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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Commercial Recycling Center, LTD v. Hobbs Industries, Inc. (4/9/2010) sp-6468
Notice: This opinion is subject to 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,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| COMMERCIAL RECYCLING | ) |
| CENTER, LTD., an Alaska Limited | ) Supreme Court No. S-12616 |
| Partnership, and GREGORY | ) |
| TIPLADY, | ) Superior Court No. 3AN-99-5406 CI |
| ) | |
| Appellants, | ) O P I N I O N |
| ) | |
| v. | ) No. 6468 April 9, 2010 |
| ) | |
| HOBBS INDUSTRIES, INC., an | ) |
| Alaska corporation, HOBBS | ) |
| INDUSTRIES, a Washington | ) |
| corporation, SLANA ENERGY, INC., | ) |
| an Alaska corporation, ALASKA | ) |
| STEAM & DIESEL, INC., a | ) |
| Washington corporation, CASTLE | ) |
| MOUNTAIN MINING CO., LTD., | ) |
| AUSTIN R. HOBBS, and LORI L. | ) |
| HOBBS, | ) |
| ) | |
| Appellees. | ) |
| ) | |
Appeal from the
Superior Court of the State of Alaska, Third
Judicial District, Anchorage, John E. Reese
and Craig Stowers, Judges.
Appearances: Kenneth P. Jacobus, Kenneth P.
Jacobus, P.C., Anchorage, for Appellants.
Robert K. Reiman, Law Offices of Robert K.
Reiman, Anchorage, for Appellees.
Before: Fabe, Chief Justice, Eastaugh,
Winfree, and Christen, Justices. [Carpeneti,
Justice, not participating.]
FABE, Chief Justice.
I. INTRODUCTION
In 1996 the shareholders of Hobbs Industries, Inc.
signed a buyout agreement under which James Cucullu and Gregory
Tiplady sold their shares to Austin and Lori Hobbs. The Hobbses
experienced difficulty fulfilling the terms of the buyout almost
immediately. In 1998 Cucullu and Tiplady sent the Hobbses a
letter declaring a rescission of the buyout agreement. Cucullu
and Tiplady then sold their reclaimed shares in Hobbs Industries,
Inc. to Commercial Recycling Center, Ltd. Commercial Recycling
Center, Ltd. sued Austin and Lori Hobbs for an order establishing
its ownership in Hobbs Industries, Inc. and for damages,
including punitive damages; Tiplady was later added as a
plaintiff. The superior court concluded that Cucullu and Tiplady
were not entitled to rescission of the buyout agreement. It also
found the Hobbses liable to Commercial Recycling Center, Ltd. for
the value of Cucullus and Tipladys shares provided in the
original buyout agreement. Commercial Recycling Center, Ltd. and
Tiplady appeal.
We conclude that Cucullu and Tiplady did not legally
rescind their agreement with the Hobbses and were not entitled to
equitable rescission on a failure of consideration theory. We
also conclude that the superior court properly valued the shares
of Hobbs Industries, Inc. in determining the damages for the
Hobbses breach of the buyout agreement. We thus affirm these
aspects of the superior courts judgment. But we conclude that it
was error to dismiss, sua sponte, the breach of fiduciary duty
claim for equitable rescission on summary judgment, and we remand
for further proceedings relating to this claim.
II. FACTS AND PROCEEDINGS
A. Facts
Hobbs Industries, Inc. (HIAK), an Alaska corporation,
was incorporated in 1988 in connection with the pursuit of work
related to the federal governments Over the Horizon Backscatter
project, which had been awarded to Slana Energy, Inc., a
corporation owned in part by Austin Hobbs. HIAKs shareholders
were Austin Hobbs, Lori Hobbs, Gregory Tiplady, and James
Cucullu. Cucullu and Tiplady worked for HIAK, which was one of
the principal subcontractors on the Over the Horizon Backscatter
project. But in 1992, the federal government terminated the
project before completion. HIAK stopped operating as a
construction company and thereafter focused on pursuing
termination expenses for the project. Cucullu and Tiplady left
the employment of HIAK as there was no longer a source of income
from which they could be paid. At the time the federal project
was terminated, HIAK had invested a significant amount of money
to acquire and develop the Knik Arm Power Plant and two coal
mines. One of these coal mines was transferred to another
business, Nerox, and litigation ensued between HIAK and Nerox on
that transfer.
