Stenehjem v. Kyn Jin Cho, 4964

• Decision Date: 24 July 1981
• Docket Number: No. 4964,4964
• Citation: 631 P.2d 482
• Parties: Kurt STENEHJEM, Appellant, v. KYN JIN CHO and Sun Shik Cho, Appellees.
• Court: Alaska Supreme Court

Page 482

631 P.2d 482

Kurt STENEHJEM, Appellant, v. KYN JIN CHO and Sun Shik Cho, Appellees.

No. 4964.

Supreme Court of Alaska.

July 24, 1981.

Kenneth P. Eggers, Teresa A. Hogan, Groh, Eggers, Robinson, Price & Johnson, Anchorage, for appellant.

Kenneth McCaskey, Robison & McCaskey, Anchorage, for appellees.

Before RABINOWITZ, C. J., CONNOR, BURKE and MATTHEWS, JJ., and DIMOND, Senior Justice. ^*

OPINION

BURKE, Justice.

Kurt Stenehjem, the prospective purchaser of a parcel of unimproved land with frontage on the new Homer by-pass road, appeals from the superior court's refusal to specifically enforce his contract with Kyn Jin Cho and Sun Shik Cho, and from the court's failure to award him damages for the Chos' refusal to complete the transaction. Judge James A. Hanson ruled that the contract should not be enforced in light of a provision requiring the Chos to subordinate the deed of trust to be given to them by Stenehjem to any deed of trust that Stenehjem might give to an "F.D.I.C. insured lending institution." ¹ We affirm the court's decision not to enforce the contract with the subordination agreement, but we remand the case for consideration of whether specific enforcement is proper without the subordination clause, or for an award of compensatory damages.

The essential facts are not disputed by the parties. The Chos purchased the property at issue in March, 1977 for approximately $40,000. They subsequently listed the property for sale with a real estate broker for $200,000. After Stenehjem made two offers on the property that were not acceptable to the Chos, the parties signed an agreement dated August 29, 1977. Subsequently, disputes arose between the parties and though attempts were made to find a satisfactory solution, the Chos ultimately refused to perform under the August 29 agreement, and Stenehjem brought this action.

I

Based addressing the specific issues before us, it is necessary to place them in their proper perspective in the realm of the law of contracts. We have recognized 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.' " Rego v. Decker, 482 P.2d 834, 837 (Alaska 1971), quoting 1 A. Corbin, Contracts § 1, at 2 (1963) (footnote omitted). This realization can take place only when the contract to be enforced is "reasonably definite and certain as to its terms." Alaska Creamery Products, Inc. v. Wells, 373 P.2d 505, 510 (Alaska 1962). ² As Corbin states:

A court cannot enforce a contract unless it can determine what it is. it is not enough that the parties think that they have made a contract; they must have expressed their intentions in a manner that is capable of understanding. It is not even enough that they have actually agreed, if their expressions, when interpreted in the light of accompanying factors and circumstances, are not such that the court can determine what the terms of that agreement are. Vagueness of expression, indefiniteness and uncertainty as to any of the essential terms of an agreement, have often been held to prevent the creation of an enforceable contract.

1 A. Corbin, supra, § 95, at 394 (footnote omitted).

However, these statements are tempered by language in the same section encouraging courts to give legal effect to the intentions of the parties where necessary to reach a fair and just result. Id. at 400. Similarly, Restatement (Second) of Contracts § 32(2) (Tent.Drafts 1-7, 1973) provides, "The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy." We have adopted this method of analysis in the past, and a review of the factual situations presented to the court is important to an understanding of the principles involved.

In Rego v. Decker, we were asked to enforce an option contract for the sale of land that did not contain a provision securing the payments to be made by the buyer. We recognized that the failure to specify the character of a security agreement could amount to uncertainty in the contract but refused to make this a basis for an unconditional denial of specific performance. Id., 482 P.2d at 838. Instead, we encouraged the trial courts to "fill gaps in contracts to ensure fairness" since we noted that:

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.

