City of Valdez v. Valdez Development Co.

• Decision Date: 05 June 1974
• Docket Number: Nos. 1905,1922,s. 1905
• Parties: CITY OF VALDEZ, Appellant, v. VALDEZ DEVELOPMENT COMPANY, a partnership consisting of Jurry J. McCutcheon, et al., Appellees. VALDEZ DEVELOPMENT COMPANY, a partnership consisting of Jerry J. McCutcheon, et al., Cross-Appellants, v. CITY OF VALDEZ, Cross-Appellee.
• Court: Alaska Supreme Court

Page 177

523 P.2d 177

CITY OF VALDEZ, Appellant, v. VALDEZ DEVELOPMENT COMPANY, a partnership consisting of

Jurry J. McCutcheon, et al., Appellees.

VALDEZ DEVELOPMENT COMPANY, a partnership consisting of

Jerry J. McCutcheon, et al., Cross-Appellants, v. CITY OF VALDEZ, Cross-Appellee.

Nos. 1905, 1922.

Supreme Court of Alaska.

June 5, 1974.

Kenneth P. Jacobus, Hughes, Thorsness, Lowe, Gantz & Clark, Anchorage, for appellant and cross-appellee.

Charles K. Cranston, Anchorage, for appellees and cross-appellants.

Before RABINOWITZ, C. J., and CONNOR, BOOCHEVER, and FITZGERALD, JJ.

OPINION

RABINOWITZ, Chief Justice.

The issues in this appeal arise from a contract for the sale of realty which was entered into between the city of Valdez and the Valdez Development Company.

In carrying out an Urban Renewal Project under the auspices of the Alaska State Housing Authority, the city of Valdez accepted bids on 40 lots from Valdez Development and then sold to the company 36 lots. In May of 1969 the city executed contracts for the 36 lots which contained stipulations providing as to when Valdez Development had to submit a development plan and further providing a completion deadline for construction. The four additional lots bid upon at this time were claimed by the city to have been previously sold, and they form another part of this litigation.

Valdez Development later placed bids on 15 more lots which the city accepted, subject to the determination that no conflict existed. Subsequently, when the city determined that the lots had been previously sold, Valdez Development was notified that the bids were rejected. Asserting it was defrauded, Valdez Development filed a complaint alleging the wrongful withholding of contracts for the 15 lots in question. ¹ City of Valdez counterclaimed requesting the immediate forfeiture of the 36 lots previously conveyed by the city to Valdez Development, alleging bad faith and anticipatory breach by Valdez Development.

Valdez Development then filed a separate complaint in which it alleged it had been damaged by the city's counterclaim. More specifically, Valdez Development alleged that the counterclaim constituted a cloud on its titles, prevented it from obtaining financing, and constituted an act of malicious prosecution on the part of the city. The counterclaim was eventually dismissed without prejudice in January of 1970, but by this time the weather made construction in Valdez impossible. Construction of the Trans-Alaska pipeline was enjoined in April of 1970, prior to the next construction season, as a result of which the housing market in Valdez was destroyed, financing became unavailable again, and construction by Valdez Development was further delayed. In December of 1971 the city oved to have title to the 36 lots revested in it due to the company's failure to meet its contractual construction deadlines. Trial was held on the city's suit to foreclose and Valdez Development's suit for malicious prosecution. The superior court refused to grant the city of Valdez foreclosure, extended the construction deadlines, and denied Valdez Development damages for malicious prosecution. In addition, the lower court ordered the city to convey to Valdez Development the last four lots of the original 40 lots bid upon by Valdez Development as the city had now regained title to these lots. Neither party was awarded attorney's fees. Both parties have appealed from the superior court's judgment.

We first reach the city of Valdez's assertion that it was error for the superior court to deny it foreclosure as to 33 of the original 40 lots. ² It is undisputed that construction on these lots was not commenced or completed within the contractual deadline. Nevertheless, the superior court held that Valdez Development's performance was excused.

