Laybourn v. City of Wasilla , 2015 Alas. LEXIS 150 ( 2015 )

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, email
corrections@akcourts.us.
THE SUPREME COURT OF THE STATE OF ALASKA
BRADLEY K. LAYBOURN, )
ALAN D. LAYBOURN, ) Supreme Court Nos. S-15478/15488
DOUGLAS K. LAYBOURN and )
DIAMOND D. LAYBOURN, ) Superior Court No. 3PA-11-02919 CI
)
Appellants and ) OPINION
Cross-Appellees, )
) No. 7068 - December 11, 2015
v. )
)
CITY OF WASILLA, )
)
Appellee and )
Cross-Appellant. )
)
Appeal from the Superior Court of the State of Alaska, Third
Judicial District, Palmer, Kari Kristiansen, Judge.
Appearances: Brad D. DeNoble, Eagle River, for Appellants.
Thomas F. Klinkner, Birch Horton Bittner & Cherot,
Anchorage, for Appellee.
Before: Fabe, Chief Justice, Winfree, Stowers, Maassen, and
Bolger, Justices.
MAASSEN, Justice.
I. INTRODUCTION
Property owners granted a utility easement to the City of Wasilla in
exchange for the City’s promise to build an access road across their property, subject to
obtaining permits and funding. The access road was not built, and the property owners
sued the City, claiming that it fraudulently induced them to sign the easement agreement,
breached the agreement, and breached the covenant of good faith and fair dealing.
After trial the superior court made findings of fact and conclusions of law
about the parties’ negotiations, their reasonable expectations, the key provisions in the
easement agreement, and the City’s efforts to satisfy the agreement’s conditions, and it
ruled against the property owners on all their claims. The property owners appeal. The
City cross-appeals, contending that the property owners’ claims should have been
dismissed on statute of limitations grounds.
We agree with the superior court’s interpretation of the parties’ agreement
and find no clear error in its findings of fact. We therefore affirm its judgment in favor
of the City and do not reach the issue raised in the City’s cross-appeal.
II. FACTS AND PROCEEDINGS
A. Facts
Bradley, Alan, Douglas, and Diamond Laybourn own a piece of property
south of the Parks Highway, between a subdivision on the east and the City of Wasilla’s
new multi-use sports complex on the west. The site of the sports complex had no
preexisting infrastructure for water or sewer, so before construction the City approached
the Laybourns in the fall of 2002 seeking a utility easement over the northern 60 feet of
their property.
Archie Giddings, the City Engineer at the time, represented the City in
negotiations with Bradley Laybourn, who represented the property owners. Giddings
told Bradley that the City had limited options and that a utility easement through the
Laybourns’ property would be the most cost-effective one. In accordance with the City’s
usual practice, Giddings offered the Laybourns a waiver of the sewer payment-in-lieu-of­
assessment (PILA) fees or construction of a maintenance trail in exchange for the
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easement; the Laybourns rejected this initial offer. Countering, the Laybourns said they
would allow the utility easement in exchange for both the PILA waiver and the City’s
construction of an access road that would run across the northern edge of their property,
from South Mack Drive on the west (where the sports complex was being built) to their
property’s northeast corner. It was Giddings’s view, however, that a road dead-ending
in the Laybourns’ property would serve no public purpose; he envisioned instead that the
access road would continue east from the Laybourns’ property to connect with Lake
Lucille Drive (or Upper Road, a stub extending west from West Lake Lucille Drive),
thus creating an alternate thoroughfare to the Parks Highway from the subdivisions near
Lake Lucille.
Giddings and the Laybourns continued their negotiations in several
meetings over the course of six months. Giddings then drafted the terms of a public
utility easement agreement, which the Laybourns signed on May 29, 2003. The
agreement granted a public water and sewer easement to the City on the northern 60 feet
of the Laybourns’ property in exchange for the following consideration:
1) The City will not charge a sewer connection fee or
sewer PILA (payment in-lieu of assessment) for future
development on the grantor’s property.
2) In 2003, the City will apply for a public use easement
across parcel D2[1] in conjunction with a public use
easement across parcel C2,[2] to provide access from
Upper Road to South Mack Drive; and
1
“D2” refers to the parcel on which the sports complex was being built.
2
Giddings testified at trial that the references to “C2” in paragraphs 2 and
3 of the agreement should have been “C1,” the Laybourn property. This is not disputed.
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3) In 2004, the City will apply for a wetlands permit to
construct the access road that will include the dredging
of fill material and a delineation of wetlands on parcel
C2; and
4) Upon approval of the public use easement and
wetlands permit, the City will construct the access
road in 2005, subject to funding.
