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George v. Custer (11/12/93), 862 P 2d 176
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NOTICE: This opinion 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
SPIRO GEORGE, )
) Supreme Court No. S-4640
Appellant, )
)
v. ) Superior Court No.
) 3AN-89-3160 CIVIL
GARY CUSTER, )
) O P I N I O N
Appellee. )
______________________________) [No. 4025, November 12, 1993]
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage,
Joan M. Katz, Judge.
Appearances: Robert L. Breckberg, Boyko
and Flansberg, Anchorage, for Appellant.
Tonja Woelber, Anchorage for Appellee.
Before: Moore, Chief Justice,
Rabinowitz, Burke, Matthews, and Compton,
Justices.
RABINOWITZ, Justice.
This appeal concerns a dispute over the existence of an
oral contract between Spiro George ("George") and Gary Custer
("Custer") for an option to purchase a meat-packing plant, house,
and acreage in Palmer. The superior court awarded judgment for
Custer in the amount of $59,052 on his counterclaim and for
George in the amount of $11,500 on his complaint. George appeals
asserting thirty-four separate specifications of error.
FACTS
George bought a meat-packing plant located in the
Matanuska Valley in 1974. George operated the plant
independently for two years and then began leasing the property
to other parties. The original rental property included the
plant facility, a house and approximately forty acres of land.
George first rented the property to the McGees for
$3,000 a month for a period of three to four years. After the
McGees' departure, the Heatons began renting from George in 1981.
Monthly rent was initially $1,500, with what appears to be
incremental increases every six months until the monthly rent was
again $3,000. The Heatons were new to the slaughterhouse
business so they hired Custer, an experienced butcher. Custer
and his family stayed in the house located on the property as
part of the financial arrangement they made with the Heatons.
Custer occupied the house for seven years, 1982 through 1988.
In 1983 a new slaughterhouse, Mount McKinley Meat &
Sausage, Inc., opened in the Matanuska Valley. The Heatons
decided to leave the meat-packing business in early 1984, citing
various reasons, the primary one being competition from the new
meat-packing business. Custer went to work for Mount McKinley
Meat & Sausage as a foreman earning $2,000-$2,500 per month.
Custer and his family continued residing in the house on George's
land, paying George $400 per month rent.
In 1984 George approached Custer and encouraged him to
go into business for himself. George offered Custer free rent
for one year in return for reopening the plant as a custom-exempt
house,1 and $1,500 per month for the second year. The rent on
the house continued to be $400 a month. The parties agreed that
a substantial investment of both time and money was needed to
make the plant operational.
After a nonjury trial the superior court found that the
parties discussed and understood that Custer was to have an
option to buy the plant, house, and eight acres of the land upon
which they were located. At the time of the agreement, the
parties had not discussed a time frame for exercising the option,
a definite purchase price, or terms for payments and security.
Custer made improvements on the plant, expending time, labor, and
$8,600 in equipment to make the plant operational and to meet the
requirements for certification as a custom-exempt house. During
this initial three-month period George indicated to Custer that
he would sell him the facility for $150,000.
Custer eventually decided that it would be worth his
while to bring the plant up to federal standards so that he could
sell meat to third parties. George encouraged him in his
efforts, suggesting that Custer raise pigs and that he would buy
the pigs if Custer proceeded with the operation. Custer
undertook construction of permanent improvements and bought the
equipment necessary to bring the plant up to federal standards.
The renovations took place over a period of two years. The
superior court further found that Custer expended approximately
$42,000 on improvements (minus $2,627.80 properly allocated to
maintenance), $35,000 on equipment, and $19,680 in labor, for a
total investment of $94,052 in the property.
The superior court found that in June 1987, George
informed Custer that the rent was being raised to $2,500 per
month. Custer responded that he could not afford the
contemplated rent increase and that he would have to either leave
or purchase the premises. George indicated that he would sell
the plant to Custer for $300,000 (a 100% increase from his 1984
offer when the real estate market was higher). Custer did not
question the 100% increase in price, did not attempt to negotiate
the price with George, and did not make any effort to obtain the
money to purchase the property. Custer continued to lease the
property.
The superior court determined that Custer was not
liable to George for equipment removal costs or alleged property
damage because George did not prove any such losses by a
preponderance of the evidence. Based on Custer's admission that
he currently owes back rent in the amount of $11,500, the
superior court concluded that Custer owed George $11,500 in rent.
On the basis of the above findings the superior court
concluded that Custer's claims for damages sounded in contract,
and that George had breached the implied covenant of good faith
and fair dealing inherent in the option to purchase contract.
The court held George liable for all consequential damages
resulting from his breach which included $39,372 in building
improvements and $19,680 for labor to bring the plant up to
federally inspected status, for a total of $59,052.2
STANDARD OF REVIEW
The case was tried by the court without a jury and is
subject to the "clearly erroneous"standard. Alaska Civil Rule
52(a) provides in part:
Findings of fact shall not be set aside
unless clearly erroneous, and due regard
shall be given to the opportunity of the
trial court to judge the credibility of the
witnesses.3
To reverse a finding of fact on appeal we must have a
"definite and firm conviction that a mistake has been made."
