MacISAAC v. POZZO (1945)

This is an appeal by defendants from a judgment on the pleadings in an action for declaratory relief. The complaint alleges that on August 18, 1942, plaintiffs and defendants entered into a joint venture agreement (Exhibit A) for the construction of civilian housing at Ogden Air Depot, Ogden, Utah, all profits and losses arising thereunder to be divided or borne equally among the parties, share and share alike; that the work contemplated by said agreement was completed and accepted by the United States government; that for the purpose of facilitating the performance of such work, the parties established in Salt Lake City a general office and management staff; that on September 22, 1942, the plaintiffs learned that another housing project was to be erected by the Utah Fuel Company at Sunnydale, near Sunnyside, Carbon County, Utah, and began negotiations to secure the contract for such construction; that plaintiffs informed defendants regarding this latter project and proposed that should their negotiations be successful that the office and organization set up for the handling of the Ogden Air Depot project be used, instead of setting up a new office to handle the Sunnydale job; that said plaintiffs and defendants agreed that this be done and also if plaintiffs were successful in securing the contract it would be secured as a joint venture on the basis of 85% to plaintiffs and 15% to defendants; that on September 30, 1942, a written agreement (Exhibit B) incorporating such terms was executed by said parties; that thereafter plaintiffs and defendants entered into a contract (Exhibit C) with the Utah Fuel Company for the ‘management, superintendence and supervision of the construction’ of the Sunnydale housing project; that such construction was ‘carried on and completed’ and during the progress thereof partial payments were made by Utah Fuel Company on account, which payments were divided between plaintiffs and defendants in the proportion 85% and 15% respectively; that there remains unpaid on account of said project from Utah Fuel Company the sum of $10,000 and plaintiffs allege upon information and belief that defendants have prevented said Fuel Company from settling the amount of the balance owing to said parties and said Fuel Company has refused to negotiate with plaintiffs or to settle ro pay any balance without defendants' participation in such negotiations; that defendants have refused to so participate untile the respective rights of the parties hereto have been determined, adjusted and settled; that plaintiffs are entitled to receive 85% and defendants are entitled to receive 15% of the money heretofore collected and which may hereafter be collected and received from the Utah Fuel Company under said contract. It is further alleged that it is necessary that a declaration of the rights of plaintiffs and defendants in respect to such matters be made by the court and that in addition thereto the court determine the validity of said contract (Exhibit B).

Defendants by their answer and cross-complaint admitted the execution of the questioned contract (Exhibit B) as well as the contract for the Ogden Air Depot project (Exhibit A), but allege that immediately after these contracts were entered into, they learned that certain representations of plaintiffs, in connection with negotiations on the contracts were untrue, were made for the purpose of misleading and deceiving defendants and to induce them to agree to enter into said venture on a 15% basis instead of a 50% basis. Such representations are alleged in the cross-complaint to have been made under the following circumstances: ‘That after said understanding and agreement with the Utah Fuel Company had been arrived at as aforesaid, plaintiffs represented and stated to defendants that plaintiffs had obtained an agreement to supervise said construction work of said housing project for themselves by reason of the recommendation of the Kaiser Company who were interested therein and for whom said plaintiffs had done construction work at Fontana, California, and that plaintiffs could either take said contract for their own account or they could take said contract as a joint venture contract with defendants, and that if defendants would join them in a joint venture contract to supervise said construction work and utilize the Salt Lake office facilities and personnel set up for the purpose of performing the Ogden, Utah, housing project under the joint venture then existing between plaintiffs and defendants, that plaintiffs would give defendants 15% of the profits which would be derived from said contract, and defendants, believing said representation that plaintiffs had obtained said contract for their own account by reason of the recommendation of the Kaiser Company, and not knowing that said contract had been negotiated by the employees and agents of themselves and plaintiffs as joint venturers, did agree to join with plaintiffs as joint venturers in the supervision of said housing project at Sunnydale and to receive 15% of the net proceeds therefrom. * * * but for such belief in the truthfulness of said representation and because of their lack of knowledge of the true circumstances surrounding the obtaining of said agreement as aforesaid, they would not have entered into Exhibit B attached to plaintiffs' complaint, but on the contrary would have demanded that they receive 50% of the net proceeds derived from said agreement with said Utah Fuel Company. * * * Defendants are informed and believe and therefore allege that the Kaiser Company did not recommend plaintiffs for the work as contractors in connection with the construction of the housing project at Sunnydale, and that the plaintiffs then and there well knew that the Kaiser Company had not recommended them for the same, and that said representation was made for the purpose of concealing the fact that said contract had been negotiated and obtained by agents and employees of and at the expense of plaintiffs and defendants as joint ventures and for the purpose of fraudulently inducing defendants to enter into an agreement to receive 15% of the net proceeds derived from said agreement with the Utah Fuel Company instead of 50% thereof which defendants would have been entitled to and have demanded had they known all of the facts and circumstances surrounding the negotiations for and the obtaining of said agreement with the Utah Fuel Company. That, acting and relying upon the fraudulent representations of plaintiffs as aforesaid, defendants executed Exhibit B, the joint venture agreement attached to plaintiffs' complaint, and Exhibit C and D (supervision agreement with Utah Fuel Company) attached to plaintiffs' complaint. * * * That shortly after execution of said Exhibits B and C attached to plaintiffs' complaint, and on or about October 10, 1942, defendants learned for the first time of the true facts and circumstances surrounding the negotiations for and the obtaining of said agreement with the Utah Fuel Company and then and there informed and advised plaintiffs that, by reason thereof, they were entitled to receive 50% of the net proceeds derived from the performance of said contract with Utah Fuel Company, Exhibit C * * * and that they expected an adjustment of the contract on a 50% basis upon the completion of said contract with Utah Fuel Company * * *.’

