Bel Pre Medical Center, Inc. v. Frederick Contractors, Inc., 512

Citation320 A.2d 558,21 Md.App. 307
Decision Date21 May 1974
Docket NumberNo. 512,512
PartiesBEL PRE MEDICAL CENTER, INC. v. FREDERICK CONTRACTORS, INC.
CourtCourt of Special Appeals of Maryland

William C. Staley, Kensington, with whom were Staley, Prescott & Ballman, Kensington, on the brief, for appellant.

Rex L. Sturm, Rockville, and Manuel M. Weinberg, Frederick, with whom was R. Edwin Brown, Rockville, on the brief, for appellee.

Argued before THOMPSON, MOYLAN and DAVIDSON, JJ.

DAVIDSON, Judge.

Bel Pre Medical Center, Inc., appeals from an order of the Circuit Court for Montgomery County which, on the motion of Frederick Contractors, Inc., directed the parties to stay the arbitration of a dispute arising out of a construction contract between them. The facts are essentially undisputed.

On 4 August 1971 the parties entered into a contract entitled 'Standard Form of Agreement Between Owner and Contractor' which included as a part of the contract a document entitled 'General Conditions of the Contract for Construction.' 1 By the terms of this contract the appellee, Frederick Contractors, Inc. (hereinafter referred to as the contractor), agreed, for a stipulated sum, to build for the appellant, Bel Pre Medical Center, Inc. (hereinafter referred to as the owner), a two-story addition to the owner's nursing home in Montgomery County.

The relevant portions of the contract, in the order of their importance, provide as follows:

'7.10.1 (General Conditions). All claims, disputes and other matters in question arising out of, or relating to, this Contract or the breach thereof, except as set forth in Subparagraph 2.2.9 with respect to the Architect's decisions on matters relating to artistic effect, and except for claims which have been waived by the making or acceptance of final payment as provided by Subparagraphs 9.7.5 and 9.7.6, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise. This agreement so to arbitrate shall be specifically enforceable under the prevailing arbitration law. The award rendered by the arbitrators shall be final, and judgment maybe entered upon it in accordance with applicable law in any court having jurisdiction thereof.

'7.10.2 (General Conditions). Notice of the demand for arbitration shall be filed in writing with the other party to the Contract and with the American Arbitration Association, and a copy shall be filed with the Architect. The demand for arbitration shall be made within the time limits specified in Subparagraphs 2.2.10 and 2.2.11 where applicable, and in all other cases within a reasonable time after the claim, dispute or other matter in question has arisen, and in no event shall it be made after institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations.

'2.2.7 (General Conditions). Claims, disputes and other matters in question between the Contractor and the Owner relating to the execution or progress of the Work or the interpretation of the Contract Documents shall be referred initially to the Architect for decision which he will rendered in writing within a reasonable time.

'2.2.9 (General Conditions). The Architect's decisions in matters relating to artistic effect will be final if consistent with the intent of the Contract Documents.

'2.2.10 (General Conditions). Any claim, dispute or other matter that has been referred to the Architect, except those relating to artistic effect as provided in Subparagraph 2.2.9 and except any which have been waived by the making or acceptance of final payment as provided in Subparagraphs 9.7.5 and 9.7.6, shall be subject to arbitration upon the written demand of either party. However, no demand for arbitration of any such claim, dispute or other matter may be made until the earlier of: .1 the date on which the Architect has rendered his decision, or .2 the tenth day after the parties have presented their evidence to the Architect or have been given a reasonable opportunity to do so, if the Architect has not rendered his written decision by that date.

'2.2.11 (General Conditions). If a decision of the Architect is made in writing and states that it is final but subject to appeal, no demand for arbitration of a claim, dispute or other matter covered by such decision may be made later than thirty days after the date on which the party making the demand received the decision. The failure to demand arbitration within said thirty days' period will result in the Architect's decision becoming final and binding upon the Owner and the Contractor. If the Architect renders a decision after arbitration proceedings have been initiated, such decision may be entered as evidence but will not supersede any arbitration proceedings except where the decision is acceptable to the parties concerned.'

