v.
High Court of
Trial Division
CA No. 51-00
June 29, 2000
[1] In choosing between reasonable interpretations of a
contract, the court will normally construe the contract against the drafter.
[2] Where both parties were
involved in choosing the language of the contract, the primary reasons for
construing contracts against the drafter were not present and Court refused to
employ such rule.
[3] The Court will not
reword a contract provision that is clear both on its face and when read in
context.
[4] When a contract states
no time frame for performance, the court will imply a reasonable time.
[5] Only an unreasonable
delay constitutes a material breach.
[6] For an accord and
satisfaction to discharge an existing debt, there must be: (1) a good faith
dispute over the amount of an unliquidated claim; (2) substituted performance
that is tendered and accepted; and (3) valuable consideration for the agreement.
[7] If there is a reasonable
basis for a good faith dispute as to the amount of a debt, that dispute may be
settled by an accord and satisfaction, even where the claim or defense giving
rise to the dispute was invalid.[4ASR3d200]
[8] A party offered an
accord has no duty to accept substituted performance, but the acceptance of
performance in the disputed amount operates to discharge the duty, despite a
declaration of not assenting to the condition that payment is payment in full.
[9] Acceptance of partial
payment as payment in full, despite a statement that it is accepted only as
partial payment, constitutes acceptance of a substituted performance.
[10] Where lessee had
tendered late payment at less than contract rate, lessor could not accept
payment and also claim a default under the agreement.
[11] A written agreement may
be modified by oral agreement.
[12] An unwritten
modification is enforceable when it has been acted upon by the parties so that
it would be an injustice or fraud to refuse to carry it out.
Before
Counsel: For Plaintiff, Charles V.
Ala`ilima
For Defendant, Roy J.D. Hall, Jr.
OPINION AND ORDER
This dispute arose out of a
1995 agreement between plaintiff American Samoa Cablevision (“ASCable”) and
defendant American Samoa Power Authority (“ASPA”). This agreement, entitled Agreement for Joint
Use of Electric Poles (“the pole agreement” or “the agreement”), provided for
ASCable to share the use of ASPA’s utility poles by attaching its cable lines
to the poles.
ASCable filed a claim
against ASPA for declaratory relief in order to require ASPA to submit to
binding arbitration on the proper rental amount, and for an injunction to
prevent a declaration of breach by ASPA and to prevent ASPA from taking action
against ASCable’s cable lines. ASPA
filed a counterclaim, alleging alternatively that the contract is void, making
ASPA entitled to reasonable rental fees, and that ASCable breached the rental
contract. ASPA seeks both a declaratory
judgment and judgment for breach of contract.
ASCable requested a
preliminary injunction, and the hearing on the injunction was combined with
trial. Trial then proceeded, with
attorneys for both parties present, on May 2, 2000.[4ASR3d201]
I. Contract Validity
ASPA first argues that its
executive director, Abe Malae, did not sign the pole agreement and that Malae’s
signature stamp was used in place of his actual signature, rendering the
agreement invalid. Malae stated in an
affidavit that he has no independent recollection of signing the agreement, and
that the signature on the agreement looks like his signature stamp.
The Court has compared a
copy of the signature stamp to the signature on the various versions of the signature
page of the pole agreement that have been filed with the Court.[1] The signatures
on these signature pages do not appear to match Malae’s signature stamp. Malae’s failure to specifically recollect
signing the agreement five years ago does not necessarily indicate that he did
not sign it. Furthermore, by demanding
payment in accordance with the agreement and not questioning the agreement’s
validity for the past five years, ASPA has acted as if the agreement were
valid, indicating a likelihood that the agreement was signed by its executive
director. We therefore find that Malae
signed the pole agreement.
ASPA also argues that the pole agreement is invalid
because it was not approved by ASPA’s attorney, Marshall Ashley, as required by
ASPA’s Procurement Regulations Rule 10.0311.
Two of the signature pages filed with the Court were signed by Ashley,
although his signature was not on every version. It is unclear, therefore, whether Ashley
signed a final version of the agreement.