It is further alleged by defendants in their cross-complaint that progress payments in the amount of $48,195 have been made by the Utah Fuel Company to plaintiff and defendants under their contract, Exhibit C, with said company and that there is an additional sum due thereunder, the exact amount of which cannot be determined because of adjustments yet to be made between the said parties and the Fuel Company; that of said $48,195 plaintiffs have received the sum of $40,965.75 and defendants have received $7,229.25 and there is now due from plaintiffs to defendants the sum of $16,868.25 ‘constituting the difference between the amount of money heretofore paid by Utah Fuel Company * * * to defendants and the amount they are entitled to by reason of the facts and circumstances hereinabove alleged.’

The court granted plaintiffs' motions for judgment on the pleadings which were based upon the complaint and answer ‘including the admissions of the defendants in their answer,’ and upon the cross-complaint of defendants and the answer of plaintiffs thereto, and entered judgment decreeing that the joint venture agreement (Exhibit B) was a valid and subsisting contract, and that plaintiffs and defendants were entitled to demand, receive and accept all monies heretofore paid or due and payable from the Utah Fuel Company pursuant to the terms of the said agreement in the proportion of 85% and 15% respectively.

In support of the judgment on the pleadings, respondents urge that a contract induced by fraud is not void, but is a valid and enforceable agreement unless rescinded promptly upon discovery of the fraud; that appellants discovered the alleged fraud at the very inception of the contract but instead of rescinding the same they elected to carry out its terms and therefore the court was without authority to cancel said contract and substitute therefor an implied contract to divide the profits on a 50/505050 basis.

Appellants on the other hand argue that it was not ‘until after the execution of the Utah Fuel Company agreement that the appellants discovered the fraud practiced upon them, and after the execution of the Utah Fuel Company agreement the appellants were placed in a position where they were compelled to go forward with the performance of that agreement. * * * A court of equity or a court of law will not compel a person to give up a valuable property right in order to relieve himself from the fraud of a dishonest joint venturer, which would be the situation were the appellants required before they were entitled to relief to have refused to have proceeded further with the joint venture agreement to perform the Utah Fuel Company contract, and in effect to have refused to have performed the Utah Fuel Company contract.’

Both the complaint and the answer thereto seek a declaration of the rights of the parties under the so-called 85/15515 contract as well as a construction of its terms. By their cross-complaint, appellants attempt to raise the question of fraud, but instead of seeking damages by reason of such fraud, they ask the court to ignore the contract and award them what they would have received had another and a different contract been entered into. In an action for declaratory relief, appellants' pleadings are insufficient as a defense.

‘A plaintiff may test the sufficiency of an answer by a motion for judgment on the pleadings, and may thereby recover judgment without the introduction of any evidence, if his complaint states facts sufficient to constitute a cause of action, and the answer, as interposed by the defendant * * * neither raises any material issue nor states a defense, i. e., where the answer expressly or substantially admits or does not sufficiently deny all the material allegations of the complaint and sets up no new matter which is sufficient to bar or defeat the action.’ 21 Cal.Jur. 235, sec. 164, and authorities there cited.

For the reasons stated, the judgment appealed from is affirmed.

YORK, Presiding Justice.

DORAN and WHITE, JJ., concur.