*1 period for an probationary additional year. the su- with instructions remand disposition order
perior to enter a
conformity this decision.9
Oma Belle Appellant, DAY, INC.,
A & G CONSTRUCTION CO., Appellee. corporation,
No. 2034.
Supreme Court of Alaska. 29,
Nov. appeal. opposition offer to B.A.M.’s state did not 9. It should be noted that the *2 property years lease for ten at the per year, option rate of and an (2) $1.00 costing $100,000 property buy the at a gross price $1,000,000 $250,000 (which option) included the cost of the payable upon option, exercise of the and payable $75,000 per year the balance at percent six years. over ten The memoran- obliged dum A & to establish marketable property (there title to defects). were important provi- The memorandum’s most sion, subject action, provided of this Rowland, Mark C. Greene, William A. Day profits for Oma to share of de- Anchorage, appellant. for velopment, property lease or resale of the Arnold, W. Anchorage, C. appellee. for &, by A Day entitled to G. Oma percent profit of the net on resale. Net OPINION profit was defined as the remainder after RABINOWITZ, Before J., “deducting C. and all costs incurred connection CONNOR, ERWIN, development including BOOCHEVER and with and FITZGERALD, purchase price improvements and on or for JJ. addition, property.” the benefit of the In percent Day Mrs. was to receive five BOOCHEVER, Justice. percent leasing the net from or five This appeal concerns interpretation profit “any construction net of a application contract and the of facts own- obtained reason of other contract interpretation. property”. ership of the Day Oma Belle is a widow in her late option and made A & G exercised seventies who homesteaded in the for payments under the sale contract years area 25 to 30 ago. The dis- including $95,019 in in- years, the next two covery of oil on the Slope North time, diligently During that & G terest. plan pipe the oil to Valdez made the property for develop the endeavored to homesteaded property potentially valuable reacti- hoped to had use. It commercial for development. commercial A & G Con- land, install facilities electrical vate Co., struction Inc. became interested in the magnetite plant process aggregate land and negotiations commenced cement-coating contracts and obtain Day Oma regarding purchase. On June pipeline. nearly Alaska the entire- 27, 1969, two documents were executed deep-water develop a plans to also were Day Mrs. and A & G. The documents perhaps pipeline, dock to serve were drafted attorney, A & G’s W. C. pipeline termi- field and a tank even lease They Arnold. were executed in his office pipe- consortium. pipeline nus to the presence Day George in the de- concur did not line consortium Atkinson, President of A & Charles G. it clear made velopment plans, and Jett, an A employee engaged & G to devel- land, had which sale only an actual op Valdez, property in and several pipe- the terminus been chosen Day’s members family of Oma were also acceptable. line, present. represented by was not counsel. land for Eventually, sale of gross was consummated. Op- $2,000,000 documents were a “Lease and therefore, it, be- tion” $1,000,000; profit “Memorandum”. The lease profit” “net compute the option necessary described the came sub- A G parties. granted (1) to A to be shared & G: dispute applied accounting, Day/A agree- tices as mitted an and a arose & G Day’s expert, Rompa, amount of lim- immediately over the deduc- ment. William payment Following ited his tions. After to Mrs. latter. $1,000,000 trial, fixed remaining balance of the court allowed all of G’s& option agree- except major sum under lease and which is not due claims one item cross-appeal. ment reimbursement A & G subject *3 parties $1,000,000,the each re- balance A & and of rendered an oral decision for $300,000, remaining ceived findings then filed of fact and conclusions $400,000 placed to be dis- in escrow operative finding was of The of fact con- law. of according judgment the bursed follows: cluded as accounting to be in an action for highly specula- . The . . venture was filed. possi- ownership and when retained tive by accounting exhausted, filed This action were Plaintiff sold bilities par- G, Day origi- answered. $2,000,000 & and Oma twice its or in stipulation pre-trial price. ties entered into a no indi- There was nal right relinquished to over-reaching which Oma or unconsciona- cation made disbursements the “amount of contest the evidence showed ble conduct and right to dis- by by every but reserved endeavoring & G” Plaintiff was any of pute said disbursements develop “that means available to