Cox v. Fremont County Public Building Authority

Decision Date03 September 1969
Docket NumberNo. 9753.,9753.
Citation415 F.2d 882
PartiesRoss E. COX, General Contractor, and Fidelity and Deposit Co. of Maryland, a Maryland corporation, Appellants, v. The FREMONT COUNTY PUBLIC BUILDING AUTHORITY, a Colorado corporation, the County of Fremont By and Through the Board of County Commissioners of Fremont County, and the First National Bank of Florence, Trustee, Appellees.
CourtU.S. Court of Appeals — Tenth Circuit

Thomas W. Whittington and John H. Tippit, Denver, Colo., and John A. F. Wendt, of Clark & Wendt, Aspen, Colo., for appellants.

John J. Hanlon and Charles F. Brega, of Hindry, Erickson & Meyer, Denver, Colo., for appellees.

Before JONES,* Senior Circuit Judge, and BREITENSTEIN and HOLLOWAY, Circuit Judges.

HOLLOWAY, Circuit Judge.

This appeal seeks reversal of a judgment on a jury verdict for damages against a building contractor and his surety. The damages were awarded in a diversity suit for breach of a contract for construction of a courthouse in Fremont County, Colorado, and for sums expended to mitigate damages to the building. Leaking and breakage of glass in a skylight in the courthouse roof is the center of the controversy involved on this appeal.

Appellant Cox is the contractor found liable and appellant Fidelity and Deposit Co. of Maryland (Fidelity hereafter), the surety on his performance bond, was also held liable. Appellee Fremont County Public Building Authority (the Authority hereafter) made the contract with Cox for the work. Appellee County of Fremont (the County hereafter) created the Authority as the agency to have the building constructed. Appellee The First National Bank of Florence, Colorado (the Trustee hereafter) is an obligee on the performance bond due to its position as trustee under an indenture of mortgage securing the holders of the bonds issued to finance the construction.

In general the undisputed facts are as follows. In May, 1958, the County decided to build a new courthouse. The plan was to create the Authority and to lease to it the land on which the building was to be erected. The Authority would contract for the work and the completed courthouse and the land would be leased back to the County. This procedure was chosen because of restrictions in the Colorado Constitution on bonded indebtedness.

The Authority was incorporated in 1959 and in July of that year it executed the Construction Agreement with Cox. Other contract documents which are incorporated by reference are A.I.A. Form A2, described as the General Conditions; the Supplementary General Conditions; and the Specifications and Drawings. Fidelity's liability was grounded on its performance bond.

Construction began in August, 1959. After some delay in completion of the work the County occupied the new courthouse in September, 1961. During the latter part of September the skylight in the center of the building was leaking, as had been noticed earlier. Complaints were made to Cox in September, 1961, about the skylight and other problems. The Authority and the County also made complaints to Cox about the leaking and glass breakage in 1962. In August, 1962, Cox agreed to do remedial work on a number of problems at the courthouse including the skylight. Cox also agreed to furnish a five-year guarantee against leakage of the skylight. The architect testified that a guarantee was furnished but was not honored because the sub-contractor furnishing it was not paid by Cox.

The record is somewhat unclear about the 1962 remedial work.1 In any event the record does not show work by Cox himself after 1962. It shows no reply by Cox to complaints to him by the architect in January, 1963, about leaks and other defects in the skylight, and by the Authority on March 7, 1963, about uncompleted work. The architect testified that leaking occurred after testing of the remedial work. This suit was brought in August, 1963. The verdict awarded $30,000 on the skylight claim and $1,500 on other claims. Cox and Fidelity appeal the judgment on the verdict.

Appellants' principal contention is that the contract documents made arbitration a condition precedent to suit and that appellees' failure to arbitrate precludes this recovery by them. The trial court held that the arbitration provisions do not apply in these circumstances.2 We conclude also that the arbitration provisions do not bar recovery for reasons that follow.

The contract documents provide for arbitration in the General Conditions. Appellants point to Articles 20 and 40 in particular, which are set out in the margin.3 There the parties agreed that "disputes, claims or questions" subject to arbitration under the contract would be submitted to arbitrators whose decision would be a condition precedent to legal action. Such common-law arbitration agreements have long been favored in Colorado and legal actions may not be brought to settle disputes where arbitration has been agreed upon. Ezell v. Rocky Mountain Bean & Elevator Co., 76 Colo. 409, 232 P. 680 (1925); McClelland v. Hammond, 12 Colo.App. 82, 54 P. 538 (1898).

