You can
search the entire site.
or go to the recent opinions, or the chronological or subject indices.
Kelso Marine v. Bierria (2/4/94), 868 P 2d 907
<![CDATA[
NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring typographical or other formal
errors to the attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska 99501, in
order that corrections may be made prior to permanent
publication.
THE SUPREME COURT OF THE STATE OF ALASKA
GERALD GUDENAU and PETER ) Supreme Court No. S-4225
MILNER, individually and as )
partners d/b/a KELSO MARINE, ) Superior Court Nos.
) 3KO-88-024 CI, 3AN-88-443 CI
Appellants, ) Consolidated
v. )
) O P I N I O N
ALBERT BIERRIA and SUSAN )
BIERRIA, ) [No. 4045 - February 04, 1994]
Appellees. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Kodiak,
Roy H. Madsen, Judge.
Appearances: Peter W. Giannini,
Giannini & Associates, P.C., Anchorage, for
Appellants. Steven P. Gray, Gray, Geveden,
Cole & Razo, Kodiak, for Appellees.
Before: Moore, Chief Justice,
Rabinowitz, Matthews, and Compton, Justices.
[Burke, Justice, not participating.]
RABINOWITZ, Justice.
FACTS AND PROCEEDINGS
On March 4, 1985, Gerald Gudenau and Peter Milner,
individually and as partners, d.b.a. Kelso Marine, purchased the
F/V Ivanof II, a commercial fishing vessel, using at least in
part monies borrowed from First National Bank of Anchorage (First
National).
In April 1986 Gudenau entered into an agreement with
Albert and Susan Bierria (Bierria), whereby Gudenau would sell
the vessel to Bierria for $130,000. Bierria paid $10,000 down on
the vessel. Bierria also executed a promissory note for the
balance of the purchase price. Bierria made two additional
payments in 1986 totalling $19,000.
In June 1987 the vessel's engine was damaged. The
vessel was insured, and the hull and machinery underwriters
acknowledged coverage. In order to begin repairs immediately,
Bierria borrowed $27,000 from International Seafoods of Alaska,
Inc. (ISA). Troy Bowers, Bierria's boat operator, signed a
security agreement that gave ISA a security interest in Bowers'
condominium and promised that ISA would be named on the insurance
payment for the engine. Bierria began repairing the vessel in
June 1987, and finished in early July 1987. Bierria submitted
the repair costs as a claim to the hull and machinery
underwriters.
Bierria missed the September 15, 1987 due date for an
$18,000 payment owed to Gudenau. On September 16, 1987, Gudenau
sent a demand letter to Bierria. Bierria decided to use
insurance proceeds to pay Gudenau, and at Bierria's request,
Highlands Insurance Co. notified Gudenau and First National that
they would receive a check for $24,149.42 (the bulk of the claim
for the engine repair) after they signed and returned a "RECEIPT,
RELEASE AND HOLD HARMLESS AGREEMENT." Under this agreement,
Gudenau and First National were made the check's sole payees, and
they agreed to hold Highlands harmless against other claims on
the insurance funds.
Gudenau and William McGrew, the vice-president of First
National, executed the agreement on October 8. Soon thereafter,
they received a check dated September 28, 1987. The bank did not
endorse the check and credit it to Gudenau and Milner's account,
however, until November 24. McGrew testified that the bank sent
the check back to the insurance company after learning of its own
potential liability under the hold harmless agreement. According
to Gudenau's affidavit, First National endorsed the check only
after Highlands agreed to release the bank from the hold harmless
agreement. On October 19, 1987, Gudenau, through counsel, sent
Bierria notice that he had taken possession of the vessel.
Gudenau claimed that Bierria was in default of the contract on
three grounds: nonpayment, incurring liens, and failing to insure
the vessel. The parties tried unsuccessfully to negotiate a
mutually satisfactory resolution of the dispute, but ultimately
both sides filed suit.
This matter came before the superior court as several
cases that were consolidated. Bierria sought a preliminary
injunction, which was denied. Gudenau moved for partial summary
judgment on the issue of Bierria's breach of the sales agreement.
