Smallwood Creek, Inc. v. Build Alaska Gen. Contracting, LLC

• Decision Date: 15 July 2022
• Docket Number: Supreme Court No. S-17774
• Citation: 513 P.3d 253
• Parties: SMALLWOOD CREEK, INC., Appellant, v. BUILD ALASKA GENERAL CONTRACTING, LLC ; Western National Mutual Insurance Company; and Lexon Insurance Company, Appellees.
• Court: Alaska Supreme Court

513 P.3d 253

SMALLWOOD CREEK, INC., Appellant,

v.BUILD ALASKA GENERAL CONTRACTING, LLC ; Western National Mutual Insurance Company; and Lexon Insurance Company, Appellees.

Supreme Court No. S-17774

Supreme Court of Alaska.

July 15, 2022

Robert A. Sparks, The Law Office of Robert A. Sparks, and Thomas R. Wickwire, Fairbanks, for Appellant.

Jason J. Ruedy, Law Offices of Royce & Brain, Anchorage, for Appellees.

Before: Winfree, Maassen, Carney, and Borghesan, Justices. [Bolger, Chief Justice, not participating.]

OPINION

BORGHESAN, Justice.

I. INTRODUCTION

A general contractor hired a subcontractor to provide material for a project at a state park. After the project was completed, the general contractor sent the subcontractor a check described as "final payment." The subcontractor, believing it was owed more, initially refused to accept the check. Months later, the subcontractor cashed the check but then attempted to repay the amount to the general contractor. The general contractor refused repayment, claiming that the subcontractor's cashing the check constituted satisfaction of its claim of payment.

The superior court granted summary judgment to the general contractor, ruling that the evidence established an accord and satisfaction. We hold that there is a genuine dispute of material fact about two requirements for an accord and satisfaction: whether the payment was tendered in good faith, and whether there was a bona fide dispute about the amount owed. We therefore vacate the judgment and remand for further proceedings.

II. FACTS & PROCEEDINGS

A. Facts

Build Alaska General Contracting, LLC (Build Alaska) executed a prime contract¹ with the State of Alaska, Department of Natural Resources (DNR) for a trailhead improvement project at the Chena River State Recreation Area (Chena River Project). The Chena River Project involved improvements at three separate trailhead facilities.

In June 2018 Build Alaska and Smallwood Creek, Inc. (Smallwood) entered into a subcontract agreement for work on the Chena River Project. Smallwood agreed, among other things, to furnish the Type A borrow material² that the bid schedule for the project had called for. The subcontract notes in its "Services and Rates" section that quantities of Type A borrow material will be totaled by means of truck load counts. The subcontract's list of rates contains two lines for Type A borrow material: one that Smallwood stockpiles and loads onto trucks, and one that Build Alaska self-loads from the stockpile. The former was agreed to at a rate of $8.00 per cubic yard. The latter's rate was not clearly specified in the subcontract.

However, Todd VanLiere, a co-owner of Build Alaska, mentioned a rate of $4.00 per cubic yard for self-loaded borrow in an email exchange with Karl Benson, the corporate secretary and vice president of Smallwood. VanLiere indicated on June 3 that Build Alaska "determined [they] would be loading the Borrow [themselves]" at $4.00 per cubic yard. Benson replied the next day, confirming the $4.00 per cubic yard rate for self-loaded borrow and specifying that "yardage is counted as yards loaded in the truck." But later that day in a separate email thread, VanLiere wrote that instead of loading the borrow themselves as he had indicated in his initial email, "[Build Alaska] would like to have [Smallwood] do all of the stockpiling and loading of Trucks for the Type A Borrow at $8.00 [per cubic yard] as quoted." VanLiere's email also stated, among other things, that "[t]ruck counts will be confirmed with the survey quantities."³ Benson replied, indicating that they "may need to come to an agreement as to how to calculate final quantities for payment" to account for material lost during hauling, compaction of the material at the project site, and quantities rejected by the State for not conforming to specifications. VanLiere indicated he received this email on June 8, but the record indicates no additional discussions about the terms before the subcontract was finalized on June 13.

Build Alaska paid Smallwood periodically throughout the project. On September 6, 2018, Build Alaska issued a check for $19,543.60 for the Upper Chena Trailhead. A week later, on September 15, 2018, Build Alaska issued another check for $9,960.72 for the Mastodon Trailhead. The memo lines of both checks included the calculation for the total payment issued, the portion of the project they covered, and the words "PAID IN FULL." It is not clear whether the volume was calculated by truck load counts, but after some questioning, Smallwood accepted these payments without dispute.

