Kihara Real Estate Inc v Estate of Henry Nanpei [1993] FMSC 15; 6 FSM Intrm. 048 (Pon. 1993) (3 May 1993)

6 FSM Intrm. 48 (Pon. 1993)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 1991-027

KIHARA REAL ESTATE, INC.,
Plaintiff,

vs.

ESTATE OF HENRY NANPEI,
ROBERT NANPEI and NAMIO NANPEI, co-administrators,
Defendants.
___________________________________

MEMORANDUM OF DECISION

Andon L. Amaraich
Associate Justice

Decided: May 3, 1993

APPEARANCES:

For the Plaintiff: Fredrick L. Ramp, Esq.
P.O. Box 1480
Kolonia, Pohnpei FM 96941

For the Defendants: Sungiwo Hadley
Trial Counselor
Micronesian Legal Services Corporation
P.O. Box 129
Kolonia, Pohnpei FM 96941

* * * *

HEADNOTES

Civil Procedure - Summary Judgment
Where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law, summary judgment must be granted. Kihara Real Estate, Inc. v. Estate of Nanpei (I), 6 FSM Intrm. 48, 52 (Pon. 1993).

Civil Procedure - Summary Judgment
The burden of showing a lack of triable issues of fact belongs to the moving party. Kihara Real Estate, Inc. v. Estate of Nanpei (I), 6 FSM Intrm. 48, 52 (Pon. 1993).

Civil Procedure - Summary Judgment
In determining whether triable issues exist, the court must view the facts presented and inferences made in the light most favorable to the party against whom summary judgment is sought. Kihara Real Estate, Inc. v. Estate of Nanpei (I), 6 FSM Intrm. 48, 52 (Pon. 1993).

Civil Procedure - Summary Judgment
Plaintiff's burden of establishing the lack of any triable issue of fact extends to affirmative defenses as well as to plaintiff's own positive allegations. Kihara Real Estate, Inc. v. Estate of Nanpei (I), 6 FSM Intrm. 48, 53 (Pon. 1993).

Contracts - Option Contract
An option contract is a unilateral contract where an offer is made and the offeree is invited to accept by rendering a performance instead of promising something in return. Once the offeree either tenders or begins the invited performance, the option contract is created. The offer then becomes irrevocable. Kihara Real Estate, Inc. v. Estate of Nanpei (I), 6 FSM Intrm. 48, 53 (Pon. 1993).

Contracts - Option Contract
The offeror may vary the common law rule by express provision in the contract; thus, he remains in control of his offer. Absent express provisions to the contrary, an option contract is binding on the offeror who must keep the offer open for a specified time period. The offeree is free to accept or reject within that period. Kihara Real Estate, Inc. v. Estate of Nanpei (I), 6 FSM Intrm. 48, 53 (Pon. 1993).

Contracts - Interpretation
A party may not seek to introduce evidence that shows that the clear and unambiguous terms of a written agreement are other than as shown on the face of the agreement. Such a prohibition preserves the security and credibility of those who contract with good faith belief that what they sign is what they agree to. Kihara Real Estate, Inc. v. Estate of Nanpei (I), 6 FSM Intrm. 48, 55 (Pon. 1993).

* * * *

COURT'S OPINION

ANDON L. AMARAICH, Associate Justice:

The instant contractual dispute came before me on plaintiff's motion for partial summary judgment, pursuant to FSM Civil Rule 56. A hearing was held and oral arguments were presented by counsel for both sides. Subsequent to the hearing, supplemental filings were made by both parties for and against partial summary judgment. Those filings are considered in the following decision.

For reasons expressed below, the motion is granted.

I. FACTS

The following facts are beyond dispute.