On 12 January 1973 the architect and representatives of the owner and the contractor met to inspect the premises and to determine what items remained to be completed by the contractor. On 16 January 1973 the architect wrote a letter to the owner which stated as follows:

'We hereby certify that to the best of our knowledge, information and belief, and on the basis of our observation and inspection the Work has been completed in accordance with the terms and conditions of the Contract Documents and that the entire balance found to be due the Contractor, except as noted below is due and payable.

We have attached herewith a copy of our final 'Punch List' dated 12 January 1973. We feel an equitable sum of $5,000.00 should be withheld from final payment of retainage until this 'Punch List' is complete.'

The 'punch list' contains 58 separate minor items remaining to be done. On or about 16 January 1973, the contractor submitted written requisitions for payment. On 27 January 1973 a meeting took place between the owner and the contractor at which a dispute arose which was not then resolved. 2 Final payment has not been made by the owner.

On 22 March 1973 the contractor recorded a mechanic's lien on the subject property and on 30 April 1973 filed a bill in equity to foreclose on the lien. On 22 May 1973 the owner made a demand upon the contractor for arbitration in which he charged that the contractor:

1) failed to construct the building according to specifications;

2) failed to recognize the architect as an employee of the owner 3) interfered with the contractual relationship between the architect and the owner; and

4) failed to obtain certificates of payment signed by the architect.

On 8 June 1973 the contractor refused to participate in the arbitration proceedings 'unless ordered by the Circuit Court for Montgomery County to do so.'

On 24 May 1973 the owner moved to strike the mechanic's lien on the grounds that arbitration was the sole and exclusive remedy which the contractor could utilize to enforce his rights. On 12 June 1973 this motion was denied. On 19 June the owner filed his answer to the contractor's bill of complaint. He admitted all of the contractor's allegations except the amounts in dispute, and adverred that the contractor had waived his right to file a mechanic's lien by failure to demand arbitration. On 27 June 1974 the contractor applied for an ex parte injunction to stay the arbitration demanded by the owner of the ground that the owner had failed to demand arbitration within thirty days of the receipt of the architect's letter. The ex parte injunction was granted.

On July 12 a hearing was held to determine whether a permanent injunction enjoining the arbitration proceeding should issue. Judge Philip M. Fairbanks found that the question presented was 'whether the provisions ( 2.2.10 and 2.2.11 of the General Conditions) requiring demand for arbitration to be made within thirty days of the architect's decision apply or whether the provisions ( 7.10.2 of the General Conditions) requiring demands for arbitration to be made within a reasonable time after claim or within the statute of limitations apply.' Judge Fairbanks determined that the architect's letter of 16 January 1973 constituted 'his decision that the work was completed and that the contractor was entitled to be paid;' that under the contract the owner was required to demand arbitration 'within thirty days of the architect's letter, or at most within thirty days of January 27, 1973;' and that the owner, therefore, had sought arbitration too late. The judge further found that 'even were the provisions of 2.2.10 and 2.2.11 not applicable, the owner's demand for arbitration comes not within a reasonable time, having been delayed until nearly a month after the filing of the mechanic's lien.' An order permanently enjoining the parties from proceeding with arbitration was entered on 3 August 1973. It is this order from which the owner appeals. 3

The question before us concerns the effect of an arbitration clause agreed to by the owner and the contractor. Appellant-owner contends here, as he did below, that the agreement of the parties to arbitrate 'all claims, disputes, and other matters in question arising out of, or relating to this contract or the breach thereof' is binding upon the parties and precludes a court from determining the amount of money due for labor and materials furnished by the contractor to the owner. He insists that by agreement of the parties this issue must be determined by the arbitrator. Appellee-contractor does not dispute the fact that the issue of the amount of money due and owing for labor and materials is arbitrable under the terms of the agreement but contends that the owner waived his right to arbitration by failing to file a timely demand for arbitration. In support of this position the contractor argues, in the alternative, either that the architect's letter of 16 January 1973 constituted an 'architect's decision' within the...

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