Opinion ID: 1735146
Heading Depth: 2
Heading Rank: 1

Heading: whether the port authority breached the lease agreement in denying gulfside's requests to construct a hotel on its leased premises and substitute a barge for the copa vessel.

Text: ¶ 31. Regarding the operations and construction of improvements, the original lease contained the following pertinent provisions: LESSEE shall not make any additions, alterations or improvements which exceed $25,000 in or to the Vessel or the Leased Premises without Lessor's prior written consent.... Before commencing such alterations, LESSEE shall submit the plans and specifications thereof to LESSOR, for LESSOR'S written approval.    LESSEE shall submit in writing to the LESSOR the type and location of all business ventures and operations contemplated for the Vessel and Leased Premises whether operated by LESSEE or any other person. Prior to commencing any venture or operation, LESSEE must obtain LESSOR's approval. Original lease, article XII (2); article V(8). ¶ 32. In the second amendment, the TERM paragraph of the original lease was amended as follows: In addition to the three (3) renewal periods of (5) years each, LESSEE shall have the option to further extend the Lease for an additional period of ten (10) years if LESSEE, within the first ten (10) years of this Agreement, constructs, on the Leased Premises or within the city limits of Gulfport, Mississippi, a Hotel with a minimum of 350 units, and has complied with all terms, covenants and conditions of the Lease. If such renewal option is exercised, the Lease term may be extended under the same terms and provisions of this Lease Agreement ... Second lease amendment, article IV. ¶ 33. Gulfside claims that under article IV of the second amendment, it has a right to construct a hotel on its leased premises, subject only to the requirement of article XII(2) of the original lease that plans and specifications for `improvements to the ... Leased Premises' be submitted for the Port's written approval. The Port Authority contends that it has no obligation to approve Gulfside's plan to construct a hotel on the leased premises. Indeed, the chancellor found the terms of the contract, with few exceptions, to be clear and unambiguous and held that the lease did not contain an obligation on the part of the [Port] to approve the construction of a hotel upon the lease premises.... ¶ 34. The construction of contracts are questions of law to be reviewed de novo. Mississippi State Highway Comm'n v. Patterson Enterprises, Ltd., 627 So.2d 261, 263 (Miss.1993) (citing Leach v. Tingle, 586 So.2d 799, 801 (Miss. 1991)). ¶ 35. In interpreting contractual clauses, this Court has stated the following: The most basic principle of contract law is that contracts must be interpreted by objective, not subjective standard. A court must effect a determination of the language used, not the ascertainment of some possible but unexpressed intent of the parties. Simmons v. Bank, 593 So.2d 40, 42-43 (Miss.1992) (quoting Cherry v. Anthony, Gibbs, Sage, 501 So.2d 416, 419 (Miss. 1987)). The Simmons Court also restated that mere disagreement about the meaning of a contract clause does not make it ambiguous as a matter of law. Id. at 43. ¶ 36. When this Court finds itself proceeding to a rule of construction, we have generally relied on the four corners doctrine in interpreting instruments: In construing a written instrument, the task of the courts is to ascertain the intent of the parties from the four corners of the instrument. Courts look at the instrument under consideration as a whole and determine what the parties intended by giving a fair consideration to the entire instrument and all words used in it. When a written instrument is clear, definite, explicit, harmonious in all its provisions, and is free from ambiguity, a court in construing it will look solely to the language used in the instrument itself. In such a case a court will give effect to all parts of the instrument as written. Pfisterer v. Noble, 320 So.2d 383, 384 (Miss.1975) (citations omitted). It is well settled that extrinsic evidence is not admissible to create an ambiguity in a written agreement which is complete and clear on its face. See Cherry, 501 So.2d at 419. ¶ 37. The parties may have interpreted article IV of the second amendment differently, but an examination of the entire agreement reveals no ambiguity. The only mention of a hotel in the entire lease agreement is found in article IV of the second amendment which modifies the original TERM provision. This amended provision grants Gulfside the right to extend the term of the lease agreement if it constructs a hotel either upon the leased premises or in the city of Gulfport. The amended term provision does not, however, grant Gulfside the right to construct a hotel on the leased premises. ¶ 38. Article XII of the original lease, entitled IMPROVEMENTS BY LESSEE, required Gulfside to construct or install improvements such as mooring dolphins, concrete and timber piers, metal gang-ways, utilities, a covered canopy, a parking facility and a 20,000 square foot dining and entertainment complex (both sides agree that the requirement