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Nautilus Marine Enterprises v. Valdez Fisheries Development Ass'n. (8/15/97), 943 P 2d 1201
Notice: This opinion is subject to formal correction before
publication in the Pacific Reporter. Readers are requested to bring errors to the
attention of the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska
99501, phone (907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
NAUTILUS MARINE ENTERPRISES )
) Supreme Court No. S-7125
) Superior Court No.
v. ) 3VA-93-105 CIV
VALDEZ FISHERIES DEVELOPMENT )
ASSOCIATION, a non-profit ) O P I N I O N
Alaska corporation, )
) [No. 4868 - August 15, 1997]
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Valdez,
Glen C. Anderson, Judge.
Appearances: Phillip Paul Weidner, Weidner &
Associates, Inc., Anchorage, and Edward P. Weigelt, Jr., Hutchison,
Foster & Weigelt, Lynnwood, Washington, for Appellant. Stephen
McAlpine, Law Offices of Stephen McAlpine, Anchorage, for Appellee.
Before: Compton, Chief Justice, Rabinowitz,
Matthews, Eastaugh, and Fabe, Justices.
COMPTON, Chief Justice.
Nautilus Marine Enterprises, Inc. appeals from a judgment
entered on a jury verdict awarding damages to Valdez Fisheries
Development Association under a contract to buy and sell pink
salmon. We affirm.
II. FACTS AND PROCEEDINGS
Nautilus Marine Enterprises, Inc. (Nautilus) and Valdez
Fisheries Development Association (VFDA) entered into a contract
for the purchase of pink salmon during the 1993 commercial fishing
season. Under this contract, VFDA would sell, and Nautilus would
buy, up to 50,000 fish a day. This mutual obligation to sell and
buy was subject to a higher bidder's priority right to buy 50,000
pounds of fish per day from VFDA. Once this priority was met,
Nautilus would then be entitled to up to 50,000 fish a day. [Fn. 1]
VFDA agreed to provide "up to 50,000 fish per day . . . as
available."The contract recognized that VFDA "cannot guarantee the
time, numbers, and quality of the fish returning."
The contract provided that Nautilus would pay VFDA within
forty-eight hours of its receipt of a given day's fish ticket or
invoice, and that a failure to make such payment within forty-eight
hours would "constitute grounds for suspension or termination of
this contract until the problem is resolved . . . ."
On July 1, a dispute arose over payment for fish
delivered on June 29. VFDA accepted a $16,624.34 check from
Nautilus for these fish. VFDA's accountant then either called or
went to Nautilus's bank and was told that there were not sufficient
funds in Nautilus's account to pay the check. VFDA suspended
deliveries to Nautilus for that day. The check was presented to
the bank late in the afternoon of July 1, and was honored.
Deliveries recommenced on July 2.
Nautilus alleged that delivery shortages occurred over
the next two weeks, basing this allegation on estimates VFDA
provided the Alaska Commercial Fisheries Entry Commission and
Department of Fish and Game. At the end of the contract period,
Nautilus took a $32,418.37 offset against a portion of the purchase
and sale price. VFDA disputed Nautilus's right to take this
offset. It sued Nautilus for payment due under the contract.
Nautilus counterclaimed against VFDA, alleging breach of contract.
At trial, Nautilus argued that the contract was an output
contract, and that evidence regarding harvest quantity estimates
and historical projections should be admitted to show that VFDA's
actual harvest was unreasonably small, given the commercial
expectations of the parties. The superior court sustained an
objection to the admission of this evidence. It concluded that the
contract unambiguously defined the parties' obligations, that
extrinsic evidence regarding the parties' expectations was
therefore unnecessary, and that the jury need only be instructed on
an integrated contract.
The superior court instructed the jury on VFDA's
obligation of good faith and fair dealing in satisfying the
The law imposes a covenant of good faith and
fair dealing in every contract. This covenant cannot be disclaimed
or waived by the parties. The covenant of good faith applies to
all aspects of the contract, including its performance and
enforcement. Good faith means honesty in fact. Good faith and
fair dealings also mean that the parties must adhere to reasonable
commercial standards and commercial reasonableness. However, if
reasonable commercial standards and commercial reasonableness
appear to conflict with the express terms of the parties' contract,
the express terms of the contract control.
