TA LOVING COMPANY v. Latham

201 S.E.2d 516 (1974) 20 N.C. App. 318

T. A. LOVING COMPANY, Plaintiff,
v.
James F. LATHAM et al., Original Defendants, and
Aetna Casualty and Surety Company, Additional Defendant.

No. 7315SC740.

Court of Appeals of North Carolina.

January 9, 1974.

Poyner, Geraghty, Hartsfield & Townsend by John J. Geraghty and Lacy H. Reaves, Raleigh, for plaintiff appellee.

Dalton & Long by W. R. Dalton, Jr., and Latham, Pickard, Cooper & Ennis by T. D. Cooper, Jr., Burlington, for defendant appellants.

PARKER, Judge.

Fourth Defense Appeal

Defendants admit that they signed and delivered to plaintiff their letter dated 19 August 1968, Exhibit B. As their Fourth Defense against enforcement of the obligations expressly assumed in that letter, defendants allege that the letter was executed and delivered by them to become effective only upon certain specified conditions, which they now assert were conditions precedent, that plaintiff failed to comply with these conditions, and that by reason thereof Exhibit B never became effective. The question presented by plaintiff's motion for a directed verdict on the first issue raised by the Fourth Defense is whether the evidence, considered in the light most favorable to defendants, was sufficient to require submission to the jury of an issue as to whether defendants did in fact execute and deliver the letter to become effective only on the conditions specified. We agree with the trial judge's conclusion that the evidence was not sufficient for that purpose.

Certainly nothing in the letter itself which appears to have been carefully drawn, suggests that the parties understood and intended that it was to be operative only upon conditions. Nor do appellants here contend that any language appears in any of the other numerous documentary exhibits introduced at the trial which supports their position. Rather, they rely upon portions of defendant Latham's testimony concerning telephone conversations which he had with two officers of plaintiff corporation, D. C. Rouse and Banks McNairy. In particular, appellants point to the following portions of defendant Latham's testimony, which relate to telephone conversations which occurred in the latter part of June 1968:

"I had conversations with Mr. Rouse and Mr. McNairy both concerning what is referred to in the letter [referring to plaintiff's letter to defendants dated 26 June 1968]. Those conversations took place during the preceding approximately week or ten days. As to what discussions we had, Wachovia wanted a guaranteed maximum price, and I so advised the plaintiff of the fact. The plans were not complete. T. A. Loving was not willing to give a guaranteed maximum price on the shopping center where all the plans were not completed. The bank would not disburse without the price. T. A. Loving was willing to give the letter that Mr. Rouse wrote [again referring to plaintiff's letter to defendants of 26 June 1968 regarding the guaranteed maximum price] if in return we were willing to give Loving a letter guaranteeing them that if the price went over the five and half million dollars, we borrowed from Wachovia, that we would reimburse Loving. We were willing to give Loving this letter on condition that Loving do two things; that they have a cost control system on the job that would let them know where the money was going, where it had gone, what it was being used for, whether there was enough left to finish, and secondly, that they would let us know if anything happened that looked like it would make that cost go over the five and a half million dollars. I was in Winston-Salem on the 25th [of June 1968]. I met with Wachovia and called Mr. Rouse and told him that we had to have the letter and he said, ``All right, we will give you the letter, and you will have to give us a letter to protect us.'

"I said, ``Good, we will give you that letter in return we expect you to protect us.' I said that they would have to keep a tight control on the cost of Holly Hill, the things that had been discussed last month and above all, let us know if the costs get out of line and looks like it is going over. He said that he would do that. He said, ``Yes, Jim, we will.'

"As to my having more than one conversation with members of the T. A. Loving Corporation concerning the cost control system and conditions relating to this letter, I had one the following day with Mr. McNairy, the 27th, the following day. I told him about the telephone conversation. We discussed the telephone call, and I told him that D. C. said he was sending the letter and we discussed the same thing then. Mr. McNairy, the Vice President of the corporation, told me the corporation would establish its control."

