Opinion
C.A. No. 06C-07-005 RBY.
Bench Trial: August 29, 2007.
Decided: February 26, 2008.
Upon Non-Jury Trial Held Before the Honorable William L. Witham, Jr.
Scott E. Chambers, Esquire of Schmittinger Rodriguez, P.A., Dover, Delaware; attorneys for the Plaintiffs.
Henry A. Heiman, Esquire of Heiman Gouge Kaufman, LLP, Wilmington, Delaware; attorneys for the Defendants.
OPINION AND ORDER
On Wednesday, August 29, 2007, the Court held a bench trial regarding the case of Jack Lee Ray, et al. v. Frank Warren Harris, Jr. et al. in which Plaintiff Jack Lee Ray ("Plaintiff") alleges three counts: Count I alleges that Frank W. Harris, Jr. and/or his Delaware corporation, Defendant W. Harris Construction, Inc. (respectively, "Defendant Harris" or "Defendant Corporation," or collectively, "Defendants") owe Plaintiff $56,789.00 pursuant to terms of written contract (rough framework for Lot 157, August 3, 2004); Count II alleges that Defendants owe Plaintiff $10,040.00 pursuant to terms of written contract (Plan 6847); Count III alleges that Defendants owe Plaintiff $10,424.00 pursuant to terms of written contract (Plan 6847-A). The total amount claimed by Plaintiff is $77,253.00.
FACTS
Plaintiff owns and operates two unincorporated businesses known as Frame Works and Jack L. Ray Designs. In these capacities Plaintiff worked for Defendant Harris on multiple occasions prior to entering into the contracts that are the subjects of this litigation. Their relationship began after Defendant Harris' business partner hired Plaintiff for rough framing for houses in New Castle County. Plaintiff and Defendant Harris became friends and Plaintiff recommended that Defendant Harris build in Sussex County, specifically the Rehoboth Beach area, as this community was being rapidly developed and sellers were making record profits.
Both parties acknowledge that they drove together to, or met in, Sussex County on several occasions in order to research available building options. Both acknowledge that they consulted with a Rehoboth Beach Re-Max realtor, Pat White Campbell, and that they looked at sites together including Lots 157 and 158, located in the Rehoboth Beach Yacht and Country Club. Lot 157 is the property at issue in this case.
Generally, Defendant Harris asserts that he is not individually liable, leaving only his corporation as a possible source of liability. Further, he asserts that his corporation is not liable because the contracts do not control, based on parole evidence, and that instead, an unwritten partnership existed between Plaintiff and Defendant Corporation. Since the partnership suffered a loss, if anything, Plaintiff owes Defendant Corporation money, although Defendant Corporation is not seeking reimbursement.
To support this theory, Defendants submitted into evidence an "Agreement of Sale New Construction" indicating that Plaintiff is the buyer and Defendant Construction is the builder. The agreement is dated March 5, 2004 and stipulates that Plaintiff is to pay Defendant Corporation $895,000.00 in payments of $10,000.00 on the signing of the agreement and $0.00 thereafter. The parties agree that this contract was created in order to obtain construction financing.
Defs. Ex. 1.
Count I.
The Proposal by Frame Works, submitted to W. Harris Construction on May 20, 2004, is the subject of Count I. It is for rough framing construction for Lot 157 and was signed on August 3, 2004 by Defendant Harris, individually, without any reference to his corporate capacity. The amount proposed is $56,789.00 to be paid in stages:
$5,000.00 upon completion of first floor walls;
$10,000.00 upon completion of second floor deck;
$10,000.00 upon completion of second floor ceiling joist;
$10,000.00 upon completion of roof rafters;
$10,000.00 upon completion of sheathing;
$8,000 upon completion of windows/doors installation;
$3,789.00 upon stair installation.
It also stipulated that any alterations or deviations will involve extra costs.
Plaintiff testified that he performed all of the work outlined in this proposal but did not receive any payments as he completed each stage. He testified that he continued working because he had worked with Defendant Harris on a similar project at Lot 158 for which there was a similar schedule, and Plaintiff had been paid in full when he completed the project. Plaintiff issued Defendants an invoice for $56,789.00 on November 4, 2004. However, Defendants never paid Plaintiff for this project.