Throughout this litigation Valdez Development has contended that the delay in its performance is excused under Section 707 of its contract with the city of Valdez, which reads as follows:

For the purposes of any of the provisions of the agreement, neither the Agency nor the Redeveloper, as the case may be, nor any successor in interest, shall be considered in breach of, or default in, its obligations with respect to the preparation of the Property for redevelopment, or the beginning and completion of construction of the Improvements, or progress in respect thereto, in the event of enforced delay in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not restricted to, act of God, acts of the public enemy, acts of the Federal Government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, and unusually severe weather or delays of subcontractors due to such causes; it being the purpose and intent of this provision that in the event of the occurrence of any such enforced delay, the time or times for performance of the obligations of the Agency with respect to the preparation of the Property for redevelopment or of the Redeveloper with respect to construction of the Improvements, as the case may be, shall be extended for the period of the enforced delay as determined by the Agency: Provided, That the party seeking the benefit of the provisions of this Section shall, within ten (10) days after the beginning of any such enforced delay, have first notified the other party thereof in writing, and of the cause or causes thereof, and requested an extension for the period of the enforced delay. (emphasis added)

More specifically, it is Valdez Development's contention that the period for which the federal district court's injunction prohibiting the Secretary of the Interior from issuing a permit for construction of the Trans-Alaska pipeline was in effect constitutes a period of enforced delay under the provisions of Section 707. ³

The city of Valdez responds to this contention by arguing that Section 707 contains no language which would justify characterization of non-issuance of the pipeline permit as an enforced delay, that Section 707 simply does not provide for such contingency. The city argues that it wanted housing constructed regardless of whether the Trans-Alaska pipeline permit was issued.

The superior court agreed with the contention of Valdez Development. The lower court noted that in 1969, at the time the contract was formed, commencement of construction of the Trans-Alaska pipeline was believed to be imminent. It was anticipated that the start of pipeline construction would bring approximately 100 new families to Valdez for whom there was no available housing. Subsequently, the federal injunction barring pipeline construction was issued, thereby destroying this potential market for new housing and making it virtually impossible for any company to obtain financing for construction. ⁴ The superior court considered these facts and concluded that Section 707 was intended to excuse a delay in timely performance of the contract resulting from

acts of the federal government, acts of the other party, and other emergency type matters or exigencies which could not reasonably have been anticipated as to the specific occurrence thereof. I feel that Judge Hart's decision (enjoining the construction of the pipeline) falls within the category that was contemplated by the parties at the time. . . .

Section 707 provides, as stated above, that timely performance with be excused due to enforced delays resulting from such causes 'including, but not restricted to . . . acts of the federal government . . . strikes . . . embargoes . . .' The purpose of this section is to provide extensions of construction deadlines when enforced delays make construction impossible. The section lists events, the occurrence of which are not attributable to any fault or shortcoming of the developer and which would prevent any developer from timely compliance with the contract provisions. ⁵

The specific clause in Section 707 referring to acts of the federal government by the plain meaning of its language includes judicial injunctions. ⁶ However, decisions that we have discovered which excuse performance under a contract on this ground generally involved situations in which the injunction or judicial order itself is the direct cause of the delay in performance. ⁷ The district court's injunction did not directly prohibit housing construction in Valdez, and so the injunction standing alone would not excuse timely performance by Valdez Development under Section 707.

While the clause referring to acts of the federal government does not seem to directly apply to the circumstances of the case at bar, we think that the present circumstances are encompassed by the 'including, but not restricted to' general language of Section 707. ⁸ The federal injunction did prevent construction of the Trans-Alaska pipeline, which in turn made the securing of financing to construct housing in Valdez impossible. With financing unavailable, Valdez Development was unable to comply with the time reguirements in the contract. In terms of causation, the federal injunction issued by Judge Hart can be viewed as both an actual and a proximate cause of Valdez Development's failure to comply with the contract. The situation is similar in type to the effect of a strike or an embargo which prevents the acquisition of labor or materials for construction. It is also similar in type to a direct judicial order prohibiting construction in Valdez. In each of the enumerated situations there is an unanticipated enforced delay whose cause is not attributable to any fault of the developer. In each situation construction would be effectively impossible for any developer for the duration of the strike, embargo, judicial order, etc. We therefore affirm the superior court's determination that the periods of enforced delay provided for in Section 707 encompass the circumstances found to exist in the case at...