On December 8, 1990, plaintiff Kihara Real Estate, Inc. and defendants Robert and Namio Nanpei, as co-administrators of the Estate of Henry Nanpei, signed a contract entitled "Option Agreement and Right of First Refusal" (hereinafter "agreement"). The agreement granted plaintiff an exclusive option to lease certain parcels of real property in Pohnpei State owned by defendants.¹ Parcels leased under the agreement would be developed by plaintiff for commercial purposes. Specifically, plaintiff sought to build a resort, condominiums, and golf courses. The duration of the agreement was 180 days from December 8, 1990 to June 6, 1991, during which time plaintiff could exercise the option on any of the land listed in the agreement. Also, the agreement provided plaintiff a right to notice and first refusal if defendants sought to lease any of the listed land to other parties.² Defendants retained the right to remove parcels from the list if they were already occupied or if there were title deficiencies. Under the agreement, defendants would ascertain which parcels would have to be removed for longstanding occupation or title deficiencies and would provide plaintiff with a final revised list of possible properties to be leased by June 6, 1991.³ The agreement also called for the parties to negotiate and execute an Agreement to Lease and Ground Lease Agreement for the parcels ultimately chosen.⁴ Consideration for the agreement was $25,000.00, of which $12,500.00 was paid at execution of the agreement.⁵ Another provision of the contract specified that the $25,000.00 consideration would be used by the Estate for attorney's fees and costs related to negotiating the agreement.⁶

The list of parcels which plaintiff retained its option on included all of Pasa and part of Nikahlap islands on Ant Atoll,⁷ numerous parcels Kitti Municipality including a parcel called Nahlap, and parcels in Madolenihmw and U municipalities.

After execution of the agreement, the parties met over the next months to finalize the list of parcels that would be chosen and to negotiate the Agreement to lease and Ground Lease Agreement. However, defendants had not submitted a list of parcels to be removed for occupancy or title deficiencies; therefore, a finalized list of parcels could not be obtained by the plaintiff.

On April 17, 1991, plaintiff's counsel and defendant Namio Nanpei met. Mr. Nanpei informed plaintiff's counsel that defendants were no longer willing to lease most of the properties listed in the agreement. Defendants were willing to lease only a portion of Nikahlap island and the Seinwar area in Kitti. Their reasons for so doing did not include problems of occupancy or title deficiencies. Plaintiff's counsel discontinued negotiations as a result.

Between April 17 and June 6, 1991, defendants re-entered into a lease agreement for part of Areu, Nikahlap Island, with a Mr. Suzuki who had previously leased the land from defendants. Defendants also entered into a joint venture with a company called N.B.K. to develop Nahlap Island. Both Areu and Nahlap are listed in the agreement with plaintiff. No notice or right of first refusal was given plaintiff in either of these instances.

Plaintiff brought suit for breach of contract, claiming that defendants refused to lease all the land agreed to in the option agreement, did not notify plaintiff of the parcels to be removed from the list of option land, and granted third parties rights to use land listed in the agreement without granting plaintiff a right of first refusal. Defendants respond that "[t]he reason for signing the option agreement by [defendants] was because of Mr. Ramp's advice to Namio Nanpei that the Estate Administrators can [sic] always remove any of the properties before a lease agreement is executed." Verified Opposition to Motion for Partial Summary Judgment at 1 (Jan. 13, 1993). According to the defendants, plaintiff's counsel assured them that the listing of the properties in the agreement was just a formality and that defendants would still have the right to decide which parcels to lease. Thus, defendants contend that plaintiff's refusal to lease those parcels which were specified by defendants on April 17, 1991 constituted a repudiation of the agreement, which absolved defendants of any obligations to the plaintiff.

II. MOTION FOR PARTIAL SUMMARY JUDGMENT

A. Rule 56

FSM Civ. R. 56 requires the Court to enter summary judgment

if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. A summary judgment, interlocutory in character, may be rendered on the issue of liability alone although there is a genuine issue as to the amount of damages.

FSM Civ. R. 56(c). Essentially, where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law, summary judgment must be granted. FSM Dev. Bank v. Rodriguez Corp., [1985] FMSC 2; 2 FSM Intrm. 128, 130 (Pon. 1985); Wainit v. Truk (II), 2 FSM Intrm. 86, 87 (Truk 1985). The burden of showing a lack of triable issues of fact belongs to the moving party. FSM v. Ponape Builders Constr., Inc., 2 FSM Intrm. 48, 52 (Pon. 1985). Furthermore, in determining whether triable issues exist, the Court must view the facts presented and inferences made in the light most favorable to the party against whom summary judgment is sought. Bank of Guam v. Island Hardware, Inc., [1986] FMSC 22; 2 FSM Intrm. 281, 284 (Pon. 1986).

