No. 84-190
IJ THE SUPREME COURT OF THE STATE OF MONTANA
I
1985
MARTIN DEVELOPMENT CO., a corp.,
et al.,
Defendant and Respondent,
KEENEY CONSTRUCTION CO.,
a Montana corp.,
Plaintiff and Appellant,
MOUNTAIN WOOD APARTMENTS and
WALTER PESCHEL, et al.,
Cross-Defendant and Appellant.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable Robert Boyd, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Larry Elison argued, Missoula, Montana
For Respondent :
Donald V. Snavely argued, Missoula, Montana
Submitted: March 15, 1985
Decided: [day 24, 1985
Filed: MAY 2 4: 1985
Clerk
Mr. Justice John Conway Harrison delivered the Opinion of the
Court.
In the action below, Martin Development Company, Inc.
("Martin") sought to recover damages from Walter H. Peschel
,
("Peschel") an individual, and Mountain Wood Apartments
("Mountain Wood"), a limited partnership, for breach of a
construction contract. The District Court of the Fourth
Judicial District, Missoula County, sitting without a jury,
the Honorable Robert J. Boyd of the Third Judicial District
presiding, found for Martin and awarded lost profits, inter-
est, and attorneys' fees. From this judgment Peschel and
Mountain Wood appeal.
In 1977, Dr. Walter Peschel undertook negotiations with
Charles Isaly for the construction of an apartment complex
known as the Mountain Wood Apartments. Dr. Peschel negotiat-
ed as the sole general partner of Mountain Wood Apartments, a
limited partnership. Charles Isaly negotiated as the manag-
ing agent for Martin Development Company, a general construc-
tion contractor. The negotiations culminated on or about
June 5, 1978, when the parties orally agreed to a constuction
contract known as the MacDonald Agreement.
The majority, but not all, of the financing for the
apartment project ("project") came from a loan from
Washington Mortgage Company, Inc. ("Washington Mortgage") of
Seattle. This loan was guaranteed by the United States
Department of Housing and Urban Development, Federal Housing
Administration ("HUD"). Because of this guarantee, Peschel
and Martin signed a HUD form constuction contract on June 6,
1978. There are no disputes regarding this contract.
The loan from Washington Mortgage did not cover the
entire cost of the project because Peschel wanted to build a
complex of higher quality than could be constructed with the
HUD insured funds. Peschel understood that the HUD loan
would be at least $100,000 short of the amount necessary to
build the project he desired and that he would have to make
up the difference. Terms concerning the extra funding re-
quired above the HUD loan were contained in the MacDonald
Agreement.
Construction commenced on the project in July of 1978.
Shortly thereafter problems arose concerning Peschel's obli-
gations to fund the cost shortages during the course of
constuction. Negotiations to resolve the problems were
undertaken by Peschel, Isaly, and their respective attorneys.
A crisis stage in the negotiations was reached in late summer
of 1979 when most subcontractors refused to work due to
nonpayment of their bills. On October 2, 1979, Washington
Mortgage gave notice that Peschel had defaulted on the loan
and indicated that it intended to assign the loan to HUD.
The halt in construction and the notice of default resulted
in intense negotiations between the parties. A written
agreement entitled Addenda No. 1 ("Addenda") was concluded
and signed on November 10, 1979. The Addenda resolved all
disputes existing between the parties as of that date, and
released and discharged the parties from claims arising out
of prior disputes. Paragraph 14 of the Addenda states that
the "Addenda and the agreement and Exhibit attached hereto
constitute the entire agreement between the parties." After
execution of the Addenda, construction resumed on the
project.
On December 7, 1979, approximately one month after the
signing of the Addenda, construction Draw No. 13 was mailed.
to Washington Mortgage. Normal time for payment of a draw
was two or three weeks. Rut Draw No. 13 was not and has
never been paid. The reason was that Washington Mortgage,
pursuant to its notice of default, had assigned the loan to
HUD. On January 24, 1980, Martin sent a notice of default to
Peschel. The notice specified that the default resulted from
Peschel's failure to perform acts necessary to allow payment
of Draw No. 13. Peschel was given fifteen days to cure the
default but did not do so.