to build the entertainment complex was deleted in the second amendment to the lease). As the Port Authority correctly contends, the use of will and shall in the original lease to preface each improvement clearly expresses the Port Authority's and Gulfside's intent that Gulfside had the right and obligation to construct these improvements, subject only to the Port Authority's approval of the plans and specifications for such improvements. ¶ 39. The second amendment follows this same convention, where paragraph 7 of article XII provides the following: (a) The following new paragraph (7) shall be added to Article XII of the Lease Agreement (7) LESSEE shall have the right to construct a small marina in the Berth Area south of the fast land ... to be used in conjunction with LESSEE's gaming operation. Before commencing construction of said marina, LESSEE must obtain LESSOR's written approval of the size and location thereof, and must obtain all appropriate and necessary permits or approvals therefor. LESSOR shall have the right, as provided in paragraph (2) of this Article, to approve the plans and specifications of the marina. Through this amendment, the Port Authority granted Gulfside the right to construct a marina on its leased premises, subject only to the Port Authority's approval of plans and specifications for such construction. An analogous grant of authority to construct a hotel is conspicuously absent from the article XII IMPROVEMENT BY LESSEE amendment and article IV TERM amendment. Such absence must be read to evince a different intent. Gulfside contends that the entertainment complex requirement was not only deleted, but was replaced with a requirement to construct a hotel on the leased premises. On the contrary, if Gulfside had a right and was obligated to build a hotel, then such authority should have been reflected within the four corners of the contract. ¶ 40. We therefore agree with the chancellor's finding that the extrinsic evidence tendered by Gulfside was immaterial and that the Port Authority was under no obligation to approve Gulfside's plans for hotel construction on the leased premises. ¶ 41. Assuming arguendo that Gulfside had a right to construct a hotel on the leased premises, subject only to the Port Authority's approval of Gulfside's plans and specifications for such construction, the issue would thus become whether the Port Authority acted reasonably in denying Gulfside's request. ¶ 42. In Castle v. McKnight, 116 N.M. 595, 866 P.2d 323 (1993), the agreement provided that one party will not change the location of the boundary line fences... without the express written consent of the other party. Id. at 324. The trial court in Castle held that the boundary line agreement placed no limitation on the refusal to consent to relocation of the fence. On appeal, the New Mexico Supreme Court reversed and held that [t]he consent clause contains an implied covenant of reasonableness. Id. at 326. ¶ 43. Other courts have held the same. See, e.g., Bayou Land Co. v. Talley, 924 P.2d 136, 154 (Colo.1996) (we have implied the duty of good faith and fair dealing when one party has discretionary authority to determine certain terms of the contract.); Warner v. Konover, 210 Conn. 150, 553 A.2d 1138, 1140-41 (1989) ([a]ccordingly, we hold that a landlord who contractually retains the discretion to withhold its consent to the assignment of a tenant's lease must exercise that discretion in a manner consistent with good faith and fair dealing.). ¶ 44. By letter dated June, 1994, Gulfside asked the Port Authority for approval to construct a hotel on the leased premises. On July 27, 1994, Blakeslee responded to Gulfside's request stating, Until the master plan for Port development is adopted, it is premature to determine the best location for such a facility. ¶ 45. Vickerman, Zachery & Miller (VZM) was retained by the Port Authority in October, 1993, to prepare a strategic master plan for the Port Authority. The plan was intended to serve the Port Authority in making strategic decisions as to infrastructure, clients, opportunities, diversification and operations. ¶ 46. After reviewing and adopting the VZM strategic plan, the Port Authority, at an October 26, 1994, meeting, considered the following motion: Gulfside Casino Partnership previously made a presentation to us related to various proposed development to its leasehold interest. There was a great deal of confusion and lack of detail regarding the elements of the proposal. We directed numerous questions to Gulfside regarding the proposal and outlined the necessary information required to be furnished to the Staff and the Authority in order to allow the Authority to act. Gulfside, through its recent correspondence, has emphasized the need for the Authority to act on the proposal to construct a hotel on the leasehold interest. Even though Gulfside has failed to respond to our request for the necessary data regarding the hotel the Authority is of the opinion that a hotel on the leasehold interest would not be in the best short or long term interest of the Port, especially considering the adoption of the Master Plan for the development of the Port. The motion