Plaintiff's motion seeks a partial judgment on the issue of liability, with the question of damages to be answered at trial or at a later motion. Rule 56(d) provides the controlling procedure:

If on motion under this rule judgment is not rendered upon the whole case or for all the relief asked and a trial is necessary, the court at the hearing of the motion, by examining the pleadings and the evidence before it and by interrogating counsel, shall if practicable ascertain what material facts exist without substantial controversy and what material facts are actually in good faith controverted. It shall thereupon make an order specifying the facts that appear without substantial controversy, including the extent to which the amount of damages or other relief is not in controversy, and directing such further proceedings in the action as are just. Upon trial of the action the facts so specified shall be deemed established, and the trial shall be conducted accordingly.

FSM Civ. R. 56(d).

Thus, plaintiff, as the moving party, has the burden of establishing the lack of any triable issue of fact. This burden extends to affirmative defenses as well as to the plaintiff's own positive allegations. FSM Dev. Bank v. Rodriguez Corp., [1985] FMSC 2; 2 FSM Intrm. 128, 130 (Pon. 1985).

B. Option Contract

An option contract is a unilateral contract where an offer is made and the offeree is invited to accept by rendering a performance instead of promising something in return. Once the offeree either tenders or begins the invited performance, the option contract is created. The offer then becomes irrevocable. It is the very tender or "the beginning of performance . .;. [which] furnishes the cthe consideration for an option contract." Restatement (Second) of Contracts § 45 cmt.&#161981). See also E. Allan Farnsworth, Contracts § 3.24, at 179-80 (1982).982). The offeror may vary the common law rule by express provision in the contract; thus, he remains in control of his offer. Absent express provisions to the contrary, an option contract is binding on the offeror who must keep the offer open for a specified period. The offeree is free to accept or reject within that period of time.

In the present case, the written contract explicitly grants an exclusive option to plaintiff to lease the properties specified in the contract, except for those excluded pursuant to the contract. The contract also specifies the payment of $12,500.00 as consideration for the agreement. The payment of $12,500.00 constitutes a beginning of performance and is consideration for the option contract. The signing of the document by both parties also constitutes an offer and acceptance. Since the contract contains an offer, an acceptance in the form of partial performance, and is signed by both parties, it is valid and is binding on both parties. Therefore, failure to perform according to the contract is a breach.

Wherefore the issue before me is whether defendants did breach the agreement with plaintiff.

C. Breach of Contract

Among the explicit duties of the defendants under the agreement were to provide plaintiff a list of properties to be removed from the agreement for occupancy or title deficiencies and to provide plaintiff with notice and a right of first refusal against third party offers. By their own admissions in their pleadings and responses, defendants consciously disregarded their obligations under the agreement by not committing to lease parcels that were listed in the agreement and not removed for occupancy or title deficiencies, by not providing a list of parcels to be removed from the agreement, and by not granting plaintiff a right of first refusal with regard to transactions with Mr. Suzuki and N.B.K.

The main point of factual dispute concerns the meeting on April 17, 1991. At that meeting, defendants informed plaintiff's counsel of their choice to limit the number of parcels that they would be willing to lease to the plaintiff.⁸ The agreement explicitly granted plaintiff an option to lease any and all of the listed parcels, except those found to have prior occupants or title deficiencies. The agreement is clear that the choice of which parcels to lease was unequivocally plaintiff's, not the defendants'. Therefore, by limiting the leasable land to only a small portion of the parcels committed under the agreement, defendants presumably beached their contractual duty.

Defendants seek to rebut this presumption by asserting that plaintiff's counsel had repeatedly represented to them that the agreement did not call for a commitment of all the land listed therein, and that defendants still retained the right to choose which lands to lease under the agreement. When defendant Namio Nanpei informed plaintiff's counsel for the decision to limit the leasable land, the defendants were acting according to what they understood the agreement to be. Thus, when plaintiff's counsel discontinued negotiations on April 17, 1991 as a result of the meeting, defendants interpreted that as an indication that the agreement was repudiated by the plaintiff and that no further contractual obligations existed.

Even viewing the above argument in a light most favorable to the defendants, I find that such an interpretation of the contract clearly contravenes the plain language of the option agreement. As stated above, the agreement granted defendants no right to determine which listed parcels would be leased. Such a choice was expressly reserved to the plaintiff. The fact that the defendants signed the agreement is an indication that they knew what they were agreeing to. One can understand instances of confusion when a contract is ambiguous in its terms and conditions. However, I find no such ambiguity in the present agreement. As such, it is difficult to imagine how plaintiff's counsel could lead the defendants to so contrary an interpretation of what their rights and obligations under the contract were. Even if such an attempt were made by plaintiff's counsel, defendants and their counsel had an obligation to preserve their own rights before signing the agreement. Plaintiff's counsel was representing the plaintiff's interests, not the defendants'.

Because of the lack of ambiguity in the contract, I find that defendant's decision to limit the leasable land under the agreement constituted a unilateral modification of an essential condition of the contract and, as such, constituted a breach. Defendants cannot defend their action by asserting that plaintiff's refusal to continue negotiations terminated the agreement and thus constituted a breach, because what in fact caused plaintiff to halt negotiations was the defendants' own unilateral modification of a central term of the agreement-i.e. the number of parcels to choose from. Defendants's own breach preceded any action by plaintiff and thus caused the breakdown in negotiations.

The essence of defendants' defense is that the agreement is not an accurate reflection of what the parties actually agreed to. Yet, the agreement was freely entered into by both parties. Defendants were under no obligation or constraint to include the entire estate in the agreement. Had they known that they would not be leasing certain parcels regardless of occupancy or title, they should not have included those parcels in the option agreement. Also, defendants claim that plaintiff first breached the agreement by refusing to commit to leasing and developing only those portions of land which were offered by them. Yet, defendants do not disclaim that, even after April 7, 1991 and as late as June 21, 1991, plaintiff attempted to continue negotiations. Letters to Robert and Namio Nanpei from Fred Ramp (Apr. 18, 1991 and June 21, 1991). Had defendants been interested in complying with the agreement, they would have continued negotiations and would not have committed Areu to Mr. Suzuki and Nahlap to N.B.K.

Thus, defendants' subsequent actions are inconsistent with their claim that the contract is not what they originally agreed to. The argument that the agreement is not an accurate reflection of what was actually agreed to cannot succeed in view of the provision in the agreement that "[t]his agreement constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and understandings of the parties." Agreement § 12.1. By signing the agreement, defendants-who were represented by counsel at the negotiations-are presumed to have read and understood its contents and cannot now attempt to disclaim language that is clear and unambiguous.

Furthermore, by denying the accuracy of the agreement, defendants would have the Court interpret the language of the agreement and thereby put into question the entire contract. If such a request were the rule, parties in any contract conceivable could escape their contractual obligations by asserting new terms to the contract after the signing. Those who negotiate in good faith would lose their protection against those who, either by negligence or in bad faith, do not live up to their contractual obligations. Hence, the Court must avoid such interpretations, especially when the language of the contract is clear. Only when there is ambiguity within a contract and there are various reasonable and practical alternative constructions available is it necessary to employ rules of interpretation. Semes v. Continental Air Lines, Inc., [1985] FMSC 3; 2 FSM Intrm. 131, 147 (Pon. 1985). Otherwise, a party may not seek to introduce evidence that shows that the clear and unambiguous terms of a written agreement are other than as shown on the face of the agreement. Such a prohibition preserves the security and credibility of those who contract with the good faith belief that what they sign is what they agree to.

III. CONCLUSION

Having considered the facts presented and the inferences made by both parties on the question of defendants' breach of contract, I am satisfied that no genuine issue of material fact exists and that the plaintiff is entitled to partial judgment as a matter of law.

Wherefore I hold that the defendants breached the agreement entered into with the plaintiff and are liable for damages as a result thereof. Further hearings on the amount of damages shall be scheduled at a later date.

* * * *