Rego v. Decker

• Decision Date: 19 March 1971
• Docket Number: No. 1128,1128
• Citation: 482 P.2d 834
• Parties: Joseph P. REGO, Cecile Rego, et al., Appellants, v. Robert L. DECKER, Appellee.
• Court: Alaska Supreme Court

Page 834

482 P.2d 834

Joseph P. REGO, Cecile Rego, et al., Appellants, v. Robert L. DECKER, Appellee.

No. 1128.

Supreme Court of Alaska.

March 19, 1971.

Richard R. Cole, Fairbanks, for appellants.

Lloyd Hoppner and James R. Blair of Rice, Hoppner, Blair & McShea, Fairbanks, for appellee.

Before BONEY, C. J., DIMOND, RABINOWITZ, and CONNOR, JJ., and STEWART, Superior Court Judge.

RABINOWITZ, Justice.

Appellant Joseph Rego and his wife leased land with a three bay service station on it to appellee Robert Decker for one year, 1966. The rent was to be $65 per month, plus 2 cents per gallon on all gasoline sold in excess of 4,000 gallons per month and 'a sum equal to the net profit realized from the sale of diesel fuel.' The Regos agreed in part to pave the grounds with asphalt before July 31, 1966. Under the lease Decker was given on option to renew for four years on the same terms except that the minimum rent was to be increased to $125 per month during 1969 and 1970. The lease also included an option to purchase provision which provided:

The lessors shall grant the lessee the firm option to purchase the leased premises, upon the giving of thirty days written notice of the exercise of the option by certified mail, at any time during the term of this lease or the renewed term thereof. Upon the lessee's exercise of his option to purchase, the terms of the transaction shall be as follows:

A. The purchase price of the premises shall be Eighty-One Thousand ($81,000.00) Dollars.

B. If lessee exercises his option to purchase within the term of this lease, the amount of all rents paid to the lessors shall be deducted from the purchase price. If the lessee exercises his option to purchase within the first two years of the renewed lease term seventy-five (75%) percent of all rents paid to the lessors shall be deducted from the purchase price. If the lessee exercises his option to purchase within the last two years of the renewed lease term, fifty (50%) percent of all rents paid to the lessors shall be deducted from the purchase price. The terms for payment of the remaining balance due on the purchase price in the event the lessee exercises his option to so purchase shall be identical to the terms hereinbefore set forth as rent herein.

C. The lessors shall furnish the lessee with a Warranty Deed to the property. The lessors shall also furnish the lessee with a title insurance policy for the amount of the purchase price subject to no exceptions other than deed restrictions, easements and patent reservations of record.

D. The parties shall have the right to terminate this lease, or any renewal thereof, at any time upon the giving of thirty (30) days written notice by certified mail. Provided, however, any options in existence on the effective date of such termination may be exercised in the manner herein provided for a period of ninety (90) days following said effective termination date.

The Regos never paved the grounds of the service station. Prior to the expiration of the initial one-year period of the lease, Decker renewed the same for a four-year period. In February of 1967, Decker notified the Regos that he was exercising his option to purchase the property, and demanded a warranty deed and title insurance policy within 30 days. The Regos did not comply with Decker's demand, and donveyed the property instead to others, who took with notice of Decker's interest. Decker sued the Regos and their grantees for specific performance by the Regos of their obligations under the option to purchase provisions of the lease, damages flowing from the Regos' failure to pave the premises and other relief. After trial to the superior court without a jury, judgment was entered ordering the Regos to execute and deliver a warranty deed to Decker, declaring that Decker would, in the event the Regos refused to convey to Decker, have title to the property not subject to any interest of the Regos or their grantees, and ordering the Regos to deliver to Decker an $81,000 title insurance policy on the property. The Regos were also ordered to pave the premises with an asphalt covering by July 15, 1969, or Decker was to have judgment for $15,000. From this judgment the Regos appeal. They argue that specific performance should have been denied because the terms of the option provisions of the lease were uncertain and too harsh, or in the alternative, that if granted, the specific performance provisions of the decree should have been conditioned upon various provisions protecting their interests. The Rogos also contend that the court erred in providing for a $15,000 money judgment against them if they failed to pave the premises of the service station.

