Court Opinion

ID: 870105
Source: CourtListenerOpinion
Date Created: 2013-05-24 19:28:20.667474+00
Date Added: 2024-06-11T12:43:58.416293
License: Public Domain

** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER **

                                                               Electronically Filed
                                                               Supreme Court
                                                               SCWC-28826
                                                               14-MAY-2013
                                                               10:47 AM

            IN THE SUPREME COURT OF THE STATE OF HAWAI#I

                            ---o0o---
________________________________________________________________

                         ROBERT KUTKOWSKI,
     Petitioner/Plaintiff-Appellant/Plaintiff-Cross-Appellee,

                                     vs.

 PRINCEVILLE PRINCE GOLF COURSE, LLC, a Delware Limited Liability
Company, Respondent/Defendant-Appellee/Defendant-Cross-Appellant,
  and DOE CORPORATIONS 1-5, DOE LIMITED LIABILITY COMPANIES 1-5,
  DOE PARTNERSHIPS 1-5, DOE ENTITIES 1-5, JOHN DOES 1-5, AND JANE
                       DOES 1-5, Defendants.
 ________________________________________________________________

                                SCWC-28826

           CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
                 (ICA NO. 28826; CIV. NO. 05-1-0004)

                               May 14, 2013

                NAKAYAMA, ACOBA, AND MCKENNA, JJ.,
AND CIRCUIT COURT JUDGE NAKASONE, ASSIGNED BY REASON OF VACANCY;
   WITH RECKTENWALD, C.J., CONCURRING AND DISSENTING SEPARATELY

                 OPINION OF THE COURT BY MCKENNA, J.

I.   Introduction

     At issue in this appeal is whether the sale of an undivided

parcel of real property triggered a lessee’s right of first
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refusal to purchase a small part of that property.             Based on the

specific circumstances of this case, we hold that it did.               We

therefore reverse the ICA’s judgment on appeal and remand this

case to the Circuit Court of the Fifth Circuit (“circuit court”)

for further proceedings consistent with this opinion.

II.   Background

      A.   Factual Background

      None of the material facts in this case are genuinely

disputed.     At issue in this case is a half-acre parcel of land

with a house located on Anini Road on Kauai (sometimes “the

Property”).     The Property is part of an undivided 1040-acre

parcel (sometimes “Master Parcel”) now owned by Princeville

Prince Golf Course, LLC (“PPGC”).          In 1971, Kutkowski began

subleasing the Property from John Kai.           When Kai died, Kutkowski

continued leasing the Property from Kai’s brother, until

Kutkowski himself became a direct lessee of Princeville

Development Corporation under a five-year Agricultural Lease

dated November 1, 1984.       There was no option to purchase in the

original Agricultural Lease.

      After several renewals of the Agricultural Lease,             Kutkowski

and Princeville Corporation1 entered into a License Agreement,

dated August 23, 1998, effective from May 1, 1998 to and

1
      It is unclear from the record, but it appears that Princeville
Corporation is a successor to Princeville Development Corporation.

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including April 30, 2003.      It included the following “Option to

Purchase” in Paragraph 2:
                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 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.

(Emphasis added).

     The License Agreement also contained the following provision

entitled “Effect of Licensee’s holding over” in Paragraph 22,

which stated:
                Any holding over after the expiration of the term of
          this agreement, with consent of Licensor, shall be construed
          to be a license from month to month, at the same rate as
          required to be paid by Licensee for the period immediately
          prior to the expiration of the term hereof, and shall
          otherwise be on the terms and conditions herein specified,
          so far as applicable.

     A proposed sale of the Master Parcel from Princeville

Corporation to PPGC was initiated on July 14, 2004.           By letter

dated September 6, 2004, Princeville Corporation proposed an

elimination of Kutkowski’s option to purchase the Property and

enclosed a draft amendment to the License Agreement.            Kutkowski

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did not sign it.    Rather, in a letter, dated October 25, 2004,

Kutkowski offered Princeville Corporation $250,000 for the

Property, which was rejected.       The sale closed on March 17, 2005.

     Kutkowski’s son remains on the Property.          Kutkowski has

continued to pay rent to PPGC, and PPGC has accepted the rental

payments.

