Opinion
No. 18,279.
Decided October 5, 1959. Rehearing denied November 9, 1959.
Action involving construction of a contract. From an order rejecting a master's report and entering judgment for defendants, the plaintiffs bring error.
Reversed and remanded with Directions.
1. TRIAL — Rules — Master's Report — Findings. Under Rule 53 (e) (2), R.C.P. Colo., a ruling that all evidence before the master was inadmissible, rejecting the master's report and entering judgment for defendants was error, since the rule binds the trial court to accept the findings of a master as effectively as Rule 52 (a) binds the Supreme Court to accept the findings of a trial court.
2. CONTRACTS — Construction — Ambiguity — Intent of Parties. It is a rule of thumb that courts should give effect to the general purposes of a contract, and not allow inept expressions to defeat the evident intent of the parties.
3. Construction Contract — Sale of Property — Construction. A fair and reasonable interpretation of the phrase "the amount obtained" in a building contract, is the money paid over to the parties after the usual expenses of sale and closing, giving each party a reasonable net return in accordance with their obvious intent.
Error to the District Court of the City and County of Denver, Hon. William A. Black, Judge.
Messrs. DICKERSON, MORRISSEY DWYER, Mr. JOSEPH N. LILLY, for plaintiffs in error.
Mr. SAMUEL S. GINSBERG, for defendant in error Elder Construction Company.
Mr. ROBERT L. McDOUGAL, for defendants in error Guy Elder and Foster R. Orr, as Elder and Orr Construction Company.
THE parties are here in the same order they appeared in the trial court. We will refer to the plaintiffs as Hutchinson and to the defendants as the Contractors.
Hutchinson was the owner of a number of building sites, and the Contractors were in the business of buildings homes. This litigation involves the construction and interpretation of a series of contracts entered into between Hutchinson and the Contractors for the development of the building sites by the erection thereon of modest homes to be sold when completed.
Upon the issues framed by the pleadings the court appointed a master, and in the order of appointment specified that the master should have power to "determine all issues of fact and questions of law now pending and undecided in this case." The items in dispute were enumerated and the total were stipulated by the parties, whereupon an extensive hearing was held before the master in which evidence was taken consisting of 338 pages.
The findings and conclusions of the master were set aside by the court in toto. The court then entered what was virtually a summary judgment, having before it only the pleadings, the contracts and stipulated amounts of the items in dispute. The court reached this result by ruling as a matter of law that the contracts were plain and unambiguous on their face and that testimony explaining the same was inadmissible before the master. Hutchinson cites as error the order of the court setting aside and holding for naught the master's findings and conclusions and in entering its own judgment without regard to the proceedings before the master.
One particular paragraph of the five separate contracts entered into by the parties gave rise to the disputes. It was alleged by Hutchinson before the master that it was ambiguous and required interpretation. The attempt to define the intention of the parties in the framing of this paragraph produced must of the testimony at the trial before the master. With the disputed words given emphasis, it reads as follows:
"The ultimate cost of the houses shall include the actual cost of construction plus Contractor's fixed fee of Four Hundred Thirty-five Dollars ($435.00), plus Owner's price of Nine Hundred Fifty Dollars ($950.00) for the land upon which each house is to be constructed. Fifty percent (50%) of any amount obtained from the sale of any house exceeding the aforementioned ultimate cost, shall be paid Contractor as additional compensation for construction of said houses."
The master found that the "ultimate most" included (a) all costs of construction, (b) $435.00 contractor's fees, (c) $950.00 for each parcel of land. He found it did not include Hutchinson's costs in obtaining construction loans. He held that those enumerated items were plain and unequivocal and unambiguous. From the evidence adduced at the hearing, however, he found that "the amount obtained" from the sale of the houses was, in fact, the net amount after deducting real estate commission, F.H.A. closing fees, abstracting charges to date of sale, revenue stamps, advertising of the houses. He also found that other items such as utilities for lighting and heating of the houses during showing and to protect them in inclement weather plus expenses of landscaping to enable them to get a higher loan commitment from F.H.A. were orally agreed to be paid when the houses were ready for marketing. These matters, including the use of licensed brokers to market the houses, arose months after the original contracts and required oral testimony.
Questions to be Determined.
Did the court err in ruling all evidence before the master inadmissible; in rejecting the master's report, and in entering judgment on the contracts as written?
This question is answered in the affirmative.
Rule 53 (e) (2), R.C.P. Colo., provides:
"In an action to be tried without a jury the court shall accept the master's findings of fact unless clearly erroneous. * * *"
That the rule binds the district court to accept the findings of a master just as effectively as rule 52 (a) binds this court to accept findings of a trial court is not a new principle and has long been recognized. The binding effect of the rule not only to be found in its language but also in the long line of cases in the federal courts wherein the rule has been many times interpreted. (See Michael Del Balso v. Carozza, 136 F. (2) 280, wherein Davis v. Schwartz, 155 U.S. 631, 15 Sup. Ct. 237, 39 L.Ed. 289, and numerous circuit court decisions are enumerated.)
Since the parties did not use such words as "sales price," "gross sales price" or "net sales price", the meaning of the use of the words "any amount obtained" required clarification. The only moneys actually coming into the hands of the parties, and therefore the only "moneys obtained," were the net amounts after the commissions, F.H.A. costs, abstracting fees, and other adjusted items usually found and balanced on the closing sheet. The testimony of the parties that they discussed among themselves the necessity of using real estate agents to market the houses and that advertising and other expenses were necessary before the houses could be effectively turned into cash was proper, and the finding of the master is supported by the testimony.
[2-3] It is rule of thumb to be found in the authorities that courts should give effect to the general purposes of a contract. Courts make due allowance for a common human failing, that of being careless in choosing words. We should not allow inept expressions to defeat the evident intentions of the parties. Stewart v. Public Industrial Bank, 85 Colo. 546, 277 Pac. 782. An interpretation which makes the contract or agreement fair and reasonable will be preferred to one which leads to a harsh or unreasonable result. 3 Williston on Contracts, Rev. Ed. 1786-7. Evidence before the master supports the conclusion that it was the intention of the parties to enter into a joint venture whereby each would obtain one half of the profits on the houses after payment of expenses which both parties knew were usual and incidental to the construction and marketing of the same. It was a fair and reasonable interpretation by the master that usually the owner of the property is the one to obtain a construction loan, thereby enabling him to pay his contractor as the work progresses, and that, therefore, the cost of the loan is chargeable to the one who obtains it. The language of the contract plainly excludes this item as a part of "ultimate cost of construction." An equally fair and reasonable interpretation of "the amount obtained" is the money paid over to the parties after the usual expenses of sale and closing. This was all that was left to be divided equally. The findings of the master gave each party a reasonable net return in accordance with their obvious intent. In setting aside the master's report the court gave the Contractors almost $38,000.00 profit while imposing nearly $18,000.00 loss on Hutchinson. This would be harsh when it is shown that the sale of the houses did, in fact, show a net profit.
The judgment is reversed and the cause remanded with instructions to enter judgment for plaintiffs and defendants in accordance with the master's findings, conclusions, and suggested judgment.
MR. JUSTICE MOORE dissents.