Defendants argue that Plaintiff was not merely a subcontractor but a partner in this venture. Based on that, since the project resulted in a loss in profits, Defendants do not owe Plaintiff any money. As evidence of this partnership, Defendant Harris testified that he and Plaintiff had a mutual agreement to share equally the net profit, and therefore with any net loss. He argues that Plaintiff recommended to Defendant Harris that he build in Sussex County, researched available building sites, and expressed an interest in expanding his role in the construction business to include profiting from a partnership interest in new residential construction, which demonstrates that a partnership had formed.
Defendants argue further that Plaintiff's acts went beyond that of a subcontractor and constitute further evidence of a partnership. For example, he arranged for the removal of trees and brush from the site; laid storm sewer pipe underneath the driveway; arranged for the transportation of the portable sanitation station; and discussed the progress of the concrete installation with the concrete subcontractor. Plaintiff also advanced money on the job, including that used to obtain work permits and the geo-technical engineer; and used his credit account to purchase the material used to construct the house. Plaintiff insists he acted above and beyond his contractual duties solely out of friendship. Defendants argue that this friendship was based on business, that outside of the business they did not have any contact, and that these acts instead are rooted in a partnership.
Counts II and III.
Plans 6847 and 6477-A are the subjects of Counts II and III. These plans, as well as Plans 6477-A-1 and 6477-A-2, relate to design work completed by Plaintiff. The respective "Contract/Agreement" for these plans are signed by Defendant Harris on August 4, 2004 with no reference to his corporate capacity. The Contracts/Agreements' terms did not reference the parties, the amount due, or the schedule for payment. The Contracts/Agreements are identical except for one detail: the Plan number. The Contract/Agreement stipulates that the "start of construction will constitute the acceptance of the drawings set forth."
Although Plaintiff was neither a licensed architect nor an engineer, and had he no formal design training, he had sketched plans before and so Defendants requested that he sketch plans for Lot 157.
Plaintiff's exs. 4 6. Defendant Harris mistakenly signed each plan with the year "2003." This is not at issue.
See Id. ¶ 6.
The first Plan, Plan 6847, was delivered to Defendants on April 6, 2004. Defendants tried to use this plan, but it was too large for the plot. They did however use it to obtain building permits from Sussex County. Plaintiff sent an invoice for this plan to Defendant Corporation on July 18, 2004, charging $2.00 per square foot, the rate for which Plaintiff had charged Defendants in the past. The invoice for Plan 6847 was in the amount of $10,040.00. Defendants did not make payments on this plan.
Defendants had asked Plaintiff to design a conceptual plan for a home similar to other homes in Rehoboth Beach Yacht and Country Club, but had not given him any parameters for the drawing.
Modifications were made to Plan 6847 resulting in Plan 6477-A. This plan was delivered to Defendants on May 12, 2004. The amount on the invoice, also sent on July 18, 2004 to Defendant Corporation, was $10,424.00. Defendants did not make any payments on this invoice. They asked that modifications be made to 6477-A.
Plaintiff modified Plan 6477-A resulting in Plan 6477-A-1. Plaintiff sent an invoice to Defendant Corporation on August 1, 2004 and Defendants paid it in full. Defendants asked for modifications to be made to this one, Plaintiff made them, resulting in 6477-A-2. The invoice for this one was also sent to Defendant Corporation on August 1, 2004. Again, Defendants paid it in full.
Plaintiff argues that even though Defendants did not use Plan 6477, since they used it to acquire building permits, he should be paid for them. On October 26, 2005, he sent a letter to Defendant Harris addressed to the Defendant Construction's address reminding Defendants that Plaintiff is still waiting to be paid, especially for the rough framing (Count I) and is willing to wait longer for being paid for the plans. Enclosed with the letter was a table of interest calculated.
DISCUSSION
The Court makes two inquiries while weighing the evidence: whether Defendant Harris, individually, has any liability to Plaintiff with respect to Lot #157, and whether Defendant Corporation has any liability to Plaintiff? This Court, in addition to reviewing the documentary evidence, must also weigh the credibility of both Mr. Ray and Mr. Harris.
Liability depends on the validity and/or the reach of the contracts, and whether a partnership, if any, supercedes those contracts. The Court's role in reviewing contracts is to ascertain the "shared intention of the p arties." Generally, contracts are to be read as a whole, and are assumed to be self-contained. If the language of the contract is "clear and unambiguous" the ordinary meaning of the words and terms govern the parties' intent. "The presumption that the parties are bound by the language of the agreement they negotiated applies with even greater force when the parties are sophisticated entities that have engaged in arms-length negotiations." Parties are considered "sophisticated" entities and businesspeople when, for example, they are extensively experienced in their industry and have "ample access to counsel."