The City installed the water and sewer lines in the granted easement in the
summer of 2003. Around the same time, as required by the agreement’s second
provision, the City applied for the public use easement necessary for construction of the
Upper Road extension and received conditional approval of it from the Matanuska-
Susitna Borough Platting Division.3
Completing the conditions for final approval of the easement would have
cost the City approximately $5,000, funds Giddings believed it imprudent to spend in the
absence of a wetlands permit. The entire estimated cost of the Upper Road extension
was approximately $500,000. The City’s local sources of funding for all its capital
improvements City-wide –– for water and sewer systems, roads, the airport, and
buildings –– averaged approximately $1.2 million in 2003 and subsequent years.
Construction of the sports complex was a $20 million project which the City financed
in part with bonding of $14.7 million. To pay the debt service on the bonds, the Wasilla
City Council raised the City sales tax by ordinance from 2.0% to 2.5%; proceeds from
the tax increase were dedicated to that purpose.4 The City therefore depended upon state
3
The conditions for final approval included surveying and marking the
proposed easement, obtaining a legal review of the easement’s description, and recording
certain documents.
4
Under Ordinance Serial No. 01-55(AM), adopted by the Wasilla City
Council in December 2002, the sales tax increase was to remain in effect until the earlier
(continued...)
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and federal funding for many aspects of the sports complex project, including ballfields,
paving, kitchen facilities, and water and sewer lines. Giddings testified that the City
initially planned to pay $50,000 toward the Upper Road extension and look to the State
for the remaining $450,000 of its estimated cost. The City included the Upper Road
extension in its funding requests to the legislature in 2005 and again in 2006, but the
legislature rejected the request both times.
The City did not apply for a wetlands permit in 2004, as required by the
easement agreement’s third provision. When Giddings began the application process
toward the end of that year, he realized he would need someone with engineering
expertise to delineate the wetlands as required for the application’s completion. This
would require funding; in May 2006, therefore, Giddings asked the City Council to
authorize a contract at an estimated cost of approximately $50,000 for the permitting and
design of the Upper Road extension, to include the cost of the engineer.
At a City Council meeting, several citizens voiced their opposition to the
Upper Road extension, and by a vote of five to one the Council denied Giddings’s
authorization request. In the face of this lack of public and City Council support,
Giddings dropped the Upper Road extension from the list of capital projects for which
the City sought funding from the State during the 2007 legislative session. The City
never finished delineating the wetlands or applying for the wetlands permit.
B. Proceedings
The Laybourns filed suit against the City in 2011. In an amended complaint
4
(...continued)
of June 30, 2012, or the projected date the City was able to retire the bonds. In
accordance with these terms, Ordinance Serial No. 10-19 repealed the sales tax increase
as of July 1, 2010. A reserve fund of $378,163 — intended to pay for future capital
improvements to the sports complex — remained after the complex was paid for.
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they asserted, among other things, that (1) the City made misrepresentations of fact and
omitted facts it had a duty to disclose during the course of negotiations; (2) the City’s
failure to apply for a wetlands permit and to construct the access road breached the terms
of the agreement and the implied covenant of good faith and fair dealing; and (3) the
agreement should be rescinded because of the Laybourns’ unilateral mistake. The
Laybourns sought specific performance of the agreement (as they interpreted it) or,
alternatively, rescission and damages, including punitive damages.
The City moved for partial summary judgment on the Laybourns’ contract
claims, arguing they were subject to a three-year statute of limitations.5 The superior
court denied the motion, ruling that the claims were subject instead to the six-year
limitations period for waste or trespass on real property.6
The superior court then held a three-day bench trial. In written findings of
fact and conclusions of law, the court rejected both the Laybourns’ characterization of
the parties’ negotiations and their interpretation of the agreement’s key provisions. The
court found that the City made no misrepresentations and omitted no material facts it had
a duty to disclose; it also concluded that the Laybourns’ claims for breach of contract and
breach of the implied covenant of good faith and fair dealing failed because the
agreement expressly conditioned construction of the access road upon available funding
and obtaining a wetlands permit, conditions that did not occur despite the City’s
reasonable efforts. The court found for the City on all the Laybourns’ claims and entered
final judgment in the City’s favor.
The Laybourns appeal the judgment against them, claiming both clear
5
AS 09.10.053 (requiring that “an action upon a contract or liability” be
brought within three years).
6
AS 09.10.050 (requiring that “an action for waste or trespass upon real
property” be brought within six years).
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errors of fact and mistakes of law. The City cross-appeals the denial of summary
judgment on its statute of limitations defense.