it to comput- chargeable in properly bring production by them were it property and into reserved also ing profit”. or, net leasing or alterna- otherwise dispute the “characterization right tive, advantageous price. sell it at an in forth said transaction, as set expenditures scope of certain light In of the encountered, statement”. the difficulties and the sale price obtained, expendi- eventually trial, George Atkinson, President and At proven tures were reasonable and neces- G, testified percent stockholder of A & sary fell within the venture and and to the nature of the transaction meaning agreement be- and intent of the of the claimed. Oma nature deductions parties respecting the deduc- tween Day briefly regarding the circum- testified proceeds of tions to be made surrounding stances execution of docu- in computing profits.1 sale net expert party Each called account- ments. accountant, Ray ants. A Grundhau- & G’s findings and The remainder of con- ser, relating specific facts discussed computed clusions the judgment. The expense claims of assembling of personam court entered judgment expert opinions company gave and against the distribu- and directed generally accepted accounting prac- about tion its escrow accordance with portion preceding pense find clearing maintaining the court’s land ing specified: trailer, totalling together $352,686.00, with remaining page items listed on sum- items listed on the three docu- mary Expense,” Defendant sheet for interest ment entitled “Additional Valdez money Day, totalling $10,539.24, used in the Oma Belle cost were substantiated salary George transaction, agreements of Plaintiff. 20% corpora- Atkinson, president finding of Plaintiff between the set forth salary tion, contemplated Jett who O. IINo. above without order of 80% employed by priority, (1) a full time Plaintiff on Plaintiff would undertake transaction, develop ownership with basis in connection retain profit payroll including (2) it, costs shar- certain obtain and lease contracts on or pay- ing (3) ownership, and insurance contributions sell it ad- reason employees, charges vantageously. to- of certain other roll Plaintiff the contruction gether professional fees, expenses Expenditures with business. advanced develop profit certain an effort incurred Plaintiff and income or derived claims, travel, lodg- magnetite meals, and to be divided as set forth above. ing, personal taxes, real ex- appeal timely roads, decision. pipelines, Notice or other facilities con- it, filed. nected with then A pay: & willG (a) profits of the net any sale 50% appeal in- this contests the On of the property. profits Net to be terpretation placed upon the term “costs” computed by deducting all in- costs further computing- net curred in connection acquisition specific prop- contends that items were not and development including purchase erly chargeable as in connection “incurred price improvements on or for the development”. She benefit person- an in challenges also the award of (b) net rental or use judgment against am her. 5% charge received A & G after it has reimbursed itself for all costs incurred THE I.INTERPRETATION OF as above described. *4 CONTRACT (c) of the net profits Aof & G 5% construction or other contracts trial court’s Upon review by obtained reason ownership contract, inter a the pertaining to decision of the property. to be ordinarily is held pretation of words court, of resolution does not appeal while contest on a matter for the professional allowance of surrounding circum dispute (legal, lobbying, a as to the engineering and Here we is for the trier of facts.2 fees surveying) stances or al- lowance surrounding of the cost of grading dispute as to the and clear- have no basic ing part of ques circumstances, land. These thus consider items total we $26,953. given meaning be pertaining to the to tions in the same
to the
of the contract
words
There can be no doubt but
por-
that the
questions
manner as
of law.3
provision
tion of the
quoted
[subpar-
above
agraph (a)] which
establishes
method
required
interpret
portion
are
to
We
by
profits”
which “net
are to be deter-
specified:
of memorandum which
subject
is
varying interpretations
mined
to
acquires
pursuant
If &
is
ambiguous.
thus
Accordingly, there
option
to the
or leases same
dispute
and sells
or was no
at the trial about the ad-
develops
by
same or is able
reason of
mission into
of
evi-
extrinsic
ownership to
or
dence pertaining
obtain construction
to
circumstances sur-
building
rounding
contracts on or connected with
the execution of the contract and
it,
approaches
or
or
parties.4
to
the intentions of the
Corbin,
(1960).
