Woodbury v. United States

• Decision Date: 15 July 1966
• Docket Number: No. 127-61.,127-61.
• Citation: 176 Ct. Cl. 838,364 F.2d 993
• Parties: Lucille B. WOODBURY, Executrix of the Estate of Ray B. Woodbury, Deceased, v. The UNITED STATES.
• Court: U.S. Claims Court

176 Ct. Cl. 838, 364 F.2d 993 (1966)

Lucille B. WOODBURY, Executrix of the Estate of Ray B. Woodbury, Deceased, v. The UNITED STATES.

No. 127-61.

United States Court of Claims.

July 15, 1966.

Norman J. Wiener, Portland, Or., attorney of record, for plaintiff. King, Miller, Anderson, Nash & Yerke, Portland, Or., of counsel.

Gerson B. Kramer, Washington, D. C., with whom was Asst. Atty. Gen. John W. Douglas, for defendant. Manfred J. Schmidt, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS and COLLINS, Judges.

DAVIS, Judge.

This suit is for breach of an alleged contract with the Housing and Home Finance Agency (HHFA), formerly an independent agency of the United States (now merged into the Department of Housing and Urban Development). Plaintiff¹ charges that in April 1954 HHFA became party to an agreement to facilitate the completion of a housing project in Kodiak, Alaska; that the United States thereby assumed a contractual obligation either to implement and carry out the existing federally-supported arrangements for long-term financing or to provide alternative means for such financing; and that defendant thereafter breached this agreement to plaintiff's detriment. The Government denies each of these allegations, disavowing all the elements of the liability charged. In addition, it has lodged counterclaims seeking recovery for asserted breaches of guaranty by plaintiff. The parties have filed cross-motions for summary judgment on the plaintiff's claim; defendant also seeks summary judgment on one of its counterclaims, and plaintiff opposes that request, asking for dismissal of both counterclaims.

This action is one phase of a complicated round of litigation between these same parties in three federal courts.² For that reason, we set out in considerable detail both the facts giving rise to the plaintiff's present claim and the pertinent aspects of the proceedings in the other courts.

I

Beginning in 1949, various officials representing the Navy, the Alaska Housing Authority, the City of Kodiak, Alaska, and the Federal Housing Administration (FHA) discussed the possibility of obtaining additional housing for naval and civilian personnel connected with the Kodiak Naval Base. After considering possible approaches, the responsible officials decided to plan for the construction of an off-base project of some 350-400 dwellings, utilizing FHA's power to insure conventional mortgages on individual houses (Title II, § 203 of the National Housing Act of 1934, 12 U.S.C. § 1709). During 1951, plaintiff became interested in sponsoring the planned project at Kodiak. In February 1952, he incorporated Aleutian Homes, Inc. (in Oregon) for the purpose of sponsoring the housing project, and soon the City of Kodiak approved Aleutian as the sponsor of the naval base project.³ The Alaska Housing Authority then conveyed the land selected for the site to the plaintiff's corporation.

Under the FHA § 203 mortgage insurance program, private mortgage companies must take out individual long-term mortgages on each house in the project. To obtain this required permanent financing for its proposed project, Aleutian executed an agreement with Brice Mortgage Company (Brice), a mortgage-brokerage firm. To interest buyers for the individual mortgages, which would be sold, it was then necessary for Brice to have a commitment from FHA to insure them. To this end, the mortgage firm, acting for Aleutian Homes, took the steps required by the FHA regulations to arrange for the insurance. The Navy certified to FHA the urgent need for housing at the Kodiak Naval Base, the permanency of the Base, and the ability of the military and civilian personnel stationed there to pay the planned monthly rentals. FHA appraised the value of the proposed 344-unit project at $5,904,250.00 and, in April 1952, issued for a stated period its conditional commitment to Brice to insure long-range individual mortgages on each home in a total amount of $4,706,400.00 (80% of the FHA-appraised value.) Furthermore, the Federal National Mortgage Association (FNMA), which provides a secondary market for the purchase and discounting of mortgages, gave its commitment to Brice to purchase at par the individual long-term mortgages as they were obtained by Brice and insured by FHA.⁴