West Willow-Bay Court, LLC v. Robino-Bay Court Plaza, LLC, 2007 WL 3317551, *9 (Del.Ch., November 02, 2007).
Id. ( citing E.I. du Pont de Nemours Co. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985)).
West Willow-Bay Court at *9 ( citing Progressive Int'l Corp. v. E.I. du Pont de Nemours Co., 2002 WL 1558382, at *7 (Del.Ch. July 9, 2002)).
West Willow-Bay Court at *9.
Id. at *9 n. 82 ( citing Graham v. State Farm Mut. Auto. Ins. Co., 565 A.2d 908, 913 (Del. 1989)).
However, in the last twenty years, several Delaware Supreme Court decisions strongly suggest a trend toward allowing leniency in the traditionally strict rules of contract interpretation in some situations. Delaware has abandoned the usual "four corners" of the contract approach for the modern view where extrinsic evidence "is imperative to contract interpretation because the primary search is for the common meaning of the parties, not one imposed by law, and `the meaning of words used in an agreement can only be known through an appreciation of the context and circumstances in which they were used.'"
Ferentinos v. Firstate Mortg. Corp., 1991 WL 18102, *2 (Del.Super., February 01, 1991) ( citing Empire of America v. Commercial Credit, 551 A.2d 433 (Del. 1988); Klair v. Reese, 531 A.2d 219 (Del. 1987)).
Ferentinos v. Firstate Mortg. Corp., 1991 WL 18102, *2 ( quoting Empire of America at 435; Klair at 223).
The contract language at issue is sparse and suggestive of outside contexts. To breathe meaning into them seems to require an inquiry beyond their words and into the surrounding circumstances. Furthermore, the parties here do not rise to the level of sophisticated entities due to the small and personal nature of their work and the absence of counsel during their contracting. Finally, evidence presented at trial allow the Court to infer that the terms of the contracts were embedded in the context of past performance and present and future expectations. Therefore, where required, the Court looks beyond the four corners of the contracts to give effect to them.
I. Liability of Defendant Harris, individually, to Plaintiff.
Plaintiff argues that Defendant Harris is individually liable for the alleged breaches of contracts because he signed all three contracts without making any reference to his corporate capacity and the contracts themselves do not reference his company, Defendant W. Harris Construction, Inc. Plaintiff's individual liability argument relies on Mobile Diagnostics, Inc. v. Lindell Radiology, P.A. That case involved a doctor and an ultrasound scanning services provider where the doctor signed the contracts without any reference to a corporation or to his corporate capacity. The doctor had just formed his own practice, and this is the extent of the Court's individual liability discussion. They found the doctor individually liable. Since Plaintiff's position rests on the nature of the signatures of the documents that are alleged to be contracts, and Mobile Diagnostics sheds no light on this subject, its holding does not control.
1985 WL 189018 (Del.Super., July 29, 1985).
Defendants argue that Brown v. Colonial Chevrolet Co. controls. This case involved an employee who was terminated early according to a promise. The Court found that the promisor/employer made the oral promise while holding himself out in his corporate capacity as president, and therefore denied individual liability. The employer must have acted in his corporate capacity or the promisee could not have taken him seriously given the subject of the promise.
249 A.2d 439 (Del.Super. 1968) .
Here, the contracts involved work to construct a house on land owned by the Defendant Corporation. Defendant Harris could not legally bind himself to a contract involving construction on land for which he had no rights to in his individual capacity. Furthermore, although corporate capacity is not indicated at the signature line, the Proposal is addressed to "W. Harris Construction, Inc.," the contracts were sent to Defendant Harris' corporation, and all checks received by the Plaintiff during past projects and this one were from the Defendant Corporation's account. Thus, the Court finds that Defendant Harris held himself out in his corporate capacity and that there is no liability to Defendant Harris individually.
II. Liability of Defendant Corporation to Plaintiff.
The next question is whether Defendant Corporation has any liability to Plaintiff. Plaintiff argues that under the terms of the contracts, he is owed a total of $77,253. Defendants argue that there is a partnership and therefore, because there was a loss in profits, they owe Plaintiff nothing, and if anything, Plaintiff owes them money.
Defendants first try to establish that a partnership existed. The Delaware Revised Uniform Partnership Act ("DRUPA") defines a partnership as "the association of two or more persons . . . [that] carry on as co-owners a business for profit . . . whether or not the persons intend to form a partnership . . ." In addition to carrying on as partners, joint title to property, sharing of profits, sharing of losses and other acts are all evidence of a partnership. When the existence of a partnership is at issue, the burden to prove by a preponderance of the evidence is on the party claiming there is a partnership.
