Terry Hanners v. Giant Oil Company of Arkansas, Inc.
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SUPREME COURT OF ARKANSAS
No.
TERRY HANNERS,
07-1314
Opinion Delivered May
APPELLANT,
VS.
GIANT OIL COMPANY OF ARKANSAS,
INC.,
APPELLEE,
15, 2008
APPEAL FROM THE MISSISSIPPI
COUNTY CIRCUIT COURT,
NO. CV04-256,
HON. CHARLES DAVID BURNETT,
JUDGE,
AFFIRMED IN PART; REVERSED IN
PART; REVERSED AND REMANDED
IN PART.
JIM HANNAH, Chief Justice
Terry Hanners appeals an order of the Mississippi County Circuit Court granting
summary judgment in favor of appellee Giant Oil Company of Arkansas, Inc. Hanners also
appeals the circuit court’s order awarding attorney’s fees and costs to Giant Oil under Ark.
Code Ann. § 16-22-308 (Repl. 1999). This is the second appeal of this case involving the
interpretation of a purchase-option provision and the award of attorney’s fees and costs. The
first appeal was dismissed without prejudice pursuant to Ark. R. Civ. P. 54(b), because the
summary judgment order appealed from left a counterclaim unresolved. See Hanners v. Giant
Oil Co. of Arkansas, Inc., 369 Ark. 226, ___ S.W.3d ___ (2007). On appeal, Hanners raises
two arguments for reversal: the circuit court erred in (1) granting Giant Oil’s motion for
summary judgment in this declaratory judgment action because the purchase-option provision
drafted by Giant Oil’s attorney is ambiguous, and (2) awarding $7,500 in attorney’s fees and
costs to Giant Oil because Ark. Code Ann. § 16-22-308 does not allow for the award of
attorney’s fees in declaratory judgment actions where no claim is made to recover for breach
of contract, no claim is made for the recovery of damages, and no damages are recovered.
Our jurisdiction is pursuant to Ark. Sup. Ct. R. 1-2 (a)(7) because this is the second appeal
following an appeal that was decided in this court.
On August 12, 1981, Hanners and Giant Oil entered into a lease agreement whereby
Hanners leased real property to Giant Oil for use as a gas station and convenience store. The
lease provided for five lease periods, each period being a five-year term. The first or “primary
term” under the lease began on January 1, 1982. Each subsequent term commenced at the
end of the prior term unless “more than sixty days prior to the end of any term” Giant Oil
notified Hanners it did not wish to “renew any further.” In that case, the lease terminated
at the end of the then “current term.” The lease also contained the following purchase-option
provision:
3.4
Lessor hereby grants unto Lessee the right to purchase the premises for
$150,000.00 at the end of the primary term and the first option period.
Thereafter, for the three 5-year terms, this option price shall increase to
$200,000.00.
Throughout the years, Giant Oil exercised its renewal option, and on June 1, 2004,
during the fifth and final term under the lease, Giant Oil sent a letter to Hanners notifying
him of its intention to exercise the option of purchasing the leased real property. In a June
25, 2004 letter, Hanners, through his attorney, informed Giant Oil that he would not sell the
property because Giant Oil had failed to notify Hanners as required by the lease agreement.
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On September 23, 2004, Giant Oil filed a complaint for declaratory judgment
concerning the rights, status, and legal relations of Giant Oil and Hanners in the lease
agreement, and seeking a judgment declaring: (a) Giant Oil had provided reasonable notice
to Hanners of its exercise of the purchase option; (b) Giant Oil was contractually entitled to
purchase the lease property on December 31, 2006, under the terms of the purchase option;
and (c) the lease agreement did not contain a notice requirement. On November 14, 2005,
Giant Oil filed a motion for summary judgment, asserting that the plain and unambiguous
language of the lease clearly entitled Giant Oil to purchase the leased property at the end of
the primary term of the lease and at the end of any of the four subsequent optional terms of
the lease.
On December 2, 2005, Hanners filed an amended answer and counterclaim. 1 In the
amended counterclaim, Hanners argued that he was entitled to a judgment declaring: (1) the
agreement between Hanners and Giant Oil required Giant Oil to exercise its option to
purchase no later than the end of the third renewal term; (b) Giant Oil failed to purchase the
property within that time provided by the lease agreement; and (c) Hanners is not obligated
to sell the real property to Giant Oil at the end of the current lease term. Hanners also prayed
that Giant Oil’s complaint be dismissed. That same day, Hanners filed his response to Giant
Oil’s motion for summary judgment, contending that summary judgment should not be
granted because the lease agreement was not clear and, at best, it was ambiguous. Hanners
also contended that the lease agreement did not entitle Giant Oil to purchase at any time, but
1
Hanners’s original answer and counterclaim was filed on February 18, 2005.
