PRESIDENT AND DIRECTORS, ETC. v. Madden

• Decision Date: 24 September 1980
• Docket Number: Civ. No. K-77-1438.
• Citation: 505 F. Supp. 557
• Parties: The PRESIDENT AND DIRECTORS OF GEORGETOWN COLLEGE v. Dennis W. MADDEN et al.
• Court: U.S. District Court — District of Maryland

505 F. Supp. 557

The PRESIDENT AND DIRECTORS OF GEORGETOWN COLLEGE v. Dennis W. MADDEN et al.

Civ. No. K-77-1438.

United States District Court, D. Maryland.

September 24, 1980.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Vincent J. Fuller, Aubrey M. Daniel, III, Barry S. Simon and Williams & Connolly, Washington, D.C., and Edward S. Digges, Jr., Baltimore, Md., for plaintiff.

Paul M. Rhodes, Rhodes, Dunbar & Lomax, Chtd., Washington, D.C., and Annapolis, Md., and Tarrant H. Lomax, Annapolis, Md., for defendant Edward M. Crough, Trustee of Victor R. Beauchamp Associates, Inc.

J. Snowden Stanley, Jr., David M. Buffington and Semmes, Bowen & Semmes, Baltimore, Md., for defendants Dennis W. Madden and John M. Walton.

William B. Somerville and Howard G. Goldberg, Baltimore, Md., for defendant Seymour Auerbach.

Richard H. Nicolaides and Kelly & Nicolaides and Michael J. Looby, Washington, D.C., for defendant Reliance Ins. Co.

J. Frederick Motz and Ronald B. Sheff, Baltimore, Md., for defendants Edward J. Scullen and Alvin Marchigiani.

Richard H. Gins, Silver Spring, Md., for defendant Anchor Associates, Inc.

FRANK A. KAUFMAN, District Judge.

The President and Directors of Georgetown College (Georgetown) bring this diversity action¹ sounding in breach of contract and negligence² against the architects, structural engineers, general contractor, masonry subcontractor, and surety involved in the construction of one of Georgetown's dormitories, Harbin Hall, which was built during the years 1963-66. Georgetown seeks damages for alleged defects in the construction of Harbin Hall, the surface brick of which has undergone spalling, cracking, and bulging.³ This action was commenced on August 25, 1977.

Motions for summary judgment have been filed by all defendants. The majority of those motions are based on the grounds that this action is barred by limitations. For the purpose of adjudicating those motions, the facts have, for the most part, been stipulated.

In December 1962, Georgetown entered into a contract with two associated architectural firms, Cooper and Auerbach, and Walton and Madden (architects)⁴ for the performance of architectural services relating to a proposed residential dormitory to be located on Georgetown's campus in Washington, D.C. Among the services to be performed were the inspection of the progress and quality of work during the construction phase of the project and the certification of progress payments to the contractor. In February 1963, the architects executed a letter agreement with the structural engineering firm of Scullen and Marchigiani. On October 24, 1963, Georgetown entered a construction contract with Victor R. Beauchamp Associates, Inc. (Beauchamp) for the construction of Harbin Hall in accordance with the plans and specifications incorporated therein. On the same date, Standard Accident Insurance Company, as surety, and Beauchamp, as principal, executed a performance-payment bond for the benefit of Georgetown in the penal sum of $2,019,619.00. Defendant Reliance Insurance Co. (Reliance) is the successor in interest to Standard Accident Insurance Co. under that bond.

Under the terms of the construction contract (¶ 34), Beauchamp was permitted, with the approval of Georgetown, to subcontract specialty work according to normal contracting practices, with Beauchamp to remain fully liable for all acts or omissions of any subcontractor. Beauchamp subcontracted the masonry work to Anchor Associates, Inc. (Anchor). All the construction defects now complained of by Georgetown stem from the masonry work performed by Anchor.⁵ Anchor completed the allegedly defective masonry work on or before July 24, 1964. As part of progress payment number twelve, dated November 13, 1964, defendant Madden certified the masonry work here in issue.⁶

On September 23, 1964, four floors of Harbin Hall were first occupied and used by Georgetown. Certificates of occupancy were issued to Georgetown by the Department of Licenses and Inspections of the District of Columbia on November 17, 1964. Georgetown occupied the remainder of Harbin Hall on or before January 14, 1965, though work still remained to be done at that time. Final certification of the building by the architects and payment of the final installment to Beauchamp took place on June 2, 1966. Georgetown first discovered the defective condition which gave rise to the within suit in September 1976.