We conclude, however, that the circumstances involved here did not oblige appellees to invoke arbitration. For a dispute, claim or question to be present within the meaning of the contract, a difference between the parties was required. "If no difference should arise, there would be no question to submit." Fravert v. Fesler, 11 Colo.App. 387, 53 P. 288, 290 (1898). There is no dispute requiring arbitration until a matter of fact or law is asserted by one side and denied by the other. Gold Uranium Mining Co. v. Chain O'Mines Operators, 128 Colo. 399, 262 P.2d 927 (1953).

The record does not reveal the occurrence of such a dispute. The Authority and the County complained to Cox on numerous occasions about the skylight. Commencing with discussions in September, 1961, assurances were repeatedly given by Cox to the Authority that the skylight problem would be remedied. On August 17, 1962, Cox did question whether the difficulty arose from workmanship and material for which he admitted responsibility, or from a defect in design, for which he was not responsible.4 However, he met shortly with the architects as requested and on August 30, 1962, he agreed to do remedial work on 18 problems relating to the courthouse, including the skylight, and to furnish a five-year guarantee against leakage of the skylight. Subsequent complaints about the condition of the skylight after the 1962 work on it brought no contradictory assertions by Cox.5

Thus, there was no denial by Cox of an assertion of fact or law by appellees and no dispute occurred requiring arbitration prior to suit. Gold Uranium Mining Co. v. Chain O'Mines Operators, supra; Fravert v. Fesler, supra. Appellees were made aware of no dispute so that they might know to invoke arbitration. Therefore, none of the errors claimed in connection with the arbitration issue has merit.

Appellants' second contention is that the trial court erred in not instructing properly on substantial completion of the building or substantial compliance with the contract by appellants. Reliance is placed on Newcomb v. Schaeffler, 131 Colo. 56, 279 P.2d 409 (1955), and similar cases.

The theory based on substantial compliance is untenable. Where there is substantial compliance with the construction contract and the defects remaining amount to only trifling particulars, the builder is entitled to recover the contract price,6 but the owner is entitled to damages for material and labor to put the building in proper condition. See Newcomb v. Schaeffler, supra. Thus, substantial compliance by Cox with the contract would not bar recovery of damages by the Authority for remaining defects due to faulty workmanship or materials. See Campbell v. Koin, 154 Colo. 425, 391 P.2d 365 (1964); and Louthan v. Carson, 63 Colo. 473, 168 P. 656 (1917). No issue is raised as to the sufficiency of the evidence to support such damages awarded here. The substantial compliance principle affords no ground for reversal.

The related claim of error on the issue of substantial completion and acceptance of the building is without substance. Appellants rely on Bush v. Finucane, 8 Colo. 192, 6 P. 514 (1885). However, the case recognizes that where the party accepting the building objects to the character of the work, as the Authority did, he cannot be held to have waived his right to damages. Nor are acceptance of a building and payment for it after its supposed completion sufficient alone to waive the owner's claim for damages for defective construction, although these circumstances may be considered where waiver is claimed. Leonard v. Home Builders, 174 Cal. 65, 161 P. 1151, L.R.A.1917C, 322 (1916). In fact, the parties here agreed that occupancy and payment were not an acceptance of defective work or materials.7 The trial court's instructions fairly submitted the issue of whether the acts of appellees showed an intent to release Cox from further obligations. No error occurred in the trial of these issues.

Appellants next argue that the trial court improperly refused to charge on the defense that the skylight problem resulted from defective design. In refusing to instruct on the issue the court noted that the defense evidence did not condemn the design and that assertion of the theory was outside the pleadings and was untimely.

Appellants say that since proof on the defective design theory was admitted without objection, any contention that the issue was not pleaded was waived. Objection was made when the principal testimony on the theory was offered. The trial court stated that the proof was admitted because of its relevance to the separate issue of whether a lack of maintenance caused the skylight problem. We conclude that the defective design issue was not tried by consent. It was not raised in the answers filed or in the pretrial order fixing the issues. Refusal of the instruction was not error. Miller v. Brazel, 300 F.2d 283 (10th...

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