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that the purchase option had to be exercised before the end of the third renewal term. In
addition, in response to Giant Oil’s motion for summary judgment, Hanners requested that
the court grant the relief requested in his counterclaim. In response, on December 19, 2005,
Giant Oil requested that the circuit court dismiss Hanners’s counterclaim.
On February 3, 2006, a hearing was held on Giant Oil’s motion for summary
judgment. Following this hearing, on March 27, 2006, the circuit court entered a judgment
granting Giant Oil’s motion for summary judgment finding “[t]he terms of the Lease
Agreement are unambiguous, and according to the plain and ordinary meaning of Paragraph
3.4 of the Lease Agreement, Giant Oil Company of Arkansas, Inc. is entitled to purchase the
property described in the Lease Agreement for $200,000.00 on December 31, 2006.”
Following the March 27 order, Giant Oil filed a motion for attorney’s fees and costs.
On July 5, 2006, a hearing was held on the motion. In an order entered July 18, 2006, the
circuit court found that Giant Oil was entitled to $7,500 in attorney’s fees and costs.
Summary Judgment
Summary judgment should be granted only when it is clear that there is no issue of fact
to be litigated, and the moving party is entitled to judgment as a matter of law. Windsong
Enters., Inc. v. Upton, 366 Ark. 23, 233 S.W.3d 145 (2006). Summary judgment is appropriate
when the pleadings, depositions, answers to interrogatories, responses to requests for
admission, and affidavits show that there is no genuine issue of material fact to be litigated and
the moving party is entitled to judgment as a matter of law. Id. The burden of proving that
there is no genuine issue of material fact is upon the moving party. Id. On appellate review,
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we must determine if summary judgment was proper based on whether the evidence
presented by the moving party left a material question of fact unanswered. Id. This court
views the proof in a light most favorable to the party resisting the motion, resolving any
doubts and inferences against the moving party, to determine whether the evidence presented
left a material question of fact unanswered. Id.
The first rule of interpretation of a contract is to give to the language employed the
meaning that the parties intended. See Alexander v. McEwen, 367 Ark. 241, 239 S.W.3d 519
(2006). In construing any contract, we must consider the sense and meaning of the words
used by the parties as they are taken and understood in their plain and ordinary meaning. See
id. “The best construction is that which is made by viewing the subject of the contract, as the
mass of mankind would view it, as it may be safely assumed that such was the aspect in which
the parties themselves viewed it.” Coleman v. Regions Bank, 364 Ark. 60, 65, 216 S.W.3d 569,
574 (2005) (citing Missouri Pac. R.R. Co. v. Strohacker, 202 Ark. 645, 152 S.W.2d 557 (1941)).
It is also a well-settled rule in construing a contract that the intention of the parties is to be
gathered, not from particular words and phrases, but from the whole context of the
agreement. See Alexander, supra.
Where there is uncertainty of meaning in a written instrument, an ambiguity is present.
See id. (citing Black’s Law Dictionary 88 (8th ed. 2004)). Where an ambiguity is found within
the contract, parol evidence may be admitted. Ultracuts Ltd. v. Wal-Mart Stores, Inc., 343 Ark.
224, 33 S.W.3d 128 (2000). It may not be admitted to alter, vary, or contradict the written
contract, but it may be admitted to prove an independent, collateral fact about which the
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written contract was silent. Id.
Hanners claims that the circuit court erred in granting summary judgment because the
purchase-option language is ambiguous. Hanners’s interpretation of the lease agreement was
that Giant Oil only had the right to purchase the property up through the end of the third
renewal term, which ended on December 31, 2001. He states that this interpretation of the
contract is consistent with what he was told by Giant Oil’s vice president and Giant Oil’s
attorney at the time the contract was signed.
According to Hanners, at the time he agreed to enter into the lease agreement, he
discussed the matter with Giant Oil’s vice president, George Barry, and Giant Oil’s attorney,
Henry Swift, and they all understood that the option to purchase had to be exercised while
Giant Oil still had the option to renew for another term. Hanners maintains that no renewal
time remained at the time Giant Oil gave notice that it intended to purchase the property,
because the letter dated June 1, 2004, giving notice that Giant Oil wanted to purchase the
property, was given during the last term, which ended December 31, 2006. In short, Hanners
takes the position that Giant Oil simply waited too late to exercise its option to purchase the
property.
Hanners asserts that, if the court reads paragraphs 1.1, 1.2, and 3.4 of the lease
agreement, together in the context of what Hanners was told at the time he signed the
contract, Hanners’s interpretation of that language makes perfect sense.
Paragraphs 1.1, 1.2, and 3.4 of the lease agreement provide:
1.1
Term of Lease Contract: The term of this lease shall commence on
January 1st, 1982, and shall continue for a primary term of five years.
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Thereafter, Lessee may renew this Lease for four additional five year
periods. All of such renewals will be on the same terms and conditions
as provided in this Lease except as to rent. All of the renewal terms for
which options are hereby granted shall be each in turn deemed
exercised unless Lessee shall have more than sixty days prior to the end
of any term which may at that time be current, notified Lessor that it
does not wish to renew any further, in which case the Lease shall
terminate at the end of whatever term at that time may be current.
1.2
Rentals: The rentals to be paid during the terms of this Lease shall be as
follows:
(a)
(b)
$650.00 per month for the first renewal term of five years;
(c)
$750.00 per month for the second renewal term of five years;
(d)
$800.00 per month for the third renewal term of five years; and
(e)
3.4
$650.00 per month for the primary term of five years;
$850.00 per month for the fourth renewal term of five years.
Lessor hereby grants unto Lessee the right to purchase the premises for
$150,000.00 at the end of the primary term and the first option period.
Thereafter, for the three year 5-year terms, this option price shall
increase to $200,000.00.
Hanners contends that, under the interpretation advanced by Giant Oil, which was
accepted by the circuit court, Giant Oil was entitled to purchase the property at any time
until its right to occupy the property ended—December 31, 2006—without giving any notice
to Hanners. In sum, Hanners states that Giant Oil’s interpretation is not consistent with what
Giant Oil’s attorney and vice president told him before and at the time the contract was
signed; is not consistent with the language used in the contract; and “is contrary to normal
business practice and common sense.”
To accept Hanners’s interpretation of the lease agreement, this court must agree with
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Hanners’s assertion that, in paragraph 3.4, the words “primary term” and the words “first
option period” are synonymous and interchangeable terms that both make reference to the
first five-year term of the lease during which Giant Oil had the option to either renew the
lease or buy the property for $150,000. This is not a reasonable interpretation of the language
used in the lease agreement.
Paragraph 1.1 of the lease agreement divides the lease into five distinct periods, each
with a five-year term. In both paragraphs 1.1 and 3.4, the lease provides that the lease is
comprised of one primary term and four option periods, all of which are five years in
duration.
In viewing paragraph 3.4 in concert with the entire lease, specifically the
terminology contained in paragraph 1.1, it is obvious that Giant Oil was entitled to purchase
the property during all of the five terms, and specifically, at the end of the final term of the
lease, December 31, 2006.
Here, the circuit court correctly concluded that the lease was unambiguous and that
the lease agreement allowed Giant Oil to purchase the property at the end of the final option
period, which expired on December 31, 2006. Having found that the lease agreement was
unambiguous, the circuit court did not err in granting summary judgment in favor of Giant
Oil because there were no material facts left unanswered.
Attorney’s Fees
Hanners contends that the circuit court erred in awarding attorney’s fees and costs to
Giant Oil in the amount of $7,500 because Ark. Code Ann. § 16-22-308 does not allow for
the award of attorney’s fees in declaratory-judgment actions where no claim is made to
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recover for breach of contract, no claim is made for the recovery of damages, and no damages
are recovered. Our general rule relating to attorney’s fees is well established and is that
attorney’s fees are not allowed except when expressly provided for by statute. Chrisco v. Sun
Indus., Inc., 304 Ark. 227, 800 S.W.2d 717 (1990). An award of attorney’s fees will not be
set aside absent an abuse of discretion. See Harris v. City of Fort Smith, 366 Ark. 277, 234
S.W.3d 875 (2006).
