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Parties Involved:
LaJunta Plaza Shopping Center, Ltd.
Appellant
T.G. & Y. Stores Co.
Appellee

Document Text:

FI LED 

UNITED STATES COURT OF APPEALS Uoited States Court of Appeals 

Tenth Circuit 

FOR THE TENTH CIRCUIT 

LAJUNTA PLAZA SHOPPING CENTER, LTD., 

a limited partnership,, 

Plaintiff-Appellant, 

v . 

T. G. & Y. STORES CO., a foreign 

co rporation, 

Defendant-Appellee. 

ORDER AND JUDGMENT* 

AUG 14 1989 

ROBERT L. HOECKER 

Clerk 

No. 88-1003 

(D.C. No. 86-1950) 

( D. Kan.) 

Before McKAY, TACHA, and EBEL, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. 

submitted without oral argument. 

The cause is therefore ordered 

This is a diversity case seeking declaratory construction of 

a contract. On stipulated facts, the district court granted 

defendant's motion for summary judgment. The court failed to rule 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

e xcept for purposes of establishing the doctrines of the law of 

t he case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 88-1003 Document: 01019975687 Date Filed: 08/14/1989 Page: 1 
on plaintiff's cross-motion for summary judgment. Plaintiff's 

summary judgment motion may be deemed to have been denied by 

implication. 

Plaintiff, LaJunta Plaza Shopping Center, Ltd., is a limited 

partnership whose principal place of business is in Kansas. 

Defendant, T.G. & Y. Stores Company, is a corporation with its 

principal business office located in Oklahoma. T.G. & Y. is the 

sole limited partner in the partnership and has a fifty percent 

interest in the partnership. The sole general partner, Theodore 

V. Williams, also has a fifty percent interest in the partnership. 

(Originally, there was a second general partner, but he sold his 

interest to Mr. Williams and is not involved in this litigation.} 

On June 11, 1979, the parties entered into a development 

agreement by which they agreed to acquire, finance, and operate a 

certain tract of land as a T.G. & Y. Store in LaJunta, Colorado. 

On that same date, the parties executed a lease agreement by which 

the general partners, as lessors, agreed to lease the real 

property and future improvements to T.G. & Y., as lessee. 

The limited partnership agreement was executed by the parties 

on July 9, 1980. However, by its terms, its effective date was 

deemed to have been June 11, 1979. The lease agreement, and 

amendments thereto, were assigned to the limited partnership. 

The agreement provided for T.G. & Y. to earn its share in the 

limited partnership by securing the necessary 100% financing and a 

permanent loan commitment to get the project going. T.G. & Y. 

performed those duties. The permanent loan commitment was issued 

by the Liberty National Bank and Trust Company of Oklahoma City to 

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the general partners. The general partners were the only persons 

liable on the mortgage note. 

The monthly amortization payment to the lender by the general 

partners is in the amount of $9,098.20. However, as a condition 

of the provision of the 100% financing, the lender required the 

general partner to lease the retail space to T.G. & Y. for 

$11,375.00 per month. T.G. & Y. agreed to pay this inflated rent 

which was $2,276.80 more than the monthly amortization payment to 

the lender. As a further condition to the receipt of the 

financing, the lender required the parties to assign the lease 

agreement to it. The result of this assignment was that T.G. & Y. 

became liable to the lender directly for the payment of the entire 

$11,375.00 monthly rent in the event there was a default on the 

loan. The lease agreement provides that T.G. & Y. will remain 

ultimately liable for the rent payments even if T.G. & Y. assigns 

its interest in the lease to another party. Thus, if the 

partnership should default on the loan and T.G. & Y. 's assignee 

should default in paying the rent, T.G. & Y. would have to 

commence making the rental payments directly to the lender. 

The parties devised a mechanism by which T.G. & Y. 's actual 

out of pocket rent payments would be only a rate equal to the 

$9,082.20 monthly amortization rate. This mechanism is in 

paragraph 6 of the limited partnership agreement. It provides: 

6. Special Compensation. T.G. & Y. Stores Co., as 

compensation for services rendered under the provisions 

of Section 9.1 hereof, shall be paid the sum of two 

thousand two hundred seventy-six and 80/100 dollars 

($2,276.80) in advance between the first and tenth day 

of each calendar month beginning at such time as any 

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rental revenue from T.G. & Y. Stores Co. accrues to the 

Joint Venture and continuing thereafter for so long as 

such rental revenues shall continue to accrue. Such 

payments shall be classified and treated as one of the 

"operating costs" for all purposes hereof, 

notwithstanding how such payments may be classified for 

income tax return purposes. 

