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Rockstad v. Global Finance & Investment Co., Inc. (02/01/2002) sp-5529
Rockstad v. Global Finance & Investment Co., Inc. (02/01/2002) sp-5529
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone (907)
264-0608, fax (907) 264-0878, e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
RONALD D. ROCKSTAD, and )
WHITE SWAN, INC., d/b/a PLAZA ) Supreme Court No. S-9579
CLEANERS, )
) Superior Court No.
Appellants, ) 4FA-99-2449 CI
)
v. )
) O P I N I O N
GLOBAL FINANCE & )
INVESTMENT COMPANY, INC., )
an Alaska corporation, ) [No. 5529 - February 1, 2002]
)
Appellee. )
)
Appeal from the Superior Court of the State of
Alaska, Fourth Judicial District, Fairbanks, Ralph R. Beistline,
Judge.
Appearances: Zane D. Wilson, Cassandra Tilly,
and Mila Leonard, Cook Schuhmann & Groseclose, Inc., Fairbanks, for
Appellants. Michael Stephan McLaughlin, Guess & Rudd P.C.,
Anchorage, for Appellee.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
BRYNER, Justice.
MATTHEWS, Justice, with whom FABE, Chief
Justice, joins, dissenting.
I. INTRODUCTION
Ronald Rockstad failed to pay his business's rent on
time; his landlord terminated the lease and sued for eviction.
Finding that Rockstad had committed a technical default by failing
to pay timely rent but that the default was not material since
Rockstad had tendered late payment minutes after the usual
deadline, the superior court declined to order eviction, but
nonetheless directed Rockstad to reimburse his landlord's costs of
litigation. Rockstad appeals, challenging the finding of default
and the resulting cost order. We reverse, holding that, under the
applicable terms of the lease, Rockstad avoided default by
tendering late payment before his landlord issued a written notice
of termination.
II. FACTS AND PROCEEDINGS
Ronald D. Rockstad operates a dry cleaning and laundry
business, White Swan, Inc., d/b/a Plaza Laundry and Cleaners, on
commercial property in the Washington Plaza Mall in Fairbanks that
Rockstad leases from Global Finance and Investment Company, Inc.
Rockstad made monthly payments for rent and utilities to Global's
counsel, James DeWitt, at the Fairbanks branch of DeWitt's law
firm, Guess & Rudd P.C. The firm's regular business hours are from
8:00 a.m. to 5:00 p.m. Although the lease provides that rent is
due on the first day of each month, DeWitt commonly accepted
payments tendered by Rockstad on or before the tenth day of the
month.
Rockstad encountered problems making timely payments to
Global during two consecutive months in 1999. In August 1999 he
neglected to make a timely utility payment and failed to tender the
amount due for more than ten days after Global sent him written
notice of the deficiency. We assume that Rockstad's late payment
amounted to a default under the lease. [Fn. 1]
The following month, Rockstad waited until the afternoon
of September 10 to deliver his rent. He arrived at DeWitt's office
at approximately 5:10 p.m.; by then, the office had already closed
for the day.
September 10 was a Friday. At some point during the
ensuing weekend, Rockstad left a message on DeWitt's answering
machine, explaining that "he tried to deliver the rent after 5:00,
that he wanted to deliver the rent." After listening to this
message on Monday, September 13, DeWitt called Rockstad's office
and left a message that Global would refuse his late payment.
Later that day, DeWitt sent Rockstad a notice directing him to
vacate the premises immediately. The notice explained that,
because Rockstad's failure to pay timely rent was his second
default in two months, Global had decided to exercise its power
under the Renewed Default clause of the lease to decline any tender
of cure and to terminate Rockstad's option to renew or extend the
lease.
Rockstad refused to vacate. In October, Global filed a
Complaint for Forcible Entry and Detainer and Monies Due. Superior
Court Judge Ralph R. Beistline held a non-jury trial on Global's
complaint. Judge Beistline concluded that Rockstad had violated
the terms of the lease by failing to pay his September rent on time
and that, under the lease's renewed-default provision, this
violation amounted to Rockstad's second default in a two-month
period and technically entitled Global to terminate the lease. But
the judge went on to conclude that Rockstad's breach was not
material, since Rockstad had tendered payment within minutes of the
parties' customary deadline. [Fn. 2] The judge ruled that he would
decline to evict Rockstad "if Rockstad makes good the late rent,
plus interest, plus the reasonable costs of these proceedings."
