Court Opinion

ID: 9576993
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:30:36.706315+00
Date Added: 2024-06-11T13:19:48.567539
License: Public Domain

SCHROEDER,
Justice, dissenting.
I.
HECLA BREACHED THE LEASE AS A MATTER OF LAW.
The district court ruled that Hecla breached the Lease as a matter of law by sending the notice of termination in the first instance or, in the alternative, by refusing to withdraw the notice once Star Phoenix filed suit disputing the existence of a default under the Lease. This Court’s reversal of that decision misses the significance of the facts in this case and the legal consequences that flow from those facts.
A. Construction of Article 17
“The objective in interpreting contracts is to ascertain and give effect to the intent of the parties.” Twin Lakes Village Property Ass’n, Inc. v. Crowley, 124 Idaho 132, 135, 857 P.2d 611, 614 (1993). The intent of the parties should, if possible, be ascertained from the language of the contract. Id.
A contract containing a promise clearly expressed in words may be found to contain another promise by “implication.” § Corbin on Contracts § 561. “[A] contract includes, not only the promises set forth in express words, but, in addition, all such implied provisions as are indispensable to effectuate the intention of the parties and as arise from the language of the contract and the circumstances under which it was made.” Sacramento Nav. Co. v. Salz, 273 U.S. 326, 329, 47 S.Ct. 368, 369, 71 L.Ed. 663 (1927). The implication of a contract term is only justified “when the implied term is not inconsistent with some express term of the contract and when there arises from the language of the contract itself, and circumstances in which it was entered into, an inference that it is absolutely necessary to introduce the term to effectuate the intention of the parties.” Davis v. Professional Business Serv. Inc., 109 Idaho 810, 813, 712 P.2d 511, 514 (1985).
“In construing a contract, an interpretation should be avoided that would render meaningless any particular provision in the contract.” Top of the Track Assoc. v. Lewiston Raceways, Inc., 654 A.2d 1293, 1296 (Me.1995); Wyoming Game & Fish Comm’n v. Mills Co., 701 P.2d 819 (Wyo.1985). As a matter of contract law, a term that is implied in a contract provision has the same legal effect as an express term. Top of the Track Assoc., 654 A.2d at 1296; see also Havel v. Kelsey-Hayes Co., 83 A.D.2d 380, 445 N.Y.S.2d 333, 336 (1981) (“The salutary purpose of [an integration clause] is to preclude consideration of matters extrinsic to the agreement. It is of no relevance if the promise, albeit imperfectly expressed, is implicit in the contract as written.”)
Article 17 of the lease required any dispute over “default” to be submitted for judicial determination. Once submitted, the time for curing and/or diligently prosecuting a cure of default did not begin to run until after a default was finally judicially determined. The district court imposed an implied obligation “to effectuate the reasonable contemplations of the parties.” The district court was correct to point out that in the absence of the implied obligation to withdraw the notice of termination after Star Phoenix filed suit, the protections of Article 17 are meaningless. This Court’s failure to imply a term in Article 17 requiring Hecla to withdraw its notice of intention to terminate *234pending judicial determination renders the judicial determination provision meaningless. Whether initially in default or not, leaving the notice of termination in place doomed Star Phoenix to certain default. Hecla was well-aware of this fact.
Hecla’s president acknowledged that before the termination notice was sent out one “didn’t have to be a genius to figure out that [Star Phoenix’s] bankruptcy was fairly likely.” The president of Washington Water Power, the sole source of electrical power for Star Phoenix, sat on Hecla’s Board and certainly knew how the notice of termination would effect both Washington Water Power and Star Phoenix. Prior to the notice Washington Water Power had been willing to work with Star Phoenix. That cooperativeness stopped after the notice of termination. The failure of Star Phoenix was assured when the power went off. Hecla’s obdurate refusal to acknowledge the effect of the judicial determination provision rendered that provision meaningless in any realistic sense. Even if Star Phoenix prevailed in court it was financially dead.
The district court and the jury that ultimately decided the case previewed the impropriety of Hecla’s conduct. This Court should not ignore the law that validates the district court’s action and ultimately the verdict of the jury. “In every contract there exists not only the express promises set forth in the contract but all such implied provisions as are necessary to effectuate the intention of the parties, and as arise from the specific circumstances under which the contract was made.” Davis v. Professional Business Serv., 109 Idaho 810, 813, 712 P.2d 511, 514 (1985). At the time the Lease was signed Hecla knew that disputed defaults must be submitted for judicial consideration and, hence, it was the intention of the contracting parties to submit disputed “defaults” for judicial determination. An interpretation of the contract that renders the judicial determination provision useless is contrary to the intent of the parties ascertained from the language of the contract. Twin Lakes Village Property, 124 Idaho at 135, 857 P.2d at 614.
