Chalamidas v. Sierra Life Ins. Co., 79-1026

• Decision Date: 08 September 1980
• Docket Number: No. 79-1026,79-1026
• Citation: 632 F.2d 1381
• Parties: Peter CHALAMIDAS and Elizabeth Chalamidas, Plaintiffs-Appellants, v. SIERRA LIFE INSURANCE COMPANY, an Idaho Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1381

632 F.2d 1381

Peter CHALAMIDAS and Elizabeth Chalamidas, Plaintiffs-Appellants, v. SIERRA LIFE INSURANCE COMPANY, an Idaho Corporation Defendant-Appellee.

No. 79-1026.

United States Court of Appeals Tenth Circuit.

Argued July 9, 1980.

Decided Sept. 8, 1980.

Frederick B. Howden, Grants, N. M., for plaintiffs-appellants.

Robert Suzenski, Santa Fe, N. M. (Fred M. Standley, Santa Fe, N. M., with him on the brief), of Standley & Suzenski, Santa Fe, N. M., for defendant-appellee.

Before BARRETT, DOYLE and McKAY, Circuit Judges.

WILLIAM E. DOYLE, Circuit Judge.

This is a diversity action in which Peter Chalamidas and his wife Elizabeth seek damages for breach of contract. The defendant is Sierra Life Insurance Company, an Idaho corporation. The covenant in the contract which is the embattled one is that which undertook to give notice to plaintiffs of an impending sale of an apartment house which plaintiffs had conveyed to Sierra. This was to provide the plaintiffs with a right of first refusal (to buy the complex). Sierra sold the property without giving notice, but the contention is that this was waived or merged in prior dealings between the parties.

This transaction goes back to November 9, 1971 when the Chalamidases purchased the apartment complex. It was a one hundred unit federal financed low-income project called the Orleans Manor which was located in Gallup, New Mexico. Plaintiffs had participated in the promotion and development of the complex, and at the time they had commenced to rent it out.

This was not the solitary project which the Chalamidases handled for Sierra. During this same period, on June 14, 1971 they had purchased a motel from Sierra in Albuquerque. This was known as the Western Skies Motor Hotel. The purchase price was $4,000,000.00 all in notes signed by the plaintiffs and secured by the motel.

At the beginning of 1972 the plaintiffs were in default in their payments to the defendant on the Western Skies purchase. In March Sierra notified plaintiffs of the default. Negotiations were commenced between plaintiffs and the attorney for Sierra. These sought a formula for curing the default. The result of the negotiations was an agreement for payment. The date of this was April 13, 1972. This contract required plaintiffs to transfer to defendant eight lots in Grants, New Mexico, 55,000 shares of stock in Pig 'n Whistle Holding Corp. In addition some $13,000.00 in cash was paid by plaintiffs to defendant. Further collateral was given which consisted of the proceeds of life insurance on Mr. Chalamidas' life. The balances due were adjusted and extended.

Soon thereafter, on May 5, 1972, the parties entered into two additional agreements. One of these was a contract for the purchase of Orleans Manor. Sierra agreed to purchase this by assuming the outstanding indebtedness to the Federal Housing Administration in the sum of $1,224,585, and by agreeing to pay an additional $310,000 for plaintiffs' equity. The agreement further provided:

"Buyer agrees that Sellers shall have the first right of refusal should the Buyer determine to sell the said property being acquired hereby, until December 31, 1975, that is the Buyer shall communicate to the Sellers any bona fide offer to purchase the same and the Sellers shall have 15 days after written notice to give written notice of their intention to purchase the same within 30 days from the original written notice by the Buyer to the Sellers."

Although the legal effect of this paragraph supports creation of an equitable interest in the property on the plaintiffs' behalf, no such argument has been made in the trial court or in this court. No evidence appears in the record of the intention of the parties in including the paragraph.

Also executed by the parties on May 5, 1972, was a side agreement, entitled "Agreement Regarding Purchase" which provided for the application of the $310,000 purchase price "paid" to the plaintiffs for equity in the Orleans Manor. These proceeds were almost entirely applied to credits on past and future payments on the Western Skies purchase, "repurchase" by plaintiffs of the Pig 'n Whistle stock, contribution of cash to pay taxes and accounts payable of the Western Skies and as payment for physical improvements and working capital for the Western Skies.

