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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Adams v. Adams (02/24/2006) sp-5991
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
| MICHAEL A. ADAMS, | ) |
| ) Supreme Court No. S- 11716 | |
| Appellant, | ) |
| ) Superior Court No. 3AN-00-5519 CI | |
| v. | ) |
| ) O P I N I O N | |
| DON ADAMS, Individually and on | ) |
| behalf of ALASKA RUBBER & | ) No. 5991 - February 24, 2006 |
| SUPPLY, INC., and ADA | ) |
| INVESTMENTS, | ) |
| ) | |
| Appellees. | ) |
| ) | |
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Mark Rindner, Judge.
Appearances: Steven D. Smith, Anchorage, for
Appellant. Wevley William Shea, Anchorage,
for Appellees.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, Fabe, and Carpeneti, Justices.
EASTAUGH, Justice.
I. INTRODUCTION
Michael Adams, the lessor of real property, sent his
lessee a signed extension for a lease that gave the lessee an
option to purchase. The clause was unenforceable unless Michael
Adams actually knew of the option to purchase when he sent the
lessee the signed lease extension. We conclude that the superior
court did not clearly err in finding that Michael Adams had
actual knowledge; we therefore affirm the order that the property
be conveyed to the lessee, Don Adams.
Because there was clear and convincing supporting
evidence, we also affirm the superior courts reformation of the
lease, making the entire property subject to the purchase option.
But we agree with Michael Adams that he should have been awarded
interest. We therefore remand with instructions to amend the
judgment accordingly. We reject Michael Adamss contention that
Don Adamss attorneys fee award should be reduced.
II. FACTS AND PROCEEDINGS
This is the second time this matter has come before us.
Because the facts were set out in detail in Adams v. Adams,1 we
only briefly recount them here to set the stage for this appeal.
In 1996 Michael Adams agreed to lease property to Alaska Rubber &
Supply, Inc. and to Alaska Rubbers principal, Don Adams (no
relation to Michael).2 After several exchanges of draft leases,
Don Adamss attorney replaced a right-of-first-refusal provision
with an option-to-purchase provision in the final draft of the
proposed lease, but no one notified Michael Adams of the change.
Michael Adams signed the lease without reading it. Approximately
three years later, in August 1999, after discussing the terms of
the signed lease twice with a representative of Don Adams,
Michael Adams sent a signed lease extension to Don Adams.
Shortly thereafter, Don Adams attempted to exercise the option to
purchase, but Michael Adams refused to sell. Don Adams sued for
specific performance. Michael Adams counterclaimed, arguing that
the lease was void due to Alaska Rubbers fraudulent conduct.
Following trial, the superior court found that Michael
Adams had reason to know that the lease contained an option to
purchase when he sent the signed lease extension to Alaska
Rubber. It also concluded that the parties intended that the
entire property would be conveyed if a sale took place, including
a portion that Michael Adams claimed was not subject to sale.
Michael Adams appealed. In Adams, we remanded for two specific
findings. We first requested findings as to whether Michael
Adams had actual knowledge that the lease contained an option [to
purchase] when he agreed to extend it.3 Assuming he did, we then
instructed the superior court to explicitly address whether
grounds for reformation of the property description as to the
option are present, and if so, whether the clear and convincing
evidence standard has been satisfied.4
The superior court found on remand that Michael Adams
did have actual knowledge of the option-to-purchase provision and
that reformation was supported by clear and convincing evidence.
It entered an amended final judgment that ordered conveyance of
the entire property and awarded interest and attorneys fees to
Don Adams.
Michael Adams appeals.
III. DISCUSSION
A. Standard of Review
We review the superior courts factual findings for
clear error.5 A finding is clearly erroneous if it leaves us
with a definite and firm conviction on the entire record that a
mistake has been made.6 Issues of lease interpretation are
reviewed de novo.7 Questions of law are also reviewed de novo.8
B. The Superior Courts Finding of Actual Knowledge Was Not
Clearly Erroneous.
Michael Adams argues that the record does not support
the superior courts finding that he had actual knowledge that the
lease contained the option-to-purchase provision before he sent
the signed lease extension to Don Adams. We disagree.
