Missouri-Indiana Inv. Group v. Shaw

• Decision Date: 09 February 1983
• Docket Number: MISSOURI-INDIANA,No. 81-1788,81-1788
• Citation: 699 F.2d 952
• Parties: INVESTMENT GROUP, a Missouri limited partnership, Appellant, v. Obie SHAW and Gene Silkey, d/b/a Management of Energy Resources, an Indiana partnership, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 952

699 F.2d 952

MISSOURI-INDIANA INVESTMENT GROUP, a Missouri limited partnership, Appellant, v. Obie SHAW and Gene Silkey, d/b/a Management of Energy Resources, an Indiana partnership, Appellees.

No. 81-1788.

United States Court of Appeals Eighth Circuit.

Argued June 14, 1982.

Decided Feb. 9, 1983.

Gallop, Johnson & Neuman, Edwin D. Akers, Jr., St. Louis, Mo., for appellees.

London, Greenberg & Fleming, Lawrence J. Fleming, St. Louis, Mo., for appellant.

Before LAY, Chief Judge, JOHN R. GIBSON, Circuit Judge, and FAIRCHILD, ^* Senior Circuit Judge.

FAIRCHILD, Senior Circuit Judge.

This action was begun in a Missouri court and removed by defendants on the basis of diversity jurisdiction.

Plaintiff Missouri-Indiana Investment Group (Missouri-Indiana) is a limited partnership consisting of Robert E. Smith, general partner, and 13 limited partners. Named defendants are "Obie Shaw and Gene Silkey, d/b/a Management of Energy Resources, an Indiana Partnership." The latter partnership is referred to in this opinion as MER. The district court found that Smith was also a partner in MER. ¹

On April 8, 1978, a Sale and Leaseback Agreement was executed by MER and Missouri-Indiana. By its terms: MER assigned its interest in coal mining leases in Fountain County, Indiana, to Missouri-Indiana. Missouri-Indiana agreed to pay $100,000 immediately and another $100,000 within 30 days. Missouri-Indiana assigned the leases back to MER. MER agreed to mine coal and pay a royalty per ton to Missouri-Indiana. MER guaranteed to mine 10,000 tons per month and a minimum of 800,000 tons. ² The royalty rate was $4.00 per ton, with an increase to $5.00 per ton if Missouri-Indiana paid a third $100,000, which Missouri-Indiana did. Shaw and Silkey signed the agreement on behalf of MER and also as guarantors.

This lawsuit resulted when little coal was mined and no royalties paid.

There was a bench trial. At the close of plaintiff's evidence, the judge granted defendants' motion for judgment and made findings and conclusions, awarding judgment to defendants. Missouri-Indiana Investment Group v. Shaw, 518 F.Supp. 576 (E.D.Mo.1981). His principal conclusions were that there could be no recovery under the contract because an agreed condition had not been fulfilled and that in any event plaintiff and defendants were joint venturers. Plaintiff appealed. Most of the significant facts are set forth in the district court decision.

I. The Contingency Provision of the Agreement

Paragraph 13 of the Sale and Leaseback Agreement reads, "This Agreement is contingent on MER executing a contract with the present owner of the mine and equipment, (Mr. Robert Tatge or one or more corporations owned by him) which contract must be in a form acceptable to Missouri-Indiana." The district court concluded that full performance by Tatge was a condition precedent, and that Tatge's default in assigning mining rights and turning over equipment discharged defendants' contractual duties. We disagree.

The district court cited Ennis v. Ring, 49 Wash.2d 284, 300 P.2d 773, 776 (1956), as its only authority for the proposition that to "execute a contract" means to enter into a contract in which nothing remains to be done by either party. Ennis applied that definition to a rule exempting executed contracts from the statute of frauds. Although the Supreme Court of Missouri has defined an "executed contract" as one where nothing remains to be done, it did so in distinguishing an executed from an executory contract. Rockhill Tennis Club v. Volker, 331 Mo. 947, 56 S.W.2d 9, 17 (1932). In other contexts the Missouri court has equated execution of a contract with signing and delivery. Meredith v. Brock, 322 Mo. 869, 17 S.W.2d 345 (1929); Hart v. Harrison Wire Co., 91 Mo. 414, 4 S.W. 123, 126 (1887). See Coen v. American Surety Co., 120 F.2d 393, 397 (8th Cir.), cert. denied, 314 U.S. 667, 62 S.Ct. 128, 86 L.Ed. 534 (1941).

Whatever the range of definitions of the verb "to execute," Missouri cases recognize that in popular speech, "execute" is often used to refer merely to the act of signing a written contract. Morris v. Butler, 138 Mo.App. 378, 122 S.W. 377, 378 (1909).

