Martin Development Co. v. Keeney Const. Co.

• Decision Date: 15 August 1985
• Docket Number: No. 84-190,84-190
• Citation: 703 P.2d 143,42 St.Rep. 752,216 Mont. 212
• Parties: MARTIN DEVELOPMENT CO., a corp., et al., Defendant and Respondent, v. KEENEY CONSTRUCTION CO., a Montana corp., Plaintiff and Appellant, v. MOUNTAIN WOOD APARTMENTS and Walter Peschel, et al., Cross-Defendant and Appellant.
• Court: Montana Supreme Court

Page 143

703 P.2d 143

216 Mont. 212

MARTIN DEVELOPMENT CO., a corp., et al., Defendant and Respondent, v. KEENEY CONSTRUCTION CO., a Montana corp., Plaintiff and Appellant, v. MOUNTAIN WOOD APARTMENTS and Walter Peschel, et al.,

Cross-Defendant and Appellant.

No. 84-190.

Supreme Court of Montana.

Submitted March 15, 1985.

Decided May 24, 1985.

As Amended on Grant of Rehearing Aug. 15, 1985.

Larry Elison, argued, Missoula, for appellants.

Donald V. Snavely, argued, Missoula, for defendant and respondent.

HARRISON, Justice.

In the action below, Martin Development Company, Inc. ("Martin") sought to recover damages from Walter H. Peschel ("Peschel"), an individual, and Mountain Wood Apartments ("Mountain Wood"), a limited partnership, for breach of a construction contract. The District Court of the Fourth Judicial District, Missoula County, sitting without a jury, the Honorable Robert J. Boyd of the Third Judicial District presiding, found for Martin and awarded lost profits, interest, and attorneys' fees. From this judgment Peschel and Mountain Wood appeal.

In 1977, Dr. Walter Peschel undertook negotiations with Charles Isaly for the construction of an apartment complex known as the Mountain Wood Apartments. Dr. Peschel negotiated as the sole general partner of Mountain Wood Apartments, a limited partnership. Charles Isaly negotiated as the managing agent for Martin Development Company, a general construction contractor. The negotiations culminated on or about June 5, 1978, when the parties orally agreed to a construction contract known as the MacDonald Agreement.

The majority, but not all, of the financing for the apartment project ("project") came from a loan from Washington Mortgage Company, Inc. ("Washington Mortgage") of Seattle. This loan was guaranteed by the United States Department of Housing and Urban Development, Federal Housing Administration ("HUD"). Because of this guarantee, Peschel and Martin signed a HUD form construction contract on June 6, 1978. There are no disputes regarding this contract.

The loan from Washington Mortgage did not cover the entire cost of the project because Peschel wanted to build a complex of higher quality than could be constructed with the HUD insured funds. Peschel understood that the HUD loan would be at least $100,000 short of the amount necessary to build the project he desired and that he would have to make up the difference. Terms concerning the extra funding required above the HUD loan were contained in the MacDonald Agreement.

Construction commenced on the project in July of 1978. Shortly thereafter problems arose concerning Peschel's obligations to fund the cost shortages during the course of construction. Negotiations to resolve the problems were undertaken by Peschel, Isaly, and their respective attorneys. A crisis stage in the negotiations was reached in late summer of 1979 when most subcontractors refused to work due to nonpayment of their bills. On October 2, 1979, Washington Mortgage gave notice that Peschel had defaulted on the loan and indicated that it intended to assign the loan to HUD. The halt in construction and the notice of default resulted in intense negotiations between the parties. A written agreement entitled Addenda No. 1 ("Addenda") was concluded and signed on November 10, 1979. The Addenda resolved all disputes existing between the parties as of that date, and released and discharged the parties from claims arising out of prior disputes. Paragraph 14 of the Addenda states that the "Addenda and the agreement and Exhibit attached hereto constitute the entire agreement between the parties." After execution of the Addenda, construction resumed on the project.

On December 7, 1979, approximately one month after the signing of the Addenda, construction Draw No. 13 was mailed to Washington Mortgage. Normal time for payment of a draw was two or three weeks. But Draw No. 13 was not and has never been paid. The reason was that Washington Mortgage, pursuant to its notice of default, had assigned the loan to HUD. On January 24, 1980, Martin sent a notice of default to Peschel. The notice specified that the default resulted from Peschel's failure to perform acts necessary to allow payment of Draw No. 13. Peschel was given fifteen days to cure the default but did not do so.