(Emphasis added.) Provision 9.1 mentioned in paragraph 6 refers 

to T.G. & Y. 's obligation, in its capacity as an independent 

contractor, to maintain the books and financial records of the 

partnership and to prepare the partnership's income tax returns. 

T.G. & Y. performed those services until the time the complaint 

was filed. 

On August 11, 1986, T.G. & Y., with the consent of the 

partnership and the lender, assigned all of its right, title, and 

interest in the lease agreement to the K-Mart Corporation. 

T.G. & Y. received a cash payment of $200,000 from K-Mart as 

compensation for the assignment. T.G. & Y. paid Mr. Williams 

$25,000 to insure that the partnership would not interfere in the 

lease assignment. 

Since the assignment, K-Mart pays the partnership the full 

monthly rental of $11,791.67 as required by the lease. It is not 

paid directly by K-Mart to the lender. Pursuant to the terms of 

the lease agreement, K-Mart stands potentially directly liable to 

the lender (along with T.G. & Y.) for the payment of rent in the 

event that there is a default on the loan. If there is a default 

on the loan and T.G. & Y. is required to pay the lender, the 

assignment agreement between T.G. & Y. and K-Mart requires K-Mart 

to indemnify T.G. & Y. There has been no default. The parties 

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agree that K-Mart has no claim to the $2,276.80 extra monthly rent 

or "special compensation" monies. 

The issue in this case is whether T.G. & Y., rather than the 

partnership, is entitled to receive the extra rent following 

T.G. & Y.'s assignment of its interest in the lease to K-Mart. 

The district court determined that the language of 

paragraph 6 stating that T.G. & Y. shall be paid the extra rent 

"beginning at such time as any rental revenue from T.G. & Y. 

Stores Co. accrues to the Joint Venture and continuing thereafter 

for so long as such rental revenues shall continue to accrue" is 

ambiguous. The court concluded that it "seems reasonable .•• 

t hat the parties intended T.G. & Y. to continue to receive the 

rebate as long as any rent accrued, whether this be from T.G. & Y. 

or its assignee" in light of the facts that "[t]he parties have 

stipulated that the sole reason for the higher rent payment was to 

be able to obtain the 100% percent loan; T.G. & Y. continues to be 

ultimately liable for this amount." District court "Memorandum 

and Order" at 6 (emphasis in original). The court relied on the 

Restatement (Second) of Contracts§ 318 for the proposition that 

performance of a duty by an assignee satisfies the performance 

owed by the assignor. Since the lease agreement contemplated the 

possibility of an assignment and paragraph 6 contains no specific 

language providing for termination in the event of an assignment, 

the court did not believe that its interpretation extended the 

scope of the limited partnership agreement in contravention of the 

contract's language prohibiting such extension without the parties 

written agreement. Additionally, the court viewed it as 

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i nequitable for the partnership to realize a "windfall'' by its 

retention of the extra rent. 

The parties have taken no position whose substantive law 

applies. We must. 

A federal court sitting in diversity must apply the choice of 

l a w rules of the state in which it sits. See Klaxson Co. v. 

Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Mills v. State 

Farm Mut. Auto. Ins. Co., 827 F.2d 1418, 1420 (10th Cir. 1987). 

I n a contract case, Kansas chooses the state where the contract 

was made. See Simms v. Metropolitan Life Ins. Co., 685 P.2d 321, 

324 (Kan. App. 1984). A contract is made at the time and place 

where the last act necessary for its formation is done. See 

Neumer v. Yellow Freight Sys., Inc., 556 P.2d 202, 204 (Kan. 

1 976). The main body of the limited partnership agreement was 

executed in Oklahoma. Therefore, we apply Oklahoma law. We note 

that the limited partnership agreement states that the partnership 

was formed for the limited purposes and scope set forth in the 

Colorado Limited Partnership Act and that an amendment to the 

agreement was partially executed in Kansas. We consider our 

choice of law uncontroversial because our review of Oklahoma, 

Colorado, and Kansas law shows them in agreement on the basic 

standards for contract construction and interpretation. 