The next step for Aleutian was to find funds for carrying out the construction work itself. It proved impossible to elicit construction financing from private sources, and assistance was then sought from HHFA. An application was made, late in 1952, by Aleutian, acting through Brice, and this was approved in January 1953. This interim construction loan by HHFA was for $4,230,900.00, which constituted 90% of the FHA and FNMA commitments with respect to the permanent long-term financing of the individual homes. The interim loan application indicated that the difference between the projected construction costs and the amount of the loan sought from HHFA would be provided by the sponsor, Aleutian. On this basis, the HHFA loan was authorized by a Loan Authorization signed by the Agency Administrator, and carried into effect on April 27, 1953, by a Building Loan Agreement and certain associated documents, including a guaranty by plaintiff of the Loan Agreement and a promissory note in the total amount of the approved loan. This short-term note was repayable on or before December 31, 1953, and was secured by a deed of trust. Procedures for HHFA's disbursement of the funds under this loan were provided in a separate agreement executed by Mr. Woodbury as President of Aleutian.

Contracts for constructing the project were also signed on April 27, 1953. Aleutian, as the owner, entered into a "general contract" with Kodiak Construction Company (a corporation organized and substantially owned by Mr. Woodbury) for the construction of the project in return for payment of $4,230,900.00 (the total maximum amount of the HHFA loan). Since Kodiak had little actual construction experience, it, as the general contractor, subcontracted with three experienced builders for preparation of the site and erection of the homes, as well as with a freight company. The total payment under these subcontracts, plus freight, was $4,230,900.00 (again, the maximum total amount of the HHFA loan).

During the summer of 1953, certain difficulties cropped up in the preparation of the site, and a dispute developed between Kodiak Construction and Pacific Alaska Contractors, Inc., the subcontractor engaged in the site work. In August, Pacific Alaska ceased work and Kodiak assumed performance of that phase. The Government was not immediately informed of this change. In October and November 1953, financial uncertainties arose in connection with the construction, and, on November 6, 1953, Pacific Alaska Contractors, Inc., filed a claim of lien against the project in the amount of $150,504.43. Construction then came to a standstill, with the project only about 75% completed. Demand was made on Woodbury and Aleutian to satisfy the indebtedness and remove the lien. They failed to comply. It then became necessary to take measures to protect the financial position of both the United States and the participating creditors and lienors.

In the late fall of 1953, the various parties considered several protective courses of action, including foreclosure, completion of the project by the surety companies, and the substitution of a new sponsor for Aleutian. In January 1954, a plan for finishing the project — known as the "completion agreement" — was developed. The basic justification for this arrangement was clearly expressed in its introduction: (a) "a number of creditors of the Owner Aleutian, the General Contractor Kodiak and Subcontractors have past due accounts and Lender HHFA is unwilling to make further disbursements on * * * its loan because of * * * unpaid creditors, liens filed against the Project, and other defaults under * * * the loan"; (b) "it is in the best interests * * * of all parties hereto and of Lender HHFA * * * to proceed with an early completion of the Project and * * * an early retirement of all outstanding bills, claims and liens against the project". As a result, certain named parties agreed, in consideration of their "mutual promises" and to "induce Lender HHFA to make and disburse further proceeds of * * its loan", to accept specified amounts as full payment for all their claims and to refrain from other proceedings to satisfy these claims.

The agreement also provided for the completing of the project. To carry out this aspect, Aleutian, Kodiak Construction, and a subcontractor agreed to vest in a Project Manager exclusive authority to take all actions that the corporations would be authorized to take, subject to certain explicit rights reserved to HHFA. Plaintiff Woodbury also consented, individually, to assume certain obligations. Finally, the agreement was conditioned on HHFA's compliance with four specific "conditions", including appropriate modification of its construction loan disbursement procedures, extension of the original maturity date of that loan (December 31, 1953), and deferral of collection of interest until completion of the project. On April 23, 1954, this "completion agreement" was executed and signed by the ten classes of "parties" named in it, including Mr. Woodbury, who signed for Aleutian, Kodiak, and as an individual. Neither the United States nor HHFA was named as a "party" to the arrangement, and defendant and its agencies were not signatories.

Under the completion agreement, a Project Manager and a Construction Superintendent were appointed. The work was completed in the fall of 1954. By April 1955, 341 of the 343 project dwellings had passed FHA's final inspection. All creditors' claims listed in stages one and two of the completion agreement were paid; some of the claims in stages three and four were satisfied. However, the private, permanent individual...