Kasten Const. Co., Inc. v. Rod Enterprises, Inc.

• Decision Date: 07 March 1973
• Docket Number: No. 134,134
• Citation: 268 Md. 318,301 A.2d 12
• Parties: The KASTEN CONSTRUCTION COMPANY, INC. v. ROD ENTERPRISES, INC.
• Court: Maryland Court of Appeals

Page 318

268 Md. 318

301 A.2d 12

The KASTEN CONSTRUCTION COMPANY, INC. v. ROD ENTERPRISES, INC.

No. 134.

Court of Appeals of Maryland.

March 7, 1973.

Charles C. W. Atwater, Baltimore (Dwight C. Stone and Mylander, Atwater, Carney & Stone, Baltimore, on the brief), for appellant.

Francis D. Murnaghan, Jr., Baltimore (Robert A. Dietz, Annapolis, on the brief), for appellee.

Argued before MURPHY, C. J., and SINGLEY, SMITH, DIGGES and LEVINE, JJ.

Reargued Feb. 5, 1973 before MURPHY, C. J., and BARNES, SINGLEY, SMITH, DIGGES, LEVINE and JERROLD V. POWERS (specially assigned), JJ.

LEVINE, Judge.

This appeal by The Kasten Construction Company, Inc. (Kasten) is from a judgment for costs entered in favor of Rod Enterprises, Inc. (Rod) by the Circuit Court for Anne Arundel County (Wray, J.), where the case was tried without a jury. Kasten had sued Rod for damages allegedly sustained by reason of Rod's breach of a contract providing for the sale of approximately seventy-eight acres of subdivided building lots from Kasten to Rod. A difference of opinion regarding the interpretation of that contract has led to this dispute.

The land which is the subject of this litigation was acquired by Kasten in 1965. It is described as 'Winchester Estates' and is located on Ritchie Highway in the Third Election District of Anne Arundel County. Although it was ultimately decided that homes would be built and sold, the land was initially acquired with the intention of developing and then selling the lots.

A construction loan in the original sum of $229,000 was obtained from Annapolis Federal Savings and Loan Association (Annapolis Federal) in December, 1965. Of this amount, $90,000 was held in escrow by Annapolis Federal to be applied towards the installation of roads, storm drains and utilities. It was estimated that this sum would cover 81% of the road installation costs and 85% of the storm drain costs. From time to time, Annapolis Federal released sums of money from the escrow fund to pay invoices related to construction of roads and storm drains.

In pursuance of its development of the tract, Kasten was required to enter into a series of 'public works agreements' with Anne Arundel County (the county), to which Annapolis Federal was also a party, whereby Kasten agreed to construct its roads in accordance with county requirements by a specified date and to file a performance bond. Also, a storm drain system was required for the group of roads covered by each contract. As each group or section was approved by the county, Kasten was to undertake maintenance of the completed roads for one year with the performance bond being supplanted by a maintenance bond for that period of time. At the end of the one-year span, the roads would be accepted by the county and Kasten would be discharged from its contract and bond responsibilities.

Although the public works contract covering the first group of roads was apparently performed to the county's satisfaction and had reached the maintenance stage, Kasten found itself in straitened circumstances by early 1968, and decided to sell its tract. Actually, the inspiration for selling originated with Kasten's investors, as well as Annapolis Federal, who were anxiously casting about for someone to 'take over' the development commitments and protect their interests. These efforts led to the arrival of Rod which, through its principal, Tomas Rodriguez, contracted on March 11, 1968 to purchase Kasten's land.

Previously, on August 21, 1967, Kasten had entered into another 'public works agreement' with the county which, in a manner similar to the earlier agreement, governed the development of the second section of roads and related storm drain facilities. The performance bond under this agreement was in the amount of $18,500, which was the sum arrived at as liquidated damages to be awarded the county in the event of a failure to perform by Kasten. The deadline for performance under this agreement was September 1, 1968.

As we noted earlier, $90,000 had been withheld in escrow to cover most of the cost originally allocated for completion of the subdivision roads and storm drains. When the parties entered into their contract on March 11, 1968, the escrow balance had been reduced to approximately $45,000. Annapolis Federal had disbursed the remainder by the payment of invoices received from Kasten or its subcontractor, and upon satisfactory evidence received from the county.