III. STANDARDS OF REVIEW
We review the superior court’s interpretation of a contract de novo.7
“When interpreting a contract, the goal ‘is to give effect to the reasonable expectations
of the parties.’ ”8 “Where the superior court considers extrinsic evidence in interpreting
contract terms, . . . we will review the superior court’s factual determinations for clear
error.”9
Whether there has been a breach of contract or the covenant of good faith
and fair dealing is a question of fact reviewed for clear error.10 We review “findings of
fact by the superior court on issues of misrepresentation under the clearly erroneous
standard”11 and “give particular deference to the superior court’s factual findings when
. . . they are based primarily on oral testimony, because the superior court, not this court,
judges the credibility of witnesses and weighs conflicting evidence.”12 We will find clear
7
Nautilus Marine Enters., Inc. v. Exxon Mobil Corp., 305 P.3d 309, 315
(Alaska 2013).
8
Id. (quoting Villars v. Villars, 277 P.3d 763, 768 (Alaska 2012)).
9
Id. (quoting Cook v. Cook, 249 P.3d 1070, 1077-78 (Alaska 2011)) (internal
quotation marks omitted).
10
See Casey v. Semco Energy, Inc., 92 P.3d 379, 382 (Alaska 2004); see also
Hallam v. Alaska Airlines, Inc., 91 P.3d 279, 283 (Alaska 2004).
11
Anchorage Chrysler Ctr., Inc. v. DaimlerChrysler Motors Corp., 221 P.3d
977, 984 (Alaska 2009).
12
3-D & Co. v. Tew’s Excavating, Inc., 258 P.3d 819, 824 (Alaska 2011)
(quoting Josephine B. v. State, Dep’t of Health &Soc. Servs., Office of Children’s Servs.,
174 P.3d 217, 222 (Alaska 2007)).
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error only when “after a thorough review of the record, we come to a definite and firm
conviction that a mistake has been made.”13 We review all factual findings “in the light
most favorable to the prevailing party below.”14
We review for abuse of discretion a trial court’s denial of rescission of a
contract due to unilateral mistake.15
IV. DISCUSSION
A. The Superior Court Did Not Clearly Err In Finding That The City Did
Not Fraudulently Induce The Laybourns To Sign The Easement
Agreement.
The Laybourns first contend that the superior court erred when it failed to
find that the City fraudulently induced them to enter into the easement agreement by
misrepresenting material facts and omitting facts it had a duty to disclose. We conclude
that there was no error. To address the Laybourns’ argument we turn first to the
language of the parties’ agreement.
1. The easement agreement was unambiguously conditional.
“A condition is an event, not certain to occur, which must occur, unless its
non-occurrence is excused, before performance under a contract becomes due.”16
Because conditions are disfavored, “[t]o be enforceable, a condition must be ‘expressed
13
Id. (quoting Soules v. Ramstack, 95 P.3d 933, 936 (Alaska 2004)).
14
Id. (quoting N. Pac. Processors, Inc. v. City & Borough of Yakutat, 113
P.3d 575, 579 (Alaska 2005)).
15
Dickerson v. Williams, 956 P.2d 458, 466-67 (Alaska 1998).
16
Jarvis v. Ensminger, 134 P.3d 353, 358 (Alaska 2006) (quoting
RESTATEMENT (SECOND) OF CONTRACTS § 224 (1981)).
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in plain, unambiguous language or arise by clear implication.’ ”17 The fourth provision
of the parties’ agreement says: “Upon approval of the public use easement and wetlands
permit, the City will construct the access road in 2005, subject to funding.” The superior
court interpreted this language to mean that “[t]he City’s obligation to build a road was
unambiguously conditioned upon available funding and permitting approval.” The court
concluded that the Laybourns’ contrary interpretation “fails as a matter of common sense
given the totality of the circumstances involved in this project and the plain, everyday
meaning of the key provisions contained within the agreement.” We agree with the
superior court’s reading of the agreement.
The Laybourns argue that “subject to funding” is not a condition but instead
is “meant to qualify the year the City is to construct the access road” — that is, it is a
statement that the project will be done in 2005 if enough tax revenue has accumulated
by then and that otherwise it will be done later. The Laybourns contend that if funding
was meant to be a condition, it would have been listed at the beginning of the sentence
with the other conditions: approval of the public use easement and the wetlands permit.
The Laybourns say they minimized the importance of the agreement’s “subject to
funding” language because they believed funding to be a “foregone conclusion,” in that
“the only contingency in [the] agreement was the passage of enough time to accumulate
funding for the project from an increase in the City’s sales tax.”
A court’s object in interpreting any contract term is to “give effect to the
reasonable expectations of the parties.”18 The court “looks to the language of the
disputed provision, the language of other provisions of the contract, relevant extrinsic
17
Id. (quoting Prichard v. Clay, 780 P.2d 359, 362 (Alaska 1989)).
18
Peterson v. Wirum, 625 P.2d 866, 872 n.10 (Alaska 1981).