At the outset, we note that actual knowledge can be
inferred from circumstantial evidence.9 Otherwise, it would be
nearly impossible to establish actual knowledge in the context of
a claim of fraudulent misrepresentation unless the affirming
party admitted that it knew of the fraud.10 In this case, Michael
Adams did not admit that he knew the lease contained an option to
purchase. But there was sufficient circumstantial evidence here
for us to conclude that a finding of actual knowledge was not
clearly erroneous.
The superior court noted that Michael Adams certainly
would have carefully reviewed the original lease prior to
drafting, signing and sending the lease extension agreement to
Don Adams. Michael Adams testified that he did not read the
lease before sending the extension. When asked why, he
responded: I knew what the lease said. . . . After reading three
[draft] leases in a row, I know exactly what it said, I didnt
have to refresh my memory, I knew what it said. . . . I had no
suspicion that it was changed . . . . He testified that it was
not until he received a certified letter from Don Adams,
approximately three months after he sent the lease extension,
that he discovered that the lease contained an option to
purchase. The superior court found this testimony to be not
credible and rejected it. Because the superior court was in the
best position to assess the demeanor and credibility of all the
witnesses, we will follow our normal practice of consistently
grant[ing] deference to trial courts where credibility is at
issue.11
The superior court noted that it was inconceivable that
Michael Adams would not have carefully reviewed [the lease] after
two conversations he had with Janeece Higgins, Alaska Rubbers
general manager. The lease extension was sent on August 30,
1999. Higgins testified that she spoke with Michael Adams at a
company picnic on August 13, 1999 and told him that Don was
interested in exercising his option to purchase. According to
her testimony, Higgins telephoned Michael Adams shortly after the
picnic and told him again that Don Adams wanted to exercise his
option to purchase. When Michael Adams stated that he did not
think he had to sell the property, Higgins testified that she
told him she was pretty sure that theres wording in the lease
that says you have that we have the option to purchase and that
you have to sell it to us. Michael Adams denied that the
conversations with Higgins even took place. The superior court,
however, found that Higginss testimony was more credible.
We think that the conversations with Higgins were of
such a nature that one would reasonably anticipate that the lease
contained an option to purchase.12 Michael Adams failed to
provide a credible explanation for why these conversations did
not provide him with actual knowledge; rather, he simply denied,
unconvincingly to the trial court, that they ever occurred.13
As stated above, the superior court did not believe
Michael Adams when he testified that he was not aware of the
provision until after he sent the lease extension. Moreover, the
option-to-purchase provision was mentioned by Higgins in
conversations with Michael Adams on two occasions. This
circumstantial evidence, which Michael Adams failed to adequately
refute, supports the superior courts credibility determination.
We therefore conclude that it was not clear error to find that
Michael Adams actually knew the lease contained an option to
purchase.
C. The Superior Court Did Not Clearly Err in Finding that
Reformation Was Supported by Clear and Convincing
Evidence.
Michael Adams argues that the evidence relevant to
reformation was not clear and convincing.14 We have said that
[r]eformation of a contract is available when the words of the
writing do not correctly express the meaning that the parties
agreed upon. 15 Among other circumstances, reformation may be
appropriate when there is a mutual mistake of fact. 16 The
question here, then, is whether the superior court clearly erred
in finding that there was clear and convincing evidence that the
parties intended the entire property to be included in a sale.
The lease reserved a portion of the property for
Michael Adams to use as his residence and for storage. But the
lease did not specify whether this reserved portion would also be
reserved if Don Adams exercised the option to purchase.17 On
remand the superior court found by clear and convincing evidence
that the portion of the property that was excluded from the lease
was not intended by the parties to be excluded [from] any
eventual sale of the property and that there was a mutual mistake
of fact to the extent that the property description set out in
the lease did not conform to the parties[] agreement as to what
was to be sold.
Michael Adams testified that the piece of property was
important to him and that he would never sell it. But our review
of the record convinces us that the superior court was correct to
afford this testimony little persuasive value. Most notable is
the superior courts observation that the property appraisal
commissioned by Michael Adams in preparation for trial valued the
entire parcel without reference to any excluded portion. Don
Adamss complaint requested that Michael Adams be ordered to
convey the property without any discussion of an excluded
portion. Michael Adamss answer did not contest this request or
assert that the reserved portion was to be excluded from sale.