HIAKs close-out of the federal project did not go
smoothly, and after several years of escalating conflicts over
management and ownership of shares, a special meeting of the
board of directors of HIAK took place on September 25, 1996. At
the meeting, the Hobbses, Cucullu, and Tiplady came to an
agreement concerning their ownership interests in HIAK and the
proposed settlement with Nerox. The four shareholders entered
into a consent resolution that set out terms and conditions for a
buyout by the Hobbses of Cucullus and Tipladys ownership shares
in HIAK. This buyout agreement contained several terms,
including: (1) payment to Cucullu for his shares in HIAK at a
price of $40,000 plus interest; (2) payment to Tiplady for his
shares in HIAK at a price of $24,000 plus interest; (3) an
increase in the buyout price for Cucullu and Tiplady if by
independent appraisal it is demonstrated that their respective
share of the liquidated value of the [c]orporation is higher
[than the agreed-upon amount]; (4) an assurance that the payment
obligations would be personally guaranteed by Austin and Lori
Hobbs as well as secured by the major assets of HIAK, including
the Knik Arm Power Plant and equipment, an Alaska Railroad land
lease, and a 1989 Chevrolet pickup; (5) payment to both Tiplady
and Cucullu of a portion of the forthcoming settlement with Nerox
in accordance with respective shareholder interests at the time
of the buyout; and (6) a full release of all present and future
claims.
The Hobbses began experiencing difficulty fulfilling
the payment terms of the buyout almost immediately after the
signing of the agreement. In addition, the settlement with Nerox
fell through. The Hobbses kept Cucullu and Tiplady informed
about HIAKs failure to produce the income needed to fulfill the
buyout agreement, but neither Cucullu nor Tiplady indicated
dissatisfaction with the delay of the payment schedule required
in the 1996 buyout agreement.
In a letter dated June 22, 1998, Cucullu and Tiplady
unilaterally declared a rescission of the 1996 buyout agreement.
The letter noted that the Hobbses had failed to perform any of
the terms and conditions of the agreement and accused the Hobbses
of breaching fiduciary duties owed to Cucullu and Tiplady.
Cucullu and Tiplady then sold their putative shares in HIAK to
Commercial Recycling Center, Ltd. (CRC).
B. Proceedings
In March 1999 CRC filed a complaint against Austin and
Lori Hobbs, HIAK, and several other defendants, seeking an order
establishing CRCs ownership of sixty-five percent of HIAK, a full
accounting of all of HIAKs finances, and various money judgments,
including punitive damages against the Hobbses. Tiplady was
added as a plaintiff in CRCs second amended complaint. In April
2002 CRC1 filed a motion for summary judgment, arguing that
Cucullu and Tiplady had rescinded the buyout agreement and
seeking an order acknowledging the rescission. CRC claimed that
it was entitled to rescission of the buyout agreement primarily
because the Hobbses had failed to perform and also because the
Hobbses had breached their fiduciary duty to Cucullu and Tiplady.
The Hobbses opposed the motion.
In May 2002 Superior Court Judge John E. Reese agreed
with the Hobbses and denied CRCs motion for summary judgment,
ruling that Cucullu and Tipladys 1998 letter claiming rescission
of the buyout agreement was ineffective. Judge Reese then sua
sponte granted summary judgment in favor of the Hobbses on the
question whether rescission could be an appropriate remedy
without addressing the breach of fiduciary duty claims. Judge
Reese concluded that the only remaining claims were Cucullus and
Tipladys claims for breach of the buyout agreement. CRC filed a
motion for reconsideration, which was denied.
Superior Court Judge Craig Stowers took over the case
after Judge Reese retired. In early April 2006, a three-day
bench trial was held on the remaining issues surrounding the 1996
buyout agreement. In December 2006, after concluding that Judge
Reeses ruling denying CRCs claim for rescission was the law of
the case, Judge Stowers issued a decision that made several
findings.
First, the superior court found that the Hobbses
knowingly breached the 1996 buyout agreement and failed to
properly secure [CRCs] interests in the assets owned by HIAK.