The jury found against Nautilus on VFDA's claim for money
due under the contract, awarded VFDA $33,243.55, and denied
Nautilus any recovery on its counterclaim.
Nautilus raises several issues on appeal. First,
Nautilus contends that the superior court erroneously concluded
that the contract was not an output contract. Nautilus argues that
because the contract was an output contract, evidence regarding
VFDA's harvest quantity estimates and historical projections was
wrongfully excluded, since such evidence would have been relevant
in determining whether VFDA's output was reasonable, given the
parties' commercial expectations. Second, Nautilus argues that the
superior court erroneously instructed the jury on the effect of
acceptance of a check on an underlying contractual obligation.
Third, Nautilus claims that the jury's decision not to award
damages for underdelivery of salmon was unsupported by the
evidence. Finally, Nautilus argues that the jury erred in
calculating the damages due VFDA.
A. Output Contract/Excluded Evidence
The superior court concluded that the contract was not an
output contract under AS 45.02.306(a). [Fn. 2] It also concluded
that whether or not the contract was an output contract, the
evidence VFDA sought to admit was not relevant. Because VFDA's
output in 1993 was considerably less than VFDA's estimates based on
historical output, Nautilus contends that VFDA should be liable to
it for this allegedly unreasonable disproportionality.
Under the contract, VFDA was obligated to sell Nautilus
50,000 pink salmon, "as available,"after the first 50,000 pounds
were sold to the highest bidder. If no fish were available, VFDA's
obligation was zero.
Nautilus's argument that the evidence it proffered was
relevant in determining whether the amount of fish provided by VFDA
was unreasonably disproportionate to the commercial expectations of
the parties is unpersuasive. [Fn. 3] As the superior court
observed, "the terms of the contract in this case define the
obligations of the parties. And nothing that I see in that
contract calls . . . these numbers, the VFDA projections, into that
calculation." While it is true that VFDA's projections were
contained in its solicitation for bid proposals, [Fn. 4] these
projections do not appear in the contract itself, and quantity
issues are dealt with fully in the integrated contract. [Fn. 5]
The contract states a maximum limit on VFDA's obligation
to Nautilus: 50,000 fish per day "as available." It also clearly
states that, due to "the nature of salmon returning to a fishery,"
VFDA "cannot guarantee the time, numbers, and quality of the fish
returning." These provisions demonstrate that the parties
understood that the number of fish available on any given day could
reasonably vary anywhere between a minimum of zero fish to a
maximum of 50,000 fish per day, since VFDA's obligation depended on
The admissibility of extrinsic evidence hinged on whether
the contract defined the parties' commercial expectations as to
quantity. Because the contract contained limits on the parties'
expectations on quantity, evidence of estimates, projections, and
historical output was irrelevant, and therefore properly excluded
by the superior court. [Fn. 6]
B. Acceptance and Presentment Jury Instruction
Nautilus contends that the superior court erred in
instructing the jury on "the suspension of underlying contractual
obligations upon acceptance of a check pending its presentment and
honor or dishonor by the drawee bank."[Fn. 7] Nautilus argues
that its obligation to pay VFDA should have been suspended upon
VFDA's acceptance of the check, until such time as VFDA actually
presented the check for payment by Nautilus's bank and payment was
The challenged portion of the instruction reads:
Acceptance of a check . . . does not suspend
the underlying obligation if the party signing the check (the
"drawer") has no reason to expect or right to require that the
instrument be accepted as paid. In these circumstances presentment
of the check is entirely excused. The drawer has no right to
require that a check be accepted or paid by a drawee bank where it
has insufficient funds on account to pay the check and has not
established credit with the drawee bank to assure payment.
Former AS 45.03.511 reads in part:
(b) Presentment . . . is entirely excused if
. . . .
(2) the party has dishonored the instrument
or has countermanded payment, or otherwise has no reason to expect
or right to require that the instrument be accepted or paid . . .
