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Alaska Fur Gallery Inc. v. Hwang

Supreme Court of Alaska

March 31, 2017

TOK HWANG, Appellee.

         Appeal from the Superior Court No. 4FA-14-03039 CI of the State of Alaska, Fourth Judicial District, Fairbanks, Douglas Blankenship, Judge.

          Cabot Christianson, Law Offices of Cabot Christianson, P.C., Anchorage, for Appellant.

          Robert A. Sparks, Law Office of Robert A. Sparks, Fairbanks, for Appellee.

          Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and Carney, Justices.


          WINFREE, Justice.


         A sublessee entered into an agreement containing an option to purchase the lessee's interest in the lease and leasehold improvements. When the sublessee attempted to exercise the option the lessee declined to sell, claiming the option was unenforceable. The sublessee sued, seeking, among other things, to enforce the option provision. The superior court held that the provision was too uncertain to enforce either as an option or as an agreement to negotiate. The sublessee appeals; we affirm the superior court's decision.


         Tok Hwang owns a lessee interest in, and related improvements on, a commercial lot (the leasehold) near the Denali National Park entrance. Hwang leases the lot from a third party for $20, 000 annually. Hwang subleased the leasehold to Alaska Fur Gallery, Inc. in April 2012. The sublease (the lease) provided that Alaska Fur would pay $55, 000 annual rent for a three-summer term. The disputed provision stated, in full: "Lease includes an option to purchase premises with lease amount to be applied to negotiated purchase price."

         In 2014 Manuel Hernandez, one of Alaska Fur's owners, sought to exercise the purchase option. Alaska Fur retained certified appraiser E. Chilton Hines to appraise the leasehold as "a basis for discussion with Hwang" about the purchase price. Hines valued the leasehold at $150, 000 to $155, 000. He noted that the appraisal was difficult because he was not given building plans, locals were reluctant to share information about property values, and information about sales of comparable properties was non-existent. Although Hines's appraisal did not include a fair market rental rate, he expressed that $55, 000 per year was "very high and above market in my judgment."

         Hernandez later stated in an affidavit that he "was aware that $55, 000 was far higher than the fair rental rate, " but he had agreed to that rate when negotiating the lease because Alaska Fur "anticipated exercising the option to purchase, " and "it was important to [Alaska Fur] that the lease provided that rental payments were a credit to the purchase price if the option was exercised." Hernandez further stated that after the appraisal Hwang "refused to negotiate the purchase price or any aspect of the option to purchase, " and the parties failed to reach an agreement about selling the leasehold. In a letter to Alaska Fur, Hwang's attorney asserted that no "price or terms were ever agreed to between the parties, " and that Alaska Fur was not "entitled to application of any of the rent to any of the purchase price for the [leasehold]."

         Alaska Fur filed suit, alleging that Hwang had breached the lease by refusing to negotiate for the sale of the leasehold and by not applying the rental payments to the purchase price. Alaska Fur sought an order transferring the leasehold from Hwang to Alaska Fur "for no additional consideration."

         Hwang moved for dismissal and for summary judgment, arguing that the option did not comply with the statute of frauds and that any agreement to negotiate was unenforceable. Alaska Fur also moved for summary judgment, claiming that Hwang's refusal to negotiate violated the implied covenant of good faith and fair dealing and an implied agreement to negotiate in good faith. Alaska Fur proposed that the court remedy the breach of those duties by declaring the appraised value be the leasehold purchase price. Alaska Fur alternatively requested damages in the amount of the difference between its rental rate and the fair market rental rate.

         Although the parties' arguments focused on the statute of frauds and whether the disputed option provision created a duty to negotiate, the superior court ruled that the option provision was unenforceable as written. The court deemed price, or at least a method to calculate price, "an essential term of a contract." The court found no evidence the parties intended that the purchase price be the appraised fair market value; because there was no price or method for determining price, the court determined that the option provision therefore was unenforceable. The court further ruled that the option provision could not be enforced as an agreement to negotiate because the parties had provided no means of resolving negotiation disputes. Because the court found the option provision unenforceable, it did not reach the leasehold value issue or whether rent should have been applied to the purchase price.

         Alaska Fur appeals the superior court's summary judgment decision.


         "We review questions of summary judgment de novo."[1] "We treat the interpretation of contract language as a question of law and interpret the language de novo."[2] "When applying the de novo standard of review, we apply our 'independent judgment to questions of law, adopting the rule of law most persuasive in light of precedent, reason, and policy.' "[3]


         The parties' arguments on appeal are similar to those before the superior court. We nonetheless look directly to the substance of the superior court's order and affirm its determination that the provision, by its own language, is too ...

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