Second, the superior court rejected CRCs argument that it should
shift the burden of proof to the Hobbses on the question of the
liquidation value of HIAK on the date of the buyout agreement
based on a finding of spoliation of evidence. Third, the
superior court rejected CRCs argument that it should treat the
business valuation of CRCs expert as an independent appraisal
requiring an increase in the buyout price of Cucullus and
Tipladys shares.
In January 2007 the superior court issued a written
order finding that HIAK and Austin and Lori Hobbs were liable to
CRC for $64,000.00, the amount described in the buyout agreement,
plus $33,060.82 in prejudgment interest. CRC appeals Judge
Reeses order granting summary judgment to the Hobbses on the
question whether the remedy of rescission is available to CRC and
Judge Stowerss order valuing HIAK based upon figures provided in
the buyout agreement.
III. STANDARD OF REVIEW
We review a grant of summary judgment de novo and
affirm if the evidence in the record fails to disclose a genuine
issue of material fact, and the moving party is entitled to
judgment as a matter of law.2 We view the facts in the light
most favorable to the non-moving party, and apply our independent
judgment to any questions of law, adopting the rule of law that
is most persuasive in light of precedent, reason, and policy.3
Issues of corporate valuation . . . present fact
questions.4 We will set aside a superior courts factual
determination only upon a finding of clear error.5 A factual
determination is clearly erroneous if it is unsupported by the
record, or we are left with a definite and firm conviction . . .
that a mistake has been made.6
IV. DISCUSSION
A. CRCs Claims for Rescission of the Buyout Agreement
In a letter dated June 22, 1998, Cucullu and Tiplady
unilaterally declared a rescission of the 1996 buyout agreement,
then sold their putatively reclaimed shares of HIAK to CRC. In
April 2002 CRC filed a motion for summary judgment, primarily
arguing that because the Hobbses had failed to perform as
required under the buyout agreement, Cucullu and Tiplady had
effectively rescinded that agreement. The Hobbses opposed this
motion. In a single order, the superior court denied CRCs motion
for summary judgment and, sua sponte, granted summary judgment to
the Hobbses on the question of rescission. Judge Reese concluded
that the 1998 rescission declaration was ineffective, that
rescission was an inappropriate remedy in the case, and that the
only remaining claim in the case was a damages claim for breach
of the 1996 buyout agreement. CRC filed a motion for
reconsideration, arguing, among other things, that because
questions of fact remained on its claim of breach of fiduciary
duty including whether the Hobbses acted in good faith and
whether the buyout agreement was based on a full disclosure of
relevant information the defendants were not entitled to summary
judgment on the issue of whether rescission was an appropriate
remedy. Judge Reese denied reconsideration.
We first address CRCs argument that Cucullu and
Tipladys 1998 rescission declaration legally rescinded their
agreement with the Hobbses. Because of the Hobbses alleged
failure of consideration, CRC claims that Cucullu and Tiplady had
the right to rescind the buyout agreement and that [t]he
rescission declaration should have been deemed by the trial court
to be effective . . . .
As we have explained, [r]escission at law is a suit
based upon rescission already accomplished . . . [in which] the
court has nothing to do with the rescission itself.7 Rescission
at law occurs where at least one of the parties to a contract
rescinds the contract and then turns to a court for enforcement
of that rescission and an award of damages.8 We have never held,
however, that one party to a contract has a right to unilaterally
rescind that contract.
One maxim of contract law is the notion that competent
parties are free to make contracts and that they should be bound
by their agreement.9 Thus, [a]s a matter of judicial policy, we
seek to maintain and enforce contracts, rather than enable
parties to escape from the obligations they have chosen to incur.10
One partys failure to perform under a contract gives an injured
party who has not already performed a right of non-performance,11
and it gives an injured party who has already performed a right
to sue for a breach of contract remedy. It does not give the
injured party a right to unilaterally nullify the contract.
Unless contracting parties themselves agree that either party may
unilaterally rescind the contract, they have no right to
unilateral legal rescission. Because Cucullu and Tiplady had no
right to unilaterally rescind their buyout agreement with the
Hobbses, their 1998 rescission declaration did not effect legal
rescission of that agreement.
