Lahaina-Maui Corporation v. Tau Tet Hew

• Decision Date: 14 June 1966
• Docket Number: No. 20419.,20419.
• Citation: 362 F.2d 419
• Parties: The LAHAINA-MAUI CORPORATION, a California corporation, Appellant, v. Joseph TAU TET HEW and Helen Akiona Hew, husband and wife, George Tan and Shizuko Ruth Tan, husband and wife, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

362 F.2d 419 (1966)

The LAHAINA-MAUI CORPORATION, a California corporation, Appellant, v. Joseph TAU TET HEW and Helen Akiona Hew, husband and wife, George Tan and Shizuko Ruth Tan, husband and wife, Appellees.

No. 20419.

United States Court of Appeals Ninth Circuit.

June 14, 1966.

Richard P. Schulze, Jr., Moore, Silberman & Schulze, Honolulu, Hawaii, for appellant.

J. Russell Cades, Wm. M. Swope, Honolulu, Hawaii, for appellees.

Before HAMLEY, JERTBERG and ELY, Circuit Judges.

HAMLEY, Circuit Judge:

Joseph Tau Tet Hew, George Tan, and their respective wives, own 144,192 square feet of unimproved beach property on the Island of Maui, State of Hawaii. They brought this action against The Lahaina-Maui Corporation to obtain cancellation of an "Option to Lease" that property, asserting that it is null and void. After responsive pleadings and a hearing, a summary judgment was entered for plaintiffs. Defendant appeals, contending that instead of granting summary judgment for plaintiffs, the court should have either specifically enforced the agreement or awarded damages to defendant for its breach.

It appears from the record before us that the option was signed by Samuel Cohen and Robert Lee and the appellee landowners on February 15, 1963. The option was supported by a consideration of $1000, paid to appellees, and was to be effective until May 19, 1963. The expiration date of the option was later extended to August 1, 1963 by agreement of the parties.

In addition to the names of the parties, the option contained a description of the property, the term of the proposed lease (56½ years), and the agreed annual rental. The numerous other provisions which would be required in a final lease agreement were covered in the option by the following paragraph:

"Said lease shall contain the standard provisions normally contained in a lease for similar property situate in the State of Hawaii together with the provision that the Lessor shall subordinate their fee to permit the Lessee to obtain financing which provision is by way of example, but not by way of limitation."

On July 25, 1963, Cohen and Lee delivered to appellees a proposed lease agreement drafted by California attorneys. This was not signed by appellees and it was later admitted by appellant that it contained provisions which were not standard under Hawaii real estate practice. Cohen and Lee on July 26, 1963, assigned their interest in the "Option to Lease" to the appellant corporation. On the same day, appellant, together with its predecessors in interest purported to exercise the option by delivering to appellees a "Notice of Exercise of Option to Lease."

No responsive action was taken by appellees until August 23, 1963, when their attorney advised appellant's Honolulu counsel that the option was considered by them to be of no force and effect and wholly invalid. A tender of the $1000 paid in conjunction with the option was made by appellees and refused by appellant. Appellees then commenced this action.

Appellant, in its answer, denied the essential allegations of the complaint and counter-claimed for specific enforcement of the option plus damages in the amount of $10,000 and, alternatively, for damages to be determined at a trial. Attached to the answer was a form of lease which, appellant alleged, complied with the terms of the option and which appellant offered to execute in performance of that agreement.

Appellees, on January 5, 1965, filed a "Motion to Dismiss Counterclaim, or in the Alternative, Motion for Summary Judgment." Two days later a hearing was held on this motion in the district court. The district court, in an oral opinion, ruled that the portion of the option stipulating the use of standard lease provisions did not violate the requirements of certainty and definiteness as set forth in Francone v. McClay, 41 Haw. 72. However, with regard to the subordination clause,¹ a non-standard lease provision, the district judge found "gross uncertainty." And, since this provision was deemed vital to the agreement, the district court held that the uncertainty precluded enforcement of the option.²

At the close of the hearing the court, in response to a query by appellant's counsel, stated that the effect of the ruling was to dismiss appellant's prayer for damages as well as the prayer for specific enforcement. Counsel for appellant, in an effort to save the validity of the option, then offered to waive the subordination provision. The court agreed to stay its decision pending submission of arguments and authority on this proposal, and this was done. On June 14, 1965, the district court entered a "Ruling on Waiver and Motion for Summary Judgment" in which the earlier decision on the uncertainty of the subordination clause was reaffirmed. With regard to appellant's offer to waive the clause and cure the option of this defect, the court held that the provision was intended to be mutually beneficial to the parties and could not be unilaterally waived by appellant.