However, it is clear that Ashley approved some version of it very close
to the final version, and therefore approved it as to legal sufficiency. At any rate, the Court fails to see why
ASPA’s failure to obtain its attorney’s signature renders the agreement
invalid. Two parties with either actual
or apparent authority to enter into a contract signed the agreement. ASCable should be able to rely on the
validity of a contract signed by ASPA’s executive director.[4ASR3d202]
II. Breach of
Contract
Both ASCable and ASPA allege that the other party has
breached the pole agreement based primarily on different interpretations of
Article IX, paragraph (c) of the agreement. Article IX, paragraph (c) of the
agreement reads, in relevant part:
The parties hereto have agreed to sign this Contract
using a One and 00/100 Dollars ($1.00) per pole per month Rental Rate. The owner, however, has agreed to review the
Pole Rental Rate for a possible reduction in the Rental rate charged Licensee. In no event, however, will the rate exceed
One and 00/100 Dollars ($1.00) per pole per month. If, after making its review of the Rental
Rate, the Owner and Licensee are unable to reach an agreement on the Rental
Rate for the Poles, the Parties hereto have agreed to submit the Pole Rental
Rate to binding arbitration. . . . The Rental Rate for the Poles as so
determine[d] shall be substituted for the One Dollar ($1.00) per month per
pole.
The provision allowing for a change in price was
apparently included in the agreement because the parties were having difficulty
finalizing price, but wanted to proceed with the project.
The parties entered into the pole agreement on or
about January 25, 1995. Soon thereafter,
ASPA began a project to remove its power lines from the poles and place them
underground. ASCable did not participate in that project at that time and
proceeded to use the poles for its cables.
A. ASCable’s
Failure To Pay Full Amount
Under the pole agreement, payment for both 1995 and
1996 were due simultaneously at the end of 1995. ASCable believed that a reasonable rental
rate was 30 cents per pole, and in May of 1996, ASCable paid ASPA $6,512.40 for
the use of 1,206 poles at 30 cents per pole for 18 months, comprising six
months in 1995 and all of 1996. ASPA accepted
payment of this amount as a partial payment, but continued to demand payment at
the one dollar per pole rate, totaling $21,708.
ASCable has not made another payment to date. According to ASPA, ASCable has breached the
agreement by failing to pay one dollar per pole per month as stated in the
agreement.
At some point, ASPA reviewed the pole rental rate and
determined that the reasonable rental rate exceeded one dollar per pole per
month. ASPA nonetheless decided that it would accept one dollar per pole in
accordance with the pole agreement. ASPA
submitted its assessment to ASCable in September 1996.[4ASR3d203]
By the unambiguous terms of the pole agreement,
payment of one dollar per pole per month for the years 1995 and 1996 was due at
the beginning of 1996. Although the
contract allowed for a reduction in price, the price to be paid was one dollar
unless and until the price changed. The
renegotiation and arbitration clauses were not conditions precedent to
ASCable’s agreement to pay. By failing
to pay one dollar per pole when it came due and failing pay anything for five
months, ASCable was in material breach of the agreement unless ASPA had already
breached the agreement by failing to submit to arbitration, which might prevent
ASCable’s performance from coming due.
B. ASPA’s
Failure to Submit to Arbitration
According to ASCable, ASPA is in breach of the pole
agreement for failing to abide by the clause in the agreement that provides for
binding arbitration in the event that the parties are not able to agree on a
rental rate. ASPA argues that it was only required to submit to binding
arbitration if it determined that the contract price was to be greater than one
dollar per pole. In support of this
interpretation, ASPA argues that it would be redundant for Article IX,
paragraph (c) to state both that ASPA would consider a possible reduction and
that the rate will not exceed one dollar per pole. To avoid this redundancy, ASPA argues that
the words “possible reduction” should be read to mean “possible adjustment”.
Under this interpretation, ASPA would only be required to submit to arbitration
if it wanted to adjust the price above one dollar and ASCable objected.
[1-2] In
choosing between reasonable interpretations of a contract, the court will
construe the contract against the drafter. Am. Samoa
Gov’t ex rel. Uikirifi v. Hawaiian
Airlines, Inc., 10 A.S.R.2d 31, 38 n.3 (Trial Div. 1989). In this case, it appears that both parties
were involved in creating the pole agreement.
ASCable drafted the agreement, but it did so from a form provided by ASPA. The primary reasons for construing contracts
against the drafter, that the drafter is more likely to protect his or her own
interests and to know of uncertainties of meaning, Restatement (Second) of Contracts, § 206 (a) (1982), do not
apply in this case because both parties were involved choosing the language of
the agreement. It would therefore be
inequitable to construe the agreement against ASCable on the basis of drafting.
[3] At any
rate, we find ASPA’s construction of the pole agreement unreasonable. The redundancy ASPA speaks of merely
emphasizes the parties’ understanding that the pole rate would not exceed one
dollar per pole. We will not reword a
contract provision that is clear both on its face and when read in context.
ASPA’s construction goes against the language in the agreement, which states
that the parties will submit to binding arbitration if they cannot agree on a
rental rate after ASPA had [4ASR3d204] reviewed
the rental rate for a possible reduction.
