Alyeska Pipeline Service Co. v. O'Kelley, s. 5136

• Court: Supreme Court of Alaska (US)
• Citation: 645 P.2d 767
• Docket Number: Nos. 5136,5137,s. 5136
• Parties: ALYESKA PIPELINE SERVICE COMPANY, Appellant and Cross-Appellee, v. Lee O'KELLEY, Appellee and Cross-Appellant.
• Decision Date: 28 May 1982

Page 767

645 P.2d 767

ALYESKA PIPELINE SERVICE COMPANY, Appellant and Cross-Appellee, v. Lee O'KELLEY, Appellee and Cross-Appellant.

Nos. 5136, 5137.

Supreme Court of Alaska.

May 28, 1982.

Mary A. Nordale, Fairbanks, for appellant and cross-appellee.

William J. Donohue, of Kennelly, Azar & Donohue, Anchorage, for appellee and cross-appellant.

Before RABINOWITZ, C. J., and CONNOR, BURKE, MATTHEWS and COMPTON, JJ.

OPINION

BURKE, Justice.

This appeal and cross-appeal arise from a sales contract action. The case involves issues of contract interpretation, the exclusion of evidence on grounds of lack of relevance, and the propriety of refusing to give an instruction on punitive damages.

In the summer of 1976, Lee O'Kelley learned of the existence of surplus plywood crates in "section four" of the pipeline, the portion of the pipeline extending from near Fairbanks to Prudhoe Bay. The crates had been used to ship pipe insulation material. Each crate was approximately eight feet-eight inches wide by six feet high and twenty-four feet long. When dismantled, each crate produced four long pieces of reusable plywood and two shorter pieces.

Sometime before September 1976, O'Kelley made a rough inventory of the surplus plywood in section four and counted approximately 250 semi-trailer loads of plywood. He then contacted Alyeska's sales department in Anchorage and entered into negotiations for the purchase of the plywood. During these negotiations, Alyeska provided O'Kelley with a "Surplus Disposal Request" which was an Alyeska internal document whereby surplus materials were inventoried and disposal authorized. The inventory listed 8,600 panels of surplus plywood.

On September 7, 1976, O'Kelley sent Alyeska a written offer to buy at eight dollars per crate the plywood "located north of Fairbanks to Prudhoe Bay." The offer further provided: "I will furnish all transportation with this price. It is also understood that Alyeska will load us."

On September 20, 1976, Alyeska and O'Kelley signed a written sales agreement, in which Alyeska sold O'Kelley all "surplussed insulation plywood crates ... in Section 4 of the Pipeline." Alyeska agreed to O'Kelley's price of eight dollars per crate "loaded on your conveyance." In addition, the agreement required payment before removal, with an initial payment of $8,000 and required that the "materials must be removed by continuing until removed."

On October 1, 1976, O'Kelley paid $4,000 under the sales agreement and began removing the plywood. Later he made another $4,000 payment. O'Kelley testified that in December 1976, he began having difficulty getting Alyeska to load his trucks as per the agreement. O'Kelley further testified that despite numerous complaints to Alyeska, he had to load the trucks himself, either by hand or by the use of his own forklift. If Alyeska had loaded his trucks, O'Kelley testified that he could have removed the remaining plywood within approximately two months.

O'Kelley made repeated efforts to remove the plywood during the spring and summer of 1978. After refusing O'Kelley's tender of another $2,000 in July, and denying O'Kelley's request in July to allow him to inventory the remaining plywood, on August 11, 1978, Alyeska sent him a letter rescinding the sales agreement and offering a refund of any of O'Kelley's payments in excess of the amount of plywood already removed. The termination letter claimed that O'Kelley had breached the agreement by failing to remove the crates on a "continuing" basis. Alyeska then burned the remaining plywood in section four.

O'Kelley filed the present action seeking recovery from Alyeska for breach of the sales contract and conversion of the plywood. In his complaint, O'Kelley sought both compensatory and punitive damages.

The case was tried before a jury and a special verdict was returned in favor of O'Kelley. In its verdict, the jury found for O'Kelley on both the breach of contract and conversion theories, awarding him compensatory damages of $274,530.08 under the contract theory and, in the alternative, $229,852.20 under the tort conversion theory. The court refused to give a punitive damages instruction and no punitive damages were awarded.

This appeal follows the trial court's entry of final judgment on the contract claim in accordance with the jury's contract verdict of $274,530.08 plus prejudgment interest, costs, and attorney's fees for a total final judgment of $336,608.68. O'Kelley cross-appeals, contending that the trial court erred in refusing to give a punitive damages instruction.