Rockstad appeals.
III. DISCUSSION
A. Relevant Lease Provisions
The dispute in this case centers on subsection 15.4 of
Rockstad's lease, which deals with "renewed defaults." This
provision must be interpreted in light of other relevant lease
provisions provisions dealing with rent, defaults, and remedies
in the event of default. We thus begin our discussion by
summarizing the relevant lease provisions.
1. Lease provisions dealing with rent
Section 4 of the lease consists of two subsections
dealing with rent. Subsection 4.1 sets the minimum monthly rents,
specifies that the rent is "payable in advance, on the first (1st)
day of each month,"and requires the rent to be paid "without notice
or demand . . . to [the] Landlord." Subsection 4.2 establishes
late charges. Under this section overdue rent incurs no penalty
for the first ten days; late charges and interest then begin to
apply:
4.2 Late Charge. If any [rent] payment
is not paid within ten (10) days of the due date, then there shall
be added as additional rent an amount equal to Four percent (4%) of
the delinquent payment for the month or portion thereof after the
date it was due, provided, however, if such sum and late charge are
not paid in full on the tenth (10th) day of the month, such sum
shall commence to bear interest at the rate of Ten and One-Half
percent (10.5%) per annum until paid in full.
2. Lease provisions defining defaults
Section 15 of the lease addresses defaults, declaring
that "any one or more of the following events shall constitute a
default and breach of this Lease by Tenant." The lease goes on to
list four events that are defaults, two of which are relevant here.
Subsection 15.2 makes failure to pay overdue rent a
default, but only if the landlord gives the tenant written notice
of overdue rent and the tenant then fails to cure the deficiency
within ten days:
15.2. Failure to Pay Rent. The failure
by Tenant to make any payment of rent or any other payment required
to be made by Tenant hereunder as and when due, where such failure
shall continue for a period of ten (10) days after written notice
thereof by Landlord to Tenant.[ [Fn. 3]]
Subsection 15.4 lists "renewed default"as another form
of default, providing that a renewed default consists of
[t]he commission by Tenant of any default
described [in subsections 15.1 - 15.3] a second time and within two
(2) months following the time when Tenant has been given notice of
such a default under [Subs]ection 15.2 or [Subs]ection 15.3 and has
cured the same within the permitted time.
The key elements of a "renewed default,"then, are (1) a
prior default that has been cured; and (2) a new default, as the
term is described in subsections 15.1 - 15.3, occurring within two
months thereafter.
3. Lease provisions defining remedies for default
Lease section 16 covers remedies for defaults. Section
16 declares that, in the event of a default, the landlord may "at
any time thereafter, in its sole discretion, with or without notice
or demand and without limiting Landlord in the exercise of a right
or remedy,"exercise any right or remedy listed in subsections 16.1
- 16.3. Subsection 16.1 grants the right of immediate possession
and to recover "all damages incurred by Landlord by reason of
Tenant's default." Subsection 16.2 gives the landlord the option,
in the event of a default by abandonment, to maintain the tenant's
right to possession and enforce the terms of the lease. And
subsection 16.3 broadly allows the landlord to pursue any other
remedy available under the law.
B. Standard of Review
It is well-settled that leases are contracts and should
be interpreted according to contract principles. [Fn. 4] Issues of
contract interpretation generally present questions of law, which
we review de novo. [Fn. 5] But when the trial court relies on
extrinsic testimonial evidence to provide a factual basis for its
interpretation of a contract, we apply the clearly erroneous
standard in reviewing the court's background findings of fact. [Fn.
6]
In Wessells v. State of Alaska, Department of Highways,
we described the two-step analysis that we apply in determining the
meaning of lease terms. [Fn. 7] First, we look to the language of
the lease and extrinsic evidence to determine whether the lease is
ambiguous. [Fn. 8] Disagreement alone does not establish the
existence of an ambiguity. As we explained in Wessells, "[a]n
ambiguity exists only where the disputed terms are reasonably
subject to differing interpretation after viewing the contract as
a whole and the extrinsic evidence surrounding the disputed terms."
[Fn. 9]
After determining whether the lease is ambiguous, we move
on to the second step of the analysis. If the lease is clear and
unambiguous, we construe it solely according to its written terms.