[4-5] The
pole agreement did not indicate a time frame by when ASPA would review the
rental rate and by which the parties would submit to binding arbitration. When a contract states no time frame for
performance, the court will imply a reasonable time. Hodges v.
We have little information from which to determine
what would constitute a reasonable amount of time for ASPA to perform since
there was not testimony on this issue.
ASPA did not provide ASCable with its assessment of reasonable rates
until September 1996, approximately 21 months after the parties entered into
the agreement. However, the relevant question is whether it was unreasonable
for ASPA to have not performed at the time ASCable’s rental payment became due
in December 1995.
With the information available to us, we cannot find
that ASPA’s delay was unreasonable.
There is no way for the Court to know what is involved in determining a
fair rental rate under these circumstances. ASCable seems to have believed that
the issue of rental payments would be resolved by the time they had to pay for
1995 and 1996, but the pole agreement did not set such a time frame. ASCable has submitted no evidence on the
subject, such as testimony about what constitutes a reasonable time for
determining a rental rate, or correspondence from ASCable to ASPA requesting
the rate assessment before its payment came due. There is nothing, other than the length of
time itself, to even suggest that the time was unreasonable. ASPA was therefore not in breach for its
failure to submit to arbitration when ASCable’s first payment was due at the end
of 1995.
C. Accord
and Satisfaction
[6] Although
ASCable failed to pay the full amount due for 1995 and 1996, ASPA effectively
waived ASCable’s breach and an accord and satisfaction operated to alter the
parties’ pole agreement. For an accord
and satisfaction to discharge an existing debt, there must be: (1) a good faith
dispute over the amount of an unliquidated claim, (2) substituted performance
that is tendered and accepted, and (3) valuable consideration for the
agreement. Baum’s Dairy Farms, Inc.
v. United States, 996 F. Supp 705, 711 (E.D. Mich. 1998).
[7] In
ASCable’s May 21, 1996 letter that accompanied its 30 cents per pole payment to
ASPA, Neil McKay, ASCable’s Managing Joint [4ASR3d205]
Venturer, indicated that ASCable was submitting a good faith payment on the
rental rate, indicating that ASCable believed 30 cents to be a fair rental
rate. As discussed supra at II.A,
ASCable owed one dollar per pole for 1995 and 1996. However, “[i]f there is a reasonable basis
for a good faith dispute as to the amount of a debt, that dispute may be
settled by an accord and satisfaction, even where the claim or defense giving
rise to the dispute was invalid.” Kent
Samoa v. Shimasaki, 27 A.S.R.2d 140, 142 (Trial Div. 1995) (citing Restatement (Second) of Contracts § 74,
cmts. b & c, & ill. 4 (1982)).
Although ASCable was incorrect that it owed ASPA less than one dollar
per pole, it had a good faith belief that the proper rental rate was 30 cents,
and that it owed either 30 cents or an amount to be determined by arbitration. Thus, whether the proper rental rate was 30
cents, one dollar, or something in between, was a matter of good faith dispute.
[8-10] A
party offered an accord has no duty to accept substituted performance, but the
acceptance of performance in the disputed amount operates to discharge the
duty, despite a declaration of not assenting to the condition that payment is
payment in full. Restatement (Second) of Contracts § 278(1) & cmt.
a (1982). Acceptance of partial payment
as payment in full, despite a statement that it is accepted only as partial
payment, constitutes acceptance of a substituted performance.
In ASCable’s May 1996 letter, it cited the pole
agreement clause that allowed for ASPA to submit a proposed rate and allowed
for arbitration if the parties could not agree, indicating that it was willing
to submit to these provisions if ASPA did not agree to ASCable’s 30 cent
assessment. ASCable’s payment was thus intended as payment in full, while still
leaving ASPA the option of submitting a proposed alternative amount and
submitting to binding arbitration if the parties disagreed on ASPA’s suggested
rental rate. Binding arbitration is now
necessary to determine the fair rental rate for 1995 and 1996.
D. Summary
of Legal Findings
1. ASCable was in breach of the pole agreement with
ASPA for its failure to pay the agreed rental amount of one dollar per pole
when it came due.[4ASR3d206]
2. ASPA did not breach the pole agreement in failing
to submit to arbitration.
3. There was an accord and satisfaction on the
parties’ pole agreement, insofar as it involved the years 1995 and 1996.
4. ASPA waived
ASCable’s breach by accepting rent from ASCable.
5. By accepting ASCable’s 30 cent per pole payment,
ASPA accepted payment in full for 1995 and 1996, except that ASPA could still
submit a proposed alternative amount and submit to binding arbitration on the
proper amount of payment.
III.