     B.   Procedural Background

     On January 10, 2005, Kutkowski filed a Complaint against

Princeville Corporation, praying for specific performance of

Paragraph 2 of the License Agreement.        Kutkowski also filed a

Notice of Pendency of Action over the Property.          Under the terms

of the March 17, 2005 sale, PPGC and Princeville Corporation

entered into an Assumption Agreement, under which PPGC accepted

the grant and transfer from Princeville Corporation of, inter

alia, the License Agreement and Kutkowski’s claim for specific

performance.   Thereafter, on August 3, 2005, Kutkowski and

Princeville Corporation filed a stipulation substituting PPGC as

the defendant for Princeville Corporation.         PPGC then

counterclaimed, seeking declarations that (1) the license

agreement was ineffective in conveying to Kutkowski any rights in

the Property, and, in the alternative, (2) that the option to

purchase clause (if it ever was effective) expired by its own

terms on April 30, 2003.

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      The parties brought cross motions for summary judgment.

Preliminarily, Kutkowski and PPGC agreed that the “option to

purchase” contained in the License Agreement was really a “right

of first refusal” (“ROFR”).2       Kutkowski and PPGC disagreed,

however, over two issues, which each acknowledged were issues of

first impression in Hawai‘i, and which each acknowledged produced

a split in authority in other jurisdictions:           first, whether the

ROFR survived into the holdover period, and, if it did, whether

the sale of the Master Parcel triggered the ROFR over the

Property.

      As to the first issue, Kutkowski and PPGC each relied on the

plain language of Paragraphs 2 and 22 in the License Agreement to

argue, respectively, that the ROFR did and did not survive past

the April 30, 2003 end date of the License Agreement.             Neither

contends that Paragraphs 2 and 22 are ambiguous, although each

provided parol evidence (in case the circuit court found the

provisions to be ambiguous) tending to support each’s position.

2
      An “option to purchase real property” is a “contract by which an owner
of realty enters an agreement with another allowing the latter to buy the
property at a specified price within a specified time, or within a reasonable
time in the future, but without imposing an obligation to purchase upon the
person to whom it is given.” Black’s Law Dictionary at 1204 (9th Ed. 2009).
A “right of first refusal” is a “potential buyer’s contractual right to meet
the terms of a third party’s higher offer.” Black’s Law Dictionary at 1439
(9th Ed. 2009). Although the Black’s Law Dictionary definition of “right of
first refusal” includes a common condition precedent (“a third party’s higher
offer”), which the Dissent also quotes Corbin on Contracts for, the plain
language of the instant ROFR included no such condition. See
Concurrence/Dissent at 4. Instead, it conditioned sale on “terms and
conditions provided by the Licensor,” not terms and conditions set by a third
party’s offer.

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In addition to the plain language arguments, Kutkowski and PPGC

each marshaled case law from other states and federal courts in

support of each’s position.

     As to the second issue, Kutkowski and PPGC disagreed that

the sale of the Master Parcel triggered Kutkowski’s ROFR over the

Property.   PPGC argued that even if the ROFR had survived into

the holdover period, Kutkowski could not exercise the right.

PPGC also argued the ROFR extended only to the Property, not the

entire Master Parcel, and the Property was never offered for

sale; therefore, the ROFR was never triggered.

     Kutkowski, on the other hand, argued that a lessor may not

preemptively defeat a lessee’s ROFR over a smaller parcel by

selling a larger parcel that contains the smaller parcel.

Kutkowski argued the remedy in those instances is specific

performance.

     Further, PPGC argued that the sale of the Property was

conditioned upon (a) a county-approved subdivision plan carving

out the Property, and (b) PPGC’s decision to sell the Property.

PPGC also argued the ROFR was void and unenforceable because it

was legally impossible to perform the terms of the ROFR in an

area zoned for five-acre minimum lot size.         Kutkowski, on the

other hand, argued that it was not legally impossible for PPGC to

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carve out Kutkowski’s Property under the Kauai County Code, just

burdensome, suggesting a variance was possible.