Paragraph 13 states that the contract between MER and Tatge must be in a form acceptable to the plaintiff. We think that this reference to form indicates that the contingency would be fulfilled upon the signing of an approved written contract. Paragraph 12 refers to the agreement between the plaintiff and MER as "being executed in Missouri in counterpart originals." In paragraph 12 "executed" means "signed" and this use is a reason for giving a parallel meaning to "executing" in paragraph 13.

The Sale and Leaseback Agreement purported to constitute an immediate assignment and assignment back of leases held by Tatge. It also imposed an obligation on Missouri-Indiana to pay $100,000 immediately, by check payable to MER and Tatge, evidently to purchase Tatge's leases. MER had an obligation to start mining in seven (7) days. It would seem that the parties must have contemplated the contingency would fail or be fulfilled almost simultaneously with the formation of the Sale and Leaseback Agreement, so that if it failed, the parties could still have restored each other to their original positions. In fact, Tatge and his lawyer appeared with a proposed contract on April 8, when the Sale and Leaseback Agreement was signed. Attorney Edward Cody and Smith insisted on further information. The signing and approval of the Tatge contract was postponed, and took place on April 11.

Plaintiff paid the full $300,000. This fact itself indicates that the parties considered the contingency fulfilled. A construction under which Tatge's later default would subject plaintiff to a $300,000 loss and relieve defendants of all obligation seems most unreasonable.

We conclude that no circumstances warrant a construction of the contingency clause different from its ordinary meaning. The Sale and Leaseback Agreement left the burden on defendants to protect themselves from a breach of contract by Tatge.

Accordingly, the signing of the contract between MER and Tatge fulfilled the contingency. ³ Tatge's breach thereof did not provide a defense to defendants.

II. Joint Venture

In this action, Missouri-Indiana, the plaintiff partnership, claimed its rights under the Sale and Leaseback Agreement. Having paid the money called for by the Agreement, ⁴ plaintiff sought to recover from Shaw and Silkey for their default in mining coal and paying royalties as agreed. In denying recovery, the district court concluded that because of the control of the venture exercised by Smith and shared with Shaw and Silkey, the Agreement is not to be taken at face value, but plaintiff is to be treated as engaging in a joint venture. 518 F.Supp. at 581. Presumably the court considered that Tatge's defaults and any other difficulties which prevented success were a shared risk.

There is indeed evidence that Smith became a partner in MER with Shaw and Silkey on the same day the Sale and Leaseback Agreement was signed. The district court so found, and the finding is not clearly erroneous. The partnership agreement was kept secret, even from Cody, the attorney for Smith and for Missouri-Indiana (and for Shaw and Silkey as the court found).

There is other evidence of Smith's participation in the affairs of MER, although some of this activity is consistent with his role of protecting the interests of Missouri-Indiana as its general partner. To the extent his participation was confined to protecting Missouri-Indiana's rights it was not inconsistent with a lessor-lessee contract relationship.

But there is also evidence of his obtaining funds from MER accounts, and using them for his personal benefit.

The district court's view that Missouri-Indiana was in a joint venture with Shaw and Silkey must rest on ascribing to Missouri-Indiana Smith's role as partner of MER and such matters as his use of MER's funds. Under the circumstances these involved a conflict of interest between Smith and Missouri-Indiana, and there is no basis for ascribing them to the plaintiff partnership.

A. Collateral Estoppel

The plaintiff suggests that the district court erred by not applying collateral estoppel to hold that Smith was not a partner in MER for purposes of the Fountain County coal mining project. On July 17, 1978, Tatge had brought an action in an Indiana court against Smith, Silkey, and Shaw, doing business as MER, to replevy certain mining equipment and to enjoin defendants from mining on the Fountain County property. There was evidence that the Indiana court dismissed the action as to Smith on the agreement of the parties that Smith was not a member of the MER partnership. Plaintiff asserts that Shaw and Silkey are collaterally estopped from claiming that Smith is a partner.

The district court stated three reasons for rejecting this argument: (1) the Indiana Circuit Court never rendered a final judgment in the cause in question; (2) agreements by parties do not give rise to estoppel; and (3) the copies of a docket sheet introduced by the plaintiff were insufficient evidence of the action taken or findings made by the Indiana court. 518 F.Supp. at 581.

Court of appeals decisions disagree over whether the forum or the rendering state's law determines the preclusive effect of a state judgment in a subsequent diversity suit. Compare, e.g., Kuehn v. Garcia, 608 F.2d 1143, 1147 (8th Cir.1979), cert. denied, 445 U.S. 943, 100 S.Ct. 1340, 63 L.Ed.2d 777 (1980) and Reimer v. Smith, 663 F.2d 1316, 1325 (5th Cir.1981) (forum state) with E.D. Systems Corp. v. Southwestern Bell Telephone Co., 674 F.2d 453, 457 (5th Cir.1982) (rendering state). We need not address this discord because Missouri gives a sister state judgment the preclusive effect it has in the rendering state. Destrehan v. Scudder, 11 Mo. 484 (1848). We therefore look to Indiana law to determine the preclusive...