B. Notice of Termination
Based on the language of Article 17 which conditioned Hecla’s right to terminate the Lease on Star Phoenix’s failure to remedy any actually existing defaults “in the manner specified in this Article 17” the district court concluded that Hecla breached the Lease as a matter of law when it sent the November 21st notice of termination to Star Phoenix. The district court correctly noted that Article 17 only required Star Phoenix to begin correction of “any and all actually existing defaults” within thirty (30) days of receiving written notice of claimed default and to “diligently prosecute such correction until such default or defaults have been remedied.” The district court reasoned that Article 17 requires a threshold determination as to whether Star Phoenix diligently prosecuted the alleged defaults before termination is proper.
The district court determined that the provision in Article 17 which states: “Bunker and Hecla shall have the right in their sole discretion, individually and separately, to terminate this Agreement for default by Star Phoenix,” conditioned Hecla’s right to terminate the Lease on Hecla’s exercise of discretion. (Emphasis supplied). The court concluded that since Hecla based its decision to terminate the Lease upon the “mistaken belief that there had been no prosecution of a cure at all, let alone a diligent prosecution,” it did not exercise the requisite discretion in its decision to terminate. The court based this conclusion in large part on the deposition testimony of Hecla CEO Art Brown who testified that at the time he authorized the November 21st notice of termination:
1) he did not know whether anything had been paid on the liens;
2) he believed both liens were in arrears several hundred thousand dollars, while the court concluded they had been paid down by 64 percent in total;
3) he thought the Lease contained a more standard provision requiring Star Phoenix to completely cure any alleged defaults within thirty (30) days of notice;
4) he was unaware that Article 17 required that disputes regarding alleged defaults be submitted for judicial determination; and *2355) he was unaware that, under the terms of Article 17, once a lawsuit disputing the existence of the alleged defaults was filed Star Phoenix had no obligation to commence cure until after the court declared the existence of a default.
Hecla’s CEO acted in ignorance of the actual facts and provisions of the contract. Most people who ignore the facts and their contracts lose, but the protections that were supposed to inhere in this contract mean nothing.
C. Failure to Withdraw Notice of Termination
The district court concluded that if Hecla had the right to send Star Phoenix a notice of termination on November 21st it nevertheless had an implied obligation to cease its pursuit of termination and withdraw its notice of termination once suit was filed. The district court based its conclusion on the language of Article 17 which provided that once the issue of default was submitted for judicial determination:
no action with respect to any such alleged default need be taken by Star Phoenix unless and until final judicial proceedings have determined that such alleged default or defaults actually occurred or were actually occurring, and Star Phoenix’s time within which to remedy or begin remedying such default or defaults shall not begin to run until final judicial proceedings have so determined.
The district court explained its conclusion that Article 17 contained an implied covenant requiring Hecla to withdraw its notice of termination once Star Phoenix filed suit in its post-trial memorandum opinion and order:
[A]n interpretation of Article 17 without the implied covenant is utter nonsense, and renders the language meaningless. Of what conceivable use would entitlement to judicial resolution of the propriety of a “claimed” right to termination be if the lessor could proceed to terminate anyway, just so long as it won the “race” and served notice thereof first? Why, also, would Article 17 include language stating that Star Phoenix had no obligation to begin remedying defaults until “final judicial proceedings have so determined, if Hecla was entitled to keep a notice of termination in place which, it conceded at trial, would naturally stop the operation and bankrupt the lessee? Conventional rules of construction require that interpretation of language that gives meaning and effect to all the language is preferred. It also happens to make perfect sense. If Article 17 is to be interpreted to give effect and meaning to all its language, then why would it be necessary to provide for commencement of cure by Star Phoenix after the Court declares that Hecla is correct on a default dispute if, in the meantime, Star Phoenix is rendered incapable of existence, much less cure? ...
.... Since the clear purpose of Article 17 was to resolve disputes through judicial review, thus avoiding situations in which creditors would send notices of default, then it is reasonable and necessary to imply that a dispute following a prior notice of termination would require a withdrawal of the notice. Otherwise, subsequent judicial determination in favor of Star would be but a fait accompli, Star Phoenix already being out of business....