was passed with four commissioners in favor and one abstaining. On October 31, 1994, Blakeslee sent a letter to Cladianos stating that the construction of a hotel on Gulfside's leasehold interest would not be in the best short or long term interest of the Port. ¶ 47. Blakeslee, President of the Board at the time of the meeting on October 26, 1994, testified that the commissioners thoroughly discussed what effect the strategic plan would have on Gulfside's requested plans for development of its leasehold. Although Blakeslee testified that he did not recall seeing the hotel plans submitted by Gulfside, he explained that the basis for denying the right to construct a hotel was that there was only limited land area at the Port, and, based upon the projected growth from the VZM study, the property might be needed for maritime activities. [2] Pursuant to Paragraph XV of the original lease, the Port could have reacquired the property in October, 1999, for maritime expansion. Blakeslee further testified that the Board decided it would not be fair to Gulfside or in the best interest of the State Port to allow a hotel to be constructed which had no value to maritime use of the Port, especially where the property might be needed in the near future for maritime activities. Further, Blakeslee testified that had the hotel been constructed, and the lease were terminated in October, 1999, pursuant to article XV, the entire cost of the hotel, under the contract terms, would be deemed fully depreciated. In that event, Gulfside would have lost a substantial investment. Gulfside was also aware of the Port's public mission statement which was codified in the contract under article II: It is recognized and acknowledged that the business of the Port is commerce and shipping; and any use by the LESSEE of all or any operations of the Port or its other users, it being agreed that the continued operations of the Port is to have precedence. ¶ 48. The Board did give Gulfside the opportunity to resubmit the hotel plans in August, 1995, but requested that Gulfside consider alternatives for a hotel within the City of Gulfport or along Highway 90, which was a contingency provided by the second amendment. This proposal was rejected by Gulfside. After reconsidering Gulfside's plans to construct a hotel on its leased premises, the Board reaffirmed its decision. ¶ 49. In the instant case, this Court will not and cannot expound at length on what would constitute a reasonable refusal, in light of the plans and specifications approval requirement, to Gulfside's plan to construct a hotel on its leased premises, as such is highly factually driven. We should, however, point out that a legitimate example of a reasonable objection could be unsuitability or incompatibility of the intended use of the leasehold, especially here where the Port Authority is vested with the public policy responsibility for promoting and developing the use of Port property. See Miss.Code Ann. §§ 59-5-1, 59-5-3, 59-5-7, 59-5-11, & 59-5-35 (1996). Thus, considering (1) Blakeslee's weighty testimony; (2) the Port Authority's willingness to consider hotel construction in the city of Gulfport; and (3) the public policy vested in the Port Authority, the Port Authority's denial of Gulfside's request to construct a hotel on the leased premises was reasonable. Therefore, even if Gulfside had a right to construct a hotel on the leased premises, subject only to the Port Authority's approval of the plans and specifications, we still affirm the chancellor's ruling because the Port Authority did not breach the lease in denying Gulfside's planned hotel construction, as there was a reasonable basis for its refusal. ¶ 50. Gulfside also argues that it spent considerable funds in acquiring the leasehold interests of two other Port tenants at the Horseshoe, the Center of International Seamen and Truckers, Inc. and I.T.O. Corporation, in reliance on future plans to construct a hotel. However, the record reveals that the Horseshoe location, including the leaseholds of the other two tenants, was acquired primarily so that Gulfside could relocate away from its original location where a Duratex warehouse was going to be constructed and move to what Cladianos described as a much better location since the Port had indicated that if Gulfside moved to the Horseshoe location it would never have to move again. Cladianos could point to no written evidence Port Authority minutes or correspondence showing any discussion between Gulfside and the Port Authority of Gulfside's plans to build a hotel at the Horseshoe location prior to the execution of the second amendment. According to Cladianos, there were financial problems in connection with partners refusing to finance improvements to the Horseshoe that had to be resolved before thinking about financing or building a hotel. In consideration for Gulfside acquiring the leasehold interest of the other two Horseshoe tenants, the primary term of Gulfside's lease was extended to seven years. Indeed, the chancellor found that the Copa [had] failed to prove the Port induced the Copa to move to the Horseshoe with any representation that a hotel could be constructed there.
