Palmer v. Howard, 73-1341

• Citation: 493 F.2d 830
• Decision Date: 21 January 1974
• Docket Number: 73-1342.,No. 73-1341,73-1341
• Parties: Paul B. PALMER et al., Plaintiffs-Appellees, Cross-Appellants, v. Jack HOWARD et al., Defendants-Appellants, Cross-Appellees. Jack HOWARD et al., Third-Party Plaintiffs-Appellants, and Cross-Appellees, v. K. E. WILSON, Third-Party Defendant and Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

493 F.2d 830 (1974)

Paul B. PALMER et al., Plaintiffs-Appellees, Cross-Appellants, v. Jack HOWARD et al., Defendants-Appellants, Cross-Appellees.

Jack HOWARD et al., Third-Party Plaintiffs-Appellants, and Cross-Appellees, v. K. E. WILSON, Third-Party Defendant and Appellee.

Nos. 73-1341, 73-1342.

United States Court of Appeals, Tenth Circuit.

Argued and Submitted November 14, 1973.

Decided January 21, 1974.

Rehearings Denied February 26, 1974.

Albert B. Wolf of Meer, Wolf & Slatkin, Denver, Colo. (Sutin, Thayer & Browne, Albuquerque, N. M., on the brief), for defendants-appellants and cross-appellees.

W. Robert Ward, Denver, Colo. (Reed L. Frost, Farmington, N. M., on the brief), for plaintiffs-appellees and cross-appellants.

Wayne D. Williams of Williams, Erickson & Wallace, P.C., Denver, Colo., for third-party defendant and appellee.

Before MURRAH, SETH and DOYLE, Circuit Judges.

WILLIAM E. DOYLE, Circuit Judge.

This action involves the relative rights of a large number of contracting parties under a joint venture agreement, the purpose of which was to develop, construct and operate a shopping center in Farmington, New Mexico.

There are two groups of joint venturers, the interests of the members of each being substantially similar. On the one hand is the so-called Palmer segment consisting of four Palmers and their wives. In the other, the so-called Howard group, are Jack Howard, Tom Howard, Willard Brockway and Francis Brockmann. An original member of the Howard associates was K. E. Wilson. There is now an independent dispute between the Howards and Wilson.

In general, the joint venture agreement called for the Palmer contingent's furnishing the land on which the shopping center was to be built. The Howard group, on the other hand, was given the responsibility for the planning, financing and construction of the shopping center. The Howards were to act as the general contractor for the construction of the shopping center, whereas Wilson was to have responsibility for the leasing and financing.

The main dispute is the meaning of a contractual provision stating that the construction and development costs were not to exceed the long-term financing, which sum was $1,725,000. The trial court ruled that this contract provision operated as an absolute limitation on the Howards in constructing the shopping center and it followed that the amount that the construction costs exceeded the loan funds, namely $108,000, had to be paid by the Howard group. The Howard group had apparently advanced this sum and hence found it necessary to take the initiative in an effort to retrieve it.

The Palmers filed the initial action seeking an accounting and what in effect was a judicial interpretation that they were not responsible under the contract to contribute amounts in excess of the loan. The Palmers also sought damages for construction work allegedly performed improperly and damages for construction funds spent improperly. The Howards' counterclaim sought damages for the Palmers' share of construction costs exceeding the funds originally loaned. The Howards also claimed that they were entitled to a fee of five percent of the total cost of construction, maintaining that the Palmers were obligated as joint venturers to pay one-half of that fee.

There was a separate contract which was entered into between the Howards and Wilson. The original joint venture agreement had been dated July 1967. The contract between the Howards and Wilson was dated July 1, 1968. It dealt with the procedure to be followed should additional capital contributions be required to meet the cost of construction and future operating costs. It prescribed, first, that there be negotiations with the Palmer group looking to the obtaining of additional money from them. Secondly, if the efforts to persuade the Palmers failed, the Howards and Wilson agreed to obtain secondary financing by pledging their own interests in the shopping center. They also agreed to pay their proportionate share of any necessary additional funds, in the event that secondary financing could not be obtained.

The record reveals that some efforts were made to negotiate with the Palmers when the need for additional funds arose. These attempts were not successful, although the Palmers maintain that no formal demand for funds was ever made. In any case, we fail to see the relevance of this dispute since, as previously noted, all additional funds were advanced by the Howards.

