2d at 584.
5. See Kennedy Assoc., Inc. v. Fischer, 667 P.2d 174, 182
n.9 (Alaska 1983); Peterson, 625 P.2d at 873-84.
6. Harbor Enterprises also argues that, under Civil Rule
61, the superior court's error in denying Western Pioneer's
summary judgment motion is harmless in view of the final
determination of the jury and the ultimate decision of the trial
court. Although a novel argument, the superior court's error was
central in submitting a case to a jury which was more
appropriately resolved as a matter of law by the court.