We next turn to CRCs claims for equitable rescission of
the buyout agreement. Unlike rescission at law, rescission in
equity occurs only upon a courts decree.12 In those cases, the
court must intervene both to rescind the agreement and to award
damages.13
1. The superior court did not err in granting summary
judgment on the issue of failure of consideration.
CRCs first claim for equitable rescission is based on
the Hobbses failure to meet their obligations under the
agreement. CRC maintains that not even one of the terms of the
[buyout] agreement had been complied with by [the Hobbses],
resulting in a complete failure of consideration. CRC argues
that rescission is the only adequate remedy for the Hobbses
failure of consideration and therefore that the superior court
was required to equitably rescind the buyout agreement.
Distinct from lack of consideration,14 failure of
consideration occurs when, after an agreement is properly formed,
one or both parties fail to deliver the essence of the promised
performance.15 In other words, [f]ailure of consideration is
essentially identical to lack of substantial performance.16 The
superior court acknowledged the Hobbses failure to perform when
it found that [i]t is undisputed that [the Hobbses] had not
fulfilled [their] obligations to Cucullu or Tiplady in 1998.17
As we have held before, in cases of total failure of
consideration, an injured party may be entitled to equitable
rescission of the contract and restitution of benefits conferred
on the breaching party.18 The Restatement of Contracts indicates,
however, that this principle of contract law has one major
exception: where the injured party has performed all of his
contractual duties and the only performance due by the breaching
party is a definite money payment, the injured party is not
entitled to rescission and restitution.19 This rule is consistent
with the general tenet that, although a court often orders
equitable rescission as a remedy where it must unmake a contract
induced by mistake, fraud, or duress,20 it usually prefers
monetary compensation as a remedy for breach of contract.21 CRC
is not entitled to equitable rescission on a failure of
consideration theory as a matter of law and, for this reason, the
superior court correctly denied CRCs motion for summary judgment.
2. It was error to grant summary judgment on the
issue of breach of fiduciary duty.
At the time it denied CRCs motion for summary judgment,
the superior court sua sponte granted summary judgment to the
Hobbses on the broader question whether equitable rescission
could be an appropriate remedy in the case under any theory. In
doing so, the superior court decided CRCs second claim for
equitable rescission, which was based on a theory of breach of
fiduciary duty. CRCs second amended complaint included
allegations that Cucullu and Tiplady under duress were offered .
. . to have their interest in HIAK purchased and that the Hobbses
breached their fiduciary duties. The complaint further alleged
that the buyout agreement was unenforceable because of coercion
in the inducement and concealment of pertinent facts as to the
company assets and the dealings of the company.
After the superior court granted summary judgment to
the Hobbses, CRC filed a motion for reconsideration arguing that
factual questions remained as to whether the buyout agreement was
based on full disclosure of relevant information and executed in
good faith.22 CRC pointed to evidence and documents filed in
support of its motion, including testimony from both Cucullu and
Tiplady that significant relevant information was withheld from
their use throughout their stock ownership in HIAK, including at
the time of the buyout agreement. CRC noted that the court has
received the transcribed testimony of Randy Hobbs admitting to
bad faith conduct involving the sale of assets offered to secure
the buyout agreement without returning any of the monies from
such sale to the minority shareholders. For these reasons, CRC
argued that the superior courts sua sponte decision to grant
summary judgment in favor of the Hobbses was improper. The
superior court denied CRCs motion with a brief explanation that
did not address the breach of fiduciary duty claim itself.23
On appeal, CRC renews its complaint that the superior
court erred by granting summary judgment to the Hobbses without
ever addressing the breach of fiduciary duty claim. CRC
maintains that the evidence it presented to the superior court
raises a question of fact concerning whether the Hobbs Industries
defendants have acted in good faith [or] in breach of their
fiduciary duty. The Hobbses respond that any claims of non-
disclosure . . . were released in the 1996 settlement agreement
and cannot be a basis for rescission of that agreement. The
Hobbses also argue that CRCs sale of assets claim is not for
breach of fiduciary duty because after the buyout agreement was
signed, the Hobbs[es] were no longer in a fiduciary relationship
with Cucullu and Tiplady.