Had Michael Adams intended to exclude the reserved portion from
sale, we think it likely that his property appraisal and answer
would have addressed the reserved portion.
Other evidence supports the conclusion that Michael
Adams intended to sell the entire property at the time the
contract was formed. He initially offered to sell, rather than
lease, the property to Don Adams. He wrote in an October 1995
letter to Don Adams that he intended to move off the property
shortly after the sale was completed. Thus, as of October 1995,
Michael Adams did not intend to exclude the reserved portion from
sale. Almost a year later, in August 1996, Michael Adams again
wrote to Don Adams and discussed leasing the property to him.
This time there was no mention of moving off the property, but
there was also no mention of reserving a portion from sale.
Michael Adams testified that his intentions changed
between October 1995 and the initiation of negotiations between
the parties in 1996. He testified that he learned the reserved
portion was the only place he could keep his trailer because,
although the property was zoned industrial, it was grandfathered
while other parcels he owned were not. He testified that he told
Janeece Higgins heres your lease. This is where Alaska Rubber
is, this is where you stay and this is where I stay and Im
staying there because Im going to stay here. But Michael did not
testify whether he specified to her that this intent applied to a
sale as well as a lease.
The testimony of Janeece Higgins and Don Adams, which
the superior court found to be fully credible, supports a finding
that Michael Adams intended to stay on the reserved portion
during the lease but not that he intended to exclude it from
sale. Both Higgins and Don Adams testified that Michael Adams
never communicated to Alaska Rubber any intent to reserve the
excluded portion from sale. Higgins was asked whether at any
time Michael Adams indicate[d] that he was going to do anything
other than move off the property when [Don] Adams exercised the
option to purchase; and she answered no, he did not. Don Adams
testified that he knew that we were going to let [Michael Adams]
stay there in his trailer where he lived during the term of the
lease. But Don Adams also testified that his understanding was
that he would be purchasing the property, period, and that
[t]here was never any other discussion. As [Michael Adamss]
letter stated, he was willing to sell and he had a place to move
to.
The superior court did not clearly err in finding that
there was clear and convincing evidence that Michael Adams
intended to convey the entire property and to vacate the reserved
portion if and when it was sold. Michael Adams commissioned a
property appraisal that made no mention of reserving a portion
from sale. His answer and counterclaim similarly did not refer
to any such exclusion. It was only after the superior court
itself raised the issue that Michael Adams took the position that
he did not intend for the reserved portion to be sold.18 We
therefore affirm the reformation of the lease.
D. Michael Adams Should Have Been Awarded Interest.
Michael Adams argues that the court, having found that
he was obliged to sell the property following Don Adamss attempt
to exercise the option to purchase, erred by not awarding
interest to him on the amounts Don Adams had to pay to buy the
property. The amended final judgment selected May 1, 2000 as the
date the property would have been purchased had Michael Adams not
refused to sell. The superior court awarded interest to Don
Adams on the award of one-half the environmental phase two
assessment, the rental payments made since May 1, 2000,19 and
attorneys fees and costs. Michael Adams asserts that he should
have been awarded interest on the $30,000 earnest money payment
that would have been due on or about February 1, 2000 and on the
$270,000 balance of the purchase price that would have been due
on May 1, 2000. According to the lease, the balance was to have
been paid within ninety days of the earnest money agreement.
Therefore, February 1, 2000 is approximately the latest the
earnest money could have been paid to accomplish a May 1, 2000
purchase.
We have stated that [w]here the vendee has retained
possession, . . . the vendor is entitled to interest on the
unpaid purchase money, even if the delay in performance of the
contract is attributable to the vendor.20 The reason for this
rule is that, because we are attempting to enforce the contract
as written, we will attempt to place the parties in the position
they would have been in had the contract been performed in a
timely manner.21 Michael Adams, therefore, should have been
awarded interest. We remand for adjustment of the amended final
judgment accordingly.
E. Don Adamss Award of Attorneys Fees Should Not Be
Reduced.
