Della Ratta, Inc. v. American Better Community Developers, Inc.

• Decision Date: 07 December 1977
• Docket Number: No. 30,30
• Citation: 38 Md.App. 119,380 A.2d 627
• Parties: DELLA RATTA, INC. v. AMERICAN BETTER COMMUNITY DEVELOPERS, INC.
• Court: Court of Special Appeals of Maryland

Page 119

38 Md.App. 119

380 A.2d 627

DELLA RATTA, INC. v. AMERICAN BETTER COMMUNITY DEVELOPERS, INC.

No. 30.

Court of Special Appeals of Maryland.

Dec. 7, 1977.

Roy Niedermayer, Washington, D. C., with whom was Joseph V. Gartlan, Jr., Washington, D. C., on the brief, for appellant-cross/appellee.

Douglas M. Bregman, Hyattsville, with whom were John C. Joyce and Duckett, Orem, Christie & Beckett, Hyattsville, on the brief, for appellee-cross/appellant.

Argued before MOYLAN, MENCHINE and DAVIDSON, JJ.

MOYLAN, Judge.

American Better Community Developers, Inc. (ABCD) and Della Ratta, Inc. (Della Ratta) executed a contract dated August 16, 1972, for the construction by Della Ratta of an eight-building, 50-unit garden apartment project in Reston, Virginia. On March 17, 1975, ABCD filed suit in the Circuit Court for Montgomery County against Della Ratta and Maryland Casualty Company, surety on the performance bond, alleging breach of contract by Della Ratta and seeking monetary damages. Della Ratta filed a general issue plea and a counterclaim against ABCD alleging breach of contract by ABCD and seeking damages for lost profits. Upon joint motion, separate trials were ordered on the issues of liability and damages. Following a two-day non-jury trial in June, 1976, on the liability aspect of the case, the court found in favor of the defendants Della Ratta and Maryland Casualty Company in the suit by ABCD and, likewise, in favor of Della Ratta in its counterclaim against ABCD.

A court trial was then held on December 20, 1976, on the issue of damages sustained by Della Ratta. At the conclusion of Della Ratta's case in chief, ABCD moved to dismiss Della Ratta's counterclaim under Md.Rule 535 on the grounds that Della Ratta had not proved its damages with reasonable certainty. The court granted ABCD's motion and entered judgment on behalf of Della Ratta for nominal damages of one dollar plus costs. This is an appeal by Della Ratta from the judgment awarding it only nominal damages and a cross-appeal by ABCD from the judgment concerning liability.

We will consider first the question of liability. ABCD is a wholly owned subsidiary of American Medical Buildings, Inc. of Milwaukee, Wisconsin. In 1971, it purchased a 2.48 acre tract of land in Reston, Virginia, to construct seven garden apartment buildings consisting of 50 units and a community center building. Upon completion of the project, ABCD planned to sell it to the Fairfax County Redevelopment and Housing Authority to be used by the county for low-income housing. In early 1972, ABCD began extended discussions with Della Ratta for the construction of the project. The terms of the contract were agreed upon between the parties on August 16, 1972, and on or about September 8, 1972, Della Ratta signed a building contract with ABCD.

The terms of the contract provided that Della Ratta would construct the project in accordance with applicable state and federal codes, regulations, ordinances, and laws and in accordance with the agreements, drawings and specifications incorporated into the contract. In consideration thereof, ABCD agreed to pay Della Ratta a lump sum of $740,000. Article XI of the contract provided that this sum was to be increased by the cost of any extra work or changes agreed to by the parties and that in addition to the cost of the extra work, Della Ratta would receive an additional 10 per cent as a profit margin. To protect Della Ratta against construction cost increases, the clause "given upon receipt of building permits and" was inserted into Article IV of the building contract before the contract was executed by Della Ratta. Article IV provided in pertinent part:

"Owner will give Builder 'notice of commencement'. This notification will be given upon receipt of building permits and prior to October 1, 1972. If this notification is not given, Builder may apply for increased costs due to the delay."

