Landtect Corp. v. State Mut. Life Assur. Co. of America
| Decision Date | 16 August 1979 |
| Docket Number | 78-2241,Nos. 78-2240,s. 78-2240 |
| Citation | 605 F.2d 75 |
| Parties | LANDTECT CORPORATION, v. STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA. |
| Court | U.S. Court of Appeals — Third Circuit |
Joseph Chicco (argued), William T. Hangley, Goodman & Ewing, Philadelphia, Pa., for appellant.
Steven A. Arbittier (argued), Wolf, Block, Schorr & Solis-Cohen, Philadelphia, Pa., for appellee.
Before GIBBONS and HUNTER, Circuit Judges, and MEANOR, * District Judge.
1. This action arises out of a contract between Landtect Corporation and State Mutual Life Assurance Corporation of America for the development of an industrial park, to be known as Pureland, in Gloucester County, New Jersey. The contract was to be in effect for a period of 51/2 years, but was twice extended by State Mutual for one year periods after the original period had elapsed. In January 1977, with the Pureland Project still incomplete, State Mutual refused to extend the contract further. While not challenging State Mutual's right to terminate the contract, Landtect sued State Mutual to recover money allegedly owed to it under the contract. 1 In Count II of its complaint, Landtect sought 45% Of the "net profits" earned by the Pureland Project through August 4, 1977, the date the contract expired. In Count III, Landtect claimed that it was entitled to equitable relief necessary to preserve and protect its interest in, and the "net profits" stemming from, the continued development of Pureland after August 4, 1977. 2
2. State Mutual thereafter moved for summary judgment on both Counts II and III, and Landtect moved for judgment on the pleadings on Count III. Finding the contract unambiguous, the district court granted summary judgment in favor of State Mutual on Count II and in favor of Landtect on Count III. Both parties appealed. We find that there are disputed issues of material fact with respect to both Count II and Count III. We therefore reverse the district court's order granting summary judgment to State Mutual on Count II and to Landtect on Count III, and remand for a trial on the merits.
3. Landtect conceived the Pureland Project in early 1969 but lacked sufficient capital to acquire and develop all the land itself. Through an intermediary, it contacted State Mutual, which agreed to finance the entire project in return for a share of the profits. Landtect and State Mutual contemplated that once the land had been acquired and developed, parcels would be sold to various industrial purchasers. Unfortunately, the parties found the Project to be much more difficult to market than they had anticipated, and were unable to sell all of the land. Thus, as of August 4, 1977, State Mutual had a total cash investment in Pureland of $14,882,364, while receipts from land values totalled only $10,098,170. 3
4. After State Mutual terminated the contract, Landtect sought an accounting of the Project's "net profits" through August 4, 1977 and payment of its share of those "net profits." State Mutual contended that it had no obligation to make payment to Landtect because, in its reading of the contract, no payment was required until the receipts from the land sales exceeded State Mutual's outlays plus an amount equal to 12% Annual interest on those outlays an event which both parties concede has never taken place. Landtect disputed State Mutual's view of the contract and brought this suit.
5. The applicable provisions of the contract are paragraphs 9, 11, and 14, and Exhibit 4 to the contract. Paragraph 9 provides in pertinent part:
9. As each sale of land is consummated The gross proceeds thereof shall be applied and distributed as follows:
(b) The Company (State Mutual) shall be repaid its total direct investment in the Land, it being understood that "direct investment" shall not include any internal expenses or overhead of the Company, and the like.
(c) The Company shall be paid 12% Per annum on its disbursements from the date thereof until recapture.
(d) The balance, if any, shall be paid to the Company pending the year end accounting hereinafter provided for.
