Matter of 1616 Reminc Ltd. Partnership, Bankruptcy No. 75-659-A.
| Citation | 9 BR 679 |
| Decision Date | 23 February 1981 |
| Docket Number | Bankruptcy No. 75-659-A. |
| Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In the Matter of 1616 REMINC LIMITED PARTNERSHIP, Debtor-in-Possession. UNITED STATES ELEVATOR CORPORATION, Plaintiff, v. 1616 REMINC LIMITED PARTNERSHIP, Defendant. |
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H. Bradley Evans, Jr., Alexandria, Va., for plaintiff, United States Elevator Corp.
James A. Newell, Arlington, Va., for defendant/debtor-in-possession.
MARTIN V.B. BOSTETTER, Jr., Bankruptcy Judge.
The defendant, 1616 Reminc Limited Partnership ("Reminc") is a debtor-in-possession in a Chapter XII proceeding under the Bankruptcy Act presently before this Court. The plaintiff, United States Elevator Corporation ("USE"), initiated an action against Reminc by way of an Amended Complaint filed on July 9, 1976, seeking a recovery in the amount of $177,885.00.1 Reminc filed a counterclaim in the amount of $1,500,000.00 and also served The American Insurance Company Fireman's Fund ("American") in a suit on a performance and payment bond, as surety, in connection with USE's contractual obligations for the installation of an elevator system in Reminc's principal asset, an office building.2 The building in question is located at 1616 North Fort Myer Drive, Arlington, Virginia, and is commonly referred to as the "Xerox Building".
USE is a wholly-owned subsidiary of Cubic Corporation. On March 16, 1973, USE entered into a subcontract with Citcon Corporation, the general contractor for Reminc during the construction of the Xerox Building. Under this subcontract, USE agreed to install two hydraulic and six electric elevators in the Xerox Building.
This Court determined, by an Order entered on January 15, 1977, that USE's waiver of mechanic's lien rights was validly and properly executed by USE. This had the effect of disallowing USE's claim as a secured claim against Reminc's real estate.
Prior to this Court's decision invalidating USE's mechanic's lien, USE made application to be treated as an unsecured creditor under Rule 12-30 of the Rules of Bankruptcy Procedure by virtue of an assignment entered into by the general contractor of the Xerox Building, Citcon Corporation ("Citcon"), as assignor, and Reminc as assignee. Reminc obtained this assignment on August 6, 1976.
On August 15, 1975, Reminc filed a petition initiating the proceedings before this Court. The Plan of Arrangement was confirmed on May 19, 1976.
Several issues are before the Court for resolution. First, is American liable, as surety, on any defects in construction on the part of USE in installing the Xerox Building's elevator system? Second, does USE remain liable as a principal under the performance bond even if the surety is released therefrom? Third, can USE's claim as an unsecured claimant be asserted against Reminc as assignee? Fourth, has USE established that the installation of the elevator system was accomplished in a workmanlike manner and in accordance with the terms and specifications of its subcontract? Fifth, is Reminc entitled to damages as alleged in its counterclaim against USE?
Admitted into evidence is a "Contract Bond — Dual Obligee" between Reminc and American. USE is the principal under this bond. American agreed therein to furnish a bond in the amount of $459,000.00 for the performance of USE's obligations under the contract. Paragraph six (6) of the bond states that:
"No suit, action or proceeding shall be had or maintained against Surety American on this bond unless the same be brought or instituted within one (1) year after the date of the completion of the work by Principal or after the date of any default by Principal in the performance of the contract."
It is uncontroverted that Reminc signed temporary acceptances of the elevator system, dated August 16, 1974. Reminc later signed a final acceptance of the hydraulic elevators on March 15, 1974, and the six elevators on February 24, 1975.
In Virginia, a provision in a bond "which bars recovery from the surety after the expiration of one year following the date on which" the principal completed work on its contract is valid. 3A Michie's Jur., Building Contracts, § 22 (1976 Replacement). See Contee Sand and Gravel Company, Inc. v. Reliance Insurance Company, 209 Va. 672, 166 S.E.2d 290 (1969).