[Fn. 10] But if the lease's language is ambiguous, we apply well-
established rules of contract interpretation and determine the
reasonable expectations of the parties. [Fn. 11] Three
main principles inform the lease-interpretation process:
First, ambiguities are construed against the
party that supplied and drafted the form . . . . Second,
ambiguities are construed against the lessor. Third, a
construction of an ambiguous provision which permits the continued
performance of a lease is favored.[ [Fn. 12]]
In applying these principles, we must strive to give effect and
reasonable meaning to all provisions of the instrument. [Fn. 13]
And we also must attempt to interpret the terms of the lease
harmoniously, avoiding those interpretations that cause conflicts
among the provisions. [Fn. 14]
Bearing these principles in mind, we turn to the parties'
arguments concerning the renewed-default provision.
C. The Parties' Arguments Concerning Renewed Default
Global asserts that Rockstad's untimely August 1999
utility payment meets subsection 15.2's definition of a default.
Global then characterizes Rockstad's failure to pay timely rent in
September 1999 as "his second default within a two-month period."
In Global's view, this second default triggered subsection 15.4's
"renewed default"provision. Global contends that subsection 15.4,
in turn, authorized it to reject Rockstad's late payment tendered
sometime during the weekend of September 10-12 and to issue its
September 13 notice to vacate the premises immediately.
As Global interprets subsection 15.4, then, the provision
did not require written notice to Rockstad as a condition of his
second default. According to Global, Rockstad lost his right to
tender late payment on September 1, as soon as his September rent
became late:
[D]efault occurs under [sub]section 15.2 when
the tenant fails to cure within ten days of notice of the failure
to make a payment. In contrast, [sub]section 15.4 deals with the
tenant, such as Rockstad, who defaults a second time within two
months. In the case of a renewed default under [sub]section 15.4,
the default occurs immediately. There is no requirement of notice
or a ten-day period in which to cure.
As Global correctly observes, the superior court adopted
this interpretation of the renewed-default provision. The court
found that subsection 15.4 unambiguously made Rockstad's failure to
pay timely rent in September a second default and that "Global was
neither required to give notice nor provide a 10[-]day grace period
following the due date[.] . . . Global's interpretation of the
lease is right and a second default technically occurred that would
justify forfeiture." The court nevertheless declined to order
eviction because it found that Rockstad's second breach was non-
material.
Rockstad disputes this interpretation. Because
subsection 15.4 expressly required the court to find that
Rockstad's failure to pay his September rent amounted to the
commission of a "default described above" that is, a default under
subsection 15.2's description of a default for failure to pay rent
and because subsection 15.2 expressly defines "default"as a
failure to pay rent "as and when due, where such failure shall
continue for a period of ten (10) days after written notice
thereof"(emphasis added), Rockstad reasons that the literal terms
of the lease precluded a second default from occurring without
written notice and a ten-day period to allow late payment. [Fn. 15]
D. Interpreting the Renewed-Default Provision
Having examined the terms of the lease in light of the
record and the parties' arguments, we conclude that subsection 15.4
is genuinely ambiguous. On the one hand, as Rockstad asserts,
"Global's argument that a renewed default under [sub]section 15.4
'occurs immediately' flies in the face of the express language in
[sub]section 15.4 that the tenant must commit a default as
'described above,' i.e. under [sub]section 15.2, Failure to Pay
Rent." On the other hand, however, as Global justifiably responds,
even though literally sensible, Rockstad's interpretation would
make subsection 15.4 utterly superfluous; for if we construed
subsection 15.4 to say that a renewed default can occur only after
written notice and a ten-day period for cure, the renewed-default
provision "would not provide any additional redress for Global
beyond that provided in [sub]section 15.2."
In short, each party convincingly counters the other's
suggested interpretation of subsection 15.4. Because each party
persuasively defeats the other's proposed reading of the lease's
renewed-default provision, neither proposal resolves the problem of
ambiguity. Accordingly, we must apply the principles of contract
interpretation mentioned above to interpret the lease.
As previously noted, the lease's rent provision
subsection 4.1 makes rent payable "without notice or demand." But
the lease provision governing default for overdue rent
subsection 15.2 makes failure to pay timely rent a default only
upon written notice and only if the tenant thereafter fails to cure
the deficiency within ten days. By tying a default's existence to
the issuance of prior written notice, subsection 15.2 arguably
treats written notice as an essential attribute of default. Under
this theory, the landlord's delivery of notice declares that the
landlord is unwilling to accept late charges and interest as a
substitute for timely payment; it also signals the tenant that ten
days remain to cure the default that arises upon issuance of the
notice. When read in this way, then, subsection 15.2 would provide
that a default arises upon notice but remains open to cure for ten
days thereafter.
