Parem Contracting Corp. v. Welch Const. Co., Inc.

• Decision Date: 09 July 1986
• Docket Number: No. 85-032,85-032
• Citation: 128 N.H. 254,512 A.2d 1104
• Parties: PAREM CONTRACTING CORPORATION v. WELCH CONSTRUCTION CO., INC. and The Salem Housing Authority. PAREM CONTRACTING CORPORATION v. FIREMAN'S FUND INSURANCE COMPANY and Welch Construction Co., Inc.
• Court: New Hampshire Supreme Court

Page 1104

512 A.2d 1104

128 N.H. 254

PAREM CONTRACTING CORPORATION v. WELCH CONSTRUCTION CO., INC. and The Salem Housing Authority PAREM CONTRACTING CORPORATION v. FIREMAN'S FUND INSURANCE COMPANY and Welch Construction Co., Inc.

No. 85-032.

Supreme Court of New Hampshire.

July 9, 1986.

James A. Connor, Manchester, on brief and orally, for plaintiff.

McLane, Graf, Raulerson & Middleton P.A., Manchester (Wilbur A. Glahn, III, on brief, and Steven V. Camerino, on brief, and orally), and Frawley & Jennings, Massachusetts, for defendant Welch Const. Co., Inc.

BATCHELDER, Justice.

The defendant, Welch Construction Co., Inc. (Welch), appeals from an order of the Superior Court (Dunn, J.) awarding damages in quantum meruit to the plaintiff, Parem Contracting Corporation (Parem), and rejecting Welch's counterclaim for damages resulting from the plaintiff's breach of contract. We reverse and remand.

In 1981 Welch contracted with the Salem Housing Authority to build a federally subsidized housing project in Salem. Welch and Parem executed a subcontract dated January 7, 1982, in which Parem agreed to perform site preparation work for the project at a price of $220,000, payable in a series of monthly payments. Parem began work on that date. On April 27, 1982, complaining of "unsatisfactory payments and working relations," Parem removed its personnel and equipment from the site. Parem failed to return to the job, and on May 3 Welch notified Parem that it was terminating the contract.

Parem sued Welch, the housing authority, and Fireman's Fund Insurance Company, which served as surety for Welch under a performance bond. See RSA 447:16--:18. Parem sought $40,221 in damages, including $24,760 for gravel transported to and left on the job site, $9825 for a ten percent retainage held by Welch pursuant to the contract, and the remaining amount for extras allegedly performed. Welch counterclaimed for $171,505.82, the amount in excess of the contract price that it allegedly was required to spend to complete the work Parem had left unfinished. Each side contended that the other had broken the contract.

The trial court found that Parem had broken the contract because of its failure properly to staff the job and its employees' repeated attempts to remove from the site building materials owned by the housing authority. The court then ruled that although Parem could not prevail on the basis of the contract, it could recover in quantum meruit, and awarded it damages of $18,760. This sum represented the balance due on the gravel delivered to and left on the construction site, $24,760, minus the value of housing authority materials taken from the site, $6000. The court further found that the retainage provision of the contract was "essentially a liquidated damages clause," and that Parem had forfeited the $9825 retained by Welch when it broke the contract. The court also rejected Welch's counterclaim. It found that Welch's claimed damages "could have been avoided," and refused to "interpret the contract as placing the burden on [Parem] for excess costs which were the result of [Welch's] poor business judgment."

On appeal Welch argues that the trial court erred in (1) ruling that the contract's retainage provision was a liquidated damages clause limiting Welch's recovery; (2) failing to award Welch damages for the cost of completing the work Parem had agreed to perform; and (3) awarding Parem damages in quantum meruit for gravel left on the job site for which Welch, and not Parem, allegedly had paid. We consider these contentions in turn.

The defendant's first argument includes two parts: (1) the trial court incorrectly ruled that the retainage provision was a liquidated damages clause; and (2) the effect of this ruling was to limit Welch's recovery to the $9825 it retained. Although we do not accept the second part of the argument, we agree with the first part.

The retainage provision stated that the $220,000 contract price was payable as follows:

"Ninety percent ... of all labor and material which has been placed in position and for which payment has been made by the [housing authority] to the Contractor, said [128 N.H. 257] amounts to be paid on or about the 21st day of the following month, except the last payment. The last payment shall be paid by the Contractor to the Subcontractor immediately after all materials and labor installed by the Subcontractor have been completed, approved by the Architect, and final payment received by the Contractor and satisfactory evidence furnished to the Contractor by the Subcontractor that all labor and material accounts on this job have been paid in full, and all instruction manuals, as built drawings, and guarantees have been submitted and approved."

In Hayes & Swift, Inc. v. Sabia Construction Co., 126 N.H. 81, 489 A.2d 107 (1985), we held that a retainage provision in a construction subcontract did not constitute an enforceable liquidated damages clause. A party owed a retainage does not forfeit the amount owed if it breaks the contract. If it sues to recover the retainage however, its recovery is subject to the defendant's counterclaim in recoupment for the actual damages caused by the breach. See id. at 83, 489 A.2d at 108. See generally R. Wiebusch, 4 New Hampshire Practice, Civil Practice and Procedure §§ 371-374 (1984).

Although Welch contends that the trial court's error had the effect of limiting its recovery of damages, we do not interpret the court's order in this manner. In stating that the retainage provision was "essentially a liquidated damage clause forfeited by the breach," the trial court did not treat the provision as a bar to Welch's recovery of any damages exceeding $9825. The court rejected Welch's counterclaim, but for reasons other than the presence of the retainage provision, as discussed below. The error reduced Parem's recovery, not Welch's. We reverse the court's ruling that the $9825 represented liquidated damages forfeited by Parem. On remand that sum should be included in Parem's award.

Welch's second argument challenges the trial court's rejection of its counterclaim. Welch points to subparagraph 4(d) of the contract, which provided, in part:

"If the Contractor shall, in its opinion, determine that the Subcontractor is not performing this contract with due diligence or is delaying the work of the Contractor or other subcontractors, the Contractor shall so notify the Subcontractor and the Subcontractor shall, within forty-eight hours thereafter, furnish whatever materials, equipment and labor and shall work such hours as the Contractor shall require for the prompt completion of said contract. If the Subcontractor fails to comply with said demand, the Contractor may terminate this contract and furnish the materials, equipment and labor necessary to complete the contract, in which event no further payment shall be made hereunder until the work ... is completed. Upon such termination of the contract, all material on the site shall become property of the Contractor and appropriate credit therefore shall be given to the Subcontractor. If the expense of completion exceeds the value of the subcontract, the Subcontractor will pay the Contractor this expense. Should the cost to complete the...