CRCs initial motion for summary judgment, the Hobbses
opposition, and CRCs reply did not focus on CRCs breach of
fiduciary duty claim. Instead, the parties primarily briefed and
argued the question of failure of consideration. But CRCs motion
for summary judgment also based its claim for rescission of the
agreement on a breach of fiduciary duty, specifically alleging
that the Hobbses never had any intent to fulfill the buyout
agreement and that [t]heir sole aim was to obtain the outstanding
shares to control the corporation as they saw fit without
providing any remuneration to Cucullu or Tiplady. The superior
court failed to address the merits of either partys arguments
regarding the breach of fiduciary duty claim.24 We have held that
shareholders in a closely held corporation are fiduciaries to one
another.25 Where a fiduciary induces a contract by unfair
persuasion, he or she breaches this fiduciary duty, and under
some circumstances, that contract is voidable by the victim of
the breach.26 Because the superior court failed to consider the
question whether CRC was entitled to equitable rescission based
on its claim of breach of fiduciary duty, we remand for
consideration of that issue.
B. The Superior Court Did Not Err in Using the Figures
Provided in the Buyout Agreement for the Valuation of
HIAK.
The 1996 buyout agreement required the Hobbses to
automatically increase the cash buy back price to [Cucullu] and
[Tiplady] if by independent appraisal it is demonstrated that
their respective share of the liquidated value of the
[c]orporation is higher . . . . At trial, CRC presented
testimony from Stephen Sheaffer, a CPA hired by CRC during
litigation to conduct an appraisal of HIAK as of September 25,
1996, the date of the buyout agreement.
The superior court found that there was no term in the
agreement regarding who had the obligation or the duty to perform
the independent appraisal and that any of the parties could have
demanded that an independent appraisal be done but that nobody
did on a timely basis. While acknowledging the business
valuation later performed by Sheaffer, the superior court found
that because the valuation was not timely and was not an
independent appraisal of liquidation value as contemplated by the
buyout agreement, the Hobbses were liable to CRC for the amount
specified in the buyout agreement: $40,000 to Cucullu and $24,000
to Tiplady, plus prejudgment interest.
1. The superior court did not err in declining to
shift the burden of proof for the valuation of
HIAK to the Hobbses.
Some records relevant to the liquidation value of HIAK
were available in the mid-1990s when HIAKs books, records, and
finances were examined as part of a bankruptcy proceeding but
were not available when, late in the case, CRC sought to compel
discovery of them. As the superior court found, those records
were destroyed sometime between the dismissal of the bankruptcy
and 1997. Austin Hobbs testified that he ordered the destruction
of the records after HIAK had finished its bankruptcy proceeding
and the parties had signed their buyout agreement because the
federal government refused to pay for continued storage of the
documents and Hobbs didnt think thered be any reason to keep all
that old stuff.
At trial, CRC requested that the court apply a
spoliation of evidence theory to shift to the Hobbses the burden
of proof on the question of the liquidation value of the business
as of September 25, 1996, the date of the buyout agreement. CRC
argues that regardless of the reason that the records were
destroyed and whether it was reasonable to do so[,] . . . as a
matter of public policy, the burden of proof needs to be on the
party who destroyed the records, because the other party is
totally innocent and is the one harmed. For that reason, and
because the records at issue in this case were destroyed at
Austin Hobbss direction, CRC argues that the burden of proof
should have been shifted to [the Hobbses].
The superior court found that, under the buyout
agreement, either of the parties or any of the parties could have
demanded that an independent appraisal be done. The superior
court also found, however, that none of the parties requested an
independent appraisal on a timely basis. Cucullu and Tiplady
both testified they did not request or demand an independent
appraisal. CRC did not even request discovery of the records
relevant to an independent appraisal of HIAKs liquidation value
until years after purchasing Cucullus and Tipladys putative
shares.
Because the 1996 buyout agreement did not provide a
deadline by which any party desiring an independent appraisal had
to request such an appraisal, what constitutes a reasonable
length of time for performance of that contract provision is a
question of fact for the superior court.27 The superior court
found that no party timely requested an independent appraisal or
the corporate records needed for such an appraisal, and the
evidence supports that finding.
