Scholz Homes, Inc. v. Wallace
| Decision Date | 18 January 1979 |
| Docket Number | Nos. 76-1258,76-1259,s. 76-1258 |
| Citation | 590 F.2d 860 |
| Parties | 4 Fed. R. Evid. Serv. 205 SCHOLZ HOMES, INC., Plaintiff-Appellant-Cross-Appellee, v. Wayne O. WALLACE, Jr., M. D. and Mrs. Wayne Wallace, Jr., Defendants-Counterclaimants-Appellants-Cross-Appellees, v. Richard A. LUTES, Counterdefendant-Appellant-Cross-Appellee. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Kenneth F. Crockett, Topeka, Kan. (with Eugene W. Hiatt, Topeka, Kan., on brief), of Hiatt, Crockett, Hiatt & Carpenter, Chartered, Topeka, Kan., for Scholz Homes, Inc. and Richard A. Lutes.
Charles D. McAtee, Topeka, Kan. (with Paul H. Hulsey, Topeka, Kan., on brief), of Eidson, Lewis, Porter & Haynes, Topeka, Kan., for Wayne O. Wallace, Jr., M. D., and Mrs. Wayne Wallace, Jr.
Before McWILLIAMS, BARRETT and McKAY, Circuit Judges.
In the fall of 1971 Dr. Wayne O. Wallace, Jr. and his wife became interested in building a family residence by obtaining a "package" home manufactured by Scholz Homes, Inc. (Scholz). Their initial written inquiries were answered in person by Richard A. Lutes, a Scholz district sales manager, who showed the Wallaces promotional materials and discussed with them various packages and their costs.
The promotional materials stated that a Scholz representative would "provide cost figures" and "select a builder" for the package home purchaser. Record, supp. vol. 1, at 94. Lutes suggested, as a rule of thumb, that the total cost of the package home construction would be three times the cost of the package itself. The Wallaces contemplated obtaining the "Contempera Supreme In-Line" package costing $35,000. Under Lutes' rule of thumb the house would have cost $105,000 approximately within the $100,000 price range the Wallaces desired. Lutes advised the Wallaces that he would look for a builder since neither he nor they knew one in the Atchison, Kansas area "compatible" with Scholz products. Record, vol. 7, at 58-60.
Through the assistance of other Scholz representatives Lutes found Construction Systems, Inc. (C.S.I.), an Iowa corporation with Scholz building experience. C.S.I. was in deep financial trouble at this time and owed Scholz for an apartment package under construction in Iowa. C.S.I.'s financial difficulties notwithstanding, Lutes arranged In April, after construction had commenced and the Wallaces had paid Tra-Kel $25,000 in progress payments, Dr. Wallace was contacted by Scholz' Iowa representative. During their conversation, Dr. Wallace was informed of C.S.I.' § financial difficulties and was advised to cease his progress payments and require a finished product before further payments were made. Following this obviously disturbing conversation, Dr. Wallace contacted Lutes to apprise him of this information. Lutes said he would check with Scholz regarding Tra-Kel's financial situation. On April 15 Lutes informed Dr. Wallace that according to Scholz' credit manager, Mr. Brandys, and regional sales manager, Mr. Piper, "Scholz Homes had done some checking and (Tra-Kel was) still okay" financially. Record, vol. 7, at 350. Lutes also led the Wallaces to believe that "he had clout to make (Tra-Kel) perform." Record, vol. 7, at 351.
for a meeting between C.S.I. representatives, Lutes and the Wallaces to discuss the feasibility of building the Wallaces' house. Later, Lutes was advised that the C.S.I. stockholders were going to form a Kansas corporation, Tra-Kel Enterprises, Inc. (Tra-Kel), to build the Wallace home. On March 8, 1972, the Wallaces examined and dated a prospective contract with Tra-Kel. On March 16 Tra-Kel ordered a Contempera Supreme In-Line Package through Lutes, and on March 22 Tra-Kel formally contracted with the Wallaces to build the house for $107,410.
In early May, 1972, Dr. Wallace received a telephone call from Mr. Brandys, Scholz' credit manager, who was concerned about Tra-Kel's payment for the house package which was then in transit. The two men discussed the possibility of the Wallaces establishing an escrow agreement to guarantee Scholz payment for the package. After this conversation Dr. Wallace believed Brandys understood the Wallaces' concern over Tra-Kel's performance. Dr. Wallace testified at trial that he had given Brandys no assurances of payment for the house package. On the other hand, Brandys apparently believed that Dr. Wallace had assured Scholz of payment for the package. Brandys further felt that he had given Dr. Wallace no assurances of performance by Tra-Kel.
On May 8 the Scholz package arrived, C.O.D., at the Wallaces' building site. The package was unloaded, but no money was paid. A meeting involving Dr. Wallace, Lutes, Tra-Kel stockholders, and the Wallaces' attorney was held that same day. As a result of this meeting, a new agreement between the Wallaces and Tra-Kel was formulated. The agreement provided for payment to Scholz for the package via an escrow arrangement and stated that the package cost would "be paid to Scholz Homes, Incorporated, when said 'building package' is installed under roof, with trim delivered, and lien waivers granted to date, and is otherwise complete." Record, supp. vol. 1, at 9. Pursuant to this arrangement, the Wallaces' attorney prepared an escrow agreement which named the City National Bank of Atchison, Kansas, as escrow agent and called for a deposit of $34,558.16, the package home price, with the agent. The agreement also provided that no moneys were to be paid until the Wallaces received duly executed lien waivers on "all work completed to date of payment on the 'building package.' " Record, supp. vol. 1, at 15. The escrow agreement was executed by the Wallaces and by Mr. Brandys for Scholz Homes, Inc., but it was never presented to the bank. On May 26, the Wallaces terminated their contract with Tra-Kel for breaches resulting from Tra-Kel's failure to pay subcontractors, obtain lien waivers, and pay interest on advanced moneys as per that contract. The $34,558.16 mentioned in the escrow agreement was never deposited with the escrow agent. The Wallaces believed that since Tra-Kel was in default the contract was void, and the purpose of the escrow agreement had been thwarted.
The Wallaces continued construction under their own supervision and completed the house at a total cost of $147,636.25, excluding the Scholz package price which was never paid.
Scholz brought suit to recover the price of the package. The Wallaces counterclaimed for their costs above the $107,000 Tra-Kel contract on the theory that they had been fraudulently induced by Scholz to enter the contract with Tra-Kel.
The trial court ruled as a matter of law that: (1) the May 8 contract failed for lack of consideration; (2) the escrow agreement was unenforceable for lack of delivery; (3) any oral agreements between the Wallaces and Scholz merged in the contract and escrow agreement and failed with them; (4) the Wallaces could not prevail under a benefit of the bargain theory; (5) the Wallaces suffered damages equal to the difference between what it cost them to build the house and what it would have cost if they had contracted with a competent and solvent builder; and (6) Scholz' evidence supported only a claim of unjust enrichment under an implied contract theory. The case was then submitted to the jury. Judgment for the Wallaces was entered in the amount of the jury verdict $20,000 actual damages and $5,000 punitive damages and the trial court denied Scholz' motion for a new trial. Both parties appealed.
Scholz' first contention on appeal is that the trial court erred in determining that the escrow agreement was unenforceable for nondelivery of either the document of agreement or the $34,558.16 specified in it. The trial...
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