Opinion ID: 516947
Heading Depth: 2
Heading Rank: 2

Heading: The Turn-key Provision

Text: 23 On appeal, Itel argues that the district court's finding that this case involves a straight-forward breach of contract claim misapprehended the turn-key nature of the contract. Itel supports this argument by pointing out the trial court in its written opinion never addressed specifically the typewritten lease addendum that expressly required Chapman to construct the Itel facility on a turn-key condition upon occupancy basis so that Itel would have the capacity to immediately commence [its] normal operations. 6 24 A turn-key contract has a certain well-defined meaning in law and in fact. A turn-key job is defined as 'a job or contract in which the contractor agrees to complete the work of the building and installation to the point of readiness for operation or occupancy.'  Hawaiian Independent Refinery, Inc. v. United States, 697 F.2d 1063, 1065 n. 4 (Fed.Cir.), cert. denied, 464 U.S. 816, 104 S.Ct. 73, 78 L.Ed.2d 86 (1983) (citing to Webster's Third New International Dictionary (1971 ed.)). The developer assumes all risks incident to the creation of a fully completed facility, Securities & Exchange Commission v. Senex Corp., 399 F.Supp. 497, 500 n. 1 (E.D.Ky.1975), aff'd, 534 F.2d 1240 (6th Cir.1976), and must bear the risk for all loss and damage to the work until its completion and acceptance. Chemical & Industrial Corp. v. State Tax Com., 11 Utah 2d 406, 360 P.2d 819, 820 (1961). Itel's normal business operations were contractually described in both the addendum and the lease: the premises were to be used as a depot for containers, chassis and other transportation equipment. 25 While Chapman admits its obligation to build a facility capable of Itel's intended use, this admission, along with the use of the term turn-key in the contract, did not create a turn-key situation. The district court correctly looked to the entire written agreement to ascertain the meaning of the contract and did not err in disregarding the industry usage of the term turn-key. See Chapman v. Orange Rice Milling Co., 747 F.2d 981, 983 (5th Cir.1984); see also Glassman Constr. Co. v. Maryland City Plaza, Inc., 371 F.Supp. 1154, 1158 (D.C.Md.1974). 26 First, Itel agreed in Section 6.3 of the lease to accept the premises in their condition existing as of the date of the execution hereof ..., and acknowledge[d] that neither Lessor nor Lessor's agents ha[d] made any representation or warranty as to the suitability of the Premises for the conduct of Lessee's business. Itel also agreed under Section 8.7 that Chapman: 27 shall not be liable for injury to Lessee's business or any loss of income therefrom or for damages to the goods, wares, merchandise or other property of Lessee ... whether the said damage or injury results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part.... 28 If Itel had wished to make Chapman liable under a turn-key contract, it would not have prepared and executed an instrument expressly relieving Chapman of liability to Itel and expressly disclaiming warranty as to the suitability of the premises to Itel's business. As the court in Glassman pointed out: 29 Ordinarily the industry understanding of the term [turn-key] would be controlling.... However, in the instant contract the term was expressly defined as requiring compliance with the tenant's lease requirements and bearing all costs, therefore controlling over the industry usage. 30 371 F.Supp. at 1158 (citations omitted). 31 In Hawaiian Independent Refinery, supra, a case similar in its fact to the case before us, the court chose to look past the label turn-key to conclude that the owner's active participation in the makeup of the contract plans and specifications and the disclaimer of liability on the part of the contractor demonstrated that the parties' agreement was not a turn-key contract. 697 F.2d at 1067-68. Itel, while not the owner of the property, participated in both of the described similar relevant activities. 7 32 Choosing not to apply the common industry meaning of turn-key, the district court found the contract a lease agreement without deeming any of the contract provisions inconsistent. The court held that Chapman presented Itel with a facility that conformed to the specifications that both parties had agreed could handle Itel's normal business operations. It was correct, therefore, for the court to find that the destruction of the property resulted from Itel's misrepresentations of what constituted normal business operations coupled with the misuse by Itel of the property. In sum, Itel breached the contract. 33 We agree with the application of the law of contract by the district court. But the result is the same even if turn-key in the common usage had been the general intent of the parties. Contracting parties retain the right to allocat[e] the risks among themselves as they see fit in the turn-key situation. See Martin v. Vector Co., 498 F.2d 16, 25 (1st Cir.1974); see also, Mobile Housing Environments v. Barton & Barton, 432 F.Supp. 1343 (D.C.Colo.1977). As the Court in Mobile Housing Environments concluded, the term 'turn-key construction job' ... imposes upon the contractor the responsibility for providing the design of the project and responsibility for any deficiencies or defects in design, except to the extent that such responsibility is specifically waived or limited by the contract documents. 432 F.Supp. at 1346 (emphasis added). Here the other provisions in the lease relieve Chapman of any possible liability regardless of the meaning of turn-key in the contract.