Reminc argues that within the context of the Chapter XII proceedings, it asserted USE's liability for defective performance as part of its Objection to Claim, filed on January 26, 1976. To come within the one-year period mandated under the bond, would require Reminc to establish that its filing of an objection to claim on January 26, 1976, effectively tolled the statute as to American. USE asserts that Larwin Mortgage Investors (not a party to the bond) initially filed the objection, rather than Reminc. It follows that since American was not named as a party in the suit until Reminc filed suit on the bond on November 9, 1976, American was without notice that its obligations under the bond had been invoked.
Reminc further argues that its acceptance of the elevator system does not constitute a completion of the work by USE, and asserts that since USE continued to work on the elevator system after final acceptance, it is within the one-year statute of limitation under the bond. In support of its position Reminc relies upon the testimony of L. William Cork, as it appears in a deposition de bene esse. Cork, an elevator adjuster with USE in 1975, was sent to the Xerox Building to make corrections in the elevator system. He was employed in USE's contract and engineering section, rather than its maintenance section. Reminc urges that this fact evidences continued activity.
Admitted into evidence is a document entitled "Service Department Contract A," a maintenance agreement between USE and Reminc, dated June 6, 1974. Attachment I to this contract states in part that "this contract includes three (3) months free service which will commence on the date each elevator is inspected, accepted and placed into permanent operation."
The Court takes cognizance of a letter addressed to J.B. Jenkins (an employee of Cubic Corporation) from Evans L. Morrison (an employee of Performance Profiles, Inc., an expert witness for USE), dated April 29, 1976, wherein Morrison states that Morrison also stated that "based upon the elevator performance data acquired at the job, there is no question that the individual cars and the elevator group are complete — the job is finished." Morrison reiterated the views expressed in this letter on direct examination in the instant proceeding.
Robert Calhoun Smith, the architect for the Xerox Building, endorsed numerous worksheets admitted into evidence entitled "Application and Certificate for Payment" for work completed between August 1, 1974 and October 30, 1974. Each of these documents indicated that one-hundred percent of the work on the elevator system had been completed. In a report to the General Partner of Reminc, dated July 24, 1974, the architect made a notation regarding two of the elevator cars to the effect that although there existed some bounce when a passenger entered the cabs, "the elevators appeared to be installed in accordance with the manufacturer's recommendations and shop drawings."
Having reviewed the record with respect to this issue, the Court concludes that the elevator system was essentially completed on the dates on which Reminc signed the final acceptances for the system. Therefore, the statute of limitations stipulated in the bond, having begun to run as of the final acceptance dates, acts as a bar to recovery by Reminc on the bond in the amount of $459,000.00 against American.
The Court next considers whether USE remains liable as a principal under the bond, even though American has been released from its obligation under the bond.
It is well settled that a surety's obligation under a performance bond "is primary and original as well as direct." E.R. Christenson v. Diversified Builders, Incorporated, 331 F.2d 992, 995 (10th Cir. 1964). The general rule is that "a creditor's right to proceed against the surety exists independently of his right to proceed against the principal." Id. In Maule Industries, Inc. v. Cohen, 117 So.2d 37, 39 (3d D.C.A. Fla.1960), the court stated:
This principle of law is applicable to the situation at hand and, accordingly, USE is still answerable to any existing liability.
Next, the Court turns to the matter of Reminc's liability as assignee of Citcon.
It is USE's contention that Reminc had knowledge of the former's claim prior to the assignment and that the assignment by Citcon to Reminc can only be considered as an assignment of the entire contract, thus requiring Reminc to assume the liabilities of Citcon including the payment due USE. Reminc raises the counter contention that the invalidation by this Court of USE's mechanic's lien rights also extinguishes its claim and that the assignment which occurred after the filing of the petition cannot recreate a debt already extinguished.
Reminc's Chapter XII petition initiating these proceedings was filed on August 15, 1975. The Plan of Arrangement was confirmed on May 19, 1976. The assignment in question was obtained on August 6, 1976. The Complaint filed by USE3 alleged a claim (the unpaid balance of funds owed by Citcon —...
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