The foregoing testimony of defendant Latham all relates to conversations which occurred in June 1968. To tie this testimony in with Exhibit B, which defendants admit was executed and delivered on 19 August 1968, defendants point to the following portion of defendant Latham's testimony:

"As to the conversation I had later, I called Goldsboro on August 8th and again on August 15th, when I knew of the Wachovia commitment, those letters dated August 8th (sic). I do not remember which of the two telephone conversations it was, the 8th or the 15th, Mr. Rouse informed me that, ``we will need a new letter to protect us.' I said, ``Certainly, we will be glad to give you another letter, and remember you have to do the same thing, you promised us in the last letter in July.' and he said, ``We will,' and that was it."

Considering the foregoing testimony in the light most favorable to defendants, the evidence falls short of any showing that the parties understood that Exhibit B was signed and delivered by defendants to become effective only upon conditions. At most the testimony indicates no more than an understanding that plaintiff would maintain an accurate cost control system and would deep defendants currently informed as the work progressed. "Where it is doubtful whether words create a promise or an express condition, they are interpreted as creating a promise.. . ." Restatement of Law, Contratcs, § 261, quoted in Construction Co. v. Crain and Denbo, Inc., 256 N.C. 110, 123 S.E.2d 590. This rule of construction applies with particular force in the present case in which appellants attempt to construct a condition precedent not out of the contract documents themselves but from telephone conversations which occurred prior to the time Exhibit B was executed and most of which related to an earlier document which was superseded by Exhibit B.

We also find no merit in appellants' contention that other evidence, which they contend was erroneously excluded by the trial court, would have, either alone of in conjunction with the testimony above referred to, been sufficient to present a jury question on their Fourth Defense. A careful review of the record fails to disclose any excluded evidence which would lend substantial support to defendants' position.

Finally, we note that "the ante litem motam practical interpretation of the parties is a safe guide in the interpretation of contracts." Jones v. Realty Co., 226 N. C. 303, 37 S.E.2d 906. In this connection the record shows that on 27 August 1969, approximately a year after Exhibit B was signed and almost a year and a half before this litigation was commenced, defendant Latham wrote a letter, introduced as Exhibit 40, to Banks McNairy, an officer of plaintiff, which contains the following sentence:

"As we have indicated on earlier occasions, and because practically everything that is being done at Holly Hill is on a cost plus basis, we hope that the closest possible supervision will be given the labor of the subcontractor."

Again, on 5 September 1969 defendant Latham wrote a letter, introduced as Exhibit 41, to one of the architects for the project, with copies to Rouse and McNairy, which contains the following:

"Also, we want this office to have a copy of each week's payroll, not only of T. A. Loving, but also of each subcontractor on the job. Once each week we will want to go over these lists with a representative of your office. I had thought that our previous request for this information was clear, but apparently there has been some misunderstanding. I am well aware that this can be considered an intrusion by the owners into an area the sole responsibility of the architect and the General Contractor. However, this is not a fixed fee contract, and our interest in the day to day operations is far greater than would otherwise be the case." (Emphasis added.)

The attitude expressed in these letters, written long before the present litigation commenced, seems hardly consistent with defendants' present position that the parties had agreed that defendants' obligations under Exhibit B were to become effective only upon compliance with the alleged conditions precedent.

We find no error in the trial court's granting plaintiff's motion for directed verdict on defendants' Fourth Defense.

Fifth Defense Appeal

For their Fifth Defense defendants attempt a twofold attack upon Exhibit B. First, they allege that "there was no consideration to the defendants for the delivery by them to the plaintiff of Exhibit B." In this connection, however, the trial court found on plenary evidence that Exhibit B was executed by the defendants "simultaneously with the reexecuted Construction Contract, . . . and both documents were delivered to the plaintiff by the original defendant, James F. Latham, on behalf of said original defendants through the mail contemporaneously, all as one act and as part of a single transaction." From this the trial court concluded that Exhibit B "was an integral part of the entire contract between the parties and with the reexecuted Construction Contract, . . . constituted a single indivisible agreement." The record fully supports these findings and conclusion. It is readily apparent, therefore, that execution by plaintiff on 19 August 1968 of the reexecuted construction contract Exhibit A, which the parties dated back to 16 May 1968, supplied ample consideration to defendants to make the obligations they assumed in Exhibit B contractually binding upon them.