The construction contract between Georgetown and Beauchamp provides in relevant part:

¶ 25. Payments to Contractor

(a) Not later than the 15th day of each calendar month the Owner shall make a progress payment to the Contractor on the basis of a duly certified and approved estimate of the work performed during the preceding calendar month under this contract, but to insure the proper performance of this contract, the Owner shall retain ten per cent (10%) of the amount of each estimate until final completion and acceptance of all work covered by this contract * * *.

* * * * * *

(c) All material and work covered by partial payments made shall thereupon become the sole property of the Owner, but this provision shall not be construed as relieving the Contractor from the sole responsibility for the care and protection of materials and work upon which payments have been made or the restoration of any damaged work, or as a waiver of the right of the Owner to require the fulfillment of all of the terms of the contract.

* * * * * *

¶ 26. Acceptance of Final Payment Constitutes Release

The acceptance of the Contractor of final payment shall be and shall operate as a release to the Owner of all claims and all liability to the Contractor for all things done or furnished in connection with this work and for every act and neglect of the Owner and others relating to or arising out of this work. No payment, however, final or otherwise, shall operate to release the Contractor or his sureties from any obligations under this contract or the Performance and Payment Bond.

* * * * * *

¶ 40. General Guaranty

Neither the final certificate of payment nor any provision in the Contract Documents nor partial or entire occupancy of the premises by the Owner shall constitute an acceptance of work not done in accordance with the Contract Documents or relieve the Contractor of liability in respect to any express warranties or responsibility for faulty materials or workmanship. The Contractor shall remedy any defects in the work and pay for any damage to other work resulting therefrom, which shall appear within a period of one year from the date of final acceptance of the work unless a longer period is specified. The Owner will give notice of observed defects with reasonable promptness.

In addition to the above sections, the contract specified a single sum of $2,019,619.00 to be paid by Georgetown to Beauchamp to "commence and complete" the construction of Harbin Hall. Other provisions in the contract made time of the essence for the full completion of the project and provided for completion of all required work within a specified time.⁷

I. Motion of Reliance Insurance Co. for Summary Judgment

Reliance seeks summary judgment on the grounds that plaintiff's claim under the performance bond is time-barred. In both Maryland and the District of Columbia, a bond is a specialty to which a twelve year statute of limitations attaches.⁸ Md. Code Ann., Cts. & Jud.Proc. Art. § 5-102(a)(2), D.C. Code § 12-301(6). Both Maryland and the District of Columbia have held that, in contract actions, the cause of action accrues and the limitations period runs from the date of the alleged breach and not from the date the harm is discovered.⁹

The exterior brick wall, which is the subject of this suit, was completed in June 1964 and certified by the architects as part of the twelfth progress payment in November 1964. Though Georgetown fully occupied the building in January 1965, final payment was not certified by the architects until June 1966. If plaintiff's cause of action arose after August 26, 1965, the suit against Reliance was timely. Thus, it must be determined whether the breach occurred upon completion of the exterior wall in 1964 or upon final payment for the completed building in 1966. For reasons set forth infra, this Court concludes that the breach occurred upon final delivery and acceptance of the building in June 1966, and that thus this case against Reliance was timely commenced.

Because the construction contract is incorporated into the performance bond agreement, the two must be interpreted together. Lange v. Board of Education, 183 Md. 255, 261, 37 A.2d 317 (1944).¹⁰ The contract of Georgetown with Beauchamp for the construction of Harbin Hall is a contract for a single sum. The contract is indivisible. In Westinghouse Electric Corp. v. State Tax Commission, 206 Md. 392, 402, 111 A.2d 661 (1955), Judge Collins wrote:

The law seems to be, however, that where a total price for work is fixed by a contract, the work is not rendered divisible by the progress payments, particularly where the contract provided that the total price is not to be paid until the work is completed. Citations omitted.

Restatement First Contracts § 266, comment (e) relates to "divisible contracts." Illustration 4 to that Comment states (at 386):

A engages B, a contractor, to build a house. A promises to pay instalments amounting to three-quarters of the agreed price as the building reaches specified stages of construction; and to pay the remaining quarter on receiving an architect's certificate of satisfactory completion. The contract is not divisible. The payments are not in exchange for a specified fraction of the building, but are part payments on account of a total sum. The only promises for an agreed exchange are the promises to build the completed house and to pay the total price.¹¹

By the terms of the contract, Beauchamp was to deliver a completed building. Paragraph 25, quoted supra p. 563,...