James Talcott Const. v. P & D, 05-103.

CourtUnited States State Supreme Court of Montana
Citation333 Mont. 107,141 P.3d 1200,2006 MT 188
Docket NumberNo. 05-103.,05-103.
PartiesJAMES TALCOTT CONSTRUCTION, INC., Plaintiff and Appellant, v. P & D LAND ENTERPRISES, a joint venture consisting of NDI, Inc., a Montana corporation, Sterling Investments, Inc., a Montana Corporation, and BVL/Whitefish, a California Corporation, et al., Defendants and Respondents.
Decision Date15 August 2006

Jack L. Lewis, Jardine, Stephenson, Blewett & Weaver, Great Falls, for Appellant.

Daniel W. Hileman, Kaufman, Vidal & Hileman, Kalispell, for Respondents.

Justice PATRICIA O. COTTER delivered the Opinion of the Court.

¶ 1 Plaintiff James Talcott Construction (Talcott) and Defendant P & D Land Enterprises (P & D) entered into a contract under which Talcott would construct condominiums on Whitefish Lake in Whitefish, Montana. Problems, delays and disputes arose leading Talcott to sue P & D in the Eleventh Judicial District Court seeking to foreclose on a construction lien and for certain costs. P & D counterclaimed for breach of contract. The District Court appointed a special master to hear the case. The District Court subsequently adopted, with some modifications, the Special Master's findings of fact and conclusions of law. Talcott appeals. We affirm in part and reverse and remand in part.

¶ 2 This Court issued its original Opinion in this case on June 27, 2006. Talcott filed a Petition for Rehearing on July 10, 2006. P & D filed its Objection to the Petition for Rehearing on July 18, 2006. In its Petition, Talcott correctly argued that this Court erroneously concluded that it was not entitled to post-judgment interest on certain discreetly identifiable amounts sought by Talcott but denied by the District Court. On August 1, 2006, we issued an Order withdrawing our June 27, 2006, Opinion. We replace it with this superseding Opinion.

ISSUES

¶ 3 A restatement of the issues presented on appeal is:

¶ 4 Did the District Court err in concluding that Talcott was contractually obligated to perform punch list and warranty work, and in awarding the cost of that work to P & D?

¶ 5 Did the District Court err in refusing to approve prejudgment interest on the amount Talcott is entitled to recover under its construction lien?

¶ 6 Did the District Court err in refusing to award Talcott overhead costs which it claimed resulted from P & D-responsible delays?

¶ 7 Did the District Court err in its award of fees to Talcott?

FACTUAL AND PROCEDURAL BACKGROUND

¶ 8 P & D Enterprises is a joint venture consisting of two Montana corporations and a California corporation, all of which also are individual defendants in this case. P & D, as owner of real property located in Whitefish, Montana, entered into a $1.3 million contract with Talcott in 1991, under which Talcott was to construct fifteen condominium units designated as Whitefish Condominiums-Phase II. Talcott furnished a performance bond for $1.3 million and agreed to a one-year warranty period following substantial completion of the project, which contractually was scheduled for February 1, 1992. Under the terms of the contract, Talcott was to be paid a "bonus" of $17,500.00 for on-time completion of the project. However, if completion was not achieved by February 1, Talcott would be penalized $30.00 per day per unit until a Certificate of Occupancy was issued.

¶ 9 The contract also contained the following relevant provisions:

A. Talcott would submit its monthly "application for payment" to P & D's Architect by the fifth of each month for work and supplies furnished the previous month B. P & D's Architect would approve Talcott's bill and certify the amount to be paid;

C. P & D agreed to pay the certified amount by the 25th day of the same month;

D. if P & D failed to pay, Talcott could provide seven written days notice after which it could stop work until payment was received;