At the conclusion of the project, Build Alaska provided Smallwood with final survey results on the project. Build Alaska relied upon the survey results to establish the total volume of material furnished by Smallwood and calculate the outstanding amount owed to Smallwood under the subcontract.

Build Alaska then delivered a check to Smallwood in the amount of $37,472.48. Build Alaska wrote in the memo line of the check "Chena River Trail Improvements Final Payment." After receiving the check, Smallwood notified Build Alaska via email that it would not accept the check due to the restrictive endorsement "Final Payment" because it was "half of what is owed [to] us" and that Smallwood would "be forwarding documentation throughout the day to help [Build Alaska] understand [its] liability to the amount stated on [Smallwood's] invoice." An employee of Build Alaska sent an email to Smallwood that same day, stating: "Per Conversation, Contract has been voided since it past [sic] 120 days from last conversation. We are abiding by State of Alaska requirements." Two days later Smallwood wrote back with a counteroffer. It claimed to be owed $78,991.18 but was willing to accept $72,912.78 to settle the dispute.

Despite a series of communications about what Build Alaska owed Smallwood under the contract, the parties were unable to resolve their dispute. Build Alaska rejected Smallwood's counteroffer and maintained that its $37,472.48 payment satisfied Build Alaska's payment obligations under the subcontract. It maintained that the "subcontract agreement incorporates, by reference, the terms of the prime contract, which clearly specifies that all quantities are to be calculated on the basis of cross-section survey." Build Alaska also maintained that the parties’ email correspondence before the subcontract was executed indicated that truck counts would be confirmed with survey quantities. Smallwood's counsel sent notice of a claim to Build Alaska's payment bond surety, Western National Mutual Insurance Company, advising that Build Alaska owed Smallwood the principal sum of $85,579.05 on the project.

Four months after receiving the check marked "Final Payment," Benson, the vice president and corporate secretary of Smallwood, cashed it on behalf of the company. Several months later, Smallwood attempted to return the amount of the cashed check ($37,472.48) to Build Alaska via certified mail, with return receipt requested. Smallwood's repayment was returned because it was improperly addressed. Smallwood continued to attempt to repay Build Alaska; however, Build Alaska refused to accept repayment, insisting the payment dispute was resolved when Smallwood cashed the check marked "Final Payment."

B. Proceedings

Smallwood sued Build Alaska in superior court, alleging breach of contract and breach of the covenant of good faith and fair dealing.⁴ Build Alaska then moved for summary judgment, arguing that Smallwood's cashing of the check constituted a knowing accord and satisfaction of the claim under AS 45.03.311. Smallwood opposed on several grounds, arguing there was a genuine dispute of material fact on several issues: (1) whether the check marked "Final Payment" was tendered in good faith;⁵ (2) whether there was a "bona fide dispute" about the amount of the claim;⁶ (3) whether Smallwood had cashed the check knowing it was intended to be full satisfaction of the claim;⁷ and (4) whether Smallwood accepted payment under economic duress. Both parties requested oral argument but the court did not hold argument.

The superior court granted summary judgment to Build Alaska. First, the court ruled that Smallwood failed to present evidence showing that Build Alaska did not tender the check in good faith, as required for an accord and satisfaction. It observed that Build Alaska's VanLiere had submitted an affidavit stating "that the check amount was based on Build Alaska's calculation of what it owed Smallwood under the contract" and that Smallwood presented no competing evidence.

Second, the superior court ruled that the amount was subject to a bona fide dispute, determining that "admissible evidence submitted by both Build Alaska and Smallwood establish that there was a genuine, or bona fide, dispute between the parties over the amount Build Alaska owed Smallwood under the contract prior to Smallwood cashing the check."

Third, the superior court concluded that Build Alaska was entitled to judgment as a matter of law because Smallwood knew that the check was tendered in full satisfaction of its claim against Build Alaska, in accordance with AS 45.03.311(d). It concluded that although Smallwood now claimed that the memo line "Final Payment" was ambiguous, its previous communications with Build Alaska disputing the payment suggested that Smallwood knew that Build Alaska tendered the check as full satisfaction of Smallwood's claims.

Fourth, the court rejected Smallwood's claim of economic duress, concluding that Smallwood presented no evidence that Build Alaska was aware of Smallwood's precarious financial situation and therefore knew that Smallwood would have no choice but to accept Build Alaska's tender. Accordingly the superior court granted summary judgment to Build Alaska.

Smallwood moved for reconsideration. The superior court denied reconsideration and entered final judgment in favor of Build Alaska. Smallwood now appeals.

III. ...