Bierria also moved for partial summary judgment, asking the
superior court to order the vessel's return to Bierria, and to
hold a trial on the issue of damages only.
The superior court granted partial summary judgment to
Bierria, ruling that Gudenau wrongfully repossessed the Ivanof
II. The superior court ordered the immediate return of the
vessel to Bierria. At Gudenau's request, it stayed the return
order pending the trial on damages. The superior court dissolved
its stay partway through the trial. It entered final judgment
ordering resumption of the payment schedule and payment by
Gudenau of $236,960.42 in damages, $7,500.00 in attorney's fees,
and $2,244.92 in costs, for a total money judgment of
$246,705.34. It also ordered Bierria to secure the release of
the ISA lien after satisfaction of the judgment.
On appeal Gudenau argues that the superior court should
have granted summary judgment in his favor, holding that Bierria
was in default on the contract as a matter of law, or at least
should have denied Bierria summary judgment. He further argues
that even if summary judgment on liability was appropriate, the
superior court erred in ordering specific performance and
calculation of damages.
DISCUSSION
I. DID THE SUPERIOR COURT ERR WHEN IT GRANTED SUMMARY JUDGMENT
ON THE ISSUE OF LIABILITY TO BIERRIA?
A. Under What Circumstances Was Gudenau Entitled
to Retake the Vessel?
The sales agreement contains two provisions that
discuss Gudenau's right to repossess the vessel. Under Term 3,
if Bierria "should default on any part of this agreement and
should fail to cure the default within 30 days after written
notice by seller. [sic] Seller may began [sic] foreclosure
precedings [sic] on the vessel." Term 18 gives Gudenau the power
to respond immediately:
18. Default. The difficulty of
securing to Seller assurance payment of the
remainder of the purchase price requires
Seller to reserve the right of summary
repossession in the event of Buyer's default.
Accordingly, Buyer agrees that any failure to
perform in accordance with the terms and
conditions set forth herein shall constitute
an immediate default and Seller shall
thereupon have the right to seize the vessel
wherever it may be found, summarily and
without notice, without prejudice to any
claim which Seller may have against Buyer
pursuant to this charter party. Should
Seller repossess the vessel, Seller shall
attempt to resell it in a prompt and
commercially reasonable manner . . . .
Though there is an obvious tension between these
provisions, two factors lead us to treat Term 3 as controlling.
First, we generally read contracts so as to avoid forfeitures
whenever possible. Curry v. Tucker, 616 P.2d 8, 13 (Alaska
1980). Given the ambiguity in the contract, that policy requires
us to give more weight to Term 3.
Second, the intent of the parties seems to be that Term
3 would govern. Gudenau's response to the September 1987 default
was to send a letter giving Bierria notice of default and thirty
days to cure. This act suggests that Gudenau believed the
thirty-day provision to be the one that governed. Moreover, he
waited just over one month before retaking the boat. Also,
Bierria's promissory note envisioned a thirty-day grace period.
Thus, Gudenau was obliged to follow Term 3 in repossessing the
vessel.
B. Was Gudenau Justified in Repossessing the Vessel?
Though Bierria did not strictly comply with all of the
terms of the agreement, the conditions for repossession had not
been satisfied, and so Gudenau was not entitled to repossess the
vessel.
1. Form and Timing of Payment
The parties agree that Bierria did not make the
scheduled $18,000 payment by the September 15, 1987 deadline.
One of the central questions in this appeal is whether the
$24,149.42 insurance check dated September 28, 1987 and credited
to Gudenau and Milner's bank account on November 24, 1987
qualifies as a cure within thirty days. That check represented
the bulk of the insurance payment for repairs on the boat, and
listed Gudenau and First National as payees. The superior court
found that the payment was "made timely given the circumstances."
We agree.
Because neither party disputes that the funds were
ultimately credited to Gudenau and Milner's account at First
National, the key issue becomes whether the circumstances
surrounding the payment render it ineffective as a cure of
Bierria's default. Gudenau points to a number of unusual
attributes of Bierria's payment. Although many of these features
arguably were outside the ordinary course of business, Gudenau
waived any objection by accepting the payment.
