UROMARK INTERNATIONAL v. R/W CONST., 46698-4-I (Wash.App. 10-29-2001)

No. 46698-4-I.The Court of Appeals of Washington, Division One.
Filed: October 29, 2001. DO NOT CITE. SEE RAP 10.4(h). UNPUBLISHED OPINION.

Appeal from Superior Court of Snohomish County, No. 98-2-05088-6, Hon. Charles S. French, May 15, 2000, Judgment or order under review.

Counsel for Appellant(s), George A. Purdy, Simburg Ketter Sheppard Purdy P.S., 999 3rd Ave Ste 2525, Seattle, WA 98104-4089.

Charles K. Wiggins, Wiggins Law Office, 241 Madison Ave N, Bainbridge Is, WA 98110.

Counsel for Respondent(s), Aaron S. Hicks, 800 5th Ave Ste 3825, Seattle, WA 98104.

C. KENNETH GROSSE, J.

Where the language in a joint venture agreement to develop real estate calls for the agreement to automatically terminate unless one party has a `construction loan in place’ within a specified period of time, the condition is not satisfied by a mortgage broker’s letter of commitment for funding because such a letter is not a loan. Here, any rights R/W Construction Management and Consulting Corporation had under the agreement terminated because it did not have a loan in place within the specified time. We reverse.

FACTS
Uros and Marko Nenadic are brothers who formed Nenadic Investments, Ltd. (Nenadic Investments). Nenadic Investments held an undivided two-thirds ownership interest in a parcel of property in Everett, Washington.

The remaining undivided one-third interest was held by Scarib Holdings, Ltd. (Scarib). Todd Grauer is the sole shareholder and officer of Scarib. Scarib was incorporated in the late 1970’s by his stepfather in order to deal with the purchase of the Everett property. Grauer’s mother was a 50 percent shareholder of Scarib. When his stepfather died in 1986 and his mother shortly thereafter, Grauer became executor of both estates. In 1994, in an effort to settle the estates, Scarib brought an action against Nenadic Investments requesting that the Everett property be sold and division of the net proceeds of sale disbursed in accordance with the interest of the parties.

In 1995, Uros and Marko Nenadic met Doug Whitley and David Rovens who were interested in the property. Whitley is a real estate developer and Rovens is a building contractor. Whitley and Rovens were interested in developing the property. The Nenadic brothers told Whitley and Rovens they owned the property with a silent partner.

On October 26, 1995, the Uromark Group (Uros and Marko Nenadic) and R/W Construction Management and Consulting Corporation (R/W) signed and entered into a joint venture agreement, providing for the development and sale of the property under the name `Walnut Ridge.’

Under the joint venture agreement the parcel of land in Everett would be used as security for a $6 million loan taken out by R/W in its own name, $750,000 of which would be paid by R/W back to the Uromark Group as the purchase price for the land. R/W would then own the land and the project. Although R/W was to obtain financing in its own name, all costs of financing or refinancing were to be borne by the Walnut Ridge development project. R/W was to receive a management fee of $165,000. Profits and losses were to be divided with one-third to the Uromark Group and two-thirds to R/W. In the event of the sale of the completed project, the Uromark Group was to receive the first $250,000 in profit as compensation for its participation in the project. All remaining profits would be divided so that the Uromark Group received one-third and R/W received two-thirds. All losses were to be divided according to the same one-third/two-thirds percentages.

The financing section of the joint venture agreement provided that R/W would obtain financing from City Mortgage of Seattle. It also contained the following boldfaced paragraph:

It is fully understood that R/W must have the construction loan in place within 120 Days, otherwise this entire agreement is null and void. However, [the Uromark Group] reserves the option to extend the time period.

Article IX of the joint venture agreement provided: `This agreement contains the entire agreement and understanding between the parties.’

On October 26, 1995 the parties also signed a vacant land purchase and sale agreement for the property. It provided for a purchase price of $750,000, `all cash on closing from the proceeds of a construction loan from City Mortgage of Seattle.’ Title to the property was to be marketable at closing, although rights, reservations, covenants, conditions, and restrictions presently of record and general to the area would not render the title unmarketable. An addendum to the purchase and sale agreement provided that closing was to occur upon issuance of building permits, and the purchase was subject to a feasibility study acceptable to the purchaser and done at the purchaser’s expense.

By February of 1996 the parties changed the development from an apartment complex to an assisted living retirement facility. A consultant advised downsizing the retirement facility project due to an inability of the local market to support a project of the size envisioned. Such a downsizing required a longer lead-time, higher financing costs, and higher project costs.