In contrast to subsection 15.2, the renewed-default
provision of subsection 15.4 treats a second failure of payment
somewhat more harshly. In describing a renewed default as the
commission of "any default described above a second time"without
mentioning a second opportunity for cure, subsection 15.4 seems to
announce an intent not to leave the second default open to cure
after it has arisen. Thus, the renewed- default provision can
plausibly be read as empowering the landlord to declare a default
without having to afford the tenant the luxury of a subsequent
right to cure.
Far less clear, however, is whether subsection 15.4's
language also means to dispense with subsection 15.2's requirement
that the landlord serve written notice on the tenant.
Subsection 15.4 expressly requires commission of a "default
described above." In the context of Rockstad's case, this would
require a default described in subsection 15.2. As we have already
mentioned, written notice is an explicit element of a default as
described in that section indeed, notice arguably is the very
element that gives rise to a default under subsection 15.2. [Fn.
16] Literally speaking, then, subsection 15.4's reference to a
"default described above"encompasses subsection 15.2's notice
provision. And it is not illogical to construe subsection 15.4's
definition of renewed default to incorporate subsection 15.2's
requirement of written notice. The central purpose of subsection
15.4's renewed-default provision is to cut off the tenant's right
to a ten-day grace period after a second default. Requiring the
landlord to give written notice of the second default has no
obvious effect on that purpose.
In summary, interpreting subsection 15.4 to require that
a second default be preceded by written notice is textually
plausible; [Fn. 17] it arguably effectuates the reasonable
expectations of the contracting parties; and it renders none of the
disputed lease provisions superfluous. This interpretation also
resolves subsection 15.4's ambiguity in a way that favors
continuing the lease and that disfavors the lessor and drafting
party, Global. [Fn. 18] Accordingly, we conclude that this
interpretation of subsection 15.4 should apply to Rockstad's
situation. [Fn. 19]
So construed, subsection 15.4 gave Global the right to
declare a second default at any time after Rockstad's September
rent became due without being paid; to declare the default, Global
had only to issue written notice of the deficiency; and upon
issuance of the notice, Rockstad would have had no right to cure
the default by tendering late payment. But as long as Global did
not serve Rockstad with written notice, he was not in default as
described in subsection 15.2; and subsection 15.4 therefore offered
Global no ground for refusing his tender of late payment or for
exercising its remedies under section 16.
It is undisputed that Rockstad tendered late payment
before Global issued its September 13 notice to quit. It follows,
then, that he was not in default at the time of the notice.
Accordingly, we must reverse the superior court's decision that a
second default occurred. We also must vacate the provision of the
superior court's order that requires Rockstad to pay the reasonable
costs of the superior court proceedings a provision that appears
to be predicated on the superior court's finding of a second
default. [Fn. 20]
IV. CONCLUSION
Because Rockstad did not commit a second default under
the lease, we REVERSE the superior court's finding of a second
default and VACATE its order requiring Rockstad to pay reasonable
costs of the superior court proceedings.
MATTHEWS, Justice, joined by FABE, Chief Justice, dissenting.
I.
Is a renewed default under subsection 15.4 a failure to
pay on time or must it meet the requirements in subsection 15.2 for
an initial default? I agree with the superior court that the
former meaning was intended. If subsection 15.4 duplicated
subsection 15.2 it would serve no purpose. The language of
subsection 15.4 makes clear that renewed defaults need not contain
two of the elements of initial defaults, notice and failure to
cure. And "default"must be interpreted in accordance with its
ordinary meaning failure to pay on time.
To facilitate understanding of the issue, the relevant
provisions of section 15 of the lease governing defaults are set
out here:
15. DEFAULTS. The occurrence of any one
or more of the following events shall constitute a default and
breach of this Lease by Tenant:
. . . .
15.2 Failure to Pay Rent. The
failure by Tenant to make any payment of rent
or any other payment required to be made by Tenant hereunder as and
when due, where such failure shall continue for a period of ten
(10) days after written notice thereof by Landlord to Tenant;
. . . .