Council,
826,
(Alaska
See
3
Contracts
554
§
Scott
519 P.2d
833
Deering
1974).
v.
of
Milliken & Co. Modern Aire
(9th
Hollywood,
Inc.,
feasible outset, agreement But from the is no indication that anticipation Mrs. made in resale sophisticated likely retaining technicalities of property as alternative to accounting. tax Nor did agreed attempt her it. A & to establish a title, nor family member of indicating her marketable that a sale was present negotiations who was contemplated. agreement lead- does While ing to the execution specify of the contract indi- costs incurred connection cate understanding certainly that a technical with a resale of the it is pain disutility 13. Review financial involved in statement Def. terms of the or shortage. particular anything Exh. A indicates chronic cash Day property, to a it. cost purchase price, rep- private cost, carried at individual is called or often percent expense; anything resented between 20 and 33 the cost of to the com- company’s gross munity public assets. is called the cost. anything price for which is ordi- Since Dictionary 14. Webster’s New International narily essentially sold is what (2nd 1960) gives following ed. definition money, init cost is used in the sense often of “costs”: price. any enterprise involving large of capital In equivalent paid, 1. The amount or expenses are of two costs *7 given, charged, engaged or or to be necessary manage- kinds: one set for the given anything bought or for or taken in undertaking whole, ment of the as a such rendered; charge; barter or price, hence, for service administration, interest, taxes, gen- as and self-denial, labor, whatever as directly maintenance; eral the other con- suffering, requisite etc. is to secure bene- portions particular nected with of the busi- fit. taking supplies ness, wages, the form of any kind; detriment; depriva- 2. Loss of special repairs. . ; suffering. tion Significantly, does even mention Webster’s outlay expenditure money, 3. The time, or of highly accounting technical term which labor, like; as, spare or the no apply counsel seeks to in this the contract ; cost cost to live free. case. Something expended; 4. Obs. a. ex- also, pains, pense; pi., b. That which 15.Mrs. did refer to the fact that A expense; costly thing. attorney has involved G’s stated that “his costs would be (Costs lawsuits). statement, prob- 5. of the most”. This which was ably jocular explain- nature, readily 6. Econ. That which is sacrificed to ob- is anything. production light tain The cost of able when considered of the costs purchase prop- some measured terms of the total waste incurred erty the initial of the capital (including Day. of under head from Mrs. goods kinds) economic of all others interpreta- Day property. this of the assume that ment The memoran- reasonable to within the dum allows “development” costs was deduction “costs incurred tion of of Day’s position in Mrs. connection with . in- expectations development of . . one purchase cluding a substantial . . . for improvements to receive who was property.” Development risks of resale outlay and benefit of the price all responsibility magnetite A & G. We of the may to be being considered of the for the benefit of the certain- that under the circumstances hold —it ly development contemplated by of “de- agreement, costs was a execution of the in con- expenditures at velopment” included the time of the sale—even proper- securing though' magnetite a sale of miles was located nection away. magnetite Obtaining the ty. was step
first retaining proper- toward ITEMS IN DISPUTE III. SPECIFIC ty establishing plan development for preparing coating it for the cement as uti- interpretation of the contract Our pipeline. entire Alaska com- in its broad lizing the term “costs” Payroll $98,- 3. and associated (rather than meaning monly-understood costs— 051. A charge percent & G seeks to definition) accounting the narrow technical president’s salary percent and 80 re- including incurred and as costs salary period for the of time that many of disposes of sale of Jett’s property. figures & owned the G Both disputed items. were admittedly arbitrarily selected. No allow- affirm the lower court’s Thus we kept records time were the ac- indicate following items: ance of spent tual time either the proj- man on $5,000 Mr. Payment 1. Jett ect. Atkinson estimated that at least one- when fees services rendered consultant spent fifth of his time was on matters di- leading to engaged in activities he venture, rectly related to prior Day property to his job proper- full-time was the Valdez Jett’s ty- becoming employee A & G. Expenses 2. incurred with reference our Under development interpretation At the magnetite $16,400. — “costs”, term sale, appear- the salaries Day/A
time of the
it
officers
& G
principal
pipe-
employees
ed that construction
the Alaska
would be includa-
oil
ble to the extent that their time
in
require
line would
the use of substantial
volved in
quantities magnetite, heavy-weight
“development
ag-
acquisition”
property.
gregate,
accepted
safety coating
pipeline
The trial court
itemization,
crossings
exposed
and there is
river
and other
loca-
no evidence to
indicate
implied
that his
major
finding approving
tions.