The Nenadic brothers signed an addendum to the joint venture agreement that altered the purpose of the joint venture and extended the deadline for the construction loan an additional 90 days. The change to the development of an assisted living facility resulted in the need for a review by the Washington State Department of Health. On April 5, 1996, the President of City Mortgage Corp. issued a letter stating a commitment to $10.35 million in funding for capital improvements associated with Walnut Ridge. The letter contained the following passages:

The purpose of this letter is to state our commitment to funding capital improvements associated with The Walnut Ridge Project, in Snohomish County.
. . . .
Our commitment is subject to County approval of your project, appropriate authorizations which, among other items, may include the awarding of the Bond Purchase Contract to Pacific Genesis Capital Markets at One Sansome Street, 32nd Floor, San Francisco, CA, in joint effort with City Mortgage Corp., as well as securing a qualified appraisal.
The loan will be for an amount not to exceed $10,500,000.00 (net proceeds), based on an approval by City Mortgage Corp. The interest rate and closing costs will be on a best efforts basis at the time of funding.

R/W sought a bridge loan to pay off the interests of Marko Nenadic, who decided to withdraw from the joint venture, and Scarib. Uros and Marko Nenadic had failed to arrange to buy out the Scarib interest and the loan could not be arranged.

R/W continued the development process. By October 1, 1996 the project was close to fruition. Nonetheless it failed, in part because the Uromark Group terminated the joint venture. In August of 1999 Uros and Marko Nenadic closed on the sale of the property to another buyer for $1.225 million.

R/W refused to acknowledge the termination of the joint venture agreement and on June 11, 1996 recorded a notice of joint venture interest. Uromark International, Inc., filed suit seeking a declaratory judgment that the joint venture was terminated and no further relationship existed between the parties. R/W filed counterclaims that the Uromark Group violated the joint venture agreement and that R/W was entitled to an accounting on the sale of the property. R/W also filed third party claims against Uros and Marko Nenadic individually, the Uromark Group, Nenadic Investments, Ltd., and Scarib Holdings, Ltd.

At a bench trial the court found that the joint venture agreement and purchase and sale agreement were interdependent and that the purchase and sale agreement was integral to the joint venture agreement. The court concluded that Uros and Marko Nenadic materially breached the joint venture and purchase and sale agreements, resulting in damage to R/W. R/W was awarded a judgment in the principal amount of $370,699 plus prejudgment interest against Uros Nenadic, Marko Nenadic, the Uromark Group, and Nenadic Investments, Ltd., jointly and severally. Under the purchase and sale agreement the court awarded R/W judgment for its attorney fees and costs against Uros Nenadic, Marko Nenadic, the Uromark Group, Nenadic Investments, Ltd., Uromark International, Inc., and Scarib Holdings, Ltd., jointly and severally.

This appeal followed.

DISCUSSION
Our purpose in considering a contract is to give effect to the intent of the parties.[1] There are two aspects to the determination of parties’ rights under a contract, the first of which is interpretation and the second is construction. Interpretation is the process by which the intent of the parties is ascertained.[2] Interpretation is generally a question of fact.[3] Construction is a determination of the legal consequences that follow from a contract.[4] Construction is a question of law. Intent may be clarified by looking to extrinsic evidence which can provide the context to interpret the intended meaning of a contract term.[5] However, parties are bound by a contract as signed and parol evidence may only aid in the interpretation of the contract, not import new meanings or terms into it.[6] Furthermore, Washington follows the objective theory of contract interpretation under which the court focuses on the objective manifestations of the agreement and does not consider the subjective intent of the parties not otherwise manifested.[7]
Here, the meaning of the contract language is clear and the parol evidence adds nothing to its interpretation or construction. The boldfaced contract language plainly and clearly indicated that a `construction loan’ must be in place within the specified time. R/W on the other hand obtained a mortgage broker’s letter of commitment. A letter of commitment is not a loan even though it might create a legal obligation of the broker to the recipient. Because the commitment letter is not a loan it fails to satisfy the requirement of a `construction loan in place.’.

We take no issue with any of the findings by the trial court. But, the court erred when it construed these facts to mean that `construction loan in place’ meant only a legally enforceable loan commitment. When the court construed the commitment letter to satisfy the requirements of the joint venture agreement it improperly relied on parol evidence in a way that contradicted the plain meaning of the contract language and the objective intent manifested by that language.

We reverse.

WE CONCUR: COX, J., APPELWICK, J.