15.4 Renewed Default. The
commission by Tenant of any default described above a second time
and within two (2) months following the time when Tenant has been
given notice of such a default under Section 15.2 . . . and has
cured the same within the permitted time.
The interpretative problem in this case arises from the
interaction of subsections 15.2 and 15.4. Under subsection 15.2 a
default has three elements, namely (1) the tenant must fail to pay
rent or other payments on the due date, (2) the landlord must give
the tenant written notice that the tenant has failed to pay on the
due date, and (3) the tenant must fail to pay for another ten days
after the landlord has given written notice.
Subsection 15.4 states that when a "default described
above"is committed a second time that is also a default. Does
"default"as that word is used in subsection 15.4 have the same
three-element meaning as defaults under subsection 15.2 or does it
mean something else? Despite the literal language of subsection
15.4 and appellant's argument that a renewed default under
subsection 15.4 contains the same elements as an initial default
under subsection 15.2, it is obvious that the lease contemplates
that a renewed default need not have the same three elements as an
initial default. Otherwise, the renewed default clause would serve
no purpose. The remedies under the lease for a default are the
same whether the default is an initial or a renewed default. Thus
if a renewed default were merely a duplicate of an initial default
the parties would not have taken the trouble to put the concept of
renewed defaults into the lease. [Fn. 1]
Further, the explicit terms of subsection 15.4 make it
clear that the term "default"in 15.4 has a narrower meaning than
an initial default. Subsection 15.4 refers to "notice of such a
default under Section 15.2." "Default"in this phrase does not
include notice as an element of the meaning of "default,"for notice
is stated to occur separately. First there is a default, then
there is notice. Likewise, "default"in subsection 15.4 does not
include the element of failure to cure within ten days after
notice. Refer here to the phrase at the end of subsection 15.4:
"has cured the same within the permitted time." "[T]he same"refers
to "default." But we know that under subsection 15.2 if there is
a cure within the permitted time there is no default. It follows
that a subsection 15.4 default does not encompass the failure to
cure element that is part of a subsection 15.2 default.
In short, both because subsection 15.4 would serve no
purpose if a renewed default contained the same three elements as
an initial default under subsection 15.2 and because "default"as
used in subsection 15.4 is referred to as having occurred before
notice and despite a timely cure, "default"in subsection 15.4
cannot reasonably be said to have the same meaning as initial
defaults under subsection 15.2.
Since subsection 15.4 defaults are different from
defaults as defined in subsection 15.2 what does "default"mean in
subsection 15.4? The answer is that it has its common and ordinary
meaning. It means failure to pay when payment is due. [Fn. 2],
[Fn. 3] There are two reasons for this conclusion.
First, as discussed above, two of the three elements of
an initial default, notice and failure to cure, are excluded from
the meaning of a renewed default by the language of subsection
15.4. This leaves only the first element, failure to pay on time.
Second, the conclusion follows from the rule that in
contracts, as well as in statutes, "unless otherwise defined, words
will be interpreted as taking their ordinary, contemporary, common
meaning."[Fn. 4] Here the word "default"is "otherwise defined"and
given a special meaning in subsection 15.2. But we have seen that
the definition contained in subsection 15.2 cannot reasonably be
said to apply to subsection 15.4. Thus the common, generally
prevailing meaning of the word "default"must apply.
In interpreting the meaning of the words of a contract a
court should seek to put itself in the position of the parties at
the time the contract was made. [Fn. 5] Here, it is easy to
imagine what the parties would have said if a disinterested
bystander had pointed out before the lease was signed that
subsection 15.4's referral to "any default described above"could
not logically include all the elements of a subsection 15.2
default. They would have said, I believe, that they meant
subsection 15.4 to refer simply to a second failure to pay on time.
They might well have explained that such a failure is an event
"described above." And they may have added that while they expected
toleration of an initial failure thus the three-part definition
for initial defaults a second failure closely following an
initial default would be considered a breach. What the parties
actually would have said will of course never be known, but I can
think of no other meaning for subsection 15.4 that is reasonably
likely to have been intended.
For these reasons I agree with the superior court's
ruling that the tenant's failure to pay rent on time in September,
after his cured failure to pay in August, was a renewed default.
I thus would affirm the decision of the superior court requiring
the tenant to reimburse the landlord's litigation costs.
II.
