Klondike Industries Corp. v. Gibson, Nos. S-1348

CourtSupreme Court of Alaska (US)
Writing for the CourtBefore RABINOWITZ; MOORE
Citation741 P.2d 1161
PartiesKLONDIKE INDUSTRIES CORPORATION and Wiley F. Beaux, individually, Appellants and Cross-Appellees, v. Myles F. GIBSON and Bernice Gibson, husband and wife, Appellees and Cross- Appellants.
Decision Date14 August 1987
Docket NumberS-1432,Nos. S-1348

Page 1161

741 P.2d 1161
KLONDIKE INDUSTRIES CORPORATION and Wiley F. Beaux,
individually, Appellants and Cross-Appellees,
v.
Myles F. GIBSON and Bernice Gibson, husband and wife,
Appellees and Cross- Appellants.
Nos. S-1348, S-1432.
Supreme Court of Alaska.
Aug. 14, 1987.
As Amended on Denial of Rehearing Oct. 6, 1987.

Page 1162

A. William Saupe, Baily & Mason, Anchorage, for appellants/cross-appellees.

R.R. DeYoung, Wade & DeYoung, Anchorage, for appellees/cross-appellants.

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

OPINION

MOORE, Justice.

Appellees Myles F. "Pat" and Bernice Gibson were employed as resident managers of a resort hotel by appellants Klondike Industries Corporation (KIC) and Wiley Beaux, its sole shareholder. 1 The Gibsons' employment contract provided that they would receive a large bonus upon the sale of the hotel on the condition that they were employed when it sold. However, the Gibsons resigned before the hotel was sold. The Gibsons sued to obtain the bonus on the ground that Beaux had breached the implied duty of good faith and fair dealing in his employment contract with them by taking actions which materially contributed to Pat Gibson's resignation, and that this breach excused their failure to meet the condition of employment on sale. The court awarded the Gibsons the bonus. Because we hold that Beaux did not breach the duty of good faith and fair dealing, we reverse.

I. FACTS AND PROCEEDINGS

In November 1975, Wiley Beaux, a developer, entered a contract preliminary to the purchase of the Klondike Inn, a resort complex at Big Lake, Alaska. Beaux used the name Klondike Industries Corporation, which he actually incorporated (as sole shareholder) some weeks later. Although corporate records indicated that three directors met for its organization, there was no such meeting.

In May 1976, KIC purchased the Klondike, which included a restaurant, bar and hotel housed in "Unit 100," plus residential condominium units, parking lots and undeveloped lots. At first, Beaux sought to convert hotel units into condominiums for individual sale. This did not succeed.

Beaux determined to operate the Klondike so he could afford to hold on to it until a profitable sale could be arranged. Beaux hired his cousin, Pat Gibson, an Idaho resident, who had no prior restaurant or bar experience, to manage the place. Pat took the job in order to help his cousin Beaux save the property and avoid bankruptcy. Beaux and Gibson worked together on remodeling necessary to open the facility during May. In early June, Pat's wife Bernice joined them.

The Gibsons agreed with Beaux that they would manage the Klondike until its sale for a salary of $1,500 per month (jointly), their room and board, a 37 1/2% share of profits from the operation, and a bonus when the Klondike sold based on a percentage of the sale price of the property in

Page 1163

excess of $200,000. The bonus percentage was to increase based on the length of time necessary to sell the property up to a maximum of 45% in the third year. The parties intended that the property would be sold within three years.

The Gibsons then signed two employment agreements prepared by Beaux to memorialize the oral agreement. The written agreements provided, in part:

3. As additional consideration to GIBSON, KLONDIKE agrees that if Unit 100 of the Klondike Condominiums is sold by KLONDIKE during the term of GIBSON's employment as manager of the business operating in said unit, GIBSON shall receive the following as an additional bonus:

(a) If Unit 100 is conveyed and sold to a third party within one (1) year from the date of this Agreement, GIBSON will receive (1) ten percent (10%) of the net sales proceeds, or EIGHT THOUSAND DOLLARS ($8,000.00), whichever is less, or (2) twenty percent (20%) of the sales price above TWO HUNDRED THOUSAND DOLLARS ($200,000.00), whichever of these two alternatives is greater.

(b) If Unit 100 is sold and conveyed to a third party during the second year of this Agreement, GIBSON will receive five percent (5%) of the gross sale price or twenty-five percent (25%) of the sale price above TWO HUNDRED THOUSAND DOLLARS ($200,000.00), whichever is greater.