Gudenau's strongest objection is that the hold harmless
agreement rendered the check inadequate as payment. Bierria had
signed a security agreement promising that ISA would be named a
beneficiary on insurance payments. Gudenau argues that he
himself "could not have the insurance proceeds without being
willing to assume the liability to ISA for the repairs."
Gudenau is correct in arguing that this method of
payment was problematic. Bierria had an obligation to make the
1987 payment. He had no right under the sales agreement to
attach conditions to his payment, and Gudenau was not obliged to
accept any additional obligations in order to receive the payment
he was owed. Cf. United California Bank v. Prudential Ins. Co.
of America, 681 P.2d 390, 444 (Ariz. App. 1983) (refusing to read
into an agreement a constructive condition materially changing
the obligations of a party).
Consequently, Gudenau and First National were not
required to sign the hold harmless agreement, and payment was not
"made"when they were notified of the existence of the check. On
the other hand, once Gudenau and First National executed the hold
harmless agreement, they accepted the form of payment Bierria had
offered. Once they received the check, Gudenau had been paid.
A similar analysis applies to Gudenau's other
objections to the form of the payment: that the proceeds
belonged to First National, not Gudenau, and that Gudenau did not
"control"the funds because the bank was also listed as a payee.1
The money was ultimately credited to Gudenau and Milner's
account, and although Gudenau had the right to require a more
conventional form of payment, he chose not to do so.
Gudenau notes that the insurance check was not credited
to his account until after the thirty days had passed.
Therefore, he contends, it was too late to constitute a cure even
without the other complications. To this Bierria responds that
the funds were available from October 8, and delay after that
date was caused by the actions of Gudenau and First National. A
check is proper payment for an obligation, and so long as the
check is honored, the obligation is considered paid when the
payee receives it. See AS 45.03.310; see also Harper v. K & W
Trucking Co., 725 P.2d 1066, 1068 (Alaska 1986). Thus, payment
was "made"before thirty days passed.2
The fact that First National returned the check rather
than endorsing it does not change the date payment is considered
to have been made. First National and Gudenau jointly had
control of the check, and so they could not use that control to
render the payment late for purposes of the agreement. See TSB
Exco, Inc. v. E.N. Smith, III Energy Corp., 818 S.W.2d 417 (Tex.
App. 1991), overruled on other grounds, 1991 Texas App. LEXIS
2210 (finding timely payment based on delivery date of checks,
even though payees did not deposit them); cf. Klondike Indus.
Corp. v. Gibson, 741 P.2d 1161, 1167 (Alaska 1987) (holding that
when one party's bad-faith actions contribute to another party's
failure to comply with a condition in their contract, the
condition is excused).3
2. Maritime Liens
Gudenau also claims that Bierria defaulted by violating
the prohibition on liens in Term 16 of the sales agreement.4 In
order to finance the repair of the boat's engine, Bierria had to
borrow money from ISA, and the agreement between Bierria and ISA
listed the boat as collateral. Bierria's failure to make his
insurance payments on time created a maritime lien as well.
Bierria argues that this term should not be read
literally, and that there is no default unless Bierria fails to
timely discharge the lien. He notes that the agreement obligated
him to fish the vessel, and that he could not fish the vessel
without incurring liens for crew and other necessities. Because
Gudenau did not give Bierria notice that Term 16 had been
violated and thirty days to cure, we need not decide how strictly
Term 16 ought to be interpreted: it was not a basis for
Gudenau's repossession.
3. Good Faith
The superior court found that Gudenau "breached his
obligation of good faith,"although it cited no specific examples
of bad faith. Gudenau challenges that finding on appeal. As
Bierria correctly notes, however, the issue of good faith is not
relevant to the basic question of whether there was a default
without a cure.
II. DID THE SUPERIOR COURT ERR WHEN IT ORDERED GUDENAU TO
REDELIVER THE VESSEL TO BIERRIA?