I have described above how I would decide this case, and
why. But it may also be advisable to explain directly why I
believe that the definition settled upon by the majority is
untenable. The majority concludes that "default"as used in
subsection 15.4 contains two of the three elements of a subsection
15.2 default, failure to pay on time and written notice of such
failure. There are three interrelated problems with so defining a
renewed default under subsection 15.4.
The first is that it is not related to either the actual
or the objectively measured expectations of the parties. Neither
party contends that it intended or expected that "default"in
subsection 15.4 would mean "failure to pay on time combined with
written notice of such failure." Nor do the rules and standards in
aid of interpretation of agreements point to such a meaning. [Fn.
6] They require that words either should be taken to mean what the
agreement defines them to mean, or that they be interpreted in
accordance with their generally prevailing meaning. [Fn. 7]
"Failure to pay on time combined with written notice of such
failure"is neither the special meaning of default "described above"
in subsection 15.2, nor is it the meaning of "default"in general
usage. Instead it is a special meaning which is not defined in the
lease.
The second problem with the failure-to-timely-pay-plus-
notice definition is that it does not work textually in subsection
15.4. This is how subsection 15.4 would read with "failure to pay
on time combined with written notice of such failure"substituted
for "default"in subsection 15.4:
15.4 Renewed Default. The commission by
Tenant of any failure to pay on time combined with written notice
of such failure described above a second time and within two (2)
months following the time when Tenant has been given notice of such
a failure to pay on time combined with written notice of such
failure under Section 15.2 . . . and has cured the same within the
permitted time.
The proposed definition duplicates and thus renders superfluous the
"has been given notice"language subsection 15.4 contains. [Fn. 8]
The parties could not have intended "default"as used in subsection
15.4 to include the concept of notice, for they refer to notice as
a separate event. [Fn. 9]
The third problem concerns the use of the rule, sometimes
referred to as "contra proferentem,"that ambiguities are construed
against the draftsman. This rule does not apply in this case for
two reasons. First, contra proferentem only applies to meanings
asserted by a party. [Fn. 10] In this case neither party asserts
that "failure to pay on time combined with notice of such failure"
is the meaning of "default"in subsection 15.4.
Second, contra proferentem is a rule of last resort, and
it only should be used where other rules and standards in aid of
interpretation do not resolve the question of what a disputed term
means. [Fn. 11] In other words, if after the rules and standards
in sections 202 and 203 of the Restatement (Second) of Contracts are
applied one competing meaning is found to be no longer reasonable,
contra proferentem will not be employed.
Here the rules and standards in aid of interpretation
result in the conclusion that "failure to pay on time combined with
notice of such failure"is not a reasonable meaning of "default"as
used in subsection 15.4. As I have explained above, this
definition is excluded by the rule that words take their ordinary
meaning unless they are otherwise defined in an agreement (it is
neither the ordinary nor the otherwise defined meaning) and by the
rule disfavoring interpretations that leave contract terms
meaningless (it renders meaningless the "has been given notice"
clause of subsection 15.4). Thus the question of meaning as
between the choices offered by the majority opinion and this
dissent can be resolved without the use of contra proferentem.
When this can be done, contra proferentem should not be used.
For the above reasons I respectfully dissent.
FOOTNOTES
Footnote 1:
Although Rockstad's opening brief argues that the late utility
payment was not a default, his reply brief does not address the
point. At oral argument, Rockstad's counsel confirmed that
Rockstad does not dispute that the late payment in August amounted
to a default. Because Rockstad now concedes this issue, and
because we find no second default, we need not consider whether
Rockstad committed a first default.
Footnote 2:
Specifically, Judge Beistline ruled:
The Court concludes that Rockstad did, in
fact, breach the strict terms in the lease agreement and thus
jeopardized the lease itself. However, given the fact that the
parties' course of conduct permitted Rockstad a 10-day grace
period, and further, given the fact that Rockstad was (apparently)
only 10 minutes late in tendering the rent in question, the Court
concludes that the breach involved was not sufficient at this time
to justify a termination of the lease, i.e. [,] under the specific
facts of this case the breach was not material.
Footnote 3:
Subsection 15.3, which governs default for failure to perform
lease covenants other than rent, is generally similar to subsection
15.2 but allows the tenant more flexibility in curing the failure
of performance.
Footnote 4:
See 49 Am. Jur. 2d Landlord and Tenant sec. 43 (1995).
Footnote 5:
See Leisnoi, Inc. v. Stratman, 956 P.2d 452, 454 (Alaska
1998); Norton v. Herron, 677 P.2d 877, 880 (Alaska 1984).