      In conclusion, PPGC requested that the circuit court enter

an order dismissing Kutkowski’s claims, declare that Kutkowski’s

ROFR did not survive into the holdover period (as requested in

PPGC’s Counterclaim), and expunge Kutkowski’s Notice of Pendency

of Action.    Kutkowski, on the other hand, requested that the

circuit court declare that the ROFR was enforceable and order

specific performance of its terms.

      The circuit court3 ruled on June 1, 2007.          As to the first

issue, it denied PPGC’s counterclaim for a declaration that the

ROFR did not survive into the holdover period, stating “that

pursuant to paragraph 22 of the License Agreement, the first

right of refusal continues during the period of time Kutkowski

holds over under a month to month tenancy.”           As to the second

issue, the circuit court dismissed Kutkowski’s claim for specific

performance under the First Amended Complaint, stating:
            [T]he sale of the one thousand forty (1040) acre parcel of
            land identified by TMK (4) 5-3-06-014 by Princeville
            Corporation to [PPGC] did not constitute a decision to sell
            the premises described in the License Agreement (the
            “Premises”), and, therefore, the first right of refusal
            granted thereby was not triggered by that event.

      The circuit court subsequently entered final judgment,

Kutkowski timely appealed, and PPGC timely cross-appealed.

According to the parties, a separate ejectment action initiated
3
    The Honorable Kathleen N. A. Watanabe presided.

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by PPGC against Kutkowski has been stayed pending the outcome of

this appeal.

     C.   ICA Appeal

     On appeal, Kutkowski raised as his sole Point of Error the

following:   “The Circuit Court erred when it denied equitable

relief to Kutkowski because it held that the sale of the Master

Parcel did not constitute a ‘decision to sell’ the Premises which

would trigger Kutkowski’s right of first refusal under paragraph

2 of the Agreement.”      Kutkowski also argued that PPGC’s attempt

to eliminate Kutkowski’s ROFR via a proposed amendment to the

License Agreement evidenced PPGC’s “wrongful intent” to defeat

Kutkowski’s ROFR.      Therefore, he requested that specific

performance be ordered and that the circuit court determine the

fair market value of the half-acre parcel.         In the alternative,

he requested that the sale to PPGC be enjoined or cancelled and

the entire property reconveyed.

     In its Answering Brief, PPGC pointed out that the “wrongful

intent” argument was raised for the first time on appeal.             PPGC

argued that Kutkowski needed a “reality check,” as the sale of

the Master Parcel was not wrongfully intended to frustrate the

ROFR over a half-acre parcel.       PPGC also pointed out that

Kutkowski requested fair market valuation, an injunction, or a

cancellation of the sale to PPGC for the first time on appeal as

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well.    The bottom line, to PPGC, was that at the trial level, the

focus was never on whether PPGC defeated Kutkowski’s ROFR and

what remedies should be available for the breach, but whether the

sale of the Master Parcel triggered the ROFR in the first place.

PPGC also argued that the ROFR provision was void because it is

illegal to offer to sell an unsubdivided parcel under the Kauai

Subdivision Ordinance.

      PPGC also filed a cross-appeal challenging the circuit

court’s conclusion that the ROFR survived into the holdover

period.

      The ICA issued a published opinion affirming the circuit

court.    Kutkowski v. Princeville Prince Golf Course, LLC, 128

Hawai‘i 344, 364, 289 P.3d 980, 1000 (2012).          As to the first

issue, a majority4 of the ICA first held that the ROFR survived

into the holdover period.5       128 Hawai‘i at 345, 289 P.3d at 981.

As to the second issue (whether the ROFR was triggered by the

sale of the Master Parcel), the ICA further held:
            (4) [G]enerally, the desire to sell a large tract of land
            may not be taken as a manifestation of the seller’s
            intention or desire to sell a small, undivided[] parcel
            contained within it, so as to convert a right of first
            refusal on the smaller parcel into an exercisable option for

4
    See 128 Hawai‘i at 364-66, 289 P.3d at 1000-02 (Ginoza, J., concurring).
5
    PPGC did not file its own Application for Writ of Certiorari on the
holdover issue, but it did challenge the ICA majority’s analysis of the
holdover issue in its Response to Kutkowski’s Application for Writ of
Certiorari. We do not believe the ICA erred in its analysis of the holdover
issue under the facts of this case, so we decline to exercise plain error
review pursuant to Hawai#i Rules of Appellate Procedure Rule 40.1 to address
this issue.