The relevant fundamental standards of contract interpretation 

i n Oklahoma are stated in the following passages: 

A contract must be considered as a whole so as to give 

effect to all its provisions without narrowly 

concentrating upon some clause or language taken out of 

context. The language in a contract is given its plain 

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and ordinary meaning unless some technical term is used 

in a manner meant to convey a specific technical 

concept. The court must interpret a contract so as to 

give effect to the intent of the parties at the time the 

contract was formed. The parol evidence rule provides 

that unless fraud or mistake is involved pre-contract 

negotiations and oral discussions are merged into, and 

superseded by, the terms of the executed written 

agreement. While parol testimony cannot vary, modify or 

contradict the terms of the instrument, it is admissible 

to explain the meaning of words when there is a latent 

ambiguity in the written text of the agreement. Thus 

the practical construction of an agreement, as evidenced 

by the acts and conduct of the parties, is available 

only in the event of an ambiguity. But where a contract 

is complete in itself and, as viewed in its entirety, is 

unambiguous, its language is the only legitimate 

evidence of what the parties intended. The intention of 

the parties cannot be determined from the surrounding 

circumstances, but must be gathered from a four-corners' 

examination of the contractual instrument in question. 

Mercury Inv. Co. v. F.W. Woolworth Co., 706 P.2d 523, 529 (Okla. 

1985)(footnotes omitted)(emphasis in original). 

Where there is doubt as to the meaning of the terms of 

the contract, the construction given by the parties may 

be considered and adopted even though the contact is 

susceptible to another construction. 

Kelso v. Kelso, 225 F.2d 918, 921 (10th Cir. 1955). 

The determination of whether a contact is ambiguous is a 

question of law which we review de novo. See In re Arnarex, 853 

F.2d 1526, 1530 (10th Cir. 1988). In the absence of contractual 

ambiguity, the district court's interpretation of a contract 

presents an issue of law which we similarly review de novo. See 

Nunn v. Chemical Waste Management, Inc., 856 F.2d 1464, 1467 (10th 

Cir. 1988). If a contract term is found to be ambiguous, the 

resolution of its proper meaning is a question of fact, subject to 

review on a clearly erroneous standard. Teton Exploration 

Drilling v. Bokum Resources, 818 F.2d 1521, 1526 (10th Cir. 1987). 

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Our review of paragraph 6 reveals that the special 

compensation monies given to T.G. & Y. are, on the language of 

this particular contractual provision alone, given solely as 

consideration for T.G. & Y.'s performance of the bookkeeping 

duties and the preparation of tax returns as stated in paragraph 

9.1 of the contract. In this limited sense, the language of 

paragraph 6 appears unambiguous. However, we conclude, for two 

reasons, that paragraph 6 should be treated as ambiguous regarding 

the purpose underlying its existence. (The latent ambiguity we 

find is different from the ambiguity found by the district court.) 

First, this case came before the district court in the unusual 

posture where the parties have agreed, at the outset of the 

litigation, that the contractual provision at issue was not meant 

to be read literally in regard to its recitation of what 

constitutes its stated written purpose. The parties agreed that 

the monies afforded T.G. & Y. by paragraph 6 were to avoid 

T.G. & y •IS payment of rent in amounts greater than the 

amortization payments. Second, the purported basis for the 

payment of the special compensation monies as set forth in 

paragraph 6 is absurd when read in conjunction with the entire 

partnership agreement. 

Paragraph 22 of the partnership agreement reads as follows: 

Liability For Special Compensation. The 

compensation set forth in section numbered 6 above shall 

be a continuing liability of this limited partnership 

notwithstanding and not limited to, any sale or other 

transfer, withdrawal or incapacity of a joint venturer, 

or winding up or dissolution of this partnership under 

the provisions of sections numbered 13, 14, 15, 16 and 

17, above, and such liability shall be satisfied to the 

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satisfaction of the recipient 

before exercise of any rights 

under terms of this instrument. 

of such compensation 

of any joint venturer 

Both below and on appeal, the partnership has explained the 

inconsistency between the stated basis for the allowance of the 

special compensation monies and the terms set out in paragraph 22 

as follows: 

Under paragraph 22, T.G. & Y. would still continue to 

receive its rental rebate. The partnership would have 

never agreed to pay T.G. & Y. $2,276.80 a month to keep 

the books of a partnership which was dissolved; unless 

the payment was truly a rental rebate rather than a 

bookkeeping fee. If in fact the purpose of the "Special 

Compensation" was to pay T.G. & Y. for bookkeeping 

services, rather than a rental rebate, and the Limited 

Partnership was subsequently dissolved, the General 

Partner would then be obligated to continue to pay to 

T.G. & Y. $2,276.80 per month in return for no 

consideration whatsoever. Further, if the Limited 

Partnership was dissolved, obviously, there would be no 

books to keep or tax returns to prepare. 

