Western Airlines, Inc. v. Lathrop Co.

• Decision Date: 19 May 1975
• Docket Number: No. 2236,2236
• Citation: 535 P.2d 1209
• Parties: WESTERN AIRLINES, INC., Appellant, v. The LATHROP COMPANY, Appellee.
• Court: Alaska Supreme Court

Page 1209

535 P.2d 1209

WESTERN AIRLINES, INC., Appellant, v. The LATHROP COMPANY, Appellee.

No. 2236.

Supreme Court of Alaska.

May 19, 1975.

Richard O. Gantz, Hughes, Thorsness, Lowe, Gantz & Powell, Anchorage, for appellant.

W. C. Arnold, Anchorage, for appellee.

Before RABINOWITZ, Chief Justice, and CONNOR and BOOCHEVER, Justices.

OPINION

BOOCHEVER, Justice.

The factual background of this case has been related in some detail in our 1972 opinion Western Airlines, Inc. v. Lathrop Company. ¹ We there held that the action of the State of Alaska in terminating its lease with Lathrop and requiring removal of the building subleased by Lathrop to Western constituted a condemnation by the state agency which terminated the sublease between Lathrop and Western. ²

Due to the possibility of the state or Lathrop having a right to damages against Western under the doctrine of equitable estoppel, we remanded to enable the parties to litigate that question. Additionally, Lathrop was afforded the opportunity to prove a claim for relief against the state grounded on the state's action in 'taking' Lathrop's leasehold interests and improvements at the Anchorage International Airport. ³ At the subsequent trial, the superior court held that equitable estoppel had not been established, and there has been no appeal from that ruling. The court further held that Lathrop was entitled to damages from the State of Alaska for termination of its lease which otherwise would have run from the date of such termination by the state, June 1, 1968, ⁴ to September 30, 1973. The amount awarded was $101,167.99 computed as follows:

The court further found that Lathrop had a right by virtue of its contract with Western to a lease from the state for an additional period of three years to September 30, 1976, and that Lathrop was also entitled to additional rent from Western for a substitute site to which the building was removed in the amount of $5,073.20. Damages were awarded to Lathrop against Western in the amount of $49,380.47 computed as follows:

                (a)   Additional rent for
                      substitute site               5,073.20
                (b)   $1,447.95 for 36
                      months (9-30-76 to
                      9-30-76)
                      6 months w/o discount                    8,687.70
                      30 months w/8% discount                 39,963.42
                                                              ---------
                      reduction to present value              48,651.12
                (c)   Less credit for 3
                      months paid in June
                      July & August 1968
                      ($1,447.95 x 3)                          4,343.85
                                                   44,307.27
                                                  ----------
                                                  $49,380.47
                                                  ----------
                

Additionally, Lathrop was awarded costs and $5,788.00 in attorney's fees against Western.

Western has appealed from the superior court's judgment contending:

1. That the trial court erred in failing to find that Lathrop was granted a three-year extension of the principal lease to September 30, 1976, so that when the lease was terminated by the state, Lathrop became entitled to damages from the state and not from Western for that additional period of time,

2. That the amount of damages awarded against Western was improperly computed,

3. That it was error to award Lathrop damages against Western in the amount of $5,073.20 for rental payments made by Lathrop to the state for other property on which to store the building, and

4. That the court erred both in awarding Lathrop rather than Western attorney's fees as the prevailing party and in the amount awarded for such fees.

I

Western (through its predecessor Pacific Northern Airlines, Inc.) entered into an agreement with Lathrop (through its predecessor, Hill's Inc.) on December 30, 1959 whereby in exchange for a sum of money, Western assigned its principal lease from the state and sold the building located on the leased premises to Lathrop. Simultaneously, Lathrop subleased the premises to Western for a 15-year period terminating on December 31, 1974. Since the underlying lease due to expire on September 30, 1963 contained an option to renew for an additional 10 years, the sublease still extended 15 months beyond the termination date of the underlying lease, or September 30, 1973. The sublease specified that it was conditioned on the lessor's (Lathrop's) obtaining a ground lease from the state 'upon the same terms and conditions' as theretofore existed. There was also some evidence that Western had obligated itself to procure the requisite extension pursuant to an earlier separate agreement with Lathrop. ⁵