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evidence, and case law interpreting similar provisions.”19 Extrinsic evidence may
include “the nature of the business, the parties’ negotiations, and the structure of the
[a]greement.”20
The language of the disputed provision supports the superior court’s
conclusion that it is an express condition. Considering the “ordinary, contemporary,
common meaning”21 of “subject to” used in a contract, we note that other courts have
determined the phrase to be unambiguous as imposing a condition precedent on a party’s
duty of performance.22 Giddings’s testimony supports a finding that the parties intended
this common meaning. Addressing the Laybourns’ perception that funding was a
“foregone conclusion,” Giddings testified it would render the “subject to funding”
19
Id.; see also Wright v. Vickaryous, 598 P.2d 490, 497 n.22 (Alaska 1979)
(holding that regardless of whether the plain terms of the contract appear ambiguous,
courts may use extrinsic evidence related to the parties’ intent to interpret a contract).
20
Cook v. Cook, 249 P.3d 1070, 1079 (Alaska 2011).
21
Kay v. Danbar, Inc., 132 P.3d 262, 269 (Alaska 2006) (“[T]he words of the
contract remain the most important evidence of intention and, unless otherwise defined,
are given their ‘ordinary, contemporary, common meaning.’ ” (quoting Norville v. Carr-
Gottstein Foods Co., 84 P.3d 996, 1001 n.3 (Alaska 2004)) (footnotes omitted)).
22
See, e.g., Cedyco Corp. v. PetroQuest Energy, LLC, 497 F.3d 485, 488-89
(5th Cir. 2007) (holding that contract providing that assignment was “subject to” other
party’s consent expressly indicated a condition precedent); MidAmerica Constr. Mgmt.,
Inc. v. MasTec N. Am., Inc., 436 F.3d 1257, 1263 (10th Cir. 2006) (holding that contract
providing that contractor’s duty to pay subcontractor was “subject to” payment by owner
was “indicative of the creation of a condition precedent”); Cranpark, Inc. v. Rogers Grp.,
Inc., 721 F. Supp. 2d 613, 627 (N.D. Ohio 2010), rev’d on other grounds, 498 F. App’x
563 (6th Cir. 2012) (“The language ‘SUBJECT TO . . . APPROVAL’ clearly imposes
a condition precedent.”); 13 RICHARD A. LORD, WILLISTON ON CONTRACTS § 38:16 (4th
ed. 2009) (“[T]he words ‘subject to’ in a contract usually indicate a condition to one
party’s duty of performance and not a promise by the other.”).
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provision meaningless.23 He testified:
[I]n 2003 the City can’t guarantee we can build a road. We
don’t have permits, we don’t have funding. Without funding
and permits — as it’s pointed out earlier, you need all three
of these things. If I have any two of these things, I can’t
build the road. I can have all the money in the world and no
[Army] Corps permit. I could have a [public use easement]
and money and the Corps would say, no, there’s some critical
wetlands there.
Giddings testified that if the project had not been subject to funding — if it was
dependent solely on the accumulation of sales tax revenues, which are “real predictable”
— the agreement would have said that the project “won’t be subject to funding — the
funding will be ready on this date if it’s [solely dependent on the] sales tax.”
The Laybourns contend, however, that “it defies all common sense” to
believe they would have agreed to an exchange in which the City’s performance was
completely contingent on events — funding and the approval of permits — that were
ultimately beyond the City’s control. But the superior court found that they did agree to
that exchange. It found that over the course of the six-month negotiation “there was
considerable give and take regarding the consideration that the City would provide in
exchange for the easement” and that “[t]he Laybourns enjoyed significant bargaining
power over the City to influence the key terms placed into the utility [e]asement
document.” These findings are not clearly erroneous and support the superior court’s
conclusion that the City’s obligation to construct the access road was unambiguously
conditional and that the parties should reasonably have understood it in that way.
23
See Calais Co. v. Ivy, 303 P.3d 410, 418 (Alaska 2013) (relying on rule
disfavoring contract interpretation that renders contract terms meaningless).
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2. The superior court did not clearly err in finding that the City
did not misrepresent material facts or fail to disclose facts it had
a duty to disclose.
The Laybourns contend that the City, through Giddings, made three
misrepresentations of material fact during the negotiations that induced them to enter into
the easement agreement. They contend that the City misrepresented (1) the access road’s
planned extent (i.e., that it would not end on the Laybourns’ property, as they thought,
but rather would reach Lake Lucille Drive on the east);24 (2) the source of the funding
(i.e., that it was dependent on state legislative action rather than simply the accumulation
of City sales tax revenues); and (3) the conditional nature of the agreement (i.e., that the
City’s obligation to build the road depended on both permitting and funding, neither of
which was guaranteed). They further contend that the City omitted the important facts
that the project was subject to public notice and comment as well as further approvals.