We find without merit defendants' suggestion that Exhibit B was inadmissible, and therefore must be considered legally inoperative, under the so-called parol evidence rule. As has been many times pointed out, the misnamed parol evidence rule "is in reality not one of evidence but of substantive law." 2 Stansbury's N.C. Evidence, Brandis Revision, § 251. As suggested in that treatise, "[t]ranslated into the language of the substantive law, the parol evidence rule may be expressed thus: Any or all parts of a transaction prior to or contemporaneous with a writing intended to record them finally are superseded and made legally ineffective by the writing." Thus viewed, the question is presented here, as in all contract cases in which the rule is invoked, as to whether the parties assented to a particular writing as the complete and accurate "integration" of their contract. See 3 Corbin on Contracts, § 573. In this connection defendants contend that by Article 1 of the reexecuted contract, Exhibit A, the parties incorporated by reference another document, A1A Document A201, "General Conditions of the Contract for Construction," and that this document contains an express merger clause, the effect of which, so defendants argue, is to exclude Exhibit B from consideration as one of the contract documents. Both the reexecuted construction contract, Exhibit A, and the "General Conditions of the Contract for Construction" are on printed forms issued by the American Institute of Architects. While these documents are widely used in the construction industry, both for convenience and because they provide for many of the problems which practical experience has shown may be expected to arise in the course of a construction project, there is nevertheless no magic in the printed word. The problem remains, here as in other contract cases, of ascertaining the true intent and understanding of the parties.

Thus viewed, there can be no question in the present case but that the parties fully intended Exhibit B to be an essential and integral part of their contract. Defendants' own evidence is all to the effect that had defendants not executed Exhibit B, plaintiff would not have executed Exhibit A. Under these circumstances, to permit the standardized language in the printed forms, discovered long after the event by the keen eye of diligent defense counsel, to nullify the clearly understood and expressed intent of the contracting parties, would lead to a patently unjust and absurd result which neither reason nor authority requires. Indeed, there is substantial authority to the contrary. "When several written contracts are separately and simultaneously executed, the fact that in one of them it is expressly stated that there are no such other contracts does not prevent their being proved and enforced, even though they contain promises and representations that would otherwise be excluded." 3 Corbin on Contracts, § 578, p. 407.

The second attack made by defendants in their Fifth Defense upon the validity of Exhibit B is that it "is invalid and void for being in contravention of public policy." Certainly nothing in the document itself suggests any illegality. The recitations in the document are factually correct and the obligations to which defendants bound themselves are such as could be lawfully undertaken by honorable business men. Defendants do not contend otherwise. Their contention is that the failure of plaintiff to disclose the existence of Exhibit B to Wachovia and to Aetna renders it unenforceable as against defendants. We do not agree. As far as Wachovia is concerned, all of the evidence indicates that defendants, and not the plaintiff, maintained the most direct contacts and relationship. If there was a duty upon plaintiff to disclose Exhibit B to Wachovia, the same duty fell doubly upon defendants. Wachovia's rights are not being litigated in this action and its legal position can be in no way affected by any decision rendered herein. However, so far as the record in the present case reveals, the net result of the transactions disclosed was to place upon the lands on which under its loan commitment, Wachovia was entitled to hold a first mortgage lien, a shopping center both substantially larger and considerably more expensive than was originally contemplated. It is difficult to see how such a result could have affected Wachovia's position adversely.

On motion of the defendants, Aetna was made an additional party defendant in this case, and Aetna has filed answer asserting its right to revoke its performance bond on the ground that the terms of the construction contract actually existing between plaintiff and defendants were substantially different from the terms of the contract which it was led to believe it was bonding. However that may be, and we emphasize that Aetna's rights are not being determined on this appeal, we point out that in any event the condition of the bond signed by Aetna as surety was such that it became void if plaintiff, as principal, well and truly performed all of its undertakings under the construction contract. So far as everything in the present record suggests, plaintiff has long since completely performed under that contract.

Whatever effect failure to disclose Exhibit B may have had upon the rights of Wachovia and Aetna, under the present circumstances we perceive no sound reason why good public policy requires that that failure, in which defendants fully participated, should result in defendants being now relieved of their obligations to plaintiff under Exhibit B. We find no error in the trial court's order ruling in plaintiff's favor on defendants' Fifth Defense.

Both orders appealed from are

Affirmed.

CAMPBELL and VAUGHN, JJ., concur.