Michael Adams argues that Don Adams should not have
been reimbursed for attorneys fees related to the superior courts
reformation of the lease. Paragraph 15 of the lease provides:
In the event either party shall be in
material default in the performance of any of
their obligations under this Lease and costs
and attorneys fees are incurred by the non
defaulting party in enforcement of this Lease
or in an action for eviction or damages, or
otherwise, the defaulting party shall pay to
the other all the expenses incurred
therefore, including reasonable costs and
attorneys fees.
Michael Adams suggests that reformation of the lease is not an
enforcement of the lease and that paragraph 15 should not apply.
The Utah Supreme Court addressed a similar situation
involving a provision similar to paragraph 15 in Jensen v. Manila
Corp. of the Church of Jesus Christ of Latter-Day Saints.22 The
plaintiff there sued to reform a real estate contract that
incorrectly described the size of the property that was to be
sold.23 The plaintiff successfully argued that the written
instrument did not reflect the bargain the parties previously
orally agreed upon.24 The court reasoned that the plaintiff
pursued a proper remedy to obtain possession of the premises
encompassed within the bargain previously agreed upon. That
bargain is part of the subject matter of the contract allowing
recovery of attorney fees.25
In this case, there was clear and convincing evidence
that Michael Adams had agreed to sell the entire property.26
Although the lease itself did not explicitly reflect that
agreement, Michael Adams was in material default in the
performance of [one] of [his] obligations when he took the
position that something less than the entire property was to be
sold. He is therefore liable for reasonable attorneys fees that
Don Adams incurred as a result of enforcing the parties agreement
that the entire property be sold.27
IV. CONCLUSION
For these reasons, we AFFIRM the order of specific
performance and the reformation of the lease. We REMAND for
adjustment of the judgment in accordance with our discussion of
interest.
_______________________________
1 Adams v. Adams (Adams I), 89 P.3d 743 (Alaska 2004).
2 We will refer to Don Adams when referring to the
lessees, unless context dictates otherwise.
3 Adams I, 89 P.3d at 751.
4 Id. at 752.
5 Hallam v. Alaska Airlines, Inc., 91 P.3d 279, 283
(Alaska 2004).
6 Id.
7 Adams I, 89 P.3d at 748.
8 Catalina Yachts v. Pierce, 105 P.3d 125, 128 (Alaska
2005).
9 See, e.g., Farmer v. Brennan, 511 U.S. 825, 842 (1994)
(Whether a prison official had [actual] knowledge of a
substantial risk is a question of fact subject to demonstration
in the usual ways, including inference from circumstantial
evidence.); In re Su, 290 F.3d 1140, 1146 n.6 (9th Cir. 2002)
(bankruptcy court can consider circumstantial evidence in
determining whether debtor actually knew harm to creditor was
substantially certain); Ingalls v. Florio, 968 F. Supp. 193, 199
(D.N.J. 1997) (actual knowledge of risk of harm can be inferred
from circumstantial evidence of obviousness of risk); Heigle v.
Miller, 965 S.W.2d 116, 120 (Ark. 1998) (actual knowledge of
hidden dangerous conditions can be shown by circumstantial
evidence); Yuzon v. Collins, 10 Cal. Rptr. 3d 18, 29 (Cal. App.
2004) (landlords actual knowledge of dangerous animal can be
established by circumstantial evidence); Benjamin v. Union
Carbide Corp., 873 A.2d 463, 476 (Md. App. 2005) (actual
knowledge in context of discovery rule may be implied from
circumstantial evidence), cert. granted, Georgia- Pac. v.
Benjamin, 879 A.2d 1086 (Md. 2005); Etherton v. Doe, 597 S.E.2d
87, 89 (Va. 2004) ([I]t is axiomatic that any fact that can be
proved by direct evidence may be proved by circumstantial
evidence.).
10 In the context of hit-and-run accidents, we observed:
It is rarely possible . . . for the state to show that the
accused actually knew that the injury had occurred and such
knowledge must usually be proved by showing the surrounding facts
and circumstances indicating such knowledge. Kimoktoak v. State,
584 P.2d 25, 32 (Alaska 1978).
11 Whitesides v. State, Dept of Pub. Safety, Div. of Motor
Vehicles, 20 P.3d 1130, 1136 (Alaska 2001); see also Alaska R.
