Can courts admit alternative valuation evidence when contracts specify accounting-based methods? Eggett v. Wasatch Energy Corporation Explained

In Eggett v. Wasatch Energy Corporation, the Utah Supreme Court addressed whether extrinsic evidence of alternative book value calculations is admissible when a contract specifies valuation methodology, particularly in the context of claims for breach of the implied covenant of good faith and fair dealing.

Background and Facts

Roger Eggett formed Wasatch Energy Corporation and later became a 36.5% shareholder under a shareholder agreement that governed share buyout procedures. The agreement required departing shareholders to sell at book value for voluntary departures or par value for terminations with cause. Book value was defined as company book value determined by audited financial statements prepared according to generally accepted accounting principles (GAAP). When Eggett resigned in 1997, Wasatch terminated him for cause and offered only par value ($1,217). Eggett sued, claiming the termination was a sham and that Wasatch manipulated its accounting policies to artificially depress book value by changing its policy for holding uncertain receivables in suspense accounts from one year to two years.

Key Legal Issues

The primary issues were whether the trial court properly admitted Eggett’s evidence of alternative book value calculations under his claim for breach of the implied covenant of good faith and fair dealing, and whether the court properly clarified an ambiguous jury verdict under Utah Rule of Civil Procedure 47(s).

Court’s Analysis and Holding

The Utah Supreme Court affirmed the court of appeals, holding that while extrinsic evidence is generally inadmissible to vary unambiguous contract terms, such evidence may be admissible to prove breach of the implied covenant of good faith and fair dealing. The Court explained that the covenant requires parties to refrain from intentionally injuring the other party’s right to receive contract benefits. Even though GAAP compliance was required, GAAP allows discretion in application, and the covenant governs the exercise of that discretion. The Court also held that trial courts have discretion under Rule 47(s) to clarify jury verdicts that are informal or insufficient, including when the jury appears to have answered a different question than asked.

Practice Implications

This decision provides important guidance for corporate valuation disputes. Practitioners should consider pleading separate claims for breach of express contract terms and breach of the implied covenant when challenging valuation methodologies. The decision demonstrates that even when contracts specify objective standards like GAAP, parties retain obligations under the implied covenant regarding how they exercise discretion within those standards. Additionally, the ruling on jury verdict clarification confirms that trial courts may question juries about ambiguous verdicts based on the whole record, not just patent errors on the verdict’s face.