UNCERTAINTY OF THE TERMS OF THE CONTRACT

In this appeal the Regos argue that specific performance should have been denied because the terms of the purchase option were uncertain. ¹ In their view the uncertainty of the option is reflected in the provisions pertaining to the amount of monthly payments, the lack of definition concerning the phrase 'net profit' on diesel fuel sales, the omission of any provision for interest and stipulated time for its payment, and the further omission of any security for Decker's performance. Decker argues that monthly payments under the purchase option clearly were to continue at $125 plus 2 cents per gallon on gasoline sold in excess of 4,000 gallons and net profit on diesel fuel; 'net profits' on diesel fuel need not be certain because no diesel fuel has been or is likely to be sold; extrinsic evidence indicated that the parties intended no interest payments or security agreement.

To be specifically enforceable, a contract 'must be reasonably definite and certain as to its terms.' ² In Alaska Creamery Products, Inc. v. Wells, ³ a contract for sale of goods was held too uncertain because the amount of the down payment and the terms of future payments were left for future determination by the parties. The inadequate contract in Alaska Creamery was an oral attempt to enter into an executory accord. Lewis v. Lockhart ⁴ reiterates the Alaska Creamery rule, ⁵ but finds adequate certainty for specific performance of a promise to sell land on the strength of a lessee's option to purchase on terms to be agreed on at the time of exercise, plus an 'earnest money receipt' acknowledging part payment of the purchase price and reciting that the balance was to be obtained 'from an FHA secured loan.' Lewis said that the earnest money receipt cured the uncertainty of the option as drafted in the lease because the trial court could reasonably provide for payment within four months on the basis of the common knowledge that FHA loans generally were processed within that period.

Regarding the rule requiring reasonable certainty and its application to particular factual situations, Alaska Creamery and Lewis demonstrate that:

The dream of a mechanical justice is recognized for what it is-only a dream and not even a rosy or desirable one. ⁶

In general it has been said that the primary underlying purpose of the law of contracts is the attempted 'realization of reasonable expectations that have been induced by the making of a promise.' ⁷ In light of this underlying purpose, two general considerations become relevant to solution of reasonable certainty-specific performance problems. On the one hand, courts should fill gaps in contracts to ensure fairness where the reasonable expectations of the parties are fairly clear. The parties to a contract often cannot negotiate and draft solutions to all the problems which may arise. Except in transactions involving very large amounts of money or adhesion contracts to be imposed on many parties, contracts tend to be skeletal, because the amount of time and money needed to produce a more complete contract would be disproportionate to the value of the transaction to the parties. Courts would impose too great a burden on the business community if the standards of certainty were set too high. ⁸ On the other hand, the courts should not impose on a party any performance to which he did not and probably would not have agreed. Where the character of a gap in an agreement manifests failure to reach an agreement rather than a sketchy agreement, or where gaps cannot be filled with confidence that the reasonable expectations of the parties are being fulfilled, then specific enforcement should be denied for lack of reasonable certainty. ⁹

Several other considerations affect the standard of certainty. A greater degree of certainty is required for specific performance than for damages, because of the difficulty of framing a decree specifying the performance required, as compared with the relative facility with which a breach may be perceived for purposes of awarding damages. ¹⁰ Less certainty is required where the party seeking specific performance has substantially shifted his position in reliance on the supposed contract, than where the contract is wholly unperformed on both sides. ¹¹ While option contracts for the sale of land such as the one at issue are not technically within the scope of the uniform Commercial Code, ¹² we consider relevant here the recent legislative decision to provide in contracts for sale of goods that

(e)ven though one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. ¹³

We turn now to consideration of the Regos' specific claims of uncertainty. Appellants' first three claims of uncertainty are that the monthly minimum payment after 1970 was not clearly established, that the meaning of 'net profit' on diesel fuel sales was unclear, and that the option did not clearly establish whether interest was to be due on the unpaid balance. Appellants further argue that the agreement was fatally uncertain because it failed to say what sort of security, if any, was required while appellee...