Trial was held in this matter on May 9th, 10th and 11th
of 1983. The District Court issued findings, conclusions and
final judgment on January 27, 1984. Judgment was for Martin
and against Peschel in the amount of $72,000 plus interest.
Lost profits accounted for $40,000 and attorneys' fees were
awarded in the amount of $20,000. The balance ($12,000) was
interest on the $40,000. In addition, $10.96 per day was
assessed until satisfaction of the judgment. The court
ordered that judgment be satisfied from a rent impoundment
account administered by First Montana Title Company of
Missoula.
Peschel did not take any action to stay execution of
the judgment. On February 6, 1984, Peschel, through his
attorney, filed a motion for a new trial. On February 10,
1984, Martin filed a satisfaction of judgment. On February
23, 1984, Peschel withdrew his motion for a new trial, with-
drew his attorney, and substituted himself as counsel pro se.
On the same day he filed a notice of appeal.
The following issues are presented:
(1) Whether the Addenda represents the entire agree-
ment of the parties?
(2) Whether the District Court properly awarded
$40,000 to Martin in lost profits?
(3) Whether the District Court properly awarded attor-
neys' fees to Martin?
(4) Whether the District Court properly awarded
interest to Martin of ten percent on the unpaid profit?
(5) Whether this appeal should be dismissed as moot
for the reason that the judgment of the District Court has
been satisfied?
We hold that the Addenda represented the complete and
final agreement of the parties. The introductory paragraph
of the Addenda reads as follows: "Whereas, it being in the
best interests of each party signatory to this agreement -
to
- forth - writinq - agreements that exist - -
set in all as of
November 7, 1979, the parties hereby agree as follows: . . ."
(Emphasis added.) In addition, paragraph 14 of the Addenda
begins, "This addenda and the agreement and exhibits attached
hereto constitute the entire agreement between the parties."
This language is unambiguous: the Addenda, and any agreement
and exhibits attached to it, is the agreement of the parties.
This Court has said on numerous occasions that ambiguity
exists when a contract taken as a whole in its wording or
phraseology is reasonably subject to two different interpre-
tations. See e.g., Martin v. Community Gas & Oil Co. (~ont.
1983), 668 P.2d 243, 40 St.Rep. 1385; Sounders v. Montana
Power Co. (Mont. 1983), 662 P.2d 289, 40 St.Rep. 583. he
above quoted language from the Addenda is not reasonably
subject to different interpretations. The Addenda, and only
the Addenda, controls the obligations of the parties in this
case. Martin argues that ambiguity exists in the fact that
paragraph 14 of the Addenda refers to an attached agreement
when no agreement is attached. Martin further argues that
sworn testimony establishes that the agreement to be attached
was the MacDonald Agreement. Unfortunately, respondent
confuses ambiguity with mistake. It may be true that the
parties intended to attach the MacDonald Agreement but,
because of a mistake, did not do so. If that is the case,
however, respondent, before bringing suit, should have sought
to reform the Addenda to make it conform to the real agree-
ment of the parties. This was not done and it is not the
province of this Court to entertain an action for reformation
on appeal.
Because the Addenda is the entire agreement of the
parties, we refer to it in order to determine if the District
Court properly calculated lost profit, interest on that
profit, and attorneys' fees.
Paragraph 3 of the Addenda provides that Martin receive
$65,000 total profit from the project. Further, it states
that $22,000 of that total had already been paid. At trial,
Martin admitted receiving $3,000 additional profit since the
conclusion of the Addenda. Therefore, at the conclusion of
the trial $40,000 in profit provided by the Addenda remained
unpaid. The District Court awarded that sum to Martin. We
concur.