State Mutual reads this provision as supporting its understanding of the contract that no money is due Landtect until State Mutual has recaptured an amount equal to the sum of its disbursements plus annual interest of 12%. Landtect concedes that paragraph 9 controls the distribution of receipts during the life of the Contract. It asserts, however, that once State Mutual "terminate(s)" the Contract or "fail(s) to extend it," paragraph 14, not paragraph 9, governs. Paragraph 14 states in relevant part:
14. . . . . This Agreement shall continue in force and effect for a period of 51/2 years from the Commencement Date, as defined above, or for such longer period of time as the Company may elect. The Company shall have the right to terminate this Agreement for cause, provided that at least 60 days' prior notice of termination is given to Landtect. Notwithstanding the foregoing, In the event of the Company's prior termination of this Agreement or its Failure to extend it after the 51/2 year term, Landtect shall be entitled to receive a portion of the net profits of the project determined as follows:
45% Of the Net profits multiplied by a fraction, the numerator of which shall be the number of complete months from the Commencement Date of this Agreement to the date of termination of this Agreement, and the denominator of which shall be the number of complete months from the Commencement Date of the completion of the project or 66 months whichever is less. Said portion of the Net profits shall be paid to Landtect upon completion of the project or at the expiration of 66 months from the Commencement date of this Agreement, whichever occurs sooner. (Emphasis added)
6. Landtect views this paragraph as Immediately Entitling it to 45% Of the "net profits" of the Project, notwithstanding paragraph 9. State Mutual disputes Landtect's claim that paragraph 14 applies, asserting that the precondition to the operation of the paragraph a "failure to extend" the Contract did not occur. Even if that precondition did take place, State Mutual contends that "net profits" are to be determined by the cash flow method of accounting. In other words, State Mutual believes that "net profits" and "positive cash flow" are identical, and that because there was no positive cash flow, See P 4 Supra, there was not "net profits" to be distributed. For support of this position, State Mutual cites paragraph 11, which states:
11. In determining Net proceeds standard accounting procedures shall be followed, it being understood that no income or similar taxes paid or payable by either the Company or Landtect shall be deducted from any sum received from sale of the Land in computing net proceeds. The Projection Schedule attached hereto as Exhibit 4 shall serve as a guide in determining the net proceeds of the project. Exhibit 4 represents the presently projected cash flow and estimated profit from development of the Land. . . . 4
7. Landtect denies that paragraph 11 dictates that "net profits" be determined according to cash flow principles. Instead, Landtect asserts that "net profits" is not interpreted in the Contract, so that the phrase must be defined in accordance with standard accounting procedures, which Landtect claims are governed by the "accrual" method. In Landtect's understanding of accrual accounting, all expenses with regard to a particular parcel of land are recognized, not in the year that the expenses occur, as is the case with the cash flow method, but in the year in which the parcel of land is Sold, and revenue from the sale is recognized. Thus, all revenues and expenses arising out of the purchase, development, and sale of a piece of land are "matched" in the same year. In support of this interpretation of net profits, Landtect refers to numerous documents outside of the Contract which, it believes, make clear that State Mutual and its accountants computed "net profits" consistent with accrual accounting techniques. Under its definition of "net profits," Landtect believes that it is entitled to $2,258,018.
8. Regardless of how "net profits" are calculated, Landtect asserts in Count III that it is entitled to 45% Of any "net profits" of the Project earned after August 4, 1977. Landtect advances two arguments in support of this position. First, Landtect relies on paragraph 13 of the Contract, which entitles Landtect to receive 45% Of "(t)he net profits Of the project." Landtect contends that the phrase "of the project" refers to the entire Pureland Project. Second, Landtect claims that its relationship with State Mutual constituted a joint venture under New Jersey law, and that as a joint venturer, it is entitled to its share of the net profits of the Project throughout the life of the Project. State Mutual alleges in response that Landtect was merely its agent, and that Landtect's right to a share of the profits continued only so long as the agency relationship lasted, i. e., until the contract was terminated. Of primary importance to State Mutual's position is paragraph 8, which states that "Landtect is hereby designated and appointed as the Company's sole and exclusive agent for the development of the land."
9. In an oral opinion, the district court announced that it did not find "any ambiguity" in the contract. In ruling in favor of State Mutual on Count II, the court determined that "State Mutual did extend the agreement after the initial term," so that the contract provision granting Landtect an immediate share of "net profits" did not by its terms apply. In addition, the court ruled that "(t)he profits of the project were to be determined in the manner set forth in Exhibit 4 to the agreement," so that Landtect was not entitled to receive any net profits until "(a)...
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