To prevail on their misrepresentation claim, the Laybourns were required
to prove the existence of either an affirmative misrepresentation25 or an omission where
there was a duty to disclose.26 The superior court found, however, that they failed to
24
The Laybourns contend that Giddings’s unilateral decision to seek a longer
access road than the Laybourns had in mind substantially increased its cost and
“subject[ed] it to more review, public notice and comment, approvals and time.”
25
Fraudulent, negligent, and innocent misrepresentation all have a common
element: the affirmative misrepresentation of a material fact. See Asher v. Alkan Shelter,
LLC, 212 P.3d 772, 782 (Alaska 2009) (stating elements of fraudulent misrepresentation
claim); Valdez Fisheries Dev. Ass’n v. Alyeska Pipeline Serv. Co., 45 P.3d 657, 671
(Alaska 2002) (stating elements of negligent misrepresentation claim); Bevins v. Ballard,
655 P.2d 757, 761-62 (Alaska 1982) (stating elements of innocent misrepresentation
claim against real estate broker), superseded by statute, AS 34.70.010 et seq., as
recognized in Amyot v. Luchini, 932 P.2d 244, 246 (Alaska 1997).
26
See Arctic Tug &Barge, Inc. v. Raleigh, Schwarz &Powell, 956 P.2d 1199,
(continued...)
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prove any misrepresentation of fact. As for the alleged omissions, the court concluded
that “the City has no duty to disclose those facts that the Laybourns are expected to
discover by ordinary inspection and inquiry,” such as that City sales tax revenues were
already dedicated by ordinance to pay debt service on the bonds and that the City had to
look elsewhere for money to fund most of its capital projects.
The superior court acknowledged that “[t]he testimony at trial described
two very different perspectives of the same transaction.” Since the findings as to the
parties’ stated positions during the negotiations depended on the credibility of the
participants, we defer to the superior court’s resolution of conflicts in their testimony as
to what was disclosed and what was not.27 Evidence at trial supported the superior
court’s finding that there were no misrepresentations. About the length of the road,
Giddings testified that if it dead-ended in the Laybourns’ property, thus benefitting only
the Laybourns, the project “[wouldn’t] pass the straight-face test in Juneau, [or] at a
council meeting”; he therefore “pitched [the project] to the Laybourns” as extending all
the way to Lake Lucille Drive, providing a bona fide public benefit because it operated
“as a secondary outlet” from the neighborhoods to the Parks Highway. On the subject
of permitting, although he acknowledged it was “possible” the Laybourns misinterpreted
his “air of confidence” as meaning “this is a done deal,” he testified that he would never
have guaranteed a project unconditionally unless he “had the permits in hand and the
funding,” and in this case he had neither. As for funding, he testified there was “no time
26
(...continued)
1202 (Alaska 1998).
27
See Adams v. Adams, 131 P.3d 464, 467 (Alaska 2006) (“Because the
superior court was in the best position to assess the demeanor and credibility of all the
witnesses, we will follow our normal practice of ‘consistently grant[ing] deference to
trial courts where credibility is at issue.’ ” (alteration in original) (quoting Whitesides v.
State, Dep’t of Pub. Safety, Div. of Motor Vehicles, 20 P.3d 1130, 1136 (Alaska 2001))).
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that we ever contemplated or communicated that we were going to put sales tax in to
fund this road.” He testified that he told the Laybourns that the City would have to seek
funding from other sources and “[he didn’t] think [the Laybourns] had an issue with
that.” He testified that he “never got close to saying” that the construction of the road
was “a done deal”; that he never guaranteed the Laybourns that it was a “foregone
conclusion”; and that because any one of three steps — the public use easement, the
wetlands permit, and the funding — could “derail the project,” “the City was not
prepared to guarantee anything in writing.” The superior court’s finding that the City
made no misrepresentations of material fact is thus supported by Giddings’s testimony,
which the superior court found credible, and the finding is not clearly erroneous.
We also reject the Laybourns’ argument that the City omitted material facts
it had a duty to disclose. “The duty to disclose arises when facts are concealed or
unlikely to be discovered because of the special relationship between the parties, the
course of their dealings, or the nature of the fact itself.”28 The duty “is rarely imposed
where the parties deal at arm’s length and where the information is of the type which the
buyer would be expected to discover by ordinary inspection and inquiry.”29 The parties
to this case did not have a prior course of dealing. Nor did they have a special
relationship; as the superior court found, they dealt at “arm’s length” over a six-month
period during which the Laybourns exercised “significant bargaining power.” We also
find no clear error in the superior court’s determination that the information the
28
Hagans, Brown & Gibbs v. First Nat’l Bank of Anchorage, 810 P.2d 1015,
1019 (Alaska 1991) (citing Matthews v. Kincaid, 746 P.2d 470, 471-72 (Alaska 1987)
(adopting RESTATEMENT (SECOND) OF TORTS § 551(2) (1977))).