Peschel argues that he was not in breach, but, assuming
arguendo that he was in breach, he should only have to pay a
pro rata share of lost profit, or $20,000. There is no merit
in either of these contentions. The evidence is conclusive
that Peschel breached his contract with Martin. At the time
the Addenda was executed, Peschel signed a letter to an
official of HUD indicating that Martin was not responsible
for previous problems with the project. After the Addenda,
- Martin resumed work on the project and continued until Draw
No. 13 was not timely paid. When work stopped., HUD considered
the possibility of bringing a claim against Martin's bonding
company but concluded that such claim would fail because
Martin was not the primary cause for the failure of the
project. There is nothing in the record to indicate that
Martin was either in breach, or caused the breach. While it
is true that the Addenda does not explicitly make the payment
of Draw No. 13 a condition of performance, it goes without
saying that a construction contractor will not work without
being paid. Peschel's problems with his lender were not the
fault of Martin. Martin's obligation under the Addenda was
to construct apartment buildings; Peschel's obligation was to
pay for that construction. Martin was willing and able to
meet its obligations; Peschel failed to meet his. It is the
law in this State that a non-breaching party should be placed
in as good a position as if the contract had been performed.
Kirby v. Kenyon-Noble Lumber Company (1976), 171 Mont. 329,
558 P.2d 452. $40,000 profit was due Martin upon completion
of the project. That amount was thus properly awarded when
Peschel's breach prevented completion.
The District Court properly awarded ten percent inter-
est on the lost profit, but for the wrong reason. In para-
graph 4 of its conclusions of law, the District Court stated
that Martin was entitled to ten percent interest per annum on
the lost profits as provided by contract. There is, however,
no provision in the Addenda., the controlling instrument in
this case, relating to interest rates on lost profits.
However, ten percent interest per annum on the lost profits
is provided by section 25-9-205, MCA. The judgment of the
District Court pertaining to lost profit and interest
therefore remains undisturbed.
Section 25-10-301, MCA, provides that "The measure and
mode of compensation of attorneys and couselors at law is
left to agreement, express or implied, of the
parties, . .." The trial court awarded $20,000 in attor-
neys' fees to Martin "pursuant to the agreement of the par-
ties. " There is, however, no provision in the Addenda
regarding attorneys' fees, and any prior agreement, express
or implied, is made a nullity by the terms of the Addenda.
Notwithstanding this, Martin argues that attorneys' fees may
be recovered as an element of damages where the conduct of
one party causes another party to become invloved in litiga-
tion with a third party. In support of this proposition
Martin cites to McCarty v. Berryman (Mont. 1980), 620 P. 2d
1221, 37 St.Rep. 2007. In McCarty this Court affirmed the
inclusion of attorneys' fees as part of an award of damages
in an action for negligent misrepresentation. The statute
relied on was section 27-1-317, MCA, titled "Breach of
obligation other than contract." (Emphasis added.) Thus
McCarty sounds in tort and is not authority for awarding
attorneys' fees in a breach of contract action where such
fees are not mentioned in the contract. The other case cited
by Martin in support of an award of attorneys' fees is Smith
v. Fergus County (1934), 98 Mont. 377, 39 P.2d 193. smith
not only does not support an award of attorneys' fees in this
case, it supports the contra.ry:
"It is true that, in the absence of
contractual stipulation therefore or
statutory allowance thereof, attorneys'
fees are not allowable in the action in
which they are incurred ...
This rule
precludes recovery of attorneys' fees
paid in an action for breach of contract,
as a part of the damages for the breach."
Smith, 98 Mont. at 384, 39 P.2d at 195.
(Citations omitted. )
The Court in Smith then distinguished the above rule by
holding that the small amount awarded by the trial court was
not an attorney's fee in the sense used in the rule but was
rather an amount paid "incidentally to attorneys." Smith, 98
Mont. at 384, 39 P.2d at 195. Whatever the merits of that
distinction in Smith, it has no application whatever to the
present case. The amount at issue here is large and clearly
is for the rendering of Martin's attorneys' services in this
litigation. It is in no way incidental. Therefore, there is
no basis to affirm an award of attorneys' fees to Martin in
this case.