Civ. P. 52 ([D]ue regard shall be given to the opportunity of
the trial court to judge the credibility of the witnesses.); Kohl
v. Legoullon, 936 P.2d 514, 518 n.5 (Alaska 1997) (The trial
court is in the best position to assess the credibility of
witnesses. To the extent there are conflicts in testimony, we
normally defer to the superior courts resolution of such factual
disputes.); Crook v. Mortenson-Neal, 727 P.2d 297, 306 (Alaska
1986) ([T]he superior court was in the best position to evaluate
the defendants demeanor and credibility. We, therefore, defer to
the courts view.).
12 Kimoktoak, 584 P.2d at 32 (holding that criminal
liability attaches to hit-and-run driver where the state can
prove by direct or circumstantial evidence that the driver
actually knew of the injury or that he knew that the accident was
of such a nature that one would reasonably anticipate that it
resulted in injury to a person).
13 See Farmer, 511 U.S. at 842, 843 n.8 (noting that
obviousness of risk is sufficient to prove that prison official
was conscious of risk but that such obviousness is not always
conclusive because prison official can show that it escaped him
or her); see also Su, 290 F.3d at 1146 n.6 (noting that debtor
has to deal with any evidence which would indicate that he must
have had a substantially certain belief that his act would
injure, notwithstanding any subjective denial of such
knowledge. ) (quoting Spokane Ry. Credit Union v. Endicott (In re
Endicott), 254 B.R. 471, 477 n.9 (Bankr. D. Idaho 2000)).
14 Adams I, 89 P.3d at 752 (observing that elements of
reformation must be supported by clear and convincing evidence).
15 Id. (quoting Arthur L. Corbin, 7 Corbin on Contracts
28.45, at 281 (2002)).
16 Voss v. Brooks, 907 P.2d 465, 468 (Alaska 1995)
(quoting 6A Richard R. Powell, Powell on Real Property
901[1][d], 81A-162-163).
17 Even when earlier drafts of the lease contained a right-
of-first-refusal provision, the lease did not specify whether the
reserved portion would be included if Don Adams exercised the
right of first refusal. Therefore, the reformation question is
independent of the dispute over whether Alaska Rubber had a right
of first refusal or an option to purchase.
18 The superior court stated at trial that it noticed that
a portion of land was excluded from the lease and that whether it
was to be purchased or not . . . [is] a question thats arisen in
my mind. The court suggested that the parties might want to
produce some testimony on the topic if the issue was going to be
a fight between them.
19 Alaska Rubber apparently stopped making rental payments
when the superior court issued the initial final judgment in June
2001.
20 Dillingham Commercial Co. v. Spears, 641 P.2d 1, 10
(Alaska 1982).
21 Id.
22 Jensen v. Manila Corp. of the Church of Jesus Christ of
Latter-Day Saints, 565 P.2d 63, 64 (Utah 1977).
The attorneys fee provision in Jensen stated:
Buyer and Seller each agree that should they
default in any of the covenants or agreements
contained herein, that the defaulting party
shall pay all costs and expenses, including a
reasonable attorneys fee, which may arise or
accrue from the enforcement of this
agreement, or in obtaining the possession of
the premises covered hereby, or in pursuing
any remedy provided hereunder by the statutes
of the State of Utah, such remedy is pursued
by filing of a suit or otherwise.
Id. at 65.
23 Id.
24 Id. at 64.
25 Id. at 65.
26 See supra Part III.C.
27 Our conclusion does not conflict with our dicta in
Gamble v. Northstore Partnership, 28 P.3d 286 (Alaska 2001). We
there stated that, for purposes of a similar clause concerning
attorneys fees,
[a]rguably there is a difference between a
suit to enforce an . . . agreement and a suit
to reform such an agreement. An enforcement
suit presupposes an alleged violation of the
agreement. The court must then determine
whether such a violation has occurred. By
contrast a reformation suit does not
necessarily involve a violation.
Id. at 289. But in the present case the superior court did not
merely reform the lease. By finding that Don Adams is entitled
to specific performance under the reformed lease, the superior
court effectively found that Michael Adams had violated the lease
by refusing to sell the entire property. This case therefore
differs from the example we referred to in Gamble.
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