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          its purchase; (5) Kutkowski’s requested relief of specific
          performance would require a wholesale reformation of the
          parties’ agreement and, inter alia, require judicial
          establishment of a price term, which would directly
          contradict the bargained-for rights of the parties; (6)
          Hawai‘i courts will not allow a property owner and a
          purchaser to, in effect, destroy a bargained-for right of
          first refusal before its expiration and, in many
          circumstances, would order an injunction of a prospective
          sale or the rescission and/or reconveyance of a completed
          sale, in order to maintain the status quo, preserving a
          lessee’s right of first refusal until its exercise, waiver,
          or termination at the expiration of the lease; and (7) under
          the circumstances of this case, including that the lessee
          holding the right of first refusal did not seek to enjoin or
          rescind the sale or a large undivided parcel of land that
          neither triggered nor destroyed a right of first refusal
          applicable to a small portion of that land, the requested
          relief of specific performance of the right of first refusal
          was properly denied.

128 Hawai‘i at 345-46, 289 P.3d at 981-82.

     The ICA first rejected Kutkowski’s point of error that the

sale of the Master Parcel triggered his ROFR and that he was

entitled to specific performance, concluding that the License

Agreement’s reference to “the premises” in the ROFR provision

meant the half-acre parcel and not the 1040-acre parcel, and

there was no decision to sell just the half-acre parcel.            128

Hawai‘i at 359, 289 P.3d at 995.         The ICA then noted that the

cases Kutkowski cited in support reflected the minority view.

128 Hawai‘i at 360, 289 P.3d at 996 (citing Wilber Lime Products,

Inc. v. Ahrndt, 673 N.W.2d 339 (Wis.Ct.App. 2003); Brenner v.

Duncan, 27 N.W.2d 329 (Mich. 1947); Berry-Iverson Co. v. Johnson,

242 N.W.2d 126 (N.D. 1976); and Pantry Pride Enters., Inc. v.

Stop & Shop Cos., 806 F.2d 1227 (4th Cir. 1986)).           The ICA then

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adopted the majority view, reflected in the cases cited by PPGC,

for the following statement of law:
          [T]he holder of the option of first refusal on a portion
          only of a larger tract may not obtain specific performance
          of his option so as to require conveyance to him of the
          whole property the owner desires to sell[.] Nor may the
          property owner, by an acceptance of an offer to sell the
          whole, be compelled by judicial decree to dispose of the
          optioned part separately from the property as a whole. An
          attempt to sell the whole may not be taken as a
          manifestation of an intention or desire on the part of the
          owner to sell the smaller optioned part so as to give the
          optionee the right to purchase the same[.]

128 Hawai‘i at 361, 289 P.3d at 997 (citing Aden v. Estate of

Hathaway, 427 P.2d 333, 334 (Colo. 1967)(quoting Guaclides v.

Kruse, 170 A.2d 488, 493 (N.J.Super.Ct.App. 1961))).

     The ICA reasoned, however, that the lessee’s ROFR should at

least be preserved until the termination of that right; in such a

case, the remedy is not specific performance but an injunction on

the sale of the larger parcel until the termination of the

lessee’s ROFR in order to maintain the status quo ante.            128

Hawai‘i at 361-62, 289 P.3d at 997-98 (citing Guaclides, 170 A.2d

at 497; Chapman v. Mut. Life Ins. Co., 800 P.2d 1147 (Wyo. 1990);

Ollie v. Rainbolt, 669 P.2d 275 (Okla. 1983); Gyurkey v. Babler,

651 P.2d 928 (Idaho 1982)).      In this case, however, the ICA

concluded that an injunction or rescission of the sale were not

available as remedies, because Kutkowski never sought those

remedies prior to the sale’s closing date.         128 Hawai‘i at 363-

64, 289 P.3d at 999-1000.

