Honolulu Waterfront Ltd. Partnership v. Aloha Tower Development Corp.
692 F. Supp. 1230, 1988 WL 83145, 1988 U.S. Dist. LEXIS 8881 (1988)
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Rule of Law:
An agreement that explicitly states it is binding but leaves numerous essential and material terms for future negotiation, without specifying a method for ascertaining those terms, is generally unenforceable as a contract for specific performance or declaratory relief asserting its validity.
Facts:
- Aloha Tower Development Corp. (ATDC) was established by the Hawaii legislature in 1981 to redevelop the Aloha Tower Complex.
- ATDC entered into an 'Interim Development Agreement' (IDA) on April 16, 1985, with Hawaii Waterfront Limited Partnership (HWLP) for exclusive negotiations regarding the Aloha Tower Complex development and a lease of waterfront property.
- HWLP agreed to pay ATDC $100,000 for these exclusive negotiation rights, of which HWLP paid only a portion.
- The IDA outlined 15 'major points of negotiation' and required a development agreement and land lease to be executed by April 25, 1986, a deadline later extended to July 25, 1986, by 'Supplemental Agreement No. 1.'
- On July 7, 1986, ATDC and HWLP executed a four-page letter agreement titled 'Development Agreement,' which stated it would 'serve as a binding agreement' and that 'Preparation and execution of final documents shall proceed with due diligence and in good faith.'
- The letter development agreement described the general scope of the project (e.g., first-class hotel, office buildings, retail complex, maritime facilities) but explicitly left numerous essential terms for future negotiation, including master lease specifics, minimum and percentage rental, details of maritime facilities, plans and specifications for all buildings, subordination provisions for HWLP’s lenders, and creation of a tax increment district.
- The lease provision in the letter agreement stated that yearly rent would be a minimum amount or 'a percentage rent as agreed, upon by the parties,' emphasizing that the 'total rent will be based on, inter alia, the amount of the bond issue, the Partnership’s phasing schedule and further negotiation.'
- Following the letter agreement, negotiations degenerated, with ATDC sending letters in October and November 1986 denying the existence of a binding development agreement, stating that 'many major points have yet to be agreed upon, thereby making it obvious that the requisite 'meeting of the minds' has not been achieved.'
- HWLP alleges it continued working on the Aloha Tower Complex at the urging of ATDC and others until fall of 1987, expending over $2 million in time and expenses.
Procedural Posture:
- On September 22, 1987, ATDC filed a declaratory judgment action in state court against HWLP, seeking a determination that no development agreement existed between the parties, that the IDA had expired, that the July 7, 1986, Development Agreement was not the 'development agreement' contemplated by the IDA, and that ATDC had no continuing obligation to negotiate with HWLP.
- On October 1, 1987, ATDC's state court action was removed to the U.S. District Court for the District of Hawaii.
- On September 28, 1987, HWLP filed a separate countersuit in federal court against ATDC, asserting claims including breach of contract and a request for specific performance of the agreement, and this suit was subsequently consolidated with ATDC's removed action.
- On December 10, 1987, HWLP filed its second amended complaint.
- On December 21, 1987, ATDC filed a motion for summary judgment, seeking dismissal of HWLP’s second amended complaint, relief as requested in ATDC’s complaint, and attorneys’ fees and costs.
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Issue:
Does a letter agreement for a large development project constitute a valid and enforceable contract when it explicitly states it is binding but leaves numerous essential terms, such as lease rent and specific project details, for future negotiation without a method of ascertainment?
Opinions:
Majority - James M. Kay
No, a letter agreement that explicitly states it is binding but leaves numerous essential and material terms for future negotiation, without specifying a method for ascertaining those terms, does not constitute a valid and enforceable contract for specific performance or a declaratory judgment asserting its existence. The court found that, for purposes of summary judgment, the letter development agreement was intended by the parties to be the 'development agreement' contemplated by the Interim Development Agreement (IDA), and that it superseded the IDA. However, the agreement failed for indefiniteness as a matter of law because numerous essential terms, particularly the lease rent, were left for future negotiation without a specified method for their determination. The lease rent provision, which stated the total rent would be based on 'further negotiation,' rendered it an unenforceable 'agreement to agree.' Citing Hawaii precedents such as Clarkin v. Reimann, Lahaina-Maui Corp. v. Tau Tet Hew, In re Sing Chong Co., Ltd., and Francone v. McClay, the court reaffirmed that an agreement lacking sufficiently definite material terms is unenforceable, even if the parties intended it to be binding. The court explicitly stated that it would not enforce an agreement to negotiate, finding it futile and impracticable to monitor or compel good faith negotiation. Therefore, summary judgment was granted against HWLP's claims for a declaratory judgment of contract validity (Count II) and specific performance (Count III), and a partial summary judgment was issued for ATDC, declaring that HWLP had no future right to develop the Aloha Tower complex because the letter development agreement was not specifically enforceable. However, the court denied summary judgment on HWLP's claims for breach of contract (Count I), promissory estoppel (Count IV), civil rights violations (Count V), and a permanent injunction (Count VI), recognizing that HWLP might still be entitled to damages arising from a potential breach of an obligation to negotiate in good faith, restitution for benefits conferred, or compensation for detrimental reliance, even if the underlying contract was too indefinite for specific performance.
Analysis:
This case clarifies the critical distinction between the parties' intent to be bound and the legal enforceability of an agreement. Even if an agreement explicitly states it is 'binding,' it will fail as an enforceable contract if essential terms are left indefinite without a clear and agreed-upon method for their future determination. The court’s nuanced approach recognizes that while specific performance of an 'agreement to agree' is generally unavailable, parties may still seek other remedies, such as damages for breach of an obligation to negotiate in good faith, restitution for services rendered, or recovery based on promissory estoppel for detrimental reliance. This ensures that while courts uphold the principle of contractual certainty, they also provide avenues for redress to parties who have expended resources based on representations that fell short of a fully formed contract.