I.

The first issue we address is whether the trial court erred in denying admission of Alyeska's "Surplus Disposal Request" ("SDR") on certain plywood crates. In its offer of proof on the SDR, Alyeska contended that it was an internal company document whereby surplus materials were inventoried and their disposal authorized. O'Kelley admitted that he had been presented with a copy of the SDR before he made his offer to Alyeska to purchase the plywood. No further evidence was offered or presented on this document.

Alyeska contends that the SDR was relevant for three different purposes. First, relying on the term "surplussed crates" contained in the sales agreement and on O'Kelley's admission that he had relied on the SDR prior to making his offer, Alyeska maintained that the SDR was relevant to show that the proper interpretation of "surplussed" limited the contract to the plywood listed on the SDR. In other words, Alyeska contended that the SDR was relevant to the interpretation of the words of the purchase agreement and specifically the meaning of the words "surplussed crates."

Second, Alyeska contended that the term "surplussed" should be independently interpreted to mean plywood transferred from the construction branch to the surplus management branch within Alyeska. Alyeska then maintained that the SDR was a listing of the portion of scrap plywood so transferred to the surplus management branch. Therefore, the SDR was relevant to show the amount of plywood crates transferred since this amount represented the amount of plywood sold under the contract.

Third, after the trial court rejected Alyeska's definition of "surplussed" and instead held that the contract was for all the scrap plywood crates in section four, Alyeska then sought to introduce the SDR as an inventory of the total amount of plywood then existing in section four, both "surplussed" and "unsurplussed."

The trial court ruled that the SDR would not be admitted into evidence unless Alyeska provided an adequate foundation by presenting witnesses who had personal knowledge of the contents of the SDR and who could explain whether it was a partial or a complete inventory of the plywood in section four. The judge also indicated that he felt the document was at best only a rough estimate and that therefore foundation testimony was required to establish its accuracy. Finally, the court noted that it had earlier improperly denied O'Kelley's discovery requests for Alyeska's shipping documents showing the number of insulation crates shipped into section four. The trial court had issued a "protective order" preventing the discovery of these documents based on Alyeska's contention that they were irrelevant because the contract was only for "surplussed" crates, not all crates. Later, at trial, the court held that the contract was instead for all crates in section four. Recognizing the relevance of the shipping documents under its final interpretation of the agreement and realizing their necessity for use in impeaching the contents of the SDR, the trial court based its decision to deny admission of the SDR partly on the element of unfairness resulting from its earlier discovery order.

We hold that the trial court erred in refusing to admit the SDR into evidence. While we agree that Alyeska did not lay an adequate foundation to use the document as proof of the exact number of crates in section four, we find that the SDR is extrinsic evidence relevant to interpretation of the contract. ¹ O'Kelley admitted that he relied upon the SDR in negotiating and then contracting with Alyeska. The document therefore bears on the parties' intent as to the approximate quantity of plywood meant to be sold. As extrinsic evidence helpful in interpreting a disputed contractual term, the document is relevant and admissible for this limited purpose. ² See Tsakres v. Owens, 561 P.2d 1218, 1223 (Alaska 1977); National Bank of Alaska v. J. B. L. & K. of Alaska, Inc., 546 P.2d 579 (Alaska 1976); Kupka v. Morey, 541 P.2d 740 (Alaska 1975).

We note further that the SDR is not hearsay when admitted as extrinsic evidence to aid in contract interpretation. As stated by Alaska Rule of Evidence 801(c):

Hearsay is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.

Admitted solely as evidence of the surrounding circumstances relevant to interpretation of the contract, the SDR is not being used to prove the truth of the matter asserted and hence is not hearsay. We therefore do not address Alyeska's arguments concerning the business records exception to the hearsay rule.

Finally, we uphold the trial court's decision to bar use of the SDR as proof of the actual quantity of plywood in section four of the pipeline. At trial, Alyeska offered no testimony tending to establish that the SDR was a complete inventory of the plywood in that section. Nor did Alyeska produce the individual or individuals responsible for creating the challenged document. Absent these foundational facts establishing the document's relevancy, the trial court was well within its discretion in refusing to admit the SDR as proof on the issue of the actual quantity of plywood in section four. See Palfy v. Rice, 473 P.2d 606, 612 (Alaska 1970) (trial court correctly excluded document due to insufficient foundation...