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       In any event, the ICA noted, PPGC “expressly assumed and in

effect acknowledged that Kutkowski’s rights under the License

Agreement survived the sale of the Master Parcel” by entering

into the Assumption Agreement with its predecessor, Princeville

Corporation.      128 Hawai‘i at 364, 289 P.3d at 1000.          Under the

facts of this case, the ICA considered Kutkowski’s ROFR to remain

intact throughout the holdover period as against PPGC, who must

offer the half-acre parcel for sale to Kutkowski, on PPGC’s terms

and conditions, if PPGC decides to sell the half-acre parcel

while Kutkowski remains a holdover tenant.            Id.   The ICA

ultimately affirmed the circuit court’s judgment.              Id.

III.    Arguments on Certiorari

       On certiorari, Kutkowski argues that the ICA gravely erred

in (1) affirming the circuit court’s Final Judgment; (2) finding

that Kutkowski’s ROFR was not triggered upon the sale of the

Master Parcel to PPGC; (3) finding that Kutkowski’s requested

relief of specific performance would require a wholesale

reformation of the parties’ agreement; and (4) denying any

equitable relief because Kutkowski did not seek to enjoin or

rescind the sale of the larger parcel of which the leased

premises were a part.

       To Kutkowski, the plain meaning of “sell” in the ROFR

provision meant the sale of the Property, regardless of whether

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it was included in a larger sale.          Kutkowski also argues that the

ICA’s decision to not provide him any equitable relief has put

him in a different position than he was in status quo ante,

because now he has a new landlord.          Kutkowski seeks equitable

relief principally in the form of compelling PPGC to offer him

the Property for sale, but he argues he is also entitled to an

injunction or a rescission of the sale because PPGC violated the

terms of the ROFR.

      PPGC counter-argues that Kutkowski’s focus on the word

“sell” in the ROFR provision is wrong; the operative words in the

ROFR provision were “In the event the Licensor decides to sell

the premises,” and the ICA correctly interpreted the phrase “the

premises” to mean just the half-acre parcel.            Thus, according to

PPGC, although the Property changed hands, the ROFR itself was

not triggered upon the sale of the Master Parcel.             PPGC also

counter-argues that Kutkowski stipulated to the change of

landlord and amended his Complaint accordingly.            Lastly, PPGC

argues that the ICA could not have granted equitable relief to

Kutkowski because performing the terms of the ROFR was legally

impossible.

IV.   Discussion

      We disagree with the ICA’s adoption of the majority rule in

the instant case, and, under the specific circumstances of this

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case, prefer instead to adopt the minority rule.           Our established

rules of contract construction would resolve the interpretation

of the ROFR along the lines of the minority rule, which respects

the parties’ intent in assenting to the ROFR.

     A.   The Majority and Minority Rules

     The majority rule holds that the sale of the larger parcel

to a third party does not manifest the seller’s intent to sell

just the smaller parcel.      See Guaclides, 170 A.2d at 493 (“An

attempt to sell the whole may not be taken as a manifestation of

an intention or desire on the part of the owner to sell the

smaller optioned part so as to give the optionee a right to

purchase the same.”); Aden, 427 P.2d at 334 (following Guaclides

to hold, “[The deceased lessor’s] expressed intent was to sell in

one package a very much larger tract of ground and the contract

which expresses this intent, in itself, precludes the conclusion

that [he] had any intention to sell the smaller tract in a

transaction other than as an included portion of the contract for

the whole tract.”); Straley v. Osborne, 278 A.2d 64, 69 (Md.

1971)(“[T]he contemplation (or even the acceptance) by the lessor

of an offer for the larger tract is no manifestation of an

intention on his part to sell the smaller (leased) portion

separately.”); Chapman, 800 P.2d 1147, 1150 (Wyo. 1990)(“By

entertaining [the buyer’s] offer for the larger parcel, [the

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lessor] did not express an intention to sell [the smaller

parcel], which intention is the stimulus that would breath[e]

life into the [lessee’s] preemptive right and provide grounds for

specific performance.”); Advanced Recycling Systems, LLC v.

Southeast Props. L. P., 787 N.W.2d 778, 784 (S.D. 2010)(“There

was no evidence . . . that [the lessor] entertained a third-party

offer to purchase the leased premises apart from the development.