¶ 51. After the Port Authority's decision to reaffirm the denial of Gulfside's plan to construct a hotel, Gulfside requested the right to substitute two different barges for the Copa vessel. The MDECD denied those requests by letter dated November 29, 1995. ¶ 52. In addition to the approval clauses found in articles XII (2) and V(8), the lease contained the following provision under article V, entitled PRE-CONDITIONS FOR LESSEE OPERATIONS: Prior to commencing operations of dockside gaming activities permitted and authorized by the Mississippi Gaming Control Act of 1990, the following provisions must be met: LESSOR must preapprove in writing any Vessel which LESSEE proposed to locate and operate on the Leased Premises. If prior approval is not obtained, LESSEE shall not be allowed to permanently dock and will be required immediately to remove the vessel at its expense. LESSORS may at its discretion, at LESSEE's expense, remove any unapproved Vessel located at the Port by LESSEE. If prior approval is not obtained, the Lease shall automatically terminate as provided for hereunder. ¶ 53. The chancellor found that the Port Authority had no obligation to consent to the substitution of a barge for the Copa vessel. We agree. ¶ 54. As emphasized above, this Court will look at the instrument as a whole, and its meaning will be determined from the entire agreement as written. In examining the entire lease agreement, we find no provision in the lease which gives Gulfside the right to substitute a barge for the preapproved gaming vessel. In fact, as the Port Authority points out, Gulfside did not point to any evidence, extrinsic or otherwise, that indicates that Gulfside and the Port Authority ever contemplated the substitution of a barge for the Copa vessel after the vessel was pre-approved and gaming operations had begun. ¶ 55. The Court's review of the language of the entire agreement as well as a review of the reasonableness of Gulfside's actions satisfies both the inquiry under the express terms of the contract and under the implied covenant of good faith and fair dealing. We accordingly affirm the chancellor's denial of Gulfside's counterclaim for breach of contract and breach of implied covenant of good faith and fair dealing. Cross-Appeal I. WHETHER THE COURT ERRED IN DENYING DECLARATORY JUDGMENT AND SPECIFIC PERFORMANCE THAT THE PORT AUTHORITY HAS EFFECTIVELY EXERCISED ITS RIGHT OF CANCELLATION PURSUANT TO ARTICLE XV OF THE ORIGINAL LEASE. II. WHETHER THE COURT ERRED IN DENYING DECLARATORY JUDGMENT THAT THE PORT AUTHORITY HAD USED ITS BEST EFFORTS, PURSUANT TO ARTICLE XV OF THE LEASE, IN OBTAINING PROPERTY ON THE PORT FACILITY FOR RELOCATION OF GULFSIDE'S OPERATION. ¶ 56. The pertinent term and cancellation provisions of the lease are as follows: The term of this Lease (Term) shall be (7) years. If the LESSEE has complied with all the terms, covenants and conditions of this Lease, as of the expiration of the Primary Term, the LESSEE shall have the option to extend the Lease for three renewal periods of five (5) years under the same terms and provisions of the Lease ... Third lease amendment, article IV.    LESSOR shall have the right to cancel this Lease at any time after the expiration of the Primary Term of this Lease for reason of Port expansion of its own facilities to handle expanded shipping and related commerce activities, unrelated to any business or enterprise which may compete with LESSEE's operations....    Should it be necessary for the LESSOR to exercise its right under this Article, LESSOR shall use its best efforts to aid LESSEE in obtaining property on the Port facility for the relocation of LESSEE's operation, and LESSEE shall have the right of first refusal for any available location on LESSOR's premises which LESSOR determines does not interfere with normal Port operations. Original lease, article XV. ¶ 57. On July 3, 1996, the Port Authority gave notice of its intent to cancel Gulfside's lease upon the expiration of the primary term of the lease. The letter incorporated the language required by the lease that the premises was needed for port expansion to handle expanded shipping and related commercial activities. ¶ 58. The chancellor found the cancellation provision to be ambiguous, resorted to parol evidence, and interpreted it as follows: The court finds the purpose of the cancellation provision was to give the Port the right to terminate a lease or relocate a tenant only if the Port actually had a specific, immediate and real maritime need for the Copa Leased Premises as a result of expanded shipping and related commerce activities. ¶ 59. The chancellor based his interpretation on Edwards' testimony that at the time the original lease was negotiated, he told Gulfside's attorney that the cancellation