Footnote 6:
Klosterman v. Hickel Inv. Co., 821 P.2d 118, 122 (Alaska 1991)
(citing Ursin Seafoods v. Keener Packing Co., 741 P.2d 1175, 1178
(Alaska 1987)).
Footnote 7:
562 P.2d 1042, 1046 (Alaska 1977) (citing National Bank of
Alaska v. J.B.L. & K. of Alaska, Inc., 546 P.2d 579, 584-86 (Alaska
1976)).
Footnote 8:
Id. at 1046; see also Alyeska Pipeline Serv. Co. v. O'Kelley,
645 P.2d 767, 771 n.1 (Alaska 1982) (stating that Alaska courts may
"initially turn to extrinsic evidence when construing contracts").
Footnote 9:
Wessells, 562 P.2d at 1046; see, e.g., Klosterman, 821 P.2d at
122-23 & n.6.
Footnote 10:
Wessells, 562 P.2d at 1046 & n.10.
Footnote 11:
Id. at 1048; see also Klosterman, 821 P.2d at 124 (giving
effect to parties' reasonable expectations when interpreting lease
agreement).
Footnote 12:
Wessells, 562 P.2d at 1048 (footnotes and internal citations
omitted); see, e.g., Klosterman, 821 P.2d at 122-23 & n.6.
Footnote 13:
Wessells, 562 P.2d at 1049 n.23 (citing Modern Constr., Inc.
v. Barce, Inc., 556 P.2d 528, 530 (Alaska 1976)).
Footnote 14:
Id. (citing McBain v. Pratt, 514 P.2d 823, 828 (Alaska 1973)).
Footnote 15:
Rockstad also contends that the due date for payment of rent
under the lease is ambiguous. In support of this argument, he
points to DeWitt's customary willingness to accept rent within the
first ten days of each month, to purported "judicial admissions"
made by Global in its notice to quit and its complaint, and to the
language of subsection 4.2's late-charge provision which makes
unpaid rent penalty-free for ten days after it falls due. Rockstad
argues that the ambiguity as to the due date for payment must be
resolved in his favor. In our view, however, this argument is
meritless. Subsection 4.1 of the lease is clear in stating that
monthly rent "shall be payable in advance, on the first (1st) day
of each month." Neither the landlord's customary willingness to
tolerate late payment nor subsection 4.2's provision allowing a
ten-day period of late payment without penalty renders subsection
4.1's due-date provision ambiguous. Moreover, even under
Rockstad's interpretation, his payment would still have been late,
since Rockstad admits that he did not actually tender payment
before the close of business on Friday, September 10.
Footnote 16:
Without written notice, past-due rent is simply "payable,"or
at most, payable with a late charge. Lease, sec.sec. 4.1, 4.2.
Footnote 17:
The dissent attempts to demonstrate that our interpretation is
textually impossible by paraphrasing it in an awkward manner and
then substituting the awkward phrasing for subsection 15.4's use of
"default." See Dissent at 20. This supposed textual problem can
be resolved by choosing less awkward phrasing:
15.4 Renewed Default. The commission by
Tenant of any failure to tender rent before notice of untimely
payment described above a second time and within two (2) months
following the time when Tenant has been given notice of such a
failure to tender rent before notice of untimely payment under
Section 15.2 . . . and has cured the same within the permitted
time.
This rephrased definition nullifies nothing in subsection 15.4, yet
avoids nullifying section 15's apparent purpose of defining
"default"as that word is used throughout the lease including its
use in subsection 15.4.
Footnote 18:
The dissent does not deny that subsection 15.4 is ambiguous
but would resolve the ambiguity by giving "default"its ordinary
meaning as used in the subsection. Dissent at 17. But this
approach has three drawbacks. First, it seems paradoxical to give
"default"its ordinary meaning when it appears in a contractual
provision whose very purpose is to define the word to have a
special meaning. Second, the dissent's approach artificially
divorces the word "default"from its immediately accompanying
modifiers, "described above" words that unambiguously refer to the
definition of default in subsection 15.2 and that the drafter of
the lease presumably intended to have their ordinary meaning. And
third, the dissent's approach disregards the three canons of
construction instructing us to resolve ambiguity in favor of
continuity and against the lessor and the drafter.
Footnote 19:
See Wessells, 562 P.2d at 1048.