E. interest was to be paid by P & D from the date payments were due to Talcott; and

F. costs caused by delays were to be borne by the party responsible for the delays.

¶ 10 Fourteen of the fifteen units were not completed by February 1, 1992; these units had Certificates of Occupancy issued on April 24, May 1, 6, 8 and 14. It is undisputed that the "completion" dates for these 14 units had been extended from February 1 to various dates between April 6 and May 1. On June 1, Talcott submitted its application for payment in the amount of $106,748.55 for work and materials furnished through May, 1992. Of this amount, P & D's Architect certified $83,141.50 for payment. However, from the certified amount, P & D then withheld the following sums: 1) $38,640.00 as penalty for Talcott's failure to complete the units by February 1; 2) $15,000.00 as the claimed cost of repainting the Phase II units (P & D alleged that Talcott had painted the Phase II units a different color from the Phase I condo units.); 3) $10,000.00 representing P & D's estimated cost for one year of warranty work, on the ground that it suspected Talcott would not return to perform this work and it would be required to hire someone else to do it; and 4) approximately $7,251.00, representing the difference in the cost of floor and tile work and materials actually used versus the cost of this work and materials as included in the original contract. The total amount withheld from Talcott's certified June bill was $70,891.00.

¶ 11 As a result of P & D's refusal to pay Talcott's certified bill, Talcott notified P & D by written notice on June 26 that it would stop work on July 3, 1992. As a consequence of Talcott leaving the job, P & D proceeded to perform the various unfinished tasks required to finish construction of the units, i.e., the "punch list" of undone tasks, as well as other work which P & D considered covered by the one year warranty. This work cost P & D $12,807.33.

¶ 12 On July 15, 1992, Talcott filed a construction lien on the property for $143,912.81. In August, P & D made a partial payment to Talcott of approximately $51,692.00, which Talcott applied first to interest owing, then to the unpaid principal balance. In September 1992, P & D made another partial payment of approximately $11,515.00 that Talcott similarly applied. In October 1992, Talcott filed an action in the District Court to foreclose the lien and recover the costs of extended overhead. The construction lien has since attached to the real property. After Talcott filed its complaint, P & D filed a counterclaim asserting that Talcott breached the original contract by failing to complete the warranty work and the "punch list." Finally, after the complaint was filed, P & D paid Talcott the additional sum of $9,356.67. In August 1994, the District Court appointed a special master to hear the case.

¶ 13 Talcott argued that P & D owed it substantial sums in principal and interest based on P & D's refusal to pay Talcott's bill. Talcott asserted that it should not have been penalized for failing to complete the units by February 1, 1992, as required by the contract, because the delays were caused by P & D. Talcott maintained that P & D made numerous additions, deletions and revisions to the work in progress which resulted in time delays and added costs for which Talcott should be paid. Moreover, Talcott claimed that P & D had extended completion dates for several units but then wrongfully reverted to the original completion date of February 1 when it calculated penalties.

¶ 14 The contractor also claimed that the difference in the disputed exterior paint color was caused by P & D requesting that Phase II be painted with a more protective oil-based paint while Phase I had been painted with latex paint. Additionally, Talcott attributed some of the difference to weather-related fading of the exterior paint on the Phase I units. Talcott disclaimed any responsibility or liability associated with the difference in paint color, and maintained that it should be paid the $15,000.00 withheld by P & D.

¶ 15 Talcott further complained that P & D wrongfully withheld $10,000 for warranty work despite the $1.3 million performance bond Talcott had posted. Additionally, the contract established that payment could be withheld only by the Architect for certain specified reasons, and, as Talcott noted, the Architect had made no determination that Talcott's work was defective. Talcott asserted that P & D's decision to withhold these funds "in anticipation of possible problems" was arbitrary and unjustified.

¶ 16 Talcott claimed that in addition to the contract price for the work performed, it incurred $7,250.64 in costs for materials and work done at P & D's request but for which no written change orders were signed. Lastly, Talcott sought an additional $13,205.00 for excavation cost overruns, claiming the difficult soil caused the excavation phase to take longer than anticipated and made it more expensive. It also sought additional overhead costs allegedly occasioned by P & D delays.

¶ 17 The Special Master considered these claims as well as P & D's counterclaim that Talcott had breached the contract by providing defective work or materials. The master concluded that there was no evidence of defective work and that Talcott's failure to complete the units by February 1 was the fault of P & D; therefore, the penalty provision of the contract was unenforceable. The Special Master held that Talcott was entitled to payment of the withheld penalty amount of $38,640.00. It also held, however, that Talcott was not entitled to payment for its claimed higher overhead costs due to these delays. The Special Master noted that the contract price included costs of overhead and profit.

¶ 18 The Special Master also concluded that Talcott was entitled to the $15,000.00 withheld by P & D based on the alleged application of the wrong exterior paint. The master concluded that Talcott had applied the exterior paint called for in the...

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