Wessells v. State Dept. of Highways, 2834

CourtSupreme Court of Alaska (US)
Citation562 P.2d 1042
Docket NumberNo. 2834,2834
PartiesT. H. WESSELLS, Appellant, v. STATE of Alaska, DEPARTMENT OF HIGHWAYS, Appellee.
Decision Date06 April 1977

Robert L. Hartig and J. Michael Robbins, Cole, Hartig, Rhodes, Norman & Mahoney, Anchorage, for appellant.

Richard P. Kerns Asst. Atty. Gen., Anchorage, Avrum M Gross, Atty. Gen., Juneau, for appellee.


BOOCHEVER, Chief Justice.

This appeal from summary judgment involves the interpretation of a provision in a lease issued by the State of Alaska, Division of Lands. Paragraph 6 of the lease expressly reserves the right to grant an easement or right-of-way across the leased property. The central question before this court is whether that paragraph authorizes the state to utilize the entire parcel for highway purposes without compensating Wessells for his leasehold interest. Additionally, Wessells seeks review of the trial court's award of attorney's fees to the state.

The principal facts are undisputed. In August of 1972, Wesway Steel Company, of which Wessells is a majority shareholder, assigned its interest in certain leased property to Wessells. This assignment was approved by the State of Alaska. Thus, Wessells secured a forty-four-year leasehold interest with renewal rights. Wessells' leasehold comprised 12.785 acres of school trust lands and is located in Anchorage, Alaska, adjacent to the International Airport Road in the vicinity of the Minnesota bypass and the Alaska Railroad right-of-way. It was used for commercial and industrial purposes. This property was part of a larger parcel originally leased by the Division of Lands to Jet Terminals, Inc. in 1961 for a term of fifth-five years with a renewal preference.

Wessells now holds the land subject to the terms of the original lease to Jet Industries. Paragraph 6 of that lease is a form clause which appears to be inserted in many state leases and provides:

The lessor expressly reserves the right to grant easements or rights-of-way across the land herein leased if it is determined to be in the best interests of the State to do so; provided, however, that the Lessee shall be entitled to compensation for all improvements or crops which are damaged or destroyed as a direct result of such easement or right-of-way.

Other provisions in the lease set forth the conditions of termination and cancellation. The lease also provides for adjustments in rental value at five-year intervals to 'be based primarily upon a reappraised annual rental value . . ..' Wessells' leasehold was last revalued in 1971 at which time his quarterly rental became $886.00.

In early January of 1973, the Division of Lands conveyed a right-of-way encompassing Wessells' entire leasehold to the Department of Highways. This conveyance was formally effectuated as an interagency land management transfer pursuant to an agreement of January 23, 1973. The Department of Highways paid the Division of Lands $585,700.00 for the right-of-way.

Wessells was notified of these transactions by letter and was informed that any compensation due him for improvements under Paragraph 6 would be paid by the Department of Highways. The Department tendered $35,000.00 as the fair market value of improvements, but Wessells refused the offer.

Mr. Wessells sought declaratory relief in the superior court to determine the parties' obligations under Paragraph 3 of the lease, claiming a right to compensation for the reduction in the value of the leasehold. 1

The state admitted the facts but contended that pursuant to Paragraph 6, it had the right to devote the entire parcel to highway use without compensation beyond the value of improvements. Both parties moved for summary judgment.

After hearing oral argument, the trial court granted the state's motion. It found that Paragraph 6 was unambiguous and authorized the state to utilize the entire leasehold for highway or related purposes without compensating Wessells other than for improvements placed on the land. Mr. Wessells has appealed from the decision below. 2

We have examined Paragraph 6 of this lease and must disagree with the trial court's finding. We find that the Paragraph 6 of the lease is ambiguous, and that Mr. Wessells may be entitled to partial compensation for his leasehold interest.

We begin with the premise that within the traditional framework of eminent domain, a lessee has a compensable interest in land. 3 It also is clear that 'the right of the lessee to compensation, as any other right, may be waived or contracted away by the terms of the lease. . . .' 4 This brings us full circle back to the lease and the meaning of Paragraph 6.