Id. at 837 (footnote omitted). However, in the absence of reasonable certainty,

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 performance should be denied for lack of reasonable certainty.

Id. at 837-38 (footnote omitted).

We also noted in Rego that "(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." Id. at 838 (footnote omitted). In that case we determined that a proper decree could be framed, and we instructed the trial court to condition the grant of specific performance on either the payment of the purchase price in full, or the furnishing of adequate security by the buyer. Id. at 840. ³

Subsequently, in Hollaus v. Arend, 511 P.2d 1074 (Alaska 1973), we held that the trial court properly denied specific performance where the numerous uncertainties in the contract at issue manifested a failure to reach agreement. There the writing that the plaintiff sought to enforce lacked a precise description of the property conveyed, was unclear as to a down payment, failed to specify the dates on which the various steps in the transaction would be taken, and did not state the amount of monthly payments, the rate of interest on the transaction or make any provision for security. Id. at 1075. The encouragement of "creative adjudication" found appropriate in Rego was found unsuited to the circumstances in Hollaus.

In the present case, the Chos resisted specific performance on the ground that the subordination provision contained in the agreement made the agreement uncertain. Stenehjem responds that the provision was sufficiently certain to allow the court to invoke its equitable power "to frame a decree which assures performance on both sides ...." The Chos do not contend that there is uncertainty as to any other provision of the agreement, and plainly the agreement contains ample details concerning the property in question, the down payment, assumption of the prior lien, and the mortgage to be given by Stenehjem to the Chos. Therefore, resolution of the question concerning the subordination clause could allow us to find that the agreement was sufficiently definite and certain.

The Chos contend that the subordination provision "left all terms (of the subordination) to the future agreement of the parties." The provision requires the Chos to subordinate to a loan obtained from an F.D.I.C. insured lending institution. There is no indication in the record that the parties planned to enter into further negotiations concerning the loan. In effect, they delegated to Stenehjem the power to arrange the loan and to agree to its terms.

We recognize that there are cases in which the courts have found contracts to be uncertain because subordination agreements failed to specify all the terms of the loan to be obtained, but we believe they can be distinguished from the case before us. One group of cases that discusses subordination agreements in terms of uncertainty relies on the finding that the parties were to agree in the future on the nature of the subordination. Thus, in Lahaina-Maui Corp. v. Tau Tet Hew, 362 F.2d 419, 422 (9th Cir. 1966), the court stated that the subordination clause "on its face, implies that further negotiations were contemplated." Likewise, in Gould v. Callan, 127 Cal.App.2d 1, 273 P.2d 93, 95 (1954), there was testimony that "the subordination agreement would be prepared at a subsequent date by defendant's attorney and he was to approve its final form ...." See Yackey v. Pacifica Development Co., 99 Cal.App.3d 776, 160 Cal.Rptr. 430, 434 (1979).

Other cases discuss subordination agreements in terms of certainty, but they have been described as turning on the question of the fairness of the agreement, and later cases make it clear that certainty is required to make the agreement sufficiently fair to enable specific enforcement. See Comment, Subordination of Purchase-Money Security, 52 Calif.L.Rev. 157, 162-63 & n.42 (1964) (hereafter cited as Subordination Comment ); Handy v. Gordon, 65 Cal.2d 578, 55 Cal.Rptr. 769, 770-771, 422 P.2d 329, 330-31 (1967). Here we defer consideration of whether the subordination agreement contains sufficient terms to enable specific enforcement, and consider only whether the clause and the agreement sufficiently show the parties intended to be bound by their agreement and expressed such an intention with sufficient certainty.

We find that the agreement contains the terms generally material to a contract for the sale of land. In addition it includes a provision by which the Chos agree to subordinate Stenehjem's mortgage to another loan, delegating to him the details of that financing. Stenehjem testified that subordination was discussed at the...