29
Matthews, 746 P.2d at 472; see also Deptula v. Simpson, 164 P.3d 640, 646
(Alaska 2007) (finding no special relationship when real estate professional represented
both parties in an arms-length commercial transaction).
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Laybourns allege was omitted — largely having to do with the inner workings of local
government and its sources of funding for capital projects30 — was of a kind not
uniquely available to the City but rather was “either spelled out in the agreement or
matters of public record,” and it thus was of the type that one “would be expected to
discover by ordinary inspection and inquiry.”31
3. The superior court did not clearly err in finding that the
Laybourns benefitted from the easement agreement.
Finally, we reject the Laybourns’ argument that the easement agreement
was so obviously one-sided they would not have agreed to it absent fraud by the City.
The superior court found that the Laybourns benefitted from the agreement regardless
of whether the access road was built. They gave the City an easement with a fair market
value of $2,900 and received in exchange a payment-in-lieu-of-assessment waiver with
a potential value of $32,000, depending on how their property was subdivided. In
addition, their property more than doubled in value between 2003 and 2013, leading the
superior court to conclude that “[t]here is no question that the value of the [p]roperty
with preinstalled water and sewer utility lines has benefitted the Laybourns.” These
findings of fact are not clearly erroneous.32
30
The Laybourns contend that they could not be expected to know “what
approvals are necessary, who has what authority within the City, what authority the City
Council has over any aspect of the [a]greement, the availability of funding, how long it
takes to accumulate funds or fund a project, what parts if any of the [a]greement are
subject to public comment and notice, how long the process takes[,] and so forth.”
31
Cf. Matthews, 746 P.2d at 472 (observing that “the lack of off-street parking
is an obvious fact which the ordinary purchaser would be expected to discover, by
ordinary inspection and inquiry, before she bought the property advertised for sale”).
32
The same rationale leads us to reject the Laybourns’ claim that they were
entitled to rescind the contract due to a unilateral mistake of fact. A unilateral mistake
(continued...)
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Having considered the language of the agreement and the superior court’s
findings of fact, we affirm the superior court’s decision that the agreement was expressly
conditional and its finding that the Laybourns were not fraudulently induced to sign it.33
B. The Superior Court Did Not Clearly Err In Finding That The City Did
Not Breach The Easement Agreement Or The Implied Covenant Of
Good Faith And Fair Dealing.
“If [a] condition is not fulfilled, the right to enforce the contract does
not come into existence.”34 The superior court found that the City did not breach its
32
(...continued)
about a basic assumption on which a contract is made may render the contract void if the
party claiming mistake satisfies three conditions, one of which is that enforcement of the
contract would be unconscionable. Handle Constr. Co., Inc. v. Norton, Inc., 264 P.3d
367, 371 (Alaska 2011) (adopting RESTATEMENT (SECOND) OF CONTRACTS § 153
(1981)). Unconscionability may be found if the circumstances suggest a “vast disparity
of bargaining power coupled with terms unreasonably favorable to the stronger party.”
Askinuk Corp. v. Lower Yukon Sch. Dist., 214 P.3d 259, 270 (Alaska 2009) (quoting OK
Lumber Co. v. Alaska R.R. Corp., 123 P.3d 1076, 1081 n.17 (Alaska 2005)). The
superior court’s findings that the Laybourns had the superior bargaining position and that
they benefitted from the contract regardless of whether the access road was constructed
both preclude a finding of unconscionability in this case.
33
The Laybourns contend that Giddings’s representations to them about the
project, if not fraudulent, are nonetheless actionable as constructive fraud or as negligent
or innocent misrepresentations. Because we affirm the superior court’s finding that there
were no misrepresentations or omissions of material fact, we need not address these
arguments separately. See supra note 25.
34
Prichard v. Clay, 780 P.2d 359, 362 (Alaska 1989) (quoting 5
S. WILLISTON, WILLISTON ON CONTRACTS § 663, at 126-27 (3rd ed. 1961)); see also
Anchorage Chrysler Ctr., Inc. v. DaimlerChrysler Motors Corp., 129 P.3d 905, 911
(Alaska 2009) (“Performance of a duty subject to a condition cannot become due unless
the condition occurs or its non-occurrence is excused.” (quoting RESTATEMENT
(SECOND) OF CONTRACTS § 225(1) (1981))); Klondike Indus. Corp. v. Gibson, 741 P.2d
1161, 1165 (Alaska 1987) (“[W]hen a party’s performance is subject to a condition
(continued...)
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agreement with the Laybourns because the “subject to funding” condition was not met.35
The Laybourns challenge this finding for clear error; they contend that the City did have
funds to pay for the access road but simply chose to spend them elsewhere, and
separately that the City’s failure to apply for the wetlands permit in 2004 was also a
breach regardless of the status of funding. But ample evidence in the record supports the
superior court’s findings.
