Continental Realty Corporation v. Andrew J. Crevolin Co.

• Decision Date: 30 July 1974
• Docket Number: Civ. A. No. 73-107-Ht.
• Citation: 380 F. Supp. 246
• Court: U.S. District Court — Southern District of West Virginia
• Parties: CONTINENTAL REALTY CORPORATION v. ANDREW J. CREVOLIN CO. et al.

380 F. Supp. 246

CONTINENTAL REALTY CORPORATION v. ANDREW J. CREVOLIN CO. et al.

Civ. A. No. 73-107-Ht.

United States District Court, S. D. West Virginia, Huntington Division.

July 30, 1974.

John E. Jenkins, Huntington, W. Va., for plaintiff.

John J. Petro, J. Paul McNamara, McNamara & McNamara, Columbus, Ohio, Wilson Anderson, Steptoe & Johnson, Charleston, W. Va., for defendant General Ins. Co.

MEMORANDUM

MERHIGE, District Judge.

Plaintiff, a West Virginia corporation with its principal office and place of business in the State of West Virginia, hereinafter referred to as "Continental," seeks damages from Andrew J. Crevolin Company, a California corporation, with its principal office therein, d/b/a Oakridge Construction & Supply Company, hereinafter referred to as "Oakridge," Andrew J. Crevolin, a citizen and resident of California ("Crevolin") and General Insurance Company of America ("General"), a Washington corporation.¹

Jurisdiction of this controversy, which involves more than $10,000 exclusive of interest and costs, is attained pursuant to 28 U.S.C. § 1332. The legal issues involved in this diversity action, as evidenced by the factual findings which follow, must be determined by the substantive law of the State of West Virginia. Erie R. Co. v. Tompkins, 304 U. S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

Plaintiff, a wholly owned subsidiary of the United Realty Corporation which owns and operates a Holiday Inn Motel in the City of Huntington, West Virginia, was formed by the principals of United for the primary purpose of constructing, owning and operating a motel in Huntington, West Virginia, to be known as Downtown Holiday Inn.

Defendant Oakridge, whose principal is Andrew J. Crevolin, the individual defendant, was in the general construction business.

On August 13, 1971, Continental and Oakridge entered into a building construction agreement relative to the proposed Downtown Holiday Inn to be completed within twelve months after commencement of construction. The time for completion was subsequently amended to 305 days from November 1, 1971. The project was to consist of a high-rise hotel tower, garage and shopping area, all to be constructed in accordance with plans and specifications of a corporate architect (International Environmental Dynamics) closely affiliated with Crevolin by virtue of his ownership of stock therein. The contract originally called for payment by Continental of sums not to exceed $3,622,932.00, but was subsequently modified following modifications of the plans and specifications and demands by Oakridge to $4,200,754.00.

On January 25, 1972, General, as surety, entered into a labor and material payment bond and a construction performance bond for Oakridge, as principal, and Continental as obligee thereunder, in connection with the contract for the construction contemplated. The penal sum of the bond coverage was $4,050,754, which represented a figure $150,000 less than the contemplated maximum cost provided for in the construction contract. The $150,000 aforementioned represented additional fees to Oakridge paid by Continental and was known to General at the time of its bond execution. The additional fee was in the form of a promissory negotiable note dated December 27, 1971, and was paid at maturity by its maker, Continental.

Crevolin, on December 27, 1971, personally guaranteed the contract completion including payment of any costs of the project exceeding the maximum contract price.

The parties originally contemplated and the contract documents called for completion of the motel by April 20, 1973. By early April 1973, it was apparent to all that the construction would not be substantially completed as originally contemplated. Oakridge and Crevolin assured Continental, however, that the work would be substantially completed by June 15, 1973.

On May 31, 1973, the sad saga of the Downtown Holiday Inn escalated in that one of Oakridge's subcontractors, an electric company, in retaliation for the failure of Oakridge to pay for work done, caused the electric power to be cut off. While the power was subsequently restored, that date was the last day on which any substantial work was performed on the project. A strike and picketing by a local union caused the loss of three additional working days. Thereafter, however, unpaid subcontractors refused to work. Oakridge's financial condition being such as to result in its checks in payment for labor as well as payments to subcontractors being returned for insufficient funds. Efforts were made by Continental and Oakridge to resolve the difficulty, but to no avail. There is no doubt of Continental's continuous and unsuccessful demand upon Oakridge to resume work and perform its contractual obligations.