Donnybrook Bldg. Supply, Inc. v. Interior City Branch, First
Nat'l Bank of Anchorage, 798 P.2d 1263, 1266 (Alaska 1990). We
generally review questions of law de novo. Langdon v. Champion,
745 P.2d 1371, 1372 n.2 (Alaska 1987).
I. THE PARTIES DID NOT ENTER INTO A CONTRACT GIVING CUSTER AN
OPTION TO PURCHASE THE PLANT, HOUSE, AND ACREAGE.
The superior court found that the parties had entered
into two separate agreements. First, Custer and George entered
into an oral agreement in which Custer would lease the plant rent-
free for one year in return for repairs, and would thereafter pay
a monthly rental of $1,500. Second, the superior court found
that the parties discussed and reached an agreement that the
lease would include an option to purchase the plant, house, and
the land upon which they were located.
The first agreement is not in dispute. It is
uncontested that George and Custer agreed to a one-year lease of
the plant for no rent in exchange for repairs with subsequent
rent payments of $1,500 per month after the first year. Rather,
George contests the superior court's determination of the
existence of a second agreement. George argues that his
conversations with Custer concerning the sale of the property
were inconclusive and thus precluded a holding that an option
contract existed.
In its formal findings of fact the superior court found
that
[t]he parties also discussed and
understood that defendant was to have an
option to buy the plant and house and eight
acres of the land on which they were located.
When the agreement was made, no time frame
for exercising the option, no purchase price,
and no terms had been discussed.
In its conclusions of law the superior court determined
that
Defendant proved the existence of a
contract to lease with option to purchase
sufficient to give rise to damages for breach
of the implied covenant of good faith and
fair dealing. It is clear that Custer agreed
to take over the plant, and relinquish his
good paying job at the Mt. McKinley facility,
only because the parties intended that Custer
would eventually buy the plant. It is also
evident that within two-three months after
the lease arrangement started, and well
before any of the improvements at issue here
had been undertaken, George set a purchase
price of $150,000.4
These findings of fact and conclusions of law stand in
stark contrast to the superior court's assessment of the contract-
option issue at trial. During final arguments the superior court
commented:
The fact remains that nobody has
been able to articulate what the terms of
this agreement were, beyond the fact that at
some point after the initial lease
arrangement was entered into, a figure of
$150,000.00 was thrown out. It's not enough
for me to feel it was a real contract, we
don't have a term --we don't have terms -- we
don't have a term as to the time, we don't
have terms of payment. We don't have
anything that really would stand up as an
agreement.
So, you're back to, it seems to me,
it was a very stupid thing, frankly. And,
the question is is that enough to support
unjust enrichment. . . . But I don't see how
you can argue there was a real agreement.
Subsequently, the superior court stated:
If you're talking about a transaction in
the range of $150,000.00, wouldn't terms of
purchase -- I mean some broad outline be
pretty essential? You know, what's the
interest rate going to be on this, what kind
of financing, what kind of down payment?
. . . .
. . . There was some kind of under
standing but I don't see how it could it rise
in the eyes of the law to a contract. Yeah,
they were getting into this thing with an eye
towards possible purchase down the road,
that's as far as any contract goes, and I
don't see how it amounts to a contract.
Study of the record convinces us that the superior
court correctly analyzed the contract-option issue during trial,
but then erred in its subsequent formulation of findings of fact
and conclusions of law that the parties had entered into an
enforceable option to purchase contract. In Stenehjem v. Kyn Jin
Cho, 631 P.2d 482, 485 (Alaska 1981), we said:
A court cannot enforce a contract
unless it can determine what it is. It is
not enough that the parties think that they
have made a contract; they must have
expressed their intentions in a manner that
is capable of understanding. It is not even
enough that they have actually agreed, if
their expressions, when interpreted in the
light of accompanying factors and
circumstances, are not such that the court
can determine what the terms of that
agreement are. Vagueness of expression,
indefiniteness and uncertainty as to any of
the essential terms of an agreement, have
often been held to prevent the creation of an
enforceable contract.
(Quoting 1 Arthur L. Corbin, Corbin on Contracts 95, at 394
(1963 & Supp. 1992) (footnote omitted)).
Application of the above principles to the record in
this case leaves us with the definite and firm conviction that
the superior court's controlling findings concerning the
existence of an oral option contract between the parties are
clearly erroneous. After analyzing the record, we conclude that
the superior court's finding that the parties "discussed and
understood that defendant was to have an option to buy the plant
and have eight acres of land on which they were located" is
clearly erroneous. We therefore reverse the superior court's
legal conclusion that the parties had orally agreed to an option
contract. Simply put, the component of certainty is absent here
since none of the essential terms of this purported option
contract were proven by a preponderance of the evidence.5
II. RESTITUTION
As to the question of whether Custer has any
restitutionary remedies the superior court found in dictum that
Custer would be entitled to restitution, even in the absence of a
binding contract. The superior court said:
In Alaska Sales and Service v. Millet,
735 P.2d 743 (Alaska 1987), the court held
that restitution could be ordered as a remedy
for unjust enrichment in an action based on
quasi-contract. . . .