6 Del.C. § 15-202. See Chaiken v. Employment Sec. Comm'n, 274 A.2d 707, 709 (Del.Super. 1971).
§ 15-202(c)(1).
Jones v. Purnell, 62 A. 149, 150 (Del.Super. 1905).
See Pappas v. Venetsanos, 167 A. 842, 844 (Del.Ch. 1933).
Defendants have failed to meet this burden. Defendants argue that Plaintiff's acts were consistent with an alleged oral agreement to establish a partnership but does not introduce evidence beyond Defendant Harris' own testimony and the agreement called Agreement of Sale New Construction. Plaintiff denies any agreement to form a partnership contending that his transcendent acts and the Agreement sprung out of friendship. Plaintiff also does not provide any evidence beyond his own testimony.
Cf. Clothier v. McCloskey, 1986 WL 15715, *5 (Del.Ch., Jul 10, 1986) (where plaintiff and defendant each presented multiple witnesses who provided conflicting testimony as to the existence of a partnership).
In Clothier v. McCloskey, similar acts did not demonstrate a partnership. The Court found that "the money and time expenditure could have been made . . . as a matter of course as an outgrowth of [the parties'] personal relationship. There are many potential rationales for [the plaintiff's] expenditures other than the furtherance of a purported partnership." As a result, the Court found that the proponent of the existence of a partnership had failed to prove by a preponderance of the evidence that a partnership existed. For the same reasons, the Court finds in the case sub judice that the Plaintiff's acts and the Agreement do not demonstrate a partnership. Without more, Defendant's burden is not met.
1986 WL 15715, *5.
Id. Additionally, contracts by a partnership with an individual partner for services to be rendered to the partnership are not unusual.
Defendants failed to provide any other evidence that could establish the existence of a partnership. There is no written partnership agreement, the parties did not hold joint title to any property, and no evidence was presented to demonstrate that major decisions were shared, such as choosing the final design plan of the house and how it was to be sold. That both parties had previously-established successful businesses whose structures remained unchanged throughout the project is also persuasive. And finally, Defendants did not request a share of the losses, nor present a profit and loss statement in any document at all except for the Agreement. The Court concludes that the stretch is too far to declare a partnership.
In fact, the evidence demonstrates that Plaintiff had no involvement at the selling stage whatsoever. Plaintiff sent correspondence asking for, amongst other things, an update. In addition, Defendant Harris provides no evidence as to what his contribution was to the partnership, other than, perhaps, his creditworthiness, of which the Court is reluctant to imply.
III. The Proposal.
Defendants' argument that the Proposal is a not a legitimate contract now fails since it was based on their partnership argument. Therefore, Defendants owe Plaintiff its full amount of $56,789.00. Defendants presented no evidence that demonstrated this amount to be unreasonable.Regarding the interest, the Court is persuaded by Defendants' position that the interest table enclosed with the letter dated October 26, 2005 is an incomplete modification of the contract. A contract may later be modified so long as the "modifying agreement [has] all the requisite[s] of a valid and enforceable agreement, or it will not be binding. The question of modification depends primarily on the intention of the parties." The note on the interest table is signed only by Plaintiff and Defendants allege that they never agreed to it. There appears to be no mutual assent. The Court finds Defendants not liable for interest on the Proposal.
Drake v. Hercules Powder Co., 55 A.2d 630, 636 (Del.Super. 1946) ( citing Utley v. Donaldson, 94 U.S. 29, 47 (1876)).
IV. The Contract/Agreements for Plans 6847 and 6477-A.
The Contract/Agreements stipulate that "the start of construction will constitute the acceptance of drawings set forth." The Court finds the terms for acceptance clear and without any ambiguity, and that when read with the contracts as a whole, the terms remain as such. However, only Plans 6477-A-1 and 6477-A-2 were used in the construction of the house. Therefore, they are the only contracts for which the offers were accepted. The Court need not review the surrounding circumstances and finds that the accepted plans were paid in full, and that there is no remaining liability as to Plans 6847 and 6477-A.
CONCLUSION
The Court finds for the Plaintiff as to Count I, holding only Defendant Corporation liable in the amount of $56,789.00, together with costs and post-judgment interest at the legal rate of interest. The Court finds for the Defendants as to Counts II and III.
IT IS SO ORDERED.