One of
proration
plans
clearly
of time
entertained at the time of A &
erroneo
G’s
us.16
develop magnetite
sites
near
(within a 200-mile
Payment
4.
employees $20,-
to other
—
range) and to
aggregate
establish an
challenges these items con-
plant
cement
property. Although
tending that
there was insufficient evi-
contends that & deducts
dence to relate
them to the
magnetite expenses
“sale”,
as a cost of
it
*8
testimony
uncontradicted
of Mr. Atkinson
appears that
company
upon
looked
justified
expenses
as related to either
magnetite prospects as
develop-
a form of
the development or
property,
sale of the
finding
16.
facts,
A
including
trial court’s
1972) ; Palfy
Rice,
(Alaska
v.
Jett — adopted, of costs has been there can be no to be made required certain contributions deductibility argument as to the de- percentage-of-salary basis. The on a paid against amounts for taxes assessed the amount con- represents claimed duction Day property. They necessary were tributed, salary upon based the estimated property costs incurred in holding the charged The already to the contract. development or resale. actually allowance paid. was amount wholly dependent upon the item is of this 10. Miscellaneous There $928. items — salary deductions. of the basic allowance was these items were for de- maps, service, have held salaries to be “some Since we title and a number of contributions, ductible, tan- pro so are repairs, small items”. These included boat to. inspection dock and escrow fees. We find no error in the court’s allowance salary expenses $3,533. Like 6. Other — of these items. sharing, percent- profit this item is age the actual disbursements of A & G Expense” 11. “Additional ledger Valdez taxes, ECA, FICA, employee payroll $10,539.24. These included trailer ex- (cid:127) — insurance, compensa- liability workmen’s penses, exploration drilling costs of employee profit sharing tion and other testing magnetite work upon relationship between Val- based samples, payment lobbyist, air to a trans- dez work hours to total work hours portation payment attorney’s fees. employees. It other is allowable Grundhauser, testimony by Mr. salary same manner the basic accountant, A indicating & G’s employees is allowable. and, were related to venture the Valdez ac- cordingly, support- we find their inclusion Travel, lodging $15,266. meals and 7. — ed the evidence. charges itemized Each of the paid Interest directly 12. to Mrs. “VZ” for Val- checks coded reimbursement —$95,019. Included the costs listed into evidence. dez were introduced A & was paid the interest G to Mrs. expenses were found that trial court $1,000,000 under the sales contract. The testimony, by Mr. Atkinson’s substantiated agreement specified that “costs” include finding to be clear- hold the and we cannot “purchase price” there is so that no ly erroneous. question deducting about the amount of $2,779. be- trailer house Trailer — principal paid. Under the broad definition A & was longing to moved Johnson’s “costs”, appear it would that the interest Bay from Trailer Park across Valdez paid to Mrs. “in connection with Day property fall of 1969 acquisition” thus been company had spring of 1970. properly chargeable. unspecified project operating some other however, do not agree, that certain the time of area about Valdez properly other interest items were deducted sale, project was Day/A but this & G price, from the sales we reverse was moved dosed down before the trailer judgment following as to items: for office The trailer was used to Valdez. company em- A. Interest on to Mrs. quarters monies sleeping for the —$65,028. As a working outlays result of the re- ployees were who Day’s quired by the land development. Day chal- job”, a “bad & G forced sufficiency the evidence lenges the money stay banks busi- borrow Day property. relate the trailer to the *9 money paid Day, the total amount ness. & G added to Oma the claim in- for Day paid to Mrs. terest on principal money paid expenses and interest for of de- $95,000 principal interest) velopment proceeds ($400,000 on the that the theory computed company funds, that would operating the interest was on borrowed percent specific it paid percent been on at 8 and thus no required. allocation is 8¾ in difficulty loan The periods as a bank with this interest is the for different item if on the date of proof any particular that had been taken utter lack of that amount item outstanding until payment and continued was paid gener- financed or was for from Alyeska. The the sale to closing ally company borrowed funds. Thus the borrowed, however, was money proof which was failed to meet burden of that this identifiably appropriated payments to charge actually never in “incurred” connec- testified that Day; Atkinson made to Oma tion property, with the therefore fact, was, in money in used the borrowed clearly trial court’s allowance it was er- His tes- general business. construction roneous. timony was: THE IV. PERSONAL JUDGMENT buy this