In this case, the evidence
established numerous improvements to the
plant and equipment used in operating the
plant which placed the plant in better
operating condition as a custom-exempt
facility, and which also brought the plant
considerably closer to obtaining approval on
a federally inspected basis. Defendant
further proved that George was enthusiastic
about the improvements, even suggesting, as
noted previously, the concept of raising pigs
which required the construction of pens and
laying of water lines, etc. George wanted
the plant to achieve federal inspection
status. Defendant obviously "appreciated"
the benefit bestowed on his property by
plaintiff. Finally, George encouraged Custer
to proceed with the improvements, all the
while aware of the magnitude of expense and
labor being invested by Custer, and also
aware that Custer understood that he would be
purchasing the property.
In its conclusion of law regarding restitutionary
damages the superior court wrote:
Were damages to be awarded on a
restitutionary rather than a contractual
basis, defendant would have to establish the
value to plaintiff's property of the labor
and improvements bestowed upon plaintiff by
defendant. . . . The amounts incurred by
defendant do not provide an adequate basis
for ascertaining the extent to which
plaintiff has been enriched.
(Citation omitted).
Concerning the subject of unjust enrichment, in Darling
v. Standard Alaska Production Co., 818 P.2d 677, 679-80 (Alaska
1991), we stated:
Unjust enrichment does not depend
on any actual contract, or any "agreement
between the parties, objective or
subjective." Alaska Sales and Serv., Inc. v.
Millet, 735 P.2d 743, 746 (Alaska 1987). In
Alaska Sales, we noted that "unjust
enrichment is not in and of itself a theory
of recovery. Rather, it is a prerequisite
for the enforcement of restitution; that is,
if there is no unjust enrichment, there is no
basis for restitution." Id. Alaska Sales
identified three elements of a claim sounding
in quasi-contract for unjust enrichment:
1) a benefit conferred upon
the defendant by the plaintiff;
2) appreciation by the
defendant of such benefit; and
3) acceptance and retention of
the defendant of such benefit under such
circumstances that it would be
inequitable for him to retain it without
paying the value thereof.6
"In determining the measure of damages in a claim of unjust
enrichment the court focuses upon the amount of benefit which the
defendant received which would be unjustly retained, and does not
necessarily focus on the value of money, labor, and materials
provided by the plaintiff to the defendant." Fairbanks North
Star Borough v. Tundra Tours, 719 P.2d 1020, 1029 n.15 (Alaska
1986). Here the parties are in agreement that if we
determine that the superior court erred in its finding of an oral
option contract, then the case should be remanded for further
proceedings to ascertain what restitutionary damages, if any,
should be awarded to Custer. We are not bound by the parties'
functional equivalent of a stipulation for remand. Nevertheless,
given the superior court's alternative holding that Custer is
entitled to restitution we think it a just resolution that the
case be remanded to the superior court for determination of what
restitutionary damages, if any, Custer is entitled to recover.
REVERSED and REMANDED for further proceedings
consistent with this opinion.
_______________________________
1. Custom operations for personal, household, guest, and
employee uses are exempt from federal carcass inspection
requirements. 21 U.S.C. 623 (1988).
2. The superior court found Custer had proven damages in a
total amount of $59,052 (expenditures plus labor), minus $11,500
in back rent owed by Custer to George, for a net recovery by
Custer of $47,552 in damages, plus interest and attorney's fees.
3. It is for the trier of fact to determine whether an oral
contract exists and the contract's terms where the evidence
conflicts. Curran v. Hastreiter, 579 P.2d 524, 526 (Alaska
1978); Zeman v. Lufthansa German Airlines, 699 P.2d 1274, 1282
n.1 (Alaska 1985); B.B. & S. Constr. Co., Inc. v. Stone, 535 P.2d
271, 273 (Alaska 1975).
4. Citing City of Kenai v. Ferguson, 732 P.2d 184 (Alaska
1987), the superior court further noted in its conclusions of
law:
The law in Alaska, as well as in other
jurisdictions and as favored by the
commentators, increasingly allows the
enforcement of contracts under certain
circumstances when the parties intend to be
bound, notwithstanding the fact that critical
terms such as rent or price are left
unspecified. The courts reason that to fail
to do so would work an inequity on the party
who has relied upon the agreement in good
faith.
(Citations omitted).
5. This holding makes it unnecessary to address George's
statute of frauds defense.
6. See also Bevins v. Peoples Bank & Trust Co., 671 P.2d
875 (Alaska 1983); Altman v. Alaska Trust & Mfg. Co., 677 P.2d
1215, 1226 (Alaska 1983); Parliment v. Yukon Flats Sch. Dist.,
760 P.2d 513, 518 (Alaska 1988).
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