Accordingly, a judgment was entered on June 30, 1965, cancelling the lease and declaring it null and void. In addition the judgment ordered cancelled the lis pendens which had been filed by appellant on October 25, 1963 in the Hawaiian Bureau of Conveyances and with the registrar of the land court of Hawaii.³

On the same day that the judgment favorable to appellees was entered, appellant filed a notice of appeal and a new lis pendens in the Bureau of Conveyances. Appellees thereafter filed in the district court a motion for the removal of this lis pendens or, in the alternative, for the posting of a supersedeas bond. On this issue, the district court ruled that the law of Hawaii does not provide for the filing of lis pendens with respect to an action concerning real property pending before a United States district court. The lis pendens was declared null and void and ordered cancelled.

Appellant's assault on the district court's disposition of this case raises four issues: (1) Did the district court err in holding, as a matter of law, that the subordination clause is uncertain, thus rendering the option unenforceable? (2) Assuming that the clause is uncertain, was the appellant improperly precluded from waiving it and thereby purging the option of its imperfection? (3) Assuming that specific enforcement is not warranted due to uncertainty, should the district court nevertheless have entertained appellant's prayer for damages for breach of the agreement? (4) Did the district court err when it cancelled appellant's lis pendens? We will consider these questions seriatim.

The principles to be applied in determining whether the "Option to Lease" lacked the requisite certainty for enforcement are stated in Francone v. McClay, 41 Haw. 72, 78:

"There is little or no conflict of authority upon the general principle that where a contract is complete and certain as to the essential and material terms, parts and elements of a lease, specific performance will be granted; nor if the contract to lease or the negotiations of the parties affirmatively disclose or indicate that further negotiations, terms and conditions are contemplated, the proposed lease is considered incomplete and incapable of being specifically enforced." (Emphasis in original.)

In the Francone case, which involved the enforceability of a contract to enter into a long-term lease, the court held that a provision that the lease include all "usual covenants" did not render the contract too indefinite to be enforced by the court. That opinion indicates that the parties could easily have ascertained the usual lease covenants from similar transactions and standard lease forms. In our case, the subordination clause fell outside the scope of the Francone decision; appellant has never contended that this clause is a standard or usual Hawaiian lease provision.

The thrust of appellant's argument is that the subordination clause, as written, is definite and certain and that no further negotiations between the parties were contemplated. Succinctly stated, it is appellant's position that the clause was intended to be unrestricted, granting appellant "carte blanche" with regard to encumbering appellees' fee interest.

In the district court, appellant proffered expert testimony to establish that the subordination clause could be converted very easily into an acceptable lease provision. Now it is urged that Francone establishes that the question of definiteness of a lease provision is one of fact and that the district court should have considered appellant's proffered evidence in resolving this issue.

The expert testimony presented in Francone dealt with the question of whether the terms of the proposed lease were standard or "usual" in Hawaiian real estate practice. Francone did not hold that the definiteness of a non-standard lease provision is a matter of fact to be determined after a consideration of community custom and practice. We are concerned here with a non-standard lease provision and the district court was warranted in treating the problem of definiteness as a matter of law to be resolved by the wording of the provision itself and the undisputed circumstances surrounding the transaction. See Magna Development Co. v. Reed, 228 Cal.App.2d 230, 234-235, 39 Cal.Rptr. 284, 287-288.

Appellant challenges the district court's holding that the subordination provision is uncertain and indefinite as a matter of law. Here it is urged that the language is plain and unambiguous, that no further negotiations were intended by the parties, and that the buyer and sellers mutually agreed upon an unconditional subordination clause.

We cannot accept appellant's characterization of the subordination provision. This provision, on its face, implies that further negotiations were contemplated. It is unreasonable to presume that the property owners would agree at this preliminary stage of the transaction to the encumbrance of their fee interest by a...