The state argues that Paragraph 6 permits its use of the property without compensation. Wessells argues to the contrary. There are two portions of Paragraph 6 which are contested in this case. First, we must view the wording 'The lessor expressly reserves the right to grant.' Wessells claims this language permits granting easements only to third parties. The state argues that under the above language, it is authorized to effectuate an interagency management transfer of an easement. Second, we must view the use of the word 'easement' or 'right-of-way.' 5 Wessells contends that the use of the word 'easement' does not permit a use which effectively destroys his entire twelve-acre estate. The state argues to the contrary. 6

To ascertain the meaning of 'reserve the right to grant' and the meaning of the word 'easement,' we shall follow the principles of contract interpretation set forth in National Bank of Alaska v. J.B.L.&K. of Alaska, Inc., 546 P.2d 579, 584-86 (Alaska 1976). This involves a two-stage analysis.

In the first stage, we will look to both the language of the lease and extrinsic evidence to determine if the wording of the lease is ambiguous. 7 The mere fact that two parties disagree as to the interpretation of a contract term does not create an ambiguity. An ambiguity exists only where the disputed terms are reasonably subject to differing interpretation after viewing the contract as a whole and the extrinsic evidence surrounding the disputed terms. 8

If we determine that the language is ambiguous, we will proceed to the second stage of analysis and consider extrinsic evidence to attempt to resolve this ambiguity. 9 On the other hand, if the language is found to be unambiguous, it is construed according to the terms of the lease alone. 10

We focus our attention first on the meaning of the words 'reserve the right to grant' to determine whether this wording is ambiguous. Mr. Wessells contends that a 'right to grant' is different from a 'right to reserve to the state.' He argues that the former involves a conveyance to a third party, while only the latter would permit the grantor to utilize the property. Wessells concludes that an interagency land management transfer is not a 'grant' to a third party and is therefore not authorized by Paragraph 6 of the lease. Based on the definitions in the legal dictionaries and on the case law, 11 Mr. Wessells' analysis does have technical merit. Paragraph 1 of the lease itself specifies that the 'lessor shall mean the State of Alaska,' and title has at all times remained in the state. Therefore, Wessells' interpretation is one reasonable interpretation of the lease.

On the other hand, the state claims that the language 'reserves the right to grant' was reasonably understood by the parties as permitting the state to transfer a right-of-way from the Division of Lands to the Department of Highways for highway purposes. It suggests that in the context of this transaction, an interagency transfer of an easement was reasonably contemplated as a grant. Looking to the extrinsic evidence in this case, we find that the state's analysis of the lease is also a reasonable interpretation.

We note that the Department of Natural Resources, Division of Lands, and the Department of Highways were created by the legislature as two separate agencies with separate and distinct sources of authority. Although acting on behalf of the state, the Division of Lands and the Department of Highways appear to function as independent entities. Under Chapter 5 of Title 38, the Commissioner of the Department of Natural Resources, who supervises the Division of Lands, 12 has authority to enter into agreements with other state agencies. 13 The Director of the Division may approve contracts for the sale, lease or other disposal of available lands, imposing terms and conditions which he deems in the best interest of the state. 14 The provisions of Title 38 are not applicable, however, to:

Any power . . . or authority . . . granted to . . . the Department of Highways . . . to acquire, use, or lease . . . real property or any interest in real property. 15

The authority of the Department of Highways to acquire property or rights-of-way is granted by the legislature under a separate title, AS 19.05.080.

We also consider the fact that the lease was drafted by the state. It would not be reasonable to expect that the Division of Lands intended to provide for easements for third parties but not for other state agencies. It seems more reasonable to conclude that the provision was inserted to provide for flexible highway planning and development. This conclusion is supported by the statutory authority noted above which permits the imposition of conditions or limitations which 'will best serve the interests of the state.' A condition permitting the state to effectuate an interagency transfer for highway purposes is more consistent with state interests than is a condition which allows the granting of a right-of-way only to a third party taking title in its own name. Moreover, the court may take judicial notice of the fact that the state has a highway program to which it appropriates substantial sums of money each year. To facilitate this program, it is in the interests of the state to...

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    ...turn on the resolution of disputed facts. Montana Department of Revenue v. American Smelting & Refining Co., supra. See Wessells v. State, 562 P.2d 1042 (Alaska 1977); Walt Keeler Co. v. Atchison, Topeka & Santa Fe Ry. Co., 187 Kan. 125, 354 P.2d 368 (1960); Wendling v. Cundall, 568 P.2d 88......
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