Trial was held in this matter on May 9th, 10th and 11th of 1983. The District Court issued findings, conclusions and final judgment on January 27, 1984. Judgment was for Martin and against Peschel in the amount of $72,000 plus interest. Lost profits accounted for $40,000 and attorneys' fees were awarded in the amount of $20,000. The balance ($12,000) was interest on the $40,000. In addition, $10.96 per day was assessed until satisfaction of the judgment. The court ordered that judgment be satisfied from a rent impoundment account administered by First Montana Title Company of Missoula.

Peschel did not take any action to stay execution of the judgment. On February 6, 1984, Peschel, through his attorney, filed a motion for a new trial. On February 10, 1984, Martin filed a satisfaction of judgment. On February 23, 1984, Peschel withdrew his motion for a new trial, withdrew his attorney, and substituted himself as counsel pro se. On the same day he filed a notice of appeal.

The following issues are presented:

(1) Whether the Addenda represents the entire agreement of the parties?

(2) Whether the District Court properly awarded $40,000 to Martin in lost profits?

(3) Whether the District Court properly awarded attorneys' fees to Martin?

(4) Whether the District Court properly awarded interest to Martin of ten percent on the unpaid profit?

(5) Whether this appeal should be dismissed as moot for the reason that the judgment of the District Court has been satisfied?

We hold that the Addenda represented the complete and final agreement of the parties. The introductory paragraph of the Addenda reads as follows: "Whereas, it being in the best interests of each party signatory to this agreement to set forth in writing all agreements that exist as of November 7, 1979, the parties hereby agree as follows: ..." (Emphasis added.) In addition, paragraph 14 of the Addenda begins, "This addenda and the agreement and exhibits attached hereto constitute the entire agreement between the parties." This language is unambiguous: the Addenda, and any agreement and exhibits attached to it, is the agreement of the parties. This Court has said on numerous occasions that ambiguity exists when a contract taken as a whole in its wording or phraseology is reasonably subject to two different interpretations. See e.g., Martin v. Community Gas & Oil Co. (Mont.1983), 668 P.2d 243, 40 St.Rep. 1385; Sounders v. Montana Power Co. (Mont.1983), 662 P.2d 289, 40 St.Rep. 583. The above quoted language from the Addenda is not reasonably subject to different interpretations. The Addenda, and only the Addenda, controls the obligations of the parties in this case. Martin argues that ambiguity exists in the fact that paragraph 14 of the Addenda refers to an attached agreement when no agreement is attached. Martin further argues that sworn testimony establishes that the agreement to be attached was the MacDonald Agreement. Unfortunately, respondent confuses ambiguity with mistake. It may be true that the parties intended to attach the MacDonald Agreement but, because of a mistake, did not do so. If that is the case, however, respondent, before bringing suit, should have sought to reform the Addenda to make it conform to the real agreement of the parties. This was not done and it is not the province of this Court to entertain an action for reformation on appeal.

Because the Addenda is the entire agreement of the parties, we refer to it in order to determine if the District Court properly calculated lost profit, interest on that profit, and attorneys' fees.

Paragraph 3 of the Addenda provides that Martin receive $65,000 total profit from the project. Further, it states that $22,000 of that total had already been paid. At trial, Martin admitted receiving $3,000 additional profit since the conclusion of the Addenda. Therefore, at the conclusion of the trial $40,000 in profit provided by the Addenda remained unpaid. The District Court awarded that sum to Martin. We concur.

Peschel argues that he was not in breach, but, assuming arguendo that he was in breach, he should only have to pay a pro rata share of lost profit, or $20,000. There is no merit in either of these contentions. The evidence is conclusive that Peschel breached his contract with Martin. At the time the Addenda was executed, Peschel signed a letter to an official of HUD indicating that Martin was not responsible for previous problems with the project. After the Addenda, Martin resumed work on the project and continued until Draw No. 13 was not timely paid. When work stopped, HUD considered the possibility of bringing a claim against Martin's bonding company but concluded that such claim would fail because Martin was not the primary cause for the failure of the project. There is nothing in the record to indicate that Martin was either in breach, or caused the breach. While it is true that the Addenda does not explicitly make the payment of Draw No. 13 a condition of performance, it goes without saying that a construction contractor will not work without being paid. Peschel's problems with his lender were not the fault of Martin. Martin's obligation under the Addenda was to construct apartment buildings; Peschel's obligation was to pay for that construction. Martin was willing and able to meet its obligations; Peschel failed to meet his. It is the law in this State that a non-breaching party should be placed in as good a position as if the contract had been performed. Kirby v. Kenyon-Noble Lumber Company (1976), 171 Mont. 329, 558 P.2d 452. $40,000 profit was due Martin upon completion of the project. That...