The plaintiffs were again in default in their payments on the Western Skies during the Fall of 1972. The parties at that time entered into lengthy negotiations and several agreements in an attempt to resolve the situation. The parties were aware of the concern of the Insurance Commissioner of the State of Idaho as to Sierra's problem that the properties which were listed as assets of Sierra did not in law qualify as investments under Idaho law. Negotiations continued during 1973, as did plaintiffs' defaults. Finally on January 17, 1974, the parties entered into an "Agreement to Reconstitute Secured Debt" bearing an effective date of January 1, 1974, in which the plaintiffs acknowledged their indebtedness in the amount of $4,252,816.65, acknowledged their default in repayment of this debt, and agreed also to their inability to cure said default. This agreement called for the execution by the plaintiffs of a renewal note payable to the defendant plus warranty deeds conveying the Western Skies property and six other parcels of real estate to a wholly owned subsidiary of Sierra, as trustee. This trustee was to hold title subject to written notice from Sierra of plaintiffs' default, together with instructions from Sierra to deed over a part or all of the properties to Sierra which would then credit plaintiffs' indebtedness in agreed amounts.

The agreement further provided in Paragraph 17:

"That upon execution hereof and upon execution of the related warranty deeds and note, all prior contracts, agreements, notes, mortgages, deeds of trust and other instruments shall be deemed void and of no further force and effect, except all security agreements, financing statements and assignments of leases and licenses that provide Sierra with a first lien security in the furnishings, fixtures, equipment, work in process, inventory of merchandise and supplies, accounts receivable, and all other personal property appurtenant to the Western Skies Motor Hotel shall remain valid and in full force and effect, constructively running from the trustee as assignee of Chalamidas in favor of Sierra. That all other real estate previously mortgaged to Sierra by Chalamidas, that has not been previously sold and conveyed to Sierra by Chalamidas or transferred to the trustee pursuant to this Agreement, is released to Chalamidas as their separate property."

In April of 1975, Sierra entered into a contract for sale of the Orleans Manor to a third party. ¹ Included in the sale was an additional 3.98 acres of land adjacent to the apartment complex. The purchase price was $1,500,000. At trial the plaintiffs submitted opinion evidence that the fair market value of the apartment complex at the time of resale was $1,675,676 and that the value of the adjacent land was $20,000 per acre. It was uncontested at trial that the defendant gave no written notice of an offer to purchase or of Sierra's intention to sell the Orleans Manor. The trial court found that the plaintiffs had actual notice of the defendant's intention to sell the complex to third party buyers, and this finding is not being challenged here.

On July 1, 1977, plaintiffs brought this action for breach of contract in the state courts of New Mexico. Compensatory damages were sought in the amount of $1,000,000 together with punitive damages in the amount of $100,000. The entire action was based upon the failure of the defendant to give notice of the pending resale whereby plaintiffs could exercise their claimed "right of first refusal." The action was removed on the petition of the defendant, to the United States District Court for the District of New Mexico and on August 31, 1978 it was tried to the court, (H. Vearle Payne, District Judge).

The trial court found, inter alia, that the Western Skies operated at a loss for each of the years between 1972 and 1975 and did not increase in value between May 5, 1972 and December 31, 1975. It further found that the plaintiff Peter Chalamidas entered into the January 17, 1974 "Agreement to Reconstitute Secured Debt" with knowledge that it was intended to include the Orleans Manor purchase agreement in the category of prior contracts and agreements declared to be void and of no effect by Paragraph 17. The court concluded that the Orleans Manor purchase contract "became merged" into the agreement of January 17, 1974, and that the first right of refusal to repurchase the apartments was "extinguished and rendered void and of no further force and effect". The trial court dismissed the plaintiffs' complaint and ordered judgment to enter in favor of the defendant.

On this appeal the plaintiffs do not challenge the validity of their transactions with Sierra.

Their principal contentions are first, that the trial court erred in finding that the contract for purchase of the Orleans Manor was intended by the parties to be included in the 1974 "Agreement to Reconstitute Secured Debt," among the transactions described as "all prior contracts, agreements, notes, mortgages, deeds of trust and other instruments," which were deemed to be void by the provisions of Paragraph 17.

Plaintiffs further contend that the trial court erred in declining to find the fair market value of the Orleans Manor at the time of its resale. Third, that the plaintiffs' knowledge of the defendant's intention to resell the apartment complex does not constitute notice in compliance with the terms of the first right of refusal.

Plaintiffs concede that the latter two issues are moot if this court affirms the trial court's findings and conclusions relating to the integration of the Orleans Manor contract into the agreement of January,...