First, there is no clear error in the superior court’s finding that the City
failed to acquire the necessary funding for the access road. The evidence showed that
the City’s usual capital budget could not accommodate a $500,000 project like the Upper
Road extension; that the sports complex itself, financed by bonds, was underfunded by
some $6 million; that the City sales-tax increase related to construction of the complex
was dedicated by ordinance to debt service on the bonds; that the City was dependent on
state and federal funding sources for additional improvements; and that specific requests
to the legislature to fund the Upper Road extension were unavailing.
The Laybourns also contend that the City had enough money available to
construct the access road because it had a “reserve” fund of $378,000 left over from the
sales-tax increase after construction of the sports complex had been fully paid for. The
City admitted that the money in the reserve fund was intended to pay for future capital
improvements to the complex. But not only is that amount still insufficient for
construction of the access road (estimated to cost $500,000), Giddings also testified that
34
(...continued)
precedent, that party’s duty to perform arises only if the condition is met or is excused.”).
35
We acknowledge a reading of the easement agreement by which the
obligation to seek funding never came into existence because the City never acquired the
necessary permits. But the superior court treated permitting and funding as parallel, not
sequential, conditions precedent, and the City does not contend this was error.
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using the reserve fund would still require approval by the City Council — which voted
against funding the road, even to the limited extent of a $50,000 engineering contract to
support the City’s application for the wetlands permit.
As for the City’s failure to apply for the wetlands permit, it is undisputed
that the agreement required the City to do so in 2004 and, although it began the process,
it ultimately did not complete it. But this failure caused no harm to the Laybourns;
regardless of whether the City succeeded in the other steps for permitting and approval,
the access road could never be built without funding.
The Laybourns also challenge the superior court’s finding that the City did
not breach the covenant of good faith and fair dealing because it took “affirmative steps”
to satisfy the agreement’s funding and permitting conditions. The covenant of good faith
and fair dealing is included in all contracts in Alaska.36 As the superior court noted, “[t]o
establish a claim for breach of the covenant . . . , the Laybourns must prove that the City
failed to effectuate the reasonable expectations of the parties.”37 “Where a duty of one
party is subject to the occurrence of a condition, the additional duty of good faith and fair
dealing . . . may require . . . refraining from conduct that will prevent or hinder the
occurrence of that condition or . . . taking affirmative steps to cause its occurrence.”38
A party asserting a breach of the covenant must prove that the other party failed to act
36
Anchorage Chrysler Ctr. v. DaimlerChrysler Motors Corp., 221 P.3d 997,
922 (Alaska 2009); see also Prichard v. Clay, 780 P.2d 359, 363 (Alaska 1989) (stating
that a party’s “duty to perform may have matured despite the condition’s nonoccurrence
if [the party] prevented or hindered its occurrence”).
37
See Anchorage Chrysler Ctr., 221 P.3d at 992.
38
Casey v. Semco Energy, Inc., 92 P.3d 379, 384 (Alaska 2004) (alterations
in original) (quoting Gordon v. Foster, Garner & Williams, 785 P.2d 1196, 1199 n.6
(Alaska 1990)).
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in subjective good faith, “meaning that it cannot act to deprive the other party of the
explicit benefits of the contract,” or that it failed to act “in objective good faith, which
consists of acting in a manner that a reasonable person would regard as fair.”39
The Laybourns contend that the City’s inaction made it unlikely that the
“subject to funding” condition would ever be satisfied. They assert that Giddings
expanded the project to make it more expensive and complicated; that he waited three
years after the agreement was signed before he made his first request for funds from the
City Council; that the City selectively chose not to tap the sales tax reserve fund after the
sports complex was completed; that the City ignored other possible state, borough, and
federal sources of project funds; and that in formulating funding requests to the
legislature and the City Council, Giddings never explained to them the importance of the
utility easement or how much money the Laybourns saved the City by agreeing to it.
But we see no clear error in the superior court’s finding that “[t]he City took
affirmative steps to cause the funding and permitting conditions to be satisfied.” Lacking
sufficient local resources, the City included the capital project in two successive but
unsuccessful requests to the legislature. Although the Laybourns’ counsel asked
Giddings at trial about other sources of federal, state, and borough funding that for one
reason or another the City did not pursue, the Laybourns presented no evidence that any
of these sources were likely enough to pay off that it would have been reasonable to
pursue them. Giddings testified that he carried the wetlands permit application process
as far as he could without expert support, then was stymied when the City Council, in the
face of public opposition, declined to authorize the engineering contract necessary to
complete it. And it was only when City Council and public opposition to the Upper
39
Id. (citing Ramsey v. City of Sand Point, 936 P.2d 126, 133 (Alaska 1997));
see also Anchorage Chrysler Ctr., 221 P.3d at 992.