Modification By Swap of Infrastructure
A. Factual
Background
In the September 1996 letter from Perelini Perelini,
Acting Executive Director of ASPA, to Charles Ala`ilima, General Manager of
ASCable, in which ASPA provided its analysis of the proper rental rate,
Perelini suggested the following:
To resolve this issue of non-payment, ASPA proposes
that ASC enter into an agreement and immediately carry through with a swap of
infrastructure. ASPA offers to allow use
of all ASPA poles for a period of one year, at no charge in return for ASPA[’s]
use of dark fibers between ASPA Wide Area Network members for the same period.
There is no written contract finalizing an agreement
on this issue.
Nonetheless, ASCable did allow ASPA to use its fibers
between ASPA’s Wide Area Network members.
In July 1999, ASPA entered into an agreement with
American Samoa Telecommunications Authority (“ASTCA”) for ASPA to provide
access to its underground conduit to ASTCA. This agreement allowed ASTCA to
place fiber optic lines in ASPA’s conduit, and also provided for ASTCA to
supply fiber optic lines for ASPA’s computer network. After this agreement was effectuated, ASPA no
longer needed ASCable’s fiber optic lines.
ASPA used ASCable’s fibers until sometime in 1999,
when the ASPA/ASTCA agreement went into effect, and also did not again request
payment on the pole agreement until 1999.[4ASR3d207]
B. Implications
of Fiber Use
ASCable believes that Perelini’s letter and the
parties’ subsequent actions indicate that ASCable and ASPA agreed to offset the
pole rental with fiber access. ASPA
argues that there was no formal, written agreement between the parties that
allowed for an offset, and because there has been no modification to the pole
agreement, ASCable is still bound to pay one dollar per pole for the years it
has been using ASPA’s power poles.
[11-12]
There was no final written agreement modifying the pole agreement. However, a written agreement may be modified
by oral agreement. Piatt’s Admr. v.
From the letters between the parties, it is clear that
the parties intended the modification to tie in with the original pole
agreement. Two documents, a memorandum from Ken Knoche of ASCable to Robert
Morrell of ASPA on September 19, 1996, and a letter from Robert Morrell to Ken
Knoche on November 1, 1996, state that ASPA and ASCable will agree to the
values of the data transportation, also referred to as the fiber access, and
the pole rental, and will “arrange a mutually agreeable ‘exchange of checks’ to
provide payment.” According to these
letters, the term of the agreement was to be concurrent with the pole
agreement, and was to run from December 1, 1996 to November 30, 1997.
There is no indication that the parties ever formally
agreed to a price for the offset, and they neither requested nor demanded
payment while the swap of infrastructure continued. The value of the pole rental is to be
determined in binding arbitration, as indicated above. To calculate the amount of the offset under
the modified agreement, it is necessary to determine the value of the fiber
access, as well. The issues in binding arbitration shall therefore also include
determination of the value of the fiber access.
Order
1. ASCable and ASPA shall submit to binding
arbitration to determine a fair rental rate for ASCable’s use of ASPA’s power
poles, and shall also [4ASR3d208] submit
to binding arbitration to determine a fair rate for ASPA’s access of ASCable’s
fibers.
2. ASCable shall pay to ASPA 30 cents per pole per
month from the date of ASPA’s discontinuing the use of ASCable’s fibers until
the present. ASCable shall then continue to make payment at 30 cents per pole,
at the times indicated in the pole agreement, for as long as the parties
continue with the pole agreement. The 30
cents per pole rate shall be replaced with the arbitrated amount as soon as
arbitration is complete.
3. For the period comprising 1995 and 1996, and for
the period after ASPA discontinued using ASCable’s fibers, ASCable shall pay
ASPA the difference between the arbitrated amount and the 30 cent amount, once
arbitration is completed.
4. For the time during which ASPA used ASCable’s
fibers, ASCable shall pay to ASPA the difference between the 30 cent price and
the arbitrated price, minus the amount of offset for ASPA’s fiber use, once the
arbitration is completed. If this number
is negative, however, ASPA shall pay to ASCable the amount of offset for its
fiber use, minus the difference between the 30 cent price and the arbitrated
price.
It is so ordered
**********
[1] Several versions of the pole agreement have been filed with the court. One was filed by ASCable with its complaint, which was also submitted as Exhibit 1 at trial, one was filed by ASPA with its opposition to injunctive relief, and another was filed by ASPA as Exhibit 7 at trial. All versions appear to be very similar in substance. In addition, a signature page was filed with ASCable’s May 2, 2000 memorandum. It appears that there are multiple versions of the agreement and signature page because the parties signed faxed copies of signature pages as well as multiple original copies of the agreement because not all parties were on-island.