Quad Const., Inc. v. Wm. A. Smith Contracting Co., Inc.
| Citation | 534 F.2d 1391 |
| Decision Date | 22 April 1976 |
| Docket Number | 75-1261,Nos. 75-1260,s. 75-1260 |
| Parties | QUAD CONSTRUCTION, INC., a Wyoming Corporation, Plaintiff-Appellee, v. WM. A. SMITH CONTRACTING CO., INC., a Missouri Corporation, Defendant-Appellant. |
| Court | United States Courts of Appeals. United States Court of Appeals (10th Circuit) |
Richard L. Harring, Denver, Colo. (Calkins, Kramer, Grimshaw & Harring, and James S. Bailey, Denver, Colo., on brief), for defendant-appellant.
Joseph E. Meyer III, of Holme, Roberts & Owen, Denver, Colo., for plaintiff-appellee.
Before LEWIS, Chief Judge, and BREITENSTEIN and McWILLIAMS, Circuit Judges.
This is a contract case with jurisdiction based on diversity. The district court gave judgment for the plaintiff and each side has appealed. We affirm.
Plaintiff Quad Construction, Inc., and defendant Wm. A. Smith Contracting Co. were joint venturers on two tunnel projects located in Colorado. The joint venture was the prime contractor for the cities of Colorado Springs and Aurora on the Homestake Tunnel. On the Divide Tunnel project of the United States Bureau of Reclamation the prime contractor was Winston, Foley, Frazier-Davis & Hurley and the Smith-Quad joint venture was a subcontractor. Difficulties were encountered and various lawsuits were brought.
Differences between Quad and Smith were settled by an agreement executed on August 5, 1969. Quad pulled out of the projects and Smith concluded them. In consideration for Quad's withdrawal, releases, and other commitments, Smith paid Quad $450,000 and in addition agreed to pay Quad 10% of the "net claims," against the prime contractor or the Bureau, of the joint venture on the Divide project or 10% of the net profit of the joint venture before taxes, whichever is greater. The controversy centers around the meaning of "net claims." There was no net profit.
On the Divide project unexpected subsurface conditions and other unforeseen problems substantially increased the construction costs. Smith-Quad demanded additional compensation. In turn Winston, the prime contractor, demanded that the Bureau pay several million dollars more than the contract amount. The dispute between Winston and the Bureau was pending and unresolved at the time of the 1969 agreement between Smith and Quad. After it was settled Winston paid Smith $3,099,281. Smith refused to pay any of this amount to Quad. Quad then brought the instant suit. After trial the district court made findings and deducted $522,000 from the amount paid by Winston to Smith. The propriety of this deduction is not questioned. The court then gave Quad judgment for 10% of the remainder or $257,728 plus interest and costs. In so doing the court rejected the Quad contention that it was entitled to payment for four items to be mentioned later.
No. 75-1260 is an appeal by Smith from the judgment against it. Smith says that the construction costs exceed the receipts from the Bureau and, hence, there are no "net claims." Quad says that construction costs are not deductible from "net claims."
The definition or determination of "net claims" is found in P 4. Subparagraph A says that "net claims" shall not include any back charges by either the prime contractor or the Bureau against Smith-Quad and by illustration explains the meaning. Subparagraph B says that "net claims" shall not include any claims by Smith-Quad against the prime contractor or the Bureau "for cement used in the overbreak area." Subparagraph C provides that "net claims" does not include costs incurred by Smith in processing the claims but limits the liability of Quad for those costs. Nothing is said in P 4A about the deductibility of construction costs from the Quad percentage of the "net claims."
The phrase "net profit before taxes" is defined by P 5 to mean the net profit for all work performed by the joint venture on the Divide Tunnel "as determined by a final audit of certified public accountants based on standard accounting principles" taking stated factors into account. It is undisputed that there was no "net profit before taxes."
The trial court held that "net claims" has no accepted or understood meaning in the construction industry and that the term "has to mean gross claims less those amounts, if any, set forth in paragraphs 4-A, B and C of the agreement." We agree.
The records show that the term "net claims" is not a term of art in the construction business and has no common or accepted meaning in that industry. Smith argues that the court erred in not applying "generally accepted accounting principles" to the definition of "net claims." The only contract reference to accounting principles is found in the definition of "net profits" and we are not concerned therewith because there were none. Smith complains of the court's rejection of the testimony of its witness Williams as to the meaning of "net claims" in accounting practices. Our concern is with the construction business, not accounting practices. Before the court's ruling the witness had testified that until this case came up he had never heard the term "net claims" used in the construction business. The rejection of the testimony was proper.
The court found that the contract was prepared by Smith's attorney. Smith objects on the ground that the contract was jointly worked out and gone over by the attorneys for the respective parties. The court noted that Smith's attorney resided in Denver and did not testify in the case. Smith insists that this fact does not justify an inference against it because the attorney was equally available to each side. The same situation pertains to the attorney for Quad. He resides in Denver and was not called as a witness.
We recognize the applicable Colorado decision in Patterson v. Gage,11 Colo. 50, 16 P. 560, 562, stating the rule that words of a contract are to be taken most strongly against the party using them "is the last rule to be resorted to, and never to be applied except when other rules of interpretation fail." We accept the rule that where a potential witness is equally available to all parties, no inference should be drawn from any failure to call that witness. See Kean v. Commissioner of Internal Revenue, 9 Cir., 469 F.2d 1183, 1187.
The mentioned rules have no applicability to the case before us. Although the trial court commented on the preparation of the contract by Smith's attorney and the availability, but non-appearance, of that attorney as a witness, its decision was not based on either contract preparation or non-appearance. In our determination of the controversy we ignore these aspects of the case.
The claims to which the contract refers are those against the prime contractor and the Bureau on the Divide Tunnel project. The dispute arises over the word "net." The contract refers "to the definition or determination of 'net claims' or 'net profit before taxes' as hereinafter is set forth." Paragraph 4 specifically provides that "net claims" shall not include specified items. Construction costs are not included therein. The P 5 definition of "net profit" specifically refers to "standard accounting principles." The omission of reference to "standard accounting principles" in the definition of "net claims" is significant. The parties recognized the...
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