Gudenau objects to the superior court's award of
specific performance. He states that because he had fully
performed his obligations under the sales agreement, Bierria
should have brought an action for wrongful repossession rather
than one for breach of contract. He does not explain, however,
why Bierria would not be entitled to the vessel in an action for
wrongful repossession. In fact, he cites AS 45.09.507(a), under
which "disposition may be ordered or restrained on appropriate
terms and conditions"if the secured party has acted improperly.
This suggests that Bierria's rights are similar in either event.
Gudenau's second argument against specific performance
is that "Bierria has yet to establish that he continued to be
ready, willing, and able to perform under the Sales Agreement."
Though Bierria owed significant sums of money at the time the
dispute arose, his next payment under the contract would have
been one year later, and in the amount of $18,000. Given his
expression of willingness to continue under the contract, a
conclusion that he would have been unable to pay after another
summer of fishing would be too speculative. The superior court
found that Bierria had shown probable income of $115,680.50
during the 1988 season.
Gudenau's final argument against specific performance
is that the collateral is not "sufficiently unique"to warrant
specific performance, and he particularly objects to the fact
that the superior court decided this issue during Bierria's case
in chief, so that Gudenau was not able to put on proof as to this
issue. Bierria cites federal authority holding that a vessel is
considered unique as a matter of maritime law. See Plancich v.
M/V Rodsand, 1986 A.M.C. 2874, 2884 (E.D. Va. 1984).
Although the law does not appear to be as clear as
Bierria suggests,5 Gudenau's briefs do not respond to this
argument. Moreover, the superior court found that return of the
vessel would mitigate damages and put the parties closer than
damages would to the positions they were in before breach. We
decline to hold that the superior court exceeded the wide
latitude that Alaska law gives it to fashion relief for wrongful
repossession. See AS 45.09.507(a) (stating that "disposition may
be ordered or restrained on appropriate terms"when the secured
party proceeds improperly against the collateral); cf. AS
45.02.716(a) (allowing specific performance of contracts for the
sale of goods "where the goods are unique or in other proper
circumstances").
III. WAS THE SUPERIOR COURT'S CALCULATION OF DAMAGES CLEARLY
ERRONEOUS?
Gudenau argues that the superior court made a number of
errors in calculating damages. Gudenau's first objection
pertains to attorney's fees: he argues that the superior court
could have awarded them only under Alaska Civil Rule 82. The
superior court, however, correctly followed Term 23 of the sales
agreement, which specifically provides for reasonable attorney's
fees.
Gudenau also argues that it was incorrect to award
damages for the 1988 and 1989 fishing seasons, because projecting
Bierria's profits was too speculative. He observes that Bierria
operated at a loss in 1986 and 1987. The superior court heard
testimony from a number of experts, however, at least one of whom
was familiar with the Ivanof II.6 Thus, review of the record
persuades us that the superior court's findings are not clearly
erroneous.
Gudenau's final objection to the damage award is that
the superior court should not have awarded $32,000 for equipment
lost or damaged during Gudenau's repossession, on the basis that
the figure assumed the vessel was in excellent condition when
repossessed. Yet Gudenau points to no damage that predated his
repossession. Instead, he asserts the damage "should have been
offset against the gross proceeds which Bierria claims he would
have received through a bare boat charter to a permit holder."
He cites no law in support of the argument. We therefore
conclude that the superior court did not commit error by ordering
Gudenau to pay for the damage it found that he caused.
CONCLUSION
We AFFIRM the decision of the superior court.
_______________________________
1 See AS 45.03.110(d) ("If an instrument is payable to
two or more persons not alternatively, it is payable to all of
them and may be negotiated, discharged, or enforced only by all
of them.").
2 The stipulated facts do not discuss the exact date on
which Gudenau received the check, nor does Gudenau's affidavit.
Gudenau has not asserted that the check arrived after thirty days
had passed, and so he has waived any such argument, regardless of
when it actually arrived.
3 Gudenau complains that it was not the actions of
"Gudenau and First National"that caused the delay, but rather
solely those of First National, since he was willing to deposit
the check. Nonetheless, since the stipulation of undisputed
facts indicates that the same check that was sent initially was
the one deposited, under AS 45.03.310 payment was timely in any
event, because what controls is the date on which Gudenau first
had possession of the check that was ultimately credited to his
account.