Prior to this assignment-sublease, Western wrote a letter to the State Director of the Division of Air Terminals dated December 24, 1959 in which it exercised its option to renew for the ten-year period ⁶ and further requested a three-year extension period beyond the renewal period. On January 4, 1960, a reply was received stating in pertinent part:

Your request dated December 28th has been considered, and the following amendments to your lease . . . are hereby granted:

1. Option to renew for ten (10) years from October 1, 1963 to September 30, 1973 is accepted.

2. Extension of the lease for a period of three (3) years to September 30, 1976 is granted.

In accordance with the foregoing, your said lease of the premises shall expire September 30, 1976.

Although this letter shall be sufficient evidence of your notification of the above, formal documents will be forwarded to your office within a short time in order that the officers of Pacific Northern Airlines may execute the same, together with the undersigned, to complete this matter. However, if the present airport improvement program necessitates the moving of your building, a suitable area acceptable to the airport management and Pacific Northern Airlines will be provided.

Please return a copy of this letter to this office after it has been signed by an authorized officer of Pacific Northern Airlines in the space provided below. (emphasis added)

Subsequently, on February 4, 1960, Western unconditionally assigned its interest in the principal lease together with all renewals and extensions for the period of January 1, 1960 to September 30, 1976 to Lathrop. Although Western acted in reliance on the aforesaid letter, Lathrop relied exclusively on its assignment contract with Western and did not become aware of the proposed amendments contained in the letter until the summer of 1967 when the events culminating in this litigation began to transpire. Thus, the critical issue on this appeal is whether the letter operated effectively to extend the principal lease for the period of September 30, 1973 to September 30, 1976. If the extension proves unenforceable, then the extent of Western's liability for breach of contract must be determined. Obviously, if the extension amendments are found to be valid, Western cannot be held liable to Lathrop under any contractual theory.

In our prior opinion, it was held that the letter of January 4, 1960 constituted merely an agreement to agree which was not enforceable.

The letter necessarily implied that an agreement on a suitable area would be reached. In 'accepting' the Aubuchon Letter, PNA (Western) accepted an agreement to agree. This 'agreement to agree' is not enforceable because the Aubuchon Letter did not contain a sufficiently definite offer to create a contract upon its acceptance by Felix Aubuchon on behalf of PNA. The Aubuchon Letter being an agreement to agree would, under the foregoing authorities, be held unenforceable because of its lack of definiteness. ⁷

We therefore concluded:

. . . that on the facts of this record the Aubuchon Letter (of January 24, 1960) was an ineffective attempt to amend the 1953 main ground lease. It follows that Lathrop cannot assert that the Aubuchon Letter precluded Western from relying upon the eminent domain provision of the 1959 assignment-sublease as the basis for its claim that the sublease was terminated by the actions of the state. (emphasis added) ⁸

In light of this holding and the language of the disputed letter, two possible interpretations emerge. Western urges that there were two distinct and independent amendments agreed to in the letter. First, there was an agreement to extend the principal lease for the three years which the appellant contends constituted a valid bilateral contract supported by the mutual obligations of the state to lease and PNA (Western) to pay rent. Secondly, Western asserts that the state, in an entirely separate and allegedly unrelated paragraph, attempted to amend the original lease by obtaining from PNA (Western) an agreement to agree on a suitable new site in the event the state's expansion of the terminal required use of the original premises. Western concludes that, since only the latter agreement was expressly invalidated by the

in our prior opinion, a lease including an enforceable extension agreement was assigned to Lathrop on February 4, 1960.

The other possible interpretation was the one adopted by the trial court based on the assumption that it was the one mandated by our invalidation of the agreement to agree. The lower court stated:

But going within the guidelines of the supreme court and by their interpretation that the Aubuchon Letter was an agreement to agree, the 3 year extension period was obviously a conditional requirement that the agreements-that an agreement be reached and the inverse would be true if there was no agreement as to a site I would have to assume that there would be no 3 year extension. So, on that basis and because of what the Supreme Court has ruled, I would hold that the extension period itself would be inoperable, however, not as far as Lathrop is concerned. ⁹

Aside from posting the two conflicting interpretations of the contractual language contained in the letter, the parties cite no case authority which would specifically support their differing positions. It is,...