In the course of disbursing the first $45,000, Annapolis Federal came into possession of two letters from the Anne Arundel County Department of Public Works. The first, addressed to Kasten, was dated June 22, 1966, and read:

'This is to advise that a recent field inspection indicates all the storm drainage has been constructed in Winchester Estates according to approved plans and county standards and is acceptable to the Department of Public Works.'

The second, addressed: 'TO WHOM IT MAY CONCERN,' was dated December 21, 1967, and read:

'A Bond for the construction of roads, including storm drainage, in the Sub-division of Winchester Estates has been posted with the Department of Public Works and all work related to this Bond has been done under the supervision of a Department of Public Works Inspector.'

Annapolis Federal says it interpreted the first letter to mean that all the storm drainage in the entire subdivision had been completed; for that reason, it says, it released at that time the entire $18,000 which had been held in escrow for that purpose. It interpreted the second letter to mean that all road work covered by the 'public works agreement' of August 21, 1967 and the accompanying performance bond had been completed, and, having read the letter in that manner, on January 4, 1968 released the sum of $6,156.55 to the roadpaving contractor, Reliable Contracting Co., Inc., and thereby reduced the escrow balance to $45,000.

The sales contract was drafted by Samuel M. Ivrey (Ivrey), attorney for Annapolis Federal, whose interests he was principally concerned with protecting; his fee in this instance, however, was paid by Rod. The disputed provision of the contract states:

'It is further agreed between The Kasten Construction Company, Inc., and Rod Enterprises, Inc., that the sum of Forty-five Thousand ($45,000.00) Dollars now held in an escrow account in Trust at Annapolis Federal Savings and Loan Association, being the balance of undisbursed funds of loans in process in re: the mortgage from (Kasten) to (Annapolis Federal) . . . shall be assigned to the buyer, Rod Enterprises, Inc., by the Seller and shall be used by the purchaser for completion of all paving, etc. in regard the streets, etc. of the subdivision.' (emphasis added)

Although this case focuses on the interpretation of that language, there are other provisions which we regard as material. The contract contemplated a variable purchase price substantially in excess of $200,000, and provided for settlement to be held nine days after it was executed. The contract also contained the following:

'The Kasten Construction Company, Inc. shall be responsible for grading, seeding, sidewalks, driveways, which work is to be done in regard houses which are presently under construction. Upon completion of the work within 60 days from date of settlement, (Kasten) will furnish (Rod) within ninety (90) days from date of settlement with a completed and properly executed Release of Mechanic's Liens for all contractors, subcontractors, suppliers, etc., who have provided work or materials for said work (grading, seeding, sidewalks, driveways) pertaining to the newly constructed houses. Upon the failure of (Kasten) to so do, any and all unpaid bills will be presented to (Rod) and which amounts are to be deducted from the said note of Fifteen Thousand ($15,000.00). If (Kasten) fails to do this work within the assigned period of time, then (Rod) is hereby authorized and directed to have the work done and to deduct the cost from the Fifteen Thousand ($15,000.00) Dollar Note.

'(Kasten) is to remove all its equipment from the premises within 24 hours after settlement.

'. . . (T)his contract contains the final and entire agreement between the parties hereto, and that they shall not be bound by any terms, conditions, statements, warranties or representatives (sic), oral or written, not herein contained.' (emphasis added)

The parties settled on the appointed date and Rod carried on with the development of the subdivision. On July 24, 1970, however, the county filed suit against Kasten on the second 'public works agreement' and accompanying performance bond. Although a defense of the suit was undertaken by Kasten and its surety, for which a rather sizeable bill was incurred for attorney fees and is asserted as an element of damage in this case, those efforts were fruitless. On the basis that the sum of $18,500 was a stipulation of liquidated damages, judgment was entered for the full sum, even though part of the work called for by the agreement had been completed.

As the direct result of that judgment, Kasten filed suit against Rod, claiming that it had been damaged by Rod's breach of its agreement to complete 'all' paving of streets and storm drain work in the subdivision. The principal items of damage asserted are the $18,500, representing the amount of the county's judgment against Kasten, and the attorney fees for the unsuccessful defense.

At the trial, Rod conceded that Kasten had performed its obligations under the sales contract, but denied that it had committed a breach. We should note here that in the testimony, both sides made liberal reference to negotiations and related matters occurring prior to execution of the contract. The essence of Rod's twofold position in the trial court was: That it knew when it executed the sales contract-having been so informed by Kasten and Annapolis Federal-that a section of roads and storm drains was governed by the 'public works...