Section 16-22-308 provides in relevant part that “[i]n any civil action to recover on
. . . [a] breach of contract, . . . the prevailing party may be allowed a reasonable attorney’s fee
to be assessed by the court and collected as costs.” The court must determine whether § 1622-308 provides for attorney’s fees in the present case.
We review issues of statutory interpretation de novo. Harris, supra. We are not bound
by the circuit court’s decision; however, in the absence of a showing that the circuit court
erred, its interpretation will be accepted as correct on appeal. Id. When reviewing issues of
statutory interpretation, we keep in mind that the first rule in considering the meaning and
effect of a statute is to construe it just as it reads, giving the words their ordinary and usually
accepted meaning in common language. Id. When the language of a statute is plain and
unambiguous, there is no need to resort to rules of statutory construction. Id. A statute is
ambiguous only where it is open to two or more constructions, or where it is of such obscure
or doubtful meaning that reasonable minds might disagree or be uncertain as to its meaning.
Id. When a statute is clear, however, it is given its plain meaning, and this court will not
search for legislative intent; rather, that intent must be gathered from the plain meaning of the
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language used. Id.
Here, the circuit court concluded that, as the prevailing party in a civil action regarding
a contract, Giant Oil was entitled to attorney’s fees pursuant to § 16-22-308. Further, the
circuit court awarded costs, pursuant to Ark. Code Ann. § 16-111-111 (Repl. 2006).
The circuit court erred in its interpretation of § 16-22-308. Giant Oil’s complaint
states that it “is brought pursuant to A.C.A. § 16-111-101 et seq. (1987) to obtain a
declaratory judgment concerning the rights, status and legal relations of Giant Oil and
Hanners in the Lease Agreement.” This is an action brought under Arkansas’s Declaratory
Judgment Act, and Giant Oil points to nothing in the Act that allows the court to award
attorney’s fees, even where the underlying dispute arises from a contract. Because Giant Oil
prevailed in a declaratory-judgment action, and not a breach-of-contract action, the circuit
court did not have discretion to award attorney’s fees pursuant to § 16-22-308.2 Therefore,
2
Giant Oil contends that Stilley v. James, 347 Ark. 74, 60 S.W.3d 410 (2001), offers
support for its position that it is entitled to attorney’s fees. In that case, this court upheld
the award of attorney’s fees pursuant to § 16-22-308 where the underlying case was a
declaratory -judgment action involving an indemnity agreement.
The Stilley case is distinguishable from the instant case. Here, Giant Oil merely
asked for an interpretation of the lease agreement and a declaration of the parties’ rights.
No claim was made to recover for breach of contract, no claim was made for the recovery
of damages, and no damages were recovered. In fact, under Giant Oil’s interpretation of
the lease agreement, which was adopted by the circuit court, there was no way Hanners
could have been in breach of contract at the time the suit was filed, or at the time of the
summary judgment, or at the time of the attorney’s fees hearing, because both Giant Oil
and the circuit court read the contract to allow Giant Oil to wait until December 31,
2006, the last day of the agreement, to exercise its purchase option.
Further, at no time prior to the entry of summary judgment did Giant Oil assert
that Hanners had breached its contract. In contrast, the prevailing parties in Stilley sued
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the circuit court’s award of attorney’s fees must be reversed.
While there is no provision for attorney’s fees under the Arkansas Declaratory
Judgment Act, there is a provision for costs. Pursuant to Ark. Code Ann. § 16-111-111, “[i]n
any proceeding under this chapter, [Declaratory Judgments], the court may make such award
of costs as may seem equitable and just.” Thus, it was within the circuit court’s discretion to
award costs to Giant Oil. However, this court must reverse and remand on the issue of costs
because the language used by the circuit court in its order awarding attorney’s fees and costs
makes it impossible to determine what portion of the award is for attorney’s fees, which is not
allowable under § 16-111-111, and what portion of the award is for costs, which is allowable
under § 16-111-111. The circuit court merely concluded that Giant Oil was entitled to
“$7,500.00 representing their reasonable attorney’s fees and costs in this matter.”
Accordingly, we reverse and remand to the circuit court for a determination of what costs
may be awarded pursuant to § 16-111-111.
Affirmed in part; reversed in part; reversed and remanded in part.
Stilley for breach of an indemnity contract and recovered a judgment in the amount of
$200,000 based on Stilley’s breach of that agreement. The cause of action in Stilley fell
within the provisions of § 16-22-308; Giant Oil’s declaratory judgment against Hanners
does not.
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