On September 14, 1972, ABCD applied to the office of the Building Inspector of Fairfax County for three separate building permits a permit to construct footings for the apartments and community center, at a projected cost of $20,000; a permit to construct the seven apartment buildings, at a projected cost of $1,000,000; and a permit to construct the community center, at a projected cost of $72,000. On September 15, ABCD was issued a permit to clear and grade the site and construct the footings. James Martin, ABCD's project manager, immediately called Joseph Michael Della Ratta, the president of Della Ratta, Inc., indicating he had gotten the "building permit." Mr. Della Ratta told him that the footings permit was not the "building permits." ABCD, nevertheless, immediately delivered the permit to Della Ratta and by letter of September 18 informed Della Ratta that ABCD would like actual construction to begin after groundbreaking ceremonies on September 26.

Mr. Della Ratta testified that immediately upon receiving the letter from James Martin, he called Mr. Martin expressing surprise at the letter because it was not consistent with the discussions that had occurred on or about September 15. He told Mr. Martin, furthermore, that Della Ratta did not have the site plans from the engineers which were necessary for Della Ratta to begin clearing nor any notification that preliminary work was done on the site that would permit Della Ratta to start any grading. The scope of on-site improvements, in fact, had not as yet been contractually defined.

Subsequently, on September 26, 1972, an addendum was made to the contract. In consideration of $145,000, Della Ratta agreed to install all on-site improvements. Della Ratta was to be paid $95,000 for the actual work. The remaining $50,000 was the agreed allowance for reimbursement of Della Ratta by ABCD for certain fees imposed by Fairfax County. This amount was to be adjusted upward or downward, based on the actual costs of permits and local utility connection fees. The addendum also provided that if any changes were made in the plans at the request of the owner or in order to secure the approval of local building officials, the contract would be modified according to the procedures outlined for additional work in the contract of August 16, 1972. On the same day that the addendum was made, Della Ratta furnished ABCD with a performance bond from the Maryland Casualty Company.

At the groundbreaking ceremonies on September 26, Mr. Della Ratta walked the site but saw no engineering marks necessary for Della Ratta to start its on-site improvements. The property was staked out, however, on September 29 so that Della Ratta could begin its clearing operations. Della Ratta, nevertheless, did not commence work on the project. It justified its failure to begin the work on the basis that the permit of September 15 was not the "building permits" contemplated by the parties in Article IV of the contract and that the obtaining of the necessary building permits was a condition precedent to its performance.

In early October 1972, Della Ratta hired Harry Allen Uram to supervise the construction of the Reston project. Mr. Uram determined that the cost of the project in late October would be $798,000 versus the contractual price of $740,000. Extended discussions took place during October up until mid-November with ABCD and representatives of Fairfax County regarding modification of the plans and specifications in order to reduce costs. The suggestions, however, failed to reduce the costs to the original contract price.

On November 8, 1972, Mr. Della Ratta wrote to James Martin of ABCD advising him that the drawings and specifications as finally approved by HUD and the Fairfax County Housing Authority were not consistent with the preliminary working drawings upon which Della Ratta based its prices. As a result, price increases were being incurred which would affect the contract price. He also wrote:

"As of this date you do not have final building permits and until they are in hand along with a marked set of prints which will identify any other modifications there might be still other cost implications to consider."

Mr. Della Ratta stated that the masonry, electrical, plumbing, carpentry and lumber costs as reflected in the current design and subcontractor bids were "way out of line" with the contract price. On the basis of the present design, he asked for a minimum addition of $100,000 to the contract price. His letter concluded:

"We are ready to proceed on the basis of present plans and specifications subject to final building permits and further revisions with an increase in the contract price to $840,000.00 and if you wish to do so that can be done by a simple addendum to the contract. We urge you to act quickly because price increases appear to be a certainty after the first of the year for many materials."

John Lundeen, Vice-President of Construction at ABCD, replied by letter of November 14 to Mr. Della Ratta that the contract price in full for the buildings was $740,000 and that any request for additional cost as a result of subsequent requirements or modifications would have to be handled under Article XI "Additional work" of the August 16 building contract. He stated that it was ABCD's position that Della Ratta was given proper and timely notice of commencement of work by the letter of September 18 and the delivery of the building permit (footings permit), that this building permit was adequate for commencement of construction, and that any changes in the plans/specifications which had been necessitated would have to be specifically identified with their actual costs so that work orders could be processed pursuant to Article XI. He stated that the letter was to serve notice to Della Ratta that any further delays would be considered breach of contract and that, if work was not begun within 48 hours after receipt of the letter, Della Ratta's employment would be terminated and ABCD would look to the surety for...