Finally, Martin asks this Court to rule this appeal
moot because the judgment has been satified. We refuse to so
rule. A cursory review of the Montana case law in the area
of mootness indicates some confusion. A closer look, howev-
er, reveals that the confusion is more apparent than real.
The basic rule on mootness was stated best in Montana Nation-
al Bank of Roundup v. State Department of Revenue (1975), 167
Mont. 429, 432-433, 539 P.2d 722, 724, wherein the Court
wrote :
"It is equally well recognized that
payment of a money judgment by the judg-
ment debtor does not, by itself, render
the cause moot for purposes of appeal. A
defeated party's compliance with the
judgment renders his appeal moot only
where the compliance makes the granting
of effective relief by the appellate
court impossible." (Citations omitted.)
Martin contends that other and more recent cases contradict
the rule stated in Roundup and should be followed. The cases
cited are First Security Bank of Kalispell v. Income Proper-
ties, Inc. (Mont. 1984), 675 P.2d 982, 41 St.Rep. 212; Dahl
v. Petroleum Geophysical Company (Mont. 1981), 632 P.2d 1136,
38 St.Rep. 1474; and Gallatin Trust and Savings Bank v. Henke
(1969), 154 Mont. 170, 461 P.2d 448. These cases are not in
conflict with Roundup. In First Security Bank the defendants
surrendered real property pursuant to a court order. They
neither sought a stay of judgment nor requested a supersedeas
bond. This Court dismissed the appeal as moot because it was
not able to render the relief defendants sought. This hold-
ing is in perfect accord with the rule in Roundup, quoted
above. In Dahl this Court was faced with a "novel appellate
situation." 632 P.2d at 1137, 38 St.Rep. at 1475. Plaintiffs
had prevailed below and had been awarded actual and punitive
damages. The defendant paid the judgment for actual damages
but appealed the punitives. The appeal was ruled moot be-
cause to rule otherwise might have placed the Court "at odds
with the underlying grounds of the satisfied judgment," which
the appellant had accepted. Dahl, 632 P.2d at 1137, 38
St.Rep. at 1476. The holding in Dahl on the question of
mootness is limited to the special fact situation of that
case. Finally, Martin cites to Gallatin Trust and Savings
Bank in support of the contention that this appeal should be
ruled moot. The Court in Gallatin Trust, however,
anticipated the rule expressed in Roundup. It was noted in
Gallatin that in State ex re1 Hagerty v. Rafn (1956), 130
Mont. 554, 304 P.2d 918, the Court modified the rigid rule
that when a judgment is satisfied it passes beyond review.
"This Court in the [Hagerty] case appeared to have set up a
new rule to the effect that where rights of third persons are
involved and the parties cannot be restored to their original
position the appeal becomes moot." Gallatin, 154 Mont. at
177, 461 P.2d at 451-452. Indeed, this rule was further
refined in Roundup, which cited to Hagerty. Moreover, the
holding in Gallatin, is in conformance with the rule
expressed six years later in Roundup. Various changes of
position occurred in Gallatin, in the course of satisfaction
of judgment, which would have made it very difficult, if not
impossible, for this Court to reverse. In the present case a
simple money judgment was satisfied. No property changed
hands pursuant to the judgment nor are there third party
interests involved. There is no reason why this Court cannot
grant effective relief.
In summary, the judgment of the District Court is
affirmed in part and reversed in part. We hold: 1. The
Addenda represents the entire agreement of the parties. 2.
The District Court properly awarded $40,000 to Martin in lost
profit. 3. The District Court properly awarded ten percent
interest on the lost profit. 4. There is no provision for
attorneys' fees in the Addenda and therefore the District
Court's award of attorneys' fees is reversed. 5. This
appeal was not rendered moot because the judgment below was
satisfied.
A/.;;>
We co cur: