Opinion ID: 870105
Heading Depth: 2
Heading Rank: 2

Heading: Hawai‘i Law on Contract Interpretation

Text: Further, the primacy of the parties’ intent underlying the minority rule is in line with our case law on contract interpretation. “In construing a lease we must avoid an unreasonable interpretation if that can be done consistently with the tenor of the agreement and choose the most obviously just interpretation as the presumed intent.” Broida v. Hayashi, 51 Haw. 493, 496, 464 P.2d 285, 288 (1970). Interpretation of the parties’ intent begins with the language the parties use. For the reader’s convenience, the ROFR provision is reproduced below: 2. Option to Purchase: Licensor [Princeville Corporation] expressly reserves the right to sell the licensed premises during the term of this license and to place such signs and notices on or about the premises for such purpose, subject only to the rights of the Licensee [the Kutkowskis] contained herein. In the event Licensor decides to sell the premises, it shall be first offered to Licensee on terms and conditions provided by Licensor; PROVIDED, HOWEVER, that Licensee shall have at all times faithfully and punctually performed all of the covenants and conditions of this agreement on the part of Licensee to be performed. Licensee shall have sixty (60) days to accept the Licensor’s offer or make a counter offer, PROIVDED [sic], HOWEVER, that if no sales contract is executed within one hundred twenty (120) days after Licensor’s initial offer, (1) Licensor shall be free to offer the premises for sale to the general public and (2) this license agreement shall be automatically 21  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  amended with occupancy to continue on a month to month term. Should the premises be thereafter sold during the term of the month to month license, Licensor shall give Licensee forty-five (45) days prior notice of termination of this license, upon which Licensee shall relinquish all rights hereunder. To the ICA, the term “the premises” in the second sentence’s phrase, “In the event Licensor decides to sell the premises,” referred only to the half-acre parcel. 128 Hawai‘i at 359, 289 P.3d at 995. To the ICA, the decision to sell the 1040-acre parcel was not a decision to sell just the half-acre parcel. Id. Because PPGC’s Master Parcel was undivided, however, the decision to sell it necessarily meant that the Property would be swept up in the sale. The decision to sell the whole was a decision to also sell the part; the ROFR was thus triggered.6 An interpretation otherwise would render the ROFR meaningless. The minority rule, as applied to the circumstances of this case, gives effect to the parties’ agreement. Berry Iverson Co., 242 N.W.2d at 134 (“To conclude [that a decision to sell a larger parcel was not a decision to sell a smaller parcel within it] would . . . destroy a bargained-for purchase preemption before the expiration for which such preemption was obtained.”) See also Restatement (Second) of Contracts § 203 (1981)(“In the interpretation of a promise or agreement or a term thereof, . . . 6 Therefore, we do not disagree with the Dissent (or the ICA) that “the premises” in the ROFR referred to just the half-acre parcel. As a practical matter, however, there is no way the sale of the undivided 1040-acre parcel would not include the half-acre parcel. 22  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect[.]” See also Amfac, Inc. v. Waikiki Beachcomber Inv. Co., 74 Haw. 85, 110, 839 P.2d 10, 25 (1992); Stanford Carr Dev. Corp. v. Unity House, Inc., 111 Hawai‘i 286, 297, 141 P.3d 459, 470 (2006). Thus, the decision to sell the Master Parcel was a decision to “sell the premises.” Under the terms of the ROFR, Princeville Corporation was required to “first offer[] [the premises] to [Kutkowski] on terms and conditions provided by the Licensor[.]” In this case, Princeville Corporation’s decision to sell the premises to PPGC occurred at least by July 2004, when the sale of the Master Parcel commenced. It is undisputed that Princeville Corporation did not first offer the premises to Kutkowski.7 In fact, rather than honor its obligations under the ROFR, Princeville Corporation instead sought to amend the License Agreement, while the sale of the Master Parcel was in progress, to eliminate Kutkowski’s ROFR. On his own initiative, Kutkowski 7 The Dissent points to Kutkowski’s Declaration, which stated that the Licensor did not first sell the half-acre to Kutkowski, as evidence failing to “indicate whether the parties intended, at the time of entering into the license agreement, to trigger the right of first refusal upon Princeville Corporation’s intent to sell the master parcel.” Dissent at 8 n.6. Kutkowski’s Declaration, however, merely averred to the fact (which PPGC does not dispute) that the Licensor never offered to sell the half-acre to Kutkowski. Respectfully, such a declaration was not used (and in this case, should not be used, where neither party argues that the ROFR is ambiguous) as a source of contractual intent. Contractual intent is ordinarily found within the four corners of the agreement. See Found. Int’l, Inc. v. E.T. Ige Constr., Inc., 102 Hawai‘i 487, 496 n.14, 78 P.3d 23, 32 n.14 (2003). 23  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  attempted to exercise what he understood to be his “option” by offering to buy the half-acre parcel for $250,000. The offer was rejected. In light of this sequence of events, the ICA’s adoption of the majority rule, which holds that the ROFR was not triggered, in effect, also relieved PPGC of its duty of good faith and fair dealing in performing the contract. See Restatement (Second) of Contracts § 205 (1981)(“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.”); Young v. Allstate Ins. Co., 199 Hawai‘i 403, 427, 198 P.3d 666, 690 (2008)(“[E]very contract contains an implied covenant of good faith and fair dealing that neither party will do anything that will deprive the other of the benefits of the agreement.”)(citation omitted); Simmons v. Puu, 105 Hawai‘i 112, 119, 94 P.3d 667, 674 (2004)(stating that Hawai‘i courts recognize that parties to a contract have a duty of good faith and fair dealing in performing contractual obligations). To further disclaim any obligation to perform the ROFR in good faith and fair dealing, PPGC argues that performance of the contract was legally impossible in any event, because it could not have subdivided the half-acre parcel in an area zoned for agricultural use, where minimum lot size is five acres. Thus, PPGC argues, Kutkowski is not entitled to specific performance. 24  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  Kutkowski cited to the County of Kaua‘i, Kauai County Code, § 9- 3.1 (requiring minimum lot size to conform to the provisions of the Kauai Comprehensive Zoning Ordinance, respectively); the County of Kaua#i, Comprehensive Zoning Ordinance, § 8- 7.4(b)(2)(generally requiring a parcel of over 75 acres to be subdivided into smaller parcels no larger than five acres); and Whitlow v. Jennings, 40 Haw. 523, 532 (Haw. Terr. 1954)(“[A]n agreement to sell in violation of the [subdivision] statute is void[.]”)] PPGC’s argument misses the point of the ROFR, which was for the Licensor to “offer[ to sell the premises] to Licensee on terms and conditions provided by the Licensor,” not to outright sell an unsubdivided half-acre parcel to the Licensee.8 The meaning of the phrase “terms and conditions provided by the Licensor” could have included the purchase price, possibly taking into account the cost of seeking a subdivision of the half-acre parcel (including attempts to grandfather in the subdivision of the smaller parcel or attempts to seek a variance from the subdivision ordinance), or attempts to create a condominium property regime, or other attempts to effectuate the ROFR. The 8 The ICA also recognized that the ROFR gave the Licensor a “right to determine the terms and conditions of any sale, including the purchase price and the satisfaction of any conditions.” 128 Hawai‘i at 360, 289 P.3d at 996. We believe that the purchase price is PPGC’s to decide. Therefore, we disagree with Kutkowski that the circuit court should set a price term for the half-acre parcel on remand. 25  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  factual record is undeveloped as to the current state of the property and the options available for carving out the half-acre parcel. The point is that PPGC could have, but did not, offer the half-acre, or any other parcel, to Kutkowski for sale on terms and conditions set by PPGC. [T]he right of private contract is no small part of the liberty of the citizen, and . . . the usual and most important functions of courts of justice is rather to maintain and enforce contracts, than to enable parties thereto to escape from their obligation on the pretext of public policy. . . . [I]f there is one thing which more than another public policy requires it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by courts of justice. Robinson v. Thurston, 23 Haw. 777, 790-91 (Haw. Terr. 1917)(Robertson, C.J., dissenting), rev’d 248 F. 420, 424 (9th