The Court is convinced that the implied covenant is necessary in Article 17 in order to effectuate the reasonable contemplations of the parties. With it Article 17 could provide judicial resolution as a means of lifesaving review. Without it, if Hecla could refuse to withdraw its termination, judicial determination could only serve as an autopsy.
This Court relies upon Article 21(d) in the Lease to preclude the implication of a covenant to withdraw the notice of intention to terminate in Article 17. Article 21 states:
(d) The parties expressly agree that no implied covenant or condition shall be read into this Agreement relating to the exploration, development, mining of the Property or processing ore therefrom, or the time therefor, or to any operations of Star Phoenix hereunder or to the measure of diligence thereof, or to Star Phoenix’s arranging or obtaining financing for any of its obligations under the Asset Purchase *236Agreements or any other matter whatsoever.
A general rule of contract law is that “where parties have made an express contract, the court should not find a different one by ‘implication’ concerning the same subject matter if the evidence does not justify an inference that they intended to make one.” 3 Corbin on Contracts, § 564 (1960), p. 93. However, this does not negate the principle in Idaho that, “[g]ood faith and fair dealing are implied obligations in every contract.” Luzar v. Western Sur., 107 Idaho 693, 696, 692 P.2d 337, 340 (1984).
This Court defined what constitutes a breach of the covenant of good faith and fair dealing in Metcalf v. Intermountain Gas Co., 116 Idaho 622, 778 P.2d 744 (1989), by stating that, “[a]ny action by either party which violates, nullifies or significantly impairs any benefit of the ... contract is a violation of the implied-in-law covenant.” Id. at 627, 778 P.2d at 749.
In Idaho First Nat’l Bank v. Bliss Valley Foods, 121 Idaho 266, 824 P.2d 841 (1991), this Court quoted with approval from a Washington Supreme Court case, Badgett v. Security State Bank, 116 Wash.2d 563, 807 P.2d 356, 360 (1991):
There is in every contract an implied covenant of good faith and fair dealing. This duty obligates parties to cooperate with each other so that each may obtain the full benefit of performance.
121 Idaho at 288, 824 P.2d at 863. See also Taylor v. Browning, 129 Idaho 483, 927 P.2d 873 (1996). “The implied covenant ‘requires only that the parties perform in good faith the obligations imposed by their agreement.’” Record Steel & Constr., Inc. v. Martel Constr., Inc., 129 Idaho 288, 923 P.2d 995, 999 (Ct.App.1996) (quoting Idaho First Nat. Bank v. Bliss Valley Foods, 121 Idaho 266, 288, 824 P.2d 841, 863 (1991)).
For Star Phoenix to “obtain the full benefit” of Article 17, Hecla was obligated to cease its pursuit of termination and withdraw its notice of termination once suit was filed. All contracting parties in Idaho are subject to the covenant of good faith and fair dealing. By failing to withdraw its notice of termination once Star Phoenix filed suit, Hecla breached the covenant of good faith and fair dealing as a matter of law. Article 17 specified that Hecla’s right to terminate the Lease must be “in the manner specified in this Article 17.”
As the district court aptly noted “judicial determination could only serve as an autopsy” if the covenant were not implied. A major term of this contract was destroyed by Hecla’s refusal to withdraw its notice of termination once the question of default was submitted for judicial determination. Regardless of the outcome of the judicial determination, Hecla would achieve the financial ruin of Star Phoenix with the attendant right to repossess the property including massive rehabilitation work that had been done by Star Phoenix. The Article 21(d) provision precluding implied covenants should not trump the implied in law covenant of good faith and fair dealing that is part of every contract in Idaho. However, the public policy of Idaho has been subverted by a generic disclaimer and the failure to recognize the reality understood by the parties. The parties could preclude implication of a covenant implied in fact, but they should not be allowed to revise Idaho public policy and avoid the implied in law covenant of good faith and fair dealing.
The jury’s verdict reflects the overall egregiousness of Heela’s conduct. That egregiousness began with disregard of the facts and the provisions of the contract and continued with the refusal to withdraw the notice of termination and allow the purpose of the judicial determination provision to be realized. Investors, creditors, and numerous employees of Star Phoenix were irretrievably damaged by Hecla’s actions. The facts, the contract provisions, and the law that should have protected them have not.
For the above reasons, I dissent from the Court’s opinion.