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Road extension became evident that Giddings dropped the capital project from the next
year’s funding request to the state legislature.
The evidence thus shows that the City took reasonable affirmative steps to
satisfy the conditions of the easement agreement, and it fails to show that there were
other steps the Laybourns reasonably expected. We find no clear error in the superior
court’s decision that the City did not breach the covenant of good faith and fair dealing.
C. The City’s Contractual Obligations Were Not Indefinite.
Finally, the Laybourns contend that the City breached the easement
agreement by ultimately discontinuing efforts to seek funding; they argue that under the
terms of the agreement and the parties’ reasonable expectations, the City’s obligation to
build the access road was and still is “ongoing.” Although the superior court did not
expressly address this argument, we assume it was implicitly rejected by the superior
court’s findings that the City discontinued its efforts in 2006 and yet did not breach the
agreement or the covenant of good faith and fair dealing.
The agreement states that “[u]pon approval of the public use easement and
wetlands permit, the City will construct the access road in 2005, subject to funding.”
The City’s second funding request to the state legislature was in 2006, and that same year
Giddings asked the City Council to fund the engineering contract in support of the
wetlands permit application; these activities demonstrate the City’s own understanding
that its reasonable efforts extended past 2005. But the City’s obligation was not of an
unlimited duration.
As already noted, when the occurrence of a condition precedent “is within
the sole control of a single party, most authorities require that party to take ‘reasonable’
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steps to obtain the occurrence of the condition.”40 Timing may be spelled out in the
contract but need not be. “Where no provision is made as to time of performance, a
reasonable time is implied.”41 Thus, “[i]f performance must occur within a reasonable
time, then conditions precedent, because they impose a duty to perform on obligees, must
also occur within a reasonable time.”42 “Ordinarily, what constitutes a reasonable time
is a question of fact for the trial court.”43 A reasonable time is “to be determined upon
consideration of the subject matter of the contract, what was contemplated at the time the
contract was made, and other surrounding circumstances.”44 These rules, taken together,
in this case mean that although the City was required to make reasonable efforts to cause
the conditions precedent to occur, it could cease its efforts after a reasonable time.45
40
Casey, 92 P.3d at 385 (citing Dayan v. McDonald’s Corp., 466 N.E.2d 958,
972 (Ill. App. 1984); JOHN EDWARD MURRAY, JR., MURRAY ON CONTRACTS § 111(B),
at 622-23 (3d ed. 1990)).
41
Hall v. Add-Ventures, Ltd., 695 P.2d 1081, 1089 (Alaska 1985); see also
Castle Props., Inc. v. Wasilla Lake Church of the Nazarene, 347 P.3d 990, 996 n.24
(Alaska 2014) (quoting Hall, 695 P.2d at 1089); Commercial Recycling Ctr., Ltd. v.
Hobbs Indus., 228 P.3d 93, 102 n.27 (Alaska 2010) (quoting Hall, 695 P.2d at 1089).
42
Pearcy v. Envtl. Conservancy of Austin &Cent. Tex., Inc., 814 S.W.2d 243,
246 (Tex. App. 1991) (noting that “[t]his rule prevents the enforcement of contingent
obligations . . . beyond a period reasonably within the parties’ contemplation”).
43
Hall, 695 P.2d at 1089.
44
Id.
45
See, e.g., Airport Rd. Dev., LLC v. Lithia Real Estate Inc., No. CIV. S-08­
1458 GGH, 2009 WL 2051099 at *11-13 (E.D. Cal. July 10, 2009) (finding that “a
reasonable time is implied . . . for satisfaction of the conditions precedent” in a contract
requiring an auto dealer to develop a parcel of land and that the auto dealer acted
reasonably when it ceased efforts to satisfy the conditions after the city failed to approve
one of them, the buy-back of another parcel).
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The agreement was signed in 2003 and referred to activities that the parties
expected to be done in 2003, 2004, and 2005. Giddings testified that the inclusion of the
year 2005 in the agreement as a target date was not “arbitrary” but rather was intended
to reflect the two-year time frame that the City contemplated for projects of this type,
accounting for the process of obtaining funding and the limits of political will. The City
failed to satisfy the funding and permitting conditions by 2005 but, as noted, continued
its efforts into 2006 before Giddings dropped the project in the face of adverse public
comment and opposition from the City Council. Based on the superior court’s findings,
we see no clear error in its implicit rejection of the Laybourns’ argument that the City
breached either the terms of the agreement or the covenant of good faith and fair dealing
when it discontinued its efforts after 2006.
V. CONCLUSION
We AFFIRM the superior court’s judgment in favor of the City.46
46
Because we affirm the superior court’s judgment, we find it unnecessary
to address the City’s cross-appeal, arguing that the Laybourns’ contract claims were
barred by the statute of limitations.
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