Coastal Plains Development Corp. v. Micrea, Inc.

• Decision Date: 26 April 1978
• Docket Number: No. B-7035,B-7035
• Citation: 572 S.W.2d 285
• Parties: COASTAL PLAINS DEVELOPMENT CORPORATION et al., Petitioners, v. MICREA, INC., Respondent.
• Court: Texas Supreme Court

Page 285

572 S.W.2d 285

COASTAL PLAINS DEVELOPMENT CORPORATION et al., Petitioners, v. MICREA, INC., Respondent.

No. B-7035.

Supreme Court of Texas.

April 26, 1978.

Rehearing Denied June 21, 1978.

Leland B. Kee, Angleton, for petitioners.

John Mercer, Houston, for respondent.

DANIEL, Justice.

This is an action for breach of a contract involving the development and sale of lots in a Brazoria County subdivision. Micrea, Inc., the promoter and seller of lots, brought suit against the landowner, Coastal Plains Development Corporation, and its president and principal stockholder, Charles L. DuCroz. The trial court, after trial to a jury, rendered judgment for Micrea in the sum of $123,393.94. This was affirmed by the Court of Civil Appeals, 553 S.W.2d 816. We reverse the judgment of the courts below and render judgment for Coastal Plains, et al.

The contract which was allegedly breached had its inception in July of 1970. At that time, DuCroz and Jack Adler, president of Micrea, reached an oral agreement concerning the development and subdivision of a tract of land in Brazoria County owned by Coastal Plains. On July 31, 1970, the verbal agreement was reduced to writing.

The contract originally called for the development of a 200-acre portion of the tract, although a subsequent amendment increased the amount of land involved to 720 acres. The duties and responsibilities of each party were delineated by the contract. Coastal was obligated to have the tract subdivided and platted. In addition, it was required to arrange for the construction, improvement and maintenance of the dedicated roadways in the subdivision, until such roads were accepted by the Commissioner's Court of Brazoria County. Coastal Plains was solely responsible for the costs associated with the performance of its contractual duties. Micrea's required performance consisted of offering the lots in the subdivision for sale, and conducting a sales promotion program. All costs arising from these activities were the sole responsibility of Micrea.

Micrea was granted an option by the contract to purchase all lots in the subdivision. The lots were to be sold on a contract of sale basis. The determination of the amount of the down payment collected and the length of the payout period (not to exceed 180 months) was to be made by Micrea in the exercise of its discretion. If the down payment amounted to 20% Or less of the total purchase price of the lot, Micrea was entitled to retain such amount to defray its overhead costs. Any amount in excess of 20% Was to be forwarded to Coastal Plains. The 20% Of cost down payment figure was an estimate which was subject to adjustment to meet actual costs incurred. Net profits were to be equally divided.

Two provisions of the contract are of special importance to the decision of this case. The first, in paragraph VI, reads:

"Both parties shall jointly approve and execute all contracts pertaining to said improvements and development of the subject property."

Paragraph X of the contract provides:

"It is expressly understood and agreed that the performance by the respective parties of their respective obligations under the terms of this contract shall not constitute the parties as partners in connection The development plan was implemented, the subdivision and platting completed, and the road construction was commenced by the road contractor. Micrea embarked on a promotion campaign and actually negotiated the sale of approximately $200,000 worth of lots.

therewith and neither is the performance of this contract by the respective parties to be considered a joint venture, but to the contrary each party shall be solely responsible for the performance of the respective obligations herein contracted to be undertaken by each respective party."

In October of 1970, Micrea submitted an invoice to Coastal Plains in the amount of $13,618.94. This figure represented overhead costs which had not been defrayed by the retained down payments. This invoice was not paid by Coastal Plains. Road building activities ceased, Micrea withdrew its sales force from the subdivision, and the project floundered.

As stated, the trial court rendered judgment for Micrea on a jury verdict in the amount of $123,393.94, representing $109,695.00 in lost profits and $13,698.94 in stipulated expenses.