Partnership's Summary Judgment Motion, pp. 12-13. See also 

Partnership's Chief Appellate Brief, p. 38. These assertions have 

never been controverted by T.G. & Y. The partnership has written 

that the true basis for paragraph 22 was to assure that T.G. & Y. 

would still receive payments of the extra rent in the event that 

the partnership assigned its interests, as lessor, and the lease 

to a third party. See the Partnership's Summary Judgment Motion, 

p. 13. See also Partnership's Chief Appellate Brief, p. 39. 

T.G. & Y. does not contest this assertion. 

Oklahoma law allows the parties mutual construction of an 

ambiguous term to control. See Kelso, 225 F.2d at 921. Thus, the 

parties' agreement as to the real purpose of paragraph 6 will be 

accepted over the stated written purpose. 

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The parties disagree as to the duration of the payment of 

extra rent from the partnership to T.G. & Y. under paragraph 6. 

The district court found paragraph 6 to be ambiguous in that it 

could be interpreted to mean either that rent continued to accrue 

from T.G. & Y. only when T.G. & Y. actually leased the premises or 

that rent continued to accrue from T.G. & Y. even after it 

assigned its lease and vacated the premises. We discern no such 

ambiguity. 

Having resolved the sole ambiguity arising from paragraph 6, 

we must next determine, from the language of the contract itself, 

whether T.G. & Y. is entitled to extra rent payments following its 

assignment of its lease. 

The district court incorrectly read into paragraph 6 a term 

that was not there. The court essentially added the term "and its 

assignees" to the highlighted language on page four of this order 

and judgment. Our review of the limited partnership agreement as 

a whole reveals that in paragraph 16.1, concerning dissolution of 

the partnership for default, these sophisticated parties employed 

successor language. In paragraph 16.1, the parties wrote: 

In any such event of default, the Venturer, or 

Venturers, as the case may be, its successors, 

receivers, trustees, or other legal representatives 

shall thereupon cease to have any interest in the Joint 

Venture . 

Furthermore, in paragraph 21.3 of the limited partnership 

agreement, concerning the binding effect of the limited 

partnership agreement, the parties agreed: 

This agreement shall be binding upon and inure to the 

benefit of all of the Venturers their respective heirs, 

personal representatives and assigns. 

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The use of the language quoted above particularly demonstrates 

that these parties had the capacity to make deliberate decisions 

to include language involving successors and assignees in their 

contract terms when they so intended. Under Oklahoma law, 

language should not be read into a contract term on the basis that 

such a construction is not otherwise specifically prohibited by 

other provisions of the contract. 

A plain reading of the contract and the parties' stipulation 

of facts shows that paragraph 6 was drafted in order to set up a 

book entry transaction that would avoid the possibility of 

T.G. & Y. having to pay the extra rent. It is undisputed that 

rent has and will, absent default, be paid to the partnership. 

Once another party commences to pay the rent to the partnership, 

the purpose of the clause, to reduce T.G. & Y. 's rental 

obligation, no longer exists. Following the assignment of the 

lease to K-Mart, the partnership was entitled to all of the rent 

paid by the tenant. 

Following the submission of the stipulation of facts, the 

parties submitted their motions for summary judgment. In support 

of its motion, the partnership submitted an affidavit of a former 

employee of T.G. & Y. who supposedly was responsible for the 

drafting of the partnership agreement. This submission was 

incongruent with the partnership's assertion that the contract is 

unambiguous because the affidavit constituted parol evidence of 

the parties' original intent regarding whether T.G. & Y. was to 

continue to receive the extra rent following its assignment of its 

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lease. Because the contract is unambiguous in this respect, we 

may not consider this extrinsic evidence of intent. 

The district court's citation of Restatement (Second) of 

Contracts § 318 is no more than a statement of what was already 

provided for by the lease agreement between the parties. 

T.G. & Y. may be ultimately liable for the rent in the event of 

default on the loan, but that possibility does not entitle it to 

receive the extra rent during any period in which it pays no rent. 

Should T.G. & Y. commence paying the rent in the future, it would, 

at least as between the parties, be entitled to receive the extra 

rent or rebate. 

The district court's view that the partnership will receive a 

windfall under our holding is incorrect. The opposite is true. 

T.G. & Y. already has a fifty percent interest in the partnership. 

It splits evenly with Mr. Williams the higher rent paid by K-Mart 

to the partnership. If T.G. & Y. alone were deemed entitled to 

the extra rent, it would receive a windfall in relation to Mr. 

Williams, who would receive none of the extra rent. 

The judgment of the United States District Court for the 

District of Kansas entered on December 2, 1987, is REVERSED. The 

district court is instructed to enter the declaratory judgment 

sought by the plaintiff. The mandate shall issue forthwith. 

ENTERED FOR THE COURT 

Monroe G. McKay 

Circuit Judge 

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