(c) If Unit 100 is sold and conveyed to a third party after the second full year of this Agreement, GIBSON will receive ten percent (10%) of the sales price or forty-five percent (45%) of the sales price above TWO HUNDRED THOUSAND DOLLARS ($200,000.00), whichever is greater.

4. This Agreement shall run concurrent with an Employment Agreement entered into between the parties on this date. The termination provisions of the Employment Agreement are incorporated herein by reference, it being understood that to receive the benefits of this Agreement, GIBSON must remain as an employee of KLONDIKE under the terms of the Employment Agreement of even date, as such Agreement may be modified or amended by the parties.

(Emphasis added.)

The "Employment Agreement" referred to in paragraph 4 included the following provision:

5. This Agreement may be terminated by either party at will, or by mutual agreement, and ten (10) days' written notice shall be required to be given in the event of a unilateral termination.

The Gibsons worked long, hard hours at the Klondike. They attempted to keep the facilities open 21 hours a day at Beaux's request. They tended bar, cooked, cleaned, and performed other menial tasks; they also handled bookkeeping and management.

The business was never a booming success. No profit shares were ever distributed to the Gibsons, apparently because the Klondike never turned a profit. Indeed, the Klondike's operating revenues were apparently insufficient to pay the mortgage payments due on the property. In May 1980, Beaux gave the Gibsons a list of mortgages (totalling over $4,500 per month) to be paid from the revenues. The Gibsons made some of these mortgage payments from the operating account.

Beaux tried unsuccessfully to sell the Klondike between 1977 and 1982. He entered into formal listing agreements in 1978, 1981 and 1982, but received only one offer prior to May 4, 1982.

In March 1978, Beaux asked the Gibsons to "purchase" from KIC the condominium unit they were then living in, Unit 102. The Gibsons obtained a bank loan to make the purchase; Beaux provided the down payment. Monthly payments on the Gibsons' mortgage were taken from Klondike revenues. This "sale" freed up some of the capital Beaux had invested in the complex. Beaux had previously "sold" units through similar transactions to his girlfriend and to the Gibsons' daughter, who had deeded the units back to KIC. No such "deed back" was recorded in this case.

Page 1164

The Gibsons did not make mortgage payments on Unit 102 after they left the Klondike.

Bernice Gibson left the Klondike in June 1981 for health reasons, although she continued to help with management from Anchorage. Beaux was aware of this move and said nothing about it at the time.

Sometime prior to April 1982, the Gibsons requested an ownership interest in the Klondike. Beaux offered a proposal that would have immediately given the Gibsons 16.43% of the stock of KIC, and maintained the contingent bonus on sale. However, Beaux's proposal increased by $83,750 the base below which no bonus was payable, reflecting Beaux's increased investment in the property. Pat Gibson rejected this proposal; Beaux threatened to fire him and close down the Klondike. The Gibsons asserted that Beaux then undertook the following acts to force Pat to resign.

First, at a meeting in spring 1982, Beaux told Gibson that he should return $7 in revenue for every $1 of liquor purchased. Beaux said that Gibson had been returning only $2.80, and Beaux demanded to know where the rest of the money was going. Pat believed that Beaux was insinuating that Pat embezzled the difference.

Next, Beaux chose to change the atmosphere of the Klondike by bringing in live country-western or rock music. Pat had fostered a very different atmosphere (featuring a pianist) and was uncomfortable with the new atmosphere. Beaux also gave Pat Gibson specific days off and required that Pat be a "24-hours employee" other days. Finally, Beaux made another proposal for a change in the bonus agreement, offering to guarantee the Gibsons $50,000 upon sale of the Klondike (regardless of when it sold) if Pat continued to work through September 15, 1982. Pat declined this proposal too.

Pat resigned voluntarily on May 21, 1982. He worked an additional month under a separate agreement.

The Gibsons claimed that they were owed salary payments; Beaux disputed this because he believed certain checks the Gibsons had written on the KIC account were properly chargeable to the Gibsons' salary. The Gibsons recorded a lien for wages against the Klondike.

Beaux sold the Klondike Inn for $735,000 as a stock sale of KIC (to avoid the Gibsons' lis pendens ) on February 1, 1983. The sale included the hotel complex, parking lots, hillside lots, liquor license and receivables, and five residential condominium units. Under the terms of the sale agreement, Beaux retained a security interest in the Klondike. As a result of the buyers' subsequent default, Beaux foreclosed his security interest. He now holds the Klondike personally.