On July 12, 1973 the architects formally certified that Oakridge was in default of its contractual obligations, and Continental in turn, under date of July 20, 1973, called upon General to fulfill its obligations as surety.

That the course of construction of the Downtown Holiday Inn was one of great trial and tribulation from its early commencement is borne out by the record. As early as May 1972 difficulties were apparent. General seeks avoidance of its obligations by a contention, amongst others, that Oakridge was, by virtue of inaction on the part of Continental, permitted to perform work not in accordance with the plans, specifications and contract documents. The evidence not only fails to sustain this contention but discloses that what was within Continental's knowledge was as readily available to General. In short, General's contentions are that both design and structural deficiencies for which their principal was not responsible were the source of the difficulties giving rise to the instant suit.

That there were structural deficiencies of a major nature is factual. The evidence does not, however, sustain a contention of major design deficiency. The facts are that the difficulties to which General refers were ones created by their own principal.

That Continental found itself engaged in a project with a construction company of less competence than one expending several million dollars, one would reasonably expect, can be of no solace to General. Indeed one would assume that General's willingness to enter into the obligations it did in connection with the project, and its own failure to take any affirmative action in reference to its principal's poor performance, was, if anything, a matter of some encouragement to Continental.

To say now, as General does, that Continental should not have made payments for less than adequate materials such as double-tee beams is to exercise legalistic myopia. Such payments as were made were done so as required by the contract. The record discloses no instance of improper payments by Continental.

A recitation of factual minutia is unnecessary. The construction project can be summed up as one reeking with difficulties—apparent to anyone who was interested therein, one in which Oakridge failed to live up to its contractual obligations, and one in which Continental in no manner did less than live up to its obligations under the contract. The failure of the project was Oakridge's and Crevolin's.

The primary issue here is the extent of General's obligation as a consequence of the defaults of its principal coupled with its own alleged defaults.

The liability of Oakridge and Crevolin is patently clear. Without good cause, Oakridge simply abandoned the project in a manner which was not only violative of their contractual obligations, but in a manner so as to leave the project in such a condition as to be subject to serious water damage. It and its guarantor, Crevolin, are liable. Oakridge unquestionably was in default pursuant to the terms of the contract at the time of the issuance of the declaration of default by the architect.

The reasonable cost of completion of the project as of the date of trial was $6,809,600.00, by reason of escalating costs estimated to be 2.4% higher than in January 1974. The time estimated to complete the project is six months.

Continental seeks damages against General both under the terms of its construction performance bond and for consequential damages, including loss of profits and attorneys fees, all allegedly incurred by virtue of an alleged improper course of conduct by General in its dealings with Continental.

It is Continental's contention, and the record sustains it, that after repeated demands on Oakridge to fulfill its contractual obligations, Continental, on July 20, 1973, called upon General to take appropriate action as contemplated in the construction performance bond and to make payments in accord with General's labor and material bond. General's failure to fulfill its obligations gives rise to Continental's claim that it is liable in sums in excess of the penal sum of the construction performance bond.

General, on the other hand, contends first that Continental in its dealings with Oakridge violated certain provisions of the construction contract which constituted a material breach of its obligation, resulting in a complete discharge of General. The answer to this contention has been disposed of in the Court's finding that in no manner did Continental do less nor more than its contractual obligation called for, and in no event did it do anything to the detriment of General. A specific instance of which General complains centers around the fact that Oakridge and Continental did amend their agreement in January 1973, which amendment was premised upon Oakridge's estimate that the cost of completion of the project would exceed the contract price by more than $425,000.00.

General contends alternatively that its liability is the reasonable cost of completion less the balance² of the contract price, which the Court finds to be $253,568.68, including alleged retained percentage, and in no event more than the penal sum of the performance bond.

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