Consequently [the lessee’s] right of first refusal did not ripen

into an enforceable option contract to purchase the leased

premises.”)(citation omitted).

     Under the majority rule, a lessor holding a ROFR over a

smaller part cannot be granted specific performance of the ROFR,

because the court will not order the seller to sell the part

separate from the whole.      See Guaclides, 170 A.2d at 493 (“Nor

may the property owner, by an acceptance of an offer to sell the

whole, be compelled by judicial decree to dispose of the optioned

part separately from the property as a whole.”); C & B Wholesale

Stationery v. S. De Bella Dresses, Inc., 43 A.D.2d 579, 580, 349

N.Y.S.2d 751, 754 (N.Y.App.Div. 1973)(“Specific performance is

not available to the [lessee with a ROFR], since the lessor had

no intention to sell only the leased premises.”); Ollie, 669 P.2d

at 281 (in the context of stock sales over which stock owners had

a ROFR over less than all of the stocks sold to a third party,

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holding, “An owner should not be compelled to sell property on

terms and conditions to which he has not agreed or which he has

not intended to accept.”); Chapman, 800 P.2d at 1151 (“There was

no third party offer that established a definite price for [the

smaller parcel].       Consequently, the [lessees’] right [of first

refusal] has not been converted into an option and they cannot

obtain specific performance.”)

       However, the “owner of the whole may not impair or destroy

the preemptive right to purchase the part by a sale or agreement

to sell the whole to some third person.”            Guaclides, 170 A.2d at

494.    To protect the holder of the ROFR, the remedy is an

injunction of the sale, or rescission of the sale and

reconveyance of the larger parcel to await the expiration of the

terms of the ROFR.       See Guaclides, 170 A.2d at 495 (enjoining the

sale of the larger parcel to a third party to accord the right of

first refusal to the lessee); Myers v. Lovetinsky, 189 N.W.2d

571, 576 (Iowa 1971)(following Guaclides to hold that, while

specific performance is not available, an injunction on a sale

that has not consummated, or a reconveyance of property pursuant

to a sale that has consummated, are available remedies); C & B

Wholesale Stationery, 43 A.D.2d at 580, 349 NY.S.2d at 754

(reconveying larger parcel back to lessor and enjoining a further

sale of the smaller parcel without first giving the lessee an

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opportunity exercise its ROFR over the smaller parcel); Gyurkey,

651 P.2d at 934 (“The proper remedy in this case is to enjoin the

owners from selling Lot 13 until they receive an acceptable bona

fide offer for Lot 13 unrelated to the sale of any other

property, and give [the lessee of Lot 13] the appropriate notice

and opportunity to meet such offer pursuant to the right of first

refusal.”); Ollie, 669 P.2d at 281 (in the context of stock

sales, holding, “The remedy properly afforded in this case calls

upon the court to enjoin the selling shareholders from

transferring their ownership in the preemption-encumbered stock

until they have receive a bona fide offer that is unrelated to

any other stock and have given the plaintiffs appropriate notice

with opportunity to meet that offer in conformity to the right of

first refusal.”); Saab Enterprises, Inc. v. Wunderbar, 160 A.D.2d

931, 932, 554 N.Y.S.2d 657, 658 (N.Y.App.Div. 1990)(affirming a

rescission of the sale of a larger tract because part of the

tract was subject to the lessee’s ROFR); Chapman, 800 P.2d at

1152 (enjoining the lessor from selling the smaller parcel

“except in response to a bona fide offer for [just the smaller

parcel], and only after presenting the complete terms of the

offer to the [lessees] and giving them adequate opportunity to

exercise their preemptive right.”).

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     One court, however, afforded the lessee no remedy,

concluding that “there was no evidence of any wrongful intent”

behind the seller’s decision to sell a larger tract encompassing

a smaller tract burdened by the lessee’s ROFR.          Crow-Spieker #23

v. Robert L. Helms Constr. & Dev. Co., 731 P.2d 348, 350 (Nev.

1987).