provision would be enforced only if [the Port] actually had that opportunity in hand, and not speculative. ¶ 60. In its cross-appeal, the Port Authority argues that the chancellor incorrectly interpreted the cancellation provision by erroneously concluding that the language is ambiguous and subject to explanation with extrinsic evidence. However, regardless of whether the cancellation provision is ambiguous, we find that the chancellor's interpretation was correct. Therefore, to the extent that his consideration of the extrinsic evidence was error, if any, such error was harmless. See Miss. R. Civ. P. 61 (disregard errors which do not affect the substantial rights of the parties); Miss. R. Evid. 103(a) (no reversal unless evidentiary error affects a substantial right of the party.). See also Lacy v. State, 629 So.2d 591, 594 (Miss.1993) (Parties are bound by what they promise in writing. But we are not bound to adopt a construction not compelled by the instrument in which we would have to believe no man in his right mind would have agreed to.); Frazier v. Northeast Miss. Shopping Ctr., Inc., 458 So.2d 1051, 1054 (Miss.1984) (A construction leading to an absurd, harsh or unreasonable result in a contract should be avoided, unless the terms are express and free of doubt.). ¶ 61. The Port Authority suggests that article XV should be interpreted to allow cancellation of the lease without any real or specific need as a result of expanded shipping and commerce activities. This interpretation is unreasonable. As Gulfside contends, any interpretation allowing only a possible need would effectively give the Port Authority a unilateral right to terminate the lease for any reason after the primary term. The Port Authority's interpretation would lead to a harsh and impractical result, something this Court does not allow. See Lehman-Roberts v. State Highway Comm'n, 673 So.2d 742, 744 (Miss.1996) (Where there is a dispute as to the meaning of a contract clause, a party's interpretation must be reasonable to warrant adoption. ); see also Yazoo Mfg. Co. v. Lowe's Companies, Inc., 976 F.Supp. 430, 436 (S.D.Miss.1997). ¶ 62. Given the chancellor's interpretation, we agree that the Port Authority failed to prove that the lease was canceled because of Port expansion to handle expanded shipping and related commerce activities. This Court will not disturb the findings of a chancellor unless the chancellor was manifestly wrong, clearly erroneous, or an erroneous legal standard was applied. Bell v. Parker, 563 So.2d 594, 596-97 (Miss.1990). As Gulfside notes, the most compelling evidence demonstrating the Port Authority's lack of proof came from Jimmy Heidel's testimony. Heidel, Executive Director of the MDECD at that time, was unable to state any specific, real need for the use of Gulfside's leasehold, testifying as follows: Q. I want to know specifically what was going to be done on that Copa property ... in November of 1995. A. I can't tell you anything specific that was going to go on the Copa property at that date and time in 1995. Q. Let's move to the Summer of 1996 when you gave the termination notice to Copa. What specific and existing need did the Port have for that property? ... A. I can't say that there was anything right then. ¶ 63. As the trial court found, no existing tenant of the Port had stated an immediate and real need for the Copa property for any purpose, other than ITO's desire to continue to place its equipment on a portion of Copa's parking lot. Furthermore, no potential customer had specifically proposed to use the Copa property for shipping or related commerce activities. The record is devoid of any evidence showing a specific, immediate and real maritime need which would require use of Gulfside's leasehold. All of the evidence offered by the Port Authority was either speculative or what the chancellor described as a rethinking of the facility's use to accommodate the commerce that existed when the second lease amendment was executed. ¶ 64. This Court cannot say that the chancellor was manifestly wrong in finding the Port Authority had failed to prove any specific, existing use for the Copa property which would be a sufficient basis for canceling the lease under article XV. Accordingly, we affirm the chancellor's denial of the Port Authority's request for a declaratory judgment that the lease was effectively canceled. ¶ 65. The chancellor held that [s]ince the court declared the Port's cancellation of the lease ineffective, the subject of the alternative site offer is no longer an actual issue in controversy. Affirming the chancellor's ruling denying the requested declaratory relief, we too find moot the issue of best efforts for relocation of Gulfside's operations in case of cancellation of the lease under article XV.