The superior court properly found that no party
requested an independent appraisal of the corporations
liquidation value within a reasonable length of time and that no
party timely signaled any need to view corporate records
pertinent to an appraisal of its liquidation value. Therefore,
we conclude that the superior court also properly declined to
shift the burden of proof to the Hobbses on the question of the
liquidation value of the corporation.
2. The superior court did not err in declining to
treat CRCs business valuation as an independent
appraisal.
The buyout agreement provided an increase in the buyout
price for Cucullu and Tiplady if by independent appraisal it is
demonstrated that their respective share of the liquidated value
of the [c]orporation is higher than the agreed-upon amount. CRC
presented the testimony of Stephen Sheaffer a CPA who, during
the course of litigation, conducted a business valuation of HIAK
as of the September 1996 buyout agreement and claimed that his
expert valuation for trial fulfilled the buyout agreements
contemplated independent appraisal. Sheaffer valued HIAK at
$2,286,000, an amount that included $2.8 million allegedly owed
HIAK by Slana Energy, contractor for the Over the Horizon
Backscatter project.
The superior court did not adopt Sheaffers valuation of
HIAK. It found that under the buyout agreement, any party could
have demanded that an independent appraisal be done, but nobody
did it on a timely basis. The court determined that Sheaffers
valuation did not qualify as an independent appraisal under the
buyout agreement: [W]ith great respect [for Sheaffer], the
[c]ourt is not persuaded that a litigation expert[s] business
valuation preliminary estimate, as his report was titled, is an
independent appraisal as contemplated by the September 1996
resolution. Furthermore, the superior court found that HIAK had
no additional assets that would have changed the valuation of
HIAK so as to affect the buyout agreement amounts.28 As the
superior court concluded, because no independent appraisal was
timely done, [CRCs] right and remedies under the September 1996
agreement is that their $400-a-share buyout at 5 percent interest
is what theyre entitled to.
CRC maintains that the per share values described in
the buyout agreement should not have been applied automatically
and argues that since Sheaffers valuation was the only business
valuation available, and because it was independent, the
[superior] court should have recognized it as the independent
appraisal contemplated by the buyout agreement.
We review the superior courts factual findings under a
clearly erroneous standard, and the evidence supports the courts
findings. It does not appear from the record before us that an
independent appraisal of HIAK was ever performed or that HIAK had
additional assets that would have altered its valuation and the
amounts due under the buyout agreement. For these reasons, the
superior court did not clearly err in relying on the specific
monetary values provided in the 1996 buyout agreement.
V. CONCLUSION
For the reasons explained above, we AFFIRM in part,
REVERSE in part, and REMAND to the superior court for further
proceedings on CRCs claim for equitable rescission on a breach of
fiduciary duty theory.
_______________________________
1 When discussing the proceedings in this case, we use
CRC to refer to both plaintiffs, CRC and Tiplady.
2 McCormick v. Reliance Ins. Co., 46 P.3d 1009, 1011
(Alaska 2002) (internal citation omitted).
3 Id. at 1011-12 (internal citation omitted).
4 Carver v. Quality Inspection & Testing, Inc., 946 P.2d
450, 454 n.3 (Alaska 1997).
5 Moffitt v. Moffitt, 813 P.2d 674, 676 (Alaska 1991).
6 Money v. Money, 852 P.2d 1158, 1161 (Alaska 1993).
7 Knaebel v. Heiner, 663 P.2d 551, 554 (Alaska 1983).
8 12A C.J.S. Cancellation of Instruments 5 (2009).
9 Inman v. Clyde Hall Drilling Co., 369 P.2d 498, 500
(Alaska 1962) (In the absence of a constitutional provision or
statute which makes certain contracts illegal or unenforceable,
we believe it is the function of the judiciary to allow [people]
to manage their own affairs in their own way.).
10 Id.
11 Restatement (Second) of Contracts 237 (1981)
(providing that a partys duty to render performance is
conditioned on there being no uncured material failure by the
other party to render performance due earlier).
12 Knaebel, 663 P.2d at 554 (citing Lightner v. Karnatz,
241 N.W. 841, 842 (Mich. 1932)).
13 12A C.J.S. Cancellation of Instruments 5 (2009).