4 Term 16 of the agreement reads:
16. Liens. Buyer shall neither
incur nor permit any maritime liens or other
encumbrances against the vessel other than
for salvage until the purchase price is paid
in full and shall not remove or deface any
notice that may be posted on the vessel by
Seller as evidence of said obligation.
5 Generally, specific performance is warranted when money
damages are inadequate. Carcione v. Clark, 618 P.2d 346, 348
(Nev. 1980). As both sides in this case acknowledge, the modern
trend has been to relax this requirement. See U.C.C. 2-716 &
cmt. 1 (1989) (U.C.C. revised in an effort "to further a more
liberal attitude"with regard to specific performance).
Bierria cites to Plancich alone as evidence of the
"principle of maritime law." The instant case, of course, is not
a maritime case. A federal district court sitting in admiralty
jurisdiction, in fact, would not have jurisdiction to hear a
lawsuit seeking specific performance of a sales contract. See
Flota Maritima Browning de Cuba, S.A. v. Snobl, 363 F.2d 733, 735
(4th Cir.), cert. denied, 385 U.S. 837 (1966); International
Shipping Co., S.A. v. Hydra Offshore, Inc., 675 F. Supp. 146, 151
(S.D.N.Y. 1987), aff'd, 875 F.2d 388 (2d Cir.), cert. denied, 493
U.S. 1003 (1989); Grand Banks Fishing Co. v. Styron, 114 F. Supp
1, 3 (D. Me. 1953). An action for wrongful repossession is much
closer to a suit for specific performance of a sales contract
than to a traditional maritime action.
Although the parties do not explicitly discuss the
general availability of specific performance in suits for
possession of vessels, courts do consider specific performance as
a remedy in such suits. See, e.g., Clem Perrin Marine Towing,
Inc. v. Panama Canal Co., 730 F.2d 186, 191 (5th Cir.), cert.
denied, 469 U.S. 1037 (1984); R.C. Craig Ltd. v. Ships of the Sea
Inc., 345 F. Supp. 1066 (S.D. Ga. 1972) (denying summary judgment
against a ship buyer seeking specific performance); Miller Yacht
Sales, Inc. v. Scott, 311 So. 2d 762, 763 (Fla. App. 1975)
(finding specific performance inappropriate because the injured
party had already received liquidated damages), cert. denied, 328
So. 2d 843 (Fla. 1976). On the other hand, some courts have
considered specific performance to be appropriate only for
special boats. See, e.g., Fast v. Southern Offshore Yachts, 587
F. Supp. 1354, 1357 (D. Conn. 1984) (specific performance of the
vessel was "clearly warranted, as the customized yacht is
undeniably unique"); Kawa Leasing, Ltd. v. Yacht Sequoia, 544 F.
Supp. 1050, 1069 (D. Md. 1982) (ordering specific performance
"because of her uniqueness (she is, after all, the only
Presidential yacht this nation has ever had)").
6 This included testimony by Anita Stewart-Brechan, the
business agent of the person who fished the Ivanof II during the
1988 season, and Pershing Hill, a Ph.D. in economics with 15
years experience as a commercial fisher. Mr. Hill testified that
he had calculated Bierria's expected gross revenues for 1988 by
looking at his shares of past harvests, and then assuming a
similar share of future harvests, and multiplying the projected
total catch by the actual price per pound. This is not "wild
speculation."
Nor do we agree with Gudenau's reading of State v.
Stanley, 506 P.2d 1284, 1293 (Alaska 1973). Gudenau implies that
in Stanley we found loss-of-use damages to be too speculative
categorically. Although we upheld the lower court's holding that
after a certain number of years such damages would be
speculative, we also approved the court's decision to award
damages for the first 18 months of lost use. Id. at 1293 & n.18.
It is therefore curious to rely on Stanley to say that loss-of-
use damages are so inherently speculative that it was clearly
erroneous in this case for the superior court to award them for
the period immediately following repossession.
]]>