     Further, under the majority rule, the right of first refusal

over the smaller parcel survives the sale of the larger parcel,

and subsequent third party buyers with notice purchase subject to

the right of first refusal.      See Atlantic Refining Co. v. Wyoming

Nat’l Bank, 51 A.2d 719, 722 (Pa. 1947)(“[T]he bank’s offer of

the [larger parcel] as an entirety at the auction sale did not

operate to impair or destroy [the lessee’s] option to purchase

[the smaller parcel].”); Guaclides, 170 A.2d at 496-97 (noting

that third party buyer with notice would buy the larger parcel

subject to the existing lessee’s ROFR over the smaller parcel).

     The minority rule, on the other hand, holds that the sale of

the larger parcel to a third party does manifest the seller’s

intent to sell the smaller parcel as well.         Berry-Iverson Co.,

242 N.W.2d at 134 (“[A]n intention to sell a larger parcel of

land . . . is evidence of an intention to sell the leased

premises. . . . To conclude otherwise would permit an owner and

prospective purchaser to, in effect, destroy a bargained-for

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purchase preemption before the expiration of the term for which

such preemption was obtained.”); Wilber Lime Prods., 673 N.W.2d

at 343 (“[T]he sale of the entire 180-acre farm to [a third

party] triggered [the lessee’s] right of first refusal to the

twenty-five acres. . . .      The twenty-five acres were sold, albeit

as part of a package deal.      [The lessee] should therefore have

had the right to purchase the land.”)

     According to the minority rule, a sale of the larger parcel

without honoring the right of first refusal over the smaller

parcel constitutes a breach, for which courts possess the

equitable discretion to order specific performance as the remedy.

See Brenner, 27 N.W.2d at 322 (“[T]he lease imposed upon [the

lessor] a duty, before selling . . . to fix a specific sum as the

amount as which she was willing to sell the [smaller parcel] and

to afford to [the lessees their ROFR].         Her failure to do so

constituted a breach of contract.”); Berry-Iverson Co., 242

N.W.2d at 131 (“The owners, by failing to provide [the lessee]

with an opportunity to exercise its right of first refusal with

reference to the sale of the four-acre tract of land, breached

their contractual agreement by selling the 390.43-acre farm

containing the four-acre tract to the [buyers].”); Thomas & Son

Transfer Line v. Kenyon, Inc., 574 P.2d 107, 112 (Colo.App.

1977)(rejecting Aden and ordering specific performance when

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lessor sold 14 lots to buyer, disregarding a lessee’s ROFR over

10 of those lots); Pantry Pride Enters., Inc., 806 F.2d at 1229-

30 (distinguishing case from the majority rule because case

involved separate valuation of leasehold and equipment interests,

which the lessor attempted to sell as a package deal in

derogation of the lessee’s ROFR over just the lease).

     Some courts allow for judicial determination of the purchase

price for the smaller parcel. See Brenner, 27 N.W.2d at 322;

Berry-Iverson, 242 N.W.2d at 135-36; Wilber Lime Prods., 673

N.W.2d at 343 (remanding case to trial court for a determination

of the fair market value of the smaller tract of land so that the

lessee would have the opportunity to exercise his ROFR).            One

court left the purchase price to the parties but ordered specific

performance of the ROFR nonetheless.        Pantry Pride Enters., 806

F.2d at 1231-32.

     The majority rule presumes the lessor did not intend to sell

a smaller parcel included in a sale of a larger parcel, never

triggering the ROFR; the minority rule recognizes that the

smaller parcel is in fact included upon the sale of the larger

parcel, evidencing the lessor’s intent to sell the smaller

parcel, triggering the ROFR.      As applied to the specific

circumstances of this case, the minority rule accords primacy to

the parties’ intent in assenting to the ROFR in the first place,

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and we expressly adopt it here.       The majority rule renders ROFR’s

over smaller parcels illusory upon the lessor’s decision to

include the smaller parcel as part of a larger property sale to a

third party, which does not enforce the parties’ bargain for a

ROFR.

     B.   Hawai‘i Law on Contract Interpretation

     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

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           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.

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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).

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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.

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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.

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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

Cir. 1918)(adopting Chief Justice Robertson’s dissent).

