Opinion ID: 2570200
Heading Depth: 4
Heading Rank: 2

Heading: Extrinsic evidence resolves the ambiguity.

Text: The second stage of the analysis requires courts to examine the extrinsic evidence to help determine the parties' intent and reasonable expectations. The parties' conduct after entering into the contract is probative of intent. [42] Conduct is a better indicator of intent than is testimony. [43] The following extrinsic evidence helps resolve the ambiguity of structural improvements and additions: (1) the correspondence between Sitka Sound and Yakutat discussing the expected useful lives of items, (2) the potential economic consequences if the disputed items are removed, and (3) the parties' investment in the plant. NPPI argues that from 1978 to 2002 the parties to the various leases invoked the option to purchase only twice: (1) in a 1987 letter regarding refrigeration work, and (2) in a letter Yakutat received in January 1988 discussing the electrical upgrade at the little dock. It claims that these were the only two instances in which the parties sought a mutual agreement of the expected useful life of a structural improvement; this means that there could not have been any other structural improvements to which the parties believed the option to purchase applied, or the parties would have agreed on their useful lives as well. It also argues that the letters discussing the useful lives are ambiguous. With regard to the first instance, it argues that the twenty-year life expectancy may refer to the refrigeration work done to install the equipment, not to the equipment itself. With regard to the second instance, the project the letter referred to might be the electrical service upgrade, and not the purchase of the ammonia compressor, which is equipment. Yakutat points out that in 1987 and 1988 Sitka Sound and Yakutat upgraded the electrical and refrigeration systems at both the main plant and the little dock, and constructed and installed compressors, condensers, receivers, and blast freezers. It argues that in connection with these projects the parties referred to Yakutat's option to purchase, a contract term of major significance to Yakutat, because it protected Yakutat's investment in the projects. The two letters describing the proposed projects are ambiguous. They could be referring just to the electrical upgrades that accommodate the new equipment or they could be referring to the equipment itself when they discuss the projects' useful lives of twenty years. The letter about the 1987 refrigeration work from Sitka Sound to Yakutat states: the only practical way for us to correct the electrical deficiencies will be to consolidate the present two engine rooms. This will require extensive refrigeration work as well.... . . . . We also ask permission to perform the refrigeration work necessary for the consolidation of the engine rooms and for the improvements as outlined in the August 4, 1987 letter from Wade & Wyatt Refrigeration Company (attachment G). As mentioned previously, this portion of the project would be at the expense of Sitka Sound and is thought to have a 20 year life expectancy. This letter also discusses proposed 208 and 440 volt systems. The letter from Sitka Sound to Yakutat about the little dock project states: In general terms the project consists of upgrading the electrical service in order to accommodate the addition of an ammonia compressor in order that the ice making and holding equipment is functioning at [its] optimum level. This project would be at the expense of Sitka Sound Seafoods and is thought to have a useful life of 20 years. Neither letter unambiguously states what items are expected to have a life expectancy of twenty years. Read as a whole, however, they imply that the electrical work, and not the equipment, was expected to have a useful life of twenty years; this is especially true as to the letter regarding the little dock project. The leases required the parties to discuss useful life before undertaking structural improvements or additions. The parties did not do so except on these two occasions. Similarly, there is no evidence that Sitka Sound asked for permission to make structural improvements, as the leases required, on other occasions. That it did not do so is some evidence that the contracting parties thought that the 1987 refrigeration work and the little dock project were the only structural improvements Sitka Sound made. Yet this evidence is not conclusive. There was evidence that the cost of removing and shipping the items that Sitka Sound alleged that it owned and restoring the facility to its original condition, as sections twelve and thirteen required, could exceed the revenue from selling the items, resulting in economic waste. Parties to a contract generally intend not to incur economic waste, and in this case this intent is preserved and waste is avoided if the disputed items are not removed or the contract is interpreted as treating the disputed items as structural improvements. We also consider the amount the parties invested in the facility. NPPI asserts that it and its predecessor invested more than $5 million in the plant. NPPI argues that the superior court impermissibly rewrote the lease to protect Yakutat from the bargain that Yakutat made with NPPI and its predecessor. [44] It contends that Yakutat did not need the superior court's protection, because Yakutat received ample return on its investment in the plant from the royalties and rents it received, and from the plant's importance to the local economy. Yakutat contends that during the terms of Sitka Sound's and NPPI's leases Yakutat spent $2.1 million on capital projects and major repairs at the facility. It argues that this expenditure is consistent with its view of the parties' mutual intent, because Yakutat would not have spent this money if it had believed it would have received a stripped facility wholly incapable of performing its core function and purposerefrigeration. Yakutat contends that the $5 million NPPI claims the lessees invested in the plant includes hundreds of thousands of dollars for which Yakutat reimbursed the lessees, as well as amounts spent on items NPPI legitimately removed from the plant. Alaska case law does not permit a court to rewrite a contract for the purpose of accomplishing that which, in the court's opinion, might appear proper [45] or to `create substantive rights under the guise of doing equity,' [46] except in limited circumstances, none of which is alleged to exist here. Contracts must be enforced strictly according to their terms. [47] The extrinsic evidence concerning the total amounts invested does not permit us to rewrite the lease, but it can be probative of intent. [48] We hold that evidence that both parties made substantial investments in the plant supports a conclusion they each intended to retain the items in which they invested. The extrinsic evidence consequently does not definitively reveal what the parties' intentions were. Yet the parties' conduct and the testimony discussed above reasonably permit an inference that they intended that Yakutat would be able to purchase the disputed items when the lease terminated. Because we apply the clearly erroneous standard when reviewing a trial court's factual findings based on extrinsic evidence, [49] we cannot say that the superior court erred in finding that (1) Powell and Thompson agree as to the intent of the parties regarding Yakutat's right to purchase such improvements and additions at the facility, (2) removal would result in economic waste, and (3) the expenditures by Yakutat would not have been necessary if Yakutat was to receive the facility back from Sitka Sound Seafoods in the condition in which it existed in 1986. We therefore uphold the superior court's conclusion that Yakutat had the option to purchase the disputed items. Our decision should not be read as disapproving the principles expressed in Interior Energy and the Restatement (Second) of Property § 12.2(4). We simply hold that the evidence, although disputed, was sufficient to render the findings not clearly erroneous. These findings had the effect of establishing that the parties agreed to terms that rendered inapplicable the common law principles reflected in Interior Energy and Restatement § 12.2(4).