A third-party action was filed and prosecuted by the Howards against Wilson seeking a contribution of his share of the excess costs (allegedly amounting to 40 percent of the Howard group's interest in the shopping center). This being based on an indemnity agreement, the action was predicated on the contingency that the Palmers would prevail in the action. The trial court denied relief on this third-party claim. It did so by reasoning that the indemnity agreement between Wilson and the Howards was to become effective only in the event that additional capital contribution was required by reason of insufficient funds to meet the cost of construction and that the Howards had not proven that the long-term loan was insufficient to meet the construction costs. Thus, the judge ruled that the Howards were obligated to prove that the need for additional funds did not arise from the Howards' negligence. The trial court upheld the right of Wilson to have his fee during the course of the construction. The fact that Wilson had been paid $24,000 during the construction out of the loaned funds was not deemed significant by the trial court.

The sum of $19,122.10 had been paid to Brockway, a member of the Howard group, out of the construction funds. The court held that this was a proper expenditure, though a part of the five percent overhead fee. The court also approved the expenditure of $29,709.41, which was paid to two loaned employees of Howard related companies. The sum of $65,200 was paid to the H. C. Flaugh Company to coordinate and supervise the subcontracts and the purchasing of material. This was also held to be a proper construction fund expense.

These rulings are challenged by the Palmers as appellees and cross-appellants. The Palmers also maintain that the trial court erred in denying damages for deletions in the construction having a value, so they contend, of $134,000.

The contention of the Howards on appeal is that the trial court erred in denying its claim for the five percent fee, that is, in not requiring the Palmers to pay one-half of that. The Howards also claim here that the court erred in denying their demand for one-half of the cost of construction which exceeded the loan funds, that is, one-half of $108,000. As to the third-party defendant Wilson, the Howards demand that he pay his 40 percent share as a member of the Howard group.

Wilson has filed a cross appeal against the Howards in which he claims the balance of his five percent fee.

The parties to the joint venture agreement contemplated that some advance funds would be necessary for preliminary work, and so each of the groups initially deposited $5,000. It was expressed in the agreement that this fund should not exceed $30,000. It was the court's view that the Howards had the exclusive responsibility with respect not only to the construction but also to the expenditure of the funds ; that the Palmers had no obligation to obtain financing or to do anything else in the development of the project and that their contribution of cash was not to exceed their share of the $30,000 of preliminary financing.

The court said that the Howards were limited to a five percent overhead fee for managing or contracting work. In ruling against the Howards on the issue of the excessive costs of the project, the court emphasized that the Howards (not including Wilson) were in complete control of the construction "and that having this responsibility, breached their fiduciary duty to the joint venture. It was their obligation to keep the construction costs of the project within the sum of $1,725,000.00, the amount of the long-term loan from Connecticut Mutual Life Insurance Company. The actual cost of construction exceeded the long-term loan by $108,142.73." The court continued:

. . . Notwithstanding the fact that unanticipated expenses for steel pilings, relocation of sewer lines and extension of water lines increased the total cost of construction at the outset, Howard, Brockway and Brockmann exceeded the amount of the long-term loan at their own risk without obtaining the approval of the Palmers. The Palmer group cannot be required to contribute to the resulting overrun.

The Howards' third-party claim against Wilson was denied because the court found that Brockway (one of the Howard group) testified that construction costs could have been reduced had he eliminated certain features which were retained to enhance the appearance of the shopping center.¹

The only issues which we need consider are the propriety of the court's rulings construing the contract so as to order the Howards to bear the risk of loss. Most of the trial court's rulings are factual and thus are not subject to review. We consider it essential, however, to take up the trial court's construction of the clause of the contract bearing on whether the Howard group had the risk of loss for excessive spending. Secondly, whether the Palmers are required to contribute to the five percent fee of the Howard group and, thirdly, the extent, if any, of the liability of the third-party defendant Wilson.

I. MEANING AND EFFECT OF CLAUSE 6 OF THE JOINT VENTURE AGREEMENT LIMITING THE TOTAL COST OF THE SHOPPING CENTER TO THE LOANED FUNDS

Ordinarily joint venturers share in losses as well as profits and do so on an equal basis. This is not invariable. The venturers are allowed to vary this general principle in their own specific agreement. 46 Am.Jur.2d 55, Joint Ventures, § 37, Contributions. The original...