14 See 3 Samuel Williston & Richard A. Lord, A Treatise on
the Law of Contracts 7:11 (4th ed. 2008) (distinguishing failure
of consideration from lack of consideration as follows: Where no
consideration exists, and is required, the lack of consideration
results in no contract being formed . . . . By contrast, when
there is a failure of consideration, there is originally a
contract when the agreement is made, but because of some
supervening cause, the promised performance fails.).
15 See Estate of Lampert Through Thurston v. Estate of
Lampert Through Stauffer, 896 P.2d 214, 219 (Alaska 1995) (citing
Restatement (Second) of Contracts 372, 373 (1981); 5 Arthur L.
Corbin, Corbin on Contracts 1104, at 562 (1964)).
16 Alaska Prot. Servs., Inc. v. Frontier Colorcable, Inc.,
680 P.2d 1119, 1123 n.6 (Alaska 1984) (citing 1 Arthur L. Corbin,
Corbin on Contracts 133, at 572 (1963)).
17 In contradiction, the superior court also found that
none of the actions taken by HIAK, Austin Hobbs, Cucullu or
Tiplady constituted original invalidity, fraud, failure of
consideration, material breach or default. We rely, however, on
the superior courts more specific findings contained in the same
order. In addition to the finding quoted in the main text, the
superior courts order detailed the reasons for HIAKs difficulty
fulfilling the terms of the buyout and HIAKs failures at
producing the finances needed to fulfill the buyout agreement.
18 See Am. Computer Inst., Inc. v. State, 995 P.2d 647,
653 (Alaska 2000) (holding that the computer institutes failure
to provide students with particular coursework, as required by
the institutes enrollment contract, entitled students to a refund
of their tuition) (citing Restatement (Second) of Contracts 372,
373 (1981) and 5 Corbin, supra note 15, 1104, at 562); Estate of
Lampert Through Thurston, 896 P.2d at 219-20 (holding that the
wifes failure to provide the husband with a life estate in the
couples residence through her will, as required by the couples
estate-planning agreement, entitled the husband to a rescission
of the agreement).
19 Restatement (Second) of Contracts 373 (1981).
20 Kazan v. Dough Boys, Inc., 201 P.3d 508, 515 n.21
(Alaska 2009); see also McKeown v. Kinney Shoe Corp., 820 P.2d
1068, 1071 (Alaska 1991).
21 Restatement (Second) of Contracts ch. 16 note (1981)
(The traditional goal of the law of contract remedies has not
been compulsion of the promisor to perform his promise but
compensation of the promisee for the loss resulting from
breach.); see also Knaebel v. Heiner, 663 P.2d 551, 553 (Alaska
1983) (stating that a party who seeks the interposition of equity
must generally show that he either has no remedy at law or that
no legal remedy is adequate).
22 CRC further argued that if the Hobbses owed a fiduciary
duty to Cucullu and Tiplady, they bear the burden of proving that
they acted in good faith, that the transaction was fair, and that
the transaction was based on full disclosure of relevant
information.
23 The superior court stated only that [t]he dispute does
not involve the burden of proof issues raised in a
minority/majority stockholder conflict. It is a sales contract.
The remedy of damages is adequate.
24 Although the superior court did mention the Hobbses
sale of secured assets in its order, it did not address CRCs
argument that the sale of secured assets was evidence of a breach
of fiduciary duty in the formation of the agreement.
25 Collins v. Blair, 68 P.3d 1222, 1230 (Alaska 2002)
(citing Alaska Plastics, Inc. v. Coppock, 621 P.2d 270, 276
(Alaska 1980)).
26 See Restatement (Second) of Contracts 177 (1981).
27 See Hall v. Add-Ventures, Ltd., 695 P.2d 1081, 1089
(Alaska 1985):
Where no [contract] provision is made as to
time of performance, a reasonable time is
implied, to be determined upon consideration
of the subject matter of the contract, what
was contemplated at the time the cont[r]act
was made, and other surrounding
circumstances. Ordinarily, what constitutes
a reasonable time is a question of fact for
the trial court.
28 Specifically, the superior court did not accept CRCs
valuation of HIAK that included $2.8 million receivable from
Slana Energy, a figure that the court found was unreasonable,
uncollectible, and tied to an account that, by the time of trial,
was fourteen years overdue.
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