AS 45.03.511 (repealed sec. 127 ch. 35 SLA 1993 (effective January
1994)). While the wording of the jury instruction differs from
that of the statute in small ways, the concepts expressed are
substantially the same. The instruction provided the jury with a
correct statement of the law it was to apply.
C. Jury Finding on Underdelivery
Nautilus contends that the jury erred in not awarding
Nautilus damages for underdelivery, as no evidence supported the
jury's decision. [Fn. 8] It argues that the jury should have
awarded damages as calculated in defendant's exhibit WWW, because
this exhibit "was revised to reflect the VFDA's testimony and
While Nautilus may have prepared exhibit WWW in response
to numerous inaccuracies in its evidence, pointed out by a VFDA
witness at trial, that does not compel the conclusion that exhibit
WWW is VFDA's own assessment of the damages Nautilus was due. The
issue of damages remained contested in its entirety throughout the
trial. The jury heard conflicting testimony regarding Nautilus's
anticipated profits and the price Nautilus would have been likely
to command from its customers. The alleged underdeliveries were
themselves disputed, with VFDA claiming that Nautilus in fact had
rejected the fish it offered. In short, the evidence regarding
damages does not compel any one conclusion. The jury could have
concluded that Nautilus's evidence of damages was speculative. We
find no error in the jury's failure to award damages for
D. Calculation Error
Nautilus argues that the jury erred in calculating the
amount due VFDA under the contract, and that the actual award
should have been $32,418.37, not $33,243.55. VFDA concedes this
point. The award therefore should be reduced by this amount on
The judgment of the superior court is AFFIRMED, except as
to the calculation error in the jury award, which is REMANDED for
The highest bidder contracted with VFDA for the
purchase of pounds of fish. Nautilus contracted with VFDA for the
purchase of numbers of fish.
An output contract measures the quantity of goods to be sold
by the output of the seller. AS 45.02.306(a) provides:
A term which measures the quantity by the
output of the seller or the requirements of the buyer means such
actual output or requirements as may occur in good faith, except
that no quantity unreasonably disproportionate to a stated estimate
or, in the absence of a stated estimate, to a normal or otherwise
comparable prior output or requirements may be tendered or
The standard of review for the superior court's
evidentiary rulings is abuse of discretion. Buster v. Gale, 866
P.2d 837, 841 n.9 (Alaska 1994).
VFDA's bid proposal stated:
VFDA is soliciting proposals for the sale of
pink salmon. Approximately 2,265,000 pink salmon, or 7 million
pounds are being offered between June 25th and July 20th.
The integration clause stated:
This instrument is intended by the
parties as a final expression of their agreement and as a complete
and exclusive statement of its terms. This agreement can only be
modified in writing signed by the authorized agents of each party.
Even were we to conclude that the superior court
erred in determining this was not an output contract, the evidence
would still be inadmissible. The Uniform Commercial Code sec. 2-
envisions that output contracts may contain estimates of output in
order to define reasonable variations in the actual output. (AS
45.02.306 is identical to UCC sec. 2-306.) The contract provided
0 - 50,000 fish "as available." The elasticity of such an output
contract, with a defined range, would be more narrow than a
standard output contract. See UCC sec. 2-306, cmt. 3 ("Any minimum
maximum set by the agreement shows a clear limit on the intended
elasticity."). Were this an output contract, evidence of
commercial expectations, based on output from prior years, or on
estimates for the year at issue, would be irrelevant because the
parties' expectations would be defined by the terms of the
contract. Further, Nautilus cannot argue VFDA failed to deliver
fish that were "available"under the contract. The jury
specifically found against Nautilus on its claims that VFDA had
failed to deliver fish quantities as required under the contract.
See Section III.C. below.
Jury instructions that involve rules of law are
reviewed de novo, but error in such instructions will not be
grounds for reversal if harmless. Aviation Assocs., Ltd. v. Temsco
Helicopters, Inc., 881 P.2d 1127, 1130 n.4 (Alaska 1994).
A jury's verdict will be overturned if there is no
evidence supporting the verdict. Municipality of Anchorage v.
Baugh Constr. and Eng'g Co., 722 P.2d 919, 927 (Alaska 1986).