The Gibsons sued Beaux to foreclose their wage lien and recover damages for his alleged breach of the bonus agreement. Following a bench trial, the court determined that the value of the Klondike for the purpose of the bonus calculation was $465,000. The court found that the Gibsons had performed their duties fully. The court reduced this sum by 7/68 (to $106,967.25) to reflect that the Gibsons were not employed at the Klondike for seven of the 68 months between the agreement's execution and the sale. 2

The trial court held that the Gibsons had no enforceable rights pursuant to their oral agreement with Beaux because it had been integrated into the written...

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25 practice notes
  • Sanders v. Parker Drilling Co., Nos. 87-4352
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • September 26, 1990
    ...See, e.g., Arco Alaska, Inc. v. Akers, 753 P.2d 1150, 1154-55 (Alaska 1988) (alleging personal animosity); Klondike Indus. v. Gibson, 741 P.2d 1161, 1164, 1167-68 (Alaska 1987) (alleging desire to avoid paying contractual bonus); Rutledge, 727 P.2d at 1056 (alleging reverse race discriminat......
  • Cameron v. Beard, No. S-5152
    • United States
    • Supreme Court of Alaska (US)
    • December 3, 1993
    ...conduct involved therein as if it had formally discharged the employee. 796 P.2d at 1350; see also Klondike Indus. Corp. v. Gibson, 741 P.2d 1161, 1166 n. 5 (Alaska 1987). As we observed in Beard I, "Beard's claim is that by creating conditions so intolerable as to force him to resign,......
  • Thornton v. Crazy Horse, Inc., Case No. 3:06-cv-00251-TMB
    • United States
    • United States District Courts. 9th Circuit. District of Alaska
    • June 14, 2012
    ...742 P.2d 220, 223 (Alaska 1987). 138. Lowery v. McMurdie, 944 P.2d 50, 51-52 (Alaska 1997) (citing Klondike Indus. Corp. v. Gibson, 741 P.2d 1161, 1171 (Alaska 1987)). 139. See id. (citing Klondike, 741 P.2d at 1171); see also Hallam v. Holland Am. Line, Inc., 27 P.3d 751, 756 (Alaska 2001)......
  • Metcalfe Investments, Inc. v. Garrison, No. S-6772
    • United States
    • Supreme Court of Alaska (US)
    • June 28, 1996
    ...the trial court has the discretion to impose a statutory penalty pursuant to AS 23.05.140(d). See Klondike Industries Corp. v. Gibson, 741 P.2d 1161, 1171 (Alaska 1987). However, that penalty is not "automatic" as was erroneously argued to the trial court by Garrison's counsel. No......
  • Request a trial to view additional results
25 cases
  • Sanders v. Parker Drilling Co., Nos. 87-4352
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • September 26, 1990
    ...See, e.g., Arco Alaska, Inc. v. Akers, 753 P.2d 1150, 1154-55 (Alaska 1988) (alleging personal animosity); Klondike Indus. v. Gibson, 741 P.2d 1161, 1164, 1167-68 (Alaska 1987) (alleging desire to avoid paying contractual bonus); Rutledge, 727 P.2d at 1056 (alleging reverse race discriminat......
  • Cameron v. Beard, No. S-5152
    • United States
    • Supreme Court of Alaska (US)
    • December 3, 1993
    ...conduct involved therein as if it had formally discharged the employee. 796 P.2d at 1350; see also Klondike Indus. Corp. v. Gibson, 741 P.2d 1161, 1166 n. 5 (Alaska 1987). As we observed in Beard I, "Beard's claim is that by creating conditions so intolerable as to force him to resign,......
  • Thornton v. Crazy Horse, Inc., Case No. 3:06-cv-00251-TMB
    • United States
    • United States District Courts. 9th Circuit. District of Alaska
    • June 14, 2012
    ...742 P.2d 220, 223 (Alaska 1987). 138. Lowery v. McMurdie, 944 P.2d 50, 51-52 (Alaska 1997) (citing Klondike Indus. Corp. v. Gibson, 741 P.2d 1161, 1171 (Alaska 1987)). 139. See id. (citing Klondike, 741 P.2d at 1171); see also Hallam v. Holland Am. Line, Inc., 27 P.3d 751, 756 (Alaska 2001)......
  • Metcalfe Investments, Inc. v. Garrison, No. S-6772
    • United States
    • Supreme Court of Alaska (US)
    • June 28, 1996
    ...the trial court has the discretion to impose a statutory penalty pursuant to AS 23.05.140(d). See Klondike Industries Corp. v. Gibson, 741 P.2d 1161, 1171 (Alaska 1987). However, that penalty is not "automatic" as was erroneously argued to the trial court by Garrison's counsel. No......
  • Request a trial to view additional results

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