Alaska Fur Gallery, Inc. v. Tok Hwang

394 P.3d 511 (2017)

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Nature of the Case

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Facts

Hwang (D) owns a lessee interest in, and related improvements on, a commercial lot. D leases the lot from a third party for $20,000 annually. D subleased the leasehold to P in April 2012. The sublease provided that P 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 P sought to exercise the purchase option. A certified appraiser, 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. Hines's appraisal did not include a fair market rental rate but he expressed that $55,000 per year was 'very high and above market in my judgment.' P later stated that it 'was aware that $55,000 was far higher than the fair rental rate,' but had agreed to that rate when negotiating the lease because P 'anticipated exercising the option to purchase,' and 'it was important to P that the lease provided that rental payments were a credit to the purchase price if the option was exercised.' After the appraisal D '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. P sued D claiming that D 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. P sought an order of specific performance transferring the leasehold to P 'for no additional consideration.' D 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. P moved for summary judgment, claiming that D's refusal to negotiate violated the implied covenant of good faith and fair dealing and an implied agreement to negotiate in good faith. P proposed that the court remedy the breach of those duties by declaring the appraised value be the leasehold purchase price. Alternatively, P requested damages in the amount of the difference between its rental rate and the fair market rental rate. The court deemed 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. P appealed.