Footnote 20:
Although it is not clear from the record that the superior
court's order requiring Rockstad to pay Global's reasonable costs
for the proceedings encompassed Global's attorney's fees, both
parties assume that it did. Given our conclusion that Rockstad did
not commit a renewed default, and our resulting decision to vacate
the cost order, we need not resolve the issue of the cost order's
scope. Our conclusion similarly makes it unnecessary to address
Rockstad's arguments challenging other aspects of the superior
court's order that depend on its finding of a second default; nor
need we consider Rockstad's claim that the superior court erred in
failing to award him prevailing-party attorney's fees. We
nevertheless note that our decision will now make Rockstad the
prevailing party in the superior court proceedings; accordingly, on
remand, he must be permitted to apply for prevailing-party
attorney's fees under Civil Rule 82. We further note that our
decision does not affect the validity of the superior court's order
requiring Rockstad to pay late rent and accrued interest. Since
Rockstad has previously tendered and Global has refused to accept
payment for these items, their inclusion in the judgment will not
impair Rockstad's status as prevailing party on remand.
FOOTNOTES (Dissent)
Footnote 1:
See Restatement (Second) of Contracts sec. 203(a) (1979):
In the interpretation of a promise or
agreement or a term thereof, the following
standards of preference are generally applicable:
(a) an interpretation that gives a
reasonable, lawful, and effective meaning to all the terms is
preferred to an interpretation which leaves a part unreasonable,
unlawful, or of no effect[.]
Footnote 2:
More completely, in view of subsection 15.3 which deals with
failure to perform covenants, "default"in subsection 15.4 means
failure to pay or perform when payment or performance is due. I
focus on failure to pay in this opinion for the sake of brevity
because that is the default that occurred.
Footnote 3:
See Webster's New World Dictionary, Third College Edition (1988):
"default: failure to do something . . . when required . . . ;
specific., a) failure to pay money due . . . ."
Footnote 4:
State v. Niedermeyer, 14 P.3d 264, 272 n.38 (Alaska 2000); see
also Restatement (Second) of Contracts sec. 201 cmt. a: "Unless a
different
intention is shown, language is interpreted in accordance with its
generally prevailing meaning. See sec. 202(3)." Section 202(3) in
turn provides "[u]nless a different intention is manifested, (a)
where language has a generally prevailing meaning, it is
interpreted in accordance with that meaning[.]"
Footnote 5:
See Restatement (Second) of contracts sec. 202 cmt. b.
Footnote 6:
See id. sec.sec. 202, 203.
Footnote 7:
See id. sec. 202(3)(a).
Footnote 8:
The same duplicative notice problem exists in the phrasing
used by the majority in footnote 17.
Footnote 9:
By contrast, there are no textual problems when "failure to
pay on time"is substituted for "default"in 15.4:
15.4 Renewed Default. The commission by
Tenant of any failure to pay on time described above a second time
and within two (2) months following the time when Tenant has been
given notice of such a failure to pay on time under Section 15.2. . .
and has cured the same within the permitted time.
Footnote 10:
Comment a to section 206 of the Restatement (Second) Contracts
provides:
Where one party chooses the terms of a
contract, he is likely to provide more carefully for the protection
of his own interests than for those of the other party. He is also
more likely than the other party to have reason to know of
uncertainties of meaning. Indeed, he may leave meaning
deliberately obscure, intending to decide at a later date what
meaning to assert. In cases of doubt, therefore, so long as other
factors are not decisive, there is substantial reason for
preferring the meaning of the other party. The rule is often
invoked in cases of standardized contracts and in cases where the
drafting party has the stronger bargaining position, but it is not
limited to such cases. It is in strictness a rule of legal effect,
sometimes called construction, as well as interpretation: its
operation depends on the positions of the parties as they appear in
litigation, and sometimes the result is hard to distinguish from a
denial of effect to an unconscionable clause.
(Emphasis added.)
Footnote 11:
Supra note 10; Quad Constr., Inc. v. Wm. A. Smith Contracting
Co., 534 F.2d 1391, 1394 (10th Cir. 1976) (recognizing "rule that
words of a contract are to be taken most strongly against the party
using them 'is the last rule to be resorted to, and never to be
applied except when other rules of interpretation fail.' ")
(quoting Patterson v. Gage, 16 P. 560, 562 (Colo. 1888)).