     This court does not attempt to set forth the path that PPGC

must take in performing the ROFR.         It merely construes the ROFR

to presume that there existed “terms and conditions” acceptable

to the Licensor that would allow it to offer the premises to

Kutkowski for sale, pursuant to its duty to perform the ROFR in

good faith and fair dealing.        Otherwise, the ROFR would have been

illusory.    We decline to presume that the parties intended to

insert a meaningless and ineffectual ROFR into their License

Agreement.

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      Furthermore, a presumption that these terms and conditions

existed is a reasonable interpretation, when construing the ROFR

against the drafter, who would have been in a better position to

know which options were available to it for carving out the half-

acre. See Restatement (Second) of Contracts § 206 (1981)(“In

choosing among the reasonable meanings of a promise or agreement

of a term thereof, that meaning is generally preferred which

operates against the party who supplies the words or from whom a

writing otherwise proceeds.”); Amfac, 74 Haw. at 110 n.5, 839

P.2d at 25 n.5.     This rule of interpretation is especially just

where parties are of unequal sophistication and bargaining power,

as Kutkowski and Princeville Corporation were in this case.                 See

id.; see also Calvin v. Limco, 60 Haw. 154, 158, 587 P.2d 1216,

1219 (1978)(“As between [a corporate developer party] and

[individual] appellees, [the corporate developer] must be

regarded as the party by whom the [contracts] were prepared.                The

trial court concluded that ambiguities in the [contracts] should

be resolved against [the corporate developer], as the preparer of

the agreements.     We agree.”)(citations omitted)        Alternatively,

if the lessor had intended to exclude the sale of any more than

the half-acre parcel as a triggering event under the ROFR, it

could have drafted the ROFR to specify that.9
9
      The Dissent argues that, if the “parties [could have] expressly
contract[ed] for this result,” then it is not the case that the ROFR would be
meaningless if interpreted to exclude the sale of the master parcel as a

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     C.   The Remedy

     Having concluded that the ROFR was triggered by Princeville

Corporation’s decision to sell the Master Parcel in 2005, we now

must determine the remedy available to Kutkowski.            We agree with

the ICA that Kutkowski’s ROFR continues to remain intact

throughout the holdover period as against PPGC, who has assumed

the rights and obligations once held by Princeville Corporation

with regard to Kutkowski.       In effect, PPGC bought the Master

Parcel subject to Kutkowski’s ROFR, which survives so long as

Kutkowski remains a holdover tenant.10         Therefore, the

appropriate remedy is specific performance:           the Licensor having

triggered the ROFR through its decision to sell the premises,

PPGC (as the Licensor’s successor under the Assumption Agreement)

must offer the Property for sale to Kutkowski, pursuant to the

analysis in this opinion.

V.   Conclusion

     We agree with the ICA that Kutkowski’s ROFR continues into

triggering event. Concurrence/Dissent at 5 n.4. Respectfully, the Dissent
conflates two separate contract interpretation arguments made within this
opinion. We first noted that we interpret contracts to avoid a meaningless
result; in so doing, we recognized the practical reality that a sale of the
undivided 1040-acre parcel necessarily involves the sale of the half-acre
parcel within it. We next noted that contracts are construed against the
drafter, and the Licensor (as drafter, not the parties in concert) could have
avoided our reading of the ROFR to avoid a meaningless result by specifying
that the sale of the 1040-acre parcel would not trigger the sale of the half-
acre parcel.
10
      The majority and Concurrence/Dissent agree that the ROFR remains intact
and enforceable during Kutkowski’s holdover tenancy. Concurrence/Dissent at 7
n.5.

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the holdover period.     The ROFR can be presently exercised

because Princeville Corporation’s decision to sell the Master

Parcel triggered its (and now PPGC’s assumed) obligation to

perform.   We therefore reverse the ICA’s Judgment on Appeal and

remand this case to the circuit court for further proceedings

consistent with this opinion.

Joe P. Moss, and                        /s/ Paula A. Nakayama
Margery S. Bronster and
Rex Y. Fujichaku                        /s/ Simeon R. Acoba, Jr.
Bronster Hoshibata
for petitioner                          /s/ Sabrina S. McKenna

David W. Proudfoot and                  /s/ Karen T. Nakasone
Max W. J. Graham
Belles Graham Proudfoot
Wilson & Chun, LLP
for respondent

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