The Court of Civil Appeals' affirmance was by a divided court, with the majority's principal holdings being that Micrea and Coastal were, in fact, joint ventures and, therefore, exempt from the requirements of the Real Estate License Act. ¹ For the reasons hereinafter stated, we reverse and here render judgment that Micrea, Inc., take nothing by its suit.

Joint Venture

It is a general rule of construction that when parties have bound themselves to an unambiguous contract, the courts will give effect to the manifest intent expressed therein. City of Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515 (Tex.1968). However, when the record demonstrates that the actual effect of the arrangement resulting from the agreement is to create a status different from that stated in the language of the contract, the parties' designation will not control. Neece v. A.A.A. Realty Co., 159 Tex. 403, 322 S.W.2d 597 (1959).

Paragraph X of the contract expressly negatives any intent on the behalf of the parties to create a joint venture or partnership. However, Micrea attempted to establish the existence of a joint venture by showing that such a relationship arose by the actual operation under the contractual provisions. It insists that the reality of the contractual arrangement varied from the intent expressed in paragraph X. We disagree.

A joint venture, being "ex contractu," must be based upon an agreement, either express or implied. Donald v. Phillips, 13 S.W.2d 74 (Tex.Com.App.1929, judgmt adopted); Fuller v. Flanagan, 468 S.W.2d 171 (Tex.Civ.App.1971, writ ref'd n. r. e.); Henning v. Cox, 148 F.2d 586 (5th Cir. 1945); 2 S. Williston, Williston on Contracts § 318A (3d ed. 1959). Beyond this threshold requirement, several essential elements are generally recognized. These elements are (1) a community of interest in the venture, (2) an agreement to share profits, (3) an agreement to share losses, and (4) a mutual right of control or management of the enterprise. Brown v. Cole, 155 Tex. 624, 291 S.W.2d 704 (1956); Luling Oil & Gas Co. v. Humble Oil and Refining Co., 144 Tex. 475, 191 S.W.2d 716 (1945); Chandler v. Herndon,450 S.W.2d 703 (Tex.Civ.App.1970, writ ref'd n. r. e.). The intention of the parties to a contract is a prime element in determining whether or not a partnership or joint venture exists. Luling Oil & Gas Co. v. Humble Oil and Refining Co., supra; Holman v. Dow, 467 S.W.2d 547 (Tex.Civ.App.1971, writ ref'd n. r. e.).

It is undisputed that the relationship between the parties is based upon a valid written contract. As evidence of the existence of the remaining elements of a joint venture, Micrea relies upon the actions of the parties and the operative provisions of the contract, including (1) the paragraph which calls for an equal division of the profits, (2) the paragraph, quoted above, which requires joint approval and execution of all contracts concerning the development, and (3) the dissemination of certain advertising material which referred to the Cedar Lake Estates, the subject subdivision, as a joint venture of Micrea and Coastal Plains.

We are not persuaded by the description of the relationship in the advertising material. Just as the words used by the parties in a contract do not necessarily control the substance of the relationship, the terms used by the parties in referring to the arrangement do not control. Further, there is no claim by any party that the representations in the advertising material were relied upon, so as to raise an issue of estoppel.

Even if the provision for equal division of profits was sufficient, the contract did not have any agreement for sharing the losses. The latter was essential to constitute a joint venture. Micrea contends that this requirement was met by the "joint approval and execution of contracts" clause in the contract. However, by the express terms of the contract, Coastal Plains was solely responsible for the costs of road building. Although the contract also states that Micrea is solely responsible for the costs of advertising and selling, these costs were to be offset by the retained down payments. If the retained money failed to compensate Micrea for its overhead costs, Micrea could, and did, invoice Coastal Plains for the difference. In fact, one facet of the instant cause of action is Micrea's plea for recovery of $13,698.94 in unpaid overhead costs. The only other costs upon which evidence was presented was a $180,000 loan evidenced by a note signed by Micrea, Adler, Coastal Plains, DuCroz, and Mr. DuCroz's mother and father....