Well, have the cash to we didn’t DAY AGAINST MRS. many people particular property. Not pay that we had to But the interest do. judgment against Day entered in money that we borrowed our personal. A & G contended it was en- interest construction business was own personal judgment only titled to a if its ex- that, prop- of this purchase without $400,000 penses totalled more than the on erty, not have been otherwise deposit judgment in escrow. Since did company. all of the cash It took amount, equal the trial erred we had borrow company, and then awarding personam judgment in an in con- money continue our all the to—to against Day. job hit a bad struction business. is remanded entry case for of new time, too, help which didn’t at the same opinion. in judgment with this accordance [emphasis added]. part, part in Affirmed reversed item that this there was no evidence Since remanded. paid in with the interest was connection CONNOR, part, development (concurring acquisition or Justice fi- opposed dissenting part). A & property as G’s activities, properly be in- it cannot nancial opinion except majority agree with the I financing cluded as cost. Additional deducting portion deals which was not a cost of other ventures G’s directly Mrs. paid $95,019 in interest Day by A Co. & G Construction in in- trial court erred $1,000,000was purchase price of cluding this sum as item. a deductible installments, plus on paid in interest The in- per unpaid annum. balance 6% expenses— on the other Interest B. the de- compensation for represents terest $20,405. is interest This claim for the owing to Mrs. money payment ferred made, payments expenditures other than is addition- obligation which Day. It is computed by Days. figure price itself. payment purchase of the al to expenditures percent of all oth- figuring 8 comput- interest in this ac- claimed as deductions The deduction erwise the sale except payments the net counting ing receiving an assignment property results Mrs. and the disallowed to Jett. for the use rate money interest no evidence bor- effective 3% e., price of expenses money, pay any her i. rowed this, it parties intended charged. As Had which this interest item is expressly stated have been elucidated the discussion of interest on should *10 agreement. agree- memorandum refers merely
ment
“All costs incurred connection includ- purchase price improvements
ing property.” benefit of for the not, my payment interest was
opinion, acquisition. It was a a cost of obligation
continuing after acquired by A & Neither was
had been G. develop- payment of interest a cost
ment, developed in itself the interest as anything not add
nothing. did It merely property. It compen-
value of payment
sated for deferred
price. reasonable ex-
Applying the standard of parties, conclude
pectation of the I position Mrs.
one agree- language understood part include interest
ment computing the net be deducted
costs to purchase and re-
profit realized from
sale of judg- I reverse the this item would
As to ment below. Weinig, Atty., Borough Richard A. Asst. Thurlow,
Gary Atty., Borough Anchorage, appellants. Robinson, Atty., City T. Asst. James Spencer, City Atty., Anchorage, John appellees. RABINOWITZ, Justice, Before Chief RODERICK, John R. Greater Mayor CONNOR, ERWIN and BOOCHEV- Anchorage Borough, Area et ER, Justices. al., Appellants, OPINION George M. SULLIVAN, Mayor City Anchorage, Alaska, et al., Appellees. BOOCHEVER, Justice. No. 2243. in a of internecine con- This latest series Supreme Court Alaska. Anchorage Area flicts between Greater 22, 1974. Nov. Anchorage Borough City cen- borough the voters ters on whether ratify altering must ordinance the man- assemblymen and selecting borough ner of specifying districts from which eleven present borough as- are to be elected. members: sembly composed of eleven City councilmen, by the appointed city five Anchorage, and six members Council of